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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[_] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED
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OR
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM JULY 1, 1996 TO DECEMBER 31, 1996
COMMISSION FILE NUMBER: 0-25940
VIEW TECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0312442
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
950 FLYNN ROAD
CAMARILLO, CA 93012
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 482-8277
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.0001 Par Value NASDAQ National Market
Common Stock Purchase Warrants NASDAQ National Market
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sales price of the Common Stock on the
NASDAQ National Market on March 21, 1997 was $16,682,326.
The number of shares of the Registrant's Common Stock outstanding, as of
March 21, 1997 was 6,381,744.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the transition
period ended December 31, 1996 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
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1. Business.......................................................................... 1
2. Properties........................................................................ 10
3. Legal Proceedings................................................................. 11
4. Submission of Matters to a Vote of Security Holders............................... 11
PART II
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5. Market for Registrants' Common Equity and Related
Stockholder Matters............................................................... 13
6. Selected Financial Data........................................................... 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 16
8. Financial Statements and Supplemental Data........................................ 28
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................. 49
PART III
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10. Directors and Executive Officers of the Registrant................................ 50
11. Executive Compensation............................................................ 50
12. Security Ownership of Certain Beneficial Owners and Management.................... 50
13. Certain Relationships and Related Transactions.................................... 50
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 51
Signatures........................................................................ 52
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PART I
ITEM 1. BUSINESS
GENERAL
View Tech, Inc., which commenced operations in July 1992, markets and installs
video communications systems and provides continuing services related to
installed systems. As a result of its merger with USTeleCenters, Inc., a
Massachusetts corporation ("USTeleCenters"), which was completed on November 29,
1996, View Tech also designs, sells, manages and supports telecommunications
systems solutions for small- and medium-sized businesses throughout the United
States. View Tech and USTeleCenters (collectively referred to as "View Tech" or
the "Company") have 16 offices nationwide, and have significant market presence
and organizational strength in the Northeast and in Southern California. The
Company is a leading distributor of video conferencing equipment, is a
significant telecommunications equipment reseller, and is one of the oldest and
largest independent sales agents for certain Regional Bell Operating Companies
("RBOCs") and long distance carriers.
The Company is headquartered in Camarillo, California. Its executive offices
are located at 950 Flynn Road, Camarillo, California 93012. Its telephone number
at that address is 805/482-8277. View Tech's e-mail address is [email protected].
View Tech's video conferencing group focuses on the sales, installation and
service of video communications systems. These systems, utilizing advanced
technology, enable users at separate locations to engage in face-to-face
discussions with the relative affordability and convenience of using a
telephone. In addition to the use of video conferences as a corporate
communications tool, use of video communications systems is expanding into
numerous additional applications, including (i) teachers providing lectures to
students at multiple locations, (ii) judges conducting criminal arraignment
proceedings while the accused remains incarcerated, (iii) physicians engaging in
consultations utilizing x-rays and other pictographic material, (iv)
coordination of emergency services by public utilities, (v) businesses
conducting multi-location staff training programs, and (vi) engineers at
separate design facilities coordinating the joint development of products.
As a result of the merger with USTeleCenters, the Company develops and manages
sales and customer service programs on an outsourced basis for (i) certain
RBOCs, (ii) other telecommunications service providers, and (iii) equipment
manufacturers under agency and value-added reseller ("VAR") agreements. In New
England and New York, USTeleCenters also provides telecommunications systems
integration and on-going account management consulting for middle market
customers. On behalf of its RBOC clients, USTeleCenters sells high speed data
services, Internet access, Centrex network services, local and long distance
services, voice mail and other "enhanced" services, discount calling plans and
toll-free services such as remote-call-forwarding. As a value-added equipment
reseller, USTeleCenters sells, installs and maintains data transmission
products, video conferencing equipment and telephone systems.
THE MERGER
On November 29, 1996, View Tech completed the acquisition of USTeleCenters, by
means of a merger of USTeleCenters with and into View Tech Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of View Tech ("VTAI") (the
"Merger"). The Merger was effected pursuant to a
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Merger Agreement by and among the Company, VTAI and USTeleCenters, dated
September 5, 1996, as amended on October 31, 1996. In exchange for all of the
outstanding shares of USTeleCenters common stock, $0.01 par value, the
USTeleCenters shareholders received 2,240,976 shares of View Tech common stock
(excluding options convertible into 184,003 shares of View Tech common stock).
Following the Merger, VTAI changed its name to "USTeleCenters, Inc." ("UST")
and continued to operate the former businesses of USTeleCenters. Concurrent with
the Merger, which was approved at View Tech's annual meeting of stockholders on
November 26, 1996, View Tech reincorporated in Delaware from California, changed
the par value of its common stock and its preferred stock to $0.0001 from $0.01,
amended its bylaws to provide for a staggered board of directors, and increased
its authorized number of shares of common stock to 20,000,000 shares from the
original 10,000,000 shares.
UST is located in Boston, Massachusetts. Its main offices are located at 745
Atlantic Avenue, Boston, Massachusetts 02111-2747. Its telephone number at that
address is 617/439-9911. UST's e-mail address is [email protected].
THE VIDEOCONFERENCING INDUSTRY
Video communication entails the transmission of video and audio signals and
computerized data between two or more locations through a digital
telecommunication network. Video communications systems were first introduced in
the late 1970s 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.
During the 1980s, a series of technological developments resulted in a
dramatic increase in the quality of video communication, 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, have further contributed to reduced
transmission costs.
As of March 21, 1997, there were three U.S. manufacturers of the equipment
representing the core technology of conference room or "roll-about" video
communications systems: PictureTel; Compression Labs, Incorporated ("CLI"); and
VTEL Corporation ("VTEL"). As of the date of this filing, VTEL and CLI had
agreed to merge, with VTEL being the surviving corporation. This equipment,
together with required peripheral equipment manufactured by others, is marketed
directly by these three manufacturers, by telecommunications companies such as
AT&T and SPRINT and by independent distributors such as View Tech. PictureTel,
View Tech's video equipment supplier, has shown consistent growth in revenues
over the past several years. PictureTel reported revenues of $482,500,000 for
the year ended December 31, 1996, up from $346,800,000 and $255,200,000 for the
years ended December 31, 1995 and 1994, respectively.
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THE TELECOMMUNICATIONS INDUSTRY
Since the break-up of AT&T in 1984, the telecommunications industry has
experienced dramatic change and has become increasingly competitive. An
increased rate of technological development, combined with a substantial
relaxation of regulatory restraints, has created an intensely competitive
environment. Technology-based equipment manufacturers compete for quality
distribution channels, while long-distance and local network service providers
are positioning to participate in each other's market segments and to reduce the
cost of customer acquisition.
On February 8, 1996, the Telecommunications Act was enacted into law. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors--Government Regulation: Uncertainty Relating to the
Telecommunications Act of 1996." This comprehensive federal legislation will
affect many sectors of the telecommunications industry. Included in the new
statute are provisions relating to, subject to certain limitations, the opening
up of local telephone markets to competition and the elimination of restrictions
on certain local carriers' entry into the long distance telecommunications
market. Furthermore, in October 1996, the United States Court of Appeals for the
Eighth Circuit granted a stay of implementation of the Telecommunications Act in
response to lawsuits filed by local telephone companies and state officials
claiming that the new federal rules are arbitrary and usurp states' rights.
In this environment, management believes that the acquisition and retention of
end-user customers is critical to revenue growth and profitability. The Company
has developed as a high quality single-point-of-contact marketer of specialized
communications equipment and telecommunications network services. The Company is
a representative of a variety of client suppliers, and as such, believes that it
is perceived by end-user customers to be a convenient and knowledgeable resource
and provider of telecommunications solutions.
EQUIPMENT PRODUCTS
Video
The Company offers three types of video communications systems: integrated
roll-about systems, custom-built conference rooms and desktop computer systems.
Roll-about systems may be moved conveniently from office to office and placed
into operation quickly, while custom-built video conference rooms are permanent
installations typically designed for specific applications. Desktop computer
systems involve multi-purpose personal computers with video communications
capabilities, and are generally used for one-on-one personal communications, or
when one person is presenting information to a group.
Apart from peripheral components manufactured by others, the Company
exclusively sells systems manufactured by PictureTel. PictureTel is the largest
manufacturer of video communications equipment (in terms of revenues), and the
Company was PictureTel's US Dealer of the Year for 1996, and has been recognized
by PictureTel as such for the last three consecutive years. The Company is one
of five PictureTel "elite dealers" worldwide that carry the entire PictureTel
line of products. Management believes that PictureTel's equipment provides its
customers with superior quality audio and video communications capabilities at a
reasonable price, and that user interface with PictureTel equipment is more
intuitive, thereby requiring less training, than that of the equipment produced
by its competitors.
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The prices of the complete systems sold by the Company range from $1,500 for a
video communications enhancement kit for a desktop computer, to $60,000 for a
roll-about system for a single location, to as much as $200,000 for a custom-
built conference room installation. Roll-about and custom-built systems
generally contain a minimum of a video camera, monitor and codec to capture the
image, display the image and to encode and decode the transmission over digital
phone lines, respectively. Most installations have several additional
peripherals including some of the following components; an inverse multiplexer,
a multi-point control unit, a document camera, a keypad, a speakerphone, a
videocassette recorder and/or an annotations slate and white board.
The foregoing components are purchased by View Tech from PictureTel, except
for the inverse multiplexers, which it purchases from either of two
manufacturers, Madge Networks Inc. or Ascend Communications, Inc., and for the
monitors, document cameras, videoscan converters, videocassette recorders and
white boards, which it acquires from various sources, depending upon price and
quality.
Although View Tech's desktop-computer systems involve different components,
the desktop system has many of the capabilities of the conference-room and roll-
about systems. View Tech's desktop video communications equipment is also
manufactured by PictureTel.
Voice and Data
The Company sells telecommunications equipment for voice and data transmission
from such manufacturers as Ascend (data transmission products) and Northern
Telecom (telephone systems).
Voice. The Company markets a variety of telephone and other voice equipment
products designed specifically for small- to medium-sized business customers.
Northern Telecom key systems, Tone Commander consoles, are sold by the Company
under reseller agreements, and are installed and serviced by the Company for
business customers throughout the Northeast. Such equipment also may be sold in
conjunction with the provision of local and long-distance network services. This
voice equipment, voice network services combination is an important ingredient
in establishing the Company as a single-point-of-contact provider.
Data. The Company sells to business customers products specifically designed
to transmit data through the established local and long-distance telephone
services infrastructure. Products from companies such as Adtran, Madge Networks
and Ascend allow business customers to remote access into local area networks,
acquire bandwidth on demand and digitally transmit data. Products such as these
are sold in combination with local and/or long-distance network services
provided by the RBOCs, SPRINT and AT&T.
The Company intends to continue providing its customers with additional
product selections in the future to the extent they compliment and enhance such
customers' communications capabilities. Future plans call for increased product
offerings, including desk-top video, wireless communications devices, data
products and telephone equipment for small- to medium-sized businesses, as well
as tele-commuting and entertainment components for the work-at-home and
residential markets. The Company does not currently provide certain of these
products and services and there can be no assurances that the Company will be
able to provide such products and services in the future as a result of unknown
factors, risks and uncertainties including, changing market conditions and
delays in product enhancements and new product introductions by the Company's
suppliers.
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SERVICES
The Company believes that the quality and depth of its customer services are
critical factors in its ability to compete successfully. Because of the
technical expertise and experience of its management and employees, the Company
is able to offer its customers the convenience of single-vendor sourcing for
most aspects of their communications needs and to develop customized systems
designed to provide efficient responses to each customer's unique needs.
The Company provides its customers with a full complement of video
communications and telecommunications services to ensure customer satisfaction.
Prior to the sale of its systems and services, the Company provides consulting
services that include an assessment of customer needs and existing
communications equipment, as well as cost-justification and return-on-investment
analyses for systems upgrade.
Once the Company has made recommendations with respect to the most effective
method to achieve its customer's objectives and the customer has ordered a
system, the Company delivers, installs and tests the communications equipment.
When the system is functional, the Company provides training to all levels of
its customer's organization, including executives, managers, management-
information-systems and data-processing administrators, technical staff and end
users. Training includes instruction in system operation, as well as planning
and administration meetings. By means of thorough training, the Company helps to
ensure that its customers achieve a significant return on their investment in
the systems and services provided by the Company.
The Company provides one-year parts and service warranty contracts to each
customer, follow-up maintenance and comprehensive customer support with respect
to the communications equipment it provides and the integration thereof. The
Company's suppliers, in turn, provide parts-replacement warranties ranging from
90 days for PictureTel equipment to between one and three years for other
manufacturers' equipment. Customers can call the Company's toll-free technical
support hotline 24 hours a day, 365 days a year. Customers may also obtain
answers to questions or follow-up training through video conferencing,
telephone, facsimile, e-mail or through the mail. The Company also provides
onsite support and maintenance.
The Company's service personnel maintain regular contact with customers. Prior
to the expiration of the one-year warranty contract, the Company offers to
perform an engineering study of each customer's equipment, to recommend the
installation of replacement parts or equipment if appropriate and to provide an
additional one-year warranty contract. The Company also offers training programs
for new users, refresher and advanced training programs for experienced users
and consulting services related to new equipment that has recently become
available and systems expansion and upgrades. Charges for the engineering study,
training programs, consulting services and additional one-year warranty contract
are generally comparable to the cost of services provided to the customer at the
time its video communications equipment is installed. Critical to customer
retention is on-going after-sale relationships with customers. Installation,
training, maintenance, remote diagnostic, billing inquiry management, network
order processing, new product introduction and system enhancements creating
multipurpose solutions are a few of the many after-sale services that the
Company performs for its customers.
During 1996, View Tech started providing MCU, or bridge, services to its
customers. Since bridges cost between $65,000 and $150,000 per unit, the
Company's customers typically elect to utilize such services when more than two
locations participate simultaneously in video communication. To date, the
revenues attributable to bridging services have not been material.
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TELECOMMUNICATIONS SERVICES
The Company also provides on-going after-sales telecommunications services to
its customers. Installation, maintenance, user training and network order-
processing are some of the services provided by the Company to its end-user
customers.
The Company sells a wide range of telecommunications services including, high
speed data connection, Internet access, local and long distance services, voice
mail and other "enhanced" services, discount calling plans and toll-free
services. In addition, the Company provides Account Management for NYNEX under
which it serves as the primary interface between NYNEX and certain of its
business customers. Under this program, sales personnel provide a single-point-
of-contact and coordination for all of the customer's telecommunications needs.
The Company provides systems integration services, processes so-called "moves,
adds, and changes" on the telephone network, coordinates repairs, performs
network analysis, manages billing issues and provides other customer services.
In addition, the Company offers its customers telecommunications carrier
services, which it purchases from AT&T and Pacific Bell at high-usage discounts
and resells at rates that are more favorable than typically could be obtained by
View Tech's customers directly from the carrier. The Company intends to pursue
opportunities for providing such services to its customers with additional
carriers, as such services provide the Company with recurring revenues based
upon customer video communications systems use. To date, the revenues
attributable to such services have not been material.
STRATEGY
The Company focuses its marketing efforts on industries and market segments
that it believes will achieve significant benefits through utilization of video
and telecommunications services and equipment. The Company then acquires a
complete understanding of the operations of such industries, identifies the
particular communications needs of such industries and integrates or bundles the
services and/or equipment which will most effectively meet the needs of any
given segment of the market. These services range from the simple bundling of
long distance and local service to a small business to a complex installation of
video communications equipment and network services to meet the needs of the
health care practitioner. The Company believes that this focus on customer needs
in particular market segments, together with an emphasis on providing
comprehensive, high-quality service to its customers, enables the Company to
market its video communications systems and other telecommunications equipment
and services more effectively than competitive distribution channels. The
Company believes that its broad product offerings, industry focus, wide
geographic coverage and high quality service provide it with a unique
competitive advantage.
In addition to expanding its current key alliance partnerships with
PictureTel, NYNEX, GTE, Bell Atlantic and its other equipment vendors and
service providers, the Company intends to continue broadening it market focus as
its customers' needs become more comprehensive, and to expand its activities
into additional geographic markets by entering into further strategic alliances
with manufacturers and service providers, acquiring companies in the video and
telecommunications industries and establishing additional strategically located
sales and service facilities. There can be no assurance that the Company will
be able to broaden its marketing focus, to expand its activities into additional
geographic areas or to acquire companies in the video and telecommunications
industries due to, among others, changing market conditions for the Company's
products and services and lack of available/suitable financing for acquisitions.
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For segment information regarding the Company's products and services, see
Footnote 17 of the Notes to Consolidated Financial Statements.
CUSTOMERS
The Company's customer base is divided into two categories, large institutions
with complex application-specific requirements for video communications and
small to medium-sized businesses with voice and data transmission requirements.
These segments are becoming less distinct as the market develops. The Company
currently focuses on these customer segments separately but envisions such
segments merging over time.
VIDEO COMMUNICATIONS SYSTEMS CUSTOMERS
While the Company has installed video communications systems for a diversified
customer base, including Southern California Edison, UNOCAL, Loma Linda
University, the Commonwealth of Massachusetts and Harvard University, it has
attempted to focus its marketing efforts on specific industries. Among the
industries in which the Company believes it has acquired substantial expertise
are health care and distance-education. During 1996, the Company organized its
Telemedicine Group to focus directly on the health care industry. The health
care market includes HMOs, hospitals, insurers and other health care providers,
whose personnel utilize video communications systems to interview patients,
transfer medical records (including x-rays and other pictographic material) and
to confer on a variety of professional and administrative matters. The Company
has provided systems to customers in the health care industry including
Allergan, Blue Cross of California, Catholic Healthcare West, Friendly Hills
Hospital Group, and PacifiCare. The Company generally maintains a small
inventory of equipment and spare parts, but orders most of its equipment on a
project-by-project basis based upon firm orders by, and for delivery to, its
customers. Substantially all of the video communications systems sold to the
customers named above were integrated roll-about systems. To date, the Company
has not experienced difficulty associated with the timely delivery of equipment
by its manufacturers.
TELECOMMUNICATIONS CLIENTS AND CUSTOMERS
The Company, through UST, markets telecommunication equipment and services for
various strategic partners or clients. The equipment sales are performed under
various reseller agreements and the customer is invoiced by UST. The
telecommunication services are sold to the Company's customers under sales
agency agreements, pursuant to which the customer is invoiced by the client for
the services over the term of the agreement and the Company is paid a commission
by the client. The Company's telecommunication clients include several RBOCs,
including NYNEX, Bell Atlantic and Southwestern Bell; other telecommunication
service providers, such as GTE and SPRINT; and equipment manufacturers,
including Northern Telecom, Ascend and Madge Networks. The Company typically has
renewable annual agreements with its telecommunication service clients, under
which it receives commissions based on sales and in some cases, such as the
Account Management Program with NYNEX and long distance services from SPRINT,
the Company receives a recurring fee based on customer usage of the services
sold. With respect to equipment sales, the Company purchases the equipment at
its dealer discount and resells the products to its customers at the list price
or other negotiated price.
The Company focuses on small to medium-sized business customers which the
major telecommunications providers cannot cost effectively service. The
Company's clients (i.e., the RBOCs and the telecommunications service providers)
have retained the Company's services to sell products to and in some cases to
manage the relationship with these customers. These customers are comprised of
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medium-sized businesses which are served by a direct face-to-face sales force
based in the Company's Boston and New York offices, and small businesses which
are served by the Company's telephone-based sales force in Boston and Cape Cod.
The Company sells a range of products and services to these customers in order
to meet their voice, data and video communication needs. The Company has
developed sophisticated sales programs to allow the telephone-based sales group
to sell complex products historically only sold by a direct sales force.
No single customer accounted for more than 10% of the Company's revenues for
the six months ended December 31, 1996.
SALES AND MARKETING
VIDEOCONFERENCING SALES
View Tech has a number of programs in place for promoting its video
conferencing products and services. Representatives of View Tech regularly
attend video communications and advanced technology trade shows. View Tech hosts
seminars and provides potential customers with the opportunity to learn more
about View Tech's products and services using video communications demonstration
facilities located in each of View Tech's offices. View Tech also places
advertisements aimed at selected markets in industry trade publications and
utilizes limited and selective direct mail advertising.
In addition, View Tech has periodically employed the services of telemarketing
firms to provide it with information regarding organizations that may be
interested in purchasing video communication products and services. Management
has worked closely with such firms to develop approaches that it believes will
enable the firms to effectively identify individuals within organizations who
are likely to be interested in learning of the advantages of video
communications. PictureTel and other suppliers also provide the Company with
sales leads.
View Tech also maintains relationships with previous customers and attempts to
provide for their continuing hardware and service needs, including continuing
engineering, training and warranty services. See "--Services."
TELECOMMUNICATIONS SALES
The Company utilizes a number of sales and marketing techniques, including
outside sales (or face-to-face) and inside sales (or telephones sales).
Outside Sales. The Company's outside sales activities are generally focused on
medium-sized businesses in New England and New York where the Company maintains
offices. Face-to-face sales are especially effective in selling more expensive
and technologically advanced services and equipment such as NYNEX's Centrex
network services and PictureTel's videoconferencing products. On-going account
management stimulates repeat business while protecting market share and
generating recurring revenue from certain clients such as NYNEX.
Inside Sales. The Company's inside sales group sells a broad range of services
over the telephone. In addition, the inside sales and service departments
generate leads, and in some instances, provide back-up support to outside sales
associates. The advantages of telemarketing include high response rates, low
transaction costs, direct interaction with customers and on-line access to
detailed customer or product
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information. The Company's telemarketing clients include Bell Atlantic, GTE,
Southwestern Bell, SPRINT and other telecommunications carriers.
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL AND NYNEX
For the six months ended December 31, 1996, approximately 31% and 13%, of the
Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and network products and services provided by NYNEX,
respectively. Termination of or change of the Company's business relationships
with PictureTel or NYNEX, disruption in supply, failure of PictureTel or NYNEX
to remain competitive in product quality, function or price or a determination
by PictureTel or NYNEX to reduce reliance on independent providers such as the
Company could have a material adverse effect on the Company's business,
financial condition and results of operation. The Company is a party to
agreements with PictureTel and NYNEX that authorize the Company to serve as a
non-exclusive dealer in certain geographic territories. The NYNEX and PictureTel
agreements expire on December 31, 1998 and August 1, 2000, respectively. The
NYNEX and PictureTel agreements can be terminated without cause upon 12 months
and 60 days' written notice by the suppliers, respectively. There can be no
assurance that these agreements will not be terminated, or that they will be
renewed on terms acceptable to the Company. These suppliers have no affiliation
with the Company and are competitors of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The video communications industry is highly competitive. View Tech competes
with manufacturers of video communications equipment which include PictureTel,
VTEL and CLI, and their networks of dealers and distributors, telecommunications
carriers and large corporations, as well as other independent distributors.
Other telecommunications carriers and other corporations that have recently
entered the video communications market include, Apple Computers, Inc., AT&T,
MCI, Sprint, some of the RBOCs, IBM, Intel Corporation, Nippon Electric
Corporation, Microsoft, Inc., Mitsubishi Ltd., Fujitsu Ltd., Sony Corporation,
Matsushita/Panasonic, Hitachi and British Telecom. Many of these organizations
have substantially greater financial and other resources than the Company,
furnish many of the same products and services provided by the Company and have
established relationships with major corporate customers that have policies of
purchasing directly from them. Management believes that as the demand for video
communications systems continues to increase, additional competitors, many of
which will have greater resources than the Company, will enter the video
communications market.
A specific manufacturer's network of dealers and distributors typically
involves discreet territories that are defined geographically, in terms of
vertical market, or by application (e.g., project management or government
procurement). The current agreement with PictureTel authorizes the Company to
distribute PictureTel products in the following states: Alabama, Arizona,
Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia,
Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New
Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and
Wyoming. Because the agreement is non-exclusive, however, the Company is subject
to competition within these territories by other PictureTel dealers, whose
customers elsewhere may have branch facilities in these territories, and by
PictureTel itself, which directly markets its products to certain large national
corporate accounts. The agreement expires on August 1, 2000 and can be
terminated without cause upon 60 days' written notice by PictureTel. There can
be no assurance that the agreement will not be terminated, or that it will be
renewed by PictureTel, which has no other affiliation with the Company and is a
competitor of the Company. While there are suppliers of video communications
equipment
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other than PictureTel, termination of the Company's relationship with PictureTel
would have a material adverse effect on the Company.
The Company believes that customer purchase decisions are influenced by
several factors, including cost of equipment and services, video communication
system features, connectivity and compatibility, a system's capacity for
expansion and upgrade, ease of use and services provided by a vendor. Management
believes that its comprehensive knowledge of the operations of the industries it
has targeted, the quality of the equipment that the Company sells, the quality
and depth of its services, its nationwide presence and ability to provide its
customers with all of the equipment and services necessary to ensure the
successful implementation and utilization of its video communications system
enable the Company to compete successfully in the industry.
The telecommunications industry is also highly competitive. The Company
competes with many other companies in the telecommunications business which have
substantially greater financial and other resources than the Company, selling
both the same and similar services. The Company's competitors in the sale of
network services include RBOCs such as NYNEX, Bell Atlantic, Southwestern Bell
and GTE, long distance carriers such as AT&T, MCI and SPRINT, other long
distance companies, by-pass companies and other agents. There can be no
assurance that the Company will be able to compete successfully against such
companies. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
EMPLOYEES
At March 21, 1997, the Company had 294 full-time employees and a network of
consultants who are available on an as-needed basis to provide technical and
marketing support. The Company has 151 full-time employees engaged in marketing
and sales, 70 in technical services and 73 in finance, administration and
operations. None of the Company's employees are represented by a labor union.
The Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
View Tech leases office facilities in Camarillo, Irvine and San Diego,
California; Atlanta, Georgia; Dallas, Texas; Englewood, Colorado; Nashville,
Tennessee; Boca Raton, Florida; Salt Lake City, Utah; and Phoenix, Arizona.
These locations are currently principally engaged in video conferencing sales
and services. Its executive offices are located in Camarillo, California and
consist of a total of approximately 6,700 square feet. View Tech's other
facilities house sales, technical and administrative personnel and consist of
aggregate square footage of approximately 22,300. View Tech is currently
negotiating for additional space for its headquarters offices in Camarillo,
California. The Company recently executed a new lease to house its operations
in Irvine, California; however, the Company subsequently determined that its
existing facilities were adequate and is negotiating with the lessor to
terminate the lease. View Tech's wholly-owned subsidiary, UST, leases office
facilities in Boston and Cape Cod, Massachusetts and New York, New York. Such
locations are principally engaged in the sale and service of telephony products
and services. UST has recently executed a new lease in New York City which will
house administration, sales and technical personnel. The new facility consists
of approximately 9,000 square feet of space and is presently being prepared for
move-in during April/May 1997. UST's executive offices are located in Boston
and consist of a total of approximately 14,000 square feet. UST's other
facilities house sales, technical and administrative personnel and consist of
aggregate square footage of approximately 20,000 square feet. The leases on the
Company's facilities expire at various dates through 2001. The Company believes
that the facilities it presently leases, combined with those presently under
negotiations, will be adequate for the foreseeable future and that additional
suitable space, if required, can be located and leased on reasonable terms.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings. It is
anticipated that from time to time it will be subject to claims that arise in
the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1996 Annual Meeting of Stockholders, held on November 26, 1996, the
Stockholders approved several proposals as follows:
(1) Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
September 5, 1996, as amended on October 31, 1996, by and among View Tech, View
Tech Acquisition, Inc., ("VTAI") a Delaware corporation and a wholly-owned
subsidiary of View Tech, and USTeleCenters, Inc., a Massachusetts
corporation ("USTeleCenters"), pursuant to which, among other things: (a)
USTeleCenters was merged with and into VTAI (the "Merger"), (b) each share
of USTeleCenters common stock was converted into the right to receive
0.24534 of a share of View Tech common stock; and (c) View Tech assumed the
USTeleCenters stock option plan and all outstanding stock options of
USTeleCenters as of the effective time of the Merger would be converted
into the right to acquire 0.24534 of a share of View Tech common stock for
each share of USTeleCenters common stock underlying the USTeleCenters
options and (d) the Merger.
<TABLE>
<CAPTION>
<S> <C>
For 1,851,478
Against 18,770
Abstain 9,390
Broker Non-Votes 1,111,876
---------
Total 2,991,514
=========
</TABLE>
(2) Proposal to change View Tech's state of incorporation from California to
Delaware, which also had the effect, among others, of (a) increasing the number
of shares of common stock authorized for issuance from 10,000,000 to 20,000,000
and changing the par value of View Tech's common stock and preferred stock from
$0.01 to $0.0001 per share and (b) classifying the Board of Directors of View
Tech into three different classes.
<TABLE>
<CAPTION>
<S> <C>
For 1,858,139
Against 11,380
Abstain 10,119
Broker Non-Votes 1,111,876
---------
Total 2,991,514
=========
</TABLE>
11
<PAGE>
(3) Proposal to elect six directors to serve until their successors are elected
and to provide for three classes of directors as follows: (a) Messrs. Calvin M.
Carrera and Robert F. Leduc to serve a term of one year, (b) Messrs. John W.
Hammon and David F. Millet to serve a term of two years; and (c) Messrs. Robert
G. Hatfield and Franklin A. Reece, III to serve a term of three years.
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Calvin M. Carrera 2,977,464 14,050
John W. Hammon 2,977,464 14,050
Robert G. Hatfield 2,977,464 14,050
Robert F. Leduc 2,976,464 15,050
David F. Millet 2,976,464 15,050
Franklin A. Reece, III 2,976,464 15,050
</TABLE>
(4) Proposal to ratify the selection of Carpenter Kuhen and Sprayberry as the
independent accountants of View Tech for the fiscal year ending June 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
For 2,965,995
Against 7,220
Abstain 18,299
---------
Total 2,991,514
=========
</TABLE>
(5) Proposal to approve and adopt the View Tech, Inc. 1997 Stock Option Plan,
pursuant to which options for a total of 300,000 shares of View Tech common
stock may be granted to View Tech's officers, employees, consultants and
directors.
<TABLE>
<CAPTION>
<S> <C>
For 1,839,137
Against 61,204
Abstain 16,790
Broker Non-Votes 1,074,383
---------
Total 2,991,514
=========
</TABLE>
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK MARKET AND OTHER INFORMATION
The Company's common stock is traded on the NASDAQ National Market under
the symbol "VUTK," and has been so traded since November 18, 1995. Prior to
such date, the shares were traded on the NASDAQ SmallCap Market and also the
Pacific Stock Exchange under the symbols "VUTK" and "VWK," respectively, since
the Company's initial public offering on June 15, 1995. Prior to the offering,
there was no public trading market for the Company's equity securities. In
addition, warrants to purchase up to 575,000 shares of the Company's common
stock are traded on the NASDAQ National Market and prior to November 18, 1995
the warrants traded on the NASDAQ SmallCap Market and the Pacific Stock Exchange
under the symbols "VUTKW" and "VWK WS," respectively. The terms of the warrants
provide that one warrant plus $5.00 are required to purchase one additional
share of the Company's common stock. The warrants are redeemable at the
Company's option commencing June 15, 1996 upon 30 days notice to the
warrantholders at $0.25 per share if the closing price of the common stock has
been at least $8.00 for a period of 30 consecutive trading days ending within 10
days of the date the notice of redemption is mailed. The warrants expire June
15, 1998.
The following table sets forth the quarterly high and low bids for the
Company's common stock as reported by the NASDAQ National Market.
<TABLE>
<CAPTION>
FISCAL YEAR 1995 HIGH LOW
----- -----
<S> <C> <C>
Fourth Quarter (Since June 16)... $6.88 $6.50
----- -----
FISCAL YEAR 1996
First Quarter.................... 8.88 6.50
Second Quarter................... 8.75 7.00
Third Quarter.................... 8.00 6.63
Fourth Quarter................... 8.25 6.25
FISCAL YEAR 1997
First Quarter.................... 8.13 6.50
Second Quarter................... 7.25 5.13
</TABLE>
On March 21, 1997, the last reported bids for the Company's common stock
and warrants on the NASDAQ National Market were $4.19 and $0.88, respectively.
As of March 21, 1997, there were 154 holders of record of the Company's common
stock and four holders of record of the Company's warrants.
DIVIDENDS
The Company has never paid any cash dividends on its common stock. It
presently intends to retain earnings and capital for use in its business and
does not expect to pay any dividends within the foreseeable future. Any payment
of cash dividends in the future on the common stock will be dependent on the
Company's financial condition, results of operations, current and anticipated
cash requirements, plans for expansion, restrictions under debt obligations, as
well as other factors that the Board of Directors deems relevant.
13
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
On July 10, 1996, the Company issued 52,857 shares of common stock to the
owners of VistaTel International, Inc. (''VistaTel'') in connection with the
purchase of all of the assets of VistaTel. The securities were issued in
reliance of the exemption provided in Section 4(2) of the Securities Act of
1933, as amended (the ''Securities Act''), because no public offering was
involved and the shares were issued exclusively to the three shareholders of
VistaTel.
On September 24, 1996, the Company issued 150,000 shares of common stock to
the sole shareholder of GroupNet, Inc. (''GroupNet'') in connection with the
merger of GroupNet with and into the Company. The securities were issued in
reliance on the exemption provided in Section 4(2) of the Securities Act,
because no public offering was involved and the shares were issued exclusively
to the sole shareholder of GroupNet.
On October 31, 1996, 300,281 shares of common stock were issued to 76
investors pursuant to a private placement. The securities were issued in
reliance on the exemption provided in Section 4(2) of the Securities Act, and
Rule 506 of Regulation D promulgated thereunder, because no public offering was
involved and the securities were issued to no more than 35 non-accredited
investors. Kenny Securities Corporation, a registered broker/dealer, assisted in
the private placement and in connection therewith received a commission equal to
8% of the gross proceeds ($120,000) and 15,000 common stock purchase warrants,
each exercisable until 2001 for one share of common stock at an exercise price
of $6.25 per common stock purchase warrant. Each purchaser acquired less than 1%
of the Company's total shares of stock outstanding.
On December 11, 1996, 30,000 shares of common stock were issued to the
chairman of Windermere Holdings, Inc. (''WHI'') in connection with WHI's
assistance with respect to the Merger of USTeleCenters with and
into a wholly-owned subsidiary of the Company. The securities
were issued in reliance on the exemption provided in Section 4(2) of the
Securities Act, because no public offering was involved and the shares were
issued exclusively to the chairman of WHI.
On January 6, 1997, 24,550 shares of common stock were issued to Concord
Partners Ltd. (''Concord'') in connection with Concord's assistance with respect
to the Merger. The securities were issued in reliance on the exemption provided
in Section 4(2) of the Securities Act because no public offering was involved.
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation of Glendale, California serves as transfer
agent and registrar of the Company's common stock and warrants.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1995 1994 1993
------------- -------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:/(1) (2)/
Revenues:
Product and service revenues $13,330,608 $19,680,386 $10,801,669 $ 8,017,132 $ 6,490,839
Agency commissions.......... 6,547,974 11,313,350 17,696,300 18,114,987 13,180,700
----------- ----------- ----------- ----------- -----------
19,878,582 30,993,736 28,497,969 26,132,119 19,671,539
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold......... 10,235,235 14,269,108 7,618,770 5,610,713 4,588,993
Selling and marketing
expenses................... 7,045,024 10,670,921 15,565,601 16,283,374 10,492,472
General and administrative
expenses................... 2,918,880 5,230,209 4,990,572 5,041,385 3,001,802
Merger costs................ 2,563,573 -- -- -- --
----------- ----------- ----------- ----------- -----------
22,762,712 30,170,238 28,174,943 26,935,472 18,083,267
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations (2,884,130) 823,498 323,026 (803,353) 1,588,272
Other Expense................ (172,892) (659,258) (592,853) (346,323) (116,407)
Loss on Sublease, including
shutdown of offices........ -- -- (1,312,900) (318,000) (397,200)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income
Taxes....................... (3,057,022) 164,240 (1,582,727) (1,467,676) 1,074,665
Provision For Income Taxes... 39,804 259,816 (294,083) 43,882 (72,500)
----------- ----------- ----------- ----------- -----------
Net Income (Loss)............ $(3,017,218) $ 424,056 $(1,876,810) $(1,423,794) $ 1,002,165
=========== =========== =========== =========== ===========
Earnings (Loss) Per Share.... $(0.56) $0.07 $(0.50) $(0.38) $0.25
=========== =========== =========== =========== ===========
Weighted Average Shares
Outstanding................ 5,400,785 5,676,304 3,765,467 3,716,974 3,955,936
=========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET
DATA/:(1) (2)/
Total assets................ $18,520,608 $14,841,089 $14,402,807 $ 8,815,859 $ 6,730,073
Working capital............. 454,016 2,370,967 2,602,168 501,353 257,344
Long-term liabilities....... 779,920 952,864 1,634,419 4,534,554 899,879
Stockholders' equity
(deficit).................. 4,418,725 4,221,533 3,403,065 (977,391) 1,169,557
</TABLE>
- ----------
(1) The financial data presented herein gives a retroactive effect to the merger
of View Tech and UST on November 29, 1996, which has been described in notes
1 and accounted for as a 3 to the pooling of interest as consolidated
financial statements. View Tech commenced operation effective July 1, 1992,
therefore, presentation of financial data prior to 1993 is not applicable.
(2) The financial data for 1994 and 1993 are derived from View Tech's audited
financial statements for the years ended June 30, 1994 and 1993 and from
UST's audited financial statements for the years ended December 31, 1994 and
1993. See notes to consolidated financial statements included in this Form
10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Form 10-K. Except for historical information contained herein,
the statements in this Form 10-K are forward-looking statements (including
without limitation, statements indicating that the Company "expects,"
"estimates," "anticipates," or "believes" and all other statements concerning
future financial results, product offerings or other events that have not yet
occurred) that are made pursuant to the safe harbor provisions of the Private
15
<PAGE>
Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements involve known factors, risks and
uncertainties which may cause the Company's actual results in future periods to
differ materially from forecasted results. Those factors, risks and
uncertainties include, but are not limited to: the Company's ability to raise
additional funds that may be necessary to meet its future capital needs; the
Company's ability to effectively manage its business in a rapidly changing
environment due to rapid internal growth and external growth through
acquisitions; the Company's limited history of profitable operations and
significant fluctuations in operating results which may continue due to delays
in product enhancements and new product introductions by its suppliers; the
termination of or change of the Company's business relationships with PictureTel
or NYNEX, disruption in supply, failure of PictureTel or NYNEX to remain
competitive in product quality, function or price or a determination by
PictureTel or NYNEX to reduce reliance on independent providers such as the
Company; the introduction of products embodying new technologies and the
emergence of new industry that could make the Company's existing products and
services obsolete, unmarketable or noncompetitive and the introduction of new
rules and regulations by the federal government and/or certain states pertaining
to the Company's telecommunications business that could lead to additional
competition from entities with greater financial and managerial resources.
Additional information on these and other risk factors are included under "Risk
Factors" and elsewhere in this Form 10-K.
GENERAL
View Tech commenced operations in July 1992. Since its initial public offering
of common stock in June 1995, the Company has grown rapidly through internal
expansion and through acquisitions. Prior to August 1995, the Company operated
under a sales and service dealer agreement covering most of southern California.
Since August 1995, View Tech has from time to time amended its sales and service
agreement with its primary video equipment supplier, PictureTel Corporation
("PictureTel"). The agreement, as amended, has a term of five years and has
substantially expanded the scope of the Company's business and its existing
sales territory whereby View Tech's sales and service dealer agreement now
includes a total of 24 states throughout the United States. In connection with
its amended sales and service dealer agreement, during the past 18 months, the
Company established full-service offices in Atlanta, Georgia, Denver, Colorado,
and Dallas, Texas and established sales offices in Nashville, Tennessee, San
Jose, California, Salt Lake City, Utah and Phoenix, Arizona.
In July and August 1996, the Company acquired the net assets of VistaTel
International, Inc., a Florida corporation headquartered in Boca Raton, Florida,
and GroupNet, Inc., a Massachusetts corporation located in Boston,
Massachusetts, respectively, both of which were engaged in the marketing and
installation of video communication equipment. In addition, on November 29,
1996, the Company acquired USTeleCenters, Inc., a Massachusetts corporation
headquartered in Boston, Massachusetts ("USTeleCenters"), in a merger
transaction (the "Merger"), which was accounted for as a pooling-of-interests
for financial reporting purposes and pursuant to which USTeleCenters merged into
USTeleCenters, Inc., a Delaware corporation ("UST"), a wholly-owned subsidiary
of the Company. At the time of the Merger, the Company operated out of 13
offices covering 24 states and employed 75 people. The Merger resulted in the
addition of three offices and 225 additional employees.
The Company markets and installs video communications systems and provides
continuing services relating to installed systems. In addition, as a result of
the Merger, the Company designs, sells, manages and supports telecommunications
systems solutions for small and medium-sized businesses throughout the United
States. In addition, the Company develops and manages sales and customer service
programs on an outsourced basis for (i) certain Regional Bell Operating
Companies ("RBOCs"), (ii) other
16
<PAGE>
telecommunications service providers and (iii) equipment manufacturers under
agency and value added reseller ("VAR") agreements. In New England and New York,
the Company also provides systems integration and on-going account management
consulting for middle market customers. On behalf of its RBOC clients, the
Company sells high speed data services, Internet access, Centrex network
services, local and long distance services, voice mail and other "enhanced"
services, discount calling plans and toll-free services such as remote-call-
forwarding.
The Company intends to continue its expansion activities in calendar year 1997
through both internal expansion and strategic acquisitions. Although management
anticipates that the revenues generated by its existing offices, as well as the
offices acquired through acquisition or expansion, will exceed its operating
costs for the next twelve months, there can be no assurance that such results
will be achieved. To the extent that such costs exceed such revenues, the
Company's business, financial condition and results of operations will be
adversely affected.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated financial statements expressed as a percentage
of the Company's revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED JUNE 30,
DECEMBER 31, -------------------------------------
1996 1995 1996 1995 1994/(1)/
-------- ------- ------------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales and service revenues.... 67.1% 58.8% 63.5% 37.9% 30.7%
Agency commissions.................... 32.9 41.2 36.5 62.1 69.3
------ ----- ----- --------- -----
100.0 100.0 100.0 100.0 100.0
====== ===== ===== ========= =====
Costs and Expenses:
Costs of goods sold................... 51.5 42.8 46.0 26.7 21.5
Sales and marketing expenses.......... 35.4 38.0 34.4 54.6 62.3
General and administrative expenses... 14.7 16.1 16.9 17.5 19.3
Merger costs.......................... 12.9 -- -- -- --
------ ----- ----- --------- -----
114.5 96.9 97.3 98.8 103.1
------ ----- ----- --------- -----
Income (Loss) from Operations.......... (14.5) 3.1 2.7 1.2 (3.1)
Other Expense.......................... (0.9) (1.2) (2.1) (2.1) (1.3)
Loss on Sublease, Including
Shutdown of Offices.................. -- -- -- (4.6) (1.2)
------ ----- ----- --------- -----
Income (Loss) Before Income Taxes...... (15.4) 1.9 0.6 (5.5) (5.6)
Provision for Income Taxes............. 0.2 0.9 0.8 (1.0) 0.2
------ ----- ----- --------- -----
Net (Loss) Income...................... (15.2)% 2.8% 1.4% (6.5)% (5.4)%
------ ----- ----- --------- -----
</TABLE>
- -------------
(1) The financial data for 1994 and 1993 are derived from View Tech's
audited financial statements for the years ended June 30, 1994 and 1993
and from UST's audited financial statements for the years ended December
31, 1994 and 1993. See notes to consolidated financial statements
included in this Form 10-K.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
REVENUES
Total revenues for the six months ended December 31, 1996 increased $5.954
million or 42.8% to $19.879 million from $13.924 million in 1995.
17
<PAGE>
Product Sales and Services
Product sales and service revenues increased by $5.141 million or 62.8% to
$13.331 million in 1996 from $8.190 million in 1995. The increase in revenues
was primarily related to the Company's nationwide expansion of its
videoconferencing business, including increasing its videoconferencing sales
force to 31 representatives at December 31, 1996, compared to 21 representatives
at December 31, 1995.
Agency Commissions
Agency commissions for 1996 increased by $813,979 or 14.2% to $6.548 million
from $5.734 million in 1995. The increase in agency commissions was due to the
Company beginning to rebuild its telemarketing sales force in 1996 to enable it
to market new product offerings on behalf of its RBOC and exchange carrier
clients.
COSTS AND EXPENSES
Costs of goods sold for 1996 increased by $4.280 million or 71.9% to $10.235
million from $5.955 million in 1995. Costs of goods sold as a percentage of
product sales and service revenues increased to 76.8% in 1996 from 72.7% in
1995. The percentage increase in costs of goods sold is primarily related to a
decrease in service revenues and a slight decrease in margin on equipment sales
related to the Company's videoconferencing business. Service revenues generally
provide a higher profit margin than equipment revenues.
Selling and marketing expenses for 1996 increased by $1.758 million or 33.3%
to $7.045 million from $5.287 million in 1995. Selling and marketing expenses as
a percentage of revenues decreased to 35.4% in 1996 from 38.0% in 1995. The
dollar increase in selling and marketing expenses was primarily due to higher
compensation and related expenses for its sales force as a result of the
increase in revenues related to the Company's videoconferencing business.
Selling and marketing expenses as a percentage of revenues decreased due to the
fact that revenues grew at a greater rate than such expenses.
General and administrative expenses for 1996 increased by $674,493 or 30.1% to
$2.919 million from $2.244 million in 1995. General and administrative expenses
as a percentage of total revenues decreased to 14.7% in 1996 from 16.1% in 1995.
The overall dollar increase in general and administrative expenses was primarily
due to a general increase in such expenses as a result of the expansion of the
Company's videoconferencing business and to higher sales volume. General and
administrative expenses as a percentage of revenues decreased due to the fact
that such expenses grew at a slower rate than revenues.
The Company wrote-off merger costs of $2.564 million incurred in connection
with the Merger, which was consummated on November 29, 1996. Merger costs
primarily include financial advisory, legal and accounting fees relating to the
Merger. The Merger was accounted for under the pooling of interest method of
accounting which requires the combined company to write off all transaction
costs upon the consummation of such transaction.
Income (loss) from operations decreased $3.322 million to a loss of $2.884
million in 1996 from income of $438,354 in 1995. The increase in the loss from
operations related to the write-off of Merger costs of $2.564 million and the
increase in selling and marketing expenses, and general and administrative
expenses, discussed above. Income (loss) from operations as a percentage of
revenues
18
<PAGE>
decreased to (15.4)% for 1996, compared to 1.9% for 1995. The overall loss from
operations was primarily attributable to the write-off of Merger costs.
Other expense, primarily representing interest expense, for 1996 remained
level with 1995.
Provision for income tax expense decreased $87,382 to a benefit of $39,804 in
1996 compared to a benefit of $127,186 for 1995. The decrease in tax benefit was
due to the fact that the Company did not recognize a tax benefit from the
current period pre-tax loss.
Net income decreased $3.411 million to a loss of $3.017 million in 1996 from
net income of $394,189 for 1995. Net income as a percentage of revenues
decreased to (15.2)% for 1996 compared to 2.8% for 1995. Net income per share
decreased to $(.56) for 1996 compared to $.07 for 1995. The weighted average
number of shares outstanding decreased to 5,400,785 for 1996 from 5,653,232 in
1995.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
REVENUES
Total revenues for 1996 increased $2.496 million or 8.8% to $30.994 million
from $28.498 million in 1995.
Product Sales and Services
Product sales and service revenues increased by $8.879 million or 82.2% to
$19.680 million in 1996 from $10.802 million in 1995. The increase was primarily
related to increased sales and marketing efforts for videoconferencing products
and services, including increased staffing and to the opening of three regional
and two sales offices devoted to the videoconferencing business in 1996.
Agency Commissions
Agency commissions for 1996 decreased by $6.383 million or 36.1% to $11.313
million from $17.696 million in 1995. The decrease in agency commissions was
primarily due to the restructuring of UST's business in 1995. Regulatory
changes, shifts in market conditions and the exhaustion of available "800"
numbers caused UST's "800" number business to deteriorate rapidly during 1995.
As a result of such changes, the Company curtailed its sales activities in the
"800" number market and terminated its unprofitable relationships with certain
telecommunication companies. In addition, as a result of such changing business
conditions, the Company closed its satellite office in San Francisco,
consolidated its Boston locations and reduced the size of its telemarketing
staff.
COSTS AND EXPENSES
Costs of goods sold for 1996 increased by $6.650 million or 87.3% to $14.269
million from $7.619 million in 1995. Costs of goods sold as a percentage of
product sales and service revenues increased to 72.5% in 1996 from 70.5% in
1995. The percentage increase in costs of goods sold as a percentage of product
sales and service revenues is primarily related to increased competitive
pressures within the videoconferencing industry and to sales to various state-
funded organizations, resulting in lower selling prices and correspondingly a
higher ratio of cost of sales to revenues.
19
<PAGE>
Selling and marketing expenses for 1996 decreased by $4.895 million or 31.4%
to $10.671 million from $15.566 million in 1995. The decrease was primarily due
to lower compensation to sales personnel and related expenses as a result of the
decrease in agency commission revenues, reductions in the number of sales
personnel, and the closing and consolidation of certain of the Company's sales
offices related to its telecommunications business.
General and administrative expenses for 1996 increased by $239,637 or 4.8% to
$5.230 million from $4.991 million in 1995. General and administrative expenses
as a percentage of total revenues decreased to 16.9% in 1996 from 17.5% in 1995.
The overall dollar increase was primarily due to increases in general and
administrative expenses primarily related to the expansion of the Company's
videoconferencing business and to higher sales volume. General and
administrative expenses as a percentage of revenues decreased due to the fact
that such expenses grew at a slower rate than revenues.
Income from operations increased $500,472 to $823,498 in 1996 from $323,026 in
1995. Income from operations as a percentage of revenues increased to 2.7% for
1996 compared to 1.2% for 1995. The increase was primarily due to reductions in
selling and marketing expenses as a result of the restructuring of the Company's
telecommunications business.
Other expense in 1996 increased by $66,405 or 11.2% to $659,258 from $592,853
in 1995. The increase was primarily due to the write-off of a note receivable
from Power Data Services, Inc. ("PDS") of $265,000 in connection with the
termination of the PDS acquisition in May 1996, offset by a decrease in net
interest expense.
The loss on sublease, including shutdown of offices (including severance and
related expenses), of $1.313 million was incurred in 1995 as a result of the
Company restructuring its telecommunications business as a result of the decline
of the "800" number business discussed above. During 1995, the Company closed
its sales offices in San Francisco and began to consolidate its Boston locations
which were primarily engaged in the resale of telecommunications products and
services on behalf of certain exchange carriers and RBOCs. Similar charges were
not incurred during 1996.
Provision for income tax expense decreased $553,899 to a tax benefit of
$259,816 in 1996 from a tax expense of $(294,083) for 1995. The decrease in
income tax expense relates to certain pre-tax losses incurred by the Company
prior to the Merger. The Company has utilized approximately 51% of such benefit
through carryback of such net operating loss, and expects to fully realize the
remaining tax benefit in future periods.
Net income (loss) increased $2.301 million to net income of $424,056 in 1996
from a loss of $(1.877) million for 1995. Net income as a percentage of revenues
increased to 1.4% for 1996 compared to a net loss of (6.5)% for 1995. Net income
(loss) per share increased to $0.07 for 1996 compared to a net loss of $(0.50)
for 1995. The weighted average number of shares outstanding increased to
5,676,304 for 1996 from 3,765,467 in 1995.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
REVENUES
Total revenues for 1995 increased $2.366 million or 9.1% to $28.498 million
from $26.132 million in 1994.
20
<PAGE>
Product Sales and Services
Product sales and service revenues increased by $2.785 million or 34.7% to
$10.802 million in 1995 from $8.017 million in 1994. The increase in revenues
was primarily related to increased sales and marketing efforts related to the
Company's nationwide expansion of its videoconferencing business, including
increasing its videoconferencing sales force to 13 representatives at June 30,
1995, compared to eight representatives at June 30, 1994.
Agency Commissions
Agency commissions for 1995 decreased by $418,687 or 2.3% to $17.696 million
from $18.114 million in 1994. The decrease in agency commissions was primarily
due to the Company beginning the process of restructuring its telecommunications
business in 1995 as a result of the decline in the "800" number business.
Regulatory changes, shifts in market conditions and the exhaustion of available
"800" numbers caused the "800" number business to deteriorate rapidly during the
latter part of the fiscal year ended June 30, 1995. As a result of such changes,
the Company curtailed its sales activities in the "800" number market and
terminated its unprofitable relationships with certain exchange carriers. In
addition, as a result of the changing business conditions in the latter part of
1995, the Company began to phase down its operations resulting in the closure of
its San Francisco office and the consolidation of its Boston locations and to
reduce the size of its telemarketing staff.
COSTS AND EXPENSES
Costs of goods sold for 1995 increased by $2.008 million or 35.8% to $7.619
million from $5.611 million in 1994. Costs of goods sold as a percentage of
product sales and service revenues increased to 70.5% in 1995 from 70.0% in
1994. The costs of goods sold as a percentage of product sales and service
revenues will vary from time to time due to volume discounts and corresponding
lower unit costs, as well as changes in service revenues as a percentage of
product and service sales. Service revenues generally provide a higher profit
margin than equipment revenues.
Selling and marketing expenses for 1995 decreased by $717,773 or 4.4% to
$15.566 million from $16.283 million in 1994. The decrease was primarily due to
lower compensation to management personnel and related expenses as a result of
decreased staffing for sales management and support personnel for the
telecommunication business.
General and administrative expenses for 1995 decreased by $50,813 or 1.0% to
$4.991 million from $5.041 million in 1994. General and administrative expenses
as a percentage of total revenues decreased to 17.5% in 1995 from 19.3% in 1994.
The decrease was due to reductions in administrative personnel and related
expenses.
Income from operations increased $1.126 million to $323,026 in 1995 from a
loss of $803,353 in 1994. Income (loss) from operations as a percentage of
revenues increased to 1.2% for 1995, compared to (3.1)% for 1994. The
improvement in operating results was primarily due to the reclass of certain
operating costs to non-operating costs in connection with the Company
restructuring its telecommunication business in 1995.
Other expense for 1995 increased by $246,530 or 71.2% to $592,853 from
$346,323 in 1994. The increase was primarily related to an increase in interest
expense relating to an increase in average bank debt outstanding in 1995
compared to 1994.
21
<PAGE>
The loss on sublease, including shutdown of offices (including severance and
related expenses), of $1.313 million was incurred in 1995 as a result of the
Company restructuring its telecommunications business as a result of the decline
of the "800" number business discussed above. During 1995, the Company closed
its sales offices in San Francisco and began to consolidate its Boston locations
which were primarily engaged in the resale of telecommunications products and
services on behalf of certain exchange carriers and RBOCs. Similar charges of
$318,000 were incurred during 1994.
Provision for income tax expense increased $337,965 to a provision of
$(294,083) in 1995 from a tax benefit of $43,882 for 1994. The increase in
income tax expense relates to certain pre-tax earnings realized by the Company,
prior to the Merger with USTeleCenters, for the year ended June 30, 1995.
Net income (loss) decreased $453,016 to a net loss of $1.877 million in 1995
from a loss of $1.424 million for 1994. Net income (loss) as a percentage of
revenues decreased to (6.5)% for 1995, compared to a loss of (5.4)% for 1994.
Net income (loss) per share decreased to a loss of $(0.50) for 1995 compared to
a loss of $(0.38) for 1994. The weighted average number of shares outstanding
increased to 3,765,467 for 1995 from 3,716,974 in 1994.
ACQUISITIONS
VistaTel
Effective July 1, 1996, View Tech acquired the net assets of VistaTel
International, Inc. ("VistaTel"), a private company based in Boca Raton,
Florida, which was a primary supplier of video conferencing products and
services within the State of Florida and one of PictureTel's national re-
sellers. View Tech issued 52,857 shares of common stock, valued at $7.00 per
share, to the shareholders of VistaTel as consideration for the acquisition. The
excess of the acquisition price over the net assets acquired of approximately
$339,000 is being accounted for as goodwill which is amortized over 15 years.
The Company continues to operate VistaTel's previous business, which sells and
services video conferencing systems and provides network bridging services for
businesses.
GroupNet
Pursuant to a merger agreement dated August 30, 1996, View Tech acquired
GroupNet, Inc. ("GroupNet") for cash and common stock valued at $1.380 million.
The purchase price consisted of 150,000 shares of common stock valued at $7.00
per share or $1.050 million in the aggregate and $330,000 in cash, of which
$110,000 was paid on August 30, 1996 upon execution of the agreement and
$220,000 was payable in equal installments on October 15, 1996 and December 16,
1996. The note was subsequently extended to April 15, 1997. The Company made
additional principal payments of $20,000 and $90,000 on October 15, 1996 and
March 19, 1997, respectively. The excess of the acquisition price over the net
assets acquired of approximately $1.330 million is being accounted for as
goodwill which is amortized over 15 years. GroupNet, based in Boston,
Massachusetts, was an authorized PictureTel Select Dealer in video communication
product distribution in the northeastern United States. View Tech is continuing
to operate GroupNet's former business in Boston and New York. With the addition
of GroupNet, View Tech has added the northeastern United States to its marketing
territory.
UST
On September 5, 1996, View Tech announced that it had entered into a
definitive agreement of merger with USTeleCenters, which was an authorized sales
agent for several of the regional bell
22
<PAGE>
operating companies. The Merger was consummated, effective November 29, 1996,
and was valued at $16.500 million. The transaction was accounted for as a
pooling of interests in which the USTeleCenters' shareholders exchanged all of
their outstanding USTeleCenters shares and options for View Tech common stock
and options, respectively. USTeleCenters shareholders received 2,240,976 shares
of View Tech common stock in exchange for all outstanding shares held by
USTeleCenters shareholders (excluding options convertible into 184,003 shares of
View Tech common stock).
LIQUIDITY AND CAPITAL RESOURCES
View Tech has financed its recent operations and expansion activities with the
proceeds from its initial public offering completed in June 1995, private
placements of equity securities, bank debt and vendor credit arrangements.
Net cash used for operating activities for the six months ended December 31,
1996 (the "Period") was $997,973. The primary uses of cash in 1996 were
increases in accounts receivable and inventory of $2.521 million and $314,473,
respectively. The uses of cash reflect the Company's higher sales volume and
funds used to expand the Company's operations during 1996. Sources of cash from
operating activities were primarily related to an increase in accounts payable
and other accrued liabilities of $2.248 million and $1.648 million,
respectively.
Net cash used for investing activities for the Period was $632,910, relating
to the purchase of office furniture and computer equipment for $492,684 and the
acquisition of VistaTel and GroupNet for $155,163 during July and August 1996.
Net cash provided by financing activities for the Period was $530,823,
primarily generated from the proceeds of $1.356 million from a private placement
of common stock by the Company, offset by the repayment of $786,483 in debt
obligations.
At December 31, 1996, the Company maintained a $500,000 credit facility to
assist in meeting its working capital needs, if required. No amounts were
outstanding under the facility at December 31, 1996. The Company renewed its
credit facility (the "Note") effective February 19, 1997. The Note expires on
October 1, 1997 and provides for a borrowing base of up to $1,750,000 with
interest payable monthly at the prime rate plus 1% per year. The borrowing base
is determined based on 60% of eligible accounts receivable, as defined. The
Company had outstanding borrowings of $500,000 under the Note as of March 21,
1997. Funds available under the Note are reduced by certain outstanding standby
letters of credit issued on behalf of the Company. In addition to the $500,000
outstanding under the Note, the Company has as of March 21, 1997, six
outstanding standby letters of credits aggregating $524,000. One letter of
credit is issued to the Company's primary video equipment supplier as collateral
for the Company's purchasing line of credit with such supplier. Of the
remaining five letters of credit, four are issued in favor of one leasing
company in connection with certain capital lease transactions relating to the
purchase of computer equipment and furniture, and one is issued to a surety
company in connection with its issuance of a performance bond on behalf of the
Company. The letter of credit holders may draw against the letters of credit if
the Company fails to make timely payments or meet certain other conditions. As a
result of issuing the six standby letters of credit, the credit line available
under the Note has been reduced to $1,226,000.
The Company's wholly-owned subsidiary, UST, maintains a revolving credit
agreement with a bank. The agreement, pursuant to the terms of a forbearance
agreement, as amended, allows the subsidiary to borrow up to the lesser of the
financial borrowing base, as defined, or $1,850,000. The bank has a
23
<PAGE>
security interest in the subsidiary's assets and the Company is guaranteeing the
repayment of amounts borrowed under the line. In addition, the subsidiary has
agreed, among other things, to maintain certain financial covenants and ratios,
as defined. As of December 31, 1996, UST was in compliance with the covenants or
had received waivers under the forbearance agreement. Interest on the
outstanding balance is payable monthly at the bank's base rate (8.25% at
December 31, 1996) plus 1.5%. In November 1996, UST amended its revolving line
of credit and forbearance agreement with the bank whereby the revolving line of
credit and forbearance agreement have been extended to March 31, 1997. UST
recently renegotiated this credit facility whereby it was extended through
August 31, 1997 with a borrowing base of $3,500,000.
In addition, UST had maintained a lease line-of-credit agreement with a bank
which was converted into a term note as part of the forbearance agreement. At
December 31, 1996, there was approximately $826,000 outstanding under this
facility. UST is required to maintain certain restrictive covenants, including
profitability and liquidity covenants. Amounts outstanding bear interest at
rates ranging from 5.6% to 8.3%. As of December 31, 1996, UST was in compliance
with the covenants or had received waivers under the forbearance agreement. In
connection with the renewal of the UST's revolving credit agreement, the lease
line term note was revised to provide for additional credit of $250,000. This
credit facility expires on August 31, 1997.
The Company sold to one investor, Telcom Holding, LLC, an aggregate of
$2,860,000 worth of common stock on three separate closings occuring in January
and March, 1997. In addition, the Company issued an aggregate of 487,500
warrants to purchase common stock at 6.50 per share in connection with this
transaction. The Company will use such funds for working capital and to pay a
portion of the costs incurred in connection with the Merger.
UST's lines of credit are due on August 31, 1997. UST is subject to a
forbearance agreement which enables the lender to foreclose on the debt if UST's
financial condition falls below certain minimum standards. The forbearance
agreement, as amended, was originally entered into on June 14, 1995. Based on
UST's relationship with the lender, the Company's management anticipates that
the lender will refinance the lines of credit or extend the date on which the
lines of credit must be paid. However, if the lender does not refinance such
lines of credit and the Company has not raised additional equity and/or arranged
for alternative bank financing, the Company will not have sufficient cash to
repay the lender when the debt comes due. There can be no assurance that the
Company will be able to renegotiate the lines of credit with the lender, and if
the lender requires payment in August 1997, there can be no assurance that the
Company will be able to raise the additional funds necessary to meet the
Company's operating needs and capital requirements or that such funds, if
available, can be obtained on terms acceptable to the Company. The failure to
refinance the lines of credit, raise additional capital or obtain additional
bank financing will have a material adverse effect on the Company's business,
financial condition and results of operations. To the extent that the Company
raises additional capital by issuing equity securities, ownership dilution to
current stockholders of the Company will result.
The Company may require additional working capital to efficiently operate its
business, continue to implement its growth strategy and to adequately provide
for its working capital needs. In this regard, the Company will continue to seek
private equity or debt financing to satisfy its capital needs. However,
exclusive of the cash required to repay the UST debt obligations on August 31,
1997 and to fund additional expansion activities, the Company believes that its
existing cash balances, combined with its anticipated operating cash flow and
borrowings under existing credit facilities will be adequate to meet the
Company's on-going cash needs for the next twelve months.
RISK FACTORS
FUTURE FINANCING REQUIREMENTS
The Company may require additional working capital in order to operate its
business efficiently and to implement its internal expansion and acquisition
strategy. The Company plans to raise additional
24
<PAGE>
capital to meet such needs in either the form of a private placement of its
securities and/or traditional bank financing, or a combination of both. In
connection with the private placement of its securities, the Company sold to one
investor, Telcom Holdings, LLC, an aggregate of $2,860,000 worth of equity
securities on three separate closings occurring on January 15, 1997, January 31,
1997, and March 10, 1997. There can be no assurance, however, that the Company
will be able to raise any additional funds that may be necessary to meet the
Company's future capital needs or that such additional funds, if available, can
be obtained on terms acceptable to the Company. The failure to raise additional
capital, when and if needed, on terms acceptable to the Company could force the
Company to alter its business strategy, including but not limited to, its
acquisition strategy, in the future.
UNASCERTAINABLE RISKS DUE TO RAPID EXPANSION AND FUTURE ACQUISITIONS
Management anticipates that the Company will continue to grow not only through
internal expansion and the opening of additional offices in new territories, but
also through acquisitions of other entities. Since July 1992, View Tech, by
virtue of its expansion activity, has grown from two employees in one location
to 294 employees in 16 locations at March 21, 1997. In the past six months, View
Tech has acquired three businesses, including USTeleCenters. By virtue of rapid
internal growth and external growth through acquisitions, the Company will be
subject to the uncertainties and risks associated with any expanding business.
In light of the potential significance of these changes and the absence of a
history of combined operations of View Tech with another entity, it is possible
that the Company will encounter difficulties, such as, integration of
operations, inefficiencies due to duplicative functions, management and
administrative differences and overlapping, competing or incompatible areas of
business and operations, that cannot presently be ascertained. There can be no
assurance that the Company will achieve the anticipated benefits of its recent
acquisitions. Such acquisitions could place significant demands on the Company's
financial resources and management and cause disruption of the Company's
operations due to the additional demands placed on the Company's management in
order to integrate such operations.
LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING
RESULTS; FUTURE RESULTS OF OPERATIONS UNCERTAIN
View Tech and USTeleCenters have operated since 1992 and 1987, respectively.
On a combined basis, the Company incurred a net loss for the six months ended
December 31, 1996 (including the write-off of merger costs of $2,563,573) and
the fiscal year ended June 30, 1995, and has operated as a combined entity since
November 29, 1996. Although the Company achieved profitability and reported net
income of $424,056 for fiscal 1996, it reported a net loss of $3,017,218 and
$1,876,810 and for the six months ended December 31, 1996 and the fiscal year
ended June 30, 1995. In the future, View Tech may continue to experience
significant fluctuations in operating results as a result of a number of
factors, including delays in product enhancements and new product introductions
by its suppliers, market acceptance of new products and services and reduction
in demand for existing products and services as a result of introductions of new
products and services by its competitors or by competitors of its suppliers. In
addition, View Tech's operating results may vary significantly depending on the
mix of products and services comprising its revenues in any period. There can be
no assurance that View Tech will achieve revenue growth or will be profitable on
a quarterly or annual basis in the future.
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL AND NYNEX
For the six months ended December 31, 1996, approximately 31% and 13% of
the Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and to the
25
<PAGE>
sale of network products and services provided by NYNEX, respectively.
Termination of or change of the Company's business relationships with PictureTel
or NYNEX, disruption in supply, failure of PictureTel or NYNEX to remain
competitive in product quality, function or price or a determination by
PictureTel or NYNEX to reduce reliance on independent providers such as the
Company would have a material adverse effect on the Company's business,
financial condition and results of operation. The Company is a party to
agreements with PictureTel and NYNEX that authorize the Company to serve as a
non-exclusive dealer and sales agent, respectively, in certain geographic
territories. The PictureTel and NYNEX agreements expire on August 1, 2000, and
December 31, 1998, respectively. The PictureTel and NYNEX agreements can be
terminated without cause upon 60 days and 12 months written notice by the
suppliers, respectively. There can be no assurance that these agreements will
not be terminated, or that they will be renewed on terms acceptable to the
Company. These suppliers have no affiliation with the Company and are
competitors of the Company.
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS
As of March 21, 1997, View Tech's officers and directors beneficially owned
approximately 45.5% (assuming all options held by executive officers and
directors are exercised) of the outstanding Common Stock of the Company. If the
executive officers and directors act collectively, assuming they continue to own
all their shares, there is a substantial likelihood that such holders will be
able to elect all of the directors of View Tech and to determine the outcome of
all corporate actions requiring the approval of the holders of the majority of
shares, such as mergers and acquisitions.
RAPIDLY CHANGING TECHNOLOGY AND OBSOLESCENCE
The market for communications products and services is characterized by
rapidly changing technology, evolving industry standards and the frequent
introduction of new products and services. View Tech's future performance will
depend in significant part upon its ability to respond effectively to these
developments. New products and services are generally characterized by improved
quality and function and are frequently offered at lower prices than the
products and services they are intended to replace. The introduction of products
embodying new technologies and the emergence of new industry standards can
render the Company's existing products and services obsolete, unmarketable or
noncompetitive. The Company's ability to implement its growth strategies and
remain competitive will depend upon its ability successfully to (i) maintain and
develop relationships with manufacturers of new and enhanced products that
include new technology, (ii) achieve levels of quality, functionality and price
acceptability to the market, (iii) maintain a high level of expertise relating
to new products and the latest in communications systems technology, (iv)
continue to market quality telecommunications services on behalf of its RBOC and
other exchange service carriers and (v) continue to design, sell, manage and
support competitive telecommunications solutions for its customers. There can be
no assurance, however, that the Company will be able to implement its growth
strategies or remain competitive. See "Business."
GOVERNMENT REGULATION; UNCERTAINTY RELATING TO THE TELECOMMUNICATIONS ACT OF
1996
The federal government and certain states in which the Company operates
regulate various aspects of its business. On February 8, 1996, the
Telecommunications Act of 1996 (the "Telecommunications Act") was enacted into
law. This comprehensive federal legislation will affect many sectors of the
telecommunications industry. Included in the new statute are provisions
relating, subject to certain limitations, to the opening up of local telephone
markets to competition and the elimination of restrictions on certain local
carriers' entry into the long distance telecommunications market. It is
26
<PAGE>
unknown as of the date of this filing what impact the Telecommunications Act
will have on the Company's telecommunications business; however, it is likely
that the Company will face significant additional competition from entities with
greater financial and managerial resources. Furthermore, in October 1996, the
United States Court of Appeals for the Eighth Circuit granted a stay of
implementation of the Telecommunications Act in response to lawsuits filed by
local telephone companies and state officials claiming that the new federal
rules are arbitrary and usurp states' rights. There can be no assurance that the
delay in implementation of the Telecommunications Act will not have a material
adverse effect on the ability of the Company to compete in the local telephone
markets.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VIEW TECH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants.................................................... 29
Report of Independent Public Accountants.................................................... 30
Consolidated Balance Sheets as of December 31, 1996,
June 30, 1996 and 1995.................................................................... 31
Consolidated Statements of Operations for the six months ended December 31, 1996
and 1995 (unaudited), and the years ended June 30, 1996, 1995 and 1994.................... 32
Consolidated Statement of Stockholders' Equity for the six months ended December 31, 1996
and the years ended June 30, 1996, 1995 and 1994.......................................... 33
Consolidated Statements of Cash Flows for the six months ended December 31, 1996
and 1995, and the years ended June 30, 1996, 1995 and 1994................................ 34
Notes to Consolidated Financial Statements.................................................. 35
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
VIEW TECH, INC.
We have audited the accompanying consolidated balance sheets of View Tech, Inc.
and subsidiary as of December 31, 1996, June 30, 1996 and June 30, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the six months ended December 31, 1996 and for each of the three years
in the period ended June 30, 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 financial statements as of June 30, 1996 and June 30, 1995,
and for each of the three years in the period ended June 30, 1996 have been
restated to reflect the pooling of interests as described in notes 1 and 4 of
the consolidated financial statements. We did not audit the financial
statements of USTeleCenters, Inc. , which statements reflect total assets of
$6,343,977 as of June 30, 1995 and total revenues of $21,534,482 and $22,033,697
for the years ended June 30, 1995 and December 31, 1994 respectively. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for
USTeleCenters, Inc. as of June 30, 1995, and for the years ended June 30, 1995
and December 31, 1994, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of View Tech, Inc. and
subsidiary as of December, 31, 1996, June 30, 1996 and June 30, 1995, and the
results of their operations and cash flows for the six months ended December 31,
1996 and for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the Consolidated Financial Statements, the statement
of operations, stockholders' equity and cash flows for the year ended June 30,
1994 combines dissimilar accounting periods of View Tech, Inc., and its
subsidiary.
CARPENTER, KUHEN & SPRAYBERRY
Oxnard, California
March 13, 1997
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To USTeleCenters, Inc.:
We have audited the balance sheets of USTeleCenters, Inc. (a Massachusetts
corporation) as of June 30, 1995 and December 31, 1994, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements, not included herein, 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 financial statements referred to above present fairly, in
all material respects, the financial position of USTeleCentrs, Inc. as of June
30,1995 and December 31, 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1, the Company was merged into View Tech, Inc., in November
1996.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 20, 1996
30
<PAGE>
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
DECEMBER 31, ----------------------------
1996 1996 1995
------------- ------------- ------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 365,139 $ 1,465,199 $ 4,987,939
Accounts receivable, (net of reserves of $479,774,
$220,182, and $728,000, respectively) 10,609,832 7,907,284 5,630,944
Inventory 2,063,028 1,748,555 1,069,198
Other current assets 737,980 916,621 279,410
----------- ----------- -----------
Total Current Assets 13,775,979 12,037,659 11,967,491
PROPERTY AND EQUIPMENT, net 2,798,476 2,720,422 2,332,456
GOODWILL (net of accumulated amortization of $32,954) 1,632,370 -- --
OTHER ASSETS 313,783 83,008 102,860
----------- ----------- -----------
$18,520,608 $14,841,089 $14,402,807
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,682,887 $ 4,910,774 $ 3,311,588
Notes payable to vendor -- 437,753 --
Current portion of long-term debt 2,610,163 2,998,582 3,840,821
Accrued merger costs 1,160,494 -- --
Other current liabilities 1,868,419 1,319,583 2,212,914
----------- ----------- -----------
Total Current Liabilities 13,321,963 9,666,692 9,365,323
----------- ----------- -----------
LONG-TERM DEBT 779,920 952,864 1,634,419
----------- ----------- -----------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.0001, authorized
5,000,000 shares, none issued or outstanding -- -- --
Common stock, par value $.0001, authorized
20,000,000 shares, issued and outstanding
5,666,814; 5,112,623 and 3,069,976 shares, respectively 567 51,125 30,699
Additional paid-in capital 9,934,236 6,669,268 6,295,282
Retained deficit (5,516,078) (2,498,860) (2,922,916)
----------- ----------- -----------
4,418,725 4,221,533 3,403,065
----------- ----------- -----------
$18,520,608 $14,841,089 $14,402,807
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED JUNE 30,
DECEMBER 31, ----------------------------------------------------
1996 1995 1996 1995 1994
------------ ------------ ------------- ----------------- ------------
(UNAUDITED)
------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales and service revenues $13,330,608 $ 8,190,091 $19,680,386 $10,801,669 $ 8,017,132
Agency commissions 6,547,974 5,733,995 11,313,350 17,696,300 18,114,987
----------- ----------- ----------- ----------- -----------
19,878,582 13,924,086 30,993,736 28,497,969 26,132,119
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold 10,235,235 5,954,744 14,269,108 7,618,770 5,610,713
Sales and marketing expenses 7,045,024 5,286,601 10,670,921 15,565,601 16,283,374
General and administrative expenses 2,918,880 2,244,387 5,230,209 4,990,572 5,041,385
Merger costs 2,563,573 -- -- -- --
----------- ----------- ----------- ----------- -----------
22,762,712 13,485,732 30,170,238 28,174,943 26,935,472
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations (2,884,130) 438,354 823,498 323,026 (803,353)
Other Expense (172,892) (171,351) (659,258) (592,853) (346,323)
Loss on Sublease, Including
Shutdown of Offices -- -- -- (1,312,900) (318,000)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (3,057,022) 267,003 164,240 (1,582,727) (1,467,676)
Provision for Income Taxes 39,804 127,186 259,816 (294,083) 43,882
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $(3,017,218) $ 394,189 $ 424,056 $(1,876,810) $(1,423,794)
=========== =========== =========== =========== ===========
Earnings (Loss) per Share $(0.56) $0.07 $0.07 $(0.50) $(0.38)
=========== =========== =========== =========== ===========
Weighted Average Shares
Outstanding 5,400,785 5,653,232 5,676,304 3,765,467 3,716,974
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Additional Retained Total
------------- Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
------------- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 1,687,750 $ 16,877 $1,006,890 $ 145,790 $ 1,169,557
Shares issued under stock
option plan 2,226 22 17,978 -- 18,000
Stockholder distributions -- -- -- (741,154) (741,154)
Net loss -- -- -- (1,423,794) (1,423,794)
--------- -------- ---------- ----------- -----------
1,689,976 16,899 1,024,868 (2,019,158) (977,391)
Adjustment for effect of
inclusion of duplicate period (2,226) (22) (17,978) 1,165,169 1,147,169
--------- -------- ---------- ----------- -----------
Balance, June 30, 1994 1,687,750 16,877 1,006,890 (853,989) 169,778
Issuance of common stock 1,380,000 13,800 5,270,414 -- 5,284,214
Shares issued under stock
option plan 2,226 22 17,978 -- 18,000
Stockholder distributions -- -- -- (192,117) (192,117)
Net loss -- -- -- (1,876,810) (1,876,810)
--------- -------- ---------- ----------- -----------
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 including deferred tax
effects of exercise of stock 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
========= ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED JUNE 30,
DECEMBER 31, ------------------------------------------------
1996 1995 1996 1995 1994
------------ ------------ ------------- ---------------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(3,017,218) $ 394,189 $ 424,056 $(1,876,810) $(1,423,794)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 530,960 428,254 872,969 909,258 729,196
Noncash merger expenses 340,689 -- -- -- --
Noncash charge relating to loss on sublease
including shutdown of offices -- -- -- 678,847 318,000
Reserve on note receivable -- -- 265,000 -- --
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable, net (2,521,215) (886,376) (2,276,340) (1,329,527) (973,376)
Inventory (314,473) (422,469) (679,357) (586,790) 228,564
Other assets 87,836 (474,154) (617,359) 417,291 36,949
Accounts payable 2,247,748 1,149,369 2,299,539 532,287 1,156,602
Other accrued liabilities 1,647,700 (1,002,446) (1,232,266) 557,962 (469,328)
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities (997,973) (813,633) (943,758) (697,482) (397,187)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (492,684) (562,443) (865,496) (831,070) (785,896)
Proceeds from sale of assets 14,937 -- -- -- --
Acquisition of VistaTel and GroupNet (155,163) -- -- -- --
Issuance of notes receivable -- -- (265,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities (632,910) (562,443) (1,130,496) (831,070) (785,896)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Net borrowings (payments) on line of credit (38,677) -- 43,473 418,103 965,745
Issuance of term note payable to bank -- -- -- 1,500,000 1,500,000
Long term debt reduction (786,483) (2,046,624) (1,886,371) (698,977) (479,507)
Stockholder distributions -- -- -- (192,117) (741,154)
Issuance of common stock, net 1,355,983 384,522 394,412 5,302,214 18,000
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
financing activities 530,823 (1,662,102) (1,448,486) 6,329,223 1,263,084
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash (1,100,060) (3,038,178) (3,522,740) 4,800,671 80,001
Cash, beginning of period 1,465,199 4,987,939 4,987,939 187,268 107,267
----------- ----------- ----------- ----------- -----------
Cash, end of period $ 365,139 $ 1,949,761 $ 1,465,199 $ 4,987,939 $ 187,268
=========== =========== =========== =========== ===========
Supplemental Disclosures:
Operating activities reflect:
Interest Paid $ 191,342 $ 273,695 $ 467,061 $ 454,319 $ 253,211
=========== =========== =========== =========== ===========
Income Taxes paid $ -- $ 156,028 $ 375,480 $ 27,580 $ 148,800
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE BUSINESS
- -----------------------
View Tech, Inc., which commenced operations in July 1992, markets and installs
video communications systems and provides continuing services related to
installed systems to customers in select states throughout the United States.
On November 29, 1996, View Tech completed the acquisition of USTeleCenters,
Inc., a Massachusetts corporation, ("USTeleCenters") by means of a merger of
USTeleCenters with and into View Tech Acquisition, Inc., a Delaware corporation
and a wholly-owned subsidiary of View Tech ("VTAI") (the "Merger"). The Merger
was effected pursuant to a Merger Agreement by and among the Company, VTAI and
USTeleCenters, dated September 5, 1996, as amended on October 31, 1996. In
exchange for all of the outstanding shares of USTeleCenters common stock, $0.01
par value, the USTeleCenters shareholders received 2,240,976 shares of View Tech
common stock (excluding options convertible into 184,003 shares of View Tech
common stock).
Following the Merger, VTAI changed its name to "USTeleCenters, Inc." ("UST")
and continued to operate the former businesses of USTeleCenters. Concurrent with
the Merger, which was approved at View Tech's annual meeting of stockholders on
November 26, 1996, View Tech reincorporated in Delaware from California, changed
the par value of its common stock and its preferred stock to $0.0001 from $0.01,
amended its bylaws to provide for a staggered board of directors, and increased
its authorized number of shares of common stock to 20,000,000 shares from the
original 10,000,000 shares. View Tech and UST (collectively referred to as "View
Tech" or the "Company") have 16 offices nationwide. As a result of the Merger
the Company designs, sells, and supports telecommunication systems solutions for
small and medium-sized businesses throughout the United States. The Company
also sells telecommunication services on behalf of certain Regional Bell
Operating Companies ("RBOCs").
The Merger was accounted for as a pooling of interests, accordingly, the
Company's financial statements have been restated for all periods prior to the
Merger to include the results of operations, financial position, and cash flows
of USTeleCenters. The Company wrote off merger costs of $2,563,573 upon
consummation of the Merger. Such costs include financial advisory, legal and
accounting fees incurred in connection with the Merger.
USTeleCenters incurred significant losses in the year ended June 30, 1995,
which resulted in noncompliance under certain of its bank covenants and resulted
in USTeleCenters restructuring its operations. Certain restructuring costs,
primarily severance, lease termination costs and fixed-asset write-offs were
recorded during the year ended June 30, 1995.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------
Principles of Consolidation. The accompanying consolidated financial
---------------------------
statements include the accounts of the Company and its wholly-owned subsidiary.
All significant intercompany transactions have been eliminated.
The historic year end of UST is December while that of View Tech is June.
The consolidated statement of operations and cash flows for the year ended June
30, 1994 includes the operations of View Tech for the twelve months ended June
30, 1994 and for UST the twelve months ended December 31, 1994. The combining
of different year ends results in the duplication of UST's loss from operations
and cash flows for the six month period from July 1, 1994 to December 31, 1994.
This period is included in the consolidated statements of operations and cash
flows for both the years ended June 30, 1994 and 1995. UST experienced a loss
of $1,104,000 from operations for the six month period ended December 31, 1994
on revenues of $10,461,000.
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 six months ended December 31, 1995 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.
35
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 title to the equipment passes
to the customer. 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 are billed as a single charge and 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 at
the time of installation, with a reserve established for the estimated future
costs of warranty services. Services rendered with respect to previously
installed systems are also billed as a single charge and consist of engineering
services related to evaluation and enhancement of equipment, additional
technical and user training, and extended warranty services. The related
revenue is also recognized at the time the majority of the services are
rendered, with a similar reserve established for the estimated costs of the
warranty services included in the charge. Subsequent to June 30, 1996, the
Company revised its services with respect to previously installed systems.
These revised services are warranty services only and therefore the revenue 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.
These agency commissions are classified as outside sales when made to commercial
accounts and are classified as inside sales when made to retail accounts. At
June 30, 1995, the Company recognized revenues on all commissions at the time
that it received an order number for installation or at the time the service was
performed by the local exchange carrier or telecommunications company.
During the fiscal year ending June 30, 1996, the company changed its revenue
recognition policy due to operational and procedural changes made by certain
local exchange carriers whereby the carrier changed the procedures in issuing
order numbers. 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 orders that do not receive an order
number. Certain of the entities have the right to credit or charge back future
commission payments on orders canceled within a six to ten month period from the
date of order. Provisions for cancellations are made at the time revenue is
recognized. 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, 1996.
In addition, under its agreement with NYNEX, 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. Net income per share is computed on the basis of the
--------------
weighted average number of shares of common stock and common equivalent shares
outstanding after consideration of the shares issued to consummate the Merger.
Common equivalent shares represent the number of shares which would be issued
assuming the exercise of dilutive stock options, reduced by the number of shares
which would be repurchased from the proceeds of such exercises. All options
granted by the Company at a price less than the initial public offering price
during the 12 months preceding the initial public offering (using the treasury
stock method until shares are issued) have been included in the calculation of
common and common equivalent shares outstanding for the periods presented if
dilutive.
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. Short-term investments are stated at lower of cost or
market and are insured up to $100,000 by the FDIC.
36
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 and amortization 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.
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.
Prior to the merger, UST was an S Corporation for federal income tax purposes
pursuant to Section 1362(a) of the Internal Revenue Code. As an S Corporation,
all items of income or loss passed through to the stockholders and were
reportable on their individual income tax returns. UST had elected to be
treated as a C Corporation in California and New York. As a C Corporation UST
is responsible for paying all taxes on income allocable to these states.
The Commonwealth of Massachusetts imposes income taxes at the corporate level
on certain S Corporations with annual revenues in excess of $6 million. As
such, UST is subject to taxes at the corporate level in this state.
Effective on November 29, 1996, UST was acquired by View Tech, Inc. in an
IRC(S)368(A)(1)(d) tax free reorganization. As a result, UST is no longer
eligible to be an S Corporation as of that date. Income taxes have been
recalculated on the income earned from November 29 through December 31, 1996.
Furthermore, deferred taxes have been calculated based on UST's new status as a
C Corporation.
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 investments in excess of FDIC
limits and the dependence on a major equipment vendor.
For the six months ended December 31, 1996, approximately 31% of the
Company's revenues are attributable to the sale of equipment manufactured by
PictureTel and approximately 13% and 11% of revenues are attributable to the
sale of network products and services provided by NYNEX and Bell Atlantic,
respectively. Termination or change of the Company's business relationship with
PictureTel and/or NYNEX, 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.
Reclassifications. The Company has reclassified certain selling and
-----------------
marketing expenses and general and administrative expenses for prior years in
order to conform to the current period's presentation.
37
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BASIS OF PRESENTATION
- --------------------------------
A reconciliation of consolidated total revenues and net income to amounts
applicable to the separate pooled companies prior to the Merger (effective,
November 29, 1996) is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
Total revenues:
View Tech.............. $13,346,103 $ 6,963,487 $ 4,098,422
USTeleCenters.......... 17,647,633 21,534,482 22,033,697
----------- ----------- -----------
$30,993,736 $28,497,969 26,132,119
=========== =========== ===========
Net income (loss):
View Tech.............. $ (696,060) $ 458,890 $ 35,428
USTeleCenters.......... 1,120,116 (2,335,700) (1,459,222)
----------- ----------- -----------
$ 424,056 $(1,876,810) (1,423,794)
=========== =========== ===========
Net income (loss) per share
(fully-diluted basis):
View Tech.............. $ (.13) $ .12 $ .01
USTeleCenters.......... .20 (.62) (.39)
----------- ----------- -----------
$ .07 $ (.50) $ (.38)
=========== =========== ===========
</TABLE>
NOTE 4 -- BUSINESS COMBINATION
- -------------------------------
On November 29, 1996, the Company acquired USTeleCenters, which is an
authorized sales agent for several of the Regional Bell Operating Companies
("RBOC's"). 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.
NOTE 5 -- ACQUISITIONS
- -----------------------
VistaTel International, Inc.
- ---------------------------
Effective July 1, 1996, the Company acquired the net assets of VistaTel
International, Inc., ("VistaTel") a private company, based in Boca Raton,
Florida, which is a supplier of video conferencing products and services within
the state of Florida and is one of PictureTel's national resellers. View Tech
issued 52,857 shares of common stock, valued at $7.00 per share, to the sole
shareholder of VistaTel. The excess of the acquisition price over the net
assets acquired of approximately $339,000 is accounted for as goodwill and is
being amortized over 15 years.
38
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GroupNet, Inc.
- -------------
Pursuant to a merger agreement dated August 30, 1996, View Tech acquired
GroupNet, Inc., ("GroupNet") for cash and View Tech common stock valued at
$1,380,000. The purchase price consisted of 150,000 shares of common stock
valued at $7.00 per share and $330,000 in cash. The excess of the acquisition
price over the net assets acquired of approximately $1,330,000 is accounted for
as goodwill and is being amortized over 15 years. GroupNet, based in Boston,
Massachusetts, was an authorized PictureTel dealer in the northeastern United
States. GroupNet merged into View Tech, which will continue to operate the
business of GroupNet.
<TABLE>
<CAPTION>
Operating results for the purchased businesses were not significant.
NOTE 6 -- CASH
- --------------
Cash is summarized as follows: December 31, June 30,
-------------- --------------- -------------
1996 1996 1995
-------------- --------------- -------------
<S> <C> <C> <C>
Cash in money market..... $231,204 $1,014,356 $4,602,035
Cash in other accounts... 133,935 450,843 385,904
-------- ---------- ----------
$365,139 $1,465,199 $4,987,939
======== ========== ==========
</TABLE>
As of December 31, 1996, cash deposits of $150,000 are restricted for use as
collateral in connection with an outstanding letter of credit of $250,000 to
PictureTel.
NOTE 7 -- INVENTORY
- --------------------
Inventories are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Demonstration equipment............................. $ 912,380 $ 488,148 $ 155,142
Finished goods...................................... 758,468 625,365 484,841
Spare parts......................................... 700,929 695,042 491,928
---------- ---------- -----------
2,371,777 1,808,555 1,131,911
---------- ---------- -----------
Less reserve for obsolescence....................... 308,749 60,000 62,713
---------- ---------- -----------
$2,063,028 $1,748,555 $ 1,069,198
========== ========== ===========
NOTE 8 -- PROPERTY AND EQUIPMENT
- ----------------------------------------------------
Property and equipment are summarized as follows:
Computer equipment and software..................... $1,370,375 $1,049,367 $ 477,594
Equipment........................................... 1,337,394 1,199,034 682,163
Furniture and fixtures.............................. 590,511 587,421 912,228
Leasehold improvements.............................. 375,205 321,889 203,257
Autos............................................... 21,505 18,931 2,793
---------- ---------- -----------
3,694,990 3,176,642 2,278,035
Less accumulated depreciation....................... 1,918,877 1,696,614 1,364,866
---------- ---------- -----------
1,776,113 1,480,028 913,169
Leased property and equipment under capital
leases, net of accumulated amortization........... 1,022,363 1,240,394 1,419,287
---------- ---------- -----------
$2,798,476 $2,720,422 $ 2,332,456
========== ========== ===========
</TABLE>
39
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT
- ------------------------
<TABLE>
<CAPTION>
Long-term debt consists of the following:
June 30,
December 31, ------------------------
1996 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Revolving line of credit with bank............. $1,829,428 $1,868,105 $1,887,126
Capital lease obligations (see Note 10)........ 1,154,013 1,379,380 1,551,835
Note payable - former GroupNet, Inc., owner.... 203,340 -- --
Due to landlords (see Note 11)................. 126,733 217,165 283,385
Deferred rent.................................. 76,572 56,796 71,428
Term note due to a bank........................ -- 430,000 1,350,000
Note payable - Small Business Administration... -- -- 331,466
---------- ---------- ----------
3,390,086 3,951,446 5,475,240
Less current maturities........................ 2,610,166 2,998,582 3,840,821
---------- ---------- ----------
$ 779,920 $ 952,864 $1,634,419
========== ========== ==========
</TABLE>
The Company maintains a $500,000 credit facility (the "Note") to meet its
working capital needs, if required, which is secured by certain of the Company's
assets. The Note provides for interest at the prime rate plus one and one-half
percent per year and expires on February 19, 1997. Funds available under the
Note are reduced by certain outstanding standby letters of credit issued on
behalf of the Company. No amounts were outstanding under the Note at December
31, 1996, although the Company has as of December 31, 1996, five outstanding
standby letters of credits aggregating $274,000 of which four were issued in
favor of one leasing company in connection with certain capital lease
transactions relating to the purchase of computer equipment and furniture and
one was issued to a surety company in connection with its issuance of a
performance bond on behalf of the Company. The letter of credit holders may draw
against the letters of credit if the Company fails to make timely payments or
meet certain other conditions. As a result of issuing the five standby letters
of credit, the balance available under the Note has been reduced to $226,000.
This credit facility was renewed effective, February 19, 1997 through October 1,
1997. The facility provides for a borrowing base of up to $1,750,000 with
interest payable monthly at the prime rate, plus 1% per year.
The Company's wholly-owned subsidiary maintains a revolving line of credit
with a bank. The bank has a security interest in the Company's assets. In
addition, the Company has agreed, among other things, to maintain certain
financial covenants and ratios, as defined. As of December 31, 1996, the
Company's subsidiary was in compliance with the covenants or had received
waivers under a Forbearance Agreement. Under the terms of the Forbearance
Agreement, the subsidiary may borrow up to the lesser of the financial borrowing
base, or $1,850,000. At December 31, 1996, approximately $1,829,400 was
outstanding on the revolving line of credit. Interest on the outstanding
balance is payable monthly at the bank's base rate (8.25% at December 31, 1996)
plus 1.5%. The subsidiary's outstanding credit facilities are guaranteed by
View Tech.
On November 27, 1996, the revolving line of credit and Forbearance Agreement
was amended and extended to March 31, 1997. UST is currently renegotiating the
terms and conditions of this credit facility whereby the facility would be
extended through August 31, 1997 with an increased borrowing base of up to
$3,500,000.
The Company's subsidiary had maintained a lease line-of-credit agreement with
a bank which was converted into a term note as part of the forbearance
agreement. At December 31, 1996, there was approximately $826,000 outstanding
under this facility. The subsidiary is required to maintain certain restrictive
covenants, including profitability and liquidity covenants. Amounts outstanding
bear interest at rates ranging from 5.6% to 8.3%. As of December 31, 1996, the
subsidiary was in compliance with the covenants or had received waivers under
the Forbearance Agreement. In connection with the renewal of its revolving
credit agreement, UST is negotiating to revise the lease line terms to provide
for additional credit of $250,000 and an extension of the term to August 31,
1997.
40
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the acquisition of GroupNet, Inc., part of the purchase
price consisted of $330,000 (see Note 5) of which $110,000 was paid on August
30, 1996 in connection with the execution of the purchase agreement, and
$220,000 was payable in equal installments of $110,000 due in October and
December of 1996. The note was subsequently extended to April 15, 1997. At
December 31, 1996, $203,340 was outstanding.
NOTE 10 -- LONG-TERM CAPITAL LEASE OBLIGATIONS
- -----------------------------------------------
The Company leases a portion of its machinery and equipment under certain
capital lease agreements. The following is an analysis of the leased equipment:
<TABLE>
<CAPTION>
June 30,
December 31, -------------------------
1996 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Computer equipment.............. $ 825,178 $ 825,178 $ 648,324
Equipment....................... 167,586 167,586 140,518
Furniture and fixtures.......... 1,376,230 1,332,430 1,194,298
---------- ---------- ----------
2,368,994 2,325,194 1,983,140
Less accumulated amortization... 1,346,631 1,084,800 563,853
---------- ---------- ----------
$1,022,363 $1,240,394 $1,419,287
========== ========== ==========
</TABLE>
The following is a schedule of future minimum lease payments required under
capital leases, together with their present value as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997................................................. $ 531,093
1998................................................. 424,870
1999................................................. 359,757
2000................................................. 81,540
2001 and thereafter.................................. 8,954
----------
Net minimum lease payments........................... 1,406,214
Less amount representing imputed interest............ 252,201
----------
Present value of net minimum lease payments.......... $1,154,013
==========
</TABLE>
The current portion due under capital lease obligations at December 31, 1996,
and June 30, 1996 and 1995, was $450,669, $527,977, and $543,279, respectively.
NOTE 11 -- AMOUNTS DUE TO LANDLORDS
- ------------------------------------
In 1994, the Company's wholly-owned subsidiary entered into a sublease
agreement for its previously occupied facility. Under the terms of the
sublease, the Company is still primarily liable for the amounts due under the
original lease. Under the terms of the sublease agreement, the subsidiary is
required to make payments to the landlord for the monthly differential between
the original lease amount (approximately $23,700 per month) and the sublease
income (approximately $14,000 per month). The Subsidiary is required to pay
approximately $9,700 per month through June 1997. The balance of net future
amounts due to the former landlord is $39,744 as of December 31, 1996.
41
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1995 the subsidiary financed $150,880 of leasehold improvements through an
allowance from the landlord. As of December 31, 1996, approximately $66,000 is
outstanding for these improvements. This amount is being repaid in monthly
installments of approximately $5,000 through December 1997. In connection with
the restructuring discussed in Note 1, the subsidiary wrote off these
improvements and recorded a loss of approximately $151,000. Additionally, the
subsidiary entered into a sublease agreement for this facility. The subsidiary
recorded a loss of approximately $104,000 in 1995, which represented the
difference between the total future payments reduced by sublease amounts paid
directly to the landlord. In the event that the sublease fails to make its
required monthly payments of approximately $12,000 through August 1998, the
Company is still primarily liable for such sums.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
- -----------------------------------------
The Company leases its facilities in Arizona, California, Colorado, Florida,
Georgia, Massachusetts, New York, Tennessee, Texas, and Utah, under operating
leases expiring through September 30, 2001. Certain leases require the Company
to pay increases in real estate taxes, operating costs and repairs over certain
base year amounts. The Company also leases certain equipment. Lease payments
for the six months ended December 31, 1996 and for the years ended June 30,
1996, 1995, and 1994 were approximately $553,250, $1,160,000, $885,000, and
$826,000, respectively.
Minimum future rental commitments under non cancelable operating leases
(including amounts due to landlords, net of any sublease income) are as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
1997.................. $1,086,564
1998.................. 715,320
1999.................. 577,369
2000.................. 450,774
2001 and thereafter... 280,614
----------
$3,110,641
==========
</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's primary supplier, PictureTel Corporation ("PictureTel"),
provides the Company with a purchasing line of credit and requires the Company
to maintain a letter of credit for $250,000 in favor of PictureTel in connection
with this arrangement. The $250,000 letter of credit is collateralized by cash
deposits of $150,000 and the assets of the Company.
The subsidiary is named in employee-related lawsuits, in which the plaintiffs
are seeking undisclosed damages. The Company is vigorously defending itself
against such litigation and does not expect the outcome to have a material
impact on its financial position.
NOTE 13 -- COMMON AND PREFERRED STOCK
- --------------------------------------
Common Stock. On March 20, 1995, the Company effected a 100-for-1 stock
------------
split, increasing the number of outstanding shares to 1,476,000. All share and
per-share data have been adjusted to reflect these adjustments to capital 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 it's stock from .01 to .0001 per share.
42
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Public Stock Offering. On June 15, 1995 the Company completed an initial
---------------------
public stock offering, "IPO" for the sale of 1,200,000 shares of its common
stock at $5.00 per share, less offering expenses. On June 25, 1995 the Company
transferred and closed the sale of an additional 180,000 shares of its common
stock to a representative of the Underwriters on the same terms, solely to cover
over-allotments. With the over-allotment option exercised in full, the total
price to the public, total underwriting discounts and expenses, other expenses
and net proceeds to the Company were $6,971,875, $978,343, $709,318, and
$5,284,214, respectively.
Warrants and Options. Included in the public stock offering in June 1995,
--------------------
was the sale of 575,000 warrants to the public. All warrants are exercisable at
$5.00 per share for a period of two years commencing one year after the
effective date of the registration statement.
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.
In addition, as of December 31, 1996, the Company had outstanding an
aggregate of 401,000 options primarily to consultants and advisors to the
Company. Approximately 6,000 options were issued at a market price of $5.00,
the remainder of such options were issued at market prices ranging from $6.375
to $7.375 and are fully vested.
Preferred Stock. On February 1, 1995, the shareholders approved an amendment
---------------
to the Articles of Incorporation to authorize the issuance of 5,000,000 shares
of $.01 par value Preferred Stock. 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.
Stock Option Plan. In July 1994, the Company began granting stock options to
-----------------
key employees 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 shareholders.
The Company currently maintains two 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 1,135,000
shares of common stock to be available under the option plans.
43
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity in the plans on a consolidated basis during the six months ended
December 31, 1996 and for each of the three years in the period ended June 30,
1996 is summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price per Share Price per Share
---------- ---------------- ---------------
<S> <C> <C> <C>
Options Outstanding, June 30, 1993....... 16,560 $4.080 - 8.97 8.52
Granted............................... -- --
Exercised............................. -- --
Canceled.............................. -- --
--------- ---------------- -------
Options Outstanding, June 30, 1994....... 16,560 $4.080 - 8.97 8.52
Granted............................... 380,600 .250 - 5.000 1.86
Exercised............................. (2,208) 8.97 8.15
Canceled.............................. (11,605) .375 - 8.97 4.41
--------- ---------------- -------
Options Outstanding, June 30, 1995....... 383,347 .250 - 8.97 1.88
Granted............................... 682,503 .290 - 7.750 4.94
Exercised............................. (34,300) .250 - .375 .34
Canceled.............................. (25,447) .250 - 8.97 5.70
--------- ---------------- -------
Options Outstanding, June 30, 1996....... 1,006,103 .250 - 7.750 3.96
Granted................................ 46,000 6.250 - 7.00 6.78
Exercised............................. (2,500) .250 - 5.000 2.15
Canceled.............................. (10,000) .250 - 6.375 4.13
--------- ---------------- -------
Options Outstanding, December 31, 1996... 1,039,603 $ .250 - 7.75 4.09
========= ================ =======
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans. 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 Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
6 Months Ended 12 Months Ended
Dec. 31, 1996 June 30, 1996
------------- ----------------
<S> <C> <C>
Net income As reported $(3,017,218) $ 424,056
Pro forma (3,093,281) (608,563)
Primary earnings per share As reported (0.56) 0.07
Pro forma (0.57) (0.11)
</TABLE>
The weighted average fair value at the date of grant for options granted during
the six months ended December 31, 1996 and the year ended June 10, 1996, were
$2.16 and $1.40, respectively. The fair value of options at the grant date was
estimated using the Black-Scholes model with the following weighted average
assumptions: expected life - 2.5 years; volatility - 45.44%; dividend
yield - 0%; interest rate - 6.15% and 5.80%, respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Ranges of Number of Average Average Number of Average
Exercise Prices Shares Remaining Life Exercise Price Shares Exercise Price
- --------------- ----------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.25 to $0.38 393,306 7.7 $0.32 393,306 $0.32
$5.00 to $7.75 623,300 9.0 $6.38 632,300 $6.38
</TABLE>
Upon consummation of the Merger on November 29, 1996 (as discussed in
notes 1, 3, and 4) all unvested stock options became immediately vested and
exercisable. At such time, the Company assumed all unexercised USTeleCenters
stock options, totaling 184,006 shares based on a conversion ratio, as defined.
These options, assumed upon consummation, are also fully vested and immediately
exercisable.
44
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- PENSION AND PROFIT SHARING PLAN
- -------------------------------------------
The Company participates in two 401(k) retirement plans. Under the plans,
the Company's employees may contribute up to 15% of their compensation per year.
The Company may match employee contributions up to a maximum of $30,000 per
employee per year. All employees with six months of continuous service are
eligible to participate in the plan. Company contributions vest at 20% annually
over five years beginning on the second year of service.
Employer contribution to the 401(k) plans for the six months ended December
31, 1996, and for the three years in the period ended June 30, 1996 were
approximately $37,000, $67,000, $57,000 and $56,000, respectively.
NOTE 15 -- OTHER EXPENSE
- ------------------------
Other expense at December 31, 1996, is primarily comprised of net
interest expense. At June 30, 1996, other expense comprised of $265,000 incurred
in connection with the write-off of the Company's note receivable from Power-
Data Services, Inc. ("PDS") which was due on May 31, 1996. The note and
interest were not paid when due, therefore, the Company has deemed this note to
be uncollectible. Also included in other income (expense) at June 30, 1996, was
approximately $344,000 of net interest expense. Other income (expense) at June
30, 1995 and June 30, 1994 was primarily comprised of net interest expense.
NOTE 16 -- PROVISION FOR INCOME TAXES
- -------------------------------------
Benefit (Provision) for income taxes is as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------ ------------------------------
1996 1996 1995 1994
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Current:
Federal...................................... $ (5,814) $ 178,150 $(185,040) $ --
State........................................ 19,241 (93,100) (68,684) (800)
Deferred:
Federal...................................... 28,833 128,309 (34,031) 36,288
State........................................ (2,456) 46,457 (6,328) 8,394
-------- --------- --------- -------
$39,804 $259,816 $(294,083) $43,882
======== ========= ========= =======
</TABLE>
Total income tax expense differs from the expected tax expense (computed by
multiplying the United States federal statutory rate of approximately 35 percent
for the six months ended December 31, 1996, and years ended June 30, 1996 and
1995 to income before income taxes) as a result of the following:
Computed "expected" tax
<TABLE>
<S> <C> <C> <C> <C>
(expense) benefit......................... $ 1,069,957 $(57,484) $ 553,955 $ 513,687
State tax expense, net of federal benefit... 184,797 (9,608) 92,590 88,721
S corporation tax differential.............. 117,580 424,346 (817,495) (510,728)
Valuation allowance......................... (1,370,163) -- -- (25,690)
Other, net.................................. 37,633 (97,438) (123,133) (22,108)
----------- -------- --------- ---------
$ 39,804 $259,816 $(294,083) $ 43,882
=========== ======== ========= =========
</TABLE>
45
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The current portion of the Federal income tax benefit is comprised of an
income tax refund created by the carryback of a net operating loss. The primary
components of temporary differences which give rise to deferred taxes are as
follows:
<TABLE>
<CAPTION>
June 30,
December 31, ---------------------------------
1996 1996 1995 1994
----------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Deferred tax asset:
Merger............................. $ 1,001,648 $ -- $ -- $ --
Reserves and allowances............ 119,403 22,677 8,975 3,076
Net operating loss carryforward.... 552,293 165,007 21,038 67,296
Deferred tax valuation allowance... (1,370,163) -- (25,690) (25,690)
----------- -------- -------- --------
$ 303,181 $187,684 $ 4,323 $ 44,682
=========== ======== ======== ========
</TABLE>
Management has determined that the Company may not be able to realize the
tax benefits of the net deferred tax assets due to the uncertainty of the
future reversal of the taxable temporary differences.
At December 31, 1996, the Company had available net operating loss (NOL)
carryforwards of approximately $1,517,000 and $1,160,000 for federal and state
income tax purposes, respectively. The federal NOL has a carryover period of 15
years and is available to offset future taxable income, if any, through 2011,
and may be subject to an annual statutory limitation.
NOTE 17 -- SEGMENT INFORMATION (UNAUDITED)
- -------------------------------------------
The Company's operations are classified into two primary industry segments:
(a) product sales and service revenue generated from the sale of
telecommunication equipment and of videoconferencing and related services which
involve the marketing and installation of video communication systems and
providing continuing services related to installed systems, and (b) marketing
telecommunication services on behalf of certain RBOCs and exchange carriers for
an agency commission. Following is a summary of segment information for the six
months ended December 31, 1996 and for each of the three years in the period
ended June 30, 1996:
<TABLE>
<CAPTION>
PRODUCT SALES
AND SERVICE AGENCY
DECEMBER 31, 1996 REVENUES COMMISSION COMBINED
<S> <C> <C> <C>
Total Revenue.............................. $13,330,608 $6,547,974 $19,878,582
===========
Operating profit........................... 310,578 2,287,745 2,598,323
General corporate expenses................. (5,482,453)
Other expense.............................. (172,892)
-----------
Income (loss) from continuing operations
before income taxes....................... $(3,057,022)
===========
Identifiable assets at December 31, 1996... 3,082,986 1,263,231 $ 4,346,217
===========
Corporate assets........................... 14,174,391
-----------
Total assets at December 31, 1996.......... $18,520,608
===========
</TABLE>
46
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PRODUCT SALES
AND SERVICE AGENCY
JUNE 30, 1996 REVENUES COMMISSIONS COMBINED
<S> <C> <C> <C>
Total Revenue.............................. $19,680,386 $11,313,350 $30,993,736
===========
Operating profit........................... 1,828,707 4,225,000 6,053,707
General corporate expenses................. (5,230,209)
Other expense.............................. (659,258)
-----------
Income from continuing operations
before income taxes....................... $ 164,240
===========
Identifiable assets at June 30, 1996....... 2,404,065 1,257,000 $ 3,661,065
Corporate assets........................... 11,180,024
-----------
Total assets at June 30, 1996.............. $14,841,089
===========
JUNE 30, 1995
Total Revenue.............................. $10,801,669 $17,696,300 $28,497,969
===========
Operating profit........................... 796,598 4,517,000 5,313,598
General corporate expenses................. (4,990,572)
Other expense.............................. (1,905,753)
-----------
Income (loss) from continuing operations
before income taxes....................... $(1,582,727)
===========
Identifiable assets at June 30, 1995....... 1,879,913 1,461,330 3,341,243
Corporate assets........................... 11,061,564
-----------
Total assets at June 30, 1995.............. $14,402,807
===========
JUNE 30, 1994
Total Revenue.............................. $ 8,017,132 $18,114,987 $26,132,119
===========
Operating profit........................... 284,832 3,953,200 4,238,032
General corporate expenses................. (5,041,385)
Other expense.............................. (664,323)
-----------
Income (loss) from continuing operations
before income taxes....................... $(1,467,676)
===========
</TABLE>
47
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 -- SUPPLEMENTAL DISCLOSURES-CASH FLOW INFORMATION
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Years Ended June 30,
December 31, ------------------------------------
1996 1996 1995 1994
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Schedule of noncash transactions:
Noncash investing and financing transactions-
Cost of fixed assets purchased................. $ 508,421 $1,260,935 $1,726,132 $817,970
Less lease financing........................... 15,737 395,439 895,062 32,074
---------- ---------- ---------- --------
Cash paid for fixed assets..................... $ 492,684 $ 865,496 $ 831,070 $785,896
========== ========== ========== ========
Cost of acquisitions........................... $1,575,163 $ -- $ -- $ --
Less common stock issued....................... 1,420,000 -- -- --
---------- ---------- ---------- --------
Cash paid for acquisitions..................... $ 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. During the year
ended June 30, 1995, the Company acquired $150,880 of leasehold improvements
under allowance for amounts due to former landlords.
NOTE 19 -- RELATED PARTY TRANSACTIONS
- --------------------------------------
The Company had obtained a $100,000 letter of credit used to guarantee
payment to a major supplier. The letter of credit matured on July 1, 1995 and
was secured by a certificate of deposit owned by the Company's President. This
certificate of deposit was redeemed and returned to the Company's President. A
new letter of credit was obtained at the Company's primary banking institution.
NOTE 20 -- SUBSEQUENT EVENTS
- ----------------------------
The Company sold to one investor, Telecom Holding, LLC, an aggregate of
$2,860,000 worth of common stock on three separate closings occurring in January
and March, 1997. In addition, the Company issued an aggregate of 487,500
warrants to purchase common stock at 6.50 per share in connection with this
transaction. The Company will use such funds for working capital and to pay a
portion of the costs incurred in connection with the Merger.
48
<PAGE>
<TABLE>
SCHEDULE VIII
VIEW TECH, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS DEDUCTIONS
--------------------
BALANCE AT CHARGE TO ACCOUNTS BALANCE
BEGINNING COSTS AND CHARGED AT END
DESCRIPTION OF PERIOD EXPENSES OFF OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended --
June 30, 1994 .............................. $ 325,287 $ 4,166,953 $ 3,693,551 $ 798,689
Adjustment for 6 months ended
December 31, 1994, duplicate period ...... $ 798,689 $ 2,267,869 $ 2,717,820 $ 348,738
June 30, 1995 .............................. $ 348,738 $ 4,150,109 $ 3,770,847 $ 728,000
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
Inventory reserve for obsolescence:
Year ended --
June 30, 1994 .............................. $ 100,000 $ 30,000 $ 10,000 $ 120,000
Adjustment for 6 months ended
December 31, 1994, duplicate period ....... $ 120,000 $ 60,000 $ -- $ 180,000
June 30, 1995 .............................. $ 180,000 $ -- $ 117,287 $ 62,713
June 30, 1996 .............................. $ 62,713 $ 22,287 $ 25,000 $ 60,000
Six months ended --
December 31, 1996 .......................... $ 60,000 $ 280,882 $ 32,133 $ 308,749
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the transition period ended
December 31, 1996, which Proxy Statement will be filed with the Securities and
Exchange Commission on or about April 15, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the transition period ended
December 31, 1996, which Proxy Statement will be filed with the Securities and
Exchange Commission on or about April 15, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated by reference
from the Registrant's definitive Proxy Statement for the transition period ended
December 31, 1996, which Proxy Statement will be filed with the Securities and
Exchange Commission on or about April 15, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by
reference from the Registrant's definitive Proxy Statement for the transition
period ended December 31, 1996, which Proxy Statement will be filed with the
Securities and Exchange Commission on or about April 15, 1997.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
Report of Independent Public Accountants - Carpenter, Kuhen &
Sprayberry
Report of Independent Public Accountants - Arthur Andersen LLP
Consolidated Balance Sheets at December 31,
1996 and June 30, 1996 and 1995
Consolidated Statements of Operations for the six months ended
December 31, 1996 and for the years ended June 30, 1996, 1995 and 199
4 Consolidated Statements of Changes in Stockholders' Equity for the
six months ended December 31, 1996 and for the years ended June 30,
1996, 1995 and 1994 Consolidated Statements of Cash Flows for the six
months ended December 31, 1996 and for the years ended June 30, 1996,
1995 and 1994 Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES INCLUDED IN ITEM 8:
Schedule II- Valuation and Qualifying Accounts.
Schedules other than that referred to above have been omitted because
they are not applicable or are not required under the instructions
contained in Regulation S-X or because the information is included
elsewhere in the Consolidated Financial Statements or the Notes
thereto.
(3) EXHIBITS
The exhibits listed on the accompanying Exhibit Index are filed as
part of this Annual Report.
(b) Reports on Form 8-K:
- Current report on Form 8-K, filed on December 16, 1996, announcing
the change in the Company's year end from June 30 to December 31.
- Current report on Form 8-K, filed December 4, 1996, announcing the
consummation of the Company's merger with USTeleCenters, Inc. on
November 29, 1996.
- Current report on Form 8-K, filed September 24, 1996, announcing the
consummation of the acquisition of the net assets of GroupNet,
Inc. for stock and cash of $1,380,000.
- Form 8K/A-1, filed on October 30, 1996, providing historical and pro
forma financial statements for GroupNet, Inc. in connection with
the Company's acquisition of the net assets of GroupNet.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
View Tech, Inc.
---------------------------------
(Registrant)
Date: 3/27/97 By: /s/ William M. McKay
---------------- ---------------------------------
William M. McKay
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the 3/27/97
- ------------------------------ Board of Directors -------
Paul C. O'Brien
*
- ------------------------------ Chief Executive Officer 3/27/97
Robert G. Hatfield (Principal Executive Officer) -------
* President and Director 3/27/97
- ------------------------------ -------
John W. Hammon
/s/ William M. McKay Chief Financial Officer and 3/27/97
- ------------------------------ Secretary (Principal Financial -------
William M. McKay and Accounting Officer)
* Director 3/27/97
- ------------------------------ -------
Calvin M. Carrera
* Director 3/27/97
- ------------------------------ -------
Robert F. Leduc
* Director 3/27/97
- ------------------------------ -------
David F. Millet
* Director 3/27/97
- ------------------------------ -------
Franklin A. Reece, III
* By /s/ William M. McKay
------------------------
William M. McKay
Attorney-in-Fact
</TABLE>
52
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated September 5, 1996, by and among the
Company, View Tech Acquisition, Inc., a California corporation and
USTeleCenters, Inc., a Massachusetts corporation, as amended by
Amendment No. 1, dated October 31, 1996, by and among the Company,
View Tech Acquisition, Inc., a California corporation, USTeleCenters,
Inc., a Massachusetts corporation and View Tech Acquisition, Inc., a
Delaware corporation, to that certain Agreement and Plan of Merger,
dated as of September 5, 1996, by and among the Company, View Tech
Acquisition, Inc., a California corporation and USTeleCenters, Inc., a
Massachusetts corporation.(1)
2.2 Form of Agreement of Merger by and among the Company, USTeleCenters,
Inc., a Massachusetts corporation and View Tech Acquisition, Inc., a
Delaware corporation.(1)
2.3 Agreement and Plan of Merger, dated as of November 27, 1996 by and
among View Tech, Inc., a California corporation and View Tech
Delaware, Inc., a Delaware corporation.(2)
2.4 Sale Agreement between the Company and VistaTel International, Inc.,
dated July 10, 1996.(3)
2.5 Agreement and Plan of Merger by and among the Company, GroupNet, Inc.
and Andrew W. Jamison dated August 30, 1996.(4)
3.1 Certificate of Incorporation of the Company, as amended by Agreement
and Plan of Merger, dated November 27, 1996.(2)
3.2 Bylaws of the Company.(2)
4.1 Warrant Agreement dated as of June 28, 1995 between the Company and
U.S. Stock Transfer Corporation.(5)
4.2 Form of Warrant between the Company and Telcom Holding, LLC.(2)
10.1 Dealer Agreement between the Company and PictureTel Corporation dated
as of March 30, 1995.(6)
10.2 Employment Agreement between the Company and Franklin A. Reece, III
dated as of November 29, 1996.(6)
10.3 Reserved
10.4 Reserved
10.5 Employment Agreement between the Company and William M. McKay, dated
as of December 9, 1996.(7)
10.6 1995 Stock Option Plan, as amended.(8)
10.7 Amendment to the Dealer Agreement between the Company and PictureTel
Corporation, dated as of August 1, 1995.(5)
10.8 1997 Stock Incentive Plan.(1)
10.9 Loan and Security Agreement, dated as of July 26, 1996, by and between
the Company and USTeleCenters, Inc. and Promissory Note from
USTeleCenters, Inc.(3)
</TABLE>
53
<PAGE>
<TABLE>
Exhibit Index (Continued)
Exhibit
Number Description
------ -----------
<C> <S>
10.10 Subordination Agreement, dated as of July 26, 1996, by and among the
Company, the First National Bank of Boston, BancBoston Leasing, Inc.,
and USTeleCenters, Inc.(3)
10.11 Consulting Agreement, dated as of June 27, 1996, by and between the
Company and Windermere Holdings, Incorporated.(3)
10.12 Option Agreement, dated as of August 22, 1996 by and between the
Company and Rolf N. Hufnagel.(3)
10.13 Sublease Agreement, dated as of October 11, 1996, by and between
Atlantic Steel Industries, Inc. and the Company, (together with prime
Lease Agreement dated as of November 1, 1993 between Atlantic Steel
Industries, Inc. and the State of California Public Employees'
Retirement System).(2)
10.14 Common Stock and Common Stock Purchase Warrants Agreement, dated as of
December 31, 1996, by and between the Company and Telcom Holding, LLC,
a Massachusetts limited liability company.(2)
10.15 Letter Agreement, dated as of December 31, 1996, from the Company to
Paul C. O'Brien and Mark P. Kiley.(2)
10.16 Promissory Note of the Company, dated August 30, 1996, payable to
Andrew W. Jamison.(4)
10.17 Registration Rights Agreement, dated August 30, 1996, between the
Company and Andrew W. Jamison.(4)
10.18 Revolving Note with City National Bank, dated February 20, 1996.(9)
10.19 Loan Agreements with Power-Data Services, Inc., dated February 15,
1996 and March 22, 1996.(9)
11.1 Computation of Earnings Per Share.(7)
21.1 Subsidiaries of the Company.(7)
23.1 Consent of Carpenter, Kuhen and Sprayberry.(7)
23.3 Consent of Arthur Andersen LLP.(7)
24.1 Power of Attorney.(7)
27 Financial Data Schedule.(7)
</TABLE>
- --------------------------------------------------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-13459) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (Registration No.33-91232) and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1996, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Report on Form 8-K, dated September
24, 1996, relating to the completion of the acquisition by the Company of
GroupNet, Inc., and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1995, and incorporated herein by reference.
54
<PAGE>
(6) Filed as an Exhibit to the Company's Registration Statement on Form
SB-2 (registration No.333-19597), and incorporated herein by reference.
(7) Filed herewith.
(8) Filed an exhibit to the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended September 30, 1995, and incorporated herein by
reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended March 31, 1996, and incorporated herein by
reference.
55
<PAGE>
EXHIBIT 10.5
WILLIAM M. McKAY
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of this 9th day of
December 1996 is by and between VIEW TECH, INC., a Delaware corporation with its
principal place of business at 950 Flynn Road, Camarillo, California 93012
(hereinafter called the "Employer"), and William M. McKay, an individual
residing at 24606 Overland Drive, West Hills, California 91304 (hereinafter
called the "Employee").
WHEREAS, the Employer, recently acquired USTeleCenters, Inc., a
Massachusetts corporation ("UST"), by means of a merger between UST and View
Tech Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of
Employer ("VTAI"), whereby UST merged with and into VTAI (the "Merger"); and
WHEREAS, the Employer wishes to provide assurance to the Employee that his
duties, responsibilities and authority will not be reduced as a consequence of
the Merger; and
WHEREAS, the Employer desires to employ the Employee, who has served as its
secretary and chief financial officer since the May 1, 1995, on terms that
reflect the Company s desire to continue to employ the Employee in his current
capacity, and the Employee desires to accept such employment, all upon the terms
and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto hereby mutually agree as follows:
1. Employment. The Employer hereby employs the Employee, and the
----------
Employee hereby accepts such employment, upon and subject to the terms and
conditions set forth herein.
2. Effective Date and Term. This Agreement shall take effect as of the
-----------------------
date hereof (the "Effective Date") and shall continue thereafter in full force
and effect until December 31, 1998 (the "Expiration Date").
3. Title and Duties; Extent of Services. The Employee shall promote the
------------------------------------
business and affairs of the Employer as the Secretary and Chief Financial
Officer. The Employee shall report and be responsible to the Chief Executive
Officer of the Employer, and shall devote his full efforts, time, attention and
energies to the business and affairs of the Employer; provided, however, that
-------- -------
nothing in this Agreement or in the Employee's employment relationship with the
Employer shall prevent the Employee from having an ownership interest in, and
from rendering services to, other companies or entities so long as any such
ownership interest of the Employee or any such services rendered by the Employee
to any such other companies or entities do not interfere with the reasonable
performance of the Employee's duties and responsibilities hereunder.
4. Travel. During the term of this Agreement, the Employee shall engage
------
in reasonable business travel on behalf of the Employer.
5. Compensation and Benefits.
-------------------------
5.1. Salary. The Employer shall pay the Employee a salary at the
------
annual rate of $136,000. The Employee's salary, which may be increased from
time to time by the Chief Executive Officer (in the absence thereof, by the
Board of Directors) of the Employer (hereinafter, the "Salary"), shall not be
decreased without the consent of the Employee. The Employee's Salary shall be
paid in accordance with the Employer's payroll practices as in effect from time
to time.
0
<PAGE>
5.2. Fringe Benefits. In addition to the Salary provided for in
---------------
Section 5.1 above, in connection with the Employee's employment by the Company,
- -----------
the Employee shall be entitled to receive all fringe benefits customarily
offered by the Company to its senior executive officers, including without
limitation, an expense account and an automobile expense allowance.
5.3. Health and Dental Insurance. The Employee shall be entitled, on
---------------------------
a family coverage basis and at the Employer's sole cost and expense, to
participate in the health insurance plan (the Employer's Health Plan ) and the
dental insurance plan (the "Employer's Dental Plan") generally made available to
the Employer's executive officers.
5.4. Disability Insurance. The Employee shall be entitled to
--------------------
participate, at the Employer's sole cost and expense, in the long-term
disability insurance plan generally made available to other executive officers
of the Employer (the "L.T. Disability Plan").
5.5. Life Insurance. The Employee shall be entitled to participate,
--------------
at the Employer's sole cost and expense, in the life insurance plan of the
Employer (the "Life Insurance Plan") generally made available to other executive
officers of the Employer.
5.6. D&O Liability Insurance. The Employer shall maintain at all
-----------------------
times a directors and officers liability insurance policy (the "D&O Policy") and
the Employee shall be covered in his capacity as an officer of the Employer
under the D&O Policy. The cost of such coverage shall be borne by the Employer.
In addition, the Employee shall be entitled to indemnification from the Employer
for any claim, loss, damage or expense made against or suffered by the Employee
in his capacity as an officer of the Employer.
5.7. 401(k) Plan. The Employee shall be entitled to participate in
-----------
the Employer's 401(k) Plan and profit sharing plans on the same basis as other
officers of the Employer. The Employee shall be eligible to participate in the
Employer's 401(k) Plan and profit sharing plans commencing on the Effective
Date.
5.8. Vacation. The Employee shall be entitled to at least four weeks
--------
of vacation per fiscal year during which time his compensation shall be paid in
full, and any unused vacation time shall accrue from year to year in accordance
with the Employer s policy therefor.
5.9. Expense Reimbursement. The Employee may incur reasonable
---------------------
expenses in connection with the promotion of the Employer's business, all upon
presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting documentation as the Employer may reasonably
request. The Employer shall directly pay, or shall reimburse the Employee, for
all of such reasonable expenses.
5.10. Other Benefits. The Employee shall be entitled to receive such
--------------
other fringe benefits as are customarily provided by the Employer to other
officers.
6. Stock Option. The Employee shall be entitled to participate in
------------
the Employer's stock option plans on a basis consistent with other officers of
the Employer.
7. Termination.
-----------
7.1. Termination Rights of the Parties.
---------------------------------
(a) The Employee may terminate his employment hereunder at any time
for Good Reason (as defined below) by giving the Employer thirty (30) days'
prior written notice thereof, whereupon such employment shall terminate on the
earlier of (i) the 30th day following the date on which such notice is given to
the Employer or (ii) any date prior to such 30th day that is specified by the
Employer by written notice to the Employee. For purposes of this Agreement, the
term "Good Reason" shall mean (i) material breach by the Employer of any of the
terms or provisions of this Agreement, (ii) any event of bankruptcy or
insolvency in respect of the Employer, (iii) any diminution, on a cumulative
basis, of the Employee's duties, responsibility or
1
<PAGE>
authority to a level less than the duties, responsibility and authority of the
Employee as an officer of the Employer prior to the Merger, (iv) the principal
place of business at which the Employee performs his duties is changed to a
location outside Camarillo, California, or (v) the occurrence of a Change of
Control (as defined in Section 7.3 hereof).
(b) The Employee may terminate his employment hereunder for any reason
whatsoever at any time by giving ninety (90) days' prior written notice of such
termination, whereupon such employment shall terminate on the earlier of (i) the
90th day following the date on which such notice is given or (ii) any date prior
to such 90th day that is specified by the Employer by written notice to the
Employee.
(c) The Employer may terminate the Employee's employment hereunder at
any time for Cause (as defined below) by giving the Employee written notice of
such termination whereupon such employment shall terminate on the date such
written notice is given to the Employee. For purposes of this Agreement, the
term "Cause" shall mean (i) any willful misconduct by the Employee which
materially injures the Employer, (ii) any act of dishonesty in the Employee's
relations with the Employer or any of its directors, employees or vendors which
materially injures the Employer, (iii) any act of larceny, embezzlement,
conversion or any other similar act involving the misappropriation of Employer
funds in the course of the Employee's employment, (iv) any material breach of
this Agreement by the Employee which is not cured by the Employee within ten
(10) days after receiving written notice thereof from the Employer, or (v) the
conviction of the Employee of any felony which includes moral turpitude.
(d) The Employer may terminate the Employee's employment hereunder at
any time without Cause by giving the Employee ninety (90) days' prior written
notice thereof, whereupon such employment shall terminate on the earlier of (i)
the 90th day following the date on which such notice is given and (ii) any date
prior to such 90th day that is specified by the Employee by written notice to
the Employer.
(e) The Employee's employment hereunder shall terminate automatically
(i) upon the Employee's death or (ii) on the thirtieth (30th) day following any
determination of Disability (as defined below) in accordance with the procedures
specified in this Section 7.1(e). For purposes of this Agreement, the term
"Disability" shall mean an inability to perform the material services
contemplated under this Agreement for a period of six consecutive months. A
determination of Disability shall be made by a physician satisfactory to both
the Employee and the Employer, provided that, if the Employee and the Employer
-------- ----
do not agree on a physician, the Employee and the Employer shall each select a
physician and these two together shall select a third physician, whose
determination as to Disability shall be binding on all parties.
(f) The effective date of any termination of the Employee's employment
hereunder is hereinafter referred to as the "Termination Date."
7.2. Employee's Right to Compensation Following Termination; Severance
-----------------------------------------------------------------
Benefits.
- --------
(a) Upon any termination of the Employee's employment hereunder by the
Employer or the Employee for any reason whatsoever, or upon any termination of
the Employee's employment hereunder on account of his death or Disability, the
Employer shall (1) pay to the Employee all Salary accrued by the Employee
through the Termination Date, (2) pay to the Employee any accrued but previously
unpaid bonuses and (3) pay and make available to the Employee all other benefits
accrued by the Employee through the Termination Date pursuant to Section 5
hereof, all in the manner and at the time provided in said Section 5. Any
payments due or benefits owed to the Employee by the Employer under this Section
7.2(a) shall be paid or made available by the Employer to the Employee's legal
representative or heirs, as the case may be, upon the Employee's death or
Disability.
(b) Upon the termination of the Employee's employment hereunder by the
Employee for Good Reason pursuant to Section 7.1(a) hereof or by the Employer
without Cause pursuant to Section 7.1(d) hereof, the Employer shall provide
severance to the Employee by (1)
2
<PAGE>
continuing to pay to the Employee the Salary through (i) the first anniversary
of the Termination Date, or (ii) the Expiration Date, whichever period is
longer, in the manner and at the time provided in Section 5.1 hereof, and (2)
paying and making available to the Employee through (i) the first anniversary of
the Termination Date, or (ii) the Expiration Date, whichever period is longer,
all fringe benefits set forth in Section 5.3 through 5.10 hereof. Except as
provided under Section 7.3(c) below, the provisions of this Section 7.2(b) shall
not be applicable with respect to any termination of the Employee's employment
hereunder to the extent that the Employee shall be entitled to severance
therefor pursuant to Section 7.3 hereof.
7.3. Special Severance Upon a Change of Control.
------------------------------------------
(a) Notwithstanding anything in this Agreement (including, without
limitation, Section 7.2 hereof) to the contrary, in the event that the
Employee's employment under this Agreement is terminated by the Employer for any
reason whatsoever, or by the Employee with Good Reason (which for purposes of
this Section 7.3(a) shall mean the occurrence of any of the events described in
clauses (i), (ii), (iii) or (iv) of the definition of the term Good Reason as
set forth in Section 7.1(a) hereof), at any time within the two year period
after a Change of Control, the Employer shall, in addition to performing its
obligations under 7.2(a) hereof, provide severance to the Employee by (i)
continuing to pay to the Employee the Salary through the last business day of
the Special Severance Period (as defined in Section 7.3(c) below) in the manner
and at the time provided in Section 5.1 hereof, and (ii) paying and making
available to the Employee through the last business day of the Special Severance
Period all fringe benefits set forth in Section 5.3 through 5.10 hereof.
(b) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred upon any of the following events:
(i) when, pursuant to any transaction or series of transactions, any
"person" (as such term is used in Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"))
becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Employer representing thirty-five percent (35%)
or more of the total number of votes that may be cast for
election of directors of the Employer;
(ii) any contested election of directors, the result of which is that
the individuals who were directors of the Employer immediately
before such election shall cease to constitute a majority of the
directors serving on the Board of Directors of the Employer or
any successor thereof;
(iii) any merger of consolidation of the Employer with or into
another corporation or entity where the Employer is not the
survivor;
(iv) a sale or disposal by the Employer of substantially all of its
assets to another corporation, entity or person; or
(v) any tender or exchange offer, or other business combination, the
result of which is the persons who were directors of the Employer
before such transaction shall cease to constitute a majority of
the directors serving on the Board of Directors of the Employer
or any successor thereof.
(c) For purposes of Section 7.3(a) above, the term "Special Severance
Period" shall mean a period of time, commencing on the Termination Date, equal
to two months for each calendar quarter through which the Employee shall have
been employed hereunder; provided, however, that in no event shall such period
-------- -------
have a total duration of less than one year from the Termination Date or more
than two years from the Termination Date; and provided, further, that in no
--- -------- -------
event shall such period have a total duration of less than the severance period
applicable under Section 7.2(b) above.
3
<PAGE>
7.4. Mitigation. The Employee shall be under no obligation to
----------
mitigate the amount of any severance payments provided for in Sections 7.2 and
7.3 hereof or to seek other employment following any termination of employment
hereunder, and any amounts he may earn in any other employment shall not reduce
or offset the severance payments or other amounts due hereunder.
7.5. No Offset. The Employer shall not be entitled to setoff,
---------
offset, reduce or otherwise withhold any compensation due by the Employer to the
Employee hereunder. In the event that the Employer shall have any claim against
the Employee hereunder, the Employer's only remedy shall be to commence an
action at law or in equity against the Employee seeking damages or injunctive
relief.
8. General Provisions.
------------------
8.1. Acceleration. In the event of any failure by the Employer
------------
to pay any of the amounts due and payable by the Employer under Section 7.2 or
7.3 hereof, or in the event of the filing of any bankruptcy petition by or
against the Employer or the appointment of a receiver to wind up and liquidate
the Employer, at any time after the Termination Date, the Employee shall be
entitled to accelerate any and all amounts due and payable by the Employer to
the Employee under this Agreement. Any such right of acceleration shall not be
in lieu of, or otherwise limit, any remedies available to the Employee at law or
in equity.
8.2. Entire Agreement. This Agreement represents the entire
----------------
agreement of the parties and supersedes any prior understandings, agreements or
representations by and between the Employer and the Employee with respect to the
arrangements contemplated hereby. No prior agreement, whether written or oral,
shall be construed to change, amend, alter, repeal or invalidate this Agreement.
This Agreement may be amended only by a written instrument executed in one or
more counterparts by the parties.
8.3. Waiver. No consent to or waiver of any breach or default in
------
the performance of any obligations hereunder shall be deemed or construed to be
a consent to or waiver of any other breach or default in the performance of any
of the same or any other obligations hereunder. Failure on the part of either
party to complain of any act or failure to act of the other party or to declare
the other party in default, irrespective of the duration of such failure, shall
not constitute a waiver of rights hereunder and no waiver hereunder shall be
effective unless it is in writing, executed by the party waiving the breach or
default hereunder.
8.4. Assignment. This Agreement shall be binding upon and inure
----------
to the benefit of the parties hereto, their respective successors and assigns
and, in the case of the Employee, his heirs. Neither the Employee nor the
Employer may assign or transfer any or all of their respective rights or
obligations under this Agreement.
8.5. Venue. In case of any dispute hereunder, the parties will
-----
submit to the exclusive jurisdiction and venue of any court of competent
jurisdiction sitting in Ventura County, California, and will comply with all
requirements necessary to give such court jurisdiction over the parties and the
controversy.
8.6. Severability. All headings and subdivisions of this
------------
Agreement are for reference only and shall not affect its interpretation. In
the event that any provision of this Agreement should be held unenforceable by a
court of competent jurisdiction, such court is hereby authorized to amend such
provision so as to be enforceable to the fullest extent permitted by law, and
all remaining provisions shall continue in full force without being impaired or
invalidated in any way.
8.7. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, without regard
to its conflict of laws principles.
4
<PAGE>
8.8. Survival. The provisions of Sections 5, 6, 7, and 8 shall
--------
survive any termination of this Agreement or of the employment relationship of
the Employee and the Employer, including any termination of such employment
relationship at any time on or after the expiration of the term of this
Agreement as set forth in Section 2 hereof. Without in any way or to any extent
limiting the generality of the foregoing, the parties hereby expressly agree
that the provisions of Section 7 hereof (other than Section 7.1(d) under which
prior written notice of termination shall be thirty (30) days) shall survive the
expiration of the term of this Agreement as set forth in Section 2 hereof, it
being the intention of the parties hereto that the Employee shall be entitled to
compensation and severance as set forth in Section 7 hereof, upon any
termination of the employment relationship of the Employee and the Employer at
any time after the expiration of the term of this Agreement, all to the same
extent as if the Employee were employed under the terms of this Agreement at the
time of such termination.
8.9. Notices. All notices required or permitted under this
-------
Agreement shall be in writing and shall be deemed effective upon personal
delivery or three days after deposit in the United States Post Office, by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the other party at the address shown above, or at such other
address or addresses of which either party shall notify the other in accordance
with this Section 8.9.
8.10. Counterparts. This Agreement may be executed in
------------
counterparts, all of which together shall for all purposes constitute one
Agreement, binding on each of the parties hereto notwithstanding that each such
party shall not have signed the same counterpart.
8.11. Attorneys' Fees. Each party agrees that the losing party in
---------------
any suit or action shall reimburse the prevailing party for its reasonable
costs, expenses and attorneys' fees incurred in any action or suit brought to
determine the rights of the parties hereunder.
8.12. Arbitration. Any disputes arising out of this Agreement
-----------
between the Employee and the Employer shall be settled by binding arbitration to
be held in Ventura County, California, in accordance with the rules of the
American Arbitration Association. Judgment upon any award rendered by any
arbitrator may be entered in any court having jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in any action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes.
8.13. Indemnification. Employer shall indemnify, defend and hold
---------------
harmless Employee from and against any and all actions, claims, liabilities,
demands and proceedings asserted against Employee by reason of the fact that
Employee is or was an employee or officer of the Employer on or after the date
hereof to the fullest extent permitted under the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have signed this agreement as of the
date written above as a sealed instrument.
VIEW TECH, INC.
By: /s/ Robert G. Hatfield
--------------------------
Name: Robert G. Hatfield
Title: Chief Executive Officer
--------------------------
Employee
/s/ William M. McKay
-------------------------
William M. McKay
Secretary and Chief Financial Officer
5
<PAGE>
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
The following is a calculation of the historical and fully diluted per share
amounts included within this Form 10-K for the six month period ended December
31, 1996 and for each of the three years in the period ended June 30, 1996. The
weighted average number shares outstanding reflect the shares issued to
consummate the merger on November 29, 1996, all stock splits, stock dividends,
and shares issued in the initial public offering during the year ended June 30,
1995.
<TABLE>
<CAPTION>
Fully Diluted
Six Month Earnings Per Fully Diluted
Period Ended Year Ended Share Earnings Per Share
December 31, 1996 June 30, 1996 December 31, 1996 June 30, 1996
------------------ -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Weighted average stock options and
warrants outstanding 2,153,514 1,572,737 2,153,514 1,572,737
=========== ========== =========== ==========
Proceeds upon exercise of options
(exercise price $.250 - $7.750) $10,839,503 $7,031,542 $10,839,503 $7,031,542
Market value of stock at date of
treasury stock purchase 6.81 7.50 6.81 7.38
----------- ---------- ----------- ----------
Number of shares that can be
repurchased from proceeds under 1,133,384 937,164 1,133,384 953,429
treasury stock method
Weighted average stock options and
warrants outstanding 2,153,514 1,572,737 2,153,514 1,572,737
----------- ---------- ----------- ----------
Excess of options and warrants over
treasury shares that could be 1,020,130 635,573 1,020,130 619,308
repurchased (1)
Weighted average number of shares 5,400,785 5,040,731 5,400,785 5,040,731
outstanding (2)
----------- ---------- ----------- ----------
Total number of common and common
equivalent shares (3) 5,400,785 5,676,304 5,400,785 5,660,039
=========== ========== =========== ==========
Net income $(3,017,218) $ 424,056 $(3,017,218 $ 424,056
=========== ========== =========== ==========
Earnings per share $ (0.56) $ 0.07 $ (0.56) $ 0.07
=========== ========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fully Diluted Fully Diluted
Year Ended Year Ended Earnings Per Share Earnings Per Share
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average stock options and
warrants outstanding 245,066 8,000 245,066 8,000
=========== ========== =========== ==========
Proceeds upon exercise of options
(exercise price $.250 - $7.750) $ 281,168 $ 25,600 $ 281,168 $ 25,600
Market value of stock at date of
treasury stock purchase 6.65 1.60 6.50 1.60
----------- ---------- ----------- ----------
Number of shares that can be
repurchased from proceeds under
treasury stock method 42,262 16,000 43,257 16,000
Weighted average stock options and
warrants outstanding 245,066 8,000 245,066 8,000
----------- ---------- ----------- ----------
Fully Diluted Fully Diluted
Year Ended Year Ended Earnings Per Share Earnings Per Share
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
-----------------------------------------------------------------------------
Excess of options and warrants over
treasury shares that could be
repurchased (1) 202,804 8,000 201,809 8,000
Weighted average number of shares
outstanding (2) 3,765,467 3,716,974 3,765,467 3,716,974
----------- ---------- ----------- ----------
Total number of common and common
equivalent shares (3) 3,765,467 3,716,974 3,765,467 3,716,974
=========== ========== =========== ==========
Net income $(1,876,810) $(1,423,794) $(1,876,810) $(1,423,794)
=========== ========== =========== ==========
Earnings per share $ (0.50) $ (0.38) $ (0.50) $ (0.38)
=========== ========== =========== ==========
</TABLE>
Notes:
(1) The excess of options and warrants over treasury shares that could be
repurchased is limited to 20% of the number of shares outstanding at the
end of the period. The excess of the number of shares that could be
repurchased over the 20% limitation is assumed to be first applied to short
and long-term borrowings and any remainder invested in government
securities. This limitation was not applied during any of the periods
presented.
(2) The weighted average number of shares outstanding is determined by relating
(a) the portion of time within the reporting period that a particular
number of shares of a certain security has been outstanding to (b) the
total time in that period.
(3) The total number of common and common equivalent shares used for weighted
average number of shares outstanding included in EPS for the six months
ended December 31, 1996 and for the years ended June 30, 1995, and 1994 is
limited to the actual weighted average number of shares outstanding before
excess of options and warrants over treasury shares that could be
repurchased due to the antidilutive effect on EPS brought about by the net
losses incurred in these periods.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF VIEW TECH, INC.
View Tech, Inc., a Delaware corporation (the "Company" and the
"Registrant"), has the following wholly-owned subsidiaries incorporated in the
jurisdictions identified:
(1) USTeleCenters, Inc., a Delaware corporation; and
(2) View Tech Acquistion, Inc., a California corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of View Tech,, Inc. on Forms S-8, File Nos. 33-95618, 33-99674 and
333-20617 currently on file with the Securities and Exchange Commission, of our
report dated March 13, 1997 appearing in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears in this Form 10-K.
CARPENTER, KUHEN & SPRAYBERRY
Oxnard, California
March 27, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As indipendent public accountant, we hereby consent to the incorporation of our
report included in this Form 10-K, into View Tech, Inc.'s previously filed
Registration Statement Nos. 33-95618, 33-99674 and 333-20617.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that View Tech, Inc., a Delaware
corporation (the "Company"), and the undersigned officers and directors of the
Company, individually and in their respective capacities indicated below, hereby
make, constitute and appoint Robert G. Hatfield and William M. McKay, or either
of them, its and their true and lawful attorneys with power of substitution, to
execute on behalf of the Company, the Form 10-K, including all exhibits and any
and all amendments thereto; that Robert G. Hatfield and William M. McKay, or
either of them, are each granted full power and authority to do and perform each
and every act and thing whatsoever as either may deem necessary or advisable to
the same extent and with the same effect as the undersigned might or could do
personally in their respective capacities.
This Power of Attorney may be signed by the undersigned in as many
counterparts as may be necessary, each of which so signed shall be deemed to be
an original, and such counterparts together shall constitute one and the same
instrument and notwithstanding the date of execution shall be deemed to bear the
date as set forth below. Furthermore, facsimile signatures shall be deemed to
have the same effect as original signatures.
Dated as of the 27th day of March, 1997.
VIEW TECH, INC.
Attest: /s/ William M. McKay By: /s/ Robert G. Hatfield
---------------------------- ---------------------------------
William M. McKay, Secretary Robert G. Hatfield, Chief Executive
Officer (Principal Executive Officer)
/s/ Paul C. O'Brien /s/ William M. McKay
- ------------------------------------ -------------------------------------
Paul C. O'Brien William M. McKay
Chairman and Director (Principal Financial and Accounting
Officer)
/s/ John W. Hammon /s/ Franklin A. Reece, III
- ------------------------------------ -------------------------------------
John W. Hammon Franklin A. Reece, III
Director Vice President and Director
/s/ David F. Millet /s/ Robert F. Leduc
- ------------------------------------ -------------------------------------
David F. Millet Robert F. Leduc
Director Director
/s/ Calvin M. Carrera
- ------------------------------------
Calvin M. Carrera
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 365,139
<SECURITIES> 0
<RECEIVABLES> 11,089,606
<ALLOWANCES> 479,774
<INVENTORY> 2,063,028
<CURRENT-ASSETS> 13,775,979
<PP&E> 3,694,990
<DEPRECIATION> 1,918,877
<TOTAL-ASSETS> 18,520,608
<CURRENT-LIABILITIES> 13,321,963
<BONDS> 0
0
0
<COMMON> 567
<OTHER-SE> 4,418,158
<TOTAL-LIABILITY-AND-EQUITY> 18,520,608
<SALES> 19,878,582
<TOTAL-REVENUES> 19,878,582
<CGS> 10,235,235
<TOTAL-COSTS> 22,762,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,892
<INCOME-PRETAX> (3,057,022)
<INCOME-TAX> 39,804
<INCOME-CONTINUING> (3,017,218)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,017,218)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
