<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ______________________
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.)
3760 CALLE TECATE, SUITE A
CAMARILLO, CA 93012
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 482-8277
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class as of May 11, 1998
----- ------------------
Common Stock, $.0001 par value 6,764,060
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VIEW TECH, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE REFERENCE
--------------
PART I FINANCIAL INFORMATION
<S> <C>
Consolidated Balance Sheets
March 31, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
i
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,456,495 $ 1,204,690
Accounts receivable (net of reserves of $667,463
and $658,656, respectively) 11,700,215 13,326,667
Inventory 2,804,462 2,532,456
Other current assets 525,484 428,889
----------- -----------
Total Current Assets 16,486,656 17,492,702
PROPERTY AND EQUIPMENT, net 3,558,254 3,423,838
GOODWILL, net 4,131,111 4,198,927
OTHER ASSETS 766,256 696,701
----------- -----------
$24,942,277 $25,812,168
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,434,546 $ 7,168,763
Current portion of Long-term debt 684,596 661,290
Accrued payroll and related costs 1,959,050 1,904,506
Deferred revenue 1,554,248 1,087,161
Other current liabilities 1,018,668 1,371,248
----------- -----------
Total Current Liabilities 11,651,108 12,192,968
----------- -----------
LONG-TERM DEBT 4,750,540 5,342,368
----------- -----------
COMMITMENTS 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
6,701,310 and 6,589,571 shares, respectively 670 659
Additional paid-in capital 13,881,219 13,653,624
Retained deficit (5,341,260) (5,377,451)
----------- -----------
8,540,629 8,276,832
----------- -----------
$24,942,277 $25,812,168
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Product sales and service revenues $ 8,103,950 $ 6,260,551
Agency commissions 5,311,542 3,751,435
----------- -----------
13,415,492 10,011,986
----------- -----------
Cost and Expenses:
Costs of goods sold 5,702,842 4,568,209
Sales and marketing expenses 5,569,657 3,966,928
General and administrative expenses 1,980,475 1,830,804
----------- -----------
13,252,974 10,365,941
----------- -----------
Income (Loss) from Operations 162,518 (353,955)
Other Expense (122,427) (84,142)
----------- -----------
Income (Loss) Before Income Taxes 40,091 (438,097)
Provision for Income Taxes (3,900) (912)
----------- -----------
Net Income (Loss) $ 36,191 $ (439,009)
========== ===========
Earnings (Loss) Per Share (Basic and Diluted) $ .01 $ (.07)
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 36,191 $ (439,009)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 370,580 305,595
Provision for bad debts 8,807 (22,202)
Loss on sale of assets -- 7,649
Changes in assets and liabilities:
Accounts receivable 1,617,645 710,531
Inventory (272,006) (101,755)
Other assets (180,444) 62,417
Accounts payable (734,217) (1,141,554)
Other accrued liabilities 386,920 (993,449)
---------- -----------
Net cash provided (used) by operating activities 1,233,476 (1,611,777)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (302,692) (326,078)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under lines of credit (581,705) 95,570
Repayments of capital lease and other debt obligations (107,011) (280,283)
Issuance of common, net 9,737 2,784,526
---------- -----------
Net cash provided (used) by financing activities (678,979) 2,599,813
---------- -----------
NET INCREASE IN CASH 251,805 661,958
CASH, beginning of period 1,204,690 365,139
---------- -----------
CASH, end of period $1,456,495 $ 1,027,097
========== ===========
SUPPLEMENTAL DISCLOSURES:
Operating activities reflect:
Interest paid $ 149,557 $ 89,746
========== ===========
Income taxes paid $ 90,295 $ 2,800
========== ===========
Equipment acquired under capital lease obligations $ 120,194 $ --
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
- ----------------
View Tech, Inc. ("View Tech"), along with its wholly-owned subsidiary,
USTeleCenters, Inc. ("UST" and together with View Tech, the "Company"), is a
leading, single source provider of voice, video and data equipment, network
services and bundled telecommunications solutions for business customers
nationwide. The Company has equipment distribution partnerships with VTEL
Corporation, PolyCom, Inc., PictureTel Corporation ("PictureTel"), Ascend
Communications, VideoServer, Inc., and Northern Telecom and markets network
services through agency agreements with Bell Atlantic, BellSouth, GTE,
Southwestern Bell, Sprint and UUNET Technologies. The consolidated financial
statements include the accounts of View Tech and UST. All significant
intercompany balances and transactions have been eliminated in consolidation.
The information for the three months ended March 31, 1998 and 1997 has not
been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading. The
financial statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - ACQUISITIONS
- ----------------------
In November 1997, the Company through its wholly-owned subsidiary, acquired
the net assets of Vermont Telecommunications Network Services, Inc. ("NSI"), a
Vermont corporation headquartered in Burlington, Vermont, which sells, manages
and supports telecommunication network solutions as an agent for Bell Atlantic.
Following is summarized pro forma operating results assuming that the Company
had acquired NSI on January 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
------------------
<S> <C>
Revenues $10,597,364
Loss before income taxes (322,957)
Net loss (323,869)
Net loss per share (.05)
</TABLE>
The summarized pro forma operating results include the historical operating
results for NSI for the three months ended March 31, 1997. The summarized pro
forma information may not be indicative of the results of operations that would
have occurred if the acquisition had been concluded on January 1, 1997 or which
may be achieved in the future.
NOTE 3 - EARNINGS (LOSS) PER SHARE
- ----------------------------------
Earnings (loss) per share - basic is computed on the basis of the weighted
average number of shares of common stock outstanding and earnings per share -
diluted is based on the weighted average number of shares outstanding including
the dilutive effect of common stock equivalents using the treasury stock method.
4
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VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Earnings (Loss) Per Share:
- --------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Weighted average shares outstanding 6,645,782 6,169,491
Effect of dilutive options and warrants 453,398 --
--------- ---------
Weighted average shares outstanding
including dilutive effect of securities 7,099,180 6,169,491
========= =========
</TABLE>
Options and warrants to purchase 2,239,742 and 1,833,268 shares of common
stock were outstanding during the three months ended March 31, 1998 and 1997,
respectively, but were not included in the computation of diluted EPS because
the options' exercise price was either greater than the average market price of
the common stock or the Company reported a net operating loss and their effect
would have been antidilutive.
NOTE 4 - LINES OF CREDIT
- ------------------------
The Company entered into a $15 million Credit Agreement (the "Agreement")
with Imperial Bank, effective November 21, 1997. The Agreement provides for a
maximum credit line of up to $15 million for a term of five (5) years. Amounts
outstanding under the Agreement are collateralized by the assets of the Company.
Funds available under the Agreement will vary from time to time depending on
many variables including, without limitation, the amount of Eligible Trade
Accounts Receivable and Eligible Inventory of the Company, as such terms are
defined in the Agreement. The interest charged on outstanding amounts vary
between the Prime Rate, plus the Prime Rate Margin, or between the Eurodollar
Rate, plus the Eurodollar Rate Margin, depending upon the Company's Leverage
Ratio, as defined in the Agreement. At March 31, 1998, the interest rate on
this Facility was 9.0%. The Agreement requires the Company to comply with
various financial and operating loan covenants. As of March 31, 1998 the
Company was in compliance with these covenants or had received waivers with
respect thereto. Under certain conditions, the Agreement allows the Company to
prepay principal amounts outstanding without penalty.
The Agreement provides for three separate loan commitments consisting of
(i) a Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to
$5 million and (iii) a Facility C Commitment up to $3 million. Amounts drawn
under the Facility A Commitment are due and payable no later than November 21,
2002. Amounts drawn under the Facility B Commitment are subject to mandatory
repayments in sixteen (16) equal quarterly installments commencing on March 31,
1999. Amounts outstanding under the Facility C Commitment are subject to
mandatory repayments in twelve (12) equal quarterly installments commencing on
March 31, 2000. All amounts outstanding under each such Facility are due and
payable no later than November 21, 2002. At March 31, 1998, the total
outstanding principle balance due under these facilities was $4,324,152. This
amount is classified as long-term debt as the Company intends to transfer all
borrowings to Facility B.
NOTE 5 - COMMITMENTS
- --------------------
During the quarter ended March 31, 1998 the Company did not enter into any
material new operating lease agreements.
On April 17, 1998, the Company agreed to certain severance arrangements in
connection with the resignation of its Chief Executive Officer. It is
anticipated that the definitive severance agreement will contain provisions that
provide for $125,500 of continuing consulting services and $376,500 of severance
pay, continuation of medical and other insurance for a period of time and other
items totaling approximately $14,500. These will be charges against income in
the quarter ended June 30, 1998.
5
<PAGE>
ITEM 2. 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-Q. Except for historical information contained herein, the
statements in this Form 10-Q 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
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 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 Bell Atlantic,
disruption in supply, failure of PictureTel or Bell Atlantic to remain
competitive in product quality, function or price or a determination by
PictureTel or Bell Atlantic to reduce reliance on independent providers such as
the Company; 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-Q.
GENERAL
View Tech, Inc. ("View Tech") commenced operations in July 1992 as a
California corporation. Since its initial public offering of common stock in
June 1995, View Tech has grown rapidly through internal expansion and through
acquisitions. In July and August 1996, View Tech 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 November 1996, View Tech
merged with USTeleCenters, Inc., a Massachusetts corporation ("UST" and together
with View Tech, the "Company") and the Company reincorporated in Delaware. In
November 1997, the Company through its wholly-owned subsidiary, acquired the net
assets of Vermont Telecommunications Network Services, Inc., a Vermont
corporation headquartered in Burlington, Vermont, which sells, manages and
supports telecommunication network solutions as an agent for Bell Atlantic. The
Company currently has 23 offices nationwide.
The Company, is a leading, single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions for
business customers nationwide. The Company has equipment distribution
partnerships with VTEL Corporation, PolyCom, Inc., PictureTel Corporation
("PictureTel"), Ascend Communications, VideoServer, Inc., and Northern Telecom
and markets network services through agency agreements with Bell Atlantic,
BellSouth, GTE, Southwestern Bell, Sprint and UUNET Technologies. The
consolidated financial statements include the accounts of View Tech and UST.
All significant intercompany balances and transactions have been eliminated in
consolidation.
The Company intends to continue its expansion activities in calendar year
1998 primarily through internal expansion. Although management anticipates that
the revenues generated by its existing offices, as well as additional offices
from 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 such
costs exceed such revenues, the Company's business, financial condition and
results of operations will be adversely effected.
The Company strives to improve its return on assets and its operations and
as such it will continuously review its internal operations and other policies
and procedures, including but not limited to those relating to revenue
generation, adequacy of reserves, and realizability of assets. Any resulting
adjustments could materially adversely affect the Company's results of
operations. In addition, the Company's new Chief Executive Officer, William J.
Shea, intends to initiate a process of reexamining and reassessing the Company's
operations, structure and strategic direction, and repositioning the Company for
future growth and expansion. There can be no assurance, however, that any such
changes in the operations, structure and strategic direction of the Company,
should they occur, will not have a material adverse affect on the Company's
business, financial condition and results of operations.
6
<PAGE>
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>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues:
Product sales and service revenues.... 60.4% 62.5%
Agency commissions.................... 39.6 37.5
----- -----
100.0 100.0
===== =====
Costs and Expenses:
Costs of goods sold................... 42.5 45.6
Sales and marketing expenses.......... 41.5 39.6
General and administrative expenses... 14.8 18.3
----- -----
98.8 103.5
----- -----
Income (Loss) from Operations.......... 1.2 (3.5)
Other Expense.......................... (0.9) (0.9)
----- -----
Income (Loss) Before Income Taxes...... 0.3 (4.4)
Provision for Income Taxes............. 0.0 0.0
----- -----
Net (Loss) Income...................... 0.3% (4.4)%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES
Total revenues for the three months ended March 31, 1998 increased by
$3.403 million or 34% to $13.415 million from $10.012 million in 1997.
Product Sales and Services
Product sales and service revenues increased by $1.843 million or 29.4% to
$8.104 million in 1998 from $6.261 million in 1997. The increase in revenues was
primarily related to the Company's nationwide expansion of its videoconferencing
business throughout calendar year 1997.
Agency Commissions
Agency commissions for 1998 increased by $1.560 million or 41.6% to $5.312
million from $3.751 million in 1997. The increase in agency commissions was due
primarily to the Company growing its sales force and benefiting from agency
commissions generated by its recently acquired, wholly-owned subsidiary, NSI.
COSTS AND EXPENSES
Costs of goods sold for 1998 increased by $1.135 million or 24.8% to $5.703
million from $4.568 million in 1997. Costs of goods sold as a percentage of
revenues decreased to 42.5% in 1998 from 45.6% in 1997. The dollar increase in
costs of goods sold is primarily related to the increase in product sales and
service revenues and to an increase in technical service costs related to the
Company's videoconferencing business. The percentage decrease is primarily
related to an increase in service revenues related to the Company's
videoconferencing business. Service revenues generally provide a higher profit
margin than equipment revenues.
7
<PAGE>
Sales and marketing expenses for 1998 increased by $1.603 million or 40.4%
to $5.570 million from $3.967 million in 1997. Sales and marketing expenses as a
percentage of revenues increased to 41.5% in 1998 from 39.6% in 1997. The
dollar increase was primarily due to higher sales volume which resulted in
higher compensation and related expenses for the Company's sales force. The
percentage increase was primarily due to compensation and related expenses
associated with the revenues generated from NSI. Substantially all of the
operating expenses incurred by NSI were related to sales and marketing.
General and administrative expenses for 1998 increased by $149,671 or 8.2%
to $1.980 million from $1.831 million in 1997. General and administrative
expenses as a percentage of total revenues decreased to 14.8% in 1998 from 18.3%
in 1997. The 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 businesses. General and administrative expenses as a
percentage of revenues decreased due to the fact that the Company benefited from
revenue growth generated from expansion activities which increased revenues at a
greater rate than such general and administrative expenses.
Income from operations increased $516,473 to income of $162,518 in 1998
from a loss of $(353,955) in 1997. The income from operations for 1998 primarily
related to the increase in overall sales. Income from operations as a
percentage of revenues increased to 1.2% for 1998, compared to a loss of (3.5)%
for 1997.
Other expense increased $38,285 to $122,427 in 1998 from $84,142 in 1997.
The increase was primarily due to an increase in interest expense of $65,225
offset by an increase in rental and other income of $26,940.
Provision for income tax expense increased $2,988 to $3,900 in 1998
compared to a provision of $912 for 1997. The increase related to the Company's
transition to profitability.
Net income increased $475,200 to income of $36,191 in 1998 from a net loss
of $(439,009) for 1997. Net income as a percentage of revenues increased to
0.3% for 1998 compared to (4.4)% for 1997. Net income per share increased to
$.01 for 1998 compared to a loss of $(.07) for 1997. The weighted average number
of shares outstanding increased to 6,645,782 for 1998 from 6,169,491 in 1997.
The weighted average number of shares outstanding assuming dilution increased to
7,099,180 in 1998 from 6,169,491 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Over the past two years, View Tech has financed its 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 provided by operating activities for the three months ended March
31, 1998 was $1.233 million, primarily generated by a decrease in accounts
receivable of $1.618 million and an increase in other accrued liabilities of
$386,920 offset by a decrease in accounts payable of $734,217.
Net cash used by investing activities for the three months ended March 31,
1998 was $302,692, relating to the purchase of office furniture and computer
equipment.
Net cash used by financing activities for the three months ended March 31,
1998 was $678,979, primarily relating to net repayments under the Company's line
of credit of $581,705 and repayments under capital lease obligations of
$107,011.
The Company entered into a $15 million Credit Agreement (the"Agreement")
with Imperial Bank, effective November 21, 1997. The Agreement provides for a
maximum credit line of up to $15 million for a term of five (5) years. Amounts
outstanding under the Agreement are collateralized by the assets of the Company.
Funds available under the Agreement will vary from time to time depending on
many variables including, without limitation, the amount of Eligible Trade
Accounts Receivable and Eligible Inventory of the Company, as such terms are
defined in the Agreement. The interest charged on outstanding amounts vary
between the Prime Rate, plus the Prime Rate Margin, or between the Eurodollar
Rate, plus the Eurodollar Rate Margin, depending upon the Company's Leverage
Ratio, as defined in the Agreement. At March 31, 1998, the interest rate on
this Facility was 9.0%. The Agreement requires the Company to comply with
various financial and operating loan covenants. As of March 31, 1998 the
Company was in compliance with
8
<PAGE>
these covenants or had received waivers with respect thereto. Under certain
conditions, the Agreement allows the Company to prepay principal amounts
outstanding without penalty.
The Agreement provides for three separate loan commitments consisting of
(i) a Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to
$5 million and (iii) a Facility C Commitment up to $3 million. Amounts drawn
under the Facility A Commitment are due and payable no later than November 21,
2002. Amounts drawn under the Facility B Commitment are subject to mandatory
repayments in sixteen (16) equal quarterly installments commencing on March 31,
1999. Amounts outstanding under the Facility C Commitment are subject to
mandatory repayments in twelve (12) equal quarterly installments commencing on
March 31, 2000. All amounts outstanding under each such Facility are due and
payable no later than November 21, 2002. At March 31, 1998, the total
outstanding principle balance due under these facilities was $4,324,152. This
amount is classified as long-term debt as the Company intends to transfer all
borrowings to Facility B.
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. The Company may
seek to raise additional 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. 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, on terms acceptable to the Company, when and if needed, could force the
Company to alter its business strategy and could have a material adverse affect
on the Company's business, financial condition and results of operations.
UNASCERTAINABLE RISKS DUE TO RAPID EXPANSION
Management anticipates that the Company will continue to grow through
internal expansion. Since July 1992, the Company, by virtue of its expansion
activity, has grown from two employees in one location to 336 employees in 23
locations at May 11, 1998. In the past 24 months, the Company has acquired four
businesses, including UST. By virtue of rapid internal growth and external
growth through acquisitions, the Company is 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 long history of combined
operations, 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 fully achieve the
anticipated benefits of its acquisitions.
LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING
RESULTS AND NON-RECURRING ITEMS; FUTURE RESULTS OF OPERATIONS UNCERTAIN
View Tech and UST have operated since 1992 and 1987, respectively. On a
combined basis, the Company reported net income for the three months ended March
31, 1998, and has operated as a combined entity since November 29, 1996.
Although the Company recently achieved profitability and reported net income, in
the future the Company may continue to experience significant fluctuations in
operating results as a result of a number of factors, including, without
limitation, 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, the Company'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 the Company will achieve revenue growth or will be
profitable on a quarterly or annual basis in the future.
The Company strives to improve its return on assets and its operations and
as such it will continuously review its internal operations and other policies
and procedures, including but not limited to those relating to revenue
generation, adequacy of reserves, and realizability of assets. Any resulting
adjustments could materially adversely affect the Company's results of
operations.
9
<PAGE>
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL, BELL ATLANTIC AND GTE
For the three months ended March 31, 1998, approximately 28% and 39% of the
Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and to the sale of network products and services
provided by Bell Atlantic and GTE, respectively. Termination of or change of the
Company's business relationships with PictureTel, Bell Atlantic or GTE;
disruption in supply, failure of PictureTel, Bell Atlantic or GTE to remain
competitive in product quality, function or price or a determination by
PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers
such as the Company, among other things, would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is a party to agreements with PictureTel, Bell Atlantic and GTE that
authorize the Company to serve as a non-exclusive dealer and sales agent,
respectively, in certain geographic territories. The PictureTel, Bell Atlantic
and GTE agreements can be terminated without cause upon written notice by the
suppliers, subject to certain notification requirements. 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.
DEPENDENCE UPON KEY PERSONNEL; RECENT CHANGE OF CHIEF EXECUTIVE OFFICER
Effective April 17, 1998, Robert G. Hatfield resigned from his position as
Chief Executive Officer of the Company. In a subsequent action, the Company
announced the appointment of William J. Shea as Chief Executive Officer. The
Company anticipates that Mr. Shea will initiate a process of reexamining and
reassessing the Company's operations, structure and strategic direction, and
repositioning the Company for future growth and expansion. There can be no
assurance, however, that any such changes in the operations, structure and
strategic direction of the Company, should they occur, will not have a material
adverse affect on the Company's business, financial condition and results of
operations.
The Company depends to a considerable degree on the continued services of
certain of its executive officers, including Paul C. O'Brien, its chairman,
William J. Shea, its chief executive officer, and Franklin A. Reece III, its
president, as well as on a number of highly trained technical personnel. Any
further changes in current management, including but not limited to the loss of
Messrs. O'Brien, Shea or Reece could have a material adverse affect on the
Company. There can be no assurance that Mr. Shea's recent appointment will not
precipitate further changes in the Company's management. Any such further
changes in the Company's executive management, the loss of other key management
or technical personnel or the failure to attract and retain such personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The video communications industry is highly competitive. The Company
competes with manufacturers of video communications equipment, which include
PictureTel, VTEL Corporation, Computer Telephone and Lucent Technologies, and
their networks of dealers and distributors, telecommunications carriers and
other large corporations, as well as other independent distributors. Other
telecommunications carriers and other corporations that have entered the video
communications market include, AT&T, MCI, some of the Regional Bell Operating
Companies ("RBOCs"), Minnesota Mining & Manufacturing Corporation, Intel
Corporation, Microsoft, Inc., Sony Corporation and British Telecom. Many of
these organizations have substantially greater financial and other resources
than 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
10
<PAGE>
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 other than PictureTel,
termination of the Company's relationship with PictureTel could 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 its comprehensive knowledge of the operations of the industries it has
targeted, the quality of the equipment 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 systems 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 Bell South, Bell Atlantic, Southwestern
Bell and GTE, long distance carriers such as AT&T Corporation, MCI
Communications Corporation and SPRINT Corporation, other long distance and
communications companies such as Qwest Communications International Inc. and IXC
Communications Inc., by-pass companies and other agents. There can be no
assurance that the Company will be able to compete successfully against such
companies.
YEAR 2000 DISCLOSURE
The Company is aware of the issues that many computer systems will face as
the millennium (year 2000) approaches. The Company, however, believes that its
own internal software and hardware is year 2000 compliant. The Company believes
that any year 2000 problems encountered by procurement agencies, hospitals and
other customers and vendors are not likely to have a material adverse effect on
the Company's operations. The Company anticipates no other year 2000 problems
which are reasonably likely to have a material adverse effect on the Company's
operations. There can be no assurance, however, that such problems will not
arise.
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. The Company'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 to successfully (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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits
10.1 Memorandum of Understanding by and between the
Company and former Chief Executive Officer, Robert G.
Hatfield, effective April 17, 1998.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VIEW TECH, INC.
Date: May 15, 1998 By: /s/ David A. Kaplan
------------------------
David A. Kaplan
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
EXHIBIT 10.1
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (this "Memorandum") sets forth the principal
terms and conditions pursuant to which Robert G. Hatfield ("Hatfield") has
submitted his resignation as a director, officer and employee of View Tech, Inc.
(the "Company"), and pursuant to which the Company has agreed to make certain
severance, consulting fee and other payments and to provide certain benefits to
Hatfield, as follows:
. Hatfield's resignation will be effective as of April 17, 1998 and on that
date he will cease to be an employee.
. Hatfield will be paid 18 months of severance at the rate of $20,916.66 per
month, payable semi-monthly commencing April 17, 1998.
. Hatfield and the Company will enter into a Consulting Agreement covering
the 6-month period commencing on April 17, 1998, pursuant to which Hatfield
will provide consultation, support and related assistance to the Company as
reasonably requested by the Company, and otherwise will fully and actively
support and assist the Company's Vice President and General Manager (Calvin
M. Carrera or any successor to him), in connection with the Company's video
business and the marketing, sale and service of the Company's video
products, and pursuant to which the Company will pay Hatfield a consulting
fee of $20,916.66 per month on a semi-monthly basis commencing on April 17,
1998.
. Hatfield will use his best efforts to make himself available for consulting
services as requested by the Company. Likewise, the Company will use its
best efforts to accommodate Hatfield's schedule, so that there is no
interference with Hatfield undertaking full-time employment (or the
equivalent) elsewhere. Any breach of the foregoing by Hatfield that is not
cured after five business days' notice will result in a discontinuance of
the severance, consulting and any other payments which he is entitled to
receive from the Company.
. Hatfield will not compete with the Company in its business as conducted on
April 17, 1998, and will not disparage the Company, for the 18-month period
commencing on April 17, 1998. Any breach of the foregoing by Hatfield after
April 17, 1998 that is not cured after five business days' notice will
result in a discontinuance of the severance, consulting and other payments
which he is entitled to receive from the Company. The Company similarly
will not disparage Hatfield during such period.
. The Company will cause Hatfield to be released from all personal guarantees
and similar arrangements to which he is party and which are maintained for
the benefit of the Company.
. The Company will pay reasonable attorney's fees incurred by Hatfield in
connection
<PAGE>
with the negotiation and drafting of an Employment Termination Agreement
evidencing the terms of this Memorandum, up to a maximum of $2,500.00.
. The Company will pay Hatfield all accrued benefits from January 1, 1998
through April 17, 1998, such as vacation.
. The Company will provide Hatfield with the insurance coverage he has been
receiving for the 18-month period commencing on April 17, 1998.
. The Company will provide Hatfield with a lump sum of $3,000.00 to be used
toward an appropriate office, business equipment and secretarial support to
assist Hatfield in locating other employment.
. The Company and Hatfield will provide each other with standard mutual
releases.
. Pending execution of definitive documents implementing this Memorandum, the
Company shall continue to pay and provide Hatfield the compensation and
benefits he was receiving prior to the date of this memorandum. These
payments shall be subtracted from the other amounts paid to Hatfield for
consulting services as described in this memorandum.
. Definitive documents implementing this Memorandum shall be executed by May
15, 1998, or such late date agreed to by both Hatfield and the Company. If
this deadline is not met, then a neutral third party reasonably acceptable
to both Hatfield and the Company promptly shall be appointed by them, and
they shall pay the neutral third party's fees and expenses in equal shares.
The neutral third party shall decide whose position is more reasonable,
considering all the facts and circumstances and whether the definitive
documents the Company or Hatfield was willing to sign as of the execution
date deadline conformed to the terms of this Memorandum. If those documents
did not confirm to the terms of this Memorandum or if Hatfield's position
is more reasonable, the Company shall pay Hatfield the lump sum equivalent
of all pay and benefits that would be provided to him under this Memorandum
for the balance of its terms as if it were fully enforceable, release
Hatfield from all personal guarantees or similar arrangements as provided
for in this Memorandum, and pay Hatfield's reasonable attorney's fees and
other dispute resolution-related expenses, and Hatfield shall have no
further obligations to the Company. If the Company's position is more
reasonable and the definitive documents the Company was willing to sign as
of the execution date deadlines conformed to the terms of this Memorandum,
Hatfield shall be bound by such documents as if he had executed them and
shall pay the Company's reasonable attorney's fees and other dispute
resolution-related expenses.
2
<PAGE>
. This Memorandum shall not eliminate any existing benefits to which Hatfield
already is entitled by statute, including reimbursement of unpaid business
expenses (provided they are adequately documented and reasonable) and
indemnification for conduct within the course and scope of his employment.
Dated: April 24, 1998
By: /s/ Robert G. Hatfield
------------------------------
Robert G. Hatfield
View Tech, Inc.
a Delaware Corporation
By: /s/ David A. Kaplan
------------------------------
David A. Kaplan
Its: CFO & Treasurer
3
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