<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the year ended December 31, 1998
-----------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
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
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
------------------- ------------------------
Common Stock, $.0001 Par Value 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
- --
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. [ ]
The aggregate market value of the voting and non-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 19, 1999 was $11,556,756.
The number of shares of the Registrant's Common Stock outstanding as of
March 19, 1999 was 7,792,111.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the period ended
December 31, 1998 are incorporated by reference into Part III.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
PART I
------
1. Business......................................................... 1
2. Properties....................................................... 6
3. Legal Proceedings................................................ 6
4. Submission of Matters to a Vote of Security Holders.............. 6
PART II
-------
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 7
6. Selected Financial Data........................................ 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
7A. Quantitative and Qualitative Disclosures about Market Risk..... 16
8. Financial Statements and Supplemental Data..................... 17
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 35
PART III
--------
10. Directors and Executive Officers of the Registrant............. 36
11. Executive Compensation......................................... 36
12. Security Ownership of Certain Beneficial Owners and Management. 36
13. Certain Relationships and Related Transactions................. 36
PART IV
-------
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 37
Signatures......................................................... 38
</TABLE>
i
<PAGE>
PART I
Item 1. Business
General
View Tech, Inc., a Delaware corporation ("View Tech"), commenced operations
in July 1992 as a California corporation. In November 1996, concurrent with a
merger (the "Merger") with USTeleCenters, Inc., a Massachusetts corporation
("USTeleCenters"), with and into View Tech Acquisition, Inc., a Delaware
corporation and a wholly-owned subsidiary of View Tech ("VTAI"), View Tech
reincorporated in Delaware. Following the Merger, VTAI changed its name to
"USTeleCenters, Inc." ("UST"). In November 1997, View Tech acquired the net
assets of Vermont Telecommunications Network Services, Inc., ("Network
Services"), a Vermont corporation. View Tech, UST and Network Services
(collectively referred to as "View Tech" or the "Company") have thirty-three
(33) offices nationwide.
The Company serves as a single source provider for the equipment and services
required to meet the video, voice and data communications requirements of its
customers. The Company is a leading remarketer, integrator and service provider
of video conferencing equipment, a telecommunications equipment reseller, and
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 offices are
located at 3760 Calle Tecate, Suite A, Camarillo, California 93012. Its
telephone number is 805/482-8277. View Tech's e-mail address is
[email protected].
- -------------------
Video Communications
The Company's video communications group focuses on the sale, installation
and service of video communications systems. Utilizing advanced technology,
these systems enable users at separate locations to engage in face-to-face
discussions and to exchange information 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 productivity enhancing applications, including (i)
teachers providing lectures to students at multiple locations, (ii) judges
conducting criminal arraignment proceedings while the accused remains
incarcerated, (iii) utilizing video technology for the consultation and surgical
applications for the health care industry, (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.
Telecommunications
The Company's telecommunications group develops and manages sales and
customer service programs on an outsourced basis under agency and value-added
reseller agreements for (i) certain regional Bell operating companies ("RBOCs"),
(ii) other telecommunications service providers, and (iii) equipment
manufacturers. In New England and upstate New York, the Company also provides
telecommunications systems integration and on-going account management support
for middle market customers. On behalf of its RBOC clients, UST 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, the telecommunications group sells, installs and maintains
data transmission products, customer premise equipment and telephone systems.
The telecommunications group operates out of UST, which is located in Boston,
Massachusetts. UST's 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].
Equipment Products
Video
The Company offers three types of video communications systems: integrated
roll-about and room systems, vertical applications and desktop computer systems.
Roll-about systems may be moved conveniently from office to office and placed
into operation quickly while room systems are stationary systems; vertical
applications include
1
<PAGE>
distance education and systems utilized in the healthcare industry; and desktop
computer systems involve personal computers with video communications
capabilities which 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
primarily sells systems manufactured by PictureTel Corporation, PolyCom, Inc.
and VTEL Corporation. Management believes that items of equipment produced by
these manufacturers provide superior quality audio and video communications
capabilities, at a reasonable price.
The prices of the complete systems sold by the Company range from $3,500 for
a video communications desktop computer, to $60,000 for a roll-about system for
a single location, to as much as $100,000 for a vertical application. Roll-
about 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 the Company from appropriate
manufacturers and the monitors, document cameras, videoscan converters,
videocassette recorders and white boards are acquired from various sources
depending upon price and quality.
Although the Company's desktop-computer systems involve different components,
the desktop system has many of the capabilities of the roll-about and room
systems. The Company's desktop video communications equipment is manufactured by
PictureTel and others such as VCON, Inc.
Voice and Data
The Company sells communications equipment for voice and data transmission
produced by such manufacturers as Ascend Communications, Inc., Madge Networks,
First Virtual Corp. and VideoServer, Inc. (data transmission products), Accord,
Inc. 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 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 combination of voice equipment
and voice network services is an important ingredient in establishing the
Company as a single-point-of-contact provider.
Data. The Company sells products specifically designed to transmit data
through the established local and long-distance telephone services
infrastructure to business customers. Products from companies such as Adtran,
Madge Networks and Ascend Communications, Inc. allow business customers remote
access into local area networks, and permit them to 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.
Video Services
The Company believes that the quality and depth of its customer services
capability are crucial factors in its ability to compete successfully. The
technical expertise and experience of its management and employees enable the
Company 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 customer communications technology
requirements.
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
2
<PAGE>
and administration meetings. By means of thorough training, the Company helps
to ensure that its customers understand the functionality of the systems and are
able to apply the technology effectively.
The Company's ViewCare(R) service product provides maintenance contracts and
comprehensive customer support with respect to the communications equipment it
provides. The Company offers a 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 the
mail. The Company also provides onsite support and maintenance.
The Company's service personnel maintain regular contact with customers. The
Company also offers training programs for new users, refresher and advanced
training programs for experienced users and consulting services related to new
equipment and systems expansion and upgrades. On-going after-sale relationships
with customers are critical to customer retention. Installation, training,
maintenance, remote diagnostics, billing inquiry management, network order
processing, new product introduction and system enhancements creating multi-
purpose solutions are a few of the many after-sale services that the Company
performs for its customers.
During 1998, the Company increased its MCU, MultiView Network Services/TM/,
or bridge services, to its customers nationwide. The Company employs state-of-
the-art conferencing servers in multiple U.S. call centers, providing seamless
connectivity for all switched digital networks across the globe at an affordable
rate. Since bridges cost between $65,000 and $200,000 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 Company's
bridging services have proven to be an increasing source of revenue and enhance
customer retention.
Telecommunications Services
In its role as an outsource partner for certain local and long-distance
providers, the Company also supplies on-going after-sales telecommunications
services to its client's end-user customers. Network services provisioning,
maintenance, user training and network order-processing are some of the services
provided by the Company.
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 Bell Atlantic
customers under which it serves as the primary interface between Bell Atlantic
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 network services 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.
The Company's relationships with multiple local exchange carriers and long
distance providers give it demographic scope and enable it to provision multiple
site solutions for customers in a unique single-point of contact methodology.
This competitive edge differentiates the Company from other suppliers of similar
size.
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 a
corporate customer. 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 communications systems, 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, Ascend Communications, PolyCom, Inc., VideoServer, VTEL Corporation,
GTE, Bell Atlantic, UUNET, Bell South, Madge Networks, Northern Telecom 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,
establishing additional strategically located sales and service facilities and
acquiring companies in the communications, video and integration services
industry.
3
<PAGE>
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 is integrating these functions more frequently for customers.
Video Communications Systems Customers
The Company has installed video communications systems for a diversified
customer base, including, Pfizer Pharmaceuticals, PacifiCare, Region 18
Educational Service Center, Raytheon Corporation and the State of Tennessee.
The Company 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.
Telecommunications Clients
The Company, through UST, markets telecommunication equipment and services
for various strategic clients. The equipment sales are performed under various
reseller agreements and the end-user customer is invoiced by UST. The
telecommunication network 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 typically has renewable annual or multi-
year agreements with its telecommunication service clients, under which it
receives commissions based on sales. The Company's telecommunication clients
include several RBOCs, including Bell Atlantic, Southwestern Bell and BellSouth;
other telecommunication service providers, such as GTE and SPRINT; and equipment
manufacturers, including Northern Telecom and Ascend.
Telecommunications Customers
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
medium-sized businesses which are served by a direct face-to-face sales force
based in the Company's Boston, Burlington (Vermont) 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 video, voice, data and 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 year ended December 31, 1998.
Sales and Marketing
Video Communications Sales
The Company has a number of programs to promote its video communications
products and services. Representatives of the Company regularly attend video
communications and advanced technology trade shows. The Company hosts seminars
and provides potential customers with the opportunity to learn about the
Company's products and services using video communications demonstration
facilities located in each of the Company's offices. The Company also places
advertisements aimed at selected markets in industry trade publications and
utilizes limited and selective direct mail advertising.
In addition, the Company has periodically employed the services of market
research 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 will
enable them to effectively identify individuals and applications within
organizations likely to benefit from video communications technologies.
PictureTel and other suppliers also provide the Company with sales leads.
The Company also maintains relationships with previous customers and attempts
to provide for their continuing equipment and service needs, including
continuing engineering, training and warranty services.
Telecommunications Sales
4
<PAGE>
The Company utilizes a number of sales and marketing techniques, including
outside (or face-to-face) sales and inside (or telephone) sales.
Outside Sales. The Company's outside sales activities are generally focused
on medium-sized businesses in New England and upstate 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 Bell
Atlantic's Centrex network services and PictureTel's videoconferencing products.
On-going customer account management stimulates repeat business while protecting
market share and generating recurring revenue from certain clients such as Bell
Atlantic.
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 information. The Company's telemarketing
clients include Bell Atlantic, Bell South, GTE, Southwestern Bell, SPRINT and
other telecommunications service providers.
Dependence on Suppliers, Including PictureTel , Bell Atlantic and GTE
For the twelve months ended December 31, 1998, approximately 31% of the
Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and an additional 31% of consolidated revenues were
attributable to the sale of network products and services provided by Bell
Atlantic and GTE. 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.
Competition
The video communications industry is highly competitive. The Company competes
with manufacturers of video communications equipment, which include PictureTel,
VTEL 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 RBOCs, Intel Corporation, Microsoft Corporation, 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 discrete 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 from other PictureTel dealers,
whose customers elsewhere may have branch facilities in these territories, and
from 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 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
5
<PAGE>
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 services 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, 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 19, 1999 the Company had 282 full-time employees. The Company has
164 full-time employees engaged in marketing and sales, 70 in technical services
and 48 in finance, administration and operations. None of the Company's
employees is represented by a labor union. The Company believes that its
relations with its employees are good.
Item 2. Properties
The Company's video business leases office facilities in Camarillo, Irvine,
Sacramento and San Diego, California; New York, New York; Atlanta, Georgia;
Baton Rouge, Louisiana; Chicago, Illinois; Dallas and Houston, Texas; Durham,
North Carolina; Englewood, Colorado; Nashville and Knoxville, Tennessee;
Jacksonville, Florida; Salt Lake City, Utah; Phoenix, Arizona and Chesterfield,
Missouri. These locations are currently principally engaged in video
conferencing sales and services. Its videoconferencing headquarters is located
in Camarillo, California and consists of a total of approximately 19,000 square
feet. The Company's other facilities house sales, technical and administrative
personnel and consist of aggregate square footage of approximately 42,000. UST
leases office facilities in Boston and Cape Cod, Massachusetts, and Burlington,
Vermont. Such locations are principally engaged in the sale and service of
telephony products and services. UST's principal offices are located in Boston
and house executive, sales, technical and administrative personnel and consist
of aggregate square footage of approximately 21,500 square feet. UST's inside
sales offices, two offices in Boston and one office in Cape Cod consist of
approximately 9,500 combined square feet. Its outside sales office in
Burlington, Vermont consists of approximately 5,000 square feet. These leases
expire at various dates through 2003. 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.
Item 3. Legal Proceedings
In the ordinary course of business the Company experiences various types of
claims which sometimes result in litigation or other legal proceedings. The
Company does not anticipate that any of these proceedings that are currently
pending will have any material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Stock Market and Other Information
The Company's common stock is traded on The Nasdaq Stock MarketO, ("Nasdaq"),
under the symbol "VUTK" on the National Market and has been so traded since
November 18, 1995. Prior to such date, the shares were traded on Nasdaq's
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 (the "IPO"). In addition, warrants to purchase up to 575,000 shares of the
Company's common stock were traded on Nasdaq's National Market and prior to
November 18, 1995 the warrants traded on Nasdaq's SmallCap Market and the
Pacific Stock Exchange under the symbols "VUTKW" and "VWK WS," respectively. The
terms of the warrants provided that one warrant plus $5.00 was required to
purchase one additional share of the Company's common stock. The warrants were
redeemable at the Company's option commencing June 15, 1996 upon 30 days notice
to the warrant holders at $0.25 per share if the closing price of the common
stock had been at least $8.00 for a period of 30 consecutive trading days ending
within 10 days of the date the notice of redemption was mailed. The warrants
expired on June 15, 1998.
The following table sets forth the quarterly high and low bids for the
Company's common stock as reported by Nasdaq's National Market for the periods
indicated.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Calendar Year 1997
First Quarter.................. $6.25 $3.88
Second Quarter................. 4.25 2.38
Third Quarter.................. 7.50 2.88
Fourth Quarter................. 8.94 4.81
Calendar Year 1998
First Quarter.................. 5.87 4.75
Second Quarter................. 4.62 3.40
Third Quarter.................. 3.25 1.50
Fourth Quarter................. 3.00 1.53
</TABLE>
On March 19, 1999 the last reported bid for the Company's common stock on the
Nasdaq was $2.00. As of March 19, 1999, there were 151 holders of record of the
Company's common stock.
Dividends
The Company has never paid any cash dividends on its common stock. It
presently intends to retain earnings and capital, if any, 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.
Recent Sales of Unregistered Securities
The Company completed a private placement of 826,668 shares of common stock
on November 10, 1998, to accredited investors only pursuant to Rule 506 of
Regulation D under the Securities Act of 1933, as amended, which raised $1.2
million. The purpose of this private placement was to assist the Company in
meeting Nasdaq's net tangible assets requirement for the continued listing of
the Common Stock on the Nasdaq National Market. (Please see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations...Risk
Factors)
Transfer Agent and Registrar
U.S. Stock Transfer Corporation of Glendale, California serves as transfer
agent and registrar of the Company's common stock.
7
<PAGE>
Item 6. Selected Financial Data
The following historical selected financial data of the Company has been
restated to reflect the acquisition of USTeleCenters, Inc. in a pooling-of-
interest transaction as described in Notes 1 and 3 to the consolidated financial
statements.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended Year Ended
------------------------------------------ December 31, June 30,
1998 1997 1996 1996 1996
------------ ------------ ------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Product and service revenues................. $39,746,564 $33,642,166 $24,820,903 $13,330,608 $19,680,386
Agency commissions........................... 18,225,574 16,300,988 12,127,329 6,547,974 11,313,350
----------- ----------- ----------- ----------- -----------
57,972,138 49,943,154 36,948,232 19,878,582 30,993,736
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold.......................... 27,518,045 23,835,939 18,370,748 10,235,235 14,269,108
Selling and marketing expenses............... 20,792,084 17,947,552 13,274,260 7,045,024 10,670,921
General and administrative expenses.......... 7,743,567 7,649,521 5,581,287 2,938,890 5,465,984
Restructuring and other costs................ 4,201,013 -- -- -- --
Merger costs................................. -- -- 2,563,573 2,563,573 --
----------- ----------- ----------- ----------- -----------
60,254,709 49,433,012 39,789,868 22,782,722 30,406,013
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations................. (2,282,571) 510,142 (2,841,636) (2,904,140) 587,723
Interest Expense.............................. (527,593) (367,003) (318,149) (152,882) (423,483)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes............. (2,810,164) 143,139 (3,159,785) (3,057,022) 164,240
Benefit (Provision) For Income Taxes.......... (4,233) (4,512) 172,434 39,804 259,816
----------- ----------- ----------- ----------- -----------
Net Income (Loss)............................. $(2,814,397) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056
=========== =========== =========== =========== ===========
Earnings (Loss) Per Share (Basic & Diluted)... $ (0.41) $ 0.02 $ (0.57) $ (0.56) $ 0.07
=========== =========== =========== =========== ===========
Consolidated Balance Sheet Data:
Total assets................................. $26,245,518 $25,812,168 $18,520,608 $18,520,608 $14,841,089
Working capital.............................. 5,729,746 5,299,734 450,016 454,016 2,370,967
Long-term liabilities........................ 5,196,653 5,342,368 779,920 779,920 952,864
Stockholders' equity......................... 7,070,515 8,276,832 4,418,725 4,418,725 4,221,533
</TABLE>
8
<PAGE>
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. All statements contained herein that are not historical facts,
including, but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain debt, equity or other financing, and the Company's ability to generate
cash from operations, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties that
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 those described below under "Risk Factors" and, in addition, the
following: the Company's ability to raise additional funds that may be necessary
to meet its current and future capital needs; the Company's ability to
effectively manage its business in a rapidly changing environment due to the
rapid internal growth and external growth through acquisition; the Company's
limited history of profitable operations and significant fluctuations in
operating results which may continue due to delays in product enhancements, new
product introductions by its suppliers; the 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; the introduction of products embodying new technologies and
the emergence of new industries that could make the Company's existing products
and services obsolete; unmarketable or noncompetitive and the introduction of
new rules and regulations of 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.
General
The Company commenced operations in July 1992 as a California corporation.
Since its initial public offering of common stock in June 1995, the Company has
grown rapidly through internal expansion and through acquisitions. In November
1996, concurrent with a merger (the "Merger") of USTeleCenters, Inc., a
Massachusetts corporation ("USTeleCenters"), with and into View Tech
Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Company ("VTAI"), the Company reincorporated in Delaware. Following the Merger,
VTAI changed its name to USTeleCenters, Inc. ("UST"). In November 1997, the
Company 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 33 offices nationwide.
The Company is a leading, single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions for
business customers nationwide. The Company has equipment distribution
partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc.,
IntelO, Madge Networks, 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.
In the second quarter of 1998, the Company implemented a restructuring plan
(the "Plan") designed to reduce costs and improve profitability. The
implementation of the Plan resulted in a one time charge of $4.2 million.
Included in this charge was $1.793 million of employee termination costs, a
permanent impairment write-down of goodwill relating to previous acquisitions of
$1.465 million, and facility exit costs of $0.157 million.
9
<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>
Six Months Year
Year Ended Ended Ended
December 31, December 31, June 30,
------------------------------- ----------- ------
1998 1997 1996 1996 1996
------ ------ ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales and service
revenues........................ 68.6% 67.4% 67.2% 67.1% 63.5%
Agency commissions............... 31.4 32.6 32.8 32.9 36.5
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
Costs and Expenses:
Costs of goods sold.............. 47.5 47.7 49.7 51.5 46.0
Sales and marketing
expenses........................ 35.9 35.9 35.9 35.4 34.4
General and administrative
expenses........................ 13.4 15.3 15.1 14.8 17.6
Merger costs..................... -- -- 7.0 12.9 --
Restructuring and other costs.... 7.2 -- -- -- --
----- ----- ----- ----- -----
104.0 98.9 107.7 114.6 98.0
----- ----- ----- ----- -----
Income (Loss) from
Operations....................... (4.0) 1.1 (7.7) (14.6) 2.0
Interest Expense.................. (0.9) (0.8) (0.9) (0.8) (1.4)
----- ----- ----- ------ -----
Income (Loss) Before
Income Taxes..................... (4.9) 0.3 (8.6) (15.4) 0.6
Benefit (Provision) for
Income Taxes..................... 0.0 0.0 0.5 0.2 0.8
----- ----- ----- ------ -----
Net (Loss) Income................. (4.9)% 0.3% (8.1)% (15.2)% 1.4%
===== ===== ===== ====== =====
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
Total revenues for the twelve months ended December 31, 1998 increased by
$8.029 million, or 16%, to $57.972 million from $49.943 million in 1997.
Product Sales and Services
Product sales and service revenues increased by $6.104 million, or 18%, to
$39.747 million in 1998 from $33.642 million in 1997. The increase in revenues
was primarily related to the Company's nationwide expansion of its
videoconferencing business by opening new sales offices and hiring sales
personnel.
Agency Commissions
Agency commissions for 1998 increased by $1.925 million, or 12%, to $18.226
million from $16.301 million in 1997. The increase in agency commissions was
due primarily to the agency commissions generated by the Company's wholly-owned
subsidiary, Network Services, Inc. ("NSI"), which was acquired in the fourth
quarter of 1997.
Costs and Expenses
Costs of goods sold for 1998 increased by $3.682 million, or 15%, to $27.518
million from $23.836 million in 1997. Costs of goods sold as a percentage of
product sales and service revenues decreased to 69.2% in 1998 from 70.9% in
1997. The percentage decrease in costs of goods sold is primarily related to an
increase in service revenues and a slight increase in margin on equipment sales
related to the Company's videoconferencing business due to efficiencies of
scale. Service revenues generally provide a higher profit margin than equipment
revenues.
Selling and marketing expenses for 1998 increased by $2.844 million, or 16%,
to $20.792 million from $17.948 million in 1997. Selling and marketing expenses
as a percentage of revenues remained constant at 35.9% in 1998 and in 1997. The
increase in selling and marketing expenses was primarily due to higher sales
compensation as a result of hiring additional sales personnel and other
operating expenses incurred as a result of the increased number of sales
offices.
10
<PAGE>
General and administrative expenses for 1998 increased by $0.094 million, or
1.2%, to $7.744 million from $7.649 million in 1997. General and administrative
expenses as a percentage of total revenues decreased to 13.4% in 1998 from 15.3%
in 1997. The percentage decrease was primarily due to synergies achieved as
part of the integration and restructuring efforts.
The Company recorded a restructuring charge of $4.201 million during 1998
which resulted in a decrease of income (loss) from operations of $2.793 million
from income of $0.510 million in 1997 to a loss of $(2.283) million in 1998.
The significant components of the restructuring charge were an impairment
write-down of goodwill of $1.465 million, employee termination costs of $1.793
million and facility exit costs of $0.157 million.
Interest expense increased by $160,590 to $527,593 in 1998 compared to
$367,003 in 1997. This increase was primarily due to additional borrowings
related to the Company's credit facilities and capital lease obligations.
Net income decreased by $2.953 million to a loss of $(2.814) million in 1998
from net income of $138,627 for 1997. Net income (loss) as a percentage of
revenues decreased to (4.9)% for 1998 compared to 0.3% for 1997. Net income
(loss) per share decreased to a loss of $(0.40) for 1998 compared to income per
share of $0.02 for 1997. The weighted average number of shares outstanding
increased to 6,888,104 for 1998 from 6,371,651 in 1997, primarily due to the
private placement completed in November 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
(Unaudited)
Revenues
Total revenues for the twelve months ended December 31, 1997 increased
$12.995 million, or 35.2%, to $49.943 million from $36.948 million in 1996.
Product Sales and Services
Product sales and service revenues increased by $8.821 million, or 35.5%, to
$33.642 million in 1997 from $24.821 million in 1996. The increase in revenues
was primarily related to the Company's nationwide expansion of its
videoconferencing business. In addition, the Company benefited from a full 12
months of sales related to acquisitions made in July and August of 1996.
Agency Commissions
Agency commissions for 1997 increased by $4.174 million, or 34.4%, to $16.301
million from $12.127 million in 1996. The increase in agency commissions was due
primarily to the Company growing its agency business in its Boston and New York
offices.
Costs and Expenses
Costs of goods sold for 1997 increased by $5.465 million, or 29.7%, to
$23.836 million from $18.371 million in 1996. Costs of goods sold as a
percentage of product sales and service revenues decreased to 70.9% in 1997 from
74.0% in 1996. The percentage decrease in costs of goods sold is primarily
related to a increase in service revenues and a slight increase in margin on
equipment sales related to the Company's videoconferencing business due to
efficiencies of scale. Service revenues generally provide a higher profit margin
than equipment revenues.
Selling and marketing expenses for 1997 increased by $4.674 million, or
35.2%, to $17.948 million from $13.274 million in 1996. Selling and marketing
expenses as a percentage of revenues remained constant at 35.9% in 1997 and in
1996. The increase in selling and marketing expenses was primarily due to the
sales personnel increase and facility rentals due to the increased number of
sales offices.
General and administrative expenses for 1997 increased by $2.068 million, or
37.1%, to $7.649 million from $5.581 million in 1996. General and administrative
expenses as a percentage of total revenues increased to 15.3% in 1997 from 15.1%
in 1996. The increase was primarily due to a general increase in such expenses
as a result of the expansion of the Company's businesses.
The Company incurred merger costs in 1996 of $2.564 million in connection
with the Merger, which was consummated on November 29, 1996. Merger costs
primarily included financial advisory, legal and accounting fees relating to the
Merger. The Merger was accounted for under the pooling of interest method of
accounting that requires the combined company to write off all transaction costs
upon the consummation of such transaction.
11
<PAGE>
Income (loss) from operations increased by $3.351 million, to income of
$0.510 million in 1997 from a loss of $(2.841) million in 1996. The increase in
income from operations related to one time merger costs of $2.564 million
incurred in 1996 and increased income related to the overall increase in sales.
Interest expense increased by $48,854 to $367,003 in 1997 compared to
$318,149 in 1996.
Provision for income tax expense increased by $176,946 to $4,512 in 1997
compared to a benefit of $172,434 for 1996. The increase in tax was due to the
Company becoming profitable in 1997.
Net income increased by $3.126 million to income of $0.139 million in 1997
from a net loss of $(2.987) million for 1996. Net income as a percentage of
revenues increased to 0.3% for 1997 compared to (8.1)% for 1996. Net income per
share increased to $.02 for 1997 compared to a loss per share of $(0.57) per
share for 1996. The weighted average number of shares outstanding increased to
6,371,651 for 1997 from 5,262,238 in 1996 due to the issuance of shares in
connection with the private placements.
Liquidity and Capital Resources
View Tech has financed its recent operations and expansion activities with
the proceeds from private placements of equity securities, bank debt, and vendor
credit arrangements. On November 10, 1998, the Company completed an offering of
$1,200,000 of Common Stock. In November 1997, the Company entered into a $15
million Credit Agreement (the "Agreement") which provides for a maximum credit
line of up to $15 million for a term of five (5) years with Imperial Bank. In
December 1998, the maximum credit line was reduced to $10 million. Amounts
outstanding under the agreement are collateralized by the assets of the Company.
Funds available under the agreement will vary periodically depending on many
variables including, without limitation, the amount of Eligible Trade Accounts
Receivable and Eligible Inventory of the Company, as such terms are defined in
the Agreement. At December 31, 1998, $6.1 million was available under the
Agreement of which $4.782 million was outstanding.
Net cash used by operating activities for the year ended December 31, 1998
was $0.337 million, primarily caused by the Company's net loss of $(2.814)
million and an increase in inventory of $(1.995) million, offset by non-cash
charges related to depreciation and amortization of $2.994 million, increases in
accrued restructuring charges and deferred revenue of $1.026 million and $0.853
million, respectively.
Net cash used by investing activities for the year ended December 31, 1998
was $0.995 million primarily relating to the purchase of office furniture and
computer equipment. At December 31, 1998, the Company does not have any other
significant capital commitments.
Net cash provided by financing activities for the year ended December 31,
1998 was $0.789 million, related to net repayments under the Company's line of
credit of $0.124 million, repayments under capital lease obligations of $0.695
million, offset by the issuance of common stock of $1.608 million.
The Company believes that its available funds will be sufficient to meet the
Company's working capital requirements for at least the foreseeable future. The
Company plans to finance its long-term capital needs with available borrowings
and the cash flows from operations. To the extent that such funds are
insufficient to finance the Company's activities, the Company may have to raise
working capital through the issuance of additional equity or debt securities.
There can be no assurance that additional financing will be available on
acceptable terms.
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 its 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 effect on the
Company's business, financial condition and results of operations.
12
<PAGE>
Nasdaq National Market
On August 18, 1998, the Company received a notice (the "Initial Notice") from
Nasdaq that it did not meet the applicable listing requirements because it did
not have $4,000,000 in net tangible assets and therefore its Common Stock was
subject to delisting. On September 1, 1998, the Company responded to the
Initial Notice and requested a temporary exception from Nasdaq's net tangible
asset requirement. On September 14, 1998, the Company received a letter from
Nasdaq denying this request and notifying the Company that the Common Stock
would be delisted on September 21, 1998, unless the Company sought further
procedural remedies. On September 16, 1998, the Company wrote Nasdaq to request
an oral hearing to appeal the decision and a stay pending appeal. On October
14, 1998, Nasdaq notified the Company that Nasdaq had scheduled a hearing before
a panel for November 13, 1998 to consider this matter. The Company had been
advised that, should the hearing panel decide to delist the Common Stock, the
Common Stock would cease to trade on the National Market System of the Nasdaq
Stock Market pending further appeals, if any.
Following an oral hearing on November 13, 1998 before the Nasdaq
Qualifications Hearing Panel (the "Panel") the Company received letters from the
Nasdaq on December 7, 11 and 30, 1998 (the "Nasdaq Correspondence").
The Nasdaq Correspondence confirmed that the Panel has determined to continue
listing the Company's securities on the Nasdaq National Market provided the
Company complies with the following exception: (i) The Company must make a
public filing with the Securities and Exchange Commission (the "SEC") and
Nasdaq, on or before December 23, 1998 evidencing a minimum of $4,000,000 in net
tangible assets, containing a December 15, 1998 balance sheet with pro-forma
adjustments for any significant events or transactions occurring on or before
the filing date, (ii) The Company to make an additional public filing on or
before February 1, 1999 with the SEC and Nasdaq evidencing profitability, on a
net income basis, for the quarter ended December 31, 1998.
In order to fully comply with the terms of the Nasdaq exception, the Company
had to demonstrate compliance with all requirements for continued listing on the
Nasdaq National Market.
In accordance with the Nasdaq Correspondence, the Company filed its
consolidated balance sheet as of December 15, 1998 on Form 8-K with the SEC and
Nasdaq on December 22, 1998. On January 25, 1999 the Company filed an additional
Form 8-K, which included the Company's consolidated balance sheet as of December
31, 1998 and 1997 and the consolidated statements of operations (unaudited) for
the three months ended December 31, 1998 and 1997, respectively. In accordance
with the Nasdaq Correspondence, the consolidated statement of operations for the
quarter ended December 31, 1998 is evidence of the Company's profitability on a
net income basis.
On February 3, 1999, the Company received a letter from the Nasdaq stating
that the Company had evidenced compliance will all requirements necessary for
continued listing on the Nasdaq National Market and the Company had complied
with the terms of the Nasdaq exception and therefore, the hearing file would be
closed.
In the event the Company does not comply with Nasdaq's continued listing
requirements in the future, the Company's common stock could be delisted from
the Nasdaq National Market System.
Dependence upon Key Personnel
The Company depends to a considerable degree on the continued services of
certain of its executive officers, including William J. Shea, its chief
executive officer, Franklin A. Reece III, its president and Ali Inanilan, its
chief financial and administrative officer, as well as on a number of key
personnel. Any further changes in current management, including but not limited
to the loss of Messrs. Shea, Reece or Inanilan could have a material adverse
affect on the Company. The loss of 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.
Limited History of Profitable Operations; Significant Fluctuations in Operating
Results and Non-Recurring Items; Future Results of Operations
View Tech and UST have operated since 1992 and 1987, respectively. Since
November 29, 1996, the Company has operated on a combined basis. The Company
reported net income (loss) of $712,613 and $(2,814,397), including restructuring
costs, for the three months and twelve months ended December 31, 1998,
respectively. The Company may continue to experience significant fluctuations in
operating results as a result of a number of factors, including, without
limitations, delays in product enhancements and new product introductions by its
suppliers, commission rate cuts on
13
<PAGE>
by Bell Atlantic and GTE, 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.
Dependence on Suppliers, Including PictureTel, Bell Atlantic and GTE
For the twelve months ended December 31, 1998, approximately 31% of the
Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel Corporation and an additional 31% of consolidated
revenues to the sale of network products and services provided by Bell Atlantic
and GTE. 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, could 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 on
the one hand, Bell Atlantic and GTE on the other, 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. In October 1998, Bell Atlantic announced a
decrease in the commission rates paid to the Company effective January 1, 1999.
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 "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 may have greater
resources than the Company, may enter the video communications market.
A specific manufacturer's network of dealers and distributors typically
involves discrete 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 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
14
<PAGE>
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, SPRINT Corporation, other long
distance and communications companies such as a 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
The Company has been engaged in its Year 2000 compliance efforts since 1998.
In reviewing Year 2000 compliance issues, the Company has also become aware that
issues of lack of date recognition may begin as early as "9-9-99" or September
9, 1999. In the Company's Form 10-Q filed on November 10, 1998, the Company
anticipated completing its Year 2000 readiness by March 31, 1999. Based upon a
subsequent replacement of the Company's Director of Information Services, and,
the Company's continuing research into Y2K compliance issues, the Company is
now revising its estimated date of completion of Y2K compliance. The Company
does not anticipate it will complete its efforts to evaluate its Year 2000
readiness and remedy any Year 2000 non-compliance until the end of the third
quarter of 1999.
Y2K COMPLIANCE STEPS TO DATE:
The Company has assembled an internal team to ensure its objectives of Year
2000 compliance are achieved. The Company's eight internal mission critical
systems have been identified and reviewed for Y2K compliance. Of the eight, two
were found to be non-compliant and one potentially non-compliant. Of the two
non-compliant systems, one has been upgraded and is now believed to be Y2K
compliant. The other system is being internally re-written to become compliant.
The additional potentially non-compliant system is still being evaluated and
will be upgraded, rewritten or replaced if found to be non-compliant.
In addition, the Company has reviewed information received from its main
suppliers or product manufacturers as to their Year 2000 compliance. The Company
found that most of its main suppliers had some products, in the past, that were
not compliant for the Year 2000, but that current products are compliant. For
those products that are non-compliant, nearly every supplier, including
PictureTel, VTel, PolyCom and others, is providing upgrades at no cost to the
Company and the Company's customers. One exception is Madge Networks, which
continues to charge for its Y2K compliance upgrades.
The Company has been receiving, and responding to, customer requests for
upgrades. As the Company moves throughout 1999, it is handling the customer
service requests for upgrades, repairs or replacements as they arise.
RISK FACTORS FACING THE COMPANY RELATING TO YEAR 2000 COMPLIANCE:
The Company, as a reseller, is not in a position to test products
manufactured by others because it does not have access to, or, knowledge of,
supplier proprietary codes, and other information. The Company is relying on its
suppliers' testing of products and component parts.
The Company believes that if the Company's customers experience damages or
injuries resulting from Y2K non-compliance caused by products sold by the
Company to its customers, litigation against both the Company and the Company's
supplier may result. In the event of such litigation, the Company believes the
suppliers will ultimately by held responsible for the date recognition
functionality of their products; however, the Company could incur liability and
be requested to bear the cost and inconvenience of defending any such
litigation. Should product failures occur, the Company may, also, be required to
address the administrative aspects of those failures, such as facilitating
product return and repairs. At this point, management is uncertain about the
extent of the ultimate impact, if any, Year 2000 compliance issues will have
upon the Company's operations and finances.
Should the Company (1) face significant time constraints and service call
costs in the event of customer complaints, due to the failure of products to
recognize particular dates, or (2) becomes involved in a dispute with one or
more of its suppliers over Year 2000 non-compliance, among other such scenarios,
there may be a material adverse impact on the Company's operations and/or
financial results. One cannot predict the magnitude of the impact because the
magnitude of Y2K non-compliance is generally unknown.
15
<PAGE>
YEAR 2000 COMPLIANCE COSTS:
The Company has expended approximately $80,000 in Year 2000 compliance
upgrades excluding costs attributable to time expended by the Company's own
employees. The time expended by employees of the Company in connection with the
Company's Y2K compliance effort has not resulted in any material adverse impact
upon the Company's expenses or profitability. The Company, in its most recent
analysis, anticipates it will expend approximately $263,000 to upgrade, repair
or replace its systems. Most of the sum will be spent upgrading, repairing or
replacing personal computers, printers and software.
The Company has estimated its costs, material or otherwise, based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. There can be no assurance that
these estimates will be achieved, and actual results may vary from the
estimates.
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, and (iii) maintain a high level of expertise
relating to new products and the latest in communications systems technology.
Control by Executive Officers and Directors
As of March 19, 1999, the Company's officers and directors beneficially owned
approximately 33.8% (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 the Company 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company maintains borrowings under a line of credit facility with
Imperial Bank which are subject to fluctuations in market interest rates. There
are no other material qualitative or quantitative market risks of the Company.
16
<PAGE>
Item 8. Financial Statements and Supplementary Data
VIEW TECH, INC.
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Reports of Independent Public Accountants.............................................. 18
Consolidated Balance Sheets as of December 31, 1998 and 1997........................... 20
Consolidated Statements of Operations for the years ended December 31, 1998, 1997
and 1996, (unaudited) six months ended December 31, 1996, and the year ended
June 30, 1996........................................................................ 21
Consolidated Statements of Stockholders' Equity for the year ended December
31, 1998 and 1997, six months ended December 31, 1996 and the years ended June 30,
1996 and 1995........................................................................ 22
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996, six months ended December 31, 1996 and the year ended June 30, 1996........ 23
Notes to Consolidated Financial Statements............................................. 24
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To View Tech, Inc.:
We have audited the accompanying consolidated balance sheets of View Tech, Inc.
and subsidiaries as of December 31, 1998 and 1997, and related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of View
Tech, Inc. as of December 31, 1998 and 1997, and the consolidated results of its
operations and its consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1999
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
VIEW TECH, INC.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1996 and the six
months ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
The consolidated statements of operations, stockholders' equity and cash flows
for the year ended June 30, 1996 have been restated to reflect the pooling of
interests as described in notes 1 and 3 of the consolidated financial
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated statements of operations, stockholders'
equity and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated statements of operations, stockholders' equity and cash flows.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the consolidated statements of operations, stockholders' equity and cash flows.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations, stockholders' equity
and cash flows referred to in the first paragraph present fairly, in all
material respects, the results of operations and cash flows of View Tech, Inc.
for the six months ended December 31, 1996 and for the year ended June 30,
1996, in conformity with generally accepted accounting principles.
/s/ Carpenter Kuhen & Sprayberry
Oxnard, California
March 31, 1997
19
<PAGE>
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 661,158 $ 1,204,690
Accounts receivable, net of reserves of $869,304 and
$658,656, respectively 14,091,912 13,326,667
Inventory 4,410,166 2,532,456
Other current assets 544,860 428,889
---------- ----------
Total Current Assets 19,708,096 17,492,702
PROPERTY AND EQUIPMENT, net 3,548,993 3,423,838
GOODWILL, net 2,300,064 4,198,927
OTHER ASSETS 688,365 696,701
----------- -----------
$26,245,518 $25,812,168
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,669,229 $ 7,168,763
Current portion of long-term debt 336,193 661,290
Accrued payroll and related costs 2,348,421 1,904,506
Deferred revenue 1,940,579 1,087,161
Accrued restructuring costs 1,026,496 --
Other current liabilities 657,432 1,371,248
----------- -----------
Total Current Liabilities 13,978,350 12,192,968
----------- -----------
LONG-TERM DEBT 5,196,653 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 7,722,277
and 6,589,571 shares at December 31, 1998 and 1997,
respectively 772 659
Additional paid-in capital 15,261,591 13,653,624
Accumulated deficit (8,191,848) (5,377,451)
----------- -----------
7,070,515 8,276,832
----------- -----------
Total Stockholders' Equity $26,245,518 $25,812,168
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Years Ended Ended Year Ended
December 31, December 31, June 30,
-------------------------------------------- ----------- -----------
1998 1997 1996 1996 1996
------------ ------------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales and service revenues $39,746,564 $33,642,166 $24,820,903 $13,330,608 $19,680,386
Agency commissions 18,225,574 16,300,988 12,127,329 6,547,974 11,313,350
----------- ----------- ----------- ----------- -----------
57,972,138 49,943,154 36,948,232 19,878,582 30,993,736
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold 27,518,045 23,835,939 18,370,748 10,235,235 14,269,108
Sales and marketing expenses 20,792,084 17,947,552 13,274,260 7,045,024 10,670,921
General and administrative expenses 7,743,567 7,649,521 5,581,287 2,938,890 5,465,984
Restructuring and other costs 4,201,013 -- -- -- --
Merger costs -- -- 2,563,573 2,563,573 --
----------- ----------- ----------- ----------- -----------
60,254,709 49,433,012 39,789,868 22,782,722 30,406,013
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations (2,282,571) 510,142 (2,841,636) (2,904,140) 587,723
Interest Expense 527,593 367,003 318,149 152,882 423,483
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (2,810,164) 143,139 (3,159,785) (3,057,022) 164,240
Benefit (Provision) for Income Taxes (4,233) (4,512) 172,434 39,804 259,816
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $(2,814,397) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056
=========== =========== =========== =========== ===========
Earnings (Loss) per Share (Basic and Diluted) $ (0.41) $ 0.02 $ (0.57) $ (0.56) $ 0.07
=========== =========== =========== =========== ===========
Shares used in computing earnings (loss) per Share
Basic 6,888,104 6,371,651 5,262,238 5,400,785 5,040,731
=========== =========== =========== =========== ===========
Diluted 6,888,104 6,793,521 5,262,238 5,400,785 5,676,304
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Additional Total
--------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
--------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 3,069,976 $ 30,699 $ 6,295,282 $(2,922,916) $ 3,403,065
Shares issued under stock
option plan 34,200 342 11,170 -- 11,512
Issuance of common stock 2,008,447 20,084 406,246 -- 426,330
Additional costs of initial public
offering of common stock -- -- (43,430) -- (43,430)
Net income -- -- -- 424,056 424,056
--------- -------- ----------- ----------- -----------
Balance, June 30, 1996 5,112,623 51,125 6,669,268 (2,498,860) 4,221,533
Change in par value of
common stock to $0.0001 -- (50,613) 50,613 -- --
Issuance of common stock 533,138 53 3,100,519 -- 3,100,572
Shares issued under stock
option plan 21,053 2 113,836 -- 113,838
Net loss -- -- -- (3,017,218) (3,017,218)
--------- -------- ----------- ----------- -----------
Balance, December 31, 1996 5,666,814 567 9,934,236 (5,516,078) 4,418,725
Issuance of common stock 736,662 74 3,172,333 -- 3,172,407
Shares issued under stock
option plan 113,648 11 56,914 -- 56,925
Shares issued in connection with
exercise of warrants 72,447 7 364,853 -- 364,860
Issuance of warrants in connection
with new banking relationship -- -- 125,288 -- 125,288
Net income -- -- -- 138,627 138,627
--------- -------- ----------- ----------- -----------
Balance, December 31, 1997 6,589,571 659 13,653,624 (5,377,451) 8,276,832
--------- -------- ----------- ----------- -----------
Issuance of common stock 985,872 98 1,554,973 -- 1,555,071
Shares issued under stock
option plan 146,584 15 51,744 -- 51,759
Shares issued in connection with
exercise of warrants 250 -- 1,250 -- 1,250
Net loss -- -- -- (2,814,397) (2,814,397)
--------- -------- ----------- ----------- -----------
Balance, December 31, 1998 7,722,277 $ 772 $15,261,591 $(8,191,848) $ 7,070,515
========= ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Year
Years Ended Ended Ended
December 31, December 31, June 30,
------------------------------------------- ------------- ------------
1998 1997 1996 1996 1996
------------ ------------ ------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(2,814,397) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 2,994,652 1,190,700 975,675 530,960 872,969
Non-cash merger expenses -- -- 340,689 340,689 --
Reserve on note receivable -- -- 265,000 -- 265,000
Changes in assets and liabilities net of
effects of acquisitions
Accounts receivable, net (765,245) (2,416,536) (3,911,179) (2,521,215) (2,276,340)
Inventory (1,995,452) (464,461) (571,361) (314,473) (679,357)
Other assets (177,665) (72,601) (55,369) 87,836 (617,359)
Accounts payable 500,466 (788,494) 3,397,918 2,247,748 2,299,539
Accrued restructuring charges 1,026,496 -- -- -- --
Other accrued liabilities 894,086 1,057,433 1,417,880 1,647,700 (1,232,266)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities: (337,059) (1,355,332) (1,128,098) (997,973) (943,758)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment (995,807) (1,150,101) (795,727) (492,684) (865,496)
Proceeds from sale of assets -- -- 14,937 14,937
Cash paid for business acquisitions -- (2,071,177) (155,163) (155,163) --
Issuance of notes receivable -- -- (265,000) -- (265,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities: (995,807) (3,221,278) (1,200,953) (632,910) (1,130,496)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Net borrowings (payments) on line of credit (123,686) 2,867,120 4,786 (38,677) 43,473
Payments on long term debt (695,060) (770,439) (626,230) (786,483) (1,886,371)
Issuance of common stock, net 1,608,080 3,319,480 1,365,873 1,355,983 394,412
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
financing activities: 789,334 5,416,161 744,429 530,823 (1,448,486)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash (543,532) 839,551 (1,584,622) (1,100,060) (3,522,740)
Cash, beginning of period 1,204,690 365,139 1,949,761 1,465,199 4,987,939
----------- ----------- ----------- ----------- -----------
Cash, end of period $ 661,158 $ 1,204,690 $ 365,139 $ 365,139 $ 1,465,199
=========== =========== =========== =========== ===========
Supplemental Disclosures:
Operating activities reflect:
Interest Paid $ 478,102 $ 352,808 $ 387,758 $ 191,342 $ 467,061
=========== =========== =========== =========== ===========
Income Taxes paid $ 105,471 $ 7,640 $ 219,452 $ -- $ 375,480
=========== =========== =========== =========== ===========
</TABLE>
See Note 16 for supplemental disclosure of non-cash items.
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE BUSINESS
- ----------------------
View Tech, Inc. (the "Company"), markets and installs video communications
systems and provides continuing services related to installed systems to
customers in select states throughout the United States. As a result of the
merger of the Company with USTeleCenters, Inc. ("USTeleCenters") in November
1996, the Company designs, sells, and supports telecommunication systems
solutions for small and medium-sized businesses throughout the United States and
also sells telecommunication services on behalf of certain Regional Bell
Operating Companies ("RBOCs").
This business combination with USTeleCenters was accounted for as a pooling
of interests. Accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the business combination to include the
results of operations, financial position, and cash flows of USTeleCenters.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
Principles of Consolidation. The accompanying consolidated financial
---------------------------
statements include the accounts of the Company and its subsidiaries. All
significant intercompany transactions have been eliminated.
Change in Year End. During the six months ended December 31, 1996, the
------------------
Company changed its year end from June 30 to December 31. The unaudited
financial information for the year ended December 31, 1996 is presented for
comparative purposes and includes all adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation.
Revenue Recognition. The Company sells both products and services. Product
-------------------
revenue consists of revenue from the sale of video communications and telephone
equipment and is recognized at the time of shipment. Service revenue is derived
from services rendered in connection with the sale of new systems and from
services rendered with respect to previously installed systems. Services
rendered in connection with the sale of new systems consist of engineering
services related to system integration, installation, technical training, user
training, and one-year parts-and-service warranty. The majority of these
services are rendered at or prior to installation, and all of the revenue is
recognized when services are rendered. Revenue related to extended warranty
contracts is deferred and recognized over the life of the extended warranty
period.
The Company has agency agreements with various local exchange carriers and
telecommunications companies whereby the Company receives commissions on work
referred to these entities. The agreements are subject to annual renewals. The
Company generally recognizes revenue when the installation or service is ordered
from the local exchange carrier or telecommunication company and a reserve is
recorded for cancellations. Certain of the entities have the right to credit or
charge back future commission payments on orders canceled within a 6 to 10 month
period from the date of order. The Company is not aware of any possible refunds
or charge-backs that these entities might be seeking, which have not been
reserved at December 31, 1998.
In addition, under its agreement with Bell Atlantic, the Company receives
commissions on management contracts. The Company recognizes these revenues at
the time the service is rendered.
Use of Estimates. The preparation of financial statements in conformity with
----------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Per Share Data. Basic earnings (loss) per share is computed by dividing net
--------------
income (loss) by the weighted average number of shares of common stock
outstanding. Earnings per share - diluted is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding and
the effect of potentially dilutive shares.
24
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents. The Company considers all highly liquid
-------------------------
investments with a maturity not exceeding three months at the date of purchase
to be cash equivalents.
Inventories. Inventories are accounted for on the basis of the lower of cost
-----------
or market. Cost is determined on a FIFO (first-in, first-out) basis. Included
in inventory is demonstration equipment held for resale in the ordinary course
of business. The Company generally sells its video demonstration equipment
after the six month holding period required by its primary equipment supplier.
Property and Equipment. Property and equipment are recorded at cost and
----------------------
include improvements that significantly add to utility or extend useful lives.
Depreciation of property and equipment is provided using the straight-line and
accelerated methods over estimated useful lives ranging from one to ten years.
Expenditures for maintenance and repairs are charged to expense as incurred.
Intangibles. Cost in excess of the fair value of net assets of purchased
-----------
businesses (goodwill) is amortized using the straight line method over 15 years,
its estimated useful life.
The Company assesses the realizability of long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed of. SFAS No. 121 requires, among other things,
that an entity review its long-lived assets including intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. During 1998, the Company recorded charges of
approximately $1,465,000 relating to the impairment of goodwill which is
included in the operating non-recurring charge in the consolidated statements of
operations.
Income Taxes. The Company accounts for income taxes using SFAS No. 109,
------------
Accounting for Income Taxes, which requires a liability approach to financial
accounting and reporting for income taxes.
Deferred taxes are recognized for timing differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities represent the future tax consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Concentration of Risk. Items that potentially subject the Company to
---------------------
concentrations of credit risk consist primarily of accounts receivable, cash
and investments, and the dependence on a major equipment vendor.
Accounts receivable subject the Company to potential credit risk with
customers in the telecommunications industry. The Company performs on-going
credit evaluations of its customers' financial condition but does not require
collateral. The company maintains its accounts with highly rated financial
institutions.
Approximately 31% of the Company's revenues are attributable to the sale of
equipment manufactured by PictureTel and approximately 31% of revenues are
attributable to the sale of network products and services provided by Bell
Atlantic and GTE. Termination or change of the Company's business relationship
with PictureTel, Bell Atlantic and/or GTE, disruption in supply, failure of
these suppliers to remain competitive in quality, function or price, or a
determination by such suppliers to reduce reliance on independent distributors
such as the Company could have a materially adverse effect on the Company.
Reclassifications. Certain prior year balances have been reclassified in
-----------------
order to conform to the current year presentation.
NOTE 3 -- BUSINESS COMBINATION
- ------------------------------
On November 29, 1996, the Company acquired USTeleCenters, which is an
authorized sales agent for several of the RBOCs. The transaction was accounted
for as a pooling of interests in which USTeleCenters' shareholders exchanged all
of their outstanding shares and options for View Tech common stock and options,
respectively. USTeleCenters' shareholders and optionholders (upon exercise of
their options) received 2,240,976 shares of View Tech common stock and options
to purchase 184,003 shares of View Tech common stock. The value of the
transaction was approximately $16.5 million. In connection with the
acquisition, the Company issued 24,550 shares in January, 1997 to certain
investment bankers.
25
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- ACQUISITIONS
- ----------------------
Vermont Telecommunications Network Services, Inc.
- -------------------------------------------------
On November 13, 1997, the Company, through its wholly-owned subsidiary,
acquired the net assets of Vermont Telecommunications Network Services, Inc.
("VTNSI") a Vermont corporation. Pursuant to the terms of the Asset Purchase
Agreement, the Company acquired ownership of the assets and assumed certain
liabilities of VTNSI, effective November 1, 1997. The aggregate purchase price
for the net assets of VTNSI consisted of (i) $2,000,000 cash paid at the
closing, (ii) a promissory note in the original amount of $250,000, bearing
interest at the rate of 8% per annum subsequently paid in full on November 21,
1998, (iii) a contingent note in the original amount of $250,000, bearing
interest at the rate of 8% per annum and payable in full on November 21, 1999,
and (iv) $400,000 paid by the issuance of 62,112 shares of the Company's common
stock. The contingent note in the amount of $250,000 is due only if Network
Services, Inc. ("NSI"), the surviving company following the acquisition of
VTNSI, achieves EBIT, as defined, equal to or greater than $700,000 for the year
ended December 31, 1998. In addition, View Tech is required to pay an additional
amount equal to 40% of NSI's EBIT, as defined, in excess of $900,000 per
calendar year commencing January 1, 1998 and ending December 31, 2000. At
present, the calculation of NSI'S EBIT for the year ended December 31, 1998, has
not been conclusively determined under the Agreement. The cash portion of the
purchase price of $2,000,000 was paid utilizing the Company's bank line of
credit. The excess of the acquisition price over the net assets acquired of
approximately $2,708,000 was accounted for as goodwill and is being amortized
over 15 years. VTNSI, based in Burlington, Vermont, was an authorized agent
selling Bell Atlantic services in Vermont, New Hampshire, upstate New York and
western Massachusetts. The acquisition has been accounted for as a purchase
transaction and, accordingly, the accompanying financial statements include the
accounts and transactions of VTNSI since the acquisition date.
The following unaudited supplemental financial information is provided on a
proforma basis as if the acquisition occurred on January 1, 1997:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1997
-----------
(Unaudited)
<S> <C>
Revenues $51,888,000
===========
Income (loss) from operations $ 645,000
===========
Net income (loss) $ 172,000
===========
Earnings (loss) per share (Basic and Diluted) $ 0.03
===========
</TABLE>
During 1996, the company completed two acquisitions which were accounted for
as purchase transactions. The company recorded goodwill of $339,000 and
$1,330,000 related to these acquisitions. During 1998, the company determined
there were no future expected cash flows from these acquisitions and recorded an
impairment writedown of the remaining unamortized balance of the goodwill of
$1,465,000 as part of the restructuring and other costs
NOTE 5 -- Restructuring and Other Costs
- ---------------------------------------
During 1998, the Company recorded a restructuring and asset impairment charge
of $4.2 million. The significant components of the restructuring charge are as
follows:
<TABLE>
<S> <C>
Impairment write-down of goodwill related to previous acquisitions... $1,465,000
Employee termination costs........................................... 1,793,000
Facility exit costs.................................................. 157,000
Write-down of Plant, Property and Equipment.......................... 27,000
Travel related expenses.............................................. 140,000
Consulting expenses.................................................. 322,000
Other costs.......................................................... 297,013
----------
$4,201,013
==========
</TABLE>
The impairment write-down of goodwill relates to the Company's determination
that there was no future expected cash flows from two acquisitions which
represented $1,465,000 of goodwill. The employee termination costs relate to
approximately 33 employees and officers of the Company. The Company closed one
of its outside network sales offices. The Company also terminated its internet
service provider reseller agreement. In connection with these decisions, the
Company recorded employee termination and facility exit related expenses, and a
write-down of the leasehold improvements. In addition, the Company's decision to
eliminate duplicative corporate overhead functions resulted in employee
termination and travel related expenses. The Company utilized the services of
consultants in connection with the plan of restructuring.
The total cash impact of the restructuring amounted to $2,709,621 of which
$1,026,496 is included in the accompanying balance sheet at December 31, 1998.
The Company anticipates the balance of the restructuring costs will be paid by
February 29, 2000.
26
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity against the restructuring charge:
<TABLE>
<S> <C>
Restructuring Charge................................... $ 4,201,013
Cash Paid............................................. (1,680,332)
Non-Cash Expenses..................................... (1,494,185)
-----------
Balance, December 31, 1998 $ 1,026,496
===========
</TABLE>
NOTE 6 -- INVENTORY
- -------------------
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Demonstration equipment................................ $ 1,664,031 $ 1,011,277
Finished goods......................................... 2,537,458 1,079,738
Spare parts............................................ 208,677 441,441
----------- -----------
$ 4,410,166 $ 2,532,456
=========== ===========
</TABLE>
NOTE 7 -- PROPERTY AND EQUIPMENT, NET
- -------------------------------------
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Computer equipment and software........................ $ 3,392,416 $ 2,824,760
Equipment.............................................. 2,041,331 1,864,384
Furniture and fixtures................................. 2,452,347 2,405,757
Leasehold improvements................................. 713,790 637,460
----------- -----------
8,599,884 7,732,361
Less accumulated depreciation.......................... (5,050,891) (4,308,523)
----------- -----------
$ 3,548,993 $ 3,423,838
=========== ===========
</TABLE>
Property and equipment under capital lease obligations, net of accumulated
amortization, at December 31, 1998 and 1997 were $541,669 and $738,378,
respectively.
NOTE 8 -- LINES OF CREDIT
- -------------------------
View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15
million Credit Agreement (the "Agreement") with a bank effective November 21,
1997. The Agreement provides for three separate loan commitments consisting of
(i) a Facility A Commitment of up to $7 million; (ii) a Facility B Commitment of
up to $5 million and (iii) a Facility C Commitment of up to $3 million. The
Facility B Commitment expired on December 1, 1998. Amounts under the Agreement
are collateralized by the assets of the Company. Funds available under the
Agreement will vary from time to time depending on many variables including,
without limitation, the amount of Eligible Trade Accounts Receivable and
Eligible Inventory of the Company, as such terms are defined in the Agreement.
At December 31, 1998, the funds available under the Agreement were approximately
$6,100,000. The interest charged on outstanding amounts vary between the Prime
Rate, plus the Prime Margin, or between the Eurodollar Rate, plus the Eurodollar
Rate Margin, depending on the Company's Leverage Ratio as defined in the
Agreement. At December 31, 1998, the interest rate on this Facility was 8.25%.
The weighted average interest rate on the line of credit for the year ended
December 31, 1998 was 9.0%. The Agreement requires the Company to comply with
various financial and operating loan covenants. As of December 31, 1998, the
Company was in compliance with these covenants. Under certain conditions, the
Agreement allows the Company to prepay principal amounts outstanding without
penalty.
27
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All outstanding amounts are under Facility A and are due and payable no later
than November 21, 2002. Amounts outstanding under the Facility C Commitment are
subject to mandatory repayments in twelve (12) equal quarterly installments
commencing on March 31, 2000. All amounts outstanding under each such Facility
are due and payable no later than November 21, 2002. At December 31, 1998,
amounts utilized under the Facilities were $4,782,171. This amount is
classified as long-term debt.
In connection with the Agreement, the Company issued Common Stock Purchase
Warrants for the purchase of 80,000 shares of the Company's Common Stock by the
lenders. The warrants are exercisable until November 21, 2004. In accordance
with an amendment to the Agreement, on October 14, 1998 the Company adjusted the
purchase price of the warrants to $4.50 per share. The Company determined the
valuation of these warrants using the Black-Scholes option pricing model was not
material.
NOTE 9 -- LONG TERM DEBT
- ------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Line of credit (Note 8)........................ $4,782,171 $4,905,857
Capital lease obligations...................... 640,105 844,038
Other.......................................... 110,570 3,763
Note payable - former VTNSI owner.............. -- 250,000
---------- ----------
5,532,846 6,003,658
Less current maturities........................ 336,193 661,290
---------- ----------
$5,196,653 $5,342,368
========== ==========
</TABLE>
Capital Lease Obligations
- -------------------------
The Company leases certain equipment and furniture under capital lease
arrangements. The following is a schedule of future minimum lease payments
required under capital leases, together with their present value as of December
31, 1998
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1999........................................... $473,185
2000........................................... 204,629
2001........................................... 88,436
2002........................................... 43,137
2003 and thereafter............................ 15,979
--------
Net minimum lease payments..................... 825,366
Less amount representing interest.............. 185,261
--------
Present value of net minimum lease payments.... $640,105
========
</TABLE>
The current portion due under capital lease obligations at December 31, 1998
and 1997 was $336,193 and $407,527, respectively.
Note Payable to former VTNSI owner
- ----------------------------------
In connection with the Company's acquisition of VTNSI, part of the purchase
price consisted of a promissory note in the original amount of $250,000, bearing
interest at the rate of 8% per annum which was paid in full on November 21,
1998.
28
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
The Company leases various facilities under operating leases expiring through
2003. Certain leases require the Company to pay increases in real estate taxes,
operating costs and repairs over certain base year amounts. Lease payments for
the years ended December 31, 1998, 1997 and 1996 and the six months ended
December 31, 1996 and the year ended June 30, 1996, were approximately
$1,699,000 and $1,473,000, $1,106,000, $553,000 and $1,160,000 respectively.
Minimum future rental commitments under non cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1999.................................. $1,525,457
2000.................................. 1,163,413
2001.................................. 960,332
2002.................................. 323,524
2003 and thereafter................... 9,362
----------
$3,982,088
==========
</TABLE>
The Company has received rent concessions during the first year of certain
leases, which are being deferred and amortized over the term of the lease.
The Company has been named in employee related lawsuits. The Company is
vigorously defending itself against such matters and does not expect the outcome
to have a material adverse impact on its financial position.
NOTE 11 -- COMMON AND PREFERRED STOCK
- -------------------------------------
Common Stock. In November 1996, the Company increased the number of shares
------------
of common stock authorized for issuance from 10,000,000 to 20,000,000 and
changed the par value of its stock from $0.01 to $0.0001 per share.
Warrants and Options. Included in the public stock offering in June 1995,
--------------------
was the sale of 575,000 warrants to the public. All warrants were exercisable
at $5.00 per share for a period of two years commencing one year after the
effective date of the registration statement. All unexercised warrants expired
on June 15, 1998.
Upon consummation of the public offering, the Company issued the underwriter
120,000 warrants to purchase common stock of the Company at an exercise price of
$6.75 or 135% of the public offering price per share. Such warrants may be
exercised at any time during the period of five years commencing June 15, 1995.
In addition, the Company issued the underwriters 50,000 warrants at an exercise
price of $6.918 per warrant or 135 % of the public offering price. Each warrant
is exercisable into one share of common stock at a price of $6.75 per share for
a three- year period commencing on June 15, 1995, such warrants expired on June
15, 1998.
At December 31, 1998, the Company had outstanding an aggregate of 55,000
options primarily to consultants and advisors to the Company. The options were
issued at a market price of $7.00 per share.
In connection with the Company's credit agreement, the Company issued common
stock warrants for the purchase of 80,000 shares of the Company's common stock.
During 1998, the exercise price of the warrants was reduced to $4.50 per share.
The warrants are exercisable until November 21, 2004.
Private Offerings. In the first quarter of 1997, the Company completed a
-----------------
private placement with Telcom Holding, LLC, a Massachusetts limited liability
company ("Telcom") formed by The O'Brien Group, Inc., a Massachusetts
corporation. Telcom purchased (i) 650,000 shares of Common Stock and (ii)
Common Stock Purchase Warrants exercisable at $6.50 per share of the Company to
purchase up to 325,000 shares of Common Stock, at a price of $4.40 per unit.
The Company issued additional Common Stock Purchase Warrants to certain managing
members of Telcom for the purchase of 162,500 shares of Common Stock at a
purchase price per share of $6.50.
29
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 18, 1998, the Company received a notice (the "Initial Notice") from
Nasdaq that it did not meet the applicable listing requirements as of June 30,
1998 because it did not have $4,000,000 in net tangible assets and therefore its
Common Stock was subject to delisting. The Company sought immediate action to
rectify this situation through the private placement of 826,668 shares of the
Company's Common Stock to accredited investors. The offering was completed on
November 10, 1998 and raised $1.2 million.
Preferred Stock. As of December 31, 1998, the Company had 5,000,000 shares of
---------------
authorized Preferred Stock. In November 1996, the Company changed the par value
of the preferred stock from $0.01 to $0.0001 per share. The Preferred Stock may
be issued in one or more series with such rights and preferences as may be
determined by the Board of Directors. No shares of preferred stock have been
issued.
Employee Stock Purchase Plan. The Company has an Employee Stock Purchase
----------------------------
Plan (the "Purchase Plan") under which a maximum of 500,000 shares of Common
Stock, (pursuant to the Amendment of the Purchase Plan approved by the Board of
Directors of June 3, 1998), may be purchased by eligible employees.
Substantially all full-time employees of the Company are eligible to participate
in the Purchase Plan. Shares are purchased through accumulation of payroll
deductions (of not less than 1% nor more than 10% of the employees compensation,
as defined not to exceed 2,000 shares per purchase period) for the number of
whole shares, determined by dividing the balance in the employee's account by
the purchase price per share which is equal to 85% of the fair market value of
the Common Stock, as defined. During 1998, 159,204 shares were purchased under
the Purchase Plan.
Stock Option Plan. In July 1994, the Company began granting stock options to
-----------------
key employees, consultants and certain non-employee directors. The options are
intended to provide incentive for such persons' service and future services to
the Company thereby promoting the interest of the Company and its stockholders.
The Company currently maintains five stock option plans which generally
require the exercise price of options to be not less than the estimated fair
market value of the stock at the date of grant. Options vest over a maximum
period of four years and may be exercised in varying amounts over their
respective terms. In accordance with the provisions of such plans, all
outstanding options become immediately exercisable upon a change in control, as
defined, of the Company. The Company has authorized an aggregate of 1,922,000
shares of common stock to be available under the option plans. On October 20,
1998, the Company's Board of Directors authorized the repricing of certain
options previously issued to employees.
Activity in the plans on a consolidated basis is summarized as follows:
<TABLE>
<CAPTION>
Number of Wtd. Avg. Exercise
Shares Price per Share Price
--------- --------------- --------
<S> <C> <C> <C>
Options Outstanding,
June 30, 1995........ 383,347 $ .250 - 8.970 $1.88
Granted............. 682,503 .290 - 7.750 4.94
Exercised........... (34,300) .250 - .375 0.34
Canceled............ (25,445) .250 - 8.970 5.70
--------- -------------- -----
Options Outstanding,
June 30, 1996........ 1,006,105 .250 - 7.750 3.96
Granted............. 46,000 6.250 - 7.000 6.78
Exercised........... (2,500) .250 - 5.000 2.15
Canceled............ (8,000) .250 - 6.375 4.13
--------- -------------- -----
Options Outstanding,
December 31, 1996.... 1,041,605 .250 - 7.250 4.09
Granted............. 617,500 3.000 - 5.812 3.21
Exercised........... (113,535) .250 - 6.250 0.50
Canceled............ (154,500) 5.812 - 7.625 6.80
--------- -------------- -----
Options Outstanding,
December 31, 1997.... 1,391,070 .250 - 7.625 3.69
Granted............. 669,960 2.250 - 4.940 2.91
Exercised........... (146,584) .250 - 5.000 0.35
Canceled............ (481,130) 3.000 - 7.630 4.83
--------- -------------- -----
Options Outstanding,
December 31, 1998.... 1,433,316 $ .250 - 7.630 $3.21
========= ============== =====
</TABLE>
30
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, 826,470 options were exercisable at a weighted average
exercise price of $3.62 per share. The options outstanding at December 31, 1998
have a weighted average remaining contractual life of 8.34 years.
The range of exercise prices for options outstanding and options exercisable
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------
Weighted
Average
Remaining
Contractual
Range of Exercise Options Life Average Options Average
Price Outstanding (Years) Exercise Price Exercisable Exercise Price
----------------- ----------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.2500 - $2.2500 262,186 6.62 $1.2318 137,186 $0.30
$2.3750 - $2.3750 200,000 10.00 $2.3750 50,000 $2.38
$2.5000 - $2.5000 226,260 9.96 $2.5000 186,210 $2.50
$2.6880 - $2.8750 33,000 9.80 $2.7333 -- $0.00
$3.0000 - $3.0000 354,470 8.57 $3.0000 123,174 $3.00
$3.0620 - $6.2500 111,400 7.80 $4.2817 83,900 $4.68
$6.3750 - $6.3750 140,000 7.46 $6.3750 140,000 $6.38
$6.6250 - $6.6250 100,000 6.54 $6.6250 100,000 $6.63
$7.5000 - $7.5000 4,000 6.87 $7.5000 4,000 $7.50
$7.6250 - $7.6250 2,000 6.86 $7.6250 2,000 $7.63
----------------- --------- ----- ------- ------- -------
$0.2500 - $7.6250 1,433,316 8.34 $3.2055 826,470 $3.62
</TABLE>
The Company applies APB Opinion 25 in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized. Had compensation cost
for the Company's stock option plan been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Years Ended December 31, December 31, June 30,
-------------------------- ---------------- -----------
1998 1997 1996 1996
---------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Net income (loss): As reported $(2,814,397) $ 138,627 $(3,017,218) $ 424,056
Pro forma (3,164,942) (8,531) (3,093,281) (608,563)
Earnings (loss)
per share: As reported $ (0.41) $ 0.02 $ (0.56) $ 0.07
(Basic and Diluted) Pro forma (0.46) (0.00) (0.57) (0.11)
</TABLE>
The weighted average fair value at the date of grant for options granted
during the years ended December 31, 1998, 1997 and 1996, was $2.91, $4.83 and
$2.16, respectively. The fair value of options at the grant date was estimated
using the Black-Scholes option pricing model with following weighted average
assumptions: expected life - 2.2 years; volatility - 26.36%; dividend yield -
0%; interest rate - 5.25%.
NOTE 12 - EARNINGS (LOSS) PER SHARE
- -----------------------------------
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, Earnings Per Share. This statement established standards for computing and
presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock. Prior years earnings per share have
been restated to reflect the adoption of SFAS No. 128.
31
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic earnings (loss) per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share is computed by dividing net income by the diluted
weighted average number of common and potentially dilutive shares outstanding
during the period. The weighted average number of potentially dilutive shares
has been determined in accordance with the treasury stock method.
The reconciliation of basic and diluted shares outstanding is as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
Years Ended December 31, December 31, June 30,
----------------------------------- ------------ ---------
1998 1997 1996 1996 1996
--------- --------- ----------- ------------ ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding 6,888,104 6,371,651 5,262,238 5,400,785 5,040,731
Dilutive effect of options and warrants -- 421,870 -- -- 635,573
--------- --------- --------- --------- ---------
Weighted average shares outstanding
including dilutive effect of securities 6,888,104 6,793,521 5,262,238 5,400,785 5,676,304
========= ========= ========= ========= =========
</TABLE>
Options and warrants to purchase 2,334,316, 2,222,056, 939,860, 1,094,818 and
690,105 shares of common stock were outstanding during the years ended December
31, 1998, 1997 and 1996, six months ended December 31, 1996 and the year ended
June 30, 1996, respectively, but were not included in the computation of diluted
EPS because the options' exercise price was either greater than the average
market price of the common stock or the Company reported a net operating loss
and their effect would have been antidilutive.
NOTE 13 -- PENSION PLAN
- ------------------------
The Company participates in 401(k) retirement plans for its employees.
Employer contributions to the 401(k) plans for the years ended December 31,
1998, 1997 and 1996, and the six months ended December 31, 1996, and for the
year ended June 30, 1996 were approximately $114,000, $114,000, $74,000,
$37,000, and $67,000, respectively.
NOTE 14 -- BENEFIT (PROVISION) FOR INCOME TAXES
- ------------------------------------------------
Total income tax expense differs from the expected tax expense (computed by
multiplying the federal statutory income tax rate of approximately 35 percent
for the periods ended December 31, 1998, 1997 and the six months ended December
31, 1996, and the year ended June 30, 1996 to income before income taxes) as a
result of the following:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Years Ended December 31, December 31, June 30,
--------------------------------------------- ------------- -------------
1998 1997 1996 1996 1996
--------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Computed "expected" tax (expense) benefit............ $ 983,557 $ (50,099) $ 1,045,573 1,069,957 $(57,484)
State tax expense, net of federal benefit............ 164,395 (8,588) 174,760 184,797 (9,608)
S corporation tax differential....................... -- -- 156,820 117,580 424,346
Valuation allowance.................................. (995,778) 2,911 (1,370,163) (1,370,163) --
Utilization, net operating losses.................... -- 51,264 -- -- --
Other, net........................................... (156,407) -- 165,444 37,633 (97,438)
----------- --------- ----------- ----------- --------
$ (4,233) $ (4,512) $ 172,434 $ 39,804 $259,816
=========== ========= =========== =========== ========
</TABLE>
The company has recorded a valuation allowance against a portion of its
deferred tax asset. The valuation allowance relates primarily to certain
deferred tax assets for which realization is uncertain.
The primary components of temporary differences which give rise to deferred
taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax asset:
Reserves and allowances....... $ 472,348 79,309
Net operating loss carryforward................... 677,551 589,476
Goodwill.......................................... 587,959 --
Deferred tax valuation allowance.................. (1,361,382) (365,604)
----------- ---------
$ 376,476 $ 303,181
=========== =========
</TABLE>
Goodwill represents the benefit attributed to the difference between the
company's book and tax basis of the goodwill impairment charge discussed in
Note 4.
32
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the Company has operating loss (NOL) carryforwards of
approximately $1,650,000 and $1,250,000 for federal and state income tax
purposes, respectively. The federal NOL has a carryover period of 20 years and
is available to offset future taxable income, if any, through 2011, and may be
subject to an annual statutory limitation.
NOTE 15 -- SEGMENT INFORMATION
- ------------------------------
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131, requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997.
The Company manages its business units utilizing net margin before allocation
of corporate overhead.
The Company's operations are classified into three principal reportable
industry segments: (a) video product sales and service which involves the
marketing and installation of video communications systems providing continuing
services related to installed systems, (b) telesales which involves
telemarketing telecommunications services on behalf of certain RBOCs and
exchange carriers for an agency commission, and (c) outside network sales which
involves face to face marketing of more expensive and technologically advanced
telecommunications services for an agency commission and marketing
telecommunications equipment and installation to a larger customer than that of
the telesales segment. Substantially all of the Company's revenues and all
identifiable assets are generated in the United States.
<TABLE>
<CAPTION>
Video Product Outside
December 31, 1998 Sales & Service Telesales Network Combined
--------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Total Revenue.............................. $37,232,150 $9,530,444 $11,209,544 $ 57,972,138
============
Operating profit........................... 4,948,940 3,390,035 1,323,034 9,662,009
General corporate expenses................. (11,944,580)
Interest expense........................... (527,593)
------------
Income (loss) from continuing operations
before income taxes...................... $ (2,810,164)
============
Identifiable assets at December 31, 1998... 15,414,841 2,114,790 2,107,401 19,637,032
Corporate assets........................... 6,608,486
------------
Total assets at December 31, 1998.......... $ 26,245,518
============
December 31, 1997
Total Revenue.............................. $31,012,848 $8,571,789 10,358,517 $ 49,943,154
============
Operating profit........................... 3,707,275 2,918,385 1,463,377 8,089,037
General corporate expenses................. (7,578,895)
Interest expense........................... (367,003)
------------
Income (loss) from continuing operations
before income taxes...................... $ 143,139
============
Identifiable assets at December 31, 1997... 11,631,218 2,326,108 2,926,630 16,883,956
Corporate assets........................... 8,928,212
------------
Total Assets at December 31, 1997.......... $ 25,812,168
============
December 31, 1996 (Six months ended)
Total Revenue.............................. $10,606,591 $3,922,591 5,349,300 $ 19,878,482
============
Operating profit........................... 1,648,411 1,573,000 200,377 3,421,788
General corporate expenses................. (6,325,928)
Interest expense........................... (152,882)
------------
Income (loss) from continuing operations
before income taxes...................... $ (3,057,022)
============
Identifiable assets at December 31, 1996... 8,384,886 2,161,607 3,334,032 13,880,525
Corporate assets........................... 4,640,083
------------
Total assets at December 31, 1996.......... $ 18,520,608
============
</TABLE>
33
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Video Product Outside
June 30, 1996 (Year ended) Sales & Service Telesales Network Combined
---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total Revenue................................... $ 13,346,103 $ 5,451,733 $ 12,195,900 $ 30,993,736
=============
Operating profit................................ 2,596,555 1,633,952 1,823,200 6,053,707
General corporate expenses...................... (5,465,984)
Interest expense................................ (423,483)
-------------
Income (loss) from continuing operations
before income taxes........................... $ 164,240
=============
Identifiable assets at June 30, 1996............ 6,016,333 1,462,067 2,521,315 9,999,715
Corporate assets................................ 4,841,374
-------------
Total assets at June 30, 1996................... $ 14,841,089
=============
</TABLE>
NOTE 16 -- SUPPLEMENTAL DISCLOSURES-CASH FLOW INFORMATION
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Six
Years Ended Months Ended Year Ended
December 31, December 31, June 30,
------------------------------------------- ----------- ------------
1998 1997 1996 1996 1996
----------- ---------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Schedule of non-cash transactions:
Non-cash investing and financing transactions-
Cost of fixed assets purchased....................... $ 1,350,913 $1,493,564 $ 811,464 $ 508,421 $ 1,260,935
Less lease financing................................. (117,742) (343,463) (15,737) (15,737) (395,439)
Less transfers from inventory........................ (237,364) -- -- -- --
----------- ---------- ----------- ----------- -----------
Cash paid for fixed assets........................... $ 995,807 $1,150,101 $ 795,727 $ 492,684 $ 865,496
=========== ========== =========== =========== ===========
Cost of acquisitions................................. $ -- $2,721,177 1,575,163 $ 1,575,163 $ --
Less common stock and notes issued................... -- (650,000) (1,420,000) (1,420,000) --
----------- ---------- ----------- ----------- -----------
Cash paid for acquisitions........................... $ -- $2,071,177 $ 155,163 $ 155,163 $ --
=========== ========== =========== =========== ===========
</TABLE>
During the year ended June 30, 1996, the Company converted approximately
$700,000 of accounts payable to a vendor into a term note.
NOTE 17 -- RELATED PARTY TRANSACTIONS
- --------------------------------------
In October, 1997, the Company purchased five (5) videoconferencing systems
from the former CEO and Director of the Company, for a purchase price of
$162,500. The price the Company paid for these units was less than the
wholesale price that the Company would otherwise pay for the same units. The
units were subsequently sold by the Company at a profit.
34
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Accounts Balance
Beginning Revenues and Charged at End
of Period Expenses Off of Period
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended --
June 30, 1996...................... $728,000 $2,300,440 $2,808,258 $220,182
Six months ended --
December 31, 1996.................. 220,182 2,277,423 2,017,831 479,774
Years ended --
December 31, 1997.................. 479,774 3,542,801 3,363,919 658,656
December 31, 1998.................. 658,656 4,854,435 4,643,787 869,304
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
35
<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 period ended December
31, 1998, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1999.
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 period ended December
31, 1998, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1999.
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 period ended December
31, 1998, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1999.
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 period ended December
31, 1998, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1999.
36
<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:
Reports of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996, six months ended December 31, 1996 and the year
ended June 30, 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997, and the six months ended December 31,
1996 and the year ended June 30, 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996, six months ended December 31, 1996 and the year
ended June 30, 1996
Notes to Consolidated Financial Statements
No other schedules are included because the required information is
inapplicable or is presented in the consolidated financial statements
or related notes thereto.
(2) Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as
part of this Annual Report.
(b) Reports on Form 8-K.
- - Current report on Form 8-K, dated December 22, 1998, presenting the
Consolidated Balance Sheets as of December 15, 1998 (Unaudited) and
December 31, 1997, in connection with the Company's compliance with the
Nasdaq's net tangible asset requirement.
- - Current report on Form 8-KA, dated December 23, 1998, amending the Form 8-K
filed on December 22, 1998.
- - Current report on Form 8-K, dated January 25, 1999, presenting the
Consolidated Balance Sheets as of December 31, 1998 and 1997 and the
Consolidated Statements of Operations for the quarters ended December 31,
1998 and 1997 (Unaudited), in connection with the Company's compliance with
Nasdaq's net tangible asset requirement and the Nasdaq exception.
37
<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: March 30, 1999 By: /s/ Ali Inanilan
-------------- ---------------------------
Ali Inanilan, Chief Financial and
Administrative Officer
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>
/s/ Paul C. O'Brien Chairman March 30, 1999
- ---------------------------------------
Paul C. O'Brien
/s/ William J. Shea Chief Executive Officer, Director March 30, 1999
- --------------------------------------- (Principal Executive Officer)
William J. Shea
/s/ Franklin A. Reece, III President and Director March 30, 1999
- ---------------------------------------
Franklin A. Reece, III
/s/ Ali Inanilan CFO, CAO
- --------------------------------------- (Principal Financial and March 30, 1999
Ali Inanilan Accounting Officer)
/s/ Calvin M. Carrera Director March 30, 1999
- ---------------------------------------
Calvin M. Carrera
/s/ Robert F. Leduc Director March 30, 1999
- ---------------------------------------
Robert F. Leduc
/s/ David F. Millet Director March 30, 1999
- ---------------------------------------
David F. Millet
</TABLE>
38
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Asset Purchase Agreement, dated as of November 13, 1997, as amended by Amendment
No. 1 to the Asset Purchase Agreement, dated as of November 21, 1997, by and among
Vermont Network Services Corporation, Vermont Telecommunications Network Services,
Inc. and Zoltan B. Keve. (1)
2.2 Amendment No. 1 to Asset Purchase Agreement, dated as of November 21, 1997, by and
among Vermont Network Services Corporation, Vermont Telecommunications Network
Services, Inc. and Zoltan B. Keve. (1)
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. (3)
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. (4)
10.2 Employment Agreement between the Company and Franklin A. Reece, III dated as of
November 29, 1996. (2)
10.3 Severance and Consulting Agreement by and between, View Tech, Inc. and John W.
Hammon, dated April 22, 1997. (5)
10.4 Tenth Amendment to Revolving Credit, Term Loan and Security Agreement between
USTeleCenters, Inc. and The First National Bank of Boston, dated March 31, 1997.(5)
10.5 Employment Agreement between the Company and William M. McKay, dated as of December
9, 1996. (6)
10.6 1995 Stock Option Plan, as amended. (7)
10.7 Amendment to the Dealer Agreement between the Company and PictureTel Corporation,
dated as of August 1, 1995. (3)
10.8 1997 Stock Incentive Plan. (8)
10.9 Promissory Note, dated November 21, 1997, of Vermont Network Services Corporation,
payable to Vermont Telecommunications Network Services, Inc. in the amount of
$250,000. (1)
10.10 Contingent Note, dated November 21, 1997, of Vermont Network Services Corporation,
payable to Vermont Telecommunications Network Services, Inc. in the amount of
$250,000. (1)
10.11 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. (9)
10.12 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)
10.13 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)
10.14 Letter Agreement, dated as of December 31, 1996, from the Company to Paul C.
O'Brien and Mark P. Kiley. (2)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15 Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of
60,000 shares of Common Stock of View Tech, Inc., a Delaware corporation, by
Imperial Bank, a California banking corporation, on or before November 21, 2004 at
a purchase price of $7.08 per share. (10)
10.16 Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of
20,000 shares of Common Stock of View Tech, Inc., a Delaware corporation, by
BankBoston, N.A., a national banking association, a participating lender, on or
before November 21, 2004 at a purchase price of $7.08 per share. (10)
10.17 Revolving Note with City National Bank, dated February 20, 1996. (11)
10.18 Loan Agreements with Power-Data Services, Inc., dated February 15, 1996 and March
22, 1996. (11)
10.19 Credit Agreement, dated as of November 21, 1997, among, USTeleCenters, Inc., a
Delaware corporation, View Tech, Inc. a Delaware corporation, and Imperial Bank, a
bank organized under the laws of the State of California. (10)
10.20 Security Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a
Delaware corporation, View Tech, Inc., a Delaware corporation, and Imperial Bank, a
bank organized under the State of California. (10)
10.21 Amendment No. 2 dated as of May 1, 1998, to the Credit Agreement, dated as of
November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the
borrower), View Tech, Inc., a Delaware corporation (the parent company), and
Imperial Bank and BankBoston, N.A. (the banks). (17)
10.22 Amendment No. 3 dated as of August 14, 1998, to the Credit Agreement, dated as of
November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the
borrower), View Tech, Inc., a Delaware corporation (the parent company), and
Imperial Bank and BankBoston, N.A. (the banks). (17)
10.23 Amendment No. 4 dated as of October 27, 1998, to the Credit Agreement, dated as of
November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the
borrower), View Tech, Inc., a Delaware corporation (the parent company), and
Imperial Bank and BankBoston, N.A. (the banks). (17)
10.24 Amendment No. 1, Exhibit A, dated as of October 14, 1998, to the Common Stock
Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock
of View Tech, Inc., a Delaware corporation, by Imperial Bank. (17)
10.25 Amendment No. 1, Exhibit B, dated as of October 14, 1998, to the Common Stock
Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock
of View Tech, Inc., a Delaware corporation, by BankBoston, N.A. (17)
10.26 Memorandum of Understanding by and between the Company and former Chief Executive
Officer, Robert G. Hatfield, effective April 17, 1998. (15)
10.27 Severance and Consulting Agreement by and between, View Tech, Inc. and Robert G.
Hatfield, dated April 17, 1998. (16)
10.28 Separation Agreement, effective August 31, 1998, by and between View Tech, Inc. and
David A. Kaplan, the former Chief Financial Officer. (17)
10.29 General Release between, David A. Kaplan, former Chief Financial Officer and View
Tech, Inc. (17)
*10.30 Settlement Agreement, Consulting Agreement & General Release, effective February
28, 1999, by and between View Tech, Inc. and Calvin M. Carrera, former Vice
President and General Manager. (12)
21.1 Subsidiaries of the Company. (12)
23.1 Consent of Arthur Andersen LLP. (12)
23.2 Consent of Carpenter, Kuhen and Sprayberry. (12)
27 Financial Data Schedule. (12)
99.1 View Tech, Inc. Special Non-Officer Stock Option Plan. (13)
99.2 Form of Special Non-Officer Stock Option Agreement. (13)
99.3 Form of Addendum to Stock Option Agreement; Involuntary Termination Following
Corporate Transaction. (13)
99.4 Form of Stock Option Agreement. (14)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------
<S> <C>
99.5 Form of Addendum to Stock Option Agreement: Involuntary Termination Following
Corporate Transaction. (14)
99.6 Form of Addendum to Stock Option Agreement: Involuntary Termination Following
Change in Control. (14)
99.7 1997 Non-Employee Directors Stock Option Plan. (14)
99.8 Form of Automatic Stock Option Agreement. (14)
99.9 Employee Stock Purchase Plan. (14)
99.10 Form of Stock Purchase Agreement under the Employee Stock Purchase Plan. (14)
</TABLE>
__________________
(1) Filed as an exhibit to the Company's Report on Form 8-K dated December 5,
1997, and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(Registration No.333-19597) 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, 1995, and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(registration No.33-91232), and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Transitional Report on Form 10-K for
the six month period ended December 31, 1997, and incorporated herein by
reference.
(7) Filed as 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.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No. 333-13459) and incorporated herein by reference.
(9) 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.
(10) Filed as an exhibit to the Company's Report on Form 8-K dated February 5,
1998, and incorporated herein by reference.
(11) 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.
(12) Filed herewith.
(13) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on November 4, 1997, and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on June 30, 1997, and incorporated herein by reference.
(15) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 1998, and incorporated herein by reference.
(16) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended June 30, 1998, and incorporated herein by reference.
(17) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 1998, and incorporated herein by
reference.
41
<PAGE>
EXHIBIT 10.30
-------------
SETTLEMENT AGREEMENT, CONSULTING AGREEMENT
------------------------------------------
& GENERAL RELEASE
-----------------
This Settlement Agreement & General Release ("Agreement") is made and
entered into by and between (1) Calvin M. Carrera, his heirs, successors,
administrators, executors and representatives ("Carrera") and (2) View Tech,
Inc., its current or former officers, directors, agents and employees (not
including Carrera), its parent, its predecessors, successors, affiliates,
related entities, and assigns ("Company").
NOW, THEREFORE, Carrera and the Company agree as follows:
1. GENERAL TERMS:
A. Carrera's employment with the Company began on or about August 11, 1997
and will end as an employee on February 28, 1999. In executing this
Agreement, Carrera hereby formally resigns from his position as General
Manager and employee of the Company.
B. From March 1, 1999 until February 29, 2000 Carrera shall act as a
consultant providing, on an irregular basis, professional management
services for the Company. These services shall assist the Company in
organizational transition underway during the period of March 1, 1999
through February 29, 2000.
C. Carrera and the Company want to settle fully and finally all potential
and actual differences, if any, between them, which arise out of or
relate to Carrera's employment with, or separation of employment from,
the Company. Carrera and the Company want to settle fully and finally
as many potential and actual differences and issues, if any, as
possible, between them, which arise out of or relate to Carrera's
membership in the Board of Directors with the Company.
D. Carrera and the Company also acknowledge that the Company is aware that
Carrera, after his employment ends with the Company, will be forming a
new corporation shortly thereafter.
E. Carrera and the Company agree that the August 18, 1997 employment
letter agreement between the Company and Carrera is hereby
extinguished, canceled and rendered null and void. Any continued
benefits or payments made to Carrera after February 28, 1999 are
pursuant to the Agreement and not pursuant to the August 18, 1997
employment letter agreement.
F. Carrera, by executing this Agreement, hereby informs the Company that
he will resign his membership from the Company Board of Directors,
effective December 31, 1999.
1
<PAGE>
2. CARRERA CONSIDERATION FOR ENTERING INTO AGREEMENT:
A. Carrera acknowledges that his employment with the Company ended on
February 28, 1999. He will remain on the Board of Directors until
December 31, 1999 at the latest. During the time that he will continue
to be a member of the Board of Directors, Carrera agrees to forego, and
not accept, any remuneration as a non-employee member of the Board of
Directors. Carrera shall, in the execution of his duties as a non-
employee member of the Board of Directors, be entitled to reimbursement
of his reasonable expenses, as approved by a majority of the Board of
Directors.
B. Carrera understands and agrees that he has not suffered any
discrimination in the terms, conditions or privileges of his
employment, and/or membership in the Board of Directors, based upon
age, race, gender, religious creed, color, national origin, ancestry,
physical disability, mental disability, medication condition, marital
status, sexual orientation, and/or harassment. Carrera also understands
and agrees that he has not complained of any such discriminatory and/or
harassing acts while employed at Company, nor as a member of the Board
of Directors of the Company. Further, Carrera understands and agrees
that the Company has not retaliated against Carrera in any way with
reference to any actual or potential acts of discrimination and/or
harassment, which Carrera acknowledges there were no such acts of
discrimination and/or harassment.
C. Carrera represents and agrees that he has turned over to the Company
all files, memoranda, records, electronic data, documents and tangible
items, and any other physical and/or intangible property ("Property")
which are the property of the Company and which Carrera had in his
possession, custody or control, as an employee, at the time he executed
this Agreement. However, as Carrera will remain a member of the
Company's Board of Directors until December 31, 1999, Carrera may still
maintain, in his possession, custody or control, all such Property
necessary to fulfill his duties as a member of the Board of Director
until he ceases to be a member of the Board of Directors.
D. Carrera represents and agrees that he has not filed before, or at the
time of, executing this Agreement, a lawsuit, administrative complaint,
claim, charge of any kind with any court, governmental or
administrative agency, or arbitrator against the Company or its
officers, directors, agents or employees, asserting anything released
in this Agreement. Carrera promises never to file any such lawsuit,
administrative complaint, claim or charge, against the Company
asserting anything released in this Agreement.
3. COMPANY CONSIDERATION:
A. The Company will pay Carrera his normal base pay from his position as
General Manager from March 1, 1999 through February 29, 2000, as well
as his usual
2
<PAGE>
benefits he received on a monthly basis as an employee. He will also
continue to be provided with e-mail and voice mail (with appropriate
"walls" and limited access, all for the Company's benefit) during the
period of March 1, 1999 through February 29, 2000. Carrera may also
use, during the March 1, 1999 through February 29, 2000 period, the
Company's Dell computer provided to Carrera as an employee; but only
for use off-Company premises. Carrera promises to return the Dell
computer to the Company no later than March 6, 2000. Carrera will also
continue to be able to use a Company cell phone he has been using.
However, the Company is only paying for the basic cost of the phone,
and for phone calls, up to a total of One Hundred and Fifty Dollars
($150.00) per month. Any sums above $150.00 per month are Carrera's
responsibility and Carrera must reimburse the Company for those costs.
Carrera promises to return said company cell phone no later than March
6, 2000.
B. Carrera will have, by February 29, 2000, 27,000 vested stock options,
as an employee or a corporate insider (per applicable securities laws),
under the 1997 Stock Incentive Plan. Per this Agreement, and consistent
with the 1997 Stock Incentive Plan, Carrera shall have until and
including February 29, 2000 in which to exercise the stock options.
Carrera is advised that the 1997 Stock Incentive Plan has no three
month, or any other, extension period such that, on February 29, 2000,
all of Carrera's unexercised stock options plan become null and void,
canceled and/or lapsed.
C. Carrera has 2,000 vested stock options, as a Director, under the 1997
Non-Employee Director's Stock Option Plan. Pursuant to the Non-Employee
Director's Stock Option Plan, and this Agreement, Carrera shall have
twelve (12) months, from the date in which he ceases to provide any
services to the Company as a consultant or member of the Board of
Directors. Carrera is advised that the 1997 Non-Employee Director's
Stock Option Plan has no three month, or any other, extension period
such that, at the end of the twelve (12) month period from the date in
which he ceases to provide services as a consultant or member of the
Board of Directors, all of Carrera's unexercised stock options under
this plan become null and void, canceled and/or lapsed.
D. Carrera has 12,000 vested stock options, as a Director, under the 1995
Stock Option Plan. Pursuant to the 1995 Stock Option Plan, and this
Agreement, Carrera has an additional three months after the date in
which he terminates his membership in the Board of Directors and
consultant services with the Company, said termination date that can be
no later than February 29, 2000. For the consideration provided by the
Company, Carrera agrees to exercise 10,000 out of the 12,000 vested
stock options no later than March 31, 1999 (this year). Carrera agrees
said 10,000 vested stock options shall become null and void, canceled
and/or lapsed if said 10,000 vested stock options are not so exercised
by March 31, 1999. Carrera is advised that the remaining 2,000 shares
are to be exercised no later than three months after Carrera terminates
his membership in the Board
3
<PAGE>
of Directors and consulting services with the Company, said termination
date that can be no later than February 29, 2000.
E. To the extent the Company has promised to Carrera, orally or in
writing, any stock options other than as stated in Paragraph 3(B)
through (D), the Company and Carrera hereby agree that any and all such
other stock options are null and void, canceled and/or lapsed upon
execution of this Agreement. To the extent Carrera has any stock
options that will not vest by February 29, 2000, the Company and
Carrera agree that any and all said non-vested stock options are null
and void, canceled and/or lapsed by February 29, 2000.
F. The Company, in entering into this Agreement, including, but not
limited to the consideration identified in Paragraph 3(A) through 3(E),
does not admit, and is not admitting, any liability or fault to
Carrera, or anyone, on any issue relating to the events leading up to
this Agreement, nor any issue relating to this Agreement.
4. MUTUAL GENERAL RELEASE:
A. In exchange for the payments and promises provided herein, Carrera
knowingly and voluntarily waives and releases all rights and claims,
known and unknown, which Carrera may have against the Company, and/or
any of the Company's, current or former officers, directors, agents or
employees, successors, parent, predecessors, affiliates or related
entities, for any and all lawsuits, complaints, claims, charges,
liabilities, obligations, promises, agreements, contracts,
controversies, damages, actions, causes of action, rights, demands,
costs, losses, debts and expenses of any kind, based upon Carrera's
status as an employee and/or a member of the Board of Directors with
the Company.
B. In exchange for the payments and promises provided herein, the Company
knowingly and voluntarily waives and releases all rights and claims,
known and unknown, which Company may have against the Carrera, his
heirs, successors, administrators, executors, representatives and
assigns, for any and all lawsuits, complaints, claims, charges,
liabilities, obligations, promises, agreements, contracts,
controversies, damages, actions, causes of action, rights, demands,
costs, losses, debts and expenses of any kind, based upon Carrera's
status as an employee of the Company.
C. This Mutual General Release includes, but is not limited to,
complaints, claims and charges for employment discrimination, wrongful
termination (actual and constructive), violation of public policy,
breach of contract (express, implied, oral and written), breach of
implied covenant of any kind, fraud, intentional misrepresentation,
negligent misrepresentation, intentional infliction of emotional
distress, negligent infliction of emotional distress, harassment (based
upon sex, race, age or other state or federally protected category),
retaliation (based upon complaint of discrimination or harassment), or
any other claims,
4
<PAGE>
based upon tort, contract or otherwise, relating to Employee's
relationship with the Company.
D. This Mutual General Release also includes a release of all complaints,
claims and charges under any federal, state or local regulations and
laws, including but not limited to: (1) Title VII of the Civil Rights
Act of 1964, 42 U.S.C. Sections 2000e et seq. (discrimination,
harassment and retaliation in employment); (2) the Age Discrimination
in Employment Act, 29 U.S.C. Sections 621 et seq.; (3) Section 1981 et
seq. Of the Civil Rights Act of 1866, 42 U.S.C. Sections 1981, et seq.
(civil rights violations and discrimination); (4) the Equal Pay Act of
1963, 29 U.S.C. Sections 206, et seq.; (5) the California Fair
Employment and Housing Act, California Government Code Sections 12900
et seq. (discrimination, harassment and retaliation in employment); (6)
the California Labor Code sections 200 et seq. (salary, commission,
compensation, benefits and other matters); (7) the Fair Labor Standards
Act, 29 U.S.C. Sections 201, et seq. (wage and hour matters, including
overtime pay); (8) the Consolidated Omnibus Budget Reconciliation Act
of 1985 (COBRA), 42 U.S.C. Section 1395(c) (insurance continuation
matters); (9) Executive Order 11141 (age discrimination); (10) Section
503 of the Rehabilitation Act of 1973, 29 U.S.C. Sections 701, et seq.
(disability discrimination); (11) the Employee Retirement Income
Security Act of 1974, 29 U.S.C. Sections 1001, et seq. (employee
benefits); (12) Title I of the Americans with Disabilities Act
(disability discrimination, harassment and retaliation); (13)
California Labor Code Section 132(a) (discrimination and/or retaliation
based upon filing or maintaining a workers' compensation claim); and
(14) any applicable California Industrial Welfare Commission Order
(wage matters).
E. This Mutual General Release, however, does not waive or release any
right or claims of Employee or Company under (1) the Age Discrimination
in Employment Act; (2) the Consolidated Omnibus Budget Reconciliation
Act of 1985, 42 U.S.C. Section 1395(c) (insurance COBRA matters) and
(3) the Employee Retirement Income Security Act of 1974, 29 U.S.C.
Sections 701, et seq. (employee benefits), to the specifically limited
extent that any such claims arise after the date the Employee and the
Company sign this Agreement.
F. Carrera and the Company acknowledge and agree that, as a condition to
this Agreement, each expressly releases and waives all rights and
claims that the Carrera or the Company know about as well as those they
may not know about. Carrera and the Company expressly acknowledge that
this Agreement is intended to include and does include, in its effect,
without limitation, all claims which each party does not know or
suspect to exist against the other party, notwithstanding any waivable
and/or voidable statutory rights, and language, to the contrary, for
each party to this Agreement. Carrera and the Company agree to waive
the benefits of California Civil Code Section 1542 which states:
5
<PAGE>
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
G. Notwithstanding anything stated in any and all portions of this
Paragraph, and all subparagraphs herein, nothing in this entire
Paragraph 4 releases Carrera from anything related to Carrera's status
as a member of the Company's Board of Directors, including, but not
limited to, Claims by third parties (whether by individuals, businesses
or public entities) relating to stocks, warrants, bonds, and any and
all other securities matters, Claims by employees or board members
(other than Carrera) against the Company, and other matters.
5. NON-ASSIGNMENT OF ANY RIGHTS, DUITES OR OBLIGATIONS UNDER AGREEMENT:
Carrera and the Company represent and agree that each has not assigned or
transferred, or attempted to assign or transfer, to any person or entity,
any of the claims being released in this Agreement. Carrera represents and
agrees that he shall not assign his rights, liabilities, obligations or
duties in this Agreement, or any portion of this Agreement.
6. NO REPRESENTATIONS, ORAL OR WRITTEN, OTHER THAN WHAT IS CONTAINED IN THIS
AGREEMENT:
Carrera and the Company represent and agree that no promises, statements,
restrictions, limitations or inducements have been made by or to each other
that caused either party, or both parties, to sign this Agreement other
than those expressly stated in this Agreement.
7. CONFIDENTIALITY OF THIS AGREEMENT & NON-DISPARAGMENT:
A. Carrera agrees to keep the terms and amount of this Agreement completely
confidential, and not to disclose such information to anyone other than
Employee's spouse, and the Carrera's attorneys and licensed tax and/or
professional investment advisors (hereafter referred to as "Carrera's
Confidants"), all of whom will be informed of this confidentiality
provision, and be bound by this confidentiality provision. Neither Carrera
nor Carrera's Confidants shall disclose the amount or terms of this
Agreement to anyone, including, but not limited to, any representative of
any media (print, broadcast, internet, cable, etc.), to any past, present
or prospective employee of, or applicant for, employment with the Company,
executive recruiter or "headhunter", to any counsel for any current or
former employee of the Company, to any other counsel or third party, and/or
to the public at large.
B. Each party agrees not to make any written or oral statements that
denigrate, disparage or otherwise criticize the other party.
6
<PAGE>
C. The obligations described in this Paragraph, and all subparagraphs herein,
shall continue in effect after the payment of the sums required under this
Agreement.
8. NON-COMPETITION, NON-DISCLOSURE OF TRADE SECRETS & CONFIDENTIAL INFORMATION:
A. Carrera understands and agrees that in the course of his relationship
with the Company, he has acquired confidential information and trade
secrets concerning the Company's past, present or future clients,
operations, plans, methods of doing business, projected and historic
revenues, marketing, costs, production, growth and distribution, and
confidential business strategies. Carrera understands and agrees that it
would be extremely damaging to the Company if such information were
disclosed to a competitor, or made available to any other person,
business or government entity. Carrera understands and agrees that such
information has been disclosed in confidence to Carrera, that he will
keep such information secret and confidential and that he will not in
any way use, distribute or disclose such information in any manner
contrary to law, including, but not limited to, the Uniform Trade
Secrets Act, as passed by the State of California, Civil Code Sections
3426 et seq. This non-disclosure includes, but is not limited to, non-
disclosure to any competitors of the Company, as well as the general
public, of such confidential and/or trade secret information.
B. In view of the nature of Carrera's relationship with the Company,
Carrera also agrees that the Company would be irreparably harmed by any
violation or threatened violation of this Agreement, and that,
therefore, the Company shall be entitled to an injunction prohibiting
Carrera from any violation or threatened violation of this Agreement,
and/or other relief, including, but not limited to, monetary damages, to
which the Company may be entitled. Carrera's duties under this entire
Paragraph, including subparagraphs herein, shall continue after the
execution of this Agreement.
9. NO CONTACT WITH COMPANY EMPLOYEES AND/OR CUSTOMERS OF COMPANY:
A. Carrera agrees that, for a period lasting from March 1, 1999 through and
including February 29, 2000, Carrera will not initiate any contact
whatsoever with any current employee of the Company for reasons of
soliciting employment of said current employees without receiving prior
approval from the Company, through the General Counsel of the Company.
B. The Company acknowledges that Carrera has personal pre-existing
relations with certain current employees. Contact for personal reasons
may be made to said current Company employees. The Company also
acknowledges that Carrera will be contacting various employees for
technical information and questions. Carrera agrees that he will not do
so in a manner that will interfere with the Company's employees'
performance of their full duties for the Company.
7
<PAGE>
C. Except for the tele-medicine products mentioned in Paragraph 9(D) below,
Carrera agrees that, from the period beginning six weeks before
executing this Agreement through the period ending February 29, 2000, he
has not contacted, nor will he contact, in any way whatsoever, any
current or potential customers of the Company to work with Carrera
and/or any business or corporation in which Carrera plans to become
involved, without receiving prior approval from the Company through the
General Counsel of the Company.
D. Carrera also agrees that, for a period lasting from March 1, 1999
through and including February 29, 2000, Carrera will not compete with
the Company in any product or service areas in which the Company has
been conducting its business, with the sole exception of tele-medicine
products, without receiving the prior approval of the Company, through
the General Counsel of the Company.
E. The Company agrees not to manufacture tele-medicine products for the
period of March 1, 1999 through December 31, 1999 without receiving
prior approval from Carrera and/or the business in which Carrera is
involved.
F. The phrase "potential customers" means, for this Paragraph 9, and all
subparagraphs herein, any and all persons or entities with whom the
Company is in negotiation for a contractual relationship as a customer
of the Company, at the time of the execution of this Agreement between
Carrera and the Company. The term "contact" shall mean any and all
contacts whatsoever, whether in-person, by e-mail, telecommunications,
internet, letter, or any other form of contact, either directly or
indirectly through any intermediary or intermediaries.
10. OPPORTUNITY TO CONSULT WITH ATTORNEY; REASONABLE TIME TO CONSIDER AGREEMENT;
VOLUNTARY PARTICIPATION IN THIS AGREEMENT; RIGHT TO REVOKE AGREEMENT:
A. Carrera acknowledges that he has been advised of the opportunity to
review this Agreement with an attorney, that he has had the opportunity
to thoroughly discuss with an attorney all aspects of (i) his rights
against the Company, if any, and (ii) this Agreement, to the extent
Carrera elects or elected to do so, that he has carefully read and fully
understands all of the provisions of this Agreement, that he has been
offered a reasonable period of up to twenty-one (21) days to consider
signing or executing this Agreement, and that he is voluntarily signing
or executing this Agreement.
B. Carrera further understands that he has the right to revoke this
Agreement for a period of seven (7) days after the date of execution,
with such revocation limited to claims under the federal Age
Discrimination in Employment Act, 29 U.S.C. Sections 621, et seq. If
Carrera revokes the Agreement as to claims under the Age Discrimination
in Employment Act, Carrera understands and agrees that the
8
<PAGE>
Agreement remains valid and enforceable as to all other aspects of the
Agreement, including but not limited to the Mutual General Release.
C. However, notwithstanding Paragraph 10(B), if Carrera undertakes to
revoke the Agreement as to claims under the Age Discrimination in
Employment Act within the seven (7) day period, the Company, in its sole
discretion, reserves the right, within six months thereafter, to revoke
any other portion, or the rest, of the Agreement.
11. GOVERNING LAW & VENUE:
This Agreement is to be construed under the laws of the State of
California. Carrera and the Company expressly agree that any lawsuit,
claim or charge which may be filed in connection to any dispute or issue
concerning this Agreement shall be so filed within the State of
California, in the State or Federal court, whichever is most
appropriate, in the County of Ventura.
12. PROPER CONSTRUCTION OF AGREEMENT:
A. The language of all provisions, parts and terms of this Agreement shall
be construed, in all cases, as a whole according to its fair meaning,
and not strictly for or against any of the parties, regardless of which
part prepared the language in question.
B. The paragraph headings used in this Agreement are intended solely for
convenience of reference, and shall not in any manner amplify, limit,
modify, clarify or otherwise be used in the interpretation of any of the
provisions, parts or terms in this Agreement.
C. Should any provision, part or term in this Agreement be declared, or be
determined to be, illegal or invalid, all remaining provisions, parts or
terms shall be valid, and the illegal or invalid provision, part or term
shall be deemed not to be a part of this Agreement.
D. This Agreement is the entire agreement between Carrera and the Company.
This Agreement supersedes any and all prior agreements or
understandings, written or oral, between the parties relating to the
subject matter of this Agreement.
9
<PAGE>
PLEASE CAREFULLY READ THIS AGREEMENT, WHICH IS A TOTAL OF TEN (10) PAGES, IN ITS
ENTIRETY.
Executed at Camarillo, CA, this 2/nd/ day of March, 1999.
CALVIN M. CARRERA
By: /s/ Calvin M. Carrera
-------------------------
Calvin M. Carrera
Witness: /s/ Mitchell J. Freedman
----------------------------
Executed at Camarillo, CA, this 2/nd/ day of March, 1999.
VIEW TECH, INC. ("Company")
By: /s/ Ali Inanilan
--------------------
Ali Inanilan
Chief Financial Officer
Witness: /s/ Mitchell J. Freedman
----------------------------
10
<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) Vermont Network Services Corporation, a Vermont corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this Form 10K,
into the Company's previously filed Registration Statement File Nos. 33-95618,
33-99674, 333-20617, 333-30389, 333-39501 and 333-62135.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in Form 10-K of our report dated March 13, 1997,
related to the consolidated statements operations, stockholders' equity and cash
flows for the year ended June 30, 1996 and the six months ended December 31,
1996 of View Tech, Inc. and Subsidiary.
CARPENTER KUHEN & SPRAYBERRY
Oxnard, California
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 661,158
<SECURITIES> 0
<RECEIVABLES> 14,961,216
<ALLOWANCES> 869,304
<INVENTORY> 4,410,166
<CURRENT-ASSETS> 544,860
<PP&E> 8,599,884
<DEPRECIATION> 5,050,891
<TOTAL-ASSETS> 26,245,518
<CURRENT-LIABILITIES> 13,978,350
<BONDS> 0
0
0
<COMMON> 772
<OTHER-SE> 7,069,743
<TOTAL-LIABILITY-AND-EQUITY> 26,245,518
<SALES> 57,972,138
<TOTAL-REVENUES> 57,972,138
<CGS> 27,518,045
<TOTAL-COSTS> 60,254,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527,593
<INCOME-PRETAX> (2,810,164)
<INCOME-TAX> 4,233
<INCOME-CONTINUING> (2,814,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,814,397)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
