<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 2000
REGISTRATION NO. 333-42518
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WIRE ONE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 5065 77-0312442
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
225 LONG AVENUE
HILLSIDE, NEW JERSEY 07205
(973) 282-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD REISS
CHIEF EXECUTIVE OFFICER
WIRE ONE TECHNOLOGIES, INC.
HILLSIDE, NEW JERSEY 07205
(973) 282-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copy to:
MICHAEL J.W. RENNOCK, ESQ.
MORRISON & FOERSTER LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 468-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1993, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 2000.
PROSPECTUS
5,046,122 SHARES
[WIRE ONE TECHNOLOGIES LOGO]
COMMON STOCK
This prospectus relates to 5,046,122 shares of our common stock which may
be sold from time to time by the selling securityholders, including their
transferees, pledgees or donees or their successors. We will not receive any
proceeds from these sales.
The shares are being registered to permit the selling securityholders to
sell the shares from time to time in the public market. The securityholders may
sell the common stock through ordinary brokerage transactions, directly to
market makers of our shares or through any other means described in the section
"Plan of Distribution" beginning on page 51. We cannot assure you that the
selling securityholders will sell all or any portion of the common stock offered
under this prospectus.
Our common stock is quoted on the Nasdaq National Market under the symbol
"WONE." On September 11, 2000, the last reported sale price for the common stock
on the Nasdaq National Market was $9 13/16 per share.
Our corporate offices are located at 225 Long Avenue, Hillside, New Jersey
07205. Our telephone number at that location is (973) 282-2000.
Investment in the securities involves risks. See "Risk Factors" beginning
on page 5 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 2
Risk Factors............................................................................................... 5
Use of Proceeds............................................................................................ 11
Dividend Policy............................................................................................ 11
Price Range of Our Common Stock............................................................................ 11
Selected Consolidated Financial Information................................................................ 12
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 14
Unaudited Pro Forma Financial Information.................................................................. 22
Business................................................................................................... 28
Description of Capital Stock............................................................................... 35
Management................................................................................................. 39
Certain Relationships and Related Party Transactions....................................................... 43
Principal Stockholders..................................................................................... 44
Selling Stockholders....................................................................................... 45
Shares Eligible For Future Sale............................................................................ 50
Plan of Distribution....................................................................................... 51
Experts.................................................................................................... 52
Legal Matters.............................................................................................. 53
Where You Can Find More Information........................................................................ 53
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
i
<PAGE>
SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. You should
carefully read this entire document, including "Risk Factors" and the financial
statements before making an investment decision. As used in this prospectus, the
terms "Wire One," "we," "us," and "our," refer to Wire One Technologies, Inc.
and its subsidiaries. See "Where you can find more information" on page 53 for
more details.
COMPANY
Wire One is one of the nation's largest video applications service
providers ("Video-ASPs") with a current installed base of over 2,000 customers
and 9,000 endpoints. Wire One was formed by the merger of All Communications
Corporation ("ACC") into View Tech, Inc. ("VTI") in May 2000, with the former
management team of ACC leading our new company. ACC was a value-added integrator
of video, voice, and network communications solutions, offering clients a single
source for all their communications needs. VTI operated as a single source
provider for video, voice, and data communications equipment and services and
bundled telecommunications solutions. As Wire One, ACC contributes strong
industry knowledge and an excellent operating record, while VTI adds an
extensive help desk, bridging services, a large sales organization and
complementary geographic coverage.
We currently compete in the video communications equipment market, but
increasingly focus our resources on the video services market. With the
introduction of our Internet Protocol ("IP") based video conferencing subscriber
network in the fourth quarter of 2000, we believe that Wire One will be the
first video communications company to offer customers a complete solution
covering the entire video communications value chain. This value chain consists
of consulting, design, installation, integration, training and support services,
videoconferencing, audio conferencing, and A/V equipment and software sales,
application development and transport. By the end of 2002, we estimate that
transport related services will account for more than 50% of our revenue.
Wire One is incorporated in Delaware and our principal executive office is
located at 225 Long Avenue, Hillside, New Jersey, 07205. Our telephone number at
that location is (973) 282-2000. We maintain a site on the World Wide Web
located at www.wireone.com; however, the information found on our website is not
a part of this prospectus.
PRIVATE PLACEMENT
On June 14, 2000, we issued 2,450 shares of our series A convertible
preferred stock and warrants to purchase 857,500 shares of our common stock in a
private placement to institutional and strategic investors. If all the series A
preferred were converted and all related warrants were exercised, we would be
obligated to issue 3,307,500 shares of our common stock, representing 19.56% of
our outstanding common stock (based on 16,913,621 shares of common stock
outstanding on September 11, 2000). The net proceeds of the offering were
approximately $16.3 million. Pursuant to a registration rights agreement
executed in connection with this private placement, we agreed to prepare and
file with the Securities and Exchange Commission a registration statement
covering the resale of the shares of our common stock issuable pursuant to the
terms of the series A convertible preferred stock and the related warrants,
which shares are being registered for resale hereunder.
2
<PAGE>
SUMMARY CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The merger was accounted for as a "reverse acquisition" using the purchase
method of accounting. The reverse acquisition method resulted in ACC being
recognized as the acquirer of VTI for accounting and financial reporting
purposes. As a result, ACC's historical results have been carried forward as
Wire One's financial statements with VTI's operations included in the financial
statements commencing on the merger date and all Wire One 1999 quarterly and
year-to-date results as well as 2000 results through the merger date being those
of ACC only. The following summary of historical financial information of VTI
and Wire One has been derived from their audited and unaudited historical
financial statements, and you should read it in conjunction with those financial
statements which are included in this prospectus. The audited historical
consolidated financial information for each of Wire One and VTI are as of
December 31, 1998 and 1999 and for the three years ended December 31, 1997, 1998
and 1999. The summary historical financial information as of June 30, 2000 and
for the six months ended June 30, 1999 and 2000 for Wire One and as of
March 31, 2000 and for the three month periods ended March 31, 1999 and 2000 for
VTI is derived from the unaudited financial statements of Wire One and VTI as of
and for those periods. In the opinion of management, those unaudited
consolidated financial statements reflect all adjustments necessary for the fair
presentation of this unaudited interim financial information. The results of
operations and cash flows for the interim periods do not necessarily indicate
the results to be expected for the entire fiscal year or future periods.
WIRE ONE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1997 1998 1999 1999 2000
------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Revenues..................................................... $6,925 $13,217 $23,997 $9,239 $17,110
Net income (loss) attributable to common stockholders........ (892) (777) 1,065 59 (8,795)
Diluted income (loss) per share.............................. (.21) (.16) .17 .01 (1.03)
Diluted weighted average common shares outstanding........... 4,201 4,910 6,169 5,567 8,502
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ ---------
1998 1999 2000
------- ------- ---------
<S> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital................................................................. $ 5,702 $ 4,526 $21,572
Total assets.................................................................... 8,923 10,867 73,732
Long-term debt (including current portion)...................................... 2,444 2,186 252
Series A mandatorily redeemable convertible preferred stock..................... -- -- 11,070
Total stockholders' equity...................................................... 3,968 5,194 49,195
</TABLE>
VTI
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Revenues.................................................... $31,014 $37,242 $ 35,480 $8,919 $ 9,214
Loss from continuing operations............................. (1,914) (4,326) (7,928) (71) (1,296)
Net income (loss)........................................... 139 (2,814) (11,990) (255) (1,296)
Diluted loss from continuing operations per share........... (.30) (.63) (1.01) (.01) (.16)
Basic and diluted income (loss) per share................... .02 (.41) (1.53) (.03) (.16)
Diluted weighted average common shares outstanding.......... 6,372 6,888 7,843 7,764 8,229
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- ---------
1998 1999 2000
------- -------- ---------
<S> <C> <C> <C>
BALANCE SHEET INFORMATION:
Working capital (deficiency)................................................... $ 8,931 $ (6,172) $(3,758)
Total assets................................................................... 22,623 16,497 12,896
Long-term debt (including current portion)..................................... 4,528 4,546 1,250
Total stockholders' equity (deficiency)........................................ 7,071 (3,574) (1,352)
</TABLE>
3
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
The following financial information of Wire One is derived from the
unaudited pro forma combined statements of operations appearing elsewhere in
this prospectus, which give effect to our recently completed merger, accounted
for using the purchase method of accounting for business combinations, and the 2
for 1 reverse split of our common stock effected on May 18, 2000. You should
read it in conjunction with those unaudited pro forma combined statements and
the separate audited and unaudited consolidated financial statements of Wire One
and VTI included in this prospectus. See "Unaudited Pro Forma Financial
Information" on page 22, and "Where You Can Find More Information" on page 53.
For purposes of the unaudited pro forma statements of operations, VTI's
consolidated statements of operations for the year ended December 31, 1999 and
for the period ended May 18, 2000 have been combined with the consolidated
statements of operations of Wire One for the year ended December 31, 1999 and
the six months ended June 30, 2000.
The unaudited pro forma combined financial information is for informational
purposes only and does not purport to indicate the operating results or
financial position that would have occurred had the merger between ACC and VTI
been consummated at the beginning of the periods presented nor does this
information necessarily indicate the future operating results of Wire One. Wire
One's historical balance sheet as of June 30, 2000 reflects the effects of the
merger.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
------------------ ------------------
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS INFORMATION:
Revenues............................................................. $ 59,046 $ 29,350
Loss attributable to common stockholders............................. (19,246) (5,337)
Basic and diluted loss applicable to common stock.................... (1.60) (.42)
Basic and diluted weighted average common shares outstanding......... 12,022,759 12,766,834
</TABLE>
4
<PAGE>
FORWARD-LOOKING STATEMENTS
In addition to the other information contained in this prospectus,
investors should carefully consider the risk factors disclosed in this
prospectus, including those beginning on page 5, in evaluating an investment in
the common stock issuable upon conversion of and issuance of common stock
dividends on the series A preferred shares and exercise of the related warrants.
This prospectus and the documents incorporated herein by reference include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. In some cases,
forward-looking statements can be identified by the use of terminology such as
"may", "will", "expects", "plans", "anticipates", "estimates", "potential", or
"continue" or the negative thereof or other comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements
contained herein and in such incorporated documents are reasonable, there can be
no assurance that such expectations or any of the forward-looking statements
will prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements. Our future financial
condition and results of operations, as well as any forward-looking statements,
are subject to inherent risks and uncertainties, including but not limited to
the risk factors set forth below and for the reasons described elsewhere in this
prospectus. All forward-looking statements and reasons why results may differ
included in this prospectus are made as of the date hereof, and Wire One assumes
no obligation to update any such forward-looking statement or reason why actual
results might differ.
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information contained in this prospectus before deciding whether
to invest in our common stock. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and you may lose part
or all of your investment.
THE CONVERSION OF THE SERIES A PREFERRED SHARES AND THE EXERCISE OF THE RELATED
WARRANTS COULD RESULT IN SUBSTANTIAL NUMBERS OF ADDITIONAL SHARES BEING ISSUED
IF OUR MARKET PRICE DECLINES.
The series A preferred shares convert into common stock at a fixed rate of
$7.00 per share. However, beginning on June 14, 2001, holders can choose an
alternative conversion price which equals the higher of (i) 70% of the fixed
conversion price then in effect or (ii) the market price on any conversion date,
which is equal to the average of the closing sale prices of the common stock
during the 20 consecutive trading days immediately preceding any conversion
date. As a result, the lower the price of our common stock at the time of
conversion, the greater the number of shares the holder will receive. Based on
the lowest possible conversion price of $4.90, the maximum number of shares
issuable upon conversion of the series A preferred would be 3,500,000 shares of
common stock. The rules of the Nasdaq National Market only allow us to issue up
to 20% of our outstanding shares of common stock upon conversion of the
series A preferred stock without prior stockholder approval. Based upon the
16,913,621 shares of our common stock outstanding on September 11, 2000, we
would only be able to issue 3,382,724 shares of our common stock upon conversion
of the series A preferred. Accordingly, if all shares of series A preferred
stock were converted at the lowest possible conversion price, we could be
required to redeem up to 82 shares of our series A preferred stock at a price
of $7,700 per share for an aggregate purchase price of $631,400.
To the extent that either the series A preferred shares are converted or
the related warrants are exercised, a significant number of shares of common
stock may be sold into the market, which could decrease the price of our common
stock and encourage short sales by selling securityholders or others. Short
sales could place
5
<PAGE>
further downward pressure on the price of our common stock. In that case, we
could be required to issue an increasingly greater number of shares of our
common stock upon future conversions of the series A preferred shares, sales of
which could further depress the price of our common stock.
WE MAY ISSUE ADDITIONAL SHARES AND DILUTE YOUR OWNERSHIP PERCENTAGE.
Some events over which you have no control could result in the issuance of
additional shares of our common stock, which would dilute your ownership
percentage in Wire One. We may issue additional shares of common stock or
preferred stock:
o to raise additional capital or finance acquisitions,
o upon the exercise or conversion of outstanding options, warrants and
shares of convertible preferred stock, and/or
o in lieu of cash payment of dividends.
As of September 11, 2000, other than the warrants issued to the holders of
series A preferred shares, there were outstanding warrants to acquire an
aggregate of 804,582 shares of common stock, and there were outstanding options
to acquire an aggregate of 5,607,671 shares of common stock. If converted or
exercised, these securities will dilute your percentage ownership of common
stock. These securities, unlike the common stock, provide for anti-dilution
protection upon the occurrence of stock splits, redemptions, mergers,
reclassifications, reorganizations and other similar corporate transactions,
and, in some cases, major corporate announcements. If one or more of these
events occurs, the number of shares of common stock that may be acquired upon
conversion or exercise would increase. In addition, as disclosed in the
preceding risk factor, the number of shares that may be issued upon conversion
of or payment of dividends in lieu of cash on the series A preferred shares
could increase substantially if the market price of our common stock decreases
during the period the series A preferred shares are outstanding.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FALL.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and upon conversion of
and issuance of common stock dividends on the series A preferred shares and
exercise of the related warrants, the market price of our common stock could
fall. Such sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. As of September 11, 2000, we had outstanding 16,913,621 shares of
common stock and options to acquire an aggregate of 5,607,671 shares of common
stock, of which 3,444,775 options were vested and exercisable. Of the shares
outstanding, as of September 11, 2000, 12,640,071 were freely tradeable in the
public market and 4,273,550 were tradeable in the public market subject to the
restrictions, if any, applicable under Rule 144 and Rule 145 of the Securities
Act of 1933, as amended. All shares acquired upon exercise of options will be
freely tradeable in the public market.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of (a) one percent of the number of shares of common stock then
outstanding (which for Wire One was 169,136 shares as of September 11, 2000) or
(b) the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
requirements with respect to manner of sale, notice, and the availability of
current public information about us. Under Rule 144(k), a person who is not
deemed to have been our affiliate at any time during the three months preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Sales by stockholders of a substantial amount of our common stock
could adversely affect the market price of our common stock.
6
<PAGE>
OUR FUTURE SUCCESS IS DEPENDENT ON THE CONTINUED EMPLOYMENT OF RICHARD REISS.
Wire One's success will be highly dependent on the experience and continued
employment of Richard Reiss, our chairman of the board, chief executive officer
and president, the loss of whose services would have a material adverse effect
on our business. We have entered into an employment agreement with Mr. Reiss,
which agreement expires on December 31, 2002 and may be terminated by Mr. Reiss
upon 90 days' prior written notice without penalty, subject to a one-year
non-compete clause.
THE LOSS OF OUR PROFESSIONALS WOULD MAKE IT DIFFICULT TO COMPLETE EXISTING
PROJECTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESSES AND RESULTS OF OPERATIONS.
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining professionals. If a significant number of our
current employees or any of our senior managers or key project managers leave,
we may be unable to complete or retain existing projects.
OUR SUCCESS IS HIGHLY DEPENDENT ON THE EVOLUTION OF OUR OVERALL MARKET.
The market for videoconferencing services is evolving rapidly. Although
certain industry analysts project significant growth for this market, their
projections may not be realized. Our future growth, if any, will depend on the
continued trend of businesses to migrate to IP (H.323) based standards. There
can be no assurance that the market for our services will grow, that our
services will be adopted, or that businesses will use IP (H.323) based
videoconferencing equipment or our new IP subscriber network. If we are unable
to react quickly to changes in the market, if the market fails to develop, or
develops more slowly than expected, or if our services do not achieve market
acceptance, then we are unlikely to become or remain profitable.
WE DEPEND UPON OUR NETWORK AND FACILITIES INFRASTRUCTURE.
Our success depends upon our ability to implement, expand and adapt our
national network infrastructure and support services to accommodate an
increasing amount of video traffic and evolving customer requirements at an
acceptable cost. This has required and will continue to require that we enter
into agreements with providers of infrastructure capacity, equipment, facilities
and support services on an ongoing basis. We cannot assure you that any of these
agreements can be obtained on satisfactory terms and conditions. We also
anticipate that future expansions and adaptations of our network infrastructure
facilities may be necessary in order to respond to growth in the number of
customers served.
WE DEPEND UPON SUPPLIERS AND HAVE LIMITED SOURCES OF SUPPLY FOR CERTAIN PRODUCTS
AND SERVICES.
We rely on other companies to supply some key products and services that we
resell and some components of our network infrastructure. Some of the products
and services that we resell, and certain components that we require for our
network, are only available from limited sources. We could be adversely affected
suppliers were to become unavailable on commercially reasonable terms. We cannot
assure you that, on an ongoing basis, we will be able to obtain third-party
products and services cost-effectively and on the scale and within the time
frames we require, or at all. Failure to obtain or to continue to make use of
such third-party products and services would have a material adverse effect on
our business, financial condition and results of operations.
7
<PAGE>
OUR NETWORK COULD FAIL, WHICH COULD NEGATIVELY IMPACT OUR REVENUES.
Our success depends upon our ability to deliver reliable, high-speed access
to our partners' data centers and upon the ability and willingness of our
telecommunications providers to deliver reliable, high-speed telecommunications
service through their networks. Our network and facilities, and other networks
and facilities providing services to us, are vulnerable to damage, unauthorized
access, or cessation of operations from human error and tampering, breaches of
security, fires, earthquakes, severe storms, power losses, telecommunications
failures, software defects, intentional acts of vandalism including computer
viruses, and similar events, particularly if the events occur within a high
traffic location of the network or at one of our data centers. However, the
occurrence of a natural disaster or other unanticipated problems at the network
operations center, key sites at which we locate routers, switches and other
computer equipment which make up the backbone of our network infrastructure, or
at one or more of our partners' data centers, could substantially impact our
business. We cannot assure you that we will not experience failures or shutdowns
relating to individual facilities or even catastrophic failure of the entire
network. Any damage to or failure of our systems or service providers could
result in reductions in, or terminations of, services supplied to our customers,
which could have a material adverse effect on our business.
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF OUR CONTROL.
Our stock price could fluctuate due to the following factors, among others:
o announcements of operating results and business conditions by our
customers;
o announcements by our competitors relating to new customers or
technological innovations or new services;
o economic developments in the telecommunications or multimedia industries
as a whole;
o political and economic developments in countries in which we have
operations; and
o general market conditions.
PRIOR TO THE MERGER, ACC HAD A LIMITED HISTORY OF PROFITABLE OPERATIONS AND VTI
HAD BEEN EXPERIENCING LOSSES, AND THERE IS NO GUARANTEE THAT WIRE ONE WILL
ACHIEVE REVENUE GROWTH OR PROFITABILITY OR GENERATE POSITIVE CASH FLOW ON A
QUARTERLY OR ANNUAL BASIS IN THE FUTURE, OR AT ALL.
ACC reported moderate losses in the second half of 1997 and 1998. However,
ACC began reporting profits in 1999. While VTI reported moderate profits in
1997, it reported a loss from continuing operations of $4,325,690 for the year
ended December 31, 1998 and a loss from continuing operations of $7,927,715 for
the year ended December 31, 1999. We cannot assure you that Wire One will
achieve revenue growth or profitability or generate positive cash flow on a
quarterly or annual basis in the future, or at all.
A DECREASE IN THE NUMBER AND/OR SIZE OF OUR PROJECTS MAY CAUSE OUR RESULTS TO
FALL SHORT OF INVESTORS' EXPECTATIONS AND ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK.
If the number or average size of our projects decreases in any quarter,
then our revenues and operating results may also decrease. If our operating
results fall short of investors' expectations, the trading price of our common
stock could decrease materially, even if the quarterly results do not represent
any longer-term problems.
WE MAY BE UNABLE TO IMPLEMENT OUR ACQUISITION GROWTH STRATEGY, WHICH COULD HARM
OUR BUSINESS AND COMPETITIVE POSITION IN THE INDUSTRY.
Our business strategy includes making strategic acquisitions of other
videoconferencing companies. Our continued growth will depend on our ability to
identify and acquire companies that complement or enhance our business on
acceptable terms. We may not be able to identify or complete future acquisitions
or realize
8
<PAGE>
the anticipated results of future acquisitions. Some of the risks that we may
encounter in implementing our acquisition growth strategy include:
o expenses and difficulties in identifying potential targets and the costs
associated with incomplete acquisitions;
o higher prices for acquired companies because of greater competition for
attractive acquisition targets;
o expenses, delays and difficulties of integrating the acquired company
into our existing organization;
o greater impact of the goodwill of acquired companies on our results of
operations when pooling of interests accounting for acquisitions is
eliminated;
o ability of management to improve our operational and financial systems,
procedures and controls and expand, train, retain and manage our employee
base;
o competition for qualified professionals;
o dilution of the interest of existing stockholders if we sell stock to the
public to raise cash for acquisitions;
o diversion of management's attention;
o expenses of amortizing the acquired companies' intangible assets;
o impact on our financial condition due to the timing of the acquisition;
and
o expense of any undisclosed or potential legal liabilities of the acquired
company.
If realized, any of these risks could have a material adverse effect on our
business, results of operations, financial condition and cash flows.
WE COMPETE IN A HIGHLY COMPETITIVE MARKET AND MANY OF OUR COMPETITORS HAVE
GREATER FINANCIAL RESOURCES AND ESTABLISHED RELATIONSHIPS WITH MAJOR CORPORATE
CUSTOMERS.
The video communications industry is highly competitive. We compete with
manufacturers of video communications equipment, which include PictureTel, VTEL
Corporation and Lucent Technologies, and their networks of dealers and
distributors, telecommunications carriers and other large corporations, as well
as other independent distributors. Other telecommunications carriers and other
corporations that have entered into the video communications market include
AT&T, MCI, some of the Regional Bell Operating Companies ("RBOC's"), and SONY
Corporation. Many of these organizations have substantially greater financial
and other resources than Wire One, furnish many of the same products and
services provided by Wire One, and have established relationships with major
corporate customers that have policies of purchasing directly from them. We
believe that as the demand for video communications systems continues to
increase, additional competitors, many of which may have greater resources than
Wire One, may continue to enter the video communications market.
WE WILL BE SUBJECT TO THE RISKS ASSOCIATED WITH THE CONDUCT OF BUSINESS IN
FOREIGN MARKETS INCLUDING INCREASED CREDIT RISKS, TRADE RESTRICTIONS, EXPORT
DUTIES AND TARIFFS AND FLUCTUATIONS IN EXCHANGE RATES OF FOREIGN CURRENCY, ANY
OF WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING MARGINS AND
RESULTS OF OPERATIONS.
In 1999, approximately 7% of ACC's revenues was derived from sales in
foreign markets and we expect that a portion of our revenues will continue to be
derived from sales in foreign markets in the future. Accordingly, we will be
subject to all of the risks associated with foreign trade, which could have a
material adverse effect on our operating margins and results of operations.
These risks include:
o shipping delays
o increased credit risks
o trade restrictions
9
<PAGE>
o export duties and tariffs
o fluctuations in the exchange rates of foreign currency
o international, political, regulatory and economic developments
We intend to expand our sales and marketing activities in foreign markets
by, among other ways, seeking to establish relationships with foreign
governmental agencies which typically operate telecommunications networks. To
the extent that we are able to successfully expand sales of our products in
foreign markets, we will become increasingly subject to foreign political and
economic factors beyond our control, including governmentally imposed
moratoriums on new business development as a result of budgetary constraints or
otherwise, which could have a materially adverse effect on the our business. We
also anticipate that the expansion of foreign operations will require us to
devote significant resources to system installation, training and service.
THE CONVERSION TO THE EURO, WHICH WILL REQUIRE US TO MODIFY OUR INFORMATION
SYSTEMS AND MAY CHANGE THE CONDUCT OF BUSINESS IN THE PRINCIPAL EUROPEAN MARKETS
FOR OUR PRODUCTS AND SERVICES, MAY ADVERSELY AFFECT OUR BUSINESS IN EUROPE.
Because we do business in Europe, we face risks as a result of the
conversion by some of the European Union member states of their currencies to
the euro. In 1999, approximately 3% of ACC's revenues were derived from sales in
Europe. The conversion process commenced on January 1, 1999. The conversion
rates between the member states' currencies and the euro are fixed by the
Council of the European Union. We are unsure whether the conversion to the euro
will harm our business, but potential risks include the costs of modifying our
information systems and changes in the conduct of business and in the principal
European markets for our products and services.
WIRE ONE'S ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS OF
WIRE ONE AND MAY DEPRESS ITS STOCK PRICE.
Wire One's certificate of incorporation and bylaws contain provisions that
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire, control of Wire
One. These provisions provide for a classified board of directors and allow Wire
One to issue preferred stock with rights senior to those of its common stock and
impose various procedural and other requirements that could make it more
difficult for Wire One stockholders to effect corporate actions.
10
<PAGE>
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale
of the securities sold pursuant to this prospectus, although we may receive up
to approximately $14.3 million upon exercise of the outstanding warrants and
options.
DIVIDEND POLICY
Our board of directors has never declared or paid any cash dividends on our
common stock and does not expect to do so for the foreseeeable future. We
currently intend to retain any earnings to finance the growth and development of
our business. Our board of directors will make any future determination of the
payment of dividends based upon conditions then existing, including our
earnings, financial condition and capital requirements, as well as such economic
and other conditions as our board of directors may deem relevant. In addition,
the payment of dividends may be limited by financing arrangements which we may
enter into in the future.
PRICE RANGE OF OUR COMMON STOCK
The following tables present historical trading information for (i) ACC
common stock and VTI common stock through the consummation of the merger between
ACC and VTI on May 18, 2000 and (ii) Wire One since May 18, 2000. The trading
information for VTI reflects the 2 for 1 reverse split of VTI's outstanding
common stock on May 18, 2000.
<TABLE>
<CAPTION>
VTI ACC
COMMON STOCK COMMON STOCK
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
First Quarter......................................................... $11.74 $ 9.50 $ 1.44 $ 0.38
Second Quarter........................................................ 9.24 6.80 1.69 1.06
Third Quarter......................................................... 6.50 3.00 1.13 1.06
Fourth Quarter........................................................ 6.00 3.06 1.06 0.50
YEAR ENDED DECEMBER 31, 1999:
First Quarter......................................................... 7.26 3.76 2.25 0.69
Second Quarter........................................................ 4.12 3.26 5.88 1.81
Third Quarter......................................................... 4.12 2.94 5.00 3.38
Fourth Quarter........................................................ 6.26 2.62 11.88 3.69
YEAR ENDED DECEMBER 31, 2000:
First Quarter......................................................... 18.00 5.26 24.75 10.06
Second Quarter through May 18, 2000................................... 12.00 4.50 17.75 8.94
</TABLE>
<TABLE>
<CAPTION>
WIRE ONE
COMMON STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 2000:
Second Quarter (from May 18).......................................... $11.75 $ 4.75
Third Quarter through September 11, 2000.............................. 10.75 7.00
</TABLE>
VTI common stock was traded on the Nasdaq National Market under the symbol
"VUTK." ACC common stock was traded on over the OTC Electronic Bulletin Board
under the symbol "ACUC." Wire One common stock is traded on the Nasdaq National
Market under the symbol "WONE."
On September 11, 2000, the most recent practicable date prior to the
printing of this prospectus, the last reported sale price of Wire One common
stock was $9 13/16 per share as reported on the Nasdaq National Market, and
16,913,621 shares of Wire One common stock were held by approximately 119
holders of record.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements
included elsewhere in this prospectus. The statement of operations information
for each of the three years in the three-year period ended December 31, 1999 and
the balance sheet information as of December 31, 1998 and 1999 is derived from
the consolidated financial statements of Wire One and VTI, which are included
elsewhere in this prospectus. The financial information as of June 30, 2000 and
March 31, 2000 and for the six months ended June 30, 1999 and 2000 and three
months ended March 31, 1999 and 2000 is unaudited; however, in the opinion of
management those unaudited consolidated financial statements reflect all
adjustments necessary for the fair presentation of the unaudited interim
financial information. The results of operations and cash flows for the interim
periods do not necessarily indicate the results to be expected for the entire
fiscal year or future periods.
WIRE ONE
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net revenues................................... $2,641 $3,885 $6,925 $13,217 $23,997 $9,239 $17,110
Cost of revenues............................... 1,782 2,501 4,897 9,447 16,528 6,410 11,286
------ ------ ------ ------- ------- ------ -------
Gross margin................................... 859 1,384 2,028 3,770 7,469 2,829 5,824
------ ------ ------ ------- ------- ------ -------
Operating expenses:
Selling...................................... 482 665 1,812 3,214 4,544 1,951 4,586
General and administrative................... 328 600 936 1,310 1,765 718 1,350
Amortization of goodwill..................... -- -- -- -- -- -- 269
------ ------ ------ ------- ------- ------ -------
Total operating expenses....................... 810 1,264 2,748 4,524 6,309 2,669 6,205
------ ------ ------ ------- ------- ------ -------
Income (loss) from operations.................. 49 119 (720) (754) 1,160 160 (381)
------ ------ ------ ------- ------- ------ -------
Other (income) expenses
Amortization of deferred financing costs..... 25 -- 315 19 43 19 325
Interest income.............................. -- -- (118) (56) (23) (14) (145)
Interest expense............................. 7 29 27 57 181 96 54
------ ------ ------ ------- ------- ------ -------
Total other (income) expenses, net............. 32 29 224 20 201 101 234
------ ------ ------ ------- ------- ------ -------
Income (loss) before income taxes.............. 17 90 (944) (774) 959 59 (615)
Income tax (provision) benefit................. (8) (38) 52 (3) 105 -- --
------ ------ ------ ------- ------- ------ -------
Net income (loss).............................. 9 52 (892) (777) 1,064 59 (615)
Deemed dividends on Series A convertible
preferred stock............................ -- -- -- -- -- -- (8,180)
------ ------ ------ ------- ------- ------ -------
Net income (loss) attributable to common
stockholders............................... $ 9 $ 52 $ (892) $ (777) $ 1,064 $ 59 $(8,795)
====== ====== ====== ======= ======= ====== =======
Net income (loss) per share:
Basic........................................ $ .01 $ .03 $ (.21) $ (.16) $ .22 $ .01 $ (1.03)
====== ====== ====== ======= ======= ====== =======
Diluted...................................... $ .01 $ .03 $ (.21) $ (.16) $ .17 $ .01 $ (1.03)
====== ====== ====== ======= ======= ====== =======
Weighted average shares outstanding
Basic........................................ 1,884 1,978 4,201 4,910 4,910 4,910 8,502
====== ====== ====== ======= ======= ====== =======
Diluted...................................... 1,884 1,978 4,201 4,910 6,169 5,567 8,502
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
---- ------ ------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents.............................. $154 $ 646 $2,175 $ 326 $ 60 $13,665
Working capital........................................ 53 748 4,085 5,702 4,526 21,572
Total assets........................................... 755 2,458 6,008 8,923 10,867 73,732
Total liabilities...................................... 673 1,913 1,273 4,954 5,673 13,467
Series A mandatorily redeemable convertible preferred
stock................................................ -- -- -- -- -- 11,070
Stockholders' equity................................... 81 545 4,734 3,968 5,194 49,195
</TABLE>
12
<PAGE>
VTI
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31,
---------------------- ------------ --------------------------------------- ---------------
1995 1996 1996 1996 1997 1998 1999 1999 2000
---------- ---------- ------------ ----------- ------- ------- -------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
INFORMATION:
Revenues:
Product......................... $ 5,806 $ 11,385 $ 8,926 $16,230 $24,851 $27,902 $ 24,024 $6,104 $ 5,923
Services........................ 1,158 1,961 1,681 3,057 6,163 9,340 11,456 2,816 3,291
-------- -------- -------- ------- ------- ------- -------- ------ -------
Total........................... 6,964 13,346 10,607 19,287 31,014 37,242 35,480 8,919 9,214
-------- -------- -------- ------- ------- ------- -------- ------ -------
Costs and expenses:
Cost of equipment sold.......... 3,954 8,095 6,960 12,485 17,689 19,991 19,438 4,313 4,164
Cost of services provided....... 374 948 941 1,586 2,915 4,463 5,854 1,344 1,737
Sales and marketing expenses.... 686 2,724 2,301 4,384 6,346 7,831 9,956 2,132 2,251
General and administrative
expenses...................... 1,198 2,627 1,250 2,248 5,635 5,728 7,090 1,164 1,617
Restructuring and other costs... -- -- -- -- -- 3,304 -- -- --
Merger costs.................... -- -- 2,564 2,564 -- -- -- -- --
-------- -------- -------- ------- ------- ------- -------- ------ -------
Total costs and expenses.......... 6,212 14,394 14,016 23,267 32,585 41,318 42,338 8,953 9,769
-------- -------- -------- ------- ------- ------- -------- ------ -------
Income (loss) from continuing
operations...................... 752 (1,048) (3,409) (3,980) (1,571) (4,076) (6,858) (34) (555)
Interest expense.................. -- -- -- -- (338) (246) (687) (37) (741)
-------- -------- -------- ------- ------- ------- -------- ------ -------
Income (loss) before income
taxes........................... 752 (1,048) (3,409) (3,980) (1,909) (4,322) (7,545) (71) (1,296)
Benefit (provision) for
income taxes.................... (294) 352 26 217 (4) (4) (383) -- --
-------- -------- -------- ------- ------- ------- -------- ------ -------
Income (loss) from continuing
operations...................... 458 (696) (3,383) (3,763) (1,913) (4,326) (7,928) (71) (1,296)
Income (loss) from discontinued
operations...................... (2,335) 1,120 366 776 2,052 1,512 (825) (184) --
Loss on disposal of discontinued
operations...................... -- -- -- -- -- -- (3,237) -- --
-------- -------- -------- ------- ------- ------- -------- ------ -------
Net income (loss)................. (1,877) $ 424 $ (3,017) $(2,987) $ 139 $(2,814) $(11,990) $ (255) $(1,296)
======== ======== ======== ======= ======= ======= ======== ====== =======
Income (loss) from continuing
operations per share (basic and
diluted)........................ $ .12 $ (.14) $ (.63) $ (.72) $ (.30) $ (.63) $ (1.01) $(0.01) $ (0.16)
======== ======== ======== ======= ======= ======= ======== ====== =======
Income (loss) per share (basic and
diluted)........................ $ (.50) $ .08 $ (.56) $ (.57) $ .02 $ (.41) $ (1.53) $(0.03) $ (0.16)
======== ======== ======== ======= ======= ======= ======== ====== =======
Shares used in computing earnings
(loss) per share:
Basic........................... 3,765 5,041 5,401 5,262 6,372 6,888 7,843 7,764 8,229
======== ======== ======== ======= ======= ======= ======== ====== =======
Diluted......................... 3,765 5,041 5,041 5,262 6,372 6,888 7,843 7,764 8,229
======== ======== ======== ======= ======= ======= ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, MARCH 31,
-------------------- --------------------------------------------- -----------
1995 1996 1996 1997 1998 1999 2000
-------- -------- ------------ ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash.................................. $4,988 $1,463 $ 363 $ 1,028 $ 302 $ 69 $ 69
Working capital (deficiency).......... 2,602 2,371 1,644 9,393 8,931 (6,172) (3,758)
Total assets.......................... 5,883 8,220 12,328 21,585 22,623 15,596 12,896
Long-term debt........................ 5 250 244 4,867 4,397 36 24
Stockholders' Equity.................. 3,403 4,222 4,419 8,277 7,071 (3,573) (1,352)
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
Wire One was formed on May 18, 2000 by the merger of ACC and VTI. VTI was
the surviving legal entity in the merger. However, for financial reporting
purposes, the merger has been accounted for as a "reverse acquisition" using the
purchase method of accounting. Under the purchase method of accounting, ACC's
historical results have been carried forward and VTI's operations have been
included in the financial statements commencing on the merger date. Accordingly,
all 1999 quarterly and year-to-date results as well as 2000 results through the
merger date are those of ACC only. Further, on the date of the merger, the
assets and liabilities of VTI were recorded at their estimated fair values, with
the excess purchase consideration allocated to goodwill.
RESULTS OF OPERATIONS--WIRE ONE
Six Months Ended June 30, 2000 ("2000 period") Compared to Six Months Ended
June 30, 1999 ("1999 period").
Wire One reported net revenues of $17,110,000 for the 2000 period, an
increase of $7,871,000, or 85%, over revenues reported for the 1999 period. The
inclusion of VTI revenues from the merger date through the end of the reporting
period was the significant driving factor behind this percentage increase. In
addition, the increase in revenue is attributable to increases in units sold
through a larger sales force.
Videoconferencing--Sales of videoconferencing equipment were $13,329,000 in
the 2000 period, a 184% increase over the 1999 period. The inclusion of VTI
revenues from the merger date through the end of the reporting period was the
significant driving factor behind this percentage increase. Wire One continues
to experience volume increases as exhibited by increased multi-unit sales and
customer reorders and greater numbers of new customer inquiries, all of which
reflect more effective marketing efforts as well as continued strong demand for
Polycom products.
Voice communications--Sales of voice communications products and services
were $3,781,000 in the 2000 period, a 17% decrease from the 1999 period. These
period-to-period declines in the voice communications division were the result
of declines in revenue for three significant customers and the deferral of
system cutovers in the quarter ended June 30, 2000 due to customer delays. As a
result of these installation delays, the division ended the period with a
significant backlog. With this backlog and positive prospects for these three
major customers, the second half of 2000 should see a rebound in revenue levels.
Gross margins increased in the 2000 period to 34% of net revenues, as
compared to 31% of net revenues in the 1999 period. The increase is attributable
to increases in higher margin revenue sources such as maintenance contracts and
video installation services.
Selling expenses, which include sales salaries, commissions, sales overhead
and marketing costs, increased in the 2000 period to $4,586,000, or 26.8% of net
revenues, as compared to $1,951,000, or 21.1% of net revenues for the 1999
period. The inclusion of VTI selling expenses from the merger date through the
end of the reporting period was the significant driving factor behind this
increase. In addition, increases in selling expenses are attributable to
increases in the number of sales personnel and their related costs and the costs
of additional sales offices. The increase in selling expenses as a percentage of
net revenues in the 2000 period was impacted by the declines in voice
communications revenues while the selling costs of that division remained
relatively fixed and by the increases in videoconferencing selling expenses in
advance of increased expected revenues.
General and administrative expenses increased in the 2000 period to
$1,350,000, or 7.9% of net revenues, as compared to $718,000, or 7.8% of net
revenues for the 1999 period. The inclusion of VTI general and administrative
expenses from the merger date through the end of the reporting period was the
significant driving factor behind this increase.
As a result of the merger, $34,200,000 of goodwill and approximately one
and one-half months' amortization of goodwill totaling $269,000 was recorded in
the quarter ended June 30, 2000. Wire One currently estimates at this time that
the annual amortization expense (based on an amortization period of 15 years)
will approximate $2,281,000.
The principal component of other expense, amortization of deferred
financing costs, increased to $325,000 in the 2000 period as compared to $19,000
in the 1999 period. The increase reflects the
14
<PAGE>
amortization of $305,000 related to the issuance of warrants to former VTI
subordinated debt holders. These costs were fully amortized as of June 30, 2000.
As a result of losses incurred in the quarter ended June 30, 2000, Wire One
recorded a tax recovery in the second quarter of 2000 equivalent to the tax
provision from the first quarter, but did not recognize any additional tax
benefits in the period as it continued to evaluate the recoverability of its
recorded deferred tax asset.
Wire One reported a net loss attributable to common stockholders for the
June 2000 period of $(8,795,000), or $(1.03) per share, as compared to net
income attributable to common stockholders of $59,000, or $.01 per share for the
June 1999 period. The June 2000 period contained a non-recurring deemed dividend
and offsetting increase in additional paid-in capital of $8,100,000 to reflect
the beneficial conversion feature of preferred stock issued in the period as
compared to the prevailing market value of the common stock. In addition, a
$70,000 deemed dividend was recorded in the 2000 period to amortize the costs of
the preferred stock offering. Costs of $6,150,000 incurred in connection with
the private placement, including the fair value of warrants, have been recorded
as a preferred stock discount and will be amortized as a deemed dividend over
the three-year period from the date of issuance to the current redemption date.
Wire One reported a net loss of $(615,000) for the June 2000 period as compared
to net income of $59,000 for the June 1999 period.
Year Ended December 31, 1999 ("fiscal 1999") Compared to Year Ended
December 31, 1998 ("fiscal 1998")
Net revenues increased in fiscal 1999 by $10,780,000, or 82%, to
$23,997,000, a record level for a twelve-month period, as compared to fiscal
1998 revenues of $13,217,000. Sales were higher as discussed below with both the
voice communications and videoconferencing customers due to increased demand for
products as described below.
Voice communications--Sales of voice communications products and services
increased in fiscal 1999 by $4,454,000, or 62%, to $11,600,000 as compared to
fiscal 1998 revenues of $7,146,000. The increase was due in part to significant
increases in sales to Universal Health Services, Inc. and sales under Wire One's
Preferred Vendor Agreement with Cendant. Sales to Universal Health Services,
Inc. increased by 135% to $3,336,000 in fiscal 1999 compared to $1,422,000 in
fiscal 1998. Sales under Wire One's Preferred Vendor Agreement with Cendant
increased by 115% to $3,513,000 in fiscal 1999 compared to $1,631,000 in fiscal
1998.
Videoconferencing--Sales of videoconferencing systems increased in fiscal
1999 by $6,326,000, or 104%, to $12,397,000 as compared to $6,071,000 in fiscal
1998. During 1999, Wire One experienced significant growth in sales to the
federal government and to customers that resell directly to federal government
agencies. Sales to these customers increased in fiscal 1999 by $2,414,000, or
406%, to $3,008,000 as compared to $594,000 in fiscal 1998. In 1999, Wire One
also continued to increase its customer base through the addition of new sales
personnel and increased performance from existing sales personnel. This resulted
in both increased sales to existing customers as well as sales to new customers.
During 1999, Wire One opened new offices in California and Illinois.
Gross margin dollars increased by $3,701,000, or 98%, to $7,470,000 or 31%
of net revenues in fiscal 1999, as compared to $3,769,000, or 29% of net
revenues in fiscal 1998. The percentage increase in gross margin is a result of
increased unit orders allowing Wire One to obtain more favorable pricing from
its equipment vendors and from the sale of higher margin services such as
maintenance contracts. Cost of revenues consists primarily of net product,
direct labor, insurance, warranty, and allocated depreciation costs.
Selling expenses increased by $1,330,000, or 41%, to $4,544,000, or 19% of
net revenues in fiscal 1999, as compared to $3,214,000 or 24% of net revenues in
fiscal 1998. Sales salaries and commissions represent 64% of selling expenses in
1999 and increased by $960,000, or 49%, to $2,914,000 in fiscal 1999, compared
to $1,954,000 in fiscal 1998. The increase in sales salaries is due to higher
commissions related to record revenue growth and to the addition of four new
sales personnel. Other items included in selling expense are telecommunications,
travel and entertainment, postage and delivery, outside commissions,
depreciation of demo equipment, and rent.
General and administrative expenses increased by $455,000, or 35%, to
$1,765,000, or 7%, of net revenues in fiscal 1999, as compared to $1,310,000, or
10%, of net revenues in fiscal 1998. The dollar increase in 1999 was
attributable to higher compensation costs, professional fees and bad debt
write-offs. Compensation costs increased by $348,000, or 64%, to $891,000 in
fiscal 1999 as compared to $543,000 in fiscal 1998. The increase in compensation
costs is due to increases in officers compensation and costs associated with the
issuance of stock options for services to non employees. Professional fees
increased by
15
<PAGE>
$84,000, or 41%, to $288,000 in fiscal 1999 as compared to $204,000 in fiscal
1998. The increase in professional fees is due to costs related to defending the
lawsuit with Maxbase and with Wire One's previous landlord. Bad debt write-offs
increased by $63,000, or 37%, to $232,000 in fiscal 1999 as compared to $169,000
in fiscal 1998. The increase in bad debt write-offs is due to the overall
increase in Wire One's customer base and increased revenue growth. General and
administrative expenses declined as a percentage of revenue as sales growth
outpaced cost increases.
Fiscal 1999 includes a full year of amortization of deferred financing
costs, $43,000, related to Wire One's working capital credit facility compared
to 7 months in 1998 or $20,000. Wire One also reported interest income of
$23,000 and $56,000 in 1999 and 1998, respectively. Interest expense, which
amounted to $181,000 and $57,000 in 1999 and 1998, respectively, increased as
Wire One increased the use of its credit facility to fund working capital
requirements.
Wire One's income tax benefit of $105,000 for fiscal 1999 reflects
reductions in the valuation allowance established against deferred tax assets
(principally net operating losses) offset by increases in current federal and
state tax provisions arising from improved operating results. In fiscal 1998,
Wire One had not recognized any income tax benefits, due to uncertainties about
its ability to generate a sufficient level of taxable income in the future. In
fiscal 1999 based on an assessment of all available evidence, including 1999
operating results, management believes that it is more likely than not that
deferred tax assets as of December 31, 1999 will be realized. In the event that
the merger with VTI is consummated, management expects its Federal income tax
provision in future periods to exceed the statutory rate, due to the effects of
nondeductible amortization charges.
Wire One reported net income in fiscal 1999 of $1,065,000, or $.22 and $.17
per share on a basic and diluted basis, respectively, as compared to a net loss
of $777,000 or $.16 per share on a basic and diluted basis in fiscal 1998.
Year Ended December 31, 1998 ("fiscal 1998") Compared to Year Ended December
31, 1997 ("fiscal 1997")
Net revenues increased in fiscal 1998 by $6,292,000, or 91%, to
$13,217,000, a record level for a twelve-month period, as compared to fiscal
1997 revenues of $6,925,000. Sales were higher in both the voice communications
and videoconferencing categories.
Voice communications--Sales of voice communications products and services
increased in fiscal 1998 by $3,497,000, or 97%, to $7,146,000 as compared to
fiscal 1997 revenues of $3,649,000. The increase was due in part to increased
marketing efforts, including the hiring of additional sales personnel in 1998
and 1997, as well as increased revenue generated by the sale of Lucent products
to a significant new customer, Universal Health Services, Inc. Revenues in
fiscal 1998 were derived primarily from the sale of Lucent and Panasonic
telecommunications systems and software packages. Revenues in fiscal 1997 were
derived primarily from the sale of Panasonic systems. Sales under Wire One's
Preferred Vendor Agreement with Cendant accounted for 12% of net revenues for
fiscal 1998 and 15% of net revenues for fiscal 1997.
In 1998, Wire One established significant customer relationships with
Universal Health Services, Inc. for Lucent and Sony products. Universal Health
Services accounted for 11% of net revenues for fiscal 1998. Wire One anticipates
continued growth in the voice communications division for the year ending
December 31, 1999 due in part to projected revenue increases in the structured
cable division and from Wire One's relationships with Cendant and Universal
Health Services.
Videoconferencing--Sales of videoconferencing systems increased in fiscal
1998 by $2,795,000, or 85%, to $6,071,000 as compared to $3,276,000 for fiscal
1997. Wire One increased its videoconferencing customer base in fiscal 1998
through the introduction of lower cost videoconferencing systems manufactured by
Polycom. The reduction in the average selling price of videoconferencing systems
was more than offset by the increase in units sold. Wire One anticipates the
continued expansion of its customer base throughout 1999, as lower cost systems
become more affordable to a larger group of customers. Increased sales of these
lower cost systems, however, have started to lower Wire One's gross margins.
Gross margin dollars increased by $1,741,000, or 86%, to $3,769,000 or 29%
of net revenues in fiscal 1998, as compared to $2,028,000, or 29% of net
revenues in fiscal 1997. Margins as a percentage of total revenue are expected
to fluctuate, depending on such factors as sales volume, the mix of product
revenues, and changes in fixed costs during a given period. Cost of revenues
consists primarily of net product, direct labor, insurance, warranty, and
depreciation costs. The increase in gross margin dollars is the result of
increased revenue.
Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased by $1,402,000, or 77%, to $3,214,000,
or 24% of net revenues in fiscal 1998, as compared to
16
<PAGE>
$1,812,000 or 26% of net revenues in fiscal 1997. The dollar increase was due in
part to higher salary expense resulting from additions to sales personnel in
1998, the costs of maintaining a new sales office in New York City, establishing
a structured cable division, as well as higher commission-based
videoconferencing sales. Wire One added 13 salespeople during 1998.
General and administrative expenses increased by $374,000, or 40%, to
$1,310,000, or 10%, of net revenues in fiscal 1998, as compared to $936,000, or
14%, of net revenues in fiscal 1997. The dollar increase is attributable
primarily to higher salary expense and related costs associated with the
increase in administrative staff necessary to manage expanded operations, higher
occupancy costs and other administrative overhead.
In 1998, other (income) expenses includes $20,000 of amortization of
deferred financing costs related to the working capital credit facility as
compared with a non-recurring charge of $315,000 associated with bridge
financing in 1997 (See Notes to the Consolidated Financial Statements). Wire One
also reported interest income of $56,000 and $118,000 in 1998 and 1997,
respectively. The reduction in interest income is a result of Wire One's use of
cash raised in 1997 to fund operations. Wire One also reported interest expense
of $57,000 and $28,000 in 1998 and 1997, respectively. The increase in interest
expense is a result of Wire One using its working capital credit facility to
fund growth.
The income tax provision in 1998 consists principally of amounts due to
various state taxing authorities. The 1997 provision includes refundable taxes
of $47,000 from the carryback of the current year's federal net operating loss.
Wire One has established a valuation allowance to offset additional tax benefits
from the carryforward of unused federal operating losses of $829,000 and other
deferred tax assets, due to the uncertainty of their realization. Management
evaluates the recoverability of deferred tax assets and the valuation allowance
on a quarterly basis. At such time it is determined that it is more likely than
not that deferred tax assets are realizable, the valuation allowance will be
appropriately reduced.
Wire One reported a net loss in fiscal 1998 of $777,000, or $.16 per share
as compared to $892,000 or $.21 per share in fiscal 1997. Increased costs
associated with expanded operations have more than offset continued increases in
net revenues.
RESULTS OF OPERATIONS--VTI
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Total revenues for the three months ended March 31, 2000 increased by $0.3
million, or 3%, to $9.2 million from $8.9 million in the comparable period in
1999. Product revenues decreased by $0.2 million, or 3%, to $5.9 million in the
three months ended March 31, 2000 from $6.1 million in the comparable period in
1999. The slight decrease in product revenues was attributable to an overall
slowdown in videoconferencing equipment purchases by customers/prospects in VTI
target markets. Service revenues for the three months ended March 31, 2000
increased by $0.5 million, or 17%, to $3.3 million from $2.8 million in the
comparable period in 1999. The increase in service revenues was due primarily to
the growth in the installed customer base and bridging services.
Cost of equipment sold for the three months ended March 31, 2000 decreased
by $0.1 million, or 3%, to 4.2 million from $4.3 million in the comparable
period in 1999. Cost of equipment sold as a percentage of product revenue
decreased to 70.3% in the three months ended March 31, 2000 from 70.7% in the
comparable period in 1999. During the first quarter of 2000, VTI negotiated
discounts on open accounts payable balances with several vendors totaling $0.1
million. Cost of services provided for the three months ended March 31, 2000
increased by $0.4 million, or 29%, to $1.7 million from $1.3 million in the
comparable period in 1999. Cost of services provided as a percentage of service
revenue increased to 52.8% in the three months ended March 31, 2000 from 47.7%
in the comparable period in 1999. Service margins decreased as a result of
adding personnel and related operating expenses in advance of increased
installation and bridging services.
Sales and marketing expenses for the three months ended March 31, 2000
increased by $0.1 million, or 6%, to $2.2 million from $2.1 million in the
comparable period in 1999. Sales and marketing expenses as a percentage of
revenue increased to 24.4% in the three months ended March 31, 2000 from 23.9%
in the comparable period in 1999. The increase in sales and marketing expenses
was due to increases in operating expenses related to new sales offices such as
rent, telecommunications, postage/delivery and office supplies and the costs of
buying out the leases of two offices not considered necessary in the future
plans of VTI.
General and administrative expenses for the three months ended March 31,
2000 increased by $0.4 million, or 39%, to $1.6 million from $1.2 million in the
comparable period in 1999. General and administrative expenses as a percentage
of revenue increased to 17.5% in the three months ended March 31, 2000 from
13.1% in the comparable period in 1999. The increase in general and
administrative expenses was
17
<PAGE>
primarily due to higher audit and legal fees related to the 1999 fiscal year
financial statements and the regulatory filings required to execute the pending
merger with All Communications Corporation ($0.3 million).
Interest expense for the three months ended March 31, 2000 increased by
$0.7 million, or 1,903% to $741,040 from $37,004 in the comparable period in
1999. Interest expense as a percentage of revenue increased to 8.0% in the three
months ended March 31, 2000 from 0.4% in the comparable period in 1999. The
increase in interest expense was a result of amortizing three months of debt
issuance costs and fees relating to the forbearance agreement and subordinated
debt ($615,702) and increased usage and interest rate on the Company's line of
credit ($88,334).
Loss from discontinued operations decreased by $0.2 million from a loss of
$0.2 million for the three months ended March 31, 1999 to no income or loss for
the three months ended March 31, 2000 as the discontinued operations were sold
effective January 1, 2000.
Net loss increased $1.0 million to a loss of $1.3 million for the three
months ended March 31, 2000 from a loss of $0.3 million in the comparable period
in 1999. Net loss as a percentage of revenues increased to (14.0)% for the three
months ended March 31, 2000 compared to (2.9)% for the three months ended March
31, 1999. Net loss per share increased to a loss of $(0.16) for the three months
ended March 31, 2000 from a loss of $(0.03) in the comparable period in 1999.
The weighted average number of shares outstanding increased to 8,229,173 for the
three months ended March 31, 2000 from 7,764,371 in the comparable period in
1999, primarily due to the issuance of common stock related to the exercise of
warrants and options during the three months ended March 31, 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenues for the year ended December 31, 1999 decreased by
$1.8 million or 5% to $35.5 million from $37.3 million in the comparable period
for 1998. Product revenues fell by $3.9 million or 14% to $24.0 million from
$27.9 million in the comparable period for 1998. The decrease in product
revenues was primarily the result of a liquidity crisis which began in late
September and extended to late November 1999 which disrupted VTI's product
supply and ability to fulfill customer orders. Service revenues for the year
ended December 31, 1999 increased by $2.1 million or 23% to $11.5 million from
$9.4 million in the comparable period for 1998. The increase in service revenues
was due primarily to the growth in the installed customer base and bridging
services.
Cost of equipment sold for the year ended December 31, 1999 decreased by
$0.6 million, or 3%, to $19.4 million from $20.0 million for the year ended
December 31, 1998. Cost of equipment sold as a percentage of product revenue
increased to 80.9% for the year ended December 31, 1999 from 71.6% for the year
ended December 31, 1998. During the fourth quarter of 1999, VTI recorded a
$1.6 million inventory reserve covering demonstration equipment, finished goods,
and spare parts inventories. Approximately 75% of the inventory reserve applied
to demonstration equipment which had not been resold by December 31, 1999. The
remainder of the reserve applied to certain finished goods and excess spare
parts. Management believes such reserves are adequate to reflect inventory at
its net realizable value. It is reasonably possible that a change in the
estimate could occur in the near term. In addition to the reserve causing the
unfavorable year-to-year comparison, equipment margins shrank as part of an
industry-wide trend away from large room systems to desktop systems and due to
increased competition. Cost of services provided for the year ended December
31,1999 increased by $1.4 million, or 31%, to $5.9 million from $4.5 million for
the year ended December 31, 1998. Cost of services provided as a percentage of
service revenue increased to 51.1% for the year ended December 31, 1999 from
47.8% for the year ended December 31, 1998. Service margins decreased as a
result of adding personnel and bridging equipment to the cost base in advance of
increased installation and bridging revenues.
Sales and marketing expenses for the year ended December 31, 1999 increased
by $2.1 million or 27% to $9.9 million from $7.8 million in the comparable
period for 1998. Sales and marketing expenses as a percentage of revenues
increased to 28.0% in the year ended December 31, 1999 from 21.0% in the
comparable period for 1998. The increase in selling and marketing expenses was
primarily due to higher sales compensation and recruitment fees as a result of
hiring additional sales personnel ($1.2 million) and other operating expenses
incurred as a result of the increased number of sales offices ($0.9 million).
General and administrative expenses for the year ended December 31, 1999
increased by $1.4 million or 24% to $7.1 million from $5.7 million in the
comparable period for 1998. General and administrative expenses as a percentage
of total revenues increased to 20.0% in the year ended December 31, 1999 from
15.4% in the comparable period for 1998. The increase in general and
administrative expenses was primarily due to incurring an extraordinary amount
of legal and consulting fees related to managing VTI through its
18
<PAGE>
liquidity crisis and negotiations with its bankers, trade creditors, and
subordinated lenders ($.8 million) and a $0.4 million accrual for employee
retention bonuses.
VTI recorded a restructuring charge of $3.3 million during 1998. The
components of the restructuring charge were an impairment write-down of goodwill
of $1.5 million, employee termination costs of $1.1 million and other costs of
$0.7 million.
Interest expense for the year ended December 31, 1999 increased by
$0.4 million, or 179%, to $0.7 million from $0.3 million for the year ended
December 31, 1998. Interest expense as a percentage of total revenues increased
to 2.0% in 1999 from 0.7% in 1998. The increase in interest expense was a result
of the write off of the unamortize balance of VTI's line of credit origination
fee ($0.3 million) and one month of amortization of debt issuance costs relating
to the forbearance agreement and the subordinated debt ($0.2 million).
Loss from discontinued operations increased by $5.6 million from income of
$1.5 million in the year ended December 31, 1998 to a loss of $4.1 million in
the comparable period for 1999. Discontinued operations incurred an operating
loss of $0.8 million for the year ended December 31, 1999 compared to operating
income of $1.5 million for the year ended December 31, 1998. This decrease in
operating results was primarily due to significant commission rate cuts (30-40%)
of the RBOCs in 1999. In addition, for the year ended December 31, 1999, a
$3.3 million loss on disposal of discontinued operations was recognized.
Net loss increased $9.2 million to a loss of $12.0 million in the year
ended December 31, 1999 from a loss of $2.8 million for the comparable period
for 1998. Net loss as a percentage of revenues decreased to 33.8% for 1999
compared to 7.6% for 1998. Net loss per share increased to a loss of $(1.53) for
1999 compared to loss per share of $(0.41) for 1998. The weighted average number
of shares outstanding increased to 7,842,518 for 1999 from 6,888,104 in 1998,
primarily due to the full year impact of the issuance of common stock through a
private placement in November 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues for the twelve months ended December 31, 1998 increased by
$6.228 million, or 20%, to $37.242 million from $31.014 million in 1997. The
increase in revenues was primarily related to VTI's nationwide expansion of its
videoconferencing business by opening new sales offices and hiring sales
personnel.
Cost of equipment sold for 1998 increased by $2.3 million, or 13%, to $20.0
million from $17.7 million in 1997. Cost of equipment sold as a percentage of
product revenue increased slightly to 71.6% in 1998 from 71.2% in 1997. Cost of
services provided for 1998 increased by $1.6 million, or 53%, to $4.5 million
from $2.9 million in 1998. Cost of services provided as a percentage of service
revenue increased slightly to 47.8% in 1998 from 47.3% in 1997. Cost of
equipment sold and services provided as a percentage of product sales and
service revenues decreased to 65.7% in 1998 from 66.4% in 1997. The percentage
decrease is primarily related to an increase in service business. Service
business provides a higher profit margin than equipment sales.
Selling and marketing expenses for 1998 increased by $1.485 million, or
23%, to $7.831 million from $6.346 million in 1997. Selling and marketing
expenses as a percentage of revenues remained constant at 21% 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
($1.1 million) and other operating expenses incurred as a result of the
increased number of sales offices ($0.4 million).
General and administrative expenses for 1998 increased by $0.093 million,
or 2%, to $5.728 million from $5.635 million in 1997. General and administrative
expenses as a percentage of total revenues decreased to 15.4% in 1998 from 18.2%
in 1997. The percentage decrease was primarily due to synergies achieved as part
of the integration and restructuring efforts.
VTI recorded a restructuring charge of $4.201 million during 1998
($3.304 million related to video operations and $.897 million related to
discontinued operations) which resulted in an increase in loss from operations
of $2.505 million from a loss of $1.571 million in 1997 to a loss of
$4.076 million in 1998. In addition, VTI expected to realize $1.5 million of
annual cost savings as a result of these employee terminations in the future.
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 decreased by $92,000 to $246,000 in 1998 compared to
$338,000 in 1997. This decrease was primarily due to lower borrowings related to
video related credit facilities and capital lease obligations.
19
<PAGE>
Discontinued operations realized a profit for the twelve months ended
December 31, 1998 of $1.5 million, a decrease of $.6 million, or 26%, from the
$2.1 million profit realized for the comparable period in 1997. Two factors
driving the year-to-year decline in operating results were the declining results
of the outside network sales business (commission rate cuts by RBOC's) and the
increase in general management costs of the discontinued operations.
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 loss as a percentage of revenues was
7.6% for 1998 compared to net income as a percentage of revenues of 0.4% for
1997. Net income (loss) per share decreased to a loss of $0.41 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.
LIQUIDITY AND CAPITAL RESOURCES - WIRE ONE
At June 30, 2000, we had working capital of $21,572,000 compared to
$4,526,000 at December 31, 1999, an increase of approximately 377%. In addition,
we had $13,665,000 in cash and cash equivalents compared to $60,000 at
December 31, 1999. This improved working capital position resulted primarily
from the private placement of preferred stock in June 2000 that raised
$l6,280,000 in net cash proceeds.
The merger between VTI and ACC was closed on May 18, 2000, with the
surviving company being renamed Wire One. Concurrent with the closing of the
merger, all outstanding amounts owed to VTI's bank lenders were repaid. All
significant VTI vendors were either paid concurrent with or shortly after the
close of the merger or agreed to other mutually satisfactory payment
arrangements. We have made all required payments under such arrangements to
date. VTI's subordinated debt holders were repaid prior to the June 30, 2000
maturity date.
On June 5, 2000, we renewed our credit facility with Gibraltar Corp., a
division of Summit Bancorp. The two-year credit agreement raised our line of
credit from $5,000,000 to $15,000,000. Borrowings will bear interest at the
lender's base rate plus 1/2% per annum. We have not borrowed funds under this
line of credit to date.
On June 14, 2000, we completed the private placement of 2,450 shares of our
series A convertible preferred stock and warrants with a select group of
institutional and strategic investors led by Peconic Fund, Ltd., an affiliate of
Ramius Capital Group, and Polycom, Inc. Gross proceeds of $17.15 million were
raised in the private placement. A non-recurring deemed dividend of
approximately $8.1 million was recognized in the second quarter of 2000. Other
costs are being amortized over a three-year period and will reduce net income
attributable to common stockholders. The proceeds of the private placement are
expected to fund internal growth, acquisitions and expansions into emerging
video applications technologies, including further development and installation
of a global Internet Protocol (IP) based video communications subscriber service
utilizing DSL access that we expect to introduce in the fourth quarter of 2000.
Net cash used in operating activities for the 2000 period was $(3,324,000)
as compared to net cash provided by operations of $844,000 during the 1999
period. Sources of operating cash in 2000 included increases in deferred revenue
and customer prepayments. Payments on accounts payable balances with vendors
used $2,085,000 of operating cash. Additional uses of cash included increases in
accounts receivable of $1,398,000 resulting from sales growth and purchases of
inventory totaling $947,000.
Investing activities for the 2000 period included purchases of $546,000 for
bridging, computer and demonstration equipment for the core business and
$841,000 for network equipment related to the global IP based video
communications subscriber service that we are developing. In addition, cash
costs incurred in connection with the merger totaled $2,007,000. We do not have
any material commitments for capital expenditures.
Financing activities in the 2000 period included raising net proceeds from
the private placement of preferred stock totaling $16,280,000, proceeds from the
exercise of warrants and options totaling $8,654,000 and the repayment of the
outstanding balance of our revolving credit line totaling a net of $3,077,000
and the $1,500,000 of VTI subordinated notes that were outstanding.
20
<PAGE>
INFLATION
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative and
Hedging Activities," which must be adopted for fiscal quarters of years
beginning after June 15, 2000. SFAS No. 133 requires the recognition of all
derivatives as either assets or liabilities in either Wire One's or VTI's
balance sheet and measurement of those instruments at fair value. To date, Wire
One has not entered into any derivative or hedging activities, and as such, does
not expect that the adoption of SFAS No. 133 will have a material effect, if
any, on its financial position, results of operations, or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition ("SAB 101") which broadly
addresses how companies report revenues in their financial statements. Wire One
is in the process of evaluating the accounting requirements of SAB 101 and does
not expect that this standard will have a material effect, if any, on its
financial position, results of operations, or cash flows.
21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Wire One was formed by the merger of ACC into VTI on May 18, 2000. Under
the terms of the merger, each outstanding share of ACC common stock was
converted into 1.65 shares of VTI common stock. All VTI share and per share
information in the unaudited pro forma combined financial statements and
accompanying notes reflects the 2 for 1 reverse split effected on May 18, 2000.
VTI was the surviving legal entity in the merger. However, for accounting
purposes, ACC was deemed to be the acquiror and, accordingly, the merger will be
accounted for as a "reverse acquisition" of VTI under the purchase method of
accounting. Under this method of accounting, the combined company's historical
results for periods prior to the merger will be the same as ACC's historical
results. On the date of the merger, the assets and liabilities of VTI were
recorded at their estimated fair values, and VTI's operations were included in
Wire One's historical financial statements on a going forward basis.
On June 14, 2000, Wire One issued 2,450 shares of its series A convertible
preferred stock in a private placement to institutional and strategic investors.
The net proceeds of the private placement were approximately $16.3 million. Wire
One expects to use the proceeds for working capital, to fund acquisitions, and
to expand into emerging video applications technologies. The series A preferred
shares are convertible into shares of common stock at a fixed conversion price
of $7.00 per share, subject to adjustments. Preferred stockholders may, at their
option, have their shares redeemed on the earlier of June 14, 2003 or the
occurrence of a triggering event (as defined). The redemption price is 110% of
the stated value of $7,000 per share. None of the triggering events has occurred
to date. The series A preferred shares will automatically convert into common
stock on the conclusion of a 20 day consecutive trading day period where the
closing price of Wire One common stock equals or exceeds $12.50. Investors in
this private placement also received warrants to purchase 857,500 shares of Wire
One common stock at an exercise price of $10.50 per share, subject to
adjustment. The placement agent received warrants to purchase 193,748 shares of
Wire One common stock at an exercise price of $7.00 per share, and warrants to
purchase 67,876 shares of Wire One common stock at an exercise price of $10.50
per share as partial consideration for financial advisory services.
The following unaudited pro forma combined statements of operations include
the historical statements of operations of Wire One for the year ended
December 31, 1999 and the six months ended June 30, 2000 and historical
statements of VTI for the year ended December 31, 2000 and the period ended
May 18, 2000. The unaudited pro forma combined statements of operations give
effect to the merger and the private placement as if they had occurred on
January 1, 1999. An unaudited Wire One consolidated balance sheet as of
June 30, 2000, which reflects the merger of ACC and VTI and the private
placement of series A convertible preferred stock, is included in the unaudited
historical June 30, 2000 financial statements which are included in this
prospectus.
The pro forma adjustments are based on estimates and certain assumptions
that Wire One believes are reasonable under the circumstances. The actual
allocation of the purchase price to assets and liabilities of VTI may differ
from that reflected in the unaudited June 30, 2000 historical financial
statements after a more extensive review of the fair market values of the assets
and liabilities has been completed as of the acquisition date. When such a
review is completed, a portion of the purchase price may be ascribed to
intangible assets (other than goodwill) that have shorter amortization lives
than the life ascribed to goodwill in preparing the accompanying pro forma
financial statements. Thus, the resulting incremental amortization charges, if
any, from that portion of the purchase price ascribed to other intangible assets
could be materially different from the amortization expense presented in the pro
forma financial statements. Severance, office closings and other exit costs
related to or arising from the merger were not material.
Estimated costs of $6,150,000 incurred in connection with the private
placement, including the fair value of the warrants, have been recorded as a
preferred stock discount and are being amortized as a deemed dividend over the
three-year period from the date of issuance to the current redemption date. We
have also recorded a deemed dividend of approximately $8,109,500 to account for
the beneficial conversion feature of the series A preferred shares. Actual
results may differ from the estimates reflected in the pro forma adjustments.
The following unaudited pro forma combined financial statements are based
on assumptions and include adjustments as explained in the accompanying notes.
These unaudited pro forma combined financial statements are not necessarily
indicative of the actual financial results that would have occurred if the
transactions described above had been effective on and as of the dates indicated
and may not be indicative of operations in future periods or as of future dates.
The unaudited pro forma combined financial statements should be read in
conjunction with the accompanying notes and the historical financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Wire One and VTI which are included
elsewhere in this prospectus.
22
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- PRO FORMA COMBINED
WIRE ONE VIEW TECH ADJUSTMENTS COMPANY
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues......................................... $23,997,212 $35,479,607 $ (431,000)(1g) $ 59,045,819
Cost of revenues................................. 16,527,505 25,292,064 (331,000)(1a)(1g) 41,488,569
----------- ----------- ------------ ------------
Gross margin..................................... 7,469,707 10,187,543 (100,000) 17,557,250
----------- ----------- ------------ ------------
Selling.......................................... 4,543,873 9,955,816 -- 14,499,689
General and administrative....................... 1,765,411 7,089,561 -- 8,854,972
Amortization of goodwill......................... -- -- 2,281,000(1b) 2,281,000
----------- ----------- ------------ ------------
6,309,284 17,045,377 2,281,000 25,635,661
----------- ----------- ------------ ------------
Income (loss) from operations.................... 1,160,423 (6,857,834) (2,381,000) (8,078,411)
----------- ----------- ------------ ------------
Other expense:
Net interest expense............................. 157,938 687,083 -- 845,021
Other............................................ 43,137 -- -- 43,137
----------- ----------- ------------ ------------
201,075 687,083 -- 888,158
----------- ----------- ------------ ------------
Income (loss) from continuing operations before
income taxes................................... 959,348 (7,544,917) (2,381,000) (8,966,569)
Income tax (provision) benefit................... 105,239 (382,798) (105,239)(1c) (382,798)
----------- ----------- ------------ ------------
Income (loss) from continuing
operations..................................... 1,064,587 (7,927,715) (2,486,239) (9,349,367)
----------- ----------- ------------ ------------
Beneficial conversion feature of preferred
stock.......................................... -- -- (8,109,500)(1e) (8,109,500)
Dividends on Series A mandatorily redeemable
convertible preferred
stock.......................................... -- -- (1,787,000)(1f) (1,787,000)
----------- ----------- ------------ ------------
-- -- (9,896,500) (9,896,500)
----------- ----------- ------------ ------------
Income (loss) attributable to common
stockholders................................... $ 1,064,587 $(7,927,715) $(12,382,739) $(19,245,867)
=========== =========== ============ ============
Per share:
Income (loss) attributable to common
stockholders--basic............................ $ .22 $ (2.02) $ (1.60)
=========== =========== ============
Weighted average shares--basic................... 4,910,000 3,921,259 3,191,500(1d) 12,022,759
=========== =========== ============ ============
Income (loss) attributable to common
stockholders--diluted....................... $ .17 $ (2.02) $ (1.60)
=========== =========== ============
Weighted average shares--diluted............... 6,169,074 3,921,259 1,932,426(1d) 12,022,759
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
23
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- PRO FORMA COMBINED
WIRE ONE VIEW TECH ADJUSTMENTS COMPANY
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues.................................... $17,110,133 $13,286,788 $(1,047,000)(1g) $ 29,349,921
Cost of revenues............................ 11,286,532 8,774,545 (1,047,000)(1g) 19,014,077
----------- ----------- ------------ ------------
Gross margin................................ 5,823,601 4,512,243 -- 10,335,844
----------- ----------- ------------ ------------
Selling..................................... 4,586,007 3,467,925 -- 8,053,932
General and administrative.................. 1,350,094 2,417,504 -- 3,767,598
Amortization of goodwill.................... 268,783 -- 871,717(1b) 1,140,500
----------- ----------- ------------ ------------
6,204,884 5,885,429 871,717 12,962,030
----------- ----------- ------------ ------------
Loss from operations........................ (381,283) (1,373,186) (871,717) (2,626,186)
Other (income) expense:
Net interest................................ (91,451) 159,870 -- 68,419
Other....................................... 325,355 1,331,179 -- 1,656,534
----------- ----------- ------------ ------------
233,904 1,491,049 -- 1,724,953
----------- ----------- ------------ ------------
Loss before income taxes.................... (615,187) (2,864,235) (871,717) (4,351,139)
Income tax (provision) benefit.............. -- -- -- --
----------- ----------- ------------ ------------
Loss from continuing
operations................................ (615,187) (2,864,235) (871,717) (4,351,139)
----------- ----------- ------------ ------------
Beneficial conversion feature of preferred
stock..................................... (8,109,500) -- 8,109,500(1e) --
Dividends on Series A mandatorily redeemable
convertible
preferred stock........................... (70,055) -- (915,945)(1f) (986,000)
----------- ----------- ------------ ------------
Loss attributable to common stockholders.... $(8,794,742) $(2,864,235) $ 6,321,838 $ (5,337,139)
=========== =========== ============ ============
Per share:
Loss attributable to common
stockholders--basic....................... $ (1.03) $ (.63) $ (.42)
=========== =========== ============
Weighted average shares--basic.............. 8,501,608 4,531,578 (266,352)(1d) 12,766,834
=========== =========== ============ ============
Loss attributable to common
stockholders--diluted..................... $ (1.03) $ (.63) $ (.42)
=========== =========== ============
Weighted average shares--diluted............ 8,501,608 4,531,578 (266,352)(1d) 12,766,834
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
24
<PAGE>
BASIS OF PRO FORMA PRESENTATION
I. MERGER
The unaudited pro forma combined financial statements of Wire One have been
prepared based on estimates of the purchase consideration and the allocation of
the purchase price to the fair value of VTI assets and liabilities as of
May 18, 2000. The actual consideration and allocation may differ from that
reflected in the combined financial statements after further asset valuations
and other procedures have been completed. Following is a schedule of the
estimated purchase price, the estimated purchase price allocation and the
estimated amortization of goodwill and other intangible assets as of May 18,
2000:
PURCHASE PRICE:
<TABLE>
<S> <C>
Value of securities issued..................................................... $30,612,258
Direct merger costs............................................................ 1,008,059
-----------
Total.......................................................................... $31,620,317
===========
</TABLE>
The value of securities issued was determined as follows:
<TABLE>
<S> <C>
Value of VTI shares............................................................ $27,739,308
Value of VTI options and warrants.............................................. 2,872,950
-----------
Value of securities issued..................................................... $30,612,258
===========
</TABLE>
The value of the shares was computed using a five-day average share price
with a midpoint of December 28, 1999, the date of the merger announcement. The
number of shares used in the computation is based on VTI shares outstanding as
of May 18, 2000.
Direct merger costs consist of brokerage, legal, accounting and other
professional fees estimated to be incurred as follows:
<TABLE>
<S> <C>
Wire One........................................................................ $ 558,059
VTI............................................................................. 450,000
----------
Total estimated direct merger costs............................................. $1,008,059
==========
</TABLE>
ESTIMATED PURCHASE PRICE ALLOCATION:
<TABLE>
<S> <C>
VTI assets acquired........................................................... $ 11,783,008
VTI liabilities assumed....................................................... (14,182,254)
Inventory step-up to fair market value........................................ 100,000
Writedown of fixed assets..................................................... (300,000)
Goodwill and other intangible assets.......................................... 34,219,563
------------
Total......................................................................... $ 31,620,317
============
</TABLE>
The VTI assets acquired and liabilities assumed are derived from the
historical balance sheet of VTI as of May 18, 2000.
<TABLE>
<S> <C>
Estimated annual amortization expense (based on an amortization period of
fifteen years):............................................................... $2,281,000
==========
</TABLE>
II. PRIVATE PLACEMENT
As required by SEC rules, the Series A convertible preferred stock issued
in the private placement is presented separately from the "stockholders' equity"
section of the unaudited June 30, 2000 historical Consolidated Balance Sheet
because redemption is at the option of the preferred stockholders. The deemed
dividends associated with the beneficial conversion feature of the Series A
preferred stock, the discount applicable to the issuance of the Series A
preferred stock and the accretion of the 10% redemption premium have all been
recorded as if the preferred shares had been issued on January 1, 1999.
25
<PAGE>
The preferred stock beneficial conversion feature was calculated as the
difference between the per share conversion price and the price of Wire One
common stock on the commitment date, as follows:
<TABLE>
<S> <C>
Wire One stock price on commitment date................................................... $ 10.31
Preferred stock conversion price.......................................................... 7.00
------------
Difference................................................................................ 3.31
Number of common shares into which preferred shares may be converted...................... 2,450,000
------------
Beneficial conversion feature............................................................. $ 8,109,500
============
</TABLE>
The beneficial conversion feature has been recognized as a deemed preferred
stock dividend with an offsetting credit to additional paid-in capital.
The warrants issued in the private placement will be recorded as a discount
to the preferred stock with an offsetting credit to additional paid-in capital.
The fair value of the warrants of $5,150,000 was determined using the
Black-Scholes pricing model assuming a volatility factor of 46.50% and a risk
free rate of return of 6.75%.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
1. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
a. Records the write-off of the inventory step-up of $100,000 to cost of
revenues.
b. Records the amortization of goodwill and other intangible assets. The
goodwill and other intangible assets are amortized on a straight-line
basis over 15 years.
c. Records the adjustment to income taxes, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------ ----------------
<S> <C> <C>
Reversal of ACC's net income tax benefit as a result of the
pro forma combination and the effects of VTI's 1999
operating loss............................................ (105,239) --
---------- ----------
Pro forma income tax adjustment............................. $ (105,239) $ --
========== ==========
</TABLE>
On an historical basis, VTI has established a valuation allowance to offset
the tax benefits of net operating loss carryforwards and other deferred tax
assets. At such time as management of the combined company determines that
it is more likely than not that the deferred tax assets are realizable, the
valuation allowances will be reduced. If and when realization of the VTI
deferred tax assets at the merger date is considered to be more likely than
not, the deferred tax benefits will be credited against the goodwill asset
established in the purchase price allocation.
d. Following is the calculation of the combined weighted average shares
outstanding for the year ended December 31, 1999 and the six months
ended June 30, 2000. The calculation gives effect to the contemplated
two for one reverse split of VTI shares prior to the merger. Common
stock equivalents of VTI and ACC, consisting of stock options and
warrants, are not reflected in the pro forma diluted calculation because
their inclusion would be anti-dilutive:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------ ----------------
<S> <C> <C>
Weighted average shares outstanding--VTI (basic and
diluted)................................................. 3,921,259 4,531,578
------------ ------------
Weighted average shares outstanding--ACC (diluted) ........ 6,169,074 8,501,608
Less: Adjustment of ACC diluted shares to reverse
incremental shares....................................... (1,259,074) (3,457,852)
------------ ------------
ACC shares basic and diluted, as adjusted.................. 4,910,000 5,043,756
------------ ------------
Weighted average shares outstanding--combined.............. 8,831,259 9,575,334
Incremental shares from conversion of ACC shares to VTI
shares at a 1.65 to 1 ratio.............................. 3,191,500 3,191,500
------------ ------------
Pro forma combined weighted average shares
outstanding--basic and diluted........................... 12,022,759 12,766,834
============ ============
</TABLE>
e. Records the deemed preferred stock dividend relating to the beneficial
conversion feature of the series A preferred shares as if such shares
were issued on January 1, 1999. For the six months ended June 30, 2000,
the actual deemed dividend recorded upon issuance of the series A
preferred stock has been eliminated.
f. Records the amortization of the discount and the accretion of the 10%
redemption premium on the mandatorily redeemable convertible preferred
stock based on the effective interest method.
g. Records the elimination of sales and purchases between ACC and VTI,
respectively.
27
<PAGE>
BUSINESS
OVERVIEW
Wire One is one of the nation's largest Video-ASPs with a current installed
base of over 2,000 customers and 9,000 endpoints. We currently compete in the
video communications equipment market, but we are increasingly focusing our
resources on the video services market. Wire One was formed by the merger of ACC
into VTI in May 2000, with the former management team of ACC leading our new
company. ACC was a value-added integrator of video, voice, and network
communications solutions, offering clients a single source for all their
communications needs. VTI operated as a single source provider for video, voice,
and data communications equipment and services and bundled telecommunications
solutions. In Wire One, ACC contributes strong industry knowledge and an
excellent operating record, while VTI adds an extensive help desk, bridging
services, a large sales organization and complementary geographic coverage.
We currently compete in the video communications equipment market, but
increasingly focus our resources on the video services market. With the
introduction of our IP based video conferencing subscriber network in the fourth
quarter of 2000, we believe that Wire One will be the first video communications
company to offer customers a complete solution covering the entire video
communications value chain. This value chain consists of consulting, design,
installation, integration, training and support services, videoconferencing,
audio conferencing, and A/V equipment and software sales, application
development and transport. By the end of 2002, we estimate that transport
related services will account for more than 50% of our revenue.
Wire One is incorporated in Delaware and our principal executive office is
located at 225 Long Avenue, Hillside, New Jersey, 07205. Our telephone number at
that location is (973) 282-2000. We maintain a site on the World Wide Web
located at www.wireone.com; however, the information found on our website is not
a part of this prospectus.
INDUSTRY OVERVIEW
VIDEOCONFERENCING.
General
Videoconferencing communications entails the transmission of video and
audio signals and computerized data between two or more locations through a
digital telecommunications network. Videoconferencing communications systems
were first introduced in the late 1970's in the form of specialized dedicated
conference rooms outfitted with expensive electronic equipment and requiring
trained operators. Signals were transmitted over dedicated transmission lines
established between fixed locations. Market acceptance of early systems was
limited because of the low quality of the video output, as well as the high
hardware and transmission costs and limited availability of transmission
facilities.
Technological developments in the 1980's resulted in a dramatic increase in
the quality of video communications, as well as a substantial reduction in cost.
The proliferation of switched digital networks, which transmit digital, as
opposed to analog signals, eliminated the requirement of dedicated transmission
lines. Advances in data compression and decompression technology, and the
introduction of devices for separating and distributing digital signals over
several channels simultaneously and recombining them after transmission,
resulted in products with substantially improved video and audio quality and
further reduced hardware costs. Competition among telecommunications carriers
during the past decade, together with the expanded use of fiber optic technology
and the development of integrated switched digital networks ("ISDN") have
further contributed to reduced transmission costs.
In the 1990's industry standards for videoconferencing hardware, software
and transmission were put into place to ensure compatibility among systems made
by different manufacturers. These industry standards increased the quality and
features available in videoconferencing systems while significantly decreasing
the costs to the customer.
28
<PAGE>
High Quality IP Network Videoconferencing
In a study conducted by Perey Research, the global market for
videoconferencing network services is expected to reach $3.3 billion in 2000,
with a projected 50% annual growth over the next five years. Over 90% of the
applications currently utilizing these services are ISDN (H.320) standards
based, but will, we believe, be migrating to IP (H.323) based standards.
IP-based networks use a communications protocol that allows computers to
transfer information in packets. The H.323 specification defines packet
standards for terminal, equipment and services for multimedia communications
over IP networks.
One of the primary factors driving users to migrate to H.323 standards is
the poor quality of service ("QoS") experienced with ISDN based
videoconferencing equipment and network services. Until two years ago,
installation of videoconferencing equipment cost in excess of $50,000 and the
equipment was difficult to use, often requiring a dedicated technician.
In the last two years, videoconferencing equipment has become dramatically
less expensive and more robust. Polycom, Inc. initiated these changes with the
introduction of its ViewStation product line, and many other manufacturers
followed with their own products. These consumer friendly, less expensive
products have increased interest in videoconferencing as a viable alternative
for business communications. However, a lack of reliable ISDN based
videoconferencing has impeded rapid growth in this industry. In an effort to
address these reliability concerns, manufacturers of videoconferencing equipment
have designed systems to operate on H.323 standards. This ability to perform
videoconferencing over IP is expected to result in significant growth of the use
of videoconferencing in the business community.
There are several advantages to videoconferencing over IP, the major
advantage being guaranteed QoS. Whereas ISDN based videoconferencing offers no
QoS guarantee, in testing IP-based videoconferencing has met a QoS of 99.4% and
above. Additionally, Wire One expects the network costs of videoconferencing
over IP to be approximately 50% less than ISDN based conferencing. Because the
videoconferencing equipment is on an IP network, one person can monitor hundreds
of endpoints from one location, thus substantially reducing the maintenance and
support costs associated with a large videoconferencing program.
VOICE COMMUNICATIONS. Advances in telecommunications technologies have
facilitated the development of increasingly sophisticated telephone systems and
applications. Telecommunications systems have evolved from simple analog
telephones to sophisticated digital systems and applications. Users increasingly
rely upon a variety of applications, including conference calling,
speakerphones, voice processing and automated attendant, to improve
communications within their organizations and with customers and vendors.
Digital technology has facilitated the integration of computing and
telecommunications technologies, which has made possible a number of new
applications that further enhance productivity.
As the telecommunications needs of businesses have become more advanced,
the integration of the different parts of a system has become increasingly
complex. The system integration, service and support capabilities of
telecommunications suppliers have become significant competitive factors. In
order to meet the needs of end users, suppliers such as Wire One have been
increasingly required to develop close relationships with their customers.
PRODUCTS AND SERVICES
We provide turnkey integrated videoconferencing, voice and data solutions
to our customers. We are a reseller of videoconferencing products manufactured
by Polycom, Inc. ("Polycom"), SONY Electronics Inc. ("SONY"), PictureTel
Corporation, VCON, Accord Telecommunications ("Accord") and VTEL Corporation
("VTEL") and voice communications products manufactured by Lucent Technologies,
Inc. ("Lucent"), the Business Telephone System Division of Panasonic
Communications and Systems Company ("Panasonic") and Active Voice Corporation
("Active Voice"). Our business involves the sale, installation and maintenance
of the full line of videoconferencing, data solutions and voice products
manufactured by these companies.
29
<PAGE>
VIDEOCONFERENCING SERVICES
High Quality IP Network
We expect to launch our IP-based videoconferencing subscriber service,
utilizing digital subscriber line (DSL) access and a high-QoS backbone network
in the fourth quarter of 2000. This dedicated network will provide customers
with a high-quality platform for H.323 videoconferencing and related
applications. The new service will offer subscribers a 99.4% QoS guarantee,
remote management of all endpoints utilizing SNMP (software network management
protocol), gateway services to ISDN-based videoconferencing equipment, video
streaming, and store-and-forward applications, all from our centralized network
operations center in New Jersey.
The demand for broadband service has accelerated the build-out of
high-speed networks. Although most companies today have wide area networks
("WANs") that could theoretically support IP videoconferencing, they are
reluctant to use them for this application because of the tremendous amount of
dedicated bandwidth required. We believe that our subscriber network will be a
natural alternative.
To provide the network service, we have partnered with Covad Communications
for subscriber DSL network access and with Exodus Communications for its
intelligent broadband backbone. In addition, internet service providers (ISPs)
should find high-quality videoconferencing to be an attractive offering to their
customer bases. Leading IP videoconferencing and video networking equipment
suppliers Polycom, VCON, and RADVision have already announced that their
products will be compatible with the service. We maintain a close working
relationship with Cisco Systems' IP/TV division, as the IP/TV system will
function on our network.
Upon the completion of our network operations center, scheduled for the end
of the third quarter of this year, we will begin to pilot the service to select
customers. We expect customers to incur incremental usage fees of $20-$25 per
hour of videoconferencing time at 384 kbps of bandwidth, realizing a savings of
up to 50% over typical ISDN videoconferencing costs.
Other Videoconferencing Services
We offer our customers the convenience of single-vendor sourcing for most
aspects of their communications needs and develop customized systems designed to
provide efficient responses to customer communications technology requirements.
We provide our customers with a full complement of video communications and
telecommunications services to ensure customer satisfaction. Prior to the sale
of systems and services, we provide consulting that includes an assessment of
customer needs and existing communications equipment, as well as
cost-justification and return-on-investment analyses for system upgrades.
Once we have made recommendations with respect to the most effective method
to achieve our customer's objectives and the customer has ordered a system, we
deliver, install and test the communications equipment. When the system is
functional, we provide training to all levels of our 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 the planning and administration of
meetings. By means of thorough training, we help to ensure that our customers
understand the functionality of the systems and are able to apply the technology
effectively.
Our One Care(TM) service product program maintenance contracts and
comprehensive customer support with respect to the communications equipment we
sell. We offer a toll-free technical support hotline 24 hours a day, 365 days a
year. Customers may also receive onsite and remote support and maintenance.
Our service personnel maintain regular contact with customers. We also
offer 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. 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 we perform for our customers.
30
<PAGE>
We also sell multi-point video and audio bridging services through a
program called the Multiview Network Services(TM). We employ state-of-the-art
conferencing servers in Camarillo, CA, providing seamless connectivity for all
switched digital networks across the globe at an affordable rate. Because
Multipoint conferencing equipment costs between $65,000 and $200,000 per unit,
our customers typically elect to use the Multiview network when bridging is
required.
VIDEOCONFERENCING AND DATA PRODUCTS
We provide PictureTel, Polycom, SONY, VCON, Accord and VTEL
videoconferencing systems on a national and international basis. Our customers
include business, education, health care and government agencies. Wire One:
(i) provides its customers with systems produced by PictureTel, Polycom, SONY
and VTEL, worldwide manufacturers of room-based videoconferencing equipment,
roll-about systems, vertical applications and desktop computer systems, and
ancillary equipment manufactured by others, (ii) selects and integrates those
systems and components into complete systems designed to suit each customer's
particular communications requirements, (iii) develops custom software and
hardware components when necessary and (iv) provides training and other
continuing services designed to insure that its customers fully and efficiently
utilize their systems.
Data. Wire One sells products from companies such as Adtran, Lucent Madge
Networks and RADVision. These products provide business customers remote access
into local area networks, and permit them to acquire bandwidth on demand and
digitally transmit data.
VOICE COMMUNICATIONS PRODUCTS.
Voice Communications. We are a reseller of Lucent and Panasonic digital
key and hybrid telephone systems, PBX telephone systems, voice processing
systems and CTI solutions. Lucent and Panasonic manufacture digital key and
hybrid telephone systems which contain multi-featured fully electronic digital
telephones, common control units, central processing units, and associated
common equipment to provide service in the approximately 2,000 line and under
marketplace. We distribute Lucent manufactured PBX systems under the name
Definity which has a capacity expandable up to 25,000 ports. We also distribute
a Panasonic-manufactured PBX system under the name DBS 576 with a maximum
capacity of 576 ports. A key telephone system provides each telephone with
direct access to multiple outside trunk lines and internal communications
through intercom lines. A PBX (private branch exchange) system, through a
central switching system, permits the connection of internal and external lines.
A hybrid switching system provides, in a single system, both key telephone and
PBX features. Key telephone equipment may be used with PBX equipment.
We sell fully integrated voice processing systems manufactured by Lucent,
Panasonic and Active Voice. The systems range from 2 to 64 voice ports and up to
330 hours of message storage. The systems have automated attendant features
which allow incoming calls to be answered electronically and distributed to
specific extensions without the use of a switchboard operator. The systems can
be interactive with display telephone sets. System users have the ability to
access stored messages from any touch-tone telephone. The systems have the
capability to automatically notify a user outside the system of urgent messages.
The systems have additional features which can be customized to the needs of the
end user.
We are involved in the sale, installation and servicing of Panasonic
products throughout the United States both through our own employees and through
subcontractors. We sell Lucent products through our direct sales force. The
installation and servicing of the Lucent products are provided by Wire One
employees and through subcontracting arrangements with Lucent directly and with
other Lucent dealers.
RESELLER AGREEMENTS. In November 1998, we entered into a two-year
nonexclusive distribution agreement, with renewal options, with Polycom, Inc.
This agreement has enabled Wire One to market and sell a full range of Polycom
manufactured video conferencing, audio conferencing and data conferencing
products.
In November 1997, we signed a one-year nonexclusive distribution agreement
with Lucent to sell, install and maintain Lucent Partner, Legend and Definity
telephone systems, voice mail and CTI software as an
31
<PAGE>
authorized Lucent dealer. We also have authority to resell, install and maintain
Lucent peripheral products. This agreement has been renewed through March 2001.
We have an agreement with Panasonic authorizing us to serve as Panasonic's
nonexclusive reseller in the United States. The agreement is automatically
renewable for successive one-year terms unless terminated by either party upon
at least 30 days' prior notice, or immediately by Panasonic upon written notice
us if we are in default in the performance of our obligations under the
agreement, or upon our bankruptcy or insolvency of us.
SALES AND MARKETING
We market and sell our video, data, and voice products and services to
commercial, federal and state government, medical, and educational markets
through a direct sales force and resellers. These efforts are supported by an
internal and external sales force, sales engineers, a marketing department, a
call center, and a professional services and engineering group.
Our marketing department concentrates on activities that will generate
leads for our sales force and create brand awareness for Wire One. This is done
through direct marketing campaigns, select advertising, a call center, public
relations, participation in trade shows, and the coordination of seminars
throughout the country. We host these seminars to demonstrate videoconferencing
systems to prospective customers, and to educate them on technological
advancements in video, voice and data communications. We also provide our sales
force with ongoing training to ensure that they have the necessary expertise to
effectively market and promote our company and the solutions we support.
The manufacturers we represent provide us with sales, advertising and
promotional materials, which we, in turn, give to existing and prospective
customers in conjunction with sales promotion programs that our manufacturers
sponsor. We maintain up-to-date systems for demonstration purposes in all of our
offices. Our technical and training personnel attend installation and service
training sessions offered by the manufacturers from time to time to enhance
their knowledge and expertise in the installation and maintenance of the
systems.
When preparing a solution for a prospective or existing client, our account
executive will work in conjunction with one of our sales engineers. These
engineers typically have a very strong IP and data networking background;
expertise which is critical for success in the burgeoning video over IP
marketplace. Together, they consult with the client in order to assess its needs
and to determine the most effective method to meet its requirements. We then
design a communications solution (video, data or voice) that will ensure
customer satisfaction and optimal utilization of the systems.
Upon delivery of the system, one of our field technicians installs and
tests the equipment to make sure all systems are fully functional. After
installation, we provide training both onsite and remotely to all levels of
management within the customer's organization. Training includes instruction in
systems operation and, with respect to videoconferencing systems, the successful
planning and administration of meetings.
After installation, we provide support to our customers through our One
Care(R) Service program. One Care offers a 24x7 help desk, nationwide onsite
service, 24-hour parts replacement, network troubleshooting, and 24-hour video
test facilities.
EMPLOYEES
As of June 30, 2000, Wire One had 198 full-time employees. Seventy two of
our employees are engaged in marketing and sales, 104 in installation service,
technical services and customer support and 22 in finance and administration.
None of our employees are represented by a labor union. We believe that our
employee relations are good.
32
<PAGE>
COMPETITION
The voice and videoconferencing communications industries have been
characterized by pricing pressures and business consolidations. We compete with
other resellers, as well as manufacturers of voice communications and
videoconferencing systems, many of which are larger, have greater recognition in
the industry, a longer operating history and greater financial resources than
us. Our competitors in the voice communications sector include Lucent, Northern
Telecom, Toshiba America, Inc., Siemens Corporation and NEC Corporation. We also
compete with other dealers of voice communication products. Our competitors in
the videoconferencing communications sector include PictureTel Corporation,
Tandberg Inc., VTEL Corporation, MCI Worldcom and other dealers. Existing
competitors may continue to broaden their product lines and expand their retail
operations, and potential competitors may enter into or increase their focus on
the voice and/or videoconferencing communications market, resulting in greater
competition for us. In particular, management believes that as the demand for
videoconferencing communications systems continues to increase, additional
competitors, many of which also will have greater resources than Wire One, will
enter the videoconferencing market.
We believe that our technical expertise and commitment to customer service
and support allow us to compete favorably. We conduct comprehensive sales and
product training for all our sales, marketing and technical personnel. We
believe that such training results in our employees having a high level of
product and industry knowledge which makes us more attractive to end users. We
also strive to provide prompt and efficient installation, customer training and
after sales service which we believe results in repeat business as well as new
referrals. We believe our comprehensive knowledge of the operations of the
industries we have targeted, the quality of the equipment we sell, the quality
and depth of our services, our nationwide presence and ability to provide our
customers with all of the equipment and services necessary to ensure the
successful implementation and utilization of our video communications system
enable us to compete successfully in the industry.
PROPERTIES
Our headquarters are located at 225 Long Avenue, Hillside, New Jersey,
07205. These premises consist of 7,180 square feet of office space, and 7,400
square feet of secured warehouse facilities. The term of this lease is for a
period of five years expiring on May 31, 2002. The base rental for the premises
during the term of the lease is $87,040 per annum. In addition, we are also
obligated to pay our share of the Landlord's operating expenses (i.e., those
costs or expenses incurred by the Landlord in connection with the ownership,
operation, management, maintenance, repair and replacement of the premises,
including, among other things, the cost of common area electricity, operational
services and real estate taxes). We have an option to renew the lease for an
additional term of five years, provided we are not in default under the terms of
the lease at the time of renewal. The Hillside premises serve as our
headquarters and are utilized for executive, administrative and sales functions,
the demonstration of our voice and videoconferencing systems and the warehousing
of our inventory. At the present time, there is additional adjoining space in
both the office and warehouse areas should we seek to expand this facility.
In addition, we currently have offices in Birmingham, Alabama; Camarillo,
Irvine, Los Angeles, Sacramento, Santa Clara and San Francisco, California;
Trumbull, Connecticut; Engelwood, Colorado; Washington, D.C.; Jacksonville,
Florida; Chicago, Illinois; Indianapolis, Indiana; Baton Rouge, Louisiana;
Canton, Massachusetts; Minneapolis, Minnesota; New York, New York; Durham, North
Carolina; Philadelphia, Pennsylvania; Knoxville and Nashville, Tennessee; Dallas
and Houston, Texas; Salt Lake City, Utah; Manassas, Virginia; and Bellevue,
Washington.
We believe that the facilities we presently lease will be adequate for the
foreseeable future and that additional suitable space, if required, can be
located and leased on reasonable terms.
LEGAL PROCEEDINGS
On July 16, 1998, MaxBase, Inc. filed a Complaint against ACC and one of
its subsidiaries in the Superior Court of New Jersey, Law Division, in Bergen
County. The Complaint alleges that ACC breached its agreement with MaxBase Inc.,
for Maxshare 2 units by failing to meet the required minimum purchase
33
<PAGE>
obligations thereunder. The complaint further alleges misrepresentation and
unfair trade practices. The Complaint also seeks to enjoin ACC from enforcing
any rights ACC has under the agreement. Maxbase claims damages of $508,200 in
lost profits for units not purchased and $945,300 in lost profits for units sold
to ACC below market price, as well as unspecified punitive and treble damages.
In March 1999, the plaintiff added claims for defamation and tortious
interference. A trial is expected to occur in October 2000. We believe the
claims by MaxBase are without merit and intend to fully defend the suit and
assert its rights under the agreement. ACC filed a counterclaim for breach of
contract, breach of warranty and rescission based upon misrepresentation. We do
not anticipate that this proceeding will have a material adverse effect on our
the financial condition or results of operations.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our current authorized capital stock consists of 100,000,000 shares of
common stock, par value $.0001 per share, and 5,000,000 shares of preferred
stock, par value $.0001 per share.
The following summary of the terms and provisions of our capital stock are
not complete, and you should read our amended and restated certificate of
incorporation and amended and restated bylaws, which are filed as exhibits to
the registration statement of which this prospectus forms a part.
COMMON STOCK
At the close of business on September 11, 2000 there were 16,913,621 shares
of our common stock outstanding. Each stockholder is entitled to one vote for
each share owned on all matters voted upon by stockholders, including the
election of directors. Subject to the rights of any then outstanding shares of
preferred stock, stockholders are entitled to dividends that the board of
directors may declare. The decision to declare dividends is made by the board of
directors in its sole discretion, but the board of directors may only declare
dividends if there are funds legally available to pay for the dividends.
Stockholders are entitled to share ratably in our net assets upon
liquidation after payment or provision for all liabilities and any preferential
liquidation rights of any preferred stock then outstanding.
Stockholders have no preemptive rights to purchase shares of our stock.
Shares of common stock are not subject to any redemption provisions and are not
convertible into any other securities of Wire One. All outstanding shares of
common stock are, and the shares of common stock will, when issued by us in this
offering, be fully paid and non-assessable.
PREFERRED STOCK
Pursuant to our certificate of incorporation, the board of directors has
the authority, without further action by our stockholders, to issue up to
5,000,000 shares of preferred stock. The board of directors may issue this stock
in one or more series and may fix the rights, preferences, privileges and
restrictions of this stock. Some of the rights and preferences that the board of
directors may designate include dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and sinking fund terms. The
board of directors may determine the number of shares constituting any series or
the designation of such series. Any or all of the rights and preferences
selected by the board of directors may be greater than the rights of the common
stock. The issuance of preferred stock could adversely affect the voting power
of holders of common stock and the likelihood that stockholders will receive
dividend payments and payments upon liquidation. The issuance of preferred stock
could also have the effect of delaying, deferring or preventing a change in
control of Wire One.
We currently have designated one series of preferred stock, a summary of
the terms of which are set forth below. While we have no present intention to
issue shares of any additional series of preferred stock, any such issuance
could dilute the equity of the outstanding shares of common stock and could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock. In addition, such preferred stock may have
other rights, including economic rights senior to the common stock, and, as a
result, the issuance thereof could have a material adverse effect on the market
value of the common stock.
Series A Preferred Stock
2,500 shares of our preferred stock have been designated as series A
preferred stock. As of June 30, 2000, we had outstanding 2,450 shares of series
A preferred stock. Each share of series A preferred stock has a stated value of
$7,000, which is convertible into our common stock at a fixed conversion price
equal to $7.00 per share. Beginning on June 14, 2001, each holder of series A
preferred stock has the option to substitute an "alternative conversion price"
for the $7.00 fixed conversion price. The alternative conversion price is the
higher of (i) 70% of the fixed conversion price then in effect or (ii) the
market price on any conversion date, which is equal to the average of the
closing sale prices of the common stock during the 20 consecutive trading days
immediately preceding any conversion date.
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The number of shares of common stock issuable upon conversion is subject to
adjustment for stock splits, recapitalizations or other dilutive transactions,
as well as issuances of common stock at a price below the conversion price in
effect, or the issuance of warrants, options, rights, or convertible securities
which have an exercise price or conversion price less than the conversion price
then in effect.
The 2,450 shares of series A preferred stock outstanding will convert
automatically into common stock at the applicable conversion price then in
effect on the earlier (i) the consummation of a sale of our common stock in a
firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, the public offering price of which
is not less than $12.00 per share (adjusted for any stock splits, stock
dividends, combinations or recapitalizations) and in which we receive aggregate
gross proceeds of not less than $40,000,000 or (ii) the conclusion of a 20
consecutive trading day period where the closing sale price of our common stock
equals or exceeds $12.50.
Pursuant to its terms, the series A preferred stock and the warrants issued
in connection therewith are convertible or exercisable by any holder only to the
extent that the number of shares of common stock issuable thereunder, together
with the number of shares of common stock owned by such holder and its
affiliates (but not including shares of common stock underlying unconverted or
unexercised options, warrants or convertible securities), would not exceed 4.99%
of the then outstanding common stock as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934. In addition, we can not
effect any mandatory conversion until the registration statement covering the
resale of the common stock issuable upon conversion of the series A preferred
stock and exercise of the related warrants has been declared effective.
The rules of the Nasdaq National Market only allow us to issue up to 20%
of our outstanding shares of common stock upon conversion of the series A
preferred stock without prior stockholder approval. Based upon the 16,913,621
shares of our common stock outstanding on September 11, 2000, we would only be
able to issue 3,382,724 shares of our common stock upon conversion of the series
A preferred. However, based on the lowest possible conversion price of $4.90,
the maximum number of shares issuable upon conversion of the series A preferred
would be 3,500,000 shares of common stock. Accordingly, assuming all shares of
series A preferred stock are converted at the lowest possible conversion price,
we could be required to redeem up to 82 shares of our series A preferred stock
at 110% of the stated value, or $7,700 per share, for an aggregate purchase
price of $631,400.
We also may be required to redeem each share of series A preferred stock at
110% of the stated value, or $7,700 per share, upon the occurrence of mergers,
consolidations, tender offers or the sale of substantially all our assets, or
any of the following specified events:
o failure of the registration statement covering the resale of the common
stock issuable upon conversion of the series A preferred stock and
exercise of the related warrants to be declared effective prior to
December 11, 2000;
o the unavailability or lapse in the effectiveness of such registration
statement for ten (10) consecutive trading days or an aggregate of thirty
(30) trading days per year provided that such lapse is not due to factors
solely within the control of a holder of the series A convertible
preferred stock;
o the suspension or halting from trading, suspension from listing or
delisting of our common stock by the Nasdaq National Market, the New York
Stock Exchange or the American Stock Exchange for five (5) consecutive
trading days (excluding disruptions from business announcements that
result in any halt(s) in trading of not more than three (3) days on each
occasion) and other than as a result of the suspension of trading in
securities on such market in general;
o our failure to comply with conversions of the series A preferred stock
within ten (10) trading days after a conversion notice is submitted;
o specified breaches of representations, warranties, covenants (that are
not cured in fewer than ten (10) days) or terms of the documents
delivered in connection with the purchase and sale of the series A
preferred stock which would have a material adverse effect on us; or
o any of the shares of series A preferred stock have not been converted
into common stock on June 14, 2003.
If we are unable to effect a redemption of all the shares of series A
preferred stock submitted for redemption, we will redeem a pro rata amount from
each holder.
Upon any sale of all or substantially all our assets, or a
recapitalization, reorganization, reclassification, consolidation or merger with
or into another company in which we are not the surviving entity, we will
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obtain from the acquiring person or entity a written agreement whereby the other
corporation will assume all of our obligations under the series A preferred
stock.
The holders of the series A preferred stock are not entitled to receive
dividends. The holders of the series A preferred stock have preemptive rights to
subscribe for any additional shares of any class of our capital stock or for any
issue of bonds, notes or other securities convertible into any class of our
capital stock. The holders of the series A preferred stock have no voting rights
except as provided by law, and except to the extent such holders own common
stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up, the holders of the series A preferred stock are entitled to receive
in cash out of our assets, whether from capital or from earnings available for
distribution to our stockholders, before any amount shall be paid to any class
junior in rank to the series A preferred stock, an amount per share of series A
preferred stock equal to $7,000 plus any accrued and unpaid dividends.
WARRANTS
Series A Financing Warrants
In connection with the sale of the series A preferred stock, we issued to
the purchasers warrants to purchase 857,500 shares of common stock. Each warrant
has an exercise price of $10.50 per share and expires on June 14, 2005 (subject
to extension). The warrant is subject to anti-dilution provisions in the event
we sell common stock or securities convertible or exercisable into common stock
at a price less than $10.50, subject to adjustment.
Additionally, upon not less than 30 days advance notice, we may redeem the
warrants at a price of $0.10 per warrant but only if the closing sale price for
our common stock issuable upon exercise of the warrant equals or exceeds 200% of
the exercise price then in effect for a period of 20 consecutive trading days
ending at least three days prior to the date of the notice of redemption.
The warrant holder may designate a "cashless exercise option." This option
entitles the warrant holders to elect to receive fewer shares of common stock
without paying the cash exercise price. The number of shares to be determined by
a formula based on the total number of shares to which the warrant holder is
entitled, the current market value of the common stock and the applicable
exercise price of the warrant.
H.C. Wainwright & Co., Inc. warrants
Under the terms of our agreement with H.C. Wainwright & Co., Inc. we issued
warrants to purchase 261,624 shares of our common stock. 193,748 of which have
an exercise price of $7.00 per share and 67,876 of which have an exercise price
of $10.50 per share. All of these warrants expire on June 14, 2005. These
warrants contain customary anti-dilution protection.
Other Warrants
In April 2000, VTI issued 199,249 warrants to purchase shares of our common
stock certain warrantholders as consideration for their agreement to exercise
warrants held by them in March 2000. Each of these warrants has an exercise
price of $12.00 per share and expire on April 24, 2005 (subject to extension).
These warrants contain customary anti-dilution protection.
In December 1996, in connection with a private placement with Telecom
Holding, LLC VTI issued warrants to purchase 243,750 shares of our common stock
at an exercise price of $13.00 per share. These warrants expire on December 31,
2001. These warrants contain customary anti-dilution protection.
In November 1997, in connection with our $15 million credit agreement, VTI
issued warrants to purchase 40,000 shares of our common stock. Each of these
warrants has an exercise price of $3.26 per share and expire on November 21,
2004. These warrants contain customary anti-dilution protection.
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<PAGE>
STOCK OPTION PLANS
We currently maintain the plans established by ACC and VTI prior to
consummation of the merger.
ACC Plan
The ACC Plan provides for the granting of options to officers, directors,
employees and advisors of Wire One. Options are not exercisable for a period of
one year from the date of grant. Thereafter, options may be exercised as
determined by the Board of Directors at the date of grant, with maximum terms of
ten and five years, respectively, for incentive stock options ("ISOs") issued to
employees who are less than 10% stockholders and employees who are 10%
stockholders. In addition, under the plan, no individual will be given the
opportunity to exercise ISO's valued in excess of $100,000, in any calendar
year, unless and to the extent the options have first become exercisable in the
preceding year. The maximum number of shares with respect to which options may
be granted to an individual during any twelve-month period is 100,000. The ACC
Plan will terminate in 2006. Substantially all 1,500,000 shares available under
the ACC Plan are subject to outstanding options. ACC has also issued
approximately 1,609,000 non-qualified options.
VTI Plans
VTI had an Employee Stock Purchase Plan (the "Purchase Plan") under which
up to 500,000 shares of VTI common stock could be purchased by eligible
employees. Substantially all full-time employees were eligible to participate in
the Purchase Plan. No additional shares may be purchased under this Plan.
Wire One currently maintains five VTI 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 became immediately exercisable upon the merger. An aggregate
of 1,922,000 shares of common stock were available under the five VTI stock
option plans of which approximately 275,000 shares are still available for
issuance.
REGISTRATION RIGHTS
The holders of the series A preferred stock and related warrants are
entitled to have the shares of common stock underlying such securities
registered by us under the terms of an agreement between us and the holders of
the series A preferred stock and related warrants. Under the terms of such
agreement, we are required to file a registration statement covering the shares
of common stock underlying such series A preferred stock and related warrants by
July 29, 2000. If this registration statement has not been declared effective by
October 12, 2000, then for each month (prorated for partial months) thereafter
during which the registration statement is not declared effective we will issue
to each purchaser of our series A preferred stock warrants to 2% of the purchase
price paid by such investor for our series A preferred stock in June 2000, with
an exercise price equal to the current market value of our common stock at the
time of issuance.
We are also required to maintain the effectiveness of the registration
statement covering such shares of common stock until the earlier of:
o the date as of which the holders of the series A preferred shares and
warrants may sell all of the shares of common stock covered by such
registration statement under Rule 144(k) of the Securities Act, and
o the date on which the holders of the series A preferred shares and
warrants have sold all of the shares of common stock issued or issuable
upon conversion of the series A preferred shares and exercise of the
related warrants.
We will bear all registration expenses, other than underwriting discounts
and commissions, with respect to the registration statement relating to the
series A preferred shares and the related warrants.
In addition, we have granted "piggyback" registration rights to certain
warrantholders and consultants holding an aggregate of 1,707,272 shares of our
common stock. We also granted "piggyback" registration rights in connection with
our recent acquisition of 2 Confer, LLC pursuant to which we granted 33,438
shares of one common stock.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company of Brooklyn, New York is the
transfer agent and registrar of our common stock.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors
and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Richard Reiss(1) 43 Chairman, President and Chief Executive Officer.
Christopher A. Zigmont 38 Chief Financial Officer, Vice President Finance
Leo Flotron 40 Executive Vice President and General Manager Video Communications
Joseph Scotti 38 Executive Vice President and General Manager Enterprise Communications
Scott Tansey 36 Vice President, Controller and Treasurer
Robert B. Kroner(1)(3) 70 Vice President and Director
Andrea Grasso 40 Secretary and Director
Louis Capolino(1)(2) 57 Director
Eric Friedman(2)(4) 51 Director
Dean Hiltzik(1)(3)(4) 46 Director
Peter N. Maluso(1)(2)(3)(4) 45 Director
</TABLE>
------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Employee Stock Option Committee.
RICHARD REISS is Wire One's Chairman of the Board of Directors, President
and Chief Executive Officer and served as ACC's Chairman of the Board of
Directors, President and Chief Executive Officer since ACC's formation in 1991
until May 2000.
CHRISTOPHER ZIGMONT is Wire One's Chief Financial Officer and Vice
President, Finance. From June 1999 until May 2000, Mr. Zigmont served as VTI's
Chief Financial Officer. From March, 1990 to May, 1999, Mr. Zigmont held various
positions at BankBoston Corporation, most recently as Director, Finance. Prior
to joining BankBoston Corporation, Mr. Zigmont was a Senior Audit Manager with
the accounting and auditing firm of Peat Marwick. He received a B.S. degree in
Business Administration with a double major in Accounting/Finance from Boston
University, Boston, Massachusetts.
LEO FLOTRON is Wire One's Executive Vice President and General Manager
Video Communications. From October 1995 until May 2000, Mr. Flotron served as
ACC's Vice President, Sales and Marketing of Videoconferencing Products, in
charge of sales and marketing for videoconferencing and network products. From
1988 to 1995, Mr. Flotron held numerous positions with Sony Electronics, Inc.,
and has served as ACC's liaison with Sony throughout the United States.
Mr. Flotron holds a B.S. degree in Business from the University of Massachusetts
in Amherst, and an M.S. degree in Finance from Louisiana State University.
JOSEPH SCOTTI is Wire One's Executive Vice President and General Manager
Enterprise Communications. From August 1995 until May 2000, Mr. Scotti served as
ACC's Vice President, Sales and Marketing of Voice Products dealing with all
aspects of voice communications. From 1990 to 1995, Mr. Scotti held numerous
sales and sales management positions with Northern Telecom. Mr. Scotti received
a B.S. degree in Marketing from St. Peters College.
SCOTT TANSEY is Wire One's Vice President, Controller and Treasurer. From
1996 until May 2000, Mr. Tansey held numerous positions at ACC, most recently in
the position of Chief Financial Officer. From 1992 until he joined ACC,
Mr. Tansey served as Director, Finance and Administration, of Data Transmission
Services, Inc., a closely-held long distance wireless data communications
provider. Mr. Tansey received a B.S. degree in Accounting from Rider College,
Lawrenceville, New Jersey, and an M.B.A. degree in Finance from Fairleigh
Dickinson University, Madison, New Jersey. He is a certified public accountant.
ROBERT B. KRONER is Wire One's Vice President and serves on our Board of
Directors. From 1991 until May 2000, Mr. Kroner served on ACC's Board of
Directors and served as Vice President and General
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Counsel of ACC from 1997 until May 2000. Prior to 1997, Mr. Kroner was
self-employed as an attorney. Mr. Kroner received his LLB degree from Harvard
Law School and holds an L.L.M. degree from New York University Graduate School
of Law.
ANDREA GRASSO is Wire One's Secretary and serves on our Board of Directors.
From 1995 until May 2000, Ms. Grasso was ACC's Secretary and served on ACC's
Board of Directors from 1996 until May 2000.
LOUIS CAPOLINO serves on our Board of Directors. From November 1999 until
May 2000, Mr. Capolino was a member of ACC's Board of Directors. Since January
1995, Mr. Capolino has served as President of Comcap Corporation, a
communications consulting company. Mr. Capolino received a B.S. degree in
marketing from Montclair State University.
ERIC FRIEDMAN serves on our Board of Directors. From December 1996 until
May 2000, Mr. Friedman was a member of ACC's Board of Directors. He has served
as Vice-President and Treasurer of Chem International, Inc., a publicly held
company, since June 1996. From June 1978 through May 1996, Mr. Friedman was a
partner at Shachat and Simpson, a certified public accounting firm.
Mr. Friedman received a B.S. degree from the University of Bridgeport and is a
certified public accountant.
DEAN HILTZIK serves on our Board of Directors. From September 1999 until
May 2000, Mr. Hiltzik was a member of ACC's Board of Directors. Mr. Hiltzik, a
certified public accountant, is a partner and manager of the securities practice
at Schneider Ehrlich & Associates LLP ("Schneider Ehrlich"), which he joined in
1979. Schneider Ehrlich provides tax and consulting services to ACC.
Mr. Hiltzik received his B.A. from Columbia University in 1974 and his M.B.A. in
Accounting from Hofstra University in 1979.
PETER N. MALUSO serves on our Board of Directors. From December 1996 until
May 2000, Mr. Maluso was a member of ACC's Board of Directors. Since 1995,
Mr. Maluso has been employed as a Principal at International Business Machines,
Inc. ("IBM"), responsible for IBM's Global Services Legacy Transformation
Consulting practice in the northeastern United States. Prior thereto, from 1988
to 1995, Mr. Maluso was a Senior Manager for KPMG Peat Marwick's strategic
services practice in New Jersey. Mr. Maluso received his B.A. degree in
Economics from Muhlenberg College and holds an M.B.A. degree in Finance from
Lehigh University. He is a certified public accountant.
BOARD OF DIRECTORS
Mr. Friedman and Ms. Grasso serve as Class I directors until the first
annual meeting of Wire One stockholders in September 2000. Messrs. Kroner and
Maluso serve as Class II directors and their terms will expire upon the
anniversary of the first annual meeting of the Wire One stockholders. Messrs.
Reiss, Hiltzik and Capolino serve as Class III directors and their term will
expire upon the second anniversary of the first meeting of Wire One
stockholders. Upon election at an annual meeting of stockholders, directors will
serve a three year term.
EXECUTIVE COMMITTEE
We currently maintain an Executive Committee consisting of Richard Reiss,
Peter Maluso, Louis Capolino, Robert Kroner and Dean Hiltzik. Each non-employee
member of our executive committee receives options to purchase 500 shares of
common stock for each meeting attended. The Executive Committee, to the extent
permitted by law, will have and may exercise when the Board of Directors is not
in session all powers of the board in the management of the business and affairs
of Wire One, except such committee shall not have the power or authority to
approve or recommend to the stockholders any action which must be submitted to
stockholders for approval under the Delaware General Corporation Law.
AUDIT COMMITTEE
We currently maintain an Audit Committee consisting of Eric Friedman, Peter
Maluso and Louis Capolino. Each non-employee member of our Audit Committee
receives, and will continue to receive as a member of the Wire One audit
committee, options to purchase 500 shares on common stock for each meeting
attended. The Audit Committee will consult and meet with Wire One's auditors and
its Chief Financial
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Officer and accounting personnel, review potential conflict of interest
situations, where appropriate, and report and make recommendations to the full
Board of Directors regarding such matters.
COMPENSATION COMMITTEE
We currently maintain a Compensation Committee consisting of Dean Hiltzik
and Peter Maluso. Each non-employee member of our Compensation Committee
receives, and will continue to receive as a member of the Wire One Compensation
Committee, options to purchase 500 shares on common stock for each meeting
attended. The Compensation Committee will be responsible for supervising Wire
One's executive compensation policies, reviewing officers' salaries, approving
significant changes in employee benefits and recommending to the Board of
Directors such other forms of remuneration as it deems appropriate.
STOCK OPTION COMMITTEE
We currently maintain an Employee Stock Option Committee consisting of Dean
Hiltzik, Eric Friedman and Peter Maluso. Each non-employee member of our
Employee Stock Option Committee receives, and will continue to receive as a
member of the Wire One Employee Stock Option Committee, options to purchase 500
shares on common stock for each meeting attended. The Stock Option Committee
will be responsible for administering Wire One's employee incentive plans and
recommending to the Board of Directors such other forms of remuneration as it
deems appropriate.
DIRECTOR COMPENSATION
Directors who are not executive officers or employees of Wire One will
receive a director's fee of options to purchase 1,000 shares of Wire One's
common stock for each board meeting attended, whether in person or by telephone
and options to purchase 4,000 shares of Wire One's common stock for attendance
in person at the annual meeting of stockholders.
EMPLOYMENT AGREEMENTS
We entered into employment agreements with each of Messrs. Reiss, Flotron
and Scotti, effective January 1, 1997. The following is a summary of the
material terms and conditions of such agreements and is subject to the detailed
provisions of the respective agreements attached as exhibits to the registration
statement of which this prospectus is a part.
Employment Agreement with Richard Reiss
Mr. Reiss has an employment agreement, effective January 1, 1997, as
amended in March 1997, which provides for a six-year term and an annual salary
of $133,000 in the first year, increasing to $170,000 and $205,000 in the second
and third years, respectively. In years four, five and six of the term,
Mr. Reiss' base salary will be $205,000, but can be increased at the discretion
of the board of director's Compensation Committee. The agreement also provides
for medical benefits, the use of an automobile, and grants of 1,237,500
non-qualified stock options, as well as 42,857 incentive stock options and
122,143 non-qualified stock options issuable under the ACC Plan, which plan has
been assumed by Wire One and is still in effect.
Employment Agreements with Messrs. Flotron and Scotti
Messrs. Flotron and Scotti have employment agreements effective January 1,
1997. Each of these agreements provide for a three-year term and annual salaries
of $104,000 in the first year increasing by $10,000 each year thereafter. These
agreements further provide for an incentive bonus equal to 1/2 of 1% of net
sales payable twice yearly to each of Mr. Flotron and Mr. Scotti. Each employee
is also entitled to a monthly automobile allowance. Effective January 11, 1999,
both of these employment agreements were amended. In consideration for extending
the term of the agreements for an additional year, through December 31, 2000, we
granted additional options outside of ACC's Plan to purchase up to 495,000
shares each of ACC Common Stock, which options vest over a twenty-three month
period. These agreements may be terminated by the employee without cause upon
written notice to Wire One.
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EXECUTIVE COMPENSATION
The table below summarizes information concerning the compensation paid by
ACC during 1999 to ACC's Chief Executive Officer and ACC's four other most
highly paid executive officers (collectively, the "Named Executive Officers"),
each of whom are currently Named Executive Officers of Wire One:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
--------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS
----------------------------------------------------------------------- --------- -------- -------------------
<S> <C> <C> <C>
Richard Reiss, President,.............................................. 205,000 75,000 --
Chief Executive Officer and
Chairman of the Board
Leo Flotron, Executive Vice President.................................. 124,000 119,794 495,000
Joseph Scotti, Executive Vice President................................ 124,000 119,794 495,000
Scott Tansey, Vice-President, Controller and Treasurer................. 100,000 25,000 165,000
</TABLE>
OPTION GRANTS IN 1999
The following table sets forth information regarding stock options granted
pursuant to the ACC stock option plan during 1999 to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
PERCENT OF
GRANTED POTENTIAL REALIZED VALUE
SECURITIES AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL INDIVIDUAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED GRANTS EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN OR BASE PRICE ----------------------------
NAME GRANTED FISCAL 1999 (PER SHARE) EXPIRATION DATE 5% 10%
------------------- --------- --------------- --------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Richard Reiss...... -- --% $ -- -- $ -- $ --
Leo Flotron........ 495,000 23.5 .568 January 11, 2004 358,763 452,714
Joseph Scotti...... 495,000 23.5 .568 January 11, 2004 358,763 452,714
Scott Tansey....... 165,000 7.8 .568 January 11, 2004 119,588 150,905
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Reiss...................... -- -- 1,428,900 105,600 $3,103,835 $ 451,080
Leo Flotron........................ -- -- 391,050 293,700 1,740,765 1,285,306
Joseph Scotti...................... -- -- 391,050 293,700 1,740,765 1,285,306
Scott Tansey....................... -- -- 219,450 143,550 953,490 587,371
</TABLE>
42
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The landlord for our Hillside, New Jersey office is Vitamin Realty
Associates, L.L.C. of which Eric Friedman, one of our directors, is a member.
These premises consist of 8,491 square feet of office space, and 13,730 square
feet of secured warehouse facilities. The lease term is for five years and
expires on May 31, 2002. The base rental for the premises during the term of the
lease is $122,846 per year. In addition, Wire One must pay its share of the
landlord's operating expenses (i.e., those costs or expenses incurred by the
landlord in connection with the ownership, operation, management, maintenance,
repair and replacement of the premises, including, among other things, the cost
of common area electricity, operational services and real estate taxes). For the
years ended December 31, 1999 and 1998, rent expense associated with this lease
was $135,000 and $119,000, respectively. We believe that the lease reflects a
fair rental value for the property and is on terms no less favorable than we
could obtain in an arm's length transaction with an independent third party.
We receive financial and tax services from an accounting firm in which Dean
Hiltzik, one of the Company's directors, is a partner. Since Mr. Hiltzik became
a director on September 15, 1999, we have incurred fees of approximately $85,000
on services received from this firm.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of September 11, 2000 by each of the following:
o each person (or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) known by us to own beneficially 5% or
more of the common Stock;
o Wire One's directors and Named Executive Officers; and
o all directors and executive officers of Wire One as a group.
As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is considered the beneficial owner of securities that can
be acquired within 60 days from the date of this prospectus through the exercise
of any option, warrant or right. Shares of common stock subject to options,
warrants or rights which are currently exercisable or exercisable within
60 days are considered outstanding for computing the ownership percentage of the
person holding such options, warrants or rights, but are not considered
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 16,913,621 shares of Wire One common
stock outstanding as of September 11, 2000.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON SHARES
COMMON SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) BENEFICIALLY OWNED OWNED (2)
-------------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Named Executive Officers and Directors:
---------------------------------------
Richard Reiss................................................................... 4,730,550(3) 25.8%
Leo Flotron..................................................................... 734,250(4) 4.2
Joseph Scotti................................................................... 734,250(4) 4.2
Robert B. Kroner................................................................ 264,825(5) 1.6
Scott Tansey.................................................................... 237,600(6) 1.4
Peter N. Maluso................................................................. 119,625(7) *
Dean Hiltzik.................................................................... 104,510(8) *
Eric Friedman................................................................... 90,725(9) *
Louis Capolino.................................................................. 74,497(10) *
Andrea Grasso................................................................... 41,250 *
Christopher A. Zigmont.......................................................... 40,625(11) *
All directors and executive officers as a group (11 people)..................... 7,172,207 36.5
</TABLE>
------------------
* Less than 1%
(1) Unless otherwise noted, the address of each of the persons listed is c/o
Wire One Technologies, Inc., 225 Long Avenue, Hillside, NJ 07205.
(2) Unless otherwise indicated by footnote, the named persons have sole voting
and investment power with respect to the shares of Common Stock
beneficially owned.
(3) Includes 1,455,300 shares subject to presently exercisable stock options
and 82,500 shares held by a trust for the benefit of Mr. Reiss' children,
of which he is the trustee.
(4) Includes 404,250 shares subject to presently exercisable stock options.
(5) Includes 17,325 shares subject to presently exercisable stock options.
(6) Includes 234,300 shares subject to presently exercisable stock options.
(7) Includes 37,625 shares subject to presently exercisable stock options.
(8) Includes 96,200 shares subject to presently exercisable stock options.
(9) Includes 36,800 shares subject to presently exercisable stock options.
(10) Includes 12,375 shares subject to presently exercisable stock options.
(11) Includes 40,625 shares subject to presently exercisable stock options.
44
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the
number of shares of common stock owned beneficially by each of them as of
September 11, 2000, calculated in the manner described below, the number of
shares which may be offered pursuant to this prospectus and the number of shares
and percentage of class to be owned by each selling stockholder after this
offering. The selling stockholders may sell all, some or none of their shares in
this offering. See "Plan of Distribution." We will not receive any proceeds from
the sale of the common stock by the selling stockholders. Except as otherwise
set forth in the footnotes to the table, none of the selling stockholders has
held any position or office or has had any other material relationship with us
or any of our affiliates within the past three years other than as a result of
his or her ownership of shares of equity securities. This information is based
upon information provided by the selling stockholders. Because the selling
stockholders may offer all, some or none of their common stock, no definitive
estimate as to the number of shares that will be held by the selling
stockholders after this offering can be provided.
The number of shares set forth in the second column of the table represents
an estimate, as of September 11, 2000, of the number of shares of common stock
to be offered by the selling stockholders. The information set forth in the
table assumes conversion of the series A preferred stock and exercise of the
related warrants as of June 14, 2000, and assumes a conversion price of $7.
The actual number of shares of common stock issuable upon conversion of the
series A preferred stock and exercise of the warrants is indeterminate, is
subject to adjustment and could be materially less or more than such estimated
number depending on factors which cannot be predicted by us at this time,
including, among other factors, the future market price of the common stock.
Pursuant to its terms, the series A preferred stock and the related
warrants issued are convertible or exercisable by the series A holder only to
the extent that the number of shares of common stock thereby issuable, together
with the number of shares of common stock owned by the series A holder and its
affiliates (but not including shares of common stock underlying unconverted or
unexercised options, warrants or convertible securities) would not exceed 4.99%
of the then outstanding common stock as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934. Accordingly, the number of
shares of common stock set forth in the table as beneficially owned by the
series A holder before and after the offering may exceed the number of shares of
common stock that it could own beneficially at any given time as a result of
their ownership of the series A preferred stock and the warrant issued in
connection therewith.
Except as set forth in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community property laws,
where applicable. A person is considered the beneficial owner of securities that
can be acquired within 60 days from the date of this prospectus through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are considered outstanding for computing the ownership percentage
of the person holding such options, warrants or rights, but are not considered
outstanding for computing the ownership percentage of any other person.
The "Common Shares Beneficially Owned after Offering" column assumes the
sale of all shares offered. The "Percentage of Common Shares Beneficially Owned
after Offering" column is based on 16,913,621 shares of common stock outstanding
as of September 11, 2000.
<TABLE>
<CAPTION>
COMMON PERCENTAGE OF
COMMON SHARES COMMON
SHARES COMMON BENEFICIALLY SHARES
BENEFICIALLY SHARES OFFERED SHARES OWNED BENEFICIALLY
OWNED PRIOR BY THIS AFTER OWNED AFTER
NAME OF SELLING STOCKHOLDER TO OFFERING PROSPECTUS OFFERING OFFERING
------------------------------------------------------ ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Adrien Mauerman Testamentary Trust 8/6/82(1).......... 256,500 256,500 -- *
Matthew Balk(2)....................................... 210,091 210,091 -- *
Steve Barrett(3)...................................... 146,811 146,811 -- *
Baystar Capital, L.P.(4).............................. 337,500 337,500 -- *
Baystar International, Ltd.(5)........................ 144,450 144,450 -- *
Spence Beal(6)........................................ 6,750 6,750 -- *
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
COMMON PERCENTAGE OF
COMMON SHARES COMMON
SHARES COMMON BENEFICIALLY SHARES
BENEFICIALLY SHARES OFFERED SHARES OWNED BENEFICIALLY
OWNED PRIOR BY THIS AFTER OWNED AFTER
NAME OF SELLING STOCKHOLDER TO OFFERING PROSPECTUS OFFERING OFFERING
------------------------------------------------------ --------- ---------- -------- ---
<S> <C> <C> <C> <C>
Ivan Berkowitz(7)..................................... 67,500 67,500 -- *
Carnes Investment L.P.(8)............................. 81,000 81,000 -- *
Castle Creek Technology Partners LLC(9)............... 378,000 378,000 -- *
David Wilstein and Susan Wilstein, trustees of Century
Trust(10)........................................... 13,500 13,500 -- *
Cranshire Capital, L.P.(11)........................... 193,050 193,050 -- *
Eric Elliot(12)....................................... 13,500 13,500 -- *
GlobalEuroNet Group, Inc.(13)......................... 54,000 54,000 -- *
Chris Healy(14)....................................... 27,000 27,000 -- *
Richard and Ricki Hoffman JTWROS(15).................. 13,500 13,500 -- *
Michael Kooper(16).................................... 13,500 13,500 -- *
Norman Spivock Trust 1993(17)......................... 27,000 27,000 -- *
Peconic Fund Ltd.(18)................................. 965,250 965,250 -- *
Polycom, Inc.(19)..................................... 193,050 193,050 -- *
Robert B. Prag(20).................................... 40,500 40,500 -- *
R&G Partners(21)...................................... 40,500 40,500 -- *
Reinhard Stadler Revocable Trust(22).................. 6,750 6,750 -- *
Gene Salkind(23)...................................... 210,000 210,000 -- *
Leopold Salkind(24)................................... 210,000 210,000 -- *
Eric Singer(25)....................................... 145,061 145,061 -- *
The dotCOM Fund LLC(26)............................... 97,200 97,200 -- *
Scott Weisman(27)..................................... 189,842 189,842 -- *
William J. Nightengale(28)............................ 3,999 3,999 -- *
Stephen J. Hopkins(29)................................ 44,828 44,828 -- *
Michael R. D'Appolonia(30)............................ 27,574 27,574 -- *
Kevin I. Dowd(31)..................................... 23,635 23,635 -- *
S. Douglas Hopkins(32)................................ 56,764 56,764 -- *
Howard S. Hoffman(33)................................. 22,060 22,060 -- *
Dennis J. Duckett(34)................................. 34,140 34,140 -- *
David Millet(35)...................................... 164,079 37,500 126,579 *
Paul C. O'Brien(36)................................... 668,791 37,500 631,291 3.7
Franklin A. Reece, III(37)............................ 369,915 18,750 351,165 2.1
Ali Inanilan(38)...................................... 143,500 37,500 106,000 *
Colin Cunningham(39).................................. 37,500 37,500 -- *
Sam Schwartz(40)...................................... 150,000 150,000 -- *
Jack Gilbert(41)...................................... 37,500 37,500 -- *
Traver Clinton Smith, Jr.(42)......................... 117,022 18,750 98,272 *
Dean Hiltzik(43)...................................... 99,885 82,500 17,385 *
Rick Eisenberg(44).................................... 214,500 214,500 -- *
James Caplan(45)...................................... 313,500 313,500 -- *
Eisenberg Communications(46).......................... 82,500 82,500 -- *
Buttonwood Advisory Group(47)......................... 123,750 123,750 -- *
Jason Adelman(48)..................................... 224,811 224,811 -- *
H.C. Wainwright & Co., Inc.(49)....................... 133,311 133,311 -- *
Silver City Communications, Inc. (50)................. 33,000 33,000
</TABLE>
------------------
* Less than 1%
(Footnotes continued on next page)
46
<PAGE>
(Footnotes continued from previous page)
(1) Includes 190,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 66,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(2) Includes 25,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 8,750 shares of common stock issuable
upon exercise of the warrants issued in connection therewith. Also includes
11,375 shares of common stock and warrants to purchase 121,936 shares of
common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Balk is a
managing director and 35,468 shares subject to presently exercisable
warrants owned by Mr. Balk.
(3) Includes 10,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 3,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith. Also includes
11,375 shares of common stock and warrants to purchase 121,936 shares of
common stock owned by H.C. Wainwright & Co., Inc. of which Mr. Barrett is
chief executive officer.
(4) Includes 250,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 87,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(5) Includes 107,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 37,450 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(6) Includes 5,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 1,750 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(7) Includes 50,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 17,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(8) Includes 60,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 21,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(9) Includes 280,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 98,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(10) Includes 10,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 3,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(11) Includes 143,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 50,050 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(12) Includes 10,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 3,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(13) Includes 40,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 14,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(14) Includes 20,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 7,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(15) Includes 10,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 3,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(Footnotes continued on next page)
47
<PAGE>
(Footnotes continued from previous page)
(16) Includes 10,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 3,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(17) Includes 20,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 7,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(18) Includes 715,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 250,250 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(19) Includes 143,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 50,050 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(20) Includes 30,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 10,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(21) Includes 30,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 10,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(22) Includes 5,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 1,750 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(23) Includes 100,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 35,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith. Also includes
warrants to purchase 25,000 shares of common stock.
(24) Includes 100,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 35,000 shares of common stock issuable
upon exercise of the warrants issued in connection therewith. Also includes
warrants to purchase 25,000 shares of common stock.
(25) Includes 5,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 1,750 shares of common stock issuable
upon exercise of the warrants issued in connection therewith. Also includes
11,375 shares of common stock and warrants to purchase 121,936 shares of
common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Singer is a
managing director and 5,000 shares subject to presently exercisable
warrants owned by Mr. Singer.
(26) Includes 72,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 25,200 shares of common stock issuable
upon exercise of the warrants issued in connection therewith.
(27) Includes 10,000 shares of common stock issuable upon conversion of the
series A preferred stock and up to 3,500 shares of common stock issuable
upon exercise of the warrants issued in connection therewith. Also includes
11,375 shares of common stock and warrants to purchase 121,936 shares of
common stock owned by H.C. Wainwright & Co., Inc., of which Mr. Weisman is
a managing director and 35,469 shares subject to presently exercisable
warrants owned by Mr. Weisman.
(28) Includes 2,194 shares issuable upon exercise of options.
(29) Includes 18,136 shares issuable upon exercise of options and warrants to
purchase 3,924 shares of common stock.
(30) Includes 14,106 shares issuable upon exercise of options and warrants to
purchase 621 shares of common stock.
(31) Includes 12,091 shares issuable upon exercise of options and warrants to
purchase 533 shares of common stock.
(Footnotes continued on next page)
48
<PAGE>
(Footnotes continued from previous page)
(32) Includes 25,909 shares issuable upon exercise of options and warrants to
purchase 3,622 shares of common stock.
(33) Includes 11,284 shares issuable upon exercise of options and warrants to
purchase 498 shares of common stock.
(34) Includes 13,780 shares issuable upon exercise of options and warrants to
purchase 3,302 shares of common stock.
(35) Former director of VTI until May 18, 2000. Includes 8,000 shares upon
exercise of options and warrants to purchase 12,500 shares of common stock.
(36) Former chairman of VTI's board of directors until May 18, 2000. Includes
341,500 shares of common stock and warrants to purchase 162,500 shares of
common stock currently owned by Telecom Holding, LLC of which Mr. O'Brien
is a managing member, warrants to purchase 53,125 shares of common stock
owned by Mr. O'Brien individually and 8,000 shares issuable upon the
exercise of options.
(37) Former president of VTI until October 8, 1999 and former director of VTI
through May 18, 2000. Includes 103,301 shares issuable upon exercise of
options and warrants to purchase 6,250 shares of common stock.
(38) Former chief financial officer of VTI until June 1999. Includes warrants to
purchase 12,500 shares of common stock.
(39) Includes warrants to purchase 12,500 shares of common stock.
(40) Includes warrants to purchase 50,000 shares of common stock.
(41) Includes warrants to purchase 12,500 shares of common stock.
(42) Includes warrants to purchase 6,250 shares of common stock.
(43) Director of Wire One since May 18, 2000. Wire One also receives financial
and tax advice from an accounting firm in which Mr. Hiltzik is a partner.
Includes 91,575 shares subject to presently exercisable stock options.
(44) Includes 82,500 shares subject to presently exercisable options held by
Eisenberg Communications, of which Mr. Eisenberg is a principal. Eisenberg
Communications is Wire One's public relations firm.
(45) Includes 82,500 shares subject to presently exercisable options held by
Eisenberg Communications, of which Mr. Caplan is a principal. Eisenberg
Communications is Wire One's public relations firm.
(46) Includes 82,500 shares subject to presently exercisable stock options.
Eisenberg Communications is Wire One's public relations firm.
(47) Includes 123,750 shares subject to presently exercisable stock options.
(48) Includes 75,500 shares subject to presently exercisable warrants. Also
includes 11,375 shares of common stock and warrants to purchase 121,936
shares of common stock owned by H.C. Wainwright & Co., Inc., of which Mr.
Adelman is a vice president.
(49) Includes warrants to purchase 121,936 shares of common stock.
(50) Includes 33,000 shares subject to presently exercisable options.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Under Rule 144 as currently in effect, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of (a)
one percent of the number of shares of common stock then outstanding (which for
Wire One was 169,136 shares as of September 11, 2000) or (b) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice, and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Sales by stockholders of a
substantial amount of our common stock could adversely affect the market price
of our common stock.
As of September 11, 2000, we had outstanding 16,913,621 shares of common
stock and options to acquire an aggregate of 5,626,771 shares of common stock,
of which 3,444,775 options were vested and exercisable. As of September 11,
2000, of the shares that are currently outstanding, 12,640,071 are freely
tradeable in the public market and 4,273,550 are tradeable in the public market
subject to the restrictions, if any, applicable under Rule 144 and Rule 145 of
the Securities Act of 1933, as amended. All shares acquired upon exercise of
options will be freely tradeable in the public market.
LOCK-UP AGREEMENTS
As a condition to the merger, substantially all VTI's former directors and
executive officers entered into lock-up agreements under which they agreed not
to transfer or dispose of, directly or indirectly, any shares of common stock,
subject to limited exceptions, or any securities convertible into or exercisable
or exchangeable for shares of common stock, for the period beginning on May 18,
2000 and ending November 18, 2000. Transfers or dispositions can be made prior
to the end of that 180-day period with our prior written consent or in other
limited circumstances. Subject to the provisions of Rules 144, 144(k) and 701, a
significant portion of the restricted shares will be available for sale in the
public market, subject in the case of shares held by affiliates to compliance
with certain volume restrictions, shortly after the end of this lock-up period.
50
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders, or pledgees, donees, transferees, or other
successors in interest, may sell the common stock from time to time on the
Nasdaq National Market, in the over-the-counter market, in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at prices otherwise negotiated. The common stock may be sold by the
selling stockholders by one or more of the following methods, without
limitation:
(a) block trades in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus;
(c) an exchange distribution in accordance with the rules of such
exchange;
(d) ordinary brokerage transactions and transactions in which the
broker solicits purchases;
(e) privately negotiated transactions;
(f) short sales;
(g) through the writing of options on the shares;
(h) one or more underwritten offerings on a firm commitment or best
efforts basis; and
(i) any combination of such methods of sale.
The selling stockholders may also transfer shares by gift. We do not know
of any arrangements by the selling stockholders for the sale of any of the
common stock.
In effecting sales, brokers and dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Broker-dealers may
agree with the selling stockholders to sell a specified number of such shares at
a stipulated price per share. To the extent such broker-dealer is unable to do
so acting as agent for a selling stockholder, it may purchase as principal any
unsold shares at the stipulated price. Broker-dealers who acquire shares as
principals may thereafter resell such shares from time to time in transactions
in the American Stock Exchange at prices and on terms then prevailing at the
time of sale, at prices related to the then-current market price or in
negotiated transactions. Broker-dealers may use block transactions and sales to
and through broker-dealers, including transactions of the nature described
above. The selling stockholders may also sell the shares in accordance with Rule
144 under the Securities Act of 1933, rather than pursuant to this prospectus,
regardless of whether such shares are covered by this prospectus.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
them. The pledgees, secured parties or persons to whom such securities have been
hypothecated will, upon foreclosure in the event of default, be deemed to be
selling stockholders. The number of a selling stockholder's shares offered under
this prospectus will decrease as and when it takes such actions. The plan of
distribution for such selling stockholder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell short
our common stock, and, in such instances, this prospectus may be delivered in
connection with such short sales and the shares offered under this prospectus
may be used to cover short sales.
To the extent required under the Securities Act of 1933, the aggregate
amount of selling stockholders' shares of common stock being offered and the
terms of the offering, the names of any such agents, brokers, dealers or
underwriters and any applicable commission with respect to a particular offer
will be set forth in an accompanying prospectus supplement. Any underwriters,
dealers, brokers or agents participating in the distribution of the common stock
may receive compensation in the form of underwriting discounts, concessions,
commissions or fees from a selling stockholder and/or purchasers of selling
stockholders' shares of common stock, for whom they may act (which compensation
as to a particular broker-dealer might be in excess of customary commissions).
51
<PAGE>
The selling stockholders and any broker-dealers that participate in the
distribution of the common stock may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, and any commissions received by them and
any profit on the resale of the common stock sold by them may be deemed be
underwriting discounts and commissions.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with such selling
stockholder, including, without limitation, in connection with distributions of
the common stock by such broker-dealers. A selling stockholder may enter into
option or other transactions with broker-dealers that involve the delivery of
the shares offered hereby to the broker-dealers, who may then resell or
otherwise transfer such shares. A selling stockholder may also loan or pledge
the shares offered hereby to a broker-dealer and the broker-dealer may sell the
shares offered hereby so loaned or upon a default may sell or otherwise transfer
the pledged shares offered hereby.
The selling stockholders and other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the shares of
the selling stockholders or any other such person. The foregoing may affect the
marketability of the shares.
We have agreed to indemnify in certain circumstances the selling
stockholders and the broker-dealers and agents who may be deemed to be
underwriters, if any, of the securities covered by the registration statement,
against certain liabilities, including liabilities under the Securities Act of
1933. The selling stockholders have agreed to indemnify us in certain
circumstances against certain liabilities, including liabilities under the
Securities Act of 1933.
The shares of common stock offered hereby were originally issued to the
selling stockholders pursuant to an exemption from the registration requirements
of the Securities Act of 1933. We agreed to register the common stock under the
Securities Act of 1933. We have agreed to pay all reasonable legal expenses of
the series A holder incident to the filing of this registration statement, other
than underwriting discounts and commissions, and incurred in purchase of the
series A preferred stock and related warrants.
We cannot assure you that the selling stockholders will sell all or any
portion of the common stock offered hereby.
We will pay all expenses in connection with this offering and will not
receive any proceeds from sales of any common stock by the selling stockholders.
EXPERTS
The audited consolidated financial statements of Wire One as of December
31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 included in this prospectus and registration statement have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of said firm as experts in auditing and accounting.
The audited consolidated financial statements of VTI as of December 31,
1999 and for the year then ended included in this prospectus and registration
statement have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the period set forth in their report
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
The financial statements of VTI included in this prospectus and
registration statement for the years ended December 31, 1997 and 1998 have been
so included in reliance on the reports of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
52
<PAGE>
LEGAL MATTERS
Legal matters with respect to the validity of the securities offered hereby
will be passed upon by Morrison & Foerster LLP, New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
Wire One is, and ACC and VTI were, subject to the information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance with the Exchange Act, Wire One files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by
Wire One (or previously filed by ACC or VTI) may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the Commission's following
Regional Offices' New York Regional Office, 7 World Trade Center, New York, New
York, 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also
may be obtained at prescribed rates from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Wire One's common stock is listed on The Nasdaq Stock Market's National Market
System and such reports, proxy statements and other information concerning Wire
One may be inspected at the offices of The Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006-1506. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
You can obtain documents incorporated by reference in this prospectus
without charge by requesting them in writing or by telephone from us at the
following address and telephone numbers:
Wire One Technologies Inc.
225 Long Avenue
Hillside, New Jersey 07205
Attention: Kate Shuster
Telephone: (973) 282-2000
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. The selling
securityholders will not make an offer of the shares of our common stock in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WIRE ONE TECHNOLOGIES, INC.:
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999 and June 30, 2000 (unaudited).................... F-3
Consolidated Statements of Operations for the three years ended December 31, 1999 and the six months ended
June 30, 2000 and 1999 (unaudited)....................................................................... F-4
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1999 and the six
months ended June 30, 2000 (unaudited)................................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 and the six months ended
June 30, 2000 and 1999 (unaudited)....................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-8
VIEW TECH, INC.:
Reports of Independent Certified Public Accountants........................................................ F-22
Consolidated Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 (unaudited)................ F-24
Consolidated Statements of Operations for the three years ended December 31, 1999 and the three months
ended March 31, 2000 and 1999 (unaudited)................................................................ F-25
Consolidated Statements of Stockholders' Equity (Deficiency) for the three years ended
December 31, 1999 and the three months ended March 31, 2000 (unaudited).................................. F-26
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 and the three months
ended March 31, 2000 and 1999 (unaudited)................................................................ F-27
Notes to Consolidated Financial Statements................................................................. F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the
Stockholders of Wire One Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Wire One
Technologies, Inc. (formerly All Communications Corporation) and Subsidiaries as
of December 31, 1999, and 1998 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wire One
Technologies, Inc. and Subsidiaries at December 31, 1999, and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
February 29, 2000,
F-2
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1998 1999 2000
---------- ----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 325,915 $ 60,019 $13,664,730
Accounts receivable, net........................................... 4,317,853 6,128,221 14,558,105
Inventory.......................................................... 3,540,281 3,602,238 5,873,618
Deferred income taxes.............................................. -- 230,083 243,483
Other current assets............................................... 45,577 161,947 631,956
---------- ----------- -----------
Total current assets............................................... 8,229,626 10,182,508 34,971,892
Furniture, equipment and leasehold improvements--net................. 611,518 621,443 4,489,924
Deferred financing costs............................................. 43,271 17,633 62,399
Goodwill--net........................................................ -- -- 33,950,780
Other assets......................................................... 38,214 45,720 256,514
---------- ----------- -----------
Total assets....................................................... $8,922,629 $10,867,304 $73,731,509
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations....................... $ 17,365 $ 30,905 $ 185,371
Bank loan payable.................................................. -- 2,138,602 --
Accounts payable................................................... 1,412,616 2,022,687 6,136,227
Accrued expenses................................................... 844,082 891,033 2,111,132
Income taxes payable............................................... 2,860 124,372 --
Deferred revenue................................................... 156,133 403,524 4,716,890
Customer deposits.................................................. 94,721 44,919 250,286
---------- ----------- -----------
Total current liabilities.......................................... 2,527,777 5,656,402 13,399,906
---------- ----------- -----------
Noncurrent liabilities:
Bank loan payable.................................................. 2,403,216 -- --
Capital lease obligations, less current portion.................... 23,221 17,444 66,948
---------- ----------- -----------
Total noncurrent liabilities....................................... 2,426,437 17,444 66,948
---------- ----------- -----------
Total liabilities.................................................. 4,954,214 5,673,486 13,466,854
---------- ----------- -----------
Commitments and Contingencies
Series A mandatorily redeemable convertible preferred stock.......... -- -- 11,070,055
Stockholders' Equity:
Preferred stock, $.0001 par value; 4,997,550 shares authorized,
0 shares issued and outstanding.................................... -- -- --
Common Stock, $.0001 par value; 100,000,000 authorized; 4,910,000,
4,910,000 and 16,729,496, shares issued and outstanding,
respectively....................................................... 5,229,740 5,229,740 1,673
Additional paid-in capital........................................... 327,943 488,759 58,512,350
Accumulated deficit.................................................. (1,589,268) (524,681) (9,319,423)
---------- ----------- -----------
Total stockholders' equity......................................... 3,968,415 5,193,818 49,194,600
---------- ----------- -----------
Total liabilities and stockholders' equity......................... $8,922,629 $10,867,304 $73,731,509
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
1997 1998 1999 1999 2000
---------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues........................... $6,925,169 $13,217,083 $23,997,212 $9,239,108 $17,110,133
Cost of revenues....................... 4,897,176 9,447,592 16,527,505 6,409,718 11,286,532
---------- ----------- ----------- ---------- -----------
Gross margin........................... 2,027,993 3,769,491 7,469,707 2,829,390 5,823,601
Operating expenses:
Selling.............................. 1,811,924 3,213,965 4,543,873 1,951,075 4,586,007
General and administrative........... 935,967 1,309,577 1,765,411 718,386 1,350,094
Amortization of goodwill............. -- -- -- -- 268,783
---------- ----------- ----------- ---------- -----------
Total operating expenses............... 2,747,891 4,523,542 6,309,284 2,669,461 6,204,884
---------- ----------- ----------- ---------- -----------
Income (loss) from operations.......... (719,898) (754,051) 1,160,423 159,929 (381,283)
---------- ----------- ----------- ---------- -----------
Other (income) expenses:
Amortization of deferred
financing costs................... 315,406 19,669 43,137 18,651 325,355
Interest income...................... (118,354) (56,446) (23,189) (14,167) (144,935)
Interest expense..................... 27,779 57,167 181,127 96,112 53,484
---------- ----------- ----------- ---------- -----------
Total other expenses, net.............. 224,831 20,390 201,075 100,596 233,904
---------- ----------- ----------- ---------- -----------
Income (loss) before income taxes...... (944,729) (774,441) 959,348 59,333 (615,187)
Income tax (provision) benefit......... 52,404 (2,900) 105,239 -- --
---------- ----------- ----------- ---------- -----------
Net income (loss)...................... (892,325) (777,341) 1,064,587 59,333 (615,187)
Deemed dividends on Series A
convertible preferred stock.......... -- -- -- -- (8,179,555)
---------- ----------- ----------- ---------- -----------
Net income (loss) attributable to
common stockholders.................. $ (892,325) $ (777,341) $ 1,064,587 $ 59,333 $(8,794,742)
========== =========== =========== ========== ===========
Net income (loss) per share:
Basic................................ $ (.21) $ (.16) $ .22 $ .01 $ (1.03)
========== =========== =========== ========== ===========
Diluted.............................. $ (.21) $ (.16) $ .17 $ .01 $ (1.03)
========== =========== =========== ========== ===========
Weighted average number of common
shares and equivalents outstanding
Basic................................ 4,200,888 4,910,000 4,910,000 4,910,000 8,501,608
========== =========== =========== ========== ===========
Diluted.............................. 4,200,888 4,910,000 6,169,074 5,567,300 8,501,608
========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
-------------------------- PAID-IN (ACCUMULATED)
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... 3,000,000 $ 90,000 $ 375,000 $ 80,398 $ 545,398
Issuance of common stock through
Initial Public Offering............ 1,610,000 4,539,740 -- -- 4,539,740
Conversion of subordinated notes..... 300,000 600,000 -- -- 600,000
Repayment of convertible note........ -- -- (75,000) -- (75,000)
Issuance of underwriter option....... -- -- 70 -- 70
Issuance of stock options for
services........................... -- -- 16,541 -- 16,541
Net loss for the year................ -- -- -- (892,325) (892,325)
---------- ------------ ----------- ------------- -----------
Balance at December 31, 1997......... 4,910,000 5,229,740 316,611 (811,927) 4,734,424
Issuance of stock options for
services........................... -- -- 11,332 -- 11,332
Net loss for the year................ -- -- -- (777,341) (777,341)
---------- ------------ ----------- ------------- -----------
Balance at December 31, 1998......... 4,910,000 5,229,740 327,943 (1,589,268) 3,968,415
Issuance of stock options for
services........................... -- -- 160,816 -- 160,816
Net income for the year.............. -- -- -- 1,064,587 1,064,587
---------- ------------ ----------- ------------- -----------
Balance at December 31, 1999......... 4,910,000 5,229,740 488,759 (524,681) 5,193,818
Issuance of stock options for
services (unaudited)............... -- -- 86,668 -- 86,668
Exercise of Class A warrants (net of
related costs of $171,238)
(unaudited)........................ 1,933,647 8,218,000 (171,238) -- 8,046,762
Exercise of stock options
(unaudited)........................ 284,500 489,876 -- -- 489,876
Exercise of Underwriters' Options
(unaudited)........................ 28,000 117,600 -- -- 117,600
Tax benefit from exercise of stock
options (unaudited)................ -- -- 53,000 -- 53,000
Securities issued--VTI merger
(unaudited)........................ 9,573,349 -- 30,612,258 -- 30,612,258
Issuance of warrants in connection
with preferred stock (net of
related costs of $870,140)
(unaudited)........................ -- -- 5,279,860 -- 5,279,860
Adjustment for $.0001 par value
(unaudited)........................ -- (14,053,543) 14,053,543 -- --
Deemed beneficial conversion feature
of preferred stock and amortization
of discount (unaudited)............ -- -- 8,109,500 (8,179,555) (70,055)
Net loss for the period
(unaudited)........................ -- -- -- (615,187) (615,187)
---------- ------------ ----------- ------------- -----------
Balance at June 30, 2000
(unaudited)........................ 16,729,496 $ 1,673 $58,512,350 $ (9,319,423) $49,194,600
========== ============ =========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................... $ (892,325) $ (777,341) $ 1,064,587 $ 59,333 $ (615,187)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization......... 398,158 224,474 330,902 159,044 939,384
Deferred income taxes................. (5,679) -- (230,083) -- (53,400)
Loss on disposal of equipment......... 6,575 3,209 8,078 -- --
Noncash compensation.................. 16,541 11,332 160,816 42,141 86,668
Increase (decrease) in cash
attributable to changes in assets
and liabilities net of effects from
merger with VTI:
Accounts receivable.............. (1,359,939) (2,276,503) (1,810,368) (835,229) (1,398,171)
Inventory........................ (600,530) (2,442,398) (61,957) (30,763) (946,558)
Advances to Maxbase, Inc......... (127,080) 127,080 -- -- --
Other current assets............. (84,623) 50,641 (116,370) (72,277) 244,362
Other assets..................... 30,051 (6,855) (7,506) -- 7,650
Accounts payable................. 404,465 502,831 610,071 1,071,109 (2,084,884)
Accrued expenses................. 215,633 520,190 46,951 (45,622) (216,377)
Income taxes payable............. 2,453 407 121,512 (2,860) (124,372)
Deferred revenue................. -- 156,133 247,391 47,326 631,515
Customer deposits................ 22,109 57,669 (49,802) 451,352 205,367
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) operating
activities............................ (1,974,191) (3,849,131) 314,222 843,554 (3,324,003)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, equipment and
leasehold improvements.................. (398,834) (330,031) (275,799) (66,220) (1,386,685)
Proceeds from sale of furniture, equipment
and leasehold improvements.............. -- -- 5,000 -- --
Costs related to acquisition of business
including cash acquired................. -- -- -- -- (2,006,979)
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities... (398,834) (330,031) (270,799) (66,220) (3,393,664)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.... 5,635,070 -- -- -- --
Proceeds from preferred stock offering,
net..................................... -- -- -- -- 16,279,860
Proceeds from exercise of warrants and
options................................. -- 8,654,238
Tax benefit of exercise of stock
options................................. -- 53,000
Stock offering costs...................... (1,062,760) -- -- -- --
Deferred financing costs.................. -- (62,939) (17,500) (17,500) (65,112)
Repayment of convertible subordinated
notes................................... (150,000) -- -- -- --
Payment of subordinated notes............. -- -- -- -- (1,500,000)
Proceeds from bank loans.................. 125,000 2,403,216 18,080,175 4,055,000 3,350,000
Payments on bank loans.................... (644,673) -- (18,344,789) (4,734,635) (6,426,783)
Payments on capital lease obligations..... -- (10,426) (27,205) (15,541) (22,825)
----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by financing
activities............................ 3,902,637 2,329,851 (309,319) (712,676) 20,322,378
----------- ----------- ------------ ----------- -----------
(Statement continued on next page)
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 1,529,612 (1,849,311) (265,896) 64,658 13,604,711
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................... 645,614 2,175,226 325,915 325,915 60,019
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $ 2,175,226 $ 325,915 $ 60,019 $ 390,573 $13,664,730
=========== =========== ============ =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period
for:
Interest................................ $ 27,779 $ 45,404 $ 167,273 $ 96,112 $ 53,484
=========== =========== ============ =========== ===========
Income taxes............................ $ 1,910 $ (52,183) $ -- $ 3,332 $ 147,946
=========== =========== ============ =========== ===========
</TABLE>
Non cash financing and investing activities
During the six months ended June 30, 2000, the Company recorded a deemed
dividend on Series A mandatorily redeemable convertible preferred stock of
$8,179,555.
On May 18, 2000, the Company merged with View Tech, Inc. and, for
accounting purposes, acquired its net assets for non-cash consideration of
$30,612,258.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 1--DESCRIPTION OF BUSINESS AND ORGANIZATION
Wire One Technologies, Inc. (the "Company"), formerly All Communications
Corporation, is engaged in the business of selling, installing and servicing
voice, dataconferencing and videoconferencing communications systems to
commercial and institutional customers located principally within the United
States. The Company is headquartered in Hillside, New Jersey (see Note 13).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, AllComm Products Corporation ("APC") and VTC
Resources, Inc. ("VTC"). All material intercompany balances and transactions
have been eliminated in consolidation. During 1999 and 1998, the Company did not
segregate or manage its operations by business segments.
Interim financial information
The interim consolidated financial information of the Company for the six
months ended June 30, 1999 and 2000 is unaudited. The unaudited interim
consolidated financial information has been prepared on the same basis as the
annual consolidated financial statements and, in the opinion of management,
reflects all adjustments, consisting only of normal recurring adjustments, and
the effects of acquisitions and preferred stock financings necessary to present
fairly the financial position, results of operations, and cash flows at
June 30, 2000 and for the six months ended June 30, 1999 and 2000.
Inventory
Inventory, consisting of finished goods, is valued at the lower of cost
(determined on a first in, first out basis), or market.
Use of estimates
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from the estimates made. Management
periodically evaluates estimates used in the preparation of the financial
statements for continued reasonableness. Appropriate adjustments, if any, to the
estimates used are made prospectively based upon such periodic evaluation. It is
reasonably possible that changes may occur in the near term that would affect
management's estimates with respect to the allowance for doubtful accounts
receivable, inventory reserve, and warranty reserves.
Revenue recognition
Product revenues are recognized at the time a product is shipped or, if
services such as installation and training are required to be performed, at the
time such services are provided, with reserves established for the estimated
future costs of parts-and-service warranties. Customer prepayments are deferred
until product systems are shipped and the Company has no significant further
obligations to the customer. Revenues from services not covered by product
warranties are recognized at the time the services are rendered.
F-8
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Earnings per share
Basic earnings (loss) per share is calculated by dividing net income (loss)
by the weighted-average number of common shares outstanding during the period
(4,200,888 shares for the year ended December 31, 1997, 4,910,000 shares for the
years ended December 31, 1998 and 1999 and 4,910,000 and 8,501,608 for the six
months ended June 30, 1999 and 2000, respectively.)
Diluted earnings (loss) per share is calculated by dividing net income
(loss) by the weighted-average number of common shares outstanding, plus the
weighted average number of net shares that would be issued upon exercise of
stock options and warrants using the treasury stock method. Incremental shares
included in the diluted computation were 1,259,074 for 1999 and 657,300 for the
six months ended June 30, 1999. Diluted loss per share for 1997, 1998 and the
six months ended June 30, 2000 is the same as basic loss per share, since the
effects of the calculation were anti-dilutive.
Cash and cash equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents, and
uncollateralized trade accounts receivable. The Company places its cash and cash
equivalents primarily in commercial checking accounts and money market funds.
Commercial bank balances may from time to time exceed federal insurance limits;
money market funds are uninsured.
The Company performs ongoing credit evaluations of its customers. Revenues
generated from the Cendant agreement accounted for 15%, 12%, and 15% of net
revenues for the years ended December 31, 1999, 1998, and 1997, respectively and
4% and 13% of net revenues for the six months ended June 30, 2000 and 1999,
respectively. At June 30, 2000, December 31, 1999 and 1998, receivables from
Cendant represented approximately 2%, 15%, and 6% of net accounts receivable,
respectively.
In 1998, the Company established customer relationships with Universal
Health Services, Inc. for Lucent and Sony products. Universal Health Services
accounted for 14% and 11% of net revenues for the years ended December 31, 1999
and 1998, respectively and 3% and 14% of net revenues for the six months ended
June 30, 2000 and 1999, respectively. At June 30, 2000, December 31, 1999 and
1998, receivables from this customer represented approximately 5%, 10% and 6% of
net accounts receivable, respectively.
During the years ended December 31, 1999 and 1998 the Company's allowance
for doubtful accounts was increased by $254,300 and $169,250, respectively (for
bad debt provisions) and was decreased by $87,000 and $112,000, respectively,
for written off balances.
Most of the products sold by the Company are purchased under non-exclusive
dealer agreements with various manufacturers, including Panasonic Communications
& Systems Company ("Panasonic") and Lucent Technologies, Inc. ("Lucent") for
digital business telephone systems and related products, and with Polycom, Inc.
("Polycom") for dataconferencing and videoconferencing equipment. The agreements
typically specify, among other things, sales territories, payment terms,
purchase quotas and reseller prices. All of the agreements provide for early
termination on short notice with or without cause. The termination of any of the
Company's dealer agreements, or their renewal on less favorable terms than
currently in effect, could have a material adverse impact on the Company's
business.
F-9
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Depreciation and amortization
Furniture, equipment and leasehold improvements are stated at cost.
Furniture and equipment are depreciated over the estimated useful lives of the
related assets, which range from three to five years. Leasehold improvements are
amortized over the shorter of either the asset's useful life or the related
lease term. Depreciation is computed on the straight-line method for financial
reporting purposes and on the modified accelerated cost recovery system for
income tax purposes.
Income taxes
The Company uses the liability method to determine its income tax expense
or benefit. Deferred tax assets and liabilities are computed based on temporary
differences between the financial reporting and tax basis of assets and
liabilities (principally certain accrued expenses, compensation expenses and
allowance for doubtful accounts), and are measured using the enacted tax rates
that are expected to be in effect when the differences are expected to reverse.
Long-lived assets
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to be Disposed of", the Company evaluates impairment losses on long-lived
assets used in operations, primarily fixed assets, when events and circumstances
indicate that the carrying value of the assets might not be recoverable. For
purposes of evaluating the recoverability of long-lived assets, the undiscounted
cash flows estimated to be generated by those assets would be compared to the
carrying amounts of those assets. If and when the carrying values of the assets
exceed these undiscounted cash flows, the related assets will be written down to
fair value. There were no impairment losses recorded in any of the periods
presented.
Stock options
Under SFAS No. 123, "Accounting for Stock-based Compensation", the Company
must either recognize in its financial statements costs related to its employee
stock-based compensation plans, such as stock option and stock purchase plans,
using the fair value method, or make pro forma disclosures of such costs in a
footnote to the financial statements. The Company has elected to continue to use
the intrinsic value-based method of APB Opinion No. 25, as allowed under SFAS
No. 123, to account for its employee stock-based compensation plans, and to
include the required pro forma disclosures based on fair value accounting.
The fair value of warrants issued in return for services rendered by
non-employees are charged to operations over the terms of the underlying service
agreements.
Comprehensive Income
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income". This standard establishes
requirements for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is the total of net income and all other nonowner changes in equity. The
objective of this statement is to report a measure of all changes in equity of a
company that result from transactions and other economic events in the period
other than transactions with owners. The Company adopted SFAS No. 130 during the
first quarter of fiscal 1998, and has no comprehensive income components to
report in 1999 and 1998.
F-10
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Recently issued accounting pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which must be adopted for fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 requires the
recognition of all derivatives as either assets or liabilities in the Company's
balance sheet and measurement of those instruments at fair value. To date, the
Company has not entered into any derivative or hedging activities, and, as such
does not expect that the adoption of SFAS No. 133, as amended, will have a
material effect on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition ("SAB 101") which broadly
addresses how companies report revenues in their financial statements. The
Company is in the process of evaluating the accounting requirements of SAB 101
and does not expect that this standard will have a material effect, if any, on
its financial statements.
NOTE 3--ADVANCES TO MAXBASE, INC
In September 1997, the Company entered into an exclusive distribution
agreement with Maxbase, Inc., the manufacturer of "MaxShare 2", a patented
bandwidth-on-demand line sharing device. Advances to Maxbase represent advances
against purchase orders for MaxShare 2 units. Purchases of MaxShare 2 product
amounted to $520,350 and $50,400 for the years ended December 31, 1998 and 1997,
respectively. The Company has identified performance problems with the MaxShare
2 product in certain applications, and believes that MaxBase, Inc. (MaxBase),
the supplier of MaxShare 2, has a contractual obligation to correct any
technical defects in the product. Pending resolution of this matter, the Company
has ceased ordering product under its purchase commitment, and has also limited
shipments to distribution partners. On July 16, 1998, MaxBase filed a Complaint
against the Company and APC for breach of contract, among other claims. (See
Note 10)
NOTE 4--FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- -----------
1998 1999 2000
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements..................... $ 85,028 $ 80,753 $ 510,765
Office furniture and equipment............. 119,683 120,402 1,464,933
Computer equipment and software............ 186,244 273,651 1,911,595
Demonstration equipment.................... 301,487 447,292 3,182,680
Loaner/Warranty equipment.................. 39,656 65,493 76,832
Bridging equipment......................... -- -- 787,794
Network equipment.......................... -- -- 877,086
Vehicles................................... 199,834 237,581 260,048
--------- ---------- -----------
931,932 1,225,172 9,071,733
Less: Accumulated depreciation............. (320,414) (603,729) (4,581,809)
--------- ---------- -----------
$ 611,518 $ 621,443 $ 4,489,924
========= ========== ===========
</TABLE>
Depreciation expense was $82,752, $204,805, $287,765, $140,392 and $345,246
for the years ended December 31, 1997, 1998 and 1999, and the six months ended
June 30, 1999 and 2000, respectively, which
F-11
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 4--FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS--(CONTINUED)
includes depreciation expense of $19,318 for 1999 and $7,846 for 1998 on fixed
assets subject to capital leases.
NOTE 5--ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Sales tax payable.......................... $ 92,098 $145,739 $ 397,066
Accrued warranty costs..................... 75,000 75,000 75,000
Accrued installation costs................. 300,764 31,500 --
Accrued compensation....................... 205,986 467,578 1,296,223
Accrued professional fees.................. 40,000 90,500 158,030
Other...................................... 130,194 80,716 184,813
-------- -------- -----------
$844,042 $891,033 $ 2,111,132
======== ======== ===========
</TABLE>
NOTE 6--BANK LOAN PAYABLE AND LONG-TERM DEBT
Bank loan payable
In 1997, the Company had a $600,000 working capital line of credit. In May
1997, the Company terminated the credit facility and repaid all outstanding
loans upon completion of its initial public offering.
In May 1998, the Company closed on a $5,000,000 working capital credit
facility with an asset-based lender. Loan availability is based on 75% of
eligible accounts receivable, as defined, and 50% of eligible finished goods
inventory, with a cap of $1,200,000 on inventory financing. Outstanding
borrowings bear interest at the lender's base rate plus 1% per annum (9.5% at
December 31, 1999 and 8.75% at December 31, 1998), payable monthly, and are
collateralized by a lien on accounts receivable, inventories, and intangible
assets. The credit facility has an initial term of two years, with annual
renewals thereafter subject to the lender's review. The credit facility contains
certain financial and operational covenants. At December 31, 1999, the Company
was in compliance with all such covenants. At December 31, 1999, the loan has
been classified as a current liability due to the maturity of the two-year
credit agreement in May 2000.
In June 2000, the Company entered into a new working capital credit
facility with its asset-based lender. Under terms of the two-year agreement,
loan availability was increased to $15,000,000, based on up to 75% of eligible
accounts receivable and 50% of inventory, subject to an inventory cap of
$5,000,000. Borrowings will initially carry interest at the lender's base rate
plus 1/2% per annum. The credit facility contains certain financial and
operational covenants. At June 30, 2000, there were no borrowings outstanding
under this credit facility.
NOTE 7--STOCK OPTIONS
Non-qualified options
In March 1997, the Company issued to its president 750,000 five-year
non-qualified options with an exercise price of $5.00 per share in conjunction
with the amendment of his employment agreement. The Company issued a total of
495,438, 179,000 and 232,500 additional options during 1999, 1998 and 1997
F-12
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 7--STOCK OPTIONS--(CONTINUED)
respectively, to various employees, directors, and advisors, with exercise
prices ranging from $.50 to $7.94 per share and vesting periods ranging from
immediately to over the course of 24 months. At December 31, 1999, the total
outstanding non-qualified options was approximately 1,609,000.
Stock Option Plan
In December 1996, the Board of Directors adopted the Company's Stock Option
Plan (the "Plan") and reserved up to 500,000 shares of Common Stock for issuance
thereunder. In June 1998, the Company's shareholders approved an amendment to
the Plan increasing the amount of shares available under the plan to 1,500,000.
The Plan provides for the granting of options to officers, directors, employees
and advisors of the Company. The exercise price of incentive stock options
("ISOs") issued to employees who are less than 10% stockholders shall not be
less than the fair market value of the underlying shares on the date of grant or
not less than 110% of the fair market value of the shares in the case of an
employee who is a 10% stockholder. The exercise price of restricted stock
options shall not be less than the par value of the shares to which the option
relates. Options are not exercisable for a period of one year from the date of
grant. Thereafter, options may be exercised as determined by the Board of
Directors at the date of grant, with maximum terms of ten and five years,
respectively, for ISO's issued to employees who are less than 10% stockholders
and employees who are 10% stockholders. In addition, under the Plan, no
individual will be given the opportunity to exercise ISO's valued in excess of
$100,000, in any calendar year, unless and to the extent the options have first
become exercisable in the preceding year. The maximum number of shares with
respect to which options may be granted to an individual during any twelve-month
period is 100,000. The Plan will terminate in 2006. Options granted under the
Plan in 1999 and 1998 were $844,562 and $217,500, respectively.
A summary of Plan and other options outstanding as of December 31, 1999,
and changes during fiscal 1997, 1998 and 1999 are presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
FIXED EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Options outstanding, January 1, 1997................................... -- $ --
Granted................................................................ 1,250,000 4.25
----------
Options outstanding, December 31, 1997................................. 1,250,000 4.25
Granted................................................................ 396,500 1.30
----------
Options outstanding, December 31, 1998................................. 1,646,500 3.54
Granted................................................................ 1,340,000 1.59
Cancelled.............................................................. (82,500) 1.93
----------
Options outstanding, December 31, 1999................................. 2,904,000 2.69
==========
Shares of common stock available for future
grant under the plan................................................. 202,938
==========
</TABLE>
F-13
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 7--STOCK OPTIONS--(CONTINUED)
Additional information as of December 31, 1999 with respect to all
outstanding options is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
-------------- ----------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .50 -- .94 1,040,000 3.96 $ .91 582,500 $ .89
1.063 -- 1.50 446,500 3.76 1.27 239,167 1.37
2.50 -- 3.85 495,500 4.10 3.49 400,500 3.48
4.00 -- 5.00 914,000 2.67 4.92 824,000 4.95
6.38 -- 7.94 8,000 4.96 7.16 8,000 7.16
--------- ---------
.50 -- 7.94 2,904,000 3.55 2.69 2,054,167 $ 3.10
========= =========
</TABLE>
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for all of its employee stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the accompanying
financial statements for stock options issued to employees because the exercise
price of each option equals or exceeds the fair value of the underlying common
stock as of the grant date for each stock option. The weighted-average grant
date fair value of options granted during 1999, 1998 and 1997 under the
Black-Scholes option pricing model was $.56, $.37 and $2.51 per option,
respectively.
The fair value of each option granted in 1999, 1998 and 1997 is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Risk free interest rates..................... 6.14% 5.56% 4.71%
Expected option lives........................ 4.76 years 3.46 years 2.82 years
Expected volatility.......................... 46.5% 46.5% 46.5%
Expected dividend yields..................... None None None
</TABLE>
The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost for all of the Company's stock-based compensation
grants been determined in a manner consistent with the fair value approach
described in SFAS No. 123, the Company's net loss and net loss per share as
reported would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income (loss):
As reported.......................... $ (892,325) $(777,341) $ 1,064,587
Adjusted pro forma................... (3,819,968) (884,675) 895,574
Net income (loss) per share:
Basic, as reported................... (.21) (.16) .22
Adjusted pro forma................... (.89) (.18) .18
Diluted, as reported................. (.21) (.16) .17
Adjusted pro forma................... (.89) (.18) .15
</TABLE>
Compensation expense recognized in the Company's Statement of Operations
for options and warrants reserved to non-employees totaled $160,816 in 1999,
$11,332 in 1998, $16,541 in 1997 and $86,668 and $42,141 for the six months
ended June 30, 2000 and 1999, respectively.
During the six months ended June 30, 2000, the Company received $607,000
from the exercise of stock options.
Wire One has granted approximately 872,000 employee stock options since
May 18, 2000, the effective date of the merger.
F-14
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY
Initial Public Offering
In May 1997, the Company completed a public offering of 805,000 Units for
$7.00 per Unit. Each Unit consisted of two shares of Common Stock and two
Redeemable Class A Warrants. The Warrants are exercisable for four years
commencing one year from the effective date of the offering, at a price of $4.25
per share. The Company may redeem the Warrants at a price of $.10 per warrant,
commencing eighteen months from the effective date of the offering and
continuing for a four-year period, provided the price of the Company's Common
Stock is $10.63 for at least 20 consecutive trading days prior to issuing a
notice of redemption. At December 31, 1999, the Company had 2,050,000
outstanding redeemable Class A Warrants. The Company received proceeds from the
offering of approximately $4,540,000, net of related costs of registration.
On February 10, 2000, the Company announced its intention to redeem all
outstanding Class A warrants. From February through April 2000, the Company
raised net proceeds of approximately $8,047,000 from the exercise of 1,933,647
Class A warrants. All unexercised Class A warrants were redeemed in April 2000,
except for 112,000 Class A warrants underlying the Underwriter's Option.
The Company also issued to the underwriter of the public offering, for
nominal consideration, an option to purchase up to 70,000 Units. The Option is
exercisable for a four-year period commencing one year from the effective date
of the offering, at a per Unit exercise price of $8.40 per Unit. The Units are
similar to those offered to the public. In March 2000, the Company received
$117,600 from the exercise of 14,000 Units.
Preferred Stock
On December 6, 1996, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to authorize the issuance of up to
1,000,000 shares of Preferred Stock. The rights and privileges of the Preferred
Stock have not yet been designated.
Private placement
In June 2000, the Company raised gross proceeds of $17.15 million in a
private placement of 2,450 shares of Series A mandatorily redeemable convertible
preferred stock. The preferred shares are convertible into up to 2,450,000
shares of common stock at a price of $7.00 per share, subject to adjustment.
Beginning on June 14, 2001, the preferred stockholders may choose an alternative
conversion price which equals the higher of (i) 70% of the fixed conversion
price then in effect or (ii) the market price on any conversion date, which is
equal to the average of the closing sale prices of the Company's common stock
during the 20 consecutive trading days immediately preceding any conversion
date. Preferred stockholders may, at their sole option, have their shares
redeemed on the earlier of three years from the issuance date, or the occurrence
of a triggering event, as defined. The redemption price is 110% of the stated
value of $7,000 per share. None of the triggering events has occurred to date.
The preferred shares will convert automatically if the Company's shares trade at
$12.50 or above for twenty consecutive trading days and the underlying shares
have been registered. At the issuance date, the Company recorded a deemed
dividend and an offsetting increase in additional paid-in capital of
approximately $8.1 million to reflect the beneficial conversion feature of the
preferred stock.
Investors in the private placement also received five-year warrants to
purchase a total of 857,500 shares of common stock for $10.50 per share. The
warrants are subject to certain anti-dilution privileges. The Company has valued
the warrants at $3,740,000 using the Black-Scholes pricing model. The Company
also issued to its placement agent warrants to purchase 193,748 shares of common
stock for $7.00 per share, and warrants to purchase 67,876 shares of common
stock for $10.50 per share. The warrants expire on June 14, 2005. The Company
has valued the warrants at $1,410,000 using the Black-Scholes pricing model.
F-15
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 8--STOCKHOLDERS' EQUITY--(CONTINUED)
Costs of the offering, including the fair value of the warrants, totaled
$6,150,000. This amount has been recorded as a preferred stock discount and is
being amortized as a deemed dividend over the three-year period from the date of
issuance to the current redemption date. In addition, the 10% redemption premium
of $1,715,000 is being accreted as a deemed dividend into the carrying value of
the Series A mandatorily redeemable convertible preferred stock over the same
period.
Based on the lowest possible conversion price of $4.90, the maximum
number of shares issuable upon conversion of the series A preferred would be
3,500,000 shares of common stock. The rules of the Nasdaq National Market only
allow us to issue up to 20% of our outstanding shares of common stock upon
conversion of the series A preferred stock without prior stockholder approval.
Based upon the 16,913,621 shares of our common stock outstanding on September
11, 2000, we would only be able to issue 3,382,724 shares of our common stock
upon conversion of the series A preferred. Accordingly, if all shares of series
A preferred stock were converted at the lowest possible conversion price, we
could be required to redeem up to 82 shares of our series A preferred stock at a
price of $7,700 per share for an aggregate purchase price of $631,400.
NOTE 9--INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
1997 1998 1999 1999 2000
-------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal................................... $(46,905) $ -- $ 117,344 $ -- $ --
State..................................... 180 2,900 7,500 -- 13,400
-------- --------- --------- -------- ---------
Total current............................... (46,725) 2,900 124,844 -- 13,400
-------- --------- --------- -------- ---------
Deferred:
Federal................................... (97,724) (252,791) 205,482 20,173 (209,000)
State..................................... (49,152) (73,582) 32,005 3,560 (50,400)
Valuation allowance....................... 141,197 326,373 (467,570) (23,733) 246,000
-------- --------- --------- -------- ---------
Total deferred.............................. (5,679) -- (230,083) -- (13,400)
-------- --------- --------- -------- ---------
Provision for income taxes (benefit)........ $(52,404) $ 2,900 $(105,239) $ -- $ --
======== ========= ========= ======== =========
</TABLE>
The current portion of the 1997 federal income tax benefit reflects
refundable taxes from the carryback of net operating losses. The Company's
effective tax rate differs from the statutory federal tax rate as shown in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------- ---------------------
1997 1998 1999 1999 2000
--------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. federal income taxes at the
statutory rate................. $(321,208) $(263,310) $ 326,314 $ 20,173 $(209,000)
State taxes, net of federal
effects........................ (32,298) (41,557) 4,950 3,560 (37,000)
Non-deductible charges........... 102,000 -- 24,939 -- --
Changes in valuation allowance... 141,197 326,373 (467,570) (23,733) 246,000
Other............................ 57,905 (18,606) 6,128 -- --
--------- --------- --------- -------- ---------
$ (52,404) $ 2,900 $(105,239) $ -- $ --
========= ========= ========= ======== =========
</TABLE>
F-16
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 9--INCOME TAXES--(CONTINUED)
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of 1999 and 1998 are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -----------
1998 1999 2000
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Reserves and allowances.................................................. $ 126,640 $ 144,000 $ 228,000
Tax benefit of net operating loss carryforwards.......................... 349,211 41,840 3,119,000
Stock option compensation................................................ -- 75,476 1,012,000
Other.................................................................... 12,073 -- --
--------- --------- -----------
Total deferred tax assets................................................ 487,924 261,316 1,359,000
Deferred tax liabilities:
Depreciation............................................................. 20,354 15,665 25,000
Other.................................................................... -- 15,568 --
--------- --------- -----------
Total deferred tax liabilities............................................. 20,354 31,233 25,000
--------- --------- -----------
Subtotal................................................................... 467,570 230,083 1,334,000
Valuation allowance........................................................ (467,570) -- (4,090,517)
--------- --------- -----------
Net deferred tax assets.................................................... $ -- $ 230,083 $ 243,483
========= ========= ===========
</TABLE>
In 1999, the Company generated a sufficient level of taxable income to
recognize the benefit of federal tax loss carryforwards and other deferred tax
assets and, accordingly, the valuation allowance established at December 31,
1998 was reduced. Further, based on its review of 1999 operating results and
other evidence, management believes that it is more likely than not that
deferred tax assets recorded as of December 31, 1999 will be realized. The
Company has established a valuation allowance of $1,090,517 for additional
deferred tax benefits arising in the six months ended June 30, 2000 based on a
review of the financial situation of View Tech, Inc. ("View Tech"), one of the
entities involved in the merger that formed the Company (see Note 13), including
View Tech's recurring operating losses. If these tax benefits are subsequently
realized, approximately $866,000 will be credited to additional paid-in capital
because these tax assets relate to the exercise of non-employee stock options
and disqualifying dispositions related to employee stock options.
The Company and its subsidiaries file federal returns on a consolidated
basis and separate state tax returns. At December 31, 1999 the Company had state
net operating loss carryforwards of $465,000 available to offset future taxable
income, if any through 2019. The losses may be subject to an annual statutory
limitation.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company's board of directors has approved employment agreements for
three of its officers, effective January 1, 1997. The agreement with the
Company's president, as amended in March 1997, has a six-year term and provides
for an annual salary of $133,000 in the first year, increasing to $170,000 and
$205,000 in the second and third years, respectively. In years four, five, and
six the president's base salary will be $205,000, but can be increased at the
discretion of the board of director's compensation committee. Under the
agreement, the Company will secure and pay the premiums on a $1,000,000 life
insurance policy payable to the president's designated beneficiary or his
estate. The agreement further provides for medical benefits, the use of an
automobile, and grants of 750,000 non-qualified stock options, as well as 25,974
incentive stock options and 74,026 non-qualified stock options issuable under
the Company's Stock Option Plan.
The other two agreements each have a three-year term and provide for annual
salaries of $104,000 in the first year increasing by $10,000 each year
thereafter. The agreements further provide for an incentive bonus
F-17
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
equal to 1/2 of 1% of net sales payable twice yearly to both officers. Each
employee is also entitled to a monthly automobile allowance. Effective
January 11, 1999, both of these employment agreements were amended. In
consideration for extending the term of the agreements for an additional year,
through December 31, 2000, the Company granted additional options to purchase up
to 300,000 shares each of Common Stock. The options vest over a twenty-three
month period. Each agreement may be terminated by the employee without cause
upon written notice to the Company.
Operating Leases
In April 1998, the Company entered into a five-year non-cancelable lease
for the use of office space in New York City. The lease provides for annual base
rent of $47,500 plus a proportionate share of operating expenses. Also in 1998,
the company signed a one-year lease for a Virginia sales office. Base rent under
this lease is $800 per month and continues monthly after expiration of the
initial term.
In October 1999, the Company entered into a twenty-six month non-cancelable
lease for the use of office space in California. The lease provides for base
rent of $47,000 for the first thirteen months and $48,000 for months fourteen
through the expiration date plus a proportionate share of operating expenses.
Also in October 1999, the Company entered into a six month non-cancelable lease
for the use of office space in Illinois. The lease provides for monthly base
rent of $1,700.
During 1999, the Company closed its New York City office and assigned their
rights under a sublease to their landlord. The loss on abandoning this facility
was not material to the Company's 1999 Statement of Operations.
Future minimum rental commitments under all non-cancelable leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------------
<S> <C>
2000.................................................................. $ 271,280
2001.................................................................. 260,039
2002.................................................................. 125,030
2003.................................................................. 4,238
----------
$ 660,587
==========
</TABLE>
Total rent expense was $148,768, $284,630 and $311,909, $151,846 and
$305,482 for the years ended December 31, 1997, 1998 and 1999 and the six months
ended June 30, 1999 and 2000, respectively.
Capital Lease Obligations
The Company leases certain vehicles under non-cancelable lease agreements.
These leases are accounted for as capital leases. The equipment under the
capital leases as of December 31, 1999 had a cost of $96,591, accumulated
depreciation of $27,164, with a net book value of $69,427. Future minimum lease
payments under capital lease obligations at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000..................................................................... $ 35,925
2001..................................................................... 18,580
---------
Total minimum payments................................................... 54,505
Less amount representing interest........................................ (6,156)
---------
Total principal.......................................................... 48,349
Less portion due within one year......................................... (30,905)
---------
Long-term portion........................................................ $ 17,444
=========
</TABLE>
F-18
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Legal Matters
In September 1997, the Company entered into an exclusive distribution
agreement with Maxbase, Inc., the manufacturer of "MaxShare 2," a patented
bandwidth-on-demand line sharing device. During 1998 the Company purchased
$520,350 of Maxshare 2 units. The Company has identified performance problems
with the MaxShare 2 product in certain applications, and believes that MaxBase,
Inc, has a contractual obligation to correct any technical defects in the
product. Pending resolution of the matter, the Company has ceased ordering
product under its purchase commitment, and has also limited shipments to
distribution partners.
On July 16, 1998, MaxBase, a vendor, filed a Complaint against the Company
and APC alleging that the Company breached its agreement with MaxBase Inc., for
Maxshare 2 units by failing to meet the required minimum purchase obligations
thereunder. The Complaint further alleges misrepresentation and unfair trade
practices. The Complaint also seeks to enjoin the Company from enforcing any
rights the Company has under the agreement. Maxbase claims damages of $508,200
in lost profits for units not purchased and $945,300 in lost profits for units
sold to the Company below market price, as well as unspecified punitive and
treble damages. In 1999, the plaintiff added claims for defamation and tortious
interference. A trial is expected to occur in 2000. The Company believes the
claims by MaxBase are without merit and intends to fully defend the suit and
assert its rights under the agreement. The Company has filed a counterclaim for
breach of contract, breach of warranty and rescission based on
misrepresentation. The Company does not anticipate that the ultimate resolution
will have a material adverse effect on its financial condition, results of
operation or cash flows.
On May 20, 1999 the Company settled a legal matter with its former
landlord. Under the terms of the settlement, the Company paid a total of
$120,000 through December 31, 1999 to fully settle this matter.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments reported in the Company's balance sheet consist of
cash, accounts receivable, accounts payable and bank loan payable, the carrying
values of which approximate fair value at December 31, 1999 and 1998. The fair
value of the financial instruments disclosed therein are not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
NOTE 12--PENSION PLAN
On March 1, 1998 the Company adopted a 401(k) Retirement Plan (the
"401(k) Plan") under Section 401(k) of the Internal Revenue Code. The 401(k)
Plan covers substantially all employees who meet minimum age and service
requirements. The 401(k) Plan is non-contributory on the part of the Company.
NOTE 13--MERGER WITH VIEW TECH, INC.
On May 18, 2000 the merger of All Communications Corporation ("ACC") into
View Tech, Inc. ("VTI") was consummated in a transaction that has been accounted
for as a "reverse acquisition" using the purchase method. The reverse
acquisition method resulted in ACC being recognized as the acquirer of VTI for
accounting and financial reporting purposes.
The final allocation of the purchase price may differ from that reflected
in the unaudited June 30, 2000 financial statements after a more extensive
review of the fair market values of the assets and liabilities has been
completed as of the acquisition date. When such a review is completed, a portion
of the purchase price may be ascribed to intangible assets (other than goodwill)
that have shorter amortization lives than the life ascribed to goodwill in
preparing the accompanying June 30, 2000 financial statements. Thus, the
resulting incremental amortization charges, if any, from that portion of the
purchase price ascribed to other intangible assets could be materially different
from the amortization expense presented in the pro forma financial statements.
F-19
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 13--MERGER WITH VIEW TECH, INC.--(CONTINUED)
Following is a schedule of the purchase price, estimated purchase price
allocation and the annual amount of goodwill amortization to be recognized
prospectively:
PURCHASE PRICE:
<TABLE>
<S> <C>
Value of securities issued............................................................... $ 30,612,258
Direct merger costs...................................................................... 1,008,059
-------------
Total purchase price................................................................... $ 31,620,317
-------------
The value of securities issued was determined as follows:
Value of VTI shares exchanged.......................................................... $ 27,739,308
Value of VTI options and warrants...................................................... 2,872,950
-------------
Total value of securities issued....................................................... $ 30,612,258
-------------
</TABLE>
The value of VTI shares was computed using a five-day average share price
with a midpoint of December 28, 1999, the date of the merger announcement. The
number of shares used in the computation is based on the VTI shares outstanding
as of May 18, 2000.
ESTIMATED PURCHASE PRICE ALLOCATION:
<TABLE>
<S> <C>
VTI assets acquired...................................................................... $ 11,783,008
VTI liabilities assumed.................................................................. (14,182,254)
Inventory step-up to fair market value................................................... 100,000
Write-down of fixed assets............................................................... (300,000)
Goodwill................................................................................. 34,219,563
-------------
Total.................................................................................. $ 31,620,317
-------------
</TABLE>
The VTI assets acquired and liabilities assumed are derived from the
historical balance sheet of VTI as of May 18, 2000. The Company estimates at
this time that the annual amortization expense (based on an amortization period
of 15 years) will approximate $2,281,000. Amortization expense for the period
ended June 30, 2000 totaled $268,783.
The following summarized unaudited pro forma information for the year ended
December 31, 1999 and the six months ended June 30, 2000 assumes the merger of
the ACC and VTI occurred on January 1, 2000.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ----------------
<S> <C> <C>
Net revenues...................................................... $59,045,819 $ 29,349,921
Operating loss.................................................... (8,078,411) (2,626,186)
Net loss attributable to common stockholders...................... (19,245,867) (5,337,139)
Loss per share:
Basic........................................................... (1.60) (.42)
Diluted......................................................... (1.60) (.42)
</TABLE>
The unaudited pro forma operating results reflect estimated pro forma
adjustments for the amortization of intangibles of $2,281,000 for the year ended
December 31, 1999 and $1,140,500 for the six months ended June 30, 2000 arising
from the merger and other adjustments. These pro forma operating results also
reflect the effects of the series A preferred stock issued in June of 2000 as if
the financing occurred on January 1, 1999. Pro forma results of operations are
not necessarily indicative of the results of operations that would have occurred
had the merger been consummated at the beginning of 2000, or of the future
results of the combined entity.
The Company recognized net revenues of $431,000 and $1,047,000 from
transactions with VTI during the year ended December 31, 1999 and the six months
ended June 30, 2000, respectively.
F-20
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
NOTE 14--RELATED PARTY
The landlord for the Company's Hillside, New Jersey office is Vitamin
Realty Associates, L.L.C. of which Eric Friedman, one of the Company's
directors, is a member. The lease term is for five years and expires on May 31,
2002. The base rental for the premises during the term of the lease is
approximately $123,000 per year. In addition, the Company must pay its share of
the landlord's operating expenses (i.e., those costs or expenses incurred by the
landlord in connection with the ownership, operation, management, maintenance,
repair and replacement of the premises, including, among other things, the cost
of common area electricity, operational services and real estate taxes). For the
years ended December 31, 1999 and 1998, rent expense associated with this lease
was $135,000 and $119,000, respectively.
The Company receives financial and tax services from an accounting firm in
which one of the Company's directors is a partner. From the date that this Board
member became a director on September 15, 1999 through December 31, 1999, the
Company has incurred fees of $13,325 on services received from this firm.
NOTE 15--SUBSEQUENT EVENTS (UNAUDITED)
Acquisition
In July 2000, the Company acquired the net assets of 2Confer, LLC, a
Chicago-based provider of videoconferencing, audio and data solutions. The total
consideration was $800,000, consisting of $500,000 in cash and $300,000 in the
Company's common stock valued at the time of acquisition. Assets consisted
primarily of accounts receivable, fixed assets, and goodwill and other
intangibles. The acquisition of 2Confer, LLC is not considered to be a
significant acquisition and, accordingly, pro forma results of operations
disclosures are not required.
Registration Statement
A Registration Statement on Form S-1 was filed with the Securities and
Exchange Commission on July 28, 2000 to register 5,014,772 shares of the
Company's common stock.
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
View Tech, Inc.
We have audited the accompanying consolidated balance sheet of View Tech,
Inc. and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of View Tech,
Inc. and subsidiaries at December 31, 1999, and the results of their operations
and their cash flows for the year ended December 31, 1999, in conformity with
generally accepted accounting principles.
/S/ BDO SEIDMAN, LLP
Los Angeles, California
March 10, 2000, except
for Note 3 which is as
of May 18, 2000
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To View Tech, Inc.:
We have audited the accompanying consolidated balance sheets of View Tech,
Inc. and subsidiaries as of December 31, 1998 and 1997, and related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
View Tech, Inc. as of December 31, 1998 and 1997, and the consolidated results
of its operations and its consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1999
F-23
<PAGE>
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- ------------
1998 1999 2000
------------ ------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash............................................................ $ 302,279 $ 69,493 $ 69,768
Accounts receivable, net of reserves of $219,659, $355,000 and
$285,000, respectively....................................... 10,594,863 9,201,821 6,803,744
Inventory....................................................... 4,223,390 2,824,578 2,773,101
Other current assets............................................ 509,797 1,510,947 819,833
Net assets of discontinued operations........................... 4,455,351 256,412 --
------------ ------------ ------------
Total Current Assets......................................... 20,085,680 13,863,251 10,466,446
Property and Equipment, net..................................... 1,948,662 2,223,505 2,061,157
Other Assets.................................................... 588,227 410,338 368,444
------------ ------------ ------------
$ 22,622,569 $ 16,497,094 $ 12,896,047
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................ $ 6,644,930 $ 7,836,416 $ 6,684,490
Current portion of long-term debt............................... 130,794 4,510,322 1,226,559
Subordinated debt............................................... -- 2,000,000 1,639,532
Accrued payroll and related costs............................... 956,982 1,275,531 852,108
Deferred revenue................................................ 1,940,579 3,160,183 2,904,024
Accrued restructuring costs..................................... 1,026,496 80,449 --
Other current liabilities....................................... 454,974 1,172,356 918,060
------------ ------------ ------------
Total Current Liabilities....................................... 11,154,755 20,035,257 14,224,773
------------ ------------ ------------
Long-Term Debt.................................................... 4,397,299 35,630 23,647
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity (Deficiency):
Preferred stock, par value $.0001, authorized 5,000,000 shares,
none issued or outstanding................................... -- -- --
Common stock, par value $0.0001, authorized 20,000,000 shares,
issued and outstanding, 7,722,277, 7,921,135 and 9,414,227
shares at December 31, 1998, December 31, 1999 and March 31,
2000, respectively........................................... 772 792 941
Additional paid-in capital...................................... 15,261,591 16,607,566 20,125,063
Accumulated deficit............................................. (8,191,848) (20,182,151) (21,478,377)
------------ ------------ ------------
Total Stockholder's Equity (Deficiency)......................... 7,070,515 (3,573,793) (1,352,373)
------------ ------------ ------------
Total Liabilities and Stockholders' Equity (Deficiency)...... $ 22,622,569 $ 16,497,094 $ 12,896,047
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------ -------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product............................. $24,851,000 $27,902,078 $ 24,024,119 $6,103,558 $ 5,922,742
Services............................ 6,163,000 9,340,000 11,455,488 2,815,652 3,291,046
----------- ----------- ------------ ---------- -----------
31,014,000 37,242,078 35,479,607 8,919,210 9,213,788
----------- ----------- ------------ ---------- -----------
Costs and Expenses:
Cost of equipment sold.............. 17,689,000 19,991,620 19,438,124 4,312,986 4,164,296
Cost of services provided........... 2,915,000 4,463,000 5,853,940 1,343,898 1,737,249
Sales and marketing expenses........ 6,346,000 7,830,654 9,955,816 2,132,000 2,250,925
General and administrative
expenses......................... 5,635,000 5,728,263 7,089,561 1,164,000 1,616,504
Restructuring costs................. -- 3,303,998 -- -- --
----------- ----------- ------------ ---------- -----------
32,585,000 41,317,535 42,337,441 8,952,884 9,768,974
----------- ----------- ------------ ---------- -----------
Loss from operations.................. (1,571,000) (4,075,457) (6,857,834) (33,674) (555,186)
Interest expense...................... (338,000) (246,000) (687,083) (37,004) (741,040)
----------- ----------- ------------ ---------- -----------
Loss before income taxes.............. (1,909,000) (4,321,457) (7,544,917) (70,678) (1,296,226)
Provision for income taxes............ (4,512) (4,233) (382,798) -- --
----------- ----------- ------------ ---------- -----------
Loss from continuing operations....... (1,913,512) (4,325,690) (7,927,715) (70,678) (1,296,226)
Discontinued Operations:
Income (loss) from discontinued
operations.......................... 2,052,139 1,511,293 (825,000) (183,858) --
Loss on disposal of discontinued
operations.......................... -- -- (3,237,588) -- --
----------- ----------- ------------ ---------- -----------
Net Income (Loss)..................... $ 138,627 $(2,814,397) $(11,990,303) $ (254,536) $(1,296,226)
=========== =========== ============ ========== ===========
Loss from Continuing Operations per
Share:
Basic and Diluted................... $ (.30) $ (.63) $ (1.01) $ (0.01) $ (0.16)
=========== =========== ============ ========== ===========
Income (Loss) from Discontinued
Operations per Share:
Basic and Diluted................... $ .32 $ .22 $ (0.52) $ (0.02) $ --
=========== =========== ============ ========== ===========
Net Income (Loss) per Share
Basic and Diluted................... $ .02 $ (.41) $ (1.53) $ (0.03) $ (0.16)
=========== =========== ============ ========== ===========
Shares Used In Computing Income (Loss)
per Share:
Basic and Diluted................... 6,371,651 6,888,104 7,842,518 7,764,371 8,229,173
=========== =========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------------ PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
--------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997....................... 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 and purchase
plans..................................... 146,584 15 51,744 -- 51,759
Shares issued in connection with exercise of
warrants.................................. 250 -- 1,250 -- 1,250
Net loss..................................... -- -- -- (2,814,397) (2,814,397)
--------- ---- ----------- ------------ -----------
Balance, December 31, 1998..................... 7,722,277 772 15,261,591 (8,191,848) 7,070,515
Shares issued under stock option and purchase
plans..................................... 198,858 20 264,570 -- 264,590
Issuance of warrants in connection with
subordinated debt......................... -- -- 1,081,405 -- 1,081,405
Net loss..................................... -- -- -- (11,990,303) (11,990,303)
--------- ---- ----------- ------------ -----------
Balance, December 31, 1999..................... 7,921,135 792 16,607,566 (20,182,151) (3,573,793)
Shares issued under stock option and purchase
plans (unaudited)......................... 501,009 50 984,385 -- 984,435
Shares issued in connection
with exercise of warrants (unaudited)..... 992,083 99 2,533,112 -- 2,533,211
Net loss (unaudited)......................... -- -- -- (1,296,226) (1,296,226)
--------- ---- ----------- ------------ -----------
Balance, March 31, 2000 (unaudited)............ 9,414,227 $941 $20,125,063 $(21,478,377) $(1,352,373)
========= ==== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1997 1998 1999 1999 2000
----------- ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................... $ 138,627 $ (2,814,397) $ (11,990,303) $ (254,536) $ (1,296,226)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization............. 472,245 559,213 626,483 148,473 703,051
Non-cash restructuring expenses........... -- 1,491,392 -- -- --
Reserve on accounts receivable............ 51,480 179,000 164,307 -- (70,000)
Reserve on inventory...................... -- 163,020 1,602,000 -- 30,717
Discontinued operations................... (2,052,139) (1,511,293) 4,062,588 183,858 --
Changes in assets and liabilities net of
effects of acquisitions:
Accounts receivable, net.................. (3,218,242) (1,705,815) 1,228,735 (1,253,819) 2,468,077
Inventory................................. (333,373) (2,282,287) (203,188) (663,866) 20,760
Other assets.............................. (77,695) (205,747) 258,144 (301,513) (93,900)
Accounts payable.......................... 302,449 975,586 1,691,486 13,126 (1,151,924)
Accrued merger costs...................... (1,160,495) -- -- -- --
Accrued restructuring charges............. -- 1,026,496 (946,047) (439,934) (80,449)
Accrued payroll and related costs......... 1,015,346 (58,364) 318,549 (268,486) (423,423)
Deferred revenue.......................... 1,087,161 853,418 1,219,604 795,474 (256,159)
Other current liabilities................. (530,367) 134,886 717,382 (52,375) (254,296)
----------- ------------ ------------- ------------ ------------
Net cash used in operating activities..... (4,305,003) (3,194,892) (1,250,260) (2,093,598) (403,772)
----------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
discontinued operations................. (2,578,090) 2,417,469 136,351 57,721 182,147
----------- ------------ ------------- ------------ ------------
Cash Flows from Investing Activities:
Purchase of property and equipment.......... (856,063) (868,430) (901,326) (475,152) --
----------- ------------ ------------- ------------ ------------
Cash Flows from Financing Activities:
Net borrowings (payment) under lines of
credit.................................... 63,200 (218,896) 148,208 2,415,016 (3,283,763)
Issuance of subordinated debt............... -- -- 1,500,000 -- --
Issuance of debt............................ 4,622,061 -- -- -- --
Repayments of capital lease and other debt
obligations............................... -- (469,476) (130,349) (20,534) (11,983)
Issuance of common stock, net............... 3,719,480 1,608,080 264,590 140,588 3,517,646
----------- ------------ ------------- ------------ ------------
Net cash provided by financing
activities:............................. 8,404,741 919,708 1,782,449 2,535,070 221,900
----------- ------------ ------------- ------------ ------------
Net Increase (Decrease) in cash............... 665,585 (726,145) (232,786) 24,041 275
Cash, beginning of period..................... 362,839 1,028,424 302,279 302,279 69,493
----------- ------------ ------------- ------------ ------------
Cash, end of period........................... $ 1,028,424 $ 302,279 $ 69,493 $ 326,320 $ 69,768
=========== ============ ============= ============ ============
Supplemental Disclosures:
Operating activities reflect:
Interest Paid............................. $ 352,808 $ 478,102 $ 467,296 $ 92,549 $ 125,582
=========== ============ ============= ============ ============
Income Taxes paid......................... $ 7,640 $ 105,471 $ 53,286 $ 21,700 $ --
=========== ============ ============= ============ ============
Non-cash financing activity:
Warrants issued in connection with
subordinated debt recorded as debt
issuance costs in other current assets.... $ -- $ -- $ 1,081,405 $ -- $ --
=========== ============ ============= ============ ============
Subordinated debt issued in satisfaction of
accounts payable.......................... $ -- $ -- $ 500,000 $ -- $ --
=========== ============ ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 1--THE BUSINESS
View Tech, Inc.(the "Company"), a Delaware corporation, commenced
operations in July 1992 as a California corporation. In June 1995, the Company
completed an initial public offering of common stock. In November 1996, View
Tech merged with USTeleCenters, Inc. ("UST"), a Massachusetts corporation, and
the Company reincorporated in Delaware. In November 1997, the Company, through
its wholly-owned subsidiary, acquired the net assets of Vermont
Telecommunications Network Services, Inc. ("NSI"), a Vermont corporation
headquartered in Burlington, Vermont. On February 18, 2000, the Company sold its
subsidiaries, UST and NSI, to OC Mergerco 4, Inc. ("OCM") Inc. as further
described in Note 6 and has treated these entities as discontinued operations.
Upon the sale of UST and NSI, the Company operates in one segment, video product
sales and service. Substantially all of the Company's revenues and all
identifiable assets are generated in the United States.
The Company entered into a merger agreement in December, 1999 with All
Communications, Inc. ("ACC"), a regional competitor of the Company headquartered
in the State of New Jersey. The merger is pending subject to regulatory approval
and stockholder approval. On completion of the merger, each outstanding share of
ACC common stock will be converted into the right to receive 3.3 shares of fully
paid and non-assessable Company common stock, $.0001 par value per share. Based
on the number of currently outstanding shares of ACC and Company stock as of
January 11, 2000, assuming that all outstanding options and warrants of the two
companies are exercised, the shareholders of ACC, will own approximately 74.5%
of the outstanding common stock following consummation of the merger. (See Note
3).
The Company is a single source provider of voice, video and data equipment,
network services and bundled telecommunications solutions for business customers
from its 19 offices throughout the United States. The Company has equipment
distribution partnerships with Accord Telecommunications, Cisco Systems, Ezenia,
FVC.com, Intel Corporation, Lucent Technologies, Madge Networks, PictureTel
Corporation, Polycom, Inc., Tandberg, VCON and VTEL Corporation.
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.
Interim financial information
The interim consolidated financial information of the Company for the three
months ended March 31, 1999 and 2000 is unaudited. The unaudited interim
consolidated financial information has been prepared on the same basis as the
annual consolidated financial statements and, in the opinion of management,
reflects all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position, results of operations, and
cash flows at March 31, 2000 and for the three months ended March 31, 1999 and
2000.
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.
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
F-28
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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. Diluted earnings per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding and
the effect of the potentially dilutive shares.
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 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.
Long-lived Assets. 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 that is included in restructuring costs in the
consolidated statements of operations. During 1999, the Company recorded charges
of $2.9 million relating to impairment of goodwill and fixed assets in
connection with the sale of its discontinued 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 and the
dependence on a major equipment vendor.
Accounts receivable subject the Company to potential credit risk with its
customers. The Company performs on-going credit evaluations of its customers'
financial condition but does not require collateral.
Approximately 29% of the Company's revenues for the year ended December 31,
1999 are attributable to the sale of equipment manufactured by PictureTel.
Termination or change of the Company's business relationship with PictureTel,
disruption in supply, failure of this supplier to remain competitive in quality,
function or price, or a determination by such supplier to reduce reliance on
independent distributors such as the Company could have a materially adverse
effect on the Company.
F-29
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Comprehensive Income (Loss). Comprehensive income (loss) is comprised of
net income (loss) and all changes to stockholders' equity except those due to
investments by owners and distributions to owners. Other than net income (loss),
the Company does not have any other components of comprehensive income (loss)
for each of the years ended December 31, 1999, 1998, and 1997 and for the three
months ended March 31, 2000 and 1999, respectively.
New Accounting Pronouncements. Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133") establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. Statement
of Financial Accounting Standards No. 137 deferred the effective date of FAS 133
to be effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company does not expect adoption of SFAS 133 to have a material
effect, if any, on its financial position, results of operations, or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition ("SAB 101") which broadly
addresses how companies report revenues in their financial statements. The
Company is in the process of evaluating the accounting requirements of SAB 101
and does not expect that this standard will have a material effect, if any, on
its financial position, results of operations, or cash flows.
NOTE 3--SUBSEQUENT EVENT
On May 18, 2000, the stockholders of the Company and ACC approved a
definitive agreement to merge the two companies. On that date, the merged entity
was formed by the merger of ACC into the Company. The new company became
Wire One Technologies, Inc. ("Wire One"), and ACC's board of directors and
senior management succeeded to the board and senior management of Wire One. ACC
stockholders received 1.65 shares of Wire One common stock for each ACC share.
NOTE 4--BUSINESS COMBINATION
On November 29, 1996, the Company acquired USTeleCenters, which is an
authorized sales agent for several of the Regional Bell Operating Companies
("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 option holders (upon exercise of their options) received
2,240,976 shares of View Tech common stock and options to purchase 184,003
shares of View Tech common stock. The value of the transaction was approximately
$16.5 million. In connection with the acquisition, the Company issued 24,550
shares in January 1997 to certain investment bankers.
NOTE 5--ACQUISITIONS
On November 13, 1997, the Company, through its wholly-owned subsidiary,
acquired the net assets of Vermont Telecommunications Network Services, Inc.
("NSI") a Vermont corporation. Pursuant to the terms of the Asset Purchase
Agreement, (the "Agreement"), the Company acquired ownership of the assets and
assumed certain liabilities of NSI, effective November 1, 1997. The aggregate
purchase price for the net assets of NSI 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 NSI,
achieves
F-30
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 5--ACQUISITIONS--(CONTINUED)
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. The
calculation of NSI's EBIT for the year ended December 31, 1998, was conclusively
determined under the Agreement in December 1999 and a liability was calculated.
This liability of $180,000 was assumed as part of the sale of UST and NSI by OCM
(See Note 6). 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 was being amortized over 15 years until December 1999 when an
impairment loss of $2.1 million related to this goodwill was recognized as
further described in Note 6. NSI, based in Burlington, Vermont, is 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 NSI since the acquisition date.
NOTE 6--DISCONTINUED OPERATIONS
On May 7, 1999, the Company executed a letter of intent to sell the assets
of UST and NSI. However, by the end of September 1999, the negotiations with the
original purchaser relative to said sale were terminated without completing the
sale. The Company, in September 1999, initiated discussions with alternative
parties which ultimately resulted in finding a buyer for UST and NSI. On
February 18, 2000, the Company completed the sale of its subsidiaries to OCM.
The Company sold the net assets of UST and NSI ($3,156,412) as of December 31,
1999 to OCM for cash consideration amounting to $182,147 and shares of the
common stock of the Purchaser's parent company, Pentastar Communications, Inc.
which the Company valued at $74,265. In addition, the Company assumed the
liability of funding the cash needs of the discontinued operation for the period
January 1, 2000 to February 18, 2000 which amounted to $0.3 million. This
liability was accrued at December 31, 1999 in the Company's financial
statements. This sale and assumption of liabilities resulted in a loss on
disposal of approximately $3.2 million. OCM also assumed a $180,000 commitment
to Zoltan Keve, the former principal of NSI, related to certain agreements
signed in conjunction with the Company's purchase of NSI in November 1997 (See
Note 5).
The balance sheets, statements of operations, and statements of cash flows
have been restated to show the net effect of the discontinuance of the network
business. Assets and liabilities to be disposed of consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Accounts receivable............................................. $ 3,497,000 $ 1,807,000
Other current assets............................................ 571,000 566,400
Property and equipment.......................................... 1,600,000 280,012
Goodwill........................................................ 2,300,000 --
Other assets.................................................... 100,351 84,000
Current liabilities............................................. (3,380,000) (2,316,000)
Long-term liabilities........................................... (233,000) (165,000)
----------- -----------
Total......................................................... $ 4,455,351 $ 256,412
=========== ===========
</TABLE>
F-31
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 6--DISCONTINUED OPERATIONS--(CONTINUED)
Results of operations of UST and NSI are as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -----------
1997 1998 1999 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales............................................... $18,930,306 $20,739,988 $12,453,000 $ 3,056,675
Cost and expenses................................... 16,849,164 18,947,102 13,071,000 3,184,988
----------- ----------- ----------- -----------
Operating income (loss)............................. 2,081,142 1,792,886 (618,000) (128,313)
Interest expense.................................... 29,003 281,593 207,000 55,545
----------- ----------- ----------- -----------
2,052,139 1,511,293 (825,000) (183,858)
Disposal loss and accrual of future cash
obligations....................................... -- -- 3,237,588 --
----------- ----------- ----------- -----------
Net income (loss)................................... $ 2,052,139 $ 1,511,293 $(4,062,588) $ (183,858)
=========== =========== =========== ===========
</TABLE>
In accordance with EITF 87-24, interest expense has been allocated to
discontinued operations based on the debt that could be identified as
specifically attributable to those operations. No general corporate overhead has
been allocated to these operations.
NOTE 7--RESTRUCTURING AND OTHER COSTS
During 1998, the Company recorded a restructuring and asset impairment
charge of $4.2 million ($3.3 million related to continuing operations and $.9
million related to discontinued operations). 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 Property and Equipment.................................... 27,000
Travel related expenses................................................. 140,000
Consulting expenses..................................................... 322,000
Other costs............................................................. 297,013
----------
$4,201,013
==========
</TABLE>
The impairment write-down of goodwill relates to the Company's
determination that there was no future expected cash flows from two acquisitions
that represented $1,465,000 of goodwill. The employee termination costs relate
to approximately 33 employees and officers of the Company. The Company closed
one of its outside network sales offices. The Company also terminated its
internet service provider reseller agreement. In connection with these
decisions, the Company recorded employee termination, facility exit related
expense, and a write-down of 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
$0 is included in the accompanying balance sheet at March 31, 2000.
F-32
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 7--RESTRUCTURING AND OTHER COSTS--(CONTINUED)
The following table summarizes the activity against the restructuring
charge:
<TABLE>
<S> <C>
Restructuring Charge.................................................. $4,201,013
Cash paid............................................................. (2,709,621)
Non-cash expenses..................................................... (1,491,392)
----------
Balance, March 31, 2000 (unaudited)................................... $ --
==========
</TABLE>
NOTE 8--INVENTORY
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Demonstration equipment................ $ 1,664,031 $ 2,562,723 $ 2,615,684
Finished goods......................... 2,261,965 1,301,902 1,225,881
Spare parts............................ 460,414 724,973 727,273
----------- ----------- -----------
4,386,410 4,589,598 4,568,838
Reserve................................ (163,020) (1,765,020) (1,795,737)
----------- ----------- -----------
$ 4,223,390 $ 2,824,578 $ 2,773,101
=========== =========== ===========
</TABLE>
During the fourth quarter of 1999, the Company recorded an additional
$1.6 million inventory reserve covering demonstration equipment, finished goods
and spare parts inventories. Approximately 75% of the reserve applied to
demonstration equipment which had not been resold by December 31, 1999. The
remainder of the reserve applied to certain finished goods and excess spare
parts. Management believes such reserves are adequate to reflect inventory at
its net realizable value. It is reasonably possible that a change in the
estimate could occur in the near term.
NOTE 9--PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software........ $ 1,216,462 $ 1,569,619 $ 1,569,619
Equipment.............................. 1,138,756 1,508,353 1,508,353
Furniture and fixtures................. 469,001 570,777 570,777
Leasehold improvements................. 332,456 409,252 409,252
----------- ----------- -----------
3,156,675 4,058,001 4,058,001
Less accumulated depreciation.......... (1,208,013) (1,834,496) (1,996,844)
----------- ----------- -----------
$ 1,948,662 $ 2,223,505 $ 2,061,157
=========== =========== ===========
</TABLE>
Property and equipment under capital lease obligations, net of accumulated
amortization, at March 31, 2000, December 31, 1999 and 1998 were $284,784,
$300,840 and $365,064, respectively.
NOTE 10--SUBORDINATED DEBT
The Company secured interim loans totaling $2.0 million, of which
$1.5 million came from individual investors (Note 11), and $0.5 million in
credit from one of the Company's suppliers. The individual investors
F-33
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 10--SUBORDINATED DEBT--(CONTINUED)
and the supplier are to be re-paid in seven months with interest at the prime
rate plus 2 1/2% for the $2.0 million in loans. In return, the Company pledged
all of its assets, in a junior position to the lenders, to the subordinated
lenders. Further, the Company issued 925,000 shares in 5-year exercisable
warrants to the subordinated lenders, on a proportional basis of each investor's
investment, with an exercise price of $1.625 a share (Note 11).
NOTE 11--LONG-TERM DEBT
View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15
million credit agreement (the "Agreement") with Imperial Bank and BankBoston
(now Fleet Bank) effective November 21, 1997. The Agreement provided for three
separate loan commitments consisting of (i) a Facility A Commitment of up to $7
million for working capital purposes; (ii) a Facility B Commitment of up to $5
million, which expired on December 1, 1998; and (iii) a Facility C Commitment of
up to $3 million for merger/acquisition activities. Amounts under the agreement
are collateralized by the assets of the Company. Funds available under the
agreement vary from time to time depending on many variables such as the amount
of eligible trade accounts receivable and eligible inventory of the Company.
On August 5, 1999, the Company received a Notice of Event of Default and
Notice of Reservations of Rights from the lenders. The Facility C Commitment was
terminated. On November 23, 1999, the Company signed a six-month forbearance
agreement to be implemented in conjunction with an infusion of $2.0 million in
subordinated debt (Note 10). During the term of the forbearance period, the
maximum aggregate amount of the Facility A facility will be equal to
$4.75 million subject to specified collateral base adjustments. Subject to the
default provisions, which include the failure to pay specified obligations, the
departure of the current, interim chief executive officer and president, or a
particular material event concerning the Company, the forbearance continues
until May 31, 2000. Interest on the sum owed on Facility A is set at the prime
rate plus 2 1/2%. Interest on any over-advances is the prime rate plus 4%. At
December 31, 1999, the interest rate on Facility A was 11%. At December 31,
1999, amounts utilized under the Facility were $1,105,786.
In return, the lenders received the following consideration: the exercise
price of the lenders' existing 80,000 warrants, which are exercisable until
November 21, 2004 was changed to $1.63 from $4.50. The change was effective as
of the date of the forbearance agreement. Under the forbearance agreement, the
lenders will receive a supplemental fee of $150,000. The fee was deferred and is
being amortized to expense over the forbearance period.
The change of the exercise price of the lenders' existing warrants and the
issuance of warrants to the subordinated lenders at $1.63 and $1.625,
respectively required the recognition of $1,081,405 in deferred debt issuance
costs and additional paid-in capital. The fair value of the warrants at the
repricing/issuance dates was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life--1 year;
volatility--74.08%; dividend yield--0.00%; interest rate--6.00%. Deferred debt
issuance costs of $360,468 were included in other current assets at March 31,
2000.
F-34
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 11--LONG-TERM DEBT--(CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit............................ $4,215,319 $4,363,527 $ 1,105,786
Capital lease obligations................. 312,774 182,425 144,420
---------- ---------- -----------
4,528,093 4,545,952 1,250,206
Less current maturities................... 130,794 4,510,322 1,226,559
---------- ---------- -----------
$4,397,299 $ 35,630 $ 23,647
========== ========== ===========
</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, 1999:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
<S> <C>
2000........................................................ $156,331
2001........................................................ 33,596
2002........................................................ 5,613
--------
Net minimum lease payments.................................... 195,540
Less amount representing interest............................. 13,115
--------
Present value of net minimum lease payments................... $182,425
========
</TABLE>
The current portion due under capital lease obligations at March 31, 2000,
December 31, 1999 and 1998 was $121,273, $146,795 and $130,794, respectively.
NOTE PAYABLE TO FORMER NSI OWNER
In connection with the Company's acquisition of NSI, part of the purchase
price consisted of a promissory note in the original amount of $250,000, bearing
interest at the rate of 8% per annum which was paid in full on November 21,
1998.
NOTE 12--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 three months ended March 31, 2000 (unaudited) and 1999
(unaudited) and the years ended December 31, 1999, 1998, and 1997, were
approximately $328,000 and $269,000, $1,219,000, $908,000, and $859,000,
respectively.
F-35
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Minimum future rental commitments under non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
----------------------------------------------------------------------
<S> <C>
2000................................................................ $1,047,894
2001................................................................ 891,566
2002................................................................ 705,155
2003 and thereafter................................................. 922,464
----------
$3,567,079
==========
</TABLE>
The Company has been named as a defendant in employee-related lawsuits or
claims before administrative boards filed by former employees of UST and/or NSI.
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,
results of operations or cash flow.
NOTE 13--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 138% of the public offering price.
Each warrant is exercisable into one share of common stock at a price of $6.918
per share for a three-year period commencing on June 15, 1995. These warrants
expired on June 15, 1998.
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 exercise price was further reduced to $1.63 per share in connection
with the forbearance agreement signed on November 23, 1999. The warrants are
exercisable until November 21, 2004.
In March 2000, the Company received net proceeds of approximately
$2,533,211 from the exercise of 992,083 warrants.
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. The Company issued
additional Common Stock Purchase Warrants to certain managing members of Telcom
for the purchase of 162,500 shares of Common Stock at a purchase price per share
of $6.50.
On August 18, 1998, the Company received a notice (the "Initial Notice")
from NASDAQ that it did not meet the applicable listing requirements as of June
30, 1998 because it did not have $4,000,000 in net tangible assets and therefore
its Common Stock was subject to delisting. The Company sought immediate
F-36
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 13--COMMON AND PREFERRED STOCK--(CONTINUED)
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. Subsequently, in
February, 1999, NASDAQ informed the Company that it was closing its de-listing
proceedings. However, in or about January, 2000, NASDAQ has informed the Company
that it must re-apply for NASDAQ national market listing after the merger with
ACC and that it may not be approved to remain on the NASDAQ national market
exchange.
Preferred Stock. The Company has 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. In 1999 and 1998, 114,504 and 159,204 shares were
purchased under this Plan. The Company, in February 2000, terminated the
Employee Stock Purchase Plan program.
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 four stock option plans that 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 2,322,000
shares of common stock to be available under all the current option plans.
On October 20, 1998, the Company's Board of Directors authorized the
repricing of certain options previously issued to employees. In accordance with
APB Opinion 25, which the Company applies in accounting for its stock option
plans, no additional compensation was recognized on the repricing of these
options since the fair value of the common stock on this date was less than or
equal to the revised exercise price of the options.
On April 16, 1999 the Board of Directors authorized the Company to transfer
all unused or returned as unexercised stock options in the 1995 Stock Option
Plan to be transferred into the 1997 Stock Incentive Plan. The stockholders
approved this transfer at the annual meeting on or about May 25, 1999. An S-8
was filed with the Commission to reflect this transfer into the 1997 Stock
Incentive Plan.
On April 16, 1999, the Board of Directors authorized an additional 400,000
stock options to be added to the 1997 Special Non-Officer Stock Option Plan. An
S-8 filing to reflect that addition of stock options is expected to be filed no
later than April, 2000.
On or about November 10, 1999, in an addendum to the October 8, 1999
employment contract among the Company, Nightingale & Associates and S. Douglas
Hopkins, the Company agreed to provide stock options in the amount of 195,000 to
S. Douglas Hopkins or his designees. The stock options are to be
F-37
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 13--COMMON AND PREFERRED STOCK--(CONTINUED)
immediately vested upon registration and can be exercised over five years from
the date of the grant. The strike or exercise price of the stock option award is
$1.75, which was the fair market value on October 8, 1999 and which amount was
above fair market value of the stock as of November 10, 1999. The Company also
provided additional compensation to Mr. Hopkins or his designees which can be,
and is now expected to be provided in the nature of 156,000 shares of common
stock at the fair market value when Mr. Hopkins satisfactorily completes his
tenure as Chief Executive Officer and President of the Company. The stock
options and stock grant, however, have not, at present been registered with the
Commission in any S-8 or other filing at this time.
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 at January 1, 1997................................. 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 at 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 at December 31, 1998............................... 1,433,316 .250 -- 7.630 3.21
Granted.............................................................. 1,273,850 1.500 -- 2.250 1.89
Exercised............................................................ (65,700) .250 -- 3.000 1.24
Canceled............................................................. (784,838) 1.750 -- 7.625 3.44
--------- ----------------------- ------
Options Outstanding at December 31, 1999............................... 1,856,628 .250 -- 7.500 $ 2.34
========= ======================= ======
</TABLE>
At December 31, 1999, 741,971 options were exercisable at a weighted
average exercise price of $2.87 per share. The options outstanding at December
31, 1999 have a weighted average remaining contractual life of 7.93 years.
The range of exercise prices for options outstanding and options
exercisable at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -----------------------------
REMAINING AVERAGE
OPTIONS CONTRACTUAL AVERAGE EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------------------------------------- ----------- ------------ ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.250 -- $2.250......................... 1,160,736 7.87 $ 1.71 205,736 $ 1.04
2.375 -- 2.375........................... 200,000 9.00 2.38 150,000 2.38
2.500 -- 2.500........................... 140,310 8.96 2.50 123,098 2.50
2.688 -- 2.875........................... 20,000 8.69 2.76 3,500 2.77
3.000 -- 3.000........................... 148,582 7.59 3.00 90,137 3.00
3.062 -- 6.250........................... 78,000 7.37 3.97 60,500 4.24
6.375 -- 6.375........................... 55,000 6.48 6.38 55,000 6.38
6.625 -- 6.625........................... 50,000 5.54 6.63 50,000 6.63
7.500 -- 7.500........................... 4,000 5.87 7.50 4,000 7.50
--------- -------
0.250 -- 7.500........................... 1,856,628 7.93 $ 2.34 741,971 $ 2.87
========= =======
</TABLE>
F-38
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 13--COMMON AND PREFERRED STOCK--(CONTINUED)
The Company applies APB Opinion 25 in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
-------- ------------ ------------
<S> <C> <C> <C>
Net income (loss)
As reported........................................................ $138,627 $ (2,814,397) $(11,990,303)
Pro forma.......................................................... (8,531) (3,164,942) (12,584,803)
Earnings (loss) per share (basic and diluted)
As reported........................................................ $ 0.02 $ (0.41) $ (1.53)
Pro forma.......................................................... (0.00) (0.46) (1.60)
</TABLE>
The weighted average fair value at the date of grant for options granted
during the years ended December 31, 1999, 1998, and 1997, was $1.23, $2.91, and
$4.83, respectively. The fair value of options at the grant date was estimated
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected life--5.0 years; volatility--74.08%; dividend yield -0%;
interest rate--6.0%.
NOTE 14--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.
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- ----------------------
1997 1998 1999 1999 2000
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding.............. 6,371,651 6,888,104 7,842,518 7,764,371 8,229,173
Dilutive effect of options and warrants.......... -- -- -- -- --
--------- --------- --------- --------- ---------
Weighted average shares outstanding.............. 6,371,651 6,888,104 7,842,518 7,764,371 8,229,173
========= ========= ========= ========= =========
</TABLE>
Options and warrants to purchase 1,756,811, 1,762,879, 3,593,128,
2,334,316, and 2,222,056 shares of common stock were outstanding during the
three months ended March 31, 2000 and 1999 and the years ended December 31,
1999, 1998, and 1997, respectively, but were not included in the computation of
diluted EPS because the options' exercise price was either greater than the
average market price of the common stock or the Company reported a net operating
loss from continuing operations and their effect would have been antidilutive.
F-39
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 15--PENSION PLAN
The Company participates in 401(k) retirement plans for its employees.
Employer contributions to the 401(k) plans for the three months ended March 31,
2000 and 1999 and the years ended December 31, 1999, 1998, and 1997 were
approximately $15,000, $18,000, $85,000, $102,000, and $105,000, respectively.
NOTE 16--PROVISION FOR INCOME TAXES
The income tax provisions for the three months ended March 31, 2000 and
1999 and the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- --------------------
1997 1998 1999 1999 2000
------ ------ -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Federal................................................. $ -- $ -- $ -- $ -- $ --
State................................................... 4,512 4,233 6,322 -- --
------ ------ -------- -------- --------
4,512 4,233 6,322 -- --
------ ------ -------- -------- --------
Deferred:
Federal................................................. -- -- 293,766 -- --
State................................................... -- -- 82,710 -- --
------ ------ -------- -------- --------
-- -- 376,476 -- --
------ ------ -------- -------- --------
Total..................................................... $4,512 $4,233 $382,798 $ -- $ --
====== ====== ======== ======== ========
</TABLE>
Total income tax expense differs from the expected tax expense (computed by
multiplying the federal statutory income tax rate of approximately 35, 34 and 34
percent for the periods ended December 31, 1999, 1998, and 1997 to income before
income taxes) as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax benefit........ $ 649,060 $ 1,469,295 $ 2,640,720 $ 24,737 $ 453,679
State tax benefit, net of federal
benefit.............................. 117,174 265,251 452,995 4,241 77,774
Valuation allowance.................... (820,777) (1,602,381) (3,314,463) (31,049) (571,518)
Other, net............................. 50,031 (136,398) (162,050) 2,071 40,065
----------- ----------- ----------- ----------- -----------
$ (4,512) $ (4,233) $ (382,798) $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
F-40
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE 16--PROVISION FOR INCOME TAXES--(CONTINUED)
The Company has recorded a valuation allowance against 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>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax asset:
Reserves and allowances........................ $ 259,965 $ 977,858 $ 1,101,629
Compensation and benefits...................... -- 299,062 299,062
Net operating loss carry forward............... 677,551 2,622,310 3,075,989
Goodwill....................................... 587,959 564,232 558,300
Deferred tax valuation allowance............... (1,148,999) (4,463,462) (5,034,980)
----------- ----------- -----------
$ 376,476 $ -- $ --
=========== =========== ===========
</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 7.
At March 31, 2000, the Company has an unaudited net operating loss (NOL)
carry-forwards of approximately $8,404,542 and $5,993,265 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 2019,
and may be subject to an annual statutory limitation.
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.
In March 1999, the Company's Board of Directors approved an investment of
$100,000 in an entity named Concept 5, an information technology services
company. William Shea, a Board member of the Company, is one of the Board
members of Concept 5. This fact was disclosed to the Company's Board at the time
of the Board's unanimous vote to invest said sum into Concept 5. The investment
is carried at cost and is included in Other Assets on the accompanying balance
sheets.
NOTE 18--VALUATION ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING OF REVENUES AND ACCOUNTS BALANCE AT END
PERIOD EXPENSES CHARGED OFF OF PERIOD
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended
December 31, 1997.................................... $ 35,756 $ 51,480 $ 7,236 $ 80,000
December 31, 1998.................................... 80,000 179,000 39,341 219,659
December 31, 1999.................................... 219,659 164,307 28,966 355,000
Inventory reserve:
Year ended
December 31, 1997.................................... $ -- $ -- $ -- $ --
December 31, 1998.................................... -- 163,020 -- 163,020
December 31, 1999.................................... 163,020 1,602,000 -- 1,765,020
</TABLE>
F-41
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which will be borne by
the Registrant, are as follows:
<TABLE>
<S> <C>
SEC registration fee................................................................... $ 11,130
Transfer agent fees.................................................................... 5,000
Accounting fees and expenses........................................................... 15,000
Legal fees and expenses................................................................ 60,000
Printing and engraving................................................................. 50,000
Miscellaneous.......................................................................... 15,000
--------
Total................................................................................ $156,130
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(1) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(3) pursuant to Section 174 of the DGCL (providing for liability of directors
for unlawful payment of dividends or unlawful stock purchases or redemptions),
or (4) for any transaction from which the director derived an improper personal
benefit. Our Certificate of Incorporation contains provisions permitted by
Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify directors and/or officers in an action or
suit by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the director
or officer is adjudged to be liable to the corporation. Where a director or
officer is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such director or officer actually and reasonably incurred.
Our amended and restated Certificate of Incorporation filed as Exhibit 3.1
to this Registration Statement provides indemnification of our directors and
officers to the fullest extent permitted by the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Unless otherwise indicated, all of the transactions described below were
exempt from registration because the issuances and sales of these securities
were made in reliance on Section 4(2) of the Securities Act regarding
transactions by the issuer not involving a public offering, in that the
transactions were made, without general solicitation or advertising, to
sophisticated investors with access to all relevant information necessary to
evaluate this investment and who represented to us that the securities were
being acquired for investment.
Since July 28, 1997 the Registrant has sold and issued the following
unregistered securities:
On November 13, 1997, the Registrant, through its wholly owned subsidiary,
acquired Vermont Telecommunications Network Services, Inc. for an aggregate
purchase price of $2,900,000, of which
II-1
<PAGE>
(i) $250,000 was paid by the issuance of a promissory note bearing interest at a
rate of 8% per annum; (ii) $250,000 was paid by the issuance of a contingent
note bearing interest at a rate of 8% per annum and (iii) $400,000 was paid by
the issuance of 62,112 shares of common stock.
On November 21, 1997, the Registrant entered into a $15 million credit
agreement with Imperial Bank and BankBoston (now Fleet Bank) under which the
Registrant issued warrants to purchase 80,000 shares of its common stock at an
exercise price of $4.50 per share, which exercise price was subsequently reduced
to $1.63 per share in connection with a forbearance agreement entered into in
November 1999 between the Registrant and lender.
On November 10, 1998, the Registrant issued and sold an aggregate of
826,668 shares of its common stock to accredited investors in exchange for an
aggregate purchase price of $1,200,000.
On November 10, 1999 pursuant to a contract with Nightengale & Associates
and S. Douglas Hopkins, the Registrant agreed to issue 195,000 stock options to
S. Douglas Hopkins or his assignees. The Registrant relied on the exemption
provided by Rule 701 under the Securities Act.
On November 17, 1999, the Registrant received $2,000,000 in interim loans.
In connection with these loans, the Registrant issued seven-month promissory
notes with interest at the prime rate plus 2.5%. In addition, the Registrant
issued warrants to purchase 925,000 shares of its common stock to these lenders
at an exercise price of $1.625 per share.
On April 24, 2000, the Registrant issued warrants to purchase 199,249
shares of its common stock at an exercise price of $6.00 per share as
consideration to the warrantholders who exercised their warrants in March 2000.
On June 14, 2000, the Registrant issued 2,450 shares of its series A
convertible preferred stock and warrant to purchase 857,500 shares of its common
stock in a private placement to institutional and strategic investors for an
aggregate purchase price of $17,150,000. The Registrant relied on the exemption
provided by Rule 506 under the Securities Act.
On June 14, 2000, the Registrant issued 20,000 shares of its common stock,
warrants to purchase 193,928 shares of its common stock at an exercise price of
$7.00 per share and warrants to purchase 67,875 shares of its common stock at an
exercise price of $10.50 per share to H.C. Wainwright & Co., Inc. and its
assigns as partial consideration for financial advisory services.
In July 2000, the Registrant issued 78,000 shares of is common stock to S.
Douglas Hopkins and his assignees as consideration for services rendered under
its November 1999 contract with Nightingale & Associates and S. Douglas Hopkins.
The Registrant relied on the exemption provided by Rule 701 under the Securities
Act.
In July 2000, the Registrant purchased all of the assets of 2Confer, LLC
for a purchase price of $800,000 of which $300,000 was paid by the issuance of
33,438 shares of its common stock.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The Exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
(2) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(3) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions hereof, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(4) The undersigned Registrant hereby undertakes: To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the maximum aggregate offering price may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) under the
Securities Act, if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(5) The undersigned Registrant hereby undertakes: that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be demed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(6) The undersigned Registrant hereby undertakes: to remove from
registration, by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF HILLSIDE, STATE OF NEW JERSEY, ON THIS 12TH DAY OF SEPTEMBER, 2000.
WIRE ONE TECHNOLOGIES, INC.
By: /s/ RICHARD REISS
----------------------------------
Richard Reiss
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON SEPTEMBER 12, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RICHARD REISS Chairman, President and Chief Executive Officer
----------------------------------------------------- (Principal Executive Officer)
Richard Reiss
/s/ CHRISTOPHER A. ZIGMONT Chief Financial Officer
----------------------------------------------------- (Principal Financial and Accounting Officer)
Christopher A. Zigmont
/s/ ROBERT B. KRONER* Vice President and Director
-----------------------------------------------------
Robert B. Kroner
/s/ ANDREA GRASSO* Secretary and Director
-----------------------------------------------------
Andrea Grasso
/s/ LOUIS CAPOLINO* Director
-----------------------------------------------------
Louis Capolino
/s/ ERIC FRIEDMAN* Director
-----------------------------------------------------
Eric Friedman
/s/ DEAN HILTZIK* Director
-----------------------------------------------------
Dean Hiltzik
/s/ PETER N. MALUSO* Director
-----------------------------------------------------
Peter N. Maluso
*By: /s/ RICHARD REISS
-----------------------------------------------
Richard Reiss
attorney-in-fact
</TABLE>
<PAGE>
SCHEDULE II
EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NO. EXHIBIT
------ --------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Certificate of Amendment of View Tech, Inc. changing its name to Wire One Technologies, Inc.(15)
3.3 Certificate of Designations, Preferences and Rights of series A preferred stock of Wire One
Technologies, Inc.(2)
3.4 Amended and Restated Bylaws.(1)
4.1 Specimen Common Stock Certificate.(15)
4.2 Warrant Agreement dated as of June 28, 1995 between View Tech, Inc. and U.S. Stock Transfer
Corporation.(3)
4.3 Form of Warrant between View Tech, Inc. and Telecom Holding, LLC.(4)
4.4 Form of Warrant of Wire One Technologies, Inc. dated June 14, 2000.(2)
4.5 Registration Rights Agreement dated as of June 14, 2000 among Wire One Technologies, Inc. and the
Investors set forth therein.(2)
4.6 Form of View Tech, Inc. Warrant dated April 24, 2000.(15)
4.7 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.(10)
4.8 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.(10)
5.1 Opinion of Morrison & Foerster LLP as to the legality of Common Stock of Wire One Technologies, Inc.,
together with consent.(15)
10.1 Dealer Agreement between View Tech, Inc. and PictureTel Corporation dated as of March 30, 1995.(5)
10.6 1995 Stock Option Plan of View Tech, Inc., as amended.(6)
10.7 Amendment to the Dealer Agreement between View Tech, Inc. and PictureTel Corporation, dated as of
August 1, 1995.(3)
10.8 1997 Stock Incentive Plan of View Tech, Inc.(7)
10.9 Sublease Agreement dated as of October 11, 1996, by and between Atlantic Steel Industries, Inc. and View
Tech, Inc. (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).(4)
10.10 Agreement dated December 9, 1996 between All Communications Corporation and HFS Incorporated.(11)
10.11 Dealer Agreement dated May 20, 1992, between All Communications Corporation and Panasonic Communications
& Systems Company.(11)
10.12 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Richard
Reiss.(11)
10.13 Amendment to the Employment Agreement between All Communications Corporation and Richard Reiss,
effective March 21, 1997.(11)
10.14 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Joseph
Scotti.(11)
10.15 Amendment No. 1 to the Employment Agreement between All Communications Corporation and Joseph Scotti,
effective January 11, 1999.(11)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------ --------------------------------------------------------------------------------------------------------
<S> <C>
10.16 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Leo
Flotron.(11)
10.17 Amendment No. 1 to the Employment Agreement between All Communications Corporation and Leo Flotron,
effective January 11, 1999.(12)
10.18 Sublease Agreement for premises located at 1130 Connecticut Avenue, NW, Washington D.C., dated July 1,
1996, between All Communications Corporation and Charles L. Fishman, P.C.(11)
10.19 All Communications Corporation's Stock Option Plan.(11)
10.20 Amendment No. 1 to All Communications Corporation's Stock Option Plan.(12)
10.21 Lease Agreement for premises located at 225 Long Avenue, Hillside, New Jersey, dated March 20, 1997,
between All Communications Corporation and Vitamin Realty Associates, L.L.C.(11)
10.22 Agreement, dated September 10, 1997, between the All Communications Corporation and Maxbase, Inc.(14)
10.23 Reseller Agreement dated November 21, 1997, between Polycom, Inc. and All Communications
Corporation.(14)
10.24 Dealer Agreement, dated November 26, 1997, between Lucent Technologies, Inc. and All Communications
Corporation.(14)
10.25 First Amendment of Lease dated as of December, 1997 by and between Vitamin Realty Associates, L.L.C. and
All Communications Corporation.(1)
10.26 Second Amendment of Lease dated as of December 20, 1999 by and between Vitamin Realty Associates, L.L.C.
and All Communications Corporation.(1)
10.27 Asset Purchase Agreement, dated as of December 31, 1999 among OC Mergerco 4, Inc., USTeleCenters, Inc.,
Vermont Network Services Corporation and View Tech, Inc.(1)
10.28 Agreement and Plan of Merger, dated as of December 27, 1999, by and between View Tech, Inc. and All
Communications Corporation.(1)
10.29 Amendment No.1 to Agreement and Plan of Merger, dated as of February 29, 2000 by and among View Tech,
Inc. and All Communications Corporation.(1)
10.30 Preferred Stock and Warrant Purchase Agreement dated as of June 14, 2000 among Wire One Technolgies,
Inc. and the Buyers set forth therein.(2)
10.31 Amended and Restated Loan and Security Agreement, dated as of June 1, 2000, among Wire One Technologies,
Inc., AllComm Products Corp. and Summit Commercial/Gibraltar Corp.(15)
10.32 View Tech, Inc. Special Non-Officer Stock Option Plan.(8)
10.33 View Tech, Inc. 1997 Non-Employee Directors Stock Option Plan.(9)
10.34 View Tech, Inc. Employee Stock Purchase Plan.(9)
10.35 Asset Purchase Agreement, dated as of July 21, 2000 by and between Wire One Technologies, Inc., 2CONFER
L.L.C. and the other sellers set forth therein.(15)
21.1 Subsidiaries of Wire One Technologies, Inc.(15)
23.1 Consent of BDO Seidman, LLP.(16)
23.2 Consent of Arthur Andersen LLP.(16)
23.3 Consent of BDO Seidman, LLP.(16)
23.4 Consent of Morrison & Foerster LLP (included in their opinion filed as Exhibit 5).(15)
24.1 Power of Attorney.(15)
27.1 Financial Data Schedule for Wire One Technologies, Inc.(15)
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(Footnotes on next page)
<PAGE>
(Footnotes from previous page)
------------------
(1) Filed as an appendix to View Tech Inc.'s Registration Statement on Form S-4
(File No. 333-95145) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K dated
June 14, 2000, and incorporated herein by reference.
(3) Filed as an exhibit to View Tech, Inc.'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 View Tech, Inc.'s Registration Statement on Form
SB-2 (Registration No. 333-19597), and incorporated herein by reference.
(5) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form
SB-2 (Registration No. 333-91232), and incorporated herein by reference.
(6) Filed as an exhibit to View Tech, Inc.'s Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30, 1995, and incorporated herein by
reference.
(7) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-4
(Registration No. 333-13459), and incorporated herein by reference.
(8) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-8
filed on November 4, 1997, and incorporated herein by reference.
(9) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-8
filed on June 30, 1997, and incorporated herein by reference.
(10) Filed as an exhibit to View Tech, Inc.'s Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1998, and incorporated herein by
reference.
(11) Filed as an exhibit to All Communications Corporation's Registration
Statement on Form SB-2 (Registration No. 333-21069), and incorporated
herein by reference.
(12) Filed as an exhibit to All Communications Corporation's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998, and incorporated
herein by reference.
(13) Filed as an exhibit to All Communications Corporation's Report on Form 8-K
dated September 18, 1997, and incorporated herein by reference.
(14) Filed as an exhibit to All Communications Corporation's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1997, and incorporated
herein by reference.
(15) Previously filed.
(16) Filed herewith.
