SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 2000.
or
/ / Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number: 0-25940
WIRE ONE TECHNOLOGIES, INC.
(Exact Name of registrant as Specified in its Charter)
Delaware 77-0312442
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
225 Long Avenue, Hillside, New Jersey 07205
(Address of Principal Executive Offices)
973-282-2000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's Common Stock as of
July 31, 2000 was 16,859,716.
<PAGE>
WIRE ONE TECHNOLOGIES, INC
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations
For the Six Months and Three Months ended
June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Legal Proceedings 16
Changes in Securities 16
Defaults Upon Senior Securities 18
Submission of Matters to a Vote of Security Holders 18
Other Information 19
Exhibits and Reports on Form 8-K 19
Signatures 20
* The Balance Sheet at December 31, 1999 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,664,730 $ 60,019
Accounts receivable-net 14,558,105 6,128,221
Inventory 5,873,618 3,602,238
Deferred income taxes 243,483 230,083
Other current assets 631,956 161,947
------------ ------------
Total current assets 34,971,892 10,182,508
Furniture, equipment and leasehold improvements-net 4,489,924 621,443
Deferred financing costs-net 62,399 17,633
Goodwill-net 33,950,780 --
Other assets 256,514 45,720
------------ ------------
Total assets $ 73,731,509 $ 10,867,304
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ -- $ 2,138,602
Accounts payable 6,136,227 2,022,687
Accrued expenses 2,111,132 891,033
Income taxes payable -- 124,372
Deferred revenue 4,716,890 403,524
Customer deposits 250,286 44,919
Current portion of capital lease obligations 185,371 30,905
------------ ------------
Total current liabilities 13,399,906 5,656,042
Noncurrent liabilities:
Capital lease obligations, less current portion 66,948 17,444
------------ ------------
Total noncurrent liabilities 66,948 17,444
------------ ------------
Total liabilities 13,466,854 5,673,486
COMMITMENTS
Series A mandatorily redeemable convertible preferred stock 11,070,055 --
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value;
4,997,550 shares authorized, no shares issued and outstanding -- --
Common Stock, $.0001 par value; 100,000,000 authorized;
16,729,496 and 4,910,000 shares outstanding, respectively 1,673 5,229,740
Additional paid-in capital 58,512,351 488,759
Accumulated deficit (9,319,424) (524,681)
------------ ------------
Total stockholders' equity 49,194,600 5,193,818
------------ ------------
Total liabilities, series A preferred stock and stockholders' equity $ 73,731,509 $ 10,867,304
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-1-
<PAGE>
WIRE ONE TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 17,110,133 $ 9,239,108 $ 11,126,626 $ 5,327,439
Cost of revenues 11,286,532 6,409,718 7,440,321 3,636,609
------------ ------------ ------------ ------------
Gross margin 5,823,601 2,829,390 3,686,305 1,690,830
Operating expenses:
Selling 4,586,007 1,951,075 3,167,314 1,066,408
General and administrative 1,350,094 718,386 766,413 411,115
Amortization of goodwill 268,783 -- 268,783 --
------------ ------------ ------------ ------------
Total operating expenses 6,204,884 2,669,461 4,202,510 1,477,523
------------ ------------ ------------ ------------
Income (loss) from operations (381,283) 159,929 (516,205) 213,307
------------ ------------ ------------ ------------
Other (income) expenses
Amortization of deferred financing costs 325,355 18,651 313,113 10,784
Interest income (144,935) (14,167) (114,987) (5,062)
Interest expense 53,484 96,112 30,001 42,640
------------ ------------ ------------ ------------
Total other (income) expenses, net 233,904 100,596 228,127 48,362
------------ ------------ ------------ ------------
Income (loss) before income taxes (615,187) 59,333 (744,332) 164,945
Income tax benefit -- -- (53,400) --
------------ ------------ ------------ ------------
Net income (loss) (615,187) 59,333 (690,932) 164,945
Deemed dividends on Series A mandatorily redeemable
convertible preferred stock (8,179,550) -- (8,179,550) --
------------ ------------ ------------ ------------
Net income (loss) attributable to common stockholders $ (8,794,742) $ 59,333 $ (8,870,487) $ 164,945
============ ============ ============ ============
Net income (loss) per share:
Basic $ (1.03) $ .01 $ (.76) $ .03
============ ============ ============ ============
Diluted $ (1.03) $ .01 $ (.76) $ .03
============ ============ ============ ============
Weighted average number of common shares and equivalents:
Basic 8,501,608 4,910,000 11,717,591 4,910,000
============ ============ ============ ============
Diluted 8,501,608 5,567,300 11,717,591 6,224,600
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE>
WIRE ONE TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (615,187) $ 59,333
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 939,384 159,044
Non cash compensation 86,668 42,141
Increase (decrease) in cash attributable
to changes in operating assets and liabilities net
of effects from purchase of View Tech, Inc.
Accounts receivable (1,398,171) (835,229)
Inventory (946,558) (30,763)
Deferred income taxes (53,400) --
Other current assets 244,362 (72,277)
Other assets 7,650 --
Accounts payable (2,084,884) 1,071,109
Accrued expenses (216,377) (45,622)
Income taxes payable (124,372) (2,860)
Deferred revenue 631,515 47,326
Customer deposits 205,367 451,352
------------ ------------
Net cash provided by (used in) operating activities (3,324,003) 843,554
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (1,386,685) (66,220)
Costs related to acquisition of business including cash acquired (2,006,979) --
------------ ------------
Net cash used in investing activities (3,393,664) (66,220)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from preferred stock offering, net 16,279,860 --
Exercise of warrants and options, net 8,654,238 --
Payment of subordinated notes (1,500,000) --
Deferred financing costs (65,112) (17,500)
Proceeds from bank loans 3,350,000 4,055,000
Payments on bank loans (6,426,783) (4,734,635)
Tax benefit of exercise of stock options 53,000 --
Payments on capital lease obligations (22,825) (15,541)
------------ ------------
Net cash provided by (used in) financing activities 20,322,378 (712,676)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,604,711 64,658
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 60,019 325,915
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,664,730 $ 390,573
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 53,484 $ 96,112
============ ============
Income taxes $ 147,946 $ 3,332
============ ============
Non cash financing and investing activities:
Deemed dividends on Series A mandatorily redeemable
convertible preferred stock $ 8,179,550 $ --
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Note 1 - The Business and Merger with View Tech, Inc.
Wire One Technologies, Inc. ("Wire One" or the "Company") was formed by
the merger of All Communications Corporation ("ACC") and View Tech,
Inc. ("VTI") on May 18, 2000, with the former directors and senior
management of ACC succeeding to the management of Wire One. In
connection with the merger, each former shareholder of ACC received
1.65 shares of Wire One common stock for each share of ACC common stock
held by them. The transaction has been 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 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.
Wire One is a single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions
for business customers from its 25 offices throughout the United
States. The Company has equipment distribution partnerships with Accord
Telecommunications, Lucent Technologies, Madge Networks, Panasonic,
PictureTel Corporation, Polycom, Inc., Tandberg, VCON, and VTEL
Corporation.
Note 2 - Basis of Presentation
The accompanying unaudited financial statements of the Company have
been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and
six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For
further information, refer to the financial statements and footnotes
thereto included in VTI's and ACC's Annual Reports for the fiscal year
ended December 31, 1999 as filed with the Securities and Exchange
Commission.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, AllComm Products Corporation
and VTC Resources, Inc. All intercompany balances and transactions have
been eliminated in consolidation. The Company did not segregate or
manage its operations by business segment.
Note 3 - Income (loss) per share
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" established standards for computing and presenting earnings per
share and applies to entities with publicly traded common stock or
potential common stock.
-4-
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Basic net income (loss) per share is calculated by dividing net income
(loss) attributable to common stock by the weighted average number of
common shares outstanding during the period. In determining basic loss
per share in the 2000 periods, the effects of deemed dividends related
to the Company's series A mandatorily redeemable convertible preferred
stock is added to the net loss. Diluted net income per share is
calculated by dividing net income by the weighted average number of
common shares outstanding plus the weighted-average number of net
shares that would be issued upon exercise of stock options and warrants
using the treasury stock method and the deemed conversion of preferred
stock using the if-converted method.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 8,501,608 4,910,000 11,717,591 4,910,000
Effect of dilutive options and warrants -- 657,300 -- 1,314,600
---------- ---------- ---------- ----------
Weighted average shares outstanding
including dilutive effect of securities 8,501,608 5,567,300 11,717,591 6,224,600
========== ========== ========== ==========
</TABLE>
The weighted average options and warrants to purchase 7,808,768 and
6,141,909 shares of common stock were outstanding during the six months
and three months ended June 30, 2000, respectively, and preferred stock
convertible into 2,450,000 common shares were not included in the
computation of diluted EPS because the Company reported a net operating
loss for these periods and their effect would have been antidilutive.
Note 4 - Merger with View Tech, Inc.
On May 18, 2000, the merger of ACC into 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.
-5-
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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:
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 exchanged 2,872,950
-----------
Total value of securities issued $30,612,258
-----------
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:
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
------------
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 $2,260,000.
Amortization expense for the quarter ended June 30, 2000 totaled
$268,783.
The following summarized unaudited pro forma information for the six
months ended June 30, 2000 assumes the merger of ACC and VTI occurred
on January 1, 2000.
Six Months Ended
June 30,
2000
------------------
Net revenues $ 29,349,921
Operating loss (2,940,255)
Net loss (4,682,637)
Loss per share:
Basic (.37)
Diluted (.37)
-6-
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The unaudited pro forma operating results reflect estimated pro forma
adjustments for the amortization of intangibles of $1,129,819 for the
six months ended June 30, 2000 arising from the merger and other
adjustments. These pro forma operating results do not reflect the
effects of the series A preferred stock issued in June of 2000. 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.
Note 5 - Bank Loan Payable
In June 2000, the Company renewed its credit facility with Summit
Commercial Gibraltar Corp., a division of Summit Bancorp. Under the
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 eligible inventory, subject to an inventory cap of $5,000,000.
Borrowings accrue 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 6 - Private Placement of Preferred Stock
In June 2000, the Company raised gross proceeds of $17.15 million in a
private placement of 2,450 shares of its 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 prices of Company common stock during the
20 consecutive trading days immediately preceding any conversion date.
Preferred stockholders may, at their option, have the Company redeem
their shares at 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 price
of the preferred stock as compared to the prevailing market price of
the common 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 protection.
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.
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.
-7-
<PAGE>
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Note 7 - Subsequent Events
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 the remainder in Company common stock of $300,000 valued at the
time of the acquisition. Assets consisted primarily of accounts
receivable, fixed assets and goodwill and other intangibles. The
acquisition of 2CONFER, LLC is not a significant acquisition, and
accordingly, pro forma results of operations are not included.
A Registration Statement on Form S-T was filed with the Securities and
Exchange Commission on July 28, 2000 to register 5,014,772 shares of
the Company's common stock.
-8-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto. 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.
The statements contained herein, other than historical information, are or may
be deemed to be forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the Company's actual results in future periods to differ
materially from such statements. These factors, risks and uncertainties, include
the relatively short operating history of the Company; market acceptance and
availability of new products; the non-binding and nonexclusive nature of
reseller agreements with manufacturers; rapid technological change affecting
products sold by the Company; the impact of competitive products and pricing, as
well as competition from other resellers; possible delays in the shipment of new
products; and the availability of sufficient financial resources to enable the
Company to expand its operations.
-9-
<PAGE>
The Company was formed on May 18, 2000 by the merger of All Communications
Corporation (ACC) and View Tech, Inc. (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
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated financial statements expressed as a percentage
of the Company's revenues:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 66.0 69.4 66.9 68.3
------ ------ ------ ------
Gross margin 34.0 30.6 33.1 31.7
Operating expenses:
Selling 26.8 21.1 28.5 20.0
General and administrative 7.9 7.8 6.9 7.7
Amortization of goodwill 1.6 0.0 2.4 0.0
------ ------ ------ ------
Total operating expenses 36.3 28.9 37.8 27.7
------ ------ ------ ------
Income (loss) from operations (2.3) 1.7 (4.7) 4.0
------ ------ ------ ------
Other (income) expenses
Amortization of deferred
financing costs 1.9 0.2 2.8 0.2
Interest income (0.8) (0.2) (1.0) (0.1)
Interest expense 0.3 1.0 0.3 0.8
------ ------ ------ ------
Total other expenses, net 1.4 1.0 2.1 0.9
------ ------ ------ ------
Income (loss) before income taxes (3.7) 0.7 (6.8) 3.1
Income tax benefit 0.0 0.0 0.5 0.0
------ ------ ------ ------
Net income (loss) (3.7) 0.7 (6.3) 3.1
Deemed dividends on Series A mandatorily
redeemable convertible
preferred stock (47.8) 0.0 (73.5) 0.0
------ ------ ------ ------
Net income (loss) attributable to common
stockholders (51.5)% 0.7% (79.8)% 3.1%
====== ====== ====== ======
</TABLE>
-10-
<PAGE>
Six Months Ended June 30, 2000 ("2000 period") Compared to Six Months Ended June
30, 1999 ("1999 period") and Three Months Ended June 30, 2000 Compared to Three
Months Ended June 30, 1999.
NET REVENUES. The Company 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. Net revenues of $11,127,000 for the June 2000 quarter represent an
increase of $5,800,000, or 109%, over revenues reported for the June 1999
quarter. The inclusion of VTI revenues from the merger date through the end of
the reporting period was the significant driving factor behind these percentage
increases. In addition, increases in revenue are 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. Sales for the quarter
ended June 30, 2000 were $9,636,000, a 260% increase over the comparable 1999
quarter. The inclusion of VTI revenues from the merger date through the end of
the reporting period was the significant driving factor behind these percentage
increases. The Company 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. Sales
for the quarter ended June 30, 2000 were $1,491,000, a 44% decrease from the
comparable 1999 quarter. 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 quarter 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.
-11-
<PAGE>
GROSS MARGINS. 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. 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. Selling expenses for the quarter ended June 30, 2000 increased
to $3,167,000, or 28.5% of net revenues, as compared to $1,066,000 or 20.0% of
net revenues for the comparable 1999 quarter. The inclusion of VTI selling
expenses from the merger date through the end of the reporting period was the
significant driving factor behind these percentage increases. 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 and the quarter ended June 30, 2000 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. 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. General and
administrative expenses for the quarter ended June 30, 2000 increased to
$766,000, or 6.9% of net revenues, as compared to $411,000, or 7.7% of net
revenues for the comparable 1999 quarter. 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 these increases. General and
administrative expenses as a percentage of net revenues for the quarter ended
June 30, 2000 improved by 0.8%, or 10%, as this cost base supported the larger
organization resulting from the merger without having to add a proportional
amount of expenses.
AMORTIZATION OF GOODWILL. As a result of the merger on May 18, 2000,
$34,200,000 of goodwill and one and one-half months' amortization of goodwill
totaling $269,000 was recorded in the quarter ended June 30, 2000. The Company
estimates at this time that the annual amortization expense (based on an
amortization period of 15 years) will approximate $2,260,000.
OTHER (INCOME) EXPENSES. The principal component of this category,
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
amortization of $305,000 related to the value of warrants issued to former VTI
subordinated debt holders. These costs were fully amortized as of June 30, 2000.
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INCOME TAXES. As a result of losses incurred in the quarter ended June 30,
2000, the Company 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 deferred tax asset.
NET INCOME (LOSS). The Company 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 net loss attributable to common
stockholders for the quarter ended June 30, 2000 was $(8,870,000), or $(.76) per
share, as compared to net income attributable to common stockholders of
$165,000, or $.03 per share for the comparable 1999 quarter. The June 2000
period and the quarter ended June 30, 2000 contained a non-recurring deemed
dividend and offsetting increase in additional paid-in capital of $8,100,000 to
reflect the beneficial conversion price 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 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. The
Company 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 and for the quarter ended June
30, 2000 it reported a net loss of $(691,000) as compared to net income of
$165,000 for the comparable 1999 quarter.
Liquidity and Capital Resources
At June 30, 2000, the Company had working capital of $21,572,000 compared
to $4,526,000 at December 31, 1999, an increase of approximately 377%. In
addition, the Company 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
$16,280,000 in net cash proceeds.
Concurrent with the closing of the merger between VTI and ACC that created
the Company, 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. The Company has 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 Wire One renewed its credit facility with New York-based
Summit Commercial Gibraltar Corp., a division of Summit Bancorp. The two-year
credit agreement raised the Company's 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. The Company has not borrowed funds under this line of credit to date.
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On June 14, 2000 Wire One completed the private placement of 2,450 shares
of its 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 expansion 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 the Company expects 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 deferred revenue and customer
prepayments. Payments on accounts payable balances with vendors used $2,085,000
of operating cash as most of the vendors of the former VTI were paid shortly
after the close of the merger. 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 the Company is developing. In addition,
cash costs incurred in connection with the merger totaled $2,007,000. The
Company does 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 the Company's revolving credit line of $3,077,000 and the
$1,500,000 of VTI subordinated notes.
Inflation
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has exposure to interest rate risk related to its cash equivalents
portfolio. The primary objective of the Company's investment policy is to
preserve principal while maximizing yields. The Company's cash equivalents
portfolio is short-term in nature, therefore changes in interest rates will not
materially impact the Company's consolidated financial condition. However, such
interest rate changes can cause fluctuations in the Company's results of
operations and cash flows.
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The Company's $15 million secured credit facility has an interest rate based on
the lender's prime rate. The Company currently has no borrowings outstanding
under the facility. If the Company should draw on the facility, interest rate
fluctuations could have an impact on the Company's results of operations and
cash flows.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Stock Split
On May 18, 2000, the Company's stockholders authorized a two-for-one
reverse stock split of the Company's common stock to stockholders of record at
the close of business on April 14, 2000.
Private Placement
On June 14, 2000, we issued 2,450 shares of our series A convertible
preferred stock and warrants to purchase 857,500 share of our common stock in a
private placement to institutional and strategic investors for an aggregate
purchase price of $17,150,000. We relied on the exemption provided by Rule 506
under the Securities Act.
Each share of series A preferred stock, par value $0.001 per share, 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.
The number of shares of common stock issuable upon conversion is subject to
adjustment, among other things: 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 if effect, other than for certain previously
outstanding securities and certain excluded securities.
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, as amended, the public offering
price of which is not less than $12.00 per share (adjusted for any stock splits,
stock dividends, combinations, recapitalizations or the like after the date
hereof) 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
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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 thereby issuable, 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 unless and 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.
In order to comply with the rules of the Nasdaq National Market, we must
obtain stockholder approval prior to issuing shares of common stock upon
conversion of our series A preferred stock in excess of 19.99% of our common
stock outstanding as of June 14, 2000, the date of issuance of the series A
preferred stock.
The shares of series A preferred stock are also subject to antidilution
provisions which are triggered in the event of certain stock splits,
recapitalizations, or other dilutive transactions, as well as issuances of
common stock at a price below the fixed 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 fixed conversion price, other
than for certain previously outstanding securities and certain excluded
securities.
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. The warrant
has an exercise price of $10.50 per share and expires on June 14, 2005 (subject
to extension). The warrant is subject to certain 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 and at any time
where the registration statement covering the resale of the common stock
issuable upon exercise of the warrants has been declared effective, 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.
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Other
On April 24, 2000, we issued warrants to purchase 199,249 shares of our
common stock at an exercise price of $6.00 per share as consideration to warrant
holders who exercised their warrants in March 2000. We relied on the exemption
provided under Section 4(2) of the Securities Act.
On June 14, 2000, we issued 20,000 shares of our common stock, warrants to
purchase 193,928 shares of our common stock at an exercise price of $7.00 per
share and warrants to purchase 67,785 shares of our 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 services rendered. We relied on the
exemption provided under Section 4(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on May 18, 2000. The stockholders
also voted on the following proposals with the following results:
1. The merger agreement between View Tech, Inc. and All Communications
Corporation was approved.
For: 5,303,882 Against: 7,385 Abstain: 7,730 Broker Non-Votes: 0
2. The issuance of shares of View Tech, Inc. common stock to shareholders of All
Communications Corporation in the merger was approved.
For: 5,298,082 Against: 12,325 Abstain: 9,030 Broker Non-Votes: 0
3. An amendment to our certificate of incorporation authorizing a 2 for 1
reverse split of our outstanding common stock was approved.
For: 5,209,337 Against: 35,390 Abstain: 74,720 Broker Non-Votes: 0
4. An amendment and restatement of our certificate of incorporation increasing
the number of authorized shares of common stock by 80 million to 100 million
shares to enable us to consummate the merger and to provide additional shares
for use in acquisitions and other purposes was approved.
For: 5,284,855 Against: 24,162 Abstain: 10,430 Broker Non-Votes: 0
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5. An amendment and restatement of our bylaws was approved.
For: 5,276,092 Against: 31,800 Abstain: 11,555 Broker Non-Votes: 0
6. An amendment to our certificate of incorporation authorizing the change of
our corporate name from "View Tech, Inc." to "Wire One Technologies, Inc." was
approved.
For: 5,303,267 Against: 7,255 Abstain: 8,955 Broker Non-Votes: 0
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 2, 2000, the registrant filed a report on Form 8-K dated May 18,
2000 stating that the registrant had completed its merger with All
Communications Corporation. Incorporated by reference to such report were All
Communication Corporation's (i) annual report on Form 10-KSB for the year ended
December 31, 1999, as filed with the Securities and Exchange Commission on March
30, 2000 and (ii) quarterly report on Form 10-QSB for the period ended March 31,
2000, as filed with the Securities and Exchange Commission on May 15, 2000. In
addition, the registrant filed the following pro forma financial information
with such report: (i) Unaudited Pro Forma Condensed Combined Balance Sheets of
March 31, 2000 and (ii) Unaudited Pro Forma Condensed Combined Statement of
Operations for the Three Months Ended March 31, 2000 and for the Year Ended
December 31, 1999.
On June 27, 2000, the registrant filed a report on Form 8-K dated June 14,
2000 stating that the registrant had completed a private placement of 2,450
shares of its series A convertible preferred stock and warrants to purchase
857,500 share of its common stock in a private placement to institutional and
strategic investors for an aggregate purchase price of $17,150,000.
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Signatures
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WIRE ONE TECHNOLOGIES, INC.
Registrant
Date: August 9, 2000 By: /s/ Richard Reiss
----------------------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: August 9, 2000 By: /s/ Christopher Zigmont
----------------------------------------
Christopher Zigmont
Chief Financial Officer
(principal financial and accounting officer)
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Exhibit Index
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
