<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From __________ to __________.
Commission file number 0-27560
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ACT Teleconferencing, Inc.
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(Name of small business issuer as specified in its charter)
Colorado 84-1132665
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1658 Cole Blvd., Suite 130, Golden, Colorado 80401
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(Address of principle executive offices) (Zip Code)
(303) 235-9000 (303) 233-0895
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(Issuer's telephone number, including (Issuer's facsimile number,
area code) 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 during the past 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 [ ]
As of June 30, 1999, 4,437,646 shares of the issuer's common stock were
outstanding.
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ACT TELECONFERENCING, INC.
FORM 10-QSB
Table of Contents
<TABLE>
<CAPTION>
PART I. Financial Information Page No.
<S> <C>
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits 16
SIGNATURES 18
</TABLE>
Page 2
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PART I -- FINANCIAL INFORMATION
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Item 1. FINANCIAL STATEMENTS
ACT Teleconferencing, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 869,021 $ 369,408
Accounts receivable (net of allowances for doubtful accounts
of $56,126 and $32,644 in 1999 and 1998 respectively) 4,769,932 4,295,216
Prepaid expenses 746,248 571,597
Inventory 183,446 269,795
Available for sale marketable securities - -
Total current assets 6,568,647 5,506,016
Equipment:
Telecommunications equipment 7,244,590 5,840,969
Office equipment 5,465,655 4,205,347
Less: accumulated depreciation (2,584,443) (1,969,428)
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Total equipment - net 10,125,802 8,076,888
Other Assets:
Goodwill (net of accumulated amortization of $189,838 and
$136,340 in 1999 and 1998, respectively) 1,485,237 1,537,321
Deferred loan fees 208,318 205,975
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Total assets $18,388,004 $ 15,326,200
=========== =============
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 264,287 $ 686,691
Accounts payable 3,287,326 2,935,331
Accrued liabilities 1,597,223 1,814,877
Current portion of long term debt 750,489 1,111,126
Income taxes payable 412,706 215,895
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Total current liabilites 6,312,031 6,763,920
Long-term debt (net of deferred interest cost of $364,893 5,512,237 4,949,051
and $413,545.42 in 1999 and 1998, respectively)
Deferred income taxes (United Kingdom) 287,179 302,145
Minority interest 878,696 806,519
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized;
none issued
Common stock, no par value; 10,000,000 shares authorized
4,437,646 and 3,755,633 shares issued and outstanding
in 1999 and 1998, respectively 10,765,511 7,463,931
Accumulated deficit (5,078,036) (4,846,194)
Accumulated other comprehensive loss (289,614) (113,172)
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Total Shareholders' equity 5,397,861 2,504,565
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Total liabilities and shareholders' equity $18,388,004 $ 15,326,200
=========== =============
</TABLE>
See notes to consolidated financial statements.
Page 3
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ACT Teleconferencing, Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other
Common Stock Accumulated comprehensive
Shares Amount Deficit income (loss) Total
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<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,612,758 $ 6,158,584 $ (2,729,069) $ (51,582) $ 3,377,933
Shares issued in connection with
exercise of 1994 private placement
warrants and 1996 IPO warrants 26,893 136,000 136,000
Exercise of employee stock 2,000 6,000 6,000
options
Issue of 330,967 Warrants 486,521 486,521
in leiu of interest
Shares issued in connection with
the acquisition of Advanced
Multi-Point Conferencing (AMC) Inc. 113,982 676,826 676,826
Comprehensive loss
Net loss (2,117,125) (2,117,125)
Other comprehensive loss, net of tax
Foreign currency translation
adjustment, net of tax of $20,941 (61,590) (61,590)
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Total comprehensive loss (2,178,715)
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Balance at December 31, 1998 3,755,633 $ 7,463,931 $ (4,846,194) $ (113,172) $ 2,504,565
Shares issued in connection with
1996 warrants 549,154 2,637,531 2,637,531
Shares issued in connection with
1999 private placement warrants 109,912 583,988 583,988
Shares issued in connection with
the employee stock purchase plan (ESPP) 4,447 19,596 19,596
Shares issued in connection with
a Canadian service agreement 18,500 91,744 91,744
Legal and Audit fees incurred for (31,280)
the acquisition of Advanced
Multi-Point Conferencing (AMC) Inc.
Comprehensive loss
Net loss (231,842) (231,842)
Other comprehensive loss, net of tax
Foreign currency translation (176,442) (176,442)
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Total comprehensive loss (408,284)
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Balance at June 30, 1999 4,437,646 $ 10,765,511 $ (5,078,036) $ (289,614) $ 5,397,861
=======================================================================
</TABLE>
See notes to consolidated financial statements.
Page 4
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ACT Teleconferencing, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 6,429,079 $ 4,765,293 $13,271,546 $ 8,858,529
Cost of Services (2,855,633) $(2,480,761) $(6,049,252) $(4,126,824)
Depreciation and amortization (313,327) (219,193) (647,546) (373,532)
----------- ----------- ----------- -----------
Gross Profit $ 3,260,119 $ 2,065,339 $ 6,574,748 $ 4,358,173
Operating Expenses:
Marketing, general and administration expense (2,458,659) (1,794,628) (4,676,043) (3,329,508)
Development cost (581,437) (585,044) (1,452,275) (1,189,557)
----------- ----------- ----------- -----------
Operating Income (loss) 220,023 (314,333) 446,430 (160,892)
Other Income (Expense)
Interest, net (155,085) (49,266) (327,885) (86,156)
----------- ----------- ----------- -----------
Income (loss) before income taxes and minority interest 64,938 (363,599) 118,545 (247,048)
Provision for income taxes (99,772) (163,500) (217,714) (331,507)
----------- ----------- ----------- -----------
Income (loss) before minority interest (34,834) (527,099) (99,169) (578,555)
Minority interest in earnings of consolidated subsidiary (70,537) (107,281) (132,673) (215,985)
----------- ----------- ----------- -----------
Net income (loss) for the quarter $ (105,371) $ (634,380) $ (231,842) $ (794,540)
=========== =========== =========== ===========
Net income (loss) per share $ (0.02) $ (0.18) $ (0.05) $ (0.22)
=========== =========== =========== ===========
Weighted average number of shares outstanding 4,437,646 3,617,271 4,233,783 3,616,205
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5
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ACT Teleconferencing, Inc
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
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Operating activities
<S> <C> <C>
Net loss $ (231,842) $ (794,540)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 615,015 375,367
Amortization of goodwill 52,084 20,836
Deferred income tax (14,966) 1,231
Minority interest 72,177 227,917
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Cash flow before changes in operating assets and liabilities: 492,468 (169,189)
Changes in operating assets and liabilities (Net of effect of
business combination):
Accounts receivable (464,717) (1,599,125)
Inventory 86,350 (1,053)
Prepaid expenses and other assets (174,651) (126,218)
Accounts payable 548,805 1,013,654
Accrued liabilities (217,654) 429,389
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Net cash used for operating activities 270,601 (452,542)
Investing activities
Property and equipment purchases (2,663,930) (1,106,496)
Short term notes redeemed (9,998) (130,151)
Disposal of marketable securities - 50,000
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Net cash used for investing activities (2,673,928) (1,186,647)
Financing activities
Net proceeds (repayment) of debt (219,855) 2,331,550
Net proceeds from issuance of common stock 3,301,580 51,915
Deferred loan issuance costs (2,343) (220,727)
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Net cash provided by financing activities 3,079,382 2,162,738
Effect of exchange rate changes on cash (176,442) (140,941)
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Net (decrease) increase in cash and cash equivalents 499,613 382,608
Cash and cash equivalents, beginning of year 369,408 451,434
---------- ----------
Cash and cash equivalents, end of year $ 869,021 $ 834,042
========== ==========
</TABLE>
See notes to consolidated financial statements.
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ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. 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 of a fair presentation have
been included. Operating results for the six-month period ending June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the financial
statements and footnotes included in our annual report on Form 10-KSB for the
year ended December 31, 1998 and its amendments.
Business
ACT Teleconferencing, Inc is engaged in the business of providing high-
quality audio, data, and video conferencing products and services to business
clients. We operate in the United States, Canada, the United Kingdom, the
Netherlands, France, Australia, and Hong Kong, and have sales offices in Belgium
and Germany.
Net Earnings (Loss) Per Share
Net earnings (loss) per share is computed based upon the weighted average
number of shares of common stock outstanding during the period. Options and
warrants are not included in the computations since their effect is presently
either anti-dilutive or not material. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings per Share, which
was adopted on December 31, 1997. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options has been
excluded.
Comprehensive Income (loss)
The difference between net loss and comprehensive loss solely relates to
foreign currency translation.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Except for historical information, certain statements contained in this
quarterly report on Form 10-QSB, including, without limitation, statements
containing the words "believes," "anticipates," "estimates," "expects," and
similar words, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. You should not place undue
reliance on these forward-looking statements. These forward-looking statements
are subject to numerous assumptions, risks, and uncertainties that may cause our
actual results to be materially different from any future results expressed or
implied by us in those statements. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including risks or "Risk Factors" described in this quarterly report, our
registration statements on Forms S-1 and S-3, and in other documents we file
with the SEC. Copies of these documents may be obtained at www.sec.gov or upon
-----------
request from us.
Overview
We completed an encouraging quarter in terms of profit improvement and
strong growth of our core conferencing services business. Second quarter net
loss after taxes and minority interest amounted to $105,371, an improvement of
$529,009, or 83%, over the second quarter of 1998. Cumulative net loss for the
first half of the year was $231,842, an improvement of $562,698, or 71%, over
the first six months of 1998.
Second quarter revenue of $6.4 million grew 35% over the second quarter of
1998, reflecting continued growth in the market for audio teleconferencing
services, additional market share gains made and revenues from new operations.
Cumulative revenue for the first half of the year grew by 50% to $13.3 million
over the same period last year. We anticipate continued growth in
teleconferencing revenues in our operations in the United States, the United
Kingdom, the Netherlands, Canada, Australia, France, and Hong Kong as well as
new enhanced service introductions in video, data, and internet conferencing.
Development expenses incurred in connection with the entry into French,
Dutch, Canadian, Australian, and Hong Kong markets as well as our new internet
and videoconferencing services and technologies amounted to $581,437 for the
second quarter of 1999, a 1% reduction from the comparable period last year.
Cumulative development expenses for the six-month period ending June 30, 1999
were $1,452,275, a 22% increase over the previous year.
In summary, in addition to satisfactory profit improvements and continued
strong growth of our revenues, our second quarter and six-month period ending
June 30, 1999 included the following highlights:
. Revenues from audioconferencing services grew by 67% for the second quarter
and 70% for the six-month period ending June 30, 1999.
. Operating efficiencies enabled us to maintain gross margin at 51% of revenue
during second quarter and 50% of revenue for the six-month period ending June
30, 1999 compared to 43% and 49% for comparable periods last year.
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. An overall improvement in operating income of $534,356 for the second quarter
and $607,322 for the six-month period ending June 30, 1999 occurred compared
to same periods last year.
. Satisfactory implementation of the agreement with Concert Global Networks
Limited occurred including the development of a global billing and
reservation system.
. Announcements were made of the opening of two new offices, one in Hong Kong
and one in Dallas, Texas.
. Promising performance took place in Canada and Australia with strong volume
growth in both locations.
. A scale back was made of our video conferencing equipment business, which
accounted for less than 5% of our total revenue during the first two quarters
of the year.
. Lower than expected revenue growth in the U.K. and France occurred which
resulted in an overall attributable loss in European operations of $81,583
for the first half of 1999.
As previously announced, we are taking steps to limit our exposure to the
video conferencing equipment and systems business. We continue to focus on that
what we do best, which is the provision of extremely high quality audio, video,
and data conferencing services. This core business grew by 70% during the first
half of the year. We have built up a strong solid reputation for good service
quality with a number of preeminent multinational global clients.
In July 8, 1999 we entered into a three-year agreement with GTE
Communications Corporation, GTE, to provide enhanced teleconferencing services
to GTE and its customers. GTE Supply company also named us as a major supplier
of services to GTE's operating companies. We expect the combination of both
announcements to increase our revenue after the first year of implementation.
In July of 1998 we announced a three-year outsource supply agreement with
Concert Global Networks Limited, Concert, serving Concert Audioconferencing
Service. Concert is the British Telecom global services company. This service
commenced in the fourth quarter of 1998, and is being provided by ACT centers in
New York, Denver, London, Paris, Amsterdam, and Sydney.
Concert, which is based in Reston, Virginia, provides an array of managed
voice, data, and internet services to over 4,000 multinational companies in over
50 countries. Concert Audioconferencing Service, the world's first global
virtual private network-based conference service, offers a flexible, cost-
effective audioconferencing service to multinational companies via approximately
30 distributors worldwide including British Telecom and MCI.
Global presence and commitment to service excellence, innovation, and
quality were key factors in Concert's decision to award the contract to us. As a
result of the concert contract, we plan to continue to expand our geographic
penetration over the next twelve months.
Components of Revenue and Expense
We derive revenues principally from fees charged to clients for audio and
video conference bridging services which connect multiple parties to a
conference call, from fees for enhanced services, and from the sale of
videoconferencing equipment units.
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The costs of teleconferencing services consist of local and long-distance
telephone services, depreciation on equipment, salaries, benefits, and office
expenses of conference operators.
Selling, general, and administrative costs consist of salaries, benefits,
and office expenses of our administrative, market development, and sales
organizations. Development expenses consist of selling, general, and
administrative costs; depreciation; and interest incurred during the start-up
phase of new operations.
RESULTS OF OPERATIONS
Quarter ending June 30, 1999, compared to quarter ending June 30, 1998
Net revenues. Net revenues increased 35% to $6.4 million for the quarter
ending June 30, 1999, compared to $4.8 million for the same period in 1998,
primarily due to growth of the Concert Global Networks business, increased sales
of audio teleconferencing in new markets and continued use by existing
customers. Domestic operations accounted for 42% of the total revenue and
increased by 58% over the quarter ending June 30, 1998. International
operations accounted for 58% of total revenue and increased by 23% to $3.8
million over the quarter ending June 30, 1998.
Cost of services. Cost of services increased by 15% to $2.8 million for the
quarter ending June 30, 1999, compared to $2.5 million for the quarter ending
June 30, 1998. The gross profit percentage increased to 51% of sales from 43%
for the same period last year, mainly due to improved efficiencies and higher
traffic volumes over a fixed cost base.
Selling, general, and administrative costs. Selling, general, and
administrative costs for the second quarter of 1999 were $2.5 million and
accounted for 38% of revenue, compared to $1.8 million or 38% of revenue for the
same period last year. The 37% increase in such expenses resulted from an
expanded marketing focus in the United States as well as new marketing efforts
in the developing business units in France, Australia, Canada, and Hong Kong.
Depreciation and amortization. Depreciation and amortization expense
increased by 43% during the quarter ending June 30, 1999 over the second quarter
of 1998. The increase can mainly be attributed to the $5.9 million increase in
property and equipment capital expenditures increased during 1998 to accommodate
higher traffic volumes.
Development costs. Development costs for the second quarter of 1999 were
$581,437 or 9% of revenue compared to $585,044 or 12% of revenue for the second
quarter of 1998 and reduced by 1% over the second quarter of 1998. The
reduction in development costs to revenue was due to a commitment to moderate
geographic expansion efforts to allow for the achievement of profitability at
operating income level.
Net interest. Net interest for the quarter ending June 30, 1999 was
$155,085 compared to $49,266 for the same period last year, a 215% increase.
This increase was due to the increase in interest bearing debt taken on after
June 30, 1998 in order to finance our capital expansion. This debt is carried at
various interest rates, at an average weighted cost of 11.8%.
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Net income before taxes and minority interest. Net income before taxes and
minority interest improved by $428,537 to $64,938 for the second quarter of
1999, compared to a loss of $363,599 for the second quarter in 1998. This
improvement was mainly due to revenue growth and operational efficiencies
resulting in higher gross profit margins as well as the deceleration of selling
costs, general, and administrative costs and the reduction of development costs.
Taxes on income and minority interest. Taxes on income and minority
interest amounted to $170,309 for the second quarter of 1999, compared to
$270,781 for the second quarter of 1998, a 37% reduction. This decrease is due
to a relatively lower contribution to consolidated net income by our 60%
majority-owned United Kingdom operation, which pays full tax.
Net loss. Net loss reduced by $529,009 to $105,371, or 83%, for the second
quarter of 1999, compared to the net loss of $634,380 for the second quarter of
1998. The reduction in loss can be attributed to revenue growth, an improved
operating efficiency resulting in higher gross profit margins, stabilizing
selling, general, and administrative expenses, and finally to a reduction in
taxes and minority interest.
Earnings (loss) per share. Loss per share improved from a loss of $0.18 per
share during the second quarter in 1998 to a loss of $0.02 per share for the
quarter ending June 30, 1999, an improvement of 94%. Earning per share data was
calculated based on the weighted average number of 4,437,646 common shares
outstanding during the second quarter of 1999.
Six-month period ending June 30, 1999, compared to six-month period ending June
30, 1998.
Net revenues. Net revenues increased by 50% to $13.3 million for the six-
month period ending June 30, 1999, compared to $8.9 million for the same period
in 1998, primarily due to growth of the Concert Global Networks Limited
business, increased sales of audio teleconferencing in new markets, and
continued growth of existing operations. Domestic operations accounted for 44%
of the total revenue and increased by 67% over the six-month period ending June
30, 1998. International operations accounted for 56% of total revenue and
increased by 38% to $7.6 million over the six-month period ending June 30, 1998.
Cost of services. Cost of services increased 47% to $6.0 million for the
six-month period ending June 30, 1999, compared to $4.1 million for the six-
month period ending June 30, 1998. The gross profit percentage increased to 50%
of sales from 49% for the same period last year, mainly due to improved
efficiencies and higher traffic volumes over a fixed cost base.
Selling, general, and administrative costs. Selling, general, and
administrative costs for the six-month period ending June 30, 1999 were $4.7
million and accounted for 35% of revenue, compared to $3.3 million or 38% of
revenue for the same period last year. The 40% increase in such expenses
resulted from an expanded marketing focus in the United States as well as new
marketing efforts in the developing business units in France, Australia, Canada,
and Hong Kong.
Depreciation and amortization. Depreciation and amortization expense
increased by 73% during the six-month period ending June 30, 1999 over the same
period last year. The
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increase can mainly be attributed to the $5.9 million increase in property and
equipment capital expenditures.
Development costs. Development costs for the first half of 1999 were $1.5
million or 11% of revenue compared to $1.2 million or 13% of revenue for the
first six-month period of 1998 and increased by 22% over the six-month period
ending June 30, 1998. The reduction in development costs to revenue was due to
a commitment to moderate the geographic expansion efforts and to allow for the
achievement of ongoing profitability at operating income level.
Net interest. Net interest for the six-month period ending June 30, 1999
was $327,885 compared to $86,156 for the same period last year, a 281% increase.
This increase was due to the increase in interest bearing debt taken on after
June 30, 1998 in order to finance expansion. This debt is carried at various
interest rates, at an average weighted cost of 11.8%.
Net income before taxes and minority interest. Net income before taxes and
minority interest improved by $365,593 to $118,545 for the first half of 1999,
compared to a loss of $247,048 for the same period in 1998. This improvement
was again due to revenue growth and operational efficiencies resulting in higher
gross profit margins as well as the deceleration of sales, general, and
administrative costs and the reduction of development costs.
Taxes on income and minority interest. Taxes on income and minority
interest amounted to $350,387 for the six-month period ending June 30, 1999,
compared to $547,492 for the six months ended June 30, 1998, a 36% reduction. As
described above this decrease is due to a relatively lower contribution to net
income by our 60% majority-owned United Kingdom operation, which pays full tax.
Net loss. Net loss reduced by $562,698 to $231,842 for the six-month period
ending June 30, 1999, compared to the net loss of $794,540 for the six-month
period ending June 30, 1998. The decrease in loss can be attributed to revenue
growth, an improved operating efficiency, higher gross profit margins,
stabilizing selling, general, and administrative expenses, and finally to a
reduction in taxes and minority interest as discussed above.
Earnings (loss) per share. Loss per share improved from a loss of $0.22
per share during the six-month period ending June 30, 1998 to a loss of $0.05
per share for the same period this year, an improvement of 77%. Earning per
share data was calculated based on the weighted average number of 4,233,783
common shares outstanding during the first half of fiscal 1999.
Liquidity and capital resources (for the six months ending June 30, 1999)
During the six months ended June 30, 1999, net cash increased by $499,613
from December 31, 1998. At June 30, 1999, we had cash and cash equivalents of
$869,021 compared to cash and cash equivalents on hand on December 31, 1998 of
$369,408.
Cash generated through operating activities and before funding net
operating assets amounted to $492,468 for the six-month period ending June 30,
1999, compared to a cash outflow of $169,189 for the same period last year. Cash
after financing operating assets and liabilities amounted to a net inflow of
$270,601 reflecting mainly significant improvements in
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accounts receivable management. Our accounts receivable days improved by over
30% from 95 days at June 30, 1998 to 66 days at June 30, 1999.
During the first six months of 1999, we invested $2.7 million in additional
equipment mainly to provide global capacity for the Concert Global Networks
Limited business, for developing a global reservation and billing system, for
further expansion into Australia, for the opening of new office in Hong Kong,
for increasing capacity in Canada, and for the ongoing development of the French
office.
The gross cash outflow of $2.4 million, after capital investment and before
financing arrangements, was funded through proceeds from the conversion of
549,154 warrants at $5.00 per share amounting to $2,647,028, net of expenses;
the issuance of 109,912 private placement units, shares and warrants, for
$604,516; and $219,855 net debt financing. Total net cash provided by financing
activities amounted to $3.1 million, which was completed during the first
quarter of the year. Our overall financing resulted in a net cash inflow of
$499,613 for the six-month period ending June 30, 1999.
Year 2000 Compliance
As the Year 2000 approaches, many date-sensitive computer applications in
businesses may fail because they are unable to process dates properly beyond
December 31, 1999. Businesses will be required to devote significant resources
to convert their information systems to meet Year 2000 requirements. We are
significantly dependent upon external or third parties, including electrical
utilities, telecommunications, banking and financial services, airlines, and
governmental agencies and institutions to provide services to us and to purchase
services from us. Their failure to provide services to us due to Year 2000
problems could have a material adverse effect on our business, results of
operations, and financial condition. Additionally, as these entities devote
financial resources to comply with Year 2000 requirements, the purchasing
patterns of our customers may be affected as they may have reduced funds
available to purchase our services, which could result in a material adverse
effect on our business, results of operations, and financial condition.
We are continually evaluating all our systems to identify year 2000
problems. Except as noted below, at this time, we are not aware of any issues
that require remediation. Our review of potential business interruptions has
not identified any likely interruptions. Such interruptions, if they occur,
will depend, in part, on the handling of year 2000 issues by our vendors and
customers.
State of Readiness. Our principal information technology systems have been
-------------------
developed intensively only over the last four years with desktop based Year 2000
compatible software. From our incorporation in December 1989 to mid 1994, we
satisfied our major systems requirements using manual or semi-automated computer
and accounting systems. We are principally dependent on one of the leading audio
conferencing bridge manufacturers, Compunetix, Inc., for our teleconferencing
bridges. This manufacturer utilizes a non-information technology system. We have
requested Compunetix to verify and certify that all its embedded systems within
our bridges are year 2000 compliant. Compunetix has agreed to install year 2000
compliant software by no later than December 31, 1999. To the best of our
knowledge, we are
Page 13
<PAGE>
not presently substantially dependent upon any other significant internal non-
information technology and/or embedded system which is not year 2000 compliant.
Costs to Address Year 2000 Issues. We believe that our internal systems are
----------------------------------
substantially year 2000 compliant; and we have not incurred any material costs
for remediation for the year 2000. However, to address the impact of
acquisitions, new facilities, and other contingencies, we estimate that the
future costs to monitor, control, and remediate our systems to be year 2000
compliant are not likely to exceed either $500,000 in 1999 or an additional
$500,000 beyond year 2000. We will continue to review and reevaluate the
potential costs of remediation and business interruptions.
Risks of Year 2000 Issues. Our dependence upon external or third parties
--------------------------
is significant. The major areas where a year 2000 failure could have an effect
on our business would be a failure in one or more of the following major
industries or institutions on which we are dependent either as a supplier to us
or as a customer:
. electrical utilities
. telecommunications
. banking and financial services
. airlines
. government agencies and institutions
Their failure to provide services to us due to year 2000 problems could
have a material adverse effect on our business, results of operations, and
financial condition. As these entities devote financial resources to comply with
year 2000 requirements, changes in their customary purchasing patterns could
result in a material adverse effect on our business, results of operations, and
financial condition. The consequences of our dependence on external or third
parties and changes in our customers' purchasing patterns is uncertain. We are
formulating a formal contingency plan further described below to analyze and
handle the uncertainty regarding any Year 2000 issues.
Contingency Plans. Our future formal contingency plan for the year 2000
------------------
will continue to monitor all major risks for us on a proactive basis. We believe
that we operate in a changing, high growth, volatile, and high risk environment,
and our management will continually assess and address all risks, not only Year
2000 risks. Our market sector is a niche component of the $700 billion annual
worldwide telecommunications industry. All of our major service providers and
most of our major customers are multinational entities that are substantially
larger than us. We are largely dependent on our major service providers and
customers. We intend to monitor our exposure and also take appropriate measures
to ensure that we are not unduly dependent upon one particular customer or
industry supplier. In anticipation of year 2000, the following contingency
plans are either being considered or implemented:
. Restrictions will be imposed on travel for personnel on airline flights
between December 15, 1999 and January 31, 2000.
. Our cash in banks will be in reasonable sums in at least two major banks
and in different corresponding banks overseas.
. Uninterrupted power supply will be installed to give additional support
to the operation of our bridges in all our locations.
Page 14
<PAGE>
. A minimum of two telecommunications network providers will be connected
at all major locations.
. Operations centers will be stocked with food, water, and bedding, as
they are currently for snowstorms, hurricanes, severe thunderstorms, and
other natural disasters.
. Vacations will be adjusted to make optimal use of downtime during this
period.
Page 15
<PAGE>
PART II - Other Information
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
We held the annual meeting of shareholders on June 17, 1999 at the Denver
Marriott West Hotel in Golden, Colorado. Carolyn R. Van Eeckhout and Donald L.
Sturtevant were re-elected to the board of directors, Class III, for a three-
year term expiring at the annual meeting of shareholders in 2002. The votes for
Ms. Van Eeckhout were 3,214,424, and votes against her were 700. There were
8,850 withheld or abstention votes, and 160,894 votes were represented by
brokers who did not respond.
The votes for Mr. Sturtevant were 3,220,174, and votes against him were
600. There were 3,200 withheld or abstention votes, and 160,894 votes were
represented by brokers who did not respond.
The shareholders also ratified the appointment of Ernst & Young LLP as
independent accountants for the Company for the year ending December 31, 1999.
Votes for ratification were 3,222,774 and there were no votes against
ratification. There were no withheld or abstention votes, and 160,894 votes
were represented by brokers who did not respond.
Item 6(a). Exhibits
Exhibit No. Description
- ----------- -----------
3.1/(2)/ Restated Articles of Incorporation of ACT April 15, 1996
3.2/(2)/ Bylaws of ACT, amended as of April 15, 1996
4.1/(1)/ Form of specimen certificate for Common Stock of ACT
10.1/(1)/ Stock Option Plan of 1991, as amended, authorizing 400,000 shares
of Common Stock for issuance under the Plan
10.2/(1)/ Form of Stock Option Agreement
10.3/(1)/ Form of Common Stock Purchase Warrant
10.10/(1)/ Split Dollar Insurance Agreement dated March 1, 1990, between ACT
and Gerald D. Van Eeckhout
10.11/(1)/ Service Agreement dated April 10, 1992 between David Holden and
ACT Teleconferencing Limited
10.19/(4)/ Stock Option Plan of 1996, as amended
10.20/(5)/ Employee Stock Purchase Plan
10.22/(6)/ Loan and Security Agreement dated March 31, 1998 and Form of stock
purchase warrant with Sirrom Capital Corporation and Equitas L.P.
10.23/(6)/ Loan Agreement with Key Bank, N.A.
10.24/(7)/ Lease Commitment and Warrant with R.C.C. Finance Group Ltd.
10.25/(7)/ Contract for the Supply of Conferencing Services Design
Development and Information signed July 14, 1998 between ACT
Teleconferencing Services, Inc. and Concert Global Networks
Limited
10.26/(7)/ Agreement for the Supply of Conferencing Services signed July 14,
1998 between ACT Teleconferencing Services, Inc. and Concert
Global Networks Limited
10.27/(7)/ Agreement for Videoconferencing Equipment and Services (GTE
Telephone Operating Companies) dated October 1, 1998
27.1 Financial Data Schedule
Page 16
<PAGE>
/(1)/Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the SEC on October 10,
1995, and amendments to our Form SB-2, File No. 33-97908-D.
/(2)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended March 31, 1996, Filed with the SEC on May
15, 1996, File No. 0-27560.
/(3)/Incorporated by reference, attached as an exhibit of the same number to our
Form S-8, filed with the SEC on July 2, 1998, File No. 0-27560.
/(4)/Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the SEC on April 30, 1997, File No. 0-27560, and
amended and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998,
File 333-58403.
/(5)/Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the SEC on April 15, 1998, File No. 0-27560.
/(6)/Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the SEC on August 24, 1998 (originally filed under cover of Form SE on
August 14, 1998) File 0-27560.
/(7)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ending September 30, 1998, filed with the SEC
on November 16, 1998, File 0-27560.
Page 17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACT TELECONFERENCING, INC.
DATE: August 13, 1999 By:/s/ Gavin J. Thomson
--------------------
Gavin J. Thomson,
Chief Financial Officer
(Duly authorized officer and
Principal Financial Officer)
Page 18
<PAGE>
Index of Exhibits
All exhibits are filed electronically, unless incorporated by reference.
Exhibit No. Description
- ----------- -----------
3.1/(2)/ Restated Articles of Incorporation of ACT April 15, 1996
3.2/(2)/ Bylaws of ACT, amended as of April 15, 1996
4.1/(1)/ Form of specimen certificate for Common Stock of ACT
10.1/(1)/ Stock Option Plan of 1991, as amended, authorizing 400,000 shares
of Common Stock for issuance under the Plan
10.2/(1)/ Form of Stock Option Agreement
10.3/(1)/ Form of Common Stock Purchase Warrant
10.10/(1)/ Split Dollar Insurance Agreement dated March 1, 1990, between ACT
and Gerald D. Van Eeckhout
10.11/(1)/ Service Agreement dated April 10, 1992 between David Holden and ACT
Teleconferencing Limited
10.19/(4)/ Stock Option Plan of 1996, as amended
10.20/(5)/ Employee Stock Purchase Plan
10.22/(6)/ Loan and Security Agreement dated March 31, 1998 and Form of stock
purchase warrant with Sirrom Capital Corporation and Equitas L.P.
10.23/(6)/ Loan Agreement with Key Bank, N.A.
10.24/(7)/ Lease Commitment and Warrant with R.C.C. Finance Group Ltd.
10.25/(7)/ Contract for the Supply of Conferencing Services Design Development
and Information signed July 14, 1998 between ACT Teleconferencing
Services, Inc. and Concert Global Networks Limited
10.26/(7)/ Agreement for the Supply of Conferencing Services signed July 14,
1998 between ACT Teleconferencing Services, Inc. and Concert Global
Networks Limited
10.27/(7)/ Agreement for Videoconferencing Equipment and Services (GTE
Telephone Operating Companies) dated October 1, 1998
27.1 Financial Data Schedule
/(1)/Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the SEC on October 10,
1995, and amendments to our Form SB-2, File No. 33-97908-D.
/(2)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended March 31, 1996, Filed with the SEC on May
15, 1996, File No. 0-27560.
/(3)/Incorporated by reference, attached as an exhibit of the same number to our
Form S-8, filed with the SEC on July 2, 1998, File No. 0-27560.
/(4)/Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the SEC on April 30, 1997, File No. 0-27560, and
amended and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998,
File 333-58403.
/(5)/Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the SEC on April 15, 1998, File No. 0-27560.
Page 19
<PAGE>
/(6)/Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the SEC on August 24, 1998 (originally filed under cover of Form SE on
August 14, 1998) File 0-27560.
/(7)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ending September 30, 1998, filed with the SEC
on November 16, 1998, File 0-27560.
Page 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACT
TELECONFERENCING, INC.'S UNAUDITED JUNE 30, 1999 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 869,021
<SECURITIES> 0
<RECEIVABLES> 4,769,932
<ALLOWANCES> (56,126)
<INVENTORY> 183,446
<CURRENT-ASSETS> 6,568,647
<PP&E> 12,710,245
<DEPRECIATION> (2,584,443)
<TOTAL-ASSETS> 18,388,004
<CURRENT-LIABILITIES> 6,312,031
<BONDS> 0
0
0
<COMMON> 10,765,511
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,388,004
<SALES> 6,429,079
<TOTAL-REVENUES> 13,271,546
<CGS> 12,825,116
<TOTAL-COSTS> 6,616,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327,885
<INCOME-PRETAX> 118,545
<INCOME-TAX> (217,714)
<INCOME-CONTINUING> (231,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231,842)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
