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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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)
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Colorado 84-1132665
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1658 Cole Boulevard, Suite 130, Golden, CO 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) (Issuer's facsimile number)
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Securities registered under Section 12(b) of the Exchange Act:
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Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value
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(Title of Class)
Redeemable Warrants to purchase Common Stock
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(Title of Class)
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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 [ ] No [ X ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
This report contains 47 pages.
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State issuer's revenues for its most recent fiscal year. $19,009,645
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate Rule 12b-2 of the Exchange Act). Note: If
determining whether a person is an affiliate will involve an unreasonable effort
and expense, the issuer may calculate the aggregate market value of the common
equity held by non-affiliates on the basis of reasonable assumptions, if the
assumptions are stated. The aggregate market value of the voting stock held by
non-affiliates of the Company as of March 26, 1999 was: $17,375,646.
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Assumptions: All directors are affiliates, and the following officers are
affiliates: David Holden, Charles T. Stout, Gene Warren and Gavin Thomson.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ] n/a
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Common Stock, no par value:
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4,316,446 shares as of March 26, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into
which the document is incorporated (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g. annual
report to security holder for fiscal year ended December 24, 1990).
Documents incorporated by reference:
Document Item(s) Into Which Incorporated
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Proxy Statement to be used for the Part III, Items 9 through 12 inclusive
Annual Meeting of Stockholders to be
held June 17, 1999 (the "Proxy
Statement") to be filed with the SEC Introductory Statement
prior to May 10, 1999.
Amendment No. 1 on Form S-3 filed
with the SEC on March 17, 1999, and
any following amendments.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
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ACT Teleconferencing, Inc.
Form 10-KSB
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Table of Contents
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PART I. Page No.
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Item 1. Business 4
Item 2. Facilities 10
Item 3. Legal proceedings 10
Item 4. Submission of matters to a vote of security holders 10
PART II.
Item 5. Market for registrants' common equity and related 11
stockholder matters
Item 6. Management's discussion and analysis of financial 12
condition and results of operations
Item 7. Financial statements and supplementary data 21
(see Table of contents, page 21)
Item 8. Changes in and disagreements with accountants 38
PART III.
Item 9. Directors and executive officers of the registrant 38
Item 10. Executive compensation 38
Item 11 Security ownership of certain beneficial owners and 38
management
Item 12. Certain relationships and related transactions 39
Item 13. Exhibits and reports on Form 8-K 40
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Introductory Statement
Except for historical information, the following description of our business
contains forward-looking statements which involve risks and uncertainties. Our
actual results could differ materially from those set forth in these forward-
looking statements as a result of a number of factors, including those set forth
in our registration statement, incorporated by reference to this 10KSB, filed on
Amendment No. 1 on Form S-3 with the SEC on March 17, 1999, and any following
amendments.
PART I
Item 1. Business
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General
ACT Teleconferencing, Inc. provides a broad range of high-quality audio, video
and data teleconferencing services to multinational businesses and other
organizations in the United States, Canada, United Kingdom, Netherlands, France,
and Australia. We maintain operations centers in these countries, where we have
installed and operate computer-managed telecommunications equipment known as
bridges for audio conferencing, or in the case of video, multipoint control
units, MCUs, for conducting multiparty conferences.
Our ActioncallSM audio conferencing service accommodates multiparty conferences
from between 4 to 1,000 participants at a level of clarity not generally
available on most office communications equipment. Audio conferencing enables
sales, marketing, financial and production meetings, training, investor
relations calls and other small or large meetings to take place where travel
makes it impractical, inconvenient, or expensive to assemble a group. We offer a
variety of conferencing services at different price levels depending on customer
needs and business volume. Our customers include multinationals, banks, law
firms, accounting firms, high tech companies and a variety of other businesses
and entities.
We market our services and products through our North American, European, and
Asia-Pacific marketing operations. We are actively pursuing a global expansion
plan through the establishment of additional North American, European, and Asia-
Pacific sales offices and operations centers.
We began providing audio conference calls for Concert Global Networks Limited,
the global telecommunications company owned by British Telecommunications plc,
as an outsource provider during the fourth quarter of 1998. In October 1998, we
also agreed to provide video conferencing services for customers of GTE
Telephone Operating Company.
Our video conferencing service commenced in 1996 in the United Kingdom. This
service connects video conferencing participants by means of a video multipoint
control units under the ActionViewSM brand name. We plan to extend
videoconferencing service to additional locations, both international and
domestic, during 1999.
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We also offer a variety of audio and video teleconferencing products including
the Tandberg, Picturetel, Polycom, and RSI brand names. These products are
competitively priced, stand-alone audio and video conferencing systems. These
video systems comply with international standards and are usually connected over
an Integrated Services Digital Network service, ISDN service, which is available
in most major metropolitan markets. Our audio and data teleconferencing
services can be provided over any telephone network.
The Company and our Subsidiaries
We incorporated under the laws of Colorado in 1989, and commenced operations on
January 2, 1990. Through a reorganization in October 1992, we acquired all of
the outstanding shares of our related companies, which were owned by
substantially the same shareholders who owned our shares, transferred our
operating assets to our subsidiaries, and began operations as a holding company.
In 1992 we acquired 60% of ACT Teleconferencing Limited, a majority owned United
Kingdom subsidiary to conduct operations in the United Kingdom. In July 1995 we
acquired 100% of the issued share capital of NBS, Inc., a Minnesota corporation,
and changed its name to ACT VideoConferencing, Inc. In September 1995 we
commenced audio conferencing operations in Europe through a wholly owned
subsidiary, ACT Teleconferencing B.V., a Netherlands corporation.
In May 1997 we formed ACT Teleconferencing (Pty) Limited, in Australia and
purchased 80% of the issued share capital. In December 1997 we acquired 80% of
the issued shares of Multimedia and Teleconferencing Solutions, Limited, MaTS, a
value-added videoconferencing reseller based in the United Kingdom and changed
its name to ACT Business Solutions Limited. In February 1998, we formed ACT
Teleconferencing France, S.A., for the purpose of operating a teleconferencing
service in France.
In February 1998, we opened an office (and established an audio teleconferencing
operations center) in New Jersey to serve the New York City area. In September
1998 we announced our expansion into Canada with the opening of a new facility
in Toronto operated by ACT Teleconferencing Canada, Inc., a wholly owned
subsidiary, and an agreement to acquire Ottawa's Advanced Multi-Point
Conferencing, Inc. The acquisition of Advanced Multi-Point Conferencing was
consummated in October 1998. We are planning expansion into Germany and Hong
Kong during 1999, and have formed ACT Teleconferencing (Hong Kong) Limited in
October 1998, a 100% owned subsidiary incorporated in Hong Kong.
We operate as a holding company for our wholly owned domestic and foreign
subsidiaries and for our majority owned international subsidiaries. Our
principal executive offices are located at 1658 Cole Boulevard, Suite 130,
Golden, Colorado 80401, and our telephone number is (303) 235-9000.
We file annual, quarterly, and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with
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the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its Public Reference Room. Our SEC filings are
also available at the office of the National Association of Securities Dealers,
Inc. For more information on obtaining copies of our public filings at the
National Association of Securities Dealers, Inc., you should write to National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
Our Plan of Business
Key elements of our business strategy are:
. to establish ourselves globally as a recognized provider of reliable, high
quality, competitively priced audio, video, and data conferencing services
and products;
. to position ourselves as a single-source provider of customized solutions for
customer conferencing needs;
. to maintain the technical expertise necessary to evaluate and implement
conferencing and communications technologies to serve our customers'
requirements; and
. to expand operations in line with available capital and market opportunities
through geographic expansion, internal development, and acquisitions.
We intend to expand our domestic and international audio, video, and data
conferencing operations by establishing or acquiring additional equipment and
operators in selected cities in North America, Europe, and the Asia-Pacific
area. These plans, as and when fulfilled, will permit us to expand services to
existing multinational customers, secure larger numbers of new customers, and
reduce unit operations costs as volumes grow.
Background
Early forms of conference calls depended on the skills of a telephone company
operator using manually operated equipment. In the 1980s, the availability of
more reliable teleconferencing equipment prompted the growth of independent
teleconferencing providers.
Since the early 1980s, awareness and acceptance of teleconferencing and
innovations in audio, data, and video communications and the rapid growth of
internet applications have resulted in a significant increase in the use of
teleconferencing. New digital equipment allows full-duplex transmission
(simultaneous transmission and reception) and clarifies and equalizes sound
volume among participants. Dial-in and dial-out connections are offered so that
users may participate either by awaiting a call or by setting up their own
conferences. Digital recording, voting, polling, and expanded capacity for
larger conferences are also offered.
Advances in technology and changes in workstyles have also contributed to the
increased use of teleconferencing. Decentralized and networked management
information systems have provided faster access to data enabling faster decision
making.
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Teleconferencing provides a vehicle for bringing decision makers together more
frequently, at lower cost, with fewer scheduling conflicts than is possible for
face-to-face meetings. Many organizations looking for increased productivity are
using teleconferencing as a convenient, lower-cost alternative for sales,
marketing, operations, financial review, training programs, investor
presentations, press conferences, workshops, seminars, and board or other
meetings.
Increased competition among various telephone carriers has improved the quality
and availability of basic telephone service and a number of relatively small
companies have created a small market niche for teleconferencing services in the
United States, Canada, the United Kingdom and elsewhere, despite the size and
financial strength of major telecommunications companies. Teleconferencing is
also available in continental Europe and Asia-Pacific, but it is not yet widely
used and holds the potential for rapid growth.
Products and Services
We offer a broad range of products and services, primarily to corporate business
clients and institutions through our internal sales staff. Revenues are earned
by charging clients a fee per minute plus charges related to transmission costs.
We obtain volume discounts on long-distance transmission from long-distance
telephone companies, and we sell that service to our customers.
In addition to basic conference call services, we offer a range of enhanced
services that allow customers to specify a particular feature for a conference.
For example, we will place reminder calls, conduct electronic polling, record
the conference, make it available for dial-in access and digital playback to
persons unable to participate. For high-volume customers who prefer to own their
own equipment, we provide services for the purchase, installation, and operation
of the equipment and also contract to operate the bridge for the customer. We
also provide conference call services on an outsourced basis to certain major
telecommunications companies. We are an authorized distributor of desktop
conference telephones and video conferencing equipment that provide enhanced
visual and sound quality.
Video conferencing has grown substantially since its first introduction in the
1980s. The earliest applications involved expensive systems in dedicated
locations used primarily for large group conferences. The market has evolved
with the development of small group systems (two to eight individuals). More
recently available are relatively inexpensive desktop systems. Virtually all
manufacturers of these systems use the H.320 standard for
compression/decompression of video signals in conjunction with personal
computers. The video and data conferencing market is expected to show
substantial growth as internet and desktop applications evolve.
We have devised and implemented a quality management program to track the
results of internal operations, assess service quality, and measure customer
satisfaction.
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Marketing and Principal Customers
We have adopted a strategy of developing and providing reliable, high quality
services to create and maintain relationships with our clients and to foster
client loyalty that results in repeat usage. We market our teleconferencing
services directly through our own employees and through a commission-based
referral arrangement with various long-distance carriers.
We extend credit to all our major customers. Infrequent users of audio
teleconferencing bill their calls to a major credit card. Other customers are
granted credit based upon individual creditworthiness.
In July 1998, we entered an agreement with Concert Global Networks Limited,
Concert, to provide global audioconferencing services to Concert's worldwide
customer base through our centers in Denver, London, Paris, Amsterdam and
Sydney. Concert, which on the date of the agreement was owned by British
Telecommunications plc, and MCI Telecommunications Corporation, MCI, serves over
4,000 multinational customers in 30 countries. Prior to MCI's merger into MCI
World Com, Inc., MCI World Com, on September 14, 1998, British
Telecommunications purchased MCI's 24.9% interest in Concert and now owns 100%
of Concert. This ownership change did not impact our agreement with Concert.
Services under the Concert Global agreement commenced in the fourth quarter of
1998 via in-country distributors, including British Telecommunications (U.K.),
MCI WorldCom (USA), Telefort (Netherlands), Cegetel (France), Viag (Germany),
and others. In 1998 AT&T announced plans to join with British
Telecommunications in promoting the global services of Concert to AT&T
customers.
In September 1998, we announced an agreement with GTE Telephone Operating
Companies to acquire GTE's video conferencing equipment and provide video
conferencing bridge services to GTE's customers. In October 1998, we entered a
videoconferencing distribution agreement with Toyoda Machinery USA to sell
Toyoda's Virtual Tech video product line for remote diagnostics and related
services.
Suppliers
The Company is not dependent on any single carrier or supplier for any of the
services or products the Company sells. The Company has negotiated volume
discounts with its primary carriers, and believes it could negotiate similar
arrangements at similarly competitive prices with one or more other carriers
should its current carriers be unable to continue to provide service at
competitive prices. The equipment purchased by the Company for use in its
operations is also available from a variety of suppliers, some of which compete
in the teleconferencing services business.
Competition
We believe the principal competitive factors in the teleconferencing market are
reputation, service quality, reliability, price, and name recognition. The
location of an operations center can also be a competitive factor as a local
presence can reduce transmission charges. A local sales office makes local
marketing more personal and
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effective. The Company offers price-competitive services as well as enhanced
services at higher pricing.
To the extent that smaller, more innovative service companies are creating a
niche market, this industry can be viewed as significant and emerging. To the
extent that carriers such as AT&T, British Telecom, MCI, and Sprint provide
these services, the market can be viewed as part of the telecommunications
industry. Competition, therefore, is on two levels: with carriers as part of a
broad base of communication service and with relatively new and smaller
enterprises catering specifically to the teleconferencing application. Despite
the size and name recognition of the long-distance companies, the Company
believes its primary competition comes from smaller teleconferencing services
companies similar to itself.
The major telecom companies have had both positive and adverse effects on the
Company's business. Through sizable advertising budgets and marketing resources,
the telephone utilities have stimulated the market for conferencing, thereby
providing smaller companies with a large market. Although large long-distance
line capacity enables major companies to offer a price advantage to high-volume
customers, higher prices are generally charged to smaller and medium volume
customers. This creates a pricing niche that enables the Company and others to
compete for the teleconferencing business of medium and smaller volume
customers.
Additional competition will also develop from more sophisticated telephone sets,
private branch exchange or PBX systems, and customer-owned bridges. Currently,
most business desk telephones can conference three lines. PBX systems are able
to conference several calls in addition to those connected on a handset, and the
technology is available to enhance PBX capability up to six calls. PBX-handled
conference calls typically have poor sound quality, as the addition of each line
weakens the overall sound volume.
Intellectual Property
We seek to protect our proprietary information and business practices as trade
secrets. Our United Kingdom subsidiary has a British trademark for "CONFERCALL,"
and we own British trademarks for "ACT" and "ACTIONCALL," which we license to
the United Kingdom subsidiary. "ACT Teleconferencing" is trademarked in the
Benelux countries. "ACT" is not trademarked in the United States since a wide
variety of companies use "ACT" in their corporate name or advertising; however,
we believe we are the only enterprise currently using "ACT" in the
teleconferencing industry. Nevertheless, other enterprises' common usage of
"ACT" makes trademark protection or the defense of our use prohibitively
expensive. We have developed customized copyrighted software, which we consider
proprietary, for service and quality control functions, and have also developed
technical know-how with respect to the operation of telecommunications
equipment. We require each of our employees to execute a nondisclosure agreement
for the protection of our confidential information. There can, however, be no
assurance that we will be able to protect our proprietary information, business
practices, or trademarks from a competitor's use, or that we would be successful
in any litigation we might bring to protect our proprietary information,
business practices, or trademarks. We hold no patents.
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Regulation
Government regulation or licensing currently has no material impact on the
delivery of teleconferencing services in the United States, the United Kingdom,
Canada, Europe, or Australia, where we now conduct our business, or in other
countries of the Asia-Pacific area where we may consider future expansion.
Employees
As of December 31, 1998, we had 237 employees (221 full time and 16 part time) :
91 in North American operations; 124 in our European operations, and 15 in our
Asia Pacific operations. Of the 237 total worldwide employees, 134 are in
teleconferencing operations, 60 are in sales and marketing, and 43 are in
management and administration.
Item 2. Facilities
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We currently lease office and operations space at our locations in Denver, New
Jersey serving metropolitan New York, Toronto, Ottawa, London and Bracknell,
England, Amsterdam, Brussels, Sydney, Adelaide and Paris. All operations are in
quality office locations close to the city center. These leases all expire or
are renegotiable over the next five years. Forward lease commitments are not
significant in relation to total ongoing operating expenses and all lease costs
are in line with generally available market rentals.
Item 3. Legal proceedings
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We are not involved in any material legal proceedings.
Item 4. Submission of matters to a vote of security holders
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During the fourth quarter of its fiscal year ended December 31, 1998, we did not
submit any matter to a vote of security holders.
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PART II
Item 5. Market for common equity and related stockholder matters
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Our common shares have been traded on the Nasdaq SmallCap Market under the
symbol ACTT since March 11, 1996. For the period from January 1, 1998 through
December 31, 1998 the high and low closing sales prices for our common stock for
each quarter as reported by NASDAQ were:
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1998 Common Stock (ACTT) Warrants (ACTTW)
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High Low High Low
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First Quarter $10.00 $5.88 $5.38 $2.50
Second Quarter $11.63 $8.00 $6.63 $3.50
Third Quarter $10.63 $6.50 $5.88 $2.19
Fourth Quarter $ 7.25 $5.25 $3.25 $0.50
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As of December 31, 1998 the Company's share price was $5.25.
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1997 Common Stock (ACTT) Warrants (ACTTW)
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High Low High Low
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First Quarter $ 5.00 $2.88 $ .75 $ .25
Second Quarter $ 7.50 $4.99 $2.25 $ .75
Third Quarter $13.05 $8.25 $7.31 $2.88
Fourth Quarter $ 9.13 $4.50 $4.06 $ .88
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Stockholders. As of December 31, 1998 we had approximately 100 common
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stockholders of record and an estimated 350 additional beneficial holders whose
stock was held in street name by brokerage houses for a total of 450
stockholders.
Warrant holders. There were approximately 175 warrant holders as of December 31,
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1998. Our publicly traded warrants expired on February 2, 1999. During 1998
and early 1999 a total of 546,947 warrants converted at an exercise price of
$5.00 resulting in an increase in shareholder's equity of $2,707,416.
Dividends. We have never paid any dividends on its common stock and expects for
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the foreseeable future to retain all of its earnings from operations for use in
expanding and developing its business. Any future decision as to the payment of
dividends will be at the discretion of our board of directors and will depend
upon our earnings, financial position, capital requirements, plans for expansion
and such other factors as the board of directors deems relevant.
Sales of unregistered securities
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In November 1998, we acquired 100% of the issued shares of Advanced Multi-Point
Conferencing, Inc., a Canadian corporation, by issuing its shareholders 113,982
shares of our common stock at a price of $5.938 per share and CDN $330,000 (US
$215,094) in cash for a total consideration of $891,919. We did not receive any
cash for our issuance of the 113,982 shares of common stock.
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The acquisition was accounted for as a purchase as follows:
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Consideration paid:
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Cash $215,094
113,982 shares of common stock at $5.938 676,825
Acquisition costs 42,301
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$934,220
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Fair value of assets acquired:
Fair value of equipment and other tangible assets $151,795
Goodwill 782,426
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$934,220
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We issued the 113,982 shares of our common stock to the following selling
shareholders of Advanced Multi-Point Conferencing, Inc.: Mark Kelly, Stephen
Nava, Wendy Threader, Anna Cheung, Tina Cheung, Denis Colbourne, Margo Kelly,
Terry Kelly, Tom Moore, and Jack Threader. There were no underwriters used for
the issuance of the shares, and we are registering these shares on Form S-3 for
an offering on a delayed or continuous basis under Rule 415 under the Securities
Act of 1933.
On December 31, 1998 under Regulation D of the Securities Act of 1933, we
initiated a private offering of 250,000 units, each comprised of one share of
common stock and one warrant to purchase one share of common stock. The units
were offered at $5.50 each, which was the average closing price of our common
stock on the Nasdaq Small Cap Market for the preceding 10 trading days. The
warrants are exercisable at $7.00 and expire December 31, 2003. The shares and
the shares underlying the warrants entitle the holder to piggyback registration
rights from June 30, 1999, through December 31, 2003. The offering was
structured on a minimum/maximum basis with the minimum comprised of 80,000 units
(gross proceeds of $440,000) and a maximum of 250,000 units (gross proceeds of
$1,375,000). As of the closing date of February 16, 1999, 109,912 units were
subscribed, and we received total gross proceeds of $604,516. The purchasers of
the units were: Robert Aubry; Gene M. Berghoff & Jana L. Berghoff; Thierry R.
Bignet; Frayda Myers Coopers and John Daniels Cooper, JTWROS FBO A/C 398-27329-
13046; Roy Dimoff; Mary Ann Dunlevy; Diann Dunlevy-Koch; Karen Dyrenforth; Peter
Eeles; Martin W. Harrison; Robyn Hemmings; John W. Hill; James F. Seifert C/F
Timothy J. McCue; Wallace K. McDonell; Peter Meijer; Charles A. Morley; Suz-Anne
Moss; Kenneth W. Rush; Myriam Segura; James F. Seifert Management Trust; James
F. Seifert and Nancy L. Seifert, Trustees; William J. Seifert Trust; Raymond F.
Unger; Gerald & Carolyn Van Eeckhout; Charles Van Eeckhout; David M. Walsh; and
Edwin G. Wilcox Trust dated November 5, 1982. There were no underwriters used
for this offering.
Item 6. Management's discussion and analysis of financial condition and results
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of operations
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Overview
We completed another year of high revenue growth and rapid geographic market
expansion. The size of our net operating loss, increased due mainly to the
effect of entry into international markets which cost $2.6 million in
development costs. Total revenues grew by 86%, reflecting growth in the market
as well as additional market share gains we
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made and new country expansion. Revenues in the United States grew by 73% while
international revenues grew by over 97%. Development expenses incurred with the
entry into French, Australian, and Canadian markets as well as the losses from
our video equipment operations amounted to approximately $2.6 million.
Our policy with regard to international expansion is to enter countries with
developed infrastructures where there is an expectation for rapid and high
growth in demand for audio, video, and data conferencing services. We will also
continue to develop our United States and United Kingdom audio and video
operations, which are large and competitive markets.
Due to the costs of establishing a global audio platform, we have for the past
two years put global growth considerations ahead of profit criteria. Over the
past two years we have grown from our previous three locations (in Denver,
London and Amsterdam) to ten locations. The additional seven locations are in
New York, Toronto, Ottawa, Bracknell (UK), Paris, Sydney, and Adelaide. In 1999
we will open in Dallas and Hong Kong for a total of 12 operations centers. We
also operate sales offices in Brussels and Frankfurt.
Although all of the audio conferencing markets entered show excellent potential,
and operating installation has been satisfactory, progress in certain markets
has been slower than anticipated. In 1999 new country development costs will
slow, however ongoing development of markets already entered will cost us
approximately $2 million during 1999. In order for us to show improved earnings
growth, no further increases in new operations are being targeted and total new
development costs are being limited to approximately 8% of total revenues.
The global videoconferencing market continues to achieve substantial real growth
annually. We entered the global video bridging services market with the
acquisition of a videoconferencing network from GTE telephone operating
companies. We have made excellent progress in establishing our global video
services bridging operation to supplement our London operations. Our new opening
in Dallas, Texas, holds potential for approximately $1 million in new revenues
during its first year of operation.
Developments in the video equipment business have also been slower than
anticipated. Although the market continues to grow, video equipment hardware
margins are falling and sales are inconsistent as the market waits for new
developments to occur in internet and personal computing based equipment. As a
consequence, we plan to limit our participation in this market sector, allowing
our operating managers to concentrate their efforts on the service business.
Components of Revenue and Expense
We derive revenues principally from fees charged to clients for audio
teleconference "bridging" services which connect multiple parties to a
conference call, from charges for enhanced services, and from re-billing
transmission charges. The costs of sales consist of transmission, depreciation,
and operator salaries. Selling, marketing, general, and administrative expenses
consist of salaries, benefits, and general office expenses of our
administrative, marketing, and sales organizations.
Page 13
<PAGE>
Results of Operations
Fiscal Year Ended December 31, 1998, Compared to Fiscal Years Ended December 31,
1997
Net Revenues. Net revenues increased 86% to $19 million for the year ended
December 31, 1998, compared to $10.2 million for 1997. As in 1997, revenue
growth resulted from increased service business to established customers and
increased revenues from higher priced enhanced services as well as from sales to
new customers. During the year ended December 31, 1998, United States audio
conferencing operations accounted for 43% of net revenues, compared to 45% for
1997. United States net revenues for the year ended December 31, 1998,
increased by 73% over net revenues for the prior year. International net
revenues for the year ended December 31, 1998, increased by 97% over 1997 and
presently make up 57% of total revenues compared to 55% in the previous year.
Cost of Teleconferencing Services. Cost of teleconferencing services increased
130% to $10.9 million for the year ended December 31, 1998, compared to $4.7
million for the prior year, reflecting mainly volume increases in sales of
teleconferencing services, but also cost inefficiencies and downtime due to the
expansion of three offices in Denver, London, and Amsterdam, cost of new
operations in 7 additional locations and lower margin video equipment sales.
Cost of teleconferencing services represented 57% of net revenues for the year
ended December 31, 1998, compared to 46% of net revenues for 1997. Gross margin
percentage (net revenues less costs of conferencing services divided by net
revenues) for the year ended December 31, 1998, was 43%, versus 54% during the
prior year. Future long-term increases in gross margin should be sustained as we
add new locations, increase capacity, and gain improved volume recovery over our
fixed and semi-fixed costs.
Marketing, General and Administrative. Marketing, general, and administrative
expenses for the year ended December 31, 1998 were $9.6 million, or 51% of
revenue, compared to $5.4 million or 54% of revenue for 1997. The 78% increase
in such expenses reflects the continued additional investment in established
operations as well as the start up of our new business units in Europe and
Australia. In 1997 these expenses also resulted from the entry into
videoconferencing. As these costs are now generally more fixed than variable,
it is anticipated that they will, in future years, continue to show a lower
growth rate and comprise a lower percentage of sales as our total revenue
continue to grow.
(Loss) Before Taxes and Minority Interest. Loss before taxes and minority
interest increased by $1,623,695 to $1,525,468 for the year ended December 31,
1998 compared to profit before taxes and minority interest of $98,227 for 1997,
a change of 1,653%. Loss before taxes and minority interest for the year ended
December 31, 1998 includes the costs of approximately $2.6 million from the
ongoing development of European, Australian, Canadian, and Asia Pacific
operations.
Taxes on Income. Taxes on income increased 20.8% to $401,762 for the year ended
December 31, 1998, compared to $332,566 for 1997, due to increased income earned
by our 60% majority-owned United Kingdom subsidiary. We paid no other income
taxes due to current year losses and tax loss carry-forwards of approximately
$7.0 million.
Page 14
<PAGE>
Net Loss for the Year. The net loss for the year of $2,117,125 increased by
$1,680,317 or 385% from the previous year mainly due to the development costs
incurred as described above.
Fiscal Year Ended December 31, 1997, Compared to Fiscal Years Ended December 31,
1996
Net Revenues. Net revenues increased 65% to $10.2 million for the year ended
December 31, 1997, compared to $6.2 million for 1996. As in 1996, revenue
growth resulted from increased service business to established customers and
increased revenues from higher priced enhanced services as well as from sales to
new customers. During the year ended December 31, 1997, United States audio
conferencing operations accounted for 45% of net revenues, compared to 44% for
1996. United States net revenues for the year ended December 31, 1997,
increased by 67% over net revenues for the prior year. International net
revenues for the year ended December 31, 1997, increased by 76% over 1996 and
presently make up 55% of total revenues compared to 56% in the previous year.
Cost of Teleconferencing Services. Cost of teleconferencing services increased
31% to $4.7 million for the year ended December 31, 1997, compared to $3.6
million for the prior year, reflecting mainly volume increases in sales of
teleconferencing services. Cost of teleconferencing services represented 46% of
net revenues for the year ended December 31, 1997, compared to 58% of net
revenues for 1996. Gross margin percentage (net revenues less costs of
conferencing services divided by net revenues) for the year ended December 31,
1997, was 54%, versus 42% during the prior year. Future long-term increases in
gross margin should be sustained as we add new locations, increase capacity, and
gain improved volume recovery over our fixed and semi-fixed costs.
Marketing, General and Administrative. Marketing, general, and administrative
expenses for the year ended December 31, 1997 were $5.4 million, or 54% of
revenue, compared to $3.5 million or 57% of revenue for 1996. The 53% increase
in such expenses reflects the continued additional investment in established
operations as well as the start up of our new business units in Europe and
Australia and the entry into videoconferencing. With the exception of new
international locations, these costs are more fixed than variable. It is
therefore expected that they will, in future years, show a lower growth rate and
comprise a lower percentage of sales as the Company's net revenue grows.
(Loss) Before Taxes and Minority Interest. Profit before taxes and minority
interest increased by $1,021,876 to $98,227 for the year ended December 31, 1997
compared to a loss before taxes and minority interest of $923,649 for 1996, a
change of 110.6%. Profit before taxes and minority interest for the year ended
December 31, 1997 includes the costs of approximately $1.4 million from the
ongoing development of European, Australian and videoconferencing
operations.
Taxes on Income. Taxes on income increased 102% to $332,566 for the year ended
December 31, 1997, compared to $164,591 for 1996, due to increased income earned
by our 60% majority-owned United Kingdom subsidiary. We paid no other income
taxes due to current year losses and tax loss carry-forwards of approximately
$2.5 million.
Minority Interest. Minority interest increased by 69% to $202,469 for the year
ended December 31, 1997, compared to $119,867 for the comparable prior period in
1996, due
Page 15
<PAGE>
mainly to increased income earned by our 60% majority-owned United Kingdom
subsidiary.
Net Loss for the Year. The net loss for the year of $436,803 was reduced by
$771,299 or 63.8% from the previous year mainly due to revenue growth, gross
margin and productivity improvement achievements described above.
Key ratios and statistics
Established operations are defined as "over 3 years old." New operations are
defined as "under 3 years old."
<TABLE>
<CAPTION>
Revenues - $000 1998 1997 1996 1998 % 1997 %
- --------------- ------------- ------------- ------------- ------ ------
Change Change
------ ------
<S> <C> <C> <C> <C> <C>
Established operations:
United States, United Kingdom,
Netherlands $15,662 $ 9,731 $5,793 61% 68%
New operations:
Australia, France, Canada, Video 3,347 503 427 565% 18%
----------------------------------------------------------------
Total revenues $19,009 $10,234 $6,220 86% 65%
================================================================
</TABLE>
<TABLE>
<CAPTION>
Profit before taxes - $000
- --------------------------
<S> <C> <C> <C> <C> <C>
Established operations:
United States, United Kingdom,
Netherlands $ 1,331 $ 1,490 $ 305 (11%) 389%
New operations:
Australia, France, Canada, Video (2,856) (1,392) (1,229) 105% (13%)
---------------------------------------------------------------------
Total profit before tax ($1,525) $ 98 ($924) N/M N/M
=====================================================================
</TABLE>
<TABLE>
Return on sales %
- -----------------
(PBT divided by total sales)
- ----------------------------
<S> <C> <C> <C>
Established operations 7.0 14.6 4.9
New operations - (combined) (15.0) (13.6) (19.8)
--------------------------------------------------
Net return on sales (8.0) 1.0 (14.9)
==================================================
(N/M - not meaningful)
</TABLE>
Cost as a percentage of sales
The following table outlines certain items in our income statement as a
percentage of sales for each of the last three years:
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of teleconferencing services (57) (46) (58)
--------------------------------------------------------------------
Gross profit 43 54 42
Selling, general and administrative expenses (37) (39) (37)
--------------------------------------------------------------------
Operating income before development costs 6 15 5
New development costs (14) (14) (20)
--------------------------------------------------------------------
</TABLE>
Page 16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net income before provision for taxes and
minority interest (8) 1 (15)
Minority interest and income taxes (3) (5) (5)
-----------------------------------------------------------
Net (loss) (11) (4) (20)
===========================================================
</TABLE>
Cashflow, Liquidity and Capital Resources
Summary of Cashflows
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cashflow before changes in operating assets and
liabilities $ (801) $ 219 $ (739)
Changes in operating assets and liabilities 559 (581) (378)
Investing activities 5,456 1,746 809
Financing activities 5,678 1,947 2,258
Accumulated other comprehensive loss (62) (9) 1
-------------------------------------------------------------
Net change in cash $ (82) $ (170) $ 333
=============================================================
</TABLE>
During the year ended December 31, 1998, net cash and cash equivalents on hand
decreased by $82,026. At December 31, 1998, we had cash and cash equivalents of
$369,407 compared to $451,434 in 1997. Operating cashflow increased by $119,643
due to the increase in debt-free financing from 1997.
We also invested a total of $5,268,971 in additional telecommunications
equipment, software, and office equipment, principally in telecommunications
systems that provide new technology and capacity for the United States, Canada,
the United Kingdom, Europe, and Asia Pacific. Our total cash requirements were
funded using a mix of equity financing (via conversion of certain share
warrants) and certain lease and debt financing.
We have further plans to expand capacity, open new operations in new
international locations, and develop our videoconferencing business. We have a
policy towards establishing financing which includes targeting an appropriate
mix of debt and equity finance with a debt to equity ratio below 25%. Expansion
plans will continue to be financed using an appropriate mix of internally
generated cash from operations, lease financing for capital equipment and the
conversion of certain share warrants which expired on February 2, 1999. Prior
to February 2, 1999, a total of 546,947 warrants were converted at $5 for cash
proceeds net of expenses of $2,707,416.
On April 7, 1998 we entered into an equity lease financing commitment for $2
Million to finance the acquisition of conferencing bridges and related
equipment.
If suitable equity financing is not available in the future, we will defer
certain of our expansion plans and examine alternative forms of debt or equity
financing. We believe that the present rate of sales and profit growth will
provide the necessary cash resources to meet our growth needs for the coming
year.
Page 17
<PAGE>
Reconciliation of gross EBITDA (earnings before interest, taxes, depreciation,
amortization, minority interest) before and after development costs is as
follows:
<TABLE>
<CAPTION>
$000 Year ended December 31: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss for the year ($2,117) ($437) ($1,208)
Add: interest 532 99 36
taxes 401 333 164
depreciation and amortization 933 376 327
development costs 2,637 1,392 1,230
minority interest 190 203 120
-------------------------------------------------
EBITDA before development costs 2,576 1,966 669
(deduct development costs) (2,637) (1,392) (1,229)
EBITDA after development costs (61) 574 (560)
=================================================
EBITDA to total sales % (before development costs) 13.6 19.2 10.8
EBITDA to total sales % (after development costs) 0.0 5.6 (9.0)
</TABLE>
We regard EBITDA (before and after development expenses) as an important
indicator of progress in established operations. EBITDA from established
operations grew by over 39.6% reflecting improvements in profitability as well
as increased interest, depreciation, amortization, minority and development
charges. EBITDA should not be considered in isolation to, or be construed as
having greater significance than, other indicators of our performance.
"EBITDA" is defined as operating income (loss) before depreciation and
amortization expense, charges for interest expense, provision for income taxes
and minority interest in the earnings of a consolidated subsidiary. Accordingly,
EBITDA is not intended to replace operating income, net income, cash flow or
other measures of financial performance and liquidity reported in accordance
with generally accepted accounting principles. Rather, EBITDA is a measure of
operating performance and liquidity that may be considered in addition to those
measures. We believe that EBITDA is a measure of operating performance and
liquidity that is commonly reported and widely used by analysts, investors and
other interested parties in the telecommunications industry because it
eliminates many differences in financial, capitalization, and tax structures, as
well as non-operating and one-time charges to earnings. EBITDA is used
internally by our management to assess ongoing operations. However, EBITDA (both
before and after development expenses) as used by us may not be comparable to
similarly titled measures reported by other companies due to differences in
accounting policies.
Year 2000 Conversion
We are continually evaluating all our systems to identify Year 2000 problems. We
believe that our internal systems are Year 2000 compliant, and we have not
incurred any material costs for remediation for Year 2000 issues. Although we
have not yet identified any issues that would require remediation, we are
currently estimating that the future
Page 18
<PAGE>
costs to monitor, control, remediate, remove, and reinstall our systems to be
Year 2000 compliant, to meet changing business conditions, to handle new
business opportunities, and to address Year 2000 issues affecting our vendors
and customers that may impact us will be $500,000 or less in 1999 and an
additional $500,000 or less beyond 2000. Our review of year 2000 contingencies
has not identified any likely business interruptions. Such interruptions, if
they occur, will depend, in part, on the handling of Year 2000 issues by our
third party vendors and customers. Accordingly, we are uncertain at this time as
to the monetary value and time period of any interruption due to Year 2000
problems. We will continue to review and reevaluate the potential costs of
remediation and business interruptions throughout 1999.
Year 2000 Compliance
State of Readiness. We have increased efforts in the development of its
- -------------------
information technology, IT, systems over the past 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 before September
30, 1999. To the best of our knowledge, we are not presently dependent upon any
other significant internal non-information technology and/or embedded system
which is not Year 2000 compliant.
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 third parties and
changes in our customers' purchasing patterns is uncertain. We are continually
updating our contingency plans further described below to analyze and handle the
uncertainty regarding any Year 2000 issues.
Contingency Plans. Our contingency plan for the Year 2000 is to continue
- ------------------
monitoring all major risks 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 small niche component of the $700 billion annual worldwide
telecommunications industry. All of
Page 19
<PAGE>
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 have been
implemented.
. Restrictions will be imposed on business 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 has been installed to give additional
support to the operation of our bridges in all our locations.
. 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 20
<PAGE>
Item 7. Financial statements and supplementary data
-------------------------------------------
Contents
Report of Independent Auditors....................................... 20
Consolidated Balance Sheets.......................................... 21
Consolidated Statements of Operations................................ 22
Consolidated Statements of Shareholders' Equity...................... 23
Consolidated Statements of Cash Flows................................ 24
Notes to Consolidated Financial Statements........................... 25-35
Page 21
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
ACT Teleconferencing, Inc.
We have audited the accompanying consolidated balance sheets of ACT
Teleconferencing, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years 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 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 ACT
Teleconferencing, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
February 16, 1999
Page 22
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 369,408 $ 451,434
Accounts receivable (net of allowances for doubtful accounts
of $32,644 and $18,992 in 1998 and 1997, respectively) 4,295,216 2,885,125
Prepaid expenses 571,597 203,673
Inventory 269,795 136,116
Available for sale marketable securities - 50,000
-------------------------------------
Total current assets 5,506,016 3,726,348
Equipment:
Telecommunications equipment 5,840,969 2,651,395
Office equipment 4,205,347 1,910,606
Less: accumulated depreciation (1,969,428) (1,094,938)
-------------------------------------
Total equipment - net 8,076,888 3,467,063
Other Assets:
Goodwill (net of accumulated amortization of $136,340 and
$67,988 in 1998 and 1997, respectively) 1,537,321 736,300
Deferred loan fees 205,975 -
-------------------------------------
Total assets $15,326,200 $ 7,929,711
=====================================
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 686,691 $ 540,014
Accounts payable 2,935,331 1,349,337
Accrued liabilities 1,814,877 777,526
Current portion of long term debt 1,111,126 253,251
Income taxes payable 215,895 293,238
-------------------------------------
Total current liabilites 6,763,920 3,213,366
Long-term debt (net of deferred interest cost of $413,546) 4,949,051 613,714
Deferred income taxes (United Kingdom) 302,145 117,454
Minority interest 806,519 607,244
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; - -
none issued
Common stock, no par value; 10,000,000 shares authorized
3,755,633 and 3,612,758 shares issued and outstanding
in 1998 and 1997, respectively 7,463,931 6,158,584
Accumulated deficit (4,846,194) (2,729,069)
Accumulated other comprehensive loss (113,172) (51,582)
-------------------------------------
Total Shareholders' equity 2,504,565 3,377,933
-------------------------------------
Total liabilities and shareholders' equity $15,326,200 $ 7,929,711
=====================================
</TABLE>
See notes to consolidated financial statements.
Page 23
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net revenues $ 19,009,645 $ 10,234,403
Costs and expenses:
Cost of sales (10,881,556) (4,727,236)
Selling, general and administration expense (9,653,557) (5,408,940)
------------ ------------
Total costs and expenses (20,535,113) (10,136,176)
Net income (loss) before income taxes and minority interest (1,525,468) 98,227
Provision for income taxes (401,762) (332,566)
------------ ------------
Net loss before minority interest (1,927,230) (234,339)
Minority interest in earnings of consolidated subsidiary (189,895) (202,469)
------------ ------------
Net loss for the year $ (2,117,125) $ (436,808)
============ ============
Net loss per share $ (0.58) $ (0.14)
============ ============
Weighted average number of shares outstanding 3,647,188 3,204,747
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 24
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
------------
Accumulated
Shares Amount Deficit
-----------------------------------------
<S> <C> <C> <C>
Balance December 31, 1996 2,939,930 $ 4,022,671 $ (2,292,261)
Exercise of employee stock
options 43,500 52,000
Shares issued in connection with
exercise of 1994 private
placement warrants 514,950 1,520,834
Issuance of shares as fee to
warrant placement agent 33,000 115,500
Shares issued in connection with
the acquisition of MaTS ltd. 81,378 447,579
Comprehensive loss
Net loss (436,808)
Other comprehensive loss,net of tax
Foreign currency translation
adjustment, net of tax of $30,304
Total comprehensive loss
-----------------------------------------
Balance at December 31, 1997 3,612,758 $6,158,584 $ (2,729,069)
Shares issued in connection with
exercise of 1994 private placement
warrants and 1996 IPO warrants 26,893 136,000
Exercise of employee stock 2,000 6,000
options
Issue of 330,967 Warrants
in lieu of interest 486,521
Shares issued in connection with
the acquisition of Advanced
Multi-Point Conferencing (AMC) Inc. 113,982 676,826
Comprehensive loss
Net loss (2,117,125)
Other comprehensive loss,net of tax
Foreign currency translation
adjustment, net of tax of $20,941
Total comprehensive loss
---------------------------------------
Balance at December 31, 1998 3,755,633 $ 7,463,931 $ (4,846,194)
=======================================
<CAPTION>
Accumulated
other
Comprehensive
income (loss) Total
----------------------------
<S> <C> <C>
Balance December 31, 1996 $ 37,547 $ 1,767,957
Exercise of employee stock
options 52,000
Shares issued in connection with
exercise of 1994 private
placement warrants 1,520,834
Issuance of shares as fee to
warrant placement agent 115,500
Shares issued in connection with
the acquisition of MaTS ltd. 447,579
Comprehensive loss
Net loss (436,808)
Other comprehensive loss,net of tax
Foreign currency translation
adjustment, net of tax of $30,304 (89,129) (89,129)
-----------
Total comprehensive loss (525,937)
--------------------------
Balance at December 31, 1997 $ (51,582) $ 3,377,933
Shares issued in connection with
exercise of 1994 private placement
warrants and 1996 IPO warrants 136,000
Exercise of employee stock 6,000
options
Issue of 330,967 Warrants
in lieu of interest 486,521
Shares issued in connection with
the acquisition of Advanced
Multi-Point Conferencing (AMC) Inc. 676,826
Comprehensive loss
Net loss (2,117,125)
Other comprehensive loss,net of tax
Foreign currency translation
adjustment, net of tax of $20,941 (61,590) (61,590)
------------
Total comprehensive loss (2,178,715)
----------------------------
Balance at December 31, 1998 $ (113,172) $ 2,504,565
============================
</TABLE>
See notes to consolidated financial statements.
Page 25
<PAGE>
ACT Teleconferencing, Inc
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net loss $(2,117,125) $ (436,808)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 874,489 358,382
Amortization of goodwill 57,920 18,054
Deferred income tax charges 184,691 76,416
Minority interest 199,275 202,469
-----------------------------------
Cash flow before changes in operating assets and liabilities: (800,750) 218,513
Changes in operating assets and liabilities (Net of effect of
business combination):
Accounts receivable (1,324,560) (1,310,000)
Inventory (133,680) 73,276
Prepaid expenses and other assets (364,794) (124,612)
Accounts payable 1,386,968 424,460
Accrued liabilities 994,452 356,356
-----------------------------------
Net cash used for operating activities (242,364) (362,007)
Investing activities
Property and equipment purchases (5,268,971) (1,618,359)
Short term notes redeemed 11,776 (26,739)
Cash paid for acquisitions net of cash acquired (249,298) (101,257)
Disposal of marketable securities 50,000 -
-----------------------------------
Net cash used for investing activities (5,456,493) (1,746,355)
Financing activities
Net proceeds from issuance of debt 5,255,875 258,985
Net proceeds from issuance of common stock 628,521 1,688,334
Deferred loan issuance costs (205,975) -
-----------------------------------
Net cash provided by financing activities 5,678,421 1,947,319
Accumulated other comprehensive loss (61,590) (9,265)
-----------------------------------
Net decrease in cash and cash equivalents (82,026) (170,308)
Cash and cash equivalents, beginning of year 451,434 621,742
-----------------------------------
Cash and cash equivalents, end of year $ 369,408 $ 451,434
===================================
Supplemental Cash Flow Information and Non Cash Investing and Financing Activities
Capital asset and lease additions $ 2,427,780 $ 432,127
See notes to consolidated financial statements.
</TABLE>
Page 26
<PAGE>
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. Organization and Significant Accounting Policies
Business
ACT Teleconferencing, Inc. (the Company) is engaged in the business of providing
high quality audio, video and data conferencing products and services to
business clients worldwide. The Company operates principally in the United
States, Canada, the United Kingdom, France, the Netherlands, Belgium, and
Australia.
Principles of Consolidation
The consolidated financial statements include the accounts of ACT
Teleconferencing, Inc.; its wholly-owned domestic subsidiaries ACT
Teleconferencing Services, Inc., ACT VideoConferencing, Inc., ACT Research,
Inc.; its 100% owned Canadian subsidiary, ACT Teleconferencing Canada; its 100%
acquisition of Advanced Multi-Point Conferencing, Inc (AMC) as of October 17th
1997; its 60% owned United Kingdom subsidiary, ACT Teleconferencing, Limited;
its 80% owned United Kingdom subsidiary, ACT Business Solutions Limited; its
100% owned French subsidiary, ACT Teleconferencing France S.A.; its 100% owned
Dutch subsidiary, ACT Teleconferencing, B.V.; and its 80% owned Australian
subsidiary, ACT Teleconferencing, (Pty) Limited.
Revenue Recognition
Revenue is recognized upon completion of conferencing services or delivery of
equipment.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Video and audio equipment inventories are stated at the lower of cost or market,
on a first-in, first-out ("FIFO") basis. Equipment is priced using specific unit
costs consisting of materials, labor and related manufacturing overhead, but
exclusive of research and development, selling and general and administrative
expenses, which are charged to operations as incurred.
Equipment and Depreciation
Equipment is stated at cost. Depreciation is calculated on a straight-line basis
over the estimated useful lives of five years for office furniture and five or
ten years for office and telecommunications equipment. Depreciation expense
includes capital lease amortization charges.
Page 27
<PAGE>
Goodwill
Goodwill represents the excess of purchase price over tangible assets acquired
less liabilities assumed arising from acquisitions and is being amortized on a
straight-line basis over an estimated useful life of fifteen (15) years.
Long-Lived Assets
Long-Lived Assets are reviewed for impairment when events indicate that the
carrying amount may not be recoverable. If such events are noted, the Company
estimates the future flows to be generated by those assets. In the event that
the sum of the cash flows is less than the carrying amount of those assets, the
assets would be written down to fair value, which is normally measured by
discounting the estimated future cash flows.
Foreign Currency Conversion
The financial statements of the Company's foreign subsidiaries have been
translated into United States dollars at the average exchange rate during the
year for the statement of operations and year-end rate for the balance sheet.
Cash and cash equivalents
The Company considers all liquid investments with original maturities of three
months or less when purchased to be cash equivalents.
Loss per common share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share." Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. As the Company incurred losses during 1997 and 1998, the
incorporation of all of the Company's common stock equivalents would be anti-
dilutive. Only basic earnings per share is therefore presented in the
Consolidated Statements of Operations.
For 1998 and 1997, net loss per common share was computed based on the weighted
average number of common shares outstanding.
Advertising Costs
The Company expenses advertising costs as incurred. Total advertising expense
was $308,519 and $151,941 for the years ended December 31, 1998 and 1997
respectively.
Research and Development Expenses
The Company does not engage in research and development and therefore incurred
no costs in that regard.
Page 28
<PAGE>
2. Long and short term debt (including capitalized leases)
Short term lines of credit, notes payable and bank overdrafts
The Company has a line of credit secured by the accounts receivable of its
United States operations (namely ACT Teleconferencing Services, Inc.) bearing
interest at 0.5% above the prime rate (7 3/4 at December 31, 1998). This line
of credit contains certain covenants which include the maintenance of certain
financial ratios. The Company violated certain financial covenants as of
December 31, 1998; however, the institution has waived these covenants through
the May 1, 1999 maturity date. The line of credit has a borrowing base
restricted to qualified accounts receivable and is limited to $500,000. As of
December 31, 1998, the outstanding balance under this line of credit was
$500,000.
At December 31, 1998 the Company had a short term note payable to a
teleconferencing bridge vendor for $69,314, bearing interest of 6%. This note
matures on April 30, 1999 at which time accrued interest and principal will be
due.
The Company has a revolving line of credit secured by the accounts receivable of
the United Kingdom subsidiary (namely ACT Teleconferencing, Limited) bearing
interest at 2% above UK prime rate (6 1/4% at December 31, 1998). The line of
credit has a borrowing base restricted to qualified accounts receivable up to
$825,000. As of December 31, 1998 the outstanding balance under this line of
credit was $37,477.
The Company's UK videoconferencing subsidiary (namely ACT Business Solutions,
Limited (ACTBS)) has a line of credit secured by a mortgage debenture, over all
its assets and a guarantee provided by ACT Teleconferencing, Inc. This facility
has a limit of $82,500 and carries an interest rate of 3.75% above UK prime (6
1/4% at December 31, 1998), payable quarterly. There is an additional credit
facility, which is available on a case by case basis against expected cash
receipts and bearing an interest rate of 7.75% above prime. As of December 31,
1998, the outstanding balance was $79,900.
Long term debt
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Subordinated debt financing - Promissory Note payable by ACT
Teleconferencing, Inc. bearing an interest rate of 13.5% per annum
with monthly interest payments of $28,125. Principal is due on the
maturity date of March 31, 2003. The note is secured by a second
lien on Company assets, subordinated to the Company's senior lenders.
2,500,000 -
Line of credit to equipment vendor owed by ACT Teleconferencing,
Inc., bears interest at 6% per annum. Payments are due in monthly
installments calculated on 6% of principal balance and interest.
648,654 -
</TABLE>
Page 29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Note payable by U.S.A. subsidiary, ACT Teleconferencing Services,
Inc. to a telecommunication provider at an interest rate of 7%.
Payments in the first year will be $23,333 due on a quarterly basis.
Thereafter, two cash payments of $93,333 each due on the first and
second year anniversary of the effective date. 280,000 -
Notes payable to vendors bearing interest at rates from 14.157% to
16.125% due in monthly interest and principal repayments of $19,800.
These notes are collateralized by certain telecommunications
bridging equipment held by ACT Teleconferencing Services, Inc. 493,295 133,044
Bank notes payable bearing interest at rates ranging from 6% to
14.2%. Monthly or quarterly payments are made in accordance with the
debt agreements. The notes are secured by registered mortgage
debentures, corporate guarantee, or equipment. Maturity dates range
from February 1999 to February 2003. 432,464 157,948
Capitalized leases, at weighted average interest rates of 12.73% and
15.85% during 1998 and 1997, respectively. 2,119,310 575,973
Subtotal 6,473,723 866,965
Less deferred interest cost (413,546)
---------------------------------------
Subtotal 6,060,177
Less, current portion of long term debt (1,111,126) (253,251)
---------------------------------------
Long term debt including capitalized leases $ 4,949,051 $ 613,714
=======================================
</TABLE>
Total interest paid on notes and capitalized leases for the year ended December
31, 1998 and 1997 amounted to $532,322 and $99,496 respectively.
3. Commitments - operating and capitalized leases
Operating leases
The company leases office space in the United States, Canada, the United
Kingdom, France, the Netherlands and Australia. These leases expire November
2002, September 2003, July 2008, December 2000, September 2001 and August 2002
respectively. Total rent expense charged to operations was $743,380 and
$301,316 for the years ended December 31, 1998 and 1997, respectively.
The Company has also entered into several operating leases for computer and
office equipment. Total rent expense charged under these leases was $102,351
and $51,715 for the years ended December 31, 1998 and 1997, respectively.
Capitalized leases
The Company leases telecommunication equipment, office equipment, computers and
furniture under long-term leases classified as capital leases. For several of
these leases, the Company has the option to purchase the equipment for a nominal
cost at the
Page 30
<PAGE>
termination of the lease. The assets classified as capital leases are amortized
over the shorter of the estimated useful life of the property or the lease term.
Amortization related to the leased assets is included in depreciation for
financial reporting purposes.
The following property is secured under capital leases:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------------
<S> <C> <C>
Telecommunications and office equipment, computers
and furniture $2,317,286 $ 797,310
Less accumulated depreciation (278,613) (142,387)
---------------------------------------------
$2,038,676 $ 654,928
=============================================
</TABLE>
The aggregate minimum annual commitments for operating and capital leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
-------------------------------------------
<S> <C> <C>
1999 $1,042,124 $ 849,666
2000 1,023,662 689,384
2001 889,328 607,966
2002 721,132 342,866
2003 and thereafter 1,781,542 148,119
-------------------------------------------
Total minimum lease payments $5,457,788 $2,638,001
====================
Less amounts representing interest (518,691)
-----------------------
Present value of net minimum capital
leases payments $2,119,310
=======================
</TABLE>
During 1998 and 1997, the Company incurred capital lease obligations of
$1,714,690 and $432,127, respectively, in connection with lease agreements to
acquire equipment.
4. Shareholders' Equity
Initial Public Offering - common stock and warrant conversion
On March 5, 1996, the Company issued 712,497 units (common stock plus warrants)
in an initial public offering raising cash proceeds (net of expenses) of
$1,987,531.
Each of the warrants entitled the holder to purchase one share of common stock
during a three-year period commencing February 2, 1996 at an exercise price of
$5.00 per share, subject to adjustment in certain events. On February 2, 1999
the above warrants expired. A total of 546,947 warrants were converted at a
conversion price of $5 per share raising cash proceeds net of expenses of
$2,707,416.
Also in connection with the initial public offering, the Company granted a Unit
Purchase Option to the underwriter. The Unit Purchase Option grants the holder
the right to purchase 71,250 units (each consisting of one share of common stock
and one warrant to purchase common stock) for a nominal total price of $100, and
must be exercised on or before February 2, 2001. Each of the warrants underlying
the Unit Purchase Option
Page 31
<PAGE>
allows the holder to purchase one share of common stock for $5.00, and may be
exercised at any time up to three years from the date the Unit Purchase Option
is exercised.
Holders of warrants are not entitled to vote, receive dividends, or exercise any
of the rights of shareholders of Common Stock for any purpose until the warrants
have been duly exercised.
1999 Private Placement
On December 31, 1998, the Company initiated a private offering of 250,000 units,
each comprised of one share of common stock and one warrant to purchase one
share of common stock. The units were offered at $5.50 each, which was the
average closing price of the Company's common stock on the Nasdaq Small Cap
Market for the preceding 10 trading days. The warrants are exercisable at $7.00
and expire December 31, 2003. The shares and the shares underlying the warrants
entitle the holder to piggyback registration rights from June 30, 1999, through
December 31, 2003. The offering was structured on a minimum/maximum basis with
the minimum comprised of 80,000 units (gross proceeds of $440,000) and a maximum
of 250,000 units (gross proceeds of $1,375,000). As of the closing date of
February 16, 1999, 109,912 units were subscribed for total gross proceeds of
$604,516.
Other Warrants
As of March 31, 1998, the Company executed unregistered promissory notes, 1998
notes, in the amount of $1,610,000 and $890,000 (total of $2.5 million) under a
loan and security agreement. According to the terms of these 1998 notes, a
total of $2,000,000 was advanced to the Company on March 31, 1998 with the
balance of $500,000 advanced on August 31, 1998. The 1998 notes bear interest
at 13.5% with monthly interest payments of $28,125. Principal is due on the
maturity date of March 31, 2003. The 1998 notes are secured by accounts
receivable, inventory, intangibles, equipment, and other personal property as
well as 100% of the Company's voting shares in our subsidiary, ACT
Teleconferencing Services, Inc., and 60% of the outstanding shares of ACT
Teleconferencing Limited, a United Kingdom company, collectively, the
collateral. The 1998 notes are subject to a subordination agreement between the
lenders and the Company's commercial bank, in which the lenders have agreed to
subordinate their rights in the collateral to a $500,000 line of credit the bank
has made available to the Company.
In conjunction with the issuance of the 1998 notes, the Company issued stock
purchase warrants for the purchase of 330,967 shares of common stock at an
exercise price of $7.00 per share. If the 1998 notes are not fully paid on the
second, third, or fourth anniversary dates, the number of shares subject to
these warrants will increase to 390,634, 470,527, and 588,905 shares,
respectively. The warrants are also subject to customary anti-dilution
provisions and to adjustment in the event of stock splits, stock dividends,
consolidations, and the like. Holders of shares issued upon the exercise of
these warrants have piggy-back rights to registration.
As of April 7, 1998, the Company entered an Equity Lease Financing Commitment,
commitment, for $2 million. The Company may draw on the commitment to finance
our acquisition of conferencing bridges and related equipment in support of the
Company's
Page 32
<PAGE>
expansion to new offices and for handling the increased volume of traffic. As
consideration for the commitment, the Company agreed to grant to the lessors,
warrants to purchase 75,000 shares of our common stock at an exercise price of
$8.00 per share, based on the market price on April 7, 1998. The 75,000 shares
of common stock are not registered but will be registered under piggy-back
registration rights. The warrant purchase agreement provides that the warrants
will expire on April 7, 2003. The warrant purchase agreement grants demand
rights to the warrant holders, exercisable on two occasions, and piggy-back
rights. However, registration rights are granted only to the warrant holder and
only with respect to the shares issued or issuable on exercise of the warrants.
Accordingly, registration rights will expire upon termination of the warrants on
March 5, 2003. The warrants are also subject to customary anti-dilution
provisions and to adjustment in the event of stock splits, stock dividends,
consolidations, and the like.
5. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires the use of complex option
valuation models.
The Company's 1991 Stock Option Plan, as approved by shareholders, authorizes
the grant of options to officers, key employees, and consultants for up to
400,000 shares of the Company's common stock. The Stock Option Plan of 1996, as
amended and as approved by shareholders, authorizes the grant of an additional
800,000 options to officers, key employees, and consultants of the Company for a
total of 1.2 million options authorized. Options granted under both plans
generally have 10-year terms and vest 25% each year following the date of grant.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model. The following are weighted-average
assumptions for 1998 and 1997, respectively: risk-free interest rate of 6.0%; a
dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock of .75 and .80; and a weighted-average expected life of
the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Page 33
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
1998 1997
----------
Pro forma net (loss) $(2,746,828) $(714,230)
Pro forma (loss) per share $(.75) $(.22)
Because FASB Statement No. 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
1999.
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- ----------------------------------------
Weighted-Avg. Weighted-Avg.
Options Exercise Price Options Exercise Price
-------------- ----------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 730,400 $4.02 454,300 $2.53
Granted 232,693 7.54 325,100 5.62
Exercised (2,000) 3.00 (43,500) 1.20
Forfeited (58,656) 4.69 (5,500) 2.00
-------------- ---------------
Outstanding-end of year 902,437 $4.89 730,400 $4.02
======= =======
Exercisable at end of year 341,675 $3.15 186,350 $5.62
Weighted-average fair value of
options granted during the year
Market price equals exercise $6.68 $3.74
price
Market price exceeds exercise $6.25 -
price
Market price is less than $3.94 -
exercise price
====================================================================================================================
</TABLE>
Weighted average exercise prices for options outstanding as of December 31, 1998
were 451,300 shares at $2.72, 325,900 shares at $5.75, and 125,237 shares at
$9.00.
6. Income Taxes
The Company accounts for income taxes in conformity with FASB Statement No. 109,
Accounting for Income Taxes. Under the provisions of FASB Statement No. 109, a
deferred tax liability or asset (net of valuation allowance) is provided in the
financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences. This will result
in net taxable or deductible amounts in future years as a result of events
recognized in the financial statements in the current or preceding years.
Page 34
<PAGE>
Income tax expense and the related current and deferred tax liabilities for all
periods presented relate solely to the Company's U.K. operations and therefore
have no relation to the U.S. statutory rates.
The provision for income taxes for the years ended December 31, is comprised of
the following:
1998 1997
-----------------------------
Current $ 217,242 $ 256,154
Deferred 184,520 76,412
-----------------------------
$ 401,762 $ 332,566
=============================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
1998 1997
-----------------------------
Deferred Tax Liabilities-Domestic
Tax depreciation in excess of book depreciation $ (257,627) $ (100,267)
Deferred Tax Assets-Domestic
Net operating loss carry-forward 2,019,656 926,714
Reserves for doubtful accounts 7,764 3,850
Other (41,106) 12,381
-----------------------------
1,986,314 942,945
Valuation allowance for deferred tax assets (1,728,687) (842,678)
-----------------------------
Net deferred tax-Domestic $ 0 $ 0
=============================
Deferred Tax Liabilities-International
Tax depreciation in excess of book depreciation $ (302,145) $ (117,454)
Deferred Tax Assets-International
Net operating loss carry-forward 698,677 335,088
Other - 3,234
Valuation allowance for deferred tax assets (698,677) (338,322)
Net deferred tax liability-International $ (302,145) $ (117,454)
=============================
Taxes of $279,008 and $118,989 were paid during 1998 and 1997, respectively. The
domestic net operating loss carry forwards of approximately $5,415,000 will
begin to expire in the year 2005. The Company has not provided for any taxes on
undistributed foreign earnings as the Company intends to permanently reinvest
these earnings in the future growth of the business.
Page 35
<PAGE>
7. Business Segment Analysis
The Company offers a broad range of audio, video, and data teleconferencing
services and products to corporate business clients and institutions, and these
products and services are considered one line of business. The Company operates
in six primary locations, and the Company's management makes decisions on
resource allocation and assesses performance based on the market potential of
these operating locations. Each of the locations offers the same products and
services, has similar customers and teleconferencing equipment, and is managed
directly by the Company's executives, allowing the six locations to be
aggregated under the guidelines of FAS 131 resulting in one reportable line of
business. Audio conferencing services presently comprise approximately 90% of
total services. Video, data, and internet conferencing are presently services
which are integrated with the audio product offering and revenues are presently
incidental to the total revenues. The following is a summary of the significant
geographic markets:
For the year ended December 31, 1998:
<TABLE>
<CAPTION>
United Kingdom United States Other Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues $7,674,490 $8,115,104 $3,220,051 $19,009,645
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Long-Lived Assets $2,956,028 $3,465,899 $3,192,282 $ 9,614,209
- ------------------------------------------------------------------------------------------------------
For the year ended December 31, 1997:
United Kingdom United States Other Total
- ------------------------------------------------------------------------------------------------------
Net Revenues $5,090,665 $4,706,890 $ 436,847 $10,234,403
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Long-Lived Assets $1,230,532 $1,961,752 $ 997,866 $ 4,190,150
- ------------------------------------------------------------------------------------------------------
</TABLE>
One customer accounted for approximately 22% and 24% of consolidated revenues
for the years ended December 31, 1998 and 1997, respectively.
8. Acquisitions
In November 1998, we acquired 100% of the issued shares of Advanced Multi-Point
Conferencing, Inc., a Canadian corporation. The consideration we paid for the
acquisition was 113,982 shares of the Company's common stock at a price of
$5.938 per share, and CDN $330,000 (US $215,094) in cash for a total
consideration of $891,919. We did not receive any cash for our issuance of the
113,982 shares of common stock.
Page 36
<PAGE>
The acquisition was accounted for as a purchase as follows:
Consideration paid:
Cash $ 215,094
113,982 shares of common stock at $5.938 676,825
Acquisition costs 42,301
---------
$ 934,220
=========
Fair value of assets acquired:
Fair value of equipment and other tangible assets $ 151,795
Goodwill 782,426
---------
$ 934,220
=========
If this acquisition had occurred on January 1, 1998, consolidated revenues, net
loss and net loss per share would not have been materially different.
In December 1997 the Company acquired 80% of the outstanding shares of
Multimedia and Teleconferencing Solutions, Limited, a United Kingdom
corporation. The consideration paid for the acquisition was 81,378 shares of
the Company's common stock at a price of $5.50 per share, and $155,474 in cash
for a total consideration of $603,053. In addition to the consideration
described above, the Company agreed to a deferred consideration of a further
$540,000 to be issued in shares of common stock to the seller if the acquired
business attains certain pre-tax revenue and profit targets. A reduced number
of shares will be issued if the acquired company does not achieve the specified
targets but achieves certain targets pro-rata. If such targets are achieved and
the shares are issued, the value of the shares issued will increase both
goodwill and shareholders' equity.
The acquisition was accounted for as a purchase as follows:
Consideration paid:
Cash $ 155,474
81,378 shares of common stock at $5.50 447,579
Acquisition costs 31,822
---------
$ 634,875
=========
Fair value of assets acquired:
Fair value of equipment and other tangible assets $ 125,575
Goodwill 509,300
---------
$ 634,875
=========
If this acquisition had occurred on January 1, 1997, consolidated revenues, net
loss and loss per share would have been $12,278,940, $(222,031) and $(0.07),
respectively.
Goodwill on acquisitions is amortized over a period of 15 years.
Page 37
<PAGE>
9. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, temporary
investments, medium term investments, long term investments, accounts
receivable, accounts payable, long-term debt, and capitalized lease obligations.
Because accounts receivable and accounts payable are short-term instruments that
are settled at face value, the Company considers the carrying amounts to
approximate fair value.
The fair value of long-term debt, consisting of notes and capitalized lease
obligations, is based on interest rates available to the Company and comparisons
to market rates. The Company considers the carrying amounts to approximate fair
value.
10. Defined Contribution Plan
The Company has a defined contribution 401(k) plan which allows eligible
employees to contribute a percentage of their compensation and provides for
certain discretionary employer matching contributions. For the years ended
December 31, 1998 and 1997, the Company contributed $24,980 and $15,355,
respectively.
Item 8. Changes in and disagreements with Accountants
---------------------------------------------
None
PART III
Item 9. Directors and executive officers of the registrant
--------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
Item 10. Executive compensation
-----------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
Item 11. Security ownership of certain beneficial owners and management
--------------------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
Page 38
<PAGE>
Item 12. Certain relationships and related transactions
----------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.
Page 39
<PAGE>
Item 13. Exhibits and reports on Form 8-K
--------------------------------
<TABLE>
<CAPTION>
Exhibit
- -------
No. Description
- --- --------------------------------------------------------------------------------------------
<C> <S>
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
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
21(8) Subsidiaries of ACT Teleconferencing, Inc.
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney included in signature page of registration statement
27.1 Financial Data Schedule
</TABLE>
(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 ending 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 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.
(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 40
<PAGE>
(6) Incorporated by reference, attached as an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ending 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.
(8) Incorporated by reference, attached as an exhibit of the same number to our
Form SB-2 (Post-effective Amendment No. 4) filed with the SEC on December 8,
1998, File 33-97908-D.
Reports on Form 8-K
We filed a report on Form 8-K with the SEC on October 30, 1998.
Page 41
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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 6, 1999 By /s/ Gerald D. Van Eeckhout
-------------- --------------------------
Gerald D. Van Eeckhout
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant, and in the capacities
indicated.
Signature Title
- --------- -----
/s/ Gerald D. Van Eeckhout Chief Executive Officer and Director
- --------------------------- (Principal Executive Officer)
Gerald D. Van Eeckhout
/s/ Gavin Thomson Chief Financial Officer
- --------------------------- (Principal Financial & Accounting Officer)
Gavin Thomson
/s/ Ronald J. Bach Director
- ---------------------------
Ronald J. Bach
/s/ James F. Seifert Director
- ---------------------------
James F. Seifert
/s/ Donald Sturtevant Director
- ---------------------------
Donald Sturtevant
/s/ Carolyn R. Van Eeckhout Director
- ---------------------------
Carolyn R. Van Eeckhout
Page 42
<PAGE>
Index to Exhibits
All exhibits are filed electronically or incorporated by reference.
<TABLE>
<CAPTION>
Exhibit
- -------
No. Description
- --- -------------------------------------------------------------------------------------
<C> <S>
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
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
21(8) Subsidiaries of ACT Teleconferencing, Inc.
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney included in signature page of registration statement
27.1 Financial Data Schedule
</TABLE>
(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 ending March 31, 1996 filed with the SEC on May
15, 1996, File No. 0-27560.
Page 43
<PAGE>
(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 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.
(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 as an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ending 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.
(8) Incorporated by reference, attached as an exhibit of the same number to our
Form SB-2 (Post-effective Amendment No. 4) filed with the SEC on December 8,
1998, File 33-97908-D.
Page 44
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 333-10017 and 333-58403) pertaining to the ACT Teleconferencing,
Inc. Stock Option Plans of 1991 and 1996, of our report dated February 16, 1999,
with respect to the consolidated financial statements of ACT Teleconferencing,
Inc. included in the Annual Report (Form 10-KSB) for the year ended December 31,
1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Denver, Colorado
July 2, 1999
<PAGE>
Exhibit 24.1
------------
ACT Teleconferencing, Inc.
Power of Attorney
of Directors and/or Officers
The undersigned directors and/or officers of ACT Teleconferencing, Inc., a
Colorado corporation, hereby make, constitute, and appoint Gerald D. Van
Eeckhout and Gavin Thomson, and either of them, the undersigned's true and
lawful attorneys-in-fact, with power of substitution, for the undersigned and in
the undersigned's names, place, and stead, to sign and affix the undersigned's
names as such directors and/or officers of said corporation to an Annual Report
on Form 10-KSB or other applicable form, and all amendments to it, to be filed
by said corporation in March, 1999 with the Securities and Exchange Commission,
Washington, D.C., under the Securities Act of 1934, as amended, with all
exhibits and other supporting documents, with the SEC, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers expressly granted in this power of attorney.
IN WITNESS WHEREOF, the undersigned has set the undersigned's hand this
August 6, 1999.
/s/ Ronald J. Bach
---------------------------
Ronald J. Bach
/s/ James F. Seifert
---------------------------
James F. Seifert
/s/ Donald Sturtevant
---------------------------
Donald Sturtevant
/s/ Carolyn R. Van Eeckhout
---------------------------
Carolyn R. Van Eeckhout
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 369,407 451,434
<SECURITIES> 0 50,000
<RECEIVABLES> 4,327,860 2,885,125
<ALLOWANCES> 32,644 18,992
<INVENTORY> 269,796 136,116
<CURRENT-ASSETS> 5,506,016 3,726,348
<PP&E> 10,046,316 3,467,063
<DEPRECIATION> (1,969,428) 1,094,938
<TOTAL-ASSETS> 15,326,200 7,929,711
<CURRENT-LIABILITIES> 6,763,920 3,213,366
<BONDS> 0 0
0 0
0 0
<COMMON> 7,463,931 6,158,584
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 15,326,200 7,929,711
<SALES> 19,009,645 10,234,403
<TOTAL-REVENUES> 19,009,645 10,234,403
<CGS> 10,881,556 4,727,236
<TOTAL-COSTS> 20,535,113 10,136,176
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 532,322 99,496
<INCOME-PRETAX> (1,525,468) 98,227
<INCOME-TAX> (401,762) (332,566)
<INCOME-CONTINUING> (2,117,125) (436,808)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,117,125) (436,808)
<EPS-BASIC> (0.58) (0.14)
<EPS-DILUTED> (0.58) (0.14)
</TABLE>
