<PAGE>
Filed Pursuant to Rule 424(B)3
Registration No. 033-97908-D
ACT TELECONFERENCING, INC.
71,249 Shares of Common Stock Issuable on Exercise of Unit Purchase Option
71,249 Warrants, each for the Purchase of One Share of Common Stock
71,249 Shares of Common Stock Issuable Upon Exercise of the Warrants
Tuschner & Company, Inc., the investment banker for ACT Teleconferencing's
initial public offering on February 2, 1996, and certain of its owners,
officers, directors and employees have demanded registration to allow them to
sell shares of Common Stock, Warrants, and the shares of Common Stock underlying
the Warrants upon their exercise of a Unit Purchase Option to purchase 71,249
Units. Each Unit is comprised of one share of Common Stock and one Warrant to
purchase one share of Common Stock. Tuschner & Company, Inc. purchased the Unit
Purchase Option at the closing of our initial public offering. Upon the exercise
of the Unit Purchase Option, we will issue the Units as Shares and Warrants
rather than as Units.
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Offering Price
Common Stock(included in Unit Purchase Option) $4.20 $299,246
Warrants (included in Unit Purchase Option) -0- -0-
Common Stock (underlying the Warrants) $5.00 $356,245
Commissions -0- -0-
Proceeds to ACT $9.20 $655,491
</TABLE>
NASDAQ SmallCap Market Trading Symbols:
ACTT (Common Stock)
ACTTW (Warrants)
_______________________
This investment involves a high degree of risk. You should purchase shares
only if you can afford a complete loss. See "Risk Factors" beginning on page 7.
The Securities and Exchange Commission or any state securities commission
has not approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
_______________________
Dated December 31, 1998
1
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
ACT Teleconferencing, Inc. (the "Company") provides and markets a broad
range of high-quality audio, video and data teleconferencing services and
distributes related teleconferencing products to businesses and other
organizations in the United States, United Kingdom, Netherlands, Belgium, France
and Australia. We maintain operations centers in these countries, where we have
installed and operate computer-managed telecommunications equipment known as
"bridges" for conducting multiparty audio conferences.
Our Actioncall(TM) audio teleconferencing services accommodate multiparty
conferences with a number of participants at levels of audio volume and clarity
that are not generally available on most office telephones. Audio
teleconferencing enables routine meetings, training, information distribution
and other business meetings to take place where travel makes it impractical,
inconvenient, or expensive to assemble a large group on short notice or with
regular frequency. We offer a variety of services at different price levels
depending on customer needs and business volume. Our customers include small
businesses, multinationals, law firms, accounting firms, banks, and a variety of
other businesses and entities.
Our video conferencing bridging service commenced in 1996 in the United
Kingdom. It connects video participants by means of a video multipoint control
unit ("MCU") under the ActionView(TM) brand name. We plan to extend this
videoconferencing service to all other operations centers worldwide.
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 systems that permit individuals or small
groups to send and receive video and audio signals over digital telephone
systems. These systems comply with international standards and are connected
primarily over the Integrated Services Digital Network ("ISDN") service, which
is available in most major metropolitan markets. Our audio and data
teleconferencing services can be provided over any telephone network.
We market data teleconferencing services and software, as an adjunct to our
audio teleconferencing services and also distribute data teleconferencing
software that permits clients to interconnect desktop computers by standard
modem to simultaneously conduct audio and data teleconferences.
We market our services and products through our North American, European,
and Asia-Pacific marketing operations. We are actively seeking opportunities
for expansion through the establishment of additional American, European, and
Asia-Pacific sales offices and operations centers.
We will begin handling audio teleconferencing calls for Concert Global
Networks Limited, the global teleconferencing services company owned by British
Telecommunications plc, as an outsource provider of these services during the
fourth quarter of 1998. In October 1998, we agreed to provide video
teleconferencing bridging services for customers of GTE Telephone Operating
Company and to acquire GTE's video conferencing bridging equipment.
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
2
<PAGE>
September 1995 we commenced audio teleconferencing operations in continental
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.
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. ("AMC"). We closed on the acquisition of AMC in
October 1998. We are evaluating expansion into Germany and 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.
THE TRANSACTION
We have authorized 10,000,000 shares of Common Stock no par value (the
"Common Stock") and 1,000,000 shares of Preferred Stock, no par value (the
"Preferred Stock"). This prospectus (the "Prospectus") concerns the exercise of
all or part of a unit purchase option (the "Unit Purchase Option") to purchase
71,249 units at $4.20 each. We sold the Unit Purchase Option to Tuschner &
Company, Inc. ("Tuschner") at the closing of our initial public offering in
1996. Each of the units (the "Units") is comprised of one share of Common Stock
(the "Shares") and one warrant (the "Warrants") to purchase one share of Common
Stock (the "Warrant Shares"). Tuschner has transferred its rights (after
transfer, the "Unit Purchase Options") to purchase 34,867 of the Units to
officers, directors, owners, or employees of Tuschner and has retained ownership
of the balance of 36,382 Unit Purchase Options. All the holders of these Unit
Purchase Options have exercised their the demand registration rights as provided
in the original Unit Purchase Option. Accordingly, the purpose of this
Prospectus is to allow the holders of the Unit Purchase Options to resell the
Shares, Warrants, and Warrant Shares, if they elect to do so. The exercise price
of each Unit Purchase Option is $4.20, and the exercise price of each Warrant is
$5.00. We will issue Shares and Warrants rather than Units on exercise of the
Unit Purchase Options. We also have Warrants outstanding from our initial public
offering (the "Public Warrants") as well as warrants issued in other
circumstances (the "Other Warrants"). See "Description of Securities Common
Stock; Preferred Stock; Unit Purchase Option; and Warrants."
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
Securities Offered 71,249 shares (the "Shares") of common stock (the
"Common Stock"), issuable on exercise of the Unit
Purchase Option for an exercise price of $4.20 each;
71,249 Warrants also issuable on exercise of the Unit
Purchase Option; and 71,249 Warrant Shares underlying
the Warrants, issuable on payment of the Warrant
exercise price of $5.00. The Warrants are not
redeemable. See "Description of Securities."
- ------------------------------------------------------------------------------------------------------------------
Common Stock outstanding prior this offering 3,641,801 Shares (1)
- ------------------------------------------------------------------------------------------------------------------
Common Stock to be outstanding after this offering 3,784,299 Shares (1)(2)
- ------------------------------------------------------------------------------------------------------------------
Use of proceeds Start-up expenses for international subsidiaries, and
working capital
- ------------------------------------------------------------------------------------------------------------------
Nasdaq symbols:
Common Stock ACTT
Warrants ACTTW
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
(1) As of September 30, 1998. Excludes total of 851,093 shares of Common Stock
issuable on exercise of options granted under our Stock Option Plan of 1991 and
Stock Option Plan of 1996, as amended; 674,804 shares issuable on exercise of
Public Warrants; 265,103 shares issuable on exercise of Other Warrants; and
shares issuable under the Employee Stock Purchase Plan, the number of which
shares cannot be determined. See "Description of Securities."
(2) Assumes the exercise of all 71, 249 Unit Purchase Options resulting in
issuance of 71,249 Shares and 71,249 Warrants and the subsequent issuance of
71,249 Warrant Shares underlying the Warrants.
SUMMARY OF FINANCIAL INFORMATION
The following table provides selected financial information about us and is
qualified by reference to the financial statements (both prior to and subsequent
to the date of this prospectus) and their notes to the financial statements in
this prospectus. Information for the nine months ending September 30, 1997 and
1998 is unaudited.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
1998 1997
<S> <C> <C>
Net revenues $ 13,565,028 $ 7,235,069
Costs and expenses:
Cost of sales (7,412,783) (3,244,360)
Marketing, general and administration expense (6,857,599) (3,744,355)
Total costs and expenses (14,270,382) (6,988,715)
Income (loss) before income taxes and minority interest (705,354) 246,354
Provision for income taxes (418,151) (219,435)
Income (loss) before minority interest (1,123,505) 26,919
Minority interest in earnings of consolidated subsidiary (232,662) (152,473)
Net income (loss) for the period $ (1,356,167) $ (125,554)
Net income (loss) per share $ (0.37) $ (0.04)
Weighted average number of shares outstanding 3,622,785 3,099,087
</TABLE>
4
<PAGE>
CONSOLIDATED BALANCE SHEET DATA
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 586,234 $ 451,434
Accounts receivable (net of allowances for doubtful accounts
of $51,543 and $18,992 in 1998 and 1997 respectively) 4,705,708 2,885,125
Prepaid expenses 358,839 203,673
Inventory 178,105 136,116
Available for sale marketable securities -- 50,000
-----------------------------
Total current assets 5,828,886 3,726,348
Equipment:
Telecommunications equipment 4,264,934 2,651,395
Office equipment 3,781,364 1,910,606
Less: accumulated depreciation (1,700,829) (1,094,938)
-----------------------------
Total equipment - net 6,345,469 3,467,063
Other Assets:
Goodwill 711,845 736,300
Deferred Items 244,371 --
-----------------------------
Total assets $ 13,130,571 $ 7,929,711
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 554,754 $ 540,014
Accounts payable 2,510,572 1,349,337
Accrued liabilities 1,264,073 777,526
Current portion of long term debt 330,364 253,251
Income taxes payable 687,623 293,238
-----------------------------
Total current liabilities 5,347,386 3,213,366
Long-term debt 4,287,686 613,714
Deferred income taxes 123,252 117,454
Minority interest 874,437 607,244
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; none issued
Common stock, no par value; 10,000,000 shares authorized
3,641,801 and 3.612,758 shares issued and outstanding
in 1998 and 1997, respectively 6,787,855 6,158,584
Accumulated deficit (4,085,236) (2,729,069)
Currency translation adjustment (204,809) (51,582)
-----------------------------
Total Shareholders' equity 2,497,810 3,377,933
-----------------------------
Total liabilities and shareholders' equity $ 13,130,571 $ 7,929,711
=============================
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,356,167) $ (125,554)
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 605,891 229,539
Amortization of goodwill 24,455 13,530
Deferred income tax 5,798 (1,656)
Minority interest 267,193 143,569
Cash flow before changes in operating assets and liabilities: (452,830) 259,428
Changes in operating assets and liabilities (Net of effect of
business combination):
Accounts receivable (1,747,251) (1,066,671)
Inventory (41,989) (7,515)
Prepaid expenses and other assets (399,537) (186,862)
Accounts payable and accrued liabilities 1,647,780 332,800
Income tax payable 394,384 95,828
Net cash used for operating activities (599,443) (572,992)
INVESTING ACTIVITIES
Property and equipment purchases (3,484,297) (929,097)
Investment in marketable security 50,000
Net cash used for investing activities (3,434,297) (929,097)
FINANCING ACTIVITIES
Net proceeds from issuance of debt 3,692,495 197,883
Net proceeds from issuance of common stock 629,272 1,628,712
Net cash provided by financing activities 4,321,767 1,826,595
EFFECT OF CHANGE IN EXCHANGE RATE ON CASH (153,227) (149,277)
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 134,800 $ 175,229
Cash and cash equivalents, beginning of year $ 451,434 $ 621,742
Cash and cash equivalents, end of year 586,234 796,971
NET INCREASE IN CASH $ 134,800 $ 175,229
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the Shares and Warrants involves a high degree of
risk. The information contained in this prospectus includes "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended, that are based on the
current beliefs of, assumptions made by, and information currently available to,
our management. All statements other than statements of historical facts in this
Memorandum are forward looking statements, including, without limitation,
statements contained under the captions "Risk Factors" and "Business" regarding
our financial position, business strategy, and plans and objectives of
management for future operations.
When used in this Memorandum the words "anticipate," "believe," "estimate,"
"plan," "project," "predict," "expect," "intend," and words or phrases of
similar import, as they relate to us or our management, are intended to
identify forward looking statements. Although we believe that the expectations
reflected in such forward looking statements are reasonable, we can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from our
expectations ("cautionary statements") are contained under the caption "Risk
Factors," "Business," and elsewhere in this prospectus. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this prospectus as anticipated, believed,
estimated, planned, projected, predicted, expected, or intended. All subsequent
written and oral forward looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the applicable
cautionary statements.
The securities offered in this prospectus are highly speculative and
involve immediate substantial dilution and a high degree of risk. In evaluating
us and our business, prospective investors should carefully consider the
following risk factors in addition to other information presented in this
prospectus. In addition to the other information in this prospectus,
prospective investors should carefully consider these risk factors in evaluating
an investment in the shares offered. All statements, trend analysis, and other
information, whether contained in this prospectus or incorporated by reference
to past or future documents, relate either directly or indirectly to markets for
our products and to trends in our operations or financial results.
HIGHLY COMPETITIVE MARKET; EASE OF MARKET ENTRY
The teleconferencing industry is highly competitive. Competition in our
markets is based primarily on quality, service, and price. In order to compete
successfully against other teleconferencing providers, we must be able to
maintain competitive pricing while at the same time offer high quality services
and related products. Competition in our markets may result in pricing pressures
that may adversely affect the prices and sales levels of our teleconferencing
services and related products. Teleconferencing equipment and bridges are widely
available at relatively affordable prices. There are few regulatory barriers to
competition in the United States. Until recently, local exchange carriers
("LECs"), including local telephone companies, were prohibited from providing
audio teleconferencing, except in limited areas. The United States Congress
recently passed legislation that permits LECs to offer teleconferencing
services. This legislation permits additional competition if some or all of the
LECs choose to enter or expand their activities in the teleconferencing market
in the United States. In addition, existing competitors can be expected to
expand their services and new competitors are likely to be encountered. There
are no significant regulatory barriers to market entry in the United Kingdom,
the Netherlands, France, Belgium, Canada, or Australia. Barriers to entry in
other foreign markets vary, but may involve governmental regulation or
government-owned telephone systems resistant to competition with independent
teleconferencing companies. Many of our competitors have substantially greater
capital resources and name recognition than we do. There is no assurance that we
will be able to compete against such competitors and potential competitors in
terms of research and development, manufacturing, marketing, and sales.
7
<PAGE>
ACCEPTANCE OF VIDEO CONFERENCING
We have entered the video conferencing market with the offering of a video
conferencing and video bridging system ("ActionView") that we believe is priced
competitively to comparable service offerings. We distribute videoconferencing
products in the United States under the Tandberg brand name and under the
Picturetel and RSI brand names in Europe. High quality videoconferencing
generally requires ISDN telephone service. ISDN telephone service is technically
acceptable but is not yet universally available in the United States and is
generally higher priced than ordinary telephone service. There can be no
assurance that the videoconferencing systems or services we offer will achieve
significant market acceptance; that competitors will not market similar services
at prices more competitive than our product; or that potential customers will
have access to ISDN telephone services at rates which facilitate their purchase.
LIMITED REVENUES; HISTORY OF LOSSES
Despite a continuing trend of strong revenue growth, we have incurred net
losses in all years from inception in 1990, except for the fiscal year ended
December 31, 1993 (data prior to 1993 and for June 30, 1998 is unaudited):
<TABLE>
<CAPTION>
ACCOUNTING PERIOD NET REVENUES REVENUE GROWTH NET INCOME (LOSS)
RATE
<S> <C> <C> <C>
December 31, 1990 $ 153,000 --
December 31, 1991 $ 435,000 184% ($ 101,000)
December 31, 1992 $ 954,000 119% ($ 77,000)
December 31, 1993 $ 1,582,000 66% $ 26,000
December 31, 1994 $ 2,483,000 57% ($ 253,000)
December 31, 1995 $ 3,461,000 39% ($ 424,000)
December 31, 1996 $ 6,220,000 80% ($ 1,208,000)
December 31, 1997 $10,234,000 65% ($ 437,000)
September 30, 1998 $13,565,000 77%* ($ 1,356,000)
(9 months)
</TABLE>
*Annualized
We incurred a net loss of $1,356,000 for the nine months ended September
30, 1998, primarily as the result of budgeted developmental expenses and start
up costs incurred in opening new offices overseas, meeting our obligations under
the Concert Agreement, and in developing new business. See "Management
Discussion and Analysis Overview." While expenditures of this nature in
previous entries into international markets have resulted in substantial revenue
growth, we have a continuing need for additional capital to allow us to sustain
growth. Although there is no assurance that such growth will result in
profitable operations, break-even operations have been achieved before or during
the third year of operation for each of our foreign subsidiaries in the United
Kingdom and the Netherlands. Break-even status has not yet been achieved for
our offices in France and Australia that opened in 1997.
8
<PAGE>
The likelihood of our success must be considered in light of the problems,
expenses, difficulties, complications, and delays encountered in connection with
the operation of a relatively new business, our expansion into new markets and
products, the financial strength and effectiveness of our competitors, the
degree to which capital is available to us, and the implementation of an
expanded marketing strategy. The expense of entry into foreign markets is front-
end intensive. Our entry into video-teleconferencing is a relatively new
activity for us and has had a significant adverse effect on our earnings. Video
conferencing will likely continue to have an adverse effect on earnings while we
attempt to develop this business segment. See "Summary of Financial
Information."
POSSIBILITY OF REVENUE FLUCTUATIONS
The mobility of our customers may adversely affect our ability to generate
sufficient revenues to support our fixed costs and our growth. Teleconferencing
customers can easily switch to a competing provider or allocate their business
among several vendors. Our relatively small revenue base makes us susceptible to
significant fluctuations in revenues from any single purchaser of our services.
Our three largest customers accounted for following percentages of revenues:
<TABLE>
<CAPTION>
Customer 1 Customer 2 Customer 3
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 10.9% 10.5% 7.2%
- ------------------------------------------------------------------------------------------------------------------
1997 23.7% 6.6% 3.1%
- ------------------------------------------------------------------------------------------------------------------
1998 (9 months) 21.1% 5.1% 3.0%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Some of our largest customers operate numerous business locations each of
which makes teleconferencing decisions independently of other locations. We
believe this factor tempers the risk involved in generating significant revenues
from the same client.
NEED TO EXPAND OPERATIONS; ACQUISITIONS; FINANCING; DILUTION
Many of our current and prospective domestic and international customers
utilize teleconferencing services for both local and long-distance
teleconferencing, and for reasons of cost and convenience often prefer to do
business with a teleconferencing office that is available locally to their
central offices. In order to compete for such customers, we may be required to
establish a local presence and install bridge equipment in additional North
American, European, and Asia-Pacific cities. Since we expect to experience
startup losses from new installations until revenues associated with such
installations offset related costs, our ability to fund the costs of such
expansions will depend in large part on the availability of adequate financing.
We presently have a term loan due in May 1999, an issue of subordinated debt due
in 2003, and a number of capitalized leases due at various times through 2003.
We have no assurance that major long-term financing will be available as and
when needed. We depend on timely payment of accounts by our customers to
finance ongoing operations; delays in payment may adversely affect our ability
to pay our accounts when due.
Rather than establishing a new office and installing a new bridge in select
cities, we may, in appropriate circumstances, seek to acquire an existing
provider of teleconferencing services in such city, and may seek to do so by the
issuance of Common Stock in lieu of, or in combination with, a cash purchase or
investment. In October 1998, we acquired 100% of the stock of Advanced Multi-
Point Conferencing, Inc. ("AMC") in Ottawa. We have no present agreements or
arrangements for the acquisition of other teleconferencing businesses, but we
continually explore the possibility of such acquisitions and are investigating
entry into the Hong Kong, and Germany markets. To the extent that all or any
part of the consideration for such acquisition consists of our stock, such an
acquisition could result in substantial additional dilution to purchasers in
this offering. Moreover, if we were to seek to raise additional capital through
the sale of additional Common Stock and/or Warrants (or Preferred Stock that is
convertible to Common Stock), at some future date, we may be required to do so
at a price per share that is less than the price of the Shares and Warrant
Shares offered in this prospectus. Future sales of Common Stock could result in
substantial additional dilution to investors purchasing the shares in this
offering.
9
<PAGE>
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
While we employ a number of key personnel, we are dependent on the services
of Gerald D. Van Eeckhout. Although we maintain a key-employee life insurance
policy on Mr. Van Eeckhout, our Chairman, there is no assurance the proceeds
from such insurance would be adequate to identify and employ his successor and
to compensate us for the loss of his services.
TECHNICAL PERSONNEL NEEDS
The design, engineering, and repair of teleconferencing equipment and
networks is a highly technical enterprise, and we must continue to locate and
employ technically qualified contractors and/or employees, who may command
premium compensation, to install, maintain, and repair such equipment and
networks. If sufficiently qualified persons cannot be found and employed on a
timely basis as we seek to expand our operations, our expansion may be delayed
or our operations otherwise adversely affected.
TECHNOLOGICAL OBSOLESCENCE
Technological innovations, such as computer-based bridging equipment, have
enabled us to engage in the teleconferencing services business. These
innovations are likely to continue and there can be no assurance that we will be
able to react and adapt to these changes should they develop, that equipment or
software innovations would be available to us at a reasonable price in the
future, or that competitors' developments will not render our services obsolete.
Although we recently upgraded our bridging equipment to provide state-of-the-art
audio teleconferencing technology, which has been augmented to provide data
teleconferencing and video teleconferencing, rapid technological changes in the
teleconferencing industry may render our bridging or other teleconferencing
equipment obsolete or require our substantial additional investment to remain
competitive. There can be no assurance such technical innovations would be
available to us at a reasonable price, if at all, or that we would be able to
respond adequately to such technical innovations. Any such event could have a
material adverse effect on us.
YEAR 2000 COMPLIANCE
As the Year 2000 approaches, many date sensitive computer applications may
fail because they are unable to process dates properly beyond December 31, 1999.
Businesses will be required to devote significant resources to convert their
information systems to meet Year 2000 requirements. We believe that our
internal systems are Year 2000 compliant. However, we are significantly
dependent upon external or third parties including electrical utilities,
telecommunications, banking and financial services, airlines, and governmental
agencies and institutions to provide services to us and to purchase services
from us. Their failure to provide services to us due to Year 2000 problems
could have a material adverse effect on our business, results of operations, and
financial condition. Additionally, as these entities devote financial
resources to comply with Year 2000 requirements, the purchasing patterns of our
customers may be affected as they may have reduced funds available to purchase
our services, which could result in a material adverse effect on our business,
results of operations, and financial condition.
LIMITED INTELLECTUAL PROPERTY PROTECTION
We seek to protect our proprietary information and business practices as
trade secrets. We believe our name and the "ACT" logo are unique in the
teleconferencing market, but a variety of other enterprises' common usage of the
name "Act" or "ACT" makes trademark protection in some contexts either
unavailable or so likely to generate litigation or the threat of litigation as
to make the pursuit of such protection prohibitively expensive. The United
Kingdom's Trade Marks Registry has issued trademark certificates to us for ACT
and ACTIONCALL, which we license to ACT Teleconferencing Limited, and to ACT
Teleconferencing Limited for CONFERCALL. There can be no assurance that we will
be able to protect our proprietary information, business practices, or
10
<PAGE>
trademarks against 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.
FOREIGN OPERATIONS; EXCHANGE RATE FLUCTUATIONS
We operate foreign subsidiaries in the United Kingdom, the Netherlands,
France, Australia, and Canada. In September 1998 we expanded into Canada with
the opening of a new operations facility in Toronto and in October 1998 we
acquired Ottawa's AMC. We are investigating the possibility of opening offices
in Germany and in Hong Kong and have incorporated but not opened a subsidiary in
Hong Kong. Adverse political or economic developments may occur in even the
most stable political or economic climate, and there are always risks of
changes, including dramatic changes, in currency values in foreign markets.
Fluctuations in currencies could offset revenue gains from the sale of
additional teleconferencing services and/or products, or increase operating
losses incurred in these locations; however, local costs are incurred in local
currencies. Our future expansion in other foreign markets will necessarily
increase our exposure to such risks.
EXERCISE PRICE; STOCK PRICE VOLATILITY
The exercise prices of the Unit Purchase Options ($4.20) and the Warrants
($5.00) were determined through our negotiations with Tuschner, which was our
investment banker for our February 1996 initial public offering, and were based
on several factors, including then-prevailing market conditions, estimates of
our business potential, and other factors deemed relevant. These prices do not
necessarily bear any relationship to net worth, earnings, or other financially
based criteria of valuation. The securities markets have from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. Our announcement or our
competitors' announcements of new products, developments or disputes concerning
patents or proprietary rights, and economic and other external factors, as well
as period-to-period fluctuations in our financial results, may have a
significant impact on the market price of the Common Stock. There can be no
assurance that the market price of the Common Stock will not decline below the
exercise price of the Unit Purchase Option or the Warrants.
NASDAQ REQUIREMENTS; PENNY STOCK RULES
The Common Stock and Public Warrants are listed on the Nasdaq SmallCap
Market; however, if we fail to meet the continuing requirements necessary to
qualify for our Common Stock to be quoted on the Nasdaq SmallCap Market, these
securities will be subject to various rules of the Securities and Exchange
Commission ("SEC") relating to "penny stocks," under the Penny Stock Reform Act
of 1990. SEC rules require broker/dealers to make a suitability determination
for purchases and to obtain the purchaser's prior written consent for a purchase
transaction, thereby restricting the ability of purchasers of shares in this
offering and of broker/dealers to sell shares of the Common Stock in the open
market. Such restriction would likely affect adversely both the market price and
liquidity for such shares. We intend to maintain qualification for the continued
quotation of our Common Stock and warrants on the Nasdaq SmallCap Market
subsequent to this offering and intend to apply for listing on the Nasdaq
National Market when we meet the applicable listing criteria. There can be no
assurance that we will be able to maintain our SmallCap Market listing or obtain
the Nasdaq National Market listing.
EXERCISE OF OPTIONS AND WARRANTS
As of September 30, 1998, various persons, including our officers and
directors, held options and warrants to purchase a total of 1,934,364 shares of
Common Stock. The price which we may receive for issuance of our Common Stock
upon exercise of such options and warrants may be less than the value of, or
market price for, our Common Stock at the time such options and warrants are
exercised. While such options and warrants are outstanding, the holders are
given, at little or no cost, the opportunity to profit from any increase in the
market price of our Common Stock without assuming the risk of ownership. So long
as such options and warrants remain unexercised, the terms under which we could
obtain equity capital from other sources may be adversely affected. Moreover,
the holders of such options and warrants may be expected to exercise them at a
time when we would, in all likelihood, be able to obtain needed capital from
offering our securities on terms more favorable than those the
11
<PAGE>
outstanding options and warrants provide. To the extent that any such options or
warrants are exercised, the interests of our shareholders may be diluted
proportionately. See "Description of Securities -- Stock Options; Other
Warrants."
MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
As of December 31, 1997, there were 3,612,758 shares of Common Stock
outstanding. The number of outstanding shares had increased to 3,641,801 as of
September 30, 1998. Substantial increases in the amount of Common Stock
outstanding as a result of the exercise of various options and warrants could
adversely affect the market price of the Common Stock. Options and warrants of
various types outstanding on September 30, 1998, other than the 71,249 shares
and 71,249 warrant shares represented by the Unit Purchase Option entitled the
holders to purchase 1,934,364 shares of Common Stock at prices ranging from
$2.00 to $9.00 per share. See "Description of Securities" and "Shares Eligible
for Future Sale." As long as the exercise prices of some of these warrants and
options are less than the price at which the Common Stock is publicly traded,
the holders have an incentive to exercise their warrants or options, rather than
purchase shares in the public market, and, possibly, to resell them at prices
that are equal to or less than the current market price.
USE OF PROCEEDS
Proceeds we will receive from the sale of the exercise of the Unit Purchase
Options and the exercise of the Warrants, after deducting estimated offering
expenses, are estimated to be approximately $606,000 if all of the Unit Purchase
Options and Warrants are exercised. We intend to use these proceeds for general
working capital purposes, and in particular, to fund the ongoing startup costs
of our international subsidiaries.
Pending utilization of the proceeds of this offering, we intend to invest
the net proceeds of this offering in interest-bearing, investment grade
securities, or other short-term debt instruments.
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<PAGE>
CAPITALIZATION
The following table provides our capitalization as of September 30,
1998, and as adjusted to give effect to our sale of 71,249 Shares (included in
the 71,249 Unit Purchase Options at an exercise price of $4.20 each) and 71,249
Warrant Shares (at an exercise price of $5.00 per Warrant Share).
<TABLE>
<CAPTION>
June 30, 1998
Actual As Adjusted
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt, net of current
maturities $ 4,287,686 $ 4,287,686
- ---------------------------------------------------------------------------------------------------------------------
Stockholders equity:
- ---------------------------------------------------------------------------------------------------------------------
Preferred Stock, $.01 par
value; 1,000,000 shares
authorized; none issued or
outstanding -0- -0-
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, no par
value; 10,000,000 shares
authorized; 3,641,801 shares
issued and outstanding;
3,784,299 shares issued
and outstanding as 6,787,855 7,393,855(1)(2)
adjusted (2)
- ---------------------------------------------------------------------------------------------------------------------
Accumulated deficit (4,085,236) (4,085,236)
- ---------------------------------------------------------------------------------------------------------------------
Currency transaction adjustment (204,809) (204,809)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 2,497,810 $ 3,103,810
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Adjusted to reflect the estimated net proceeds of $606,000 from our sale of
71,249 Shares at the Unit Purchase Option exercise price of $4.20 and 71,249
Warrant Shares at the Warrant exercise price of $5.00 per Warrant Share, if all
the Unit Purchase Options are exercised.
(2) Excludes total of 851,093 shares of Common Stock issuable on exercise of
options granted under our Stock Option Plan of 1991 and Stock Option Plan of
1996, as amended; 674,804 shares issuable on exercise of Public Warrants;
408,467 shares issuable on exercise of Other Warrants; and shares issuable under
the Employee Stock Purchase Plan, the number of which shares is subject to
certain contingencies and cannot be determined. The foregoing information is as
of June 30, 1998. Between June 30, 1998 and September 30, 1998, 2,150 options
and 18,193 Public Warrants were exercised. See "Description of Securities."
DIVIDEND POLICY
We have not paid any cash dividends on our Common Stock. It is our
current policy not to pay cash dividends on our Common Stock. Any payment of
cash dividends in the future will be dependent upon our financial condition,
results of operations, current and anticipated cash requirements, restrictions
on the payment of dividends under the terms of any of our future financing
arrangements, as well as other factors that the board of directors deems
relevant. Our current bank loan agreement and our leasing agreements do not
prohibit the payment of dividends. Our subordinated debt agreement requires the
lenders to approve the payment of dividends other than stock dividends.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and related Notes to the Financial
Statements appearing elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The
consolidated statements of operations data for each of the years in the two-year
period ended December 31, 1997 and the balance sheet dated at December 31, 1997
are derived from the our consolidated financial statements which Ernst & Young
L.L.P., our independent auditors, has audited as indicated in their report
included in this prospectus. The consolidated balance sheet data as of
September 30, 1998 and the consolidated statements of operations data for the
nine-month periods ended September 30, 1997 and 1998 have been derived from our
unaudited nine-month consolidated financial statements which, in the opinion of
management, reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the results for these periods
and as of this date. The selected financial data provided below is not
necessarily indicative of our future results of operations or our financial
performance.
<TABLE>
<CAPTION>
For the Nine
For the Year Months ended
ended December 31, September 30,
- --------------------------------------------------------------------------------------------------------
1997 1996 1998 1997
- --------------------------------------------------------------------------------------------------------
COMBINED STATEMENTS OF (in thousands, except per share data)
OPERATIONS DATA:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$10,234,463 $ 6,219,946 $ 13,565,028 $ 7,235,069
NET REVENUES
COSTS AND EXPENSES
Cost of sales (4,727,236) (3,604,729) (7,412,783) (3,244,360)
Marketing, general, and
administrative costs (5,408,940) (3,538,866) (6,857,599) (3,744,355)
----------- ----------- ------------ -----------
Total costs and expenses 10,136,176 7,143,595 (14,270,382) (6,988,715)
Income (loss) before income taxes
and minority interest 98,287 (923,649) (705,354) 246,354
----------- ----------- ------------ -----------
Provision for income taxes (332,566) (164,591) (418,151) (219,435)
----------- ----------- ------------ -----------
Income (loss) before minority interest (234,339) (1,088,240) (1,123,505) 26,919
Minority Interest in earnings of
consolidated subsidiary (202,469) (119,867) (232,662) (152,473)
----------- ----------- ------------ -----------
Net income (loss) (436,808) $(1,208,107) $ (1,356,167) $ (125,554)
=========== =========== ============ ===========
Net Income (loss) per share $ (0.14) $ (0.41) $ (0.37) $ 0.04
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: September 30, 1998
Actual As Adjusted (1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net working capital $ 1,366,618 $ 1,972,618
Total assets $13,130,571 $13,736,571
Total liabilities and minority $10,632,761 $10,632,761
interest $ 2,497,810 $ 3,103,810
Shareholders' equity
- ----------------------------------------------------------------------------------------------------------
</TABLE>
_______________________
(1) Adjusted to reflect the exercise of 71,249 Unit Purchase Options, at $4.20
each, and the resulting issuance of 71,249 Shares; the exercise of 71,249
Warrants at $5.00 each, resulting in the issuance of an additional 71,249
Shares; and the application of the estimated net proceeds of $606,000. See
"Use of Proceeds."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The Management's Discussion and Analysis section of this report
contains forward-looking statements, which are subject to numerous risks
and uncertainties. Actual results may differ materially from information we
provide in forward-looking statements. In general, among the factors that
could affect our actual results and could cause results to differ from
those contained in the forward-looking statements are our continued ability
to generate revenue growth in audio teleconferencing, the general rate of
development of the market for videoconferencing services, and the available
opportunities to explore new international markets. Other factors could
also cause actual results to vary materially from the anticipated results
covered in such forward-looking statements.
OVERVIEW
Cumulative revenues for the nine months ending September 30, 1998 were
$13.5 million (87% growth over 1997 revenues of $7.2 million). Third quarter
1998 revenues of $4.7 million grew by 80% over the third quarter of 1997,
reflecting continued growth in the market for audio teleconferencing services,
additional market share gains we made, and the impact of new international
operations which grew sevenfold over the previous period.
Net loss after taxes and minority interest for the nine months amounted to
$1,356,167, compared to net loss of $125,554 for 1997, due mainly to continued
investment and start up costs absorbed in our new European and Asia-Pacific hub
operations based in Paris, Amsterdam, and Sydney.
We anticipate continued significant forward growth in teleconferencing
revenues in our established operations in North America and the United Kingdom.
Revenues from these operations for the nine-month period grew by 56% while
revenues from new operations grew by tenfold over the same period to $2.6
million. Development expenses, incurred in connection with the entry into the
French, Dutch, Canadian and Australian markets as well as the Company's new
Internet and videoconferencing products and technologies, amounted to
approximately $2 million for the nine months to September 30, 1998 up from
$932,000 for the comparable prior period.
On July 14, 1998, we announced a three-year agreement to provide audio
conferencing services to Concert Global Networks Limited, ("Concert"), a global
services teleconferencing company. Concert is now owned 100 percent by British
Telecommunications plc ("BT") following BT's buyout of the 24.9 percent interest
in Concert of MCI Telecommunications Corporation ("MCI") prior to the merger of
MCI into MCI WorldCom, Inc. ("MCI WorldCom") on September 14, 1998. Services to
Concert are scheduled to commence in the fourth quarter of 1998, which our call
centers in New York, Denver, London, Paris, Amsterdam, Ottawa, Toronto, and
Sydney will provide.
Concert, which is based in Reston, Virginia, provides an array of managed
voice, data, and Internet services to over 4,300 multinational companies in over
50 countries. Concert Audioconferencing Service, the world's first global
virtual private network-based conference service, offers a flexible, cost-
effective seamless audioconferencing service to multinational companies via over
30 distributors worldwide including BT and MCI World Com.
Market information currently available to us indicates that the effect of
the Concert transaction could be to increase our revenues by approximately $40
million over a three-year period. However, actual revenues will depend on
customer usage and in-country penetration. As a result of the Concert agreement,
we plan to continue to expand our geographic penetration into European and Asia-
Pacific markets over the next twelve months.
Two developments in September 1998 had no significant impact on third
quarter revenues or expenses but are expected to enhance our potential for
future profitability. On September 1, 1998 the Company announced
15
<PAGE>
the opening of two offices in Canada, with the establishment of ACT
Teleconferencing Canada Inc. in Toronto, and the acquisition of Advanced Multi-
Point Conferencing based in Ottawa, Canada. On September 22, we announced an
agreement with GTE which became effective in October to become its preferred
videoconferencing services provider. This agreement enhances ACT's worldwide
video presence as ACT takes over GTE's existing videoconferencing bridges and
deploys them in the United States, the United Kingdom, France, and the
Netherlands.
On October 22, 1998, we announced a videoconferencing distribution
agreement with Toyoda Machinery USA to sell and market Toyoda's Virtual Tech
video product line. This product is a two-way wireless audio and visual
communication system which utilizes high tech video links on an ISDN network to
transmit live images in a remote location to another facility. The Toyoda
product boasts varied functions including remote diagnostics and immediate
maintenance, training, inspections and videoconferencing. Plans for
implementation are underway, but an immediate impact on revenues is not likely.
COMPONENTS OF REVENUE AND EXPENSE
We derive revenues principally from fees charged to clients for audio and
video conference "bridging" services which connect multiple parties to a
conference call, from fees for enhanced services, and from the sale of
videoconferencing equipment units.
The costs of teleconferencing services consist of local and long-distance
telephone services, depreciation on equipment, salaries, benefits, and office
expenses of conference operators.
Selling, general, and administrative costs consist of salaries, benefits,
and office expenses of our administrative, market development, and sales
organizations.
RESULTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998, COMPARED TO THE NINE-MONTH
PERIOD ENDED SEPTEMBER 30, 1997.
Net Revenues. Net revenues increased by 87% to $13.5 million for the
nine months ended September 30,1998, compared to $7.2 million for the same
period in 1997, primarily due to increased sales of audio teleconferencing
services as described above. During this period, established operations
accounted for 81% of net revenues which increased 54%, while new operations
accounted for 19% of net revenues which increased to $2.45 million over the
nine-month period ended September 30, 1997. This continued increase is due to
our aggressive sales and marketing, especially in new operations.
Cost of Teleconferencing Services. Cost of teleconferencing services
amounted to $7,412,783 compared to $3,244,360 or an increase of 128% for the
nine-month period. Gross margin percentage (net revenues less costs of
conferencing services divided by net revenues) decreased to 45.3%, compared to
55.2% achieved during the previous comparable period. As noted above, gross
margin has been affected by the impact of international start-up costs. Costs
also increased for established operations due to the one-time charge to upgrade
and relocate technical equipment for the Company's expanded Denver operations in
the second quarter and for the expansion and relocation of UK operations in
London in the third quarter.
Selling, General and Administrative Costs. Selling, general and
administrative expenses increased 83% to $6,857,599 and declined as a percentage
of revenue to 50.6%, compared to $3,744,355 or 51.7% of revenue for the period
ended September 30, 1997.
Income (Loss) Before Taxes and Minority Interest. Loss before taxes
and minority interest amounted to $705,354, compared to income before taxes and
minority interest of $246,354 for the nine months ended September 30, 1997. The
$951,708 decline was due to higher development costs and relocation expenses as
described above.
16
<PAGE>
Taxes on Income and Minority interest. Taxes on income and minority
interest amounted to $650,813 for the nine months ended September 30, 1998,
compared to $371,908 for the nine months ended September 30, 1997, primarily due
to taxes on and minority interest in earnings by the Company's 60% majority-
owned United Kingdom subsidiary which pays full tax.
Net Income(Loss). Net loss amounted to $1,356,167 or an increase in
loss of $1,230,613 compared to nine-month period ended September 30, 1997. As
discussed above, this loss was due to the cost of international start-ups in
Australia, France and Canada as well as the effect of relocation charges, the
investment in new and developing products in video and Internet conferencing and
the effect of UK taxation and minority interest.
LIQUIDITY AND CAPITAL RESOURCES (FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998)
During the nine months ended September 30, 1998, our net cash
increased by $134,800 from December 31, 1997. At September 30, 1998, we had
cash and cash equivalents of $586,234 compared to cash and cash equivalents on
hand at December 31, 1997 of $451,434.
Cash used in operating activities before funding net operating assets
amounted to $452,830 for the nine months ended September 30, 1998, compared to
cash generated of $259,428 for the nine months ended September 30, 1997. Cash
after financing operating assets and liabilities amounted to a net outflow of
$599,443 reflecting mainly the significant growth in accounts receivable,
inventory and prepaid expenditures.
During the period, we invested $3.5 million in additional equipment,
to provide new bridging technology, software and capacity to its United States,
European and Asia Pacific operations. We funded the gross cash outflow of $3.4
million (after capital investment and before financing arrangements) by a
combination of debt and lease finance amounting to $4.5 million; this resulted
in a new cash inflow (before effect of exchange rate changes) of $288,027.
We believe that, given the present rate of sales and profit growth in
our core audio teleconferencing business as well as indicated volumes from
certain contractual relationships, we have access to sufficient cash resources
to meet our needs for the next twelve months. The Company has further plans to
expand capacity and open new operations in new geographic locations and to
develop its videoconferencing and Internet conferencing businesses. We plan to
finance these expansion plans by a mix of lease financing for capital equipment,
the anticipated conversion of outstanding warrants, and bank lines of credit.
We are prepared to make other equity arrangements as and when necessary to
ensure we can continue to build our teleconferencing platform beyond 1999.
On March 31, 1998, we raised net proceeds of $2.0 million in a
subordinated debt financing arrangement executed with Sirrom Capital Corporation
and Equitas LP based in Nashville, Tennessee. Documentation was completed
during the second quarter. We drew down an additional $500,000 that was
available under this arrangement during the third quarter. We have used these
proceeds primarily to finance the growth in working capital necessary to support
our sales growth.
In 1997 we completed a post-effective amendment registration statement
to our initial public offering concerning 712,497 publicly traded warrants,
which are exercisable until February 2, 1999 at $5.00 per share. The gross
proceeds from the above warrants, should they be fully converted, would amount
to approximately $3.5 million which we plan to use to fund the geographical
expansion of our business. As the exercise depends on the market price of the
Company's common stock and the ability of the market to absorb additional float,
we are unable to determine the actual degree to which these warrants will be
exercised.
17
<PAGE>
YEAR 2000 COMPLIANCE
We are continually evaluating all our systems to identify Year 2000
problems. At this time, we are not aware of any issues that require
remediation. 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 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 potential business interruptions has not identified any likely
interruptions. Such interruptions, if they occur, will depend, in part, on the
handling of Year 2000 issues by our vendors and customers. 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. See
"Business Year 2000 Compliance."
BUSINESS
GENERAL
We provide and market a broad range of high-quality audio, video and
data teleconferencing services and distribute related teleconferencing products
to businesses and other organizations in the United States, United Kingdom, the
Netherlands, Belgium, France, and Australia. We maintain operations centers in
these countries, where we have installed and operate computer-managed
telecommunications equipment known as "bridges" for conducting multiparty audio
conferences.
Our audio teleconferencing services accommodate multiparty conferences
with a number of participants at levels of audio volume and clarity that are not
generally available on most office telephones. Audio teleconferencing enables
routine meetings, training, information distribution, and other business
meetings to take place where travel makes it impractical, inconvenient, or
expensive to assemble a large group on short notice or with regular frequency.
We offer a variety of services at different price levels depending on customer
needs and business volume. Our customers include small businesses,
multinational companies, law firms, accounting firms, banks, investment bankers,
and a variety of other businesses and entities.
Our video conferencing bridging service commenced in 1996 in the
United Kingdom and connects video participants by means of a video MCU under the
ActionViewTM brand name. We plan to extend this videoconferencing service to
all other operations centers worldwide during 1998 and 1999.
We also offer a variety of video teleconferencing products including
the Tandberg, Picturetel, and RSI brand names. These products are competitively-
priced, stand-alone systems that permit individuals or small groups to send and
receive video and audio signals over digital telephone systems. These systems
comply with international standards and are connected primarily over the ISDN
service, which is available in most major metropolitan markets. Any telephone
network can provide and transmit our audio and data teleconferencing services.
We market data teleconferencing services and software, as an adjunct
to our audio teleconferencing services, and also distribute data
teleconferencing software that permits clients to interconnect desktop computers
by standard modem to simultaneously conduct audio and data teleconferences.
We plan to extend this videoconferencing service to all other
operations centers worldwide. We market our services and products through our
North American, European, and Asia-Pacific marketing hubs. We are actively
seeking opportunities for expansion through the establishment of additional
sales offices and teleconferencing service operations centers in North America,
Europe, and the Asia-Pacific area.
18
<PAGE>
THE COMPANY AND ITS 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 various 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 teleconferencing operations in continental 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 MaTS, which is a value-added videoconferencing reseller
based in the United Kingdom. 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 opened a new operations facility in Toronto. In
October we closed on the purchase of 100 percent of the outstanding common stock
of Advanced Multi-Point Conferencing, Inc. ("AMC") of Ottawa. The Toronto and
Ottawa facilities ultimately will offer a full range of audio, video, and data
teleconferencing products and services. Our Toronto office will stress our
full-service global teleconferencing capabilities to the numerous multinational
corporations in the Toronto area. In Ottawa, we will continue to offer AMC's
full assortment of teleconferencing products and services to a wide variety of
public and private sector organizations including government agencies,
associations, and high tech companies. We are investigating the possibility of
opening offices in Germany and in Hong Kong.
THE COMPANY'S 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
teleconferencing services and products;
* to position ourselves as a single-source provider of customized
solutions for customer teleconferencing needs;
* to maintain the technical expertise necessary to evaluate and
implement such technologies to serve our customers' requirements; and
* to expand operations commensurate with available capital and
market opportunities through geographic expansion, internal development,
and acquisitions.
We intend to expand our domestic audio, video, and data
teleconferencing operations by establishing or acquiring additional audio
bridges, video MCUs, and sales offices in selected cities in North America,
Europe, and the Asia-Pacific area. These plans, as and when fulfilled, will
permit us to improve services to existing multinational customers, secure larger
numbers of new customers, and reduce operation costs per conference as the
volume of conferences each bridge handles or MCU grows.
BACKGROUND
Early forms of telephone conference calls depended on the skills of a
telephone company operator and manually operated equipment. In the 1980s, the
availability of reliable teleconferencing equipment prompted the growth of
independent teleconferencing providers. The U.S. federal court decision which
resulted in the breakup
19
<PAGE>
of AT&T separated telephone carriers into interexchange carriers ("IECs"), such
as AT&T, and LECs, such as US West. The LECs were initially prohibited from
providing audio teleconferencing, except in limited areas.
Since the early 1990s, awareness and acceptance of teleconferencing
and innovations in audio, data, and video communications and the emergence of
the internet have resulted in a significant increase in the use of
teleconferencing. Bridging equipment allows full-duplex transmission
(simultaneous transmission and reception) and clarifies and equalizes sound
volume among participants. Dial-in and dial-out connections are accommodated so
that participants may participate either by awaiting a call from the operator,
by placing a call to the service center or by setting up their own conferences.
Digital recording, voting, polling, and expanded capacity for larger conferences
are accommodated.
Advances in office equipment technology and changes in workstyles have
contributed to the increased use of teleconferencing. Decentralized and
networked management information systems and internet access have empowered
workers at all levels with faster access to data.
Teleconferencing provides a vehicle for bringing decision makers,
students, and workers together more frequently, at lower cost, and with fewer
scheduling conflicts than is possible for face-to-face meetings. While not
replacing face-to-face meetings, many organizations looking for increased
productivity use teleconferencing as a convenient, lower-cost alternative for
sales, operations, financial review, training programs, marketing presentations,
press conferences, workshops, seminars, and board or other meetings.
While increased competition among various telephone carriers has
improved the quality and availability of basic telephone service, a number of
relatively small companies have created a 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 available in continental Europe and Asia-Pacific, but, in
our view, it is not widely used and holds the potential for rapid growth.
PRODUCTS AND SERVICES
We offer a broad range of services and products, 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 re-market 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, or make it available for dial-in access and
digital playback to persons who were 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 bridge and also contract to operate
the bridge for the customer. We are an authorized distributor of desktop
conference telephones that provide enhanced sound quality.
We have devised and implemented a quality management program to track
the results of internal operations, assess service quality, and measure customer
satisfaction. We offer our audio, video, and data services over fully digital
bridges, and have increased and upgraded capacity commensurate with growth.
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.
Video teleconferencing 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 "roll about" systems for a small group's use
(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.
20
<PAGE>
In the last two years, we spent an estimated $300,000 on research and
development, including new products and software. Generally, customers do not
explicitly bear the costs of research and development, but these costs are
factored into the prices charged for our services. In 1997 and in the first six
months of 1998, we have spent approximately $2.5 million in connection with the
opening of new offices and the development of new markets.
MARKETING AND PRINCIPAL CUSTOMERS
We have adopted a strategy of developing and providing reliable, high
quality services to create and maintain strong 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.
Additional competition will also develop from more sophisticated
telephone sets, PBX systems, or customer-owned bridges. Currently, most business
desk telephones can conference three participants. PBX systems are able to
conference several lines in addition to those connected on a handset, and
technology is available to enhance PBX capability up to six or eight lines. PBX-
handled conference calls typically have limited sound quality, as the addition
of each line reduces the overall sound volume.
<TABLE>
<CAPTION>
Year Customer 1 Customer 2 Customer 3
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 10.9% 10.5% 7.2%
- -------------------------------------------------------------------------------------------------------------------
1997 23.7% 6.6% 3.1%
- -------------------------------------------------------------------------------------------------------------------
1998 (9 months) 21.1% 5.1% 3.0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Some of our largest customers operate numerous business locations which
make teleconferencing decisions independently of other locations.
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, New York, London, Paris,
Amsterdam, Toronto, Ottawa, and Sydney. Concert, which on the date of the
agreement was owned by British Telecommunications plc ("BT") 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, BT purchased MCI's 24.9 percent interest in
Concert and now owns 100 percent of Concert. This ownership change is not
expected to impact our agreement with Concert. Services under the Concert
Global agreement are expected to commence in the fourth quarter of 1998 via in-
country distributors, including BT (U.K.), MCI WorldCom (USA), Telefort
(Netherlands), and others. In addition, AT&T announced plans in December 1998
to join with BT in promoting the global services of Concert to AT&T customers in
the United States. Revenues will depend on usage and the ability to penetrate
markets in various countries, but we are estimating, and are developing software
and acquiring the teleconferencing equipment to handle, approximately
$40,000,000 in additional revenues over the three-year term of the agreement.
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.
YEAR 2000 COMPLIANCE
State of Readiness. Our principal information technology ("IT")
-------------------
systems have been developed intensively only over the last four years (with
desktop based Year 2000 compatible software). From our incorporation in
December 1989 to mid 1994, we satisfied our major systems requirements using
manual or semi-automated
21
<PAGE>
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-IT system. We have
requested Compunetix to verify and certify that all its embedded systems within
our bridges are Year 2000 compliant. To the best of our knowledge, we are not
presently substantially dependent upon any other significant internal non-IT
and/or embedded system which is not Year 2000 compliant.
Costs to Address Year 2000 Issues. Except as noted above, we believe
----------------------------------
that our internal systems are Year 2000 compliant; and we have not incurred any
material costs for remediation for the Year 2000. However, to address the impact
of acquisitions, new facilities, and other contingencies, we estimate that the
future costs to monitor, control, and remediate our systems to be Year 2000
compliant are not likely to exceed either $500,000 in 1999 or an additional
$500,000 beyond 2000.
Risks of Year 2000 Issues. Our dependence upon external or third
--------------------------
parties is significant. The major areas where a Year 2000 failure could have an
effect on our business would be a failure in one or more of the following major
industries or institutions on which we are dependent either as a supplier to us
or as a customer:
* Electrical Utilities
* Telecommunications
* Banking and Financial Services
* Airlines
* Government Agencies and Institutions
Their failure to provide services to us due to Year 2000 problems
could have a material adverse effect on our business, results of operations, and
financial condition. As these entities devote financial resources to comply with
Year 2000 requirements, changes in their customary purchasing patterns could
result in a material adverse effect on our business, results of operations, and
financial condition. The consequences of our dependence on external or third
parties and changes in our customers' purchasing patterns is uncertain. We are
formulating a formal contingency plan further described below to analyze and
handle the uncertainty regarding any Year 2000 issues.
Contingency Plans. Our future formal contingency plan for the Year
------------------
2000 will continue to monitor all major risks for us on a proactive basis. We
believe that we operate in a changing, high growth, volatile, and high risk
environment, and our management will continually assess and address all risks
(not only Year 2000 risks). Our market sector is a small niche component of the
$700 billion annual worldwide telecommunications industry. All of our major
service providers and most of our major customers are multinational entities
that are substantially larger than us. We are largely dependent on our major
service providers and customers. We intend to monitor our exposure and also take
appropriate measures to ensure that we are not unduly dependent upon one
particular customer or industry supplier. In anticipation of Year 2000, the
following contingency plans are either being considered or implemented.
* Restrictions will be imposed on 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 will be 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.
22
<PAGE>
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.
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.
FACILITIES
We currently lease office and operations space at our locations in Denver,
metropolitan New York, Toronto, Ottawa, London and Bracknell, England,
Amsterdam, Brussels, Sydney, 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
relocation to total ongoing operating expenses and all lease costs are in line
with generally available market rentals.
EMPLOYEES
As of September 30, 1998, we had 170 employees: 80 in North American
operations; 70 at our subsidiary in London, England; 5 employees at our
Netherlands subsidiary, 10 at our Sydney, Australia subsidiary and 5 at our
Paris, France subsidiary. Of the 170 total worldwide employees, 102 are in
teleconferencing operations, 30 are in sales and marketing, and 38 are in
management and administration.
23
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ---- ---- --------
<C> <C> <S>
Gerald D. Van Eeckhout 58 Chairman of the board of directors, Chief Executive Officer
James F. Seifert 70 Director
Ronald J. Bach 65 Director
Donald L. Sturtevant 61 Director
Carolyn R. Van Eeckhout 60 Director; Vice President, ACT Teleconferencing Services, Inc.
Gavin J. Thomson 40 Vice President, ACT Teleconferencing, Inc., Chief Financial and Planning
Officer, Treasurer, Secretary
Gene Warren 45 Managing Director, ACT Teleconferencing Services, Inc.
David Holden 37 Managing Director, ACT Teleconferencing Limited
Charles T. Stout 51 Vice President Finance for US Operations, Assistant Secretary and Treasurer
</TABLE>
* Age is as of December 1, 1998
Gerald D. Van Eeckhout, our founder, has been Chairman of the board of
----------------------
directors and Chief Executive Officer since our formation in 1989. From 1982 to
1989, Mr. Van Eeckhout was President, Chief Executive Officer, and a Director of
ConferTech International, Inc., a teleconferencing services and manufacturing
company. Prior to 1982, he served seven years as Chief Financial and
Administrative Officer of Medtronic, Inc., five years as Chief Financial and
Planning Officer at Pillsbury International and eight years as a CPA with Touche
Ross & Co., based in Minneapolis, Minnesota. He received a Bachelor of Science
degree from the University of North Dakota in 1962, and completed the Stanford
Executive Program in 1976. He has also been a national director of the American
Electronic Association and President of the University of North Dakota
Foundation. Mr. Van Eeckhout is a director of RLD Enterprises, Inc., a publicly
traded company.
James F. Seifert, a Director since 1991, is the retired Chairman and CEO of
----------------
James F. Seifert & Sons LLC, a position he held from 1933 through 1998. Mr.
Seifert was previously Chairman and CEO of Grafton Group, Inc., doing business
as Seifert's, a women's apparel chain that operated up to 234 stores. James F.
Seifert & Sons LLC acquired approximately 50 of those stores. Mr. Seifert
received his Bachelor of Science degree in Commerce from the University of North
Dakota in 1950. He is a former President of the University of North Dakota
Foundation.
Ronald J. Bach, our Director since 1992, is a certified public accountant
--------------
and worked continuously at the firm of Deloitte and Touche from 1955 until his
retirement in 1991, when he was partner in charge of its Bloomington, Minnesota
office. He holds a degree in accounting from the University of Minnesota, and
serves as a director of a number of privately held companies in which he has an
ownership interest.
Donald L. Sturtevant was elected as our Director during 1996. He is the
--------------------
Chief Operating Officer and a director of St. Croix Medical, Inc., a medical
implantable hearing systems company. He was President and Chief Executive
Officer of MediVators, Inc. from 1991 through 1996. Previously, he held the
positions of CEO and Chairman of the board of BallistiVet, Inc., from 1988
through 1990. From 1985 through 1987 Mr. Sturtevant was vice president of Alpha
Business Group, Inc., a medical venture management group which he co-founded.
From 1972 to 1985 Mr. Sturtevant held various positions at Medtronic, Inc.,
including Vice President and General Manager of the Instrument Division. Mr.
Sturtevant received a Bachelor of Science degree in Business Administration from
the University of Minnesota in 1966 and is a 1975 graduate of Northwestern
University's International Management Program in Bergenstock, Switzerland.
Carolyn R. Van Eeckhout, our founder, serves as Vice President of ACT
-----------------------
Teleconferencing Services, Inc. (a wholly owned subsidiary). She has been our
Director since our formation in 1989 and has worked with us since our inception.
From 1985 to 1989, she was a self-employed consultant to various health
professionals and the
24
<PAGE>
Denver Public School District. She received her Bachelor's degree in Education
from Pennsylvania State University.
Gavin J. Thomson, Vice President, ACT Teleconferencing, Inc., Chief
----------------
Financial and Planning Officer, Secretary, and Treasurer joined us in February
1997. From 1995 to 1997, Mr. Thomson served as Managing Director of TEK
Electronics, a consumer electronics company based in Johannesburg, South Africa.
Prior to holding that position, he was the Chief Financial Officer of TEK
Corporation for a period of four years. TEK was then one of the largest
consumer appliance companies in South Africa. He is a Chartered Accountant
(South Africa) and received his bachelor's and post-graduate degrees in
accounting from Natal University, South Africa; earned his master's degree in
Business Administration from the University of Denver; and completed the
Stanford Business School Advanced Management College.
Gene Warren, Managing Director ACT Teleconferencing Services, Inc. joined
-----------
us in August 1996. Mr. Warren came to us with over 20 years of executive and
technical experience in telecommunications. From 1975 to 1991, he worked with
MCI in various capacities in network management and operations culminating as
Senior Director Technical Support Group at MCI headquarters in Washington, D.C.
providing voice, data, and access design for major customers. From 1992 to
1993, he was Director of Technical Services for ConferTech International, Inc.
From 1993 to 1996 he was senior Vice President for business development of
operations and technology for ITC Multimedia Corporation (Global Access), an
audio and video conferencing company. Mr. Warren received a Bachelor of Science
degree in Physics and Mathematics from Atlanta University in 1975. He also holds
a Master's degree in Business Administration from Regis College.
David L. Holden has been the Managing Director of ACT Teleconferencing
---------------
Limited in London since 1992. Immediately prior to joining us, he was employed
for seven years with British Telecom as general manager of its audio
teleconferencing service business in London. Mr. Holden received a Bachelor of
Science degree in Business Administration from the University of Wales.
Charles T. Stout has held the position of our Treasurer from 1991 until
----------------
1997 (on a part-time basis 1991 through 1996), when he was appointed Vice
President of Finance for U.S. Operations, Assistant Secretary and Assistant
Treasurer. From 1985 to 1990, Mr. Stout was Vice President of Finance for
ConferTech International, Inc. From 1991 to 1992, Mr. Stout held an accounting
management position with Capital Associates International, Inc. From 1992 to
1995, the Resolution Trust Corporation engaged Mr. Stout as an accountant. He
holds a bachelor's and a master's degree in accounting and management science
from the University of Colorado.
Gerald D. Van Eeckhout and Carolyn R. Van Eeckhout are husband and wife.
25
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information regarding compensation we paid for
services rendered for the fiscal years ended December 31, 1995, December 31,
1996, and December 31, 1997, to Gerald D. Van Eeckhout, and for 1997 only to
Gene Warren and David Holden. We did not pay any other executive officers cash
compensation in excess of $100,000 during any of these three years. All amounts
are in U.S. dollars.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
------ ---------
FISCAL COMPENSATION COMPENSATION TOTAL CASH
-------- ------------ ------------ ----------
Name and Principal Position YEAR SALARY BONUS STOCK OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Gerald D. Van Eeckhout, Chairman 1997 $120,000 $54,816 None $188,787(1)
of the board and CEO 1996 $ 77,800 $33,997 150,000(2) $125,768(1)
1995 $ 74,827 none none $ 88,798(1)
Gene Warren, Managing Director (US 1997 $ 96,081 $39,835 100,000(3) $ 135,916
Operations)
David Holden, Managing Director (UK 1997 $ 80,000 $51,320 60,000(4) $ 131,320
Operations)
</TABLE>
/(1)/ Includes an annual disability insurance policy premium of $1,971 per year
and a split-dollar life insurance policy premium of $12,000 per year.
/(2)/ Granted on December 1, 1996 at an exercise price of $3.025 per share.
Includes options to purchase 50,000 shares of Common Stock granted under the
Stock Option Plan of 1991 and options to purchase 100,000 shares of Common Stock
granted under the Stock Option Plan of 1996.
/(3/) 50,000 options granted on December 1, 1996 at an exercise price of $3.025
per share; 25,000 options to purchase Common Stock granted on June 18, 1997 at
$5.00 per share; and 25,000 options to purchase Common Stock granted on December
30, 1997 at $6.00 per share.
/(4)/ Includes 45,000 options to purchase Common Stock granted on July 1, 1996
at an exercise price of $3.00 per share and 15,000 options to purchase Common
Stock granted on December 30, 1997 at $6.00 per share. Of these 15,000 options,
11,500 are subject to the shareholders' approval of an amendment to the Stock
Option Plan of 1996.
The following table indicates the options provided to Gene Warren and David
Holden for 1997.
<TABLE>
<CAPTION>
% of Total Exercise Expiration Date Market Price
---------- -------- --------------- ------------
Position Number Options Price
-------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gene Warren Managing Director 25,000 7.7% $5.00 6/18/2007 $5.00
(US Operations) 25,000 7.7% $6.00 12/29/2007 $6.00
David Holden Managing Director 4,500 1.4% $6.00 12/29/2007 $6.00
(UK Operations)
</TABLE>
DIRECTORS' FEES
We have adopted a compensation plan for directors which will provide for
payment of non-employee directors' fees in the form of stock options or stock
grants. In 1995 and 1996, we made grants of options totaling 5,000 shares each
to our two non-employee directors at $2.00 per share, vesting one year from date
of grant and expiring ten years from date of grant. In 1996 and 1997, grants
of options on 5,000 shares each were made at $5.00 and $6.00 per share
respectively, vesting in one year and expiring ten years from the date of
grant.
26
<PAGE>
KEY EMPLOYEE INSURANCE
We maintain a key-employee life insurance policy on the life of Mr. Van
Eeckhout, in the amount of $500,000, which is payable to us. The intended
purpose of this policy is to assist us in replacing Mr. Van Eeckhout and in
making other adjustments in operations in the event of his death. Our United
Kingdom subsidiary holds life insurance policies on the life of Mr. Holden in
the amount of (Pounds)1,090,000, the proceeds of which are payable to the
subsidiary. We have the option to repurchase Mr. Holden's shares upon his death
or disability.
EMPLOYMENT AGREEMENTS
Officers receive salaries that the officer and the board agree upon and are
eligible for performance incentives the board determines from time to time. We
presently have no formal employment agreements with our officers other than with
six officers of four subsidiaries.
Our United Kingdom subsidiary has a service agreement with its Managing
Director, Mr. Holden, which he (with six months' notice) or the subsidiary may
terminate. Under the agreement, Mr. Holden receives a base salary, currently
(Pounds)50,000 (US $80,000) per year, and a performance-related bonus that the
subsidiary's board may determine from time to time.
Our MaTS subsidiary has service agreements with three executive directors:
Finlay Malcom Anthony John McKeracher, Martin James Offwood, and Sarah Jane
Stacey, which they (each with twelve months' notice) or MaTS may terminate. Base
salaries for these three directors are (Pounds)70,000 (US$ 112,000),
(Pounds)49,000 (US$ 78,400), and (Pounds)36,500 (US$ 58,400), respectively. The
subsidiary's board determines performance related bonuses from time to time. Mr.
McKeracher's compensation is not shown under the "Executive Compensation"
section in excess of $100,000 because the MaTS subsidiary was acquired on
December 29, 1997.
Our Australian subsidiary, ACT Teleconferencing (Pty.) Limited has a
service agreement with its Managing Director, Peter Eeles, which he (with six
months' notice) or the subsidiary may terminate. Base salary for Mr. Eeles is AU
$75,000 (U.S. $52,500). This subsidiary's board may determine a performance
related bonus from time to time.
Our Canadian subsidiary, Advanced Multi-Point Conferencing, Inc. ("AMC"),
has a service agreement with a company controlled by Mark Kelly, one of the
former shareholders of AMC, that provides for the services of Mr. Kelly to AMC
from October 1998 through December 31, 1999 at the rate of $5,000 per month.
27
<PAGE>
PRINCIPAL SHAREHOLDERS
As of September 30, 1998, there were 3,641,801 shares of Common Stock
issued and outstanding. The following table lists the beneficial ownership our
Common Stock as of December 1, 1998 for:
*each person who, to our knowledge, owned more than 5% of such stock,
*each director or nominee for director,
*each executive officer, and
*all directors and executive officers as a group.
Unless otherwise noted, shares are subject to the sole voting and
investment power of the indicated person.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER(1) BENEFICIAL PERCENT OF
- ------------------------------------------------------- OWNERSHIP(2) OUTSTANDING SHARES
---------------------- -----------------------------------
<S> <C> <C>
Gerald D. and Carolyn R. Van Eeckhout(3)(4)(9)......... 672,083 18.5%
James F. and Nancy Seifert(6).......................... 225,200 6.2%
Ronald J. Bach(7)(9)................................... 77,750 2.1%
Donald L. Sturtevant(8)................................ 27,667 0.8%
Gene Warren............................................ 18,750 0.5%
David Holden........................................... 22,500 0.6%
Gavin J. Thomson....................................... 16,750 0.5%
Charles T. Stout(5).................................... 48,055 1.3%
Euro American Securities (10).......................... 200,000 5.5%
Nikos Moskos (11)...................................... 200,000 5.5%
All directors and executive officers as a group........ 1,106,755 30.4%
</TABLE>
(1)Unless otherwise noted the address of each of our directors and executive
officers is 1658 Cole Boulevard, Suite 130, Golden, Colorado 80401.
(2)Beneficial ownership is determined in accordance with rules of the SEC, and
includes general voting power and/or investment power with respect to
securities. Shares of Common Stock subject to options or warrants that are
currently exercisable or exercisable within 60 days from December 1, 1998, are
deemed outstanding for purposes of computing the percentage of the person
holding such options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
(3)Gerald D. Van Eeckhout and Carolyn R. Van Eeckhout are husband and wife.
(4)Includes 51,000 shares Gerald D. Van Eeckhout holds directly and 556,583
shares Carolyn R. Van Eeckhout holds directly, and options on 62,500 shares
which Mr. Van Eeckhout may currently exercise, but excludes 6,000 shares held of
record but not beneficially owned by a partnership in which Mrs. Van Eeckhout is
a managing partner.
(5)Includes 17,500 shares issuable upon exercise of currently exercisable
options.
(6)Includes 125,000 shares Nancy L. Seifert Management Trust holds of record
and 75,000 shares the James L. Seifert Management Trust holds of record, for
which trusts Mr. Seifert and Mrs. Seifert are the co-trustees. Also includes
10,950 shares Mr. Seifert owns directly and 14,250 shares issuable upon Mr.
Seifert's exercise of options. Mr. and Mrs. Seifert are husband and wife. Their
address is 300 Law Building, Cedar Rapids, Iowa 52401.
(7)Includes 44,250 shares issuable upon Mr. Bach's exercise of options.
(8)Includes 2,000 shares issuable upon exercise of warrants and 21,667
options. Mr. Sturtevant's address is 3693 E. Oak Creek Dr., Vadnais Heights,
Minnesota 55127.
(9)Excludes 44,300 shares RLD Enterprises, Inc. ("RLD") owns which serve as
collateral on a loan to RLD from an investment group that Mr. Bach heads. Mr.
Van Eeckhout and Mr. Bach each own less than 10% of the outstanding Common Stock
of RLD, and Mr. Van Eeckhout is one of RLD's four directors. Messrs. Bach and
Van Eeckhout disclaim any control over or beneficial interest in the 44,300
shares.
(10)Address is 9 Leonidon St. N. Kifisia, Athens, Greece 14564
(11)Address is Pakgalou 7 Melissia, Athens, Greece, 15127
28
<PAGE>
CERTAIN TRANSACTIONS
ISSUANCE OF SHARES
We have not issued any securities to our officers or directors during the past
two years.
OPTIONS AND WARRANTS
Various officers, directors, and subsidiary officers and shareholders have
been granted options and warrants to purchase shares of Common Stock and the
market price on the date of each grant. During 1996 and 1997 and through
September 30, 1998, we granted the following stock options to directors and
officers as well as officers of subsidiary companies:
<TABLE>
<CAPTION>
Weighted
--------
Position Number Average Price
-------- ------ --------------
<S> <C> <C> <C>
Gerald D. Van Eeckhout Chairman & CEO 150,000 $3.025
Ronald J. Bach Director 15,000 $ 4.00
James F. Seifert Director 15,000 $ 4.00
Donald L. Sturtevant Director 30,000 $ 3.40
Gene Warren Managing Director, US Operations 100,000 $ 4.13
Gavin J. Thomson Chief Financial and Planning Officer 100,000 $ 4.25
Thierry Bignet Managing Director, European 50,000 $ 6.00
Operations
David Holden Managing Director, UK Operations 60,000 $ 3.75
Peter Meijer Managing Director, Netherlands 10,000 $ 6.00
</TABLE>
During 1997, the total increase in stock options granted (net of forfeiture
and exercise) amounted to 276,100, thereby increasing the total number of stock
options granted and outstanding at the end of the year to 730,400. In December
1998, we granted an additional 50,000 options to Mr. Van Eeckhout at an exercise
price of $6.05.
LOAN FROM SHAREHOLDER
During February 1998, we entered into a loan agreement with Gerald D. Van
Eeckhout and Carolyn R. Van Eeckhout for $200,000 payable at 1% below the prime
rate and due on demand. Our Board of Directors determined that the terms were
at least as favorable as would have been available from an unaffiliated party.
We repaid this loan in April 1998.
SELLING SECURITY HOLDERS
We issued a Unit Purchase Option for $100.00 to Tuschner & Company, Inc
("Tuschner"), as required by the Underwriting Agreement between Tuschner and us.
Tuschner provided investment banking services to us in 1996 during our initial
public offering. The Unit Purchase Option entitles Tuschner (or permitted
transferees) to acquire 71,249 Units at an exercise price of $4.20 each, each
comprised of one Share and one Warrant. By exercise of the Warrants at $5.00
each, the Warrant holders can purchase an additional 71,149 shares ("Warrant
Shares"). As the terms of the Unit Purchase Option permit, Tuschner assigned
34,867 of the Unit Purchase Options to persons who were officers, directors,
owners, or employees of Tuschner. Tuschner retained the balance of 36,382 Unit
Purchase Options. Holders of a majority of the Shares and Warrant Shares and/or
a majority of the Unit Purchase Options are entitled to demand the registration
of the resale of the Shares and the Warrant Shares issuable upon exercise of the
Unit Purchase Options and the exercise of the Warrants. We have agreed to keep
the registration effective for nine months. See "Description of Securities
Unit Purchase Option." None of the holders holds or has held any employment
position with us. The holders of the Unit Purchase Options listed below made
demand for the registration of these transactions. This is the purpose of this
Prospectus.
29
<PAGE>
Names of the holders who will have the right to sell Shares or Warrant Shares,
if they elect to exercise such rights, following the exercise of their Unit
Purchase Options and the Warrants are:
<TABLE>
<CAPTION>
Holder Address Shares Owned Before No. of Unit Purchase
Exercise Options
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Darrel G. Kluge Lakeville, MN None 1,895
- --------------------------------------------------------------------------------------------------------------------
Francis Dahlberg Golden Valley, MN None 7,335
- --------------------------------------------------------------------------------------------------------------------
John Tuschner Lakeville, MN 800 9,274
- --------------------------------------------------------------------------------------------------------------------
Kerry S. Hiben Rosemount, MN None 1,264
- --------------------------------------------------------------------------------------------------------------------
Eric J. Overvig Mendota Heights, MN None 94
- --------------------------------------------------------------------------------------------------------------------
Gerald J. Wolinski Brooklyn Park, MN None 1,250
- --------------------------------------------------------------------------------------------------------------------
Don M. Hedlund Minneapolis, MN None 375
- --------------------------------------------------------------------------------------------------------------------
John M. Anderson Roseville, MN None 165
- --------------------------------------------------------------------------------------------------------------------
John E. Penshorn Coon Rapids, MN None 260
- --------------------------------------------------------------------------------------------------------------------
W. Larry Keene Richfield, MN None 1,495
- --------------------------------------------------------------------------------------------------------------------
Sam K. Johnson Sartell, MN None 1,010
- --------------------------------------------------------------------------------------------------------------------
Estate of Jerome H. Shapiro St. Louis Park, MN None 300
- --------------------------------------------------------------------------------------------------------------------
V. Chad Smolik Albany, MN None 150
- --------------------------------------------------------------------------------------------------------------------
Dennis B. Reiter Plato, MN None 5,000
- --------------------------------------------------------------------------------------------------------------------
Douglas V. Pool Apple Valley, MN None 5,000
- --------------------------------------------------------------------------------------------------------------------
Tuschner & Company, Inc. Minneapolis, MN 6,300 36,382
- --------------------------------------------------------------------------------------------------------------------
TOTAL 7,100 71,249
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 10,000,000 shares of Common Stock,
no par value and 1,000,000 shares of Preferred Stock, no par value. As of
September 30, 1998, approximately 180 shareholders of record held 3,640,301
outstanding shares. We believe these shares are held of record for approximately
500 beneficial shareholders. The Common Stock and warrants are currently traded
on the Nasdaq SmallCap Market under the symbols "ACTT" and "ACTTW,"
respectively. There are no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters on which shareholders are entitled or
permitted to vote. There is no cumulative voting for the election of directors.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
the board of directors may lawfully declare out of funds legally available and
in liquidation and to share pro rata in any other distribution to the holders of
Common Stock, although no such dividends have ever been paid, and none are
expected to be paid in the future. Holders of Common Stock have no preemptive or
subscription rights. There are no conversion rights, redemption rights, sinking
fund provisions, or fixed dividend rights with respect to the Common Stock.
We will at all times reserve a sufficient number of shares of Common Stock
for issuance upon exercise of the warrants and options currently outstanding.
All currently outstanding shares of Common Stock are, and any Common Stock
issued in this offering or in connection with the future exercise of options or
warrants will be, fully paid and non-assessable.
PREFERRED STOCK
Currently, we have no Preferred Stock outstanding. Our board of directors
is authorized to establish by resolution different classes or series of stock
and to fix the rights, preferences and privileges, including dividend
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rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any class or series or the designation of such class or series without any
further shareholder vote or action. The issuance of a class or series of
Preferred Stock with special rights or privileges could have the effect of
delaying, deferring, or preventing a change in control of the Company, which may
adversely affect the voting and other rights of the holders of Common Stock. See
"Description of Securities Provisions Having Anti-Takeover Considerations."
STOCK OPTIONS
As of September 30,1998, we had a total of 851,093 stock options
outstanding that we had granted under two plans.
We adopted the Stock Option Plan of 1991 (the "1991 Plan") in order to
attract, retain, and motivate key employees and consultants by providing them a
means of acquiring an ownership interest in us. The 1991 Plan covers incentive
stock options within the meaning of section 422 of the Internal Revenue Code, as
amended, and nonstatutory (sometimes called nonqualified) stock options. The
1991 Plan provides that the purchase price of the shares of Common Stock an
incentive stock option covers may not be less than the fair market value of the
shares on the date the option is granted. The term of the options may not exceed
ten years from the date of grant. This plan was amended as of April 28, 1995, to
reserve 400,000 shares of Common Stock for this purpose. As of September 30,
1998, options to purchase 305,300 shares were outstanding under the 1991 Plan,
and options to purchase 69,600 shares had been exercised. Of these outstanding
options, incentive stock options for 235,300 shares had been granted to our
employees with prices ranging from $1.00 to $3.00 per share expiring on various
dates between August 15, 2002, and December 2006; and nonqualified options for
70,000 shares had been granted to our designated nonemployee officers or
directors with prices ranging from $1.00 to $3.00 per share expiring on various
dates between December 31, 2002, and June 30, 2006.
As a general rule, options vest at the rate of 25% per year. The plan
administrator determines the length of each option at the time of grant with the
1991 Plan providing a maximum term of ten years. The employee may exercise the
options granted under the 1991 Plan only during his or her employment and, under
specified circumstances, and for three months following termination of
employment. In the event the employee dies while holding options, the
employee's personal representative has twelve months, or until the expiration
date of the options, whichever is earlier, to exercise the options. The number
of shares purchasable and the purchase price under the 1991 Plan are subject to
antidilution provisions and adjustments upon the occurrence of specified events.
Under the 1991 Plan, the plan administrator has power to establish the exercise
price of nonstatutory options granted under the 1991 Plan. The exercise price of
options granted in the future under the 1991 Plan will not be less than 85% of
the market value of the underlying stock on the date of the grant.
We adopted the Stock Option Plan of 1996 (the "1996 Plan") at the 1997
annual meeting of shareholders and increased the number of shares subject to
options from 400,000 to 800,000 at our 1998 annual meeting. The 1996 Plan was
adopted for the same purposes as was the 1991 Plan, and likewise covers
incentive stock options and nonstatutory stock options. The personnel and
compensation committee of the board of directors administers this plan. The
1996 Plan provides that the purchase price of the shares the incentive stock
option covers may not be less than the fair market value of the shares on the
date the option is granted and that the exercise price of a nonstatutory option
shall not be less than 85% of such fair market value. As of September 30, 1998,
options to purchase 545,793 shares were outstanding under the 1996 Plan, and
2,000 had been exercised. Of the 545,793 outstanding options, we granted
incentive stock options for 515,793 shares to our designated employees with
exercise prices ranging from $3.00 to $9.00 per share expiring on various dates
between September 3, 2006 and June 18, 2008. We granted nonqualified options
for 30,000 shares to our certain nonemployee service providers at a price
ranging from $5.00 to $9.00 per share expiring on June 18, 2008. As of August
31, 1998, options for 254,207 shares remain available for issuance under the
1996 Plan. The personnel and compensation committee determines the length and
vesting schedule of each option at the time of grant with the 1996 Plan
providing a maximum term of ten years. The employee may exercise options
granted under the 1996 Plan only during his or her employment and, under
specified circumstances, for three months following termination of employment.
In
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the event the employee dies while holding options, the employee's personal
representative has twelve months, or until the expiration date of the options,
whichever is earlier, to exercise the options. The number of shares purchasable
and the purchase price under the 1996 Plan are subject to antidilution
provisions and adjustments upon the occurrence of specified events.
UNIT PURCHASE OPTION
For $100, as required by the Underwriting Agreement executed with Tuschner
for services in our initial public offering, we sold to Tuschner a Unit Purchase
Option to purchase 71,249 Units, each consisting of one share of Common Stock
and one Warrant to purchase one share of Common Stock at $5.00 per share. The
Warrants are identical to the redeemable Warrants offered in our initial public
offering (the "Public Warrants") except that the Warrants included in the Unit
Purchase Options and offered in this prospectus are not redeemable and the
exercise period of three years for the Warrants, does not commence until the
Unit Purchase Option is exercised. The rights of Warrant holders and the
administration of these Warrants is subject to the same warrant agreement that
governs the Public Warrants, except as provided otherwise in the Unit Purchase
Options. See "Description of Securities Warrants." The Unit Purchase Option is
exercisable at $4.20 per unit commencing February 7, 1997 and expiring February
2, 2001. The Unit Purchase Option includes customary anti-dilution provisions;
one-time demand registration rights at our expense until February 2, 2001, with
such registration to be effective for nine months; unlimited demand registration
rights on Form S-3 at the holder's expense until February 2, 2001; and "piggy-
back" rights, expiring on February 2, 2003. The Unit Purchase Option includes
provisions requiring the holders and the Company to indemnify each other for
liabilities under the Securities Act of 1933. It is the position of the SEC that
such provisions are unenforceable.
WARRANTS
Public Warrants. The Units sold in our initial public offering in 1996
---------------
were comprised of one share of Common Stock and one redeemable Common Stock
purchase warrant (the "Public Warrants"). The terms of the warrant agreement
with our transfer agent govern the Public Warrants and the underlying shares
(the "Public Warrant Shares"). As of September 30, 1998, 674,804 Public Warrants
were outstanding. Although the following discussion is not a complete
discussion of all terms of the warrant agreement, we believe it contains all
material provisions of the warrant agreement.
Each Public Warrant entitles 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. We may at any
time redeem the Public Warrants at $.10 each on 30 days written notice, provided
that the average closing bid price per share of Common Stock has been at least
120% of the exercise price of the Public Warrant (i.e., an average closing bid
price of at least $6.00), subject to adjustment, for the ten consecutive trading
days prior to the notice of redemption. Holders of these Public Warrants will
forfeit all rights upon such redemption except the right to receive the $.10
redemption price per Public Warrant and the right to exercise the Public
Warrants during the 30-day notice period.
Holders of these Public Warrants are not entitled to vote, receive
dividends, or exercise any of the rights of shareholders of Common Stock for any
purpose until they have been duly exercised; the Public Warrants may be
presented for transfer, exchange, or exercise at the office of our transfer
agent acting as warrant agent.
The Public Warrants provide for adjustment of the exercise price and of the
number of underlying shares of Common Stock to protect their holders against
dilution in certain events, including stock dividends, stock splits,
reclassifications, consolidations, mergers, and other business combinations.
Unless the exercise of the Public Warrants qualifies for an exemption from
registration, we must have effective registration statements on file with the
SEC and relevant state securities commissions or agencies, in order for these
Public Warrants to be exercised. Although we have agreed to use our best efforts
to maintain effective registrations during the three-year exercise period of the
Public Warrants, there can be no assurance that any such registrations or
qualifications will be effective at the time holders of the Public Warrants
desire to
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exercise them. If for any reasons there are not effective registrations or
qualifications for the shares of Common Stock underlying these Public Warrants
under all federal and state securities laws pertaining to the holder's exercise,
or an appropriate exemption therefrom is not available, these Public Warrants
may not be exercisable and, accordingly, would lose their value.
For the term of these redeemable Public Warrants, the holders are given the
opportunity to benefit from an increase in the market price of our Common Stock
with a resulting dilution in the ownership interest of our shareholders. Since
holders of these redeemable Public Warrants would be expected to exercise their
Public Warrants only when the market price of the Common Stock exceeds the
exercise price of the Public Warrants, such exercise, in all likelihood, would
occur when we would be able to obtain equity capital through a new offering on
terms more favorable to us than the terms to which it is obligated under the
redeemable Public Warrants.
Other Warrants. In addition to the Public Warrants and the Warrants
--------------
included in the Unit Purchase Option, we have issued various Common Stock
purchase warrants from time to time (collectively, the "Other Warrants") which,
as of September 30, 1998, entitle the holders to purchase a total of 408,467
shares of Common Stock.
Other Warrants outstanding include warrants issued in conjunction with our
sale of promissory notes in 1993 that enable the holder to purchase 2,500
shares of Common Stock at $4.00 per share expiring December 31, 1998. This
warrantholder is entitled to Demand Rights and Piggy-Back rights.
Other Warrants also include warrants issued in conjunction with certain
subordinated financing and equipment leasing transactions. As of March 31,
1998, we executed promissory notes ("Notes") in the amount of $1,610,000 and
$890,000 (total of $2.5 million) in favor of Sirrom Capital Corporation
("Sirrom") and Equitas, L.P. ("Equitas"), respectively, under a loan and
security agreement with Sirrom and Equitas of March 1998. According to the
terms of these Notes, a total of $2,000,000 was advanced to us on March 31, 1998
with the balance of $500,000 to be advanced on our request. The Notes bear
interest at 13.5% payable monthly, are due on March 31, 2003, and are secured by
accounts receivable, inventory, intangibles, equipment, and other personal
property as well as 100% of our voting shares in our subsidiary, ACT
Teleconferencing Services, Inc., and our ownership of shares (60% of the
outstanding shares) of ACT Teleconferencing Limited, a United Kingdom company
(collectively, the "Collateral"). The Notes are subject to a subordination
agreement between Sirrom and Equitas as lenders and our commercial bank, Key
Bank National Association, in which Sirrom and Equitas have agreed to
subordinate their rights in the Collateral to a $500,000 line of credit Key Bank
has made available to us.
In conjunction with the issuance of the Notes, we issued stock purchase
warrants to Sirrom as of March 31, 1998 for the purchase of 183,853 shares of
Common Stock at the exercise price of $7.00 per share, based on the $7.00 market
price of our shares on February 17, 1998 (the date we began negotiations with
Sirrom), and expiring on April 30, 2003. If the Notes are not fully paid on the
second, third, or fourth anniversary dates, the number of shares subject to
these warrants will increase to 216,802, 269,702, and 360,495 shares,
respectively. Similarly, we issued stock purchase warrants to Equitas for the
purchase of 147,114 shares of Common Stock. If the Notes to Equitas are not
fully paid on the second, third, or fourth anniversary dates, the number of
shares subject to the stock purchase warrants will increase to 173,832, 200,825,
and 228,410 shares, respectively. The number of shares subject to the warrants
is subject to adjustment if we should issue shares at a price lower than $7.00
per share and are also subject to adjustment for stock splits, stock dividends,
consolidations, and the like. Holders of shares issued upon the exercise of
these warrants have Piggy-Back rights.
As of April 7, 1998, R.C.C. Finance Group Ltd., a New York corporation
("R.C.C.") issued an Equity Lease Commitment ("Commitment") to us amounting to
$2 million. We intend to draw on the Commitment to finance our acquisition of
conferencing bridges and related equipment in support of our expansion to new
offices and for handling the volume of traffic the Concert agreement may
generate (see "Business Primary Customers"). As consideration for the
Commitment, we agreed to grant to R.C.C. for R.C.C.'s payment of $1.00 and other
consideration, the right to purchase 75,000 shares of our Common Stock at an
exercise price of $8.00 per share, based on the market price of $8.00 per share
on April 7, 1998. The warrant purchase agreement between R.C.C.
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and us provides that the warrants will expire on April 7, 2003. The warrant
purchase agreement grants Demand Rights to the warrantholders, exercisable on
two occasions, and Piggy-Back Rights. However, registration rights are granted
only to the warrantholder 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.
EMPLOYEE STOCK PURCHASE PLAN
Employee Stock Purchase Plan became effective July 1, 1998. The Plan has
been structured within the meaning of Section 423(b) of the Internal Revenue
Code of 1986, as amended. The purpose of the Plan is to provide employees with
an opportunity to acquire an ownership interest in us through the purchase of
our Common Stock, thereby developing a stronger incentive to work for our
continued success. We may sell shares of Common Stock to eligible employees. A
maximum of 100,000 shares of Common Stock are eligible for sale under the Plan.
The purchase price of each share of Common Stock sold under the Plan will be the
lesser of 85% of the fair market value of such share on the first day of the
purchase period, or 85% of the fair market value of such share on the last day
of the purchase period. Purchase periods commence July 1 and end on December 31.
Participants declare on the first day of the purchase period an amount they wish
to be deducted from their wages during each payroll period to be applied toward
the purchase of shares. Participants have the right to terminate their payroll
deductions at any time. Currently, 25 employees have elected to participate in
the Plan, but we cannot determine the number of shares that will be purchased
during any purchase period until the close of that period.
PROVISIONS HAVING ANTI-TAKEOVER CONSIDERATIONS
Staggered Terms For Directors. The Articles of Incorporation, as amended,
------------------------------
set the maximum number of directors at nine, the exact number the board may set
from time to time. Each class is elected for a term expiring at the annual
meeting of shareholders in the third year after the election. The board has
established the size of the board at six members (i.e., three classes of two
members each). Currently, there are five members and one vacancy. Election of
the board by classes strengthens the position of the board in dealing with
takeover attempts. By making it difficult to unseat the entire board at one
Annual Meeting, it is intended that the board as a whole will have more
bargaining power in the event a potential acquirer proposes a takeover.
Business Combinations. A provision of the Articles of Incorporation
----------------------
regarding business combinations imposes substantial conditions on third parties
who might attempt to acquire control of us through a "two-tiered pricing"
strategy in which a premium price is paid to obtain a majority of the voting
stock and a less desirable consideration (sometimes in the form of bonds or
other securities) is paid to other shareholders. These conditions include
approval of such proposals by holders of two-thirds of the outstanding shares
unless (1) the board of directors as constituted prior to receipt of the
proposals approve, or (2) the proposal involves a merger, consolidation,
exchange of shares, or sale of all or substantially all our assets and the cash
per share the shareholders will receive is not less than the highest per share
price any person pays, including the person's affiliates, whose beneficial
ownership of the Common Stock, in the aggregate, equals or exceeds 20% of the
outstanding voting power. The effect of these conditions is to discourage new
shareholders from replacing incumbent directors with new directors solely for
the purpose of obtaining approval of a tender offer and to require that the same
consideration per share be paid to all shareholders as an acquirer would pay who
would pay a premium to obtain a 20% or more position in our Common Stock. The
amendment discourages two-tiered pricing proposals and strengthens the board of
directors' position in dealing with potential takeover proposals.
However, the conditions imposed on third parties attempting to take us over
and the potential benefits of the classification of directors are offset, in
part, by the possibility that a suitor might be discouraged from making a
takeover offer, thereby depriving shareholders of an opportunity to sell their
shares at an attractive price. On balance, it is management's belief that its
strengthened position in dealing with suitors will enable it to bargain more
effectively with all potential business partners, including those desiring a
takeover.
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Preferred Stock. In addition, the Articles of Incorporation authorize the
----------------
board of directors' issuance of 1,000,000 shares of Preferred Stock, no par
value, which the board of directors will determine the rights and limitations of
the Preferred Stock. Shareholder approval will not be required for the issuance
of such shares. Such shares of Preferred Stock could have rights that are senior
to the rights of the holders of shares of Common Stock, e.g., preferred
liquidation rights, cumulative dividends, or voting and conversion rights that
could adversely affect the voting power or dividend rights of the holders of
Common Stock and delay, defer, or prevent a change in control of us.
ELIMINATION OF DIRECTOR LIABILITY
Our Articles eliminate the personal liability of our directors to the
Company and to our shareholders for monetary damages for breach of fiduciary
duty, except in the instances described below. Section 7-108-402 of the
Colorado Business Corporation Act authorizes the elimination of personal
liability and is designed, among other things, to encourage qualified
individuals to serve as directors of Colorado corporations by permitting
Colorado corporations to limit or eliminate directors' liability for monetary
damages for breach of the duty of care.
Directors remain liable for breaches of their duty of loyalty to us and our
shareholders, as well as for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law and for transactions from
which a director derives improper personal benefit. The Articles do not
eliminate director liability under a separate provision of the Colorado Business
Corporation Act that makes directors personally liable for unlawful payments of
dividends, unlawful stock repurchases or redemptions, unlawful distributions of
assets during liquidation, and unlawful loans or guarantees to a director. The
Colorado Business Corporation Act expressly sets forth a negligence standard
with respect to such liability.
The provisions that eliminate liability as described above will apply to
our officers only if they are our directors and are acting in their capacity as
directors and will not apply to our officers who are not directors.
INDEMNIFICATION
The Colorado Business Corporation Act contains provisions permitting and,
in some situations, requiring Colorado corporations to provide indemnification
to their officers and directors for losses and litigation expense incurred in
connection with their service to the corporation. Our Articles and Bylaws
contain provisions requiring our indemnification of our directors and officers
and other persons acting in their corporate capacities.
The Colorado Business Corporation Act permits indemnification of a director
of a Colorado corporation, in the case of a third-party action, if the director:
o conducted himself or herself in good faith,
o reasonably believed that (a) in the case of conduct in his or her
official capacity, his or her conduct was in the corporation's best
interest, or (b) in all other cases, his or her conduct was not opposed to
the corporation's best interest, and
o in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
The Act further provides for mandatory indemnification of directors and
officers who are successful on the merits or otherwise in litigation. The
statute limits the indemnification that a corporation may provide to its
directors in a derivative action in which the director is held liable to the
corporation, or in any proceeding in which the director is held liable on the
basis of his improper receipt of a personal benefit.
In addition, we may enter into agreements with our directors providing
contractually for indemnification consistent with the Articles and Bylaws.
Currently, we have no such agreements. The Colorado Business Corporation Act
also authorizes us to purchase insurance for our directors and officers insuring
them against risks
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as to which we may be unable lawfully to indemnify them. We have obtained
limited insurance coverage for our officers and directors as well as insurance
coverage to reimburse us for potential costs of our corporate indemnification of
officers and directors.
As far as exculpation or indemnification for liabilities arising under the
Securities Act of 1933 may be permitted for directors and officers and
controlling persons, we have been advised that in the opinion of the SEC such
exculpation or indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
TRANSFER AGENT AND WARRANT AGENT
Our stock transfer agent and warrant agent is American Securities Transfer
and Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202.
MARKET FOR COMMON EQUITY
------------------------
Our Common Stock (symbol ACTT) and Public Warrants (symbol ACTTW) have been
traded on the Nasdaq SmallCap Market since April 17, 1996. The high and low
closing bid prices for our Common Stock and Public Warrants for each quarter
were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1998 Common Stock (ACTT) WARRANTS (ACTTW)
- ------------------------------------------------------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $10.00 $5.88 $5.38 $1.50
Second Quarter $11.63 $8.00 $6.63 $3.50
Third Quarter $10.63 $6.50 $5.88 $2.19
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1997 Common Stock (ACTT) WARRANTS (ACTTW)
- ------------------------------------------------------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1996 Common Stock (ACTT) WARRANTS (ACTTW)
- ------------------------------------------------------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter/1/ - - - -
Second Quarter $3.63 $2.63 $0.88 $0.38
Third Quarter $3.63 $2.75 $0.88 $0.50
Fourth Quarter $3.75 $2.13 $0.55 $0.25
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Common Stock and Public Warrants traded as a unit (ACTTU) during the
period commencing March 11, 1996 until April 17, 1996. During this period,
the unit traded at a high of $4.25 and a low of $3.13.
STOCKHOLDERS.
As of September 30, 1998, we had approximately 180 holders of record of Common
Stock. We believe these shares are held of record, directly or in street name,
for approximately 500 beneficial shareholders.
WARRANT HOLDERS
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As of September 30, 1998, there were approximately seven holders of record of
Public Warrants and an estimated 177 beneficial warrantholders.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1998, 3,641,801 shares of Common Stock were issued and
outstanding. Assuming the exercise of all of the Unit Purchase Options (and
the Warrants included within the Unit Purchase Options), an additional 142,498
shares of Common Stock will be issued. In addition, as of September 30, 1998,
there were 674,804 Public Warrants outstanding which are exercisable for the
purchase of one share of Common Stock each at $5.00 per share; the Public
Warrants expire on February 2, 1999. We have issued several other forms of
warrants, collectively the "Other Warrants," exercisable at prices ranging from
$4.00 per share to $8.00 per share which expire on various dates. If all Other
Warrants outstanding on September 30, 1998 were to be exercised, an additional
408,467 shares of Common Stock would be outstanding. See "Description of
Securities Public Warrants; Other Warrants."
In addition to the Unit Purchase Options, Public Warrants, and the Other
Warrants, there are 305,300 options outstanding under the Stock Option Plan of
1991 and 545,793 options outstanding under the Stock Option Plan of 1996, as
amended; if all such options were to be exercised, an additional 851,093 shares
of Common Stock would be outstanding.
If all the foregoing warrants and options were to be exercised, the current
number of outstanding shares, as of September 30, 1998, would increase from
3,641,801 shares to 5,718,663 shares. Of the 2,076,862 increase in shares,
1,668,395 shares would be issued in registered transactions (142,498 shares
through this prospectus; 674,804 Public Warrants through the prospectus dated
July 17, 1997; 305,300 shares issuable under the Stock Option Plan of 1991 in a
Form S-8 registration effective August 12, 1996; and 545,793 shares for the
Stock Option Plan of 1996, as amended, through a Form S-8 registration effective
July 2, 1998). Persons who could request registration under their demand or
piggy-back registration rights hold the remaining 408,467 shares of the
2,076,862 share increase. In addition, our acquisition of AMC in Ottawa in
October, 1998 involved the issuance of 112,710 shares of Common Stock which we
have agreed to register for resale prior to January 31, 1999.
Of the 3,641,801 shares outstanding on September 30, 1998, 1,299,870 shares
are "restricted securities" as defined in Rule 144 under the Securities Act.
Holders of restricted securities are eligible to resell such securities under
the provisions of Rule 144. Generally, Rule 144 requires a one-year holding
period, compliance with certain volume limitations, and the filing of Form 144
with the SEC before sales can be effected. However, Rule 144(k) allows persons,
who have held restricted securities for at least two years and who have not been
"affiliates" for the three months prior to such sale, to sell shares without
complying with Rule 144. "Affiliates," generally, are persons who are in a
position of control such as executive officers, directors, and principal
shareholders. The 1,299,870 shares of Common Stock that are restricted
securities include 886,005 shares issued to the founders and other investors
prior to our initial public offering in February 1996 and 413,865 shares issued
upon the exercise of warrants issued in conjunction with private placements of
Common Stock prior to the initial public offering. Currently, to the best of
our knowledge, with effect from September 30, 1998, all 413,865 of these shares
are eligible for sale under Rule 144(k). In addition, 81,378 shares of Common
Stock issued to the owners of MaTS in a Regulation S transaction in December
1997 are deemed restricted securities, as the MaTS shareholders agreed to accept
restricted securities because of then pending changes in the Regulation S
holding period.
PLAN OF DISTRIBUTION
We have not engaged the services of an underwriter or broker in connection
with the exercise of the Unit Purchase Options or the Warrants included in the
Unit Purchase Options. Upon such exercise, our stock transfer agent and warrant
agent will issue the Shares and/or Warrant Shares as the holder of the Unit
Purchase Options or Warrants directs.
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LEGAL MATTERS
Faegre & Benson LLP will pass upon certain legal matters for the Company in
connection with the exercise of the Unit Purchase Options, the exercise of the
Warrants, and the issuance of the Shares as described in this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the years ended December 31, 1997 and 1996, as set
forth in their report, which is included in this prospectus and registration
statement. Our consolidated financial statements are included in this
prospectus and registration statement in reliance on their report, given on
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other
information with the SEC. You may read and copy any reports, statements, or
other information on file at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC.
We have filed a Registration Statement on Form SB-2 with the SEC. This
prospectus, which forms a part of the Registration Statement, does not contain
all of the information included in the Registration Statement. Certain
information is omitted, and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document of ours, such references are not necessarily complete, and you
should refer to the exhibits attached to the Registration Statement for copies
of the actual contract or document. You may review a copy of the Registration
Statement at the SEC's public reference rooms in Washington, D.C; Chicago,
Illinois; or New York, New York. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our SEC
filings and the Registration Statement can also be reviewed by accessing the
SEC's Internet site at http://www.sec.gov.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors.......................................... 41
Consolidated Balance Sheets............................................. 42-43
Consolidated Statements of Operations................................... 43
Consolidated Statements of Shareholders' Equity......................... 44
Consolidated Statements of Cash Flows................................... 45
Notes to Consolidated Financial Statements.............................. 46-57
</TABLE>
39
<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, 1997 and 1996, 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, 1997 and 1996, 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 20, 1998
40
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 451,434 $ 621,742
Accounts receivable (net of allowances for doubtful accounts 2,885,125 1,356,471
of $18,992 and $255,494 for 1997 and 1996, respectively)
Prepaid expenses and other 203,673 55,994
Inventory 136,116 125,850
Available for sale marketable securities 50,000 50,000
---------------------------------------------
TOTAL CURRENT ASSETS 3,726,348 2,210,057
Telecommunications equipment 2,651,395 1,664,697
Office equipment 1,910,606 702,019
Less: accumulated depreciation (1,094,938) (736,556)
---------------------------------------------
TOTAL EQUIPMENTNET 3,467,063 1,630,160
Goodwill 736,300 245,052
---------------------------------------------
TOTAL ASSETS $ 7,929,711 $4,085,269
=============================================
LIABILITIES
Notes payable $ 540,014 $ 74,784
Accounts payable 1,349,337 764,520
Accrued liabilities 777,526 339,299
Current portion of long term debt 253,251 177,312
Income taxes payable 293,238 156,991
---------------------------------------------
TOTAL CURRENT LIABILITIES 3,213,366 1,512,906
Long-term debt 613,714 395,960
Deferred income taxes 117,454 41,042
Minority interest 607,244 367,404
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares -- --
authorized - none issued
Common stock, no par value, 10,000,000 shares authorized
3,612,758 and 2,939,930 shares issued and outstanding in
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
1997 and 1996, respectively 6,158,584 4,022,671
Accumulated deficit (2,729,069) (2,292,261)
Currency translation adjustment (51,582) 37,547
------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,377,933 1,767,957
------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,929,711 $ 4,085,269
==========================================
</TABLE>
See notes to consolidated financial statements.
ACT Teleconferencing, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-----------------------------------------
<S> <C> <C>
Net revenues $10,234,403 $ 6,219,946
Costs and expenses:
Cost of teleconferencing services 4,727,236 3,604,729
Marketing, general and administration 5,408,940 3,538,866
Total costs and expenses 10,136,176 7,143,595
Income (loss) before income taxes and minority interest 98,227 (923,649)
Income taxes (332,566) (164,591)
Minority interest in earnings of consolidated subsidiary (202,469) (119,867)
-----------------------------------------
Net (loss) $ (436,808) $(1,208,107)
=========================================
(Loss) per common share $(0.14) $(0.41)
=========================================
Weighted average shares outstanding 3,204,747 2,911,187
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
-------------------------------
Currency
Accumulated Translation
Shares Amount Deficit Adjustment Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 2,318,000 $2,157,940 $(1,084,154) $ - $ 1,073,786
Shares issued for cash 712,497 1,987,531 - - 1,987,531
Expiration of put issued in
connection with prior year 125,000
acquisition - 125,000 - - 125,000
Reduction of purchase price
related to acquisition (100,000) (250,000) - - (250,000)
Cashless exercise of employee
stock options 8,333 - - - -
Exercise of employee stock options 1,100 2,200 - - 2,200
Currency translation adjustment - - - 37,547 37,547
Net (Loss) - - (1,208,107) - (1,208,107)
-----------------------------------------------------------------------------------
Balance December 31, 1996 2,939,930 4,022,671 (2,292,261) 37,547 1,767,957
Exercise of employee stock options 43,500 52,000 52,000
Exercise of 1994 private
placement warrants 514,950 1,520,834 1,520,834
Issuance of shares as fee to
warrant placement agent 33,000 115,500 115,500
Shares issued in connection with
the acquisition of MaTS Ltd. 81,378 447,579 447,579
Currency translation adjustment (89,129) (89,129)
Net (Loss) (436,808) (436,808)
-----------------------------------------------------------------------------------
Balance December 31, 1997 3,612,758 $6,158,584 $(2,729,069) $(51,852) $ 3,377,933
===================================================================================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (436,808) $(1,208,107)
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation 358,382 288,670
Amortization of goodwill 18,054 38,463
Deferred income tax 76,416 22,491
Minority interest 202,469 119,867
------------------------------------------
Cashflows before changes in operating assets and 218,513 (738,616)
liabilities
Changes in operating assets and liabilities (Net of
effect of business combinations):
Accounts receivable (1,310,000) (676,021)
Inventory 73,276 (14,376)
Prepaid expenses and other assets (124,612) (25,774)
Accounts payable 424,460 162,867
Accrued liabilities 356,356 175,214
------------------------------------------
Net cash used for operating activities (362,007) (1,116,706)
INVESTING ACTIVITIES
Property and equipment purchases (1,618,359) (759,337)
Short Term Notes (26,739)
Investment in marketable security (50,000)
Cash paid for MaTS acquisition net of cash acquired (101,257)
==========================================
Net cash used for investing activities (1,746,355) (809,337)
FINANCING ACTIVITIES
Net proceeds from issuance (repayment) of debt 258,985 142,840
Net proceeds from issuance of common stock 1,688,334 2,115,473
------------------------------------------
Net cash provided by financing activities 1,947,319 2,258,313
Effect of exchange rate changes on cash (9,265) 1,127
------------------------------------------
Net (decrease) increase in cash and cash equivalents (170,308) 333,397
Cash and cash equivalents, beginning of year 621,742 288,345
------------------------------------------
Cash and cash equivalents, end of year $ 451,434 $ 621,742
==========================================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION AND NON CASH INVESTING AND FINANCING ACTIVITIES
1997 1996
<S> <C> <C>
Capital asset and lease additions 432,127 208,805
</TABLE>
44
<PAGE>
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
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. The Company operates principally in the United States, the
United Kingdom, the Netherlands, Belgium, Australia, and France.
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 60% owned United Kingdom subsidiary, ACT Teleconferencing, Limited,
its 100% owned Dutch subsidiary, ACT Teleconferencing, B.V., and its 80% owned
Australian subsidiary, ACT Teleconferencing, (Pty) Limited. The Company has
accounted for its 80% acquisition of Multimedia and Teleconferencing Solutions,
Limited (MaTS) as of December 31, 1997 and no results of operations are
consolidated for 1997. All material inter-company transactions and balances have
been eliminated.
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
Inventories are stated at the lower of cost or market, on a first-in, first-out
("FIFO") basis. Finished goods are 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. Inventories consist primarily of raw
materials and finished goods.
AVAILABLE FOR SALE MARKETABLE SECURITIES
The fair value of the Company's marketable securities at December 31, 1997
approximates the carrying value. The fair value was determined using market
quotes.
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 furniture and five or ten
years for equipment. Depreciation expense includes capital lease amortization
charges.
45
<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 the estimated useful life of fifteen (15) years.
Goodwill is reviewed for impairment when events indicate that the carrying
amount may not be recoverable. If such events are noted, the Company estimates
the future free cash flows to be generated by the business associated with 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 highly 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 all of the Company's common stock equivalents are anti-
dilutive, only basic earnings per share is presented in the Consolidated
Statements of Operations.
For 1997 and 1996, 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 expenses
were $151,941 and $185,519 for the years ended December 31, 1997 and 1996
respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 30, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position, and is effective for the Company's fiscal year ending
December 31, 1998. Management intends to comply with the disclosure requirements
of this statement.
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
the Company's fiscal year ending December 31, 1998. Management intends to comply
with the disclosure requirements of this statement and does not anticipate a
material impact on the results of operations of each segment.
46
<PAGE>
RECLASSIFICATIONS
Certain reclassifications of the 1996 balances have been made in order to
conform to the 1997 presentation.
2. LONG AND SHORT TERM DEBT (INCLUDING CAPITALIZED LEASES)
SHORT TERM LINE OF CREDIT
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% over prime rate (9% at December 31, 1997). This line of credit
contains certain covenants which include the maintenance of certain financial
ratios. The Company is in compliance with these ratios and covenants. The line
of credit has a borrowing base restricted to qualified accounts receivable up to
$500,000. As of December 31, 1997, the outstanding balance under this line of
credit was $455,677.
At December 31, 1997, the Company had a short term note payable to a
telecommunications vendor for $77,577, bearing interest at 10%. This note is
collateralized by a second lien over the accounts receivable of ACT
Teleconferencing Services and also by a corporate guarantee from ACT
Teleconferencing, Inc. This note matures on April 30, 1998 and requires monthly
interest and principal payments until that date.
SHORT TERM NOTE PAYABLE TO RELATED PARTIES
At December 31, 1997, the Company had a 6% note payable to the 20% minority
shareholder in ACT Australia (Pty) Limited for $6,762. This loan is expected to
be converted to a long term note payable.
47
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------------------------------------------
<S> <C> <C>
Long term debt is summarized as follows:
Bank note payable, 1.5% over prime, (9.75% at December, 1996)
due in monthly principal amounts of $834 plus interest, due
August 31, 1999. The loan agreement contains certain covenants,
the most restrictive of which includes maintenance of certain
financial ratios and a defined borrowing base; additionally,
the agreement limits payment of dividends and repurchase or
retirement of the Company's stock. - 25,814
Bank note payable, 10% (3.5% over bank's base rate at December
31, 1997) due in monthly installments of $990 plus interest,
due December 31, 1998. $ 21,790 $ 28,037
Bank note payable, 14.205%, due in quarterly installments of
$20,424 plus interest, due August 31, 1999. 136,158 228,867
Notes payable to vendors bearing interest at rates from 16.125%
to 18.102% due in monthly repayments of $3,413 and due July and
August, 2002. These notes are collateralized by certain
bridging equipment held by ACT Teleconferencing Services, Inc. 133,044 0
Capitalized leases, at interest rates from 5% to 14%, due at
various periods through 2002. 321,568 119,340
Capitalized leases, at interest rates from 17% to 24%, due at
various periods through 2002. 231,540 140,029
Capitalized lease, at 29%, due December, 1999. 22,865 31,185
--------------------------------------------
Subtotal 866,965 573,272
--------------------------------------------
Less, current portion of long term debt (253,251) (177,312)
--------------------------------------------
Long term debt including capitalized leases $ 613,714 $ 395,960
============================================
</TABLE>
Total interest paid on notes and capitalized leases for the year ended December
31, 1997 and 1996 amounted to $99,496 and $36,253 respectively.
48
<PAGE>
3. COMMITMENTS - OPERATING AND CAPITALIZED LEASES
OPERATING LEASES
The company leases office space in the United States, United Kingdom, the
Netherlands, Australia and France. These leases expire December, 2002,
September, 1998, June, 2000, December, 2000 and October, 1998, respectively.
Total rent expense charged to operations was $301,316 and $229,141 for the years
ended December 31, 1997 and 1996.
During 1997, the Company entered into several operating leases for computer and
office equipment. Total rent expense charged under these leases was $51,715 for
the year ended December 1997.
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 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 these assets is included in depreciation for financial
reporting purposes.
The following property is secured under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Telecommunications and office equipment, computers and
furniture $ 797,310 $385,368
Less accumulated depreciation (142,387) (55,497)
---------------------------------------------
$ 654,923 $329,871
=============================================
</TABLE>
The aggregate minimum annual rental commitments as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------------------------------------------
<S> <C> <C>
1998 $648,717 $235,778
1999 479,092 216,735
2000 410,840 132,503
2001 275,742 115,641
2002 and thereafter 250,017 55,964
Total minimum lease payments $2,064,408 $756,621
====================
Less amounts representing interest (180,648)
------------------------
Present value of net minimum capital
leases payments $575,973
========================
</TABLE>
During 1997, the Company incurred capital lease obligations of $432,127 in
connection with lease agreements to acquire equipment, as compared to $208,805
in 1996.
49
<PAGE>
4. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING - COMMON STOCK AND WARRANTS
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 above warrants entitles 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. The Company
may at any time redeem the warrants at $.10 per warrant on 30 days written
notice, provided that the average closing bid price per share of common stock
has been at least 120% of the exercise price of the warrant (i.e., an average
closing bid price of $6.00), for ten consecutive trading days prior to the
notice of redemption. Holders of these warrants will forfeit all other rights
upon such redemption except the right to receive the $.10 redemption price per
warrant and the right to exercise the warrants during the 30 days following
written notice.
Also in connection with the initial public offering, the Company granted a Unit
Purchase Option to Tuschner & Co., the underwriter of the offering. 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
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 the above 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.
WARRANT CONVERSION 1994, 1995 PRIVATE PLACEMENT AND CERTAIN IPO WARRANTS
In connection with loans obtained from private investors, during 1994, the
Company had issued warrants to purchase 8,750 shares of the Company stock at
$4.00 per share expiring December 31, 1998. During 1997, 3750 warrants were
exercised and are included in the analysis below.
In connection with a 1995 private offering, the Company issued 435,700 warrants
exercisable at $3.50 per share expiring August 31, 1997. The Company also issued
42,570 units of one share of common stock plus two additional warrants for
conversion of the Company's stock exercisable at $3.25 per share. These warrants
expired August 31, 1997.
During 1997 a total of 514,950 warrants (including 13,300 warrants arising from
the initial public offering and 3,750 warrants from the 1994 private placement)
were converted at an average price of $3.30 realizing gross proceeds of
$1,698,375. In connection with these conversions, the Company incurred costs of
$177,541 which were offset against the related proceeds for net proceeds of
$1,520,834. As a warrant placement fee 33,000 shares at $3.50 were also issued
to the warrant placement agent.
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 which were not developed for use in valuing the Company's
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no
50
<PAGE>
compensation expense is required to be recognized.
The Company's 1991 Stock Option Plan authorized the grant of options to
officers, key employees, and consultants for up to 400,000 shares of the
Company's common stock. The Company has also granted options under the Stock
Option Plan of 1996. The 1996 Stock Option Plan, has authorized the grant of an
additional 400,000 options to officers, key employees, and consultants of the
Company for a total of 800,000. 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
Statement 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 1996
and 1997, respectively: risk-free interest rates of 6.5% and 6.0%; a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of .60 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.
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:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ------------------------------
<S> <C> <C>
Pro forma net (loss) $(714,230) $(1,279,660)
Pro forma (loss) per share $ (.22) $ (.44)
</TABLE>
Because Statement 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>
1997 1996
---------------------------------------- --------------------------------------
Weighted-Avg. Weighted-Avg.
Options Exercise Price Options Exercise Price
--------------- ----------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 454,300 $2.53 221,000 $1.75
Granted 325,100 5.62 410,800 2.98
Exercised (43,500) 1.20 (26,100) 2.00
Forfeited (5,500) 2.00 (151,400) 2.71
-------------- ---------------
Outstanding-end of year 730,400 $4.02 454,300 $2.53
======= =======
Exercisable at end of year 186,350 $5.62 109,500 $1.50
Weighted-average fair value of
options granted during the year $3.74 $1.93
=====================================================================================================================
</TABLE>
51
<PAGE>
Weighted average exercise prices for options outstanding as of December 31, 1997
were 151,500 shares at $2.12, 378,800 shares at $3.01, and 200,100 shares at
$5.75.
7. INCOME TAXES
The Company accounts for income taxes in conformity with FASB Statement No. 109,
Accounting for Income Taxes ("Statement 109"). Under the provisions of Statement
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.
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:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------
<S> <C> <C>
Current $256,154 $142,100
Deferred 76,412 22,491
-----------------------------------------
$332,566 $164,591
=========================================
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
<S> <C> <C>
Deferred Tax Liabilities-Domestic
Tax depreciation in excess of book depreciation $(100,267) $(20,697)
Deferred Tax Assets-Domestic
Net operating loss carry-forward 926,714 716,081
Reserves for doubtful accounts 3,850 94,230
Other 12,381 9,951
------------------------------------------
942,945 820,262
Valuation allowance for deferred tax assets (842,678) (799,565)
------------------------------------------
Net deferred tax-Domestic $ 0 $ 0
==========================================
</TABLE>
(INCOME TAXES CONTINUED)
52
<PAGE>
<TABLE>
<S> <C> <C>
Deferred Tax Liabilities-International
Tax depreciation in excess of book depreciation $(117,454) $ (41,042)
Deferred Tax Assets-International
Net operating loss carry-forward 335,088 177,724
Other 3,234 1,069
Valuation allowance for deferred tax assets (338,322) (178,793)
------------------------------------------
Net deferred tax liability-International $(117,454) $ (41,042)
==========================================
</TABLE>
Taxes of $118,989 and $132,126 were paid during 1997 and 1996, respectively. The
domestic net operating loss carry forwards of approximately $2,484,000 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.
8. BUSINESS SEGMENT ANALYSIS
The Company owns a 60% interest in ACT Teleconferencing, Limited which operates
in the United Kingdom; ACT Teleconferencing, B.V., a wholly owned subsidiary
which operates in the Netherlands and Belgium; an 80% interest in ACT Australia
(Pty) Limited; and an 80% interest in Multimedia and Teleconferencing Solutions,
(MaTS) which operates in the United Kingdom.
Presented below is certain segment information regarding the Company's United
States and international operations:
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
INTERNATIONAL UNITED STATES UNITED STATES
OPERATIONS OPERATIONS CORPORATE TOTAL
<S> <C> <C> <C> <C>
Net revenues $5,527,846 $4,706,557 $ $10,234,403
Income (loss) before income
taxes and minority interest $ 526,531 $ 175,624 $(603,928) $ 98,227
Net Income (Loss) $ (41,093) $ 175,624 $(571,339) $ (436,808)
Total assets $4,483,424 $3,050,274 $ 396,013 $ 7,929,711
</TABLE>
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<PAGE>
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
INTERNATIONAL UNITED STATES UNITED STATES
OPERATIONS OPERATIONS CORPORATE TOTAL
<S> <C> <C> <C> <C>
Net revenues $3,157,515 $3,062,431 $ - $ 6,219,946
Income (loss) before income
taxes and minority interest $ 113,128 $ (703,644) $(333,133) $ (923,649)
Net income (loss) $ (51,463) $ (703,644) $(453,000) $(1,208,107)
Total assets $2,027,236 $1,658,682 $ 399,351 $ 4,085,269
</TABLE>
One customer accounted for approximately 24% and 11% of consolidated revenues
for the years ended December 31, 1997 and 1996, respectively.
9. MULTIMEDIA AND TELECONFERENCING SOLUTIONS, LIMITED ACQUISITION (MaTS)
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 prorata. 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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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.
10. 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.
54
<PAGE>
Because accounts receivable and accounts payable are short-term instruments that
are settled at face value, the Company considers the carrying amounts to be
equal to the fair values.
Long-term debt consists of notes and capitalized lease obligations that bear
interest at adjustable rates. The Company also considers the carrying amount
(face value) of all instruments to be equal to the fair value.
11. 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, 1997 and 1996, the Company contributed $15,355.32 and $3,722.81,
respectively.
55
<PAGE>
===============================================================================
Prospective investors may rely only on the information contained in this
prospectus. ACT Teleconferencing, Inc. has authorized anyone to provide
prospective investors with information different from that contained in this
prospectus. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
PROSPECTUS SUMMARY..................................................................... 2
SUMMARY OF FINANCIAL INFORMATION....................................................... 4
RISK FACTORS........................................................................... 7
USE OF PROCEEDS........................................................................ 12
CAPITALIZATION......................................................................... 13
DIVIDEND POLICY........................................................................ 13
SELECTED FINANCIAL DATA................................................................ 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 15
BUSINESS............................................................................... 18
DIRECTORS AND EXECUTIVE OFFICERS....................................................... 24
EXECUTIVE COMPENSATION................................................................. 26
PRINCIPAL SHAREHOLDERS................................................................. 28
CERTAIN TRANSACTIONS................................................................... 29
SELLING SECURITY HOLDERS.............................................................. 29
DESCRIPTION OF SECURITIES.............................................................. 30
MARKET FOR COMMON EQUITY............................................................... 36
SHARES ELIGIBLE FOR FUTURE SALE........................................................ 37
PLAN OF DISTRIBUTION................................................................... 37
LEGAL MATTERS.......................................................................... 38
EXPERTS................................................................................ 38
AVAILABLE INFORMATION.................................................................. 38
INDEX TO FINANCIAL STATEMENTS.......................................................... 39
</TABLE>
Until January 25, 1999 (25 days after the date of this prospectus) all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
ACT TELECONFERENCING, INC.
71,249 SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF UNIT PURCHASE OPTION
71,249 WARRANTS, EACH FOR THE PURCHASE OF ONE SHARE OF COMMON STOCK
71,249 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF WARRANTS
----------------------------
PROSPECTUS
----------------------------
DECEMBER 31, 1998
================================================================================
================================================================================
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