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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ___________ to ___________
Commission File Number 0-27560
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ACT Teleconferencing, Inc.
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(Name of small business issuer as specified in its charter)
Colorado 84-1132665
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
1658 Cole Boulevard, Suite 130, Golden, CO 80401
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(Address of principle executive offices) (Zip Code)
(303) 235-9000 (303) 233-0895
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(Issuer's telephone number) (Issuer's facsimile number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
This report contains 60 pages.
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State issuer's revenues for its most recent fiscal year. $28,328,791
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate Rule 12b-2 of the Exchange Act). Note: If
determining whether a person is an affiliate will involve an unreasonable effort
and expense, the issuer may calculate the aggregate market value of the common
equity held by non-affiliates on the basis of reasonable assumptions, if the
assumptions are stated. The aggregate market value of the voting stock held by
non-affiliates of the Company as of February 29, 2000 was: $57,459,120.
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Assumptions: All directors are affiliates, and the following officers are
affiliates: David Holden, Charles Stout, Gene Warren, Gavin Thomson, Thierry
Bignet and Peter Eeles.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [_] No [_] n/a
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Common Stock, no par value:
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4,797,686 shares as of January 31, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into
which the document is incorporated (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g. annual
report to security holder for fiscal year ended December 24, 1990).
Documents incorporated by reference:
Document Item(s) Into Which Incorporated
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Proxy Statement to be used for the Part III, Items 9 through 12 inclusive
Annual Meeting of Stockholders to be
held June 15, 2000 (the "Proxy
Statement") to be filed with the SEC
prior to May 15, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
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ACT Teleconferencing, Inc.
Form 10-KSB/A
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Table of Contents
PART I. Page No.
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Item 1. Business 4
Item 2. Facilities 15
Item 3. Legal proceedings 16
Item 4. Submission of matters to a vote of security holders 16
PART II.
Item 5. Market for registrants' common equity and related 17
stockholder matters
Item 6. Management's discussion and analysis of financial 19
condition and results of operations
Item 7. Financial statements and supplementary data 24
(see table of contents, page 24)
Item 8. Changes in and disagreements with accountants 42
PART III.
Item 9. Directors and executive officers of the registrant 42
Item 10. Executive compensation 42
Item 11. Security ownership of certain beneficial owners and 42
management
Item 12. Certain relationships and related transactions 42
Item 13. Exhibits and reports on Form 8-K 43
Item 14. Financial Statement Schedule 45
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Introductory Statement
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This annual report on Form 10-KSB/A contains forward-looking statements.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
may, will, should, expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms, or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined in our former
registration statements or future registration statements. These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, we do not assume
responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this annual report to conform such statements to actual
results or to changes in our expectations.
Item 1. Business
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ACT Teleconferencing Inc., a Colorado corporation formed in December 1989,
is a leading full service provider of audio, video, data and Internet-based
conferencing services to businesses and organizations in North America, Europe
and Asia. Our conferencing services enable our clients to efficiently and cost
effectively conduct electronic meetings by linking multiple participants in
geographically dispersed locations.
Industry sources estimate that the worldwide teleconferencing services
market amounted to approximately $1 billion in 1999 and will grow to over $3.0
billion by 2004, representing a compounded annual growth rate of approximately
25 percent. This excludes growth in Internet-based conferencing services.
Teleconferencing is now an essential business tool in bringing decision
makers together more frequently, at lower cost, and with fewer scheduling
conflicts than is possible with face-to-face meetings. Within our target markets
of multinationals, professional firms, mid-size firms, and government agencies,
our customers use teleconferencing as a high performance productivity tool to
accelerate decision making, reduce travel costs, and improve teamwork. Members
of project teams, consulting teams, and working groups spread across a country
or the world can assemble through this medium more quickly and economically than
in face-to-face meetings. Examples are board meetings, sales and marketing
groups, training programs, investor presentations, press conferences, workshops,
seminars, and any other form of business or professional meeting.
Several key trends in today's business world, as well as ongoing
developments in technology, are driving growth in the market for
teleconferencing services:
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. Globalization and the resulting demand for additional business
communication.
. The need for accelerated decision making and the trend towards
increased teamwork within companies.
. Growth of the Internet as a viable medium for the efficient
transport of large volumes of voice, video, and data.
. Enhancements to the overall quality of audio, video, and data
conferencing.
. Reductions in cost of transmission and hardware.
. Improved quality of life for participants in meetings who would
otherwise need to spend additional time and effort traveling.
. Reduced travel budgets and enhanced communications for companies.
Audio Conferencing Services Market. We derive our audio conferencing
revenue from a fee for the bridging service which combines a few or several
thousand telephone lines into one call while maintaining volume and clarity; the
cost of long distance which we buy in bulk and resell; and enhanced services
such as recording/replay or polling the opinions of conference participants.
The latest available research of industry consultants, Frost & Sullivan,
indicates that the North America market for all types of audioconferencing
services was approximately $885 million in 1998, as measured by annual revenues.
We estimate North America is approximately 80 percent of the total world market;
accordingly, we estimate worldwide sales at over $1 billion. These figures
include bridging and other enhanced audio conferencing services, but exclude
long distance transmission charges. The major long distance companies accounted
for approximately 80 percent of this market with the remaining 20 percent
provided by independent companies such as ourselves. We expect the audio
conferencing services market to continue growing at a compound rate of 20 to 25
percent annually through year 2005, which would result in an audio conferencing
services market that exceeds $3 billion in sales in 2005. This does not include
the expected development of the Internet-based services market.
Video Conferencing Services Market. Frost & Sullivan estimated the United
States video conferencing services market in 1998 at $200 million, excluding
transmission charges and public room rental. The Frost & Sullivan report
projects growth in the overall video conferencing market at a compound annual
rate of approximately 16 percent to over $500 million in the year 2005.
First introduced in the 1980s, video conferencing applications initially
involved expensive systems in dedicated locations used primarily for group
conferences. The introduction of affordable small group systems expanded the use
of video conferencing. The growing base of users with in-house systems, combined
with greater bandwidth now available through the integrated services digital
network, or ISDN, will continue to drive increased usage as well as increased
Internet usage generally.
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The appeal of videoconferencing is that it adds a person-to-person
dimension that improves communications in a growing number of applications.
Video is the preferred medium in certain industries. Examples of industry
applications include law (witness depositions), medicine (diagnosis and
treatment through telemedicine), manufacturing (determining production
problems), pharmaceuticals (marketing focus groups, research, and collaboration)
and education (distance learning discussions).
Data Conferencing and Internet Telephony Services Market. According to
International Data Corporation, a market research firm, the worldwide market for
Internet telephony services is expected to grow by 108 percent from $480 million
in 1999 to over $19 billion in 2004. By 2004, Internet telephony minutes could
reach 135 billion for a compound annual growth rate from 1999 to 2004 of 119
percent. Currently, the Internet telephony market is dominated by consumer voice
calling; however, we expect that adoption by business customers will follow
improvements in quality and usability. This research also suggests that enhanced
services such as messaging and conferencing could grow to approximately 25
percent of Internet telephony services revenue by 2001. Similarly, we anticipate
significant growth in the amount of audio, video, and data conference calls that
will be conducted over the Internet.
Our next step in expanding Internet teleconferencing is to enable each
Internet conference participant to participate in a two-way, interactive
conference. Recent developments enable two-way voice transmissions to be made
using Internet telephony. Initially, we envision Internet conferencing to be an
added service rather than a replacement for our existing teleconferencing
solutions in the near term, but we do see Internet-based services comprising an
important percentage of the next generation of conferencing services. We are
preparing for these potentially significant markets by:
. Investing approximately $7 million over the next two years in the
development of our Internet telephony conferencing capabilities and by
developing the first full duplex Internet conferencing solution with
Clarent Corporation. Our teleconferencing service, which is now in
beta testing, will be accessible through Clarent's Internet telephony
gateway technology. Clarent is a leading provider of the gateway
required to convert Internet transmission of voice back onto circuit
switching compatible teleconferencing bridges.
. Investing in new bridging equipment capable of hosting data
conferencing calls over the Internet and strengthening our video and
data streaming service offerings.
. Acquiring an Internet service provider in January 2000 to
accelerate our introduction of data conferencing services over the
Internet.
Our Strategy
Our objective is to become the world's leading independent provider of
global teleconferencing services. We believe we are presently the only
independent global
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provider to offer customers the choice of fully attended or unattended audio,
video, and data teleconferencing services from all of our 13 locations. Our
strategy is to:
. Develop a first-to-market Internet telephony conferencing solution. A
significant portion of the global telecommunications infrastructure is
expected to shift to the Internet over time. We intend to be first to
market with an Internet telephony conferencing solution developed in
conjunction with Clarent Corporation.
. Capitalize on the global market for teleconferencing through a local
presence. We use local operations centers staffed by country
nationals. We operate in local time zones and provide local language
services. We employ local management and staff to develop customer
loyalty and improve local market penetration. Our network of local
centers provides our multinational conference customers with
knowledgeable and consistent service, regardless of the continent or
time zone.
. Develop and leverage our present distribution channels through major
third-party outsource relationships. Our outsourcing arrangement with
Concert and our co-marketing relationship with GTE allow us to
concentrate on additional volume delivery to their major customers
while they promote our conferencing services as part of an overall
product portfolio. We intend to leverage these two major opportunities
and seek similar arrangements with other telecommunications providers.
. Pursue acquisitions. Having built the base of our teleconferencing
platform in key markets worldwide, we are positioned to expand our
infrastructure and obtain additional market size through acquisitions.
We will consider acquisitions that increase our service offerings,
expand our customer base, and broaden our geographic coverage. We will
also utilize acquisitions to broaden our technical expertise and
enlarge our pool of management talent.
. Adapt and implement state of the art and best practices technology.
Rather than invest in expensive research and development, we take
advantage of technological advances by third-party vendors. We buy
best-of-class equipment to deliver audio, video, and data conferencing
over the public circuit-switched telephone network and through the
Internet telephony gateway. This allows us to leverage high technology
development efforts of third parties and provide our customers with
reliable conventional teleconferencing as well as innovative voice
over Internet conferencing applications.
. Foster and maintain long-term relationships with our customers. We
train our people to be passionate in the delivery of superior service
through our proprietary customer care and service quality training
programs. Our quality standards and solid customer relationships
generate large amounts of repeat business and
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frequent referrals from satisfied clients. Our long-term relationships
with our customers are enhanced by our extensive global operations and
our broad range of services.
Our Services
We are a single-source provider of audio, video, data, and Internet-based
conferencing services that are designed to meet the growing teleconferencing
needs of a broad range of customers across a diverse range of information-
intensive businesses. We derive the large majority of our current revenue from
audio conferencing (approximately 90 percent) with the remaining 10 percent from
the rapidly growing video, data, and Internet-based conferencing sector.
Although we expect audio conferencing to continue comprising the bulk of our
revenues for the foreseeable future, we expect to generate a significant and
growing proportion of our new business from enhanced services and from video,
data, and Internet-based conferencing services.
Audio Conferencing Services. Our ActionCall(SM) audio conferencing services
include full service-attended conferencing, reservationless unattended
conferencing, and a comprehensive suite of enhanced audio conferencing services.
We generate revenues by charging clients a fee per minute for bridging,
attendant call management, various value added enhanced services, and charges
related to long distance transmission costs.
In a full service-attended conference, our conference coordinators either
will call each participant (a dial-out conference) or provide participants with
a toll free or local number for them to call at a certain time (a dial-in
conference). In an unattended conference, we provide the customer with a dial-in
telephone number and a code to allow the customer to arrange its own conferences
on our bridging equipment. We connect audio conference participants from their
office, at home, at a project site, in their car, or on any mobile phone to a
high quality conference call.
Our enhanced audio conferencing services, which are available on request,
include:
. Continuous monitoring and operator access.
. Security codes.
. Blast dial-out and redial if disconnected.
. Participant volume control and muting.
. Conference recording, cassettes, translation, and transcription.
. Network management and fault reporting.
. Broadcast faxes, pre-notification fax, email, and participant
notification.
. Question and answer and polling services for large investor
relations calls.
. Customized billing.
Video Conferencing Services. We offer our ActionView(SM) video conferencing
through our multipoint video bridging centers in Dallas, Paris, Amsterdam, and
London, as
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well as through outsourced arrangements in Australia and Canada. Our offerings
include full-service and advanced technical management features such as:
. Operator-controlled conferences.
. Continuous presence features
. Reservations and scheduling management.
. Room reservations.
. Video taping and cassettes.
. Multiple line speeds and voice-activated switching controls.
. Training, installation, and maintenance equipment.
. Video conferencing site certification.
Our video bridging services enable us to provide video conferences from two
to 48 locations. Although we can accommodate higher numbers by linking several
video bridges, most video conferences, as a practical matter, involve three to
ten locations. Technical features of our multipoint control units enable us to
display all parties on one screen or select only certain parties as needed
during a conference. Similar to a television interview, participants from two
locations can be on screen while other locations are in a viewing-only mode.
We generate revenues from video conferencing in the same manner as audio
conferencing, but at higher per-minute rates. Recent decreases in per-minute
rates for bridging and long distance transmission, driven by improved technology
and competition among the long distance companies, have stimulated the market
for video conferencing and are expected to continue to do so.
Data and Internet Conferencing Services. An outgrowth of the Internet is
the use of data conferencing to broadcast data for viewing by participants
during an audio or video meeting. We enhance the audio or video conference by
simultaneously transmitting data through our ActionData(SM) suite of services
over the Internet or a corporate intranet to personal computers of participants.
While not interactive, Internet streaming broadcasts are especially useful in
large conferences to enhance the audio or video interaction. These services
enable:
. Interactive audio or video conferences with simultaneous data
streaming.
. Collaborative revision of data by participants equipped with
appropriate software.
. Viewing of whiteboard illustrations, slide presentations, or
drawings.
Until the recent introduction of advanced Internet gateway technology that
enables two-way or full duplex voice transmission at acceptable quality and
reliability levels, Internet technology did not allow effective, high quality
interactive conferencing, in comparison with the existing public-switched
telephone network. While reasonable voice quality is available on internal
intranet or virtual private networks for companies wishing to conduct only in-
house conference calls, the development of gateway technology opens the market
for us to begin providing high quality Internet telephony conferencing. We
selected Clarent Corporation's technology
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in January 2000 in order to test, develop, and introduce the gateway and command
center that will enable the delivery of a first-ever full duplex Internet
telephony conferencing service.
We will implement the new solution, which we will call Action VOIP, a voice
over Internet protocol service, using our own combination of bridging equipment
and software, initially with selected telecommunications companies as a beta
test. We believe the potential market for Internet protocol telephony
conferences is significant, but until these services are fully implemented and
we can evaluate customer response, we cannot anticipate the degree it will
impact our business.
We expect increasing volumes of long distance to be carried over the
Internet because it will cost less than the public-switched circuit network. We
anticipate this development will stimulate the market for teleconferencing
generally and for collaborative types of conferences that integrate voice, data,
and video. Our existing data and Internet services will also continue to be
provided in support of and as an adjunct to our conventional circuit-switched
telephone network, rather than as a complete substitute for audio or video
conferencing.
Currently, we provide the following data and Internet-based services:
. ActionCast(SM) - one-way audio streaming for up to 5,000 passive
participants, for example, stockholders listening to analysts.
. ActionCastPlus(SM) - audio streaming plus a PowerPoint(R)
presentation.
. ActionVideo(SM) - audio and video streaming over the Internet.
. ActionEmail(SM) - broadcast email services.
. WebRez(SM) - teleconference reservations accessed by Internet.
. ActionConnect - a web-based unattended conferencing service.
We will continue to provide these services as we roll out our Action VOIP
conferencing service.
Service Quality and Customer Care
We train all employees in the principles of customer care management, which
include continual service quality monitoring and the development of positive
relationships with clients. We pursue a philosophy of continual performance
improvement, meaning we consistently measure our performance and endeavor to
improve it.
We actively monitor, analyze, and control all facets of a conference call,
including reservation, call execution, billing, and follow up with customer
satisfaction surveys. Formal independent industry statistics and surveys are not
available; however, we consider our quality to be among the best in the
industry.
We also review our performance with our customers on a regular basis,
continually set specific performance improvement goals, and modify our
operations accordingly. Feedback from our customers indicates that these factors
contribute to our high customer retention rate.
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Sales and Marketing
Over 60 percent of our annual growth results from additional demand by
existing customers. Our sales and marketing strategy is based on two main
tenets: we attract customers through multiple distribution channels and, once
the relationship has been established, we cross sell multiple services
throughout the organization.
We attract our customers through direct and indirect sales efforts such as
customer referrals, telemarketing, trade show promotions, and advertising. Our
direct sales force focuses on multinational and mid-level accounts, but we also
leverage outsourcing relationships with large telecommunications providers. Our
range of service offerings allows us to cross sell our services once we have
initially established an account.
We have built a customer base of approximately 2,000 established accounts.
Our records indicate that over 5,000 schedulers, administrative staff, and
managers employed by these customers are responsible for requesting or arranging
calls with us. These customers range from small manufacturing firms to Fortune
500 companies, and are exclusive of customers of Concert and GTE. Over 60
percent of our revenue is generated by 30 major multinational businesses that
contact us through approximately 1,000 individual conference schedulers within
those businesses.
We have targeted the following customer groups for our conferencing
services and applications:
. Major multinational companies, investment banks, and professional
services firms within the Fortune 1000 (global accounts). Selected
global customers using our audio, video, data, or Internet
conferencing services include Ernst & Young, Industrial Bank of Japan,
BP Amoco, ABN Amro Bank, Philips Electronics, and KLM.
. Medium-to-large-sized domestic companies, associations, and
governmental organizations (midmarket or domestic accounts), such as
the American Electronics Association, the State of Colorado, and a
number of universities.
. Customers of major telecommunications providers such as Concert and
GTE, which we access through outsourcing and co-marketing arrangements
(outsourced and co-marketing relationships).
Global Accounts. Our global account managers based in New York, London,
Amsterdam, and Paris are responsible for some 30 multinational accounts
comprising 60 percent of our international business. We emphasize the home
country or headquarters of these multinationals as a base for developing our
global business. Each account manager deals with the customer's home country
office or headquarters when negotiating global purchasing agreements.
Midmarket Accounts. Our direct sales staff targets medium to large
companies with a high volume of teleconferencing, as well as smaller companies
with lower demand for our services. As in any business, purchasers of higher
volume sales benefit from volume discounts. While we continue to promote sales
to our global accounts, we
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seek situations in which we can provide competitively priced services to mid-
sized companies at higher margins. Our direct sales effort manages each of our
midmarket accounts through contacts with our customers' upper management and
also with their administrative staff who are responsible for scheduling and
travel budgets. Once we have become a repeat provider of services for a
customer, we stress personal contact with the call organizers, conference
chairpersons, and members of senior management within our customers'
organizations.
Outsourced and Co-Marketing Relationships. Outsourced and co-marketing
relationships with major telecommunications companies are a relatively new
development within our company. Our independence from other network providers
allows us to serve their customers without concern that we would compete for
their customers' other telecommunication business.
. Concert. In 1998, we entered into an agreement with Concert Global
Networks Limited, then a joint venture of British Telecommunications
and MCI, to develop a global conferencing capability for use by
Concert's customers worldwide. Concert designated us as its preferred
supplier of international audio conferencing services to the worldwide
Concert network because we are the only full service global provider
that is independent of other major network providers. On January 1,
2000, Concert became the vehicle for an international joint venture
between AT&T and British Telecom. Our initial services to Concert
involved the delivery of services for Concert's internal conferencing.
We are now phasing into the delivery of services to Concert's
customers. Revenues from the Concert agreement will depend on usage
and pricing.
. INTERVU. In March 2000, we announced an agreement to work together
with INTERVU, Inc., a leading provider of audio and video streaming
over the Internet as one of our co-marketing partners. We expect
definitive arrangements to be completed during the second quarter of
2000. Revenues will depend on usage and pricing.
. GTE. In July 1999, GTE Corporation designated us as a major supplier
of teleconferencing services to all subsidiaries and divisions of GTE,
the only independent teleconferencing provider so designated by GTE.
We will sell and cooperatively market our services directly to GTE's
customers in conjunction with GTE on large volume telecommunications
bids. Revenues from GTE customers will depend on usage and pricing.
. Other Outsourcing and Co-Marketing Opportunities. We believe our role
as an independent full-service teleconferencing provider will continue
to drive our growth in this sector, because, while teleconferencing is
an essential part of a telecommunications provider's portfolio of
services, it can often be provided more effectively on an outsource
basis. None of our outsource
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relationships are on an exclusive basis, and our revenues are
dependent upon our delivery of good service at competitive prices to
retain and grow business.
Intellectual Property
We seek to protect our proprietary information and business practices as
trade secrets. We have developed customized copyrighted software, which we
consider proprietary, for our trading service and quality control functions, and
have also developed in-depth technical know-how with respect to the operation of
telecommunications equipment and the coordination of large volume conference
calls. We require each of our employees to execute a nondisclosure agreement for
the protection of our confidential information. We hold no patents.
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. We claim a number of service marks that use "ACT" or "Action" in the
mark. Nevertheless, other enterprises' common usage of "ACT" makes registered
trademark protection prohibitively expensive.
Suppliers
We are not dependent on any single carrier or supplier for any of the
services we sell. We have negotiated volume discounts with our primary long-
distance carriers, and believe we could negotiate similar arrangements at
similarly competitive prices with one or more other carriers should our current
carriers be unable to continue to provide service at competitive prices.
The equipment we purchase for use in our operations is also available from
a variety of suppliers, some of which compete in the teleconferencing services
business. We have chosen to purchase most of our audio bridging equipment from
Compunetix, a supplier based in Pittsburgh, Pennsylvania. According to
Compunetix, it accounts for approximately 30 percent of the worldwide market for
conferencing bridges. Compunetix is a supplier of conferencing platforms to U.S.
government agencies such as NASA, the FAA emergency management platform, and the
U.S. Department of Defense, as well as major telecommunications providers. We
recently added Outreach Technologies, Spectel, and Clarent Corporation to our
list of equipment suppliers.
Our Competition
We compete with major long distance companies, independently owned
teleconferencing companies, and in-house services such as company-operated
bridges and private branch exchange equipment.
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The principal competitive factors in the teleconferencing market are
service, quality, reliability, price, name recognition, and available capacity.
The location of an operations center can also be a competitive factor, as a
local presence will reduce transmission costs and reflect the language, accent,
or business practices of local customers. In certain cities and countries, we
have opened local sales offices to ensure that marketing is more personal and
effective.
Our competition comes from large companies such as AT&T, MCI Worldcom,
Global Crossing, Sprint, British Telecom, Bell Canada, France Telecom, Deutsche
Telekom, Telstra, Belgakom, and Hong Kong Tel. We also face competition from
independent teleconferencing companies similar to us, including Premiere
Technologies, Intercall, Vialog, and Genesys. In the United States, we may also
face additional competition from the regional carriers which, under the
Telecommunications Act of 1996, will be allowed to provide long distance
services nationwide under certain conditions and whose long distance customers
would expect access to teleconferencing services. This may become an additional
opportunity for us, as certain regional bell carriers may choose to outsource
their customers' needs to independent teleconferencing providers.
Despite their large share of the teleconferencing services market,
teleconferencing is not a primary focus of the major long distance carriers. We
have been able to compete with the conferencing divisions of the long distance
companies on the basis of quality of service for the large volume business of
prestigious companies such as investment banks, accounting and consulting firms,
and law firms. Excess long-distance line capacity enables the long distance
companies to offer discounted prices to high-volume conferencing customers, but
they generally charge higher prices to smaller and medium volume customers. This
creates a pricing structure that enables us and others to compete on a price-
and-service basis for the teleconferencing business of the medium and smaller
businesses.
There are few regulatory barriers in the countries in which we operate, but
new entrants into the teleconferencing business will face various economic
barriers. The complex planning, installation, and operation of a global
teleconferencing platform involving multiple facilities and office locations
such as ours, together with the implementation of network technology and
coordination of operations, would likely take extensive funding to replicate.
Although there are companies that own and operate their own conferencing
bridges, many companies prefer to outsource their teleconferencing service,
since the cost of acquiring, maintaining, and scheduling a bridge on a dedicated
basis for irregular conference calling usually outweighs the benefits.
Technology is available to enhance private branch exchange capability (usually
up to six calls), but private branch exchange-handled conference calls typically
have poor sound quality and each additional line weakens the overall sound
volume. Additional competition may also develop from more sophisticated
telephone sets and other centralized switching devices. These alternative
techniques may enable our customers to conduct some of their own conferences
although we believe they will continue to outsource their larger
Page 14
<PAGE>
conferences, particularly if their distance meetings require a collaboration of
audio, video, data, and Internet conferencing techniques.
Regulation
Although the telecommunications industry has been subject to extensive
regulation, government regulation or licensing has no material impact on the
delivery of teleconferencing services in the countries where we now conduct our
business.
Employees
As of December 31, 1999, we had a total of 287 employees worldwide. Of
these, 262 were full time and 25 were part time. There were 133 employees North
American operations; 117 in our European operations, and 37 in our Asia Pacific
operations. Of the 287 total worldwide employees, 160 were in teleconferencing
operations, 66 were in sales and marketing, and 61 were in management and
administration. Our entry into Internet conferencing eventually will require new
employees, but we expect the initial growth in the number of employees to be
gradual. We do not anticipate any material change in the number of employees in
the near future.
Item 2. Facilities
----------
Our development of local facilities serves the dual purpose of providing
local language, local currency, and local time zone services to the areas served
by each operations center, as well as backup and overflow capacity among other
centers in the event all or part of a conference needs to be rerouted from an
operations center at full capacity.
We currently lease office and operations space at our locations in Denver,
Holmdel, Dallas, Toronto, Ottawa, London, Amsterdam, Brussels, Paris, Frankfurt,
Sydney, Adelaide, and Hong Kong, which we have listed in the table below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Year
Location Country Description Established
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Denver United States Sales and operations 1990
--------------------------------------------------------------------------------------------
London United Kingdom Sales and operations 1992
--------------------------------------------------------------------------------------------
Amsterdam Netherlands Sales and operations 1995
--------------------------------------------------------------------------------------------
Brussels Belgium Sales office 1998
--------------------------------------------------------------------------------------------
Sydney Australia Sales and operations 1997
--------------------------------------------------------------------------------------------
Holmdel United States Sales and operations 1997
--------------------------------------------------------------------------------------------
Paris France Sales and operations 1997
--------------------------------------------------------------------------------------------
Ottawa Canada Sales and operations 1998
--------------------------------------------------------------------------------------------
Toronto Canada Sales and operations 1998
--------------------------------------------------------------------------------------------
Frankfurt Germany Sales office 1998
--------------------------------------------------------------------------------------------
Adelaide Australia Sales and operations 1999
--------------------------------------------------------------------------------------------
Dallas United States Sales and operations 1999
--------------------------------------------------------------------------------------------
Hong Kong China Sales and operations 1999
--------------------------------------------------------------------------------------------
</TABLE>
Page 15
<PAGE>
All operations are in office locations close to the city center or in
nearby suburbs. These leases expire or are renegotiable within the next five
years and are adequate for our expansion plans. Forward lease commitments are
not significant in relation to total ongoing operating expenses and all lease
costs are consistent with generally available market rentals. We believe we
could obtain comparable facilities at similar market rates if necessary.
Our operations centers provide us with a high degree of redundancy. We can
reroute most of our conferences to other centers if necessary. By networking our
operations centers in different time zones, we use idle evening and nighttime
capacity in one center to fulfill daytime demand at another center.
Each of our operations centers includes at least one audio or video bridge.
Our capacity is measured in ports, with one port needed for each conference
participant. Our audio conferencing call centers operate more than 3,000 ports
worldwide. This enables us to handle conferences of varying sizes by linking the
port capacity of our operation centers together. Although we can network our
ports to handle 1,000 or more participants and have handled conferences of this
size, the low demand for such a large conference and the logistics of handling
multiple conferences during the business day make it unlikely that large
conferences will exceed 500 participants. Weekday mornings and early afternoons
are peak conferencing times. Our video conferencing capacity includes over 300
ports operated from Dallas, London, Paris, and Amsterdam. Our data conferencing
capacity includes 96 ports operated from four bridges--two in the United States,
one in Canada, and one in Australia. We outsource our overflow to other
teleconferencing companies in the event we have temporary capacity limitations.
We also provide outsourced services to certain of our competitors when they have
similar capacity constraints.
Item 3. Legal proceedings
-----------------
We are not involved in any material legal proceedings.
Item 4. Submission of matters to a vote of security holders
---------------------------------------------------
During the fourth quarter of its fiscal year ended December 31, 1999, we did not
submit any matter to a vote of security holders.
Page 16
<PAGE>
PART II
Item 5. Market for common equity and related stockholder matters
--------------------------------------------------------
Our common shares have been traded on the Nasdaq SmallCap Market under the
symbol ACTT since March 11, 1996. For the period from January 1, 1997 through
December 31, 1999 the high and low closing sales prices for our common stock for
each quarter as reported by NASDAQ were:
Price Range of Common Stock
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal year ended December 31, 1997
First Quarter .............................................. $5.00 $2.88
Second Quarter ............................................. 7.50 4.99
Third Quarter .............................................. 13.05 8.25
Fourth Quarter ............................................. 9.13 4.50
Fiscal year ended December 31, 1998
First Quarter .............................................. 10.00 5.88
Second Quarter ............................................. 11.63 8.00
Third Quarter .............................................. 10.63 6.50
Fourth Quarter ............................................. 7.25 5.25
Fiscal year ended December 31, 1999
First Quarter .............................................. 5.63 4.63
Second Quarter ............................................. 6.63 4.00
Third Quarter .............................................. 9.63 5.00
Fourth Quarter ............................................. 9.00 6.00
</TABLE>
On March 1, 2000, the last reported sale price of our common stock was
$14.63 per share, and we had approximately 1,300 stockholders.
Stockholders. As of December 31, 1999 we had approximately 150 common
------------
stockholders of record and an estimated 1,000 additional beneficial holders
whose stock was held in street name by brokerage houses for a total of 1,150
stockholders.
Dividends. We have never paid any dividends on our common stock or preferred
---------
stock and expect for the foreseeable future to retain all of our earnings from
operations for use in expanding and developing our business. Any future
decision as to the payment of dividends will be at the discretion of our board
of directors and will depend upon our earnings, financial position, capital
requirements, plans for expansion, existing loan covenants, and such other
factors as the board of directors deems relevant.
Sales of Unregistered Securities.
--------------------------------
We have issued and sold unregistered securities that have not been
previously reported as set forth below. We did not utilize an underwriter in
any of these transactions. The recipients of securities in each transaction
represented their intention to acquire the securities without a
Page 17
<PAGE>
view to the distribution. All the issued securities were restricted securities
under Rule 144 and appropriate restrictive legends were affixed to the
securities in each transaction.
On April 1, 1999, we issued 12,000 shares of common stock and warrants to
purchase 25,000 shares of common stock to the Adizes Institute in consideration
for consulting services. The warrants are exercisable at $7.00 and expire on
April 1, 2002. These securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on Sections 4(2) and
4(6) of the Securities Act of 1933.
On July 1, 1999, we issued warrants to purchase 50,000 shares of common
stock to John Pfeiffer in consideration for corporate communications services
provided to us. The warrants are exercisable at $5.00 per share and expire on
July 1, 2003. These securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on Sections 4(2) and
4(6) of the Securities Act of 1933.
On July 31, 1999, we issued a two-year convertible note to Compunetix, Inc.
in the amount of $500,000 bearing interest at 9 percent, payable on July 31,
2001. This note will convert into 71,429 restricted shares of common stock at
the option of the holder, if it is not repaid by July 31, 2001. These securities
were issued in a transaction exempt from registration under the Securities Act
of 1933 in reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
On October 19, 1999, we issued 2,000 shares of Series A preferred stock to
GMN Investors II, L.P. for $2,000,000. The issuance of Series A was accompanied
by warrants to purchase 400,000 shares of common stock at $7.00 per share. The
warrants expire on October 19, 2006. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933 and Rule 506
thereunder.
On October 19, 1999, we issued warrants to purchase 20,000 shares of common
stock to Bathgate McColley Capital Group in consideration for services rendered
to us in identifying GMN Investors II, L.P. as an investor in 2,000 shares of
Series A preferred stock. The warrants are exercisable at $7.00 and expire on
October 19, 2006. These securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on Sections 4(2) and
4(6) of the Securities Act of 1933.
On January 1, 2000, we acquired the 20 percent minority interest of our
Australian subsidiary, ACT Teleconferencing (Pty) Ltd. for $65,000 cash and
50,000 shares of our common stock from its managing director. These securities
were issued in a transaction exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) of the Securities Act of 1933.
Page 18
<PAGE>
Item 6. Management's discussion and analysis of financial condition and results
-----------------------------------------------------------------------
of operations
-------------
Overview
General. We are a full-service provider of audio, video, data and Internet-based
teleconferencing services to businesses and organizations in North America,
Europe and Asia. Our conferencing services enable our clients to cost-
effectively conduct remote meetings by linking participants in geographically
dispersed locations. We have 11 operations centers and 13 sales offices in 9
countries. Our primary focus is to provide high value added conferencing
services to organizations such as accounting firms, consulting firms, investment
banks, high tech companies, law firms, investor relations firms, and other
multinational companies.
We were incorporated in December 1989 and began offering audio teleconferencing
services at our Denver location in January 1990. In 1992 we invested in an audio
teleconferencing facility in the United Kingdom and in 1995 we invested in a
similar operation in the Netherlands. In 1997 we announced a major international
capacity expansion plan intended to grow the company from its then 3 locations
in 3 countries (United States, United Kingdom and Netherlands) to the current 13
offices in 9 countries offering a full range of audio, video, and Internet-based
data conferencing services. The rationale for this expansion plan is the rapidly
growing market for teleconferencing services worldwide, the expansion of
Internet-based conferencing services, and an increasing demand for additional
services by certain of our multi-national clients.
We completed our capacity expansion in 1999, after successful entry into the
markets of Canada, France, Belgium, Germany, Australia and Hong Kong. During
1999 we also entered the rapidly growing field of Internet-based
teleconferencing products and applications. We now offer data conferencing
services in-house, and offer audio, video and data streaming applications over
the Internet to our clients with a nationally recognized provider of broadcast
streaming products.
During 1999, our operating performance improved significantly. We were assisted
by large volume increases in all the countries in which we have operations but
especially in the United States, which grew conference call volumes by over
100%. As a consequence, net income improved by over $2 million.
The following table shows revenues by major product sector over the past 3
years:
<TABLE>
<CAPTION>
($000) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Conferencing Services
Audio conferencing services $25,133 $14,627 $ 9,493
Video, data and Internet-based services 1,717 1,296 561
----- ----- ---
26,850 15,923 10,054
Growth Rates % 69% 58% 69%
Equipment Sales
Video conferencing equipment 1,479 3,087 180
-----------------------------------------------
Total $28,329 $19,010 $10,234
===============================================
Growth Rates % 49% 86% 65%
</TABLE>
Page 19
<PAGE>
Components of Major Revenue and Expense Items
Net Revenues. We earn revenues from fees charged to clients for audio, video,
data and Internet-based teleconference bridging services, from charges for
enhanced services, and from rebilling certain long-distance telephone costs. We
also earn revenues from video equipment sales.
Cost of Services. Cost of services consists of telephony costs, depreciation on
our teleconferencing bridges and telecommunications equipment, equipment product
costs, operator and operations management salaries and office expenses for
operations staff.
Selling, General, and Administration expense. Selling, general, and
administration expense consist of salaries, benefits, and office expenses of our
selling and administrative organizations.
Cost as a percentage of sales
The following table outlines certain items in our income statement as a
percentage of sales for each of the last three years:
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues 100% 100% 100%
Cost of services (52) (57) (46)
----------------------------------------
Gross profit 48 43 54
Selling, general and administration expense (43) (48) (52)
----------------------------------------
Operating income 5 (5) 2
Interest expense (3) (3) (1)
----------------------------------------
Net income before taxes and minority interest 2 (8) 1
Minority interest and income taxes (2) (3) (5)
----------------------------------------
Net income (loss) - (11) (4)
========================================
</TABLE>
Results of Operations
Fiscal Year Ended December 31, 1999, compared to Fiscal Year Ended December 31,
1998
Net Revenues. Net revenues increased 49% to $28.3 million for the year ended
December 31, 1999, compared to $19 million for 1998. The 49% revenue growth
resulted from an increase in sales to established customers as well as from
sales to new customers. Audio conferencing revenues grew by 72% while video,
data, Internet and other enhanced conferencing services grew by 32%. Audio
conferencing accounted for 89% and 77% of our revenues in 1999 and 1998,
respectively. During 1999 we de-emphasized the sales of video equipment due to
low margins in that sector, with the result that video equipment sales accounted
for 5% of total revenues in 1999, a reduction of 52%.
Gross Profit. Gross profit increased 67% to $13.5 million for the year ended
December 31, 1999, compared to $8.1 million for the prior year, reflecting the
achievement of significant economies of scale associated with volume increases
in all service sector
Page 20
<PAGE>
categories. Gross margin increased to 48% of net revenues for the year ended
December 31, 1999, compared to 43% of net revenues for 1998.
Selling, General and Administration Expense. Selling, general, and
administration expense for the year ended December 31, 1999 were $11.9 million,
or 42% of revenue, compared to $9.1 million or 48% of revenue for 1998. The 32%
increase in such expense was incurred mainly as a result of the increase in
selling, general and administrative staff in new operations as well as marketing
expense incurred to introduce new products and services associated with
Internet-based and other high-speed digital conferencing products.
Interest Expense. Net interest expense grew by 59% from $532,322 to $848,013,
reflecting the 44% growth in our total asset base from $15.3 million at December
31, 1998 to $22.1 million at December 31, 1999. Although long-term debt held
relatively steady, $3.9 million in 1998 compared to $3.8 million in 1999, short-
term debt grew by over $1.6 million, mainly as a result of the extension of a
$1.0 million supplier line of credit. This line was opened in order to finance
our audio, video and data bridging capacity expansion worldwide.
Provision for Income Taxes. Provision for income taxes increased 3% to $414,866
for the year ended December 31, 1999, compared to $401,762 for 1998, due to
increased taxable income earned by our 60% majority-owned United Kingdom
subsidiary. We paid no other income taxes due to domestic and international tax
loss carry-forwards of approximately $8.0 million.
Minority Interest. Minority interest grew by 3% from $189,895 in 1998 to
$194,967 in 1999, primarily reflecting lower growth in net after-tax income of
our 60% held United Kingdom subsidiary.
Net Income. Net income for the year was $81,425, or $0.01 per share, and
increased by $2,198,550, or $0.59 per share over the previous year loss of
$2,117,125 or $0.58 per share, mainly due to the ongoing revenue growth, higher
gross margins and increased economies of scale noted above.
Fiscal Year Ended December 31, 1998, compared to Fiscal Year Ended December 31,
1997
Net Revenues. Net revenues increased 86% to $19 million for the year ended
December 31, 1998, compared to $10.2 million for 1997. As in 1997, revenue
growth resulted from increased service business to established customers and
increased revenues from higher priced enhanced services as well as from sales to
new customers. During the year ended December 31, 1998, audio conferencing
operations accounted for 77% of net revenues in 1998 compared to 93% in 1997,
and grew by 54%. Video and data conferencing grew by 131% accounting for 7% of
revenue in 1998 compared to 5% in 1997. Video equipment sales grew approximately
$3 million accounting for 16% of revenue in 1998 compared to 2% in 1997.
Page 21
<PAGE>
Gross Profit. Gross profit increased 48% to $8.1 million for the year ended
December 31, 1998, compared to $5.5 million for the prior year, reflecting
mainly volume increases in sales of teleconferencing services. Gross profit
percentage declined to 43% of net revenues for the year ended December 31, 1998,
compared to 54% of net revenues for 1997, reflecting cost inefficiencies due to
the expansion of new operations in additional locations as well as the impact of
low margin video equipment sales.
Selling, General and Administration Expense. Selling, general, and
administration expense for the year ended December 31, 1998 were $9.1 million,
or 48% of revenue, compared to $5.3 million or 52% of revenue for 1997. The 72%
increase in such expense reflected the additional investment in the start up of
new international business units.
Interest Expense. Interest expense grew 435% from $99,496 to $532,322,
reflecting mainly the interest on a $2.5 million subordinated financing taken
out to fund the investment in international business units. This financing bears
interest at a rate of 13.5%. Interest expense also grew as a result of
additional capital leases and various bank loans taken out to finance our
international expansion.
Provision for Income Taxes. Provision for income taxes increased 20.8% to
$401,762 for the year ended December 31, 1998, compared to $332,566 for 1997,
due to taxable income earned by our 60% majority-owned United Kingdom
subsidiary. We paid no other income taxes due to current year and carryforward
losses.
Minority Interest. Minority interest declined by 6% from $202,469 in 1997 to
$189,895 in 1998. The decline in minority interest reflects the reduced after-
tax share of net income earned by our minority investment partners, principally
in our 60% held United Kingdom subsidiary, as well as the entry into certain
loss-making international operations partially owned by minority investors.
Net Loss. Net Income declined by $1.7 million from a loss of $436,803 or $0.14
per share, to a loss of $2.1 million or $0.58 per share, reflecting mainly the
cost of our international expansion into various countries around the world.
Liquidity and Capital Resources
As of December 31, 1999, we had approximately $1.5 million of cash and cash
equivalents. We will require additional cash to finance our ongoing revenue
growth, major capacity expansions and new product introductions.
Net cash used for operating activities for the year ended December 31, 1999 was
$1 million, $242,000 in 1998 and $362,000 in 1997. Net cash used for operating
activities in 1998 and 1997 consisted primarily of increases in accounts
receivable and other assets, partially offset by increases in accounts payable
and accrued expenses. In 1999 net cash used for operating activities consisted
primarily of an increase in accounts receivable and reductions in accounts
payable and accrued expenses.
Page 22
<PAGE>
Net cash used for investing activities consisted of additions to
telecommunications and bridging equipment. Net cash used for investing
activities was $4.6 million for 1999, $5.5 million in 1998 and $1.8 million in
1997 reflecting our expansion into various countries as well as major capacity
expansions in North America.
Net cash provided by financing activities was $6.8 million in 1999, $5.7 million
in 1998 and $1.9 million in 1997 and was achieved via a combination of
additional common stock issued, warrant conversions, and the utilization of
various lines of subordinated debt, interest bearing supplier credit and bank
credit. Additionally in 1999 the company issued preferred stock to help finance
expansion.
We anticipate that our available funds are sufficient to meet our needs for
working capital and capital expenditures in the near term. We may need to raise
additional funds if, for example, we pursue additional acquisitions, undertake
new product developments or experience operating losses that exceed our
expectations. If we raise additional funds through the issuance of equity, or
equity-related or debt securities, these securities may have rights, preferences
or privileges senior to those of the rights or our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
Year 2000 Compliance
Impact of Year 2000
-------------------
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $150,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
Page 23
<PAGE>
Item 7. Financial statements and supplementary data
-------------------------------------------
<TABLE>
<CAPTION>
Contents
<S> <C>
Report of Independent Auditors........................... 25
Consolidated Balance Sheets.............................. 26
Consolidated Statements of Operations.................... 27
Consolidated Statements of Shareholders' Equity.......... 28
Consolidated Statements of Cash Flows.................... 29
Notes to Consolidated Financial Statements............... 30-41
</TABLE>
Page 24
<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, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audit also
included the 1999 financial statement schedules included in Item 14(a). These
financial statements and schedules 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of ACT
Teleconferencing, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related 1999
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 8, 2000
Page 25
<PAGE>
PART I -- FINANCIAL INFORMATION
---------------------
Item 1. FINANCIAL STATEMENTS
ACT Teleconferencing, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,532,551 $ 369,407
Accounts receivable (net of allowance for doubtful accounts
of $153,677 and $32,644 in 1999 and 1998 respectively) 6,606,641 4,295,216
Prepaid expenses 847,021 571,597
Inventory 129,519 269,796
---------------------------------
Total current assets 9,115,732 5,506,016
Equipment:
Telecommunications equipment 8,254,966 5,840,969
Office equipment 6,383,765 4,205,347
Less: accumulated depreciation (3,363,484) (1,969,428)
---------------------------------
Total equipment - net 11,275,247 8,076,888
Other Assets:
Goodwill (net of accumulated amortization of $247,980 and
$136,340 in 1999 and 1998 respectively) 1,456,944 1,537,321
Deferred loan placement fees 250,420 205,975
---------------------------------
Total assets $ 22,098,343 $ 15,326,200
=================================
Liabilities and shareholders' equity
Current liabilities:
Current portion of debt $ 2,313,454 $ 686,691
Accounts payable 2,541,822 2,935,331
Accrued liabilities 1,492,382 1,814,877
Capital lease obligations due in one year 609,076 1,111,126
Income taxes payable 589,666 215,895
---------------------------------
Total current liabilities 7,546,400 6,763,920
Long-term debt 3,778,614 3,940,867
Capital lease obligations due after one year 1,223,795 1,008,184
Preferred stock, no par value, 1,000,000 shares authorized;
2,000 issued (net of deferred placement cost of $306,994) 1,693,006 -
Deferred income taxes (United Kingdom) 320,112 302,145
Minority interest 967,559 806,519
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized
4,595,947 and 3,755,633 shares issued and outstanding
in 1999 and 1998 respectively 11,378,103 7,463,931
Additional paid in capital 99,900 -
Accumulated deficit (4,809,176) (4,846,194)
Accumulated other comprehensive loss (99,970) (113,172)
---------------------------------
Total Shareholders' equity 6,568,857 2,504,565
---------------------------------
Total liabilities and shareholders' equity $ 22,098,343 $ 15,326,200
=================================
</TABLE>
See notes to consolidated financial statements.
Page 26
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Net revenues $ 28,328,791 $ 19,009,645 $ 10,234,403
Cost of Services (14,797,606) (10,881,556) (4,727,236)
-------------- -------------- -------------
Gross Profit 13,531,185 8,128,089 5,507,167
Selling, general and administration expense (11,991,914) (9,121,235) (5,309,444)
-------------- -------------- -------------
Operating Income 1,539,271 (993,146) 197,723
Interest expense (848,013) (532,322) (99,496)
-------------- -------------- -------------
Income (loss) before income taxes and minority interest 691,258 (1,525,468) 98,227
Provision for income taxes (414,866) (401,762) (332,566)
-------------- -------------- ------------
Income (loss) before minority interest 276,392 (1,927,230) (234,339)
Minority interest in earnings of consolidated subsidiary (194,967) (189,895) (202,469)
-------------- -------------- -------------
Net income (loss) $ 81,425 $ (2,117,125) $ (436,808)
============== ============== =============
Net income (loss) per share-basic and fully diluted $ 0.01 $ (0.58) $ (0.14)
============== ============== =============
Weighted average number of shares outstanding-basic 4,393,963 3,647,188 3,204,747
============== ============== =============
Weighted average number of shares outstanding-fully diluted 4,655,501 - -
============== ============== =============
</TABLE>
See notes to consolidated financial statements.
Page 27
<PAGE>
ACT Teleconferencing, Inc.
Consolidated Statements of Shareholders' Equity
Common Stock
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Value Deficit
-------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 2,939,930 $ 4,022,671 $ (2,292,261)
Employee stock option exercise 43,500 52,000
Shares issued in connection with
exercise of warrants 514,950 1,520,834
Share issuance as fee to warrant
placement agent 33,000 115,500
Shares issued for acquisitions 81,378 447,579
Comprehensive loss
Net loss (436,808)
Other comprehensive loss, net of tax
Foreign currency translation adjustment
Total comprehensive loss
-------------------------------------------------
Balance at December 31, 1997 3,612,758 $ 6,158,584 $ (2,729,069)
Shares issued in connection with
exercise of warrants 26,893 136,000
Employee stock option exercise 2,000 6,000
Issue of warrants in lieu of interest 486,521
Shares issued for acquisitions 113,982 676,826
Comprehensive loss
Net loss (2,117,125)
Other comprehensive loss, net of tax
Foreign currency translation adjustment
Total comprehensive loss
-----------------------------------------------------
Balance at December 31, 1998 3,755,633 $ 7,463,931 $ (4,846,194)
Shares issued in connection with
exercise of warrants 562,654 2,619,890
Issuance of private placement shares 109,912 592,505
Shares issued in connection with
the employee stock purchase plan 12,304 50,990
Shares issued as payment for
consulting fees 30,500 84,591
Employee stock option exercise 4,500 12,660
Exercise of unit purchase option 120,444 553,537
Additional paid in capital-warrant issue 99,900
Preferred dividend (44,407)
Comprehensive income
Net Income 81,425
Other comprehensive loss, net of tax
Foreign currency translation adjustment
Total comprehensive income
-------------------------------------------------
Balance at December 31, 1999 4,595,947 $ 11,478,003 $ (4,809,176)
=================================================
<CAPTION>
Accumulated
other
comprehensive
income (loss) Total
--------------------------------
<S> <C> <C>
Balance at December 31, 1996 $ 37,547 $ 1,767,957
Employee stock option exercise 52,000
Shares issued in connection with
exercise of warrants 1,520,834
Share issuance as fee to warrant
placement agent 115,500
Shares issued for acquisitions 447,579
Comprehensive loss
Net loss (436,808)
Other comprehensive loss, net of tax
Foreign currency translation adjustment (89,129) (89,129)
-----------
Total comprehensive loss $ (525,937)
------------------===========
Balance at December 31, 1997 $ (51,582) $ 3,377,933
Shares issued in connection with
exercise of warrants 136,000
Employee stock option exercise 6,000
Issue of warrants in lieu of interest 486,521
Shares issued for acquisitions 676,826
Comprehensive loss
Net loss (2,117,125)
Other comprehensive loss, net of tax
Foreign currency translation adjustment (61,590) (61,590)
-----------
Total comprehensive loss $(2,178,715)
------------------===========
Balance at December 31, 1998 $ (113,172) $ 2,504,565
Shares issued in connection with
exercise of warrants 2,619,890
Issuance of private placement shares 592,505
Shares issued in connection with
the employee stock purchase plan 50,990
Shares issued as payment for
consulting fees 84,591
Employee stock option exercise 12,660
Exercise of unit purchase option 553,537
Additional paid in capital-warrant issue 99,900
Preferred dividend (44,407)
Comprehensive income
Net Income 81,425
Other comprehensive loss, net of tax
Foreign currency translation adjustment 13,202 13,202
-----------------------------
Total comprehensive income $ 94,627
------------------===========
Balance at December 31, 1999 $ (99,970) $ 6,568,857
=============================
</TABLE>
See notes to consolidated financial statements.
Page 28
<PAGE>
<TABLE>
<CAPTION>
ACT Teleconferencing, Inc
Consolidated Statements of Cash Flow
Year ended December 31,
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 81,425 $ (2,117,125) $ (436,808)
Adjustments to reconcile net income (loss) to net cash used
for operating activities:
Depreciation 1,394,056 874,489 358,382
Amortization of goodwill 80,377 57,920 18,054
Deferred income tax 17,967 184,691 76,416
Minority interest 161,040 199,275 202,469
----------------- ----------------- ----------------
Cash flow before changes in operating assets and liabilities: 1,734,865 (800,750) 218,513
Changes in operating assets and liabilities (net of effect of
business combinations):
Accounts receivable (2,287,387) (1,324,560) (1,310,000)
Inventory 140,277 (133,680) 73,276
Prepaid expenses and other assets (275,424) (364,794) (124,612)
Accounts payable (425,438) 1,471,474 288,217
Income tax payable 373,771 (84,506) 136,243
Accrued liabilities (322,495) 994,452 356,356
----------------- ----------------- ----------------
Net cash used for operating activities (1,061,831) (242,364) (362,007)
Investing activities
Property and equipment purchases (4,592,415) (5,268,971) (1,618,359)
Short term notes redeemed (24,037) 11,776 (26,739)
Sale of marketable securities - 50,000 -
Cash paid for acquisitions net of cash acquired - (249,298) (101,257)
----------------- ----------------- ----------------
Net cash used for investing activities (4,616,452) (5,456,493) (1,746,355)
Financing activities
Net proceeds from the issuance of debt 1,178,071 5,255,875 258,985
Net proceeds from issuance of common stock 4,014,072 628,521 1,688,334
Net proceeds from issuance of preferred stock 1,680,526
Deferred loan issuance costs (44,445) (205,975) -
----------------- ----------------- ----------------
Net cash provided by financing activities 6,828,224 5,678,421 1,947,319
Effect of exchange rate changes on cash 13,202 (61,590) (9,265)
----------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,163,143 (82,026) (170,308)
Cash and cash equivalents, beginning of year 369,408 451,434 621,742
----------------- ----------------- ----------------
Cash and cash equivalents, end of year $ 1,532,551 $ 369,408 $ 451,434
================= ================= ================
</TABLE>
See notes to consolidated financial statements.
Page 29
<PAGE>
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1. Organization and Significant Accounting Policies
Business
ACT Teleconferencing, Inc. (the Company) is engaged in the business of providing
high quality audio, video, data and Internet conferencing products and services
to business clients worldwide. The Company operates principally in the United
States, Canada, the United Kingdom, France, the Netherlands, Belgium, Germany,
Australia and Hong Kong.
Basis of Presentation
The consolidated financial statements include the accounts of ACT
Teleconferencing, Inc, its wholly-owned domestic and worldwide subsidiaries ACT
Teleconferencing Services Inc, ACT VideoConferencing Inc, ACT Research Inc, ACT
Teleconferencing Canada Inc, ACT Teleconferencing Limited (United Kingdom), ACT
Business Solutions Limited (United Kingdom), ACT Teleconferencing France SA, ACT
Teleconferencing BV (Netherlands), ACT Teleconferencing Gmbh (Germany), ACT
Teleconferencing Belgium SA, ACT Teleconferencing (Pty) Limited (Australia), and
ACT Teleconferencing Hong Kong Limited. With the exception of ACT
Teleconferencing Limited (UK), which is 60% held, and ACT Teleconferencing (Pty)
Limited (Australia) and ACT Business Solutions Limited, both of which are 80%
held, ACT owns 100% of all of its subsidiaries.
Revenue Recognition
Revenue is recognized upon completion of conferencing services or delivery of
equipment.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Video and audio equipment inventories are stated at the lower of cost or market,
on a first-in, first-out ("FIFO") basis. Equipment is priced using specific unit
costs consisting of materials, labor and related manufacturing overhead, but
exclusive of research and development, selling, general and administrative
expenses, which are charged to operations as incurred.
Page 30
<PAGE>
Equipment and Depreciation
Equipment is stated at cost. Depreciation is calculated on a straight-line basis
over the estimated useful lives of five years for office furniture and five or
ten years for telecommunications equipment. Depreciation expense includes
capital lease amortization charges.
Goodwill
Goodwill represents the excess of purchase price over tangible assets acquired
less liabilities assumed arising from acquisitions and is being amortized on a
straight-line basis over an estimated useful life of fifteen (15) years.
Long-Lived Assets
Long-Lived Assets are reviewed for impairment when events indicate that the
carrying amount may not be recoverable. If such events are noted, the Company
estimates the future flows to be generated by those assets. In the event that
the sum of the cash flows is less than the carrying amount of those assets, the
assets would be written down to fair value, which is normally measured by
discounting the estimated future cash flows.
Foreign Currency Conversion
The financial statements of the Company's foreign subsidiaries have been
translated into United States dollars at the average exchange rate during the
year for the statement of operations and year-end rate for the balance sheet.
Cash and cash equivalents
The Company considers all liquid investments with original maturities of three
months or less when purchased to be cash equivalents.
Net income (loss) per common share
Net income (loss) per common share is computed based upon the weighted average
number of shares of common stock outstanding during the period. In February
1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share, which was adopted on December 31, 1997. Under the new
requirements for calculating basic and fully diluted earnings per share, the
dilutive effect of stock options and warrants has been included. Although
options and warrants are included in the computation of fully diluted earnings
per share in 1999, the effect of 1998 and 1997 is anti-dilutive and therefore
not disclosed.
Reclassifications
Certain reclassifications have been made to the 1998 financial statement
presentation in order to conform to the 1999 presentation.
Page 31
<PAGE>
<TABLE>
<CAPTION>
2. Long and short term debt
December 31,
1999 1998
----------------------------------
<S> <C> <C>
ACT Teleconferencing Services, Inc., a United
States subsidiary, has a line of credit
secured by all tangible and intangible assets
with the exception of leased assets of its
operations. The line of credit carries an
interest rate of 2% above the prime rate
(7.5% at December 31, 1999), no less than 9%
per annum with a borrowing base restricted to
qualified accounts receivable up to $2
million. $ 1,429,511 $ -
Revolving lines of credit, available through
various banks, secured by accounts receivable
and mortgage debenture over assets. These
short-term financings bear interest rates
ranging from 2% to 3.75% above the bank's
prime rate. The maximum borrowing base ranges
from $32,800 to $825,000. 109,284 617,377
Subordinated debt financing - promissory note
payable by ACT Teleconferencing, Inc. bearing
an interest rate of 13.5% per annum with
monthly interest payments of $28,125.
Principal is due on the maturity date of
March 31, 2003. The note is secured by a
second lien on Company assets, subordinated
to the Company's senior lenders. 2,500,000 2,500,000
Line of credit to equipment vendor owed by
ACT Teleconferencing, Inc. bearing interest
at 6% per annum. Payments are due in monthly
installments calculated on 6% of principal
balance and interest. This facility is
limited to $1,000,000. 925,809 717,968
Subordinated two-year convertible note to an
equipment vendor payable by ACT
Teleconferencing, Inc. bearing interest at
9%, with principal due on July 31, 2001. This
note will be converted into common stock at a
conversion price of $7 per share if it is not
repaid on or before due date. 500,000 -
Note payable by a subsidiary to an equipment
vendor at an interest rate of 7% until 2002.
Payments of $93,333 are due annually. 280,000 280,000
Notes payable to vendors bearing interest at
rates from 14.157% to 16.75% due in monthly
interest and principal repayments of $13,525.
These notes are
</TABLE>
Page 32
<PAGE>
<TABLE>
<S> <C> <C>
collateralized by certain telecommunications
and bridging equipment owned by a
subsidiary. 396,845 493,295
Bank notes payable bearing interest at rates ranging
from 6% to 9.6%. Monthly or quarterly payments are
made in accordance with the debt agreements. The
notes are secured by registered mortgage debentures or
corporate guarantee. Maturity dates range from August
2002 to September 2003. 266,860 432,464
--------------------------
6,408,309 5,041,104
Less deferred interest cost (316,241) (413,546)
--------------------------
Subtotal 6,092,068 4,627,558
Less, current portion of long term debt (2,313,454) (686,691)
--------------------------
Long term debt $ 3,778,614 $3,940,867
==========================
</TABLE>
Total interest paid on notes and capitalized leases for the year ended December
31, 1999, 1998 and 1997 amounted to $848,013, $532,322 and $99,496,
respectively.
The aggregate minimum annual payments as of December 31, 1999 for long term debt
are as follows:
2000 $2,313,453
2001 1,136,406
2002 415,259
2003 43,191
2004 and thereafter 2,500,000
----------
$6,408,309
==========
3. Commitments - operating and capitalized leases
Operating leases
The company leases office space in the United States, Canada, the United
Kingdom, France, the Netherlands, Australia, and Hong Kong. These leases expire
December 2000 through July 2008. Total rent expense charged to operations was
$1,109,422, $743,380 and $301,316 for the years ended December 31, 1999, 1998
and 1997, respectively.
The Company has also entered into several operating leases for computer and
office equipment. Total rent expense charged under these leases was $243,074,
$102,351 and $51,715 for the years ended December 31, 1999, 1998, and 1997,
respectively.
Capitalized leases
The Company leases telecommunication equipment, office equipment, computers and
furniture under long-term leases classified as capital leases. For several of
these leases, the Company has the option to purchase the equipment for a nominal
cost at the termination of the lease. The assets classified as capital leases
are amortized over the
Page 33
<PAGE>
shorter of the estimated useful life of the property or the lease term.
Amortization related to the leased assets is included in depreciation for
financial reporting purposes.
The following property is secured under capital leases:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
<S> <C> <C>
Telecommunications and office equipment, computers and
furniture $2,582,438 $2,317,286
Less accumulated depreciation (498,281) (278,613)
---------------------------------
Net value of equipment secured $2,084,157 $2,038,676
=================================
</TABLE>
The aggregate minimum annual commitments for operating and capital leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------------------------------
<S> <C> <C>
2000 $1,568,365 $ 807,685
2001 1,294,032 716,823
2002 1,100,143 418,740
2003 700,730 222,435
2004 and thereafter 576,048 5,257
---------------------------------
Total minimum lease payments $5,239,318 $ 2,170,940
============
Less amounts representing interest (338,069)
Present value of net minimum capital
------------
leases payments $ 1,832,871
Less capital lease obligations due
within one year (609,076)
------------
Capital lease obligations due after one year $ 1,223,795
============
</TABLE>
During 1999 and 1998, the Company incurred capital lease obligations of $422,336
and $1,714,690 respectively, in connection with lease agreements to acquire
equipment.
4. Shareholders' Equity
Our authorized capital stock consists of 10,000,000 shares of common stock, no
par value, and 1,000,000 shares of non-voting preferred stock, no par value.
Preferred Stock
Series A. On October 19, 1999 we issued 2,000 shares of Series A 8% preferred
stock to GMN Investors II, L.P. for $2,000,000. This transaction was accompanied
by the issuance of 400,000 warrants to purchase shares of common stock at $7.00
per share (see warrants below). The holders of Series A are entitled to
dividends compounded quarterly, payable no later than the redemption date.
Redemption of the Preferred stock is mandatory on October 19, 2004. We have the
right to redeem this instrument for any reason prior to October 19, 2004 by
payment of $2,000,000 plus any outstanding dividends. At December 31, 1999, the
preferred stock had a value of $1,693,006, net of deferred placement cost of
$306,994 which is accreted to redemption value through
Page 34
<PAGE>
October 19, 2004, and we recognized $31,927 for ordinary dividends and $12,480
for accretion of discount.
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 stockholders are entitled or permitted to
vote.
During 1999 we increased our issued share capital from 3,755,633 shares
outstanding to 4,595,947. Our share capital was increased by warrant conversions
as well as a private placement of shares, both described more fully below (see
Private Placement and Warrants).
1999 Private Placement. In February 1999, the Company completed a private
offering of 109,212 units, each comprised of one share of common stock at $5.50
per share and one warrant to purchase one share of common stock. The private
placement raised net capital of $592,505. The warrants are exercisable at $7.00
and expire December 31, 2003. The shares and the shares underlying the warrants
entitle the holder to piggyback registration rights from June 30, 1999, through
December 31, 2003.
Warrant Conversions
On February 2, 1999 a total of 549,154 warrants, or 77% of the total publicly
held 1996 warrants, which were issued pursuant to our initial public offering
were exercised at a conversion price of $5 per share raising cash proceeds to
our company, net of expenses, of $2,619,890.
Pursuant also to our initial public offering, we had granted a unit purchase
option to the underwriter. Each unit contained the right to obtain one share of
common stock for $4.20 per share and a three-year warrant for the purchase of a
share at $5.00 per share. The unit purchase option granted the holder the right
to purchase up to 71,250 units or 142,500 shares at an average price of $4.60
via the exercise of the unit. In August 1999, 60,222 unit purchase options were
exercised resulting in the issuance of 120,444 shares at an average exercise
price of $4.60 per unit, raising $553,537 in net proceeds to the Company.
Warrants Outstanding
On March 31, 1998, in conjunction with the issuance of its $2.5 million
subordinated promissory notes, the Company issued stock purchase warrants for
the purchase of 330,967 shares of common stock at an exercise price of $7.00 per
share to Sirrom Capital Corp. and Equitas L.P. If the notes are not fully paid
on the second, third, or fourth anniversary dates from the above date, the
number of shares subject to these warrants will increase to 390,634, 470,527,
and 588,905 shares, respectively, retaining the same strike price of $7.00 per
share. The warrants expire on March 31, 2003.
In February 1999 we issued 109,212 warrants in connection with our private
placement at a $7.00 exercise price and an expiration date of December 31, 2003.
On October 19, 1999, in association with the issue of preferred stock, we issued
400,000 warrants to GMN Investors II at a $7.00 exercise price and an expiration
date of October 19, 2006.
Page 35
<PAGE>
In 1998, RCC Finance issued a $2 million lease commitment to us. We granted RCC
75,000 warrants at an exercise price of $8.00 per share and an expiration date
of April 3, 2003.
During 1999 we issued 95,000 warrants at an average strike price of $5.95 for
consulting services for work to be done for the company in investor relations,
global business development and the identification of new partners and
acquisitions in new markets.
We have 21,660 warrants remaining at an average strike price of $6.39 per share,
11,660 of which were pursuant to the underwriter's unit purchase option not yet
exercised at $5.00 per share.
All warrants were issued at or above market price on the day of the grant. All
warrants are also subject to customary anti-dilution provisions and to
adjustment in the event of stock splits, stock dividends, consolidations, and
the like. Holders of shares issued upon the exercise of these warrants have
piggy-back rights to registration and certain investors, principally GMN
Investors II, have demand registration rights.
Holders of warrants are not entitled to vote, receive dividends, or exercise any
of the rights of shareholders of Common Stock for any purpose until the warrants
have been duly exercised. Warrants issued during 1999 were valued at the fair
market value of $0.34, if applicable.
5. Stock Option Plan
The Company's 1991 Stock Option Plan, as approved by shareholders, authorizes
the grant of options to officers, key employees, and consultants for up to
400,000 shares of the Company's common stock. The Stock Option Plan of 1996, as
amended and as approved by shareholders, authorizes the grant of an additional
800,000 options to officers, key employees, and consultants of the Company for a
total of 1.2 million options authorized. Options granted under both plans
generally have 10-year terms and vest 25% each year following the date of grant.
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. Under APB 25, because the exercise
price of the Company's employee stock options are generally equal to the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. FASB Statement No. 123, "Accounting for stock-based compensation"
establishes an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The Company elected not
to adopt FASB Statement No. 123 for expense recognition purposes.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options
Page 36
<PAGE>
was estimated at the date of grant using a Black-Scholes option pricing model.
The following are weighted-average assumptions for 1999, 1998 and 1997,
respectively: risk-free interest rate of 6.0%; a dividend yield of 0%;
volatility factors of the expected market price of the Company's common stock of
.77, .75 and .80; and a weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
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:
1999 1998 1997
---- ---- ----
Pro forma net loss $(1,001,935) $(2,746,828) $(714,230)
Pro forma loss per share $ (.23) $ (.75) $ (.22)
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Weighted- Weighted- Weighted-
Options Average Options Average Options Average
------- ------- -------
Exercise Exercise Exercise
Price Price Price
----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 902,437 $4.89 730,400 $4.02 454,300 $2.53
Granted 221,700 5.18 232,693 7.54 325,100 5.62
Exercised (4,500) 3.00 (2,000) 3.00 (43,500) 1.20
Forfeited (13,285) 7.35 (58,656) 4.69 (5,500) 2.00
--------- ------- -------
Outstanding-end of year 1,106,352 $4.93 902,437 $4.89 730,400 $4.02
========= ======= =======
Exercisable at end of year 561,837 $4.02 341,675 $3.15 186,350 $5.62
Weighted-average fair value of
options granted during the year
Market price equals exercise
price $ 3.78 $ 6.68 $3.74
Market price exceeds exercise
price $ 4.05 $ 6.25 -
Market price is less than
exercise price - $ 3.94 -
</TABLE>
Page 37
<PAGE>
The following table summarizes our stock options outstanding at December 31,
1999:
Weighted-Average
Exercise Price remaining Weighted-Average
Range Shares contractual life exercise price
----- ------ ---------------- --------------
$2.00 98,500 4.7 years $2.00
$2.75-$3.03 347,800 6.86 years $2.98
$4.25-$5.25 148,640 9.5 years $4.37
$5.00-$6.05 323,900 8.66 years $5.70
$6.50-$7.00 71,700 10 years $6.86
$9.00 115,812 8.5 years $9.00
-------
1,106,352
6. Income Taxes
The Company accounts for income taxes in conformity with FASB Statement No. 109,
Accounting for Income Taxes. Under the provisions of FASB Statement No. 109, a
deferred tax liability or asset (net of valuation allowance) is provided in the
financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences. This will result
in net taxable or deductible amounts in future years as a result of events
recognized in the financial statements in the current or preceding years.
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.
For financial reporting purposes, income before income taxes includes the
following components:
1999 1998 1997
----------------------------------------------
Pretax income (loss):
United States $710,747 $(1,701,724) $(564,701)
Foreign (19,489) 176,256 662,928
----------------------------------------------
$691,258 $(1,525,468) $ 98,227
----------------------------------------------
The provision for income taxes for the years ended December 31, is comprised of
the following:
1999 1998 1997
-------------------------------------------------
Current $393,331 $217,242 $256,154
Deferred 18,138 184,520 76,412
-------------------------------------------------
$411,469 $401,762 $332,566
=================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
Page 38
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C>
Deferred Tax Liabilities-Domestic
Tax depreciation in excess of book depreciation $ (495,227) $ (257,627) $ (100,267)
Deferred Tax Assets-Domestic
Net operating loss carry-forward 1,826,424 2,019,656 926,714
Reserves for doubtful accounts 28,723 7,764 3,850
Other (93,998) (41,106) 12,381
-------------------------------------------------------------
1,761,149 1,986,314 942,945
Valuation allowance for deferred tax assets (1,265,922) (1,728,687) (842,678)
-------------------------------------------------------------
Net deferred tax-Domestic $ - $ - $ -
=============================================================
Deferred Tax Liabilities-International
Tax depreciation in excess of book depreciation $ 320,112 $ (302,145) $ (117,454)
Deferred Tax Assets-International
Net operating loss carry-forward 1,096,655 698,677 335,088
Other - - 3,234
Valuation allowance for deferred tax assets (1,096,655) (698,677) (338,322)
-------------------------------------------------------------
Net deferred tax liability-International $ (320,112) $ (302,145) $ (117,454)
=============================================================
</TABLE>
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to actual income tax expense is:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Expected rate at 35% $241,940 $(533,914) $ 34,379
Effect of permanent difference 41,567 38,172 26,163
Utilization of NOL's (40,339) - -
Foreign taxes (38,692) (47,024) (17,194)
Valuation allowance 210,390 944,528 289,238
------------------------------------------------
$414,866 $ 401,762 $332,586
</TABLE>
Taxes of $0, $279,008 and $118,989 were paid during 1999, 1998 and 1997,
respectively. The domestic net operating loss carry forwards of approximately
$4.7 million 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 and
there are no unremitted, cumulative foreign earnings.
7. Business Segment Analysis
The Company offers a broad range of audio, video, data, and Internet
teleconferencing services and products to corporate business clients and
institutions, and these products and services are considered one line of
business. The Company's management makes decisions on resource allocation and
assesses performance based on the market potential
Page 39
<PAGE>
of each operating location. Each of the locations offers the same products and
services, has similar customers and teleconferencing equipment, and is managed
directly by the Company's executives, allowing all locations to be aggregated
under the guidelines of FAS 131 resulting in one reportable line of business.
Audio conferencing services presently comprise approximately 90% of total
services. Video, data, and Internet conferencing are presently services which
are offered together with the audio product offering and their revenues are
approximately 10% of total revenues. The following is a summary of the
significant geographic markets:
For the year ended December 31, 1999:
<TABLE>
<CAPTION>
North America Europe Asia Pacific Total
<S> <C> <C> <C> <C>
Net Revenues $14,182,533 $12,049,040 $2,097,218 $28,328,791
Long-Lived Assets $ 7,282,181 $ 4,210,370 $1,239,639 $12,732,190
Deferred Tax Liability - $ 320,112 - $ 320,112
</TABLE>
For the year ended December 31, 1998:
<TABLE>
<CAPTION>
North America Europe Asia Pacific Total
<S> <C> <C> <C> <C>
Net Revenues $8,241,490 $10,190,686 $577,469 $19,009,645
Long-Lived Assets $4,626,746 $ 4,081,218 $906,245 $ 9,614,209
Deferred Tax Liability - $ 302,145 - $ 302,145
</TABLE>
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
North America Europe Asia Pacific Total
<S> <C> <C> <C> <C>
Net Revenues $4,706,890 $5,424,307 $103,206 $10,234,403
Long-Lived Assets $1,968,535 $2,024,994 $209,833 $ 4,203,363
Deferred Tax Liability - $ 117,454 - $ 117,454
</TABLE>
One customer accounted for 24%, 22% and 24% of consolidated revenues for the
years ended December 31, 1999, 1998 and 1997, respectively.
8. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, temporary
investments, accounts receivable, accounts payable, long-term debt, and
capitalized lease obligations.
Because accounts receivable and accounts payable are short-term instruments that
are settled at face value, the Company considers the carrying amounts to
approximate fair value.
The fair value of long-term debt, consisting of notes and capitalized lease
obligations, is based on interest rates available to the Company and comparisons
to market rates. The Company considers the carrying amounts to approximate fair
value.
Page 40
<PAGE>
9. Defined Contribution Plan
The Company has a defined contribution 401(k) plan for its United States
employees, 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, 1999, 1998 and 1997, the Company
contributed $0, $24,980 and $15,355, respectively.
10. Employee Stock Purchase Plan
Our 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. A maximum of 100,000 shares of common stock are available for sale
to our employees under the plan. The purchase price of each share of common
stock will be the lesser of 85% of the fair market value of such share on the
first day of the six month purchase period, or 85% of the fair market value of
such share on the last day of the purchase period. Currently 60 employees have
elected to participate in the plan. Through December 31, 1999, our employees had
purchased 27,060 shares of common stock under the plan.
11. Subsequent Events
Effective January 1, 2000, we acquired the remaining minority interest in ACT
Teleconferencing (Pty) Ltd, based in Australia, for stock issued, consideration
aggregating approximately $400,000 and 16.7% of ACT Business Solutions Limited,
based in the United Kingdom, for stock issued, consideration aggregating
approximately $130,000.
Effective January 6, 2000 we acquired the assets of the Internet service
provider division of Mueller Telecommunications, Inc. for stock issued,
consideration aggregating approximately $365,000.
Page 41
<PAGE>
Item 8. Changes in and disagreements with Accountants
---------------------------------------------
None
PART III
Item 9. Directors and executive officers of the registrant
--------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1999.
Item 10. Executive compensation
----------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1999.
Item 11. Security ownership of certain beneficial owners and management
--------------------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1999.
Item 12. Certain relationships and related transactions
----------------------------------------------
Incorporated by reference to the Company's Proxy Statement for Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1999.
Page 42
<PAGE>
Item 13(a). Exhibits
--------
Exhibit No. Description
----------- -----------
3.1/(1)/ Restated articles of incorporation of ACT April 15, 1996, as
amended October 18, 1999
3.2/(2)/ Bylaws of ACT, amended as of April 15, 1996
3.3 Articles of amendment to articles of incorporation, Article XII
4.1/(3)/ Form of specimen certificate for common stock of ACT
10.1/(3)/ Stock option plan of 1991, as amended, authorizing 400,000 shares
of common stock for issuance under the plan
10.2/(3)/ Form of stock option agreement
10.3/(3)/ Form of common stock purchase warrant
10.10/(3)/ Split dollar insurance agreement dated March 1, 1990, between ACT
and Gerald D. Van Eeckhout
10.11/(3)/ Service agreement dated April 10, 1992 between David Holden and
ACT Teleconferencing Limited
10.19/(4)/ Stock option plan of 1996, as amended
10.20/(5)/ Employee stock purchase plan
10.22/(6)/ Loan and security agreement dated March 31, 1998 and form of
stock purchase warrant with Sirrom Capital Corporation and
Equitas L.P.
10.23/(6)/ Loan agreement with Key Bank, N.A.
10.24/(7)/ Lease commitment and warrant with R.C.C. Finance Group Ltd.
10.25/(7)/ Contract for the supply of conferencing services design
development and information signed July 14, 1998 between ACT
Teleconferencing Services, Inc. and Concert Global Networks
Limited
10.26/(7)/ Agreement for the supply of conferencing services signed July 14,
1998 between ACT Teleconferencing Services, Inc. and Concert
Global Networks Limited
10.27/(7)/ Agreement for videoconferencing equipment and services (GTE
Telephone Operating Companies) dated October 1, 1998
21 Subsidiaries of ACT Teleconferencing, Inc.
23.1 Consent of Ernst & Young LLP
24.1 Power of attorney
27.1 Financial data schedule
/(1)/ Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ended September 30, 1999, Filed with the
Securities and Exchange Commission on November 12, 1999, File No. 0-27560.
/(2)/ Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ended March 31, 1996, Filed with the SEC
on May 15, 1996, File No. 0-27560.
/(3)/ Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form SB-2, filed with the SEC on October 10,
1995, and amendments to our Form SB-2, File No. 33-97908-D.
/(4)/ Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the SEC on April 30, 1997, File No. 0-27560, and
amended and attached as exhibit 4.6 to our Form S-8, filed on July 2,
1998, File 333-58403.
Page 43
<PAGE>
/(5)/ Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the SEC on April 15, 1998, File No. 0-27560.
/(6)/ Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the SEC on August 24, 1998 (originally filed under cover of Form SE
on August 14, 1998) File 0-27560.
/(7)/ Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ending September 30, 1998, filed with the
SEC on November 16, 1998, File 0-27560.
Item 13(b). Reports on Form 8-K
We filed a report on Form 8-K with the SEC on December 7, 1999.
Page 44
<PAGE>
Item 14(a). Financial Statement Schedule
SCHEDULE I
ACT Teleconferencing, Inc. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1999 1998
----------------------------------------
<S> <C> <C>
Assets
Current Assets:
Current Assets $ 1,470,901 $ 212,891
Intercompany Receivable 9,524,348 5,115,274
------------ ------------
Total current assets 10,995,249 5,328,165
Equipment (net of accumulated depreciation of $126,000 and $64,000) 245,837 535,396
Deferred loan placement fees 250,420 205,975
Investment in subsidiaries 2,909,345 1,160,694
------------ ------------
Total Assets $ 14,400,851 $ 7,230,230
============ ============
Liabilities and Shareholders' equity
Current Liabilities:
Current portion of debt $ 485,198 $ 569,314
Accrued liabilities 396,005 801,707
Intercompany payable 2,129,347 959,482
------------ ------------
Total current liabilities 3,010,550 2,330,503
Long Term Debt 3,128,438 2,395,162
Preferred stock, no par value, 1000,000 shares authorized; 2,000 issued 1,693,006 -
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized
4,595,947 and 3,755,633 shares issued and outstanding in 1999 and 1998, respectively 11,378,103 7,463,931
Additional paid in Capital 99,900 -
Accumulated Deficit (4,909,146) (4,959,366)
------------ ------------
Total Shareholders' equity 6,568,857 2,504,565
------------ ------------
Total liabilities and shareholders' equity $ 14,400,851 $ 7,230,230
============ ============
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 2000
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Selling, general and administration expense $ 1,181,353 $ 1,191,308 $ 569,083
Interest expense, net 423,340 305,313 2,255
Equity in undistributed earnings of subsidiaries 1,686,118 (620,504) 134,530
----------- ------------ -----------
Net income (loss) for the year $ 81,425 $ (2,117,125) $ (436,808)
=========== ============ ===========
</TABLE>
Page 45
<PAGE>
SCHEDULE I (Continued)
ACT Teleconferencing, Inc. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year ended December 31
Operating activities 1999 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 81,425 $ (2,117,125) $ (436,808)
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Depreciation 62,541 50,671 10,004
Changes in orperating assets and
liabilities, net of effects of business
combinations:
Current Assets (118,378) (166,442) (11,095)
Intercompany Receivable (4,409,074) (2,006,761) (1,734,839)
Accrued Liabilities (68,346) 421,716 (14,349)
Intercompany Payable 1,169,865 539,273 390,738
------------------ ------------- -------------
Net cash used for operating activities (3,281,967) (3,278,668) (1,796,349)
Investing activities
Property and equipment purchases 227,018 (422,396) (66,458)
Short term notes redeemed (24,000) 11,000 (26,000)
Sale of marketable securities 50,000
Investment in subsidiaries (1,748,651) 493,173 (250,828)
Cash paid for acquisitions net of cash acquired - (249,298) (101,257)
------------------ ------------- -------------
Net cash used for investing activities (1,545,633) (117,521) (444,543)
Financing activities
Net proceeds from the issuance of debt 311,804 2,848,749 455,674
Net proceeds from the issuance of common stock 4,014,072 628,521 1,688,334
Net proceeds from the issuance of preferred stock 1,693,006
Deferred loan issuance costs (44,445) (205,975)
------------------ ------------- -------------
Net cash provided by financing activities 5,974,437 3,271,295 2,144,008
Effect of exchange rate changes on cash (31,204) - -
------------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 1,115,633 (124,894) (96,884)
Cash and cash equivalents beginning of year - 124,894 221,778
------------------ ------------- -------------
Cash and cash equivalents, end of year $ 1,115,633 $ - $ 124,894
================== ============= =============
</TABLE>
Page 46
<PAGE>
SCHEDULE I (Continued)
ACT Teleconferencing, Inc. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS)
CONDENSED SUPPLEMENTAL FINANCIAL INFORMATION OF THE REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation - The financial statements of ACT Teleconferencing,
Inc., the Company, reflect the investments in their wholly-owned subsidiaries
under the equity method.
Consolidated Financial Statements - Reference is made to the Consolidated
Financial Statements and related Notes of ACT Teleconferencing, Inc. included
elsewhere herein for additional information.
Debt and Guarantees - Information on the debt of the Company is disclosed in
Note 2 of the Notes to Consolidated Financial Statements of ACT
Teleconferencing, Inc. included elsewhere herein. Certain subsidiaries of the
Company have guaranteed debt of $2,500,000 which is due on March 31, 2003. The
Company's ability to transfer assets from these subsidiaries is restricted under
the loan agreement.
Page 47
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACT TELECONFERENCING, INC.
Date: February 24, 2000 By /s/ Gerald D. Van Eeckhout
----------------- ----------------------------
Gerald D. Van Eeckhout
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant, and in the capacities
indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Gerald D. Van Eeckhout Chief Executive Officer and Director
------------------------------------
Gerald D. Van Eeckhout (Principal Executive Officer)
/s/ Gavin Thomson Chief Financial Officer
------------------------------------
Gavin Thomson (Principal Financial & Accounting Officer)
/s/ Ronald J. Bach Director
------------------------------------
Ronald J. Bach
/s/ James F. Seifert Director
------------------------------------
James F. Seifert
/s/ Donald Sturtevant Director
------------------------------------
Donald Sturtevant
/s/ Carolyn R. Van Eeckhout Director
------------------------------------
Carolyn R. Van Eeckhout
</TABLE>
Page 48
<PAGE>
Index to Exhibits
All exhibits are filed electronically or incorporated by reference.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1/(1)/ Restated articles of incorporation of ACT April 15, 1996, as amended October
18, 1999
3.2/(2)/ Bylaws of ACT, amended as of April 15, 1996
3.3 Articles of amendment to articles of incorporation, Article XII
4.1/(3)/ Form of specimen certificate for common stock of ACT
10.1/(3)/ Stock option plan of 1991, as amended, authorizing 400,000 shares of
common stock for issuance under the plan
10.2/(3)/ Form of stock option agreement
10.3/(3)/ Form of common stock purchase warrant
10.10/(3)/ Split dollar insurance agreement dated March 1, 1990, between ACT and
Gerald D. Van Eeckhout
10.11/(3)/ Service agreement dated April 10, 1992 between David Holden and ACT
Teleconferencing Limited
10.19/(4)/ Stock option plan of 1996, as amended
10.20/(5)/ Employee stock purchase plan
10.22/(6)/ Loan and security agreement dated March 31, 1998 and form of stock
purchase warrant with Sirrom Capital Corporation and Equitas L.P.
10.23/(6)/ Loan agreement with Key Bank, N.A.
10.24/(7)/ Lease commitment and warrant with R.C.C. Finance Group Ltd.
10.25/(7)/ Contract for the supply of conferencing services design development and
information signed July 14, 1998 between ACT Teleconferencing
Services, Inc. and Concert Global Networks Limited
10.26/(7)/ Agreement for the supply of conferencing services signed July 14, 1998
between ACT Teleconferencing Services, Inc. and Concert Global
Networks Limited
10.27/(7)/ Agreement for videoconferencing equipment and services (GTE
Telephone Operating Companies) dated October 1, 1998
21 Subsidiaries of ACT Teleconferencing, Inc.
23.1 Consent of Ernst & Young LLP
24.1 Power of attorney
27.1 Financial data schedule
</TABLE>
/(1)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended September 30, 1999, Filed with the
Securities and Exchange Commission on November 12, 1999, File No. 0-27560.
/(2)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ended March 31, 1996, Filed with the SEC on May
15, 1996, File No. 0-27560.
/(3)/Incorporated by reference, attached as an exhibit of the same number to our
registration statement on Form SB-2, filed with the SEC on October 10,
1995, and amendments to our Form SB-2, File No. 33-97908-D.
Page 49
<PAGE>
/(4)/Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the SEC on April 30, 1997, File No. 0-27560, and
amended and attached as exhibit 4.6 to our Form S-8, filed on July 2, 1998,
File 333-58403.
/(5)/Incorporated by reference, attached as an exhibit to our Schedule 14A
Information filed with the SEC on April 15, 1998, File No. 0-27560.
/(6)/Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the SEC on August 24, 1998 (originally filed under cover of Form SE on
August 14, 1998) File 0-27560.
/(7)/Incorporated by reference, attached as an exhibit of the same number to our
Form 10-QSB for the quarter ending September 30, 1998, filed with the SEC
on November 16, 1998, File 0-27560.
Page 50
