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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
For the year ended December 31, 2001
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
Commission file number: 0-25940
WIRE ONE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0312442
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
225 Long Avenue
Hillside, NJ 07205
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (973) 282-2000
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $.0001 Par Value Nasdaq National Market
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Indicate by check mark whether the Registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant, based upon the closing sales price of the
Common Stock on the Nasdaq National Market on March 25, 2002 was $122,129,537.
The number of shares of the Registrant's Common Stock outstanding as of
March 25, 2002 was 28,872,231.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the period
ended December 31, 2001 are incorporated by reference into Part III.
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TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business............................................................. 1
2. Properties........................................................... 5
3. Legal Proceedings.................................................... 6
4. Submission of Matters to a Vote of Security Holders.................. 6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................. 7
6. Selected Financial Data.............................................. 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
7A. Quantitative and Qualitative Disclosures about Market
Risk............................................................. 18
8. Financial Statements and Supplemental Data........................... 18
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................. 19
PART III
10. Directors and Executive Officers of the Registrant................... 20
11. Executive Compensation............................................... 20
12. Security Ownership of Certain Beneficial Owners and
Management....................................................... 20
13. Certain Relationships and Related Transactions....................... 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................... 21
Signatures....................................................... 24
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PART I
Item 1. Business
Overview
Wire One Technologies, Inc. (the "Company"), a Delaware corporation, was formed
in May 2000 by the merger of All Communications Corporation ("ACC"), a
value-added integrator of video, voice and network communications solutions
since 1991, into View Tech, Inc. ("VTI"), a provider of video, voice and data
communications equipment and services since 1992.
Wire One is a leading single source provider of video communications solutions
that encompass the entire video communications value chain. We are a leading
integrator for major video communications equipment manufacturers, including the
number one market share leader, Polycom, Inc. ("Polycom"), which, across its
brands, accounts for over 50% of the installed videoconferencing endpoints in
the United States, as well as Cisco Systems, RADVision and others. Our current
customer base includes over 3,000 companies with approximately 16,000
videoconferencing endpoints. We also operate our Glowpoint network service,
which provides our customers with two-way video communications with high quality
of service. With Glowpoint, which we believe to be the first network to provide
such communications by utilizing a dedicated Internet Protocol ("IP") backbone
and broadband access, we offer our customers a single point of contact for all
their video communications requirements.
Industry Overview
In today's fast-paced business environment, many companies seek more efficient
and cost effective ways to communicate with an increasingly mobile and widely
distributed network of employees, customers, suppliers and partners. Video
communications technology enables two or more parties in different locations to
use audio and video to communicate simultaneously in real time. Moreover, video
provides an effective means of communication that offers the benefit of
face-to-face interaction when participants are unable to meet in a common
location. The video communications market is a large and rapidly growing market.
Historically, video communications involved point-to-point communication from
designated rooms equipped with large, expensive equipment. Users were forced to
tolerate cumbersome set-up procedures, which often required the assistance of a
trained technician. Moreover, bandwidth constraints and room availability often
limited the functionality, usability and reliability of these systems.
Video Communications Evolution
In recent years, video equipment manufacturers have been building smaller
devices and units for use with personal computers and also adopted standards to
help improve compatibility and user acceptance. Many of the older room systems
have been replaced as most users migrated to video communications systems based
upon Integrated Services Digital Network ("ISDN") standards. Although superior
to earlier technologies, ISDN still has several shortcomings, including high
transmission costs and poor quality of service ("QoS"), due primarily to the
fact that ISDN is fundamentally a narrowband technology. We believe that the low
quality and high cost of video communications using ISDN has impeded the growth
of the video communications market. More recently, the development of IP has
promised new standards for broadband communications, and the industry has
accordingly adopted IP-standards-based technologies that provide guaranteed QoS
and lower transmission costs than ISDN. The ability to perform video
communications over IP is expected to increase user adoption and to help make
two-way video communications widespread in the enterprise and, ultimately, the
consumer markets.
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IP Market Opportunity
IP-based Video Communications
While many business users have private networks that could theoretically support
IP video communications, most are reluctant to run a video communications
application over the same networks that also support enterprise data and other
applications. Among other concerns, the video communications application would
be required to share bandwidth with data applications (for example, e-mail and
file transfers) on the common network. Allocating enough bandwidth in a
corporate local area network ("LAN") or intranet to handle real-time
transmission of sounds and images in addition to such data applications is
difficult and can create congestion that impedes overall network performance. In
addition, most businesses already find it difficult to effectively maintain and
manage existing applications due to the shortage of information technology and
network personnel. As a result, businesses increasingly require a solution
employing a network dedicated to video, which enables them to manage video
communications isolated from their other applications and existing
communications infrastructure.
An effective video network must also be easily scalable in much the same way
that a company can simply add more phone lines as its employee base and
operations grow. Moreover, widespread adoption by both enterprise and consumer
users requires a video communications solution that provides the same
reliability as public telephone service. We believe that there exists a
significant opportunity to provide an IP-based video communications solution
that is as scalable, dependable and, ultimately, commonplace as voice telephony.
Products And Services
We are a single source provider of video products and services that assist
customers with systems procurement and integration, installation, operation and
maintenance of their video communications systems and requirements. We offer our
customers video communications products from leading manufacturers such as
Polycom (which distributes products under the Polycom, PictureTel and Accord
brands, among others), Cisco Systems and RADVision, and provide a comprehensive
suite of video and data services including integration, bridging, on-site
technical assistance, customized training, engineering and maintenance.
Glowpoint
Our Glowpoint network provides customers with a high-quality platform for video
communications over IP and related applications. The Glowpoint service offers
subscribers substantially reduced transmission costs and superior video
communications quality, remote management of all videoconferencing endpoints
utilizing simple network management protocol ("SNMP"), gateway services to
ISDN-based video communications equipment, video streaming and store-and-forward
applications from our network operations center ("NOC").
To provide our Glowpoint service, we have contracted with MCI/WorldCom
Communications ("WorldCom") and Exodus Communications ("Exodus") for access to
their IP backbone network and co-location facilities. We have contracted with
WorldCom, Covad Communications ("Covad") and others, and plan to contract with
additional broadband access providers, for dedicated broadband access to the
Glowpoint network using either digital subscriber lines ("DSL"), or dedicated
1.5 Mbps ("T1") or 45 Mbps ("T3") lines. Leading IP video communications and
video networking equipment suppliers, including Polycom, Cisco Systems and
RADVision, have already announced that their products will be compatible with
Glowpoint.
Video Communications And Data Products
We market and sell a full range of video, audio and data products and systems on
a world-wide basis from Polycom, VCON Telecommunications, Ltd. ("VCON"), Sony
Electronics, Inc., Gentner Communications, Inc. and Extron Electronics, Inc. We
also distribute data products from companies such as Adtran, Lucent, Initia and
RADVision to provide our customers with remote access into LANs, permitting them
to acquire bandwidth on demand and to digitally transmit data. We configure
single- or multi-vendor video and data conferencing platforms for our clients
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and integrate systems and components into a complete solution designed to suit
each customer's particular communications requirements.
Video Communications Services
We offer our customers the convenience of single vendor sourcing for virtually
all aspects of their video communications requirements. In addition, we provide
consulting services that include an assessment of customer needs and existing
communications equipment.
After designing a customer's video communications solution, which may
incorporate custom elements designed by our audio-visual integration department,
we deliver, install and test the communications equipment. When the system is
functional, we provide training to all levels of our customer's organization,
including executives, managers, management information systems and
data-processing administrators and technical staff. Training includes
instruction in system operation, as well as the planning and administration of
meetings. By means of thorough training, we help to ensure that our customers
understand the functionality of their systems and are able to apply the
technology effectively.
Our OneCare service covers a customer's entire video communications system
deployment for a fixed fee. OneCare encompasses installation and maintenance
service products that provide comprehensive customer support after the sale and
help ensure that our customers experience reliable, effortless video
communications. Our installation service places minimal demands on a customer's
time and resources. Our maintenance service provides technical support
representatives and engineers, a help desk offering 24x7 responsiveness,
nationwide on-site diagnostic repair and replacement service, nationwide network
trouble coordination and a video test facility.
We also provide advanced telecommunications consulting and engineering services
through our ProServices department. Our engineers have in-depth experience with
networks, microprocessors, software development and IT management, as well as
the design, deployment and repair of video telecommunications products and
technology. Our engineers use this experience to provide expert advice and
assistance in evaluating and deploying the appropriate visual communications
technology to meet a customer's project goals and objectives. These services
include application consulting and network design, laboratory testing, product
application and industry research, and technology trial assistance.
We also sell multi-point video and audio bridging services through a program
called Multiview Network Services. We employ state-of-the-art conferencing
servers that provide seamless connectivity for all switched digital networks at
an affordable rate. Because of the significant expense associated with procuring
multipoint conferencing equipment, our customers typically elect instead to use
our Multiview Network Services as and when bridging is required.
Sales And Marketing
We market and sell our products and services to the commercial, government,
medical and educational markets through a direct sales force of account
executives, as well as through telemarketers and resellers. These efforts are
supported by sales engineers, a marketing department, a call center and a
professional services and engineering group. As of December 31, 2001, we had 66
account executives and 34 additional sales administrative and management and
marketing department personnel.
Our marketing department concentrates on activities that will generate leads for
our sales force and create brand awareness for Wire One and the Glowpoint
network, including direct marketing campaigns, select advertising, a call
center, public relations, participation in trade shows and the coordination of
seminars throughout the country. We host these seminars to demonstrate video
communications systems to prospective customers and to educate them on
technological advancements in video and data communications. We also provide our
sales force with ongoing training to ensure that it has the necessary expertise
to effectively market and promote our business and solutions.
In conjunction with manufacturer-sponsored programs, we provide existing and
prospective customers with sales, advertising and promotional materials. We
maintain up-to-date systems for demonstration purposes in all of our offices.
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Our technical and training personnel periodically attend installation and
service training sessions offered by video communications manufacturers to
enhance their knowledge and expertise in the installation and maintenance of the
systems.
Customers
We have sold our products and services to over 3,000 customers, which
collectively have approximately 16,000 videoconferencing endpoints. These
customers operate in each of the following market segments: commercial, medical,
educational and governmental. No single customer accounts for more than 10% of
our revenues. At December 31, 2001, we maintained a backlog of sales orders with
related revenue totaling $1.8 million.
Technology
The Glowpoint network
Glowpoint employs a proprietary network architecture consisting of
state-of-the-art equipment co-located at WorldCom and Exodus data centers across
the country, each one constituting a Glowpoint point of presence ("POP"), and
dedicated capacity on WorldCom's and Exodus's high performance, redundant
backbones. This backbone network connects all of Glowpoint's POPs, using
multiple high-speed OC-3 and OC-12 lines, which virtually eliminate the risk of
a single point of failure. Our POPs consist of the best available technology
from multiple vendors combined in a proprietary architecture and co-located in a
secure and monitored environment. This configuration of equipment at the POPs
and their locations distributed across the country are expected to provide
industry-leading throughput, scalability and mission-critical resiliency. All
equipment on the network complies with current H.323 (IP) standards.
Currently, we have 13 POPs strategically located throughout the United States,
as well as in the UK and Japan. We have contracted with WorldCom and Covad and
others, and plan to contract with additional broadband access providers, for
dedicated broadband access to the Glowpoint network using either DSL, T1 or T3.
Network operations center
We maintain a state-of-the-art NOC at our headquarters from which we monitor the
operations of Glowpoint on a 24x7 basis. The NOC's primary functions are to
monitor the network, manage and support all backbone equipment, provide usage
information for billing, provide utilization data for capacity planning and
provide value-added customer services. Only usage information and authentication
packets, rather than actual video communications traffic, passes through the
NOC. Technology in the NOC includes gatekeepers, routers and switches, servers,
firewalls and load-balancing devices. The NOC uses redundant circuits to connect
directly to our backbone.
Research and Development
As of December 31, 2001, we employed a staff of 12 software and hardware
engineers who evaluate, test and develop proprietary applications. The costs of
this team of engineers in the year ended December 31, 2001 totaled approximately
$1 million. In the years ended December 31, 2000 and 1999, the costs related to
this team of engineers totaled $120,000 and $0, respectively. To augment these
resources, we engage independent consultants from time-to-time. We expect that
we will continue to commit resources to research and development in the future
to further develop our proprietary network solution.
-4-
Employees
As of December 31, 2001, we had 388 full-time employees. Of these employees, 100
are in sales and marketing, 250 in maintenance and installation services,
technical services and customer support and 38 in finance and administration.
None of our employees is represented by a labor union. We believe that our
employee relations are good.
Competition
We compete primarily with manufacturers and resellers of video communications
systems, some of which are larger, have longer operating histories and have
greater financial resources and industry recognition than us. These competitors
include FVC.com, Tandberg and VTEL Corporation.
We also compete with providers of video communications transport services,
including AT&T Corporation, WorldCom, Qwest Communications, Sprint Corporation
and several other regional Bell operating companies and carriers. In the future,
competition may increase from new and existing resellers, from manufacturers
that choose to sell direct to end users and from existing and new
telecommunications services providers, which may include certain of our
suppliers or network providers, many of which have greater financial resources
than us.
We compete primarily on the basis of our:
o sole focus on the video communications industry;
o breadth of video product and service offerings;
o relationships with video equipment manufacturers;
o nationwide presence;
o technical expertise;
o knowledgeable sales, service and training personnel; and
o commitment to customer service and support.
We believe that our ability to compete successfully will depend on a number of
factors both within and outside our control, including the adoption and
evolution of technologies relating to our business, the pricing policies of our
competitors and suppliers, our ability to hire and retain key technical and
management personnel and industry and general economic conditions.
Item 2. Properties
Our headquarters are located at 225 Long Avenue, Hillside, New Jersey 07205.
These premises consist of approximately 39,000 square feet of office space and
warehouse facilities. The term of this lease expires on May 31, 2005. The base
rental for the premises during the term of the lease is $295,000 per annum. In
addition, we are obligated to pay our share of the landlord's operating expenses
(that is, those expenses incurred by the landlord in connection with the
ownership, operation, management, maintenance and repair of the premises,
including, among other things, the cost of common-area electricity, operational
services and real estate taxes). The Hillside premises are utilized for
executive functions and our Glowpoint operations.
We also lease premises of approximately 49,000 square feet for our distribution
and audio-visual integration operations in Dayton, Ohio. The term of this lease
expires on December 31, 2007. The base rental for the premises during the term
of the lease is currently approximately $173,000 per annum. In addition, we are
obligated to pay our share of the landlord's operating expenses. We believe that
this space will be adequate to meet our needs resulting from anticipated growth
in our company.
In addition to our headquarters and our distribution/audio-visual facilities, we
have an office in Windham, New Hampshire, that houses our finance department; a
technical facility in Camarillo, California; and sales offices in Birmingham,
Alabama; Phoenix, Arizona; Irvine, Pasadena, Rancho Cordova, San Ramon and San
Francisco, California; Trumbull, Connecticut; Englewood, Colorado; Washington,
D.C.; Rolling Meadows, Illinois; Indianapolis, Indiana; Overland Park, Kansas;
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Louisville, Kentucky; Baton Rouge, Louisiana; Canton, Massachusetts; Farmington
Hills, Michigan; Minneapolis, Minnesota; Little Falls, New Jersey; New York, New
York; Durham, North Carolina; Dayton, Ohio; Portland, Oregon; Philadelphia,
Pennsylvania; Franklin, Tennessee; Dallas, Houston and Irving, Texas; Salt Lake
City, Utah; Manassas, Virginia; Bellevue, Washington and Millwaukee, Wisconsin.
Item 3. Legal Proceedings
The Company is defending several suits or claims in the ordinary course of
business, none of which individually or in the aggregate is material to the
Company's business, financial condition or results of operations.
Item 4. Submission Of Matters To A Vote Of Security Holders
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following tables present historical trading information for (i) ACC common
stock and VTI common stock through the consummation of the merger between ACC
and VTI on May 18, 2000 and (ii) Wire One since May 18, 2000. The trading
information for VTI reflects the 2 for 1 reverse split of VTI's outstanding
common stock on May 18, 2000.
VTI ACC
COMMON STOCK COMMON STOCK
------------------- ------------------
HIGH LOW HIGH LOW
YEAR ENDING DECEMBER 31, 2000:
First Quarter.................................... 18.00 5.26 24.75 10.06
Second Quarter through May 18, 2000.............. 12.00 4.50 17.75 8.94
WIRE ONE
COMMON STOCK
-------------------
HIGH LOW
Second Quarter (from May 18)........................... 11.75 4.75
Third Quarter.......................................... 11.00 7.06
Fourth Quarter......................................... 11.38 4.06
YEAR ENDING DECEMBER 31, 2001:
First Quarter.......................................... 4.88 2.00
Second Quarter......................................... 6.50 1.66
Third Quarter.......................................... 6.30 3.90
Fourth Quarter......................................... 9.95 5.17
VTI common stock was traded on the Nasdaq National Market under the symbol
"VUTK." ACC common stock was traded on over the OTC Electronic Bulletin Board
under the symbol "ACUC." Wire One common stock is traded on the Nasdaq National
Market under the symbol "WONE."
On March 25, 2002, the last reported sale price of Wire One common stock was
$4.23 per share as reported on the Nasdaq National Market, and 28,872,231 shares
of Wire One common stock were held by approximately 175 holders of record.
American Stock Transfer & Trust Company of Brooklyn, New York is the transfer
agent and registrar of our common stock.
Dividends
Our board of directors has never declared or paid any cash dividends on our
common stock and does not expect to do so for the foreseeable future. We
currently intend to retain any earnings to finance the growth and development of
our business. Our board of directors will make any future determination of the
payment of dividends based upon conditions then existing, including our
earnings, financial condition and capital requirements, as well as such economic
and other conditions as our board of directors may deem relevant. In addition,
the payment of dividends may be limited by financing arrangements into which we
may enter in the future.
Recent Sales of Unregistered Securities
None.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements
included elsewhere in this Form 10-K.
Year Ended December 31,
------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Information
Net revenues
Video solutions $ 85,436 $ 46,959 $ 12,397 $ 6,136 $ 3,312
Network solutions 3,480 1,475 -- -- --
--------- --------- --------- --------- ---------
88,916 48,434 12,397 6,136 3,312
--------- --------- --------- --------- ---------
Cost of revenues
Video solutions 59,184 31,554 8,577 4,021 2,219
Network solutions 2,899 1,105 -- -- --
--------- --------- --------- --------- ---------
62,083 32,659 8,577 4,021 2,219
--------- --------- --------- --------- ---------
Gross margin
Video solutions 26,252 15,405 3,820 2,115 1,093
Network solutions 581 370 -- -- --
--------- --------- --------- --------- ---------
26,833 15,775 3,820 2,115 1,093
--------- --------- --------- --------- ---------
Operating expenses
Selling 24,929 12,588 2,487 1,634 1,117
General and administrative 12,589 4,121 1,765 1,310 936
Amortization of goodwill 2,684 1,501 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses 40,202 18,210 4,252 2,944 2,053
--------- --------- --------- --------- ---------
Loss from continuing operations (13,369) (2,435) (432) (829) (960)
--------- --------- --------- --------- ---------
Other (income) expense
Amortization of deferred financing costs 100 344 43 19 315
Interest income (77) (315) (23) (56) (118)
Interest expense 598 78 181 57 27
--------- --------- --------- --------- ---------
Total other expenses, net 621 107 201 20 224
--------- --------- --------- --------- ---------
Income tax (benefit) provision 200 511 (105) 3 (52)
--------- --------- --------- --------- ---------
Net loss from continuing operations (14,190) (3,053) (528) (852) (1,132)
Income (loss) from discontinued operations (617) 521 1,592 75 240
Gain on sale of discontinued operations 277 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) (14,530) (2,532) 1,064 (777) (892)
Deemed dividends on series A convertible preferred stock 4,434 13,723 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) attributable to common stockholders $ (18,964) $ (16,255) $ 1,064 $ (777) $ (892)
========= ========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.91) $ (1.27) $ 0.22 $ (0.16) $ (0.21)
========= ========= ========= ========= =========
Diluted $ (0.91) $ (1.27) $ 0.17 $ (0.16) $ (0.21)
========= ========= ========= ========= =========
Weighted average number of common shares
and equivalents outstanding:
Basic 20,880 12,817 4,910 4,910 4,201
========= ========= ========= ========= =========
Diluted 20,880 12,817 6,169 4,910 4,201
========= ========= ========= ========= =========
Balance Sheet Information
Cash and cash equivalents 1,689 1,871 60 326 2,175
Working capital 15,639 19,921 4,526 5,702 4,265
Total assets 104,499 84,372 10,867 8,923 6,008
Long-term debt (including current portion) 83 3,128 2,186 2,444 --
Series A mandatorily redeemable convertible preferred stock -- 10,371 -- -- --
Total stockholders' equity 68,909 49,658 5,194 3,968 4,734
-8-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Form 10-K. All statements contained herein that are not historical facts,
including, but not limited to, statements regarding anticipated future capital
requirements, our future development plans, our ability to obtain debt, equity
or other financing, and our ability to generate cash from operations, are based
on current expectations. The discussion of results, causes and trends should not
be construed to imply any conclusion that such results or trends will
necessarily continue in the future.
The statements contained herein, other than historical information, are or may
be deemed to be forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the Company's actual results in future periods to differ
materially from such statements. These factors, risks and uncertainties, include
the relatively short operating history of the Company; market acceptance and
availability of new products and services; the terminable-at-will and
nonexclusive nature of reseller agreements with manufacturers; rapid
technological change affecting products and services sold by the Company; the
impact of competitive products, services, and pricing, as well as competition
from other resellers and service providers; possible delays in the shipment of
new products; and the availability of sufficient financial resources to enable
the Company to expand its operations.
Overview
Wire One is a leading single source provider of video communications solutions
that encompass the entire video communications value chain. We are a leading
integrator for major video communications equipment manufacturers, including the
number one market share leader, Polycom, Inc. ("Polycom") which accounts for
over 50% of the installed videoconferencing endpoints in the United States. In
December 2000, we introduced our Glowpoint network service, providing our
customers with two-way video communications with high quality of service. With
the introduction of Glowpoint, we now offer our customers a single point of
contact for all their video communications requirements. Furthermore, we believe
Glowpoint is the first dedicated network to provide two-way video communications
by utilizing a dedicated Internet Protocol ("IP") backbone and broadband access.
We market and sell our video communications products and services to the
commercial, federal and state government, medical and educational markets
through a direct sales force of account executives and telemarketers and through
resellers. These efforts are supported by sales engineers, a marketing
department, a call center and a professional services and engineering group. The
Company has sold its products and services to over 3,000 customers who
collectively have approximately 16,000 videoconferencing endpoints.
Wire One was formed on May 18, 2000 by the merger of ACC and VTI. VTI was the
surviving legal entity in the merger. However, for financial reporting purposes,
the merger has been accounted for as a "reverse acquisition" using the purchase
method of accounting. Under the purchase method of accounting, ACC's historical
results have been carried forward and VTI's operations have been included in the
financial statements commencing on the merger date. Accordingly, all 1999
results as well as 2000 results through the merger date are those of ACC only.
Further, on the date of the merger, the assets and liabilities of VTI were
recorded at their fair values, with the excess purchase consideration allocated
to goodwill.
We sell both products and services. Product revenue consists of revenue from the
sale of video communications equipment and is recognized at the time of
shipment, provided no significant obligations remain, collectibility is probable
and returns are estimable. Service revenue is derived from services rendered in
connection with the sale of new systems and the maintenance of previously
installed systems. Services rendered in connection with the sale of new systems
consist of engineering services related to system integration, technical
training and user training. The majority of the services are rendered at or
prior to installation, and all revenue is recognized when services are rendered.
Revenue related to extended service contracts is deferred and recognized over
-9-
the life of the extended service period. Revenues related to providing network
services (either H.323 Bridging or Glowpoint IP Network) are recognized on a
monthly basis for services rendered and detailed on a monthly bill.
In July 2000, we acquired the net assets of 2CONFER, LLC ("2CONFER"), a
Chicago-based provider of videoconferencing, audio and data solutions. The total
consideration was $800,000, consisting of $500,000 in cash and the remainder in
our common stock valued at the time of acquisition at $300,000. On the date of
the acquisition, the assets and liabilities of 2CONFER were recorded at their
fair values, with the excess purchase consideration allocated to goodwill.
In October 2000, we acquired the assets and certain liabilities of the Johns
Brook Company ("JBC") videoconferencing division, a New Jersey-based provider of
videoconferencing solutions. The total consideration was $635,000, consisting of
$481,000 in cash and the remainder in our common stock valued at the time of
acquisition at $154,000. On the date of the acquisition, the assets and certain
liabilities of the JBC videoconferencing division were recorded at their fair
values, with the excess purchase consideration allocated to goodwill.
In June 2001, we acquired the assets of GeoVideo Networks, Inc. ("GeoVideo"), a
New York-based developer of video communications software. Chief among the
assets, in addition to GeoVideo's cash on hand of $2,500,000, was GeoVideo's
browser, a software tool based upon proprietary Bell Labs technology that allows
up to six simultaneous, real-time, bi-directional high-bandwidth IP video
sessions to be conducted over a standard desktop PC. In exchange for the
acquired assets, we issued 815,661 shares of our common stock, together with
warrants to purchase 501,733 additional shares of our common stock at $5.50 per
share and 520,123 shares at $7.50 per share. On the date of acquisition the
assets of GeoVideo were recorded at their fair values, with the excess purchase
consideration allocated to goodwill. A final appraisal of certain assets
included in the acquisition has not been completed. Pending the results of the
appraisal, the allocation among the various components of the purchase price may
change; however, any such reallocation will not materially affect our overall
financial position or results of operations.
In July 2001, we acquired the assets and certain liabilities of Advanced
Acoustical Concepts, Inc. ("AAC"), an Ohio-based designer of audiovisual
conferencing systems. The total consideration was $794,000, which was paid in
the form of our common stock valued at the time of acquisition. On the date of
acquisition, the assets and certain liabilities were recorded at their fair
values, with the excess purchase consideration allocated to goodwill. A final
appraisal of certain assets included in the acquisition has not been completed.
Pending the results of the appraisal, the allocation among the various
components of the purchase price may change; however, any such reallocation will
not materially affect our overall financial position or results of operations.
In October 2001, we completed the sale of our voice communications business unit
to Fairfield, N.J.-based Phonextra, Inc. for approximately $2,017,000, half of
which was paid in cash at the close of the transaction and the balance of which
was paid in the form of a promissory note self-amortizing over one year. The
sale of our voice communications unit was aimed at enabling us to sharpen our
focus on video solutions and on Glowpoint, our subscriber-based IP network
dedicated to video communications traffic. As a consequence, this unit has been
classified as a discontinued operation in the accompanying financial statements,
with its net assets and results from operations summarized in single line items
on our balance sheet and statement of operations.
In November 2001, we acquired certain assets and liabilities of the video
conferencing division of Axxis, Inc. ("Axxis"), a Kentucky-based designer of
audiovisual conferencing systems. The total consideration was $2,051,000, which
was paid in the form of our common stock valued at the time of acquisition. On
the date of acquisition, the acquired assets and liabilities were recorded at
their fair values, with the excess purchase consideration allocated to goodwill.
A final appraisal of certain assets included in the acquisition has not been
completed. Pending the results of the appraisal, the allocation among the
various components of the purchase price may change; however, any such
reallocation will not materially affect our overall financial position or
results of operations.
-10-
Results Of Operations
The following table sets forth, for the periods indicated, information derived
from our consolidated financial statements expressed as a percentage of our
revenues:
Year Ended December 31,
------------------------------
2001 2000 1999
------ ------ ------
Net revenues
Video solutions 96.1% 97.0% 100.0%
Network solutions 3.9 3.0 --
------ ------ ------
100.0 100.0 100.0
------ ------ ------
Cost of revenues
Video solutions 69.3 67.2 69.2
Network solutions 83.3 74.9 --
------ ------ ------
69.8 67.4 69.2
------ ------ ------
Gross margin
Video solutions 30.7 32.8 30.8
Network solutions 16.7 25.1 --
------ ------ ------
30.2 32.6 30.8
------ ------ ------
Operating expenses
Selling 28.0 26.0 20.1
General and administrative 14.2 8.5 14.2
Amortization of goodwill 3.0 3.1 --
------ ------ ------
Total operating expenses 45.2 37.6 34.3
------ ------ ------
Loss from continuing operations (15.0) (5.0) (3.5)
------ ------ ------
Other (income) expense
Amortization of deferred financing costs 0.1 0.7 0.3
Interest income -- (0.7) (0.2)
Interest expense 0.7 0.2 1.5
------ ------ ------
Total other expenses, net 0.8 0.2 1.6
------ ------ ------
Income tax (benefit) provision 0.2 1.1 (0.8)
------ ------ ------
Net loss from continuing operations (16.0) (6.3) (4.3)
Income (loss) from discontinued operations (0.7) 1.1 12.8
Gain on sale of discontinued operations 0.3 -- --
------ ------ ------
Net income (loss) (16.4) (5.2) 8.5
Deemed dividends on series A convertible preferred stock 5.0 28.3 --
------ ------ ------
Net income (loss) attributable to common stockholders (21.4)% (33.5)% 8.5%
====== ====== ======
Year Ended December 31, 2001 ("2001 period") Compared to Year Ended December 31,
2000 ("2000 period").
NET REVENUES. We reported total revenues of $88.9 million for the 2001
period, an increase of $40.5 million, or 84%, over the $48.4 million in revenues
reported for the 2000 period. Although the operations of acquired companies have
now been fully integrated, management estimates that revenues from the core
businesses in existence before contributions from acquired operations accounted
for $16.3 million of the $40.5 million increase, or 40%, with acquisitions
accounting for $24.2 million of the increase, or 60%. When adjusting for
acquisitions made in 2000 and 2001, assuming they contributed to the full 2001
and 2000 periods, revenue for the year increased 21%, from $83.7 million to
$100.9 million.
Video solutions -- Sales of video communications products and services were
$85.4 million in the 2001 period, an increase of $38.4 million, or 82%, over the
$47.0 million in the 2000 period. Management estimates that approximately $15.2
million of the $38.4 million increase in revenues for the 2001 period over the
2000 period, or 40%, related to the core businesses in existence before
contributions from acquired operations and $23.2 million in revenues, or 60%,
from acquired operations accounted for the remainder of the growth. When
adjusting for acquisitions made in 2000 and 2001, assuming they contributed to
the full 2001 and 2000 periods, revenue for the year increased 20%, from $81.2
million to $97.4 million. The growth experienced in the 2001 period resulted
-11-
from sales to both new and existing customers in the commercial, governmental,
medical and educational markets in each of the major geographic regions in the
United States in which we operate. Growth was positively impacted by the
expansion of the use of videoconferencing and by the migration of numerous
organizations to videoconferencing as an alternative to corporate travel, both
for budgetary and safety reasons.
Video network -- Sales of video network services were $3.5 million in the
2001 period, an increase of $2.0 million, or 133%, over the $1.5 million in the
2000 period. Management estimates that approximately $0.4 million of the $2.0
million increase in revenues for the 2001 period over the 2000 period related to
growth resulting from the introduction of the Glowpoint network and $1.6 million
in revenues from VTI's H.320 bridging service accounted for the remainder of the
growth.
GROSS MARGINS. Gross margins were $26.8 million in the 2001 period, an
increase of $11.0 million over the 2000 period. Gross margins decreased in the
2001 period to 30.2% of net revenues, as compared to 32.6% of net revenues in
the 2000 period. The decrease is attributable to overall competitive pressures
in the video solutions market resulting from the relatively weak economy and
downward pricing pressure instigated by competitors, and the disproportionate
amount of sales of large low-margin multipoint bridge equipment in the current
year's revenues, which accounted for approximately 0.9% of the 2.4% decline in
margin.
SELLING. Selling expenses, which include sales salaries, commissions,
overhead, and marketing costs, increased $12.3 million in the 2001 period to
$24.9 million from $12.6 million for the 2000 period. Increases in selling
expenses are attributable to increases in the number of sales personnel and
their related costs totaling $7.5 million, the costs of additional sales offices
resulting from acquisitions since May 2000 totaling $1.0 million and the $2.5
million of recurring costs related to the Glowpoint division not yet covered by
revenues. Selling expenses as a percentage of net revenues for the 2001 period
were 28.0%, an increase from 26.0% in the 2000 period. This increase is
attributable to the $2.5 million of expenses of the Glowpoint division, which
amounted to 2.8% of net revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$8.5 million in the 2001 period to $12.6 million as compared to $4.1 million for
the 2000 period. This category of expense was significantly impacted by
non-recurring charges that were recognized in the fourth quarter of 2001. The
most significant of these charges were the $4.0 million charge related to a
five-year extension of certain stock options granted to the Company's CEO in
1997, the one-time non-cash charge of $630,000 for accelerated amortization of
Glowpoint-related capitalized costs and the $375,000 charge related to the
settlement of outstanding litigation. The inclusion of general and
administrative expenses related to acquired companies was another significant
factor behind the increase. Core general and administrative expenses were
approximately $6.9 million for the 2001 period, or 7.7% of net revenue, a
decrease from 8.5% in the 2000 period, as these costs were leveraged as we grew
in the 2001 period.
AMORTIZATION OF GOODWILL. Amortization of goodwill increased $1.2 million
in the 2001 period to $2.7 million as compared to $1.5 million for the 2000
period. The increase related to a full year of amortization of goodwill related
to the VTI, 2CONFER and JBC acquisitions ($1.1 million of the increase) and
goodwill amortization related to the acquisition of GeoVideo of $0.1 million.
OTHER (INCOME) EXPENSES. One component of this category, amortization of
deferred financing costs, decreased to $100,000 in the 2001 period as compared
to $344,000 in the 2000 period. The decrease reflects the absence from the 2001
period of the amortization of $305,000 related to the issuance of warrants to
former VTI subordinated debt holders. In addition, interest income decreased in
the 2001 period to $77,000 as compared to $315,000 in the 2000 period. The
decrease reflects decreased funds invested during the 2001 period as the capital
raised in prior periods was deployed in operations. Interest expense increased
in the 2001 period to $598,000 as compared to $78,000 in the 2000 period. During
the 2001 period we expanded our use of our line of credit to fund our operations
with the result being a significant increase in interest expense.
-12-
INCOME TAXES. During the 2001 period, we have established a valuation
allowance to offset the benefits of significant temporary tax differences due to
the uncertainty of their realization. These deferred tax assets consist
primarily of net operating losses carried forward in the VTI merger, reserves
and allowances, and stock-based compensation. Due to the nature of the deferred
tax assets, the related tax benefits, upon realization, will be credited
substantially to the goodwill asset or additional paid-in capital, rather than
to income tax expense.
DISCONTINUED OPERATIONS. We incurred a loss from discontinued operations in
the 2001 period of $617,000 as compared to income from discontinued operations
in the 2000 period of $521,000. This decline in income from discontinued
operations resulted from lower revenues to cover the fixed costs of the voice
communications unit and higher costs of revenues as competitive pressures
reduced gross margins.
NET INCOME (LOSS). We reported a net loss attributable to common
stockholders for the 2001 period of $(19.0) million, or $(0.91) per diluted
share, as compared to net loss attributable to common stockholders of $(16.3)
million, or $(1.27) per diluted share for the 2000 period. Before giving effect
to the aggregate $4.4 million in deemed dividends on series A convertible
preferred stock in the 2001 period and $13.7 million in deemed dividends in the
2000 period, we reported a net loss of $(14.5) million for the 2001 period and
$(2.5) million for the 2000 period.
Year Ended December 31, 2000 ("2000 period") Compared to Year Ended December 31,
1999 ("1999 period").
NET REVENUES. We reported net revenues of $48.4 million for the 2000
period, an increase of $36.0 million over the $12.4 million in revenues reported
for the 1999 period. Although the operations of acquired companies have now been
fully integrated, management estimates that revenues from the core businesses in
existence before contributions from acquired operations accounted for $10.4
million of the $36.0 million increase, or 29%, with acquisitions accounting for
$25.6 million of the increase, or 71%.
Video solutions -- Sales of video communications products and services were
$46.9 million in the 2000 period, an increase of $34.5 million, or 278%, over
the $12.4 million in the 1999 period. Management estimates that approximately
$10.2 million of the $34.5 million increase in revenues for the 2000 period over
the 1999 period, or 30%, related to the core businesses in existence before
contributions from acquired operations and $24.3 million in revenues, or 70%,
from acquired operations accounted for the remainder of the growth. The growth
experienced in the 2000 period resulted from sales to both new and existing
customers in the commercial, governmental, medical and educational markets in
each of the major geographic regions in the United States in which we operate.
Video network -- Sales of video network services were $1.5 million in the
2000 period with no revenue recognized in the 1999 period. This increase in
revenues consisted of the $1.5 million in revenues from the acquired H.320
bridging service of VTI.
GROSS MARGINS. Gross profits were $15.8 million in the 2000 period, an
increase of $12.0 million over the 1999 period. Gross margins increased in the
2000 period to 32.6% of net revenues, as compared to 30.8% of net revenues in
the 1999 period. The increase is attributable to inventory purchase discounts
negotiated with videoconferencing equipment manufacturers and increases in
higher margin revenue sources such as consulting and technical services, video
maintenance contracts and installation services.
SELLING. Selling expenses, which include sales salaries, commissions, overhead,
and marketing costs, increased $10.1 million in the 2000 period to $12.6 million
from $2.5 million for the 1999 period. Increases in selling expenses are
attributable to increases in the number of sales personnel and their related
costs and the costs of additional sales offices resulting from the merger with
VTI and the acquisitions of 2CONFER and JBC. The increase in selling expenses as
a percentage of net revenues in the 2000 period resulted from the expansion of
the video communications division on a national basis. Prior to the merger, ACC
focused its video communications business on customers in the Eastern United
States. This national expansion resulted in increased rent and related office
expenses, depreciation, travel and delivery expenses as a percentage of revenue.
-13-
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$2.4 million in the 2000 period to $4.1 million as compared to $1.7 million for
the 1999 period. The inclusion of VTI general and administrative expenses from
the merger date through the end of the reporting period was the significant
factor behind these increases. General and administrative expenses as a
percentage of net revenues for 2000 period decreased to 8.5% from 14.2%, as this
cost category was leveraged over the greater base of revenues.
AMORTIZATION OF GOODWILL. We allocated approximately $34.7 million of the
VTI merger purchase consideration to goodwill. Amortization expense attributable
to this merger for the 2000 period totaled $1.45 million. We estimate at this
time that the annual amortization expense attributable to this merger (based on
an amortization period of 15 years) will approximate $2.3 million. In addition,
as a result of the acquisition of the net assets of 2CONFER in July 2000 and of
JBC in October 2000, $1.8 million of additional goodwill was recorded.
Amortization expense attributable to these acquisitions for the 2000 period
totaled approximately $50,000 and we estimate at this time that the annual
amortization expense attributable to these acquisitions (based on an
amortization period of 15 years) will approximate $120,000.
OTHER (INCOME) EXPENSES. The principal component of this category,
amortization of deferred financing costs, increased to $344,000 in the 2000
period as compared to $43,000 in the 1999 period. The increase reflects the
amortization of $305,000 related to the issuance of warrants to former VTI
subordinated debt holders. These costs were fully amortized as of December 31,
2000. In addition, interest income increased in the 2000 period to $315,000 as
compared to $23,000 in the 1999 period. The increase reflects interest earned on
the proceeds received from our private placement of 2,450 shares of its series A
convertible preferred stock and related warrants (the "Private Placement") in
the second quarter of 2000 and the proceeds received from our warrant call in
the first quarter of 2000.
INCOME TAXES. During the 2000 period, we established a valuation allowance
to offset the benefits of significant temporary tax differences due to the
uncertainty of their realization. These deferred tax assets consist primarily of
net operating losses carried forward in the VTI merger, reserves and allowances,
and stock-based compensation. Due to the nature of the deferred tax assets, the
related tax benefits, upon realization, will be credited substantially to the
goodwill asset or additional paid-in capital, rather than to income tax expense.
DISCONTINUED OPERATIONS. We had income from discontinued operations in the
2000 period of $521,000 as compared to income from discontinued operations in
the 1999 period of $1.6 million. This decline in income from discontinued
operations resulted from lower revenues to cover the fixed costs of the voice
communications unit and higher costs of revenues as competitive pressures
reduced gross margins. The lower revenues resulted from declines in revenue from
three significant customers and due to revenues in the 1999 period related to
Y2K telephone system upgrades that did not recur in the 2000 period.
NET INCOME (LOSS). We reported a net loss attributable to common
stockholders for the 2000 period of $(16.3) million, or $(1.27) per diluted
share, as compared to net income attributable to common stockholders of $1.1
million, or $.17 per diluted share for the 1999 period. At the issuance date, we
recorded a deemed dividend and an offsetting increase in additional paid-in
capital of approximately $8.1 million to reflect the beneficial conversion
feature of the preferred stock. During the fourth quarter of 2000, in accordance
with EITF No. 00-27, we recorded an additional deemed dividend of $3.9 million
to reflect the beneficial conversion feature of the warrants. In addition, a
$1.7 million deemed dividend was recorded in the period to amortize the costs of
the Private Placement. Costs of $6.15 million incurred in connection with the
Private Placement, including the fair value of warrants, have been recorded as a
preferred stock discount and will be amortized as a deemed dividend over the
three-year period from the date of issuance to the current redemption date.
Before giving effect to the aggregate $13.7 million in deemed dividends, we
reported a net loss of $(2.5) million for the 2000 period as compared to net
income of $1.1 million for the 1999 period.
-14-
Liquidity And Capital Resources
At December 31, 2001, we had working capital of $15.6 million compared to
$19.9 million at December 31, 2000, a decrease of approximately 22%. If our bank
line of credit is reclassified in the 2000 period to be a current liability, the
decrease is approximately 8%, from $16.9 million to $15.6 million. At December
31, 2001, we had $1.7 million in cash and cash equivalents (of which $900,000
was restricted as to its use; see note 2) compared to $1.9 million at December
31, 2000. This change in working capital position resulted primarily from the
use of working capital to fund capital expenditures.
In August 2001, we raised net proceeds of $9.9 million in a private
placement of 2,200,000 shares of our common stock at a price of $5.00 per share.
Investors in the private placement also received five-year warrants to purchase
814,000 shares of common stock at an exercise price of $6.25 per share. The
warrants are subject to certain anti-dilution protection. We also issued to our
placement agent five-year warrants to purchase 220,000 shares of common stock at
an exercise price of $5.00 per share.
We currently have a $15.0 million working capital credit facility with
an asset-based lender. Borrowings under this facility bear interest at the
lender's base rate plus 1/2% per annum. At December 31, 2001 amounts outstanding
under the facility were $10.6 million. Our credit facility contains certain
financial and operational covenants. For the period from October 1, 2001 through
December 31, 2001 ("2001 Fourth Quarter"), we were in violation of the earnings
before interest, taxes, depreciation and amortization ("EBITDA") and interest
coverage ratio covenants under the facility. On March 26, 2002, the Company
received a waiver from the lender regarding these requirements for the 2001
Fourth Quarter. At December 31, 2001, the loan has been classified as current in
the accompanying balance sheet because this facility matures in less than one
year.
Future minimum rental commitments under all non-cancelable leases are as
follows:
Year Ending December 31
2002........................................................ $1,771,301
2003........................................................ 1,180,460
2004........................................................ 714,664
2005........................................................ 303,085
2006 and thereafter ........................................ 481,744
----------
$4,451,254
==========
Future minimum lease payments under capital lease obligations at December 31,
2001 are as follows:
2002........................................................ $ 62,622
2003........................................................ 27,957
---------
Total minimum payments...................................... 90,579
Less amount representing interest........................... (7,971)
---------
Total principal............................................. 82,608
Less portion due within one year............................ (56,912)
---------
Long-term portion........................................... $ 25,696
=========
Net cash used in operating activities for the 2001 period was $15.5 million
as compared to net cash used by operations of $14.0 million during the 2000
period. Sources of operating cash in 2001 included increases in accrued expenses
and other current liabilities of $0.7 million and deferred revenue of $0.3
million, and a decrease in inventory of $0.5 million. Increases in accounts
receivable of $10.7 million resulting from sales growth, increases in other
current assets totaling $1.8 million and decreases in accounts payable of $2.1
million were the primary uses of operating cash in the 2001 period.
Investing activities for the 2001 period included purchases of $2.7 million
for bridging, computer and demonstration equipment for the core business and
$5.3 million for computer, network and office equipment related to the Glowpoint
division. The Glowpoint network is currently built out to handle the anticipated
level of subscriptions for 2002. Although we anticipate current expansion of the
Glowpoint network and our core business, we have no significant commitments to
make capital expenditures for Glowpoint or the core business in 2002. Cash costs
incurred in connection with mergers and acquisitions totaled $0.2 million in the
2001 period.
-15-
Financing activities in the 2001 period included net borrowings under our
revolving credit line totaling $7.6 million, the issuance of common stock valued
at $2.5 million for the assets of GeoVideo, issuance of common stock in a
private placement yielding net proceeds of $9.9 million and proceeds from the
exercise of warrants and options totaling $1.6 million.
In January 2002, we raised net proceeds of $20.2 million in a private placement
of 3,526,500 shares of its common stock at a price of $6.25 per share. Investors
in the private placement also received five-year warrants to purchase 864,375
shares of common stock at an exercise price of $10.00 per share. The warrants
are subject to certain anti-dilution protection. $12.0 million of the proceeds
from the offering were used to pay down the bank line of credit to zero. The
remaining proceeds will be used to fund the continuing development and marketing
of our Glowpoint video communications network and for general corporate
purposes.
Management believes, based upon current circumstances, we have adequate
capital resources to support current operating levels for at least the next
twelve months.
Critical accounting policies
We prepare our financial statements in accordance with accounting principles
generally accepted in the United States of America. Preparing financial
statements in accordance with generally accepted accounting principles requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The following paragraphs include a
discussion of some critical areas where estimates are required. You should also
review Note 2 to the financial statements for further discussion of significant
accounting policies.
Revenue recognition
We sell both products and services. Product revenue consists of revenue from the
sale of video communications equipment and is recognized at the time of
shipment, provided no significant obligations remain, collectibility is probable
and returns are estimable. Service revenue is derived from services rendered in
connection with the sale of new systems and the maintenance of previously
installed systems. Services rendered in connection with the sale of new systems
consist of engineering services related to system integration, technical
training and user training. The majority of the services are rendered at or
prior to installation, and all revenue is recognized when services are rendered.
Revenue related to extended service contracts is deferred and recognized over
the life of the extended service period.
Long-lived assets
We evaluate impairment losses on long-lived assets used in operations, primarily
fixed assets and goodwill, when events and circumstances indicate that the
carrying value of the assets and goodwill, might not be recoverable. For
purposes of evaluating the recoverability of long-lived assets, the undiscounted
cash flows estimated to be generated by those assets would be compared to the
carrying amounts of those assets. If and when the carrying values of the assets
exceed these undiscounted cash flows, the related assets will be written down to
fair value. There were no impairment losses recorded in any of the periods
presented.
Recent pronouncements of the Financial Accounting Standards Board
In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS 133"). "Accounting for Derivative
Instruments and Hedging Activities", which became effective for the Company
during the first quarter of 2001. FAS 133 requires the recognition of all
derivatives as either assets or liabilities in our balance sheet and measurement
of those instruments at fair value. To date, we have not entered into any
derivative or hedging activities, and, as such, the adoption of FAS 133, as
amended, has not had a material effect on its consolidated financial statements.
-16-
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations ("FAS 141"), and No. 142, Goodwill and Other
Intangible Assets ("FAS 142"). FAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interest method of
accounting for business combinations initiated after June 30, 2001. FAS 141 also
requires that we recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. FAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of FAS 142, that we reclassify, if necessary, the carrying amounts of intangible
assets and goodwill based on the criteria in FAS 141.
FAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, FAS 142 requires that we identify reporting units for the purposes of
assessing potential future impairments of goodwill, reassess the useful lives of
other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance with the
guidance in FAS 142. FAS 142 is required to be applied in fiscal years beginning
after December 15, 2001 to all goodwill and other intangible assets recognized
at that date, regardless of when those assets were initially recognized. FAS 142
requires us to complete a transitional goodwill impairment test six months from
the date of adoption. The Company is also required to reassess the useful lives
of other intangible assets within the first interim quarter after adoption of
FAS 142.
With respect to the business combinations that were effected prior to June 30,
2001, using the purchase method of accounting, the net carrying amounts of the
resulting goodwill as of December 31, 2001 was $36,775,028. Amortization expense
for the year ended December 31, 2001 was $2,683,647. At present, we are
currently assessing, but have not yet determined, the impact that the adoption
of FAS 141 and FAS 142 will have on our financial position and results of
operations.
In August 2001, the FASB issued FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("FAS 144"). The new guidance
resolves significant implementation issues related to FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ("FAS 121"). FAS 144 supercedes FAS 121, but it retains its
fundamental provisions. It also amends Account Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidate a
subsidiary for which control is likely to be temporary. FAS 144 retains the
requirement of FAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset within the scope of FAS 144 is not recoverable from
its undiscounted cash flows and exceeds its fair value.
FAS 144 is effective for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early application encouraged.
The Company has early adopted the provisions of FAS 144 as of December 31, 2001
to recognize discontinued business operations in its financial statements.
Inflation
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
-17-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to interest rate risk related to our cash equivalents
portfolio. The primary objective of our investment policy is to preserve
principal while maximizing yields. Our cash equivalents portfolio is
short-term in nature, therefore changes in interest rates will not
materially impact our consolidated financial condition. However, such
interest rate changes can cause fluctuations in our results of operations
and cash flows.
We maintain borrowings under a $15 million working capital credit facility with
an asset based lender that are not subject to material market risk exposure
except for such risks relating to fluctuations in market interest rates. The
carrying value of these borrowings approximates fair value since they bear
interest at a floating rate based on the "prime" rate. There are no other
material qualitative or quantitative market risks particular to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WIRE ONE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants...................... F-1
Consolidated Balance Sheets at December 31, 2001 and 2000............... F-2
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 ..................................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999.......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 .................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
-18-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the
Stockholders of Wire One Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Wire One
Technologies, Inc. and Subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wire One
Technologies, Inc. and Subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
BDO Seidman, LLP
Woodbridge, New Jersey
March 19, 2002
F-1
WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,689,451 $ 1,870,573
Accounts receivable-net 35,471,482 24,665,143
Inventory 10,218,796 10,105,911
Deferred income taxes -- 200,000
Net assets of discontinued operations -- 3,080,964
Other current assets 3,824,276 1,315,432
------------- ------------
Total current assets 51,204,005 41,238,023
Furniture, equipment and leasehold improvements-net 10,857,547 6,726,562
Goodwill-net 42,163,844 36,065,945
Other assets 274,089 341,813
------------- ------------
Total assets $ 104,499,485 $ 84,372,343
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ 10,628,082 $ --
Accounts payable 12,297,914 11,290,803
Accrued expenses 3,218,890 2,568,627
Deferred revenue 7,898,277 7,287,690
Other current liabilities 1,465,049 68,150
Current portion of capital lease obligations 56,912 101,643
------------- ------------
Total current liabilities 35,565,124 21,316,913
------------- ------------
Noncurrent liabilities:
Bank loan payable -- 3,000,000
Capital lease obligations, less current portion 25,696 26,067
------------- ------------
Total noncurrent liabilities 25,696 3,026,067
------------- ------------
Total liabilities 35,590,820 24,342,980
------------- ------------
Commitments and contingencies
Series A mandatorily redeemable convertible preferred stock -- 10,371,096
------------- ------------
Stockholders' Equity:
Preferred stock, $.0001 par value;
5,000,000 shares authorized, none issued -- --
Common stock, $.0001 par value; 100,000,000 authorized;
25,292,189 and 17,299,725 shares outstanding, respectively 2,529 1,730
Treasury Stock (239,742) --
Additional paid-in capital 104,889,988 66,436,353
Accumulated deficit (35,744,110) (16,779,816)
------------- ------------
Total stockholders' equity 68,908,665 49,658,267
------------- ------------
------------- ------------
Total liabilities, series A preferred stock and stockholders' equity $ 104,499,485 $ 84,372,343
============= ============
See accompanying notes to consolidated financial statements.
F-2
Wire One Technologies, Inc.
Consolidated Statements of Operations
Year Ended December 31,
-------------------------------------------------------
2001 2000 1999
-------------- ------------- --------------
Net revenues
Video solutions $ 85,436,327 $ 46,959,000 $ 12,397,522
Network solutions 3,479,907 1,475,108 --
------------ ------------ ------------
88,916,234 48,434,108 12,397,522
------------ ------------ ------------
Cost of revenues
Video solutions 59,184,321 31,553,907 8,577,217
Network solutions 2,898,460 1,104,940 --
------------ ------------ ------------
62,082,781 32,658,847 8,577,217
------------ ------------ ------------
Gross margin
Video solutions 26,252,006 15,405,093 3,820,305
Network solutions 581,447 370,168 --
------------ ------------ ------------
26,833,453 15,775,261 3,820,305
------------ ------------ ------------
Operating expenses
Selling 24,929,501 12,587,676 2,486,723
General and administrative 12,589,589 4,121,303 1,765,411
Amortization of goodwill 2,683,647 1,500,857 --
------------ ------------ ------------
Total operating expenses 40,202,737 18,209,836 4,252,134
------------ ------------ ------------
Loss from continuing operations (13,369,284) (2,434,575) (431,829)
------------ ------------ ------------
Other (income) expense
Amortization of deferred financing costs 99,912 343,792 43,137
Interest income (76,928) (314,986) (23,189)
Interest expense 598,147 78,056 181,127
------------ ------------ ------------
Total other expenses, net 621,131 106,862 201,075
------------ ------------ ------------
Income tax provision (benefit) 200,000 511,239 (105,239)
------------ ------------ ------------
Loss from continuing operations (14,190,415) (3,052,676) (527,665)
Income (loss) from discontinued operations (617,389) 520,747 1,592,252
Gain on sale of discontinued operations 277,414 -- --
------------ ------------ ------------
Net income (loss) (14,530,390) (2,531,929) 1,064,587
Deemed dividends on series A convertible preferred stock 4,433,904 13,723,206 --
------------ ------------ ------------
Net income (loss) attributable to common stockholders $(18,964,294) $(16,255,135) $ 1,064,587
============ ============ ============
Net income (loss) per share:
Basic $ (0.91) $ (1.27) $ 0.22
============ ============ ============
Diluted $ (0.91) $ (1.27) $ 0.17
============ ============ ============
Weighted average number of common shares and equivalents
outstanding
Basic 20,880,125 12,817,158 4,910,000
============ ============ ============
Diluted 20,880,125 12,817,158 6,169,074
============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
Wire One Technologies, Inc.
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Treasury Paid in Accumulated
Shares Amount Stock Capital Deficit Total
---------- ------------ ----------- ------------- ------------ ------------
Balance at December 31, 1998 4,910,000 $ 5,229,740 $ -- $ 327,943 ($ 1,589,268) $ 3,968,415
Issuance of stock options for services -- -- -- 160,816 -- 160,816
Net income for the year -- -- -- -- 1,064,587 1,064,587
---------- ------------ ----------- ------------- ------------ ------------
Balance at December 31, 1999 4,910,000 5,229,740 -- 488,759 (524,681) 5,193,818
Issuance of stock options for services -- -- -- 238,865 -- 238,865
Exercise of Class A warrants
(net of related costs of $171,238) 1,933,647 8,218,000 -- (171,238) -- 8,046,762
Exercise of stock options 362,501 489,883 -- 184,215 -- 674,098
Exercise of Underwriters' options 28,000 117,600 -- -- -- 117,600
Tax benefit from exercise of stock
options -- -- -- 354,001 -- 354,001
Securities issued - VTI merger 9,681,966 -- -- 31,339,258 -- 31,339,258
Issuance of warrants in connection
with preferred stock -- -- -- 5,150,000 -- 5,150,000
Adjustment for $ .0001 par value -- (14,053,531) -- 14,053,531 -- --
Issuance of common stock in business
acquisitions 48,611 5 -- 453,995 -- 454,000
Conversion of series A preferred stock 335,000 33 -- 2,344,967 -- 2,345,000
Deemed dividends on series A preferred
stock -- -- -- 12,000,000 (13,723,206) (1,723,206)
Net loss for the year -- -- -- -- (2,531,929) (2,531,929)
---------- ------------ ----------- ------------- ------------ ------------
Balance at December 31, 2000 17,299,725 1,730 -- 66,436,353 (16,779,816) 49,658,267
Issuance of stock options for services -- -- -- 457,566 -- 457,566
Extension of expiration date of CEO
stock options -- -- -- 3,984,750 -- 3,984,750
Exercise of stock options 1,508,863 150 -- 1,589,212 -- 1,589,362
Issuance of common stock in business
acquisitions 1,282,063 128 -- 7,844,639 -- 7,844,767
Issuance of common stock 2,220,000 222 -- 9,851,039 -- 9,851,261
Common stock received in satisfaction
of debt (39,891) (3) (239,742) -- -- (239,745)
Conversion of series A preferred stock
(net of related costs of $78,269) 3,021,429 302 -- 14,726,429 -- 14,726,731
Deemed dividends on series A preferred
stock -- -- -- -- (4,433,904) (4,433,904)
Net loss for the year -- -- -- -- (14,530,390) (14,530,390)
---------- ------------ ----------- ------------- ------------ ------------
Balance at December 31, 2001 25,292,189 $ 2,529 $ (239,742) $ 104,889,988 $(35,744,110) $ 68,908,665
========== ============ =========== ============= ============ ============
See accompanying notes to consolidated financial statements.
F-4
Wire One Technologies, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
----------------------------------------------------
2001 2000 1999
------------- ------------- ------------
Cash flows from Operating Activities:
Net income (loss) $(14,530,390) $ (2,531,929) $ 1,064,587
Adjustments to reconcile net income (loss) to
net cash used in
operating activities:
Depreciation and amortization 7,100,093 3,270,691 330,902
Non cash compensation 4,442,316 238,865 160,816
Deferred income taxes 200,000 276,482 (230,083)
Discontinued operations 617,389 (520,747) (1,592,252)
Gain on sale of discontinued operations (277,414) -- --
Loss on disposal of equipment -- -- 8,078
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Accounts receivable (10,746,876) (12,830,761) (1,358,967)
Inventory 548,423 (7,352,640) 322,069
Other current assets (1,801,140) (517,207) (116,370)
Other assets (52,795) 307,236 (7,506)
Discontinued operation -- 691,574 870,595
Accounts payable (2,084,176) 2,553,164 496,301
Accrued expenses 182,412 (259,451) 46,951
Income taxes payable -- (124,372) 121,512
Deferred revenue 322,409 3,528,336 247,391
Other current liabilities 556,395 (20,255) (49,802)
------------ ------------ ------------
Net cash used in operating activities (15,523,354) (13,291,017) 314,222
------------ ------------ ------------
Cash flows From Investing Activities:
Purchases of furniture, equipment and leasehold improvements (7,981,050) (4,323,095) (275,799)
Costs related to acquisition of business including cash acquired (175,513) (2,519,185) --
Proceeds from sale of discontinued operation 1,172,299 -- --
Note receivable from sale of discontinued operation 845,084 -- --
Proceeds from sale of furniture equipment and leasehold improvements -- -- 5,000
------------ ------------ ------------
Net cash used in investing activities (6,139,180) (6,842,280) (270,799)
------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from common stock offering 9,851,261 -- --
Proceeds from preferred stock offering -- 16,142,890 --
Deferred financing costs -- (74,314) (17,500)
Issuance of common stock for cash assets of GeoVideo Networks, Inc. 2,500,000 -- --
Exercise of warrants and options, net 1,589,362 8,838,460 --
Proceeds from bank loans 87,748,581 6,350,000 18,080,175
Payments on bank loans (80,120,499) (5,488,602) (18,344,789)
Repayment of bank loans of acquired companies -- (2,186,508) --
Payments on capital lease obligations (87,293) (138,078) (27,205)
Repayment of subordinated notes -- (1,500,000) --
------------ ------------ ------------
Net cash provided by (used in) financing activities 21,481,412 21,943,848 (309,319)
------------ ------------ ------------
Increase (decrease) in Cash and Cash Equivalents (181,122) 1,810,554 (265,896)
Cash and Cash Equivalents at Beginning of Period 1,870,573 60,019 325,915
------------ ------------ ------------
Cash and Cash Equivalents at End of Period $ 1,689,451 $ 1,870,573 $ 60,019
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 598,147 $ 78,056 $ 181,127
============ ============ ============
Taxes $ 2,274 $ 155,304 $ --
============ ============ ============
Non cash financing and investing activities:
During the years ended December 31, 2001 and 2000, the Company recorded non-cash
deemed dividends on Series A mandatorily redeemable convertible preferred
stock of $4,433,904 and $13,723,206, respectively.
On May 18, 2000, the Company acquired the net assets of View Tech, Inc. in a
merger transaction accounted for as a purchase for non-cash consideration
of $31,339,258. In July 2000, the Company acquired the net assets of
2CONFER, LLC for $800,000, consisting of $500,000 in cash and $300,000 in
Company common stock valued at the time of acquisition. In October 2000,
the Company acquired the assets and certain liabilities of the Johns Brook
Company videoconferencing division for $635,000, consisting of $481,000 in
cash and $154,000 in Company common stock valued at the time of the
acquisition. In June 2001, the Company acquired the non-cash assets of
GeoVideo Networks, Inc. for non-cash consideration of $2,500,000 in
addition to issuing common stock in exchange for $2,500,000 in cash assets.
In July 2001, the Company acquired the assets and certain liabilities of
Advanced Acoustical Concepts, Inc. for non-cash consideration of $793,750.
In November 2001, the Company acquired certain assets and liabilities of
the Axxis, Inc. videoconferencing division for non-cash consideration of
$2,051,017.
During the year ended December 31, 2001, the Company issued 3,021,429 shares of
$0.0001 par common stock in exchange for 2,115 shares of Series A
mandatorily redeemable convertible preferred stock. Based on the average
conversion price of $4.90 per share, the total value attributable to the
common stock was $14,805,000. During the year ended December 31, 2000, the
Company issued 335,000 shares of $0.0001 par common stock in exchange for
335 shares of Series A mandatorily redeemable convertible preferred stock.
Based on the conversion price of $7.00 per share, the total value
attributable to the common stock was $2,345,000.
During the year ended December 31, 2001, the Company received 39,891 shares of
common stock valued at $239,742 in satisfaction of outstanding debt owed to
the Company by former VTI directors and related parties.
Equipment with costs totaling $121,541 and $37,747 were acquired under capital
lease arrangements during the years ended December 31, 2000 and 1999,
respectively.
See accompanying notes to consolidated financial statements.
F-5
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 2000 and 1999
Note 1 -- The Business and Merger with View Tech, Inc.
Wire One Technologies, Inc. ("Wire One" or the "Company") was formed by the
merger of All Communications Corporation ("ACC") and View Tech, Inc. ("VTI") on
May 18, 2000, with the former directors and senior management of ACC succeeding
to the management of Wire One. In connection with the merger, each former
shareholder of ACC received 1.65 shares of Wire One common stock for each share
of ACC common stock held by them. The transaction has been accounted for as a
"reverse acquisition" using the purchase method of accounting. The reverse
acquisition method resulted in ACC being recognized as the acquirer of VTI for
accounting and financial reporting purposes. As a result, ACC's historical
results have been carried forward and VTI's operations have been included in the
financial statements commencing on the merger date. Accordingly, all 1999 and
2000 results through the merger date are those of ACC only. Further, on the date
of the merger, the assets and liabilities of VTI were recorded at their fair
values, with the excess purchase consideration allocated to goodwill.
Wire One is engaged in the business of selling, installing and servicing video
communications systems to commercial and institutional customers located
principally within the United States. The Company is headquartered in Hillside,
New Jersey. During 1999, 2000 and 2001, the Company did not segregate or manage
its operations by business segments.
Note 2 -- Summary Of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, AllComm Products Corporation ("APC"), VTC
Resources, Inc. ("VTC") and Wire One Travel Services, Inc. ("WOTS"). All
material intercompany balances and transactions have been eliminated in
consolidation.
Use of estimates
Preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statement and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from the estimates made. Management periodically evaluates estimates used in the
preparation of the financial statements for continued reasonableness.
Appropriate adjustments, if any, to the estimates used are made prospectively
based upon such periodic evaluation. It is reasonably possible that changes may
occur in the near term that would affect management's estimates with respect to
the allowance for doubtful accounts receivable and inventory reserves.
Revenue recognition
The Company sells both products and services. Product revenue consists of
revenue from the sale of video communications equipment and is recognized at the
time of shipment, provided no significant obligations remain, collectibility is
probable and returns are estimable. Service revenue is derived from services
rendered in connection with the sale of new systems and the maintenance of
previously installed systems. Services rendered in connection with the sale of
new systems consist of engineering services related to system integration,
technical training and user training. The majority of the services are rendered
at or prior to installation, and all revenue is recognized when services are
F-6
rendered. Revenue related to extended service contracts is deferred and
recognized over the life of the extended service period.
Cash and cash equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents. During 2001,
$900,000 of the cash and cash equivalents balance was restricted as to its use.
After losing an approximately $745,000 judgement in the Maxbase litigation (note
10), the Company was required to set aside these funds in an interest-bearing
account as it filed its appeal of this judgement. The restrictions on $275,000
were lifted when the Company settled the case for $625,000 in early 2002.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
and uncollateralized trade accounts receivable. The Company places its cash and
cash equivalents primarily in commercial checking accounts and money market
funds. Commercial bank balances may from time to time exceed federal insurance
limits; money market funds are uninsured.
The Company performs ongoing credit evaluations of its customers. During the
years ended December 31, 2001, 2000, and 1999 the Company's reserve for doubtful
accounts and returns and allowances was increased by $1,171,888, $568,107 and
$104,345, respectively for provisions for bad debts and returns and was
decreased by $1,036,888, $213,107 and $12,345, respectively, for balances
written off. At December 31, 2001 and 2000, the balance of the allowance for
doubtful accounts was $605,000 and $470,000, respectively.
Most of the products sold by the Company are purchased under non-exclusive
dealer agreements with various manufacturers, including Polycom for video
communications equipment. The agreements typically specify, among other things,
sales territories, payment terms and reseller prices. All of the agreements
permit early termination on short notice with or without cause. The termination
of any of the Company's dealer agreements, or their renewal on less favorable
terms than currently in effect, could have a material adverse impact on the
Company's business.
Inventory
Inventory, consisting of finished goods and spare parts, is valued at the lower
of cost (determined on a first in, first out basis) or market. During the years
ended December 31, 2001, 2000 and 1999, the Company's reserve for inventory
obsolescence was increased by $349,313, $988,916 and $0, respectively for
provisions for obsolete inventory and was decreased by $635,409, $0 and $0,
respectively for inventory written off. In addition, during the years ended
December 31, 2001 and 2000, the Company's reserve for inventory obsolescence
increased by $345,950 and $230,690, respectively as a result of reserves added
through acquistions. At December 31, 2001 and 2000, the balance of the reserve
for inventory obsolescence was $1,279,459 and $1,219,606, respectively.
Furniture, equipment and leasehold improvements
Furniture, equipment and leasehold improvements are stated at cost. Furniture
and equipment are depreciated over the estimated useful lives of the related
assets, which range from three to five years. Leasehold improvements are
amortized over the shorter of either the asset's useful life or the related
lease term. Depreciation is computed on the straight-line method for financial
F-7
reporting purposes and on the modified accelerated cost recovery system for
income tax purposes.
Intangibles
Cost in excess of the fair value of net assets of purchased businesses
(goodwill) is amortized using the straight-line method over 15 years, its
estimated useful life.
Long-lived assets
The Company evaluates impairment losses on long-lived assets used in operations,
primarily fixed assets and goodwill, when events and circumstances indicate that
the carrying value of the assets and goodwill, might not be recoverable. For
purposes of evaluating the recoverability of long-lived assets, the undiscounted
cash flows estimated to be generated by those assets would be compared to the
carrying amounts of those assets. If and when the carrying values of the assets
exceed these undiscounted cash flows, the related assets will be written down to
fair value. There were no impairment losses recorded in any of the periods
presented.
Income taxes
The Company uses the liability method to determine its income tax expense or
benefit. Deferred tax assets and liabilities are computed based on temporary
differences between the financial reporting and tax basis of assets and
liabilities (principally certain accrued expenses, compensation expenses,
depreciation expense and allowance for doubtful accounts), and are measured
using the enacted tax rates that are expected to be in effect when the
differences are expected to reverse.
Stock options
Under SFAS No. 123, "Accounting for Stock-based Compensation", the Company must
either recognize in its financial statements costs related to its employee
stock-based compensation plans, using the fair value method, or make pro forma
disclosures of such costs in a footnote to the financial statements. The Company
has elected to continue to use the intrinsic value-based method of APB Opinion
No. 25, as allowed under SFAS No. 123, to account for its employee stock-based
compensation plans, and to include the required pro forma disclosures based on
fair value accounting.
The fair value of warrants issued in return for services rendered by any
non-employees is charged to operations over the terms of the underlying service
agreements.
Earnings per share
Basic earnings (loss) per share is calculated by dividing net income (loss)
attributable to common stockholders by the weighted-average number of common
shares outstanding during the period (20,880,125 for the year ended December 31,
2001, 12,817,158 shares for the year ended December 31, 2000 and 4,910,000
shares for the year ended December 31, 1999).
Diluted earnings (loss) per share is calculated by dividing net income (loss)
attributable to common stockholders by the weighted-average number of common
shares outstanding, plus the weighted average number of net shares that would be
issued upon exercise of stock options, warrants and convertible preferred stock
using the treasury stock method. Incremental shares included in the diluted
computation were 1,259,074 for 1999. Diluted loss per share for 2001 and 2000 is
the same as basic loss per share, since the effects of the calculation for those
years were anti-dilutive.
Weighted average options and warrants to purchase 9,535,609 and 7,507,204 shares
of common stock during the years ended December 31, 2001 and 2000, respectively,
and preferred stock convertible into 2,115,000 common shares in 2000, were not
included in the computation of diluted earnings per share because the Company
reported a net loss attributable to common stockholders for these periods and
their effect would have been anti-dilutive.
F-8
Fair value of financial instruments
Financial instruments reported in the Company's balance sheet consist of cash,
accounts receivable, accounts payable and bank loan payable, the carrying value
of which approximated fair value at December 31, 2001 and 2000. The fair value
of the financial instruments disclosed therein are not necessarily
representative of the amount that could be realized or settled nor does the fair
value amount consider the tax consequences of realization or settlement.
Comprehensive income
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income". This standard established requirements for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is the total of
net income and all other nonowner changes in equity. The objective of this
statement is to report a measure of all changes in equity of a company that
result from transactions and other economic events in the period other than
transactions with owners. The Company adopted SFAS No. 130 during the first
quarter of fiscal 1998, and has no comprehensive income components to report in
2001, 2000 or 1999.
Recent pronouncements of the Financial Accounting Standards Board
In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS 133"). "Accounting for Derivative
Instruments and Hedging Activities", which became effective for the Company
during the first quarter of 2001. FAS 133 requires the recognition of all
derivatives as either assets or liabilities in the Company's balance sheet and
measurement of those instruments at fair value. To date, the Company has not
entered into any derivative or hedging activities, and, as such, the adoption of
FAS 133, as amended, has not had a material effect on its consolidated financial
statements.
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations ("FAS 141"), and No. 142, Goodwill and Other
Intangible Assets ("FAS 142"). FAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interest method of
accounting for business combinations initiated after June 30, 2001. FAS 141 also
requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. FAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of FAS 142, that the Company reclassifies, if necessary,
the carrying amounts of intangible assets and goodwill based on the criteria in
FAS 141.
FAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, FAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in FAS 142. FAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. FAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of FAS 142.
With respect to the Company's business combinations that were effected prior to
June 30, 2001, using the purchase method of accounting, the net carrying amounts
of the resulting goodwill as of December 31, 2001 was $36,775,028. Amortization
expense for the year ended December 31, 2001 was $2,683,647. At present, the
Company is currently assessing, but has not yet determined, the impact that the
adoption of FAS 141 and FAS 142 will have on its financial position and results
of operations.
In August 2001, the FASB issued FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("FAS 144"). The new guidance
resolves significant implementation issues related to FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ("FAS 121"). FAS 144 supercedes FAS 121, but it retains its
fundamental provisions. It also amends Account Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidate a
subsidiary for which control is likely to be temporary. FAS 144 retains the
requirement of FAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset within the scope of FAS 144 is not recoverable from
its undiscounted cash flows and exceeds its fair value.
FAS 144 is effective for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early application encouraged.
The Company has early adopted the provisions of FAS 144 as of December 31, 2001
to recognize discontinued business operations in its financial statements.
F-9
Note 3 - Discontinued Operations
On October 24, 2001, the Company completed the sale of its voice communications
business unit to Fairfield, New Jersey-based Phonextra, Inc. for approximately
$2,017,000, half of which was paid in cash at the close of the transaction and
the balance of which was paid in the form of a promissory note self-amortizing
over one year. The Company's sale of its voice communications unit was aimed at
enabling it to sharpen its focus on video solutions and on Glowpoint, its
subscriber-based IP network dedicated to video communications traffic. As a
consequence, this unit has been classified as a discontinued operation in the
financial statements, with its net assets at December 31, 2000 and results of
operations summarized in single line items on the Company's balance sheet and
statements of operations.
Net assets of discontinued operations consists of the following:
December 31,
----------------------------------
2001 2000
------ ------
Accounts receivable $ -- $ 2,949,026
Inventory -- 645,433
Accounts payable -- (513,495)
------ -----------
Total $ -- $ 3,080,964
====== ===========
Income (loss) from discontinued operations are as follows:
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
--------- --------- ---------
Revenues $ 5,383,145 $ 7,599,131 $ 11,599,690
Expenses (6,000,534) (7,078,384) (10,007,438)
------------ ------------ ------------
Net income (loss) $ (617,389) $ 520,747 $ 1,592,252
============ ============ ============
Note 4 -- Furniture, Equipment And Leasehold Improvements
Furniture, equipment and leasehold improvements consist of the following:
December 31,
--------------------------------
2001 2000
------------ ------------
Leasehold improvements $ 535,000 $ 386,745
Office furniture and equipment 1,348,722 1,296,077
Computer equipment and software 3,288,819 2,237,875
Demonstration equipment 4,001,072 2,494,803
Bridging equipment 790,309 694,679
Network equipment 6,725,596 1,391,212
Vehicles 271,732 255,275
------------ ------------
16,961,250 8,756,666
Less: Accumulated depreciation (6,103,703) (2,030,104)
------------ ------------
$ 10,857,547 $ 6,726,562
============ ============
Depreciation expense was $4,073,599, $1,426,385 and $287,765 for the years ended
December 31, 2001, 2000 and 1999, respectively, which includes depreciation
expense of $64,224 for 2001, $56,216 for 2000, and $19,318 for 1999 on fixed
assets subject to capital leases.
Note 5 -- Accrued Expenses
Accrued expenses consist of the following:
December 31,
--------------------------------
2001 2000
---------- ---------
Sales tax payable ....................................... $ 513,482 $ 769,839
Accrued compensation .................................... 1,776,253 1,216,572
Accrued restructuring .................................... 200,000 --
Accrued litigation ...................................... 675,000 250,000
Other ................................................... 54,155 332,216
---------- ----------
$3,218,890 $2,568,627
========== ==========
Note 6 -- Bank Loan Payable And Long-Term Debt
Bank loan payable
In June 2000, the Company entered into a $15,000,0000 working capital credit
facility with its asset-based lender. Under terms of the two-year agreement for
this facility loan availability is based on up to 75% of eligible accounts
receivable and 50% of inventory, subject to an inventory cap of $5,000,000.
Borrowings bear interest at the lender's base rate plus 1/2% per annum. At
December 31, 2001, the interest rate on the facility was 5.25%. The facility
contains certain financial and operational covenants. For the period from
October 1, 2001 through December 31, 2001 ("2001 Fourth Quarter"), the Company
was in violation of the earnings before interest, taxes, depreciation and
amortization ("EBITDA") and interest coverage ratio covenants under the
facility. On March 26, 2002, the Company received a waiver from the lender
regarding these requirements for the 2001 Fourth Quarter. At December 31, 2001,
amounts outstanding under the facility were $10,628,082 and have been classified
as a current liability due to the maturity of the facility in June 2002.
F-10
Long-term debt
Long-term debt consists of the following:
December 31,
------------------------------
2001 2000
---------- ----------
Bank loan payable ...................... $ -- $3,000,000
Capital lease obligations .............. 82,608 127,710
---------- ----------
82,608 3,127,710
Less: current maturities ............... 56,912 101,643
---------- ----------
$ 25,696 $3,026,067
========== ==========
Note 7 -- Stockholders' Equity
Initial Public Offering
In May 1997, the Company completed a public offering of 805,000 Units for $7.00
per Unit. Each Unit consisted of two shares of Common Stock and two Redeemable
Class A Warrants. The Warrants are exercisable for four years commencing one
year from the effective date of the offering, at a price of $4.25 per share. The
Company may redeem the Warrants at a price of $.10 per warrant, commencing
eighteen months from the effective date of the offering and continuing for a
four-year period, provided the price of the Company's Common Stock is $10.63 for
at least 20 consecutive trading days prior to issuing a notice of redemption.
The Company received proceeds from the offering of approximately $4,540,000, net
of related costs of registration.
On February 10, 2000, the Company announced its intention to redeem all
outstanding Class A warrants. From February through April 2000, the Company
raised net proceeds of approximately $8,047,000 from the exercise of 1,933,647
Class A warrants. All unexercised Class A warrants were redeemed in April 2000,
except for 112,000 Class A warrants underlying the options granted to the
underwriters.
The Company also issued to the underwriter of the public offering, for nominal
consideration, an option to purchase up to 70,000 Units. This option is
exercisable for a four-year period commencing one year from the effective date
of the offering, at a per Unit exercise price of $8.40 per Unit. The Units are
similar to those offered to the public. In March 2000, the Company received
$117,600 from the exercise of 28,000 Units.
Common Stock
In August 2001, the Company raised net proceeds of $9.9 million in a private
placement of 2,200,000 shares of its common stock at a price of $5.00 per share.
Investors in the private placement also received five-year warrants to purchase
814,000 shares of common stock at an exercise price of $6.25 per share. The
warrants are subject to certain anti-dilution protection. The Company also
issued to its placement agent five-year warrants to purchase 220,000 shares of
common stock at an exercise price of $5.00 per share.
Preferred Stock
In December 1996, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to authorize the issuance of up to
1,000,000 shares of Preferred Stock. The authorized number of shares of
Preferred Stock to be issued was raised to 5,000,000 shares effective with the
merger with VTI. Except for the 2,450 shares of Series A preferred stock issued
in June 2000, the rights and privileges of the Preferred Stock have not yet been
designated.
In June 2000, the Company raised gross proceeds of $17.15 million in a private
placement of 2,450 shares of Series A mandatorily redeemable convertible
preferred stock. The preferred shares were convertible into up to 2,450,000
shares of common stock at a price of $7.00 per share, subject to adjustment.
Beginning on June 14, 2001, the preferred stockholders were able to choose an
alternative conversion price which equaled the higher of (i) 70% of the fixed
conversion price then in effect or (ii) the market price on any conversion date,
which was equal to the average of the closing sale prices of the Company's
common stock during the 20 consecutive trading days immediately preceding any
conversion date. Preferred stockholders were able, at their sole option, to have
their shares redeemed on the earlier of three years from the issuance date, or
the occurrence of a triggering event, as defined.
F-11
The redemption price was 110% of the stated value of $7,000 per share. None of
the triggering events has occurred to date. Investors in the private placement
also received five-year warrants to purchase a total of 857,500 shares of common
stock for $10.50 per share. The warrants are subject to certain anti-dilution
privileges. The Company has valued the warrants at $3,740,000 using the
Black-Scholes pricing model. The Company also issued to its placement agent
warrants to purchase 193,748 shares of common stock for $7.00 per share, and
warrants to purchase 67,876 shares of common stock for $10.50 per share. The
warrants expire on June 14, 2005. The Company has valued the warrants at
$1,410,000 using the Black-Scholes pricing model. At the issuance date, the
Company recorded a deemed dividend and an offsetting increase in additional
paid-in capital of approximately $8.1 million to reflect the beneficial
conversion feature of the preferred stock. During the fourth quarter of 2000, in
accordance with EITF No. 00-27, the Company recorded an additional deemed
dividend of $3.9 million to reflect the beneficial conversion feature of the
warrants.
Costs of the offering, including the fair value of the warrants, totaled
$6,150,000. This amount was recorded as a preferred stock discount and was being
amortized as a deemed dividend over the three-year period from the date of
issuance to the June 2003 redemption date. In addition, the 10% redemption
premium of $1,715,000 was being accreted as a deemed dividend into the carrying
value of the Series A mandatorily redeemable convertible preferred stock over
the same period.
The stockholders of Wire One Technologies, Inc. were asked, in accordance with
the requirements of Rule 4350(i)(1)(D) of the Nasdaq Stock Market (the "Rule"),
and approved, at the 2001 Annual Meeting of Stockholders, the issuance by the
Company of more than 20% of its common stock upon the conversion of the
Company's series A preferred and exercise of the related warrants. The Rule
restricted the Company from issuing more 20% of its outstanding shares of common
stock at less than market value in any transaction unless the Company obtained
prior stockholder approval (the "Exchange Cap"). As a consequence of receiving
this approval, the Company was able to issue 3,021,429 shares of its common
stock upon conversion of the remaining 2,115 shares of Series A preferred stock
outstanding when, beginning on June 14, 2001, each remaining holder of series A
preferred substituted an "alternative conversion price" for the $7.00 fixed
conversion price. The alternative conversion price was equal to 70% of the fixed
conversion price then in effect.
Note 8 -- Stock Options
Wire One 2000 Stock Incentive Plan
In September 2000, the Company adopted and approved the Wire One 2000 Stock
Incentive Plan (the "2000 Plan"). The 2000 Plan permits the grant of incentive
stock options ("ISOs") to employees or employees of its subsidiaries.
Non-qualified stock options ("NQSOs") may be granted to employees, directors and
consultants. The Company issued 2,227,450 options during 2001 with exercise
prices ranging from $1.94 to $5.50 and vesting periods ranging from three to
four years. As of December 31, 2001, options to purchase a total of 2,638,118
shares were outstanding and 361,882 shares remained available for future
issuance under the 2000 Plan.
The 2000 Plan provides for the grant of options, including ISOs, NQSOs, stock
appreciation rights, dividend equivalent rights, restricted stock, performance
F-12
units, performance shares or any combination thereof (collectively, "Awards").
The exercise price of the Awards is established by the administrator of the plan
and, in the case of ISO's the per share exercise price must be equal to at least
100% of fair market value of a share of the common stock on the date of grant.
The administrator of the plan determines the terms and provisions of each award
granted under the 2000 Plan, including the vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment,
payment contingencies and satisfaction of any performance criteria. Under the
2000 Plan, no individual will be granted ISO's corresponding to shares with an
aggregate exercise price in excess of $100,000 in any calendar year less the
aggregate exercise price of shares under other Company stock options granted to
that individual that vests in such calendar year. The 2000 Plan will terminate
in 2010.
Non-qualified options
The Company issued a total of 167,500, 70,125 and 817,473 options, outside the
context of a stock option plan, during 2001, 2000 and 1999 respectively, to
various employees, directors, and advisors, with exercise prices ranging from
$3.81 to $9.85 per share and immediate vesting. At December 31, 2001, the total
outstanding non-qualified options of this nature were 2,244,427. The number of
options have been adjusted to reflect the 1.65 to 1 conversion rate resulting
from the May 18, 2000 merger with VTI.
1996 Stock Option Plan
In December 1996, the Board of Directors adopted the Company's Stock Option Plan
(the "1996 Plan") and reserved up to 500,000 shares of Common Stock for issuance
thereunder. In June 1998, the Company's shareholders approved an amendment to
the 1996 Plan increasing the amount of shares available under the plan to
2,475,000. The 1996 Plan provides for the granting of options to officers,
directors, employees and advisors of the Company. The exercise price of
incentive stock options ("ISOs") issued to employees who are less than 10%
stockholders shall not be less than the fair market value of the underlying
shares on the date of grant or not less than 110% of the fair market value of
the shares in the case of an employee who is a 10% stockholder. The exercise
price of restricted stock options shall not be less than the par value of the
shares to which the option relates. Options are not exercisable for a period of
one year from the date of grant. Under the 1996 Plan, no individual will be
granted ISO's corresponding to shares with an aggregate exercise price in excess
of $100,000 in any calendar year less the aggregate exercise price of shares
under other Company stock options granted to that individual that vest in such
calendar year. The 1996 Plan will terminate in 2006. Options granted under the
1996 Plan in 2001, 2000, and 1999 were 0, 334,848 and 1,393,527, respectively.
As of December 31, 2001, options to purchase a total of 1,029,320 shares were
outstanding and no shares remained available for future issuance under the 1996
Plan. The number of options have been adjusted to reflect the 1.65 to 1
conversion rate resulting from the merger with VTI.
VTI Stock Option Plans
As part of the merger with VTI, the Company assumed the outstanding options of
the four stock option plans maintained by VTI. These plans generally require the
exercise price of options to be not less than the estimated fair market value of
the stock at the date of grant. Options vest over a maximum period of four years
and may be exercised in varying amounts over their respective terms. In
accordance with the provisions of such plans, all outstanding options become
immediately exercisable upon a change of control, as defined, of VTI. VTI had
authorized an aggregate of 1,161,000 shares of common stock to be available
under all the current option plans. The plans will terminate in 2009. Options
assumed as part of the merger with VTI totaled 361,605. Options granted under
these Plans in 2001 and 2000 (since the merger date) were 0 and 189,503,
respectively. As of December 31, 2001, options to purchase a total of 371,077
shares were outstanding and no shares remained available for future issuance.
The options have been adjusted to reflect the 2 for 1 reverse stock split
approved by the VTI Board of Directors concurrent with the merger with ACC.
F-13
A summary of options issued under Company plans and other options outstanding as
of December 31, 2001, and changes during fiscal 1999, 2000 and 2001 are
presented below:
Weighted
Average
Fixed Range of Exercise
Options Price Price
------- ----- -----
Options outstanding January 1, 1999 ...... 2,716,725 $ .30 - 3.03 $ 2.15
Granted .................................. 2,211,000 $ .57 - 4.81 0.96
Cancelled ................................ (136,125) $ .53 - 2.16 1.17
----------
Options outstanding, December 31, 1999 ... 4,791,600 $ .30 - 4.81 1.63
Assumed as part of VTI merger ............ 361,605 $ .50 - 15.00 4.31
Granted .................................. 1,181,600 $ 4.06 - 8.18 5.26
Exercised ................................ (486,831) $ .57 - 3.85 1.23
----------
Options outstanding, December 31, 2000 ... 5,847,974 $ .30 - 15.00 $ 2.50
Granted .................................. 2,394,950 $ 1.94 - 9.85 4.20
Exercised ................................ (1,508,863) $ .53 - 6.00 1.07
Cancelled ................................ (451,119) $ .57 - 15.00 3.90
---------- -------------
Options outstanding, December 31, 2001 6,282,942 $ .30 - 12.75 $ 3.44
========== =============
Shares of common stock available for
future grant under Company plans ......... 361,882
==========
Additional information as of December 31, 2001 with respect to all outstanding
options is as follows:
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range Of Price Outstanding Life (In Years) Price Exercisable Price
- --------------- ----------- -------------- -------- ----------- ----------
$ .30 - .57 803,499 1.86 $ 0.53 803,499 $ 0.53
.64 - 2.12 471,193 2.74 $ 1.45 384,568 $ 1.53
2.33 - 3.00 268,907 3.84 $ 2.66 207,457 $ 2.67
3.03 - 4.00 2,799,600 7.35 $ 3.51 1,480,350 $ 3.14
4.06 - 5.50 1,780,024 8.81 $ 4.94 702,430 $ 5.14
5.73 - 12.75 159,719 3.85 $ 7.33 158,969 $ 7.34
--------- ---- --------- --------- ---------
$ .30 - 12.75 6,282,942 6.48 $ 3.44 3,737,273 $ 2.94
========= ==== ========= ========= =========
The Company has elected to use the intrinsic value-based method of APB Opinion
No. 25 to account for all of its employee stock-based compensation plans.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements for stock options issued to employees because the exercise
price of each option equals or exceeds the fair value of the underlying common
stock as of the grant date for each stock option. The weighted-average grant
date fair value of options granted during 2001, 2000 and 1999 under the
Black-Scholes option pricing model was $2.70, $2.03 and $.56 per option,
respectively.
F-14
The fair value of each option granted in 2001, 2000 and 1999 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
2001 2000 1999
------- ------- -------
Risk free interest rates................................... 4.40% 5.39% 4.71%
Expected option lives...................................... 3.81 years 3.23 years 2.82 years
Expected volatility........................................ 115.9% 126.2% 46.5%
Expected dividend yields................................... None None None
The Company has adopted the pro forma disclosure provisions of SFAS No. 123. Had
compensation cost for all of the Company's stock-based compensation grants been
determined in a manner consistent with the fair value approach described in SFAS
No. 123, the Company's net loss and net loss per share as reported would have
been increased to the pro forma amounts indicated below:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
---------- ---------- ----------
Net income (loss) attributable to common stockholders:
As reported.................................. (18,964,294) (16,255,135) 1,064,587
Adjusted pro forma........................... (25,292,206) (17,488,034) 895,574
Net income (loss) per share:
Basic, as reported........................... (0.91) (1.27) .22
Adjusted pro forma........................... (1.21) (1.36) .18
Diluted, as reported......................... (0.91) (1.27) .17
Adjusted pro forma........................... (1.21) (1.36) .15
Non cash compensation expense recognized in the Company's Statement of
Operations totaled $4,442,316 in 2001, $238,865 in 2000 and $160,816 in 1999,
respectively. During the year ended December 31, 2001, the Company recorded a
one-time, non-cash charge of $3,984,750 related to a five-year extension of
certain stock options originally granted to the Company's CEO in 1997 and that
were scheduled to expire in March 2002.
During the years ended December 31, 2001 and 2000, the Company received
$1,589,362 and $674,098, respectively from the exercise of stock options.
Note 9 - Income Taxes
The income tax provision (benefit) consists of the following:
Year Ended December 31,
----------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Current:
Federal $ -- $ 196,712 $ 117,344
State -- 38,045 7,500
------------ ------------ ------------
Total Current -- 234,757 124,844
------------ ------------ ------------
Deferred:
Federal (2,567,680) (318,432) 205,482
State (453,120) (20,769) 32,005
Valuation Allowance 3,220,800 615,683 (467,570)
------------ ------------ ------------
Total Deferred 200,000 276,482 (230,083)
------------ ------------ ------------
------------ ------------ ------------
Income tax provision (benefit) $ 200,000 $ 511,239 $ (105,239)
============ ============ ============
F-15
The Company's effective tax rate differs from the statutory federal tax rate as
shown in the following table:
Year Ended December 31,
----------------------------------------------------
2001 2000 1999
------------ ------------ ------------
U.S. federal income taxes at
the statutory rate $(4,940,200) $ (687,035) $ 326,314
State taxes, net of federal effects (871,800) (80,828) 4,950
Goodwill amortization 957,200 578,800 --
Stock-based compensation 1,776,800 -- --
Valuation Allowance 3,220,800 615,683 (467,570)
Other 57,200 84,619 31,067
------------ ------------ ------------
$ 200,000 $ 511,239 $ (105,239)
============ ============ ============
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2001 and
2000 are presented below:
December 31,
--------------------------------
2001 2000
------------ ------------
Deferred tax assets:
Tax benefit of operating loss
carryforward $ 9,688,420 $ 7,139,220
Reserves and allowances 1,233,600 719,600
Stock option compensation 83,701 83,701
Depreciation 72,400 97,182
Other 112,382 83,200
------------ ------------
Total deferred tax assets 11,190,503 8,122,903
------------ ------------
Deferred tax liabilities:
Goodwill 46,800 --
------------ ------------
Total deferred tax liabilities 46,800 --
------------ ------------
Sub-total 11,143,703 8,122,903
Valuation allowance (11,143,703) (7,922,903)
------------ ------------
Net deferred tax assets $ -- $ 200,000
============ ============
During the 2001 period, management established a valuation allowance to offset
the benefits of significant temporary tax differences due to the uncertainty of
their realization. These deferred tax assets consist primarily of net operating
losses carried forward in the VTI merger, reserves and allowances, and stock
based compensation. If the tax benefits currently offset by valuation allowances
are subsequently realized, approximately $7.9 million will be credited to
goodwill because these tax benefits relate to VTI operations prior to the
merger. In addition, approximately $2.2 million will be credited to additional
paid-in capital because these tax benefits relate to the exercise of
non-qualified stock options and disqualifying dispositions of incentive stock
options.
The Company and its subsidiaries file federal returns on a consolidated basis
and separate state tax returns. At December 31, 2001, the Company has net
operating loss (NOL) carry-forwards of approximately $30 million and $26 million
for federal and state income tax purposes, respectively. The federal NOL has a
carryover period of 20 years and is available to offset future taxable income,
if any, through 2021. The utilization of the $30 million in tax loss
carryforwards is limited to approximately $2.4 million each year as a result of
an "ownership change" (as defined by Section 382 of the Internal Revenue Code of
1986, as amended), which occurred in 2000.
F-16
Note 10 -- Commitments And Contingencies
Employment Agreements
The Company's board of directors has approved employment agreements for a number
of its executive officers as follows:
President and Chief Executive Officer -- The Company entered into an agreement
with its President and Chief Executive Officer, Richard Reiss, having a
three-year term commencing January 1, 2001. Under the agreement, Mr. Reiss is
entitled, in year 1, 2, and 3, respectively, to base compensation of $345,000,
$410,000 and $480,000, and to a formula bonus (payable in quarterly
installments, subject to satisfaction of the condition that the Company's gross
revenues from continuing operations during a given quarter increase over such
revenues from the corresponding quarter of the preceeding year) of $135,000,
$165,000 and $195,000 annually. The agreement provides for a grant of an option
to purchase 300,000 shares of Company stock under the 2000 Plan, vesting in
three equal annual installments. Mr. Reiss has the right to terminate the
agreement, with a full payout of all base and potential formula bonus
compensation for the balance of the term (but in no event less than 1 year) and
acceleration of his unvested stock options, upon a Corporate Transaction or a
Change of Control (as those terms are defined under the 2000 Plan) or a
termination by the Corporation without cause. Under the agreement, the Company
is to secure and pay the premium on a $2,500,000 life insurance policy payable
to Mr. Reiss's designated beneficiary of his estate.
Chief Operating Officer -- The Company entered into an agreement with Leo
Flotron, its Chief Operating Officer, having a three-year term commencing
January 1, 2001. Under the new agreement, Mr. Flotron is entitled, in years 1,
2, and 3 respectively, to base compensation, of $325,000, $375,000 and $425,000
and to a discretionary bonus. The agreement provides for a grant of an option to
purchase 240,000 shares of Company stock under the 2000 Plan, vesting in three
equal annual installments. Mr. Flotron has the right to terminate the agreement,
with a full payout of all base compensation for the balance of the term (but in
no event less than 1 year) and acceleration of his unvested stock options, upon
a Corporate Transaction or a Change of Control (as defined under the 2000 Plan)
or a termination by the Corporation without cause.
Executive Vice President Business Affairs and General Counsel -- The agreement
with Jonathan Birkhahn has a three-year term that commenced on November 30,
2000. Mr. Birkhahn is entitled to base compensation of $235,000, $260,000 and
$285,000 in years 1, 2 and 3, respectively, as well as to a discretionary bonus.
The agreement provides for a grant of an option to purchase 250,000 shares under
the 2000 Plan, vesting in four equal installments as follows: after six months,
after one year, after two years and after three years.
Other Executive Officers -- The Company has entered into employment agreements
with three additional executive officers of the Company, each with three-year
terms that commenced on January 1, 2001. The total base compensation involved
with these agreements is $490,000, $570,000 and $650,000 in years 1, 2 and 3,
respectively. In addition, each executive is entitled to a discretionary bonus.
The agreements also provide for the grants of options to purchase a total of
300,000 shares under the 2000 Plan, vesting in three equal annual installments.
Operating Leases
The Company leases various facilities under operating leases expiring through
2007. Certain leases require the Company to pay increases in real estate taxes,
operating costs and repairs over certain base year amounts. Lease payments for
the years ended December 31, 2001, 2000 and 1999 were approximately
$1,853,000, $1,315,000 and $312,000, respectively.
F-17
Future minimum rental commitments under all non-cancelable leases are as
follows:
Year Ending December 31
2002........................................................ $1,771,301
2003........................................................ 1,180,460
2004........................................................ 714,664
2005........................................................ 303,085
2006 and thereafter ........................................ 481,744
----------
$4,451,254
==========
Capital Lease Obligations
The Company leases certain vehicles and equipment under non-cancelable lease
agreements. These leases are accounted for as capital leases. The equipment
under the capital leases as of December 31, 2001 had a cost of $393,836,
accumulated depreciation of $146,708, with a net book value of $247,128.
Future minimum lease payments under capital lease obligations at December 31,
2001 are as follows:
2002........................................................ $ 62,622
2003........................................................ 27,957
---------
Total minimum payments...................................... 90,579
Less amount representing interest........................... (7,971)
---------
Total principal............................................. 82,608
Less portion due within one year............................ (56,912)
---------
Long-term portion........................................... $ 25,696
=========
Legal Matters
In September 1997, the Company entered into an exclusive distribution agreement
with Maxbase, Inc. ("Maxbase"), the manufacturer of "MaxShare 2," a patented
bandwidth-on-demand line-sharing device. The Company identified performance
problems with the MaxShare 2 product in certain applications, and believed that
MaxBase had a contractual obligation to correct any technical defects in the
product.
In July, 1998, MaxBase filed a complaint against the Company alleging that the
Company had failed to meet its required minimum purchase obligations thereunder.
Maxbase claimed damages of approximately $1,350,000 in lost profits, as well as
unspecified punitive and treble damages. The Company filed a number of
counterclaims, which were dismissed by the court.
In February 2001, the court granted Maxbase's motion for summary judgment on
liability for breach of contract, and the plaintiff subsequently dropped all of
its other claims. The court, following a trial to determine damages, entered an
approximately $745,000 judgment in favor of Maxbase. After filing an appeal of
that judgment, the Company determined in December 2001 that it would be able to
settle the case for $625,000, accrued an additional $375,000 in litigation
reserves in 2001 and formally settled the case in early 2002. The additional
litigation reserves were recorded in general and administrative expenses in the
statement of operations.
F-18
The Company is defending several other suits or claims in the ordinary course of
business, none of which individually or in the aggregate is material to the
Company's business, financial condition or results of operations.
Note 11 -- Pension Plan
On March 1, 1998 the Company adopted a 401(k) Retirement Plan (the "401(k)
Plan") under Section 401(k) of the Internal Revenue Code. The 401(k) Plan
covered substantially all employees who met minimum age and service
requirements. The 401(k) Plan was non-contributory on the part of the Company.
Effective with the merger with VTI, the Company assumed the 401(k) Plan of VTI,
combined its assets with those of the existing plan and began making
contributions to the plan. Employer contributions to the 401(k) Plan for the
years ended December 31, 2001, 2000 and 1999 were approximately $83,000, $56,000
and $0, respectively.
Note 12 -- Business Combinations
Merger With View Tech, Inc.
On May 18, 2000 the merger of ACC and VTI was consummated in a transaction that
has been accounted for as a "reverse acquisition" using the purchase method. The
reverse acquisition method resulted in ACC being recognized as the acquirer of
VTI for accounting and financial reporting purposes.
The value of VTI shares exchanged was computed using a five-day average share
price with a midpoint of December 28, 1999, the date of the merger announcement.
The number of shares used in the computation is based on the VTI shares
outstanding as of May 18, 2000.
Following are schedules of the purchase price and purchase price allocation:
Purchase Price:
Value of VTI shares exchanged............................... $ 28,466,308
Value of VTI options and warrants........................... 2,872,950
Direct mergers costs........................................ 1,008,059
------------
Total purchase price........................................ $ 32,347,317
============
Purchase Price Allocation:
VTI assets acquired......................................... $ 11,583,008
VTI liabilities assumed..................................... (13,923,289)
Goodwill.................................................... 34,687,598
------------
Total....................................................... $ 32,347,317
============
The VTI assets acquired and liabilities assumed were recorded at their fair
values on May 18, 2000. Amortization expense for the years ended December 31,
2001 and 2000 totaled $2,444,907 and $1,447,877, respectively.
The following summarized unaudited pro forma information for the years ended
December 31, 2000 and 1999 assumes the merger of the ACC and VTI occurred on
January 1, 1999.
Year End December 31,
1999 2000
------------- -------------
Net revenues.................................. $ 59,045,819 $ 68,273,027
Operating loss................................ (8,109,411) (4,098,157)
Net loss attributable to common
stockholders................................ (23,167,367) (7,990,307)
Loss per share:
Basic................................... (1.93) (.46)
Diluted................................. (1.93) (.46)
F-19
The unaudited pro forma operating results reflect pro forma adjustments for the
amortization of intangibles of $2,312,000 for the years ended December 31, 2000
and 1999 arising from the merger and other adjustments. These pro forma
operating results also reflect the effects of the series A preferred stock
issued in June of 2000 as if the financing occurred on January 1, 1999. Pro
forma results of operations are not necessarily indicative of the results of
operations that would have occurred had the merger been consummated at the
beginning of 1999, or of the future results of the combined entity.
The Company recognized net revenues of $1,047,000 and $431,000 from transactions
with VTI during the years ended December 31, 2000 and 1999, respectively. Such
amounts have been eliminated in preparing the pro forma information.
Acquisition of 2CONFER, LLC
In July 2000, the Company acquired the net assets of 2CONFER, LLC, a
Chicago-based provider of videconferencing, audio and data solutions. The total
consideration was $800,000, consisting of $500,000 in cash and the remainder in
Company common stock valued at the time of acquisition. Assets consisted
primarily of accounts receivable, fixed assets and goodwill.
Purchase Price Allocation:
2CONFER assets acquired..................................... $ 1,024,730
2CONFER liabilities assumed................................. (1,424,730)
Goodwill.................................................... 1,200,000
-----------
Total......................................... $ 800,000
===========
The 2CONFER assets acquired and liabilities assumed were recorded at their fair
values as of July 1, 2000. Amortization expense for the years ended December 31,
2001 and 2000 totaled $87,912 and $43,150, respectively.
Acquisition of Johns Brook Co.
In October 2000, the Company acquired the assets and certain liabilities of
Johns Brook Co., Inc.'s videoconferencing division, a New Jersey-based provider
of videoconferencing solutions. The total consideration was $635,000, consisting
of $481,000 in cash and $154,000 in the Company's common stock valued at the
time of acquisition. Assets consisted primarily of accounts receivable, fixed
assets, and goodwill.
Purchase Price Allocation:
JBC assets acquired......................................... $ 1,281,194
JBC liabilities assumed..................................... (1,194,065)
Goodwill.................................................... 547,871
-----------
Total......................................... $ 635,000
===========
The JBC assets acquired and liabilities assumed were recorded at their fair
values as of October 1, 2000. Amortization expense for the years ended
December 31, 2001 and 2000 totaled $48,488 and $9,830, respectively.
F-20
Acquisition of GeoVideo
In June 2001, the Company acquired the assets of GeoVideo Networks, Inc.
("GeoVideo"), a New York-based developer of video communications software. Chief
among the assets, in addition to GeoVideo's cash on hand of $2,500,000, was
GeoVideo's browser, a software tool based upon proprietary Bell Labs technology
that allows up to six simultaneous, real-time, bi-directional high-bandwidth IP
video sessions to be conducted over a standard desktop PC. In exchange for the
acquired assets, Wire One issued 815,661 shares of common stock, together with
warrants to purchase 501,733 additional shares of common stock at $5.50 per
share and 520,123 shares at $7.50 per share.
Purchase Price Allocation:
GeoVideo assets acquired $ 2,500,000
Goodwill 2,500,000
-----------
Total $ 5,000,000
===========
The following summarized unaudited pro forma information for the years ended
December 31, 2000 and 2001 assumes that the acquisition of GeoVideo by the
Company occurred on January 1, 2000.
Year Ended December 31,
----------------------------------
2000 2001
------------ ------------
Net revenues $ 48,434,108 $ 88,916,234
Operating loss (7,834,575) (15,169,284)
Net loss attributable to common
stockholders (21,655,135) (20,764,294)
Loss per share:
Basic $ (1.69) $ (0.99)
Diluted $ (1.69) $ (0.99)
Pro forma results of operations are not necessarily indicative of the results of
operations that would have occurred had the acquisition been consummated at the
beginning of 2000, or of the future results of the combined entity.
Amortization expense for the year ended December 31, 2001 totaled $102,340.
A final appraisal of certain assets included in the acquisition has not been
completed. Pending the results of the appraisal, the allocation among the
various components of the purchase price may change; however, any such
reallocation will not materially affect the overall financial position or
results of operations of the Company.
Acquisition of Advance Acoustical Concepts, Inc.
In July 2001, the Company acquired the assets and certain liabilities of Dayton,
Ohio-based Advanced Acoustical Concepts, Inc. ("AAC"). The acquired operations
of AAC, a privately held company founded in 1986, specialized in complete
solution design and integration of video and audiovisual products into cost
effective, ergonomic conferencing systems. These solutions are marketed to the
commercial, medical, distance learning, legal and financial industries. In
exchange for the acquired assets and assumed liabilities, Wire One issued
145,429 shares of common stock. On the date of the acquisition, the assets and
certain liabilities were recorded at their fair values, with the excess purchase
consideration allocated to goodwill.
Purchase Price Allocation:
AAC assets acquired $ 1,733,395
AAC liabilities assumed (3,931,524)
Goodwill 2,991,879
-----------
Total $ 793,750
===========
The following summarized unaudited pro forma information for the years ended
December 31, 2000 and 2001 assumes that the acquisition of AAC by the Company
occurred on January 1, 2000.
Year Ended December 31,
----------------------------------
2000 2001
------------ ------------
Net revenues $ 58,633,207 $ 93,203,562
Operating loss (3,185,247) (13,723,105)
Net loss attributable to common
stockholders (17,383,047) (19,605,602)
Loss per share:
Basic $ (1.34) $ (.93)
Diluted $ (1.34) $ (.93)
F-21
Pro forma results of operations are not necessarily indicative of the results of
operations that would have occurred had the acquisition been consummated at the
beginning of 2000, or of the future results of the combined entity.
A final appraisal of certain assets included in the acquisition has not been
completed. Pending the results of the appraisal, the allocation among the
various components of the purchase price may change; however, any such
reallocation will not materially affect the overall financial position or
results of operations of the Company.
Acquisition of Axxis, Inc.
In November 2001, the Company acquired certain assets and liabilities of the
video conferencing division of Axxis, Inc. ("Axxis"), an Kentucky-based designer
of audiovisual conferencing systems. In exchange for the acquired assets and
assumed liabilities, Wire One issued 320,973 shares of common stock. On the date
of acquisition, the acquired assets and liabilities were recorded at their fair
values, with the excess purchase consideration allocated to goodwill.
Purchase Price Allocation:
Axxis assets acquired $ 790,588
Axxis liabilities assumed (790,588)
Goodwill 2,051,017
-----------
Total $ 2,051,017
===========
The following summarized unaudited pro forma information for the years ended
December 31, 2000 and 2001 assumes that the acquisition of Axxis by the Company
occurred on January 1, 2000.
Year Ended December 31,
----------------------------------
2000 2001
------------ ------------
Net revenues $ 60,960,382 $ 97,068,528
Operating loss (2,131,227) (14,072,956)
Net loss attributable to common
stockholders (16,226,248) (19,629,376)
Loss per share:
Basic $ (1.24) $ (.93)
Diluted $ (1.24) $ (.93)
Pro forma results of operations are not necessarily indicative of the results of
operations that would have occurred had the acquisition been consummated at the
beginning of 2000, or of the future results of the combined entity.
A final appraisal of certain assets included in the acquisition has not been
completed. Pending the results of the appraisal, the allocation among the
various components of the purchase price may change; however, any such
reallocation will not materially affect the overall financial position or
results of operations of the Company.
Note 13 -- Related Parties
The landlord for the Company's Hillside, New Jersey office is Vitamin Realty
Associates, L.L.C. of which Eric Friedman, one of the Company's former
directors, is a member. The lease term is for five years and expires on May 31,
2002. The base rental for the premises during the term of the lease is
approximately $295,000 per year. In addition, the Company must pay its share of
the landlord's operating expenses (i.e., those costs or expenses incurred by the
landlord in connection with the ownership, operation, management, maintenance,
repair and replacement of the premises, including, among other things, the cost
of common area electricity, operational services and real estate taxes). For the
years ended December 31, 2001, 2000 and 1999, rent expense associated with this
lease was $295,000, $225,000 and $135,000.
The Company receives financial and tax services from an accounting firm in which
one of the Company's directors is a partner. For the years ended December 31,
2001, 2000 and 1999, the Company has incurred fees of approximately $105,000,
$99,000 and $13,000, respectively on services received from this firm since
September 15, 1999, the date on which this individual became a Board member.
F-22
Note 14 -- Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
2001 and 2000.
Quarterly Financial Data
2001 2000
------------ ------------
1st Quarter
Net revenues $ 17,315,370 $ 5,983,507
Gross margin 5,743,389 2,137,296
Income (loss) from operations (1,694,118) 134,922
Net income (loss) (2,027,909) 75,745
Net income (loss) attributable to common stockholders (2,421,873) 75,745
Net income (loss) per share $ (0.14) $ 0.01
2nd Quarter
Net revenues $ 20,325,234 $ 11,126,626
Gross margin 6,594,216 3,686,305
Loss from operations (1,711,462) (516,205)
Net loss (1,782,732) (690,932)
Net loss attributable to common stockholders (5,822,672) (8,870,487)
Net loss per share $ (0.32) $ (0.76)
3rd Quarter
Net revenues $ 22,314,981 $ 18,287,167
Gross margin 6,344,406 5,941,529
Loss from operations (2,153,809) (564,954)
Net loss (2,648,523) (441,070)
Net loss attributable to common stockholders (2,648,523) (868,392)
Net loss per share $ (0.11) $ (0.05)
4th Quarter
Net revenues $ 28,960,649 $ 20,635,939
Gross margin 8,151,442 6,494,485
Loss from operations (7,809,895) (967,591)
Net loss (8,071,226) (1,475,672)
Net loss attributable to common stockholders (8,071,226) (6,592,001)
Net loss per share $ (0.33) $ (0.38)
At the issuance date of June 14, 2000, the Company recorded a deemed dividend
and an offsetting increase in additional paid-in capital of approximately $8.1
million to reflect the beneficial conversion feature of the Series A preferred
stock issued. During the fourth quarter of 2000, in accordance with EITF No.
00-27, the Company recorded an additional deemed dividend of $3.9 million to
reflect the beneficial conversion feature of the warrants (see Note 7).
Net income (loss) per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net income (loss) per share in
2001 and 2000 does not equal the total computed for these years.
Note 15 -- Subsequent Events
In January 2002, the Company raised net proceeds of $20.2 million in a private
placement of 3,526,500 shares of its common stock at a price of $6.25 per share.
Investors in the private placement also received five-year warrants to purchase
864,375 shares of common stock at an exercise price of $10.00 per share. The
warrants are subject to certain anti-dilution protection. $12.0 million of the
proceeds from the offering were used to pay down the bank line of credit to
zero. The remaining proceeds will be used to fund the continuing development and
marketing of the Company's Glowpoint video communications network and for
general corporate purposes.
F-23
Item 9. Change In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-19-
PART III
Item 10. Directors And Executive Officers Of The Registrant
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the period ended December 31,
2001, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2002.
Item 11. Executive Compensation
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the period ended December 31,
2001, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2002.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the period ended December 31,
2001, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2002.
Item 13. Certain Relationships And Related Transactions
The information called for by this item is hereby incorporated by reference from
the Registrant's definitive Proxy Statement for the period ended December 31,
2001, which Proxy Statement will be filed with the Securities and Exchange
Commission on or before the end of April 2002.
-20-
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
A. List of documents filed as part of this Report:
1. Financial Statements included in Item 8:
-Report of Independent Certified Public Accountants
-Consolidated Balance Sheets as of December 31, 2001 and 2000
-Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999
-Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2001, 2000 and 1999.
-Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999
-Notes to Consolidated Financial Statements
No schedules are included because the required information is
inapplicable or is presented in the consolidated financial
statements or related notes thereto.
2. Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as part
of this Annual Report.
B. Reports on Form 8-K.
None.
-21-
EXHIBIT INDEX
Exhibit
Number Description
- ------ -------------
3.1 Amended and Restated Certificate of Incorporation. (1)
3.2 Certificate of Amendment of View Tech, Inc. changing its name to Wire
One Technologies, Inc. (2)
3.3 Amended and Restated Bylaws. (1)
4.1 Specimen Common Stock Certificate. (2)
10.1 Wire One Technologies, Inc. 2000 Stock Incentive Plan. (3)
10.2 Asset Purchase Agreement, dated July 21, 2000, among Wire One
Technologies, Inc., 2Confer L.L.C. and its members. (2)
10.3 Asset Purchase Agreement, dated October 6, 2000, among Wire One
Technologies, Inc., Johns Brook Co., Inc. and its stockholders, as
amended. (6)
10.4 Asset Purchase Agreement, dated May 30, 2001, among Wire One
Technologies, Inc., GeoVideo Networks, Inc., Thomas Weisel Capital
Partners LLC, Crest Communications Partners LP, East River Ventures II
LP and Lucent Technologies, Inc. (4)
10.5 Form of Class A Warrant to Purchase Common Stock of Wire One
Technologies, Inc. (4)
10.6 Form of Class B Warrant to Purchase Common Stock of Wire One
Technologies, Inc. (4)
10.7 Asset Purchase Agreement, dated as of July 17, 2001, among Wire One
Technologies, Inc., Advanced Acoustical Concepts, Inc., Lawrence F.
Miller, William Othick and Wayne Lippy. (5)
10.8 Form of Subscription Agreement, dated August 8, 2001. (6)
10.9 Form of Warrant to Purchase Common Stock, dated August 8, 2001. (6)
10.10 Form of Warrant to Purchase Common Stock, dated August 8, 2001. (6)
10.11 Form of Registration Rights Agreement dated as of August 8, 2001
between Wire One Technologies, Inc. and the investors listed on the
signature pages thereto. (6)
10.12 Asset Purchase Agreement, dated as of November 26, 2001, among Wire
One Technologies, Inc., Axxis, Inc. and the shareholders of Axxis,
Inc. listed on the signature page thereto. (7)
10.13 Placement Agreement, dated January 2, 2002, between Wire One
Technologies, Inc. and H.C. Wainwright & Co., Inc. (8)
10.14 Form of Purchase Agreement for the purchase and sale of Common Stock
and warrants to purchase Common Stock, dated January 10, 2002, between
Wire One Technologies, Inc. and the purchasers party thereto. (8)
10.15 Form of Warrant to purchase Common Stock, dated January 10, 2002. (9)
10.16 Lease Agreement for premises located at 225 Long Avenue, Hillside, New
Jersey, dated March 20, 1997, between All Communications Corporation
and Vitamin Realty Associates, L.L.C. (10)
10.17 First Amendment to Lease Agreement, dated as of December 1997, between
All Communications Corporation and Vitamin Realty Associates, L.L.C.
(1)
10.18 Second Amendment to Lease Agreement, dated as of December 20, 1999,
between All Communications Corporation and Vitamin Realty Associates,
L.L.C. (1)
10.19 Fourth Amendment to Lease Agreement, dated as of August 29, 2000,
between All Communications Corporation and Vitamin Realty Associates,
L.L.C. (3)
10.20 Amended and Restated Loan and Security Agreement, dated as of June 1,
2000, among Wire One Technologies, Inc., AllComm Products Corp. and
Summit Commercial/Gibraltar Corp. (2)
-22-
10.21 Form of Warrant to purchase Common Stock, dated June 14, 2000. (11)
10.22 Employment Agreement with Richard Reiss. (12)
10.23 Employment Agreement with Leo Flotron. (12)
10.24 Employment Agreement with Jonathan Birkhahn. (12)
10.25 Employment Agreement with Christopher Zigmont. (12)
10.26 Employment Agreement with Michael Brandofino. (12)
10.27 Employment Agreement with Kelly Harman. (12)
21.1 Subsidiaries of Wire One Technologies, Inc. (2)
23.1 Consent of BDO Seidman, LLP. (13)
- ----------
(1) Filed as an appendix to View Tech Inc.'s Registration Statement on Form S-4
(File No. 333-95145) and incorporated herein by reference.
(2) Filed as an exhibit to Wire One Technologies, Inc.'s Registration Statement
on Form S-1 (Registration No. 333-42518), and incorporated herein by
reference.
(3) Filed as an exhibit to Wire One Technologies, Inc.'s Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 2000, and incorporated
herein by reference.
(4) Filed as an exhibit to Wire One Technologies, Inc.'s Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2001, and incorporated
herein by reference.
(5) Filed as an exhibit to Wire One Technologies, Inc.'s Current Report on Form
8-K filed with the Securities and Exchange Commission on August 1, 2001,
and incorporated herein by reference.
(6) Filed as an exhibit to Wire On Technologies, Inc.'s Registration Statement
on Form S-3 (Registration No. 333-69432), and incorporated herein by
reference.
(7) Filed as an exhibit to Wire On Technologies, Inc.'s Registration Statement
on Form S-3 (Registration No. 333-74484), and incorporated herein by
reference.
(8) Filed as an exhibit to Wire One Technologies, Inc.'s Current Report on Form
8-K filed with the Securities and Exchange Commission on January 10, 2002,
and incorporated herein by reference.
(9) Filed as an exhibit to Wire One Technologies, Inc.'s Current Report on Form
8-K filed with the Securities and Exchange Commission on January 15, 2002,
and incorporated herein by reference.
(10) Filed as an exhibit to All Communications Corporation's Registration
Statement on Form SB-2 (Registration No. 333-21069), and incorporated
herein by reference.
(11) Filed as an exhibit to Wire One Technologies, Inc.'s Current Report on Form
8-K, dated June 14, 2000, and incorporated herein by reference.
(12) Filed as an exhibit to Wire One Technologies, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 2000, and incorporated herein
by reference.
(13) Filed herewith.
-23-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WIRE ONE TECHNOLOGIES, INC.
Date: April 1, 2002 By: /s/Richard Reiss
----------------------
Richard Reiss
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Richard Reiss and Jonathan Birkhahn jointly and
severally, his or her attorneys-in-fact, each with the power of substitution,
for him or her in any and all capacities, to sign any amendments to this Report
on Form 10-K, and file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant as of
this 1st day of April 2002 in the capacities indicated.
Signature Title
/s/ Richard Reiss Chairman, President and Chief Executive Officer
- --------------------- (Principal Executive Officer)
Richard Reiss
/s/ Christopher Zigmont Chief Financial Officer (Principal Financial and
- --------------------- Accounting Officer)
Christopher Zigmont
/s/ Leo Flotron Chief Operating Officer and Director
- ---------------------
Leo Flotron
/s/ Jonathan Birkhahn Executive Vice President Business Affairs,
- --------------------- and General Counsel and Director
Jonathan Birkhahn
/s/ James Kuster Director
- ---------------------
James Kuster
/s/ Dean Hiltzik Director
- ---------------------
Dean Hiltzik
/s/ Lewis Jaffe Director
- ---------------------
Lewis Jaffe
/s/ Peter N. Maluso Director
- ---------------------
Peter N. Maluso
-24-