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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, 1997
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-25940
VIEW TECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0312442
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3760 CALLE TECATE, SUITE A.
CAMARILLO, CA 93012
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 482-8277
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
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Common Stock, $.0001 Par Value NASDAQ National Market
Common Stock Purchase Warrants NASDAQ National Market
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 __ No X
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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 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 23, 1998 was $18,783,112.
The number of shares of the Registrant's Common Stock outstanding as of
March 23, 1998 was 6,701,310.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the period ended
December 31, 1997 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
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1. Business.............................................................. 1
2. Properties............................................................ 7
3. Legal Proceedings..................................................... 7
4. Submission of Matters to a Vote of Security Holders................... 7
PART II
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5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................... 8
6. Selected Financial Data............................................... 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 11
7A. Quantitative and Qualitative Disclosures about Market Risk............ 18
8. Financial Statements and Supplemental Data............................ 19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 38
PART III
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10. Directors and Executive Officers of the Registrant.................... 39
11. Executive Compensation................................................ 39
12. Security Ownership of Certain Beneficial Owners and Management........ 39
13. Certain Relationships and Related Transactions........................ 39
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 40
Signatures............................................................ 42
i
PART I
ITEM 1. BUSINESS
GENERAL
View Tech, Inc., a Delaware corporation ("View Tech"), commenced operations
in July 1992 as a California corporation. In November 1996, concurrent with a
merger (the "Merger") with USTeleCenters, Inc., a Massachusetts corporation
("USTeleCenters"), with and into View Tech Acquisition, Inc., a Delaware
corporation and a wholly-owned subsidiary of View Tech ("VTAI"), View Tech
reincorporated in Delaware. Following the Merger, VTAI changed its name to
"USTeleCenters, Inc." ("UST"). View Tech and UST (collectively referred to as
"View Tech" or the "Company") have twenty-three (23) offices nationwide.
The Company serves as a single source provider for the equipment and
services required to meet the video, voice and data communications requirements
of its customers. The Company is a leading remarketer, integrator and service
provider of video conferencing equipment, is a telecommunications equipment
reseller, and is one of the oldest and largest independent sales agents for
certain Regional Bell Operating Companies ("RBOCs") and long distance carriers.
The Company is headquartered in Camarillo, California. Its executive
offices are located at 3760 Calle Tecate, Suite A, Camarillo, California 93012.
Its telephone number at that address is 805/482-8277. View Tech's e-mail
address is bhatfield@viewtech.com.
VIDEO COMMUNICATIONS
The Company's video communications group focuses on the sale, installation
and service of video communications systems. Utilizing advanced technology,
these systems enable users at separate locations to engage in face-to-face
discussions and to exchange information with the relative affordability and
convenience of using a telephone. In addition to the use of video conferences
as a corporate communications tool, use of video communications systems is
expanding into numerous productivity enhancing applications, including (i)
teachers providing lectures to students at multiple locations, (ii) judges
conducting criminal arraignment proceedings while the accused remains
incarcerated, (iii) utilizing video technology for the consultation and surgical
applications for the health care industry, (iv) coordination of emergency
services by public utilities, (v) businesses conducting multi-location staff
training programs, and (vi) engineers at separate design facilities coordinating
the joint development of products.
TELECOMMUNICATIONS
The Company's telecommunications group develops and manages sales and
customer service programs on an outsourced basis under agency and value-added
reseller agreements for (i) certain regional Bell operating companies ("RBOCs"),
(ii) other telecommunications service providers, and (iii) equipment
manufacturers. In New England and New York, the Company also provides
telecommunications systems integration and on-going account management support
for middle market customers. On behalf of its RBOC clients, UST sells high speed
data services, Internet access, Centrex network services, local and long
distance services, voice mail and other "enhanced" services, discount calling
plans and toll-free services such as remote-call-forwarding. As a value-added
equipment reseller, the telecommunications group sells, installs and maintains
data transmission products, customer premise equipment and telephone systems.
The telecommunications group operates out of UST, which is located in
Boston, Massachusetts. UST's main offices are located at 745 Atlantic Avenue,
Boston, Massachusetts 02111-2747. Its telephone number at that address is
617/439-9911. UST's e-mail address is dkaplan@ustele.com.
1
EQUIPMENT PRODUCTS
Video
The Company offers three types of video communications systems: integrated
roll-about and room systems, vertical applications and desktop computer systems.
Roll-about systems may be moved conveniently from office to office and placed
into operation quickly while room systems are stationary systems; vertical
applications include distance education and systems utilized in the healthcare
industry; and desktop computer systems involve personal computers with video
communications capabilities and are generally used for one-on-one personal
communications, or when one person is presenting information to a group.
Apart from peripheral components manufactured by others, the Company
primarily sells systems manufactured by PictureTel Corporation, PolyCom, Inc.
and VTEL Corporation. Management believes that items of equipment produced by
these manufacturers provide its customers with superior quality, audio and video
communications capabilities at a reasonable price, and that user interface with
PictureTel, PolyCom and VTEL equipment is more intuitive, thereby requiring less
training, than that of the equipment produced by their competitors.
The prices of the complete systems sold by the Company range from $3,500
for a video communications desktop computer, to $60,000 for a roll-about system
for a single location, to as much as $100,000 for a vertical application. Roll-
about systems generally contain a minimum of a video camera, monitor and codec
to capture the image, display the image and to encode and decode the
transmission over digital phone lines, respectively. Most installations have
several additional peripherals including some of the following components: an
inverse multiplexer, a multi-point control unit, a document camera, a keypad, a
speakerphone, a videocassette recorder and/or an annotations slate and white
board.
The foregoing components are purchased by the Company from appropriate
manufacturers and the monitors, document cameras, videoscan converters,
videocassette recorders and white boards are acquired from various sources
depending upon price and quality.
Although the Company's desktop-computer systems involve different
components, the desktop system has many of the capabilities of the roll-about
and room systems. The Company's desktop video communications equipment is
manufactured by PictureTel and others such as V-Conn.
Voice and Data
The Company sells communications equipment for voice and data transmission
produced by such manufacturers as Ascend Communications, Inc., First Virtual
Corp., Madge Networks and VideoServer, Inc. (data transmission products) and
Northern Telecom (telephone systems).
Voice. The Company markets a variety of telephone and other voice equipment
products designed specifically for small to medium-sized business customers.
Northern Telecom key systems are sold by the Company under reseller agreements,
and are installed and serviced by the Company for business customers throughout
the Northeast. Such equipment also may be sold in conjunction with the provision
of local and long-distance network services. This combination of voice equipment
and voice network services is an important ingredient in establishing the
Company as a single-point-of-contact provider.
Data. The Company sells to business customers products specifically
designed to transmit data through the established local and long-distance
telephone services infrastructure. Products from companies such as Adtran, Madge
Networks and Ascend Communications, Inc. allow business customers remote access
into local area networks, acquire bandwidth on demand and digitally transmit
data. Products such as these are sold in combination with local and/or long-
distance network services provided by the RBOCs, SPRINT and AT&T.
SERVICES
The Company believes that the quality and depth of its customer services
capability are crucial factors in
2
its ability to compete successfully. The technical expertise and experience of
its management and employees', enable the Company to offer its customers the
convenience of single-vendor sourcing for most aspects of their communications
needs and to develop customized systems designed to provide efficient responses
to customer communications technology requirements.
The Company provides its customers with a full complement of video
communications and telecommunications services to ensure customer satisfaction.
Prior to the sale of its systems and services, the Company provides consulting
services that include an assessment of customer needs and existing
communications equipment, as well as cost-justification and return-on-investment
analyses for systems upgrade.
Once the Company has made recommendations with respect to the most
effective method to achieve its customer's objectives and the customer has
ordered a system, the Company delivers, installs and tests the communications
equipment. When the system is functional, the Company provides training to all
levels of its customer's organization, including executives, managers,
management-information-systems and data-processing administrators, technical
staff and end users. Training includes instruction in system operation, as well
as planning and administration meetings. By means of thorough training, the
Company helps to ensure that its customers understand the functionality of the
systems and are able to apply the technology effectively.
The Company provides maintenance contracts and comprehensive customer
support with respect to the communications equipment it provides. The Company
offers a toll-free technical support hotline 24 hours a day, 365 days a year.
Customers may also obtain answers to questions or follow-up training through
video conferencing, telephone, facsimile, e-mail or the mail. The Company also
provides onsite support and maintenance.
The Company's service personnel maintain regular contact with customers.
Prior to the expiration of a maintenance contract, the Company offers to perform
an engineering study of each customer's equipment, to recommend the installation
of replacement parts or equipment if appropriate and to provide an additional
maintenance contract. The Company also offers training programs for new users,
refresher and advanced training programs for experienced users and consulting
services related to new equipment and systems expansion and upgrades. Charges
for the engineering study, training programs, consulting services and additional
maintenance contracts are generally comparable to the cost of services provided
to the customer at the time its video communications equipment is installed.
Critical to customer retention is on-going after-sale relationships with
customers. Installation, training, maintenance, remote diagnostics, billing
inquiry management, network order processing, new product introduction and
system enhancements creating multipurpose solutions are a few of the many after-
sale services that the Company performs for its customers.
During 1997, the Company increased its MCU, MultiView Network Services, or
bridge services, to its customers nationwide. The Company employs state-of-the-
art conferencing servers in multiple U.S. call centers, providing seamless
connectivity for all switched digital networks across the globe at an affordable
rate. Since bridges cost between $65,000 and $200,000 per unit, the Company's
customers typically elect to utilize such services when more than two locations
participate simultaneously in video communication. To date, the Company's
bridging services have proven to be an increasing source of revenue, enhancing
customer retention.
TELECOMMUNICATIONS SERVICES
In its role as an outsource partner for certain local and long-distance
providers, the Company also supplies on-going after-sales telecommunications
services to its client's end-user customers. Network services provisioning,
maintenance, user training and network order-processing are some of the services
provided by the Company.
The Company sells a wide range of telecommunications services, including
high speed data connection, Internet access, local and long distance services,
voice mail and other "enhanced" services, discount calling plans and toll-free
services. In addition, the Company provides Account Management for Bell Atlantic
customers under which it serves as the primary interface between Bell Atlantic
and certain of its business customers. Under this program, sales personnel
provide a single-point-of-contact and coordination for all of the customer's
telecommunications network services needs. The Company provides systems
integration services, processes so-called "moves, adds and changes" on the
telephone network, coordinates repairs, performs network analysis, manages
billing issues and provides other customer services.
3
The Company's relationships with multiple local exchange carriers and long
distance providers give it demographic scope and enable it to provision multiple
site solutions for customers in a unique single-point of contact methodology.
This competitive edge differentiates the Company from all other suppliers of
similar size.
STRATEGY
The Company focuses its marketing efforts on industries and market segments
that it believes will achieve significant benefits through utilization of video
and telecommunications services and equipment. The Company then acquires a
complete understanding of the operations of such industries, identifies the
particular communications needs of such industries and integrates or bundles the
services and/or equipment which will most effectively meet the needs of any
given segment of the market. These services range from the simple bundling of
long distance and local service to a small business to a complex installation of
video communications equipment and network services to meet the needs of a
corporate customer. The Company believes that this focus on customer needs in
particular market segments, together with an emphasis on providing
comprehensive, high-quality service to its customers, enables the Company to
market its communications systems, equipment and services more effectively than
competitive distribution channels. The Company believes that its broad product
offerings, industry focus, wide geographic coverage and high quality service
provide it with a unique competitive advantage.
In addition to expanding its current key alliance partnerships with
PictureTel, Ascend Communications, PolyCom, Inc., VideoServer, VTEL Corporation,
GTE, Bell Atlantic, UUNET, Bell South, Madge Networks, Northern Telecom and its
other equipment vendors and service providers, the Company intends to continue
broadening it market focus as its customers' needs become more comprehensive,
and to expand its activities into additional geographic markets by entering into
further strategic alliances with manufacturers and service providers,
establishing additional strategically located sales and service facilities and
acquiring companies in the communications, video and integration services
industry.
CUSTOMERS
The Company's customer base is divided into two categories, large
institutions with complex application-specific requirements for video
communications and small to medium-sized businesses with voice and data
transmission requirements. These segments are becoming less distinct as the
market develops. The Company currently focuses on these customer segments
separately but is integrating these functions more frequently for customers.
VIDEO COMMUNICATIONS SYSTEMS CUSTOMERS
While the Company has installed video communications systems for a
diversified customer base, including, Pfizer Pharmaceuticals, Raytheon
Corporation, Wellpoint Health Networks, Hilton International Hotels, Edison
International, PacifiCare, Great West Life Insurance and the Commonwealth of
Massachusetts. The Company has attempted to focus its marketing efforts on
specific industries. Among the industries in which the Company believes it has
acquired substantial expertise are health care and distance-education. During
1997, the Company expanded its telemedicine video group to include Allergan,
Blue Cross of California, PacifiCare/FHP and the Veterans Administration.
TELECOMMUNICATIONS CLIENTS
The Company, through UST, markets telecommunication equipment and services
for various strategic clients. The equipment sales are performed under various
reseller agreements and the end-user customer is invoiced by UST. The
telecommunication network services are sold to the Company's customers under
sales agency agreements, pursuant to which the customer is invoiced by the
client for the services over the term of the agreement and the Company is paid a
commission by the client. The Company typically has renewable annual or multi-
year agreements with its telecommunication service clients, under which it
receives commissions based on sales. The Company's telecommunication clients
include several RBOCs, including Bell Atlantic, Southwestern Bell and BellSouth;
other telecommunication service providers, such as GTE and SPRINT; and equipment
manufacturers, including Northern Telecom and Ascend.
4
TELECOMMUNICATIONS CUSTOMERS
The Company focuses on small to medium-sized business customers which the
major telecommunications providers cannot cost effectively service. The
Company's clients (i.e., the RBOCs and the telecommunications service providers)
have retained the Company's services to sell products to and in some cases to
manage the relationship with these customers. These customers are comprised of
medium-sized businesses which are served by a direct face-to-face sales force
based in the Company's Boston, Burlington and New York offices, and small
businesses which are served by the Company's telephone-based sales force in
Boston and Cape Cod. The Company sells a range of products and services to these
customers in order to meet their video, voice, data and communication needs. The
Company has developed sophisticated sales programs to allow the telephone-based
sales group to sell complex products historically only sold by a direct sales
force.
No single customer accounted for more than 10% of the Company's revenues
for the year ended December 31, 1997.
SALES AND MARKETING
Video Communications Sales
The Company has a number of programs to promote its video communications
products and services. Representatives of the Company regularly attend video
communications and advanced technology trade shows. The Company hosts seminars
and provides potential customers with the opportunity to learn about the
Company's products and services using video communications demonstration
facilities located in each of the Company's offices. The Company also places
advertisements aimed at selected markets in industry trade publications and
utilizes limited and selective direct mail advertising.
In addition, the Company has periodically employed the services of market
research firms to provide it with information regarding organizations that may
be interested in purchasing video communication products and services.
Management has worked closely with such firms to develop approaches that will
enable them to effectively identify individuals and applications within
organizations likely to benefit from video communications technologies.
PictureTel and other suppliers also provide the Company with sales leads.
The Company also maintains relationships with previous customers and
attempts to provide for their continuing equipment and service needs, including
continuing engineering, training and warranty services.
Telecommunications Sales
The Company utilizes a number of sales and marketing techniques, including
outside (or face-to-face) sales and inside (or telephone) sales.
Outside Sales. The Company's outside sales activities are generally focused
on medium-sized businesses in New England and New York where the Company
maintains offices. Face-to-face sales are especially effective in selling more
expensive and technologically advanced services and equipment such as Bell
Atlantic's Centrex network services and PictureTel's videoconferencing products.
On-going customer account management stimulates repeat business while protecting
market share and generating recurring revenue from certain clients such as Bell
Atlantic.
Inside Sales. The Company's inside sales group sells a broad range of
services over the telephone. In addition, the inside sales and service
departments generate leads, and in some instances, provide back-up support to
outside sales associates. The advantages of telemarketing include high response
rates, low transaction costs, direct interaction with customers and on-line
access to detailed customer or product information. The Company's telemarketing
clients include Bell Atlantic, Bell South, GTE, Southwestern Bell, SPRINT and
other telecommunications service providers.
5
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL , BELL ATLANTIC AND GTE
For the twelve months ended December 31, 1997, approximately 38% and 30% of
the Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and to the sale of network products and services
provided by Bell Atlantic, and GTE, respectively. Termination of or change of
the Company's business relationships with PictureTel, Bell Atlantic or GTE;
disruption in supply, failure of PictureTel, Bell Atlantic or GTE to remain
competitive in product quality, function or price or a determination by
PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers
such as the Company, among other things, would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is a party to agreements with PictureTel, Bell Atlantic and GTE that
authorize the Company to serve as a non-exclusive dealer and sales agent,
respectively, in certain geographic territories. The PictureTel, Bell Atlantic
and GTE agreements can be terminated without cause upon written notice by the
suppliers, subject to certain notification requirements. There can be no
assurance that these agreements will not be terminated, or that they will be
renewed on terms acceptable to the Company. These suppliers have no affiliation
with the Company and are competitors of the Company.
COMPETITION
The video communications industry is highly competitive. The Company
competes with manufacturers of video communications equipment, which include
PictureTel, VTEL, Computer Telephone and Lucent, and their networks of dealers
and distributors, telecommunications carriers and other large corporations, as
well as other independent distributors. Other telecommunications carriers and
other corporations that have entered the video communications market include,
AT&T, MCI, some of the RBOCs, Intel Corporation, Microsoft, Inc., Sony
Corporation and British Telecom. Many of these organizations have substantially
greater financial and other resources than the Company, furnish many of the same
products and services provided by the Company and have established relationships
with major corporate customers that have policies of purchasing directly from
them. Management believes that as the demand for video communications systems
continues to increase, additional competitors, many of which will have greater
resources than the Company, will enter the video communications market.
A specific manufacturer's network of dealers and distributors typically
involves discreet territories that are defined geographically, in terms of
vertical market, or by application (e.g., project management or government
procurement). The current agreement with PictureTel authorizes the Company to
distribute PictureTel products in the following states: Alabama, Arizona,
Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia,
Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New
Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and
Wyoming. Because the agreement is non-exclusive, however, the Company is subject
to competition within these territories by other PictureTel dealers, whose
customers elsewhere may have branch facilities in these territories, and by
PictureTel itself, which directly markets its products to certain large national
corporate accounts. The agreement expires on August 1, 2000 and can be
terminated without cause upon 60 days' written notice by PictureTel. There can
be no assurance that the agreement will not be terminated, or that it will be
renewed by PictureTel, which has no other affiliation with the Company and is a
competitor of the Company. While there are suppliers of video communications
equipment other than PictureTel, termination of the Company's relationship with
PictureTel could have a material adverse effect on the Company.
The Company believes that customer purchase decisions are influenced by
several factors, including cost of equipment and services, video communication
system features, connectivity and compatibility, a system's capacity for
expansion and upgrade, ease of use and services provided by a vendor. Management
believes its comprehensive knowledge of the operations of the industries it has
targeted, the quality of the equipment the Company sells, the quality and depth
of its services, its nationwide presence and ability to provide its customers
with all of the equipment and services necessary to ensure the successful
implementation and utilization of its video communications system enable the
Company to compete successfully in the industry.
The telecommunications industry is also highly competitive. The Company
competes with many other companies in the telecommunications business which have
substantially greater financial and other resources than the Company, selling
both the same and similar services. The Company's competitors in the sale of
network services include RBOCs such as Bell South, Bell Atlantic, Southwestern
Bell and GTE, long distance carriers such
6
as AT&T, MCI and SPRINT, other long distance companies, by-pass companies and
other agents. There can be no assurance that the Company will be able to compete
successfully against such companies. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
EMPLOYEES
At March 23, 1998, the Company had 310 full-time employees. The Company
has 148 full-time employees engaged in marketing and sales, 111 in technical
services and 51 in finance, administration and operations. None of the Company's
employees is represented by a labor union. The Company believes that its
relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases office facilities in Camarillo, Irvine and San Diego,
California; Atlanta, Georgia; Dallas, Houston, Texas; Englewood, Colorado;
Nashville, Tennessee; Boca Raton, Florida; Salt Lake City, Utah; Phoenix,
Arizona and Chesterfield, Missouri. These locations are currently principally
engaged in video conferencing sales and services. Its executive offices are
located in Camarillo, California and consist of a total of approximately 19,000
square feet. The Company's other facilities house sales, technical and
administrative personnel and consist of aggregate square footage of
approximately 40,650. View Tech's wholly-owned subsidiary, UST, leases office
facilities in Boston and Cape Cod, Massachusetts, Burlington, Vermont and New
York, New York. Such locations are principally engaged in the sale and service
of telephony products and services. UST executed a new lease in New York City
which houses administration, sales and technical personnel. The facility
consists of approximately 9,000 square feet of space and was occupied in May
1997. UST's principal offices are located in Boston and house executive, sales,
technical and administrative personnel and consist of aggregate square footage
of approximately 21,500 square feet. UST's outside sales offices, two offices in
Boston and one office in Cape Cod consist of approximately 9,500 combined square
footage. Its outside sales office in Burlington, Vermont consists of
approximately 5,000 square feet. The leases on the Company's facilities expire
at various dates through 2003. The Company believes that the facilities it
presently leases, combined with those presently under negotiations, will be
adequate for the foreseeable future and that additional suitable space, if
required, can be located and leased on reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business the Company experiences various types of
claims which sometimes result in litigation or other legal proceedings. The
Company does not anticipate that any of these proceedings will have any material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK MARKET AND OTHER INFORMATION
The Company's common stock is traded on the NASDAQ National Market under the
symbol "VUTK," and has been so traded since November 18, 1995. Prior to such
date, the shares were traded on the NASDAQ SmallCap Market and also the Pacific
Stock Exchange under the symbols "VUTK" and "VWK," respectively, since the
Company's initial public offering on June 15, 1995 (the "IPO"). Prior to the
IPO, there was no public trading market for the Company's equity securities. In
addition, warrants to purchase up to 575,000 shares of the Company's common
stock are traded on the NASDAQ National Market and prior to November 18, 1995
the warrants traded on the NASDAQ SmallCap Market and the Pacific Stock Exchange
under the symbols "VUTKW" and "VWK WS," respectively. The terms of the warrants
provide that one warrant plus $5.00 are required to purchase one additional
share of the Company's common stock. The warrants are redeemable at the
Company's option commencing June 15, 1996 upon 30 days notice to the warrant
holders at $0.25 per share if the closing price of the common stock has been at
least $8.00 for a period of 30 consecutive trading days ending within 10 days of
the date the notice of redemption is mailed. The warrants expire June 15, 1998.
The following table sets forth the quarterly high and low bids for the
Company's common stock as reported by the NASDAQ National Market for the periods
indicated.
HIGH LOW
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CALENDAR YEAR 1996
First Quarter.... $8.00 $6.63
Second Quarter... 8.25 6.25
Third Quarter.... 8.25 6.50
Fourth Quarter... 7.25 5.00
CALENDAR YEAR 1997
First Quarter.... 6.25 3.88
Second Quarter... 4.25 2.38
Third Quarter.... 7.50 2.88
Fourth Quarter... 8.94 4.81
On March 23, 1998, the last reported bids for the Company's common stock
and warrants on the NASDAQ National Market were $4.875 and $.593, respectively.
As of March 23, 1998, there were 113 holders of record of the Company's common
stock and three holders of record of the Company's warrants.
DIVIDENDS
The Company has never paid any cash dividends on its common stock. It
presently intends to retain earnings and capital, if any, for use in its
business and does not expect to pay any dividends within the foreseeable future.
Any payment of cash dividends in the future on the common stock will be
dependent on the Company's financial condition, results of operations, current
and anticipated cash requirements, plans for expansion, restrictions under debt
obligations, as well as other factors that the Board of Directors deems
relevant.
8
RECENT SALES OF UNREGISTERED SECURITIES
Telcom Holding, LLC.
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In the first quarter of 1997, the Company completed a private placement with
Telcom Holding, LLC, a Massachusetts limited liability company ( "Telcom")
formed by The O'Brien Group, Inc., a Massachusetts corporation (the "O'Brien
Group"). Telcom purchased (i) 650,000 shares of Common Stock and (ii) Common
Stock Purchase Warrants exercisable at $6.50 per share of the Company to
purchase up to 325,000 shares of Common Stock, at a price of $4.40 per unit
("Unit"). The Company issued to Paul C. O'Brien and Mark P. Kiley, managing
members of Telcom, additional Common Stock Purchase Warrants of the Company (the
"O'Brien Purchase Warrants") for the purchase of 162,500 shares of Common Stock
that are purchasable under the Telcom Purchase Warrants issued and sold to
Telcom, at a purchase price per share of $6.50.
Vermont Telecommunications Network Services, Inc.
- --------------------------------------------------
On November 13, 1997, the Company, through its wholly-owned subsidiary,
Vermont Network Services Corporation a Delaware Corporation ("Network
Services"), acquired the net assets of Vermont Telecommunications Network
Services, Inc. a Vermont corporation ("VTNSI"), pursuant to an Asset Purchase
Agreement, dated as of November 13, 1997, as amended (the "Purchase Agreement"),
by and among Network Services, VTNSI and Zoltan B. Keve, the President and Chief
Executive Officer of VTNSI and its principal shareholder. Pursuant to the terms
of the Purchase Agreement, Network Services has acquired ownership of the assets
and has assumed certain liabilities of VTNSI, effective November 1, 1997. The
aggregate purchase price for the net assets of VTNSI consists of (i) $2,000,000
cash paid at the closing by the Company, (ii) a promissory note in the original
amount of $250,000, bearing interest at the rate of 8% per annum and payable in
full on November 21, 1998, (iii) a contingent note in the original amount of
$250,000, bearing interest at the rate of 8% per annum and payable in full on
November 21, 1999, and (iv) $400,000 paid by the issuance of 62,112 shares of
the Company common stock. The contingent note in the amount of $250,000 is due
only if Network Services achieves EBIT, as defined, equal to or greater than
$700,000 for the year ending December 31, 1998. In addition, the Company is
required to pay additional purchase price equal to 40% of Network Services'
EBIT, as defined in the Purchase Agreement, in excess of $900,000 per calendar
year commencing January 1, 1998 and ending December 31, 2000. The purchase
price was determined based on the earnings history of VTNSI. The cash portion
of the purchase price of $2,000,000 was paid utilizing the Company's bank line
of credit with Imperial Bank of Inglewood, California.
VTNSI, based in Burlington, Vermont, was an authorized agent selling Bell
Atlantic services in Vermont, New Hampshire, upstate New York and western
Massachusetts. Network Services will continue to operate the former business of
VTNSI.
Network Services currently has four offices and 28 employees, including a
dedicated sales force of 14.
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation of Glendale, California serves as transfer
agent and registrar of the Company's common stock and warrants.
9
ITEM 6. SELECTED FINANCIAL DATA
SIX MONTHS
Year Ended December 31, ENDED YEAR ENDED JUNE 30,
------------------------ DECEMBER 31, -----------------------------------------
1997 1996 1996 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
CONSOLIDATED STATEMENT OF (UNAUDITED)
OPERATIONS DATA:/(1)(2)/
Revenues:
Product and service revenues......... $33,642,166 $24,820,903 $13,330,608 $19,680,386 $10,801,669 $ 8,017,132
Agency commissions................... 16,300,988 12,127,329 6,547,974 11,313,350 17,696,300 18,114,987
----------- ----------- ----------- ----------- ----------- -----------
49,943,154 36,948,232 19,878,582 30,993,736 28,497,969 26,132,119
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold.................. 23,835,939 18,370,748 10,235,235 14,269,108 7,618,770 5,610,713
Selling and marketing expenses....... 17,947,552 13,274,260 7,045,024 10,670,921 15,565,601 16,283,374
General and administrative expenses.. 7,719,983 5,238,638 2,918,880 5,230,209 4,990,572 5,041,385
Merger costs......................... -- 2,563,573 2,563,573 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
49,503,474 39,447,219 22,762,712 30,170,238 28,174,943 26,935,472
----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations.......... 439,680 (2,498,987) (2,884,130) 823,498 323,026 (803,353)
Other Expense.......................... (296,541) (600,798) (172,892) (659,258) (592,853) (346,323)
Loss on Sublease, including
shutdown of offices.................. -- -- -- -- (1,312,900) (318,000)
----------- ----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes...... 143,139 (3,159,785) (3,057,022) 164,240 (1,582,727) (1,467,676)
Benefit (Provision) For Income Taxes... (4,512) 172,434 39,804 259,816 (294,083) 43,882
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss)...................... $138,627 $(2,987,351) $(3,017,218) $424,056 $(1,876,810) $(1,423,794)
=========== =========== =========== =========== =========== ===========
Earnings (Loss) Per Share (Basic & Diluted) 0.02 $(0.57) $(0.56) $0.07 $(0.50) $(0.38)
=========== ============ =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:/(1)(2)/
Total assets......................... $25,812,168 $18,520,608 $18,520,608 $14,841,089 $14,402,807 $8,815,859
Working capital...................... 5,299,734 450,016 454,016 2,370,967 2,602,168 501,353
Long-term liabilities................ 5,342,368 779,926 779,920 952,864 1,634,419 4,534,554
Stockholders' equity (deficit)....... 8,276,832 4,418,725 4,418,725 4,221,533 3,403,065 (977,391)
- ----------
(1) The supplemental financial data presented herein gives a retroactive effect
to the merger of View Tech and USTeleCenters on November 29, 1996, which has
been accounted for described in consolidated as a pooling notes 1 and 4 to
financial of interest as the statements.
(2) The financial data for 1994 are derived from View Tech's audited financial
statements for the years ended June 30, 1994 and from USTeleCenters' audited
financial statements for the years ended December 31, 1994. See notes to
consolidated financial statements included in this Form 10-K.
10
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. Except for historical information contained herein (including,
without limitation, statements indicating that the Company "expects,"
"estimates," "anticipates," or "believes" and all other statements concerning
future financial results, product offerings or other events that have not yet
occurred), the statements in this Form 10-K are forward-looking statements that
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1933, as amended. Forward-looking statements involve
known factors, risks and uncertainties that may cause the Company's actual
results in future periods to differ materially from forecasted results. Those
factors, risks and uncertainties include, but are not limited to: the Company's
ability to raise additional funds that may be necessary to meet its current and
future capital needs; the Company's ability to effectively manage its business
in a rapidly changing environment due to the rapid internal growth and external
growth through acquisition; the Company's limited history of profitable
operations and significant fluctuations in operating results which may continue
due to delays in product enhancements, new product introductions by its
suppliers; the termination of or change of the Company's business relationships
with PictureTel, Bell Atlantic or GTE, disruption in supply, failure of
PictureTel, Bell Atlantic or GTE to remain competitive in product quality,
function or price or a determination by PictureTel, Bell Atlantic or GTE to
reduce reliance on independent providers such as the Company; the introduction
of products embodying new technologies and the emergence of new industry that
could make the Company's existing products and services obsolete; unmarketable
or noncompetitive and the introduction of new rules and regulations of the
federal government and/or certain states pertaining to the Company's
telecommunications business that could lead to additional competition from
entities with greater financial and managerial resources.
GENERAL
The Company commenced operations in July 1992 as a California corporation.
Since its initial public offering of common stock in June 1995, the Company has
grown rapidly through internal expansion and through acquisitions. In July and
August 1996, the Company acquired the net assets of VistaTel International,
Inc., a Florida corporation headquartered in Boca Raton, Florida and GroupNet,
Inc., a Massachusetts corporation located in Boston, Massachusetts,
respectively, both of which were engaged in the marketing and installation of
video communication equipment. In November 1996, concurrent with a merger (the
"Merger") with USTeleCenters, Inc., a Massachusetts corporation
("USTeleCenters"), with and into View Tech Acquisition, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("VTAI"), the Company
reincorporated in Delaware. Following the Merger, VTAI changed its name to
USTeleCenters, Inc. ("UST"). In November 1997, the Company through its wholly-
owned subsidiary, acquired the net assets of Vermont Telecommunications Network
Services, Inc., a Vermont corporation headquartered in Burlington, Vermont,
which sells, manages and supports telecommunication network solutions as an
agent for Bell Atlantic. The Company currently has 23 offices nationwide.
The Company serves as a single source provider for the equipment and
services required to meet the video, voice and data communications requirements
of its customers. The Company's video communications group focuses on the sale,
installation and service of stationary and roll-about, vertical applications and
industry-specific video communications systems. The Company's telecommunications
group develops and manages sales and customer service programs on an outsourced
basis under agency and value-added reseller agreements for certain Regional Bell
Operating Companies ("RBOC's), other telecommunications providers and equipment
manufacturers.
The Company intends to continue its expansion activities in calendar year
1998 primarily through internal expansion and with strategic acquisitions.
Although management anticipates that the revenues generated by its existing
offices, as well as additional offices from expansion and acquisitions, will
exceed its operating costs for the next twelve months, there can be no assurance
that such results will be achieved. To the extent such costs exceed such
revenues, the Company's business, financial condition and results of operations
will be adversely effected.
11
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated financial statements expressed as a percentage
of the Company's revenues:
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30, YEAR ENDED JUNE 30,
----------------- --------------- --------------------
1997 1996 1996 1995 1996 1995
----- ----- ------ ----- ----- -----
(UNAUDITED)
Revenues:
Product sales and service revenues.... 67.4% 67.2% 67.1% 58.8% 63.5% 37.9%
Agency commissions.................... 32.6 32.8 32.9 41.2 36.5 62.1
----- ----- ------ ----- ----- -----
100.0 100.0 100.0 100.0 100.0 100.0
===== ===== ====== ===== ===== =====
Costs and Expenses:
Costs of goods sold................... 47.7 49.7 51.5 42.8 46.0 26.7
Sales and marketing expenses.......... 35.9 35.9 35.4 38.0 34.4 54.6
General and administrative expenses... 15.5 14.2 14.7 16.1 16.9 17.5
Merger costs.......................... -- 6.9 12.9 -- -- --
----- ----- ------ ----- ----- -----
99.1 106.8 114.5 96.9 97.3 98.8
----- ----- ------ ----- ----- -----
Income (Loss) from Operations.......... 0.9 (6.8) (14.5) 3.1 2.7 1.2
Other Expense.......................... (0.6) (1.8) (0.9) (1.2) (2.1) (2.1)
Loss on Sublease, Including
Shutdown of Offices.................. -- -- -- -- -- (4.6)
----- ----- ------ ----- ----- -----
Income (Loss) Before Income Taxes...... 0.3 (8.6) (15.4) 1.9 0.6 (5.5)
Benefit (Provision) for Income Taxes... 0.0 0.5 0.2 0.9 0.8 (1.0)
----- ----- ------ ----- ----- -----
Net (Loss) Income...................... 0.3% (8.1)% (15.2)% 2.8% 1.4% (6.5)%
===== ===== ====== ===== ===== =====
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
REVENUES
Total revenues for the twelve months ended December 31, 1997 increased
$12.995 million or 35.2% to $49.943 million from $36.948 million in 1996.
Product Sales and Services
Product sales and service revenues increased by $8.821 million or 35.5% to
$33.642 million in 1997 from $24.821 million in 1996. The increase in revenues
was primarily related to the Company's nationwide expansion of its
videoconferencing business, including increasing its videoconferencing sales
force in 1997. In addition, the Company benefited from a full 12 months of sales
related to acquisitions made in July and August of 1996.
Agency Commissions
Agency commissions for 1997 increased by $4.174 million or 34.4% to $16.301
million from $12.127 million in 1996. The increase in agency commissions was due
primarily to the Company growing its agency business in its Boston and New York
offices.
COSTS AND EXPENSES
Costs of goods sold for 1997 increased by $5.465 million or 29.7% to
$23.836 million from $18.371 million in 1996. Costs of goods sold as a
percentage of product sales and service revenues decreased to 70.9% in 1997 from
74.0% in 1996. The percentage decrease in costs of goods sold is primarily
related to a increase in service revenues and a slight increase in margin on
equipment sales related to the Company's videoconferencing business due to
efficiencies of scale. Service revenues generally provide a higher profit margin
than equipment revenues.
12
Selling and marketing expenses for 1997 increased by $4.674 million or
35.2% to $17.948 million from $13.274 million in 1996. Selling and marketing
expenses as a percentage of revenues remained constant at 35.9% in 1997 and in
1996. The increase in selling and marketing expenses was primarily due to higher
sales compensation and other operating expenses incurred as a result of
increased revenues and facility rentals due to the increased number of sales
offices.
General and administrative expenses for 1997 increased by $2.481 million or
47.4% to $7.720 million from $5.239 million in 1996. General and administrative
expenses as a percentage of total revenues increased to 15.5% in 1997 from 14.2%
in 1996. The increase was primarily due to a general increase in such expenses
as a result of the expansion of the Company's businesses, including salaries and
depreciation and amortization expenses related to the acquisitions.
The Company incurred merger costs in 1996 of $2.564 million in connection
with the Merger, which was consummated on November 29, 1996. Merger costs
primarily included financial advisory, legal and accounting fees relating to the
Merger. The Merger was accounted for under the pooling of interest method of
accounting that requires the combined company to write off all transaction costs
upon the consummation of such transaction.
Income (loss) from operations increased $2.939 million to income of
$439,680 in 1997 from a loss of $(2.499) million in 1996. The increase in income
from operations related to one time merger costs of $2.564 million incurred in
1996 and increased income related to the overall increase in sales.
Other expense, decreased $364,257 to $296,541 in 1997 compared to $660,798
in 1996. This decrease was primarily due to the fact that the Company wrote-off
a note receivable from Power Data Services, Inc. ("PDS") for $265,000 in
connection with the termination of the PDS acquisition in May of 1996.
Provision for income tax expense increased $176,946 to $4,512 in 1997
compared to a benefit of $172,434 for 1996. The increase in tax was due to the
transition to profitability.
Net income increased $3.126 million to income of $138,627 in 1997 from a
net loss of $(2.987) million for 1996. Net income as a percentage of revenues
increased to 0.3% for 1997 compared to (8.1)% for 1996. Net income per share
increased to $.02 for 1997 compared to a loss per share of $(0.57) per share for
1996. The weighted average number of shares outstanding increased to 6,371,651
for 1997 from 5,262,238 in 1996.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,1995
REVENUES
Total revenues for the six months ended December 31, 1996 increased $5.954
million or 42.8% to $19.879 million from $13.924 million in 1995.
Product Sales and Services
Product sales and service revenues increased by $5.141 million or 62.8% to
$13.331 million in 1996 from $8.190 million in 1995. The increase in revenues
was primarily related to the Company's nationwide expansion of its
videoconferencing business, including increasing its videoconferencing sales
force to 31 representatives at December 31, 1996, compared to 21 representatives
at December 31, 1995.
Agency Commissions
Agency commissions for 1996 increased by $813,979 or 14.2% to $6.548 million
from $5.734 million in 1995. The increase in agency commissions was due to the
Company beginning to rebuild its telemarketing sales force in 1996 to enable it
to market new product offerings on behalf of its RBOC and exchange carrier
clients.
13
COSTS AND EXPENSES
Costs of goods sold for 1996 increased by $4.280 million or 71.9% to
$10.235 million from $5.955 million in 1995. Costs of goods sold as a percentage
of product sales and service revenues increased to 76.8% in 1996 from 72.7% in
1995. The percentage increase in costs of goods sold is primarily related to a
decrease in service revenues and a slight decrease in margin on equipment sales
related to the Company's videoconferencing business. Service revenues generally
provide a higher profit margin than equipment revenues.
Selling and marketing expenses for 1996 increased by $1.758 million or
33.3% to $7.045 million from $5.287 million in 1995. Selling and marketing
expenses as a percentage of revenues decreased to 35.4% in 1996 from 38.0% in
1995. The dollar increase in selling and marketing expenses was primarily due to
higher compensation and related expenses for its sales force as a result of the
increase in revenues related to the Company's videoconferencing business.
Selling and marketing expenses as a percentage of revenues decreased due to the
fact that revenues grew at a greater rate than such expenses.
General and administrative expenses for 1996 increased by $674,493 or 30.1%
to $2.919 million from $2.244 million in 1995. General and administrative
expenses as a percentage of total revenues decreased to 14.7% in 1996 from 16.1%
in 1995. The overall dollar increase in general and administrative expenses was
primarily due to a general increase in such expenses as a result of the
expansion of the Company's videoconferencing business and to higher sales
volume. General and administrative expenses as a percentage of revenues
decreased due to the fact that such expenses grew at a slower rate than
revenues.
The Company wrote-off merger costs of $2.564 million incurred in connection
with the Merger, which was consummated on November 29, 1996. Merger costs
primarily include financial advisory, legal and accounting fees relating to the
Merger. The Merger was accounted for under the pooling of interest method of
accounting that requires the combined company to write off all transaction costs
upon the consummation of such transaction.
Income (loss) from operations decreased $3.322 million to a loss of $2.884
million in 1996 from income of $438,354 in 1995. The increase in the loss from
operations related to the write-off of Merger costs of $2.564 million and the
increase in selling and marketing expenses, and general and administrative
expenses, discussed above. Income (loss) from operations as a percentage of
revenues decreased to (14.5)% for 1996, compared to 3.1% for 1995. The overall
loss from operations was primarily attributable to the write-off of Merger
costs.
Other expense, primarily representing interest expense, for 1996 remained
level with 1995.
Provision for income tax expense decreased $87,382 to a benefit of $39,804
in 1996 compared to a benefit of $127,186 for 1995. The decrease in tax benefit
was due to the fact that the Company did not recognize a tax benefit from the
current period pre-tax loss.
Net income decreased $3.411 million to a loss of $3.017 million in 1996
from net income of $394,189 for 1995. Net income as a percentage of revenues
decreased to (15.2)% for 1996 compared to 2.8% for 1995. Net income per share
decreased to $(.56) for 1996 compared to $.07 for 1995. The weighted average
number of shares outstanding decreased to 5,400,785 for 1996 from 5,653,232 in
1995.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
REVENUES
Total revenues for 1996 increased $2.496 million or 8.8% to $30.994 million
from $28.498 million in 1995.
Product Sales and Services
Product sales and service revenues increased by $8.879 million or 82.2% to
$19.680 million in 1996 from $10.802 million in 1995. The increase was primarily
related to increased sales and marketing efforts for videoconferencing products
and services, including increased staffing and to the opening of three regional
and two sales offices devoted to the videoconferencing business in 1996.
14
Agency Commissions
Agency commissions for 1996 decreased by $6.383 million or 36.1% to $11.313
million from $17.696 million in 1995. The decrease in agency commissions was
primarily due to the restructuring of UST's business in 1995. Regulatory
changes, shifts in market conditions and the exhaustion of available "800"
numbers caused UST's "800" number business to deteriorate rapidly during 1995.
As a result of such changes, the Company curtailed its sales activities in the
"800" number market and terminated its unprofitable relationships with certain
telecommunication companies. In addition, as a result of such changing business
conditions, the Company closed its satellite office in San Francisco,
consolidated its Boston locations and reduced the size of its telemarketing
staff.
COSTS AND EXPENSES
Costs of goods sold for 1996 increased by $6.650 million or 87.3% to
$14.269 million from $7.619 million in 1995. Costs of goods sold as a percentage
of product sales and service revenues increased to 72.5% in 1996 from 70.5% in
1995. The percentage increase in costs of goods sold as a percentage of product
sales and service revenues is primarily related to increased competitive
pressures within the videoconferencing industry and to sales to various state-
funded organizations, resulting in lower selling prices and correspondingly a
higher ratio of cost of sales to revenues.
Selling and marketing expenses for 1996 decreased by $4.895 million or
31.4% to $10.671 million from $15.566 million in 1995. The decrease was
primarily due to lower compensation to sales personnel and related expenses as a
result of the decrease in agency commission revenues, reductions in the number
of sales personnel, and the closing and consolidation of certain of the
Company's sales offices related to its telecommunications business.
General and administrative expenses for 1996 increased by $239,637 or 4.8%
to $5.230 million from $4.991 million in 1995. General and administrative
expenses as a percentage of total revenues decreased to 16.9% in 1996 from 17.5%
in 1995. The overall dollar increase was primarily due to increases in general
and administrative expenses primarily related to the expansion of the Company's
videoconferencing business and to higher sales volume. General and
administrative expenses as a percentage of revenues decreased due to the fact
that such expenses grew at a slower rate than revenues.
Income from operations increased $500,472 to $823,498 in 1996 from $323,026
in 1995. Income from operations as a percentage of revenues increased to 2.7%
for 1996 compared to 1.2% for 1995. The increase was primarily due to reductions
in selling and marketing expenses as a result of the restructuring of the
Company's telecommunications business.
Other expense in 1996 increased by $66,405 or 11.2% to $659,258 from
$592,853 in 1995. The increase was primarily due to the write-off of a note
receivable from Power Data Services, Inc. ("PDS") of $265,000 in connection with
the termination of the PDS acquisition in May 1996, offset by a decrease in net
interest expense.
The loss on sublease, including shutdown of offices (including severance
and related expenses), of $1.313 million was incurred in 1995 as a result of the
Company restructuring its telecommunications business as a result of the decline
of the "800" number business discussed above. During 1995, the Company closed
its sales offices in San Francisco and began to consolidate its Boston locations
which were primarily engaged in the resale of telecommunications products and
services on behalf of certain exchange carriers and RBOCs. Similar charges were
not incurred during 1996.
Provision for income tax expense decreased $553,899 to a tax benefit of
$259,816 in 1996 from a tax expense of $(294,083) for 1995. The decrease in
income tax expense relates to certain pre-tax losses incurred by the Company
prior to the Merger. The Company has utilized approximately 51% of such benefit
through carryback of such net operating loss, and expects to fully realize the
remaining tax benefit in future periods.
Net income (loss) increased $2.301 million to net income of $424,056 in
1996 from a loss of $(1.877) million for 1995. Net income as a percentage of
revenues increased to 1.4% for 1996 compared to a net loss of (6.5)% for
15
1995. Net income (loss) per share increased to $0.07 for 1996 compared to a net
loss of $(0.50) for 1995. The weighted average number of shares outstanding
increased to 5,676,304 for 1996 from 3,765,467 in 1995.
ACQUISITIONS
Vermont Telecommunications Network Services, Inc.
- --------------------------------------------------
On November 13, 1997, the Company, through its wholly-owned subsidiary,
Vermont Network Services Corporation, a Delaware corporation ("Network
Services"), acquired the net assets of Vermont Telecommunications Network
Services, Inc. a Vermont corporation ("VTNSI"), pursuant to an Asset Purchase
Agreement, dated as of November 13, 1997, as amended (the "Purchase Agreement"),
by and among Network Services, VTNSI and Zoltan B. Keve, the President and Chief
Executive Officer of VTNSI and its principal shareholder. Pursuant to the terms
of the Purchase Agreement, Network Services acquired ownership of the assets and
has assumed certain liabilities of VTNSI, effective November 1, 1997. The
aggregate purchase price for the net assets of VTNSI consists of (i) $2,000,000
cash paid at the closing by the Company, (ii) a promissory note in the original
amount of $250,000, bearing interest at the rate of 8% per annum and payable in
full on November 21, 1998, (iii) a contingent note in the original amount of
$250,000, bearing interest at the rate of 8% per annum and payable in full on
November 21, 1999, and (iv) $400,000 paid by the issuance of 62,112 shares of
View Tech common stock. The contingent note in the amount of $250,000 is due
only if Network Services achieves EBIT, as defined, equal to or greater than
$700,000 for the year ending December 31, 1998. In addition, View Tech is
required to pay additional purchase price equal to 40% of Network Services'
EBIT, as defined, in excess of $900,000 per calendar year commencing January 1,
1998 and ending December 31, 2000. The purchase price was determined based on
the earnings history of VTNSI. The cash portion of the purchase price of
$2,000,000 was paid utilizing the Company's bank line of credit with Imperial
Bank of Inglewood, California.
VTNSI, based in Burlington, Vermont, was an authorized agent selling Bell
Atlantic services in Vermont, New Hampshire, upstate New York and western
Massachusetts. Network services will continue to operate the former business of
VTNSI.
Network Services currently has four offices and 28 employees, including a
dedicated sales force of 14.
LIQUIDITY AND CAPITAL RESOURCES
View Tech has financed its recent operations and expansion activities with
the proceeds from its initial public offering completed in June 1995, private
placements of equity securities, bank debt and vendor credit arrangements.
Effective November 21, 1997, the Company entered into a $15 million credit
agreement for a term of five (5) years (the "Agreement") with Imperial Bank (the
"Bank"). Amounts outstanding under the Agreement are collateralized by the
assets of the Company. Funds available under the Agreement will vary from time
to time depending on many variables including, without limitation, the amount of
Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as
such terms are defined in the Agreement. At December 31, 1997, $4.906 million
was outstanding under the Agreement. The Agreement replaced the Company's
previous credit agreements with BankBoston and City National Bank.
Net cash used for operating activities for the year ended December 31, 1997
was $1.355 million. The primary uses of cash in 1997 were increases in accounts
receivable and inventory of $2.417 million and $464,461, respectively, and a
decrease in accrued merger costs of $1.160 million. The uses of cash reflect
the Company's higher sales volume and funds used to expand the Company's
operations during 1997. Sources of cash from operating activities were primarily
related to an increase in other accrued liabilities of $2.217 million.
Net cash used for investing activities for the period was $3.221 million,
primarily relating to the purchase of office furniture and computer equipment
for $1.150 million and the acquisition of VTNSI for $2.071 million during
November 1997.
Net cash provided by financing activities for the period was $5.416
million, primarily generated from the proceeds of $3.319 million from a private
placement of common stock by the Company and $2.867 million of net borrowings
under the Agreement, offset by the repayment of $770,439 in debt obligations.
16
The Company may require additional working capital to efficiently operate
its business, continue to implement its growth strategy and to adequately
provide for its working capital needs. In this regard, the Company may continue
to seek private equity or debt financing to satisfy its capital needs. However,
in order to fund additional expansion activities, the Company believes that its
existing cash balances, combined with its anticipated operating cash flow and
borrowings under existing credit facilities will be adequate to meet the
Company's on-going cash needs for the next twelve months. There can be no
assurance that the Company will be able to raise additional financing on
favorable terms, if at all, or that it will be able to do so on a timely basis.
The inability to obtain required additional financing could limit the Company's
ability to operate the Company efficiently or to continue its expansion
activities.
RISK FACTORS
FUTURE FINANCING REQUIREMENTS
The Company may require additional working capital in order to operate its
business efficiently and to implement its internal expansion and acquisition
strategy. However, there can be no assurance that it will be able to raise
additional working capital. In addition, the Company will seek to raise
additional capital to meet such needs in either the form of a private placement
of its securities and/or traditional bank financing, or a combination of both.
There can be no assurance, however, that the Company will be able to raise any
additional funds that may be necessary to meet the Company's future capital
needs or that such additional funds, if available, can be obtained on terms
acceptable to the Company. The failure to raise additional capital, on terms
acceptable to the Company, when and if needed, could force the Company to alter
its business strategy, including but not limited to, its acquisition strategy,
in the future.
UNASCERTAINABLE RISKS DUE TO RAPID EXPANSION AND FUTURE ACQUISITIONS
Management anticipates that the Company will continue to grow not only
through internal expansion, but also through acquisitions of other entities.
Since July 1992, View Tech, by virtue of its expansion activity, has grown from
two employees in one location to 310 employees in 23 locations at March
23, 1998. In the past 24 months, View Tech has acquired four businesses,
including USTeleCenters. By virtue of rapid internal growth and external growth
through acquisitions, the Company is subject to the uncertainties and risks
associated with any expanding business. In light of the potential significance
of these changes and the absence of a long history of combined operations, it is
possible that the Company will encounter difficulties, such as integration of
operations, inefficiencies due to duplicative functions, management and
administrative differences and overlapping, competing or incompatible areas of
business and operations, that cannot presently be ascertained. There can be no
assurance that the Company will fully achieve the anticipated benefits of its
recent or future acquisitions.
LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING
RESULTS AND NON-RECURRING ITEMS; FUTURE RESULTS OF OPERATIONS UNCERTAIN
View Tech and USTeleCenters have operated since 1992 and 1987,
respectively. On a combined basis, the Company reported net income for the three
months and twelve months ended December 31, 1997, and has operated as a combined
entity since November 29, 1996. Although the Company recently achieved
profitability and reported net income, in the future, the Company may continue
to experience significant fluctuations in operating results as a result of a
number of factors, including, without limitations, delays in product
enhancements and new product introductions by its suppliers, market acceptance
of new products and services and reduction in demand for existing products and
services as a result of introductions of new products and services by its
competitors or by competitors of its suppliers. In addition, the Company's
operating results may vary significantly depending on the mix of products and
services comprising its revenues in any period. There can be no assurance that
the Company will achieve revenue growth or will be profitable on a quarterly or
annual basis in the future. The Company strives to improve its return on assets
and as such it will continuously review its internal operations and other
policies and procedures, including but not limited to those relating to revenue
generation and recognition, adequacy of reserves and realizability of assets.
Any resulting non-recurring adjustments could adversely affect the Company's
results of operations .
17
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL, BELL ATLANTIC AND GTE
For the twelve months ended December 31, 1997, approximately 38% and 30% of
the Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and to the sale of network products and services
provided by Bell Atlantic, and GTE, respectively. Termination of or change of
the Company's business relationships with PictureTel, Bell Atlantic or GTE;
disruption in supply, failure of PictureTel, Bell Atlantic or GTE to remain
competitive in product quality, function or price or a determination by
PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers
such as the Company, among other things, would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is a party to agreements with PictureTel, Bell Atlantic and GTE that
authorize the Company to serve as a non-exclusive dealer and sales agent,
respectively, in certain geographic territories. The PictureTel, Bell Atlantic
and GTE agreements can be terminated without cause upon written notice by the
suppliers, subject to certain notification requirements. There can be no
assurance that these agreements will not be terminated, or that they will be
renewed on terms acceptable to the Company. These suppliers have no affiliation
with the Company and are competitors of the Company.
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS
As of March 23, 1998, the Company's officers and directors beneficially
owned approximately 36% (assuming all options held by executive officers and
directors are exercised) of the outstanding Common Stock of the Company. If the
executive officers and directors act collectively, assuming they continue to own
all their shares, there is a substantial likelihood that such holders will be
able to elect all of the directors of the Company and to determine the outcome
of all corporate actions requiring the approval of the holders of the majority
of shares, such as mergers and acquisitions.
RAPIDLY CHANGING TECHNOLOGY AND OBSOLESCENCE
The market for communications products and services is characterized by
rapidly changing technology, evolving industry standards and the frequent
introduction of new products and services. The Company's future performance will
depend in significant part upon its ability to respond effectively to these
developments. New products and services are generally characterized by improved
quality and function and are frequently offered at lower prices than the
products and services they are intended to replace. The introduction of products
embodying new technologies and the emergence of new industry standards can
render the Company's existing products and services obsolete, unmarketable or
noncompetitive. The Company's ability to implement its growth strategies and
remain competitive will depend upon its ability successfully to (i) maintain and
develop relationships with manufacturers of new and enhanced products that
include new technology, (ii) achieve levels of quality, functionality and price
acceptability to the market, (iii) maintain a high level of expertise relating
to new products and the latest in communications systems technology, (iv)
continue to market quality telecommunications services on behalf of its RBOC and
other exchange service carriers and (v) continue to design, sell, manage and
support competitive telecommunications solutions for its customers. There can be
no assurance, however, that the Company will be able to implement its growth
strategies or remain competitive.
YEAR 2000 DISCLOSURE
The Company is aware of the issues that many computer systems will face as
the millennium (year 2000) approaches. The Company, however, believes that its
own internal software and hardware is year 2000 compliant. The Company believes
that any year 2000 problems encountered by procurement agencies, hospitals and
other customers and vendors are not likely to have a material adverse effect on
the Company's operations. The Company anticipates no other year 2000 problems
which are reasonably likely to have a material adverse effect on the Company's
operations. There can be no assurance, however, that such problems will not
arise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VIEW TECH, INC.
INDEX TO FINANCIAL STATEMENTS
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT
Reports of Independent Public Accountants.............................................. 20
Consolidated Balance Sheets as of December 31, 1997 and 1996,
and June 30, 1996..................................................................... 23
Consolidated Statements of Operations for the years ended December 31, 1997
and 1996, six months ended December 31, 1996, and the years ended June 30, 1996
and 1995.............................................................................. 24
Consolidated Statement of Stockholders' Equity for the year ended December
31, 1997, six months ended December 31, 1996 and the years ended June 30,
1996 and 1995......................................................................... 25
Consolidated Statements of Cash Flows for the years ended December 31, 1997
and 1996, six months ended December 31, 1996 and the years ended June 30, 1996
and 1995.............................................................................. 26
Notes to Consolidated Financial Statements............................................. 27
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
VIEW TECH, INC.:
We have audited the accompanying consolidated balance sheet of View Tech, Inc.
and subsidiaries as of December 31, 1997, and related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides 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 View Tech, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
February 17, 1998
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
VIEW TECH, INC.:
We have audited the accompanying consolidated balance sheets of View Tech, Inc.
and subsidiary as of December 31, 1996, and June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the six months ended December 31, 1996 and for each of the two years in the
period ended June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
The consolidated financial statements as of June 30, 1996, and for each of the
two years in the period ended June 30, 1996 have been restated to reflect the
pooling of interests as described in notes 1 and 3 of the consolidated financial
statements. We did not audit the financial statements of USTeleCenters, Inc. ,
which statements reflect total assets of $6,343,977 as of June 30, 1995 and
total revenues of $21,534,482 and $22,033,697 for the years ended June 30, 1995
and December 31, 1994 respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for USTeleCenters, Inc. as of June 30, 1995, and
for the years ended June 30, 1995 and December 31, 1994, is based solely on the
report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 and reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of View Tech, Inc. and
subsidiary as of December, 31, 1996 and June 30, 1996, and the results of their
operations and cash flows for the six months ended December 31, 1996 and for
each of the two years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
/s/ Carpenter Kuhen & Sprayberry
Oxnard, California
March 13, 1997
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To USTeleCenters, Inc.:
We have audited the balance sheet of USTeleCenters, Inc., (a Massachusetts
corporation) as of June 30, 1995 and December 31, 1994, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements, not included herein, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USTeleCenters, Inc. as of June
30, 1995 and December 31, 1994, and the results of its operations and its cash
flows for the years ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1, the Company was merged into View Tech, Inc., in November
1996.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 20, 1996
22
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
------------------------- ----------
1997 1996 1996
----------- ----------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 1,204,690 $ 365,139 $1,465,199
Accounts receivable, net of reserves of $658,656,
$479,774, and $220,182, respectively 13,326,667 10,609,832 7,907,284
Inventory 2,532,456 2,063,028 1,748,555
Other current assets 428,889 737,980 916,621
----------- ----------- ----------
Total Current Assets 17,492,702 13,775,979 12,037,659
PROPERTY AND EQUIPMENT, net 3,423,838 2,798,476 2,720,422
GOODWILL, net 4,198,927 1,632,370 --
OTHER ASSETS 696,701 313,783 83,008
--------- --------- ---------
$25,812,168 $18,520,608 $14,841,089
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,168,763 $ 7,682,887 $ 4,910,774
Lines of credit -- 1,829,428 1,868,105
Current portion of long term debt 661,290 704,166 1,073,681
Accrued merger costs -- 1,160,494 --
Accrued payroll and related costs 1,904,506 893,382 743,180
Deferred revenue 1,087,161 339,765 44,601
Other current liabilities 1,371,248 711,841 1,026,351
----------- ----------- -----------
Total Current Liabilities 12,192,968 13,321,963 9,666,692
----------- ----------- -----------
LONG-TERM DEBT 5,342,368 779,920 952,864
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.0001, authorized
5,000,000 shares, none issued or outstanding -- -- --
Common stock, par value $.0001, authorized
20,000,000 shares, issued and outstanding 6,589,571,
5,666,814 and 5,112,623 shares, respectively 659 567 51,125
Additional paid-in capital 13,653,624 9,934,236 6,669,268
Retained deficit (5,377,451) (5,516,078) (2,498,860)
----------- ----------- -----------
8,276,832 4,418,725 4,221,533
----------- ----------- -----------
$25,812,168 $18,520,608 $14,841,089
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
23
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
DECEMBER 31, Six Months Ended YEARS ENDED JUNE 30,
-------------------------- DECEMBER 31, ------------------------
1997 1996 1996 1996 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
Revenues:
Product sales and service revenues $33,642,166 $24,820,903 $13,330,608 $19,680,386 $10,801,669
Agency commissions 16,300,988 12,127,329 6,547,974 11,313,350 17,696,300
----------- ----------- ----------- ----------- -----------
49,943,154 36,948,232 19,878,582 30,993,736 28,497,969
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Costs of goods sold 23,835,939 18,370,748 10,235,235 14,269,108 7,618,770
Sales and marketing expenses 17,947,552 13,274,260 7,045,024 10,670,921 15,565,601
General and administrative expenses 7,719,983 5,238,638 2,918,880 5,230,209 4,990,572
Merger costs -- 2,563,573 2,563,573 -- --
----------- ----------- ----------- ----------- -----------
49,503,474 39,447,219 22,762,712 30,170,238 28,174,943
----------- ----------- ----------- ----------- -----------
Income (Loss) from Operations 439,680 (2,498,987) (2,884,130) 823,498 323,026
Other Expense (296,541) (660,798) (172,892) (659,258) (592,853)
Loss on Sublease, Including
Shutdown of Offices -- -- -- -- (1,312,900)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 143,139 (3,159,785) (3,057,022) 164,240 (1,582,727)
Benefit (Provision) for Income Taxes (4,512) 172,434 39,804 259,816 (294,083)
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056 $(1,876,810)
=========== =========== =========== =========== ===========
Earnings (Loss) per Share (Basic and
Diluted) $0.02 $(0.57) $(0.56) $0.07 $(0.50)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
24
VIEW TECH, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common stock Additional Retained Total
--------------------- Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
--------- -------- ----------- ----------- -----------
Balance, June 30, 1994 1,687,750 $ 16,877 $ 1,006,890 $ (853,989) $ 169,778
Issuance of common stock 1,380,000 13,800 5,270,414 -- 5,284,214
Shares issued under stock
option plan 2,226 22 17,978 -- 18,000
Stockholder distributions -- -- -- (192,117) (192,117)
Net loss -- -- -- (1,876,810) (1,876,810)
--------- -------- ----------- ----------- -----------
Balance, June 30, 1995 3,069,976 30,699 6,295,282 (2,922,916) 3,403,065
Shares issued under stock
option plan 34,200 342 11,170 -- 11,512
Issuance of common stock 2,008,447 20,084 406,246 -- 426,330
Additional costs of initial public
offering of common stock -- -- (43,430) -- (43,430)
Net income -- -- -- 424,056 424,056
--------- -------- ----------- ----------- -----------
Balance, June 30, 1996 5,112,623 51,125 6,669,268 (2,498,860) 4,221,533
Change in par value of
common stock to $0.0001 -- (50,613) 50,613 -- --
Issuance of common stock 533,138 53 3,100,519 -- 3,100,572
Shares issued under stock
option plan 21,053 2 113,836 -- 113,838
Net loss -- -- -- (3,017,218) (3,017,218)
--------- -------- ----------- ----------- -----------
Balance, December 31, 1996 5,666,814 567 9,934,236 (5,516,078) 4,418,725
Issuance of common stock 736,662 74 3,172,333 -- 3,172,407
Shares issued under stock
option plan 113,648 11 56,914 -- 56,925
Shares issued in connection with
exercise of warrants 72,447 7 364,853 -- 364,860
Issuance of warrants in connection
with new banking relationship -- -- 125,288 -- 125,288
Net income -- -- -- 138,627 138,627
--------- -------- ----------- ----------- -----------
Balance, December 31, 1997 6,589,571 $ 659 $13,653,624 $(5,377,451) $ 8,276,832
========= ======== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
25
VIEW TECH, INC.
STATEMENTS OF CASH FLOWS
Years Ended Six Months Ended
DECEMBER 31, DECEMBER 31, YEARS ENDED JUNE 30,
------------------------- ----------------------
1997 1996 1996 1996 1995
---------- ----------- --------------- -------- ----------
(UNAUDITED)
Cash Flows from Operating Activities:
Net income (loss) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056 $(1,876,810)
Adjustments to reconcile net income
(loss) to
net cash used in operating activities
Depreciation and amortization 1,190,700 975,675 530,960 872,969 909,258
Noncash merger expenses -- 340,689 340,689 -- --
Noncash charge relating to loss on
sublease including shutdown of offices -- -- -- -- 678,847
Reserve on note receivable -- 265,000 -- 265,000 --
Changes in assets and liabilities,
net of effects of acquisitions
Accounts receivable, net (2,416,536) (3,911,179) (2,521,215) (2,276,340) (1,329,527)
Inventory (464,461) (571,361) (314,473) (679,357) (586,790)
Other assets (72,601) (55,369) 87,836 (617,359) 417,291
Accounts payable (788,494) 3,397,918 2,247,748 2,299,539 532,287
Other accrued liabilities 1,057,433 1,417,880 1,647,700 (1,232,266) 557,962
----------- ----------- ----------- ----------- ----------
Net cash used in operating activities: (1,355,332) (1,128,098) (997,973) (943,758) (697,482)
----------- ----------- ----------- ----------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment (1,150,101) (795,727) (492,684) (865,496) (831,070)
Proceeds from sale of assets -- 14,937 14,937 -- --
Cash paid for business acquisitions (2,071,177) (155,163) (155,163) -- --
Issuance of notes receivable -- (265,000) -- (265,000) --
----------- ----------- ----------- ----------- ----------
Net cash used in investing activities: (3,221,278) (1,200,953) (632,910) (1,130,496) (831,070)
----------- ----------- ----------- ----------- ----------
Cash Flows from Financing Activities:
Net borrowings (payments) on line of
credit 2,867,120 4,786 (38,677) 43,473 418,103
Issuance of term note payable to bank -- -- -- -- 1,500,000
Long term debt reduction (770,439) (626,230) (786,483) (1,886,371) (698,977)
Stockholder distributions -- -- -- -- (192,117)
Issuance of common stock, net 3,319,480 1,365,873 1,355,983 394,412 5,302,214
----------- ----------- ----------- ----------- ----------
Net cash provided (used) by
financing activities: 5,416,161 744,429 530,823 (1,448,486) 6,329,223
----------- ----------- ----------- ----------- ----------
Net Increase (Decrease) in Cash 839,551 (1,584,622) (1,100,060) (3,522,740) 4,800,671
Cash, beginning of period 365,139 1,949,761 1,465,199 4,987,939 187,268
----------- ----------- ----------- ----------- ----------
Cash, end of period $ 1,204,690 $ 365,139 $ 365,139 $ 1,465,199 $4,987,939
=========== =========== =========== =========== ==========
Supplemental Disclosures:
Operating activities reflect:
Interest Paid $ 352,808 $ 387,758 $ 191,342 $ 467,061 $ 454,319
=========== =========== =========== =========== ==========
Income Taxes paid $ 7,640 $ 219,452 $ -- $ 375,480 $ 27,580
=========== =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements.
26
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE BUSINESS
- ----------------------
View Tech, Inc., (the "Company"), markets and installs video communications
systems and provides continuing services related to installed systems to
customers in select states throughout the United States. As a result of the
merger of the Company with USTeleCenters, Inc. in November 1996, the Company
designs, sells, and supports telecommunication systems solutions for small and
medium-sized businesses throughout the United States. The Company also sells
telecommunication services on behalf of certain Regional Bell Operating
Companies ("RBOCs").
This business combination with USTeleCenters was accounted for as a pooling
of interests. Accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the business combination to include the
results of operations, financial position, and cash flows of USTeleCenters.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------
Principles of Consolidation. The accompanying consolidated financial
---------------------------
statements include the accounts of the Company and its subsidiaries. All
significant intercompany transactions have been eliminated.
Change in Year End. During the six months ended December 31, 1996, the
------------------
Company changed its year end from June 30 to December 31. The unaudited
financial information for the year ended December 31, 1996 is presented for
comparative purposes and includes all adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation.
Revenue Recognition. The Company sells both products and services. Product
-------------------
revenue consists of revenue from the sale of video communications and telephone
equipment and is recognized at the time of shipment. Service revenue is derived
from services rendered in connection with the sale of new systems and from
services rendered with respect to previously installed systems. Services
rendered in connection with the sale of new systems consist of engineering
services related to system integration, installation, technical training, user
training, and one-year parts-and-service warranty. The majority of these
services are rendered at or prior to installation, and all of the revenue is
recognized when rendered. Revenue related to extended warranty contracts is
deferred and recognized over the life of the extended warranty period.
The Company has agency agreements with various local exchange carriers and
telecommunications companies whereby the Company receives commissions on work
referred to these entities. The agreements are subject to annual renewals. The
Company generally recognizes revenue when the installation or service is ordered
from the local exchange carrier or telecommunication company and a reserve is
recorded for cancellations. Certain of the entities have the right to credit or
charge back future commission payments on orders canceled within a 6 to 10 month
period from the date of order. The Company is not aware of any possible refunds
or charge-backs that these entities might be seeking, which have not been
reserved at December 31, 1997.
In addition, under its agreement with Bell Atlantic, the Company receives
commissions on management contracts. The Company recognizes these revenues at
the time the service is rendered.
Use of Estimates. The preparation of financial statements in conformity
----------------
with generally accepted accounting principles 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 statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Per Share Data. Earnings (loss) per share - basic is computed on the basis
--------------
of the weighted average number of shares of common stock outstanding and
earnings per share - diluted is based on the weighted average number of shares
outstanding including the dilutive effect of common stock equivalents using the
treasury stock method.
27
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents. The Company considers all highly liquid
-------------------------
investments with a maturity not exceeding three months at the date of purchase
to be cash equivalents. Short-term investments are stated at lower of cost or
market and are insured up to $100,000 by the FDIC.
Inventories. Inventories are accounted for on the basis of the lower of
-----------
cost or market. Cost is determined on a FIFO (first-in, first-out) basis.
Included in inventory is demonstration equipment held for resale in the ordinary
course of business. The Company sells its video demonstration equipment after
the six month holding period required by its primary equipment supplier.
Property and Equipment. Property and equipment are recorded at cost and
----------------------
include improvements that significantly add to utility or extend useful lives.
Depreciation and amortization of property and equipment is provided using the
straight-line and accelerated methods over estimated useful lives ranging from
one to ten years. Expenditures for maintenance and repairs are charged to
expense as incurred.
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.
Income Taxes. The Company accounts for income taxes using SFAS No. 109,
------------
"Accounting for Income Taxes," which requires a liability approach to financial
accounting and reporting for income taxes.
Deferred taxes are recognized for timing differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities represent the future tax consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Concentration of Risk. Items that potentially subject the Company to
---------------------
concentrations of credit risk consist primarily of investments in excess of FDIC
limits and the dependence on a major equipment vendor.
Approximately 38% of the Company's revenues are attributable to the sale of
equipment manufactured by PictureTel and approximately 30% of revenues are
attributable to the sale of network products and services provided by Bell
Atlantic and GTE. Termination or change of the Company's business relationship
with PictureTel, Bell Atlantic and/or GTE disruption in supply, failure of this
supplier to remain competitive in quality, function or price, or a determination
by such suppliers to reduce reliance on independent distributors such as the
Company could have a materially adverse effect on the Company.
Reclassifications. Certain prior year balances have been reclassified in
-----------------
order to conform to the current year presentation.
NOTE 3 -- BUSINESS COMBINATION
- -------------------------------
On November 29, 1996, the Company acquired USTeleCenters, which is an
authorized sales agent for several of the Regional Bell Operating Companies
("RBOC's"). The transaction was accounted for as a pooling of interests in which
USTeleCenters' shareholders exchanged all of their outstanding shares and
options for View Tech common stock and options, respectively. USTeleCenters'
shareholders and optionholders (upon exercise of their options) received
2,240,976 shares of View Tech common stock and options to purchase 184,003
shares of View Tech common stock. The value of the transaction was approximately
$16.5 million. In connection with the acquisition, the Company issued 24,550
shares in January, 1997 to certain investment bankers.
28
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- ACQUISITIONS
- -----------------------
Vermont Telecommunications Network Services, Inc.
- -------------------------------------------------
On November 13, 1997, the Company, through a wholly-owned subsidiary,
acquired the net assets of Vermont Telecommunications Network Services, Inc.
(VTNSI) a Vermont corporation. Pursuant to the terms of the Purchase Agreement,
the Company has acquired ownership of the assets and has assumed certain
liabilities of VTNSI, effective November 1, 1997. The aggregate purchase price
for the net assets of VTNSI consists of (i) $2,000,000 cash paid at the closing,
(ii) a promissory note in the original amount of $250,000, bearing interest at
the rate of 8% per annum and payable in full on November 21, 1998, (iii) a
contingent note in the original amount of $250,000, bearing interest at the rate
of 8% per annum and payable in full on November 21, 1999, and (iv) $400,000 paid
by the issuance of 62,112 shares of the Company's common stock. The contingent
note in the amount of $250,000 is due only if Network Services achieves EBIT, as
defined, is equal to or greater than $700,000 for the year ending December 31,
1998. In addition, View Tech is required to pay additional purchase price equal
to 40% of VTNSI's EBIT, as defined, in excess of $900,000 per calendar year
commencing January 1, 1998 and ending December 31, 2000. The cash portion of the
purchase price of $2,000,000 was paid utilizing the Company's bank line of
credit with Imperial Bank of Inglewood, California. The excess of the
acquisition price over the net assets acquired of approximately $2.708 million
will be accounted for as goodwill and amortized over 15 years. VTNSI, based in
Burlington, Vermont, was an authorized agent selling Bell Atlantic services in
Vermont, New Hampshire, upstate New York and western Massachusetts.
The following unaudited supplemental financial information is provided on a
proforma basis as if the acquisition occurred on January 1, 1996:
Years ended December 31,
------------------------
1997 1996
---------- ---------
(Unaudited) (Unaudited)
Revenues $51,888,000 $39,463,088
=========== ===========
Income (loss) from operations $ 645,000 $(1,936,978)
=========== ===========
Net income (loss) $ 172,000 $(2,780,078)
=========== ===========
Earnings (loss) per share (Basic and Diluted) $ 0.03 $ (0.52)
=========== ===========
VistaTel International, Inc.
- ---------------------------
Effective July 1, 1996, the Company acquired the net assets of VistaTel
International, Inc., ("VistaTel") a private company, based in Boca Raton,
Florida, which was a supplier of video conferencing products and services within
the state of Florida and was one of PictureTel's national resellers. View Tech
issued 52,857 shares of common stock, valued at $7.00 per share, to the sole
shareholder of VistaTel. The excess of the acquisition price over the net assets
acquired of approximately $339,000 was accounted for as goodwill and amortized
over 15 years, its estimated useful life.
GroupNet, Inc.
- -------------
Pursuant to a merger agreement dated August 30, 1996, View Tech acquired
GroupNet, Inc., ("GroupNet") for cash and View Tech common stock valued at
$1,380,000. The purchase price consisted of 150,000 shares of common stock
valued at $7.00 per share and $330,000 in cash. The excess of the acquisition
price over the net assets acquired of approximately $1,330,000 was accounted for
as goodwill and is being amortized over 15 years, its estimated useful life.
GroupNet, based in Boston, Massachusetts, was an authorized PictureTel dealer in
the northeastern United States.
The above acquisitions have been accounted for as purchase transactions and
accordingly the accompanying financial statements include the accounts and
transactions of the Company since the acquisition dates.
29
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- INVENTORY
- -------------------
December 31, June 30,
-------------------------- -----------
1997 1996 1996
----------- ----------- -----------
Inventories are summarized as follows:
Demonstration equipment................................ $ 1,011,277 $ 912,380 $ 488,148
Finished goods......................................... 1,079,738 758,468 625,365
Spare parts............................................ 567,177 700,929 695,042
----------- ----------- -----------
2,658,192 2,371,777 1,808,555
Less reserve for obsolescence.......................... (125,736) (308,749) (60,000)
----------- ----------- -----------
$ 2,532,456 $ 2,063,028 $ 1,748,555
=========== =========== ===========
NOTE 6 -- PROPERTY AND EQUIPMENT, NET
- -------------------------------------
Property and equipment are summarized as follows:
Computer equipment and software........................ $ 2,824,760 $ 2,195,553 $ 1,874,545
Equipment.............................................. 1,864,384 1,526,485 1,385,551
Furniture and fixtures................................. 2,405,757 1,966,741 1,919,851
Leasehold improvements................................. 637,460 375,205 321,889
----------- ----------- -----------
7,732,361 6,063,984 5,501,836
Less accumulated depreciation.......................... (4,308,523) (3,265,508) (2,781,414)
----------- ----------- -----------
$ 3,423,838 $ 2,798,476 $ 2,720,422
=========== =========== ===========
Property and equipment under capital lease obligations, net of accumulated
amortization, at December 31, 1997, 1996 and June 30, 1996 were $738,378,
$1,022,363 and $1,240,394, respectively.
NOTE 7-- LINES OF CREDIT
- ------------------------
View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15
million Credit Agreement, with the Bank, effective November 21, 1997. The
Agreement provides for a maximum credit line of up to $15 million for a term of
five (5) years. Amounts outstanding under the Agreement are collateralized by
the assets of the Company. Funds available under the Agreement will vary from
time to time depending on many variables including, without limitation, the
amount of Eligible Trade Accounts Receivable and Eligible Inventory of the
Company, as such terms are defined in the Agreement. The interest charged on
outstanding amounts vary between the Prime Rate, plus the Prime Rate Margin, or
between the Eurodollar Rate, plus the Eurodollar Rate Margin, depending upon the
Company's Leverage Ratio, as defined in the Agreement. At December 31, 1997, the
interest rate on this Facility was 9.0%. The Agreement requires the Company to
comply with various financial and operating loan covenants. As of December 31,
1997 the Company was in compliance with these covenants. Under certain
conditions, the Agreement allows the Company to prepay principal amounts
outstanding without penalty.
The Agreement provides for three separate loan commitments consisting of (i)
a Facility A Commitment up to $7 million; (ii) a Facility B Commitment up to $5
million and (iii) a Facility C Commitment up to $3 million. Amounts drawn under
the Facility A Commitment are due and payable no later than November 21, 2002.
Amounts drawn under the Facility B Commitment are subject to mandatory
repayments in sixteen (16) equal quarterly installments commencing on March 31,
1999. Amounts outstanding under the Facility C Commitment are subject to
mandatory repayments in twelve (12) equal quarterly installments commencing on
March 31, 2000. All amounts outstanding under each such Facility are due and
payable no later than November 21, 2002. At December 31, 1997, amounts utilized
under the Facilities were $4,905,857. This amount is classified as long-term
debt as the Company intends to transfer all borrowings to Facility B.
30
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Agreement, the Company issued Common Stock Purchase
Warrants for the purchase of 80,000 shares of the Company's Common Stock by the
lenders. The warrants are exercisable until November 21, 2004 at a purchase
price of $7.08 per share. The Company has determined the fair value of the
Warrants using the Black-Scholes model and has recorded $125,288 in other assets
on the accompanying balance sheet and will amortize it over the term of the
agreement.
NOTE 8 -- LONG TERM DEBT
- ------------------------
Long-term debt consists of the following:
December 31, June 30,
----------------------- ----------
1997 1996 1996
---------- ---------- ----------
Capital lease obligations...................... $ 844,038 $1,154,013 $1,379,380
Note payable - former GroupNet, Inc., owner.... -- 203,340 --
Other.......................................... 3,763 126,733 217,165
Term note due to a bank........................ -- -- 430,000
Note payable - former VTNSI owner.............. 250,000 -- --
Line of credit (Note 7)........................ 4,905,857 -- --
---------- ---------- ----------
6,003,658 1,484,086 2,026,545
Less current maturities........................ 661,290 704,166 1,073,681
---------- ---------- ----------
$5,342,368 $ 779,920 $ 952,864
========== ========== ==========
Capital Lease Obligations
- -------------------------
The following is a schedule of future minimum lease payments required under
capital leases, together with their present value as of December 31, 1997:
Year Ending December 31,
------------------------
1998....................................... $ 459,920
1999....................................... 394,807
2000....................................... 126,251
2001....................................... 35,969
2002 and thereafter........................ 16,505
----------
Net minimum lease payments................. 1,033,452
Less amount representing imputed interest.. 189,414
----------
Present value of net minimum
lease payments........................ $ 844,038
==========
The current portion due under capital lease obligations at December 31, 1997,
and 1996 and June 30, 1996, was $407,527, $450,669, and $527,977, respectively.
Note Payable to former VTNSI owner
- -----------------------------------
In connection with the Company's acquisition of Vermont Telecommunications
Network Services, Inc., part of the purchase price consisted of a promissory
note in the original amount of $250,000, bearing interest at the rate of 8% per
annum and payable in full on November 21, 1998.
31
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
The Company leases various facilities under operating leases expiring through
2003. 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 year ended December 31, 1997, for the six months ended December 31, 1996 and
for the years ended June 30, 1996 and 1995 were approximately $1,473,000,
$553,000, $1,160,000, and $885,000, respectively.
Minimum future rental commitments under non cancelable operating leases are
as follows:
Year Ending December 31,
------------------------
1998................................. $1,615,993
1999................................. 1,416,747
2000................................. 1,099,581
2001................................. 890,651
2002 and thereafter.................. 455,198
----------
$5,478,169
==========
The Company has received rent concessions during the first year of certain
leases, which are being deferred and amortized over the term of the lease.
The Company has been named in employee related lawsuits. The Company is
vigorously defending itself against such matters and does not expect the outcome
to have a material impact on its financial position.
In connection with the acquisition of Vermont Telecommunications Network
Services, Inc., part of the purchase price consisted of a contingent note in the
original amount of $250,000, bearing interest at the rate of 8% per annum and
payable in full on November 21, 1999. The contingent note is due only if Network
Services achieves EBIT, as defined, equal to or greater than $700,000 for the
year ending December 31, 1998. In addition, View Tech is required to pay
additional purchase price equal to 40% of Network Services' EBIT, as defined, in
excess of $900,000 per calendar year commencing January 1, 1998 and ending
December 31, 2000. This contingent note will be recorded when and if the EBIT,
as defined, is achieved.
In April, 1997 the Company entered into a Severance and Consulting Agreement
(the "Severance Agreement") with a former director and executive officer of the
Company. Pursuant to the Severance Agreement, the Company must pay the former
director and executive officer $19,335 per month through December 31, 1998. In
consideration of these payments, the former director and executive officer
agreed (i) to resign as an officer effective April 17, 1997 and as a director
effective May 20, 1997, (ii) to provide consulting services to the Company,
(iii) not to compete with the Company during the Consulting Period, and (iv) to
not sell any of the Common stock during certain periods specified in the
Severance Agreement.
NOTE 10 -- COMMON AND PREFERRED STOCK
- --------------------------------------
Public Stock Offering. On June 15, 1995 the Company completed an initial
---------------------
public stock offering, "IPO" for the sale of 1,200,000 shares of its common
stock at $5.00 per share, less offering expenses. On June 25, 1995 the Company
transferred and closed the sale of an additional 180,000 shares of its common
stock to a representative of the Underwriters on the same terms, solely to cover
over-allotments. With the over-allotment option exercised in full, the total
price to the public, total underwriting discounts and expenses, other expenses
and net proceeds to the Company were $6,971,875, $978,343, $709,318, and
$5,284,214, respectively.
Warrants and Options. Included in the public stock offering in June 1995,
--------------------
was the sale of 575,000 warrants to the public. All warrants are exercisable a
$5.00 per share for a period of two years commencing one year after the
effective date of the registration statement.
32
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Upon consummation of the public offering, the Company issued the underwriter
120,000 warrants to purchase common stock of the Company at an exercise price of
$6.75 or 135% of the public offering price per share. Such warrants may be
exercised at any time during the period of five years commencing June 15, 1995.
In addition, the Company issued the underwriters 50,000 warrants at an exercise
price of $6.918 per warrant or 135 % of the public offering price. Each warrant
is exercisable into one share of common stock at a price of $6.75 per share for
a three year period commencing on June 15, 1995.
At December 31, 1997, the Company had outstanding an aggregate of 328,553
options primarily to consultants and advisors to the Company. Approximately
6,000 options were issued at a market price of $5.00, the remainder of such
options were issued at market prices ranging from $6.375 to $7.375 and are fully
vested.
Private Offering. In the first quarter of 1997, the Company completed a
----------------
private placement with Telcom Holding, LLC, a Massachusetts limited liability
company ("Telcom") formed by The O'Brien Group, Inc., a Massachusetts
corporation. Telcom purchased (i) 650,000 shares of Common Stock and (ii) Common
Stock Purchase Warrants exercisable at $6.50 per share of the Company to
purchase up to 325,000 shares of Common Stock, at a price of $4.40 per unit. The
Company issued to certain managing members of Telcom, additional Common Stock
Purchase Warrants of the Company for the purchase of 162,500 shares of Common
Stock, at a purchase price per share of $6.50.
Preferred Stock. On February 1, 1995, the shareholders approved an
---------------
amendment to the Articles of Incorporation to authorize the issuance of
5,000,000 shares of $.01 par value Preferred Stock. The Preferred Stock may be
issued in one or more series with such rights and preferences as may be
determined by the Board of Directors. No shares of Preferred Stock have been
issued.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan was adopted
----------------------------
by the Company's Board of Directors on March 11, 1997 and was subsequently
approved by the Company's stockholders at the 1997 Annual Meeting. On August 1,
1997, the Purchase Plan become effective and the initial purchase period began.
Eligible employees acquire shares of the Company's common stock at periodic
intervals through their accumulated payroll deductions. These deductions are
applied at semi-annual intervals to purchase shares of the Company's common
stock at a discount from the then current market price. Purchase periods run
from the first business day in February to the last business day in July each
year and from the first business day in August each year to the last business
day in January of the following year.
Stock Option Plan. In July 1994, the Company began granting stock options
-----------------
to key employees, consultants and certain non-employee directors. The options
are intended to provide incentive for such persons' service and future services
to the Company thereby promoting the interest of the Company and its
shareholders.
The Company currently maintains five stock option plans which 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 in control, as
defined, of the Company. The Company has authorized an aggregate of 2,535,000
shares of common stock to be available under the option plans.
33
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the plans on a consolidated basis is summarized as follows:
Number of Wtd. Avg.
Shares Price per Share Exercise Price
--------- ------------------ ------------------
Options Outstanding, June 30, 1994............................ 16,560 $4.080 - 8.970 $ 8.52
Granted.................................................... 380,600 .250 - 5.000 1.86
Exercised.................................................. (2,208) 8.150 8.15
Canceled................................................... (11,605) .375 - 8.970 4.41
--------- ----------------- -----------------
Options Outstanding, June
30, 1995................................................... 383,347 .250 - 8.970 1.88
Granted.................................................... 682,503 .290 - 7.750 4.94
Exercised.................................................. (34,300) .250 - .375 0.34
Canceled................................................... (25,445) .250 - 8.970 5.70
--------- ---------------- -----------------
Options Outstanding, June 30, 1996............................ 1,006,105 .250 - 7.750 3.96
Granted.................................................... 46,000 6.250 - 7.000 6.78
Exercised.................................................. (2,500) .250 - 5.000 2.15
Canceled................................................... (8,000) .250 - 6.375 4.13
--------- ----------------- -----------------
Options Outstanding, December 31,1996......................... 1,041,605 .250 - 7.250 4.09
Granted................................................... 617,500 3.000 - 5.812 3.21
Exercised................................................. (113,535) .250 - 6.250 0.50
Canceled.................................................. (154,500) 5.812 - 7.625 6.80
--------- ----------------- -----------------
Options Outstanding, December 31, 1997........................ 1,391,070 $ .250 - 7.625 3.69
========= ================ =================
At December 31, 1997 2,131,223 options were exercisable at a weighted average
exercise price of $5.79 per share. The options outstanding at December 31, 1997
have a weighted average remaining contractual life of 7.13 years.
The Company applies APB Opinion 25 in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below.
Year Ended Six Months Ended Year Ended
December 31, 1997 December 31, 1996 June 30,1996
------------------ ----------------- -------------
Net income (loss): As reported $ 138,627 $ (3,017,218) $ 424,056
Pro forma (8,531) (3,093,281) (608,563)
Earnings (loss)
per share: As reported $ 0.02 $ (0.56) $ 0.07
(Basic and Diluted) Pro forma (0.00) (0.57) (0.11)
The weighted average fair value at the date of grant for options granted
during the year ended December 31, 1997, the six months ended December 31, 1996
and the year ended June 30, 1996, were $4.83, $2.16 and $1.40, respectively.
The fair value of options at the grant date was estimated using the Black-
Scholes model with following weighted average assumptions: expected life - 2.5
years; volatility - 45.44%; dividend yield - 0%; interest rate - 5.8% to 6.15%.
34
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings (Loss) Per Share:
- -------------------------
Six Months Ended
Year Ended December 31, December 31, Year Ended June 30,
----------------------- ------------ ---------------------
1997 1996 1996 1996 1995
--------- ------------ ------------ --------- ---------
(Unaudited)
Weighted average shares outstanding 6,371,651 5,262,238 5,400,785 5,040,731 3,765,467
Effect of dilutive options and warrants 421,870 -- -- 635,573 --
--------- ----------- ------------ --------- ---------
Weighted average shares outstanding
including dilutive effect of securities 6,793,521 5,262,238 5,400,785 5,676,304 3,765,467
========= =========== ============ ========= =========
Options and warrants to purchase 2,222,056, 939,860, 1,094,818, 690,105 and
210,420 shares of common stock were outstanding during the year ended December
31, 1997 and 1996, six months ended December 31, 1996 and the year ended June
30, 1996 and 1995, respectively, but were not included in the computation of
diluted EPS because the options' exercise price was either greater than the
average market price of the common stock or the Company reported a net operating
loss and their effect would have been antidilutive.
NOTE 11 -- PENSION PLAN
- ------------------------
The Company participates in 401(k) retirement plans for its employees.
Employer contributions to the 401(k) plans for the year ended December 31, 1997,
six months ended December 31, 1996, and for the years ended June 30, 1996 and
1995 were approximately $114,229, $37,000, $67,000, and $57,000, respectively.
NOTE 12 -- BENEFIT (PROVISION) FOR INCOME TAXES
- ------------------------------------------------
Total income tax expense differs from the expected tax expense (computed by
multiplying the United States federal statutory rate of approximately 35 percent
for the periods ended December 31, 1997 and 1996, and years ended June 30, 1996
and 1995 to income before income taxes) as a result of the following:
Six Months
Years Ended Ended Years Ended
December 31, December 31, June 30,
------------ ------------ --------------------
1997 1996 1996 1995
------------ ------------ -------- ---------
Computed "expected" tax (expense) benefit... $ (50,099) $ 1,069,957 $(57,484) $ 553,955
State tax expense, net of federal benefit... (8,588) 184,797 (9,608) 92,590
S corporation tax differential.............. -- 117,580 424,346 (817,495)
Valuation allowance......................... 2,911 (1,370,163) -- --
Utilization,net operating losses........... 51,264 -- -- --
Other, net.................................. -- 37,633 (97,438) (123,133)
------------ ------------ -------- ---------
$ (4,512) $ 39,804 $259,816 $(294,083)
============ ============ ======== =========
Prior to the acquisition by the Company, UST was an S Corporation. The current
portion of the Federal income tax benefit is comprised of an income tax refund
created by the carryback of a net operating loss. The primary components of
temporary differences which give rise to deferred taxes are as follows:
Years Ended Years Ended
December 31, June 30,
-------------------------- -------------------
1997 1996 1996 1995
----------- ----------- -------- --------
Deferred tax asset:
Merger............................. $ 1,001,648 $ 1,001,648 $ -- $ --
Reserves and allowances............ 79,309 119,403 22,677 8,975
Net operating loss carryforward.... 589,476 552,293 165,007 21,038
Deferred tax valuation allowance... (1,367,252) (1,370,163) -- (25,690)
----------- ----------- -------- --------
$ 303,181 $ 303,181 $187,684 $ 4,323
=========== =========== ======== ========
35
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1997, the Company had available net operating loss (NOL)
carryforwards of approximately $1,450,000 and $1,050,000 for federal and state
income tax purposes, respectively. The federal NOL has a carryover period of 15
years and is available to offset future taxable income, if any, through 2011,
and may be subject to an annual statutory limitation.
NOTE 13 -- SEGMENT INFORMATION (UNAUDITED)
- -------------------------------------------
The Company's operations are classified into two primary industry segments:
(a) product sales and service revenue generated from the sale of
telecommunication equipment and of videoconferencing and related services which
involve the marketing and installation of video communication systems and
providing continuing services related to installed systems, and (b) marketing
telecommunication services on behalf of certain RBOCs and exchange carriers for
an agency commission. Following is a summary of segment information for the year
ended December 31, 1997, the six months ended December 31, 1996 and the years
ended June 30, 1996 and 1995:
PRODUCT SALES
AND SERVICE AGENCY
DECEMBER 31, 1997 REVENUES COMMISSION COMBINED
Total Revenue.............................. $33,642,166 $16,300,988 $49,943,154
===========
Operating profit........................... 3,961,124 4,015,288 7,976,412
General corporate expenses................. (7,536,732)
Other expense.............................. (296,541)
-----------
Income (loss) from continuing operations
before income taxes....................... $ 143,139
===========
Identifiable assets at December 31, 1997... 3,392,635 1,537,003 4,929,638
Corporate assets........................... 20,882,530
-----------
Total assets December 31, 1997............. $25,812,168
===========
DECEMBER 31, 1996
Total Revenue.............................. $13,330,608 $ 6,547,974 $19,878,582
===========
Operating profit........................... 310,578 2,287,745 2,598,323
General corporate expenses................. (5,482,453)
Other expense.............................. (172,892)
-----------
Income (loss) from continuing operations
before income taxes....................... $(3,057,022)
===========
Identifiable assets at December 31, 1996... 3,082,986 1,263,231 $ 4,346,217
Corporate assets........................... 14,174,391
-----------
Total assets December 31, 1996 $18,520,608
===========
JUNE 30, 1996
Total Revenue.............................. $19,680,386 $11,313,350 $30,993,736
===========
Operating profit........................... 1,828,707 4,225,000 6,053,707
General corporate expenses................. (5,230,209)
Other expense.............................. (659,258)
-----------
Income from continuing operations
before income taxes....................... $ 164,240
===========
Identifiable assets at June 30, 1996....... 2,404,065 1,257,000 $ 3,661,065
Corporate assets........................... 11,180,024
-----------
Total assets at June 30, 1996.............. $14,841,089
===========
36
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRODUCT SALES
AND SERVICE AGENCY
JUNE 30, 1995 REVENUES COMMISSION COMBINED
Total Revenue.............................. $10,801,669 $17,696,300 $28,497,969
===========
Operating profit........................... 796,598 4,517,000 5,313,598
General corporate expenses................. (4,990,572)
Other expense.............................. (1,905,753)
-----------
Income (loss) from continuing operations
before income taxes....................... $(1,582,727)
===========
Identifiable assets at June 30, 1995....... 1,879,913 1,461,330 3,341,243
Corporate assets........................... 11,061,564
-----------
Total assets at June 30, 1995.............. $14,402,807
===========
NOTE 14 -- SUPPLEMENTAL DISCLOSURES-CASH FLOW INFORMATION
- ---------------------------------------------------------
Year Ended Six Months Ended
December 31, December 31, Year Ended June 30,
------------ ------------ -------------------------
1997 1996 1996 1995
------------ ------------ ----------- -----------
Schedule of non-cash transactions:
Non-cash investing and financing transactions-
Cost of fixed assets purchased....... $ 1,493,564 $ 508,421 $ 1,260,935 $ 1,726,132
Less lease financing................. (343,463) (15,737) (395,439) (895,062)
------------ ------------ ----------- -----------
Cash paid for fixed assets........... $ 1,150,101 $ 492,684 $ 865,496 $ 831,070
============ ============ =========== ===========
Cost of acquisitions................. $ 2,721,177 $ 1,575,163 $ -- $ --
Less common stock and notes issued... (650,000) (1,420,000) -- --
------------ ------------ ----------- -----------
Cash paid for acquisitions........... $ 2,071,177 $ 155,163 $ -- $ --
============ ============ =========== ===========
During the year ended June 30, 1996, the Company converted approximately
$700,000 of accounts payable to a vendor into a term note. During the year ended
June 30, 1995, the Company acquired $150,880 of leasehold improvements under
allowance for amounts due to former landlords.
NOTE 15 -- RELATED PARTY TRANSACTIONS
- --------------------------------------
In October, 1997, the Company purchased five (5) videoconferencing systems
from Robert G, Hatfield, CEO and Director of the Company, for a purchase price
of $162,500. The price the Company paid for these units was less than the
wholesale price that the Company would otherwise pay for the same units. The
units were subsequently sold by the Company at a profit.
37
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------
ADDITIONS DEDUCTIONS
BALANCE AT CHARGE TO ACCOUNTS BALANCE
BEGINNING COSTS AND CHARGED AT END
OF PERIOD EXPENSES OFF OF PERIOD
---------- --------- ---------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended --
June 30, 1995............................. $348,738 $4,150,109 $3,770,847 $728,000
June 30, 1996............................. $728,000 $2,300,440 $2,808,258 $220,182
Six months ended --
December 31, 1996......................... $220,182 $2,277,423 $2,017,831 $479,774
Year ended --
December 31, 1997......................... $479,774 $3,542,801 $3,363,919 $658,656
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
38
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, 1997, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1998.
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, 1997, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1998.
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, 1997, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1998.
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, 1997, which Proxy Statement will be filed with the Securities and Exchange
Commission on or about April 15, 1998.
39
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:
Reports of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996, and
June 30, 1996
Consolidated Statements of Operations for the years ended December
31, 1997 and 1996, six months ended December 31, 1996, and the
years ended June 30, 1996 and 1995
Consolidated Statement of Stockholders' Equity for the year ended
December 31, 1997, six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1996, six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995
Notes to Consolidated Financial Statement
No other 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.
- - Current Report on Form 8-K, dated December 5, 1997, regarding View Tech's
wholly-owned subsidiary, Vermont Network Services Corporation, a Delaware
corporation, acquiring the net assets of Vermont Telecommunications Network
Services, Inc., a Vermont corporation, pursuant to an Asset Purchase
Agreement, dated as of November 21, 1997. The aggregate purchase price for
the net assets of Vermont Telecommunications Network Services consists of
$2.65 million paid in cash, a note and View Tech common stock.
- - Current Report on Form 8-K, dated April 21,1997, regarding the engagement
of new certifying accountants and dismissal of former certifying
accountant. On April 21, 1997, Arthur Andersen LLP was engaged as the
independent public accountants of the Company for the year ending December
31, 1997. On the same date, the Audit Committee dismissed Carpenter Kuhen &
Sprayberry as the independent public accountants.
- - Current report on Form 8-K/A, dated February 14, 1997, presenting the
pro-forma information for the three months ended September 30, 1996 and
1995 in connection with the Company's merger with USTeleCenters, Inc.
40
- - Current Report on Form 8-K, dated January 15, 1997, regarding the
appointment of Paul C. O'Brien as Chairman of the Board and the investment
in View Tech common stock and common stock purchase warrants by Telcom
Holding, LLC of which Mr. O'Brien is a member and manager.
41
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.
View Tech, Inc.
-------------------------------------------------
(Registrant)
Date: 3/30/98 By: /s/ David A. Kaplan
--------------------- ----------------------------------------------
David A. Kaplan, CFO, Corporate Secretary and
Senior Vice President of Finance and Operations
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 and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Paul C. O'Brien Chairman 3/30/98
- -------------------------- -------
Paul C. O'Brien
/s/ Robert G. Hatfield Chief Executive Officer 3/30/98
- -------------------------- (Principal Executive Officer) -------
Robert G. Hatfield
/s/ Franklin A. Reece, III President and Director 3/30/98
- -------------------------- -------
Franklin A. Reece, III
/s/ David A. Kaplan CFO, Corporate Secretary and 3/30/98
- -------------------------- Senior Vice President of -------
David A. Kaplan Finance and Operations
(Principal Financial and
Accounting Officer)
/s/ Calvin M. Carrera Vice President 3/30/98
- -------------------------- General Manager, Director -------
Calvin M. Carrera
/s/ Robert F. Leduc Director 3/30/98
- -------------------------- -------
Robert F. Leduc
/s/ David F. Millet Director 3/30/98
- -------------------------- -------
David F. Millet
/s/ William J. Shea Director 3/30/98
- -------------------------- -------
William J. Shea
42
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Asset Purchase Agreement, dated as of November 13, 1997, as
amended by Amendment No. 1 to the Asset Purchase Agreement, dated
as of November 21, 1997, by and among Vermont Network Services
Corporation, Vermont Telecommunications Network Services, Inc.
and Zoltan B. Keve. (1)
2.2 Amendment No. 1 to Asset Purchase Agreement, dated as of November
21, 1997, by and among Vermont Network Services Corporation,
Vermont Telecommunications Network Services, Inc. and Zoltan B.
Keve. (1)
3.1 Certificate of Incorporation of the Company, as amended by
Agreement and Plan of Merger, dated November 27, 1996. (2)
3.2 Bylaws of the Company. (2)
4.1 Warrant Agreement dated as of June 28, 1995 between the Company
and U.S. Stock Transfer Corporation. (3)
4.2 Form of Warrant between the Company and Telcom Holding, LLC. (2)
10.1 Dealer Agreement between the Company and PictureTel Corporation
dated as of March 30, 1995. (4)
10.2 Employment Agreement between the Company and Franklin A. Reece,
III dated as of November 29, 1996. (2)
10.3 Severance and Consulting Agreement by and between, View Tech,
Inc. and John W. Hammon, dated April 22, 1997. (5)
10.4 Tenth Amendment to Revolving Credit, Term Loan and Security
Agreement between USTeleCenters, Inc. and The First National Bank
of Boston, dated March 31, 1997. (5)
10.5 Employment Agreement between the Company and William M. McKay,
dated as of December 9, 1996. (6)
10.6 1995 Stock Option Plan, as amended. (7)
10.7 Amendment to the Dealer Agreement between the Company and
PictureTel Corporation, dated as of August 1, 1995. (3)
10.8 1997 Stock Incentive Plan. (8)
10.9 Promissory Note, dated November 21, 1997, of Vermont Network
Services Corporation, payable to Vermont Telecommunications
Network Services, Inc. in the amount of $250,000. (1)
10.10 Contingent Note, dated November 21, 1997, of Vermont Network
Services Corporation, payable to Vermont Telecommunications
Network Services, Inc. in the amount of $250,000. (1)
10.11 Subordination Agreement, dated as of July 26, 1996, by and among
the Company, the First National Bank of Boston, BancBoston
Leasing, Inc., and USTeleCenters, Inc. (9)
10.12 Sublease Agreement dated as of October 11, 1996, by and between
Atlantic Steel Industries, Inc. and the Company, (together with
prime Lease Agreement dated as of November 1, 1993 between
Atlantic Steel Industries, Inc. and the State of California
Public Employees' Retirement System). (2)
10.13 Common Stock and Common Stock Purchase Warrants Agreement, dated
as of December 31, 1996, by and between the Company and Telcom
Holding, LLC, an Massachusetts limited Liability company. (2)
10.14 Letter Agreement, dated as of December 31, 1996, from the Company
to Paul C. O'Brien and Mark P. Kiley. (2)
43
Exhibit
Number Description
- ------ -----------
10.15 Common Stock Purchase Warrant, dated as of November 21, 1997, for
the purchase of 60,000 shares of Common Stock of View Tech, Inc.,
a Delaware corporation, by Imperial Bank, a California banking
corporation, on or before November 21, 2004 at a purchase price
of $7.08 per share. (10)
10.16 Common Stock Purchase Warrant, dated as of November 21, 1997, for
the purchase of 20,000 shares of Common Stock of View Tech, Inc.,
a Delaware corporation, by BankBoston, N.A., a national banking
association, a participating lender, on or before November 21,
2004 at a purchase price of $7.08 per share. (10)
10.17 Revolving Note with City National Bank, dated February 20, 1996.
(11)
10.18 Loan Agreements with Power-Data Services, Inc., dated February
15, 1996 and March 22, 1996. (11)
10.19 Credit Agreement, dated as of November 21, 1997, among,
USTeleCenters, Inc., a Delaware corporation, View Tech, Inc., a
Delaware corporation, and Imperial Bank, a bank organized under
the laws of the State of California. (10)
10.20 Security Agreement, dated as of November 21, 1997, among
USTeleCenters, Inc., a Delaware corporation, View Tech, Inc., a
Delaware corporation and Imperial Bank, a bank organized under
the State of California. (10)
11.1 Computation of Earnings Per Share. (12)
21.1 Subsidiaries of the Company. (12)
23.1 Consent of Carpenter, Kuhen, and Sprayberry. (12)
23.3 Consent of Arthur Andersen LLP. (12)
27 Financial Data Schedule. (12)
99.1 View Tech, Inc., Special Non-Officer Stock Option Plan. (13)
99.2 Form of Special Non-Officer Stock Option Agreement. (13)
99.3 Form of Addendum to Stock Option Agreement: Involuntary
Termination Following Corporate Transaction. (13)
99.4 Form of Stock Option Agreement. (14)
99.5 Form of Addendum to Stock Option Agreement: Involuntary
Termination Following Corporate Transaction. (14)
99.6 Form of Addendum to Stock Option Agreement: Involuntary
Termination Following Change in Control. (14)
99.7 1997 Non-Employee Directors Stock Option Plan. (14)
99.8 Form of Automatic Stock Option Agreement. (14)
99.9 Employee Stock Purchase Plan. (14)
99.10 Form of Stock Purchase Agreement under the Employee Stock
Purchase Plan. (14)
- ---------------
(1) Filed as an exhibit to the Company's Report on Form 8-K dated December
5, 1997, and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(Registration No.333-19597)and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1995, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(registration No.33-91232), and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, and incorporated herein by reference.
44
(6) Filed as an exhibit to the Company's Transitional Report on Form 10-K
for the six month period ended December 31, 1997, and incorporated
herein by reference.
(7) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended September 30, 1995, and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-4
(Registration No.333-13459) and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1996, and incorporated herein by
reference.
(10) Filed as an exhibit to the Company's Report on Form 8-K dated February
5, 1998, and incorporated herein by reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended March 31, 1996, and incorporated herein by
reference.
(12) Filed herewith.
(13) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on November 4, 1997, and incorporated herein by reference.
(14) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on June 30, 1997, and incorporated herein by reference.
45