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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission File Number 0-27560
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ACT Teleconferencing, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 84-1132665
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1658 Cole Boulevard, Suite 130, Golden, CO 80401
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(Address of principle executive offices) (Zip Code)
(303) 235-9000 (303) 233-0895
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(Registrant's telephone number) (Registrant's facsimile number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
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 as of March 15, 2002 was: $43.5 million, based on the closing price
of the Company's common stock on the Nasdaq National Market on March 15, 2002 of
$5.45 per share.
The number of shares outstanding of the Company's Common Stock, no par value was
9,144,370 shares as of March 15, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to specified
portions of the definitive Proxy Statement for the Registrant's 2002 Annual
Meeting of Stockholders, which is expected to be filed not later than 120 days
after the Registrant's fiscal year ended December 31, 2001.
ACT Teleconferencing, Inc.
Form 10-K
Table of Contents
PART I. Page No.
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Item 1. Business 1
Item 2. Facilities 13
Item 3. Legal proceedings 14
Item 4. Submission of matters to a vote of security holders 14
PART II.
Item 5. Market for registrants' common equity and related 15
stockholder matters
Item 6. Selected Financial Data 18
Item 7. Management's discussion and analysis of financial 19
condition and results of operations
Item 7A Quantitative and qualitative disclosures about
market risk 28
Item 8. Financial statements and supplementary data 29
Item 9. Changes in and disagreements with accountants 29
PART III.
Item 10. Directors and executive officers of the registrant 29
Item 11. Executive compensation 29
Item 12. Security ownership of certain beneficial owners and 29
management
Item 13. Certain relationships and related transactions 29
PART IV
Item 14. Exhibits, financial statements and schedules, and
reports on Form 8-K 30
Caution Regarding Forward-Looking Statements
This annual report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as may,
will, should, expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms, or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined in our former
registration statements or future registration statements. These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Important factors that could cause
actual results to differ materially from such expectations described in this
report include: the capital requirements required for the development and
expansion of the Company's business; risks relating to obtaining additional
financing; risks associated with the expansion of the Company's business and the
possible inability of the Company to manage its growth; risks related to the
Company's expansion into new products and new technologies; the competitive
nature of the teleconferencing business; and the Company's dependence on its
significant customers. Moreover, we do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
annual report to conform such statements to actual results or to changes in our
expectations.
PART I
Item 1. Business
Overview
General. We are a full-service provider of audio, video, data and Internet-based
teleconferencing services to businesses and organizations in North America,
Europe, and Asia Pacific. Our conferencing services enable our clients to
cost-effectively conduct remote meetings by linking participants in
geographically dispersed locations. We are present in ten countries with sales
and service delivery centers in nine countries and a sales office and European
regional headquarters in Belgium. Our primary focus is to provide high
value-added conferencing services to organizations such as professional service
firms, investment banks, high tech companies, law firms, investor relations
firms, and other domestic and multinational companies.
We were incorporated in December 1989 and began offering audio teleconferencing
services at our Denver location in January 1990. In 1992 we invested in an audio
teleconferencing facility in the United Kingdom and in 1995 we invested in a
similar operation in the Netherlands. In 1997 we announced a major international
capacity expansion plan intended to grow the company from its then three
locations in three
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countries (United States, United Kingdom and Netherlands) to the current ten
countries (the three aforementioned countries, along with Canada, France,
Belgium, Germany, Australia, Hong Kong and Singapore) offering a full range of
audio, video, and internet-based data conferencing services. The rationale for
this expansion plan has been the rapidly growing market for teleconferencing
services worldwide, the expansion of internet-based conferencing services, and
an increasing demand for additional services by certain of our multinational
clients.
During 1999, we entered the field of internet-based teleconferencing products
and applications, also known as web conferencing. With this capability, we were
able to offer data conferencing services, along with audio, video and data
streaming applications over the internet. In addition, during 1999 through 2001,
we developed a conferencing service that uses internet telephony.
In 2001, we acquired the assets of 1414c, the worldwide video conferencing
service delivery business of PictureTel Corporation. The assets acquired include
property (equipment and offices), software, and customer contracts. The assets
were previously used by PictureTel Corporation to provide global video
conferencing bridging services and we plan to use the acquired assets for the
same purpose. In early 2002, we acquired Proximity, Inc., which provides room
based video conferencing services in over 3,000 cities worldwide. With these
acquisitions, we are able to offer a full range of video conferencing services
to augment our existing video services, as well as our audio, web and internet
telephony conferencing products.
Teleconferencing, whether audio, video or web conferencing, is a business tool
used to bring decision makers together more frequently, at lower cost, and with
fewer scheduling conflicts than is possible with face-to-face meetings. Within
our target markets of professional service firms, mid-size firms, government
agencies, and multinationals, our customers use teleconferencing as a high
performance productivity tool to accelerate decision making, reduce travel
costs, and improve teamwork. Members of project teams, consulting teams, and
working groups spread across a country or the world can assemble more quickly
and economically than in face-to-face meetings. Examples are broker/trader
calls, board meetings, sales and marketing groups, training programs, investor
relations presentations, press conferences, workshops, seminars, and many other
forms of business or professional meetings.
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Several key trends in today's business world, as well as ongoing developments in
technology, are driving growth in the world market for teleconferencing
services:
. Concerns about the time, costs, and security of business travel.
. The need for accelerated decision-making and the trend toward
increased teamwork within companies.
. Growth of the Internet as a viable medium for the efficient
transport of large volumes of voice, video, and data.
. Enhancements to the overall quality, including ease of use, of
audio, video, and data conferencing.
. Reduced costs of audio and video transmission and video conferencing
hardware.
. Increased bandwidth capacity for video and data conferencing.
. Improved quality of life for participants in meetings who would
otherwise need to spend additional time and effort traveling.
. Globalization and the resulting demand for additional business
communication.
Audio Conferencing Services. Our ActionCallsm audio conferencing services
include full-service, attended conferencing, reservationless unattended
conferencing, and a comprehensive suite of enhanced audio conferencing
management services. Our data and Internet conferencing services supplement
these offerings. Our enhanced audio conferencing services, which are available
on request, include:
. Continuous monitoring and operator access.
. Security codes.
. Blast dial-out.
. Participant volume control and muting.
. Conference recording, translation, and transcription.
. Digital replay.
. Network management and fault reporting.
. Broadcast faxes, pre-notification fax, email, and participant
notification.
. Question and answer and polling services for large investor
relations calls.
. Customized billing.
In a full-service, attended conference, our conference coordinators either will
call each participant (a dial-out conference) or provide participants with a
toll free or local number for them to call at a certain time (a dial-in
conference). In an unattended or automated conference, we provide the customer
with a dial-in telephone number and a PIN code to allow the customers to arrange
their own conferences on our bridging equipment. We can connect audio conference
participants to a high quality conference call from their office, home, project
site, or any mobile phone.
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We generate revenues by charging clients a fee per minute for bridging, call
management, and various enhanced conferencing services, as well as charges
related to long distance transmission.
Video Conferencing Services. We offer our video conferencing services through
multipoint video bridging centers worldwide. In October 2001, we acquired the
video conferencing services business of PictureTel Corporation, which included
video operations centers in the United States, United Kingdom, and Singapore,
and secondary network operating facilities in other locations. This acquisition
augmented our existing video operations facilities in the United States, London,
Paris, and Amsterdam, which we are integrating with the acquired PictureTel
operations. Our pre-acquisition videoconferencing business lacked the network of
operations centers and broad video customer base that PictureTel had developed.
In addition, in January 2002, we acquired Proximity, Inc., one of the world's
largest providers of room-based videoconferencing services. The acquisition
further enhances our suite of video conferencing services.
Our offerings include full-service, advanced technical management features such
as:
. Operator-controlled conferences.
. Continuous on-screen presence of all participants.
. Reservations and scheduling management.
. Room reservations/rentals.
. Video taping and cassettes.
. Multiple line speeds and voice-activated switching controls.
. Training, installation, and maintenance of equipment.
. Video conferencing site certification.
. Event management.
Although we can accommodate more locations by linking several video bridges,
most video conferences, as a practical matter, involve no more than three to ten
locations. Technical features of our multipoint control units enable us to
display all parties on one screen or select only certain parties as needed
during a conference.
We generate revenues from video conferencing in the same manner as audio
conferencing, but at higher per-minute rates. Recent decreases in per-minute
rates for video bridging and long distance transmission, driven by improved
technology and competition among the long distance companies, have stimulated
the market for video conferencing and are expected to continue to do so.
The introduction of affordable small group systems greatly expanded the use of
video conferencing. We believe that the growing base of users with in-house
systems, combined with the greater bandwidth now available through the
integrated services digital network, or ISDN, and improved business quality
internet band width, will continue to drive increased usage.
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Video conferencing is a preferred medium in certain conferencing applications.
Examples of professional and industry applications include law (witness
depositions), medicine (diagnosis and treatment through telemedicine), business
(executive searches, meetings of executives, boards, and committees), and
education (distance learning discussions). The videoconferencing market
nevertheless is substantially smaller than the audio conferencing market because
the equipment is more difficult to use than a standard telephone, and the
transmission costs are more expensive. We expect that improvements in equipment,
increased familiarity with video, stable or declining transmission and equipment
costs, and internet technology will drive growth in video.
Internet Telephony Conferencing Services. An important next step in expanding
the use of teleconferencing is to enable conference participants to participate
in an interactive conference in which the participants can speak to each other
using internet telephony services at a similar level of quality as existing full
duplex conferences conducted today over the public switched telephone network,
or PSTN. We have begun marketing of this service under the ClarionCall(SM) name.
We are therefore preparing for the evolution to internet conferencing services
by implementing full duplex Internet conferencing solutions using Cisco gateways
and command center technology. Although we have successfully completed product
testing, we presently derive no significant revenues from internet conferencing.
Data and Internet-Based Conferencing (or Web conferencing) Services. Our
customers use web conferencing to broadcast, to share, and to review and edit
data, such as sales analyses, product brochure designs, engineering drawings, or
financial statements, for viewing by participants during an audio or video
conference. Data or web conferencing enhances the audio or video conference by
simultaneously transmitting data over the Internet. Internet streaming
broadcasts are especially useful in large conferences to supplement the audio or
video interaction. These services enable:
. Interactive audio or video conferences with simultaneous data
streaming.
. Collaborative revision of data by participants equipped with
appropriate software.
. Viewing of whiteboard illustrations, slide presentations, or
drawings.
Conferencing Services Market. We operate in a very small niche of the
teleconferencing services market. Our focus is on high value added services and
on international conferences. We believe that we presently account for
approximately 2% of the worldwide market for teleconferencing services, based on
various market studies summarized as follows:
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2000 2001 2002 2003 2004
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Global Conferencing Services
Dollars in millions
Audio $1,800 $2,000 $2,200 $2,400 $2,600
Video 250 300 400 500 650
Internet/Web 350 700 1,400 2,550 4,200
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Total $2,400 $3,000 $4,000 $5,450 $7,450
====== ====== ====== ====== ======
Growth rates
Audio 11% 10% 9% 8%
Video 20% 33% 25% 30%
Internet/Web 100% 100% 82% 65%
------ ------ ------ ------
Total 25% 33% 36% 37%
====== ====== ====== ======
Sources: (1) Frost & Sullivan, "Introduction to the Audio, Document, and Web
Conferencing Markets," 2001 Frost & Sullivan. (2) Wainhouse Research, LLC,
"Teleconferencing Market & Strategies," Volume 3, Publication No. 936, dated
September 2000. (3) Telespan, "Forecast of the Demand for Audio Conference
Calls," 2001 Telespan Publishing Corporation.
Audio Conferencing Services Market. Based on the above research and our own
estimates, we are planning our growth on the expectation that the audio
conferencing services market will continue growing, at or above that documented
in the above table, through year 2004. Although our volumes are generally
growing at a faster rate than the market, pricing is commoditizing and thus
revenue growth will be moderate.
Video Conferencing Services Market. As noted above, industry sources and our
Company estimates indicate that the United States video conferencing services
market in 2000 was approximately $285 million, excluding transmission charges
and equipment sales. We believe, based on industry sources and independent
research, that the overall video conferencing market will grow at or above the
rate indicated in the above table, through year 2004, reflecting mainly the
small existing customer base, the adoption of more user-friendly equipment, and
lower costs for videoconferencing.
Web Conferencing and Internet Telephony Services Market. We are cautious in our
approach to internet conferencing. We envision internet conferencing to be an
incremental service rather than a replacement for our existing teleconferencing
solutions, but we believe that internet-based services will comprise an
important portion of the next generation of conferencing services. Currently,
the internet telephony market is dominated by consumer voice calling. Despite
the attraction of lower costs and more convenience, consumers and businesses
have been reluctant to embrace internet telephony on a large scale; however, we
expect that adoption by business customers will follow improvements in quality
and usability.
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We expect our customers to migrate toward internet conferencing just as they are
moving from fully attended conferences to automated conferences, and believe
that by 2004 we will derive approximately 30 percent of our volume and 15
percent of our customer revenues from this new service.
Our Strategy
Our strategy is to:
. Capitalize on the global market for teleconferencing through a local
presence. We use local operations centers staffed by country
nationals. We operate in local time zones and provide local language
services. We employ local management and staff to develop customer
loyalty and improve local market penetration. Our network of local
centers provides our multinational conference customers with
knowledgeable and consistent service, regardless of the continent or
time zone.
. Develop and leverage our present distribution channels through major
third-party outsource relationships. Outsourcing arrangements with
telecom carriers allow us to concentrate on additional volume
delivery to their major customers while they promote our
conferencing services as part of an overall product portfolio.
. Pursue acquisitions and expansion. Having built the base of our
teleconferencing platform in key markets worldwide, we are
positioned to expand our infrastructure and obtain additional market
size through acquisitions. We will pursue acquisitions that increase
our service offerings, expand our customer base, and broaden our
geographic coverage. We will also utilize acquisitions to broaden
our technical expertise and enlarge our pool of management talent.
We will open new offices to develop new markets where economically
feasible.
. Adapt and implement state of the art and best practices technology.
Rather than invest in research and development, we take advantage of
technology developed by third-party vendors. We buy best-of-class
equipment.
. Foster and maintain long-term relationships with our customers. We
train our people to be committed to the delivery of superior service
through proprietary customer care and service quality training
programs. This training allows our people to be continuous
professional experts to assists our customers. High quality
standards and solid customer relationships generate repeat business
and frequent referrals from satisfied clients. Our long-term
relationships with customers are enhanced by our global presence and
broad range of services.
Conferencing Services
We are a single-source provider of audio, video, data, and Internet-based
conferencing services that are designed to meet the needs of a broad range of
customers across a
Page 7
diverse range of businesses. During 2001, we derived the majority of our current
revenue from audio conferencing (approximately 90 percent) with the remaining 10
percent from the expanding video, data, and Internet-based conferencing sectors.
We believe that audio conferencing will continue to comprise the bulk of our
revenues for the foreseeable future; however, we estimate that our acquisition
of the PictureTel video conferencing service delivery business will increase the
percentages of our video, data, and related services to over 20 percent and 25
percent of total revenues in 2002 and beyond. United States based revenues
comprise approximately 53 percent of total revenue. Internationally based
revenues of approximately 47 percent are mainly generated in the United Kingdom,
Canada, and Australia.
For a breakdown of our revenues and profits, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and related financial
statements included, herewith.
Service Quality and Client Care
We train all employees in the principles of client care management, which
include continuous service quality monitoring and the development of positive
relationships with clients. We pursue a philosophy of continuous process
improvement, and we consistently measure our performance and endeavor to improve
it. We actively monitor, analyze, and control all facets of a conference,
including reservations, conferrence execution, and billing, and follow up with
customer satisfaction surveys.
We also review our performance with our customers on a regular basis, set
specific performance improvement goals, and modify our operations accordingly.
Feedback from our customers indicates that these factors contribute to a high
customer retention rate.
Sales and Marketing
Our sales and marketing strategy involves two key steps. First, we attract
customers through various resource channels. Once the relationship has been
established, we cross sell services throughout each customer's organization
worldwide.
We attract our customers through direct and indirect sales efforts such as
customer referrals, telemarketing, trade show promotions, and advertising. Our
direct sales force focuses on multinational and mid-market accounts. We also
leverage outsourcing relationships with large telecommunications providers. Our
range of service offerings allows us to cross sell our services once we have
initially established an account.
We have built a customer base of approximately 3,000 established accounts
ranging from small manufacturing firms to Fortune 500 companies. Our records
indicate that over 5,000 schedulers, administrative staff, and managers employed
by these customers are responsible for requesting or arranging conferences with
us. These customers performed over 500,000 conferences in 2001.
Approximately 70 percent of our revenues are derived from our top 100 customers,
which are mainly comprised of large multinational companies that utilize high
volumes. For
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example, our three largest customers, Concert, Ernst & Young LLP and Cap Gemini
accounted for 25 percent, 9 percent, and 3 percent of our revenues,
respectively. The remaining customer base of approximately 2,900 accounts use
our services on a regular basis on an average of 5 to 10 conference calls per
month, typically at list price. All accounts that we define as established use
us at least once a year.
We have targeted the following customer groups for our conferencing services and
applications:
. Major multinational companies, investment banks, and professional
services firms within the Fortune 1000 (global accounts).
. Medium-to-large-sized domestic companies, associations, and
governmental organizations (midmarket accounts).
. Customers of major telecommunications providers which we access
through outsourcing and co-marketing arrangements (outsourced and
co-marketing relationships).
Global Accounts. Our global account managers are responsible for some 30
multinational accounts. We focus on the home country or headquarters of these
multinationals as a base for developing our global business relationships. Each
account manager deals with the customer's home country office or headquarters
when establishing service.
Midmarket Accounts. Our direct sales staff targets medium to large companies
with a high volume of teleconferencing, as well as smaller companies with lower
demand for our services. As in any business, purchasers of higher volume sales
benefit from volume discounts. While we continue to promote sales to our global
accounts, we seek situations in which we can provide competitive services to
mid-sized companies at higher margins. Our direct sales effort manages each of
our midmarket accounts through contacts with our customers' upper management and
also with their administrative staff who are responsible for scheduling and
travel. Once we have become a repeat provider of services for a customer, we
stress personal contact with the call organizers, conference chairpersons, and
members of senior management within our customers' organizations.
Outsourced and Co-Marketing Relationships. We participate in outsourcing and
co-marketing relationships with major telecommunications companies. Our
independence from other network providers allows us to serve these customers
without making them feel that we would compete for their customers' other
telecommunications business.
Intellectual Property
We seek to protect our proprietary information and business practices as trade
secrets. We have developed customized software, which we consider proprietary,
for our service and quality control functions, and have also developed in depth
technical know-how with respect to the operation of telecommunications equipment
and the coordination of large volume conference calls. We currently have two
provisional patent applications pending
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before the United States Patent and Trademark Office. We also require each of
our employees to execute a nondisclosure agreement for the protection of
confidential information.
We (or one of our subsidiaries) own the following United Kingdom trademark
registrations (some of which include words that are intentionally repeated): ACT
and design; ACTIONCAST ACTIONCAST; ACTIONCALL ACTIONCALL; ACTIONSHOW ACTIONSHOW;
ACTION FAX ACTION FAX; and ACTION VIEW. A subsidiary owns a Benelux trademark
registration for ACT TELECONFERENCING. We own three pending U.S. trademark
applications for the terms: MEETINGS ON CALL; CLARION CALL; and READY CONNECT.
We do not own a federal trademark registration for the term ACT in the United
States. Since a wide variety of companies use the term in their corporate name
or advertising, trademark registration could be prohibitively expensive. We do
claim a number of common law marks that use the terms ACT or ACTION as a part of
such marks. We also believe that we are the only enterprise currently using ACT
in the teleconferencing industry.
Suppliers
We are not dependent on any single carrier or supplier for any of the services
we sell. We have negotiated volume discounts with our primary long-distance
carriers, and believe we could negotiate similar arrangements at similarly
competitive prices with one or more other carriers should our current carriers
be unable to continue to provide service at competitive prices. For example, we
have a three year agreement to purchase $30 million in network services from
AT&T which, after volume discounts, is expected to range between $14 and $16
million per year. However, we have the right to negotiate this commitment down
to the level of actual usage, without penalty, in the event of a business
downturn beyond our control.
The equipment we purchase for use in our operations is also available from a
variety of suppliers, some of which compete in the teleconferencing services
business. We have chosen to purchase most of our equipment from Compunetix, a
supplier based in Pittsburgh, Pennsylvania. According to Compunetix, it accounts
for approximately 30 percent of the worldwide market for conferencing bridges.
Compunetix is a supplier of conferencing platforms to U.S. government agencies
such as the National Aeronautics and Space Administration, the Federal Aviation
Administration emergency management platform, and the U.S. Department of
Defense, as well as major telecommunications providers. We recently added
Spectel/Multilink, Polycom, PictureTel, and Accord to our list of major
equipment suppliers.
Our Competition
We compete with major long distance companies, independently owned conferencing
companies, and in-house services such as company-operated bridges and private
branch exchange equipment.
The principal competitive factors in the conferencing market are service,
quality, reliability, price, name recognition, value added features, and
available capacity. The
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location of an operations center can also be a competitive factor, as a local
presence will reduce transmission costs and reflect the language, accent, or
business practices of local customers. In certain cities and countries, we have
opened local sales offices to ensure that marketing is more personal and
effective.
Our competition comes from large companies such as British Telecom, AT&T, Bell
Canada, France Telecom, Deutsche Telekom, Telstra, Belgakom, Hong Kong Tel,
Worldcom, and Sprint. We also face competition from independent conferencing
companies similar to us, including Premiere Technologies, Intercall, V-Span,
Gentner, and Genesys. In the United States, we may also face additional
competition from the regional carriers which, under the Telecommunications Act
of 1996, eventually will be allowed to provide long distance services nationwide
under certain conditions and whose long distance customers would expect access
to conferencing services. This may become an additional opportunity for us, as
certain carriers may choose to outsource their customers' needs to independent
conferencing providers.
Although the major long distance carriers hold a large share of the conferencing
services market, conferencing is not a primary focus of their business. We have
been able to compete with the conferencing divisions of long distance companies
on the basis of quality of service for the large volume business of prestigious
companies such as investment banks, accounting and consulting firms, and law
firms. Excess long-distance line capacity enables the long distance companies to
offer discounted prices to high-volume conferencing customers, but they
generally charge higher conferencing prices to smaller and medium volume
customers. This creates a pricing structure that enables us and others to
compete on a price-and-service basis for the conferencing business of the medium
and smaller businesses.
There are few regulatory barriers in the countries in which we operate, but new
entrants into the conferencing business will face various economic barriers. The
complex planning, installation, and operation of a global conferencing platform
involving multiple facilities and office locations such as ours, together with
the implementation of network technology and coordination of operations, would
likely require extensive funding, management, and time to replicate.
Some companies own and operate their own conferencing bridges, but many
companies find that the costs of operating their own bridge outweigh the
benefits and prefer to outsource their conferencing services. Technology is
available to enhance private branch exchange conferencing capability (usually up
to six calls), but private branch exchange-handled conference calls typically
have poor sound quality and each additional line weakens the overall sound
volume. Additional competition may also develop from more sophisticated
telephone sets and other centralized switching devices. These alternative
techniques may enable our customers to conduct some of their own conferences,
but we believe they will continue to outsource larger conferences, particularly
if their distance meetings require a collaboration of audio, video, data, and
Internet conferencing techniques.
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Regulation
Although the telecommunications industry has historically been subject to
extensive regulation, deregulation in the countries in which we currently
operate has resulted in no material regulatory impact on the delivery of our
teleconferencing services.
All of our foreign subsidiaries are established as statutory reporting companies
incorporated under the laws of their local jurisdiction. We operate each foreign
subsidiary in the local currency. All material subsidiaries are subject to
statutory audits once a year and these statutory results are reconciled to
Generally Accepted Accounting Principles for consolidated reporting in the
United States. We also pay excise taxes, import duties, sales taxes, payroll
taxes and other taxes as required in each jurisdiction. We are in good standing
in all the countries in which we operate. Income tax is payable in the United
Kingdom. All other subsidiaries have tax loss carryforwards or deferred tax
liabilities.
Apart from company administration, tax laws and telecommunications laws, the
major other area of legislation that impacts us is labor legislation. Labor
laws, especially in Europe, are particularly complex and expensive to administer
in comparison to the flexibility of the United States labor markets. From time
to time, we incur a significant cost when there is a need to reduce or scale
back our personnel in overseas jurisdictions. The average cost to dismiss,
retrench, or furlough an employee in a foreign location can run as high as
$25,000 for a senior employee depending upon the particular employee's status,
the employee's history with us and the reason for dismissal, retrenchment or
layoff.
Employees
As of December 31, 2001, we had a total of 440 employees worldwide. There were
200 employees in our North American operations, 172 in our European operations,
and 68 in our Asia Pacific operations. Of the total worldwide employees, 249
were in teleconferencing operations, 100 were in sales and marketing, and 91
were in management and administration. Our entry into new markets eventually
will require new employees, but we expect the initial growth in the number of
employees to be gradual. We do not anticipate any material change in the number
of employees in the near future.
None of our employees are represented by labor unions. We have not experienced
any work stoppages and consider our employee relations to be good.
Item 2. Facilities
Our development of local facilities serves the dual purpose of providing local
language, local currency, and local time zone services to the areas served by
each operations center, as well as backup and overflow capacity among other
centers in the event all or part of a conference needs to be rerouted from an
operations center that is at full capacity.
Page 12
We currently lease office and service delivery space at our locations in Denver,
Andover, Burlington, Toronto, Ottawa, London, Slough, Amsterdam, Brussels,
Paris, Frankfurt, Sydney, Adelaide, Hong Kong, and Singapore, which we have
listed in the table below.
Location Country Description Year Established
-------- ------- ----------- ----------------
Denver, CO United States Sales and service delivery 1990
London United Kingdom Sales and service delivery 1992
Amsterdam Netherlands Sales and service delivery 1995
Brussels Belgium Sales office 1996
Sydney Australia Sales and service delivery 1997
Paris France Sales and service delivery 1997
Ottawa Canada Sales and service delivery 1998
Toronto Canada Sales and service delivery 1998
Frankfurt Germany Sales and service delivery 1998
Adelaide Australia Sales and service delivery 1999
Hong Kong China Sales and service delivery 1999
Andover, MA United States Sales and service delivery 2001
Singapore Singapore Sales and service delivery 2001
Slough United Kingdom Sales and service delivery 2001
Burlington, VT United States Sales and service delivery 2002
All operations are in office locations close to the city center or in nearby
suburbs. These leases expire or are renegotiable within the next five years and
are adequate for our expansion plans. Forward lease commitments are not
significant in relation to total ongoing operating expenses and all lease costs
are consistent with generally available market rentals. We believe we could
obtain comparable facilities at similar market rates if necessary.
Our service delivery centers provide us with a high degree of redundancy. We can
reroute most of our conferences to other centers if necessary. By networking our
service delivery centers in different time zones, we use idle evening and
nighttime capacity in one center to fulfill daytime demand at another center.
Each of our service delivery centers includes at least one audio or video
bridge. Our capacity is measured in ports, with one port needed for each
conference participant. Our audio conferencing service delivery centers operate
approximately 10,000 ports worldwide. Our video conferencing network comprises
over 1,000 ports. This enables us to service conferences of varying sizes by
linking the port capacity of our centers together. Although we can network our
audio ports to service 1,000 or more participants and have serviced conferences
of this size, the low demand for such a large conference and the logistics of
handling multiple conferences during the business day make it unlikely that
audio conferences will exceed 500 participants. Video and data conferences are
generally much smaller. Weekday mornings and early afternoons are peak
conferencing times.
Page 13
Item 3. Legal Proceedings
We are not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of its fiscal year ended December 31, 2001, we
submitted the following matter to a vote of security holders:
We held a special meeting of shareholders on November 2, 2001 at our offices in
Golden, Colorado. The shareholders adopted and approved an amendment to our
Restated Articles of Incorporation increasing the number of authorized shares of
common stock from 10,000,000 to 25,000,000 and the number of authorized shares
of preferred stock from 1,000,000 to 2,000,000. The votes in favor of these
amendments to the Restated Articles of Incorporation were 3,492,680 (99%), and
votes against the plan were 38,686 (1%). There were 3,531,366 (57%) of the
6,216,606 outstanding votable shares present at the meeting.
Page 14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our common shares have been traded on the Nasdaq SmallCap or National Market
under the symbol ACTT since March 11, 1996. We were listed on the Nasdaq
SmallCap Market through September 21, 2001. On September 24, 2001, we began
listing on the Nasdaq National Market. For the period from January 1, 1999
through December 31, 2001 the high and low sales prices for our common stock for
each quarter as reported by Nasdaq were:
PRICE RANGE OF COMMON STOCK
High Low
------ ------
Fiscal year ended December 31, 1999
First Quarter $ 5.63 $ 4.50
Second Quarter 6.63 3.38
Third Quarter 11.50 4.75
Fourth Quarter 9.38 5.88
Fiscal year ended December 31, 2000
First Quarter 17.63 8.06
Second Quarter 12.50 5.13
Third Quarter 8.88 5.50
Fourth Quarter 9.75 6.44
Fiscal year ended December 31, 2001
First Quarter 9.25 6.63
Second Quarter 8.50 4.85
Third Quarter (July 1-September 21 2001) 8.20 3.89
Third Quarter (September 24-September 30, 2001) 8.80 7.00
Fourth Quarter 11.97 7.08
On March 26, 2002, the last reported sale price of our common stock was $5.08
per share.
Stockholders. As of December 31, 2001 we had approximately 200 common
stockholders of record and an estimated 2,800 additional beneficial holders
whose stock was held in street name by brokerage houses for a total of 3,000
stockholders.
Page 15
Dividends. We have never paid any dividends on our common stock. We have paid
dividends on our Series A preferred stock, which was fully liquidated on October
11, 2001. We expect for the foreseeable future to retain all of our earnings
from operations for use in expanding and developing our business. Any future
decision as to the payment of dividends will be at the discretion of our board
of directors and will depend upon our earnings, financial position, capital
requirements, plans for expansion, loan covenants, and such other factors as the
board of directors deems relevant.
Sales of Unregistered Securities.
During 2001, 2000 and 1999 and in early 2002 we have issued and sold
unregistered securities reported and as set forth below. We did not utilize an
underwriter in any of these transactions. The recipients of securities in each
transaction represented their intention to acquire the securities without a view
toward the distribution of securities. All the issued securities were restricted
securities under Rule 144 and appropriate restrictive legends were affixed to
the securities in each transaction. All of these securities were issued in
transactions exempt from registration pursuant to sections 4(2) and/or 4(6)
under the Securities Act of 1933, or pursuant to regulations promulgated
thereunder.
On March 31, 1998, in conjunction with the issuance of its $1,600,000
subordinated promissory notes, the Company issued stock purchase warrants for
the purchase of 183,853 shares of common stock at an exercise price of $7.00 per
share to Sirrom Capital Corp. with a fair value of approximately $240,000. Since
the loan was not repaid by March 31, 2000, the warrants were increased by 32,949
with a fair value of approximately $255,000 due to a temporary spike in the
Company's stock price. The loan was repaid in April 2001, with no additional
warrants being issued. This repayment resulted in an extraordinary write-off of
these warrant costs in an amount of $336,000. At December 31, 2001, Sirrom
Capital Corp. has 216,802 warrants outstanding, which expire in April 2003.
Also in March 1998, in conjunction with the issuance of its $890,000
subordinated promissory note, the Company issued stock purchase warrants for the
purchase of 147,114 shares of common stock as an exercise price of $7.00 per
share to Equitas L.P. with a fair value of $192,719. Since the loan was not
repaid by March 31, 2000, the warrants were increased by 26,718 with a fair
value of $207,065 due to a temporary spike in the Company's stock price. As the
loan was not repaid on March 31, 2001, the warrants were increased by 26,993
with a fair value of approximately $80,000. If the loan is not repaid by March
31, 2002, the warrants will increase by an additional 27,585 and will be fair
valued based on the stock price on that date. At December 31, 2001, Equitas L.P.
has 200,825 warrants outstanding, which expire in April in 2003.
Page 16
In February 1999, we completed a private offering of 109,912 units, each
comprised of one share of common stock at $5.50 per share and one warrant to
purchase one share of common stock. The private placement generated net proceeds
of $592,505, which were used for general corporate purposes. The warrants are
exercisable at $7.00 and expire on December 31, 2003. The securities were
purchased primarily by our officers, directors, and employees.
On April 1, 1999, we issued 12,000 shares of common stock and warrants to
purchase 25,000 shares of common stock to the Adizes Institute in consideration
for consulting services. The warrants are exercisable at $7.00 and expire on
April 1, 2002.
On July 1, 1999, we issued warrants to purchase 50,000 shares of common stock to
John Pfeiffer in consideration for corporate communications services provided to
us. In October 2001, these warrants were exercised in a cash-less conversion in
which 27,293 shares were issued.
On July 31, 1999, we issued a two-year convertible note to Compunetix, Inc. in
the amount of $500,000 bearing interest at 9 percent, payable on July 31, 2001.
This note was to convert into 71,429 restricted shares of common stock at the
option of the holder if it was not repaid by July 31, 2001. The note was
extended and subsequently repaid in October 2001. No shares of stock were issued
to Compunetix.
On October 19, 1999, we issued 2,000 shares of Series A preferred stock to GMN
Investors II, L.P. for $2,000,000. The issuance of Series A was accompanied by
warrants to purchase 400,000 shares of common stock at $7.00 per share. On
October 11, 2001, we issued 200,000 shares of common stock to GMN Investors II,
L.P., together with a payment of $690,000 cash and $338,176 in accrued dividends
and a repricing of the 400,000 warrants from $7.00 to $6.45 per share, to
liquidate the 2,000 shares of Series A preferred stock. The warrants expire on
October 19, 2006. This transaction eliminated our dividend obligations and
covenants under the agreement.
On October 19, 1999, we issued warrants to purchase 20,000 shares of common
stock to Bathgate McColley Capital Group, LLC, in consideration for Bathgate's
services as placement agent in our issuance of preferred stock to GMN Investors
II, L.P. In November 2001, the warrants were exercised in a cash-less conversion
in which 6,876 shares were issued.
On January 1, 2000, we acquired the 20 percent minority interest of our
Australian subsidiary, ACT Teleconferencing (Pty) Ltd. for $65,000 cash and
50,000 shares of our common stock from its managing director.
On January 1, 2000, we acquired a 16.7 percent minority interest in ACT Business
Solutions Limited, based in the United Kingdom by issuing 20,000 shares of our
common stock to its three minority owners.
On January 6, 2000, we issued 36,000 shares and paid $50,000 cash to purchase
the assets of Mueller Telecommunications, Inc.'s internet service provider
division.
Page 17
On January 6, 2000, we issued 40,000 shares of common stock and warrants to
purchase 60,000 shares of common stock to Dinway Services, Ltd. in consideration
for consulting services. The warrants are exercisable at $10.00 per share and
expire on January 6, 2003.
On July 31, 2000, we acquired the teleconferencing services business of Asia
Pacific Business Services Limited based in Hong Kong for approximately $440,000
including 14,000 shares of our common stock.
On January 17, 2001, we acquired the 40 percent minority interest of our United
Kingdom subsidiary, ACT Teleconferencing Limited, from its managing director,
for notes payable of $6,111,000, cash of $794,000, and 360,000 shares of our
common stock valued at $2,182,000.
On April 5, 2001, we issued warrants to purchase 10,000 shares of common stock
to Bathgate McColley Capital Group in consideration for services rendered. The
warrants are exercisable at $7.00 and expire on April 5, 2005.
On May 24, 2001, we issued warrants to purchase 18,000 shares of common stock to
the Adizes Institute in consideration for consulting services. The warrants are
exercisable at $10.00 and expire on May 24, 2004.
On June 6, 2001, we issued 12,500 shares of common stock to the Adizes Institute
for consulting services.
On September 26, 2001, we issued a total of 769,231 shares of common stock to
Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P., and
Special Situations Private Equity Fund, L.P. for $5,000,000 cash.
On October 10, 2001, we issued 769,231 shares of common stock to PictureTel
Corp. as partial consideration for the assets of the 1414c video conferencing
service delivery business of PictureTel.
On January 2, 2002, we issued 500,000 shares of common stock, including 150,000
earnout shares, to certain shareholders of Proximity, Inc. as partial
consideration for our merger with Proximity.
Item 6. Selected Consolidated Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements and related Notes to the Financial
Statements appearing elsewhere in the filing and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Additionally,
quarterly selected financial data is presented in the Notes to the Financial
Statements. The consolidated
Page 18
statements of operations data for each of the years ended December 31, 2001,
2000, and 1999, and the selected balance sheet data as of December 31, 2001 and
2000, are derived from our audited consolidated financial statements appearing
elsewhere in this filing. The selected statement of operations data for the
years ended December 31, 1998 and 1997 and the selected balance sheet data as of
December 31, 1999, 1998, and 1997 have been derived from audited financial
statements of the Company not included in this filing. The selected financial
data provided below is not necessarily indicative of our future results of
operations or financial position.
Year ended December 31,
2001 2000 1999 1998 1997
---------------------------------------------------------------------------
Consolidated statement of operations data:
Net revenues $ 46,643,289 $ 37,699,785 $ 28,328,791 $ 19,009,645 $ 10,234,403
Gross profit 22,116,859 19,311,712 13,531,185 8,128,089 5,507,167
Operating income (loss) 2,415,851 3,955,908 1,539,271 (993,146) 98,227
Net income (loss) before
extraordinary item 200,624 1,395,410 81,425 (2,117,125) (436,808)
Extraordinary item (416,366) -- -- -- --
---------------------------------------------------------------------------
Net income (loss) after
extraordinary item $ (215,742) $ 1,395,410 $ 81,425 $ (2,117,125) $ (436,808)
===========================================================================
Net income (loss) per share
Basic
Before extraordinary item $ 0.01 $ 0.23 $ 0.01 $ (0.58) $ (0.14)
Extraordinary item (0.10) -- -- -- --
---------------------------------------------------------------------------
After extraordinary item $ (0.09) $ 0.23 $ 0.01 $ (0.58) $ (0.14)
===========================================================================
Diluted
Before extraordinary item $ 0.01 $ 0.21 $ 0.01 $ (0.58) $ (0.14)
Extraordinary item (0.10) -- -- -- --
---------------------------------------------------------------------------
After extraordinary item
$ (0.09) $ 0.21 $ 0.01 $ (0.58) $ (0.14)
===========================================================================
Consolidated balance sheet data:
Total assets $ 53,486,961 $ 31,395,549 $ 22,098,343 $ 15,326,200 $ 7,929,711
Total long term liabilities 7,454,651 6,711,696 7,015,527 5,251,196 731,168
Stockholders equity 29,162,995 12,481,104 6,568,857 2,504,565 3,377,933
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
General. See "Item 1 - Business" as we provide a general history of our company
in that section.
Components of Major Revenue and Expense Items
Revenues. We earn revenues from fees charged to clients for audio, video, data
and Internet-based teleconference bridging services, from charges for enhanced
services, and from rebilling certain long-distance telephone costs. We also earn
nominal revenue on conferencing product sales.
Page 19
Cost of Sales. Cost of sales consists of long distance telephony costs,
depreciation on our teleconferencing bridges and equipment, equipment product
costs, operator and operations management salaries and office expenses for
operations staff.
Selling, General, and Administration expense. Selling, general, and
administration expense consist of salaries, benefits, professional fees, and
office expenses of our selling and administrative organizations.
Components of Revenue - The following table shows revenues by major product
sector over the past 3 years:
($ in thousands) 2001 2000 1999
---------------------------------
Conferencing Services
Audio conferencing services $ 40,573 $ 34,999 $ 25,133
Video, data and web-based services 4,936 1,979 1,717
Equipment Sales 1,134 722 1,479
---------------------------------
Total $ 46,643 $ 37,700 $ 28,329
=================================
Growth Rates
Audio conferencing services 16% 39% 72%
Video, data and web-based services 149% 15% 32%
Equipment Sales 57% (52)% (52)%
---------------------------------
Total 24% 33% 49%
=================================
Cost as a percentage of sales
The following table outlines certain items in our income statement as a
percentage of sales for each of the last three years:
Years Ended December 31,
2001 2000 1999
----------------------------------
Net revenues 100% 100% 100%
Cost of services (53) (49) (52)
Gross profit 47 51 48
----------------------------------
Selling, general and administrative expense (42) (41) (43)
----------------------------------
Operating income 5 10 5
Interest expense (3) (3) (3)
----------------------------------
Income before taxes and minority interest 2 7 2
Minority interest and income taxes (2) (3) (2)
----------------------------------
Net income before extraordinary item -- 4 --
==================================
Extraordinary item (1) -- --
==================================
Net income (loss) after extraordinary item (1) 4 --
==================================
Page 20
Significant Accounting Policies
Internal Use Software - Under the guidance provided in SOP 98-1, we capitalize
costs incurred in developing internal use computer software. We capitalized
internal use software development costs of $1 million, $1.1 million, and
$250,000 for the years ended December 31, 2001, 2000, and 1999, respectively,
but prior to 1999, we did not develop any internal software.
Goodwill - In 2001, we completed several significant acquisitions that resulted
in approximately $14.5 million of goodwill. At December 31, 2001, we had a total
of $16.5 million in net goodwill. In January 2002, we acquired approximately
$3.9 million in additional goodwill that relates to the acquisition of
Proximity, Inc. For the years ending December 31, 2001, 2000 and 1999 goodwill
amortization was approximately $420,000, $187,000, and $80,000, respectively.
Beginning January 1, 2002, under the newly issued Financial Accounting Standards
Board Statement 142, Goodwill and Other Intangible Assets, goodwill is no longer
amortized but is subjected to an annual impairment test. We will be evaluating
the impact of this statement on our financial position and results of operations
for 2002 and beyond.
Foreign Currency Conversion - Our foreign subsidiaries financial statements have
been translated into United States dollars at the average exchange rate during
the year for the statement of operations and year-end rate for the balance
sheet. Our policy for the long term is to invest in the international
teleconferencing market as it is a growth market. For as long as this policy
remains in effect, our net income, assets, and liabilities in overseas markets
will continue to fluctuate and be translated in accordance with exchange rate
fluctuations. If and when we start repatriating funds for purposes of dividend
payment and domestic reinvestment, depending upon exchange rates, significant
foreign currency gains or losses could be incurred through the income statement.
Related Party Transactions - We have entered into an incentive compensation
arrangement with one of our officers for the issuance of 32,000 shares of
restricted common stock. The common stock is restricted and vests in four equal
amounts over four years. We have recognized compensation expense of $62,477 for
the year ended December 31, 2001 related to this agreement. We also have a note
receivable from this officer with an outstanding balance of $251,383 and
$234,302 at December 31, 2001 and 2000, respectively. This note bears interest
at a rate of 7.5 percent and is due June 30, 2003.
In July 2001, the board of directors authorized a loan, with recourse, to one of
our officers in the amount of $347,875 which is secured by all his personal
assets. The purpose of the loan was to assist the officer in exercising stock
options. This loan bears interest at 6 percent and matures on November 1, 2006.
This transaction has no financial effect on shareholders' equity as the loan
offsets the amount recorded to common stock for the exercise of the options. An
increase in shareholders' equity will be recognized as the loan is paid back to
us.
Employee Stock Options - We have elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) instead of
FASB
Page 21
Statement No. 123, "Accounting for Stock-Based Compensation." If we had elected
to adopt FASB Statement No. 123, our net income/(loss) would have been
approximately $(1,100,000), $360,000, and $(1,000,000) or $(0.16), $0.06, and
$(0.23) per diluted share for the years ended December 31, 2001, 2000, and 1999,
respectively, as compared to our actual reported net income/(loss) of
$(593,545), $1,235,409, and $37,018 or $(0.09), $0.23, and $0.01 per diluted
share for the years ended December 31, 2001, 2000, and 1999, respectively.
Significant Business Activities
Automated Conferencing - During 2001, the trend toward increased use of
conferencing was accompanied by continued demand for lower-priced, lower-cost
automated conferencing services. Accordingly, as demand for teleconferencing
continues to increase, we expect our revenue growth to be generated through
increased volume, albeit at a reduced average selling price but increased
margins. During the past three years, unattended conferencing, including global
services, has comprised approximately 38 percent, 27 percent, and 16 percent of
our total audio conferencing revenues in 2001, 2000 and 1999, respectively.
During the fourth quarter 2001, unattended conferencing comprised over 50
percent of our total audio conferencing revenues. After including the automation
of certain partially attended services known as "meet and greet," our overall
automated volumes now account for approximately 65 percent of total volumes.
Financing repayments - In October, 2001, we liquidated the 2,000 outstanding
shares of its Series A 8 percent Preferred Stock, held by GMN Investors II,
L.P., in an amount $2,000,000 plus accrued dividends of $338,176. This
liquidation involved the issuance of 200,000 shares of restricted common stock
valued at $1,310,000 based upon the market price of $6.50 and $1,028,176 in
cash, including accrued dividends. This liquidation resulted in an additional
dividend charge of approximately $240,000. This transaction eliminated our
dividend obligations and covenants under the agreement.
In 2001, we paid down $1.6 million in subordinated debt with an interest rate of
13.5 percent and an additional $500,000 at a rate of 9 percent. The $1.6 million
repayment resulted in an extraordinary write-off of financing costs in an amount
of $420,000. In addition, we replaced our $2 million U.S. line of credit at
prime plus 2 percent, with a new $4 million line of credit at prime plus 0.5
percent. This new line of credit expires in March 2004.
Acquisitions - On January 17, 2001, we acquired the 40 percent minority interest
in ACT Teleconferencing Limited, based in the United Kingdom, from David Holden,
the founder and co-shareholder of that company, for 360,000 shares of the
Company's common stock valued at $2,182,000, notes payable of $6,111,000 and
cash of $794,000 for total consideration of approximately $9,087,000. Mr. Holden
remains an employee and is now our Regional Managing Director for all of Europe.
We have established an escrow account of approximately $1,356,000 as partial
security for the notes payable. Related to this acquisition, we recorded
goodwill of $5.7 million and a non-compete agreement in the amount of $1.5
million. This transaction eliminated the minority
Page 22
interest in the earnings of a consolidated subsidiary, but is offset by interest
on debt incurred and amortization of goodwill.
On October 10, 2001, with an effective date of October 1, 2001, ACT
Videoconferencing, Inc., a wholly owned subsidiary of ours, closed on the
acquisition of substantially all of the assets of PictureTel Corporation's 1414c
worldwide video conferencing service delivery business. The assets acquired
include property (equipment, furniture and machinery), software, and customer
contracts. The assets were previously used by PictureTel Corporation to provide
global video conferencing services and we plan to use the acquired assets for
the same purpose.
The purchase price consisted of 769,231 restricted shares of our common stock
valued at $6.5 million, $1.2 million in cash and a $2.5 million two-year
unsecured promissory note bearing interest at a rate of 10 percent, for total
consideration of approximately $10.2 million. In addition, we incurred
professional advisory and legal fees of approximately $400,000. Also, in
association with this acquisition, we recorded approximately $1.8 million in
fixed assets and $8.8 million in goodwill, which is fully tax deductible.
This acquisition, when combined with our pre-existing video operations, grew our
video conferencing service revenue to approximately 25 percent of our total
revenue, for the fourth quarter 2001. During the integration of this
acquisition, through 2002, we will incur costs to reduce the pre-existing
infrastructure, including the closure of our Dallas video operations center,
network cost reductions and reconfigurations and other operating cost
reductions. We project that these cost reductions and reconfigurations will
yield long-term benefits to our integrated offering of conferencing services.
On January 2, 2002, we acquired Proximity, Inc., one of the world's largest
providers of room-based videoconferencing services, for 350,000 restricted
shares of our common stock valued at $2,737,000, notes payable of $750,000, and
cash of $500,000 for a total of approximately $3,987,000. In addition, 150,000
shares of our common stock have been placed into escrow and are deliverable to
certain of Proximity's shareholders upon satisfaction of certain earnout
provisions.
Page 23
Significant Customers - In 2001, our three largest customers, Concert, Ernst &
Young LLP and Cap Gemini accounted for 25 percent, 9 percent, and 3 percent of
our revenues, respectively. In the fourth quarter 2001, the business we
generated from Concert and its customers began migration to Concert's U.S.
parent, AT&T. In the fourth quarter of 2001, this service revenue had decreased
approximately 25 percent from its 2001 average run rate and we expect it to
decrease even further during the first half of 2002 before recovering under AT&T
management.
With reference to our largest customer, Concert, during 2001, we discovered and
resolved certain software errors that had resulted in us underbilling the
customer for conferencing related services. The customer, which was then
experiencing losses, a potential restructuring and certain changes in
management, had initially questioned the underbilling and had delayed payment on
it, while raising additional disputed items. In 2001, we resolved all of these
issues and subsequent to the resolution of Concert's future and its migration
into AT&T, we received payment for the disputed items.
International Operations - International sales comprised approximately 47
percent, 49 percent, and 56 percent of our revenues in 2001, 2000 and 1999,
respectively, and we anticipate that international sales will continue to
account for a significant portion of our consolidated revenue. Our international
conferences that are initiated outside the United States are denominated in
local currency; similarly, operating costs for such conferences are incurred in
local currencies. Our three largest international locations, based on revenue,
are the United Kingdom, Canada and Australia, comprising 29 percent, 7 percent
and 6 percent of our total revenue, respectively. To our knowledge, our
international locations are subject to, and in compliance with, local laws and
regulations.
Significant Contracts - On February 28, 2001, we signed an agreement to purchase
network services from AT&T for an undiscounted minimum operating commitment of
$30 million per year for the next three years. Discounts may apply based on
usage, which will reduce the effective commitment to approximately $14 to $16
million per year. We purchase telecommunications network services in the normal
course of business. This contract provides us with significant discounts based
on the minimum contractual commitment and if we do not meet these commitments,
the discount percentage will be reduced. This agreement is subject to normal
business downturn clauses common within the telecommunications industry.
Results of Operations
Fiscal Year Ended December 31, 2001, compared to Fiscal Year Ended December 31,
2000
Net Revenues. Net revenues increased 24 percent to $46.6 million for the year
ended December 31, 2001, compared to $37.7 million for 2000. The 24 percent
revenue growth resulted from an increase in conference call volume of 48
percent, offset by a shift in product mix from attended conference calls to
automated conference calls, which resulted in a lower average revenue per
minute. Audio conferencing revenues grew by 16 percent while video, data,
internet and other enhanced conferencing services grew by 125 percent. Audio
conferencing accounted for 89 percent and 93 percent of our revenues in 2001 and
2000, respectively. In the fourth quarter, video conferencing revenue increased
to
Page 24
approximately 25 percent of our total revenue due to the October acquisition of
the assets of 1414c, the video conferencing service delivery business of
PictureTel Corporation. In 2001, North America, Europe and Asia Pacific, our
three primary geographic markets, generated approximately 60 percent, 34 percent
and 6 percent, of our total revenue, respectively.
Gross Profit. Gross profit increased 15 percent to $22.1 million for the year
ended December 31, 2001, compared to $19.3 million for the prior year. Gross
profit percentage decreased to 47 percent of net revenues for the year ended
December 31, 2001, compared to 51 percent of net revenues for 2000. This gross
profit decrease is almost entirely due to the higher volume of video
conferencing revenues with lower margins than our traditional voice business due
to the higher network costs associated with video conferencing. In the fourth
quarter of 2001, our video conferencing network costs exceeded our ongoing
acceptable benchmarks and we are currently in the process of reconfiguring our
video conferencing network to reduce our costs. This decrease in gross profit
percent was offset by some significant economies of scale associated with volume
increases in voice conferencing as a result of automation.
Selling, General and Administrative Expense. Selling, general, and
administrative expense for the year ended December 31, 2001 was $19.7 million,
or 42 percent of revenue, compared to $15.4 million or 41 percent of revenue for
2000. The 28 percent increase in such expense was incurred mainly as a result of
the 32 percent increase in selling, general and administrative staff from 142 to
188 employees to develop new locations and introduce new products and services
associated with internet-based and other high-speed digital conferencing
products.
Interest Expense. Net interest expense grew by 25 percent from $1.1 million to
$1.3 million as a result of overall debt and capital leases increasing by $6.5
million from $8.6 million in 2000 to $15.1 million in 2001. This increase is
mainly due to debt associated with the acquisitions completed. We incurred debt
of approximately 2.4 million for general financing purposes, $6.1 million on the
acquisition of the remaining 40 percent minority interest in ACT
Teleconferencing Limited and $2.5 million for the PictureTel acquisition. During
2001, the Company paid off debt of $4.7 million and liquidated its preferred
stock of $2 million.
Provision for Income Taxes. Provision for income taxes increased 12 percent to
$875,000 for the year ended December 31, 2001, compared to $780,000 for 2000,
due to increased taxable income earned by our United Kingdom subsidiaries and
deferred tax charges in Canada. We paid no other income taxes due to domestic
and international tax loss carry-forwards of approximately $6.5 million.
Minority Interest. Minority interest was reduced to zero for the year ending
December 31, 2001, compared to $708,000 for the same period last year. This
decrease reflects the acquisition of the remaining 40 percent interest in ACT
Teleconferencing Limited.
Extraordinary item. In association with the early repayment of $1.6 million in
subordinated debt and redemption of $2 million in preferred stock, we recognized
an extraordinary charge of approximately $416,000 of unamortized debt issuance
and debt
Page 25
discount costs relating primarily to the valuation of warrants issued in
connection with the debt instruments.
Fiscal Year Ended December 31, 2000, compared to Fiscal Year Ended December 31,
1999
Net Revenues. Net revenues increased 33 percent to $37.7 million for the year
ended December 31, 2000, compared to $28.3 million for 1999. The 33 percent
revenue growth resulted from an increase in sales to established customers as
well as from sales to new customers. Audio conferencing revenues grew by 39
percent while video, data, internet and other enhanced conferencing services
grew by 15 percent, reflecting a reduction in the video equipment business.
Audio conferencing accounted for 93 percent and 89 percent of our revenues in
2000 and 1999, respectively.
Gross Profit. Gross profit increased 43 percent to $19.3 million for the year
ended December 31, 2000, compared to $13.5 million for the prior year,
reflecting the achievement of significant economies of scale associated with
volume increases in voice conferencing as a result of automation. Gross profit
percentage increased to 51 percent of net revenues for the year ended December
31, 2000, compared to 48 percent of net revenues for 1999.
Selling, General and Administrative Expense. Selling, general, and
administrative expense for the year ended December 31, 2000 was $15.4 million,
or 41 percent of revenue, compared to $12 million or 42 percent of revenue for
1999. The 28 percent increase in such expense was incurred mainly as a result of
the increase in selling, general and administrative staff from 123 to 142
employees to service new volumes as well as marketing expenses incurred to
develop new locations and introduce new products and services associated with
internet-based and other high-speed digital conferencing products.
Interest Expense. Net interest expense grew by 27 percent from $848,013 to
$1,071,743 as a result of overall debt and capital leases increasing $700,000
from $7.9 million in 1999 to $8.6 million in 2000, due to additional borrowing
to fund the growth of the business.
Provision for Income Taxes. Provision for income taxes increased 88 percent to
$780,000 for the year ended December 31, 2000, compared to $415,000 for 1999,
due to increased taxable income earned by our 60 percent majority-owned United
Kingdom subsidiary and deferred tax charges in Canada. We paid no other income
taxes due to domestic and international tax loss carry-forwards of approximately
$7.6 million.
Minority Interest. Minority interest grew by 263 percent from $195,000 in 1999
to $709,000 in 2000, primarily reflecting the increased net after-tax income of
our 60 percent held United Kingdom subsidiary.
Liquidity and Capital Resources
Sources and Uses of Funds
Page 26
In 2001, we paid down $1.6 million in debt with an interest rate of 13.5 percent
and an additional $500,000 at a rate of 9 percent. In addition, we replaced our
$2 million U.S. line of credit at prime plus 2 percent, with a new $4 million
line of credit at prime plus 0.5 percent. This line of credit expires in March
of 2004. We also liquidated our $2 million of preferred stock, bearing an
effective financing cost of 12 percent, by issuing approximately $1.3 million in
equity along with a cash payment of $700,000; this eliminated our dividend
obligations and covenants under the preferred stock agreement.
Also, during 2001, we received proceeds of approximately $4.6 million, net of
financing fees, which related to a private placement of 769,231 shares of common
stock at a gross selling price of $6.50 per share. Also, we obtained an
additional $3 million in equity financing due to the conversion of previously
issued options and warrants. In addition, we issued $2.5 million in debt related
to the acquisition of the assets of 1414c Video Conferencing Service Delivery
Business of PictureTel Corporation at an interest rate of 10 percent. Also, in
association with our purchase of the 40 percent interest in ACT Teleconferencing
Limited, we incurred debt of approximately $6.1 million at a weighted average
interest rate of 7.8 percent.
We have approximately $8.8 million in current operating liabilities. Also, based
on historic capital requirements and our operating plan for 2002, we anticipate
committing approximately $3 to $5 million in 2002 to fund capital expenditures.
This targeted amount of spending includes requirements for current operating
markets and our expansion plans and will depend on results from operations.
There are currently no material commitments contractually obligating us to meet
these capital expenditure projections.
Currently we have approximately $8.1 million in the current portion of debt and
current lease obligations, including approximately $1.5 million in borrowing
under our U.S. line of credit. We also currently have approximately $7.0 million
in long term debt and lease obligations due over the next four years. We
anticipate cash flows from operations, additional borrowings under our existing
credit facilities, or additional financing arrangements, will be able to satisfy
these obligations. In association with our financing arrangements, we are
subject to covenants in which we are in compliance or have received a waiver.
We expect excess that cash and cash equivalents along with internally generated
funds plus additional borrowings under lines of credit of approximately $2
million will provide a significant portion of the required resources needed to
satisfy our obligations. In addition, we have the ability to defer, at our
option, for a period of one year, up to $1.8 million of current debt, at a 1%
interest premium for the first six months and a 2 percent interest premium for
the second six months, over the current rate of 10 percent.
With the expected growth in our business, we may also need to seek additional
sources of financing which may include public or private debt, equity financing
by us or our subsidiaries or other financing arrangements. However, there is no
assurance that the financing will be available to us or on acceptable terms.
Page 27
The facilities-based teleconferencing service business is a capital intensive
business. Our operations have required and will continue to require capital
investment for: (i) the purchase and installation of conferencing bridges and
other equipment in existing bridging networks and in additional bridging
networks to be constructed in new service areas; (ii) the acquisition and
expansion of conferencing platforms currently owned and operated by other
companies; and (iii) the evolution of the platform to support new products,
services and technologies. Our expected capital expenditures for general
corporate and working capital purposes include: (i) expenditures with respect to
our management information system and corporate service support infrastructure
and (ii) operating and administrative expenses with respect to new bridging
platforms, networks and debt service. We plan to make substantial capital
investments in connection with plans to construct and develop new bridging
networks, as well as for technology upgrades. Expansion of our bridging networks
will include the geographic expansion of our existing operations, and we will
consider the development of new markets. In addition, we may acquire existing
conferencing companies and their bridging platforms and networks in the future.
Occasionally, we evaluate potential acquisitions of conferencing assets
currently owned and operated by other companies, and expect to continue to do
so. In the event we enter into a definitive agreement with respect to any
acquisition, it may require additional financing.
In the event that our plans or assumptions change or prove to be inaccurate, or
the foregoing sources of funds prove to be insufficient to fund our growth and
operations, or if we complete acquisitions or joint ventures, we will be
required to seek additional capital sooner than currently anticipated. Our
revenue and costs are dependent upon factors that are not within our control,
such as regulatory changes, changes in technology, customer mergers and
acquisitions and increased competition. Due to the uncertainty of these and
other factors, actual revenue and costs may vary from expected amounts, possibly
to a material degree, and such variations are likely to affect the level of our
future capital expenditures and expansion plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our interest expense is sensitive to changes in the general level of interest
rates. In this regard, changes in interest rates can affect the interest paid on
our long term debt. To mitigate the impact of fluctuations in interest rates, we
generally enter into fixed rate financing arrangements. We believe the fair
value of long-term debt approximates the related carrying amount based on market
interest rates available to us. Almost all our long-term debt is denominated in
United States dollars. The following table provides information about our
financial instruments that are sensitive to changes in interest rates.
2002 2003 2004 2005 Total
--------------------------------------------------
Long term debt, including current portion
Fixed rate (in thousands) $ 6,973 $ 3,465 $ 1,096 $ 1,096 $12,630
Average interest rate 7.92% 9.64% 7.00% 7.00% 8.23%
Page 28
We are also subject to foreign exchange currency rate risk as a result of its
international operations. Our foreign subsidiaries financial statements have
been translated into United States dollars at the average exchange rate during
the year for the statement of operations and year-end rate for the balance
sheet. Our policy for the long term is to invest in the international
teleconferencing market as it is a growth market. For as long as this policy
remains in effect, our net income, assets, and liabilities that we own in
overseas markets will continue to fluctuate in accordance with exchange rate
fluctuations. If and when we start repatriating funds for purposes of dividend
payment and domestic reinvestment, depending upon exchange rates, significant
foreign currency gains or losses could be incurred through the income statement.
We historically have not entered into any derivative arrangements to hedge
foreign currency risks and has no firmly committed future sales exposures.
Item 8. Financial Statements and Supplementary Data
See "Index to Consolidated Financial Statements" at page F-1.
Item 9. Changes in and Disagreements With Accountants
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference from the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 2001.
Item 11. Executive Compensation
Incorporated by reference from the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 2001.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the Company's Proxy Statement for Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the fiscal year ended December 31, 2001.
Page 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1), (2) The Financial Statements and Schedule I -Condensed Financial
Information of Registrant and Schedule II -Valuation and Qualifying
Accounts listed on the index on Page F-1 following are included herein by
reference. All other schedules are omitted, either because they are not
applicable or because the required information is shown in the financial
statements or the notes thereto.
(a) (3) Exhibits:
Number Description
------ -----------
1.1(1) Form of Agency Agreement
1.3(1) Form of Agent's Warrant
1.4(1) Form of Warrant Agreement
3.1(2) Restated articles of incorporation of ACT April 15, 1996,
as amended October 18, 1999, and November 26, 2001
3.2(3) Bylaws of ACT, amended and restated as of May 22, 2001
4.1(4) Form of specimen certificate for common stock of ACT
5 Opinion of counsel
10.1(4) Stock option plan of 1991, as amended, authorizing 400,000
shares of common stock for issuance under the plan
10.2(4) Form of stock option agreement
10.3(4) Form of common stock purchase warrant
10.10(4) Split dollar insurance agreement dated March 1, 1990, between
ACT and Gerald D. Van Eeckhout
10.11(12) Service agreement dated April 10, 1992 between David Holden
and ACT Teleconferencing Limited
10.12(12) Share purchase agreement by and between ACT Teleconferencing,
Inc. and David L. Holden & others.
10.13(12) Instrument constituting(pound)1,172,000 convertible secured
A loan notes and(pound)2,980,000 convertible secured B loan
notes by and between ACT Teleconferencing, Inc. and David
L. Holden & others
10.19(5) Stock option plan of 1996, as amended
10.20(2) Employee stock purchase plan, as amended
10.22(6) Loan and security agreement dated March 31, 1998 and form of
stock purchase warrant with Sirrom Capital Corporation and
Equitas L.P.
10.23(6) Loan agreement with Key Bank, N.A.
10.24(7) Lease commitment and warrant with R.C.C. Finance Group Ltd.
10.25(7) Contract for the supply of conferencing services design
development and information signed July 14, 1998 between ACT
Teleconferencing Services, Inc. and Concert Global
Networks Limited
10.26(7) Agreement for the supply of conferencing services signed
July 14, 1998 between ACT Teleconferencing Services, Inc. and
Concert Global Networks Limited
Page 30
10.27(7) Agreement for videoconferencing equipment and services (GTE
Telephone Operating Companies) dated October 1, 1998
10.28(2) Stock option plan of 2000, as amended
10.29(2) Service order attachment signed March 15, 2001, between ACT
Teleconferencing Services, Inc. and AT&T Corporation for the
supply of domestic voice/data services.
10.30(8) Asset Purchase Agreement by and between ACT Teleconferencing,
Inc., ACT Videoconferencing, Inc. and PictureTel Corporation
dated as of October 4, 2001.
10.31(8) Note in the original principal amount of $2.25 Million with
ACT Teleconferencing, Inc. as maker and PictureTel
Corporation as holder.
10.32 (8) Letter agreement between ACT Teleconferencing, Inc. and GMN
Investors II, L.P. dated as of October 11, 2001, for the
redemption of Series A Preferred Stock.
10.33(8) Amended and Restated Warrant between ACT Teleconferencing,
Inc. and GMN Investors II, L.P.
10.34(8) Terms and Conditions for Purchase of Shares between ACT
Teleconferencing, Inc. and Special Situations Fund III, L.P.,
Special Situations Cayman Fund, L.P., and Special Situations
Private Equity Fund, L.P.
10.35(9) Agreement and Plan of Merger dated as of December 21, 2001,
by and among ACT Teleconferencing, Inc., ACT Proximity, Inc.,
Proximity, Inc., Robert C. Kaphan, Richard Parlato, and
North Atlantic Venture Fund II, L.P.
10.36 Promissory note to Gerald Van Eeckhout
10.37 Security agreement to Gerald Van Eeckhout
10.38 Long term stock incentive for Gene Warren dated July 1, 2001
10.39 Promissory note to Gene Warren
10.40 Security agreement to Gene Warren
10.41 Line of credit agreement with Wells Fargo Business Credit
21 Subsidiaries of ACT Teleconferencing, Inc.
23.1 Consent of independent auditors
23.2(10) Consent of counsel to the Company
24(11) Power of attorney
- -----------
(1) Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form S-1, filed with the Securities and
Exchange Commission on March 10, 2000, File No. 33-32156.
(2) Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form S-1, filed with the Securities and
Exchange Commission on December 3, 2001, File No. 333-744138.
(3) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-Q for the quarter ended June 30, 2001, filed with the
Securities and Exchange Commission on August 21, 2001, File No. 0-27560.
Page 31
(4) Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form SB-2, filed with the Securities and
Exchange Commission on October 10, 1995, and amendments to our Form SB-2,
File No. 33-97908-D.
(5) Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the Securities and Exchange Commission on April 30,
1997, File No. 0-27560, and amended and attached as exhibit 4.6 to our
Form S-8, filed on July 2, 1998, File 333-58403.
(6) Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the Securities and Exchange Commission on August 24, 1998 (originally
filed under cover of Form SE on August 14, 1998) File 0-27560.
(7) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ending September 30, 1998, filed with the
Securities and Exchange Commission on November 16, 1998, File 0-27560.
(8) Incorporated by reference, attached as an exhibit to our report on Form
8-K filed with the Securities and Exchange Commission on October 18, 2001,
File No. 0-27560.
(9) Incorporated by reference, attached as exhibit 10.1 to our report on Form
8-K filed with the Securities and Exchange Commission on January 16, 2002,
File No. 0-27560.
(10) Included in Exhibit 5.
(11) Included with signature pages.
(12) Incorporated by reference, attached as an exhibit to our report on Form
8-K filed with the Securities and Exchange Commission on January 31, 2001,
File No. 0-27560.
(b) Reports on Form 8-K--We filed the following reports on Form 8-K with the
Securities and Exchange Commission during the last quarter of 2001 and the first
few months of 2002:
On October 2, 2001, we filed a press release on Form 8-K regarding the Company's
acceptance onto the Nasdaq National Market System and a $5 million private
placement of the our common stock.
On October 10, 2001, we filed a press release on Form 8-K regarding our
agreement to acquire PictureTel's 1414c video conferencing service delivery
business.
On October 11, 2001, we filed a press release on Form 8-K regarding the
completion of our acquisition of PictureTel's 1414c video conferencing service
delivery business.
Page 32
On October 18, 2001, we filed a Form 8-K regarding our acquisition of
PictureTel's 1414c video conferencing service delivery business, a $5 million
private placement of our common stock, and the liquidation of our preferred
stock.
On November 13, 2001, we filed a press release on Form 8-K regarding our
financial performance for the Third Quarter and Nine Months Ended September 30,
2001.
On December 21, 2001, we filed a Form 8-K/A regarding our acquisition of
PictureTel's 1414c video conferencing service delivery business.
On January 3, 2002, we filed a press release on Form 8-K to announce our
agreement to acquire Proximity, Inc.
On January 4, 2002, we filed a press release on Form 8-K regarding our
completion of the acquisition of Proximity, Inc.
On January 16, 2002, we filed a Form 8-K regarding our completion of the
acquisition of Proximity, Inc.
On February 1, 2002, we filed a press release on form 8-K regarding our
preliminary 2001 revenue performance and guidance on 2002.
On February 28, 2002, we filed a press release on form 8-K regarding our
financial performance for the year ended December 31, 2001.
Page 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACT TELECONFERENCING, INC.
Date: March 27, 2002 By /s/ Gerald D. Van Eeckhout
----------------------------------------
Gerald D. Van Eeckhout
Chief Executive Officer
Pursuant to the requirements of the 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
- --------- -----
/s/ Gerald D. Van Eeckhout Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer)
Gerald D. Van Eeckhout
/s/ Gavin Thomson Chief Financial Officer
- ------------------------------------- (Principal Financial & Accounting Officer)
Gavin Thomson
/s/ Ronald J. Bach Director
- -------------------------------------
Ronald J. Bach
/s/ James F. Seifert Director
- -------------------------------------
James F. Seifert
/s/ Donald Sturtevant Director
- -------------------------------------
Donald Sturtevant
/s/ Carolyn R. Van Eeckhout Director
- -------------------------------------
Carolyn R. Van Eeckhout
Page 34
Item 14A. ACT Teleconferencing, Inc. Index to Consolidated Financial Statements
Contents
Report of Ernst & Young LLP, Independent Auditors...........................F-2
Consolidated Balance Sheets ................................................F-3
Consolidated Statements of Operations.......................................F-4
Consolidated Statements of Shareholders' Equity.............................F-5
Consolidated Statements of Cash Flows.......................................F-6
Notes to Consolidated Financial Statements..................................F-7
Schedule I--Condensed Financial Information of Registrant...................F-28
Schedule II--Valuation and Qualifying Accounts..............................F-32
F-1
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
ACT Teleconferencing, Inc.
We have audited the accompanying consolidated balance sheets of ACT
Teleconferencing, Inc. as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2001. Our audits also
included the financial statement schedules listed in the index at page F-1.
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACT
Teleconferencing, Inc. at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects
the information set forth therein.
As discussed in Note 1 to the financial statements, the Company has not yet
adopted Statement of Financial Accounting Standards No. 142. However, the
transition provisions of that Statement preclude the amortization of goodwill
acquired in a business combination for which the acquisition date is after June
30, 2001.
/s/ ERNST & YOUNG LLP
Denver, Colorado
March 21, 2002
F-2
ACT Teleconferencing, Inc.
Consolidated Balance Sheets
December 31, 2001 and 2000
2001 2000
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 5,126,723 $ 3,025,056
Accounts receivable (net of allowance for doubtful
accounts of $591,117 and $621,059 in 2001 and
2000, respectively) 9,468,057 8,349,295
Prepaid expenses and other current assets 914,391 807,725
----------------------------
Total current assets 15,509,171 12,182,076
Equipment:
Telecommunications equipment 14,270,491 11,008,224
Software 4,453,807 3,536,241
Office equipment 8,143,992 6,428,564
Less: accumulated depreciation (8,760,256) (5,340,839)
----------------------------
Total equipment - net 18,108,034 15,632,190
Other assets:
Goodwill (net of accumulated amortization of
$831,000 and $422,000 in 2001 and 2000, respectively) 16,476,194 2,595,055
Other intangible assets (net of accumulated amortization of
$221,000 and $0 in 2001 and 2000, respectively) 1,313,043 --
Restricted Cash 1,355,951 --
Other long term assets 473,185 751,926
Long term note receivable from related parties 251,383 234,302
----------------------------
Total assets $ 53,486,961 $ 31,395,549
============================
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 3,950,445 $ 3,387,934
Accrued liabilities 3,716,323 2,579,393
Current portion of debt 6,972,977 2,871,114
Capital lease obligations due in one year 1,128,161 1,052,126
Income taxes payable 1,101,409 636,118
----------------------------
Total current liabilities 16,869,315 10,526,685
Long-term debt 5,657,118 3,053,406
Capital lease obligations due after one year 1,381,546 1,599,160
Deferred income taxes 415,987 306,441
Minority interest -- 1,676,064
Preferred stock, no par value, 2,000,000 shares
authorized; 2,000 issued, at December 31, 2000 -- 1,752,689
Shareholders' equity:
Common stock, no par value; 25,000,000 shares
authorized 8,620,134 and 5,671,140 shares issued
and outstanding in 2001 and 2000, respectively 34,728,966 16,492,381
Accumulated deficit (4,167,312) (3,573,767)
Accumulated other comprehensive loss (1,398,659) (437,510)
----------------------------
Total shareholders' equity 29,162,995 12,481,104
Total liabilities and shareholder's equity $ 53,486,961 $ 31,395,549
============================
See accompanying notes to consolidated financial statements.
F-3
ACT Teleconferencing, Inc.
Consolidated Statements of Operations
For the years ended December 31, 2001, 2000, and 1999
2001 2000 1999
--------------------------------------------
Net Revenues $ 46,643,289 $ 37,699,785 $ 28,328,791
Cost of Services 24,526,430 18,388,073 14,797,606
--------------------------------------------
Gross profit 22,116,859 19,311,712 13,531,185
Selling, general and administration
expense 19,701,008 15,355,804 11,991,914
--------------------------------------------
Operating income 2,415,851 3,955,908 1,539,271
Interest expense, net 1,340,112 1,071,743 848,013
--------------------------------------------
Income before income taxes and minority interest 1,075,739 2,884,165 691,258
Provision for income taxes 875,115 780,250 414,866
--------------------------------------------
Income before minority interest 200,624 2,103,915 276,392
Minority interest in earnings of consolidated
subsidiary -- (708,506) (194,967)
--------------------------------------------
Net income before extraordinary item 200,624 1,395,410 81,425
Extraordinary item (416,366) -- --
--------------------------------------------
Net income (loss) after extraordinary item (215,742) 1,395,410 81,425
Preferred stock dividends (377,803) (160,000) (44,407)
--------------------------------------------
Net income (loss) available to common
shareholders $ (593,545) $ 1,235,409 $ 37,018
============================================
Weighted average number of shares outstanding -
basic 6,653,974 5,312,200 4,393,963
============================================
Weighted average number of shares outstanding -
diluted 6,653,974 6,023,930 4,655,501
============================================
Net income (loss) per share
Basic
Before extraordinary item $ 0.01 $ 0.23 $ 0.01
Extraordinary item (0.10) -- --
--------------------------------------------
After extraordinary item $ (0.09) $ 0.23 $ 0.01
============================================
Basic
Before extraordinary item $ 0.01 $ 0.21 $ 0.01
Extraordinary item (0.10) -- --
--------------------------------------------
After extraordinary item $ (0.09) $ 0.21 $ 0.01
============================================
See accompanying notes to consolidated financial statements.
F-4
ACT Teleconferencing, Inc.
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 2001, 2000, and 1999
Accumulated
other
Common Stock Accumulated comprehensive
Shares Amount deficit income (loss) Total
-----------------------------------------------------------------------------
Balance at December 31, 1998 3,755,633 7,463,931 (4,846,194) (113,172) 2,504,565
Shares issued in connection with
exercise of warrants 562,654 2,719,790 2,719,790
Issuance of private placement shares 109,912 592,505 592,505
Shares issued to employees and consultants 47,304 148,241 148,241
Exercise of unit purchase options 120,444 553,537 553,537
Preferred dividend (44,407) (44,407)
Comprehensive income
Net income 81,425 81,425
Other comprehensive loss, net of tax
Foreign currency translation adjustment 13,202 13,202
------------
Total comprehensive income 94,627
-----------------------------------------------------------------------------
Balance at December 31, 1999 4,595,947 11,478,003 (4,809,176) (99,970) 6,568,857
Shares issued for acquisitions 120,000 861,607 861,607
Shares issued to employees and consultants 121,543 667,951 667,951
Issuance of warrant in association with debt 396,844 396,844
Public offering of common stock, net
of offering expenses of $932,049 800,000 3,067,951 3,067,951
Issue of warrants to consultants 20,025 20,025
Cashless exercise of warrants 33,650
Preferred dividend (160,000) (160,000)
Comprehensive income
Net income 1,395,409 1,395,409
Other comprehensive loss, net of tax
Foreign currency translation adjustment (337,540) (337,540)
------------
Total comprehensive income 1,057,869
-----------------------------------------------------------------------------
Balance at December 31, 2000 5,671,140 16,492,381 (3,573,767) (437,510) 12,481,104
Shares issued for acquisitions 1,129,231 8,677,540 8,677,540
Shares issued in private placement 769,231 4,633,933 4,633,933
Exercise of options and warrants 751,553 3,172,326 3,172,326
Shares issued to extinguish debt 200,000 1,310,000 1,310,000
Shares issued to employees and
consultants 98,979 266,746 266,746
Issuance of warrant in association with
debt 176,040 176,040
Preferred dividend (377,803) (377,803)
Comprehensive loss
Net loss (215,742) (215,742)
Other comprehensive loss, net of tax
Foreign currency translation adjustment (961,149) (961,149)
------------
Total comprehensive loss (1,176,891)
-----------------------------------------------------------------------------
Balance at December 31, 2001 8,620,134 $ 34,728,966 $ (4,167,312) $ (1,398,659) $ 29,162,995
=============================================================================
See accompanying notes to consolidated financial statements.
F-5
ACT Teleconferencing, Inc.
Consolidated Statements of Cash Flow
For the years ended December 31, 2001, 2000, and 1999
2001 2000 1999
--------------------------------------------
Operating activities
Net income (loss) $ (215,742) $ 1,395,409 $ 81,425
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Extraordinary items 416,366 -- --
Depreciation 3,529,022 2,132,657 1,394,056
Amortization of goodwill and other intangibles 614,435 186,550 80,377
Amortization of debt costs 236,923 156,462 --
Deferred income taxes 143,788 10,417 17,967
Shares issued for consulting fees and
employee service 68,461 330,924 84,591
Minority interest -- 708,506 161,040
--------------------------------------------
Cash flow before changes in operating assets
and liabilities: 4,793,253 4,920,925 1,819,456
Changes in operating assets and liabilities,
net of effects of business combinations:
Accounts receivable (1,304,347) (1,989,423) (2,287,387)
Prepaid expenses and other assets (292,607) (205,704) (159,184)
Accounts payable 646,143 938,556 (425,438)
Accrued liabilities 1,036,733 91,729 373,771
Income taxes payable 457,511 1,154,087 (322,495)
--------------------------------------------
Net cash provided by (used for) operating
activities 5,336,687 4,910,170 (1,001,227)
Investing activities
Equipment purchases (4,245,406) (5,189,336) (4,592,415)
Cash held in escrow (1,355,951) -- --
Cash paid for acquisitions net of cash acquired (2,231,363) (675,276) --
--------------------------------------------
Net cash used for investing activities (7,832,720) (5,864,612) (4,592,415)
Financing activities
Net proceeds from the issuance of debt 2,373,603 1,245,000 2,100,000
Repayments of debt (4,724,547) (2,259,250) (921,913)
Net proceeds from the issuance of common stock 8,036,545 3,411,278 3,929,481
Net issuance (redemption) of preferred stock (690,000) -- 1,680,526
Deferred loan issuance costs -- -- (44,445)
--------------------------------------------
Net cash provided by financing activities 4,995,600 3,715,720 6,743,633
Effect of exchange rate changes on cash (397,901) 49,919 13,202
--------------------------------------------
Net increase in cash and cash equivalents 2,101,667 1,492,505 1,163,143
Cash and cash equivalents beginning of year 3,025,056 1,532,551 369,408
--------------------------------------------
Cash and cash equivalents end of year $ 5,126,723 $ 3,025,056 $ 1,532,551
============================================
See accompanying notes to consolidated financial statements.
F-6
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
1. Organization and Significant Accounting Policies
Business
ACT Teleconferencing, Inc. (the Company) is engaged in the business of providing
high quality audio, video, data and internet based conferencing products and
services to business clients worldwide. The Company operates principally in the
United States, Canada, the United Kingdom, France, the Netherlands, Belgium,
Germany, Australia, Hong Kong and Singapore.
Basis of Presentation
The consolidated financial statements include the accounts of ACT
Teleconferencing, Inc, and its wholly-owned domestic and worldwide subsidiaries
at December 31, 2001. With the exception of ACT Business Solutions Limited,
which is 96.7% held, ACT owns 100% of all of its subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenue is recognized upon completion of conferencing services. The Company
generally does not charge up-front fees and bills its customers based on usage.
Revenue for equipment sales is recognized upon delivery and installation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Equipment and Depreciation
Equipment is stated at cost. Depreciation is calculated on a straight-line basis
over the estimated useful lives of five years for office furniture and software,
and five or ten years for telecommunications equipment. Certain equipment
obtained through capital lease obligations are amortized over the life of the
lease. Improvements to leased property are amortized over the lesser of the life
of the lease or the life of the improvement. Depreciation expense includes
capital lease amortization charges.
F-7
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Internal Use Software
Beginning in 1999, the Company initiated several internal software development
projects. Related to these and any new projects, the Company capitalizes costs
of materials, consultants, and payroll and payroll-related costs which are
incurred in developing internal-use computer software, beginning once the
application development stage is attained and continuing until the
post-implementation/operation stage is achieved. Costs incurred prior and
subsequent to the application development stage are charged to general and
administrative expenses. The Company capitalized internal use software
development costs of approximately $1,000,000, $1,100,000, and $250,000 for the
year ended December 31, 2001, 2000, and 1999, respectively.
Goodwill
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Statement 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Statement 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
Statement 142 requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives. Additionally, Statement 142 requires goodwill
included in the carrying value of equity method investments no longer be
amortized.
The Company will apply Statement 142 beginning in the first quarter of 2002.
Application of the non-amortization provisions of Strtatement 142 is expected to
result in an increase in net income of approximately $925,000 ($0.10 per share)
in 2002. The Company will test goodwill for impairment using the two-step
process prescribed in Statement 142. The first step is to screen for potential
impairment, while the second step measures the amount of impairment, if any. The
Company expects to perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002 in the
first or second quarter of 2002. Any impairment charge resulting from these
transitional impairment tests will be reflected as the cumulative effect of a
change in accounting principle in the first or second quarter of 2002. The
Company has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
The Company amortized goodwill related to acquisitions completed prior to July
1, 2001 on a straight-line basis over periods of 15 or 25 years. For the years
ended December 31, 2001, 2000, and 1999, the Company amortized approximately
$420,000, $187,000 and $80,000 related to its goodwill.
F-8
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Other Intangible Assets
Other long term assets includes a non-compete agreement that was entered into in
association with the January 17, 2001 purchase of the 40% minority interest in
ACT Teleconferencing Limited. The agreement was valued by an independent
appraisal at approximately $1.5 million and is being amortized over 5 years, the
term of the agreement. For the year ended December 31, 2001, the Company
amortized approximately $221,000 related to this intangible asset.
Long-Lived Assets
Long-lived assets are reviewed for impairment when events indicate that the
carrying amount may not be recoverable. If such events are noted, the Company
estimates the future flows to be generated by those assets. In the event that
the sum of the cash flows is less than the carrying amount of those assets, the
assets would be written down to fair value, which is normally measured by
discounting the estimated future cash flows.
Foreign Currency Conversion
The financial statements of the Company's foreign subsidiaries have been
translated into United States dollars at the average exchange rate during the
year for the statement of operations and year-end rate for the balance sheet.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of three
months or less when purchased to be cash equivalents.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $405,000, $524,000, and $406,000 in 2001, 2000, and 1999,
respectively.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 financial
statement presentation in order to conform to the 2001 presentation.
F-9
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
2. Significant Contracts
On February 28, 2001, we signed an agreement to purchase network services from
AT&T for an undiscounted minimum operating commitment of $30 million per year
for the next three years. Discounts will apply, which will reduce the effective
commitment to approximately $14 to $16 million per year. We purchase
telecommunications services in the normal course of business. This contract
provides us with significant discounts based on the minimum contractual
commitment and if we do not meet these commitments, the discount percentage will
be reduced. However, we have the right to negotiate this commitment down to the
level of actual usage, without penalty, in the event of a business downturn
beyond our control.
3. Long and Short Term Debt
The following debt instruments are owed by ACT Teleconferencing, Inc., unless
otherwise noted.
December 31,
2001 2000
-----------------------
Notes payable related to the acquisition of the 40% interest in ACT
Teleconferencing Limited that was purchased during 2001. Amounts are due between
April 2002 and December 2005. The amounts due in 2002 bear interest at
10%, while the amounts due subsequent to 2002 bear interest at 7% $6,110,914 $ --
Unsecured promissory note payable due to the seller of the 1414c video
conferencing assets. The note bears interest payable at an annual rate of 10%
with principal amounts due in four equal semi-annual installments beginning
April 2002. 2,500,000 --
ACT Teleconferencing Services, Inc., a United States subsidiary, has
a line of credit secured by its tangible and intangible assets. The
line of credit carries an interest rate of prime plus 0.05% (5.25%
at December 31, 2001) per annum with a borrowing base restricted to
qualified accounts receivable up to $4 million. The line of credit
expires on March 30, 2004. 1,504,825 --
Subordinate promissory note payable bearing an interest rate of 13.5% per annum
Principal is due on the maturity date of March 31, 2003. The note is secured by
a second lien on Company assets, subordinated to the Company's senior lenders 890,000 2,500,000
F-10
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
3. Long and Short Term Debt (continued)
Line of credit to equipment vendor bearing interest at 6% per annum. Payments
are due in monthly installments calculated on 8% of principal balance plus
interest. This facility is limited to $1,800,000 654,730 1,271,388
Term note due to a bank, in monthly installments, by ACT Teleconferencing
Services, Inc., a United States subsidiary, at an interest rate of prime plus
0.50% per annum (5.25% at December 31, 2001). Amounts are due between
January 2002 and March 2003 468,750 --
Note payable, due on demand, by ACT Videoconferencing, Inc., a
United States subsidiary, to an equipment vendor at an interest rate
of 7%. 280,000 280,000
Notes payable and revolving lines of credit, through vendors and various banks,
secured by accounts receivable and equipment at interest rates ranging from 6%
to 16.75%. Amounts are due between January 2002 and September 2003 274,934 602,829
Line of credit by ACT Teleconferencing Services, Inc., a United
States subsidiary. This line of credit was repaid in April 2001. -- 989,239
Subordinated two-year convertible note to an equipment vendor. This
note was paid in October 2001. -- 500,000
---------------------------
Subtotal 12,684,153 6,143,456
Less deferred interest cost (54,058) (218,936)
---------------------------
Subtotal 12,630,095 5,924,520
Less, current portion of long term debt (6,972,977) (2,871,114)
---------------------------
Long term debt $ 5,657,118 $ 3,053,406
===========================
Total interest paid on notes and capitalized leases for the year ended December
31, 2001, 2000 and 1999 amounted to approximately $1,929,000, $856,000, and
$848,000 respectively.
F-11
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
3. Long and Short Term Debt (continued)
The aggregate minimum annual payments as of December 31, 2001 for long-term debt
are as follows:
2002 $ 6,972,977
2003 3,464,136
2004 1,096,491
2005 1,096,491
-----------
$12,630,095
===========
4. Commitments--Operating and Capitalized Leases
Operating Leases
The Company leases office space and office equipment. These leases expire
January 2002 through July 2008. Total rent expense charged to operations was
$1,915,314, $1,290,947, and $1,352,496 for the years ended December 31, 2001,
2000 and 1999, respectively.
Capitalized Leases
The Company leases telecommunication equipment and office equipment, including
computers and furniture, under long-term leases classified as capital leases.
For several of these leases, the Company has the option to purchase the
equipment for a nominal cost at the termination of the lease.
The following property is secured under capital leases:
December 31,
2001 2000
------------------------
Telecommunications and office equipment, computers and
furniture $4,220,160 $3,639,399
Less accumulated depreciation (916,488) (633,024)
------------------------
Net carrying value of equipment secured $3,303,672 $3,006,375
========================
F-12
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
4. Commitments--Operating and Capitalized Leases (continued)
The aggregate minimum annual commitments for operating and capital leases as of
December 31, 2001 are as follows:
Operating Capital
Leases Leases
--------------------------
2002 $1,761,776 $ 1,315,597
2003 1,054,881 1,081,486
2004 846,544 287,841
2005 475,439 108,198
2006 and thereafter 762,824 4,965
--------------------------
Total minimum lease payments $4,901,464 2,798,087
==========
Less amounts representing interest (288,381)
-----------
Present value of net minimum capital
leases payments 2,509,706
Less capital lease obligations due
within one year (1,128,161)
-----------
Capital lease obligations due after one year $ 1,381,545
===========
During 2001 and 2000, the Company incurred capital lease obligations of
$1,063,435 and $1,582,287 respectively, in connection with lease agreements to
acquire equipment.
5. Shareholders' Equity
Preferred Stock
Series A. On October 19, 1999, the Company issued 2,000 shares of Series A 8%
Preferred Stock ("Series A") to GMN Investors II, L.P. for $2,000,000. This
transaction was accompanied by the issuance of 400,000 warrants to purchase
shares of common stock at $7.00 per share (see warrants below). On October 11,
2001, the Company liquidated the 2,000 outstanding shares of its Series A in an
amount $2,000,000 plus accrued dividends of $338,176. This liquidation involved
the issuance of 200,000 shares of restricted common stock valued at $1,310,000
based upon an agreed upon price with GMN Investors II, L.P. and $1,028,176 in
cash, including accrued dividends. This liquidation resulted in an additional
dividend charge of approximately $240,000, including $35,000 in consideration
for the repricing of the 400,000 warrants from an exercise price of $7.00 to
$6.45, based on the fair value on the date of liquidation.
F-13
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
5. Shareholders' Equity (continued)
Common Stock
2001 Private Placement. In September 2001, the Company completed a private
offering of 769,231 shares of restricted common stock to Special Situations Fund
III, L.P., Special Situations Cayman Fund, L.P., and Special Situations Private
Equity Fund, L.P. at $6.50 per share for net proceeds of $4,634,000. Commissions
and other costs of $366,000 were netted against the proceeds of this private
placement.
2000 Offering. In May 2000, the Company registered an offering issuing 800,000
shares of common stock at $5.00 per share for net proceeds of $3,067,951. In
association with this offering, the Company issued 480,000 warrants. (See
warrants outstanding below).
1999 Private Placement. In February 1999, the Company completed a private
offering of 109,212 units, each comprised of one share of common stock at $5.50
per share and one warrant to purchase one share of common stock for net proceeds
of $592,505. The shares and the shares underlying the warrants entitle the
holder to piggyback registration rights through December 31, 2003. (See warrants
below).
Warrants
Pursuant to our initial public offering, the Company granted 71,250 unit options
to the underwriter. Each unit contained the right to purchase one share of
common stock for $4.20 per share and a three-year warrant for the purchase of a
share at $5.00 per share. The three-year warrant period begins on exercise of
the $4.20 common stock warrant. In August 1999, 60,222 unit options were
exercised resulting in the issuance of 120,444 shares at an average exercise
price of $4.60 per unit, raising $553,537 in net proceeds to the Company. On
February 2, 2001, 9,835 unit purchase options were exercised in a cash-less
transaction resulting in the issuance of 4,963 shares and 9,835 warrants. The
remaining unit purchase options expired on February 2, 2001. The 9,835 warrants
remaining at December 31, 2001 have an exercise price of $5.00 and expire in
February 2004.
On March 31, 1998, in conjunction with the issuance of its $1,600,000
subordinated promissory notes, the Company issued stock purchase warrants for
the purchase of 183,853 shares of common stock at an exercise price of $7.00 per
share to Sirrom Capital Corp. with a fair value of approximately $240,000. Since
the loan was not repaid by March 31, 2000, the warrants were increased by 32,949
with a fair value of approximately $255,000 due to a temporary significant
increase in the Company's stock price. The loan was repaid in April 2001, with
no additional warrants being issued. This repayment resulted in an extraordinary
write-off of these warrant costs in an amount of $336,000. At December 31, 2001,
Sirrom Capital Corp. has 216,802 warrants outstanding,, which expire in April
2003.
F-14
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
5. Shareholders' Equity (continued)
Warrants (continued)
Also in March 1998, in conjunction with the issuance of its $890,000
subordinated promissory note, the Company issued stock purchase warrants for the
purchase of 147,114 shares of common stock as an exercise price of $7.00 per
share to Equitas L.P. with a fair value of $192,719. Since the loan was not
repaid by March 31, 2000, the warrants were increased by 26,718 with a fair
value of $207,065 due to a temporary significant increase in the Company's stock
price. Likewise, as the loan was not repaid on March 31, 2001, the warrants were
increased by 26,993 with a fair value of approximately $80,000. If the loan is
not repaid by March 31, 2002, the warrants will increase by an additional 27,585
and will be fair valued based on the stock price on that date. At December 31,
2001, Equitas L.P. has 200,825 warrants outstanding, which expire in April in
2003.
In February 1999, the Company issued 109,212 warrants in connection with our
private placement at a $7.00 exercise price and an expiration date of December
31, 2003.
On October 19, 1999, in association with the issue of preferred stock, the
Company issued 400,000 warrants to GMN Investors II at a $7.00 exercise price
and an expiration date of October 19, 2006. At the date of issuance, these
warrants had a fair value of approximately $100,000. On October 11, 2001, the
Company liquidated the outstanding preferred stock and repriced the 400,000
warrants from an exercise price of $7.00 to $6.45, resulting in a fair value of
approximately $32,000.
During 1999, the Company issued 95,000 warrants at an average strike price of
$5.95 for consulting services for work to be done for the Company in investor
relations, global business development and the identification of new partners
and acquisitions in new markets. In 2001, 70,000 of these warrants were
exercised in a cash-less conversion and the holders received 34,169 shares. The
remaining 25,000 warrants expire in April 2002.
In 2001, the Company issued 28,000 additional warrants for consulting services
for work to be done for the Company at an average strike price of $8.93 and a
fair value of approximately $20,000. These warrants expire as follows: 18,000
expire in May 2004 and 10,000 expire in April 2005.
During 2000, the Company issued 60,000 warrants at a strike price of $10 and a
fair value of approximately $20,000, for consulting services expiring in January
2003.
F-15
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
5. Shareholders' Equity (continued)
Warrants (continued)
In association with the 2000 offering, the Company issued 400,000 warrants to
the subscribers and 80,000 warrants to the underwriters at an average strike
price of $6.14 and expiring in May 2005. In 2001, 354,000 of the warrants issued
to the subscribers were converted and the company received proceeds of
$2,141,700.
The Company utilizes the Black-Scholes valuation model that was developed for
use in estimating the fair value of traded securities that have no vesting
restrictions and are fully transferable. The following factors were used in
determining the warrant prices: risk-free interest rate of 6.0%; a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of 0.77; and an expected life based on the individual warrant term.
In certain instances, the Company has received external valuations of the fair
value of warrants through accredited valuation specialists.
All warrants are also subject to customary anti-dilution provisions and to
adjustment in the event of stock splits, stock dividends, consolidations, and
the like. Holders of shares issued upon the exercise of these warrants have
piggy-back rights to registration and certain investors, principally GMN
Investors II, have demand registration rights.
The Company accounts for warrants issued for consulting services and in
conjunction with debt instruments by determining the fair value of the warrant
and amortizing the expense over the consulting period or the maturity term of
the debt. Warrants issued in association with equity instruments are not valued
as the valuation would have no financial effect on the Company.
6. Stock Option Plan
The Company's various Stock Option Plans, as approved and amended by
shareholders, authorizes the grant of options to officers, key employees, and
consultants for up to 1,600,000 shares of the Company's common stock. Options
granted under all plans generally have 10-year terms and vest 25% each year
following the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options is generally equal to the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. FASB Statement No. 123, "Accounting for Stock-Based Compensation"
establishes an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The Company elected not
to adopt FASB Statement No. 123 for expense recognition purposes.
F-16
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stock Option Plan (continued)
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
2001 2000 999
------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------------
Outstanding-beginning of year 1,165,240 $ 4.82 1,106,352 $ 4.93 902,437 $ 4.89
Granted 228,999 5.30 150,900 5.97 221,700 5.18
Exercised (358,421) 3.98 (38,576) 5.39 (4,500) 3.00
Forfeited (99,127) 5.24 (53,436) 6.05 (13,285) 7.35
------------------------------------------------------------------------------
Outstanding-end of year 936,691 $ 5.21 1,165,240 $ 4.82 1,106,352 $ 4.93
==============================================================================
Exercisable at end of year 557,675 $ 4.95 778,720 $ 4.32 561,837 $ 4.02
==========
Weighted-average fair value of
options granted during the year
Market price equals exercise
price at date of grant $ 3.99 $ 5.01 $ 3.78
Market price exceeds exercise
price at date of grant -- -- $ 4.05
The following table summarizes our stock options outstanding at December 31,
2001:
Weighted-Average
remaining contractual Weighted-Average
Exercise Price Range Shares life exercise price
- --------------------------------------------------------------------------------------
$1.00-$2.20 91,500 2.14 years $1.79
$2.75-$3.03 98,200 4.77 years $2.95
$4.25-$5.25 322,450 8.26 years $4.92
$5.50-$6.50 272,800 6.44 years $5.85
$7.00-$8.00 74,550 8.56 years $7.44
$9.00 77,191 6.49 years $9.00
-------
936,691
=======
6. Stock Option Plan (continued)
F-17
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model. The following are weighted-average
assumptions for 2001, 2000, and 1999 respectively: risk-free interest rate of
5.0% in 2001 and 6.0% in 2000 and 1999; a dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of 0.77; and
a weighted-average expected life of the option of 7 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
2001 2000 1999
----------------------------------------------
Pro forma net income (loss) after
extraordinary item $ (1,070,067) $ 361,635 $ (1,001,935)
Pro forma net income (loss) per share
after extraordinary item $ (0.16) $ 0.06 $ (0.23)
7. Income Taxes
Income tax expense and the related current and deferred tax liabilities for all
periods presented relate primarily to the Company's U.K. and Canadian
operations.
F-18
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
For financial reporting purposes, income (loss) before income taxes and
extraordinary item includes the following components:
2001 2000 1999
--------------------------------------
Pretax income (loss):
United States $ 75,052 $1,279,555 $ 710,747
Foreign 1,000,687 1,604,610 (19,489)
--------------------------------------
$1,075,739 $2,884,165 $ 691,258
======================================
The provision for income taxes for the years ended December 31, is comprised of
the following:
2001 2000 1999
--------------------------------------
Current $ 765,569 $ 769,833 $ 393,331
Deferred 109,546 10,417 21,535
--------------------------------------
$ 875,115 $ 780,250 $ 414,866
======================================
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to actual income tax expense is:
2001 2000 1999
--------------------------------------
Expected rate at 35% $ 831,398 $1,009,458 $ 241,940
Effect of permanent difference* 287,243 128,794 41,567
Utilization of net operating losses (421,783) (289,918) (40,339)
Foreign Taxes (79,982) (126,173) (38,692)
Valuation allowance 478,330 323,011 210,390
Other (220,091) (264,922) --
--------------------------------------
$ 875,115 $ 780,250 $ 414,866
======================================
* Amortization of goodwill.
F-19
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
2001 2000 1999
--------------------------------------------
Deferred Tax Liabilities-Domestic
Tax depreciation in excess of book depreciation $ (275,705) $ (484,429) $ (495,277)
Other (50,859) (58,730) (93,998)
--------------------------------------------
(326,564) (543,159) (589,225)
Deferred Tax Assets-Domestic
Net operating loss carry-forward 1,281,888 1,475,163 1,826,424
Foreign currency translation 542,000 -- --
Reserves for doubtful accounts 96,020 163,287 28,723
--------------------------------------------
1,919,908 1,638,450 1,855,147
Valuation allowance for deferred tax assets (1,593,344) (1,095,291) (1,265,922)
--------------------------------------------
Net deferred tax-Domestic $ -- $ -- $ --
============================================
Deferred Tax Liabilities-International
Tax depreciation in excess of book depreciation $ (415,987) $ (306,441) $ 320,112
Deferred Tax Assets-International
Net operating loss carry-forward 907,467 1,167,128 1,096,655
Valuation allowance for deferred tax assets (907,467) (1,167,128) (1,096,655)
--------------------------------------------
Net deferred tax liability-International $ (415,987) $ (306,441) $ (320,112)
============================================
Taxes of $300,000, $748,000 and $23,000 were paid during 2001, 2000, and 1999
respectively. The domestic and international net operating loss carry forwards
of approximately $3.5 million and $3 million, respectively, will begin to expire
in the year 2005. The Company has not provided for any taxes on undistributed
foreign earnings as the Company intends to permanently reinvest these earnings
in the future growth of the business and there are no unremitted, cumulative
foreign earnings.
F-20
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
8. Related Party Transactions
In July 2001, the Company entered into an incentive arrangement with one of the
Company's officers for the issuance of 32,000 shares of restricted common stock
as part of his incentive package. The common stock vests and is restricted in
four equal amounts over four years. Additional shares may be issued each year
for a four year period based on various profit based performance criteria and
would have the same vesting and selling restrictions. The Company recognized
compensation expense of $62,477 for the year ended December 31, 2001 related to
this agreement. The Company also has a note receivable from this officer with an
outstanding balance of $251,383 and $234,302 at December 31, 2001 and 2000. This
note bears interest at a rate of 7.5% and is due June 30, 2003.
Also in July 2001, the board of directors authorized a loan, with recourse, to
one of its officers in the amount of $347,875. The purpose of the loan was to
assist the officer in exercising stock options. This loan is secured by a
general pledge of personal assets of the officer, bears interest at 6%, and
matures on November 1, 2006. The 115,000 shares issued upon exercise of the
stock options is recorded in shareholders' equity but this transaction has no
financial effect on shareholders' equity as the loan offsets the amount recorded
to common stock for the exercise of the options. An increase in shareholders'
equity will be recognized as the loan is paid back to the Company.
9. Earnings Per Share
The following table sets forth the computation of the denominator for the
calculation of basic and diluted earnings per share. The numerator in the
computation of earnings per share is the same as that displayed on the face of
the income statement.
Denominator:
Basic shares 6,653,974 5,312,200 4,393,963
Effect of dilutive securities
Employee stock options -- 461,353 251,076
Warrants -- 222,712 10,462
Convertible debentures -- 27,665 --
--------------------------------------------
Dilutive effect -- 711,730 261,538
--------------------------------------------
Denominator 6,653,974 6,023,930 4,655,501
============================================
The computation of the denominator did not assume the conversion of options,
warrants, and convertible debentures in 2001 and convertible debentures in 1999
as their effect would have been antidilutive.
F-21
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
10. Business Segment Analysis
The Company offers a broad range of audio, video, and other teleconferencing
services to corporate business clients and institutions, and these services are
considered one line of business as they are integrated.
The Company's decisions on resource allocation and performance assessment are
primarily based on the market potential of each regional operating location.
Each of the locations offers the same products and services, has similar
customers and equipment, and is managed directly by the Company's executives,
allowing all locations to be aggregated under the guidelines of FASB Statement
No. 131 resulting in one reportable line of business to the extent that services
are separately identifiable. Prior to October 2001, audio conferencing services
comprised approximately 90% of total services. Video and other conferencing
services were approximately 10% of total revenues.
In October 2001, the Company acquired the assets of PictureTel Corporation's
1414c worldwide video conferencing service delivery business. In association
with this acquisition the Company's decisions on resource allocation and
performance will continue to be based on regional market potential but also on
the separate operating segments of audio, video, and internet teleconferencing
services.
The following summary provides financial data for the Company's operating
segments for the year ended December 31, 2001. It is impracticable for the
Company to present comparative information for the years ended December 31, 2000
and 1999 as the information, other than revenue figures, does not exist as the
Company assessed performance based on geographic markets rather than product
markets.
For the year ended December 31, 2001:
Audio Video Internet Subtotal Corporate Total
-----------------------------------------------------------------------------------
(in thousands)
Net Revenues $ 41,589 $ 5,054 $ -- $ 46,643 $ -- $ 46,643
Profit (loss) before tax and
extraordinary item 5,079 (656) (872) 3,551 (2,475) 1,076
Extraordinary item -- -- -- -- 416 416
Interest expense 620 69 90 779 561 1,340
Depreciation and amortization 3,310 608 110 4,028 115 4,143
Tax expense 722 103 -- 825 50 875
Total assets 31,469 14,301 1,494 47,264 6,224 53,487
F-22
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
10. Business Segment Analysis (continued)
The following summary provides financial data for significant geographic markets
in which the Company operates:
For the year ended December 31, 2001:
North America Europe Asia Pacific Total
-----------------------------------------------------------------
(in thousands)
Net Revenues $27,834 $15,670 $ 3,139 $46,643
Long-Lived Assets 15,514 8,525 2,830 26,869
Deferred Tax Liability 97 319 -- 416
For the year ended December 31, 2000:
North America Europe Asia Pacific Total
-----------------------------------------------------------------
(in thousands)
Net Revenues $22,147 $12,916 $ 2,637 $37,700
Long-Lived Assets 10,695 4,928 2,604 18,227
Deferred Tax Liability 27 280 -- 307
For the year ended December 31, 1999:
North America Europe Asia Pacific Total
-----------------------------------------------------------------
(in thousands)
Net Revenues $14,183 $12,049 $ 2,097 $28,329
Long-Lived Assets 7,282 4,210 1,240 12,732
Deferred Tax Liability -- 320 -- 320
The United States comprises approximately 90% of the North American total
revenue, the United Kingdom comprises approximately 85% of the European total
revenue, and Australia comprises approximately 80% of the Asia Pacific total
revenue.
The Company's largest customer accounted for 25%, 21%, and 14% of consolidated
revenues and the Company's second largest customer accounted for 9%, 17%, and
24% of consolidated revenues for the years ended December 31, 2001, 2000, and
1999, respectively. All other customers individually amounted to less than 5% of
total consolidated revenues in any one year.
F-23
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, temporary
investments, accounts receivable, accounts payable, long-term debt, and
capitalized lease obligations.
Because accounts receivable and accounts payable are short-term instruments that
are settled at face value, the Company considers the carrying amounts to
approximate fair value.
The fair value of long-term debt, consisting of notes and capitalized lease
obligations, is based on interest rates available to the Company and comparisons
to market rates. The Company considers the carrying amounts to approximate fair
value.
12. Defined Contribution Plan
The Company has a defined contribution 401(k) plan for its United States
employees, which allows eligible employees to contribute a percentage of their
compensation and provides for certain discretionary employer matching
contributions. For the years ended December 31, 2001, 2000 and 1999, the Company
contributed $0, $23,000, and $0 respectively. The Company's 401K match is made
with cash, not with Company stock.
13. Employee Stock Purchase Plan
The Company's employee stock purchase plan became effective July 1, 1998. The
plan has been structured within the meaning of Section 423(b) of the Internal
Revenue Code of 1986. A maximum of 300,000 shares of common stock are available
for sale to employees under the plan. The purchase price of each share of common
stock is the lesser of 85% of the fair market value of such share on the opening
day of the six month purchase period, or 85% of the fair market value of such
share on the closing day of the purchase period. Currently approximately 60
employees have elected to participate in the plan. Through December 31, 2001,
employees had purchased 101,013 shares of common stock under the plan.
F-24
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
14. Quarterly Results of Operations (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2001, 2000 and 1999.
March 31 June 30 September 30 December 31
-------------------------------------------------------------
Year ended December 31, 2001
Net revenues $ 11,525,464 $ 11,821,771 $10,775,704 $ 12,520,350
Gross profit 5,546,267 5,321,126 5,824,904 5,424,562
Operating income 975,107 622,811 1,178,588 (360,655)
Net income (loss )before extraordinary item 352,046 251,742 549,403 (952,567)
Extraordinary item -- (416,366) -- --
-------------------------------------------------------------
Net income (loss) 352,046 (164,624) 549,403 (952,567)
Earnings per share - basic and diluted
Net income (loss) before extraordinary item $ 0.05 $ 0.04 $ 0.08 $ (0.15)
Extraordinary item -- (0.07) -- --
-------------------------------------------------------------
Net income (loss) $ 0.05 $ (0.03) $ 0.08 $ (0.15)
Year ended December 31, 2000
Net revenues $ 8,183,767 $ 9,126,623 $ 9,512,611 $ 10,876,784
Gross profit 4,112,111 4,589,496 4,869,510 5,740,595
Operating income 845,501 925,463 1,174,470 1,010,474
Net income 187,925 204,555 389,273 613,656
Net income per share - basic $ 0.03 $ 0.03 $ 0.06 $ 0.10
Net income per share - diluted $ 0.03 $ 0.03 $ 0.06 $ 0.09
Year ended December 31, 1999
Net revenues $ 6,842,467 $ 6,429,079 $ 7,221,308 $ 7,835,937
Gross profit 3,053,573 3,163,457 3,465,367 3,848,788
Operating income 226,407 220,023 669,979 422,862
Net income (loss) (126,471) (105,371) 86,346 226,921
Net income (loss) per share - basic and diluted $ (0.03) $ (0.02) $ 0.02 $ 0.04
15. Acquisitions
On January 17, 2001, the Company acquired the 40% minority interest in ACT
Teleconferencing Limited, based in the United Kingdom, from David Holden, the
Company's Regional Managing Director of Europe, for 360,000 shares of the
Company's common stock valued at $2,182,000, notes payable of $6,111,000 ($1.8
million at an interest rate of 10% and $4.3 million at an interest rate of 7%)
and cash of $794,000 for a total of approximately $9,087,000. The Company has
established an escrow account of approximately $1,356,000 as partial security
for the notes payable. Related to this acquisition, the Company recorded
goodwill of $5.7 million and a non-complete agreement in the amount of $1.5
million. ACT Teleconferencing Limited has historically provided primarily audio
conferencing services and will continue to complement the Company's services in
that arena.
F-25
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
15. Acquisitions (continued)
On October 10, 2001, with an effective date of October 1, 2001, ACT
Videoconferencing, Inc., a wholly owned subsidiary of the Company, closed on the
acquisition of substantially all of the assets of PictureTel Corporations' s
1414c worldwide video conferencing service delivery business. The assets
acquired include property (equipment, furniture and machinery), software, and
customer contracts. The assets were previously used by PictureTel Corporation to
provide global video conferencing services and the Company plans to use the
acquired assets for the same purpose. The purchase price consisted of 769,231
restricted shares of the Company's common stock valued at $6.5 million, $1.2
million in cash and a $2.5 million two-year unsecured promissory note bearing
interest at a rate of 10%, for total consideration of approximately $10.2
million. In addition, the Company incurred fees of approximately $400,000. Also,
in association with this acquisition, the Company recorded approximately $1.8
million in fixed assets and $8.8 million in goodwill.
The following selected unaudited pro forma combined financial information
presented below has been derived from the audited historical financial
statements of the Company and reflects management's present estimate of pro
forma adjustments, including a preliminary estimate of the purchase price
allocations, which ultimately may be different.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the transaction
described above had been completed and in effect for the periods indicated or
the results that may be obtained in the future. The unaudited pro forma
condensed combined financial data presented below should be read in conjunction
with the audited historical financial statements and related notes thereto of
the Company.
F-26
ACT Teleconferencing, Inc.
Notes to Consolidated Financial Statements (continued)
15. Acquisitions (continued)
These acquisitions were accounted for under the purchase method of accounting.
The pro forma unaudited results of operations for the years ended December 31,
2001 and 2000, assuming consummation of the purchases as of January 1, 2000, are
as follows:
For the years ended
December 31,
2001 2000
---------------------------------
(Unaudited) (Unaudited)
Net revenues $ 51,322,289 $ 44,595,785
Net income before extraordinary item (220,456) 508,566
Extraordinary charge related to early extinguishment of debt (416,366) --
---------------------------------
Net income (loss) (636,822) 508,566
Preferred stock dividends (377,803) (160,000)
---------------------------------
Net income (loss) available to common shareholders $ (1,014,625) $ 348,566
=================================
Weighted average number of shares outstanding - basic 6,653,974 5,672,200
=================================
Weighted average number of shares outstanding - diluted 6,653,974 6,383,930
=================================
Earnings per share
Basic
Net income before extraordinary item $ (0.09) $ 0.06
Extraordinary item $ (0.06) --
---------------------------------
Net income (loss) $ (0.15) $ 0.06
=================================
Diluted
Net income before extraordinary item $ (0.09) $ 0.05
Extraordinary item $ (0.06) --
---------------------------------
Net income (loss) $ (0.15) $ 0.05
=================================
16. Subsequent Events
On January 2, 2002, the Company acquired Proximity, Inc., one of the world's
largest providers of room-based videoconferencing services, for 350,000
restricted shares of the Company's common stock valued at $2,737,000, notes
payable of $750,000, and cash of $500,000 for a total of approximately
$3,987,000. In addition, 150,000 shares of the Company's common stock have been
placed into escrow and are deliverable to certain of Proximity's shareholders
upon satisfaction of certain earnout provisions. If the earnout provisions are
achieved, the shares of common stock earned will be valued based on the Fair
Market Value on the earnout date and recorded as additional goodwill. If the
earnout provisions are not achieved, the 150,000 shares of common stock, or a
portion thereof, will revert back to the Company.
F-27
Schedule I--Condensed Financial Information of Registrant
ACT Teleconferencing, Inc.
Condensed Balance Sheets
December 31, 2001 and 2000
2001 2000
---------------------------------
Assets
Current assets $ 2,834,434 $ 389,425
Equipment (net of accumulated depreciation of
$547,000 and $212,000) 1,593,762 1,474,095
Other long term assets 1,795,706 986,228
Investment in and advances to subsidiaries 33,875,700 16,489,829
---------------------------------
Total assets $ 40,099,602 $ 19,339,577
=================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 822,502 $ 1,031,244
Current portion of debt 4,485,441 1,303,942
---------------------------------
Total current liabilities 5,307,943 2,335,186
Long-term debt 5,628,664 2,770,598
Preferred stock, no par value, 2,000,000 shares
authorized; 2,000 issued (at December 31, 2000) -- 1,752,689
Shareholders' equity:
Common stock, no par value; 25,000, 000 shares
authorized 8,620,134 and 5,671,140 shares issued
and outstanding in 2001 and 2000, respectively 34,728,966 16,492,381
Accumulated deficit (5,565,971) (4,011,277)
---------------------------------
Total shareholders' equity 29,162,995 12,481,104
---------------------------------
Total liabilities and shareholder's equity $ 40,099,602 $ 19,339,577
=================================
See accompanying condensed notes to financial statements.
F-28
Schedule I--Condensed Financial Information of Registrant (continued)
ACT Teleconferencing, Inc.
Condensed Statement of Operations
For the years ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------------------------------------------
Selling, general and administration
expense $ 2,764,102 $ 1,458,932 $ 1,181,353
Interest expense, net 561,228 634,938 423,340
Equity in undistributed earnings of
subsidiaries 3,525,954 3,489,278 1,686,118
----------------------------------------------
Net income before extraordinary item 200,624 1,395,410 81,425
Extraordinary item 416,366 -- --
----------------------------------------------
Net income (loss) after extraordinary item (215,742) 1,395,410 81,425
Preferred stock dividends (377,803) (160,000) (44,407)
----------------------------------------------
Net income (loss) available to common
shareholders $ (593,545) $ 1,235,409 $ 37,018
==============================================
See accompanying condensed notes to financial statements.
F-29
Schedule I--Condensed Financial Information of Registrant (continued)
ACT Teleconferencing, Inc.
Condensed Statements of Cash Flows
For the years ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------------------------------------------
Operating activities
Net income (loss) $ (215,742) $ 1,395,409 $ 81,425
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Extraordinary items 416,366 -- --
Equity in undistributed earnings of
subsidiaries (3,525,954) (3,489,278) (1,686,118)
Dividends received from subsidiary 1,713,000 -- --
Depreciation 335,338 84,842 62,541
Shares issued to consultants 68,461 330,924 --
Amortization of debt costs 236,923 156,462 --
Changes in operating assets and liabilities,
net of effects of business combinations:
Current Assets (46,706) 110,341 (118,378)
Other assets 152,632 (190,968) --
Accrued liabilities (342,911) 635,239 (68,346)
----------------------------------------------
Net cash used for operating activities (1,208,593) (967,029) (1,728,876)
Investing activities
Equipment purchases (455,005) (1,204,990) 227,018
Short-term notes redeemed -- -- (24,000)
Cash held in escrow (1,355,951) -- --
Investment in and advances to subsidiaries 2,939,148 (1,713,799) (3,332,946)
Cash paid for acquisitions net of cash acquired (2,231,363) (675,276) --
----------------------------------------------
Net cash used for investing activities (1,103,171) (3,594,065) (3,129,928)
Financing activities
Net proceeds (repayments) of debt (2,636,478) 304,442 311,804
Net proceeds from the issuance of common stock 8,036,545 3,411,278 4,014,072
Net issuance (redemption) of preferred stock (690,000) -- 1,693,006
Deferred loan issuance costs -- -- (44,445)
----------------------------------------------
Net cash provided by financing activities 4,710,067 3,715,720 5,974,437
----------------------------------------------
Net increase (decrease) in cash and cash
equivalents 2,398,303 (845,374) 1,115,633
Cash and cash equivalents beginning of year 270,259 1,115,633 --
----------------------------------------------
Cash and cash equivalents end of year $ 2,668,562 $ 270,259 $ 1,115,633
==============================================
See accompanying condensed notes to financial statements.
F-30
Schedule I--Condensed Financial Information of Registrant (continued)
ACT Teleconferencing, Inc.
Condensed Notes to Financial Statements
December 31, 2001 and 2000
1. Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements of ACT Teleconferencing, Inc., (the Company) reflect
the investments in their wholly owned subsidiaries under the equity method.
Consolidated Financial Statements
Reference is made to the Consolidated Financial Statements and related Notes of
ACT Teleconferencing, Inc. included elsewhere herein for additional information.
Debt and Guarantees
Information on the debt of the Company is disclosed in Note 2 of the Notes to
Consolidated Financial Statements of ACT Teleconferencing, Inc. included
elsewhere herein. Certain subsidiaries of the Company have guaranteed debt of
$890,000 that is due on March 31, 2003. In April 2001, the Company repaid
$1,610,000 of this outstanding note. The Company's ability to transfer assets,
in the form of a dividend, loan, or advance, from these subsidiaries is
restricted under the loan agreement. Approximately $18 million of consolidated
subsidiaries net assets, at December 31, 2001, are restricted.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 financial
statement presentation to conform to the 2001 presentation.
F-31
Schedule II--Valuation Of Qualifying Accounts
ACT Teleconferencing, Inc.
Allowance for Doubtful Accounts Receivable
Additions/
Balance at Charges to Balance at
Beginning Costs and End of
Of Period Expenses Deductions Period
--------- -------- ---------- ------
For the year ended December 31, 2001:
Allowance for doubtful accounts
receivable $ 621,059 $ 640,888 $ (670,830) $ 591,117
=============================================================
For the year ended December 31, 2000:
Allowance for doubtful accounts
receivable $ 153,677 $ 475,652 $ (8,270) $ 621,059
=============================================================
For the year ended December 31, 1999:
Allowance for doubtful accounts
receivable $ 32,644 $ 138,501 $ (17,468) $ 153,677
=============================================================
F-32
Index to Exhibits
All exhibits are filed electronically or incorporated by reference.
Number Description
------ -----------
1.1(1) Form of Agency Agreement
1.3(1) Form of Agent's Warrant
1.4(1) Form of Warrant Agreement
3.1(2) Restated articles of incorporation of ACT April 15, 1996,
as amended October 18, 1999, and November 26, 2001
3.2(3) Bylaws of ACT, amended and restated as of May 22, 2001
4.1(4) Form of specimen certificate for common stock of ACT
5 Opinion of counsel
10.1(4) Stock option plan of 1991, as amended, authorizing 400,000
shares of common stock for issuance under the plan
10.2(4) Form of stock option agreement
10.3(4) Form of common stock purchase warrant
10.10(4) Split dollar insurance agreement dated March 1, 1990, between
ACT and Gerald D. Van Eeckhout
10.11(12) Service agreement dated April 10, 1992 between David Holden
and ACT Teleconferencing Limited
10.12(12) Share purchase agreement by and between ACT Teleconferencing,
Inc. and David L. Holden & others.
10.13(12) Instrument constituting(pound)1,172,000 convertible secured
A loan notes and(pound)2,980,000 convertible secured B loan
notes by and between ACT Teleconferencing, Inc. and David
L. Holden & others
10.19(5) Stock option plan of 1996, as amended
10.20(2) Employee stock purchase plan, as amended
10.22(6) Loan and security agreement dated March 31, 1998 and form of
stock purchase warrant with Sirrom Capital Corporation and
Equitas L.P.
10.23(6) Loan agreement with Key Bank, N.A.
10.24(7) Lease commitment and warrant with R.C.C. Finance Group Ltd.
10.25(7) Contract for the supply of conferencing services design
development and information signed July 14, 1998 between ACT
Teleconferencing Services, Inc. and Concert Global
Networks Limited
10.26(7) Agreement for the supply of conferencing services signed
July 14, 1998 between ACT Teleconferencing Services, Inc. and
Concert Global Networks Limited
10.27(7) Agreement for videoconferencing equipment and services (GTE
Telephone Operating Companies) dated October 1, 1998
10.28(2) Stock option plan of 2000, as amended
10.29(2) Service order attachment signed March 15, 2001, between ACT
Teleconferencing Services, Inc. and AT&T Corporation for the
supply of domestic voice/data services.
10.30(8) Asset Purchase Agreement by and between ACT Teleconferencing,
Inc., ACT Videoconferencing, Inc. and PictureTel Corporation
dated as of October 4, 2001.
10.31(8) Note in the original principal amount of $2.25 Million with
ACT Teleconferencing, Inc. as maker and PictureTel
Corporation as holder.
10.32 (8) Letter agreement between ACT Teleconferencing, Inc. and GMN
Investors II, L.P. dated as of October 11, 2001, for the
redemption of Series A Preferred Stock.
10.33(8) Amended and Restated Warrant between ACT Teleconferencing,
Inc. and GMN Investors II, L.P.
10.34(8) Terms and Conditions for Purchase of Shares between ACT
Teleconferencing, Inc. and Special Situations Fund III, L.P.,
Special Situations Cayman Fund, L.P., and Special Situations
Private Equity Fund, L.P.
10.35(9) Agreement and Plan of Merger dated as of December 21, 2001,
by and among ACT Teleconferencing, Inc., ACT Proximity, Inc.,
Proximity, Inc., Robert C. Kaphan, Richard Parlato, and
North Atlantic Venture Fund II, L.P.
10.36 Promissory note to Gerald Van Eeckhout
10.37 Security agreement to Gerald Van Eeckhout
10.38 Long term stock incentive for Gene Warren dated July 1, 2001
10.39 Promissory note to Gene Warren
10.40 Security agreement to Gene Warren
10.41 Line of credit agreement with Wells Fargo Business Credit
21 Subsidiaries of ACT Teleconferencing, Inc.
23.1 Consent of independent auditors
23.2(10) Consent of counsel to the Company
24(11) Power of attorney
- -----------
(1) Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form S-1, filed with the Securities and
Exchange Commission on March 10, 2000, File No. 33-32156.
(2) Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form S-1, filed with the Securities and
Exchange Commission on December 3, 2001, File No. 333-744138.
(3) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-Q for the quarter ended June 30, 2001, filed with the
Securities and Exchange Commission on August 21, 2001, File No. 0-27560.
(4) Incorporated by reference, attached as an exhibit of the same number to
our registration statement on Form SB-2, filed with the Securities and
Exchange Commission on October 10, 1995, and amendments to our Form SB-2,
File No. 33-97908-D.
(5) Incorporated by reference, attached as an exhibit to our schedule 14A
Information filed with the Securities and Exchange Commission on April 30,
1997, File No. 0-27560, and amended and attached as exhibit 4.6 to our
Form S-8, filed on July 2, 1998, File 333-58403.
(6) Incorporated by reference, attached an exhibit of the same number to our
Amendment No. 1 to Form 10-QSB for the quarter ended June 30, 1998, filed
with the Securities and Exchange Commission on August 24, 1998 (originally
filed under cover of Form SE on August 14, 1998) File 0-27560.
(7) Incorporated by reference, attached as an exhibit of the same number to
our Form 10-QSB for the quarter ending September 30, 1998, filed with the
Securities and Exchange Commission on November 16, 1998, File 0-27560.
(8) Incorporated by reference, attached as an exhibit to our report on Form
8-K filed with the Securities and Exchange Commission on October 18, 2001,
File No. 0-27560.
(9) Incorporated by reference, attached as exhibit 10.1 to our report on Form
8-K filed with the Securities and Exchange Commission on January 16, 2002,
File No. 0-27560.
(10) Included in Exhibit 5.
(11) Included with signature pages.
(12) Incorporated by reference, attached as an exhibit to our report on Form
8-K filed with the Securities and Exchange Commission on January 31, 2001,
File No. 0-27560.