Back to GetFilings.com

Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

For the transition period from              to             

Commission File Number 0-27560

ACT Teleconferencing, Inc.

(Exact name of registrant as specified in its charter)

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(g) of the Exchange Act:

Common stock, no par value

(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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2004 was $37.4 million based on the closing price of the Company’s common stock on the Nasdaq National Market on June 30, 2004 of $2.52 per share.

The number of shares outstanding of the Company’s Common Stock, no par value was 16,661,562 shares as of April 11, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information called for by Part III is incorporated by reference to specified portions of the definitive Proxy Statement for the Registrant’s 2005 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the Registrant’s fiscal year ended December 31, 2004.

Table of Contents

ACT Teleconferencing, Inc.

Form 10-K

Table of Contents

Table of Contents

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 “Risk Factors” herein. 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.

Throughout this report, ACT Teleconferencing may be referred to as “ACT”, “The Company”, “We”, or “Our”.

PART I

Item 1. Business

Overview

General. We are a full-service provider of audio, video, data and web-based conferencing services to businesses and organizations in North America, Europe and Asia Pacific. Our conferencing services enable our clients to cost-effectively conduct full service international conferences exchanging video, data and audio, by linking participants in geographically dispersed locations. We are present in nine countries and provide local access dial in access from a total of 53 countries. Our primary focus is to provide high quality conferencing services to organizations such as professional service firms, investment banks, high tech companies, law firms, investor relations firms, telecommunications companies 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 operation in the United Kingdom, and in 1995 we invested in a similar operation in the Netherlands. In 1997 we announced a capacity expansion plan through which we intended to grow from our then three locations in three countries (United States, United Kingdom and the Netherlands) into Canada, France, Germany, Belgium, Australia, Hong Kong and Singapore offering a full range of audio, video data and web-based conferencing services. In 2001 we acquired the assets of 1414c, the worldwide videoconferencing service delivery business of PictureTel Corporation. The assets acquired include equipment, software and customer contracts. The assets were previously used by PictureTel Corporation to provide videoconferencing bridging services to its customers.

In 2002 we acquired Proximity, Inc., which provides room-based videoconferencing services in over 3,500 locations worldwide. With these acquisitions, we are able to offer a full range of video conferencing services to augment our existing audioconferencing services. In 2002 we also signed an outsourcing agreement with AT&T to provide audioconferencing services to AT&T and its customers in 53 countries outside of the United States. In 2004, this agreement was extended through 2006.

Our financial results for the last three fiscal years, including geographic breakdown, are presented under Item 15, Exhibits, Financial Statements and Schedules.

Teleconferencing Market Growth Factors

Several key trends in today’s business world are driving growth in the world market for teleconferencing services:

1

Table of Contents

Audioconferencing Services. Our attended ActionCall^sm and automated Ready Connect^SM audioconferencing services include full-service attended conferencing; reservationless unattended conferencing; and a comprehensive suite of enhanced audioconferencing management services. Our web conferencing services supplement these offerings. Enhanced audioconferencing services, which are available on request, include:

We generate revenues by charging clients a fee-per-minute for bridging, call management and various additional conferencing services, as well as charges related to long distance transmission.

Videoconferencing Services. We offer videoconferencing services through multipoint video bridging centers worldwide. We have video service delivery centers in the United States, United Kingdom, Singapore and Australia; and secondary network operating facilities in other locations.

Our videoconferencing offerings include full-service advanced technical management features such as:

2

Table of Contents

Revenue generation for videoconferencing is similar to audioconferencing, however the per-minute rate and transmission costs are more expensive. Although videoconferencing is more expensive than audioconferencing, the shift to Internet Protocol will decrease transport costs and associated revenues. We expect that improvements in equipment, increased familiarity with video, stable or declining transmission and equipment costs, and technology will drive volume growth.

Videoconferencing is the 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).

Web Conferencing: ACT offers its global customers a full suite of web-based conferencing products and services. Services include on-demand web conferencing (web-based visual plus telephone conference call), event web conferencing, as well as, web casting or streaming services. These services are used by ACT customers globally to support Investor Relations, Medical Marketing, Distance Learning and Event programs. ACT has yet to realize significant revenues from these services and combines these services with audio and video conferencing, when applicable.

Total Conferencing Services Market. We service a niche of the teleconferencing services market by focusing on high value-added services for large, multinational customers and large global telecommunications providers.

Audioconferencing Services Market. We are planning our growth based on the expectation that our audioconferencing revenues will grow at or above an estimated 10% per year during 2005. .

Videoconferencing Services Market. Based on industry sources and independent research, we believe that our worldwide videoconferencing revenues will be flat to slightly up in 2005.

Web Conferencing Market: We believe based on industry sources and independent research that the overall web conferencing market will continue to grow in volume at more than 20% per year during 2005.

Strategy. Our strategy is to provide high quality conferencing with a broad product line globally. Specifically, we aim to:

Service Quality and Client Care

We train all employees in the principles of client care management, including 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, conference 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.

3

Table of Contents

Sales and Marketing

Our global sales and marketing targets customers that can be acquired through direct acquisition, and through multiple channel partners. As our revenues are generated on a worldwide basis, and local countries have seasonal variations, there has been little consistent seasonal fluctuation in revenues on a worldwide basis, with the exception of revenue in Europe which typically slows down during the third quarter.

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 have several outsource relationships with telecommunications companies globally.

Our customer base is approximately 5,000 established accounts ranging from small manufacturing firms to Fortune 500 companies. Each customer is unique, with end-user populations ranging from 20 to 20,000 users. We cross-sell services to our global customer base, and specialize in supporting vertical applications.

We target the following customer groups for our conferencing services and applications:

Global Accounts. Our global account managers are responsible for some 50 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. All sales directors and staffs participate in the account acquisition and implementation globally.

Our largest global account customer accounted for 16%, 7%, and 7%, of our consolidated revenues for the years ended December 2004, 2003 and 2002. AT&T Corporation was our largest customer in 2003 and 2004. Our second largest global account customer accounted for 5%, 6%, and 7% of our consolidated revenues for the same years. In 2003, our third and fourth largest global account customers each accounted for 6% of total revenues and all other customers individually accounted for less than 5% of total consolidated revenues for the year. In 2004 and 2002, all customers, other than the top two, individually amounted to less than 5% of total consolidated revenues for the year.

Direct 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 also seek situations in which we can provide competitive services to mid-sized companies at higher margins.

Outsourced and Co-Marketing Relationships. We participate in outsourcing and co-marketing relationships with major telecommunications companies globally. AT&T is the largest of these and accounted for 16% of our revenue in 2004.

Intellectual Property

We seek to protect our proprietary information and business practices as trade secrets. We have developed customized software that we consider proprietary for our service and quality control functions and also have developed in-depth technical know-how with respect to the operation of telecommunications equipment and the coordination of large-volume conference calls. We also require each of our employees to execute a nondisclosure agreement for the protection of confidential information.

We own the following United Kingdom trademark registrations (some of which include words that are intentionally repeated): ACT; ACTIONCAST ACTIONCAST; ACTIONCALL ACTIONCALL; ACTIONSHOW ACTIONSHOW; ACTION FAX ACTION FAX and ACTION VIEW. We also own a Benelux trademark registration for ACT TELECONFERENCING. We own two pending U.S. trademark applications for the terms CLARIONCALL 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, the 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.

4

Table of Contents

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 the bulk of our network services from AT&T. However, we have the right to negotiate our commitments down to the level of actual usage — without penalty — in the event of a business downturn or volume reductions beyond our control. The equipment we purchase for use in our operations also is available from a variety of suppliers, some of which compete in the teleconferencing services business.

Competition

We compete with major long distance companies, independently-owned conferencing companies, 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 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, France Telecom, Deutsche Telekom, Telstra, Hong Kong Tel, MCI and Sprint. We also face competition from independent conferencing companies similar to us, including Premiere Conferencing, Intercall-West Corp., V-Span, Genesys and Raindance. In the United States we also may face additional competition from the regional carriers.

Although the major long distance carriers hold a large share of the conferencing services market, we have been able to compete 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 supports competition on a price-and-service basis for the conferencing business of medium and smaller businesses.

There are few regulatory barriers to entry 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 that is required to operate such a global platform 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 this type of conference call typically has poor sound quality, and each additional line weakens the overall sound volume. Additional competition also may 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 remote meetings require a collaboration of audio, video and web conferencing techniques.

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. 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.

5

Table of Contents

Apart from company administration, tax laws and telecommunications laws, the other major area of regulation that impacts us is employment legislation. Labor laws, especially in Europe, are particularly complex and expensive to administer in comparison to the flexibility of the US labor markets. From time to time we incur a significant cost when there is a need to reduce our personnel in overseas jurisdictions. This cost is dependent upon the employee’s status, the employee’s history, and the reason for dismissal, retrenchment or layoff.

Employees

As of December 31, 2004 we had a total of 360 full-time equivalent employees worldwide. As a result of our current in-process reorganization, we anticipate this number to decrease by approximately 15% by mid-2005. None of our employees are represented by labor unions. We have not experienced any work stoppages and consider our employee relations to be good.

Long Lived Assets

At 2004 year end, we had $25.4 million in long-lived assets. $13.0 million were located in the United States. $11.8 million were located at foreign affiliates - $6.6 million in the United Kingdom, $1.9 million in Canada, $1.5 million in Australia, and $1.8 million in other countries.

Item 2. Facilities

At the end of 2004, we leased office and service delivery space at all of our locations which are listed in the table below.

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 service delivery center, as well as, backup and overflow capacity among other centers in the event all or part of a conference needs to be re-routed from a service delivery center that is at full capacity.

During 2005 we will be consolidating our Toronto, Burlington and Heerlen service delivery operations into other operating centers in the region. We believe that our consolidated facilities will be adequate for our current operations.

Item 3. Legal Proceedings

We are engaged from time to time in minor legal proceedings such as employee disputes and arbitration. These are in the normal course of business and we are not currently aware of any legal proceedings that we would consider material to our business or results of operations.

6

Table of Contents

Item 4. Submission of Matters to a Vote of Security Holders

None

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

Our common stock is traded on the Nasdaq National Market under the symbol ACTT. On April 14, 2005, the last reported sale price of our common stock was $.53 per share.

Shareholders. As of December 31, 2004 we had approximately 320 common shareholders of record and an estimated 2,100 additional beneficial holders whose stock was held in street-name by brokerage houses.

Dividends. We have never paid any dividends on our common stock. We have paid dividends on our Series A and Series C Preferred Stock. 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. The terms of our indebtedness currently prohibit us from paying any dividends.

Sales of Securities.

On January 2, 2004, the Company issued an aggregate of 250,000 ten year warrants with an exercise price of $1.10 to existing note holders in conjunction with a debt restructuring.

On January 16, 2004, the Company sold 2.1 million shares at $1.05 per share in a private placement financing of common stock with a private investment partnership.

The January 16 issuance triggered an antidilution clause related to warrants granted in connection with a preferred stock issuance in May, 2002. The exercise price was decreased from $2.50 to $1.05 per share. An additional 659,681 warrants with an exercise price of $4.01 per share are also to be issued under the terms of this warrant agreement subject to warrant holder and NASDQ approval.

On February 24, 2004, the Company sold 1.5 million shares at a purchase price of $2.20 per share in a private placement with an institutional investor. The transaction also included the issuance of 340,000 three-year warrants at an exercise price of $2.20 per share. Antidilution provisions in these warrants later resulted in an increase to 389,583 warrants with a reduced exercise price of $1.92 per share. 210,000 five year warrants with an exercise price of $1.50 per share were issued to a placement agent for this sale. The exercise price of these 210,000 warrants was reduced later in 2004 to $1.05 due to antidilution provisions.

In September, 2004, the Company sold 1.7 million shares at a purchase price of $1.10 per share in a private placement. The transaction included the issuance of 336,178 warrants with an exercise price of $1.50 per share and 161,366 warrants with an exercise price of $1.10 per share.

The 2004 stock issuances triggered an antidilution clause related to warrants granted in 1999. The exercise price of these warrants decreased from $4.88 to $3.78 and the number of related warrants increased by 153,851.

7

Table of Contents

The Company’s sales of common stock and issuance of warrants to purchase common stock were exempt from the registration requirements of the Securities Act of 1933 (the “Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. Each investor was an “accredited investor” under the Act, and the securities were sold without any general solicitation by the Company or its representatives.

The Company sold additional shares of common stock in September 2004 and adjusted the terms of certain warrants previously issued by the Company, in each case as reported by the Company in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,2004.

Preferred Stock

The Company’s Articles of Incorporation, authorize the issuance of up to 1,797,500 shares of non-voting preferred stock, no par value, with rights, preferences, and privileges as determined by the Board of Directors. Although shareholder approval is not required in order for the Board to issue these undesignated shares of preferred stock, applicable stock exchange restrictions require shareholder approval in order for the Company to issue shares of preferred stock convertible into more than 20% of the Company’s outstanding common stock.

In addition, the Company can issue of up to 2,000 shares of Series A preferred stock, up to 200,000 shares of Series B preferred stock, and up to 500 shares of Series C preferred stock. On October 19, 1999, the Company issued 2,000 shares of Series A preferred stock to one investor, which were liquidated on October 11, 2001. Series A stock has no par value, is non-voting, and is senior to Series B and C preferred stock.

On December 10, 1999, the Company created Series B Junior Participating Preferred Shares in connection with its shareholder rights plan, and increased the authorized number of shares Series B preferred to 200,000 on July 27, 2004. Each share of Series B preferred stock is entitled to receive a dividend when declared by the Board of Directors out of funds legally available, payable at the rate of $1.00 per share. Series B preferred stock has priority in payment of dividends and distributions on dissolution of the Company, which is senior to holders of common stock, but junior to creditors and to holders of Series A preferred stock. No shares of Series B preferred stock have been issued.

On May 17, 2002, the Company issued 500 shares of 6.5% Series C Convertible Preferred Stock. Series C preferred stock was convertible into shares of the Company’s common stock at a fixed price of $5.00 per share, and was subject to 15 mandatory monthly redemptions of approximately $333,000 commencing on August 17, 2002. The Company was permitted to make redemption payments in cash or by delivering shares of its common stock based on a 10% discount to market price of the stock at the time of the redemption payment. No shares of Series C preferred stock remain outstanding.

8

Table of Contents

Item 6. 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 Consolidated 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 Consolidated Financial Statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a full-service provider of audio, video, data and web-based conferencing services to businesses and organizations in North America, Europe and Asia Pacific. Our global presence has allowed us to become the provider of choice for large multinational companies. It has also allowed us to participate in outsourcing and co-marketing relationships with major telecommunications companies globally.

Changes in this customer base as well as changes in our industry have contributed to volatility in our earnings as well as our ability to achieve profitability. Among these changes is a migration away from high-touch, operator assisted services to more automated services. Accompanying this trend has been significant price competition and reduced revenue per unit of service. At the end of 2001, we lost a major customer that accounted for approximately 20% of our revenue. This also significantly impacted our operating results.

We have established a major outsourcing arrangement with AT&T Corporation that has largely replaced the customer we lost in 2001 and our service volumes are growing significantly. This, however, has not offset the price erosion that the industry has experienced and the company has not shown an operating profit since 2001.

This has resulted in a $13.6 million dollar goodwill impairment charge and $1.8 million of restructuring costs being recognized in 2004. Additional reorganization costs of approximately $2.0 million are expected to be recognized during the first half of 2005. The reorganization is expected to save over $3.0 million per year.

This action may not be enough, however, to return the company to profitability and resolve the liquidity and going concern issues noted in the more detailed management discussion and analysis that follows.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements, including the notes thereto, that begin on page F-1.

Components of Major Revenue and Expense Items

Revenues. We earn revenues from fees charged to clients for audio, video, data and web-based teleconference bridging services, from charges for enhanced services, and from rebilling certain long-distance telephone costs. We also earn revenue on conferencing product sales and video event services.

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 consists of: salaries, benefits, professional fees and office expenses of our selling and administrative organizations.

Significant Accounting Policies

Internal Use Software—Under the guidance provided in Statement of Position 98-1, we capitalize costs incurred in developing internal use computer software. We capitalized internal use software development costs of $0.7 million, $1.1 million, and $1.0 million for the years ended December 31, 2004, 2003, and 2002, respectively.

Goodwill—Goodwill represents the excess of purchase price over tangible and other intangible assets acquired less liabilities assumed arising from business combinations. In compliance with SFAS No. 142 , Goodwill and Other Intangible Assets”‘ (“SFAS 142”), issued in June 2001, we have not amortized goodwill for business combinations after June 2001 and we have ceased amortizing all such goodwill effective January 1, 2002. Prior to the adoption of SFAS 142, goodwill was amortized on a straight-line basis over 15 or 25 years.

9

Table of Contents

As required by SFAS 142, we completed our initial goodwill impairment test as of January 1, 2002 and have performed impairment testing at least annually since then. As a result of this testing, we recorded goodwill impairment of $2.0 million in 2002 and $13.6 million in 2004.

As of December 31, 2004 the Company had a total of $8.4 million in net goodwill. $2.2 million is related to pre-2001 acquisitions. $4.3 million is attributed to acquisitions occurring in 2001 (40% minority interest in UK subsidiary and PictureTel 1414c video conferencing business) and $1.9 million is related to the acquisition of Proximity in January, 2002. (See notes 1 and 15 to Consolidated Financial Statements).

Foreign Currency Conversion— ACT Teleconferencing Inc. and its US subsidiaries (“ACT”) use the U.S. dollar as its functional currency and its international subsidiaries use their local currencies as their respective functional currencies. Financial statements of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average exchange rates effective during the year.

Intercompany transactions between ACT and its affiliates are billed at current monthly rates. Payments on intercompany accounts are settled using spot rates in effect at the date of settlement. Gains and losses resulting from these foreign currency transactions are included in the consolidated statement of operations. The foreign exchange loss arising from such transactions was $170,000 and $460,000 for the years ended 2004 and 2003 respectively.

The effect of translating all other accounts of ACT’s foreign subsidiaries into U.S. dollars has been included in stockholders’ equity as a cumulative foreign currency translation adjustment. Prior to 2003, ACT treated intercompany transactions as investments, and translation adjustments of those accounts were also were included in the cumulative foreign translation adjustment. Translation adjustments for the years ended December 31, 2004, 2003 and 2002 were $4.1 million, $1.6 million and $0.6 million respectively.

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 Statement No. 123, “Accounting for Stock-Based Compensation.” If we had elected to adopt FASB Statement No. 123, our net (loss) available to common shareholders would have been approximately $(22,000), $(9,900), and $(9,061) or $(1.46), $(0.97), and $(1.01) per diluted share for the years ended December 31, 2004, 2003, and 2002 respectively, as compared to our actual reported net (loss) of $ (21,164), $(9,219), and $(8,285), or $(1.41), $(0.90), and $(0.93) per diluted share for the years ended December 31, 2004, 2003, and 2002, respectively.

Significant Business Activities

During 2004 and the first quarter of 2005, the following developments were of significance:

10

Table of Contents

At year-end, we were also out of compliance with debt service coverage ratios, net worth and some other lesser covenants related to our largest subordinated debt loan agreement. Because of this and because of cross default provisions on our other subordinated debt agreements, all of our subordinated debt ($11.1 million) has been classified as a current liability. Accelerated payment could be demanded by our senior subordinated lender but they have agreed to a forbearance on their $8.3 million of debt through June, 2005 with an extension through August 31, 2005 if, in the lenders’ reasonable discretion, they are satisfied with the company’s financial condition and progress in obtaining new financing. The other subordinated debt lenders have agreed to subordinate repayment of their debt to that of the senior subordinated debt lender.

The following table summarizes our most important revenue trends:

Concert Downsizing

Concert was a major customer, providing 2001 revenue of $11.7 million. In 2002, it was closed and merged into AT&T resulting in a significant audio revenue shortfall. Despite this drop in revenue, we continued to maintain the worldwide infrastructure, telecommunications network and employee base that was installed to serve Concert. In 2002, our estimated costs for this, including depreciation, were approximately $5 million. This infrastructure was maintained because it was critical to the signing of an outsourcing agreement with AT&T in August 2002.

AT&T Outsourcing Contract

Among many other telecommunications services, AT&T provides high quality teleconferencing services to large corporate customers in the U.S. With over four million corporate customers, many of these use teleconferencing services domestically but also have international requirements

As AT&T was previously a 50 percent shareholder in Concert and due to the existence of ACT’s established and extensive global service platform built for Concert, it was decided that ACT’s worldwide teleconferencing network with established and dedicated local facilities would be an effective way to provide conferencing services to those subsidiaries of American multinationals who are already AT&T customers in the U.S. but who require conferencing services overseas.

We started implementing this outsource contract in August, 2002 and have seen rapid revenue growth since then. Current monthly revenues are at an estimated annualized run rate of approximately $10.7 million. We expect additional potential growth opportunities relating to this contract during 2005 and 2006.

The outsource contract requires ACT to provide detailed levels of quality, sales and service positioning, customer provisioning and comprehensive pricing for a number of different conferencing products, services and applications. Although the contract contains certain termination clauses and no guaranteed volumes, the Company anticipates continued volume and revenue growth into 2006. ACT believes that the strong relationship that has developed between the contracting parties will continue to grow.

11

Table of Contents

Audioconferencing Outlook

Automated voice conferencing volumes continued to grow at a rapid rate for 2004 and pricing remained competitive. Most of our U.S. and Canadian customers have already made the transition to automated services, and we now expect strong growth in automated services in the European and Asian Pacific markets over the next few years. We expect that the growth of automated services at reduced prices will continue unabated, but the emergence of this product line nevertheless has highlighted some fundamental applications whereby operator-attended services will continue to be required by our customers. Our strategy remains to provide a broad range of services to our customers which fit their different communications needs. We expect our automated services to complement our fully-attended offering, and vice versa.

Attended voice conferencing services remains one of our core businesses and still accounts for approximately 40 percent of total revenues. We are focused on developing new markets and applications for customers in attended voice conferencing services especially in areas such as training, education and large participant calls. While we do expect that this overall market will grow at a much lower rate over the next few years, we also believe that we may be able to achieve a higher growth rate in attended services than the overall market because we are one of the specialized, niche players and have the capacity for faster growth internationally.

Videoconferencing Outlook

Videoconferencing revenues have become a more important component of our business, now comprising 27% of total revenue, due to our acquisition of PictureTel’s 1414c videoconferencing division in October 2001 and renamed ACT Videoconferencing, and our acquisition of Proximity in January 2002.

Total videoconferencing revenues fell by 22% in 2004. This reflects an overall slowdown in the videoconferencing industry.

We have implemented and identified further cost reduction and network rationalization in our videoconferencing business. We have also identified new major outsourcing opportunities and opportunities to cross-sell our services from audioconferencing to videoconferencing, and vice versa.

Anticipated growth rates in videoconferencing, nevertheless, may be tempered by the emergence of web conferencing applications. Many applications which were previously more suited to a videoconference can now be handled by combining voice and web conferencing at a less expensive price. We believe therefore that videoconferencing will continue to only be used in situations where it is specifically required by business executives for a specific reason. Web and audioconferencing will be used in most other conferencing situations.

Results of Operations

Fiscal Year Ended December 31, 2004, compared to Fiscal Year Ended December 31, 2003

Net Revenues. Net revenues decreased 4 percent to $53.5 million for the year ended December 31, 2004, compared to $55.8 million for 2003. This decrease was due to a 22% drop in videoconferencing revenue which more than offset a 5% increase in audioconferencing revenue. Audioconferencing revenue accounted for 73%, 67%, and 67% percent of revenue in 2004, 2003, and 2002 respectively. Videoconferencing accounted for the balance of our revenue. For a more detailed discussion of changes in our revenue streams refer to revenue trends above.

Geographic Breakdown: In 2004 North America, Europe and Asia/Pacific—the Company’s three primary geographic markets—generated approximately 60 percent, 28 percent and 12 percent, respectively, of our revenue, compared with 58 percent, 32 percent and 10 percent in 2003. In 2004, the United States accounted for 51% of our revenue, the United Kingdom 24%, Australia 9%, Canada 9% and all other countries combined 7%.

Gross Profit. Gross profit increased 2 percent from $19.8 million for the year ended December 31, 2003, to $20.2 million for the year ended December 31, 2004. Gross profit as a percentage of net revenue increased from 35 percent for 2003 to 38 percent for 2004. This gross profit increase reflects reduced network costs, increased usage of our worldwide infrastructure as a result of the AT&T contract, and the further stabilization of our operating costs. We anticipate continuing improvement in our gross margins as a result of reduced network costs and cost reductions related to our reorganization activities. Competitive price pressure could offset these reductions.

12

Table of Contents

Selling, General and Administrative Expense. Selling, general and administrative expense for the year ended December 31, 2004 was $22.2 million or 41 percent of revenue, compared to $24.4 million or 44 percent of revenue for 2003. We expect that continued strong control of our operating expenses and our current reorganization efforts will result in additional reductions in selling, general and administrative expenses in 2005.

Operating Loss. Our operating loss increased from $4.6 million for 2003 to $18.4 million for 2004. This is due to a noncash goodwill impairment charge of $13.6 million in 2004 and $2.8 million of reorganization and long-lived asset impairment costs. The goodwill impairment charge is a result of a decline in the revenue and profit in our video unit and our United Kingdom teleconferencing unit. The video unit decline reflects an overall decline in the video conferencing industry. The decline in the teleconferencing unit is due primarily to price erosion.

Interest Expense. Net interest expense dropped by 13 percent from $3.1 million in 2003 to $2.7 million in 2004. This is due to a reduction in outstanding senior and subordinated debt.

Provision for Income Taxes. Provision for income taxes decreased to $88,000 for 2004 compared to $342,000 for 2003, as a result of decreased taxable income in our United Kingdom and Canada subsidiaries. Due to available domestic and international tax loss carry-forwards we paid no other income taxes.

Net Loss. Net loss increased from $9.2 million in 2003 to $21.2 million in 2004. This increase is the result of a goodwill impairment charge of $13.6 million and reorganization and long-lived tangible asset impairment cost of $2.8 million.

Fiscal Year Ended December 31, 2003, compared to Fiscal Year Ended December 31, 2002

Net Revenues. Net revenues increased 4 percent to $55.8 million for the year ended December 31, 2003, compared to $53.9 million for 2002. Concert audioconferencing revenues ceased in 2003. This loss of revenue, which was $2.0 million in 2002, was offset by a $3.4 million increase in global service channel audioconferencing. Audioconferencing accounted for 67%, 67%, and 89% percent of revenue in 2003, 2002, and 2001 respectively. Videoconferencing and other revenue grew by $0.6 million, or 3% in 2003. It accounted for the balance of our revenue. For a detailed discussion of changes in our revenue streams refer to Significant Business Activities, above.

Geographic Breakdown: In 2003 North America, Europe and Asia/Pacific—the Company’s three primary geographic markets—generated approximately 58 percent, 32 percent and 10 percent, respectively, of our revenue, compared with 61 percent, 31 percent and 8 percent in 2002. In 2003, the United States accounted for 50% of net revenues, the United Kingdom 28%, Canada 8%, Australia 8%, and all other countries combined 6%.

Gross Profit. Gross profit increased 7 percent to $19.8 million for the year ended December 31, 2003, compared to $18.5 million for the prior year. Gross profit percentage increased to 35 percent of net revenues for the year ended December 31, 2003, compared to 34 percent of net revenues for 2002. This gross profit increase reflects reduced network costs, and increased usage of our worldwide infrastructure as a result of the AT&T contract, and the further stabilization of our operating costs.

Selling, General and Administrative Expense. Selling, general and administrative expense for the year ended December 31, 2003 was $24.4 million or 44 percent of revenue, compared to $22.5 million or 42 percent of revenue for 2002. A large part of the 8 percent increase in such expense was incurred as legal settlement and staff severance costs.

Operating Loss. Operating loss declined by $1.5 million to a loss of $4.6 million. A goodwill impairment charge of $2 million in 2002 negatively impacted that year’s results. Other operating costs were comparable with 2002.

Interest Expense. Net interest expense grew by 100 percent to $3.1 million from $1.5 million. This is due primarily to an increase in debt during the year of approximately 25% at interest rates substantially higher than prior debt, and recognition as a finance cost of the earned performance provision in connection with subordinated debt issues in June 2003.

Provision for Income Taxes. Provision for income taxes increased to approximately $342,000 for 2003 compared to $125,000 for 2002, as a result of increased taxable income earned by our United Kingdom and Canada subsidiaries. Due to available domestic and international tax loss carry-forwards, we paid no other income taxes.

NetLoss. Net loss increased by $0.9 million for the reasons discussed under Operating Loss, above, plus the effects of a loss on foreign currency transactions of $0.5 million.

13

Table of Contents

Liquidity, Capital Resources and Cashflow

Sources and Uses of Funds

For the year ended December 31, 2004 we generated and used cash proceeds as follows:

At December 31, 2004 we had approximately $12.4 million in current assets, and $25.3 million in current liabilities. This imbalance is primarily the result of $15.6 million of current debt. This $15.6 million balance includes $10.2 million that has been classified as current, in accordance with generally accepted accounting principles, because the company is in default of related loan covenants and waivers have not been received through year-end 2005.

At year-end, we were in default on our outstanding Services Inc. line of credit of $3.0 million. A forbearance has been received through June 30, 2005 . Our senior subordinated debt lenders who carry $8.3 million of debt, have also provided a forbearance through June 30, 2005 which will be extended through August 31, 2005 if, in the lenders’ reasonable discretion, they are satisfied with the company’s progress in obtaining new financing and with the Company’s financial condition. Our other subordinated debt lenders have agreed to subordinate repayment of their debt to that of the senior subordinated debt lenders.

Management believes that it will be able to improve the Company’s operating performance in 2005 based on actions that have been taken and the following considerations:

The financial statements do not include any adjustments that could be required if the Company were unable to refinance this debt or continue as a going concern. The Company has recorded net losses of $21.8 million in 2004 and $8.5 million in 2003. These losses and deficit cash flows have significantly impacted the Company’s ability to obtain financing at desirable terms.

Our independent auditors have expressed doubt about our ability to continue as a going concern. Their report includes an explanatory paragraph stating there is substantial doubt about our ability to continue as a going concern because we have suffered recurring losses from operations, our total liabilities exceed our total assets, and we are not in compliance with debt covenants on substantially all of our debt.

We have assessed our cash flow needs for 2005 as follows:

14

Table of Contents

The facilities-based teleconferencing service business is a capital intensive business. In line with our current liquidity position, we will constrain our capital expenditures and expansion plans in the short term. 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 ongoing capital investments in connection with plans to construct and develop new bridging networks, as well as for technology upgrades. Expansion of our bridging networks could include the geographic expansion of our existing operations, and we will consider the development of new markets. Any significant expansion will depend upon our financial condition and the availability of adequate financing.

Our plans or assumptions could change or prove to be inaccurate. 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 our cashflow needs.

Our Contractual Obligations as of December 31, 2004 are as follows:

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Shared-Based Payment” (“SFAS 123R), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123”) and supercedes APB Opinion N0. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in 2006. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R, has not yet determined the method of adoption, has not determined what impact the adoption of SFAS 123R will have on its consolidated results of operations and earnings per share, and has not determined whether adoption will result in amounts that are similar to the current pro forma disclosures under SFAS

The FASB issued SFAS 153, Exchanges of Nonmonetary Assets, which changes the guidance in APB Opinion 29, Accounting for Nonmonetary Transactions. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS 153 will have a material impact on the Company’s financial statements

15

Table of Contents

RISK FACTORS

An investment in our common stock involves a high degree of risk. Investors evaluating us and our business should carefully consider the factors described below and all other information contained in this Annual Report on Form 10-K before purchasing our common stock. Any of the following factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results and financial condition. Investors could lose all or part of their investment as a result of these factors. As defined in the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, except for the historical information contained herein, some of the matters discussed in this Annual Report on Form 10-K contain forward looking statements regarding future events that are subject to risks and uncertainties. The following factors, among others, could cause actual results to differ materially from those described by such statements.

Our independent auditors have expressed doubt about our ability to continue as a going concern.

We received a report on our consolidated financial statements for the year ended December 31, 2004 from our independent accountants that includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern because we suffered significant losses from operations in fiscal 2004 and are in default on certain debt covenants made to major lenders and consequently are not in compliance with the cross default provisions of certain of our other loans and capital leases. We can offer no assurance that the actions we plan to take to address these conditions will be successful.

We are out of compliance with certain loan covenants.

We relied on bank financing and debt transactions to provide needed capital when the equity markets were depressed. These financings require compliance with certain covenants. We are out of compliance to a material degree with covenants, and have not been able to obtain waivers of non-compliance from all of our lenders. This could result in penalties ranging from the issuance of shares or warrants to these lenders or to our lenders accelerating the due date of our indebtedness to them. We may not have sufficient capital to repay any amounts of accelerated indebtedness and this could impact our ability to operate, grow, or continue as a going concern. Our senior subordinated lenders have agreed to a forbearance through June 30, 2005 with an extension through August 31, 2005 if, in the lenders’ reasonable discretion, they are satisfied with the company’s progress in obtaining refinancing and with the company’s financial condition. Our other subordinated lenders have agreed to subordinate repayment of their debt to that of the largest subdebt lender. We cannot guarantee that in the future they will grant forbearances or waive failures to comply with applicable covenants.

Our plans to operate, grow or continue as a going concern may be limited if we are unable to obtain sufficient financing.

Our growth into automated conferencing, web-conferencing services, video, and as an outsource provider for international calls has strained our financial resources. Nonetheless, we may need to be prepared to expand our business through further strategic acquisitions and new markets when we identify desirable opportunities. We may need additional equity and debt financing, collaborative arrangements with channel partners, or funds from other sources for these purposes. We may not be able to obtain such financing on acceptable terms, or at all. Recent debt financing has added interest expense that has further burdened our cost structure. Failure to obtain additional financing could weaken our operations, prevent us from achieving our expansion goals, or continue as a going concern. Equity financings, as well as debt financing with accompanying warrants, can be dilutive to our shareholders and may make it difficult to sell additional equity at depressed prices, and certain debt financings may impose restrictive covenants on the way we operate our business.

In March, 2005, the company announced engaging an investment banker to assist in seeking financing and advise it on strategic alternatives, including the sale of all or part of the company.

Restructuring plans may impact our operating performance

We have announced restructuring actions that we expect to benefit our business. Restructuring plans being implemented include consolidation of operating locations, staff reductions and constraints on capital expenditures. The implementation of these changes may adversely affect our results of operations due to diversion of management’s attention, negative reactions from customers and other factors. Furthermore, the costs of the restructuring may be higher than our estimates or may have a higher cash component. The restructuring may take longer to implement than we expect and anticipated cost savings may not fully materialize. If our implementation of restructuring actions is not successful or if such actions do not benefit us to the extent planned, our operating results may suffer,

16

Table of Contents

We may fail to meet market expectations because of large fluctuations in our quarterly operating results.

As a result of increased competition, changes in the mix of automated versus attended audio conferences, competitive price pressure, and the other risks described in this section, our quarterly operating results have varied significantly from period to period in the past and are likely to continue to vary significantly in future periods. The primary factors that may cause fluctuations in our quarterly operating results include increased competition, continued pricing pressure, and ongoing market demand for conferencing services. Additionally, we expect our results to fluctuate based on seasonal sales patterns. The usage of our services declines during the northern hemisphere summer (especially in Europe in August) and around the Thanksgiving and December holidays. Our revenue during these seasons historically does not maintain the same pace as other periods of the year because of less use of our services by business customers. Quarterly variations in our operating results may make it difficult to project our future performance and could result in increased volatility in our stock price.

We may be adversely affected by downward price pressure in the teleconferencing industry.

The prices for our services are subject to rapid and frequent changes. In many cases, competitors provide their services at significantly reduced rates, or even free of charge, or on a trial basis in order to win customers. In addition, major telecommunications providers enjoy lower telephony costs as a result of their ownership of the underlying telecommunications network. As a result, these carriers can offer services similar to ours with certain volume discounts or substantially reduced prices. Price competition in the long distance market has had a negative impact on our ability to mark-up our wholesale prices on long distance transport. In response to these factors, we have reduced our pricing in certain circumstances and may be required to reduce prices further. Reductions in the prices we are able to charge may not be offset by increases in the volumes we handle, and accordingly may decrease our operating margins.

Increased use of automated teleconferencing services may result in a decrease in the average prices we charge our customers.

The trend toward increased use of teleconferencing has been accompanied by more demand for low priced automated conferencing. As the volumes of all types of teleconferences have grown, the percentage of conferences that are higher-priced, operator-attended conferences has declined, and we expect this trend to continue at least for the near term. Migration to automated services has the effect of decreasing our price per minute and may reduce our margins.

We face operational and financial risks relating to our international operations.

International sales comprise a significant portion of our revenues, and we anticipate that this will continue. As a result of their distance from the United States, different time zones, culture, management and language differences, international operations pose greater risk than our domestic operations. For example:

Our major competitors in the telecommunications industry have greater capital resources and brand name recognition than we have, which makes it difficult for us to compete with them.

The telecommunications industry is highly competitive, and most of our competitors and potential competitors have substantially greater capital resources and name recognition than we have. Accordingly, we cannot compete with them in terms of advertising, marketing, sales, and deployment of capital. Certain of our competitors that have emphasized automated conferencing services have achieved operating efficiencies through volumes that we do not yet have. To compete successfully against other telecommunications and teleconferencing providers, we must maintain competitive pricing while at the same time offering significantly higher quality services. Pricing pressures may result in a reduction in our operating margins. Alternatively, if our service quality does not meet customer expectations, our customers may move away from us in favor of more established competitors. Either of these could hinder our ability to grow our revenues and to achieve our operating goals.

17

Table of Contents

Third party vendor dependency.

We rely on third party telecommunications providers for transmission of our conferencing calls. The failure of any of these providers could have an adverse effect on our ability to seamlessly service our customers.

Our revenues may fluctuate because we draw significant revenues from major clients, who may transfer their business away from us.

Our two largest customers accounted for 21 percent of our revenues in 2004, and we expect revenues from AT&T Corporation, our largest customer, to grow rapidly over the near term. Due to concentration of our revenues, the loss of any one of our largest customers or one of our principal outsource channel partners would have a significant adverse effect on our conference volumes. The loss of several of our larger customers would also have an adverse effect on our volumes and this risk will increase if our largest customers increase their volumes of business with us faster than we increase volumes from other sources. Any such reduction in our volumes would have a material adverse effect on our revenues and results of operations.

Our agreements with customers generally do not contain minimum purchase commitments, and customers can easily switch to a competing provider or allocate their business among several vendors. Our customers may discontinue business with us in the future if our products and services become obsolete or technological advances allow our customers to satisfy their own teleconferencing needs. Mergers, consolidations, or other changes in ownership or alliances that impact any of our customers may also cause our customers to curtail or cease doing business with us. To the extent we lose customers due to any of these factors, our revenues will be adversely affected.

AT&T Corporation recently announced that it has signed an agreement to be acquired by SBC Communications, Inc., and there can be no assurance that if AT&T Corporation is acquired the acquirer will continue to use our services.

We have made only a limited entry into the web conferencing market.

We have recently entered the web or Internet based conferencing market. The annual market for Internet based conferencing services is growing rapidly. Although still small in relation to the audio conferencing market that we serve, our customers are increasingly demanding a full range of conferencing services and our web-based conferencing services are beginning to grow. However, if we do not fully develop this market, especially in web conferencing and Internet telephony, we may experience a slowdown in our overall conferencing revenue growth and our competitors may grow faster than we are able to grow. The expansion of our business into Internet-based service offerings, simultaneously with other growth needs, will place a strain on our current financial and staff resources. If we are not able to deploy the assets and personnel needed to fully support web-based services, we expect to miss out on significant growth opportunities.

If our Internet telephony conferencing services do not gain market acceptance or we are unable to finance this opportunity, our potential for growth in this market sector will be limited.

We estimate that over the next 3 years we will convert certain of our existing high volume multinational customers to an Internet telephony based conferencing service with the ability to handle higher volumes at lower prices. We cannot be certain that Internet telephony services will continue to gain worldwide corporate acceptance or prove to be a viable alternative to traditional telephone service. If the Internet telephony market fails to develop or develops slower than we expect, our future revenues from teleconferencing over the Internet will be limited. This could adversely affect the revenue growth rate that we currently expect to achieve. Our prospective Internet telephony solutions also will be affected by the availability of capital.

Other technological innovations could render our current services obsolete.

We expect technical innovations to stimulate new developments in teleconferencing services. Such technical innovations include the development of more sophisticated computers, telephone sets, private branch exchanges, customer-owned bridges, centralized office switching equipment, and Internet telephony services. Other technology-based competitive developments within the telecommunications industry, such as low-priced long distance services and new uses for the Internet, may lead the major telecommunications companies to offer low-cost teleconferencing services as a strategy to obtain greater market share in other product areas. These innovations and developments could render our current service offerings obsolete or uneconomic, which could cause us to lose customers and revenues.

18

Table of Contents

We occasionally experience technical malfunctions and other hazards which adversely affect our operations and create costs.

We depend upon our software systems, communications hardware, and enhanced services platform to conduct our conferencing business on a worldwide basis. Our systems, communications hardware, vendors’ services, and platform are vulnerable to damage or interruption from:

In previous years our business has been affected by occasional network failures with consequent poor service and loss of customer goodwill. We expect that we will have major failures every year as a result of the factors listed above. Any increase in outages or failures due to these types of hazards would result in additional costs resulting from business interruption, and we could lose customers affected by these outages.

There are few regulatory barriers to entry into our current markets, and new competitors may enter at any time.

There are few regulatory barriers to competition in our markets. Recent federal legislation in the United States allows local exchange carriers to offer teleconferencing services. This legislation may result in additional competition if some or all of the local exchange carriers, including any of the regional Bell operating companies, choose to enter or expand their activities in the teleconferencing market in the United States.

Moreover, there are no significant regulatory barriers to enter the foreign markets we serve in Australia, Canada, France, Germany, Hong Kong, the Netherlands, Singapore, or the United Kingdom, and competitors may enter at any time. To the extent that our customers or potential customers choose to do business with these competitors, their entry into our markets would adversely affect our ability to grow our conferencing volumes and generate revenue.

Our common stock price has been highly volatile, and we expect this volatility to continue, and we are currently not in compliance with NASDAQ listing requirements due to the level of our stock price.

The market price of our common stock is highly volatile and may decline further. For example, from January 1, 2003 through December 31, 2004 our stock price ranged from a high of $4.08 to a low of $.65, and closed on December 31, 2004 at $1.32. On March 28, 2005 our common stock closed at $.61. We anticipate that the volatility of our common stock price may continue due to factors such as:

19

Table of Contents

These factors are in addition to significant price and volume fluctuations in the securities markets that may be unrelated to our operating performance.

On March 9, 2005, we received notice from Nasdaq that the price of our common stock closed below the minimum $1.00 per share for the preceding 30 days, as required under Marketplace Rule 4450(a)(5). Under Marketplace Rule 4450(e)(2), we have 180 calendar days, or until September 6, 2005, to correct its bid price deficiency. If, prior to September 6, 2005, the price of our common stock closes at $1.00 per share or more for a minimum of ten consecutive trading days, the bid price deficiency will be corrected.

If we do not correct its bid price deficiency within the next 180 days, Nasdaq will provide us with written notification that our common stock will be delisted. At that time, we will have the right to appeal Nasdaq’s determination to a Listings Qualifications Panel. Alternatively, we may apply to transfer our common stock to the Nasdaq SmallCap Market if we satisfy the requirements in Marketplace Rule 4310(c). If our transfer application were approved, we would have an additional 180-day period to regain compliance. We cannot assure that our stock price will increase sufficiently to maintain our Nasdaq listing.

Provisions of our articles of incorporation and agreements we have entered could delay or prevent a change in control of ACT.

Certain provisions of our articles of incorporation, and certain agreements we have entered, may discourage, delay, or prevent a merger or acquisition that a shareholder may consider favorable. These provisions include:

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:

We are also subject to foreign exchange currency rate risk as a result of our 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 in overseas markets will continue to fluctuate in accordance with exchange rate fluctuations. We historically have not entered into any derivative arrangements to hedge foreign currency risks and have 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 and Disagreements With accountants on Accounting and Financial Disclosure

None

20

Table of Contents

Item 9A Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15 d 0 15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on the evaluation and communication from Hein & Associates LLP to our Audit Committee in April, 2005 that identified a material weakness, our chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are not effective.

The material weakness identified was that review of the consolidated financial statements failed to detect the proper foreign currency translation adjustment as it relates to intangible assets. This appeared to be caused by an inadequate level of accounting staffing to allow sufficient time for the accounting department to (i) perform a review of the consolidation and supporting financial statement disclosure schedules independent of the preparer and (ii) research all applicable accounting pronouncements as relates to the Company’s financial statements and underlying disclosures.

Due to this material weakness, the Company, in preparing its financial statements for the year ended December 31, 2004, performed additional analysis and other post close procedures to ensure that such financial statements were stated fairly in all material respects in accordance with U.S. generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

However, given the subsequent identification of the above material weakness, the Company has decided on a course of action reasonably assured to remediate this material weakness. This includes the hiring of additional experienced accounting staff to provide sufficient time and resources to review the consolidation and supporting financial statement disclosure schedules independent of the preparer and research all applicable accounting pronouncements as relates to the Company’s financial statements and underlying disclosures.

Item 9B. Other Information

On April 12, 2005, the Company executed a forbearance agreement with Silicon Valley Bank, pursuant to which SVB agreed to forebear through June 30, 2005, from accelerating the indebtedness due under the Company’s credit facility with SVB, as a result of the Company’s failure to comply with the minimum tangible net worth covenant in the credit facility.

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, 2004.

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, 2004.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference from our 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, 2004.

Item 13. Certain Relationships and Related Transactions

Incorporated by reference from our 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, 2004.

Item 14. Principal Accountant Fees and Services

Incorporated by reference from our 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, 2004.

21

Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules

(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:

Index to Exhibits

All exhibits are filed electronically or incorporated by reference.

22

Table of Contents

23

Table of Contents

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.

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.

24

Table of Contents

Item 15A. ACT Teleconferencing, Inc. Index to Consolidated Financial Statements

Contents

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

ACT Teleconferencing, Inc.

Golden, Colorado

We have audited the accompanying consolidated balance sheets of ACT Teleconferencing, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (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. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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. and Subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with the U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, its total liabilities exceed its total assets, and the Company is not in compliance with debt covenants on substantially all of its debt. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the index of consolidated financial statements are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

HEIN & ASSOCIATES LLP

Denver, Colorado

April 11, 2005

F-2

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

ACT Teleconferencing, Inc.

We have audited the accompanying consolidated statement of operations of ACT Teleconferencing, Inc., and the related consolidated statements of shareholders’ equity and cash flows for the year ended December 31, 2002. Our audit also included the financial statement schedules listed in the index at page F-1 for the year ended December 31, 2002. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of ACT Teleconferencing, Inc.’s operations and its cash flows for the year ended December 31, 2002, in conformity with United States generally accepted accounting principles. Also in our opinion, the related financial statement schedules for the year ended December 31, 2002, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Denver, Colorado

March 9, 2003

F-3

Table of Contents

ACT Teleconferencing, Inc.

Consolidated Balance Sheets

December 31, 2004 and 2003

See accompanying notes to consolidated financial statements.

F-4

Table of Contents

ACT Teleconferencing, Inc.

Consolidated Statements of Operations

For the years ended December 31, 2004, 2003, and 2002

See accompanying notes to consolidated financial statements.

F-5

Table of Contents

ACT Teleconferencing, Inc.

Consolidated Statements of Shareholders’ Equity

For the years ended December 31, 2004, 2003, and 2002