-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QhHCMz70vIXckyRYt2VTMEeUt2YHJ3UGoIHlkmHnCZ6L/9X0a4fGLW1U2p71xvsF YWW7CuQQTbcg3rUOmp+wGQ== 0000927016-98-003105.txt : 19980817 0000927016-98-003105.hdr.sgml : 19980817 ACCESSION NUMBER: 0000927016-98-003105 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIALOG CORP CENTRAL INDEX KEY: 0001016601 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 043305282 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-24689 FILM NUMBER: 98686943 BUSINESS ADDRESS: STREET 1: 10 NEW ENGLAND BUSINESS CENTER STREET 2: SUITE 160 CITY: ANDOVER STATE: MA ZIP: 01810 BUSINESS PHONE: 9789753700 MAIL ADDRESS: STREET 1: 10 NEW ENGLAND BUSINESS CENTER STREET 2: SUITE 302 CITY: ANDOVER STATE: MA ZIP: 01810 FORMER COMPANY: FORMER CONFORMED NAME: INTERPLAY CORP DATE OF NAME CHANGE: 19970117 10-Q/A 1 FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 __________ FORM 10-Q/A X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-22585 VIALOG CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3305282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 35 NEW ENGLAND BUSINESS CENTER, SUITE 160 ANDOVER, MASSACHUSETTS 01810 (Address of principal executive offices, including Zip Code) (978) 975-3700 --------------- (Registrant's telephone number, including area code) 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 preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No ----- ------ At May 11, 1998 the registrant had outstanding an aggregate of 3,648,472 shares of its Common Stock, $.01 par value. 1 VIALOG CORPORATION INDEX
PART I. FINANCIAL INFORMATION Page ---- ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at December 31, 1997 and March 31, 1998 (Unaudited) 3 Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1997 and 1998 4 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1998 5 Notes to Consolidated Financial Statements (Unaudited) 6-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURES 14 EXHIBIT INDEX 15
2 VIALOG CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
DECEMBER 31, MARCH 31, 1997 1998 ----------------- ----------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 9,567 $ 8,015 Accounts receivable, net of allowance for doubtful accounts of $32 and $86, respectively 5,686 6,962 Prepaid expenses 156 270 Other current assets 101 159 ----------------- ----------------- Total current assets 15,510 15,406 Property and equipment, net 7,544 8,560 Deferred debt issuance costs 7,324 6,851 Goodwill and intangible assets, net 44,391 43,762 Other assets 314 291 ----------------- ----------------- Total assets $ 75,083 $ 74,870 ================= ================= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 397 $ 381 Accounts payable 2,129 2,495 Accrued interest expense 1,310 3,685 Accrued expenses and other liabilities 4,415 3,843 ----------------- ----------------- Total current liabilities 8,251 10,404 Long-term debt, less current portion 71,539 71,723 Other long-term liabilities 175 194 Commitments and contingencies Stockholders' deficit: Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding -- -- Common stock, $0.01 par value; 30,000,000 shares authorized; 3,486,380 and 3,576,440 shares, respectively, issued and outstanding 35 36 Additional paid in capital 11,689 11,713 Accumulated deficit (16,606) (19,200) ----------------- ----------------- Total stockholders' deficit (4,882) (7,451) ----------------- ----------------- Total liabilities and stockholders' deficit $ 75,083 $ 74,870 ================= =================
See accompanying notes to consolidated financial statements. 3 VIALOG CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------------------------- 1997 1998 ----------------- ------------------- Net revenues $ -- $ 11,290 Cost of revenues, excluding depreciation -- 6,121 Selling, general and administrative expense 870 3,506 Depreciation expense 1 584 Amortization of goodwill and intangibles -- 628 ----------------- ------------------- Operating income (loss) (871) 451 Interest expense, net (3) (3,045) ----------------- ------------------- Net loss $ (874) $ (2,594) ================= =================== Net loss per share - basic and diluted $ (0.32) $ (0.73) ================= =================== Weighted average shares outstanding 2,747,300 3,542,668 ================= ===================
See accompanying notes to consolidated financial statements. 4 VIALOG CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------------------- 1997 1998 ------------------ ----------------- Cash flows from operating activities: Net loss $ (874) $ (2,594) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1 584 Amortization of goodwill and intangibles - 628 Amortization of debt issuance costs and debt discount - 748 Provision for doubtful accounts - 55 Compensation expense for issuance of common stock and options 24 - Changes in operating assets and liabilities: Accounts receivable - (1,330) Prepaid expenses and other current assets 3 (172) Other assets (40) 20 Accounts payable 453 366 Accrued expenses 427 1,803 Other long-term liabilities - 19 ------------------ ----------------- Cash flows provided by (used in) operating activities (6) 127 ------------------ ----------------- Cash flows from investing activities: Additions to property and equipment (21) (1,600) ------------------ ----------------- Cash flows used in investing activities (21) (1,600) ------------------ ----------------- Cash flows from financing activities: Proceeds from issuance of long-term debt and warrants 500 - Payments of long-term debt - (104) Proceeds from issuance of common stock 2 25 Deferred offering costs (650) - ------------------ ----------------- Cash flows used in financing activities (148) (79) ------------------ ----------------- Net increase in cash and cash equivalents (175) (1,552) Cash and cash equivalents at beginning of period 337 9,567 ------------------ ----------------- Cash and cash equivalents at end of period $ 162 $ 8,015 ================== ================= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ - $ 36
See accompanying notes to consolidated financial statements. 5 VIALOG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments (all of which are of a normal recurring nature) which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. The unaudited results of operations for the quarter ended March 31, 1998 are not necessarily an indication of the results of operations for the full year. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the financial statements and footnotes for the year ended December 31, 1997 included in the Company's amended Form 10-K where certain terms have been defined. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. (2) DESCRIPTION OF BUSINESS VIALOG Corporation (the "Company") was incorporated in Massachusetts on January 1, 1996 as Interplay Corporation. In January 1997, the Company changed its name to VIALOG Corporation. The Company was formed to create a national independent provider of group communications services, consisting primarily of operator- attended and operator-on-demand audio teleconferencing, as well as video and data conferencing services. On November 12, 1997, the Company sold $75.0 million in senior notes due 2001, Series A in a private placement (the "Private Placement"). Contemporaneously with the closing of the Private Placement, the Company acquired, in separate transactions (the "Acquisitions"), six private conference service bureaus (each an "Operating Center", and collectively, the "Operating Centers") in exchange for cash and shares of its common stock. Prior to November 12, 1997, the Company did not conduct any operations, and all activities related to the acquisitions and the completion of financing transactions to fund the Acquisitions. (3) LONG-TERM DEBT
DECEMBER 31, MARCH 31, 1997 1998 ------------ --------- (IN THOUSANDS) 12 3/4% Senior Notes Payable, due 2001, net of unamortized discount of $4,203 and $3,931 $ 70,797 $ 71,069 Capitalized lease obligations 1,044 945 Other long-term debt 95 90 ------------ --------- Total long-term debt 71,936 72,104 Less current portion 397 381 ------------ --------- Total long-term debt, less current portion $ 71,539 $ 71,723 ============ =========
SENIOR NOTES PAYABLE The senior notes issued in the Private Placement bear interest at 12 3/4% per annum, payable semi-annually on May 15 and November 15 of each year, commencing May 15, 1998. The senior notes, which are guaranteed by each of the Operating Centers, mature on November 15, 2001 and are redeemable in whole or in part at the option of the Company on or after November 15, 1999 at 110% of the principal amount thereof, and on or after November 15, 2000 at 105% of the principal amount thereof, in each case together with accrued interest to the date of redemption. In addition, there are certain other early redemption options available to the Company at any time on or prior to November 15, 1999 at certain premiums, as specified in the indenture pursuant to which the senior notes were issued. 6 On February 12, 1998, the Company offered to exchange (the "Exchange Offer") $75.0 million of 12 3/4% senior notes, Series B (the "Exchange Notes") for the existing $75.0 million of 12 3/4% senior notes, Series A (the "Old Notes"). In connection with the Exchange Offer, the Company filed with the Securities and Exchange Commission a Registration Statement on Form S-4 for the registration of the Exchange Notes under the Securities Act of 1933. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes except for certain transfer restrictions and registration rights relating to the Old Notes. The Old Notes and the Exchange Notes (collectively, the "Senior Notes") were issued pursuant to an indenture dated November 12, 1997. The Company did not receive any proceeds from the Exchange Offer, which was terminated on March 26, 1998 with all of the Old Notes being surrendered for Exchange Notes. (4) LOSS PER SHARE As the Company was in a net loss position for the three months ended March 31, 1997 and 1998, common stock equivalents of 877,143 and 1,837,262, respectively, were excluded from the diluted loss per share calculation as they would be antidilutive. As a result, diluted loss per share for the three months ended March 31, 1997 and 1998 is the same as basic loss per share and, therefore, has not been presented separately. (5) SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION The 12 3/4% Senior Notes due November 15, 2001, in the aggregate principal amount of $75.0 million, are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's subsidiaries. Each of the guarantors is a wholly-owned subsidiary of the Company. Summarized financial information of the Company and its subsidiaries is presented below as of and for the three months ended March 31, 1998. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that they are not material to investors.
VIALOG CORP. ACCESS CSI CALL POINTS TCC AMERICO CDC ELIMINATIONS CONSOLIDATED -------- ------- ------- ----------- ------ ------- ------ ------------ ------------ BALANCE SHEET INFORMATION AS OF MARCH 31, 1998 (UNAUDITED) Total current assets.... $ 9,650 $ 1,633 $ 1,144 $2,020 $ 834 $ (457) $ 582 $ -- $15,406 Property and equipment, net.................... 126 4,042 1,099 1,655 908 644 86 -- 8,560 Investment in subsidiaries........... 57,121 -- -- -- -- -- -- (57,121) -- Goodwill................ -- 15,675 14,986 3,807 3,893 2,931 2,470 -- 43,762 Other assets............ 6,938 34 67 -- 12 87 4 -- 7,142 -------- ------- ------- ------ ------ ------ ------ -------- ------- Total assets........... $ 73,835 $21,384 $17,296 $7,482 $5,647 $3,205 $3,142 $(57,121) $74,870 ======== ======= ======= ====== ====== ====== ====== ======== ======= Current liabilities..... $ 5,438 $ 1,990 $ 604 $ 983 $ 635 $ 628 $ 126 $ -- $10,404 Long-term debt, excluding current portion................ 71,069 20 378 -- 166 90 -- -- 71,723 Other liabilities....... -- 161 -- -- 13 -- 20 -- 194 Stockholders' equity (deficit).............. (2,672) 19,213 16,314 6,499 4,833 2,487 2,996 (57,121) (7,451) -------- ------- ------- ------ ------ ------ ------ -------- ------- Total liabilities and stockholders' equity (deficit)............. $ 73,835 $21,384 $17,296 $7,482 $5,647 $3,205 $3,142 $(57,121) $74,870 ======== ======= ======= ====== ====== ====== ====== ======== =======
7
VIALOG CORP. ACCESS CSI CALL POINTS TCC AMERICO CDC ELIMINATIONS CONSOLIDATED -------- ------- ------- ----------- ------ ------- ------ ------------ ------------ STATEMENT OF OPERATIONS INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) Net revenues............ $ -- $ 4,355 $ 2,023 $2,347 $1,391 $ 697 $ 567 $ (90) $11,290 Cost of revenues, excluding depreciation........... -- 2,081 897 1,675 721 500 337 (90) 6,121 Selling, general and administrative expenses............... 2,158 361 242 174 246 181 144 -- 3,506 Depreciation expense.... 8 286 93 105 52 28 12 -- 584 Amortization of goodwill and intangibles........ -- 224 217 64 51 39 33 -- 628 -------- ------- ------- ------ ------ ------ ------ -------- ------- Operating income (loss)................ (2,166) 1,403 574 329 321 (51) 41 -- 451 Interest income (expense), net......... (3,010) 1 (19) -- (9) (10) 2 -- (3,045) -------- ------- ------- ------ ------ ------ ------ -------- ------- Net income (loss)...... $ (5,176) $ 1,404 $ 555 $ 329 $ 312 $ (61) $ 43 $ -- $(2,594) ======== ======= ======= ====== ====== ====== ====== ======== ======= CASH FLOW INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 Cash flows provided by (used in) operating activities... $ (46) $ 188 $ 433 $ (347) $ (14) $ 88 $ (175) $ -- $ 127 Cash flows provided by (used in) investing activities............ (65) (1,022) (231) (143) (77) (60) (2) -- (1,600) Cash flows provided by (used in) financing activities.............. 25 (9) (66) -- (25) (4) -- -- (79) -------- ------- ------- ------ ------ ------ ------ -------- ------- Net increase in cash and cash equivalents....... (86) (843) 136 (490) (116) 24 (177) -- (1,552) Cash and cash equiva- lents at the beginning of period.... 8,396 440 (49) 489 46 67 178 -- 9,567 -------- ------- ------- ------ ------ ------ ------ -------- ------- Cash and cash equiva- lents at the end of period................. $ 8,310 $ (403) $ 87 $ (1) $ (70) $ 91 $ 1 $ -- $ 8,015 ======== ======= ======= ====== ====== ====== ====== ======== =======
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and footnotes contained in the Company's amended Form 10-Q for the three months ended March 31, 1998 and the amended Form 10-K for the year ended December 31, 1997 filed with the Securities and Exchange Commission. The Form 10-Q for the three months ended March 31, 1998 has been amended to reflect a revised presentation style for the Consolidated Statement of Operations and to include supplemental consolidating condensed financial information for the Company and its subsidiaries as guarantors of the Company's 12 3/4% Senior Notes due November 15, 2001. In addition, certain disclosures have been added to conform to the disclosures included in the Company's Form S-1 Registration Statement (file no. 333-53395) filed with the Securities and Exchange Commission. There was no change to net revenues, net loss or net loss per share for the three months ended March 31, 1997 and 1998 as a result of the amendment. VIALOG CORPORATION RESULTS OF OPERATIONS The Company was incorporated on January 1, 1996. Prior to the Acquisitions of the Operating Centers, the Company did not conduct any operations, and all activities conducted by it related to the Acquisitions and the completion of financing transactions to fund the Acquisitions. Net revenues and cost of revenues, excluding depreciation. As the Company did not conduct any operations prior to November 12, 1997, there were no revenues and cost of revenues, excluding depreciation for the three months ended March 31, 1997. Net revenues and cost of revenues, excluding depreciation for the three months ended March 31, 1998 represent the consolidated results of the Company, including the Operating Centers. Selling, general and administrative expenses. Selling, general and administrative expenses increased $2.6 million, or 303%, from $870,000 to $3.5 million for the three months ended March 31, 1997 and 1998, respectively. The increase was primarily due to the fact that selling, general and administrative expenses for the three months ended March 31, 1997 represented only general and administrative expenses related to the organization of the Company and the consummation of business combination agreements with the Operating Centers, while the expenses for the three months ended March 31, 1998 represent consolidated selling, general and administrative expenses of the Company, including the Operating Centers. Selling, general and administrative expenses for the three months ended March 31, 1997 and 1998 consisted primarily of the following: compensation, benefits and travel expenses of $415,000 and $2.2 million, respectively, certain marketing expenses including advertising, promotions, trade shows and consulting of $125,000 and $412,000, respectively, professional services expenses of $233,000 and $316,000, respectively, occupancy costs of $54,000 and $127,000, respectively, materials, supplies and equipment related costs of $18,000 and $158,000, respectively, taxes and insurance costs of $0 and $107,000, respectively, and all other costs of $25,000 and $152,000, respectively. Depreciation and amortization expense. Depreciation expense increased $583,000 from $1,000 to $584,000 for the three months ended March 31, 1997 and 1998, respectively. The increase was primarily due to the fact that VIALOG Corporation did not conduct operations during the three months ended March 31, 1997, while depreciation expense for the three months ended March 31, 1998 represents consolidated depreciation expense of the Company, including the Operating Centers. Interest expense, net. Interest expense, net increased $3.0 million from $3,000 to $3.0 million for the three months ended March 31, 1997 and 1998, respectively. The increase was primarily due to (i) approximately $2.4 million of accrued interest expense on the $75.0 million of Senior Notes and (ii) approximately $746,000 of non-cash interest expense related to the amortization of deferred debt issuance costs and original issue discount on the Senior Notes, both of which were partially offset by increased interest income of approximately $100,000 due to increased cash balances. LIQUIDITY AND CAPITAL RESOURCES As the Company did not conduct any operations prior to November 12, 1997, the Company generated negative cash flows for the three months ended March 31, 1997. For the three months ended March 31, 1998, the Company generated a positive 9 cash flow from operations of $127,000. Cash used in investing activities of $1.6 million for the three months ended March 31, 1998 related to the acquisition of property and equipment. Cash used in financing activities of $79,000 for the three months ended March 31, 1998 related primarily to the repayment of capital lease obligations offset by proceeds from the exercise of stock options. The Company had working capital of $5.0 million at March 31, 1998. On November 12, 1997, the Company completed a Private Placement of $75.0 million of Senior Notes, Series A. The Senior Notes bear interest at 12 3/4% per annum, payable semi-annually on May 15 and November 15 of each year, commencing May 15, 1998. The Senior Notes are guaranteed by the Operating Centers and mature on November 15, 2001. The Senior Notes are redeemable in whole or in part at the option of the Company on or after November 15, 1999 at 110% of the principal amount thereof, and on or after November 15, 2000 at 105% of the principal amount thereof until maturity, in each case together with accrued interest to the date of redemption. In addition, there are certain other early redemption options available to the Company at any time on or prior to November 15,1999 at certain premiums, as specified in the Indenture. In the event of a change in control, as defined in the Indenture, the Company may be required to repurchase all of the outstanding Senior Notes at 101% of the principal amount plus accrued interest and additional interest, if any. The Indenture contains restrictive covenants with respect to the Company that among other things, create limitations (subject to certain exceptions) on (i) the incurrence of additional indebtedness,(ii) the ability of the Company to purchase, redeem or otherwise acquire or retire any Common Stock or warrants, rights or options to acquire Common Stock, to retire any subordinated indebtedness prior to final maturity or to make investments in any person, (iii) certain transactions with affiliates, (iv) the ability to materially change the present method of conducting business, (v) the granting of liens on property or assets, (vi) mergers, consolidations and the disposition of assets, (vii) declaring and paying any dividends or making any distribution on shares of Common Stock, and (viii) the issuance or sale of any capital stock of the Company's subsidiaries. The Indenture does not require the Company to maintain compliance with any financial ratios or tests, except with respect to certain restrictive covenants notes above. The Company is in compliance with all covenants contained in the Indenture. The Company anticipates that its cash flows from operations and existing cash balances will meet or exceed its 1998 working capital needs, debt service requirements and planned capital expenditures for property and equipment. The Company expects to meet its liquidity requirements beyond 1998, including repayment of the Senior Notes, through a combination of working capital, cash flow from operations, borrowings, and future issuances of debt and/or equity securities. However, no assurances can be given that such funds will be available when required or on terms favorable to the Company. The Company intends to continue pursuing attractive acquisition opportunities. The timing, size or success of any acquisition and the associated potential capital commitments are unpredictable. The Company plans to fund future acquisitions primarily through a combination of working capital, cash flow from operations and borrowings, as well as issuances of debt and/or equity securities. However, no assurances can be given that such funds will be available when required or on terms favorable to the Company. The Acquisition agreements, pursuant to which the Operating Centers were acquired, limit through 1999 the Company's ability to change the location of an Operating Center's facilities (except for the Montgomery Center), physically merge the Operating Center's operations with another operation, change the position of those employees who received employment agreements pursuant to the applicable Acquisition agreement, reduce the workforce or terminate employees (except as related to employee performance, the contemplated reorganization of the combined sales and marketing staff and the consolidation of certain accounting functions) without the approval of a majority in interest of the former stockholders of the affected Operating Center. Based on the term of these limitations and the fact that the Company has been growing and adding additional employees, the Company does not believe that these limitations will have a significant impact on the future results of operations and liquidity. The Company is highly leveraged and has a stockholders' deficit at March 31, 1998. This indebtedness requires the Company to dedicate a significant portion of its cash flow from operations to service its indebtedness and makes the Company more vulnerable to unfavorable changes in general economic conditions. The Company is aware of the issues associated with the programming code in existing computer systems as the millenium (Year 2000) approaches. The "Year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or fail. 10 The Company is using both internal and external resources to identify, correct or reprogram, and test its systems for Year 2000 compliance. The Company has performed a preliminary review of its existing computer programs to address the Year 2000 issue. Based on the preliminary review, the Company believes that the Year 2000 issue will not have a significant impact on the operations or the financial results of the Company. The internally developed computer programs used in the operations of the Company that are expected to be used beyond the year 1999 are Year 2000 compliant. Additionally, as part of the integration of the Operating Centers, the Company will be implementing common systems in both the operations and financial management areas of the Company within the next two years. The systems implemented or upgraded will all be Year 2000 compliant, one of the criteria of the systems integration plan. The Company will continue to assess the impact of the Year 2000 issue as a part of the systems integration plan. The Company is in the process of contacting all of its software and hardware suppliers with regard to their respective Year 2000 compliant programs. CONSOLIDATED AND COMBINED OPERATING CENTERS AND VIALOG CORPORATION-RESULTS OF OPERATIONS The combined Operating Centers' Statement of Operations data for the three months ended March 31, 1997 does not purport to present the financial results or the financial condition of the combined Operating Centers in accordance with generally accepted accounting principles. Such data represents merely a summation of the net revenues and cost of revenues of the individual Operating Centers on an historical basis, and excludes the effects of pro forma adjustments. This data will not be comparable to and may not be indicative of the Company's post-combination results of operations because the Operating Centers were not under common control or management. The following table compares certain unaudited combined data of the Operating Centers on an historical basis for the three months ended March 31, 1997 and certain unaudited consolidated data of VIALOG Corporation for the three months ended March 31, 1998, excluding the effects of pro forma adjustments:
THREE MONTHS ENDED MARCH 31, -------------------------------------- 1997 1998 ----------------- ----------------- (DOLLARS IN THOUSANDS) Net revenues $ 8,347 100.0% $ 11,290 100.0% Cost of revenues, excluding depreciation 4,050 48.5% 6,121 54.2%
Net revenues. All Operating Centers reflected an increase in net revenues for the three months ended March 31, 1998 compared to the three months ended March 31, 1997. Net revenues increased $2.9 million, or 35.3%, from combined net revenues of $8.3 million in 1997 to consolidated net revenues of $11.3 million in 1998. Overall, the increase was primarily due to increased call volumes for audio and video conferencing services. The major components of this increase were (i) an increase in Access' net revenues of $1.3 million, or 44.7%, which consisted of increased sales of teleconferencing services of approximately $624,000 and $676,000 to existing and new customers, respectively, including the introduction of video equipment sales in the first quarter of 1998, (ii) an increase in TCC's net revenues of $497,000 or 55.7%, which was primarily attributable to increased audio teleconferencing services to existing customers and new customers, and (iii) an increase in CSI's net revenues of $497,000, or 32.6%, which consisted of increased net revenues of $447,000 and $50,000 to existing and new customers, respectively. Cost of revenues, excluding depreciation. Consolidated cost of revenues, excluding depreciation for the three months ended March 31, 1998 increased $2.1 million, or 51.1%, from combined cost of revenues, excluding depreciation for the three months ended March 31, 1997, and increased as a percentage of revenue from 48.5% to 54.2% for the three months ended March 31, 1997 and 1998, respectively. The dollar increase was primarily attributable to (i) an increase in Access' cost of revenues, excluding depreciation of $834,000, or 66.9%, resulting from increased telecommunications costs associated with increased call volumes, and equipment costs related to the introduction of video equipment sales in the first quarter of 1998 (which generate a lower gross margin than teleconferencing services), (ii) an increase in CSI's cost of revenues, excluding depreciation of $341,000, or 61.3%, resulting from increased telecommunications costs associated with increased call volumes as well as increased operating costs due to increased staffing to support current and projected revenue growth, (iii) an increase in TCC's cost of revenues, excluding depreciation of $324,000, or 81.6%, resulting from increased telecommunications costs associated with increased call volumes as well as increased operating costs due to increased staffing to support current and projected revenue growth and (iv) an increase in Americo's cost of revenues, excluding depreciation of $200,000, or 66.7%, resulting from increased 11 operating costs due to increased staffing to support current and projected revenue growth. The increase as a percentage of revenues was primarily attributable to (a) a change at Access in the utilization of certain personnel from providing sales support activities during the start-up phase of video conferencing, the related cost of which was included in selling, general and administrative expenses during the three months ended March 31, 1997, to being involved directly in the providing of video conferencing services during the three months ended March 31, 1998, the related cost of which was included in cost of revenues, excluding depreciation, (b) additional labor and related expenses associated with the integration of the Operating Centers and temporary accelerated hiring and training due to anticipated increases in call volumes, (c) a modest net decrease in the average price per conferencing minute for similar types of conferencing services, which resulted in a net decrease to net revenues of approximately $490,000 based on taking the respective call volumes for the three months ended March 31, 1998 at the average prices during the three months ended March 31, 1997 for similar services and (d) additional long distance charges associated with new Federal Communications Commission fees. Certain of the Operating Centers have entered into new contracts for long distance telephone service. Had these contracts been in effect as of January 1, 1998, cost of revenues, excluding depreciation for the three months ended March 31, 1998 would have decreased by approximately $340,000. CAUTIONARY STATEMENTS FOR FORWARD LOOKING INFORMATION Management's discussion and analysis set forth above contains certain forward looking statements, including statements regarding its financial position and results of operations. These forward looking statements are based on current expectations. Certain factors have been identified by the Company which could cause the Company's actual results to differ materially from expected and historical results. These factors are discussed in the Safe Harbor for Forward Looking Statements section of the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's amended Form 10-K for the year ended December 31, 1997, and should be read in conjunction with this amended Form 10-Q. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Other than as described below, there are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. In connection with the acquisition of the assets of Call Points, Inc. ("Call Points"), the Company agreed to assume all disclosed liabilities with the exception of any liabilities arising out of Equal Employment Opportunity Commission ("EEOC") claims and litigation filed against Call Points and Ropir Industries, Inc. ("Ropir"), the sole stockholder and parent corporation of Call Points, by certain former and current employees. On or about October 30, 1997, 11 employees or former employees of Call Points filed claims in federal district court (Northern District of Alabama)against Call Points, Ropir and certain other parties named therein. Complainants in these cases could seek to name the Company as a defendant in such pending litigation and could seek to hold the Company liable for damages resulting from the litigation as a successor in interest to Call Points. In addition to equitable relief, the complainants are seeking an unspecified amount for back pay, compensatory and punitive damages and attorneys fees based on allegations of discrimination, retaliation and racially harassing atmosphere. Although the Company believes it has defenses to any such claim, there can be no assurance that any such defense would be successful. The principal stockholder of Call Points agreed to indemnify the Company from any liability relating to such claims and placed $250,000 of the proceeds from the sale of the assets of Call Points in escrow with a third party to secure such indemnification obligations. In light of such indemnification, the Company does not believe that such claims, if successful, would have a material adverse effect on the Company. A former employee of Conference Source International, Inc. ("CSI"), has claimed in writing that he may be entitled to up to five percent of the stock of CSI, based on an unsigned paper outlining possible employment terms. Based on the $18.7 million consideration paid to CSI's stockholders upon the consummation of the acquisition of CSI by VIALOG Corporation, the value of a five percent equity interest in CSI would be approximately $934,000. CSI's position is that the only agreements with such employee were set forth in two successive executed employment agreements, each of which had a specific provision that such agreement was inclusive as to the terms of employment. The Company and the former stockholders of CSI believe that such claim is without merit. There have been no significant changes to the Company's outstanding litigation since the filing of the Company's Form 10-K for the twelve months ended December 31, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 11(a)-Calculation of Shares Used in Determining Loss Per Share 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIALOG Corporation (Registrant) Date: August 13, 1998 /s/ Glenn D. Bolduc -------------------------- Glenn D. Bolduc, President and Chief Executive Officer /s/ John J. Dion ---------------------- John J. Dion, Vice President-Finance (Principal Financial Officer and Principal Accounting Officer) 14 EXHIBIT INDEX PAGE ---- 11(a)-Calculation of Shares Used in Determining Loss Per Share 16 EX-11 2 CALCULATION OF SHARES VIALOG CORPORATION CALCULATION OF SHARES USED IN DETERMINING LOSS PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1998 -------------- ------------ BASIC LOSS PER SHARE - -------------------- Weighted average number of common shares outstanding 2,747,300 3,542,668 ============== ============ THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1998 -------------- ------------ DILUTED LOSS PER SHARE - ---------------------- Weighted average number of common shares outstanding 2,747,300 3,542,668 Common stock equivalents - - -------------- ------------ Total 2,747,300 3,542,668 ============== ============
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