-----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, EoPBy5bmWRhpYV7wH5zooEBg4SvKojFBT/g324AmCqQa+nH7q925IuDvuyq4rwF3 cVfR8puHuVNc+OWwUtfGPg== 0000944209-99-000417.txt : 19990402 0000944209-99-000417.hdr.sgml : 19990402 ACCESSION NUMBER: 0000944209-99-000417 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEW TECH INC CENTRAL INDEX KEY: 0000746210 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 770312442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25940 FILM NUMBER: 99581385 BUSINESS ADDRESS: STREET 1: 3760 CALLE TECATE STREET 2: STE A CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8054828277 10-K 1 FORM 10-K FOR THE PERIOD ENDED 12/31/1998 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the year ended December 31, 1998 ----------------- OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file number: 0-25940 VIEW TECH, INC. (Exact name of registrant as specified in its charter) Delaware 77-0312442 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3760 Calle Tecate, Suite A. Camarillo, CA 93012 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (805) 482-8277 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ Common Stock, $.0001 Par Value NASDAQ National Market Indicate by check mark whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No - -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting stock held by non- affiliates of the Registrant, based upon the closing sales price of the Common Stock on the NASDAQ National Market on March 19, 1999 was $11,556,756. The number of shares of the Registrant's Common Stock outstanding as of March 19, 1999 was 7,792,111. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the period ended December 31, 1998 are incorporated by reference into Part III. ================================================================================ TABLE OF CONTENTS -----------------
ITEM PAGE - ---- ---- PART I ------ 1. Business......................................................... 1 2. Properties....................................................... 6 3. Legal Proceedings................................................ 6 4. Submission of Matters to a Vote of Security Holders.............. 6 PART II ------- 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................ 7 6. Selected Financial Data........................................ 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 9 7A. Quantitative and Qualitative Disclosures about Market Risk..... 16 8. Financial Statements and Supplemental Data..................... 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 35 PART III -------- 10. Directors and Executive Officers of the Registrant............. 36 11. Executive Compensation......................................... 36 12. Security Ownership of Certain Beneficial Owners and Management. 36 13. Certain Relationships and Related Transactions................. 36 PART IV ------- 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 37 Signatures......................................................... 38
i PART I Item 1. Business General View Tech, Inc., a Delaware corporation ("View Tech"), commenced operations in July 1992 as a California corporation. In November 1996, concurrent with a merger (the "Merger") with USTeleCenters, Inc., a Massachusetts corporation ("USTeleCenters"), with and into View Tech Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of View Tech ("VTAI"), View Tech reincorporated in Delaware. Following the Merger, VTAI changed its name to "USTeleCenters, Inc." ("UST"). In November 1997, View Tech acquired the net assets of Vermont Telecommunications Network Services, Inc., ("Network Services"), a Vermont corporation. View Tech, UST and Network Services (collectively referred to as "View Tech" or the "Company") have thirty-three (33) offices nationwide. The Company serves as a single source provider for the equipment and services required to meet the video, voice and data communications requirements of its customers. The Company is a leading remarketer, integrator and service provider of video conferencing equipment, a telecommunications equipment reseller, and one of the oldest and largest independent sales agents for certain Regional Bell Operating Companies ("RBOCs") and long distance carriers. The Company is headquartered in Camarillo, California. Its offices are located at 3760 Calle Tecate, Suite A, Camarillo, California 93012. Its telephone number is 805/482-8277. View Tech's e-mail address is tbrath@viewtech.com. - ------------------- Video Communications The Company's video communications group focuses on the sale, installation and service of video communications systems. Utilizing advanced technology, these systems enable users at separate locations to engage in face-to-face discussions and to exchange information with the relative affordability and convenience of using a telephone. In addition to the use of video conferences as a corporate communications tool, use of video communications systems is expanding into numerous productivity enhancing applications, including (i) teachers providing lectures to students at multiple locations, (ii) judges conducting criminal arraignment proceedings while the accused remains incarcerated, (iii) utilizing video technology for the consultation and surgical applications for the health care industry, (iv) coordination of emergency services by public utilities, (v) businesses conducting multi-location staff training programs, and (vi) engineers at separate design facilities coordinating the joint development of products. Telecommunications The Company's telecommunications group develops and manages sales and customer service programs on an outsourced basis under agency and value-added reseller agreements for (i) certain regional Bell operating companies ("RBOCs"), (ii) other telecommunications service providers, and (iii) equipment manufacturers. In New England and upstate New York, the Company also provides telecommunications systems integration and on-going account management support for middle market customers. On behalf of its RBOC clients, UST sells high speed data services, Internet access, Centrex network services, local and long distance services, voice mail and other "enhanced" services, discount calling plans and toll-free services such as remote-call-forwarding. As a value-added equipment reseller, the telecommunications group sells, installs and maintains data transmission products, customer premise equipment and telephone systems. The telecommunications group operates out of UST, which is located in Boston, Massachusetts. UST's main offices are located at 745 Atlantic Avenue, Boston, Massachusetts 02111-2747. Its telephone number at that address is 617/439-9911. UST's e-mail address is tviolette@ustele.com. Equipment Products Video The Company offers three types of video communications systems: integrated roll-about and room systems, vertical applications and desktop computer systems. Roll-about systems may be moved conveniently from office to office and placed into operation quickly while room systems are stationary systems; vertical applications include 1 distance education and systems utilized in the healthcare industry; and desktop computer systems involve personal computers with video communications capabilities which are generally used for one-on-one personal communications, or when one person is presenting information to a group. Apart from peripheral components manufactured by others, the Company primarily sells systems manufactured by PictureTel Corporation, PolyCom, Inc. and VTEL Corporation. Management believes that items of equipment produced by these manufacturers provide superior quality audio and video communications capabilities, at a reasonable price. The prices of the complete systems sold by the Company range from $3,500 for a video communications desktop computer, to $60,000 for a roll-about system for a single location, to as much as $100,000 for a vertical application. Roll- about systems generally contain a minimum of a video camera, monitor and codec to capture the image, display the image and to encode and decode the transmission over digital phone lines, respectively. Most installations have several additional peripherals including some of the following components: an inverse multiplexer, a multi-point control unit, a document camera, a keypad, a speakerphone, a videocassette recorder and/or an annotations slate and white board. The foregoing components are purchased by the Company from appropriate manufacturers and the monitors, document cameras, videoscan converters, videocassette recorders and white boards are acquired from various sources depending upon price and quality. Although the Company's desktop-computer systems involve different components, the desktop system has many of the capabilities of the roll-about and room systems. The Company's desktop video communications equipment is manufactured by PictureTel and others such as VCON, Inc. Voice and Data The Company sells communications equipment for voice and data transmission produced by such manufacturers as Ascend Communications, Inc., Madge Networks, First Virtual Corp. and VideoServer, Inc. (data transmission products), Accord, Inc. and Northern Telecom (telephone systems). Voice. The Company markets a variety of telephone and other voice equipment products designed specifically for small to medium-sized business customers. Northern Telecom key systems are sold by the Company under reseller agreements, and are installed and serviced by the Company for business customers throughout the Northeast. Such equipment also may be sold in conjunction with the provision of local and long-distance network services. This combination of voice equipment and voice network services is an important ingredient in establishing the Company as a single-point-of-contact provider. Data. The Company sells products specifically designed to transmit data through the established local and long-distance telephone services infrastructure to business customers. Products from companies such as Adtran, Madge Networks and Ascend Communications, Inc. allow business customers remote access into local area networks, and permit them to acquire bandwidth on demand and digitally transmit data. Products such as these are sold in combination with local and/or long-distance network services provided by the RBOCs, SPRINT and AT&T. Video Services The Company believes that the quality and depth of its customer services capability are crucial factors in its ability to compete successfully. The technical expertise and experience of its management and employees enable the Company to offer its customers the convenience of single-vendor sourcing for most aspects of their communications needs and to develop customized systems designed to provide efficient responses to customer communications technology requirements. The Company provides its customers with a full complement of video communications and telecommunications services to ensure customer satisfaction. Prior to the sale of its systems and services, the Company provides consulting services that include an assessment of customer needs and existing communications equipment, as well as cost-justification and return-on-investment analyses for systems upgrade. Once the Company has made recommendations with respect to the most effective method to achieve its customer's objectives and the customer has ordered a system, the Company delivers, installs and tests the communications equipment. When the system is functional, the Company provides training to all levels of its customer's organization, including executives, managers, management- information-systems and data-processing administrators, technical staff and end users. Training includes instruction in system operation, as well as planning 2 and administration meetings. By means of thorough training, the Company helps to ensure that its customers understand the functionality of the systems and are able to apply the technology effectively. The Company's ViewCare(R) service product provides maintenance contracts and comprehensive customer support with respect to the communications equipment it provides. The Company offers a toll-free technical support hotline 24 hours a day, 365 days a year. Customers may also obtain answers to questions or follow- up training through video conferencing, telephone, facsimile, e-mail or the mail. The Company also provides onsite support and maintenance. The Company's service personnel maintain regular contact with customers. The Company also offers training programs for new users, refresher and advanced training programs for experienced users and consulting services related to new equipment and systems expansion and upgrades. On-going after-sale relationships with customers are critical to customer retention. Installation, training, maintenance, remote diagnostics, billing inquiry management, network order processing, new product introduction and system enhancements creating multi- purpose solutions are a few of the many after-sale services that the Company performs for its customers. During 1998, the Company increased its MCU, MultiView Network Services/TM/, or bridge services, to its customers nationwide. The Company employs state-of- the-art conferencing servers in multiple U.S. call centers, providing seamless connectivity for all switched digital networks across the globe at an affordable rate. Since bridges cost between $65,000 and $200,000 per unit, the Company's customers typically elect to utilize such services when more than two locations participate simultaneously in video communication. To date, the Company's bridging services have proven to be an increasing source of revenue and enhance customer retention. Telecommunications Services In its role as an outsource partner for certain local and long-distance providers, the Company also supplies on-going after-sales telecommunications services to its client's end-user customers. Network services provisioning, maintenance, user training and network order-processing are some of the services provided by the Company. The Company sells a wide range of telecommunications services, including high speed data connection, Internet access, local and long distance services, voice mail and other "enhanced" services, discount calling plans and toll-free services. In addition, the Company provides Account Management for Bell Atlantic customers under which it serves as the primary interface between Bell Atlantic and certain of its business customers. Under this program, sales personnel provide a single-point-of-contact and coordination for all of the customer's telecommunications network services needs. The Company provides systems integration services, processes so-called "moves, adds and changes" on the telephone network, coordinates repairs, performs network analysis, manages billing issues and provides other customer services. The Company's relationships with multiple local exchange carriers and long distance providers give it demographic scope and enable it to provision multiple site solutions for customers in a unique single-point of contact methodology. This competitive edge differentiates the Company from other suppliers of similar size. Strategy The Company focuses its marketing efforts on industries and market segments that it believes will achieve significant benefits through utilization of video and telecommunications services and equipment. The Company then acquires a complete understanding of the operations of such industries, identifies the particular communications needs of such industries and integrates or bundles the services and/or equipment which will most effectively meet the needs of any given segment of the market. These services range from the simple bundling of long distance and local service to a small business to a complex installation of video communications equipment and network services to meet the needs of a corporate customer. The Company believes that this focus on customer needs in particular market segments, together with an emphasis on providing comprehensive, high-quality service to its customers, enables the Company to market its communications systems, equipment and services more effectively than competitive distribution channels. The Company believes that its broad product offerings, industry focus, wide geographic coverage and high quality service provide it with a unique competitive advantage. In addition to expanding its current key alliance partnerships with PictureTel, Ascend Communications, PolyCom, Inc., VideoServer, VTEL Corporation, GTE, Bell Atlantic, UUNET, Bell South, Madge Networks, Northern Telecom and its other equipment vendors and service providers, the Company intends to continue broadening it market focus as its customers' needs become more comprehensive, and to expand its activities into additional geographic markets by entering into further strategic alliances with manufacturers and service providers, establishing additional strategically located sales and service facilities and acquiring companies in the communications, video and integration services industry. 3 Customers The Company's customer base is divided into two categories, large institutions with complex application-specific requirements for video communications and small to medium-sized businesses with voice and data transmission requirements. These segments are becoming less distinct as the market develops. The Company currently focuses on these customer segments separately but is integrating these functions more frequently for customers. Video Communications Systems Customers The Company has installed video communications systems for a diversified customer base, including, Pfizer Pharmaceuticals, PacifiCare, Region 18 Educational Service Center, Raytheon Corporation and the State of Tennessee. The Company has attempted to focus its marketing efforts on specific industries. Among the industries in which the Company believes it has acquired substantial expertise are health care and distance-education. Telecommunications Clients The Company, through UST, markets telecommunication equipment and services for various strategic clients. The equipment sales are performed under various reseller agreements and the end-user customer is invoiced by UST. The telecommunication network services are sold to the Company's customers under sales agency agreements, pursuant to which the customer is invoiced by the client for the services over the term of the agreement and the Company is paid a commission by the client. The Company typically has renewable annual or multi- year agreements with its telecommunication service clients, under which it receives commissions based on sales. The Company's telecommunication clients include several RBOCs, including Bell Atlantic, Southwestern Bell and BellSouth; other telecommunication service providers, such as GTE and SPRINT; and equipment manufacturers, including Northern Telecom and Ascend. Telecommunications Customers The Company focuses on small to medium-sized business customers which the major telecommunications providers cannot cost-effectively service. The Company's clients (i.e., the RBOCs and the telecommunications service providers) have retained the Company's services to sell products to and in some cases to manage the relationship with these customers. These customers are comprised of medium-sized businesses which are served by a direct face-to-face sales force based in the Company's Boston, Burlington (Vermont) and New York offices, and small businesses which are served by the Company's telephone-based sales force in Boston and Cape Cod. The Company sells a range of products and services to these customers in order to meet their video, voice, data and communication needs. The Company has developed sophisticated sales programs to allow the telephone-based sales group to sell complex products historically only sold by a direct sales force. No single customer accounted for more than 10% of the Company's revenues for the year ended December 31, 1998. Sales and Marketing Video Communications Sales The Company has a number of programs to promote its video communications products and services. Representatives of the Company regularly attend video communications and advanced technology trade shows. The Company hosts seminars and provides potential customers with the opportunity to learn about the Company's products and services using video communications demonstration facilities located in each of the Company's offices. The Company also places advertisements aimed at selected markets in industry trade publications and utilizes limited and selective direct mail advertising. In addition, the Company has periodically employed the services of market research firms to provide it with information regarding organizations that may be interested in purchasing video communication products and services. Management has worked closely with such firms to develop approaches that will enable them to effectively identify individuals and applications within organizations likely to benefit from video communications technologies. PictureTel and other suppliers also provide the Company with sales leads. The Company also maintains relationships with previous customers and attempts to provide for their continuing equipment and service needs, including continuing engineering, training and warranty services. Telecommunications Sales 4 The Company utilizes a number of sales and marketing techniques, including outside (or face-to-face) sales and inside (or telephone) sales. Outside Sales. The Company's outside sales activities are generally focused on medium-sized businesses in New England and upstate New York where the Company maintains offices. Face-to-face sales are especially effective in selling more expensive and technologically advanced services and equipment such as Bell Atlantic's Centrex network services and PictureTel's videoconferencing products. On-going customer account management stimulates repeat business while protecting market share and generating recurring revenue from certain clients such as Bell Atlantic. Inside Sales. The Company's inside sales group sells a broad range of services over the telephone. In addition, the inside sales and service departments generate leads, and in some instances, provide back-up support to outside sales associates. The advantages of telemarketing include high response rates, low transaction costs, direct interaction with customers and on-line access to detailed customer or product information. The Company's telemarketing clients include Bell Atlantic, Bell South, GTE, Southwestern Bell, SPRINT and other telecommunications service providers. Dependence on Suppliers, Including PictureTel , Bell Atlantic and GTE For the twelve months ended December 31, 1998, approximately 31% of the Company's consolidated revenues were attributable to the sale of equipment manufactured by PictureTel and an additional 31% of consolidated revenues were attributable to the sale of network products and services provided by Bell Atlantic and GTE. Termination of or change of the Company's business relationships with PictureTel, Bell Atlantic or GTE; disruption in supply, failure of PictureTel, Bell Atlantic or GTE to remain competitive in product quality, function or price or a determination by PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers such as the Company, among other things, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is a party to agreements with PictureTel, Bell Atlantic and GTE that authorize the Company to serve as a non-exclusive dealer and sales agent, respectively, in certain geographic territories. The PictureTel, Bell Atlantic and GTE agreements can be terminated without cause upon written notice by the suppliers, subject to certain notification requirements. There can be no assurance that these agreements will not be terminated, or that they will be renewed on terms acceptable to the Company. These suppliers have no affiliation with the Company and are competitors of the Company. Competition The video communications industry is highly competitive. The Company competes with manufacturers of video communications equipment, which include PictureTel, VTEL and Lucent Technologies, and their networks of dealers and distributors, telecommunications carriers and other large corporations, as well as other independent distributors. Other telecommunications carriers and other corporations that have entered the video communications market include, AT&T, MCI, some of the RBOCs, Intel Corporation, Microsoft Corporation, Sony Corporation and British Telecom. Many of these organizations have substantially greater financial and other resources than the Company, furnish many of the same products and services provided by the Company and have established relationships with major corporate customers that have policies of purchasing directly from them. Management believes that as the demand for video communications systems continues to increase, additional competitors, many of which will have greater resources than the Company, will enter the video communications market. A specific manufacturer's network of dealers and distributors typically involves discrete territories that are defined geographically, in terms of vertical market, or by application (e.g., project management or government procurement). The current agreement with PictureTel authorizes the Company to distribute PictureTel products in the following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and Wyoming. Because the agreement is non-exclusive, however, the Company is subject to competition within these territories from other PictureTel dealers, whose customers elsewhere may have branch facilities in these territories, and from PictureTel itself, which directly markets its products to certain large national corporate accounts. The agreement expires on August 1, 2000 and can be terminated without cause upon 60 days' written notice by PictureTel. There can be no assurance that the agreement will not be terminated, or that it will be renewed by PictureTel, which has no other affiliation with the Company and is a competitor of the Company. While there are suppliers of video communications equipment other than PictureTel, termination of the Company's relationship with PictureTel could have a material adverse effect on the Company. The Company believes that customer purchase decisions are influenced by several factors, including cost of equipment and services, video communication system features, connectivity and compatibility, a system's capacity for expansion and upgrade, ease of use and services provided by a vendor. Management believes its comprehensive knowledge of the operations of the industries it has targeted, the quality of the equipment the Company sells, the 5 quality and depth of its services, its nationwide presence and ability to provide its customers with all of the equipment and services necessary to ensure the successful implementation and utilization of its video communications system enable the Company to compete successfully in the industry. The telecommunications services industry is also highly competitive. The Company competes with many other companies in the telecommunications business which have substantially greater financial and other resources than the Company, selling both the same and similar services. The Company's competitors in the sale of network services include RBOCs such as Bell South, Bell Atlantic, Southwestern Bell and GTE, long distance carriers such as AT&T, MCI and SPRINT, other long distance companies, by-pass companies and other agents. There can be no assurance that the Company will be able to compete successfully against such companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Employees At March 19, 1999 the Company had 282 full-time employees. The Company has 164 full-time employees engaged in marketing and sales, 70 in technical services and 48 in finance, administration and operations. None of the Company's employees is represented by a labor union. The Company believes that its relations with its employees are good. Item 2. Properties The Company's video business leases office facilities in Camarillo, Irvine, Sacramento and San Diego, California; New York, New York; Atlanta, Georgia; Baton Rouge, Louisiana; Chicago, Illinois; Dallas and Houston, Texas; Durham, North Carolina; Englewood, Colorado; Nashville and Knoxville, Tennessee; Jacksonville, Florida; Salt Lake City, Utah; Phoenix, Arizona and Chesterfield, Missouri. These locations are currently principally engaged in video conferencing sales and services. Its videoconferencing headquarters is located in Camarillo, California and consists of a total of approximately 19,000 square feet. The Company's other facilities house sales, technical and administrative personnel and consist of aggregate square footage of approximately 42,000. UST leases office facilities in Boston and Cape Cod, Massachusetts, and Burlington, Vermont. Such locations are principally engaged in the sale and service of telephony products and services. UST's principal offices are located in Boston and house executive, sales, technical and administrative personnel and consist of aggregate square footage of approximately 21,500 square feet. UST's inside sales offices, two offices in Boston and one office in Cape Cod consist of approximately 9,500 combined square feet. Its outside sales office in Burlington, Vermont consists of approximately 5,000 square feet. These leases expire at various dates through 2003. The Company believes that the facilities it presently leases, combined with those presently under negotiations, will be adequate for the foreseeable future and that additional suitable space, if required, can be located and leased on reasonable terms. Item 3. Legal Proceedings In the ordinary course of business the Company experiences various types of claims which sometimes result in litigation or other legal proceedings. The Company does not anticipate that any of these proceedings that are currently pending will have any material adverse effect on the Company. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of 1998. 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Stock Market and Other Information The Company's common stock is traded on The Nasdaq Stock MarketO, ("Nasdaq"), under the symbol "VUTK" on the National Market and has been so traded since November 18, 1995. Prior to such date, the shares were traded on Nasdaq's SmallCap Market and also the Pacific Stock Exchange under the symbols "VUTK" and "VWK," respectively, since the Company's initial public offering on June 15, 1995 (the "IPO"). In addition, warrants to purchase up to 575,000 shares of the Company's common stock were traded on Nasdaq's National Market and prior to November 18, 1995 the warrants traded on Nasdaq's SmallCap Market and the Pacific Stock Exchange under the symbols "VUTKW" and "VWK WS," respectively. The terms of the warrants provided that one warrant plus $5.00 was required to purchase one additional share of the Company's common stock. The warrants were redeemable at the Company's option commencing June 15, 1996 upon 30 days notice to the warrant holders at $0.25 per share if the closing price of the common stock had been at least $8.00 for a period of 30 consecutive trading days ending within 10 days of the date the notice of redemption was mailed. The warrants expired on June 15, 1998. The following table sets forth the quarterly high and low bids for the Company's common stock as reported by Nasdaq's National Market for the periods indicated.
High Low ----- ----- Calendar Year 1997 First Quarter.................. $6.25 $3.88 Second Quarter................. 4.25 2.38 Third Quarter.................. 7.50 2.88 Fourth Quarter................. 8.94 4.81 Calendar Year 1998 First Quarter.................. 5.87 4.75 Second Quarter................. 4.62 3.40 Third Quarter.................. 3.25 1.50 Fourth Quarter................. 3.00 1.53
On March 19, 1999 the last reported bid for the Company's common stock on the Nasdaq was $2.00. As of March 19, 1999, there were 151 holders of record of the Company's common stock. Dividends The Company has never paid any cash dividends on its common stock. It presently intends to retain earnings and capital, if any, for use in its business and does not expect to pay any dividends within the foreseeable future. Any payment of cash dividends in the future on the common stock will be dependent on the Company's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, restrictions under debt obligations, as well as other factors that the Board of Directors deems relevant. Recent Sales of Unregistered Securities The Company completed a private placement of 826,668 shares of common stock on November 10, 1998, to accredited investors only pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended, which raised $1.2 million. The purpose of this private placement was to assist the Company in meeting Nasdaq's net tangible assets requirement for the continued listing of the Common Stock on the Nasdaq National Market. (Please see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...Risk Factors) Transfer Agent and Registrar U.S. Stock Transfer Corporation of Glendale, California serves as transfer agent and registrar of the Company's common stock. 7 Item 6. Selected Financial Data The following historical selected financial data of the Company has been restated to reflect the acquisition of USTeleCenters, Inc. in a pooling-of- interest transaction as described in Notes 1 and 3 to the consolidated financial statements.
Six Months Year Ended December 31, Ended Year Ended ------------------------------------------ December 31, June 30, 1998 1997 1996 1996 1996 ------------ ------------ ------------ ------------- ------------ (Unaudited) Consolidated Statement of Operations Data: Revenues: Product and service revenues................. $39,746,564 $33,642,166 $24,820,903 $13,330,608 $19,680,386 Agency commissions........................... 18,225,574 16,300,988 12,127,329 6,547,974 11,313,350 ----------- ----------- ----------- ----------- ----------- 57,972,138 49,943,154 36,948,232 19,878,582 30,993,736 ----------- ----------- ----------- ----------- ----------- Costs and Expenses: Costs of goods sold.......................... 27,518,045 23,835,939 18,370,748 10,235,235 14,269,108 Selling and marketing expenses............... 20,792,084 17,947,552 13,274,260 7,045,024 10,670,921 General and administrative expenses.......... 7,743,567 7,649,521 5,581,287 2,938,890 5,465,984 Restructuring and other costs................ 4,201,013 -- -- -- -- Merger costs................................. -- -- 2,563,573 2,563,573 -- ----------- ----------- ----------- ----------- ----------- 60,254,709 49,433,012 39,789,868 22,782,722 30,406,013 ----------- ----------- ----------- ----------- ----------- Income (Loss) from Operations................. (2,282,571) 510,142 (2,841,636) (2,904,140) 587,723 Interest Expense.............................. (527,593) (367,003) (318,149) (152,882) (423,483) ----------- ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes............. (2,810,164) 143,139 (3,159,785) (3,057,022) 164,240 Benefit (Provision) For Income Taxes.......... (4,233) (4,512) 172,434 39,804 259,816 ----------- ----------- ----------- ----------- ----------- Net Income (Loss)............................. $(2,814,397) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056 =========== =========== =========== =========== =========== Earnings (Loss) Per Share (Basic & Diluted)... $ (0.41) $ 0.02 $ (0.57) $ (0.56) $ 0.07 =========== =========== =========== =========== =========== Consolidated Balance Sheet Data: Total assets................................. $26,245,518 $25,812,168 $18,520,608 $18,520,608 $14,841,089 Working capital.............................. 5,729,746 5,299,734 450,016 454,016 2,370,967 Long-term liabilities........................ 5,196,653 5,342,368 779,920 779,920 952,864 Stockholders' equity......................... 7,070,515 8,276,832 4,418,725 4,418,725 4,221,533
8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-K. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, the Company's future development plans, the Company's ability to obtain debt, equity or other financing, and the Company's ability to generate cash from operations, are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those factors, risks and uncertainties include, but are not limited to those described below under "Risk Factors" and, in addition, the following: the Company's ability to raise additional funds that may be necessary to meet its current and future capital needs; the Company's ability to effectively manage its business in a rapidly changing environment due to the rapid internal growth and external growth through acquisition; the Company's limited history of profitable operations and significant fluctuations in operating results which may continue due to delays in product enhancements, new product introductions by its suppliers; the termination of or change of the Company's business relationships with PictureTel, Bell Atlantic or GTE, disruption in supply, failure of PictureTel, Bell Atlantic or GTE to remain competitive in product quality, function or price or a determination by PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers such as the Company; the introduction of products embodying new technologies and the emergence of new industries that could make the Company's existing products and services obsolete; unmarketable or noncompetitive and the introduction of new rules and regulations of the federal government and/or certain states pertaining to the Company's telecommunications business that could lead to additional competition from entities with greater financial and managerial resources. General The Company commenced operations in July 1992 as a California corporation. Since its initial public offering of common stock in June 1995, the Company has grown rapidly through internal expansion and through acquisitions. In November 1996, concurrent with a merger (the "Merger") of USTeleCenters, Inc., a Massachusetts corporation ("USTeleCenters"), with and into View Tech Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("VTAI"), the Company reincorporated in Delaware. Following the Merger, VTAI changed its name to USTeleCenters, Inc. ("UST"). In November 1997, the Company acquired the net assets of Vermont Telecommunications Network Services, Inc., a Vermont corporation headquartered in Burlington, Vermont, which sells, manages and supports telecommunication network solutions as an agent for Bell Atlantic. The Company currently has 33 offices nationwide. The Company is a leading, single source provider of voice, video and data equipment, network services and bundled telecommunications solutions for business customers nationwide. The Company has equipment distribution partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc., IntelO, Madge Networks, Ascend Communications, VideoServer, Inc., and Northern Telecom and markets network services through agency agreements with Bell Atlantic, BellSouth, GTE, Southwestern Bell, Sprint and UUNET Technologies. In the second quarter of 1998, the Company implemented a restructuring plan (the "Plan") designed to reduce costs and improve profitability. The implementation of the Plan resulted in a one time charge of $4.2 million. Included in this charge was $1.793 million of employee termination costs, a permanent impairment write-down of goodwill relating to previous acquisitions of $1.465 million, and facility exit costs of $0.157 million. 9 Results of Operations The following table sets forth, for the periods indicated, information derived from the Company's consolidated financial statements expressed as a percentage of the Company's revenues:
Six Months Year Year Ended Ended Ended December 31, December 31, June 30, ------------------------------- ----------- ------ 1998 1997 1996 1996 1996 ------ ------ ------- ------ ------ (Unaudited) Revenues: Product sales and service revenues........................ 68.6% 67.4% 67.2% 67.1% 63.5% Agency commissions............... 31.4 32.6 32.8 32.9 36.5 ----- ----- ----- ----- ----- 100.0 100.0 100.0 100.0 100.0 ===== ===== ===== ===== ===== Costs and Expenses: Costs of goods sold.............. 47.5 47.7 49.7 51.5 46.0 Sales and marketing expenses........................ 35.9 35.9 35.9 35.4 34.4 General and administrative expenses........................ 13.4 15.3 15.1 14.8 17.6 Merger costs..................... -- -- 7.0 12.9 -- Restructuring and other costs.... 7.2 -- -- -- -- ----- ----- ----- ----- ----- 104.0 98.9 107.7 114.6 98.0 ----- ----- ----- ----- ----- Income (Loss) from Operations....................... (4.0) 1.1 (7.7) (14.6) 2.0 Interest Expense.................. (0.9) (0.8) (0.9) (0.8) (1.4) ----- ----- ----- ------ ----- Income (Loss) Before Income Taxes..................... (4.9) 0.3 (8.6) (15.4) 0.6 Benefit (Provision) for Income Taxes..................... 0.0 0.0 0.5 0.2 0.8 ----- ----- ----- ------ ----- Net (Loss) Income................. (4.9)% 0.3% (8.1)% (15.2)% 1.4% ===== ===== ===== ====== =====
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues Total revenues for the twelve months ended December 31, 1998 increased by $8.029 million, or 16%, to $57.972 million from $49.943 million in 1997. Product Sales and Services Product sales and service revenues increased by $6.104 million, or 18%, to $39.747 million in 1998 from $33.642 million in 1997. The increase in revenues was primarily related to the Company's nationwide expansion of its videoconferencing business by opening new sales offices and hiring sales personnel. Agency Commissions Agency commissions for 1998 increased by $1.925 million, or 12%, to $18.226 million from $16.301 million in 1997. The increase in agency commissions was due primarily to the agency commissions generated by the Company's wholly-owned subsidiary, Network Services, Inc. ("NSI"), which was acquired in the fourth quarter of 1997. Costs and Expenses Costs of goods sold for 1998 increased by $3.682 million, or 15%, to $27.518 million from $23.836 million in 1997. Costs of goods sold as a percentage of product sales and service revenues decreased to 69.2% in 1998 from 70.9% in 1997. The percentage decrease in costs of goods sold is primarily related to an increase in service revenues and a slight increase in margin on equipment sales related to the Company's videoconferencing business due to efficiencies of scale. Service revenues generally provide a higher profit margin than equipment revenues. Selling and marketing expenses for 1998 increased by $2.844 million, or 16%, to $20.792 million from $17.948 million in 1997. Selling and marketing expenses as a percentage of revenues remained constant at 35.9% in 1998 and in 1997. The increase in selling and marketing expenses was primarily due to higher sales compensation as a result of hiring additional sales personnel and other operating expenses incurred as a result of the increased number of sales offices. 10 General and administrative expenses for 1998 increased by $0.094 million, or 1.2%, to $7.744 million from $7.649 million in 1997. General and administrative expenses as a percentage of total revenues decreased to 13.4% in 1998 from 15.3% in 1997. The percentage decrease was primarily due to synergies achieved as part of the integration and restructuring efforts. The Company recorded a restructuring charge of $4.201 million during 1998 which resulted in a decrease of income (loss) from operations of $2.793 million from income of $0.510 million in 1997 to a loss of $(2.283) million in 1998. The significant components of the restructuring charge were an impairment write-down of goodwill of $1.465 million, employee termination costs of $1.793 million and facility exit costs of $0.157 million. Interest expense increased by $160,590 to $527,593 in 1998 compared to $367,003 in 1997. This increase was primarily due to additional borrowings related to the Company's credit facilities and capital lease obligations. Net income decreased by $2.953 million to a loss of $(2.814) million in 1998 from net income of $138,627 for 1997. Net income (loss) as a percentage of revenues decreased to (4.9)% for 1998 compared to 0.3% for 1997. Net income (loss) per share decreased to a loss of $(0.40) for 1998 compared to income per share of $0.02 for 1997. The weighted average number of shares outstanding increased to 6,888,104 for 1998 from 6,371,651 in 1997, primarily due to the private placement completed in November 1998. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 (Unaudited) Revenues Total revenues for the twelve months ended December 31, 1997 increased $12.995 million, or 35.2%, to $49.943 million from $36.948 million in 1996. Product Sales and Services Product sales and service revenues increased by $8.821 million, or 35.5%, to $33.642 million in 1997 from $24.821 million in 1996. The increase in revenues was primarily related to the Company's nationwide expansion of its videoconferencing business. In addition, the Company benefited from a full 12 months of sales related to acquisitions made in July and August of 1996. Agency Commissions Agency commissions for 1997 increased by $4.174 million, or 34.4%, to $16.301 million from $12.127 million in 1996. The increase in agency commissions was due primarily to the Company growing its agency business in its Boston and New York offices. Costs and Expenses Costs of goods sold for 1997 increased by $5.465 million, or 29.7%, to $23.836 million from $18.371 million in 1996. Costs of goods sold as a percentage of product sales and service revenues decreased to 70.9% in 1997 from 74.0% in 1996. The percentage decrease in costs of goods sold is primarily related to a increase in service revenues and a slight increase in margin on equipment sales related to the Company's videoconferencing business due to efficiencies of scale. Service revenues generally provide a higher profit margin than equipment revenues. Selling and marketing expenses for 1997 increased by $4.674 million, or 35.2%, to $17.948 million from $13.274 million in 1996. Selling and marketing expenses as a percentage of revenues remained constant at 35.9% in 1997 and in 1996. The increase in selling and marketing expenses was primarily due to the sales personnel increase and facility rentals due to the increased number of sales offices. General and administrative expenses for 1997 increased by $2.068 million, or 37.1%, to $7.649 million from $5.581 million in 1996. General and administrative expenses as a percentage of total revenues increased to 15.3% in 1997 from 15.1% in 1996. The increase was primarily due to a general increase in such expenses as a result of the expansion of the Company's businesses. The Company incurred merger costs in 1996 of $2.564 million in connection with the Merger, which was consummated on November 29, 1996. Merger costs primarily included financial advisory, legal and accounting fees relating to the Merger. The Merger was accounted for under the pooling of interest method of accounting that requires the combined company to write off all transaction costs upon the consummation of such transaction. 11 Income (loss) from operations increased by $3.351 million, to income of $0.510 million in 1997 from a loss of $(2.841) million in 1996. The increase in income from operations related to one time merger costs of $2.564 million incurred in 1996 and increased income related to the overall increase in sales. Interest expense increased by $48,854 to $367,003 in 1997 compared to $318,149 in 1996. Provision for income tax expense increased by $176,946 to $4,512 in 1997 compared to a benefit of $172,434 for 1996. The increase in tax was due to the Company becoming profitable in 1997. Net income increased by $3.126 million to income of $0.139 million in 1997 from a net loss of $(2.987) million for 1996. Net income as a percentage of revenues increased to 0.3% for 1997 compared to (8.1)% for 1996. Net income per share increased to $.02 for 1997 compared to a loss per share of $(0.57) per share for 1996. The weighted average number of shares outstanding increased to 6,371,651 for 1997 from 5,262,238 in 1996 due to the issuance of shares in connection with the private placements. Liquidity and Capital Resources View Tech has financed its recent operations and expansion activities with the proceeds from private placements of equity securities, bank debt, and vendor credit arrangements. On November 10, 1998, the Company completed an offering of $1,200,000 of Common Stock. In November 1997, the Company entered into a $15 million Credit Agreement (the "Agreement") which provides for a maximum credit line of up to $15 million for a term of five (5) years with Imperial Bank. In December 1998, the maximum credit line was reduced to $10 million. Amounts outstanding under the agreement are collateralized by the assets of the Company. Funds available under the agreement will vary periodically depending on many variables including, without limitation, the amount of Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as such terms are defined in the Agreement. At December 31, 1998, $6.1 million was available under the Agreement of which $4.782 million was outstanding. Net cash used by operating activities for the year ended December 31, 1998 was $0.337 million, primarily caused by the Company's net loss of $(2.814) million and an increase in inventory of $(1.995) million, offset by non-cash charges related to depreciation and amortization of $2.994 million, increases in accrued restructuring charges and deferred revenue of $1.026 million and $0.853 million, respectively. Net cash used by investing activities for the year ended December 31, 1998 was $0.995 million primarily relating to the purchase of office furniture and computer equipment. At December 31, 1998, the Company does not have any other significant capital commitments. Net cash provided by financing activities for the year ended December 31, 1998 was $0.789 million, related to net repayments under the Company's line of credit of $0.124 million, repayments under capital lease obligations of $0.695 million, offset by the issuance of common stock of $1.608 million. The Company believes that its available funds will be sufficient to meet the Company's working capital requirements for at least the foreseeable future. The Company plans to finance its long-term capital needs with available borrowings and the cash flows from operations. To the extent that such funds are insufficient to finance the Company's activities, the Company may have to raise working capital through the issuance of additional equity or debt securities. There can be no assurance that additional financing will be available on acceptable terms. RISK FACTORS Future Financing Requirements The Company may require additional working capital in order to operate its business efficiently and to implement its internal expansion. The Company may seek to raise additional capital to meet such needs in either the form of a private placement of its securities and/or traditional bank financing, or a combination of both. There can be no assurance, however, that the Company will be able to raise any additional funds that may be necessary to meet its future capital needs or that such additional funds, if available, can be obtained on terms acceptable to the Company. The failure to raise additional capital, on terms acceptable to the Company, when and if needed, could force the Company to alter its business strategy and could have a material adverse effect on the Company's business, financial condition and results of operations. 12 Nasdaq National Market On August 18, 1998, the Company received a notice (the "Initial Notice") from Nasdaq that it did not meet the applicable listing requirements because it did not have $4,000,000 in net tangible assets and therefore its Common Stock was subject to delisting. On September 1, 1998, the Company responded to the Initial Notice and requested a temporary exception from Nasdaq's net tangible asset requirement. On September 14, 1998, the Company received a letter from Nasdaq denying this request and notifying the Company that the Common Stock would be delisted on September 21, 1998, unless the Company sought further procedural remedies. On September 16, 1998, the Company wrote Nasdaq to request an oral hearing to appeal the decision and a stay pending appeal. On October 14, 1998, Nasdaq notified the Company that Nasdaq had scheduled a hearing before a panel for November 13, 1998 to consider this matter. The Company had been advised that, should the hearing panel decide to delist the Common Stock, the Common Stock would cease to trade on the National Market System of the Nasdaq Stock Market pending further appeals, if any. Following an oral hearing on November 13, 1998 before the Nasdaq Qualifications Hearing Panel (the "Panel") the Company received letters from the Nasdaq on December 7, 11 and 30, 1998 (the "Nasdaq Correspondence"). The Nasdaq Correspondence confirmed that the Panel has determined to continue listing the Company's securities on the Nasdaq National Market provided the Company complies with the following exception: (i) The Company must make a public filing with the Securities and Exchange Commission (the "SEC") and Nasdaq, on or before December 23, 1998 evidencing a minimum of $4,000,000 in net tangible assets, containing a December 15, 1998 balance sheet with pro-forma adjustments for any significant events or transactions occurring on or before the filing date, (ii) The Company to make an additional public filing on or before February 1, 1999 with the SEC and Nasdaq evidencing profitability, on a net income basis, for the quarter ended December 31, 1998. In order to fully comply with the terms of the Nasdaq exception, the Company had to demonstrate compliance with all requirements for continued listing on the Nasdaq National Market. In accordance with the Nasdaq Correspondence, the Company filed its consolidated balance sheet as of December 15, 1998 on Form 8-K with the SEC and Nasdaq on December 22, 1998. On January 25, 1999 the Company filed an additional Form 8-K, which included the Company's consolidated balance sheet as of December 31, 1998 and 1997 and the consolidated statements of operations (unaudited) for the three months ended December 31, 1998 and 1997, respectively. In accordance with the Nasdaq Correspondence, the consolidated statement of operations for the quarter ended December 31, 1998 is evidence of the Company's profitability on a net income basis. On February 3, 1999, the Company received a letter from the Nasdaq stating that the Company had evidenced compliance will all requirements necessary for continued listing on the Nasdaq National Market and the Company had complied with the terms of the Nasdaq exception and therefore, the hearing file would be closed. In the event the Company does not comply with Nasdaq's continued listing requirements in the future, the Company's common stock could be delisted from the Nasdaq National Market System. Dependence upon Key Personnel The Company depends to a considerable degree on the continued services of certain of its executive officers, including William J. Shea, its chief executive officer, Franklin A. Reece III, its president and Ali Inanilan, its chief financial and administrative officer, as well as on a number of key personnel. Any further changes in current management, including but not limited to the loss of Messrs. Shea, Reece or Inanilan could have a material adverse affect on the Company. The loss of key management or technical personnel or the failure to attract and retain such personnel could have a material adverse effect on the Company's business, financial condition and results of operations. Limited History of Profitable Operations; Significant Fluctuations in Operating Results and Non-Recurring Items; Future Results of Operations View Tech and UST have operated since 1992 and 1987, respectively. Since November 29, 1996, the Company has operated on a combined basis. The Company reported net income (loss) of $712,613 and $(2,814,397), including restructuring costs, for the three months and twelve months ended December 31, 1998, respectively. The Company may continue to experience significant fluctuations in operating results as a result of a number of factors, including, without limitations, delays in product enhancements and new product introductions by its suppliers, commission rate cuts on 13 by Bell Atlantic and GTE, market acceptance of new products and services and reduction in demand for existing products and services as a result of introductions of new products and services by its competitors or by competitors of its suppliers. In addition, the Company's operating results may vary significantly depending on the mix of products and services comprising its revenues in any period. There can be no assurance that the Company will achieve revenue growth or will be profitable on a quarterly or annual basis in the future. Dependence on Suppliers, Including PictureTel, Bell Atlantic and GTE For the twelve months ended December 31, 1998, approximately 31% of the Company's consolidated revenues were attributable to the sale of equipment manufactured by PictureTel Corporation and an additional 31% of consolidated revenues to the sale of network products and services provided by Bell Atlantic and GTE. Termination of or change of the Company's business relationships with PictureTel, Bell Atlantic or GTE, disruption in supply, failure of PictureTel, Bell Atlantic or GTE to remain competitive in product quality, function or price or a determination by PictureTel, Bell Atlantic or GTE to reduce reliance on independent providers such as the Company, among other things, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is a party to agreements with PictureTel on the one hand, Bell Atlantic and GTE on the other, that authorize the Company to serve as a non-exclusive dealer and sales agent, respectively, in certain geographic territories. The PictureTel, Bell Atlantic and GTE agreements can be terminated without cause upon written notice by the suppliers, subject to certain notification requirements. There can be no assurance that these agreements will not be terminated, or that they will be renewed on terms acceptable to the Company. These suppliers have no affiliation with the Company and are competitors of the Company. In October 1998, Bell Atlantic announced a decrease in the commission rates paid to the Company effective January 1, 1999. Competition The video communications industry is highly competitive. The Company competes with manufacturers of video communications equipment, which include PictureTel, VTEL Corporation, Computer Telephone and Lucent Technologies, and their networks of dealers and distributors, telecommunications carriers and other large corporations, as well as other independent distributors. Other telecommunications carriers and other corporations that have entered the video communications market include, AT&T, MCI, some of the "RBOCs", Minnesota Mining & Manufacturing Corporation, Intel Corporation, Microsoft, Inc., Sony Corporation and British Telecom. Many of these organizations have substantially greater financial and other resources than the Company, furnish many of the same products and services provided by the Company and have established relationships with major corporate customers that have policies of purchasing directly from them. Management believes that as the demand for video communications systems continues to increase, additional competitors, many of which may have greater resources than the Company, may enter the video communications market. A specific manufacturer's network of dealers and distributors typically involves discrete territories that are defined geographically, in terms of vertical market, or by application (e.g., project management or government procurement). The current agreement with PictureTel authorizes the Company to distribute PictureTel products in the following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Massachusetts, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Tennessee, Texas, Utah, Vermont and Wyoming. Because the agreement is non-exclusive, however, the Company is subject to competition within these territories by other PictureTel dealers, whose customers elsewhere may have branch facilities in these territories, and by PictureTel itself, which directly markets its products to certain large national corporate accounts. The agreement expires on August 1, 2000 and can be terminated without cause upon 60 days' written notice by PictureTel. There can be no assurance that the agreement will not be terminated, or that it will be renewed by PictureTel, which has no other affiliation with the Company and is a competitor of the Company. While there are suppliers of video communications equipment other than PictureTel, termination of the Company's relationship with PictureTel could have a material adverse effect on the Company. The Company believes that customer purchase decisions are influenced by several factors, including cost of equipment and services, video communication system features, connectivity and compatibility, a system's capacity for expansion and upgrade, ease of use and services provided by a vendor. Management believes its comprehensive knowledge of the operations of the industries it has targeted, the quality of the equipment the Company sells, the quality and depth of its services, its nationwide presence and ability to provide its customers with all of the equipment and services necessary to ensure the successful implementation and utilization of its video communications systems enable the Company to compete successfully in the industry. The telecommunications industry is also highly competitive. The Company competes with many other companies in the telecommunications business which have substantially greater financial and other resources than 14 the Company, selling both the same and similar services. The Company's competitors in the sale of network services include RBOCs such as Bell South, Bell Atlantic, Southwestern Bell and GTE, long distance carriers such as AT&T Corporation, MCI Communications Corporation, SPRINT Corporation, other long distance and communications companies such as a Communications International Inc. and IXC Communications Inc., by-pass companies and other agents. There can be no assurance that the Company will be able to compete successfully against such companies. Year 2000 The Company has been engaged in its Year 2000 compliance efforts since 1998. In reviewing Year 2000 compliance issues, the Company has also become aware that issues of lack of date recognition may begin as early as "9-9-99" or September 9, 1999. In the Company's Form 10-Q filed on November 10, 1998, the Company anticipated completing its Year 2000 readiness by March 31, 1999. Based upon a subsequent replacement of the Company's Director of Information Services, and, the Company's continuing research into Y2K compliance issues, the Company is now revising its estimated date of completion of Y2K compliance. The Company does not anticipate it will complete its efforts to evaluate its Year 2000 readiness and remedy any Year 2000 non-compliance until the end of the third quarter of 1999. Y2K COMPLIANCE STEPS TO DATE: The Company has assembled an internal team to ensure its objectives of Year 2000 compliance are achieved. The Company's eight internal mission critical systems have been identified and reviewed for Y2K compliance. Of the eight, two were found to be non-compliant and one potentially non-compliant. Of the two non-compliant systems, one has been upgraded and is now believed to be Y2K compliant. The other system is being internally re-written to become compliant. The additional potentially non-compliant system is still being evaluated and will be upgraded, rewritten or replaced if found to be non-compliant. In addition, the Company has reviewed information received from its main suppliers or product manufacturers as to their Year 2000 compliance. The Company found that most of its main suppliers had some products, in the past, that were not compliant for the Year 2000, but that current products are compliant. For those products that are non-compliant, nearly every supplier, including PictureTel, VTel, PolyCom and others, is providing upgrades at no cost to the Company and the Company's customers. One exception is Madge Networks, which continues to charge for its Y2K compliance upgrades. The Company has been receiving, and responding to, customer requests for upgrades. As the Company moves throughout 1999, it is handling the customer service requests for upgrades, repairs or replacements as they arise. RISK FACTORS FACING THE COMPANY RELATING TO YEAR 2000 COMPLIANCE: The Company, as a reseller, is not in a position to test products manufactured by others because it does not have access to, or, knowledge of, supplier proprietary codes, and other information. The Company is relying on its suppliers' testing of products and component parts. The Company believes that if the Company's customers experience damages or injuries resulting from Y2K non-compliance caused by products sold by the Company to its customers, litigation against both the Company and the Company's supplier may result. In the event of such litigation, the Company believes the suppliers will ultimately by held responsible for the date recognition functionality of their products; however, the Company could incur liability and be requested to bear the cost and inconvenience of defending any such litigation. Should product failures occur, the Company may, also, be required to address the administrative aspects of those failures, such as facilitating product return and repairs. At this point, management is uncertain about the extent of the ultimate impact, if any, Year 2000 compliance issues will have upon the Company's operations and finances. Should the Company (1) face significant time constraints and service call costs in the event of customer complaints, due to the failure of products to recognize particular dates, or (2) becomes involved in a dispute with one or more of its suppliers over Year 2000 non-compliance, among other such scenarios, there may be a material adverse impact on the Company's operations and/or financial results. One cannot predict the magnitude of the impact because the magnitude of Y2K non-compliance is generally unknown. 15 YEAR 2000 COMPLIANCE COSTS: The Company has expended approximately $80,000 in Year 2000 compliance upgrades excluding costs attributable to time expended by the Company's own employees. The time expended by employees of the Company in connection with the Company's Y2K compliance effort has not resulted in any material adverse impact upon the Company's expenses or profitability. The Company, in its most recent analysis, anticipates it will expend approximately $263,000 to upgrade, repair or replace its systems. Most of the sum will be spent upgrading, repairing or replacing personal computers, printers and software. The Company has estimated its costs, material or otherwise, based upon management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. There can be no assurance that these estimates will be achieved, and actual results may vary from the estimates. Rapidly Changing Technology and Obsolescence The market for communications products and services is characterized by rapidly changing technology, evolving industry standards and the frequent introduction of new products and services. The Company's future performance will depend in significant part upon its ability to respond effectively to these developments. New products and services are generally characterized by improved quality and function and are frequently offered at lower prices than the products and services they are intended to replace. The introduction of products embodying new technologies and the emergence of new industry standards can render the Company's existing products and services obsolete, unmarketable or noncompetitive. The Company's ability to implement its growth strategies and remain competitive will depend upon its ability to successfully (i) maintain and develop relationships with manufacturers of new and enhanced products that include new technology, (ii) achieve levels of quality, functionality and price acceptability to the market, and (iii) maintain a high level of expertise relating to new products and the latest in communications systems technology. Control by Executive Officers and Directors As of March 19, 1999, the Company's officers and directors beneficially owned approximately 33.8% (assuming all options held by executive officers and directors are exercised) of the outstanding Common Stock of the Company. If the executive officers and directors act collectively, assuming they continue to own all their shares, there is a substantial likelihood that such holders will be able to elect all of the directors of the Company and to determine the outcome of all corporate actions requiring the approval of the holders of the majority of shares, such as mergers and acquisitions. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company maintains borrowings under a line of credit facility with Imperial Bank which are subject to fluctuations in market interest rates. There are no other material qualitative or quantitative market risks of the Company. 16 Item 8. Financial Statements and Supplementary Data VIEW TECH, INC. INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements
Reports of Independent Public Accountants.............................................. 18 Consolidated Balance Sheets as of December 31, 1998 and 1997........................... 20 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996, (unaudited) six months ended December 31, 1996, and the year ended June 30, 1996........................................................................ 21 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1998 and 1997, six months ended December 31, 1996 and the years ended June 30, 1996 and 1995........................................................................ 22 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996, six months ended December 31, 1996 and the year ended June 30, 1996........ 23 Notes to Consolidated Financial Statements............................................. 24
17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To View Tech, Inc.: We have audited the accompanying consolidated balance sheets of View Tech, Inc. and subsidiaries as of December 31, 1998 and 1997, and related consolidated statements of operations, stockholders' equity 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 financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 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 View Tech, Inc. as of December 31, 1998 and 1997, and the consolidated results of its operations and its consolidated cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts January 21, 1999 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of VIEW TECH, INC.: We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows for the year ended June 30, 1996 and the six months ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated statements of operations, stockholders' equity and cash flows for the year ended June 30, 1996 have been restated to reflect the pooling of interests as described in notes 1 and 3 of the consolidated financial statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated statements of operations, stockholders' equity and cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated statements of operations, stockholders' equity and cash flows. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated statements of operations, stockholders' equity and cash flows. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated statements of operations, stockholders' equity and cash flows referred to in the first paragraph present fairly, in all material respects, the results of operations and cash flows of View Tech, Inc. for the six months ended December 31, 1996 and for the year ended June 30, 1996, in conformity with generally accepted accounting principles. /s/ Carpenter Kuhen & Sprayberry Oxnard, California March 31, 1997 19 VIEW TECH, INC. CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------------ 1998 1997 ---------------- --------------- ASSETS CURRENT ASSETS: Cash $ 661,158 $ 1,204,690 Accounts receivable, net of reserves of $869,304 and $658,656, respectively 14,091,912 13,326,667 Inventory 4,410,166 2,532,456 Other current assets 544,860 428,889 ---------- ---------- Total Current Assets 19,708,096 17,492,702 PROPERTY AND EQUIPMENT, net 3,548,993 3,423,838 GOODWILL, net 2,300,064 4,198,927 OTHER ASSETS 688,365 696,701 ----------- ----------- $26,245,518 $25,812,168 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,669,229 $ 7,168,763 Current portion of long-term debt 336,193 661,290 Accrued payroll and related costs 2,348,421 1,904,506 Deferred revenue 1,940,579 1,087,161 Accrued restructuring costs 1,026,496 -- Other current liabilities 657,432 1,371,248 ----------- ----------- Total Current Liabilities 13,978,350 12,192,968 ----------- ----------- LONG-TERM DEBT 5,196,653 5,342,368 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, par value $.0001, authorized 5,000,000 shares, none issued or outstanding -- -- Common stock, par value $.0001, authorized 20,000,000 shares, issued and outstanding 7,722,277 and 6,589,571 shares at December 31, 1998 and 1997, respectively 772 659 Additional paid-in capital 15,261,591 13,653,624 Accumulated deficit (8,191,848) (5,377,451) ----------- ----------- 7,070,515 8,276,832 ----------- ----------- Total Stockholders' Equity $26,245,518 $25,812,168 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 20 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Years Ended Ended Year Ended December 31, December 31, June 30, -------------------------------------------- ----------- ----------- 1998 1997 1996 1996 1996 ------------ ------------ ----------- ----------- ----------- (Unaudited) Revenues: Product sales and service revenues $39,746,564 $33,642,166 $24,820,903 $13,330,608 $19,680,386 Agency commissions 18,225,574 16,300,988 12,127,329 6,547,974 11,313,350 ----------- ----------- ----------- ----------- ----------- 57,972,138 49,943,154 36,948,232 19,878,582 30,993,736 ----------- ----------- ----------- ----------- ----------- Costs and Expenses: Costs of goods sold 27,518,045 23,835,939 18,370,748 10,235,235 14,269,108 Sales and marketing expenses 20,792,084 17,947,552 13,274,260 7,045,024 10,670,921 General and administrative expenses 7,743,567 7,649,521 5,581,287 2,938,890 5,465,984 Restructuring and other costs 4,201,013 -- -- -- -- Merger costs -- -- 2,563,573 2,563,573 -- ----------- ----------- ----------- ----------- ----------- 60,254,709 49,433,012 39,789,868 22,782,722 30,406,013 ----------- ----------- ----------- ----------- ----------- Income (Loss) from Operations (2,282,571) 510,142 (2,841,636) (2,904,140) 587,723 Interest Expense 527,593 367,003 318,149 152,882 423,483 ----------- ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes (2,810,164) 143,139 (3,159,785) (3,057,022) 164,240 Benefit (Provision) for Income Taxes (4,233) (4,512) 172,434 39,804 259,816 ----------- ----------- ----------- ----------- ----------- Net Income (Loss) $(2,814,397) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056 =========== =========== =========== =========== =========== Earnings (Loss) per Share (Basic and Diluted) $ (0.41) $ 0.02 $ (0.57) $ (0.56) $ 0.07 =========== =========== =========== =========== =========== Shares used in computing earnings (loss) per Share Basic 6,888,104 6,371,651 5,262,238 5,400,785 5,040,731 =========== =========== =========== =========== =========== Diluted 6,888,104 6,793,521 5,262,238 5,400,785 5,676,304 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 21 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common stock Additional Total --------------------- Paid-In Accumulated Stockholders' Shares Amount Capital Deficit Equity --------- --------- ------------ ------------ -------------- Balance, June 30, 1995 3,069,976 $ 30,699 $ 6,295,282 $(2,922,916) $ 3,403,065 Shares issued under stock option plan 34,200 342 11,170 -- 11,512 Issuance of common stock 2,008,447 20,084 406,246 -- 426,330 Additional costs of initial public offering of common stock -- -- (43,430) -- (43,430) Net income -- -- -- 424,056 424,056 --------- -------- ----------- ----------- ----------- Balance, June 30, 1996 5,112,623 51,125 6,669,268 (2,498,860) 4,221,533 Change in par value of common stock to $0.0001 -- (50,613) 50,613 -- -- Issuance of common stock 533,138 53 3,100,519 -- 3,100,572 Shares issued under stock option plan 21,053 2 113,836 -- 113,838 Net loss -- -- -- (3,017,218) (3,017,218) --------- -------- ----------- ----------- ----------- Balance, December 31, 1996 5,666,814 567 9,934,236 (5,516,078) 4,418,725 Issuance of common stock 736,662 74 3,172,333 -- 3,172,407 Shares issued under stock option plan 113,648 11 56,914 -- 56,925 Shares issued in connection with exercise of warrants 72,447 7 364,853 -- 364,860 Issuance of warrants in connection with new banking relationship -- -- 125,288 -- 125,288 Net income -- -- -- 138,627 138,627 --------- -------- ----------- ----------- ----------- Balance, December 31, 1997 6,589,571 659 13,653,624 (5,377,451) 8,276,832 --------- -------- ----------- ----------- ----------- Issuance of common stock 985,872 98 1,554,973 -- 1,555,071 Shares issued under stock option plan 146,584 15 51,744 -- 51,759 Shares issued in connection with exercise of warrants 250 -- 1,250 -- 1,250 Net loss -- -- -- (2,814,397) (2,814,397) --------- -------- ----------- ----------- ----------- Balance, December 31, 1998 7,722,277 $ 772 $15,261,591 $(8,191,848) $ 7,070,515 ========= ======== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 22 VIEW TECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Year Years Ended Ended Ended December 31, December 31, June 30, ------------------------------------------- ------------- ------------ 1998 1997 1996 1996 1996 ------------ ------------ ------------- ------------- ------------ (Unaudited) Cash Flows from Operating Activities: Net income (loss) $(2,814,397) $ 138,627 $(2,987,351) $(3,017,218) $ 424,056 Adjustments to reconcile net income (loss) to net cash used in operating activities Depreciation and amortization 2,994,652 1,190,700 975,675 530,960 872,969 Non-cash merger expenses -- -- 340,689 340,689 -- Reserve on note receivable -- -- 265,000 -- 265,000 Changes in assets and liabilities net of effects of acquisitions Accounts receivable, net (765,245) (2,416,536) (3,911,179) (2,521,215) (2,276,340) Inventory (1,995,452) (464,461) (571,361) (314,473) (679,357) Other assets (177,665) (72,601) (55,369) 87,836 (617,359) Accounts payable 500,466 (788,494) 3,397,918 2,247,748 2,299,539 Accrued restructuring charges 1,026,496 -- -- -- -- Other accrued liabilities 894,086 1,057,433 1,417,880 1,647,700 (1,232,266) ----------- ----------- ----------- ----------- ----------- Net cash used in operating activities: (337,059) (1,355,332) (1,128,098) (997,973) (943,758) ----------- ----------- ----------- ----------- ----------- Cash Flows from Investing Activities: Purchase of property and equipment (995,807) (1,150,101) (795,727) (492,684) (865,496) Proceeds from sale of assets -- -- 14,937 14,937 Cash paid for business acquisitions -- (2,071,177) (155,163) (155,163) -- Issuance of notes receivable -- -- (265,000) -- (265,000) ----------- ----------- ----------- ----------- ----------- Net cash used in investing activities: (995,807) (3,221,278) (1,200,953) (632,910) (1,130,496) ----------- ----------- ----------- ----------- ----------- Cash Flows from Financing Activities: Net borrowings (payments) on line of credit (123,686) 2,867,120 4,786 (38,677) 43,473 Payments on long term debt (695,060) (770,439) (626,230) (786,483) (1,886,371) Issuance of common stock, net 1,608,080 3,319,480 1,365,873 1,355,983 394,412 ----------- ----------- ----------- ----------- ----------- Net cash provided (used) by financing activities: 789,334 5,416,161 744,429 530,823 (1,448,486) ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Cash (543,532) 839,551 (1,584,622) (1,100,060) (3,522,740) Cash, beginning of period 1,204,690 365,139 1,949,761 1,465,199 4,987,939 ----------- ----------- ----------- ----------- ----------- Cash, end of period $ 661,158 $ 1,204,690 $ 365,139 $ 365,139 $ 1,465,199 =========== =========== =========== =========== =========== Supplemental Disclosures: Operating activities reflect: Interest Paid $ 478,102 $ 352,808 $ 387,758 $ 191,342 $ 467,061 =========== =========== =========== =========== =========== Income Taxes paid $ 105,471 $ 7,640 $ 219,452 $ -- $ 375,480 =========== =========== =========== =========== ===========
See Note 16 for supplemental disclosure of non-cash items. The accompanying notes are an integral part of these consolidated financial statements. 23 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- THE BUSINESS - ---------------------- View Tech, Inc. (the "Company"), markets and installs video communications systems and provides continuing services related to installed systems to customers in select states throughout the United States. As a result of the merger of the Company with USTeleCenters, Inc. ("USTeleCenters") in November 1996, the Company designs, sells, and supports telecommunication systems solutions for small and medium-sized businesses throughout the United States and also sells telecommunication services on behalf of certain Regional Bell Operating Companies ("RBOCs"). This business combination with USTeleCenters was accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated for all periods prior to the business combination to include the results of operations, financial position, and cash flows of USTeleCenters. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------------------- Principles of Consolidation. The accompanying consolidated financial --------------------------- statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated. Change in Year End. During the six months ended December 31, 1996, the ------------------ Company changed its year end from June 30 to December 31. The unaudited financial information for the year ended December 31, 1996 is presented for comparative purposes and includes all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation. Revenue Recognition. The Company sells both products and services. Product ------------------- revenue consists of revenue from the sale of video communications and telephone equipment and is recognized at the time of shipment. Service revenue is derived from services rendered in connection with the sale of new systems and from services rendered with respect to previously installed systems. Services rendered in connection with the sale of new systems consist of engineering services related to system integration, installation, technical training, user training, and one-year parts-and-service warranty. The majority of these services are rendered at or prior to installation, and all of the revenue is recognized when services are rendered. Revenue related to extended warranty contracts is deferred and recognized over the life of the extended warranty period. The Company has agency agreements with various local exchange carriers and telecommunications companies whereby the Company receives commissions on work referred to these entities. The agreements are subject to annual renewals. The Company generally recognizes revenue when the installation or service is ordered from the local exchange carrier or telecommunication company and a reserve is recorded for cancellations. Certain of the entities have the right to credit or charge back future commission payments on orders canceled within a 6 to 10 month period from the date of order. The Company is not aware of any possible refunds or charge-backs that these entities might be seeking, which have not been reserved at December 31, 1998. In addition, under its agreement with Bell Atlantic, the Company receives commissions on management contracts. The Company recognizes these revenues at the time the service is rendered. Use of Estimates. The preparation of financial statements in conformity with ---------------- generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Per Share Data. Basic earnings (loss) per share is computed by dividing net -------------- income (loss) by the weighted average number of shares of common stock outstanding. Earnings per share - diluted is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding and the effect of potentially dilutive shares. 24 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and Cash Equivalents. The Company considers all highly liquid ------------------------- investments with a maturity not exceeding three months at the date of purchase to be cash equivalents. Inventories. Inventories are accounted for on the basis of the lower of cost ----------- or market. Cost is determined on a FIFO (first-in, first-out) basis. Included in inventory is demonstration equipment held for resale in the ordinary course of business. The Company generally sells its video demonstration equipment after the six month holding period required by its primary equipment supplier. Property and Equipment. Property and equipment are recorded at cost and ---------------------- include improvements that significantly add to utility or extend useful lives. Depreciation of property and equipment is provided using the straight-line and accelerated methods over estimated useful lives ranging from one to ten years. Expenditures for maintenance and repairs are charged to expense as incurred. Intangibles. Cost in excess of the fair value of net assets of purchased ----------- businesses (goodwill) is amortized using the straight line method over 15 years, its estimated useful life. The Company assesses the realizability of long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed of. SFAS No. 121 requires, among other things, that an entity review its long-lived assets including intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. During 1998, the Company recorded charges of approximately $1,465,000 relating to the impairment of goodwill which is included in the operating non-recurring charge in the consolidated statements of operations. Income Taxes. The Company accounts for income taxes using SFAS No. 109, ------------ Accounting for Income Taxes, which requires a liability approach to financial accounting and reporting for income taxes. Deferred taxes are recognized for timing differences between the basis of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Concentration of Risk. Items that potentially subject the Company to --------------------- concentrations of credit risk consist primarily of accounts receivable, cash and investments, and the dependence on a major equipment vendor. Accounts receivable subject the Company to potential credit risk with customers in the telecommunications industry. The Company performs on-going credit evaluations of its customers' financial condition but does not require collateral. The company maintains its accounts with highly rated financial institutions. Approximately 31% of the Company's revenues are attributable to the sale of equipment manufactured by PictureTel and approximately 31% of revenues are attributable to the sale of network products and services provided by Bell Atlantic and GTE. Termination or change of the Company's business relationship with PictureTel, Bell Atlantic and/or GTE, disruption in supply, failure of these suppliers to remain competitive in quality, function or price, or a determination by such suppliers to reduce reliance on independent distributors such as the Company could have a materially adverse effect on the Company. Reclassifications. Certain prior year balances have been reclassified in ----------------- order to conform to the current year presentation. NOTE 3 -- BUSINESS COMBINATION - ------------------------------ On November 29, 1996, the Company acquired USTeleCenters, which is an authorized sales agent for several of the RBOCs. The transaction was accounted for as a pooling of interests in which USTeleCenters' shareholders exchanged all of their outstanding shares and options for View Tech common stock and options, respectively. USTeleCenters' shareholders and optionholders (upon exercise of their options) received 2,240,976 shares of View Tech common stock and options to purchase 184,003 shares of View Tech common stock. The value of the transaction was approximately $16.5 million. In connection with the acquisition, the Company issued 24,550 shares in January, 1997 to certain investment bankers. 25 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 -- ACQUISITIONS - ---------------------- Vermont Telecommunications Network Services, Inc. - ------------------------------------------------- On November 13, 1997, the Company, through its wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications Network Services, Inc. ("VTNSI") a Vermont corporation. Pursuant to the terms of the Asset Purchase Agreement, the Company acquired ownership of the assets and assumed certain liabilities of VTNSI, effective November 1, 1997. The aggregate purchase price for the net assets of VTNSI consisted of (i) $2,000,000 cash paid at the closing, (ii) a promissory note in the original amount of $250,000, bearing interest at the rate of 8% per annum subsequently paid in full on November 21, 1998, (iii) a contingent note in the original amount of $250,000, bearing interest at the rate of 8% per annum and payable in full on November 21, 1999, and (iv) $400,000 paid by the issuance of 62,112 shares of the Company's common stock. The contingent note in the amount of $250,000 is due only if Network Services, Inc. ("NSI"), the surviving company following the acquisition of VTNSI, achieves EBIT, as defined, equal to or greater than $700,000 for the year ended December 31, 1998. In addition, View Tech is required to pay an additional amount equal to 40% of NSI's EBIT, as defined, in excess of $900,000 per calendar year commencing January 1, 1998 and ending December 31, 2000. At present, the calculation of NSI'S EBIT for the year ended December 31, 1998, has not been conclusively determined under the Agreement. The cash portion of the purchase price of $2,000,000 was paid utilizing the Company's bank line of credit. The excess of the acquisition price over the net assets acquired of approximately $2,708,000 was accounted for as goodwill and is being amortized over 15 years. VTNSI, based in Burlington, Vermont, was an authorized agent selling Bell Atlantic services in Vermont, New Hampshire, upstate New York and western Massachusetts. The acquisition has been accounted for as a purchase transaction and, accordingly, the accompanying financial statements include the accounts and transactions of VTNSI since the acquisition date. The following unaudited supplemental financial information is provided on a proforma basis as if the acquisition occurred on January 1, 1997:
Year ended December 31, -------------------------- 1997 ----------- (Unaudited) Revenues $51,888,000 =========== Income (loss) from operations $ 645,000 =========== Net income (loss) $ 172,000 =========== Earnings (loss) per share (Basic and Diluted) $ 0.03 ===========
During 1996, the company completed two acquisitions which were accounted for as purchase transactions. The company recorded goodwill of $339,000 and $1,330,000 related to these acquisitions. During 1998, the company determined there were no future expected cash flows from these acquisitions and recorded an impairment writedown of the remaining unamortized balance of the goodwill of $1,465,000 as part of the restructuring and other costs NOTE 5 -- Restructuring and Other Costs - --------------------------------------- During 1998, the Company recorded a restructuring and asset impairment charge of $4.2 million. The significant components of the restructuring charge are as follows: Impairment write-down of goodwill related to previous acquisitions... $1,465,000 Employee termination costs........................................... 1,793,000 Facility exit costs.................................................. 157,000 Write-down of Plant, Property and Equipment.......................... 27,000 Travel related expenses.............................................. 140,000 Consulting expenses.................................................. 322,000 Other costs.......................................................... 297,013 ---------- $4,201,013 ==========
The impairment write-down of goodwill relates to the Company's determination that there was no future expected cash flows from two acquisitions which represented $1,465,000 of goodwill. The employee termination costs relate to approximately 33 employees and officers of the Company. The Company closed one of its outside network sales offices. The Company also terminated its internet service provider reseller agreement. In connection with these decisions, the Company recorded employee termination and facility exit related expenses, and a write-down of the leasehold improvements. In addition, the Company's decision to eliminate duplicative corporate overhead functions resulted in employee termination and travel related expenses. The Company utilized the services of consultants in connection with the plan of restructuring. The total cash impact of the restructuring amounted to $2,709,621 of which $1,026,496 is included in the accompanying balance sheet at December 31, 1998. The Company anticipates the balance of the restructuring costs will be paid by February 29, 2000. 26 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity against the restructuring charge: Restructuring Charge................................... $ 4,201,013 Cash Paid............................................. (1,680,332) Non-Cash Expenses..................................... (1,494,185) ----------- Balance, December 31, 1998 $ 1,026,496 ===========
NOTE 6 -- INVENTORY - ------------------- Inventories are summarized as follows:
December 31, -------------------------- 1998 1997 ----------- ----------- Demonstration equipment................................ $ 1,664,031 $ 1,011,277 Finished goods......................................... 2,537,458 1,079,738 Spare parts............................................ 208,677 441,441 ----------- ----------- $ 4,410,166 $ 2,532,456 =========== ===========
NOTE 7 -- PROPERTY AND EQUIPMENT, NET - ------------------------------------- Property and equipment are summarized as follows:
December 31, -------------------------- 1998 1997 ----------- ----------- Computer equipment and software........................ $ 3,392,416 $ 2,824,760 Equipment.............................................. 2,041,331 1,864,384 Furniture and fixtures................................. 2,452,347 2,405,757 Leasehold improvements................................. 713,790 637,460 ----------- ----------- 8,599,884 7,732,361 Less accumulated depreciation.......................... (5,050,891) (4,308,523) ----------- ----------- $ 3,548,993 $ 3,423,838 =========== ===========
Property and equipment under capital lease obligations, net of accumulated amortization, at December 31, 1998 and 1997 were $541,669 and $738,378, respectively. NOTE 8 -- LINES OF CREDIT - ------------------------- View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15 million Credit Agreement (the "Agreement") with a bank effective November 21, 1997. The Agreement provides for three separate loan commitments consisting of (i) a Facility A Commitment of up to $7 million; (ii) a Facility B Commitment of up to $5 million and (iii) a Facility C Commitment of up to $3 million. The Facility B Commitment expired on December 1, 1998. Amounts under the Agreement are collateralized by the assets of the Company. Funds available under the Agreement will vary from time to time depending on many variables including, without limitation, the amount of Eligible Trade Accounts Receivable and Eligible Inventory of the Company, as such terms are defined in the Agreement. At December 31, 1998, the funds available under the Agreement were approximately $6,100,000. The interest charged on outstanding amounts vary between the Prime Rate, plus the Prime Margin, or between the Eurodollar Rate, plus the Eurodollar Rate Margin, depending on the Company's Leverage Ratio as defined in the Agreement. At December 31, 1998, the interest rate on this Facility was 8.25%. The weighted average interest rate on the line of credit for the year ended December 31, 1998 was 9.0%. The Agreement requires the Company to comply with various financial and operating loan covenants. As of December 31, 1998, the Company was in compliance with these covenants. Under certain conditions, the Agreement allows the Company to prepay principal amounts outstanding without penalty. 27 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All outstanding amounts are under Facility A and are due and payable no later than November 21, 2002. Amounts outstanding under the Facility C Commitment are subject to mandatory repayments in twelve (12) equal quarterly installments commencing on March 31, 2000. All amounts outstanding under each such Facility are due and payable no later than November 21, 2002. At December 31, 1998, amounts utilized under the Facilities were $4,782,171. This amount is classified as long-term debt. In connection with the Agreement, the Company issued Common Stock Purchase Warrants for the purchase of 80,000 shares of the Company's Common Stock by the lenders. The warrants are exercisable until November 21, 2004. In accordance with an amendment to the Agreement, on October 14, 1998 the Company adjusted the purchase price of the warrants to $4.50 per share. The Company determined the valuation of these warrants using the Black-Scholes option pricing model was not material. NOTE 9 -- LONG TERM DEBT - ------------------------ Long-term debt consists of the following:
December 31, ----------------------- 1998 1997 ---------- ---------- Line of credit (Note 8)........................ $4,782,171 $4,905,857 Capital lease obligations...................... 640,105 844,038 Other.......................................... 110,570 3,763 Note payable - former VTNSI owner.............. -- 250,000 ---------- ---------- 5,532,846 6,003,658 Less current maturities........................ 336,193 661,290 ---------- ---------- $5,196,653 $5,342,368 ========== ==========
Capital Lease Obligations - ------------------------- The Company leases certain equipment and furniture under capital lease arrangements. The following is a schedule of future minimum lease payments required under capital leases, together with their present value as of December 31, 1998
Years Ending December 31, ------------------------- 1999........................................... $473,185 2000........................................... 204,629 2001........................................... 88,436 2002........................................... 43,137 2003 and thereafter............................ 15,979 -------- Net minimum lease payments..................... 825,366 Less amount representing interest.............. 185,261 -------- Present value of net minimum lease payments.... $640,105 ========
The current portion due under capital lease obligations at December 31, 1998 and 1997 was $336,193 and $407,527, respectively. Note Payable to former VTNSI owner - ---------------------------------- In connection with the Company's acquisition of VTNSI, part of the purchase price consisted of a promissory note in the original amount of $250,000, bearing interest at the rate of 8% per annum which was paid in full on November 21, 1998. 28 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 -- COMMITMENTS AND CONTINGENCIES - ---------------------------------------- The Company leases various facilities under operating leases expiring through 2003. Certain leases require the Company to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Lease payments for the years ended December 31, 1998, 1997 and 1996 and the six months ended December 31, 1996 and the year ended June 30, 1996, were approximately $1,699,000 and $1,473,000, $1,106,000, $553,000 and $1,160,000 respectively. Minimum future rental commitments under non cancelable operating leases are as follows:
Years Ending December 31, ------------------------- 1999.................................. $1,525,457 2000.................................. 1,163,413 2001.................................. 960,332 2002.................................. 323,524 2003 and thereafter................... 9,362 ---------- $3,982,088 ==========
The Company has received rent concessions during the first year of certain leases, which are being deferred and amortized over the term of the lease. The Company has been named in employee related lawsuits. The Company is vigorously defending itself against such matters and does not expect the outcome to have a material adverse impact on its financial position. NOTE 11 -- COMMON AND PREFERRED STOCK - ------------------------------------- Common Stock. In November 1996, the Company increased the number of shares ------------ of common stock authorized for issuance from 10,000,000 to 20,000,000 and changed the par value of its stock from $0.01 to $0.0001 per share. Warrants and Options. Included in the public stock offering in June 1995, -------------------- was the sale of 575,000 warrants to the public. All warrants were exercisable at $5.00 per share for a period of two years commencing one year after the effective date of the registration statement. All unexercised warrants expired on June 15, 1998. Upon consummation of the public offering, the Company issued the underwriter 120,000 warrants to purchase common stock of the Company at an exercise price of $6.75 or 135% of the public offering price per share. Such warrants may be exercised at any time during the period of five years commencing June 15, 1995. In addition, the Company issued the underwriters 50,000 warrants at an exercise price of $6.918 per warrant or 135 % of the public offering price. Each warrant is exercisable into one share of common stock at a price of $6.75 per share for a three- year period commencing on June 15, 1995, such warrants expired on June 15, 1998. At December 31, 1998, the Company had outstanding an aggregate of 55,000 options primarily to consultants and advisors to the Company. The options were issued at a market price of $7.00 per share. In connection with the Company's credit agreement, the Company issued common stock warrants for the purchase of 80,000 shares of the Company's common stock. During 1998, the exercise price of the warrants was reduced to $4.50 per share. The warrants are exercisable until November 21, 2004. Private Offerings. In the first quarter of 1997, the Company completed a ----------------- private placement with Telcom Holding, LLC, a Massachusetts limited liability company ("Telcom") formed by The O'Brien Group, Inc., a Massachusetts corporation. Telcom purchased (i) 650,000 shares of Common Stock and (ii) Common Stock Purchase Warrants exercisable at $6.50 per share of the Company to purchase up to 325,000 shares of Common Stock, at a price of $4.40 per unit. The Company issued additional Common Stock Purchase Warrants to certain managing members of Telcom for the purchase of 162,500 shares of Common Stock at a purchase price per share of $6.50. 29 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On August 18, 1998, the Company received a notice (the "Initial Notice") from Nasdaq that it did not meet the applicable listing requirements as of June 30, 1998 because it did not have $4,000,000 in net tangible assets and therefore its Common Stock was subject to delisting. The Company sought immediate action to rectify this situation through the private placement of 826,668 shares of the Company's Common Stock to accredited investors. The offering was completed on November 10, 1998 and raised $1.2 million. Preferred Stock. As of December 31, 1998, the Company had 5,000,000 shares of --------------- authorized Preferred Stock. In November 1996, the Company changed the par value of the preferred stock from $0.01 to $0.0001 per share. The Preferred Stock may be issued in one or more series with such rights and preferences as may be determined by the Board of Directors. No shares of preferred stock have been issued. Employee Stock Purchase Plan. The Company has an Employee Stock Purchase ---------------------------- Plan (the "Purchase Plan") under which a maximum of 500,000 shares of Common Stock, (pursuant to the Amendment of the Purchase Plan approved by the Board of Directors of June 3, 1998), may be purchased by eligible employees. Substantially all full-time employees of the Company are eligible to participate in the Purchase Plan. Shares are purchased through accumulation of payroll deductions (of not less than 1% nor more than 10% of the employees compensation, as defined not to exceed 2,000 shares per purchase period) for the number of whole shares, determined by dividing the balance in the employee's account by the purchase price per share which is equal to 85% of the fair market value of the Common Stock, as defined. During 1998, 159,204 shares were purchased under the Purchase Plan. Stock Option Plan. In July 1994, the Company began granting stock options to ----------------- key employees, consultants and certain non-employee directors. The options are intended to provide incentive for such persons' service and future services to the Company thereby promoting the interest of the Company and its stockholders. The Company currently maintains five stock option plans which generally require the exercise price of options to be not less than the estimated fair market value of the stock at the date of grant. Options vest over a maximum period of four years and may be exercised in varying amounts over their respective terms. In accordance with the provisions of such plans, all outstanding options become immediately exercisable upon a change in control, as defined, of the Company. The Company has authorized an aggregate of 1,922,000 shares of common stock to be available under the option plans. On October 20, 1998, the Company's Board of Directors authorized the repricing of certain options previously issued to employees. Activity in the plans on a consolidated basis is summarized as follows:
Number of Wtd. Avg. Exercise Shares Price per Share Price --------- --------------- -------- Options Outstanding, June 30, 1995........ 383,347 $ .250 - 8.970 $1.88 Granted............. 682,503 .290 - 7.750 4.94 Exercised........... (34,300) .250 - .375 0.34 Canceled............ (25,445) .250 - 8.970 5.70 --------- -------------- ----- Options Outstanding, June 30, 1996........ 1,006,105 .250 - 7.750 3.96 Granted............. 46,000 6.250 - 7.000 6.78 Exercised........... (2,500) .250 - 5.000 2.15 Canceled............ (8,000) .250 - 6.375 4.13 --------- -------------- ----- Options Outstanding, December 31, 1996.... 1,041,605 .250 - 7.250 4.09 Granted............. 617,500 3.000 - 5.812 3.21 Exercised........... (113,535) .250 - 6.250 0.50 Canceled............ (154,500) 5.812 - 7.625 6.80 --------- -------------- ----- Options Outstanding, December 31, 1997.... 1,391,070 .250 - 7.625 3.69 Granted............. 669,960 2.250 - 4.940 2.91 Exercised........... (146,584) .250 - 5.000 0.35 Canceled............ (481,130) 3.000 - 7.630 4.83 --------- -------------- ----- Options Outstanding, December 31, 1998.... 1,433,316 $ .250 - 7.630 $3.21 ========= ============== =====
30 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1998, 826,470 options were exercisable at a weighted average exercise price of $3.62 per share. The options outstanding at December 31, 1998 have a weighted average remaining contractual life of 8.34 years. The range of exercise prices for options outstanding and options exercisable at December 31, 1998 are as follows:
Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------------------------- Weighted Average Remaining Contractual Range of Exercise Options Life Average Options Average Price Outstanding (Years) Exercise Price Exercisable Exercise Price ----------------- ----------- --------- -------------- ----------- -------------- $0.2500 - $2.2500 262,186 6.62 $1.2318 137,186 $0.30 $2.3750 - $2.3750 200,000 10.00 $2.3750 50,000 $2.38 $2.5000 - $2.5000 226,260 9.96 $2.5000 186,210 $2.50 $2.6880 - $2.8750 33,000 9.80 $2.7333 -- $0.00 $3.0000 - $3.0000 354,470 8.57 $3.0000 123,174 $3.00 $3.0620 - $6.2500 111,400 7.80 $4.2817 83,900 $4.68 $6.3750 - $6.3750 140,000 7.46 $6.3750 140,000 $6.38 $6.6250 - $6.6250 100,000 6.54 $6.6250 100,000 $6.63 $7.5000 - $7.5000 4,000 6.87 $7.5000 4,000 $7.50 $7.6250 - $7.6250 2,000 6.86 $7.6250 2,000 $7.63 ----------------- --------- ----- ------- ------- ------- $0.2500 - $7.6250 1,433,316 8.34 $3.2055 826,470 $3.62
The Company applies APB Opinion 25 in accounting for its stock option plan. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings (loss) per share would have been reduced to the pro forma amounts indicated below.
Six Months Ended Year Ended Years Ended December 31, December 31, June 30, -------------------------- ---------------- ----------- 1998 1997 1996 1996 ---------- ----------- ---------------- ----------- Net income (loss): As reported $(2,814,397) $ 138,627 $(3,017,218) $ 424,056 Pro forma (3,164,942) (8,531) (3,093,281) (608,563) Earnings (loss) per share: As reported $ (0.41) $ 0.02 $ (0.56) $ 0.07 (Basic and Diluted) Pro forma (0.46) (0.00) (0.57) (0.11)
The weighted average fair value at the date of grant for options granted during the years ended December 31, 1998, 1997 and 1996, was $2.91, $4.83 and $2.16, respectively. The fair value of options at the grant date was estimated using the Black-Scholes option pricing model with following weighted average assumptions: expected life - 2.2 years; volatility - 26.36%; dividend yield - 0%; interest rate - 5.25%. NOTE 12 - EARNINGS (LOSS) PER SHARE - ----------------------------------- In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, Earnings Per Share. This statement established standards for computing and presenting earnings per share and applies to entities with publicly traded common stock or potential common stock. Prior years earnings per share have been restated to reflect the adoption of SFAS No. 128. 31 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basic earnings (loss) per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income by the diluted weighted average number of common and potentially dilutive shares outstanding during the period. The weighted average number of potentially dilutive shares has been determined in accordance with the treasury stock method. The reconciliation of basic and diluted shares outstanding is as follows:
Six Months Year Ended Ended Years Ended December 31, December 31, June 30, ----------------------------------- ------------ --------- 1998 1997 1996 1996 1996 --------- --------- ----------- ------------ --------- (Unaudited) Weighted average shares outstanding 6,888,104 6,371,651 5,262,238 5,400,785 5,040,731 Dilutive effect of options and warrants -- 421,870 -- -- 635,573 --------- --------- --------- --------- --------- Weighted average shares outstanding including dilutive effect of securities 6,888,104 6,793,521 5,262,238 5,400,785 5,676,304 ========= ========= ========= ========= =========
Options and warrants to purchase 2,334,316, 2,222,056, 939,860, 1,094,818 and 690,105 shares of common stock were outstanding during the years ended December 31, 1998, 1997 and 1996, six months ended December 31, 1996 and the year ended June 30, 1996, respectively, but were not included in the computation of diluted EPS because the options' exercise price was either greater than the average market price of the common stock or the Company reported a net operating loss and their effect would have been antidilutive. NOTE 13 -- PENSION PLAN - ------------------------ The Company participates in 401(k) retirement plans for its employees. Employer contributions to the 401(k) plans for the years ended December 31, 1998, 1997 and 1996, and the six months ended December 31, 1996, and for the year ended June 30, 1996 were approximately $114,000, $114,000, $74,000, $37,000, and $67,000, respectively. NOTE 14 -- BENEFIT (PROVISION) FOR INCOME TAXES - ------------------------------------------------ Total income tax expense differs from the expected tax expense (computed by multiplying the federal statutory income tax rate of approximately 35 percent for the periods ended December 31, 1998, 1997 and the six months ended December 31, 1996, and the year ended June 30, 1996 to income before income taxes) as a result of the following:
Six Months Ended Year Ended Years Ended December 31, December 31, June 30, --------------------------------------------- ------------- ------------- 1998 1997 1996 1996 1996 --------------- ------------- ------------ ------------ ------------- Computed "expected" tax (expense) benefit............ $ 983,557 $ (50,099) $ 1,045,573 1,069,957 $(57,484) State tax expense, net of federal benefit............ 164,395 (8,588) 174,760 184,797 (9,608) S corporation tax differential....................... -- -- 156,820 117,580 424,346 Valuation allowance.................................. (995,778) 2,911 (1,370,163) (1,370,163) -- Utilization, net operating losses.................... -- 51,264 -- -- -- Other, net........................................... (156,407) -- 165,444 37,633 (97,438) ----------- --------- ----------- ----------- -------- $ (4,233) $ (4,512) $ 172,434 $ 39,804 $259,816 =========== ========= =========== =========== ========
The company has recorded a valuation allowance against a portion of its deferred tax asset. The valuation allowance relates primarily to certain deferred tax assets for which realization is uncertain. The primary components of temporary differences which give rise to deferred taxes are as follows:
Years Ended December 31, ---------------------------- 1998 1997 ----------- --------- Deferred tax asset: Reserves and allowances....... $ 472,348 79,309 Net operating loss carryforward................... 677,551 589,476 Goodwill.......................................... 587,959 -- Deferred tax valuation allowance.................. (1,361,382) (365,604) ----------- --------- $ 376,476 $ 303,181 =========== =========
Goodwill represents the benefit attributed to the difference between the company's book and tax basis of the goodwill impairment charge discussed in Note 4. 32 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1998, the Company has operating loss (NOL) carryforwards of approximately $1,650,000 and $1,250,000 for federal and state income tax purposes, respectively. The federal NOL has a carryover period of 20 years and is available to offset future taxable income, if any, through 2011, and may be subject to an annual statutory limitation. NOTE 15 -- SEGMENT INFORMATION - ------------------------------ In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131, requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The Company manages its business units utilizing net margin before allocation of corporate overhead. The Company's operations are classified into three principal reportable industry segments: (a) video product sales and service which involves the marketing and installation of video communications systems providing continuing services related to installed systems, (b) telesales which involves telemarketing telecommunications services on behalf of certain RBOCs and exchange carriers for an agency commission, and (c) outside network sales which involves face to face marketing of more expensive and technologically advanced telecommunications services for an agency commission and marketing telecommunications equipment and installation to a larger customer than that of the telesales segment. Substantially all of the Company's revenues and all identifiable assets are generated in the United States.
Video Product Outside December 31, 1998 Sales & Service Telesales Network Combined --------------- ----------- ----------- ------------- Total Revenue.............................. $37,232,150 $9,530,444 $11,209,544 $ 57,972,138 ============ Operating profit........................... 4,948,940 3,390,035 1,323,034 9,662,009 General corporate expenses................. (11,944,580) Interest expense........................... (527,593) ------------ Income (loss) from continuing operations before income taxes...................... $ (2,810,164) ============ Identifiable assets at December 31, 1998... 15,414,841 2,114,790 2,107,401 19,637,032 Corporate assets........................... 6,608,486 ------------ Total assets at December 31, 1998.......... $ 26,245,518 ============ December 31, 1997 Total Revenue.............................. $31,012,848 $8,571,789 10,358,517 $ 49,943,154 ============ Operating profit........................... 3,707,275 2,918,385 1,463,377 8,089,037 General corporate expenses................. (7,578,895) Interest expense........................... (367,003) ------------ Income (loss) from continuing operations before income taxes...................... $ 143,139 ============ Identifiable assets at December 31, 1997... 11,631,218 2,326,108 2,926,630 16,883,956 Corporate assets........................... 8,928,212 ------------ Total Assets at December 31, 1997.......... $ 25,812,168 ============ December 31, 1996 (Six months ended) Total Revenue.............................. $10,606,591 $3,922,591 5,349,300 $ 19,878,482 ============ Operating profit........................... 1,648,411 1,573,000 200,377 3,421,788 General corporate expenses................. (6,325,928) Interest expense........................... (152,882) ------------ Income (loss) from continuing operations before income taxes...................... $ (3,057,022) ============ Identifiable assets at December 31, 1996... 8,384,886 2,161,607 3,334,032 13,880,525 Corporate assets........................... 4,640,083 ------------ Total assets at December 31, 1996.......... $ 18,520,608 ============
33 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Video Product Outside June 30, 1996 (Year ended) Sales & Service Telesales Network Combined ---------------- ------------- ------------- ------------- Total Revenue................................... $ 13,346,103 $ 5,451,733 $ 12,195,900 $ 30,993,736 ============= Operating profit................................ 2,596,555 1,633,952 1,823,200 6,053,707 General corporate expenses...................... (5,465,984) Interest expense................................ (423,483) ------------- Income (loss) from continuing operations before income taxes........................... $ 164,240 ============= Identifiable assets at June 30, 1996............ 6,016,333 1,462,067 2,521,315 9,999,715 Corporate assets................................ 4,841,374 ------------- Total assets at June 30, 1996................... $ 14,841,089 =============
NOTE 16 -- SUPPLEMENTAL DISCLOSURES-CASH FLOW INFORMATION - ---------------------------------------------------------
Six Years Ended Months Ended Year Ended December 31, December 31, June 30, ------------------------------------------- ----------- ------------ 1998 1997 1996 1996 1996 ----------- ---------- ----------- ----------- ------------ (unaudited) Schedule of non-cash transactions: Non-cash investing and financing transactions- Cost of fixed assets purchased....................... $ 1,350,913 $1,493,564 $ 811,464 $ 508,421 $ 1,260,935 Less lease financing................................. (117,742) (343,463) (15,737) (15,737) (395,439) Less transfers from inventory........................ (237,364) -- -- -- -- ----------- ---------- ----------- ----------- ----------- Cash paid for fixed assets........................... $ 995,807 $1,150,101 $ 795,727 $ 492,684 $ 865,496 =========== ========== =========== =========== =========== Cost of acquisitions................................. $ -- $2,721,177 1,575,163 $ 1,575,163 $ -- Less common stock and notes issued................... -- (650,000) (1,420,000) (1,420,000) -- ----------- ---------- ----------- ----------- ----------- Cash paid for acquisitions........................... $ -- $2,071,177 $ 155,163 $ 155,163 $ -- =========== ========== =========== =========== ===========
During the year ended June 30, 1996, the Company converted approximately $700,000 of accounts payable to a vendor into a term note. NOTE 17 -- RELATED PARTY TRANSACTIONS - -------------------------------------- In October, 1997, the Company purchased five (5) videoconferencing systems from the former CEO and Director of the Company, for a purchase price of $162,500. The price the Company paid for these units was less than the wholesale price that the Company would otherwise pay for the same units. The units were subsequently sold by the Company at a profit. 34 VIEW TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - ---------------------------------------------------------
Additions Deductions Balance at Charged to Accounts Balance Beginning Revenues and Charged at End of Period Expenses Off of Period ------------------- ------------------- ------------------- -------------------- Allowance for doubtful accounts: Year ended -- June 30, 1996...................... $728,000 $2,300,440 $2,808,258 $220,182 Six months ended -- December 31, 1996.................. 220,182 2,277,423 2,017,831 479,774 Years ended -- December 31, 1997.................. 479,774 3,542,801 3,363,919 658,656 December 31, 1998.................. 658,656 4,854,435 4,643,787 869,304
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 35 PART III Item 10. Directors and Executive Officers of the Registrant The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1998, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 15, 1999. Item 11. Executive Compensation The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1998, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 15, 1999. Item 12. Security Ownership of Certain Beneficial Owners and Management The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1998, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 15, 1999. Item 13. Certain Relationships and Related Transactions The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 1998, which Proxy Statement will be filed with the Securities and Exchange Commission on or about April 15, 1999. 36 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) List of documents filed as part of this Report: (1) Financial Statements included in Item 8: Reports of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996, six months ended December 31, 1996 and the year ended June 30, 1996 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997, and the six months ended December 31, 1996 and the year ended June 30, 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996, six months ended December 31, 1996 and the year ended June 30, 1996 Notes to Consolidated Financial Statements No other schedules are included because the required information is inapplicable or is presented in the consolidated financial statements or related notes thereto. (2) Exhibits The exhibits listed on the accompanying Index of Exhibits are filed as part of this Annual Report. (b) Reports on Form 8-K. - - Current report on Form 8-K, dated December 22, 1998, presenting the Consolidated Balance Sheets as of December 15, 1998 (Unaudited) and December 31, 1997, in connection with the Company's compliance with the Nasdaq's net tangible asset requirement. - - Current report on Form 8-KA, dated December 23, 1998, amending the Form 8-K filed on December 22, 1998. - - Current report on Form 8-K, dated January 25, 1999, presenting the Consolidated Balance Sheets as of December 31, 1998 and 1997 and the Consolidated Statements of Operations for the quarters ended December 31, 1998 and 1997 (Unaudited), in connection with the Company's compliance with Nasdaq's net tangible asset requirement and the Nasdaq exception. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. View Tech, Inc. ------------------------------ (Registrant) Date: March 30, 1999 By: /s/ Ali Inanilan -------------- --------------------------- Ali Inanilan, Chief Financial and Administrative Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Paul C. O'Brien Chairman March 30, 1999 - --------------------------------------- Paul C. O'Brien /s/ William J. Shea Chief Executive Officer, Director March 30, 1999 - --------------------------------------- (Principal Executive Officer) William J. Shea /s/ Franklin A. Reece, III President and Director March 30, 1999 - --------------------------------------- Franklin A. Reece, III /s/ Ali Inanilan CFO, CAO - --------------------------------------- (Principal Financial and March 30, 1999 Ali Inanilan Accounting Officer) /s/ Calvin M. Carrera Director March 30, 1999 - --------------------------------------- Calvin M. Carrera /s/ Robert F. Leduc Director March 30, 1999 - --------------------------------------- Robert F. Leduc /s/ David F. Millet Director March 30, 1999 - --------------------------------------- David F. Millet
38 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 2.1 Asset Purchase Agreement, dated as of November 13, 1997, as amended by Amendment No. 1 to the Asset Purchase Agreement, dated as of November 21, 1997, by and among Vermont Network Services Corporation, Vermont Telecommunications Network Services, Inc. and Zoltan B. Keve. (1) 2.2 Amendment No. 1 to Asset Purchase Agreement, dated as of November 21, 1997, by and among Vermont Network Services Corporation, Vermont Telecommunications Network Services, Inc. and Zoltan B. Keve. (1) 3.1 Certificate of Incorporation of the Company, as amended by Agreement and Plan of Merger, dated November 27, 1996. (2) 3.2 Bylaws of the Company. (2) 4.1 Warrant Agreement dated as of June 28, 1995 between the Company and U.S. Stock Transfer Corporation. (3) 4.2 Form of Warrant between the Company and Telcom Holding, LLC. (2) 10.1 Dealer Agreement between the Company and PictureTel Corporation dated as of March 30, 1995. (4) 10.2 Employment Agreement between the Company and Franklin A. Reece, III dated as of November 29, 1996. (2) 10.3 Severance and Consulting Agreement by and between, View Tech, Inc. and John W. Hammon, dated April 22, 1997. (5) 10.4 Tenth Amendment to Revolving Credit, Term Loan and Security Agreement between USTeleCenters, Inc. and The First National Bank of Boston, dated March 31, 1997.(5) 10.5 Employment Agreement between the Company and William M. McKay, dated as of December 9, 1996. (6) 10.6 1995 Stock Option Plan, as amended. (7) 10.7 Amendment to the Dealer Agreement between the Company and PictureTel Corporation, dated as of August 1, 1995. (3) 10.8 1997 Stock Incentive Plan. (8) 10.9 Promissory Note, dated November 21, 1997, of Vermont Network Services Corporation, payable to Vermont Telecommunications Network Services, Inc. in the amount of $250,000. (1) 10.10 Contingent Note, dated November 21, 1997, of Vermont Network Services Corporation, payable to Vermont Telecommunications Network Services, Inc. in the amount of $250,000. (1) 10.11 Subordination Agreement, dated as of July 26, 1996, by and among the Company, the First National Bank of Boston, BancBoston Leasing, Inc., and USTeleCenters, Inc. (9) 10.12 Sublease Agreement dated as of October 11, 1996, by and between Atlantic Steel Industries, Inc. and the Company, (together with prime Lease Agreement dated as of November 1, 1993 between Atlantic Steel Industries, Inc. and the State of California Public Employees' Retirement System). (2) 10.13 Common Stock and Common Stock Purchase Warrants Agreement, dated as of December 31, 1996, by and between the Company and Telcom Holding, LLC, a Massachusetts limited liability company. (2) 10.14 Letter Agreement, dated as of December 31, 1996, from the Company to Paul C. O'Brien and Mark P. Kiley. (2)
39
Exhibit Number Description ------- ----------- 10.15 Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of 60,000 shares of Common Stock of View Tech, Inc., a Delaware corporation, by Imperial Bank, a California banking corporation, on or before November 21, 2004 at a purchase price of $7.08 per share. (10) 10.16 Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of 20,000 shares of Common Stock of View Tech, Inc., a Delaware corporation, by BankBoston, N.A., a national banking association, a participating lender, on or before November 21, 2004 at a purchase price of $7.08 per share. (10) 10.17 Revolving Note with City National Bank, dated February 20, 1996. (11) 10.18 Loan Agreements with Power-Data Services, Inc., dated February 15, 1996 and March 22, 1996. (11) 10.19 Credit Agreement, dated as of November 21, 1997, among, USTeleCenters, Inc., a Delaware corporation, View Tech, Inc. a Delaware corporation, and Imperial Bank, a bank organized under the laws of the State of California. (10) 10.20 Security Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, View Tech, Inc., a Delaware corporation, and Imperial Bank, a bank organized under the State of California. (10) 10.21 Amendment No. 2 dated as of May 1, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). (17) 10.22 Amendment No. 3 dated as of August 14, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). (17) 10.23 Amendment No. 4 dated as of October 27, 1998, to the Credit Agreement, dated as of November 21, 1997, among USTeleCenters, Inc., a Delaware corporation, (the borrower), View Tech, Inc., a Delaware corporation (the parent company), and Imperial Bank and BankBoston, N.A. (the banks). (17) 10.24 Amendment No. 1, Exhibit A, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by Imperial Bank. (17) 10.25 Amendment No. 1, Exhibit B, dated as of October 14, 1998, to the Common Stock Purchase Warrant, dated as of November 21, 1997, for the purchase of common stock of View Tech, Inc., a Delaware corporation, by BankBoston, N.A. (17) 10.26 Memorandum of Understanding by and between the Company and former Chief Executive Officer, Robert G. Hatfield, effective April 17, 1998. (15) 10.27 Severance and Consulting Agreement by and between, View Tech, Inc. and Robert G. Hatfield, dated April 17, 1998. (16) 10.28 Separation Agreement, effective August 31, 1998, by and between View Tech, Inc. and David A. Kaplan, the former Chief Financial Officer. (17) 10.29 General Release between, David A. Kaplan, former Chief Financial Officer and View Tech, Inc. (17) *10.30 Settlement Agreement, Consulting Agreement & General Release, effective February 28, 1999, by and between View Tech, Inc. and Calvin M. Carrera, former Vice President and General Manager. (12) 21.1 Subsidiaries of the Company. (12) 23.1 Consent of Arthur Andersen LLP. (12) 23.2 Consent of Carpenter, Kuhen and Sprayberry. (12) 27 Financial Data Schedule. (12) 99.1 View Tech, Inc. Special Non-Officer Stock Option Plan. (13) 99.2 Form of Special Non-Officer Stock Option Agreement. (13) 99.3 Form of Addendum to Stock Option Agreement; Involuntary Termination Following Corporate Transaction. (13) 99.4 Form of Stock Option Agreement. (14)
40
Exhibit Number Description ------- ------------ 99.5 Form of Addendum to Stock Option Agreement: Involuntary Termination Following Corporate Transaction. (14) 99.6 Form of Addendum to Stock Option Agreement: Involuntary Termination Following Change in Control. (14) 99.7 1997 Non-Employee Directors Stock Option Plan. (14) 99.8 Form of Automatic Stock Option Agreement. (14) 99.9 Employee Stock Purchase Plan. (14) 99.10 Form of Stock Purchase Agreement under the Employee Stock Purchase Plan. (14)
__________________ (1) Filed as an exhibit to the Company's Report on Form 8-K dated December 5, 1997, and incorporated herein by reference. (2) Filed as an exhibit to the Company's Registration Statement on Form SB-2 (Registration No.333-19597) and incorporated herein by reference. (3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Registration Statement on Form SB-2 (registration No.33-91232), and incorporated herein by reference. (5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference. (6) Filed as an exhibit to the Company's Transitional Report on Form 10-K for the six month period ended December 31, 1997, and incorporated herein by reference. (7) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1995, and incorporated herein by reference. (8) Filed as an exhibit to the Company's Registration Statement on Form S-4 (Registration No. 333-13459) and incorporated herein by reference. (9) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996, and incorporated herein by reference. (10) Filed as an exhibit to the Company's Report on Form 8-K dated February 5, 1998, and incorporated herein by reference. (11) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1996, and incorporated herein by reference. (12) Filed herewith. (13) Filed as an exhibit to the Company's Registration Statement on Form S-8 filed on November 4, 1997, and incorporated herein by reference. (14) Filed as an exhibit to the Company's Registration Statement on Form S-8 filed on June 30, 1997, and incorporated herein by reference. (15) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1998, and incorporated herein by reference. (16) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 1998, and incorporated herein by reference. (17) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 1998, and incorporated herein by reference. 41 EX-10.30 2 SETTLEMENT AGREEMENT, CONSULTING AGREEMENT & GENERAL RELEASE EXHIBIT 10.30 ------------- SETTLEMENT AGREEMENT, CONSULTING AGREEMENT ------------------------------------------ & GENERAL RELEASE ----------------- This Settlement Agreement & General Release ("Agreement") is made and entered into by and between (1) Calvin M. Carrera, his heirs, successors, administrators, executors and representatives ("Carrera") and (2) View Tech, Inc., its current or former officers, directors, agents and employees (not including Carrera), its parent, its predecessors, successors, affiliates, related entities, and assigns ("Company"). NOW, THEREFORE, Carrera and the Company agree as follows: 1. GENERAL TERMS: A. Carrera's employment with the Company began on or about August 11, 1997 and will end as an employee on February 28, 1999. In executing this Agreement, Carrera hereby formally resigns from his position as General Manager and employee of the Company. B. From March 1, 1999 until February 29, 2000 Carrera shall act as a consultant providing, on an irregular basis, professional management services for the Company. These services shall assist the Company in organizational transition underway during the period of March 1, 1999 through February 29, 2000. C. Carrera and the Company want to settle fully and finally all potential and actual differences, if any, between them, which arise out of or relate to Carrera's employment with, or separation of employment from, the Company. Carrera and the Company want to settle fully and finally as many potential and actual differences and issues, if any, as possible, between them, which arise out of or relate to Carrera's membership in the Board of Directors with the Company. D. Carrera and the Company also acknowledge that the Company is aware that Carrera, after his employment ends with the Company, will be forming a new corporation shortly thereafter. E. Carrera and the Company agree that the August 18, 1997 employment letter agreement between the Company and Carrera is hereby extinguished, canceled and rendered null and void. Any continued benefits or payments made to Carrera after February 28, 1999 are pursuant to the Agreement and not pursuant to the August 18, 1997 employment letter agreement. F. Carrera, by executing this Agreement, hereby informs the Company that he will resign his membership from the Company Board of Directors, effective December 31, 1999. 1 2. CARRERA CONSIDERATION FOR ENTERING INTO AGREEMENT: A. Carrera acknowledges that his employment with the Company ended on February 28, 1999. He will remain on the Board of Directors until December 31, 1999 at the latest. During the time that he will continue to be a member of the Board of Directors, Carrera agrees to forego, and not accept, any remuneration as a non-employee member of the Board of Directors. Carrera shall, in the execution of his duties as a non- employee member of the Board of Directors, be entitled to reimbursement of his reasonable expenses, as approved by a majority of the Board of Directors. B. Carrera understands and agrees that he has not suffered any discrimination in the terms, conditions or privileges of his employment, and/or membership in the Board of Directors, based upon age, race, gender, religious creed, color, national origin, ancestry, physical disability, mental disability, medication condition, marital status, sexual orientation, and/or harassment. Carrera also understands and agrees that he has not complained of any such discriminatory and/or harassing acts while employed at Company, nor as a member of the Board of Directors of the Company. Further, Carrera understands and agrees that the Company has not retaliated against Carrera in any way with reference to any actual or potential acts of discrimination and/or harassment, which Carrera acknowledges there were no such acts of discrimination and/or harassment. C. Carrera represents and agrees that he has turned over to the Company all files, memoranda, records, electronic data, documents and tangible items, and any other physical and/or intangible property ("Property") which are the property of the Company and which Carrera had in his possession, custody or control, as an employee, at the time he executed this Agreement. However, as Carrera will remain a member of the Company's Board of Directors until December 31, 1999, Carrera may still maintain, in his possession, custody or control, all such Property necessary to fulfill his duties as a member of the Board of Director until he ceases to be a member of the Board of Directors. D. Carrera represents and agrees that he has not filed before, or at the time of, executing this Agreement, a lawsuit, administrative complaint, claim, charge of any kind with any court, governmental or administrative agency, or arbitrator against the Company or its officers, directors, agents or employees, asserting anything released in this Agreement. Carrera promises never to file any such lawsuit, administrative complaint, claim or charge, against the Company asserting anything released in this Agreement. 3. COMPANY CONSIDERATION: A. The Company will pay Carrera his normal base pay from his position as General Manager from March 1, 1999 through February 29, 2000, as well as his usual 2 benefits he received on a monthly basis as an employee. He will also continue to be provided with e-mail and voice mail (with appropriate "walls" and limited access, all for the Company's benefit) during the period of March 1, 1999 through February 29, 2000. Carrera may also use, during the March 1, 1999 through February 29, 2000 period, the Company's Dell computer provided to Carrera as an employee; but only for use off-Company premises. Carrera promises to return the Dell computer to the Company no later than March 6, 2000. Carrera will also continue to be able to use a Company cell phone he has been using. However, the Company is only paying for the basic cost of the phone, and for phone calls, up to a total of One Hundred and Fifty Dollars ($150.00) per month. Any sums above $150.00 per month are Carrera's responsibility and Carrera must reimburse the Company for those costs. Carrera promises to return said company cell phone no later than March 6, 2000. B. Carrera will have, by February 29, 2000, 27,000 vested stock options, as an employee or a corporate insider (per applicable securities laws), under the 1997 Stock Incentive Plan. Per this Agreement, and consistent with the 1997 Stock Incentive Plan, Carrera shall have until and including February 29, 2000 in which to exercise the stock options. Carrera is advised that the 1997 Stock Incentive Plan has no three month, or any other, extension period such that, on February 29, 2000, all of Carrera's unexercised stock options plan become null and void, canceled and/or lapsed. C. Carrera has 2,000 vested stock options, as a Director, under the 1997 Non-Employee Director's Stock Option Plan. Pursuant to the Non-Employee Director's Stock Option Plan, and this Agreement, Carrera shall have twelve (12) months, from the date in which he ceases to provide any services to the Company as a consultant or member of the Board of Directors. Carrera is advised that the 1997 Non-Employee Director's Stock Option Plan has no three month, or any other, extension period such that, at the end of the twelve (12) month period from the date in which he ceases to provide services as a consultant or member of the Board of Directors, all of Carrera's unexercised stock options under this plan become null and void, canceled and/or lapsed. D. Carrera has 12,000 vested stock options, as a Director, under the 1995 Stock Option Plan. Pursuant to the 1995 Stock Option Plan, and this Agreement, Carrera has an additional three months after the date in which he terminates his membership in the Board of Directors and consultant services with the Company, said termination date that can be no later than February 29, 2000. For the consideration provided by the Company, Carrera agrees to exercise 10,000 out of the 12,000 vested stock options no later than March 31, 1999 (this year). Carrera agrees said 10,000 vested stock options shall become null and void, canceled and/or lapsed if said 10,000 vested stock options are not so exercised by March 31, 1999. Carrera is advised that the remaining 2,000 shares are to be exercised no later than three months after Carrera terminates his membership in the Board 3 of Directors and consulting services with the Company, said termination date that can be no later than February 29, 2000. E. To the extent the Company has promised to Carrera, orally or in writing, any stock options other than as stated in Paragraph 3(B) through (D), the Company and Carrera hereby agree that any and all such other stock options are null and void, canceled and/or lapsed upon execution of this Agreement. To the extent Carrera has any stock options that will not vest by February 29, 2000, the Company and Carrera agree that any and all said non-vested stock options are null and void, canceled and/or lapsed by February 29, 2000. F. The Company, in entering into this Agreement, including, but not limited to the consideration identified in Paragraph 3(A) through 3(E), does not admit, and is not admitting, any liability or fault to Carrera, or anyone, on any issue relating to the events leading up to this Agreement, nor any issue relating to this Agreement. 4. MUTUAL GENERAL RELEASE: A. In exchange for the payments and promises provided herein, Carrera knowingly and voluntarily waives and releases all rights and claims, known and unknown, which Carrera may have against the Company, and/or any of the Company's, current or former officers, directors, agents or employees, successors, parent, predecessors, affiliates or related entities, for any and all lawsuits, complaints, claims, charges, liabilities, obligations, promises, agreements, contracts, controversies, damages, actions, causes of action, rights, demands, costs, losses, debts and expenses of any kind, based upon Carrera's status as an employee and/or a member of the Board of Directors with the Company. B. In exchange for the payments and promises provided herein, the Company knowingly and voluntarily waives and releases all rights and claims, known and unknown, which Company may have against the Carrera, his heirs, successors, administrators, executors, representatives and assigns, for any and all lawsuits, complaints, claims, charges, liabilities, obligations, promises, agreements, contracts, controversies, damages, actions, causes of action, rights, demands, costs, losses, debts and expenses of any kind, based upon Carrera's status as an employee of the Company. C. This Mutual General Release includes, but is not limited to, complaints, claims and charges for employment discrimination, wrongful termination (actual and constructive), violation of public policy, breach of contract (express, implied, oral and written), breach of implied covenant of any kind, fraud, intentional misrepresentation, negligent misrepresentation, intentional infliction of emotional distress, negligent infliction of emotional distress, harassment (based upon sex, race, age or other state or federally protected category), retaliation (based upon complaint of discrimination or harassment), or any other claims, 4 based upon tort, contract or otherwise, relating to Employee's relationship with the Company. D. This Mutual General Release also includes a release of all complaints, claims and charges under any federal, state or local regulations and laws, including but not limited to: (1) Title VII of the Civil Rights Act of 1964, 42 U.S.C. Sections 2000e et seq. (discrimination, harassment and retaliation in employment); (2) the Age Discrimination in Employment Act, 29 U.S.C. Sections 621 et seq.; (3) Section 1981 et seq. Of the Civil Rights Act of 1866, 42 U.S.C. Sections 1981, et seq. (civil rights violations and discrimination); (4) the Equal Pay Act of 1963, 29 U.S.C. Sections 206, et seq.; (5) the California Fair Employment and Housing Act, California Government Code Sections 12900 et seq. (discrimination, harassment and retaliation in employment); (6) the California Labor Code sections 200 et seq. (salary, commission, compensation, benefits and other matters); (7) the Fair Labor Standards Act, 29 U.S.C. Sections 201, et seq. (wage and hour matters, including overtime pay); (8) the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), 42 U.S.C. Section 1395(c) (insurance continuation matters); (9) Executive Order 11141 (age discrimination); (10) Section 503 of the Rehabilitation Act of 1973, 29 U.S.C. Sections 701, et seq. (disability discrimination); (11) the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sections 1001, et seq. (employee benefits); (12) Title I of the Americans with Disabilities Act (disability discrimination, harassment and retaliation); (13) California Labor Code Section 132(a) (discrimination and/or retaliation based upon filing or maintaining a workers' compensation claim); and (14) any applicable California Industrial Welfare Commission Order (wage matters). E. This Mutual General Release, however, does not waive or release any right or claims of Employee or Company under (1) the Age Discrimination in Employment Act; (2) the Consolidated Omnibus Budget Reconciliation Act of 1985, 42 U.S.C. Section 1395(c) (insurance COBRA matters) and (3) the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sections 701, et seq. (employee benefits), to the specifically limited extent that any such claims arise after the date the Employee and the Company sign this Agreement. F. Carrera and the Company acknowledge and agree that, as a condition to this Agreement, each expressly releases and waives all rights and claims that the Carrera or the Company know about as well as those they may not know about. Carrera and the Company expressly acknowledge that this Agreement is intended to include and does include, in its effect, without limitation, all claims which each party does not know or suspect to exist against the other party, notwithstanding any waivable and/or voidable statutory rights, and language, to the contrary, for each party to this Agreement. Carrera and the Company agree to waive the benefits of California Civil Code Section 1542 which states: 5 "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." G. Notwithstanding anything stated in any and all portions of this Paragraph, and all subparagraphs herein, nothing in this entire Paragraph 4 releases Carrera from anything related to Carrera's status as a member of the Company's Board of Directors, including, but not limited to, Claims by third parties (whether by individuals, businesses or public entities) relating to stocks, warrants, bonds, and any and all other securities matters, Claims by employees or board members (other than Carrera) against the Company, and other matters. 5. NON-ASSIGNMENT OF ANY RIGHTS, DUITES OR OBLIGATIONS UNDER AGREEMENT: Carrera and the Company represent and agree that each has not assigned or transferred, or attempted to assign or transfer, to any person or entity, any of the claims being released in this Agreement. Carrera represents and agrees that he shall not assign his rights, liabilities, obligations or duties in this Agreement, or any portion of this Agreement. 6. NO REPRESENTATIONS, ORAL OR WRITTEN, OTHER THAN WHAT IS CONTAINED IN THIS AGREEMENT: Carrera and the Company represent and agree that no promises, statements, restrictions, limitations or inducements have been made by or to each other that caused either party, or both parties, to sign this Agreement other than those expressly stated in this Agreement. 7. CONFIDENTIALITY OF THIS AGREEMENT & NON-DISPARAGMENT: A. Carrera agrees to keep the terms and amount of this Agreement completely confidential, and not to disclose such information to anyone other than Employee's spouse, and the Carrera's attorneys and licensed tax and/or professional investment advisors (hereafter referred to as "Carrera's Confidants"), all of whom will be informed of this confidentiality provision, and be bound by this confidentiality provision. Neither Carrera nor Carrera's Confidants shall disclose the amount or terms of this Agreement to anyone, including, but not limited to, any representative of any media (print, broadcast, internet, cable, etc.), to any past, present or prospective employee of, or applicant for, employment with the Company, executive recruiter or "headhunter", to any counsel for any current or former employee of the Company, to any other counsel or third party, and/or to the public at large. B. Each party agrees not to make any written or oral statements that denigrate, disparage or otherwise criticize the other party. 6 C. The obligations described in this Paragraph, and all subparagraphs herein, shall continue in effect after the payment of the sums required under this Agreement. 8. NON-COMPETITION, NON-DISCLOSURE OF TRADE SECRETS & CONFIDENTIAL INFORMATION: A. Carrera understands and agrees that in the course of his relationship with the Company, he has acquired confidential information and trade secrets concerning the Company's past, present or future clients, operations, plans, methods of doing business, projected and historic revenues, marketing, costs, production, growth and distribution, and confidential business strategies. Carrera understands and agrees that it would be extremely damaging to the Company if such information were disclosed to a competitor, or made available to any other person, business or government entity. Carrera understands and agrees that such information has been disclosed in confidence to Carrera, that he will keep such information secret and confidential and that he will not in any way use, distribute or disclose such information in any manner contrary to law, including, but not limited to, the Uniform Trade Secrets Act, as passed by the State of California, Civil Code Sections 3426 et seq. This non-disclosure includes, but is not limited to, non- disclosure to any competitors of the Company, as well as the general public, of such confidential and/or trade secret information. B. In view of the nature of Carrera's relationship with the Company, Carrera also agrees that the Company would be irreparably harmed by any violation or threatened violation of this Agreement, and that, therefore, the Company shall be entitled to an injunction prohibiting Carrera from any violation or threatened violation of this Agreement, and/or other relief, including, but not limited to, monetary damages, to which the Company may be entitled. Carrera's duties under this entire Paragraph, including subparagraphs herein, shall continue after the execution of this Agreement. 9. NO CONTACT WITH COMPANY EMPLOYEES AND/OR CUSTOMERS OF COMPANY: A. Carrera agrees that, for a period lasting from March 1, 1999 through and including February 29, 2000, Carrera will not initiate any contact whatsoever with any current employee of the Company for reasons of soliciting employment of said current employees without receiving prior approval from the Company, through the General Counsel of the Company. B. The Company acknowledges that Carrera has personal pre-existing relations with certain current employees. Contact for personal reasons may be made to said current Company employees. The Company also acknowledges that Carrera will be contacting various employees for technical information and questions. Carrera agrees that he will not do so in a manner that will interfere with the Company's employees' performance of their full duties for the Company. 7 C. Except for the tele-medicine products mentioned in Paragraph 9(D) below, Carrera agrees that, from the period beginning six weeks before executing this Agreement through the period ending February 29, 2000, he has not contacted, nor will he contact, in any way whatsoever, any current or potential customers of the Company to work with Carrera and/or any business or corporation in which Carrera plans to become involved, without receiving prior approval from the Company through the General Counsel of the Company. D. Carrera also agrees that, for a period lasting from March 1, 1999 through and including February 29, 2000, Carrera will not compete with the Company in any product or service areas in which the Company has been conducting its business, with the sole exception of tele-medicine products, without receiving the prior approval of the Company, through the General Counsel of the Company. E. The Company agrees not to manufacture tele-medicine products for the period of March 1, 1999 through December 31, 1999 without receiving prior approval from Carrera and/or the business in which Carrera is involved. F. The phrase "potential customers" means, for this Paragraph 9, and all subparagraphs herein, any and all persons or entities with whom the Company is in negotiation for a contractual relationship as a customer of the Company, at the time of the execution of this Agreement between Carrera and the Company. The term "contact" shall mean any and all contacts whatsoever, whether in-person, by e-mail, telecommunications, internet, letter, or any other form of contact, either directly or indirectly through any intermediary or intermediaries. 10. OPPORTUNITY TO CONSULT WITH ATTORNEY; REASONABLE TIME TO CONSIDER AGREEMENT; VOLUNTARY PARTICIPATION IN THIS AGREEMENT; RIGHT TO REVOKE AGREEMENT: A. Carrera acknowledges that he has been advised of the opportunity to review this Agreement with an attorney, that he has had the opportunity to thoroughly discuss with an attorney all aspects of (i) his rights against the Company, if any, and (ii) this Agreement, to the extent Carrera elects or elected to do so, that he has carefully read and fully understands all of the provisions of this Agreement, that he has been offered a reasonable period of up to twenty-one (21) days to consider signing or executing this Agreement, and that he is voluntarily signing or executing this Agreement. B. Carrera further understands that he has the right to revoke this Agreement for a period of seven (7) days after the date of execution, with such revocation limited to claims under the federal Age Discrimination in Employment Act, 29 U.S.C. Sections 621, et seq. If Carrera revokes the Agreement as to claims under the Age Discrimination in Employment Act, Carrera understands and agrees that the 8 Agreement remains valid and enforceable as to all other aspects of the Agreement, including but not limited to the Mutual General Release. C. However, notwithstanding Paragraph 10(B), if Carrera undertakes to revoke the Agreement as to claims under the Age Discrimination in Employment Act within the seven (7) day period, the Company, in its sole discretion, reserves the right, within six months thereafter, to revoke any other portion, or the rest, of the Agreement. 11. GOVERNING LAW & VENUE: This Agreement is to be construed under the laws of the State of California. Carrera and the Company expressly agree that any lawsuit, claim or charge which may be filed in connection to any dispute or issue concerning this Agreement shall be so filed within the State of California, in the State or Federal court, whichever is most appropriate, in the County of Ventura. 12. PROPER CONSTRUCTION OF AGREEMENT: A. The language of all provisions, parts and terms of this Agreement shall be construed, in all cases, as a whole according to its fair meaning, and not strictly for or against any of the parties, regardless of which part prepared the language in question. B. The paragraph headings used in this Agreement are intended solely for convenience of reference, and shall not in any manner amplify, limit, modify, clarify or otherwise be used in the interpretation of any of the provisions, parts or terms in this Agreement. C. Should any provision, part or term in this Agreement be declared, or be determined to be, illegal or invalid, all remaining provisions, parts or terms shall be valid, and the illegal or invalid provision, part or term shall be deemed not to be a part of this Agreement. D. This Agreement is the entire agreement between Carrera and the Company. This Agreement supersedes any and all prior agreements or understandings, written or oral, between the parties relating to the subject matter of this Agreement. 9 PLEASE CAREFULLY READ THIS AGREEMENT, WHICH IS A TOTAL OF TEN (10) PAGES, IN ITS ENTIRETY. Executed at Camarillo, CA, this 2/nd/ day of March, 1999. CALVIN M. CARRERA By: /s/ Calvin M. Carrera ------------------------- Calvin M. Carrera Witness: /s/ Mitchell J. Freedman ---------------------------- Executed at Camarillo, CA, this 2/nd/ day of March, 1999. VIEW TECH, INC. ("Company") By: /s/ Ali Inanilan -------------------- Ali Inanilan Chief Financial Officer Witness: /s/ Mitchell J. Freedman ---------------------------- 10 EX-21.1 3 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SUBSIDIARIES OF VIEW TECH, INC. View Tech, Inc., a Delaware corporation (the "Company" and the "Registrant"), has the following wholly-owned subsidiaries incorporated in the jurisdictions identified: (1) USTeleCenters, Inc., a Delaware corporation; and (2) Vermont Network Services Corporation, a Vermont corporation. EX-23.1 4 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this Form 10K, into the Company's previously filed Registration Statement File Nos. 33-95618, 33-99674, 333-20617, 333-30389, 333-39501 and 333-62135. ARTHUR ANDERSEN LLP Boston, Massachusetts March 26, 1999 EX-23.2 5 CONSENT OF CARPENTER, KUHEN AND SPRAYBERRY EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in Form 10-K of our report dated March 13, 1997, related to the consolidated statements operations, stockholders' equity and cash flows for the year ended June 30, 1996 and the six months ended December 31, 1996 of View Tech, Inc. and Subsidiary. CARPENTER KUHEN & SPRAYBERRY Oxnard, California March 30, 1999 EX-27 6 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 661,158 0 14,961,216 869,304 4,410,166 544,860 8,599,884 5,050,891 26,245,518 13,978,350 0 0 0 772 7,069,743 26,245,518 57,972,138 57,972,138 27,518,045 60,254,709 0 0 527,593 (2,810,164) 4,233 (2,814,397) 0 0 0 (2,814,397) (0.41) (0.41)
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