-----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, QC2C2XIANtWB7li1hUaALFZCmEhkC420R0zEXMQAIvhKW9Rnu18mBUcVCItN1VPw xzee9c5Bdtp9zaPotkP6Fw== 0001169232-02-001007.txt : 20020814 0001169232-02-001007.hdr.sgml : 20020814 20020814174704 ACCESSION NUMBER: 0001169232-02-001007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WIRE ONE TECHNOLOGIES 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25940 FILM NUMBER: 02737325 BUSINESS ADDRESS: STREET 1: 225 LONG AVENUE CITY: HILLSIDE STATE: NJ ZIP: 07205 BUSINESS PHONE: 8054828277 MAIL ADDRESS: STREET 1: 225 LONG AVENUE CITY: HILLSIDE STATE: NJ ZIP: 07205 FORMER COMPANY: FORMER CONFORMED NAME: VIEWTECH INC DATE OF NAME CHANGE: 19950418 FORMER COMPANY: FORMER CONFORMED NAME: VIEW TECH INC DATE OF NAME CHANGE: 19950418 10-Q 1 d51271_10-q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2002. or |_| Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-25940 WIRE ONE TECHNOLOGIES, INC. (Exact Name of registrant as Specified in its Charter) Delaware 77-0312442 (State or other Jurisdiction of (I.R.S. Employer Number) Incorporation or Organization) 225 Long Avenue, Hillside, New Jersey 07205 (Address of Principal Executive Offices) 973-282-2000 (Issuer's Telephone Number, Including Area Code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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 |_| The number of shares outstanding of the registrant's Common Stock as of August 9, 2002 was 28,955,051. WIRE ONE TECHNOLOGIES, INC Index PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements * Consolidated Balance Sheets June 30, 2002 and December 31, 2001................................1 Consolidated Statements of Operations For the Six Months and Three Months Ended June 30, 2002 and 2001..2 Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2002 and 2001....................3 Notes to Consolidated Financial Statements...............................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................7 Item 3. Quantitative and Qualitative Disclosures About Market Risk............14 PART II. OTHER INFORMATION Item 1. Legal Proceedings.....................................................14 Item 2. Changes in Securities and Use of Proceeds.............................14 Item 3. Defaults Upon Senior Securities.......................................14 Item 4. Submission of Matters to a Vote of Security Holders...................14 Item 5. Other Information.....................................................14 Item 6. Exhibits and Reports on Form 8-K......................................15 Signatures....................................................................16 * The Balance Sheet at December 31, 2001 has been taken from the audited financial statements at that date. All other financial statements are unaudited. WIRE ONE TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
June 30, 2002 December 31, 2001 ------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,362,531 $ 1,689,451 Accounts receivable-net 34,113,755 35,471,482 Inventory 11,217,767 10,218,796 Other current assets 8,473,430 3,824,276 ------------- ------------- Total current assets 61,167,483 51,204,005 Furniture, equipment and leasehold improvements-net 11,577,819 10,857,547 Goodwill-net 42,558,509 42,163,844 Other assets 699,227 274,089 ------------- ------------- Total assets $ 116,003,038 $ 104,499,485 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank loan payable $ -- $ 10,628,082 Accounts payable 14,302,332 12,297,914 Accrued expenses 4,091,324 3,218,890 Deferred revenue 6,256,387 7,898,277 Other current liabilities -- 1,465,049 Current portion of capital lease obligations 37,426 56,912 ------------- ------------- Total current liabilities 24,687,469 35,565,124 Bank loan payable 8,479,354 -- Capital lease obligations, less current portion 13,129 25,696 ------------- ------------- Total liabilities 33,179,952 35,590,820 ------------- ------------- Commitments Stockholders' Equity: Preferred stock, $.0001 par value; 5,000,000 shares authorized, none outstanding -- -- Common Stock, $.0001 par value; 100,000,000 authorized; 28,955,051 and 25,292,189 shares outstanding, respectively 2,895 2,529 Treasury stock (239,742) (239,742) Additional paid-in capital 125,679,768 104,889,988 Accumulated deficit (42,619,835) (35,744,110) ------------- ------------- Total stockholders' equity 82,823,086 68,908,665 ------------- ------------- ------------- ------------- Total liabilities and stockholders' equity $ 116,003,038 $ 104,499,485 ============= =============
See accompanying notes to consolidated financial statements. 1 Wire One Technologies, Inc. Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, Three Months Ended June 30, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Revenues Video Solutions $ 50,657,907 $ 35,819,593 $ 26,753,194 $ 19,315,214 Video Network 2,357,977 1,821,690 1,258,556 1,010,020 ------------ ------------ ------------ ------------ 53,015,884 37,641,283 28,011,750 20,325,234 ------------ ------------ ------------ ------------ Cost of revenues Video Solutions 36,773,956 23,913,516 19,744,587 12,953,018 Video Network 2,175,847 1,390,000 1,206,306 778,000 ------------ ------------ ------------ ------------ 38,949,803 25,303,516 20,950,893 13,731,018 ------------ ------------ ------------ ------------ Gross margin Video Solutions 13,883,951 11,906,077 7,008,607 6,362,196 Video Network 182,130 431,690 52,250 232,020 ------------ ------------ ------------ ------------ 14,066,081 12,337,767 7,060,857 6,594,216 ------------ ------------ ------------ ------------ Operating expenses Selling 15,929,335 11,312,958 8,264,331 5,830,607 General and administrative 3,843,783 3,159,693 1,965,721 1,832,571 Restructuring 960,000 -- 960,000 -- Amortization of goodwill -- 1,270,722 -- 642,526 ------------ ------------ ------------ ------------ Total operating expenses 20,733,118 15,743,373 11,190,052 8,305,704 ------------ ------------ ------------ ------------ Loss from continuing operations (6,667,037) (3,405,606) (4,129,195) (1,711,488) ------------ ------------ ------------ ------------ Other (income) expense Amortization of deferred financing costs 59,695 21,761 45,938 12,379 Interest income (58,132) (40,052) (38,802) (24,112) Interest expense 105,786 317,866 79,547 227,359 ------------ ------------ ------------ ------------ Total other expenses, net 107,349 299,575 86,683 215,626 ------------ ------------ ------------ ------------ Net loss from continuing operations (6,774,386) (3,705,181) (4,215,878) (1,927,114) Income (loss) from discontinued operations (101,339) (105,460) (101,339) 144,382 ------------ ------------ ------------ ------------ Net loss (6,875,725) (3,810,641) (4,317,217) (1,782,732) Deemed dividends on series A convertible preferred stock -- 4,433,904 -- 4,039,940 ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $ (6,875,725) $ (8,244,545) $ (4,317,217) $ (5,822,672) ============ ============ ============ ============ Net loss per share Basic $ (0.24) $ (0.46) $ (0.15) $ (0.32) ============ ============ ============ ============ Diluted $ (0.24) $ (0.46) $ (0.15) $ (0.32) ============ ============ ============ ============ Weighted average number of diluted common shares Basic 28,632,548 17,752,240 28,934,509 18,176,663 ============ ============ ============ ============ Diluted 28,632,548 17,752,240 28,934,509 18,176,663 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 2 Wire One Technologies, Inc. Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, ---------------------------- 2002 2001 ------------ ------------ Cash flows from Operating Activities: Net loss $ (6,875,725) $ (3,810,641) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,572,750 2,947,963 Non cash compensation 160,690 217,726 Discontinued operations -- 105,460 Increase (decrease) in cash attributable to changes in assets and liabilities: Accounts receivable 1,357,727 (3,003,248) Inventory (1,393,635) 64,103 Other current assets (4,883,513) (456,755) Other assets (484,832) (121,821) Discontinued operations -- (3,487) Accounts payable 2,004,417 1,184,380 Accrued expenses 872,434 (807,200) Deferred revenue (1,641,890) 522,406 Other current liabilities (1,465,049) 44,807 ------------ ------------ Net cash used in operating activities (9,776,626) (3,116,307) ------------ ------------ Cash flows From Investing Activities Purchases of furniture, equipment and leasehold improvements (2,998,969) (4,255,531) Costs related to acquisition of business including cash acquired -- (144,118) ------------ ------------ Net cash used by investing activities (2,998,969) (4,399,649) ------------ ------------ Cash Flows From Financing Activities Proceeds from common stock offering 20,257,962 -- Issuance of common stock for cash assets of GeoVideo -- 2,500,000 Exercise of warrants and options, net 371,494 313,378 Proceeds from bank loans 11,498,264 38,099,731 Payments on bank loans (13,646,992) (34,221,298) Payments on capital lease obligations (32,053) (62,647) ------------ ------------ Net cash provided by financing activities 18,448,675 6,629,164 ------------ ------------ Increase (decrease) in Cash and Cash Equivalents 5,673,080 (886,792) Cash and Cash Equivalents at Beginning of Period 1,689,451 1,870,573 ------------ ------------ Cash and Cash Equivalents at End of Period $ 7,362,531 $ 983,781 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 105,786 $ 317,866 ============ ============ Taxes $ -- $ 2,274 ============ ============
Non cash financing and investing activities: During the six months ended June 30, 2001, the Company recorded non-cash deemed dividends on Series A mandatorily redeemable convertible preferred stock of $4,433,904. On June 4, 2001, the Company acquired the non-cash assets of GeoVideo Networks, Inc. for non-cash consideration of $2,500,000. During the six months ended June 30, 2001, the Company issued 3,017,143 shares of $0.0001 par value common stock in exchange for 2,115 shares of Series A mandatorily redeemable, convertible preferred stock. Based on the average conversion price of $4.91 per share, the total value attributable to the common stock was $14,805,000. See accompanying notes to consolidated financial statements. 3 WIRE ONE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 Note 1 -- The Business and Merger with View Tech, Inc. Wire One Technologies, Inc. ("Wire One" or the "Company") was formed by the merger of All Communications Corporation ("ACC") and View Tech, Inc. ("VTI") on May 18, 2000, with the former directors and senior management of ACC succeeding to the management of Wire One. In connection with the merger, each former shareholder of ACC received 1.65 shares of Wire One common stock for each share of ACC common stock held by such former shareholder. The transaction has been accounted for as a "reverse acquisition" using the purchase method of accounting. The reverse acquisition method resulted in ACC being recognized as the acquirer of VTI for accounting and financial reporting purposes. As a result, ACC's historical results have been carried forward and VTI's operations have been included in the financial statements commencing on the merger date. Further, on the date of the merger, the assets and liabilities of VTI were recorded at their fair values, with the excess purchase consideration allocated to goodwill. Wire One is engaged in the business of selling, installing and servicing video communications systems, as well as an Internet-protocol-based network devoted to video communications, to commercial and institutional customers located principally within the United States. The Company is headquartered in Hillside, New Jersey. Note 2 -- Basis of Presentation The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report for the fiscal year ended December 31, 2001 as filed with the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AllComm Products Corporation ("APC"), VTC Resources, Inc. ("VTC") and Wire One Travel Services, Inc. ("WOTS"). All material intercompany balances and transactions have been eliminated in consolidation. The Company does not segregate or manage its operations by business segment. Note 3 -- Effect of Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations ("FAS 141"), and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. FAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. FAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of FAS 142, that the Company reclassifies, if necessary, the carrying amounts of intangible assets and goodwill based on the criteria in FAS 141. 4 FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, FAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in FAS 142. FAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. FAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of FAS 142. With respect to the Company's business combinations that were effected prior to June 30, 2001, using the purchase method of accounting, the net carrying amount of the resulting goodwill as of June 30, 2002 was $36,775,028. No amortization expense was recorded in the six-month period ended June 30, 2002. Acquisitions occurring subsequent to July 1, 2001 have been accounted for using the purchase method of accounting. The Company is in the process of obtaining appraisals of the assets acquired for the purpose of allocating the purchase price to all tangible and intangible assets acquired. We have determined that our business consists of two reporting units for purposes of assessing existing goodwill for impairment. An impairment charge will be recognized for the amount, if any, which the carrying amount of goodwill exceeds its implied fair value. We have completed Step 1 of FAS 142 and deemed a potential impairment exists. We are in the process of quantifying the impairment (Step 2 of FAS 142) and expect to complete the process in the third quarter of 2002. We currently do not have any reasonable estimate of the amount of impairment, which could range from $0 to the entire goodwill being carried at $42,588,509. The effect on 2001 reported net loss attributable to common stockholders and net loss per share excluding goodwill amortization is as follows:
Six Months Ended June 30, Three Months Ended June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Reported net loss attributable to common stockholders $ (6,875,725) $ (8,244,545) $ (4,317,217) $ (5,822,672) Goodwill amortization -- 1,270,722 -- 642,526 ------------- ------------- ------------- ------------- Adjusted net loss attributable to common stockholders $ (6,875,725) $ (6,973,823) $ (4,317,217) $ (5,180,146) ============= ============= ============= ============= Reported net loss per share $ (0.24) $ (0.46) $ (0.15) $ (0.32) Goodwill amortization -- 0.07 -- 0.04 ------------- ------------- ------------- ------------- Adjusted net loss per share $ (0.24) $ (0.39) $ (0.15) $ (0.28) ============= ============= ============= =============
In August 2001, The FASB issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"). The new guidance resolves significant implementation issues related to FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("FAS 121"). FAS 144 supercedes FAS 121, but it retains FAS 121's fundamental provisions. It also amends Account Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidate a subsidiary for which control is likely to be temporary. FAS 144 retains the requirement of FAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset within the scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds its fair value. FAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The Company has early adopted the provisions of FAS 144 as of December 31, 2001 to recognize discontinued business operations in its financial statements. Note 4 -- Loss Per Share Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. In determining basic loss per share for the periods presented, the effects of deemed dividends related to the Company's series A mandatorily redeemable convertible preferred stock is added to the net loss. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding plus the weighted-average number of net shares that would be issued upon exercise of stock options and warrants using the treasury stock method and the deemed conversion of preferred stock using the if-converted method.
Six Months Ended Three Months Ended June 30, June 30, --------------------- ------------------------ 2002 2001 2002 2001 ----- ----- ----- ----- Weighted average shares outstanding ......................... 28,632,548 17,752,240 28,934,509 18,176,663 Effect of dilutive options and warrants ..................... -- -- -- -- ---------- ---------- ---------- ---------- Weighted average shares outstanding including dilutive effect of securities ............... 28,632,548 17,752,240 28,934,509 18,176,663 ========== ========== ========== ==========
Weighted average options and warrants to purchase 10,619,267 and 10,587,974 shares of common stock were outstanding during the six months and three months ended June 30, 2002. Weighted average options and warrants to purchase 8,790,872 and 8,917,689 shares of common stock were outstanding during the six months ended June 30, 2001. These options and warrants were not included in the computation of diluted EPS because the Company reported a net operating loss for these periods and their effect would have been antidilutive. 5 Note 5 -- Bank Loan Payable In May 2002, the Company entered into a $25,000,000 working capital credit facility with an asset-based lender. Under terms of the three-year agreement for this facility, loan availability is based on (1) 80% of eligible accounts receivable and (2) the lesser of 50% against eligible finished goods inventory or 80% against the net eligible amount of the net orderly liquidation value by category of finished goods inventory as determined by an outside appraisal firm, subject to an inventory cap of $3,000,000. Borrowings bear interest at the lender's base rate plus 3/4% per annum. At June 30, 2002, the interest rate on the facility was 5.50%. The credit facility contains certain financial and operational covenants. For the six month period ended June 30, 2002, the Company was in violation of the covenant requiring the Company to meet a certain earnings before interest, taxes, depreciation and amortization ("EBITDA") target. On July 30, 2002, the Company received a waiver from the lender regarding this requirement as part of an amendment to the credit agreement. At June 30, 2002, $8,479,354 was outstanding under this facility and the loan has been classified as long-term in the accompanying balance sheet because the facility matures in more than one year. Note 6 - Restructuring Charge During the three month period ended June 30, 2002, the Company recorded a restructuring charge of $960,000. The significant components of the restructuring charge are as follows: Employee termination costs $500,000.00 Facility exit costs 460,000.00 ----------- $960,000.00 =========== The employee termination costs relate to 84 employees and officers of the Company, including Lewis Jaffe, President of the Company, who relinquished his day-to-day operating responsibilities following the implementation of a cost savings plan targeted to save approximately $7 million of operating expenses on an annual basis. The facility exit costs relate to the closing or downsizing of 19 sales offices. 6 Item 2. 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. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. The statements contained herein, other than historical information, are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and involve factors, risks and uncertainties that may cause the Company's actual results in future periods to differ materially from such statements. These factors, risks and uncertainties, include the relatively short operating history of the Company; market acceptance and availability of new products and services; the terminable-at-will and nonexclusive nature of reseller agreements with manufacturers; rapid technological change affecting products and services sold by the Company; the impact of competitive products, services, and pricing, as well as competition from other resellers and service providers; possible delays in the shipment of new products; and the availability of sufficient financial resources to enable the Company to expand its operations. Overview Wire One is a leading single source provider of video communications solutions that encompass the entire video communications value chain. We are a leading integrator for major video communications equipment manufacturers, including the number one market share leader, Polycom, Inc. ("Polycom"), which accounts for over 50% of the installed videoconferencing endpoints in the United States. In December 2000, we introduced our Glowpoint network service, providing our customers with two-way video communications with high quality of service. With the introduction of Glowpoint, we now offer our customers a single point of contact for all their video communications requirements. Furthermore, we believe Glowpoint is the first dedicated network to provide two-way video communications by utilizing a dedicated Internet protocol ("IP") backbone and broadband access. The Company markets and sells its video communications products and services to the commercial, federal and state government, medical and educational markets through a direct sales force of account executives and telemarketers and through resellers. These efforts are supported by sales engineers, a marketing department, a call center and a professional services and engineering group. The Company has sold its products and services to over 3,000 customers who collectively have approximately 18,500 videoconferencing endpoints. The Company was formed on May 18, 2000 by the merger of ACC and VTI. VTI (renamed Wire One Technologies, Inc. upon the merger) was the surviving legal entity in the merger. However, for financial reporting purposes, the merger has been accounted for as a "reverse acquisition" using the purchase method of accounting. Under the purchase method of accounting, ACC's historical results have been carried forward and VTI's operations have been included in the financial statements commencing on the merger date. Accordingly, all 2000 results through the merger date are those of ACC only. Further, on the date of the merger, the assets and liabilities of VTI were recorded at their fair values, with the excess purchase consideration allocated to goodwill. We sell both products and services. Product revenue consists of revenue from the sale of video communications equipment and is recognized at the time of shipment, provided no significant obligations remain, collectibility is probable and returns are estimable. Service revenue is derived from services rendered in connection with the sale of new systems and the maintenance of previously installed systems. Services rendered in connection with the sale of new systems consist of engineering services related to system integration, technical training and user training. The majority of the services are rendered at or prior to installation, and all revenue is recognized when services are rendered. Revenue related to extended 7 service contracts is deferred and recognized over the life of the extended service period. Revenues related to providing network services (either H.323 Bridging or Glowpoint IP Network) are recognized on a monthly basis for services rendered and detailed on a monthly bill. In July 2000, we acquired the net assets of 2CONFER, LLC ("2CONFER"), a Chicago-based provider of videoconferencing, audio and data solutions. The total consideration was $800,000, consisting of $500,000 in cash and the remainder in our common stock valued at the time of acquisition at $300,000. On the date of the acquisition, the assets and liabilities of 2CONFER were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In October 2000, we acquired the assets and certain liabilities of the Johns Brook Company ("JBC") videoconferencing division, a New Jersey-based provider of videoconferencing solutions. The total consideration was $635,000, consisting of $481,000 in cash and the remainder in our common stock valued at the time of acquisition at $154,000. On the date of the acquisition, the assets and certain liabilities of the JBC videoconferencing division were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In June 2001, we acquired the assets of GeoVideo Networks, Inc. ("GeoVideo"), a New York-based developer of video communications software. Chief among the assets, in addition to GeoVideo's cash on hand of $2,500,000, was GeoVideo's browser, a software tool based upon proprietary Bell Labs technology that allows up to six simultaneous, real-time, bi-directional high-bandwidth IP video sessions to be conducted over a standard desktop PC. In exchange for the acquired assets, we issued 815,661 shares of our common stock, together with warrants to purchase 501,733 additional shares of our common stock at $5.50 per share and 520,123 shares at $7.50 per share. On the date of acquisition the assets of GeoVideo were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In July 2001, we acquired the assets and certain liabilities of Advanced Acoustical Concepts, Inc. ("AAC"), an Ohio-based designer of audiovisual conferencing systems. The total consideration was $794,000, which was paid in the form of our common stock valued at the time of acquisition. On the date of acquisition, the assets and certain liabilities were recorded at their fair values, with the excess purchase consideration allocated to goodwill. A final appraisal of certain assets included in the acquisition has not been completed. Pending the results of the appraisal, the allocation among the various components of the purchase price may change; however, any such reallocation will not materially affect our overall financial position or results of operations. In October 2001, we completed the sale of our voice communications business unit to Fairfield, N.J.-based Phonextra, Inc. for approximately $2,017,000, half of which was paid in cash at the close of the transaction and the balance of which was paid in the form of a promissory note self-amortizing over one year. The sale of our voice communications unit was aimed at enabling us to sharpen our focus on video solutions and on Glowpoint, our subscriber-based IP network dedicated to video communications traffic. As a consequence, this unit has been classified as a discontinued operation in the accompanying financial statements. In November 2001, we acquired certain assets and liabilities of the video conferencing division of Axxis, Inc. ("Axxis"), a Kentucky-based designer of audiovisual conferencing systems. The total consideration was $2,051,000, which was paid in the form of our common stock valued at the time of acquisition. On the date of acquisition, the acquired assets and liabilities were recorded at their fair values, with the excess purchase consideration allocated to goodwill. A final appraisal of certain assets included in the acquisition has not been completed. Pending the results of the appraisal, the allocation among the various components of the purchase price may change; however, any such reallocation will not materially affect our overall financial position or results of operations. 8 Wire One Technologies, Inc. Results of Operations (Unaudited)
Six Months Ended June 30, Three Months Ended June 30, ------------------------- --------------------------- 2002 2001 2002 2001 ---------- ----------- ---------- ------------ Revenues Video Solutions 95.6% 95.2% 95.5% 95.0% Video Network 4.4% 4.8% 4.5% 5.0% ---------- ---------- ---------- ---------- 100.0% 100.0% 100.0% 100.0% ---------- ---------- ---------- ---------- Cost of revenues Video Solutions 72.6% 66.8% 73.8% 67.1% Video Network 92.3% 76.3% 95.8% 77.0% ---------- ---------- ---------- ---------- 73.5% 67.2% 74.8% 67.6% ---------- ---------- ---------- ---------- Gross margin Video Solutions 27.4% 33.2% 26.2% 32.9% Video Network 7.7% 23.7% 4.2% 23.0% ---------- ---------- ---------- ---------- 26.5% 32.8% 25.2% 32.4% ---------- ---------- ---------- ---------- Operating expenses Selling 30.0% 30.1% 29.5% 28.7% General and administrative 7.3% 8.4% 7.0% 9.0% Restructuring 1.8% 0.0% 3.4% 0.0% Amortization of goodwill 0.0% 3.3% 0.0% 3.1% ---------- ---------- ---------- ---------- Total operating expenses 39.1% 41.8% 39.9% 40.8% ---------- ---------- ---------- ---------- Loss from continuing operations (12.6)% (9.0)% (14.7)% (8.4)% ---------- ---------- ---------- ---------- Other (income) expense Amortization of deferred financing costs 0.1% 0.1% 0.2% 0.1% Interest income (0.1)% (0.1)% (0.1)% (0.1)% Interest expense 0.2% 0.8% 0.3% 1.1% ---------- ---------- ---------- ---------- Total other expenses, net 0.2% 0.8% 0.4% 1.1% ---------- ---------- ---------- ---------- Net loss from continuing operations (12.8)% (9.8)% (15.1)% (9.5)% Income (loss) from discontinued operations (0.2)% (0.3)% (0.4)% 0.7% ---------- ---------- ---------- ---------- Net loss (13.0)% (10.1)% (15.5)% (8.8)% Deemed dividends on series A convertible preferred stock 0.0% 11.8% 0.0% 19.9% ---------- ---------- ---------- ---------- Net loss attributable to common stockholders (13.0)% (21.9)% (15.5)% (28.7)% ========== ========== ========== ==========
9 Six Months Ended June 30, 2002 ("2002 period") Compared to Six Months Ended June 30, 2001 ("2001 period") and Three Months Ended June 30, 2002 ("June 2002 quarter") Compared to Three Months Ended June 30, 2001 ("June 2001 quarter"). NET REVENUES. The Company reported net revenues of $53.0 million for the 2002 period, an increase of $15.4 million, or 41%, over the $37.6 million in revenues reported for the 2001 period. Net revenues of $28.0 million for the June 2002 quarter represent an increase of $7.7 million, or 37.8%, over the $20.3 million reported for the June 2001 quarter. Although the operations of acquired companies have now been fully integrated into the Company, management estimates that approximately $6.0 million of the $15.4 million increase in revenues for the 2002 period over the 2001 period related to the core businesses in existence before contributions from AAC and Axxis and $9.4 million in revenues from AAC and Axxis accounted for the remainder of the growth. Approximately $3.0 million of the $7.7 million increase in revenues for the June 2002 quarter over the June 2001 quarter related to the core businesses in existence before contributions from AAC and Axxis and $4.7 million in revenues from AAC and Axxis accounted for remainder of the growth. Video solutions -- Sales of video communications products and services were $50.6 million in the 2002 period, an increase of $14.8 million, or 41.4%, over the $35.8 million in the 2001 period. Net revenues of $26.7 million for the June 2002 quarter represent an increase of $7.4 million, or 38.5%, over the $19.3 million reported for the June 2001 quarter. Management estimates that approximately $5.4 million of the $14.8 million increase in revenues for the 2002 period over the 2001 period related to the core businesses in existence before contributions from AAC and Axxis and $9.4 million in revenues from AAC and Axxis accounted for the remainder of the growth. The growth experienced in the 2002 period resulted from sales to both new and existing customers in the commercial, government, medical and educational markets in each of the major geographic regions in the United States in which the Company operates, with particular strength experienced in the state and local government and education sectors. Approximately $2.7 million of the $7.4 million increase in revenues for the June 2002 quarter over the June 2001 quarter related to the core businesses in existence before contributions from AAC and Axxis and $4.7 million in revenues from AAC and Axxis accounted for the remainder of the growth. Video network -- Sales of video network services were $2.4 million in the 2002 period, an increase of $0.6 million, or 29.4%, over the $1.8 million in the 2001 period. Net revenues of $1.3 million for the June 2002 quarter represent an increase of $0.3, or 24.6%, over the $1.0 million reported for the June 2001 quarter. Management estimates that approximately $0.8 million of the $0.5 million net increase in revenues for the 2002 period over the 2001 period related to growth resulting from the introduction of the Glowpoint network and a $0.3 million decrease in revenues from VTI's H.320 bridging service accounted for the remainder of the change. GROSS MARGINS. Gross margins were $14.0 million in the 2002 period, an increase of $1.7 million over the $12.3 million in the 2001 period. Gross margins decreased in the 2002 period to 26.5% of net revenues, as compared to 32.8% of net revenues in the 2001 period. Gross margins were $7.1 million in the June 2002 quarter, an increase of $0.5 million over the $6.6 million in the June 2001 quarter. Gross margins decreased in the June 2002 quarter to 25.2% of net revenues, as compared to 32.4% of net revenues in the June 2001 quarter. In the 2002 period and the June 2002 quarter, the Company experienced a continuation of a trend that has been experienced in recent quarters, namely, heightened competitive pressure in the video solutions business resulting from the relatively weak economy and downward pricing pressure instigated by heavy competition for orders. SELLING. Selling expenses, which include sales salaries, commissions, overhead, and marketing costs, at $15.9 million in the 2002 period, were up $4.6 million from the $11.3 million reported for the 2002 period, but were down as a percentage of revenue from 30.1% in the 2001 period to 30.0% in the 2002 period. Selling expenses increased $2.4 million to $8.2 million, in the June 2002 quarter to 29.5% of revenue from $5.8 million, or 28.7% of revenue for the 2001 quarter. The year to date decline in expenses as a percentage of revenue was achieved as the Company continued to make investments in staff and related costs for the Glowpoint division and the video solutions business and increased its AV custom integration business with the acquisitions of AAC and Axxis. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $0.7 million in the 2002 period to $3.8 million as compared to $3.1 million for the 2001 period. General and administrative expenses as a percentage of net revenues for the 2002 period declined from 8.4% in the 2001 period to 7.3% in the 2002 period. General and administrative expenses increased $0.1 million to $1.9 million in the June 2002 quarter from $1.8 million for the June 2001 quarter but declined as a percentage of net revenue 10 from 9.0% in the 2001 quarter to 7.0% in the 2002 quarter. Management continues to leverage the general and administrative infrastructure costs of its Executive, Finance, Legal and Human Resource groups over a greater revenue base. RESTRUCTURING. A restructuring charge of $960,000 was recorded in the June 2002 quarter. Approximately half of the charge related to the costs of vacating certain sales offices with the other half related to severance and other personnel-related costs. This restructuring charge is being taken to position the Company to realize approximately $7 million in annual operating expense savings. AMORTIZATION OF GOODWILL. Amortization expense was zero in the 2002 period as the Company implemented the provisions of Financial Accounting Standards Board Statement No. 142, Goodwill and Other Intangible Assets ("FAS 142"). Amortization expense was $1.3 million in the 2001 period and $0.6 million for the June 2001 quarter. OTHER (INCOME) EXPENSES. Other expenses decreased $192,000 to $107,000 in the 2002 period from $299,000 in the 2001 period. The principal component of this category, interest expense, decreased approximately $212,000 to $106,000 in the 2002 period from $318,000 in the 2001 period. The decline in interest expense resulted from paying down the outstanding balance under its prior bank line of credit from the proceeds of its $20.3 million common stock offering early in the 2002 period. For the June 2002 quarter, other expenses decreased $129,000 to $87,000 from $216,000 in the June 2001 quarter. DISCONTINUED OPERATIONS. As a result of some post-closing adjustments related to the sale of its voice communications business, the Company incurred a $101,000 loss from discontinued operations in the 2002 period. The Company incurred a loss from discontinued operations in the 2001 period of approximately $105,000. The loss from discontinued operations in the 2001 period resulted from lower revenues to cover the fixed costs of the voice communications unit and higher costs of revenues as competitive pressures reduced gross margins. NET LOSS. The Company reported a net loss attributable to common stockholders for the 2002 period of $(6.9) million, or $(.24) per diluted share, as compared to a net loss attributable to common stockholders of $(8.3) million, or $(.46) per diluted share for the 2001 period. The $(6.9) million net loss for the 2002 period primarily results from depreciation and amortization charges totaling $2.6 million and $2.0 million of costs related to the Glowpoint network service offering. EBITDA from continuing operations for the 2002 period was $(3.0) million. The $(8.2) million net loss for the 2001 period primarily results from depreciation and amortization charges totaling $2.9 million, $4.4 million in deemed dividends on series A preferred stock, and $1.0 million of costs related to the Glowpoint network service offering. EBITDA from continuing operations for the 2001 period was $(0.2) million. Liquidity and Capital Resources At June 30, 2002, the Company had working capital of $36.5 million compared to $15.6 million at December 31, 2001, an increase of approximately 133.3%. The Company had $7.4 million in cash and cash equivalents at June 30, 2002 compared to $1.7 million at December 31, 2001. The $20.9 million increase in working capital resulted primarily from the January 2002 common stock offering of $20.3 million, the reclassification of $8.5 million of bank debt from current to long-term and, the $6.9 million net loss for the 2002 period. Net cash used in operating activities for the 2002 period was $(9.8) million as compared to net cash used in operations of $(3.1) million during the 2001 period. Increases in other current assets of $4.9 million and inventory of $1.4 million and a cash loss from operations of $4.1 million were the primary uses of operating cash in the 2002 period. Investing activities for the 2002 period included purchases of $3.0 million of network equipment and computer equipment and software, primarily for the Company's Glowpoint network. Financing activities in the 2002 period included the issuance of common stock in a public offering under a shelf registration yielding net proceeds of $20.3 million and a net pay down of the Company's revolving credit line totaling $2.1 million. 11 In May 2002, the Company entered into a $25 million working capital credit facility with an asset based lender. Under terms of the three-year agreement for this facility, loan availability is based on (1) 80% of eligible accounts receivable and (2) the lesser of 50% against eligible finished goods inventory or 80% against the net eligible amount of the net orderly liquidation value by category of finished goods inventory as determined by an outside appraisal firm, subject to an inventory cap of $3 million. Borrowings bear interest at the lender's base rate plus 3/4% per annum. At June 30, 2002, $8.5 million was outstanding under this facility and the loan has been classified as non-current in the accompanying balance sheet because the facility matures in more than one year. The credit facility contains certain financial and operational covenants. For the six month period ended June 30, 2002, the Company was in violation of the covenant requiring the Company to meet a certain earnings before interest, taxes, depreciation and amortization ("EBITDA") target. On July 30, 2002, the Company received a waiver from the lender regarding this requirement as part of an amendment to the credit agreement. Management believes, based upon current circumstances, that it has adequate capital resources to support expected operating levels for the next twelve months. Critical accounting policies We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some critical areas where estimates are required. Revenue recognition We sell both products and services. Product revenue consists of revenue from the sale of video communications equipment and is recognized at the time of shipment, provided no significant obligations remain, collectibility is probable and returns are estimable. Service revenue is derived from services rendered in connection with the sale of new systems and the maintenance of previously installed systems. Services rendered in connection with the sale of new systems consist of engineering services related to system integration, technical training and user training. The majority of the services are rendered at or prior to installation, and all revenue is recognized when services are rendered. Revenue related to extended service contracts is deferred and recognized over the life of the extended service period. Long-lived assets We evaluate impairment losses on long-lived assets used in operations, primarily fixed assets and goodwill, when events and circumstances indicate that the carrying value of the assets and goodwill might not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets would be compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed these undiscounted cash flows, the related assets will be written down to fair value. There were no impairment losses recorded in any of the periods presented. Recent pronouncements of the Financial Accounting Standards Board In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement of Financial 12 Accounting Standards ("FAS 133"). "Accounting for Derivative Instruments and Hedging Activities", which became effective for the Company during the first quarter of 2001. FAS 133 requires the recognition of all derivatives as either assets or liabilities in our balance sheet and measurement of those instruments at fair value. To date, we have not entered into any derivative or hedging activities, and, as such, the adoption of FAS 133, as amended, has not had a material effect on its consolidated financial statements. In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations ("FAS 141"), and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. FAS 141 also requires that we recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. FAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of FAS 142, that we reclassify, if necessary, the carrying amounts of intangible assets and goodwill based on the criteria in FAS 141. FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, FAS 142 requires that we identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in FAS 142. FAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. FAS 142 requires us to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of FAS 142. With respect to the Company's business combinations that were effected prior to June 30, 2001, using the purchase method of accounting, the net carrying amount of the resulting goodwill as of June 30, 2002 was $36,775,028. No amortization expense was recorded in the six-month period ended June 30, 2002. Acquisitions occurring subsequent to July 1, 2001 have been accounted for using the purchase method of accounting. The Company is in the process of obtaining appraisals of the assets acquired for the purpose of allocating the purchase price to all tangible and intangible assets acquired. We have determined that our business consists of two reporting units for purposes of assessing existing goodwill for impairment. An impairment charge will be recognized for the amount, if any, which the carrying amount of goodwill exceeds its implied fair value. We have completed Step 1 of FAS 142 and deemed a potential impairment exists. We are in the process of quantifying the impairment (Step 2 of FAS 142) and expect to complete the process in the third quarter of 2002. We currently do not have any reasonable estimate of the amount of impairment which could range from $0 to the entire goodwill being carried at $42,588,509. The effect on 2001 reported net loss attributable to common stockholders and net loss per share excluding goodwill amortization is as follows:
Six Months Ended June 30, Three Months Ended June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Reported net loss attributable to common stockholders $ (6,875,725) $ (8,244,545) $ (4,317,217) $ (5,822,672) Goodwill amortization -- 1,270,722 -- 642,526 ------------- ------------- ------------- ------------- Adjusted net loss attributable to common stockholders $ (6,875,725) $ (6,973,823) $ (4,317,217) $ (5,180,146) ============= ============= ============= ============= Reported net loss per share $ (0.24) $ (0.46) $ (0.15) $ (0.32) Goodwill amortization -- 0.07 -- 0.04 ------------- ------------- ------------- ------------- Adjusted net loss per share $ (0.24) $ (0.39) $ (0.15) $ (0.28) ============= ============= ============= =============
In August 2001, the FASB issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"). The new guidance resolves significant implementation issues related to FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("FAS 121"). FAS 144 supercedes FAS 121, but it retains FAS 121's fundamental provisions. It also amends Account Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidate a subsidiary for which control is likely to be temporary. FAS 144 retains the requirement of FAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset within the scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds its fair value. FAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The Company has early adopted the provisions of FAS 144 as of December 31, 2001 to recognize discontinued business operations in its financial statements. Inflation Management does not believe inflation had a material adverse effect on the financial statements for the periods presented. 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk We have exposure to interest rate risk related to our cash equivalents portfolio. The primary objective of our investment policy is to preserve principal while maximizing yields. Our cash equivalents portfolio is short-term in nature, therefore changes in interest rates will not materially impact our consolidated financial condition. However, such interest rate changes can cause fluctuations in our results of operations and cash flows. We maintain borrowings under a $25 million working capital credit facility with an asset based lender that are not subject to material market risk exposure except for such risks relating to fluctuations in market interest rates. The carrying value of these borrowings approximates fair value since they bear interest at a floating rate based on the "prime" rate. There are no other material qualitative or quantitative market risks particular to the Company. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is defending several suits or claims in the ordinary course of business, none of which individually or in the aggregate is material to the Company's business, financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting ("Annual Meeting") of Stockholders of Wire One Technologies, Inc. was held on May 23, 2002. The 24,916,903 shares of Common Stock ("Common Stock") present at the Annual Meeting out of a then total of 28,933,801 shares outstanding and entitled to vote acted as follows with respect to the following proposals with the following results: Proposal 1. (a) The election of Richard Reiss to the Board of Directors was approved: FOR AGAINST ABSTAIN 24,657,436 259,467 0 (b) The election of Dean Hiltzik to the Board of Directors was approved: FOR AGAINST ABSTAIN 24,584,308 332,595 0 (c) The election of Lewis Jaffe to the Board of Directors was approved: FOR AGAINST ABSTAIN 24,593,092 323,811 0 Proposal 2. The amendment to the 2000 Stock Incentive Plan was approved: FOR AGAINST ABSTAIN 22,459,719 2,428,849 28,335 Proposal 3. The ratification of the appointment of BDO Seidman as independent auditors was approved: FOR AGAINST ABSTAIN 24,849,585 49,053 18,265 ITEM 5. OTHER INFORMATION None. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10 Material Agreements 10.1 Amendment Agreement No. 1 to the Credit Agreement with JPMorgan Chase Bank 10.2 Amendment to Richard Reiss Employment Agreement 10.3 Amendment to Leo Flotron Employment Agreement 10.4 Amendment to Jonathan Birkhahn Employment Agreement 10.5 Amendment to Christopher Zigmont Employment Agreement 10.6 Amendment to Michael Brandofino Employment Agreement 10.7 Amendment to Kelly Harman Employment Agreement 10.8 Lewis Jaffe Consulting Agreement 99.1 CEO Certification 99.2 CFO Certification (b) Reports on Form 8-K Current Report on Form 8-K (File No. 000-25940) related to the Company's new $25 million, three-year senior secured revolving credit facility with JPMorgan Chase Bank filed on June 10, 2002 and incorporated herein by reference. 15 Signatures In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WIRE ONE TECHNOLOGIES, INC. Registrant Date: August 14, 2002 By: /s/ Richard Reiss -------------------------- Richard Reiss, Chief Executive Officer Date: August 14, 2002 By: /s/ Christopher Zigmont -------------------------- Christopher Zigmont, Chief Financial Officer (principal financial and accounting officer) 16 EX-10.1 3 d51271_ex10-1.txt CREDIT AGREEMENT Exhibit 10.1 AMENDMENT AGREEMENT NO. 1 AMENDMENT AGREEMENT NO. 1 (this "Agreement") dated as of July 30, 2002 to the CREDIT AGREEMENT, dated as of May 31, 2002, (as the same may be amended, restated, modified or supplemented from time to time, the "Credit Agreement"), among WIRE ONE TECHNOLOGIES, INC. (the "Borrower"), the lenders named therein (the "Lenders") and JPMORGAN CHASE BANK, as administrative agent for the Lenders (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower has requested that the Required Lenders agree to amend certain provisions of the Credit Agreement. NOW, THEREFORE, the parties agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT SECTION 1.1 The definition of "Availability Block" in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "Availability Block" means (i) $4,000,000, or (ii) if at any time (A) the Leverage Ratio is less than or equal to 4.00:1.00 for two consecutive fiscal quarters (and based on projections satisfactory to the Lenders, the Leverage Ratio will be less than or equal to 4.00:1.00 for the subsequent consecutive four fiscal quarters) and (B) the Fixed Charge Coverage Ratio is equal to or greater than 1.25:1.00 for two consecutive fiscal quarters (and based on projections satisfactory to the Lenders, the Fixed Charge Coverage Ratio will be equal to or greater than 1.25:1.00 for the subsequent consecutive four fiscal quarters), $2,500,000. SECTION 1.2 Section 5.04 of the Credit Agreement is hereby amended by deleting, in its entirety, clause (y) thereof, and substituting, in lieu thereof, the following: "(y) shall have the right to retain an inventory appraiser to appraise the inventory Collateral at any time and from time to time upon notice to the Borrower." SECTION 1.3 Section 6.09 of the Credit Agreement is hereby amended by deleting, in its entirety, the chart appearing in such section and substituting, in lieu thereof, the following: Period Amount ------ ------ For the fiscal year ending December 31, 2002 $4,500,000 For the fiscal year ending December 31, 2003 and in each fiscal year thereafter $3,000,000 SECTION 1.4 Section 6.10 of the Credit Agreement is hereby deleted in its entirety. SECTION 1.5 Section 6.11 of the Credit Agreement is hereby deleted in its entirety. SECTION 1.6 Section 6.12 of the Credit Agreement is hereby amended by deleting, in its entirety, the chart appearing in such section and substituting, in lieu thereof, the following: Period Amount ------ ------ Three fiscal quarters ending ($4,250,000) September 30, 2002 Four fiscal quarters ending ($4,250,000) December 31, 2002 Four fiscal quarters ending ($3,750,000) March 31, 2003 Four fiscal quarters ending ($2,000,000) June 30, 2003 Four fiscal quarters ending ($ 750,000) September 30, 2003 Four fiscal quarters ending $ 400,000 December 31, 2003 Four fiscal quarters ending $ 1,000,000 March 31, 2004 Four fiscal quarters ending $ 2,250,000 June 30, 2004 Period Amount ------ ------ Four fiscal quarters ending $ 3,500,000 September 30, 2004 Four fiscal quarters ending $5,000,000 December 31, 2004 and each four fiscal quarters thereafter SECTION 2. CONFIRMATION OF FINANCING DOCUMENTS SECTION 2.1 The Borrower, by its execution and delivery of this Agreement, irrevocably and unconditionally ratifies and confirms in favor of the Administrative Agent that the Financing Documents shall continue in full force and effect in accordance with their terms. SECTION 3. COVENANTS SECTION 3.1 The Borrower will furnish to the Administrative Agent within 20 days after the end of each fiscal month, an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal month, together with the related consolidated statement of income for such fiscal month and the related consolidated statement of cash flows at the end of such fiscal month, in each case certified by a Financial Officer of the Borrower as presenting fairly in all material respects the financial position and results of operations and cash flow of the Borrower and its Subsidiaries in accordance with GAAP. In the event that the Borrower does not complete the preparation of the financial statements for any such fiscal month pursuant to this Section 3.1, the Borrower will furnish to the Administrative Agent within 20 days after the end of such fiscal month, flash reports satisfactory to the Administrative Agent. Failure to comply with this reporting requirement shall constitute an Event of Default. SECTION 4. CONDITIONS PRECEDENT This Agreement shall become effective upon the execution and delivery of counterparts hereof by the Borrower, the Administrative Agent and the Lenders and the fulfillment of the following conditions: SECTION 4.1 All legal matters in connection with this Agreement shall be satisfactory to the Administrative Agent, the Lenders and their respective counsel in their sole discretion. SECTION 4.2 Kaye Scholer LLP, counsel to the Administrative Agent, shall have received payment in full for all legal fees charged, and all costs and expenses incurred, by such counsel through the date hereof and all legal fees charged, and all costs and expenses incurred, by such counsel in connection with the transactions contemplated under this Agreement and the other Loan Documents and instruments in connection herewith and therewith. SECTION 4.3 The Administrative Agent shall have received an amendment fee (the "Amendment Fee") in the amount of $62,500, provided, however, that in the event that within seven Business Days of the date of this Agreement, the Borrower and the Administrative Agent enter into an agreement satisfactory to the Administrative Agent and the Borrower for the purchase of 50,000 options of the Borrower, then the Administrative Agent shall refund to the Borrower an amount equal to $25,000 of the Amendment Fee. SECTION 4.4 The Administrative Agent shall have received such other approvals, opinions or documents as the Administrative Agent may reasonably request. SECTION 5. MISCELLANEOUS SECTION 5.1 The Borrower reaffirms and restates the representations and warranties set forth in Article III of the Credit Agreement (except as set forth in the revised financial model for the Borrower delivered to the Administrative Agent on July 18, 2002), after giving effect to the transactions contemplated herein, and all such representations and warranties shall be true and correct on the date hereof with the same force and effect as if made on such date (unless expressly related to an earlier date). The Borrower represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to the Administrative Agent that: (a) It has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement and the transactions contemplated hereby and has taken or caused to be taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; (b) No consent of any other person (including, without limitation, shareholders or creditors of the Borrower), and no action of, or filing with any governmental or public body or authority is required to authorize, or is otherwise required in connection with the execution, delivery and performance of this Agreement; (c) This Agreement has been duly executed and delivered on behalf of the Borrower by a duly authorized officer, and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally and the exercise of judicial discretion in accordance with general principles of equity; and (d) The execution, delivery and performance of this Agreement will not violate any law, statute or regulation, or any order or decree of any court or governmental instrumentality, or conflict with, or result in the breach of, or constitute a default under any contractual obligation of the Borrower. SECTION 5.2 Except as herein expressly amended, the Credit Agreement is ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms. SECTION 5.3 All references to the Credit Agreement in the Credit Agreement and the other Financing Documents and the other documents and instruments delivered pursuant to or in connection therewith shall mean the Credit Agreement as amended hereby and as may in the future be amended, restated, supplemented or modified from time to time. SECTION 5.4 This Agreement may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. SECTION 5.5 Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 5.6 THIS AGREEMENT, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE STATE OF NEW YORK, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. SECTION 5.7 The parties hereto shall, at any time and from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such further actions as may be reasonably necessary or appropriate in order to carry out the provisions of this Agreement. [Remainder Intentionally Left Blank] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. WIRE ONE TECHNOLOGIES, INC., as Borrower By:_____________________________ Name: Title: JPMORGAN CHASE BANK, as Administrative Agent and Lender By:_____________________________ Name: Title: EX-10.2 4 d51271_ex10-2.txt AMENDMENT TO RICHARD REISS EMP. AGMT. Exhibit 10.2 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 July 30, 2002 Mr. Richard Reiss 10 Timber Acres Road Springfield, New Jersey 07081 Dear Rich: This letter, when accepted by you, shall constitute an amendment to the employment agreement, as previously amended (the "Agreement"), dated January 2, 2001, between Wire One Technologies, Inc. (the "Company") and you. The Company and you hereby agree as follows: 1. The Company has requested that, to contribute to an improvement in the Company's financial condition and for no other reason, you agree, as an amendment to paragraph 2(a) of the Agreement, to reduce your base salary compensation thereunder so as to be payable at the rate of (a) $369,000 per annum during the period commencing on August 5, 2002, through December 31, 2002, and (b) $432,000 per annum during the period commencing on January 1, 2003, through December 31, 2003. In consideration of the agreement by several other of the Company's executives to salary reductions similar in nature, you hereby agree to the salary reduction set forth in the preceding sentence. 2. Except as modified hereby, the Agreement remains in full force and effect. Yours very truly, WIRE ONE TECHNOLOGIES, INC. By: /s/ Jonathan Birkhahn ---------------------------- Jonathan Birkhahn ACCEPTED: /s/ Richard Reiss - --------------------------- Richard Reiss EX-10.3 5 d51271_ex10-3.txt AMENDMENT TO LEO FLOTRON EMP. AGMT. Exhibit 10.3 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 July 30, 2002 Mr. Leo Flotron C/o Wire One Technologies, Inc. 4600 Lyons Road Miamisburg, OH 45342 Dear Leo: This letter, when accepted by you, shall constitute an amendment to the employment agreement (the "Agreement"), dated January 2, 2001, between Wire One Technologies, Inc. (the "Company") and you. The Company and you hereby agree as follows: 1. The Company has requested that, to contribute to an improvement in the Company's financial condition and for no other reason, you agree, as an amendment to paragraph 2(a) of the Agreement, to reduce your base salary compensation thereunder so as to be payable at the rate of (a) $337,500 per annum during the period commencing on August 5, 2002, through December 31, 2002, and (b) $382,500 per annum during the period commencing on January 1, 2003, through December 31, 2003. In consideration of the agreement by several other of the Company's executives to salary reductions similar in nature, you hereby agree to the salary reduction set forth in the preceding sentence. 2. Except as modified hereby, the Agreement remains in full force and effect. Yours very truly, WIRE ONE TECHNOLOGIES, INC. By: /s/ Jonathan Birkhahn ---------------------------- Jonathan Birkhahn ACCEPTED: /s/ Leo Flotron - ---------------------------- Leo Flotron EX-10.4 6 d51271_ex10-4.txt AMENDMENT TO JONATHAN BIRKHAHN EMP. AGMT. Exhibit 10.4 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 July 30, 2002 Mr. Jonathan Birkhahn 258 Riverside Drive, #8D New York, New York 10025 Dear Jon: This letter, when accepted by you, shall constitute an amendment to the employment agreement (the "Agreement"), dated November 30, 2000, between Wire One Technologies, Inc. (the "Company") and you. The Company and you hereby agree as follows: 1. The Company has requested that, to contribute to an improvement in the Company's financial condition and for no other reason, you agree, as an amendment to paragraph 2(a) of the Agreement, to reduce your base salary compensation thereunder so as to be payable at the rate of (a) $247,000 per annum during the period commencing on August 5, 2002, through November 29, 2002, and (b) $270,750 per annum during the period commencing on November 30, 2002, through November 29, 2003. In consideration of the agreement by several other of the Company's executives to salary reductions similar in nature, you hereby agree to the salary reduction set forth in the preceding sentence. 2. Except as modified hereby, the Agreement remains in full force and effect. Yours very truly, WIRE ONE TECHNOLOGIES, INC. By: /s/ Richard Reiss ---------------------------- Richard Reiss ACCEPTED: /s/ Jonathan Birkhahn - ---------------------------- Jonathan Birkhahn EX-10.5 7 d51271_ex10-5.txt AMENDMENT TO CHRISTOPHER ZIGMONT EMP. AGMT. Exhibit 10.5 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 July 30, 2002 Mr. Christopher Zigmont c/o Wire One Technologies, Inc. 27 Roulston Road Windham, NH 03087 Dear Chris: This letter, when accepted by you, shall constitute an amendment to the employment agreement (the "Agreement"), dated January 2, 2001, between Wire One Technologies, Inc. (the "Company") and you. The Company and you hereby agree as follows: 1. The Company has requested that, to contribute to an improvement in the Company's financial condition and for no other reason, you agree, as an amendment to paragraph 2(a) of the Agreement, to reduce your base salary compensation thereunder so as to be payable at the rate of (a) $190,000 per annum during the period commencing on August 5, 2002, through December 31, 2002, and (b) $213,750 per annum during the period commencing on January 1, 2003, through December 31, 2003. In consideration of the agreement by several other of the Company's executives to salary reductions similar in nature, you hereby agree to the salary reduction set forth in the preceding sentence. 2. Except as modified hereby, the Agreement remains in full force and effect. Yours very truly, WIRE ONE TECHNOLOGIES, INC. By: /s/ Jonathan Birkhahn ---------------------------- Jonathan Birkhahn ACCEPTED: /s/ Christopher Zigmont - ---------------------------- Christopher Zigmont EX-10.6 8 d51271_ex10-6.txt AMENDMENT TO MICHAEL BRANDOFINO EMP. AGMT. Exhibit 10.6 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 July 30, 2002 Mr. Michael Brandofino c/o Wire One Technologies, Inc. 225 Long Avenue Hillside, NJ 07205 Dear Mike: This letter, when accepted by you, shall constitute an amendment to the employment agreement (the "Agreement"), dated January 2, 2001, between Wire One Technologies, Inc. (the "Company") and you. The Company and you hereby agree as follows: 1. The Company has requested that, to contribute to an improvement in the Company's financial condition and for no other reason, you agree, as an amendment to paragraph 2(a) of the Agreement, to reduce your base salary compensation thereunder so as to be payable at the rate of (a) $185,250 per annum during the period commencing on August 5, 2002, through December 31, 2002, (b) $213,750 per annum during the period commencing on January 1, 2003, through December 31, 2003 and (c) $223,250 per annum during the period commencing on January 1, 2004, through December 31, 2004. In consideration of the agreement by several other of the Company's executives to salary reductions similar in nature, you hereby agree to the salary reduction set forth in the preceding sentence. 2. Except as modified hereby, the Agreement remains in full force and effect. Yours very truly, WIRE ONE TECHNOLOGIES, INC. By: /s/ Jonathan Birkhahn ---------------------------- Jonathan Birkhahn ACCEPTED: /s/ Michael Brandofino - ---------------------------- Michael Brandofino EX-10.7 9 d51271_ex10-7.txt AMENDMENT TO KELLY HARMAN EMP. AGMT. Exhibit 10.7 Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 July 30, 2002 Ms. Kelly Harman 7605 Croydon Place Manassas, VA 20109 Dear Kelly: This letter, when accepted by you, shall constitute an amendment to the employment agreement (the "Agreement"), dated January 2, 2001, between Wire One Technologies, Inc. (the "Company") and you. The Company and you hereby agree as follows: 1. The Company has requested that, to contribute to an improvement in the Company's financial condition and for no other reason, you agree, as an amendment to paragraph 2(a) of the Agreement, to reduce your base salary compensation thereunder so as to be payable at the rate of (a) $166,250 per annum during the period commencing on August 5, 2002, through December 31, 2002, and (b) $190,000 per annum during the period commencing on January 1, 2003, through December 31, 2003. In consideration of the agreement by several other of the Company's executives to salary reductions similar in nature, you hereby agree to the salary reduction set forth in the preceding sentence. 2. Except as modified hereby, the Agreement remains in full force and effect. Yours very truly, WIRE ONE TECHNOLOGIES, INC. By: /s/ Jonathan Birkhahn ---------------------------- Jonathan Birkhahn ACCEPTED: /s/ Kelly Harman - ---------------------------- Kelly Harman EX-10.8 10 d51271_ex10-8.txt LEWIS JAFFE CONSULTING AGREEMENT Exhibit 10.8 Consulting Agreement (this "Agreement') made this 22nd day of July 2002, between Wire One Technologies, Inc., a Delaware corporation having its principal office at 225 Long Avenue, Hillside, New Jersey 07205 (hereinafter "Wire One"), and Lewis Jaffe, 47 Gerald Road, Marblehead, MA 01945 (hereinafter "Consultant"). Whereas, Consultant is currently employed by Wire One as President and Vice Chairman under an agreement dated April 24, 2002 (the "Employment Agreement"); Whereas, Consultant and Wire One have determined it to be in their mutual best interests to terminate the term of the Employment Agreement, simultaneous with Consultant's return to his position as management consultant to assist Wire One's management in the areas of corporate development and investor relations, which position Consultant held preceding the Employment Agreement. Now Therefore, in consideration of their mutual promises made herein, and for other good and valuable consideration, the parties hereby agree as follows: 1. Termination of Term of Employment Agreement; Commencement of Consultancy Term. (a) The term of the Employment Agreement shall terminate on August 1, 2002 (the "Employment Agreement Termination Date"). Consultant shall, upon such termination, become entitled to receive severance compensation in connection therewith, in the form of a grant of a non-qualified stock option under the Company's 2000 Stock Incentive Plan (the "Plan") to purchase 84,000 shares of the Company's common stock (the "Common Stock"), at an exercise price equal to the closing price of the common stock on the NASDAQ National Market on the date hereof. Your right to exercise such option shall vest as follows: 50% upon grant, and 50% on July 31, 2003. The foregoing, as well as such other terms and conditions as Wire One may deem appropriate, shall be set forth in a definitive stock option agreement in Wire One's customary form. Your rights as an optionee shall, to the extent not inconsistent with this agreement, be governed by the terms of such stock option agreement and the Plan. (b) The term of Consultant's services under this Agreement (the "Consultancy Term") shall commence upon the execution of this Agreement and shall, subject to Paragraph 5 below, terminate on July 31, 2003. 2. Services. Consultant shall perform the following services hereunder: A. Assist Wire One in identifying and, if Wire One so directs, pursuing opportunities for corporate alliances, acquisitions and mergers; B. Assist Wire One in the field of investor relations, including presentations to and other communications with current and potential investors in Wire One. C. Advise Wire One on the means by which Wire One may achieve the goals in its business plan. 3. Compensation. As compensation for Consultant's services under this Agreement during the Consultancy Term, Wire One shall permit Consultant to retain a portion of the stock option granted to him under Paragraph 2(c) of the Employment Agreement (the "Employment Agreement Stock Option"), to the extent of an option to purchase 50,000 shares of Wire One Common Stock, to vest in ten installments of 5,000 shares per month, commencing on September 30, 2002, and exercisable, within each such installment, at a price of $3.04 per share as to 84% of such shares and $2.82 per share as to 16% of such shares, provided that such installments shall cease to vest upon any termination of the Consultancy Term in accordance with Paragraph 5 below. Consultant shall forfeit the remaining portion of the Employment Agreement Stock Option (that is, as to a total of 200,000 shares) upon the Employment Agreement Termination Date; Consultant shall, however, continue to retain the stock option granted to him under his initial consulting agreement with Wire One dated September 21, 2001. Consultant's rights as an optionee shall continue to be governed by the terms of the associated stock option agreements currently in effect and the Plan. Wire One shall, in addition to Consultant's compensation, reimburse Consultant for all reasonable expenses incurred by Consultant in the performance of his duties under this agreement, upon submission of evidence thereof reasonably satisfactory to Wire One. 4. Information. From time to time as requested by Consultant, Wire One shall furnish to Consultant all information that is reasonably necessary to enable Consultant to perform his duties under this agreement. Consultant shall not disclose any confidential information furnished to him by Wire One unless, and then only to the extent that, such disclosure is so necessary. 5. Consultant's Other Activities. Wire One acknowledges that Consultant plans to pursue employment by an employer other than Wire and that Consultant shall have the unrestricted right to pursue such employment, whether or not such employment results in a conflict of interest with the interests of Wire One (a "Conflict"). If Consultant secures any such employment (of which Consultant shall promptly notify Wire One, for purposes of both this Paragraph 5 and of Paragraph 1 (a) above), (a) Consultant shall have the right to terminate the Consultancy Term upon at least ten days' prior written notice to Wire One and (b) if Wire One reasonably determines that such employment results in a Conflict, Wire One shall have the right to terminate the Consultancy Term upon at least ten days' prior written notice to Consultant. 6. Ownership of Materials. Any compilation of data, work product and other materials provided or obtained by Consultant in performing his duties under this agreement shall be the sole and exclusive property of Wire One. 7. Miscellaneous. This agreement is made in the State of New Jersey and shall be governed by New Jersey law. This agreement constitutes the entire agreement, and shall supersede any prior or contemporaneous agreement, oral or written, between the parties hereto regarding Consultant's services to Wire One as an employee or consultant following the Employment Agreement Termination Date (it being understood that the provisions of the Employment Agreement that survive the termination of the "Employment Period" thereunder shall remain in full force and effect) and may not be modified or amended except by a written document signed by the party against whom enforcement is sought. This agreement may be signed in more than one counterpart, in which case each counterpart shall constitute an original of this agreement. IN WITNESS WHEREOF, the parties have signed this agreement as of the day and year first above written. WIRE ONE TECHNOLOGIES, INC. By: /s/ Jonathan Birkhahn ----------------------- Jonathan Birkhahn By: /s/ Lewis Jaffe ----------------------- Lewis Jaffe EX-99.1 11 d51271_ex99-1.txt CEO CERTIFICATION Exhibit 99.1 WIRE ONE TECHNOLOGIES, INC. CERTIFICATION In connection with the periodic report of Wire One technologies, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002, as filed with the Securities and Exchange Commission (the "Report"), I, Richard Reiss, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: August 14, 2002 By: /s/ Richard Reiss --------------------------- Richard Reiss Chief Executive Officer EX-99.2 12 d51271_ex99-2.txt CFO CERTIFICATION Exhibit 99.2 WIRE ONE TECHNOLOGIES, INC. CERTIFICATION In connection with the periodic report of Wire One Technologies, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002, as filed with the Securities and Exchange Commission (the "Report"), I, Christopher Zigmont, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: August 14, 2002 By: /s/ Christopher A. Zigmont --------------------------- Christopher A. Zigmont Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----