-----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, Psc+qOVVfKkCJo19a7iYOXuz7Wguyi/atmbULF7uWgD3V4SqGFR2v3dozb06A/gx 6iXhsSjc6VBKX0FfpryAsQ== 0001169232-03-005239.txt : 20030814 0001169232-03-005239.hdr.sgml : 20030814 20030814153803 ACCESSION NUMBER: 0001169232-03-005239 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 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: 03847324 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: VIEW TECH INC DATE OF NAME CHANGE: 19950418 FORMER COMPANY: FORMER CONFORMED NAME: VIEWTECH INC DATE OF NAME CHANGE: 19950418 10-Q 1 d56550_10-q.txt FORM 10-Q 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, 2003. 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 |_| Check whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act of 1934. Yes |_| No |X| The number of shares outstanding of the registrant's Common Stock as of August 12, 2003 was 29,583,081. WIRE ONE TECHNOLOGIES, INC Index PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements*..............................................................1 Consolidated Balance Sheets June 30, 2003 and December 31, 2002................................................1 Consolidated Statements of Operations For the Six Months and Three Months Ended June 30, 2003 and 2002...................2 Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2003 and 2002....................................3 Notes to Consolidated Financial Statements.................................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........9 Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................14 Item 4. Controls and Procedures........................................................................15 PART II. OTHER INFORMATION Item 1. Legal Proceedings..............................................................................15 Item 2. Changes in Securities and Use of Proceeds......................................................15 Item 3. Defaults Upon Senior Securities................................................................15 Item 4. Submission of Matters to a Vote of Security Holders............................................15 Item 5. Other Information..............................................................................15 Item 6. Exhibits and Reports on Form 8-K...............................................................15 Signatures.............................................................................................16 Certifications.........................................................................................17
* The Balance Sheet at December 31, 2002 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, 2003 December 31, 2002 ------------- ----------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ...................................... $ 907,188 $ 2,762,215 Accounts receivable-net ........................................ 2,016,190 1,277,891 Assets of discontinued AV operations ........................... 72,535 807,067 Assets of discontinued VS operations ........................... 34,072,174 41,314,701 Other current assets ........................................... 1,636,461 727,262 ------------- ------------- Total current assets ....................................... 38,704,548 46,889,136 Furniture, equipment and leasehold improvements-net ................. 12,627,010 11,512,415 Goodwill ............................................................ 2,547,862 2,547,862 Other assets ........................................................ 488,797 552,251 ------------- ------------- Total assets ............................................... $ 54,368,217 $ 61,501,664 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 1,968,035 $ 1,055,427 Accrued expenses ............................................... 625,253 681,369 Liabilities of discontinued VS operations ...................... 17,838,861 17,333,120 Current portion of capital lease obligations ................... 165,974 -- ------------- ------------- Total current liabilities .................................. 20,598,123 19,069,916 Bank loan payable ................................................... 4,519,741 5,845,516 ------------- ------------- Total liabilities .................................... 25,117,864 24,915,432 ------------- ------------- Commitments and contingencies Subordinated debentures ............................................. 4,888,000 4,888,000 Discount on subordinated debentures ................................. (4,066,373) (4,888,000) ------------- ------------- Subordinated debentures, net ................................... 821,627 -- ------------- ------------- Stockholders' Equity: Preferred stock, $.0001 par value; 5,000,000 shares authorized, none issued ................... -- -- Common Stock, $.0001 par value; 100,000,000 authorized; 29,551,097 and 28,931,660 shares outstanding, respectively ............................................... 2,955 2,893 Treasury stock, 39,891 shares at cost .......................... (239,742) (239,742) Additional paid-in capital ..................................... 132,523,780 131,132,374 Accumulated deficit ............................................ (103,858,267) (94,309,293) ------------- ------------- Total stockholders' equity ................................. 28,428,726 36,586,232 ------------- ------------- Total liabilities and stockholders' equity ................. $ 54,368,217 $ 61,501,664 ============= =============
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, ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net revenues ............................................... $ 4,901,488 $ 2,357,977 $ 2,674,630 $ 1,258,556 Cost of revenues ........................................... 4,898,606 2,175,847 2,604,320 1,206,306 ------------ ------------ ------------ ------------ Gross margin ............................................... 2,882 182,130 70,310 52,250 ------------ ------------ ------------ ------------ Operating expenses Selling ............................................... 2,941,463 2,183,805 1,654,784 1,157,238 General and administrative ............................ 2,632,012 2,367,718 1,397,348 1,215,844 Restructuring ......................................... -- 260,000 -- 260,000 ------------ ------------ ------------ ------------ Total operating expenses ................................... 5,573,475 4,811,523 3,052,132 2,633,082 ------------ ------------ ------------ ------------ Loss from continuing operations ............................ (5,570,593) (4,629,393) (2,981,822) (2,580,832) ------------ ------------ ------------ ------------ Other (income) expense Amortization of deferred financing costs .............. 92,763 59,695 47,254 45,938 Interest income ....................................... (5,800) (58,132) (611) (38,802) Interest expense ...................................... 786,983 105,786 413,933 79,547 Amortization of discount on subordinated debentures ... 992,875 -- 458,250 -- ------------ ------------ ------------ ------------ Total other expenses, net .................................. 1,866,821 107,349 918,826 86,683 ------------ ------------ ------------ ------------ Net loss from continuing operations ........................ (7,437,414) (4,736,742) (3,900,648) (2,667,515) Loss from discontinued AV operations ....................... (1,173,067) (1,268,474) (380,045) (695,593) Loss from discontinued VS operations ....................... (938,493) (769,170) (619,014) (852,770) Loss from discontinued Voice operations .................... -- (101,339) -- (101,339) ------------ ------------ ------------ ------------ Net loss attributable to common stockholders ............... $ (9,548,974) $ (6,875,725) $ (4,899,707) $ (4,317,217) ============ ============ ============ ============ Net loss from continuing operations per share: Basic and diluted ..................................... $ (0.26) $ (0.17) $ (0.14) $ (0.10) ============ ============ ============ ============ Loss from discontinued AV operations per share: Basic and diluted ..................................... $ (0.04) $ (0.04) $ (0.01) $ (0.02) ============ ============ ============ ============ Loss from discontinued VS operations per share: Basic and diluted ..................................... $ (0.03) $ (0.03) $ (0.02) $ (0.03) ============ ============ ============ ============ Loss from discontinued Voice operations per share: Basic and diluted ..................................... $ -- $ -- $ -- $ -- ============ ============ ============ ============ Net loss attributable to common stockholders per share: Basic and diluted ..................................... $ (0.33) $ (0.24) $ (0.17) $ (0.15) ============ ============ ============ ============ Weighted average number of common shares: Basic and diluted ..................................... 29,113,216 28,632,548 29,195,477 28,934,509 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 2 Wire One Technologies, Inc. Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, -------------------------------- 2003 2002 ------------ ------------ Cash flows from Operating Activities Net loss .......................................................... $ (9,548,974) $ (6,875,725) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ................................... 3,016,236 2,513,055 Amortization of deferred financing costs ........................ 92,763 59,695 Amortization of discount on subordinated debentures ............. 992,875 -- Non-cash compensation ........................................... 673,536 160,690 Increase (decrease) in cash attributable to changes in assets and liabilities, net of effects of acquisitions: Accounts receivable .................................... (738,300) 1,357,727 Inventory .............................................. -- (1,393,635) Assets of discontinued AV operations ................... 734,532 -- Assets of discontinued VS operations ................... 6,369,170 -- Other current assets ................................... (1,770,059) (4,883,513) Other assets ........................................... (10,196) (484,832) Accounts payable ....................................... 581,906 2,004,417 Accrued expenses ....................................... (56,117) 872,434 Liabilities of discontinued VS operations .............. 505,741 -- Deferred revenue ....................................... -- (1,641,890) Other current liabilities .............................. (66,127) (1,465,049) ------------ ------------ Net cash provided by (used in) operating activities ........................................ 776,986 (9,776,626) ------------ ------------ Cash flows from Investing Activities Purchases of furniture, equipment and leasehold improvements ................................................ (1,409,578) (2,998,969) ------------ ------------ Net cash used in investing activities .................... (1,409,578) (2,998,969) ------------ ------------ Cash flows from Financing Activities Proceeds from common stock offering ............................. -- 20,257,962 Costs of issuance of subordinated debentures .................... (171,248) -- Exercise of warrants and options, net ........................... 293,700 371,494 Proceeds from bank loans ........................................ 51,820,394 11,498,264 Payments on bank loans .......................................... (53,146,169) (13,646,992) Deferred financing costs ........................................ (19,112) -- Payments on capital lease obligations ........................... -- (32,053) ------------ ------------ Net cash provided by (used in) financing activities ...... (1,222,435) 18,448,675 ------------ ------------ Increase (decrease) in cash and cash equivalents ..................... (1,855,027) 5,673,080 Cash and cash equivalents at beginning of period ..................... 2,762,215 1,689,451 ------------ ------------ Cash and cash equivalents at end of period ........................... $ 907,188 $ 7,362,531 ============ ============ Supplement disclosures of cash flow information: Cash paid during the period for: Interest ........................................................ $ 225,059 $ 105,786 ============ ============ Taxes ........................................................... $ -- $ -- ============ ============
Non-cash financing and investing activities: Equipment with costs totaling $232,100 was acquired under capital lease arrangements during the six months ended June 30, 2003. See accompanying notes to consolidated financial statements. 3 WIRE ONE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 Note 1 -- The Business Wire One Technologies, Inc. operates Glowpoint(SM), the first IP-based subscriber network service dedicated to video communications. Launched in late 2000, Glowpoint carries video calls within the United States and to Europe and South America on a network provisioned through carrier-class backbone and last mile access partners over a variety of solutions including DSL, T1, ATM and Optical Ethernet. Glowpoint currently serves over 280 customers, has 1,720 endpoints installed or under contract and carries an average of 7,000 calls per month. The network service offers guaranteed up-time, real-time billing and usage information, gateway services to legacy ISDN-based sites, multi-point bridging, live operator assistance, encryption, scheduling features and international least-cost routing, among other value-added features. The Company, headquartered in Hillside, New Jersey, operates a state-of the-art network operations center in Hillside where research and development, software, network engineering, product development, product management and customer service functions are located. The Company also maintains an operations center in Camarillo, California where help desk facilities are located and multi-point bridging, live-operator assistance and other customer service functions are performed. On June 10, 2003, Wire One signed a definitive agreement to sell substantially all of the assets of its video solutions ("VS") segment to Gores Technology Group ("Gores"), a privately held international acquisition and management firm, in order to focus solely on growing its Glowpoint network service. The sale of Wire One's VS segment is subject to a number of contingencies, including stockholder approval and other customary closing conditions (see Note 6). The VS segment includes the Company's videoconferencing equipment distribution, system design and engineering, installation, operation and maintenance activities and consists of: a headquarters and warehouse facility in Miamisburg, Ohio; a help desk operation in Camarillo, California; 24 sales offices and demonstration facilities across the United States; and a client list of approximately 3,000 active customers with an installed base of approximately 22,000 video conferencing systems. As a result, this segment is classified as a discontinued operation in the accompanying financial statements with its assets and liabilities summarized in single line items on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statement of operations. See Note 6 for further information. 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 three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002 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. Note 3 -- Effect of Recently Issued Accounting Standards In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within the scope of SFAS No. 150 as a liability. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective beginning September 1, 2003. The adoption of SFAS No. 150 is not expected to have a material effect on the Company's financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. This interpretation defines the concept of "variable interests" and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. The provisions of FIN 46, which the Company adopted in 2003, did not have a material impact on the consolidated financial statements. 4 In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of this interpretation are effective for interim and annual periods after December 15, 2002. The initial recognition and initial measurement requirements of this interpretation are effective prospectively for guarantees issued or modified after December 31, 2002. The provisions of FIN 45, which the Company adopted in 2003, did not have a material impact on the consolidated financial statements. In November 2002, the Emerging Issues Task Force (EITF) reached consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables". Revenue arrangements with multiple deliverables include arrangements which provide for the delivery or performance of multiple products, services and/or rights to use assets where performance many occur at different points in time or over different periods of time. The Company generally enters into arrangements for multiple deliverables that occur at different points in time when it is engaged to provide installation services. EITF Issue No. 00-21 is effective for fiscal periods beginning after June 15, 2003. The Company has not completed the evaluation of the impact of EITF Issue No. 00-21. Note 4 -- Stock-Based Compensation At June 30, 2003, the Company accounts for its stock-based compensation plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". The following table illustrates, in accordance with the provisions of SFAS No. 148, the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.
Six Months Ended Three Months Ended June 30, June 30, --------------------------- ---------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net loss as reported ..................... $ (9,548,974) $(6,875,725) $(4,899,707) $(4,317,217) Add: stock-based compensation expense included in reported loss, net of tax .................... 111,595 160,690 55,262 54,986 Deduct: total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax .............. (1,854,682) (2,257,922) (665,587) (976,110) ------------ ----------- ----------- ----------- Pro forma net loss ....................... $(11,292,061) $(8,972,957) $(5,510,032) $(5,238,341) ============ =========== =========== =========== Loss per share: Basic and diluted - as reported .......... $ (0.33) $ (0.24) $ (0.17) $ (0.15) Basic and diluted - pro forma ............ $ (0.39) $ (0.31) $ (0.19) $ (0.18)
The fair value of the Company's stock-based option awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:
Six Months Ended Three Months Ended June 30, June 30, --------------------------- ---------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Risk free interest rate.................... 3.69% 4.02% 3.61% 3.76% Expected lives............................. 5 years 4 years 5 years 4 years Expected volatility........................ 102.04% 90.01% 57.76% 88.46%
5 Note 5 -- 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. 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 subordinated debentures using the if-converted method.
Six Months Ended Three Months Ended June 30, June 30, ----------------------------- ----------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Weighted average shares outstanding .................... 29,113,216 28,632,548 29,195,477 28,934,509 Effect of dilutive options and warrants ................ -- -- -- -- Weighted average shares outstanding ---------- ---------- ---------- ---------- including dilutive effect of securities ................ 29,113,216 28,632,548 29,195,477 28,934,509 ========== ========== ========== ==========
Weighted average options and warrants to purchase 12,010,926 and 11,832,214 shares of common stock and subordinated debentures convertible into 2,036,677 common shares were outstanding during the six and three months ended June 30, 2003. Weighted average options and warrants to purchase 10,619,267 and 10,587,974 shares of common stock were outstanding during the six and three months ended June 30, 2002. 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 anti-dilutive. Note 6 -- Discontinued Operations In March 2003, the Company completed the sale of certain assets and liabilities of its Audio-Visual ("AV") division to Signal Perfection Limited ("SPL") for approximately $807,000, $250,000 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 payable in five equal consecutive monthly payments commencing on April 15, 2003. The sale of the AV division was aimed at enabling the Company to focus more of its resources to the development and marketing of its subscriber-based IP network, Glowpoint, and to its VS segment. As a consequence, this division, previously part of the VS segment, has been classified as a discontinued operation in the accompanying financial statements, with its assets summarized in a single line item on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statements of operations. Assets of discontinued AV operations consist of the following:
June 30, 2003 December 31, 2002 ------------- ----------------- Inventory.......................................................... $ 72,535 $ 300,000 Earnings in excess of billings..................................... -- 507,067 ------------ ------------ Total..................................................... $ 72,535 $ 807,067 ============ ============
Revenues and pretax loss from discontinued AV operations are as follows:
Six Months Ended June 30, Three Months Ended June 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Revenues ............ $ 3,873,822 $ 9,093,235 $ 1,631,897 $ 3,281,284 Pretax loss ......... $(1,173,067) $(1,268,474) $ (380,045) $ (695,593)
6 On June 10, 2003, Wire One signed an asset purchase agreement with Gores. Pursuant to the asset purchase agreement, the Company agreed to sell to Gores all of the properties, rights, interests and other tangible and intangible assets that relate in any material respect to its VS segment. Gores will pay Wire One approximately $20 million in cash upon closing, which may be adjusted downward if any purchase price adjustments are required, and an unsecured promissory note in the principal amount of $1 million maturing on December 31, 2004 and bearing interest at a rate of 5% per annum. Gores will hold back $2 million to cover potential purchase price adjustments payable by Wire One arising under the asset purchase agreement. Gores will also pay Wire One on each of June 30, 2004 and June 30, 2005 additional payments, not to exceed an aggregate of $2 million, equal to five percent of the sum of (1) the amounts billed by Gores from the operation of the VS segment by Gores after the closing, plus (2) the annual revenues derived from the video solutions business of Pierce Technology Services, Inc. (formerly Forgent Networks, Inc.) for such year in excess of $96 million. If Gores sells substantially all of the assets of its video solutions business prior to June 30, 2005, whether by merger, sale of stock or sale of assets, for total consideration greater than $35 million, Gores will pay Wire One $2 million less amounts previously paid. As partial consideration for the purchase of assets, Gores will assume certain liabilities related to the VS segment, including (1) all liabilities to be paid or performed after the closing date that arise from or out of the performance or non-performance by Gores after the closing date of any contracts included in the assets or entered into after June 10, 2003 and (2) Wire One's accounts payable, customer deposits, deferred revenue and accrued liabilities related to the VS segment. The sale of Wire One's VS segment is subject to a number of contingencies, including stockholder approval and other customary closing conditions. A stockholder vote is expected to take place at the Company's 2003 Annual Meeting of Stockholders scheduled for Thursday, August 21, 2003. It is expected that, if approved, the closing of the sale will take place promptly after stockholder approval and all other closing conditions are satisfied, unless the parties agree upon another time. It is the intent of the parties to complete the sale of the VS segment as soon as practicable following approval by Wire One stockholders. The VS segment includes the Company's videoconferencing equipment distribution, system design and engineering, installation, operation and maintenance activities and consists of: a headquarters and warehouse facility in Miamisburg, Ohio; a help desk operation in Camarillo, California; 24 sales offices and demonstration facilities across the United States; and a client list of approximately 3,000 active customers with an installed base of approximately 22,000 video conferencing systems. As a result, this segment is classified as a discontinued operation in the accompanying financial statements, with its assets and liabilities summarized in single line items on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statement of operations. Assets of discontinued VS operations consist of the following: June 30, 2003 December 31, 2002 ------------- ----------------- Accounts receivable ................ $21,703,567 $24,163,666 Inventory .......................... 6,274,464 8,122,996 Other current assets ............... 3,892,199 6,149,214 Fixed assets ....................... 2,007,390 2,684,264 Other assets ....................... 194,554 194,561 ----------- ----------- Total ..................... $34,072,174 $41,314,701 =========== =========== 7 Liabilities of discontinued VS operations consist of the following: June 30, 2003 December 31, 2002 ------------- ----------------- Accounts payable ................... $ 8,926,350 $ 7,994,535 Accrued expenses ................... 1,406,300 1,441,444 Deferred revenue ................... 7,506,211 7,871,267 Other liabilities .................. -- 25,874 ----------- ----------- Total ..................... $17,838,861 $17,333,120 =========== =========== Revenues and pretax loss from discontinued VS operations are as follows:
Six Months Ended June 30, Three Months Ended June 30, ------------------------------ ------------------------------ 2003 2003 2003 2002 ------------ ------------ ------------ ------------ Revenues ............. $ 40,253,589 $ 41,565,209 $ 21,977,752 $ 23,472,446 Pretax loss .......... $ (938,493) $ (769,170) $ (619,014) $ (852,770)
Note 7 -- Bank Loan Payable In May 2002, the Company entered into a $25 million working capital credit facility with JPMorgan Chase Bank. 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 $2 million. Borrowings bear interest at the lender's base rate plus 1 1/2% per annum. The credit facility contains certain financial and operational covenants. In March 2003, the Company concluded an amendment to the credit facility which, among other things, reduced the commitment amount of the line of credit from $25 million to $15 million. For the period from April 1, 2003 through June 30, 2003, the Company was in compliance with the covenants of its credit agreement. At June 30, 2003, $4.5 million was outstanding under the facility and the interest rate was 5.50%. Proceeds from the sale of the VS segment will be used to pay down the outstanding balance under the facility to zero. The credit facility will remain in place subsequent to the closing of the VS sale transaction. The loan has been classified as non-current in the accompanying consolidated balance sheet because the facility matures on May 31, 2005. Note 8 -- Business Segments The Company followed SFAS No. 131, Disclosures about Segments of a Business Enterprise and Related Information, which establishes standards for reporting information about operating segments, for the period beginning January 1, 2002 and thereafter. Operating segments were defined as components of the Company about which separate financial information was evaluated regularly by the chief operating decision maker in deciding how to allocate resources and to assess financial performance. Prior to 2002, the Company was engaged in one business, providing customers with a single source for video products and services. During fiscal 2002, the Company's direct investment in the Glowpoint network had increased and the financial results of the Video Network segment became more material to the Company so that the Company determined that it was in two reportable segments for fiscal 2002 and, accordingly reported two operating segments, Video Solutions and Video Network. Pursuant to the Company's June 10, 2003 signing of the asset purchase agreement with Gores to sell the VS segment which resulted in the segment's results being reported as a discontinued operation, the Company is now engaged in one business, operating its IP-based subscriber network, Glowpoint. 8 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; 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 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 operates Glowpoint(SM), the first IP-based subscriber network dedicated to video communications. Launched in late 2000, Glowpoint carries video calls within the United States and to Europe and South America on a network provisioned through carrier-class backbone and last mile access partners over a variety of solutions including DSL, T1, ATM and Optical Ethernet. A recipient of Network World magazine's top rated World Class Award for "Quality of Service-guaranteed IP videoconferencing service", Glowpoint presently serves over 280 customers, has over 1,720 endpoints installed or under contract, and carries an average of over 7,000 calls per month. The network service offers guaranteed up-time, real-time billing and usage information, gateway services to legacy ISDN-based sites, multi-point bridging, live operator assistance, encryption, scheduling features and international least-cost routing, among other value-added features. Revenue related to the Glowpoint network subscriber service and the multi-point video and audio bridging services we offer are recognized through a monthly billing process after services have been rendered. In March 2003, we completed the sale of certain assets and liabilities of our AV division to SPL for approximately $807,000, $250,000 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 payable in five equal consecutive monthly payments commencing on April 15, 2003. The sale of our AV division was aimed at enabling us to focus more of our resources on the development and marketing of our Glowpoint network, and to our VS business. As a result, this division, previously a component of the VS segment, is classified as a discontinued operation in the accompanying financial statements, with its assets summarized in a single line item on our consolidated balance sheets and its results from operations summarized in a single line item on our consolidated statements of operations. See footnote 6 to the consolidated financial statements for further information. In June 2003, we signed an asset purchase agreement to sell all of the properties, rights, interests and other tangible and intangible assets relating to our VS business to Gores. The asset purchase agreement calls for Gores to pay us approximately $23 million to $25 million consisting of $20 million in cash upon closing, which may be adjusted downward if any purchase price adjustments are required, and an unsecured promissory note in the principal amount of $1 million maturing on December 31, 2004 and bearing interest at a rate of 5% per annum. Gores will hold back $2 million to cover potential purchase price adjustments payable by us arising under the asset purchase agreement. The sale of the VS business, which is expected to close in late August, is aimed at enabling us to further focus our resources on the development and marketing of Glowpoint, our subscriber-based IP network. As a result, this segment is classified as a discontinued operation in the accompanying financial statements, with its assets and liabilities summarized in single line 9 items on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statements of operations. See footnote 6 to the consolidated financial statements for further information. Wire One Technologies, Inc. Results of Operations (Unaudited)
Six Months Ended June 30, Three Months Ended June 30, ------------------------- --------------------------- 2003 2002 2003 2002 ------ ------ ------- ------- Net revenues .................................. 100.0% 100.0% 100.0% 100.0% Cost of revenues .............................. 99.9 92.3 97.4 95.9 ------ ------ ------ ------ Gross margin .................................. 0.1 7.7 2.6 4.1 ------ ------ ------ ------ Operating expenses Selling .................................. 60.0 92.6 61.9 91.9 General and administrative ............... 53.7 100.4 52.2 96.6 Restructuring ............................ -- 11.0 -- 20.7 ------ ------ ------ ------ Total operating expenses ...................... 113.7 204.0 114.1 209.2 ------ ------ ------ ------ Loss from continuing operations ............... (113.6) (196.3) (111.5) (205.1) ------ ------ ------ ------ Other (income) expense Amortization of deferred financing costs ................................ 1.9 2.6 1.8 3.7 Interest income .......................... (0.1) (2.5) -- (3.1) Interest expense ......................... 16.1 4.5 15.5 6.3 Amortization of discount on subordinated debentures .............. 20.3 -- 17.1 0.0 ------ ------ ------ ------ Total other expenses, net ..................... 38.2 4.6 34.4 6.9 ------ ------ ------ ------ Net loss from continuing operations ........... (151.8) (200.9) (145.9) (212.0) Loss from discontinued AV operations .......... (23.9) (53.8) (14.2) (55.3) Loss from discontinued VSB operations ......... (19.1) (32.6) (23.1) (67.7) Loss from discontinued Voice operations ....... -- (4.3) -- (8.0) ------ ------ ------ ------ Net loss attributable to common stockholders ............................. (194.8)% (291.6)% (183.2)% (343.0)% ====== ====== ====== ======
Six Months Ended June 30, 2003 ("2003 period") Compared to Six Months Ended June 30, 2002 ("2002 period") and Three Months Ended June 30, 2003 ("June 2003 quarter") Compared to Three Months Ended June 30, 2002 ("June 2002 quarter"). NET REVENUES. Net revenues from continuing operations increased $2.5 million, or 108%, in the 2003 period to $4.9 million from $2.4 million for the 2002 period. $2.8 million in revenue growth related to Glowpoint network services was offset by a $300,000 decline in revenues from the H.320 bridging service. The growth in network services revenue was the result of having, on average, 684 more video endpoints receiving invoices in the 2003 period than in the 2002 period and those endpoints each producing an average of $655 per month in revenue. Net revenues of $2.7 million for the June 2003 quarter represent an increase of $1.4 million, or 113%, over the $1.3 million in revenues reported for the June 2002 quarter. $1.6 million in revenue growth related to Glowpoint network services was offset by a $200,000 decline in revenues from the H.320 bridging service. The growth in network services revenue 10 was the result of having, on average, 794 more video endpoints receiving invoices in the June 2003 quarter than in the June 2002 quarter and those endpoints each producing an average of $661 per month in revenue. GROSS MARGINS. Gross margins decreased approximately $200,000 in the 2003 period from the 2002 period to $3,000. Gross margins decreased in the 2003 period to 0.1% of net revenues, as compared to 7.7% of net revenues in the 2002 period. Gross margins were $70,000 in the June 2003 quarter, an increase of $20,000 over the $50,000 in the June 2002 quarter. The primary cause of the overall decline in gross margins in the 2003 period was the increased fixed costs incurred in the 2003 period to continue the build-out of the network and to re-configure portions of the network that were prompted by changes occurring in the operations of our backbone providers. At the end of the 2003 period, there were 1,252 video endpoints on the network. Gross margins related to video network revenues improved in the June 2003 quarter, a trend we anticipate to continue as video endpoints are installed that will utilize existing capacity of the network while minimal further fixed costs related to the operation of the network will be incurred. SELLING. Selling expenses, which include sales salaries, commissions, overhead, and marketing costs, increased $700,000 in the 2003 period to $2.9 million, or 60.0% of net revenues, from $2.2 million, or 92.6% of net revenues, for the 2002 period. Selling expenses increased $500,000 to $1.7 million in the June 2003 quarter from $1.2 million for the June 2002 quarter, but were down as a percentage of revenue from 91.9% in the June 2002 quarter to 61.9% in the June 2003 quarter. The primary cause for these increases was the $300,000 of marketing expenses incurred in the June 2003 quarter related to the NBA draft event, an increase in commissions and bonuses of $100,000 and a $200,000 increase in research and development costs. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $300,000 in the 2003 period to $2.6 million from $2.3 million for the 2002 period. General and administrative expenses as a percentage of net revenues for the 2003 period declined from 100.4% in the 2002 period to 53.7% in the 2003 period. General and administrative expenses increased $200,000 to $1.4 million in the June 2003 quarter from $1.2 million in the June 2002 quarter, but were down as a percentage of revenue from 96.6% in the June 2002 quarter to 52.2% in the June 2003 quarter. The primary cause for these increases was the $200,000 of professional fees incurred related to divestitures and other corporate activities. General and administrative expenses are expected to continue to decline as a percentage of revenue as the fixed costs in this category are spread over a larger revenue base. RESTRUCTURING. A restructuring charge of $260,000 was recorded in the June 2002 quarter. This restructuring charge was related to severance and other personnel-related costs and was taken to position us the realize $2.0 million in annual operating expense savings OTHER (INCOME) EXPENSES. Other expenses increased $1.8 million to $1.9 million in the 2003 period from $100,000 in the 2002 period. The increase was primarily due to the recognition of $1.0 million in amortization of discount on the subordinated debentures issued in December 2002. The other major component of this category, interest expense, increased $700,000 to $800,000. This increase was primarily due to higher interest expense on our line of credit facility of $100,000; the Black-Scholes value assigned to the 100,000 warrants granted to JPMorgan Chase Bank in the period of $200,000; and interest accrued on the subordinated debentures of $300,000. DISCONTINUED OPERATIONS. In the 2003 period, we treated our AV division as a discontinued operation because: 1) the operations and cash flows of this division have been eliminated from our ongoing operations as a result of a disposal transaction; and 2) we do not have any significant continuing involvement in the operation of the division. We incurred a loss from discontinued AV operations in the 2003 period of $1.2 million which was $100,000 less than the $1.3 million incurred in the 2002 period. As a result of the signing of the definitive agreement to sell the VS segment, this segment is also being treated as a discontinued operation. This disposal, which is expected to occur in August 2003, will result in our having no significant continuing involvement in the operation of this segment after the disposal transaction. Loss from discontinued VS 11 operations increased $100,000 in the 2003 period to $900,000 from the $800,000 loss incurred in the 2002 period. NET LOSS. Net loss attributable to common stockholders increased to $(9.5) million, or $(.33) per diluted share, from $(6.9) million, or $(.24) per diluted share, for the 2002 period. Earnings before interest, taxes, depreciation and amortization ("EBITDA") from continuing operations is a measurement tool management used to understand our results of operations. As EBITDA from continuing operations does not include non-cash charges and the results of discontinued operations it serves as a more accurate gauge of our current operating results. In addition, our primary covenant with our asset-based lender is based on EBITDA results. The following table provides a reconciliation of the net loss attributable to common stockholders to EBITDA from continuing operations.
Six Months Ended June 30, Three Months Ended June 30, ------------------------------ ------------------------------ 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net loss attributable to common stockholders ........... $(9,548,974) $(6,875,725) $(4,899,707) $(4,317,217) Depreciation and amortization ..................... 3,016,236 1,641,383 1,641,950 889,859 Amortization of deferred financing costs .......... 92,763 59,695 47,254 45,938 Amortization of discount on subordinated debentures ....................... 992,875 -- 458,250 -- Non cash compensation ............................. 673,536 160,690 429,993 54,986 Loss from discontinued AV operations .............. 1,173,067 1,268,474 380,045 695,593 Loss from discontinued VS operations .............. 938,493 769,170 619,014 852,770 Loss from discontinued Voice operations .................................... -- 101,339 -- 101,339 Interest expense, net ............................. 219,242 47,654 38,591 40,745 ----------- ----------- ----------- ----------- EBITDA from continuing operations ...................... $(2,442,762) $(2,827,320) $(1,284,610) $(1,635,987) =========== =========== =========== ===========
Liquidity and Capital Resources At June 30, 2003, we had working capital of $18.1 million compared to $27.8 million at December 31, 2002, a decrease of approximately 35%. We had $900,000 in cash and cash equivalents at June 30, 2003 compared to $2.8 million at December 31, 2002. The $9.7 million decrease in working capital resulted primarily from the net pay down of $1.3 million of bank loans, the funding of the $4.8 million cash loss from operations in the 2003 period and the purchase of $1.4 million of furniture, equipment and leasehold improvements. Net cash provided by operating activities for the 2003 period was $800,000 as compared to net cash used in operations of $9.8 million during the 2002 period. The primary source of operating cash in 2003 was the decrease in net assets of discontinued operations of $7.6 million. We used this cash to fund the $4.8 million cash loss from operations and the $1.8 million increase in other current assets. Investing activities for the 2003 period included purchases of $1.4 million for network, computer and demonstration equipment and leasehold improvements. The Glowpoint network is currently built out to handle the anticipated level of subscriptions for 2003. Although we anticipate current expansion of the network, we have no significant commitments to make capital expenditures for Glowpoint or the video solutions segment in 2003. Financing activities in the 2003 period included net pay-downs under our revolving credit line totaling $1.3 million. 12 We currently have a $15.0 million working capital credit facility with JPMorgan Chase Bank. Borrowings under this facility bear interest at the lender's base rate plus 1 1/2% per annum. At June 30, 2003, there was $4.5 million outstanding under this facility. Proceeds from the sale of the VS segment will be used to pay down the outstanding balance under the facility to zero. The credit facility will remain in place subsequent to the closing of the VS sale transaction. Our credit facility contains certain financial and operational covenants. To date in 2003, we were in compliance with these covenants. Management believes, based on current circumstances, we have adequate capital resources to support current operating levels for at least 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 Revenue related to the Glowpoint network subscriber service and the multi-point video and audio bridging services we offer are recognized through a monthly billing process after services have been rendered. Allowance for Doubtful Accounts We record an allowance for doubtful accounts based on specifically identified amounts that we believe to be uncollectible. We also record additional allowances based on certain percentages of our aged receivables, which are determined based on historical experience and our assessment of the general financial conditions affecting our customer base. If our actual collections experience changes, revisions to our allowance may be required. After all attempts to collect a receivable have failed, we write off the receivable against the allowance. Long-lived assets We evaluate impairment losses on long-lived assets used in operations, primarily fixed assets, when events and circumstances indicate that the carrying value of the assets might not be recoverable in accordance with FASB Statement No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets". For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets are compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed their fair values, the related assets will be written down to fair value. Goodwill and other intangible assets In June 2001, the FASB finalized FASB Statements No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 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. SFAS 141 also required that we recognize acquired intangible assets apart from goodwill if they meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. The FASB also requires, upon adoption of SFAS 142, that we classify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that we identify reporting units 13 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 SFAS 142. SFAS 142 was adopted in 2002 and we will review goodwill and other intangible assets on an annual basis going forward with an as of date of September 30. Any future business combinations will be accounted for under the purchase method, which may result in the recognition of goodwill and other intangibles assets, some of which may subsequently be charged to operations, either by amortization or impairment charges. Recent Pronouncements of the Financial Accounting Standards Board In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within the scope of SFAS No. 150 as a liability. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective beginning September 1, 2003. The adoption of SFAS No. 150 is not expected to have a material effect on the Company's financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. This interpretation defines the concept of "variable interests" and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. The provisions of FIN 46, which the Company adopted in 2003, did not have a material impact on the consolidated financial statements. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of this interpretation are effective for interim and annual periods after December 15, 2002. The initial recognition and initial measurement requirements of this interpretation are effective prospectively for guarantees issued or modified after December 31, 2002. The provisions of FIN 45, which the Company adopted in 2003, did not have a material impact on the consolidated financial statements. In November 2002, EITF reached consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables". Revenue arrangements with multiple deliverables include arrangements which provide for the delivery or performance of multiple products, services and/or rights to use assets where performance may occur at different points in time or over different periods of time. We generally enter into arrangements for multiple deliverables that occur at different points in time when we are engaged to provide installation services. EITF Issue No. 00-21 is effective for fiscal periods beginning after June 15, 2003. To date, we have not completed the evaluation of the impact of this EITF. Inflation Management does not believe inflation had a material adverse effect on the financial statements for the periods presented. 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 $15 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 because they bear interest at a floating rate based on the "prime" rate. There are no other material qualitative or quantitative market risks particular to our business or operations. ITEM 4. CONTROLS AND PROCEDURES As of end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive 14 Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are defending several suits or claims in the ordinary course of business, none of which individually or in the aggregate is material to our 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 None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K (i) Form 8-K dated August 6, 2003 furnishing the Company's preliminary results for the six and three months ended June 30, 2003. (ii) Form 8-K dated July 23, 2003 furnishing the Company's preliminary results for its second quarter ended June 30, 2003. (iii) Form 8-K dated June 10, 2003 announcing that the Company entered into an agreement to sell substantially all of the assets of its Video Solutions segment to Gores Technology Group. (iv) Form 8-K dated May 1, 2003 furnishing the Company's preliminary results for its first quarter ended March 31, 2003. 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, 2003 By: /s/ Richard Reiss -------------------------------------------- Richard Reiss, Chief Executive Officer (principal executive officer) Date: August 14, 2003 By: /s/ Christopher Zigmont -------------------------------------------- Christopher Zigmont, Chief Financial Officer (principal financial and accounting officer) 16 EX-31.1 3 d56550_ex31-1.txt CEO CERTIFICATION - SECTION 302 Exhibit 31.1 CERTIFICATION I, Richard A. Reiss, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Wire One Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 14, 2003 /s/ Richard A. Reiss --------------------------------- Richard A. Reiss Chief Executive Officer EX-31.2 4 d56550_ex31-2.txt CFO CERTIFICATION - SECTION 302 Exhibit 31.2 CERTIFICATION I, Christopher A. Zigmont, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Wire One Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 14, 2003 /s/ Christopher A. Zigmont -------------------------------- Christopher A. Zigmont Chief Financial Officer EX-32.1 5 d56550_ex32-1.txt CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION I, Richard Reiss, Chief Executive Officer of Wire One Technologies, Inc., (the "Company"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows: 1) the quarterly report on Form 10-Q of the Company for the quarter ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates of and for the periods indicated. August 14, 2003 /s/ Richard A. Reiss ---------------------------------- Richard A. Reiss Chief Executive Officer EX-32.2 6 d56550_ex32-2.txt CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION I, Christopher A. Zigmont, Chief Financial Officer of Wire One Technologies, Inc., (the "Company"), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, do hereby certify as follows: 1) the quarterly report on Form 10-Q of the Company for the quarter ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates of and for the periods indicated. August 14, 2003 /s/ Christopher A. Zigmont -------------------------------------------- Christopher A. Zigmont Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----