- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ---------------- FORM 10-Q [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-22585 VIALOG Corporation (Exact name of registrant as specified in its charter) Massachusetts 04-3305282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 35 New England Business Center, Suite 160 Andover, Massachusetts 01810 (Address of principal executive offices, including Zip Code) (978) 975-3700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [_] At November 9, 1999 the registrant had outstanding an aggregate of 9,054,328 shares of its Common Stock, $.01 par value. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- VIALOG CORPORATION INDEX Page PART I. FINANCIAL INFORMATION ----- Item 1. Financial Statements HISTORICAL FINANCIAL STATEMENTS Consolidated Balance Sheets at December 31, 1998 and September 30, 1999 (Unaudited)........................................................... 3 Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 1998 and 1999......................... 4 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1998 and 1999..................................... 5 Notes to Consolidated Financial Statements (Unaudited)................. 6-9 UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS Basis of Presentation.................................................. 10 Pro Forma Consolidated Statements of Operations (Unaudited) for the Nine Months Ended September 30, 1999 and 1998......................... 11 Notes to Pro Forma Consolidated Statements of Operations (Unaudited)... 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 13-18 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................... 19 Item 4. Submission of Matters to a Vote of Security Holders............. 19 Item 6. Exhibits and Reports on Form 8-K................................ 19 Signatures............................................................... 20 Exhibit Index............................................................ 21 2 VIALOG CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, September 30, 1998 1999 ------------ ------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents......................... $ 232 $ 2,533 Accounts receivable, net of allowance for doubtful accounts of $164 and $416, respectively.......... 7,391 10,600 Prepaid expenses.................................. 425 466 Deferred offering costs........................... 596 -- Other current assets.............................. 165 280 -------- -------- Total current assets............................ 8,809 13,879 Property and equipment, net......................... 11,987 16,424 Deferred debt issuance costs........................ 5,429 4,191 Goodwill and intangible assets, net................. 41,679 66,117 Other assets........................................ 1,362 650 -------- -------- Total assets.................................... $ 69,266 $101,261 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Revolving line of credit.......................... $ 2,057 $ 3,588 Current portion of long-term debt................. 1,465 1,792 Accounts payable.................................. 3,064 2,909 Accrued interest expense.......................... 1,215 3,606 Accrued expenses and other liabilities............ 3,386 5,145 -------- -------- Total current liabilities....................... 11,187 17,040 Long-term debt, less current portion................ 74,189 73,983 Other long-term liabilities......................... 482 2,517 Commitments and contingencies Stockholders' equity (deficit): Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding... -- -- Common stock, $0.01 par value; 30,000,000 shares authorized; issued: 3,693,672 and 8,932,357 shares, respectively; outstanding: 3,693,672 and 8,921,726 shares, respectively..................................... 37 89 Additional paid-in capital........................ 11,854 45,565 Accumulated deficit............................... (28,483) (37,886) Treasury stock, at cost; 0 and 10,631 shares, respectively..................................... -- (47) -------- -------- Total stockholders' equity (deficit)............ (16,592) 7,721 -------- -------- Total liabilities and stockholders' equity (deficit)...................................... $ 69,266 $101,261 ======== ======== See accompanying notes to consolidated financial statements. 3 VIALOG CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 1998 1999 1998 1999 ---------- ---------- ---------- ---------- Net revenues.................. $ 11,602 $ 17,002 $ 34,770 $ 50,915 Cost of revenues, excluding depreciation................. 5,730 8,306 17,864 24,190 Selling, general and administrative expense....... 3,683 5,628 11,627 17,111 Depreciation expense.......... 755 1,106 1,990 3,006 Amortization of goodwill and intangibles.................. 621 999 1,870 2,828 Non-recurring charge.......... 1,200 -- 1,200 2,982 ---------- ---------- ---------- ---------- Operating income (loss)..... (387) 963 219 798 Interest expense, net......... (3,156) (3,391) (9,310) (10,101) ---------- ---------- ---------- ---------- Loss before income tax expense.................... (3,543) (2,428) (9,091) (9,303) Income tax expense............ -- (50) -- (100) ---------- ---------- ---------- ---------- Net loss.................... $ (3,543) $ (2,478) $ (9,091) $ (9,403) ========== ========== ========== ========== Net loss per share--basic and diluted...................... $ (0.96) $ (0.28) $ (2.51) $ (1.23) ========== ========== ========== ========== Weighted average shares outstanding.................. 3,675,347 8,739,225 3,615,362 7,627,620 ========== ========== ========== ========== See accompanying notes to consolidated financial statements. 4 VIALOG CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, ------------------ 1998 1999 -------- -------- Cash flows from operating activities: Net loss................................................. $ (9,091) $ (9,403) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation........................................... 1,990 3,006 Amortization of goodwill and intangibles............... 1,870 2,828 Amortization of debt issuance costs and debt discount.. 2,245 2,371 Provision for doubtful accounts........................ 145 294 Compensation expense for issuance of common stock and options............................................... 31 52 Non-cash portion of non-recurring charge............... 292 797 Changes in operating assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable.................................... (1,720) (1,858) Prepaid expenses and other current assets.............. (117) (81) Other assets........................................... (177) 746 Accounts payable....................................... 1,141 (694) Accrued expenses....................................... 1,880 3,844 Other long-term liabilities............................ 290 860 -------- -------- Cash flows provided by (used in) operating activities.......................................... (1,221) 2,762 -------- -------- Cash flows from investing activities: Acquisitions of businesses, net of cash acquired......... -- (29,095) Additions to property and equipment...................... (6,141) (5,786) Deferred acquisition costs............................... (381) -- -------- -------- Cash flows used in investing activities.............. (6,522) (34,881) -------- -------- Cash flows from financing activities: Advances on line of credit, net.......................... -- 1,531 Payments of long-term debt, net.......................... (297) (1,327) Proceeds from issuance of common stock................... 44 33,664 Deferred offering costs.................................. (443) 596 Deferred debt issuance costs............................. (35) (44) -------- -------- Cash flows provided by (used in) financing activities.......................................... (731) 34,420 -------- -------- Net increase (decrease) in cash and cash equivalents....... (8,474) 2,301 Cash and cash equivalents at beginning of period........... 9,567 232 -------- -------- Cash and cash equivalents at end of period................. $ 1,093 $ 2,533 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest............................................... $ 4,974 $ 5,351 -------- -------- Taxes.................................................. $ 8 $ -- ======== ======== Acquisitions of businesses: Assets acquired........................................ $ -- $ 31,041 Liabilities assumed and issued......................... -- (1,855) Common stock issued.................................... -- -- -------- -------- Cash paid.............................................. -- 29,186 Less cash acquired..................................... -- (91) -------- -------- Net cash paid for acquisitions of businesses......... $ -- $ 29,095 ======== ======== See accompanying notes to consolidated financial statements. 5 VIALOG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments (all of which are of a normal recurring nature) which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. The unaudited results of operations for the three and nine months ended September 30, 1999 are not necessarily an indication of the results of operations for the full year. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the financial statements and footnotes for the year ended December 31, 1998 included in the Company's Form 10-K. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. (2) Description of Business VIALOG Corporation (the "Company") was incorporated in Massachusetts on January 1, 1996. The Company was formed to create a national independent provider of audioconferencing, videoconferencing and Internet conferencing services. On November 12, 1997, the Company sold $75.0 million in senior notes due 2001 (the "Senior Notes"), in a private placement (the "Private Placement"). Contemporaneously with the closing of the Private Placement, the Company acquired, in separate transactions (the "Original Acquisitions"), six private conference service bureaus in exchange for cash and shares of its common stock. Prior to November 12, 1997, the Company did not conduct any operations, and all activities conducted by it related to the Original Acquisitions and the completion of financing transactions to fund the Original Acquisitions. (3) Initial Public Offering On February 10, 1999, the Company completed an initial public offering for the sale of 4,600,000 shares of common stock. The net proceeds from this offering, after deducting underwriting discounts, commissions and offering expenses were approximately $32.7 million. Of the net proceeds, approximately $29.2 million was used to acquire three private conference service bureaus (as discussed in Note 4). In addition, approximately $305,000 of indebtedness was paid to the former stockholder of one of the acquisitions. The remaining net proceeds of $3.2 million were used for working capital and general corporate purposes. (4) Acquisitions On February 10, 1999, the Company acquired all of the issued and outstanding stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). These acquisitions occurred contemporaneously with the closing of the initial public offering of the Company's common stock. Each of the acquisitions (together with the Original Acquisitions, each an "Operating Center"; collectively, the "Operating Centers") is a wholly-owned subsidiary of the Company. The acquisitions were accounted for using the purchase method of accounting. 6 VIALOG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) The total purchase price of the acquired companies was $29.2 million and consisted of $28.4 million in cash paid to the stockholders of the acquired companies, approximately $460,000 of acquisition costs and approximately $300,000 related to tax reimbursements. The total purchase price was allocated, on a preliminary basis, as follows (in thousands): Working capital................................................. $ 967 Property and equipment, net..................................... 1,657 Goodwill and intangible assets.................................. 27,494 Other assets.................................................... 78 Long-term liabilities........................................... (1,010) -------- $ 29,186 ======== The purchase price exceeded the fair value of the net assets by an estimated $27.5 million. The excess was allocated to goodwill and other intangibles on a preliminary basis, and is being amortized over periods from 5 to 25 years. In management's opinion, the preliminary estimates regarding allocation of the purchase price are not expected to differ materially from the final adjustments. In addition, the Company repaid $305,000 of long-term debt of the acquired companies. (5) Long-Term Debt Long-term debt consists of the following: December 31, September 30, 1998 1999 ------------ ------------- (in thousands) 12 3/4% Senior Notes Payable, due 2001, net of unamortized discount of $3,115 and $2,299, respectively.................................... $71,885 $72,701 Term loans....................................... 3,030 2,204 Capitalized lease obligations.................... 669 328 Other long-term debt............................. 70 542 ------- ------- Total long-term debt........................... 75,654 75,775 Less current portion........................... 1,465 1,792 ------- ------- Total long-term debt, less current portion..... $74,189 $73,983 ======= ======= Senior Notes Payable The Senior Notes issued in the Private Placement bear interest at 12 3/4% per annum, payable semi-annually on May 15 and November 15 of each year. The Senior Notes, which are guaranteed by each of the Operating Centers, mature on November 15, 2001 and are redeemable in whole or in part at the option of the Company on or after November 15, 1999 at 110% of the principal amount thereof, and on or after November 15, 2000 at 105% of the principal amount thereof, in each case together with accrued interest to the date of redemption. In addition, there are certain other early redemption options available to the Company at any time on or prior to November 15, 1999 at certain premiums, as specified in the indenture pursuant to which the Senior Notes were issued. (6) Net Loss Per Share As the Company was in a net loss position for the three and nine months ended September 30, 1998 and 1999, common stock equivalents of 2,172,724, 1,188,783, 1,993,818 and 1,445,097 for the three months ended 7 VIALOG CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) September 30, 1998 and 1999 and the nine months ended September 30, 1998 and 1999, respectively, were excluded from the diluted net loss per share calculation as they would be antidilutive. As a result, diluted net loss per share for the three and nine months ended September 30, 1998 and 1999 is the same as basic net loss per share and, therefore, has not been presented separately. (7) Non-recurring Charges During the third quarter of 1998, the Company incurred a $1.2 million non- recurring charge related to the consolidation of the Atlanta and Montgomery Operating Centers. In accordance with the consolidation plan, the Atlanta Operating Center remained staffed through January, 1999, after which time the Atlanta facility was vacated and its traffic managed by conference coordinators in the Montgomery Center as well as other Operating Centers. During the three and nine months ended September 30, 1999, the Company paid out approximately $47,000 and $382,000, respectively, related to personnel reductions and the facility closing. At September 30, 1999, approximately $494,000 of the original accrual for the non-recurring charge was remaining for estimated costs still to be incurred related to the consolidation. During the second quarter of 1999, the Company incurred a $3.0 million non- recurring charge related to the consolidation of four of the Company's Operating Centers. The Operating Centers affected include Oradell, New Jersey and Danbury, Connecticut which the Company closed in the third quarter of 1999; and Houston, Texas, and Palm Springs, California which are expected to close by the end of 1999. In conjunction with these closings, the Company is expanding its other facilities to accommodate the transitioned business. In addition, the Company plans to combine its Corporate offices and its Cambridge Center in the first half of 2000. The non-recurring charge includes (i) approximately $1.2 million associated with facility lease costs from the exit dates through the lease termination dates (net of estimated sublease income), (ii) $860,000 associated with personnel reductions of approximately 130 conference coordinators, customer service, technical support, and general and administrative positions, (iii) $683,000 associated with the impairment of intangible assets, (iv) $150,000 associated with legal fees and other exit costs, and (v) $114,000 associated with the write-off of leasehold improvements. During the three months ended September 30, 1999, the Company paid out approximately $277,000 related primarily to personnel reductions and facility closings and wrote off approximately $246,000 of intangible assets and leasehold improvements related to the Oradell and Danbury Centers. At September 30, 1999, approximately $2.5 million of the original accrual for the non-recurring charge was remaining for estimated costs still to be incurred related to the consolidation. (8) Supplemental Consolidating Condensed Financial Information The 12 3/4% Senior Notes due November 15, 2001, in the aggregate principal amount of $75.0 million, are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's subsidiaries. Each of the guarantors is a wholly-owned subsidiary of the Company. Summarized financial information of the Company and its subsidiaries is presented below as of and for the nine months ended September 30, 1999. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that they are not material to investors. 8 VIALOG Call Corp. Access CSI Points ABCC TCC ABCI CPI Americo CDC Eliminations -------- ------- -------- -------- ------- ------ ------ ------ ------- ------ ------------ Balance Sheet Information (In thousands) as of September 30, 1999 (unaudited) Total current assets.......... $(12,966) $11,743 $ -- $ 6,459 $ 3,721 $3,199 $1,354 $ 737 $ (980) $ 612 $ -- Property and equipment, net.. 802 6,883 -- 4,816 1,377 1,045 400 408 555 138 -- Investment in subsidiaries.... 85,697 -- -- -- -- -- -- -- -- -- (85,697) Goodwill and intangible assets, net..... -- 14,367 -- 16,911 14,790 3,584 5,792 5,940 2,547 2,186 -- Other assets..... 4,364 298 -- 64 -- 4 40 -- 65 6 -- -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Total assets.... $ 77,897 $33,291 $ -- $ 28,250 $19,888 $7,832 $7,586 $7,085 $2,137 $2,942 $(85,697) ======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ======== Current liabilities..... $ 12,156 $ 1,288 $ -- $ 775 $ 478 $ 481 $ 742 $ 680 $ 122 $ 318 $ -- Long-term debt, excluding current portion......... 73,803 -- -- 85 -- 44 (130) 128 53 -- -- Other liabilities..... 473 225 -- 472 -- -- 346 360 521 120 -- Stockholders' equity (deficit)....... (8,535) 31,778 -- 26,918 19,410 7,307 6,628 5,917 1,491 2,504 (85,697) -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Total liabilities and stockholders' equity (deficit)...... $ 77,897 $33,291 $ -- $ 28,250 $19,888 $7,832 $7,586 $7,085 $2,187 $2,942 $(85,697) ======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ======== Statement of Operations Information for the Nine Months Ended September 30, 1999 (unaudited) Net revenues..... $ -- $20,002 $ 374 $ 11,335 $ 6,230 $5,214 $2,625 $2,234 $1,385 $1,974 $ (458) Cost of revenues, excluding depreciation.... -- 9,018 236 6,586 1,947 2,502 908 1,186 830 1,435 (458) Selling, general and administrative expenses........ 10,865 1,491 26 1,148 921 781 701 572 261 345 -- Depreciation expense......... 135 1,260 40 800 129 197 110 110 90 135 -- Amortization of goodwill and intangibles..... -- 656 72 757 544 153 214 216 117 99 -- Non-recurring charge.......... 454 -- -- -- -- -- 329 721 911 567 -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Operating income (loss)......... (11,454) 7,577 -- 2,044 2,689 1,581 363 (571) (824) (607) -- Interest income (expense), net.. (10,023) 3 (4) (27) -- (16) (35) 12 (11) -- -- -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Loss before income tax expense........ (21,477) 7,580 (4) 2,017 2,689 1,565 328 (559) (835) (607) -- Income tax expense......... -- (100) -- -- -- -- -- -- -- -- -- -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Net income (loss)......... $(21,477) $ 7,480 $ (4) $ 2,017 $ 2,689 $1,565 $ 328 $ (559) $ (835) $ (607) $ -- ======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ======== Cash Flow Information for the Nine Months Ended September 30, 1999 (unaudited) Cash flows provided by (used in) operating activities...... $ (2,851) $ 1,799 $ 17,687 $(15,455) $ 698 $ 349 $ 360 $ 217 $ 57 $ (99) $ -- Cash flows provided by (used in) investing activities...... (29,471) (2,229) 1,602 (3,562) (744) (248) (52) (81) (40) (56) -- Cash flows provided by (used in) financing activities...... 34,409 499 (19,350) 19,185 -- (86) (241) 21 (17) -- -- -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Net increase (decrease) in cash and cash equivalents..... 2,087 69 (61) 168 (46) 15 67 157 -- (155) -- Cash and cash equivalents at the beginning of period.......... 90 -- 61 61 -- -- -- -- -- 20 -- -------- ------- -------- -------- ------- ------ ------ ------ ------ ------ -------- Cash and cash equivalents at the end of period.......... $ 2,177 $ 69 $ -- $ 229 $ (46) $ 15 $ 67 $ 157 $ -- $ (135) $ -- ======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ======== Consolidated ------------ Balance Sheet Information as of September 30, 1999 (unaudited) Total current assets.......... $ 13,879 Property and equipment, net.. 16,424 Investment in subsidiaries.... -- Goodwill and intangible assets, net..... 66,117 Other assets..... 4,841 ------------ Total assets.... $101,261 ============ Current liabilities..... $ 17,040 Long-term debt, excluding current portion......... 73,983 Other liabilities..... 2,517 Stockholders' equity (deficit)....... 7,721 ------------ Total liabilities and stockholders' equity (deficit)...... $101,261 ============ Statement of Operations Information for the Nine Months Ended September 30, 1999 (unaudited) Net revenues..... $ 50,915 Cost of revenues, excluding depreciation.... 24,190 Selling, general and administrative expenses........ 17,111 Depreciation expense......... 3,006 Amortization of goodwill and intangibles..... 2,828 Non-recurring charge.......... 2,982 ------------ Operating income (loss)......... 798 Interest income (expense), net.. (10,101) ------------ Loss before income tax expense........ (9,303) Income tax expense......... (100) ------------ Net income (loss)......... $ (9,403) ============ Cash Flow Information for the Nine Months Ended September 30, 1999 (unaudited) Cash flows provided by (used in) operating activities...... $ 2,762 Cash flows provided by (used in) investing activities...... (34,881) Cash flows provided by (used in) financing activities...... 34,420 ------------ Net increase (decrease) in cash and cash equivalents..... 2,301 Cash and cash equivalents at the beginning of period.......... 232 ------------ Cash and cash equivalents at the end of period.......... $ 2,533 ============ 9 VIALOG CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS BASIS OF PRESENTATION The following unaudited pro forma consolidated Statements of Operations give effect to (i) the acquisitions by VIALOG Corporation on February 10, 1999 of all of the stock of ABCC, CPI, and ABCI, and (ii) the consummation of an initial public offering of common stock as if they had occurred on January 1, 1998. The pro forma statements are based on the historical financial statements of VIALOG Corporation, ABCC, CPI and ABCI and include pro forma adjustments based upon estimates, currently available information and certain assumptions that management deems appropriate. The unaudited pro forma statements presented herein are not necessarily indicative of the results that would have been obtained had such events occurred on January 1, 1998, as assumed, or of future results. The unaudited pro forma consolidated Statements of Operations should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Report. 10 VIALOG CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (In thousands, except share and per share data) 1/1/99-2/10/99 Pro Forma VIALOG --------------------- ------------------------------- Corp. ABCC CPI ABCI Adjustments(1) Consolidated(1) ---------- ------ ------ ------ -------------- --------------- Net revenues............ $ 50,915 $1,058 $ 444 $ 408 $ -- $ 52,825 Cost of revenues, excluding depreciation........... 24,190 295 214 137 24,836 Selling, general and administrative expense................ 17,111 224 136 145 (98)(a) 17,518 Depreciation expense.... 3,006 23 15 26 3,070 Amortization of goodwill and intangibles........ 2,828 -- -- -- 170 (b) 2,998 Non-recurring charge.... 2,982 2,982 ---------- ------ ------ ------ ----- ---------- Operating income...... 798 516 79 100 (72) 1,421 Interest expense, net... (10,101) -- (5) (9) (10,115) ---------- ------ ------ ------ ----- ---------- Income (loss) before income taxes......... (9,303) 516 74 91 (72) (8,694) Income tax expense...... (100) -- -- -- -- (100) ---------- ------ ------ ------ ----- ---------- Net income (loss)..... $ (9,403) $ 516 $ 74 $ 91 $ (72) $ (8,794) ========== ====== ====== ====== ===== ========== Net loss per share-- basic and diluted...... $ (1.23) $ (1.03)(c) ========== ========== Weighted average shares outstanding............ 7,627,620 8,547,620 (c) ========== ========== VIALOG CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (In thousands, except share and per share data) Pro Forma VIALOG ------------------------------- Corp. ABCC CPI ABCI Adjustments(1) Consolidated(1) ---------- ------ ------ ------ -------------- --------------- Net revenues............ $ 34,770 $5,509 $1,798 $2,104 $ -- $ 44,181 Cost of revenues, excluding depreciation........... 17,864 1,804 873 752 -- 21,293 Selling, general and administrative expense................ 11,627 1,094 662 843 (237)(a) 13,989 Depreciation expense.... 1,990 111 114 121 -- 2,336 Amortization of goodwill and intangibles........ 1,870 -- -- -- 1,143 (b) 3,013 Non-recurring charge.... 1,200 -- -- -- 1,200 ---------- ------ ------ ------ ----- ---------- Operating income...... 219 2,500 149 388 (906) 2,350 Interest income (expense), net......... (9,310) 4 (25) (91) -- (9,422) ---------- ------ ------ ------ ----- ---------- Income (loss) before income taxes......... (9,091) 2,504 124 297 (906) (7,072) Income taxes............ -- -- -- (145) 145 -- ---------- ------ ------ ------ ----- ---------- Net income (loss)..... $ (9,091) $2,504 $ 124 $ 152 $(761) $ (7,072) ========== ====== ====== ====== ===== ========== Net loss per share-- basic and diluted...... $ (2.51) $ (0.86)(c) ========== ========== Weighted average shares outstanding............ 3,615,362 8,215,362 (c) ========== ========== - -------- (1) See Note 3 to unaudited pro forma consolidated financial statement. 11 VIALOG CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (1) VIALOG Corporation Background VIALOG Corporation was formed on January 1, 1996 to create a national independent provider of conferencing services, consisting primarily of operator-assisted and operator-on-demand audioconferencing, as well as videoconferencing and Internet conferencing services. On February 10, 1999, VIALOG Corporation completed an initial public offering of its common stock and on that date consummated agreements to acquire three private conference service bureaus. (2) Acquisitions Concurrent with the closing of the initial public offering, VIALOG Corporation acquired all of the issued and outstanding stock of ABCC, CPI, and ABCI. The acquisitions were accounted for using the purchase method of accounting. The following table sets forth for each acquired company the consideration paid its common stockholders. Cash(1) -------------- (in thousands) ABCC....................................................... $16,226 CPI........................................................ 6,000 ABCI....................................................... 6,200 ------- Total Consideration...................................... $28,426 ======= - -------- (1) Excludes tax reimbursements of approximately $300,000 to certain stockholders of certain of the acquired companies. The total purchase price of the acquired companies was $29.2 million and consisted of $28.4 million in cash paid to the stockholders of the acquired companies, approximately $460,000 of acquisition costs and approximately $300,000 related to tax reimbursements. Of the purchase price, $1.7 million has been allocated to the identifiable assets acquired and liabilities assumed and the balance of $27.5 million has been allocated to intangible assets on a preliminary basis. In management's opinion, the preliminary estimates regarding allocation of the purchase price are not expected to differ materially from the final adjustments. (3) Unaudited Pro Forma Consolidated Statements of Operations Adjustments (a) As a condition to closing the acquisitions, certain officers and employees agreed to accept reduced compensation and benefits subsequent to the acquisitions. The adjustment reflects the difference between the historical compensation and benefits of officers and employees of ABCC, CPI and ABCI and the compensation and benefits they agreed to accept subsequent to the acquisitions. (b) Adjustment reflects the amortization of goodwill and intangible assets, which are amortized over periods ranging from 5 to 25 years. (c) The pro forma loss per share is computed by dividing the net loss by the weighted average number of shares outstanding. The calculation of the weighted average number of shares outstanding assumes that the 4,600,000 shares of the Company's common stock issued in connection with the initial public offering were outstanding for the entire period. 12 Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and footnotes for the three and nine months ended September 30, 1999 and the Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission. VIALOG Corporation Results of Operations The Company was incorporated on January 1, 1996. On February 10, 1999, the Company completed an initial public offering of common stock and contemporaneously acquired three private conference service bureaus. Net revenues. Net revenues increased approximately $5.4 million, or 47%, from $11.6 million to $17.0 million for the three months ended September 30, 1998 and 1999, respectively, and increased $16.1 million, or 46%, from $34.8 million to $50.9 million for the nine months ended September 30, 1998 and 1999, respectively. The increase was primarily due to increased call volumes for audioconferencing and videoconferencing services during the three and nine months ended September 30, 1999, as well as the acquisition of three private conference service bureaus on February 10, 1999. The major components of this increase were (i) an increase in the Reston Center's net revenues of $2.5 million and $6.6 million for the three and nine months ended September 30, 1999, respectively, which consisted of increased sales of teleconferencing services to existing and new customers, (ii) a net decrease in the combined Atlanta-Montgomery Center's revenues of $1.0 million and $1.7 million for the three and nine months ended September 30, 1999, respectively, which was caused primarily by the loss of two major customers which acquired or merged with competitors of the Company, (iii) an increase in the Cambridge Center's revenues for the nine months ended September 30, 1999 of $847,000, which consisted of increased audio teleconferencing services to existing and new customers, (iv) a decrease in the Oradell Center's revenues of approximately $583,000 and $698,000 for the three and nine months ended September 30, 1999, respectively, which was caused by the closing of this center on July 31, 1999 and the concurrent transfer of its traffic primarily to the Reston Center, and (v) an increase of $4.5 million and $11.1 million for the three and nine months ended September 30, 1999, respectively, relating to the Chaska, Houston and Palm Springs Centers which were acquired on February 10, 1999 and included in the Company's consolidated results beginning February 11, 1999. The Company's largest outsourcing customer has acquired a competitor of the Company. The customer, representing approximately 9% of the Company's 1998 consolidated net revenues, has honored its outsourcing contract with the Company, which expired in July, 1999. Although the significant reduction in net revenues from this customer has reduced the Company's net revenues and operating results in the near term, the Company believes that the long-term impact to net revenues and results of operations will not be significant. Cost of revenues, excluding depreciation. Cost of revenues, excluding depreciation, increased approximately $2.6 million, or 45%, from $5.7 million to $8.3 million for the three months ended September 30, 1998 and 1999, respectively, and increased $6.3 million, or 35%, from $17.9 million to $24.2 million for the nine months ended September 30, 1998 and 1999, respectively, but decreased as a percentage of revenue from 49.4% to 48.9% for the three months ended September 30, 1998 and 1999, respectively, and from 51.4% to 47.5% for the nine months ended September 30, 1998 and 1999, respectively. The dollar increase was primarily due to (i) an increase in the Reston Center's cost of revenues, excluding depreciation, of $1.2 million and $3.0 million for the three and nine months ended September 30, 1999, respectively, resulting from increased telecommunications costs and personnel and related costs associated with increased call volumes, (ii) a net decrease in the combined Atlanta-Montgomery Center's cost of revenues, excluding depreciation, of $151,000 and $579,000 for the three and nine months ended September 30, 1999, respectively, which was caused primarily 13 by a reduction in volume due to the loss of two major customers which acquired or merged with competitors of the Company, (iii) an increase in the Cambridge Center's cost of revenues, excluding depreciation, for the nine months ended September 30, 1999 of $200,000 resulting from increased staffing and operations-related costs associated with increased call volumes, (iv) a decrease in the Oradell Center's cost of revenues, excluding depreciation, of approximately $310,000 and $489,000 for the three and nine months ended September 30, 1999, respectively, which was caused by the closing of this center on July 31, 1999 and the concurrent transfer of its traffic primarily to the Reston Center, and (v) an increase of $1.8 million and $4.1 million for the three and nine months ended September 30, 1999, respectively, relating to the Chaska, Houston and Palm Springs Centers which were acquired on February 10, 1999 and included in the Company's consolidated results beginning February 11, 1999. The decrease as a percentage of revenues was primarily due to an overall reduction in telecommunications cost per minute resulting from negotiating telecommunications contracts with lower prices and the favorable impact resulting from the addition of the Chaska, Houston and Palm Springs Centers. Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.9 million, or 53%, from $3.7 million to $5.6 million for the three months ended September 30, 1998 and 1999, respectively, and increased $5.5 million, or 47%, from $11.6 million to $17.1 million, for the nine months ended September 30, 1998 and 1999, respectively. The increase was primarily due to (i) an increase in selling expense of $359,000 and $1.9 million for the three and nine months ended September 30, 1999, respectively, primarily due to the increased size of the national sales force in 1999, (ii) an increase of $793,000 and $2.2 million for the three and nine months ended September 30, 1999, respectively, relating to the Chaska, Houston and Palm Springs Operating Centers which were acquired on February 10, 1999 and included in the Company's consolidated results beginning February 11, 1999, (iii) an increase in general and administrative expense of $515,000 for the three months ended September 30, 1999 related to increased staffing costs such as compensation, benefits and travel expenses, and (iv) an increase of approximately $1.2 million for the nine months ended September 30, 1999 due to costs associated with the departure of the former Chief Executive Officer and other management staff. Depreciation and amortization expense. Depreciation and amortization expense increased $729,000 from $1.4 million to $2.1 million for the three months ended September 30, 1998 and 1999, respectively, and increased $1.9 million from $3.9 million to $5.8 million for the nine months ended September 30, 1998 and 1999, respectively. The increase was primarily due to additions to property and equipment throughout 1998 and 1999 as well as the additional property and equipment purchased in connection with the Chaska, Houston and Palm Springs Centers which were acquired on February 10, 1999. In addition, amortization of goodwill and intangibles increased $378,000 and $958,000 for the three and nine months ended September 30, 1999, respectively, which represents amortization expense related to the three Operating Centers acquired on February 10, 1999. Non-recurring charge. The results for the nine months ended September 30, 1999 include a non-recurring charge of approximately $3.0 million which was incurred during the second quarter of 1999 and related to the consolidation of four of the Company's Operating Centers. The Operating Centers affected include Oradell, New Jersey and Danbury, Connecticut, which the Company closed in the third quarter of 1999; and Houston, Texas, and Palm Springs, California, which are expected to close by the end of 1999. In conjunction with these closings, the Company is expanding its other facilities to accommodate the transitioned business. The Company anticipates that it will realize annual cost savings beginning in the year 2000 in the range of $1.5 million to $2.0 million as a result of the consolidation. In 1999, the Company anticipates that the cost savings will be offset by incremental costs associated with executing the consolidation plan. In addition, the Company plans to combine its Corporate offices and its Cambridge Center in the first half of 2000. The non-recurring charge includes (i) approximately $1.2 million associated with facility lease costs from the exit dates through the lease termination dates (net of estimated sublease income), (ii) $860,000 associated with personnel reductions of approximately 130 conference coordinators, customer service, technical support, and general and administrative positions, (iii) $683,000 associated with the impairment of intangible assets, (iv) $150,000 associated with legal fees and other exit costs, and (v) $114,000 associated with the write-off of leasehold improvements. During the three months ended September 30, 1999, the Company paid out approximately $277,000 related primarily to personnel reductions 14 and facility closings and wrote off approximately $246,000 of intangible assets and leasehold improvements related to the Oradell and Danbury Centers. The results for the three and nine months ended September 30, 1998 include a non-recurring charge of $1.2 million related to the consolidation of the Atlanta and Montgomery Operating Centers. In accordance with the consolidation plan, the Atlanta Operating Center remained staffed through January, 1999, after which time the Atlanta facility was vacated and its traffic managed by conference coordinators in the Montgomery Center as well as other Operating Centers. During the three and nine months ended September 30, 1999, the Company paid out approximately $47,000 and $382,000, respectively, related to personnel reductions and the facility closing. Interest expense, net. Interest expense, net increased $235,000 from $3.2 million to $3.4 million for the three months ended September 30, 1998 and 1999, respectively, and increased $791,000 from $9.3 million to $10.1 million for the nine months ended September 30, 1998 and 1999, respectively. The increase was primarily due to the following: (i) $159,000 and $457,000 for the three and nine months ended September 30, 1999, respectively, of interest expense related to the Company's revolving credit facility executed in the fourth quarter of 1998, (ii) $49,000 and $141,000 for the three and nine months ended September 30, 1999, respectively, of non-cash interest expense related to the amortization of deferred debt issuance costs, and (iii) decreased interest income of approximately $27,000 and $193,000 for the three and nine months ended September 30, 1999, respectively, due to reduced cash balances. Liquidity and Capital Resources The Company generated positive cash flows of $2.3 million for the nine months ended September 30, 1999 as compared to negative cash flows of $8.5 million for the nine months ended September 30, 1998. For the nine months ended September 30, 1999, the Company generated positive cash flows from operations of $2.8 million compared to negative cash flows from operations of $1.2 million for the nine months ended September 30, 1998. Cash used in investing activities of $34.9 million for the nine months ended September 30, 1999 included $29.1 million related to the acquisitions of ABCC, CPI and ABCI, as well as $5.8 million related to the acquisition of property and equipment. Cash provided by financing activities of $34.4 million for the nine months ended September 30, 1999 includes $33.7 million in proceeds from the issuance of common stock, the majority of which relates to the initial public offering of common stock which was completed on February 10, 1999. On November 12, 1997, the Company completed a Private Placement of $75.0 million of Senior Notes. The Senior Notes bear interest at 12 3/4% per annum, payable semi-annually on May 15 and November 15 of each year. The Senior Notes are guaranteed by the Operating Centers and mature on November 15, 2001. The Senior Notes are redeemable in whole or in part at the option of the Company on or after November 15, 1999 at 110% of the principal amount thereof, and on or after November 15, 2000 at 105% of the principal amount thereof until maturity, in each case together with accrued interest to the date of redemption. In addition, there are certain other early redemption options available to the Company at any time on or prior to November 15, 1999 at certain premiums, as specified in the Indenture. In the event of a change in control, as defined in the Indenture, the Company may be required to repurchase all of the outstanding Senior Notes at 101% of the principal amount plus accrued interest and additional interest, if any. The Indenture contains restrictive covenants with respect to the Company that among other things, create limitations (subject to certain exceptions) on (i) the incurrence of additional indebtedness, (ii) the ability of the Company to purchase, redeem or otherwise acquire or retire any Common Stock or warrants, rights or options to acquire Common Stock, to retire any subordinated indebtedness prior to final maturity or to make investments in any person, (iii) certain transactions with affiliates, (iv) the ability to materially change the present method of conducting business, (v) the granting of liens on property or assets, (vi) mergers, consolidations and the disposition of assets, (vii) declaring and paying any dividends or making any distribution on shares of Common Stock, and (viii) the issuance or sale of any capital stock of the Company's subsidiaries. The Indenture does not require the Company to maintain compliance with any financial ratios or tests, except with respect to certain restrictive covenants noted above. At September 30, 1999, the Company was in compliance with all covenants contained in the Indenture. 15 On October 6, 1998, the Company executed a two year, $15.0 million credit facility (the "Credit Facility") with Coast Business Credit, a division of Southern Pacific Bank. The Credit Facility provides for (i) a term loan in the principal amount of $1.5 million, (ii) a term loan of up to 80% of the purchase price of new and used equipment, not to exceed $4.0 million, and (iii) a revolving loan based on a percentage of eligible accounts receivable. Loans under the Credit Facility bear interest at the higher of 7% or the Prime Rate plus 1 1/2%, and interest is based on a minimum outstanding principal balance of the greater of $5.0 million or 33% of the available Credit Facility. The Credit Facility includes certain early termination fees. The Credit Facility is secured by the assets of each of the Operating Centers and the assets of VIALOG Corporation, excluding the ownership interest in each of the Operating Centers. The Company is required to maintain compliance with certain financial ratios and tests, including a debt service coverage ratio and minimum net worth level. At September 30, 1999, the Company was in compliance with such ratios and tests. As of September 30, 1999, the Company had outstanding $1.2 million on the term loan; $1.0 million on the equipment term loan; and $3.6 million on the revolving loan. The Company anticipates that its expected cash flows from operations, supplemented by borrowings under the Credit Facility, will meet or exceed its working capital needs, debt service requirements, planned capital expenditures for property and equipment and payment of the cash portion of the non- recurring charges for the next twelve months. The Company expects to meet its longer term liquidity requirements, including repayment of the Senior Notes, through a combination of working capital, cash flow from operations, borrowings, and future issuances of debt and/or equity securities. However, no assurances can be given that such funds will be available when required or on terms favorable to the Company. The Company intends to continue pursuing attractive acquisition opportunities. The timing, size or success of any acquisition and the associated potential capital commitments are unpredictable. The Company plans to fund future acquisitions primarily through a combination of working capital, cash flow from operations and borrowings, as well as issuances of debt and/or equity securities. However, no assurances can be given that such funds will be available when required or on terms favorable to the Company. The Acquisition agreements, pursuant to which the Original Acquisitions were acquired, except for the Oradell Center, limit through 1999 the Company's ability to change the location of an Operating Center's facilities (except for the Montgomery Center), physically merge the Operating Center's operations with another operation, change the position of those employees who received employment agreements pursuant to the applicable Acquisition agreement, reduce the workforce or terminate employees (except as related to employee performance, the contemplated reorganization of the combined sales and marketing staff and the consolidation of certain accounting functions) without the approval of a majority in interest of the former stockholders of the affected Operating Center. The acquisition agreement pursuant to which ABCC was acquired contains similar restrictions with respect to changes at ABCC. These restrictions are in effect until February 10, 2001, unless such restrictions are earlier waived by one of the former ABCC stockholders. In connection with the consolidation of the Atlanta and Montgomery Centers, the Company has obtained the approvals of a majority in interest of the former stockholders of the Atlanta and Montgomery Centers. In connection with the closing of the Danbury Center, the Company has obtained the approvals of a majority in interest of the former stockholders of the Danbury Center. Based on the term of these limitations and the fact that the Company has been growing and adding additional employees, the Company does not believe that these limitations will have a significant impact on the future results of operations and liquidity. The Company is highly leveraged at September 30, 1999. This indebtedness requires the Company to dedicate a significant portion of its cash flow from operations to service its indebtedness and makes the Company more vulnerable to unfavorable changes in general economic conditions. Year 2000 Compliance State of readiness. The Company's current Year 2000 readiness project consists of the following phases: (i) identification of internal systems and components that will be in service in the 21st century, (ii) assessment of 16 internal system repair or replacement requirements, (iii) assessment of supplier and service provider Year 2000 readiness, (iv) repair or replacement of both internal and external systems or components, (v) testing, (vi) implementation, and (vii) development of a contingency plan in the event of Year 2000 failures. The Company has completed the identification phase of its Year 2000 readiness project. The Company has prepared a comprehensive inventory of all systems and system components in use, and has identified which systems and system components will be in use beyond the year 1999. The Company has also completed the assessment of internal systems phase. The Company has concluded that all of its internal systems, including all of its teleconferencing bridges, that will be in use beyond 1999 are Year 2000 compliant except for one accounts receivable module of an accounting system that is used in one of the Company's Operating Centers. The accounts receivable module is not critical to the operation of the business and the necessary changes to make this module Year 2000 compliant are scheduled to be complete by November 30, 1999. The Company has completed the repair or replacement and testing required for each internal system and component except for the accounts receivable module referred to above which is scheduled to be complete by November 30, 1999. Additionally, in connection with its plans to integrate the Operating Centers, the Company is in the process of implementing certain common systems in both the operations and financial management areas. Such common systems are Year 2000 compliant, a criteria of the systems integration plan. The Company expects all of its internal systems and system components to be Year 2000 compliant by November 30, 1999. The Company has completed the assessment of its supplier and service provider Year 2000 readiness phase. The Company has contacted all major suppliers and service providers and has received Year 2000 certifications from substantially all major suppliers and service providers. However, there is no assurance that the Company's suppliers or service providers will not suffer a Year 2000 business disruption which could have a material adverse impact on the Company's business, financial condition and results of operations. The Company has not yet developed a Year 2000-specific contingency plan as the Company expects its systems and system components to be Year 2000 compliant by November 30, 1999. The Company intends to prepare a contingency plan as it becomes aware of Year 2000 problems or risks. Costs. To date, the Company has not incurred any material expenditures in connection with its Year 2000 assessment and remediation efforts. Most of its expenses have related to the opportunity cost of time spent by employees of the Company evaluating Year 2000 compliance matters. As the Company continues with the deployment of new systems related to its planned efforts to integrate the Operating Centers, such new systems will be Year 2000 compliant. The cost of purchasing or developing, and deploying these new systems are not considered Year 2000 costs as they were included in the Company's integration plan and were not accelerated due to Year 2000 issues. Risks. The Company relies heavily on the use of telecommunications systems and services--both internally deployed and from multiple third party service providers. Thus, the Company believes that telecommunications is the area most sensitive to problems with Year 2000 readiness. Failure of one or more of the Company's telecommunications service providers to become Year 2000 compliant on a timely basis could, in a worst case scenario, render the Company unable to schedule or conduct conference calls and other group communications services, and could have a material adverse impact on the Company's business, financial condition and results of operations. However, the Company believes that its ability to redistribute certain of its telecommunications services among its multiple Operating Centers and third party service providers could lessen any potential adverse impact. New Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, and is effective for fiscal years beginning after December 31, 1998, with earlier application encouraged. The Company adopted SOP 98-1 on January 1, 1999, the adoption of which did not have a material effect on the Company's financial statements. 17 Cautionary Statements for Forward Looking Information Management's discussion and analysis set forth above contains certain forward looking statements, including statements regarding its financial position, results of operations and Year 2000 compliance. These forward looking statements are based on current expectations. Certain factors have been identified by the Company which could cause the Company's actual results to differ materially from expected and historical results. These factors are discussed in the Safe Harbor for Forward Looking Statements section of the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-K for the year ended December 31, 1998, and should be read in conjunction with this Form 10-Q. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings Other than as described below, there are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. A former employee of Conference Source International, Inc. ("CSI") has claimed in writing that he may be entitled to up to five percent of the stock of CSI, based on an unsigned paper outlining possible employment terms. Based on the $18.7 million consideration paid to CSI's stockholders upon the consummation of the acquisition of CSI by the Company, the value of a five percent equity interest in CSI would be approximately $934,000. CSI's position is that the only agreements with such employee were set forth in two successive executed employment agreements, each of which had a specific provision that such agreement was inclusive as to the terms of employment. The Company and the former stockholders of CSI believe that such claim is without merit. Item 4. Submission of Matters to a vote of Security Holders At a special meeting of stockholders, held on July 29, 1999, in lieu of and for the purposes of the annual meeting, the stockholders of the Company elected Joanna M. Jacobson and Patti R. Bisbano as Class III directors of the Company to hold office until the 2002 Annual Meeting of Stockholders or special meeting held in lieu thereof. The nominees were elected with the following votes: Votes Withheld Election of Director Votes For or Opposed -------------------- --------- ---------- Joanna M. Jacobson................................... 5,817,907 203,231 Patti R. Bisbano..................................... 5,776,857 244,281 There were no broker non-votes for this proposal. Additionally, the stockholders of the Company voted to approve and adopt the Company's 1999 Stock Plan. The vote with respect to this matter was as follows: Votes Withheld Votes For or Opposed --------- ---------- Adoption of 1999 Stock Plan.......................... 2,068,789 540,414 There were 3,411,935 broker non-votes for this proposal. Item 6. Exhibits and Reports on Form 8-K (a)Exhibits. Exhibit 11(a)--Calculation of Shares Used in Determining Net Loss Per Share (b)Reports on Form 8-K. A report on Form 8-K was filed on July 6, 1999 to report the appointment of Kim Mayyasi, President and Chief Executive Officer, as a Class III Director effective July 1, 1999 with a term expiring in May 2000. 19 A report on Form 8-K was filed on August 16, 1999 to report that approximately 26 of the Company's shareholders, including the Company's founder and largest shareholder, have agreed with the Company to voluntarily extend by 120 days the "lock up" period applicable to certain of the Company's securities beneficially owned by participating shareholders. The extended lock-up period will expire on December 3, 1999. The extended lock up period applies to an aggregate of approximately 2,002,500 shares of the company's common stock and options to purchase an aggregate of approximately 473,750 shares of the Company's common stock. A report on Form 8-K was filed on August 23, 1999 to report the appointment of Michael E. Savage to the position of Senior Vice President and Chief Financial Officer, effective September 1, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIALOG Corporation (Registrant) Date: November 12, 1999 /s/ Kim A. Mayyasi _____________________________________ Kim A. Mayyasi, President and Chief Executive Officer /s/ Michael E. Savage _____________________________________ Michael E. Savage, Senior Vice President and CFO (Principal Financial Officer and Principal Accounting Officer) 20 EXHIBIT INDEX Page ---- 11(a)--Calculation of Shares Used in Determining Net Loss Per Share... 22 21