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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission file number: 0-25940
VIEW TECH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0312442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 FLYNN ROAD
CAMARILLO, CA 93012
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 482-8277
Indicate by check mark whether the registrant: (1) has 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class as of May 12, 1997
----- ----------------------------
Common Stock, $.0001 par value 6,381,744
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VIEW TECH, INC.
TABLE OF CONTENTS
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PAGE REFERENCE
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PART I FINANCIAL INFORMATION
Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996 1
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 (unaudited) 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 11
SIGNATURES 12
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 1,027,097 $ 365,139
Accounts receivable (net of reserves of $457,572
and $479,774, respectively) 9,921,503 10,609,832
Inventory 2,164,783 2,063,028
Other current assets 567,845 737,980
----------- -----------
Total Current Assets 13,681,228 13,775,979
PROPERTY AND EQUIPMENT, net 2,839,232 2,798,476
GOODWILL, net 1,604,449 1,632,370
OTHER ASSETS 421,501 313,783
----------- -----------
$18,546,410 $18,520,608
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,541,333 $ 7,682,887
Short-term bank debt -lines of credit 1,924,998 1,829,428
Current portion of capital lease obligations 458,994 450,669
Other current liabilities 2,280,532 2,198,485
Accrued merger costs -- 1,160,494
----------- -----------
Total Current Liabilities 11,205,857 13,321,963
----------- -----------
LONG-TERM OBLIGATIONS 576,311 779,920
----------- -----------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.0001, authorized
5,000,000 shares, none issued or outstanding -- --
Common stock, par value $.0001, authorized
20,000,000 shares, issued and outstanding
6,357,082 and 5,666,814 shares, at March 31,
1997 and December 31, 1996, respectively 636 567
Additional paid-in capital 12,718,693 9,934,236
Retained deficit (5,955,087) (5,516,078)
----------- -----------
6,764,242 4,418,725
----------- -----------
$18,546,410 $18,520,608
=========== ===========
See accompanying notes to consolidated financial statements.
1
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
1997 1996
-------------- -------------
Revenues:
Product sales and service revenues $ 6,260,551 $5,581,318
Agency commissions 3,751,435 2,527,134
----------- ----------
10,011,986 8,108,452
----------- ----------
Cost and Expenses:
Costs of goods sold 4,568,209 3,890,468
Sales and marketing expenses 3,966,928 2,792,997
General and administrative expenses 1,830,804 1,130,675
----------- ----------
10,365,941 7,814,140
----------- ----------
Income (Loss) from Operations (353,955) 294,312
Other Expense (84,142) (68,426)
----------- ----------
Income (Loss) Before Income Taxes (438,097) 225,886
Provision for Income Taxes (912) (24,303)
----------- ----------
Net Income (Loss) $ (439,009) $ 201,583
=========== ==========
Earnings (Loss) Per Share $ (.07) $ .03
=========== ==========
Weighted Average Shares Outstanding 6,169,491 5,767,662
=========== ==========
See accompanying notes to consolidated financial statements.
2
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
-----------------------------
1997 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (439,009) $ 201,583
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 305,595 244,572
Provision for bad debts (22,202) (290,937)
Loss on sale of assets 7,649 --
Changes in assets and liabilities:
Accounts receivable 710,531 (495,106)
Inventory (101,755) (118,414)
Other current assets 62,417 (41,067)
Accounts payable (1,141,554) 380,839
Note payable to vendor -- (67,703)
Other accrued liabilities (993,449) (1,668)
----------- ----------
Net cash used by operating activities (1,611,777) (187,901)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (326,078) (165,099)
Short-term loan to PDS - (265,000)
----------- ----------
Net cash used in investing activities (326,078) (430,099)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 95,570 434,382
Repayments of capital lease and other debt obligations (280,283) (304,264)
Issuance of common, net 2,784,526 8,016
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Net cash provided by financing activities 2,599,813 138,134
----------- ----------
NET INCREASE (DECREASE) IN CASH 661,958 (479,866)
CASH, beginning of period 365,139 1,949,761
----------- ----------
CASH, end of period $ 1,027,097 $1,469,895
=========== ==========
SUPPLEMENTAL DISCLOSURES:
Operating activities reflect:
Interest paid $ 89,746 $ 101,798
=========== ==========
Income taxes paid $ 2,800 $ --
=========== ==========
See accompanying notes to consolidated financial statements.
3
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
- ----------------
View Tech, Inc., along with its wholly-owned subsidiary, USTeleCenters,
Inc., ("UST"), is a leading, single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions for
business customers nationwide. The Company has equipment distribution
partnerships with PictureTel Corporation, Ascend Communications and Northern
Telecom and markets network services through agency agreements with Bell
Atlantic, GTE, NYNEX, Southwestern Bell and Sprint. The consolidated financial
statements include the accounts of View Tech and UST. All significant
intercompany balances and transactions have been eliminated in consolidation.
In November 1996, View Tech completed its merger with UST (the "Merger")
which was accounted for as a pooling of interest. Accordingly, the Company's
financial statements have been restated for all periods prior to the Merger to
include the results of operations, financial position, and cash flows of UST.
The information for the three months ended March 31, 1997 and 1996 has not
been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
The Company has reclassified certain balance sheet and statement of
operations items for prior periods in order to conform to the current periods'
presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading. The
financial statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the transition period from July 1, 1996 to December 31,
1996.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
A reconciliation of consolidated total revenues and net income to amounts
applicable to the separate pooled companies prior to the Merger (effective,
November 29, 1996) is as follows:
Three Months Ended
March 31, 1996
-------------------
Total revenues:
View Tech............ $3,881,894
USTeleCenters........ 4,226,558
----------
$8,108,452
==========
Net income (loss):
View Tech............ $ (13,604)
USTeleCenters........ 215,187
----------
$ 201,583
==========
Net income (loss) per share
(fully-diluted basis):
View Tech............ $ --
USTeleCenters........ .03
----------
$ .03
==========
4
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 3 - NET INCOME PER SHARE
- -----------------------------
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period,
including common stock options and common stock purchase warrants when dilutive.
NOTE 4 - LINES OF CREDIT
- ------------------------
The Company maintains a $1,750,000 credit facility (the "Note") to assist in
meeting its working capital needs, if required. The Note expires on October 1,
1997 and provides for a borrowing base of up to $1,750,000 with interest payable
monthly at the prime rate plus 1% per year. The borrowing base is determined
based on 60% of eligible accounts receivable, as defined. The Company had
outstanding borrowings of $500,000 under the Note as of March 31, 1997. Funds
available under the Note are reduced by certain outstanding standby letters of
credit issued on behalf of the Company. In addition to the $500,000 outstanding
under the Note, the Company has as of March 31, 1997, six outstanding standby
letters of credits totaling $524,000. One letter of credit is issued to the
Company's primary video conferencing equipment supplier as collateral for the
Company's purchasing line of credit with such supplier. Of the remaining five
letters of credit, four are issued in favor of one leasing company in connection
with certain capital lease transactions relating to the purchase of computer
equipment and furniture, and one is issued to a surety company in connection
with its issuance of a performance bond on behalf of the Company. The letter of
credit holders may draw against the letters of credit if the Company fails to
make timely payments or meet certain other conditions. As a result of issuing
the six standby letters of credit, the credit line available under the Note has
been reduced to $726,000.
The Company's wholly-owned subsidiary, UST, maintains a revolving credit
agreement with a bank. The agreement, pursuant to the terms of a forbearance
agreement, as amended, allows the subsidiary to borrow up to the lesser of the
financial borrowing base, as defined, or $3,500,000. The bank has a security
interest in the subsidiary's assets and the Company is guaranteeing the
repayment of amounts borrowed under the line. In addition, the subsidiary has
agreed, among other things, to maintain certain financial covenants and ratios,
as defined. As of March 31, 1997, UST was in compliance with the covenants or
had received waivers under the forbearance agreement. Interest on the
outstanding balance is payable monthly at the bank's base rate (8.5% at March
31, 1997) plus 1.0%. The revolving line of credit and forbearance agreement
have been extended to August 1, 1997.
In addition, UST had maintained a lease line-of-credit agreement with a bank
which was converted into a term note as part of the forbearance agreement. At
March 31, 1997, there was approximately $826,000 outstanding under this
facility. UST is required to maintain certain restrictive covenants, including
profitability and liquidity covenants. Amounts outstanding bear interest at
rates ranging from 5.6% to 8.3%. As of March 31, 1997, UST was in compliance
with the covenants or had received waivers under the forbearance agreement. In
connection with the renewal of the UST's revolving credit agreement, the lease
line term note was revised to provide for additional credit of $250,000. This
credit facility expires on August 1, 1997.
NOTE 5- SALE OF COMMON STOCK
- ----------------------------
The Company sold to one investor, Telcom Holding, LLC, an aggregate of
$2,860,000 of common stock on three separate closings occurring in January
and March, 1997. In addition, the Company issued an aggregate of 487,500
warrants to purchase common stock at $6.50 per share in connection with this
transaction. The Company will use such funds for working capital and to pay a
portion of the costs incurred in connection with the Merger.
5
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 6 - COMMITMENTS
- --------------------
The Company executed a new office lease agreement in January, 1997 to house
its New York City operations. The lease provides for monthly rental payments of
$16,573 plus its proportionate share of building operating expenses. The lease
expires on August 30, 1999.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Form 10-Q. Except for historical information contained herein, the
statements in this Form 10-Q are forward-looking statements (including without
limitation, statements indicating that the Company "expects," "estimates,"
"anticipates," or "believes" and all other statements concerning future
financial results, product offerings or other events that have not yet
occurred), that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements involve known factors, risks and
uncertainties which may cause the Company's actual results in future periods to
differ materially from forecasted results. Those factors, risks and
uncertainties include, but are not limited to: the Company's ability to raise
additional funds that may be necessary to meet its future capital needs; the
Company's limited history of profitable operations and significant fluctuations
in operating results which may continue due to delays in product enhancements
and new product introductions by its suppliers; the termination of or change of
the Company's business relationships with PictureTel or NYNEX, disruption in
supply, failure of PictureTel or NYNEX to remain competitive in product quality,
function or price or a determination by PictureTel or NYNEX to reduce reliance
on independent providers such as the Company; and the introduction of new rules
and regulations by the federal government and/or certain states pertaining to
the Company's telecommunications business that could lead to additional
competition from entities with greater financial and managerial resources.
Additional information on these and other risk factors are included under "Risk
Factors" and elsewhere in this Form 10-Q.
GENERAL
View Tech commenced operations in July 1992. Since its initial public offering
of common stock in June 1995, the Company has grown rapidly through internal
expansion and through acquisitions. In November 1996, the Company acquired
USTeleCenters, Inc., a Massachusetts corporation headquartered in Boston,
Massachusetts ("USTeleCenters"), in a merger transaction (the "Merger"), which
was accounted for as a pooling-of-interests for financial reporting purposes and
pursuant to which USTeleCenters merged into USTeleCenters, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("UST"). At the time of
the Merger, the Company operated out of 14 offices covering 24 states and
employed 75 people. The Merger resulted in the addition of three offices and 225
additional employees.
The Company markets and installs video communications systems and provides
continuing services relating to installed systems. In addition, as a result of
the Merger, the Company designs, sells, manages and supports telecommunications
systems solutions for small and medium-sized businesses throughout the United
States. In addition, the Company develops and manages sales and customer service
programs on an outsourced basis for (i) certain Regional Bell Operating
Companies ("RBOCs"), (ii) other telecommunications service providers and (iii)
equipment manufacturers under agency and value added reseller ("VAR")
agreements. In New England and New York, the Company also provides systems
integration and on-going account management consulting for middle market
customers. On behalf of its RBOC clients, the Company sells high speed data
services, Internet access, Centrex network services, local and long distance
services, voice mail and other "enhanced" services, discount calling plans and
toll-free services such as remote-call-forwarding.
The Company intends to continue its expansion activities in calendar year 1997
through both internal expansion and strategic acquisitions, although there can
be no assurances that the Company will be able to do so. Although management
anticipates that the revenues generated by its existing offices, as well as the
offices acquired through acquisition or expansion, will exceed its operating
costs for the next twelve months, there can be no assurance that such results
will be achieved. To the extent that such costs exceed such revenues, the
Company's business, financial condition and results of operations will be
adversely affected.
7
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated financial statements expressed as a percentage
of the Company's revenues:
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- --------
(Unaudited)
Revenues:
Product sales and service revenues.... 62.5% 68.8%
Agency commissions.................... 37.5 31.2
------ -----
100.0 100.0
====== =====
Costs and Expenses:
Costs of goods sold................... 45.6 48.0
Sales and marketing expenses.......... 39.6 34.5
General and administrative expenses... 18.3 13.9
------ -----
(103.5) 96.4
------ -----
Income (Loss) from Operations.......... (3.5) 3.6
Other Expense.......................... (0.8) (0.8)
------ -----
Income (Loss) Before Income Taxes...... (4.3) 2.8
Provision for Income Taxes............. (0.1) (0.3)
------ -----
Net (Loss) Income...................... (4.4)% 2.5%
====== =====
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES
Total revenues for the three months ended March 31, 1997 increased by $1.904
million or 23.5% to $10.012 million from $8.108 million in 1996.
Product Sales and Services
Product sales and service revenues increased by $679,233 or 12.2% to $6.261
million in 1997 from $5.581 million in 1996. The increase in revenues was
primarily related to the Company's nationwide expansion of its videoconferencing
business throughout calendar year 1996, including increasing its
videoconferencing sales force to 34 representatives at March 31, 1997, compared
to 19 representatives at March 31, 1996.
Agency Commissions
Agency commissions for 1997 increased by $1.224 million or 48.4% to $3.751
million from $2.527 million in 1996. The increase in agency commissions was due
to the Company beginning to rebuild its telemarketing sales force in 1997 to
enable it to market new product offerings on behalf of its RBOC and exchange
carrier clients.
8
COSTS AND EXPENSES
Costs of goods sold for 1997 increased by $677,741 or 17.4% to $4.568 million
from $3.890 million in 1996. Costs of goods sold as a percentage of revenues
decreased to 45.6% in 1997 from 48.0% in 1996. The dollar increase in costs of
goods sold is primarily related to the increase in product sales and service
revenues and to an increase in technical service costs related to the Company's
videoconferencing business. Costs of goods sold as a percetnage of revenues
decreased due to the fact that such costs grew at a slower rate than overall
revenues.
Sales and marketing expenses for 1997 increased by $1.174 million or 42.0% to
$3.967 million from $2.793 million in 1996. Sales and marketing expenses as a
percentage of revenues increased to 39.6% in 1997 from 34.5% in 1996. The
dollar increase in selling and marketing expenses was primarily due to the
increase in the number of sales representatives and to higher sales volume which
resulted in higher compensation and related expenses for the Company's sales
force. Sales and marketing expenses as a percentage of revenues increased due
to the fact that selling expenses grew at a greater rate than overall revenues.
General and administrative expenses for 1997 increased by $700,129 or 61.9% to
$1.831 million from $1.131 million in 1996. General and administrative expenses
as a percentage of total revenues increased to 18.3% in 1997 from 13.9% in 1996.
The dollar increase in general and administrative expenses was primarily due to
a general increase in such expenses as a result of the expansion of the
Company's videoconferencing and agency business. General and administrative
expenses as a percentage of revenues increased due to the fact that such
expenses grew at a greater rate than revenues.
Income from operations decreased $648,267 to a loss of $(353,955) in 1997 from
income of $294,312 in 1996. The loss from operations for 1997 related to the
increases in sales and marketing expenses, and general and administrative
expenses, discussed above. Income from operations as a percentage of revenues
decreased to (3.5)% for 1997, compared to 3.6% for 1996.
Other expense, primarily representing interest expense, for 1997 remained
level with 1996.
Provision for income tax expense decreased $23,391 to $912 in 1997 compared to
a provision of $24,303 for 1996. The decrease in the tax provision was related
to the Company's current period pre-tax loss.
Net income decreased $640,592 to a loss of $(439,009) in 1997 from net income
of $201,583 for 1996. Net income as a percentage of revenues decreased to
(4.4)% for 1997 compared to 2.5% for 1996. Net income per share decreased to
$(.07) for 1997 compared to $.03 for 1996. The weighted average number of shares
outstanding increased to 6,169,491 for 1997 from 5,767,622 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Over the past two years, View Tech has financed its operations and expansion
activities with the proceeds from its initial public offering completed in June
1995, private placements of equity securities, bank debt and vendor credit
arrangements.
Net cash used for operating activities for the three months ended March 31,
1997 (the "Period") was $1.612 million. The primary uses of cash in the first
quarter of 1997 were decreases in accounts payable and other accrued liabilities
of $1.142 million and $993,449, respectively. Sources of cash from operating
activities were primarily related to a decrease in accounts receivable $710,531.
Net cash used for investing activities for the Period was $326,078, relating
to the purchase of office furniture and computer equipment.
Net cash provided by financing activities for the Period was $2.600 million,
relating to net proceeds of $2.785 million from the sale of common stock by the
Company, offset by the repayment of $280,283 in debt obligations.
9
The Company maintains a $1,750,000 credit facility (the "Note") to assist in
meeting its working capital needs, if required. The Note expires on October 1,
1997 and provides for a borrowing base of up to $1,750,000 with interest payable
monthly at the prime rate plus 1% per year. The borrowing base is determined
based on 60% of eligible accounts receivable, as defined. The Company had
outstanding borrowings of $500,000 under the Note as of March 31, 1997. Funds
available under the Note are reduced by certain outstanding standby letters of
credit issued on behalf of the Company. In addition to the $500,000 outstanding
under the Note, the Company has as of March 31, 1997, six outstanding standby
letters of credits totaling $524,000. One letter of credit is issued to the
Company's primary video conferencing equipment supplier as collateral for the
Company's purchasing line of credit with such supplier. Of the remaining five
letters of credit, four are issued in favor of one leasing company in connection
with certain capital lease transactions relating to the purchase of computer
equipment and furniture, and one is issued to a surety company in connection
with its issuance of a performance bond on behalf of the Company. The letter of
credit holders may draw against the letters of credit if the Company fails to
make timely payments or meet certain other conditions. As a result of issuing
the six standby letters of credit, the credit line available under the Note has
been reduced to $726,000.
The Company's wholly-owned subsidiary, UST, maintains a revolving credit
agreement with a bank. The agreement, pursuant to the terms of a forbearance
agreement, as amended, allows the subsidiary to borrow up to the lesser of the
financial borrowing base, as defined, or $3,500,000. The bank has a security
interest in the subsidiary's assets and the Company is guaranteeing the
repayment of amounts borrowed under the line. In addition, the subsidiary has
agreed, among other things, to maintain certain financial covenants and ratios,
as defined. As of March 31, 1997, UST was in compliance with the covenants or
had received waivers under the forbearance agreement. Interest on the
outstanding balance is payable monthly at the bank's base rate (8.5% at March
31, 1997) plus 1.0%. The revolving line of credit and forbearance agreement have
been extended to August 1, 1997.
In addition, UST had maintained a lease line-of-credit agreement with a bank
which was converted into a term note as part of the forbearance agreement. At
March 31, 1997, there was approximately $826,000 outstanding under this
facility. UST is required to maintain certain restrictive covenants, including
profitability and liquidity covenants. Amounts outstanding bear interest at
rates ranging from 5.6% to 8.3%. As of March 31, 1997, UST was in compliance
with the covenants or had received waivers under the forbearance agreement. In
connection with the renewal of the UST's revolving credit agreement, the lease
line term note was revised to provide for additional credit of $250,000. This
credit facility expires on August 1, 1997.
The Company sold to one investor, Telcom Holding, LLC, an aggregate of
$2,860,000 of common stock on three separate closings occurring in January
and March, 1997. In addition, the Company issued an aggregate of 487,500
warrants to purchase common stock at $6.50 per share in connection with this
transaction. The Company will use such funds for working capital and to pay a
portion of the costs incurred in connection with the Merger.
UST's lines of credit are due on August 1, 1997. UST is subject to a
forbearance agreement which enables the lender to foreclose on the debt if UST's
financial condition falls below certain minimum standards. The forbearance
agreement, as amended, was originally entered into on June 14, 1995. Based on
UST's relationship with the lender, the Company's management anticipates that
the lender will refinance the lines of credit or extend the date on which the
lines of credit must be paid. However, if the lender does not refinance such
lines of credit and the Company has not raised additional equity and/or arranged
for alternative bank financing, the Company will not have sufficient cash to
repay the lender when the debt comes due. There can be no assurance that the
Company will be able to renegotiate the lines of credit with the lender, and if
the lender requires payment in August 1997, there can be no assurance that the
Company will be able to raise the additional funds necessary to meet the
Company's operating needs and capital requirements or that such funds, if
available, can be obtained on terms acceptable to the Company. The failure to
refinance the lines of credit, raise additional capital or obtain additional
bank financing will have a material adverse effect on the Company's business,
financial condition and results of operations. To the extent that the Company
raises additional capital by issuing equity securities, ownership dilution to
current stockholders of the Company will result.
10
The Company may require additional working capital to efficiently operate its
business, continue to implement its growth strategy and to adequately provide
for its working capital needs. In this regard, the Company will continue to seek
private equity or debt financing to satisfy its capital needs. However,
exclusive of the cash required to repay the UST debt obligations on August 1,
1997 and to fund additional expansion activities, the Company believes that its
existing cash balances, combined with its anticipated operating cash flow and
borrowings under existing credit facilities will be adequate to meet the
Company's on-going cash needs for the next twelve months.
RISK FACTORS
FUTURE FINANCING REQUIREMENTS
The Company may require additional working capital in order to operate its
business efficiently and to implement its internal expansion and acquisition
strategy. The Company plans to raise additional capital to meet such needs in
either the form of a private placement of its securities and/or traditional bank
financing, or a combination of both. In connection with the private placement of
its securities, the Company sold to one investor, Telcom Holdings, LLC, an
aggregate of $2,860,000 of common stock on three separate closings occurring in
January and March 1997. There can be no assurance, however, that the Company
will be able to raise any additional funds that may be necessary to meet the
Company's future capital needs or that such additional funds, if available, can
be obtained on terms acceptable to the Company. The failure to raise additional
capital, when and if needed, on terms acceptable to the Company could force the
Company to alter its business strategy, including but not limited to, its
acquisition strategy, in the future.
UNASCERTAINABLE RISKS DUE TO RAPID EXPANSION AND FUTURE ACQUISITIONS
Management anticipates that the Company will continue to grow not only through
internal expansion, but also through acquisitions of other entities. Since July
1992, View Tech, by virtue of its expansion activity, has grown from two
employees in one location to approximately 300 employees in 16 locations at
March 31, 1997. In the past several months, View Tech has acquired three
businesses, including USTeleCenters. By virtue of rapid internal growth and
external growth through acquisitions, the Company will be subject to the
uncertainties and risks associated with any expanding business. In light of the
potential significance of these changes and the absence of a long history of
combined operations of View Tech with another entity, it is possible that the
Company will encounter difficulties, such as, integration of operations,
inefficiencies due to duplicative functions, management and administrative
differences and overlapping, competing or incompatible areas of business and
operations, that cannot presently be ascertained. There can be no assurance that
the Company will achieve the anticipated benefits of its recent acquisitions.
LIMITED HISTORY OF PROFITABLE OPERATIONS; SIGNIFICANT FLUCTUATIONS IN OPERATING
RESULTS; FUTURE RESULTS OF OPERATIONS UNCERTAIN
View Tech and USTeleCenters have operated since 1992 and 1987, respectively.
On a combined basis, the Company incurred a net loss for the three months ended
March 31, 1997 and has operated as a combined entity since November 29, 1996.
Although the Company achieved profitability and reported net income of $424,056
for fiscal 1996, it reported a net loss of $3,017,218 and $1,876,810 and for the
six months ended December 31, 1996 and the fiscal year ended June 30, 1995. In
the future, View Tech may continue to experience significant fluctuations in
operating results as a result of a number of factors, including delays in
product enhancements and new product introductions by its suppliers, market
acceptance of new products and services and reduction in demand for existing
products and services as a result of introductions of new products and services
by its competitors or by competitors of its suppliers. In addition, View Tech's
operating results may vary significantly depending on the mix of products and
services comprising its revenues in any period. There can be no assurance that
View Tech will achieve revenue growth or will be profitable on a quarterly or
annual basis in the future.
DEPENDENCE ON SUPPLIERS, INCLUDING PICTURETEL AND NYNEX
For the three months ended December 31, 1996, approximately 43% and 14% of the
Company's consolidated revenues were attributable to the sale of equipment
manufactured by PictureTel and to the sale of network products and services
provided by NYNEX, respectively. Termination of or change of the Company's
business relationships with PictureTel or NYNEX, disruption in supply, failure
of PictureTel or NYNEX to remain competitive in product quality, function or
price or a determination by PictureTel or NYNEX to reduce reliance on
independent providers such as the Company, among other things, would have a
material adverse effect on the Company's business, financial condition and
results of operation. The Company is a party to agreements with PictureTel and
NYNEX that authorize the Company to serve as a non-exclusive dealer and sales
agent, respectively, in certain geographic territories. The PictureTel and NYNEX
agreements expire on August 1, 2000, and December 31, 1998, respectively. The
PictureTel and NYNEX agreements can be terminated without cause upon 60 days and
12 months written notice by the suppliers, respectively. There can be no
assurance that these agreements will not be terminated, or that they will be
renewed on terms acceptable to the Company. These suppliers have no affiliation
with the Company and are competitors of the Company.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits
10.1 Severance and Consulting Agreement by and between, View Tech, Inc. and John W.
Hammon, dated April 22, 1997.
10.2 Tenth Amendment to Revolving Credit, Term Loan and Security Agreement between
USTeleCenters, Inc. and The First National Bank of Boston, dated March 31, 1997.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
- Current Report on Form 8-K, dated January 15, 1997, regarding the appointment of Paul C.
O'Brien as Chairman of the Board and the investment in View Tech common stock and
common stock purchase warrants by Telcom Holding, LLC of which Mr. O'Brien is a member
and manager.
- Current report on Form 8-K/A, dated February 14, 1997, presenting the pro-forma information
for the three months ended September 30, 1996 and 1995 in connection with the Company's
merger with USTeleCenters, Inc.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VIEW TECH, INC.
Date: May 15, 1997 By: \s\ William M. McKay
--------------------------------
William M. McKay
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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