<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 2000
Commission File No. 0-27055
CAVION TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
Colorado 84-1472763
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
6446 S. Kenton Street
Englewood, Colorado 80111
(720) 875-1900
(Address and Telephone Number of Principal Executive Offices)
TITLE OF CLASS
Class A Common Stock, $.0001 Par Value
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
The number of shares outstanding of the issuer's class of common stock as of
August 8, 2000:
CLASS OF SECURITIES OUTSTANDING SECURITIES
$.0001 par value Common Stock 4,966,974
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. Financial Information
Item 1. Unaudited Financial Statements:
Cavion Technologies, Inc.
Balance Sheets as of June 30, 2000 and December 31, 1999........................................3
Statements of Operations for the three and six months ended
June 30, 2000 and 1999 .....................................................................5
Statements of Cash Flows for the three and six months ended June 30,
2000 and 1999 ..............................................................................7
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of
Operations.................................................................................16
Part II. Other Information
Item 1 Legal Proceedings..............................................................................25
Item 2 Changes in Securities and Use of Proceeds......................................................26
Item 3 Defaults Upon Senior Securities................................................................27
Item 4 Submission of Matters to a Vote of Security Holders............................................27
Item 5 Other Information..............................................................................27
Item 6 Exhibits and Reports on Form 8-K...............................................................27
Signatures
</TABLE>
-------------------------------
This report contains forward-looking statements within the meaning of Section
221E of the Securities Exchange Act of 1934, as amended, and Section 27A of
the Securities of the Securities Act of 1933, as amended, and is subject to
the safe harbors created by those sections. These forward-looking statements
are subject to significant risks and uncertainties, including those
identified in the section of this Form 10-QSB entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors That May Affect Future Operating Results," which may cause actual
results to differ materially from those discussed in such forward-looking
statements. The forward-looking statements within this Form 10-QSB are
identified by words such as "believes, "anticipates," "expects," "intends,"
"may," "will" and other similar expressions. However, these words are not the
exclusive means of identifying such statements. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-QSB with the
Securities and Exchange Commission ("SEC"). Readers are urged to carefully
review and consider the various disclosures made by the Company in this
report and in the Company's other reports filed with the SEC that attempt to
advise interested parties of the risks and other factors that may affect the
Company's business.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
CAVION TECHNOLOGIES, INC.
BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,955,403 $ 4,346,699
Accounts receivable 161,727 94,190
Notes receivable 199,783 --
Prepaid expenses 171,558 141,949
Prepaid compensation 608,953 --
Other 27,223 2,558
------------ ------------
Total current assets 3,124,647 4,585,396
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 590,298 164,357
Furniture and fixtures 314,358 16,851
Network equipment and licensed software 1,356,175 530,466
------------ ------------
2,260,831 711,674
Less - accumulated depreciation (226,096) (45,066)
------------ ------------
Property and equipment, net 2,034,735 666,608
------------ ------------
DEPOSIT FOR LETTER OF CREDIT 325,000 300,000
GOODWILL, net of accumulated amortization of $1,350,159 and
$873,632, respectively 3,415,109 3,891,636
OTHER ASSETS 41,811 159,637
------------ ------------
TOTAL ASSETS $ 8,941,302 $ 9,603,277
============ ============
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
<PAGE>
CAVION TECHNOLOGIES, INC.
BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 393,506 $ 213,098
Accrued liabilities 278,643 375,524
Deferred revenue - network access and connectivity fees 1,089,977 547,639
Deferred revenue - preferred merchant fees 150,000 300,000
Deferred revenue - software license agreements 143,730 --
Current portion of capital lease obligations 282,906 137,500
Notes payable 470,000 470,000
------------ ------------
Total current liabilities 2,808,762 2,043,761
------------ ------------
LONG-TERM LIABILITIES:
Capital lease obligations 638,201 386,494
------------ ------------
PUTABLE CLASS B COMMON STOCK: 30,000 shares
authorized; 0 and 28,648 shares issued and outstanding,
respectively (stated at redemption value) -- 200,537
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock; $.0001 par value, 19,970,000 shares authorized;
4,964,808 and 4,697,326 issued and
outstanding at June 30, 2000 and December 31, 1999, respectively 497 470
Warrants and options 1,898,835 507,096
Deferred compensation -- (107,735)
Stockholder receivable (82,497) --
Additional paid-in capital 13,809,090 11,426,314
Accumulated deficit (10,131,586) (4,853,660)
------------ ------------
Total stockholders' equity 5,494,339 6,972,485
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,941,302 $ 9,603,277
============ ============
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
<PAGE>
CAVION TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three-Month Six-Month
Period Ending Period Ending
---------------------------- ----------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Network access and connectivity fees $ 327,322 $ 100,629 $ 568,816 $ 156,207
Preferred merchant fees 75,000 -- 150,000 --
Software licensing fees 11,593 2,563 21,941 3,901
Installation services -- 35,602 -- 45,225
----------- ----------- ----------- -----------
Total revenue 413,915 138,794 740,757 205,333
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Network access and connectivity,
installation services and software licensing 308,953 92,174 593,520 133,617
Selling and marketing 1,292,378 261,262 2,185,962 413,260
General and administrative 1,257,029 397,568 2,372,950 649,819
Research and development 226,031 115,505 425,002 162,089
Amortization of goodwill 238,263 235,733 476,527 394,509
----------- ----------- ----------- -----------
Total operating expenses 3,322,654 1,102,242 6,053,961 1,753,294
LOSS FROM OPERATIONS (2,908,739) (963,448) (5,313,204) (1,547,961)
INTEREST INCOME 55,103 -- 123,138 --
INTEREST EXPENSE (45,821) (150,475) (87,860) (224,131)
----------- ----------- ----------- -----------
NET LOSS $(2,899,457) $(1,113,923) $(5,277,926) $(1,772,092)
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS
Net Loss $(2,899,457) $(1,113,923) $(5,277,926) $(1,772,092)
Dividends on redeemable, convertible
preferred stock -- (28,455) -- (28,455)
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $(2,899,457) $(1,142,378) $(5,277,926) $(1,800,547)
=========== =========== =========== ===========
BASIC AND DILUTED NET
LOSS PER SHARE $ (0.58) $ (0.42) $ (1.08) $ (0.65)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -
BASIC AND DILUTED 4,961,112 2,706,326 4,881,184 2,757,306
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<PAGE>
CAVION
TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three-Month Six-Month
Period Ending Period Ending
----------------------------- ------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,899,457) $(1,113,923) $(5,277,926) $(1,772,092)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 365,293 261,399 657,981 445,577
Amortization of deferred compensation 261,279 - 759,931 -
Accretion of debt discount - 102,022 - 126,902
Accretion of putable stock - 11,881 - 17,500
Change in operating assets and liabilities-
Accounts receivable (51,487) (16,809) (67,537) (9,744)
Prepaids and other current assets (45,888) (12,208) (54,274) (29,929)
Other assets 12,039 13,184 117,826 10,517
Accrued liabilities (125,131) (69,869) (96,881) 92,162
Accounts payable 253,669 183,801 180,408 100,120
Deferred revenue 166,440 7,102 536,068 28,253
Certificate of deposit - - (25,000) -
------------ ------------ ------------ ------------
Net cash used in operating activities (2,063,243) (633,420) (3,269,404) (990,734)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (313,324) (51,205) (1,052,130) (87,015)
Proceeds form sale leasehold - - 2,673 -
------------ ------------ ------------ ------------
Net cash used in investing activities (313,324) (51,205) (1,049,457) (87,015)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3 - 2,460,003 178
Loan for stock purchase - - - -
Proceeds from the exercise of employee options 6,001 - 19,002 -
Proceeds from the notes payable - - - 100,000
Proceeds from issuance of Series A Preferred Stock - 399,000 - 2,100,000
Principal payments on capital leases (61,478) (10,288) (103,011) (22,387)
Exchange of notes receivable (199,783) - (199,783) -
Common stock offering costs - - (248,646) -
Deferred offering costs (capitalized) written-off 48,184 (252,525) - (372,298)
Series A preferred stock offering costs - (47,880) - (252,000)
Payment of debt issuance costs - - - (36,567)
Repurchase of common stock - (31) - (31)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities $ (207,073) $ 88,276 $ 1,927,565 $ 1,516,895
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<PAGE>
CAVION
TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three-Month Six-Month
Period Ending Period Ending
----------------------------- -------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $(2,583,640) $ (596,349) $(2,391,296) $ 439,146
CASH AND CASH EQUIVALENTS,
beginning of period 4,539,043 1,055,230 4,346,699 $ 19,735
------------- ------------- ------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ 1,955,403 $ 458,881 $ 1,955,403 $ 458,881
============= ============= ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 42,626 $ 19,092 $ 84,718 $ 35,771
============= ============= ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-
CASH FINANCING ACTIVITIES:
Property acquired with capital leases $ 438,331 $ - $ 500,124 $ 63,804
============= ============= ============ ============
Value of common stock issued in
exchange for note receivable $ 82,497 $ - $ 82,497 $ -
============= ============= ============ ============
Value of warrants to purchase preferred
stock issued to Placement Agent $ - $ 165,200 $ 130,590 $ 165,200
============= ============= ============ ============
Value of warrants to purchase common
stock issued to note holders $ - $ - $ - $ 35,885
============= ============= ============ ============
Value of warrants to purchase common
stock issued to selling agent $ - $ - $ - $ 35,590
============= ============= ============ ============
Common stock issued in connection
with conversion of Class B Putable
Common Stock $ - $ - $ 200,537 $ -
============= ============= ============ ============
Value of non-employee stock options $ - $ - $ 1,261,149 $ -
============= ============= ============ ============
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
<PAGE>
CAVION
TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
1. DESCRIPTION OF BUSINESS:
ORGANIZATION
Cavion Technologies, Inc. (the "Company") offers products and services for
business to business communications, secure Internet financial products, such
as online banking and bill paying services, and secure Internet access and
services for its customers. The Company is also building and managing a
secure private communications network exclusively for the credit union
industry. This network acts as a communications platform for the delivery of
services and information to and from credit unions and related businesses.
The Company has developed and is beginning to offer an integrated network of
e-commerce portals called Member Emporium-TM-. Member Emporium-TM- is
designed to enable a credit union to provide its members with access to a
variety of products and services, typically at a discount from retail or
Internet-based prices.
The Company was incorporated in Colorado on August 18, 1998 as Network
Acquisitions, Inc. to acquire the assets of Cavion Technologies, Inc., now
known as LanXtra, Inc. ("LanXtra"), which was engaged in providing internet,
intranet, and extranet services to the credit union industry. On February 1,
1999, the Company acquired the business of LanXtra, and the Company changed
its name to Cavion Technologies, Inc. doing business as cavion.com.
The Company's operations are subject to risks associated with a rapidly
evolving marketplace, including the need for additional capital,
technological change, and a dependence on key personnel. The Company believes
that its cash and other sources of liquidity will be sufficient to fund its
operations (see Note 9 for subsequent events). In order to facilitate its
aggressive growth model, management intends to pursue additional financing as
it has done previously.
In July 2000, the Company entered into a private stock purchase agreement
with an institutional investor in which the investor committed to buy up to 1
million shares of the Company's Class A Common Stock. This agreement will
enable the Company, in its discretion, to sell up to 1 million shares of its
common stock to this institutional investor, subject to specified terms and
conditions, over the next twenty-four months (see Note 9).
On February 17, 2000, the Company entered into an agreement to issue, for
$12.00 per share, 205,000 shares of its Class A Common Stock in a private
transaction. Gross proceeds of $2,460,000 were raised, and the Company, after
a reduction of $196,800 for the selling agent's commission and other offering
costs, netted proceeds of $2,211,354. In conjunction with this private
placement, warrants to purchase 20,500 shares of the Company's Class A Common
Stock were issued to the selling agent, which were valued at $130,590.
On October 29, 1999, the Company successfully completed an Initial Public
Offering ("IPO"). The number of shares offered and sold was 1,200,000, with
an underwriter's over-allotment option for an additional 180,000 shares.
Total gross proceeds of $7,800,000 were raised in the offering, and the
Company, after offering expenses, netted proceeds of approximately
$6,288,000. In November 1999, the Company sold 90,500 additional shares from
the underwriters over-allotment option, raising additional gross proceeds of
approximately $588,000, and net proceeds of approximately $467,000. The total
number of shares outstanding after the offering was 4,696,826, reflecting the
automatic conversion of 700,000 shares of Convertible Preferred Stock into
700,000 shares of Class A Common Stock upon the closing of the offering. In
addition, at the closing of the IPO, the Company issued warrants to purchase
120,000 shares of the Company's Class A Common Stock to the Representative of
the underwriter at a price of 125% of the IPO price, or $8.125 per share.
<PAGE>
Prior to the IPO, the Company financed its operations through a private
placement of promissory notes, bearing 15% interest per annum, which were
offered commencing on October 20, 1998 (the "Note Offering"), the sale of
Series A Preferred Stock and funding through a Bridge Loan. The Company
advanced a portion of the proceeds from the Note Offering to LanXtra in
anticipation of the acquisition of LanXtra.
PURCHASE OF LANXTRA'S ASSETS, LIABILITIES AND OPERATIONS
In August 1998, the Company signed a letter of intent to purchase LanXtra's
business. In December 1998, the Company signed an Asset Purchase Agreement
(the "Purchase Agreement") with LanXtra to purchase substantially all the
assets of LanXtra in exchange for approximately 375,214 shares and 28,648
shares of the Company's Class A and B Common Stock, respectively, and the
assumption by the Company of certain liabilities of LanXtra. The number of
Class A Common Stock shares issued to LanXtra represented approximately 12%
of the Company's equity interest at the time of the Purchase Agreement. The
Purchase Agreement was consummated on February 1, 1999 and the Company
assumed the operations of LanXtra on that date. Upon consummation,
significant modifications were made to LanXtra's capital structure. On
December 21, 1998, the Company issued 625,356 shares to certain shareholders
of LanXtra who would continue as management of the Company. One of these
shareholders held directly and through irrevocable proxies sufficient voting
shares to approve the transaction. The shares are non-forfeitable and not
contingent upon the management's continued employment with the Company. As a
result, the shares have been considered additional purchase consideration and
are recorded at their estimated fair value of $3 per share.
The estimated fair value of assets acquired, liabilities assumed, and
consideration issued in the transaction with LanXtra are as follows:
<TABLE>
<S> <C>
Consideration:
Class A Common Stock $ 3,001,710
Class B Common Stock 167,197
Cash 338,735
------------
3,507,642
Add: Net liabilities (assets) assumed:
Working capital deficit assumed 706,044
Property and equipment (331,020)
Borrowings assumed 924,417
Other assets (41,815)
------------
Goodwill $ 4,765,268
============
</TABLE>
The Company has recorded the fair value of its stock issued to LanXtra at $3
per share based principally upon its private placement of Series A Preferred
Stock completed in February 1999. The transaction with LanXtra resulted in
approximately $4,760,000 of goodwill, which will be amortized over five
years. Because the business now operated by the Company has never been
profitable, and due to the other risks and uncertainties discussed herein, it
is reasonably possible that an analysis of these long-lived assets in future
periods could result in a conclusion that they are impaired, and the amount
of the impairment could be substantial.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The interim financial statements of the Company as of and for the three and
six months ended June 30, 2000 and 1999 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the
unaudited interim financial statements contain all adjustments, consisting of
normal recurring adjustments,
<PAGE>
considered necessary for a fair presentation. The results of operations for
the interim period is not necessarily indicative of the results of the entire
year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable from future undiscounted cash flows. Impairment losses are
recorded for the difference between the carrying value and fair value of the
long-lived assets. The acquisition of LanXtra generated approximately
$4,760,000 of intangible assets, which are continuously reviewed by the
Company for impairments. As of June 30, 2000, management does not believe
that these assets are impaired.
DEFERRED COMPENSATION
The Company has issued options to purchase shares of its common stock to
certain non-employees. If the options are unvested and the option holder is
required to perform certain services to meet the vesting requirements, the
unamortized fair market value of the option is recorded as deferred
compensation, a reduction of stockholders' equity. Once the options become
fully vested and the option holder is still obligated to provide services to
the Company, the unamortized deferred compensation is reclassified as an
asset and is expensed over the period in which the related services are
provided by the non-employee.
The valuation of equity based securities issued to consultants is generally
based upon the Black-Scholes option pricing model. Use of this model may
result in significant variation in the fair market value on each
determination date. Fair market values are generally redetermined until the
equity-based security is vested, and the resulting income statement impact
can be volatile and significant. As of June 30, 2000, all outstanding equity
based securities that have been issued by the Company to consultants are
fully vested.
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Accrued commissions and vacation $ 51,314 $ 53,938
Accrued professional fees 109,977 67,854
Accrued telecom and equipment
fees for Convergent contract 96,973 81,392
Other liabilities 20,379 172,340
------------ ------------
Total accrued liabilities $ 278,643 $ 375,524
============ ============
</TABLE>
<PAGE>
NET LOSS PER SHARE
The Company reports net loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
requires the presentation of both basic and diluted earnings (loss) per
share. Basic net loss per common share has been computed based upon the
weighted average number of shares of common stock outstanding during the
period. For the period ended December 31, 1999, the weighted average common
shares excludes 28,648 shares of putable Class B Common Stock as an assumed
cash settlement is more dilutive. Diluted net loss per share is computed by
dividing the net loss applicable to common stockholders for the period by the
weighted average number of common and potential common shares outstanding
during the period if the effect of the potential common shares is dilutive.
The Company has excluded the weighted average effect of common stock issuable
upon exercise of all warrants and options from the computation of diluted
earnings per share as the effect of all such securities is anti-dilutive for
the periods presented. The shares excluded related to outstanding options and
warrants (without regard to the treasury stock method) at June 30, 2000 and
December 31, 1999 were 1,108,500 and 689,648, respectively.
STOCK BASED COMPENSATION
The Company accounts for its employee stock option plan and other employee
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), and related interpretations. The Company adopted
the disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which allows entities to continue to apply
the provisions of APB No. 25 for transactions with employees and provide pro
forma disclosures for employee stock grants as if the fair-value-based method
of accounting in SFAS No. 123 had been applied to these transactions. The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and related interpretations.
REVENUE RECOGNITION
The Company currently generates revenue from three sources: (1) recurring
monthly network access and connectivity fees, (2) software license fees, and
(3) preferred merchant fees (See Note 8). During the first quarter of 2000,
the Company modified its price structure to eliminate installation charges.
Service revenue was previously recognized as the services were performed. As
a result of the change to the Company's price structure, service fees are
bundled with the network access and connectivity fees, and are recognized
together. Software license arrangements typically provide for enhancements
over the term of the arrangement, and software license fees are generally
received in advance, deferred and recognized ratably over the term of the
arrangement. Network access and connectivity fees, including bundled service
fees are typically billed in advance and recognized ratably over the period
that the access/connectivity is provided.
COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards
for reporting comprehensive income and its components in the financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. From inception through
June 30, 2000, there have been no differences between the Company's
comprehensive loss and its net loss.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), and in June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB 133" ("SFAS No 137"). SFAS No. 137 requires the Company to adopt
SFAS No. 133 for all quarters in the year ended December 31, 2001. SFAS No.
133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. To date, the Company has not entered into any derivative
financial instruments or hedging activities.
<PAGE>
During December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition" ("SAB 101"), to establish
guidelines for revenue recognition and enhance revenue recognition disclosure
requirements. SAB 101 clarifies basic criteria for when revenues are taken
into account for purposes of a company's financial statements. SAB 101 is not
required to be adopted until the quarter ending December 31, 2000,with
retroactive implementation to January 1, 2000. If the Company determines that
its revenue recognition policies must change to be in compliance with SAB
101, the implementation of SAB 101 will require the Company to restate its
quarterly results for 2000 to reflect a cumulative effect of change in
accounting principle as if SAB 101 had been implemented on January 1, 2000.
The Company is currently assessing the implications of adopting SAB 101.
Currently, implementation service fees are recognized over the term of the
underlying contract rather than on completion of implementation. Upon
adoption of SAB 101, previously recognized implementation fees will be
deferred and recognized ratably over the contract term. In the period of
adoption, the cumulative impact will be reported as a change in accounting
principle as dictated by SAB 101.
3. RELATED PARTY TRANSACTIONS:
MONEYLINE AMERICA, LLC
In August 1999, the Company entered into an agreement with MoneyLine America,
LLC, (the "MoneyLine Agreement"), which provides that the Company will
receive payments under an agreement with MoneyLine to provide online mortgage
lending services for credit unions and their members through the Company's
network. This agreement calls for a minimum payment of $300,000 in the first
year, beginning September 1999, escalating to $1,000,000 in years six through
ten, provided the Company has at least 1,500 credit unions, or 12% of the
U.S. credit unions, on its network by the end of year three. The amounts
received are reflected as deferred revenue - preferred merchant fees in the
accompanying balance sheets. This service was initiated in January 2000, and
as a result, through June 30, 2000, $150,000 has been recognized as preferred
merchant fees revenue. Boutine Capital, LLC, a principal shareholder of the
company owned 50% of MoneyLine America on August 18, 1999, the date of the
MoneyLine Agreement, and currently owns 5% of MoneyLine.
CONVERGENT COMMUNICATIONS
Effective October 22, 1999, the Company entered into a five-year agreement
with Convergent Communications Services, Inc., ("Convergent"). This agreement
included a sale lease back of certain network equipment. Equipment with a net
book value of $265,394 was sold for $285,976. A corresponding deferred gain
of $20,582 was recorded and will be recognized over the life of the leases.
Under this agreement, Convergent will establish, maintain and support network
connectivity between the Company's network and its customers, including
providing, equipment, maintenance and related services for the network for a
monthly fee. During the six months ended June 30, 2000, the Company paid and
accrued approximately $223,000 to Convergent for these services. One of the
Company's directors was also a director of Convergent until April 2000 and he
served as its Executive Officer and Chairman until March 31, 2000.
4. CAPITAL LEASE OBLIGATIONS:
The Company assumed several capital lease agreements related to computers and
various office equipment in conjunction with the Purchase Agreement. The
Company has also entered into additional capital lease agreements. The
capital leases have terms ranging from 24 to 60 months with interest rates
ranging between 9% and 20.3%.
As of June 30, 2000, the present value of the future minimum lease payments
is as follows:
<TABLE>
<S> <C>
2000 $167,577
2001 327,944
2002 224,573
2003 181,890
2004 158,977
------------
1,060,961
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Less: amounts representing interest (139,854)
------------
921,107
Less: current portion (282,906)
------------
Long-term capital lease obligation $638,201
============
</TABLE>
The net book value of assets under capital lease obligations as of June 30,
2000 was approximately $936,135.
5. STOCKHOLDERS' EQUITY:
The Company is authorized to issue 19,970,000 shares of common stock, par
value $.0001 per share and 10,000,000 shares of preferred stock, par value
$.0001 per share.
CLASS A COMMON STOCK
At June 30, 2000 and December 31, 1999, 4,964,808 and 4,697,326 shares,
respectively, of Class A Common Stock were issued and outstanding. The
holders of Class A Common Stock are entitled to one vote for each share held
on record on each matter submitted to a vote of shareholders. Cumulative
voting for election of directors is not permitted. Holders of Class A Common
Stock have no preemptive rights or rights to convert their Class A Common
Stock into any other securities.
CLASS B COMMON STOCK
As of June 30, 2000 and December 31, 1999, there were 0 and 28,648 shares,
respectively, of the Class B voting Common Stock issued and outstanding, in
connection with the Company's purchase of the assets of LanXtra in February
1999. These shares were issued in exchange for similar securities of LanXtra
as partial consideration for the purchase of LanXtra's business, and were
callable by the Company at $7 per share. The holders of Class B Common Stock
had the right to sell the Class B Common Stock to the Company at $7 per share
or convert their shares to equivalent units of Class A Common Stock until
March 31, 2000, at which time no holder of Class B Common Stock had exercised
the put option. On that date, pursuant to the Company's Articles of
Incorporation, (i) each share of Class B Common Stock terminated; (ii) the
Company's authority to issue Class B Common Stock terminated; and (iii) the
only other Class of Common Stock, which had until that time been designated
as Class A Common Stock, was designated as Common Stock.
PREFERRED STOCK
In February 1999, the Board of Directors authorized the Company, without
further action by the shareholders, to issue 10,000,000 shares of one or more
series of preferred stock at a par value of $.0001, all of which is
nonvoting. The Board of Directors may, without shareholder approval,
determine the dividend rates, redemption prices, preferences on liquidation
or dissolution, conversion rights, voting rights and any other preferences.
WARRANTS
As part of the selling agent's compensation for the funds raised in the
February 2000 private issuance of Class A Common Stock, the Company issued
warrants to purchase 20,500 shares of its Class A Common Stock. The warrants
are exercisable at any time during a five-year term at an exercise price or
$12.00 per share. The warrants, when issued, were valued at a total of
$130,590, utilizing the Black-Scholes option pricing model assuming a
volatility factor of 53%, a risk free interest rate of 6.22% and a fair
market value of the underlying shares of $12.00. The value of these warrants
were recorded as a reduction of additional paid-in capital received from the
IPO.
As part of the underwriter's compensation for the funds raised in the
Company's IPO, the Company agreed to sell, for $100, warrants to purchase
120,000 shares of the Class A Common Stock. The warrants are exercisable at
any time during a five-year term at an exercise price equal to 125% of the
offering price, or $8.125. The warrants outstanding were valued at a total of
$366,234, utilizing the Black-Scholes option pricing model assuming a
<PAGE>
volatility factor of 53%, a risk free interest rate of 6.22% and a fair
market value of the underlying shares of $6.50. The value of these warrants
were recorded as a reduction of additional paid in capital received from the
IPO. On February 25, 2000, the Company agreed with certain of the present
holders of these warrants that 112,500 of these warrants will be exercised
without a cash payment on November 3, 2000, in return for the issuance of
65,625 shares of common stock. In connection with the negotiation of this net
exercise price, the underwriter forfeited its right of first refusal to act
as the Company's investment banker for future private or public securities
offerings.
In conjunction with the issuance of the August 1999 Bridge Loan, the Company
granted the Bridge Loan holders warrants to purchase 5,000 shares of the
Company's Class A common stock for every $50,000 of notes purchased. The
warrants are exercisable for a period of five years beginning on the earlier
to occur of (i) the closing of the IPO or (ii) one year from the date of the
warrant. These detachable warrants were valued at a total of $33,127
utilizing the Black-Scholes option pricing model, assuming a volatility
factor of 70%, a risk free rate of 6.22% and a fair value of the underlying
common stock of $6.75 per share, and have been recorded as a debt discount.
STOCK OPTIONS
Effective March 19, 1999, the Company adopted a stock option plan (the
"Plan"). The Plan provides for grants of incentive stock options,
nonqualified stock options and restricted stock to designated employees,
officers, directors, advisors and independent contractors. The Plan
authorizes the issuance of up to 995,000 shares of Class A Common Stock.
Under the Plan, the exercise price per share of a non-qualified stock option
must be equal to at least 50% of the fair market value of the common stock at
the grant date, and the exercise price per share of an incentive stock option
must equal the fair market value of the common stock at the grant date.
Through June 30, 2000 and December 31, 1999, options for 863,000 and 505,500
shares of Class A Common Stock, respectively, have been issued to employees
under the Plan. The outstanding stock options have an average exercise price
of $9.58 per share, with a range of $3.00 to $24.85, and vest over various
terms with a maximum vesting period of 18 months and expire after the
contract period of ten years.
During the year ended December 31, 1999, the Company granted options for
20,000 shares of Class A Common Stock to non-employees in exchange for
services. The exercise price of these options range from $3.00 to $6.00 per
share. These options became fully vested on March 1, 2000 and no future
services were required by the option holders. The fair value of these options
on the vesting date was approximately $324,000, which is included in general
and administrative expense in the accompanying Statements of Operations. The
fair value of each non-employee option grant was estimated on the vesting
date using the Black-Scholes option-pricing model. Assumptions used to
calculate the fair value were risk free interest rates of 6.22%, no dividend
yields, a life of 9-10 years and volatility of 69%.
In April 2000, the Company accepted a promissory note from a former director
in the amount of $82,497 as payment for the exercise price of 27,500 stock
options. The short-term note bears interest at 9.0% per annum and is due with
interest and principal in May 2001 with no pre-payment penalties. This amount
is reflected as a deduction of stockholder's equity in the accompanying
balance sheets.
On February 14, 2000, the Company entered into an agreement for investor
relations consulting services with Strategic Growth International, Inc.
("SGI"). In connection with the agreement, the Company granted SGI fully
vested options to purchase 175,000 shares of Class A common stock exercisable
at $11.1875 per share for a period of five years. The agreement has a term of
one-year and requires monthly payments of $8,000 to SGI for the services. The
fair value of these options on the date of grant was approximately
$1,045,000. This is being amortized over the life of the contract, one year,
in which amortization of approximately $261,000 and $435,000 is included in
selling and marketing expense in the accompanying Statements of Operations
for the three-month and six-month period ended June 30, 2000, respectively.
The fair value of the non-employee option grant was estimated on the vesting
date using the Black-Scholes option-pricing model. Assumptions used to
calculate the fair value were risk free interest rates of 6.22%, no dividend
yields, a life of five years and volatility of 53%.
<PAGE>
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Under the Stock Option Plan: Other Grants:
--------------------------------------------- --------------------
Granted to Granted to Granted to
Employees Non-Employees Non-Employees
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1999 491,000 $ 4.21 20,000 $4.50 - $ -
Granted 422,000 12.38 - - 175,000 11.19
Exercised (33,834) 3.00 - - - -
Canceled (16,166) 7.07 - - - -
--------- -------- --------- --------- -------- ----------
Outstanding at June 30, 2000 863,000 $ 8.61 20,000 $4.50 175,000 $ 11.19
========= ======== ========= ========= ======== ==========
Exercisable at June 30, 2000 261,419 $ 3.81 20,000 $4.50 - $ -
========= ======== ========= ========= ======== ==========
Weighted average fair value of options
Granted during the six-months ended
June 30, 2000 $ 9.84 $ 5.97
==== ====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
LEGAL MATTERS
In connection with the Purchase Agreement transaction, a shareholder of
LanXtra exercised his rights as a dissenting shareholder. The Company assumed
LanXtra's obligation (if any) to this dissenting shareholder. If the
shareholder is permitted to pursue his claim in a legal proceeding, LanXtra
could be required to pay the shareholder the fair value of his shares
immediately before the closing date of the Purchase Agreement. The Company's
and LanXtra's management believes that the value paid on account of these
shares pursuant to the Purchase Agreement is greater than the amount which
the dissenting shareholder could recover under Colorado law. The dissenting
shareholder has asserted that the value of his 50,000 LanXtra shares
immediately before the closing date of the Purchase Agreement would be
approximately $250,000. The ultimate resolution of the matter, which is
expected to occur within one year, could result in an obligation to such
shareholder. Further, should LanXtra, or the Company as successor, be
required to make a payment to this shareholder, such payment could result in
the purchase transaction being treated as a taxable transaction which could
subject the Company to a significant tax liability.
The Company is exposed to legal claims arising in the ordinary course of
business. In management's opinion, none of the claims currently asserted will
result in a material liability or change to earnings.
7. ACQUISITION OF LANXTRA BUSINESS (UNAUDITED):
As discussed above, the Company acquired the business of LanXtra on February
1, 1999. The following is pro forma operating information. For purposes of
the pro forma statement of operations, the transaction was assumed to be
consummated on January 1, 1999. Pro forma earnings per share are calculated
as if the Purchase Agreement was completed on January 1, 1999 and the related
1,029,218 shares of common stock were issued on that date.
<PAGE>
The pro forma statement of operations for the six months ended June 30, 1999
is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $ 37,850 $ 205,333 $ -- $ 243,183
Operating expenses 245,209 1,753,294 79,388 (1) 2,077,891
Interest expense and other 64,069 224,131 (52,932)(2) 235,268
------------ ------------ ------------ ------------
Net loss $ (271,428) $ (1,772,092) $ (26,456) $ (2,069,976)
============ ============ ============ ============
Net loss per basic share $ (0.75)
============
Weighted average shares
outstanding 2,788,574
============
</TABLE>
ADJUSTMENTS
(1) Amortization of goodwill
(2) Reduction of interest expense to reflect Cavion's capital structure
8. SEGMENT REPORTING:
The Company has two reportable segments: a provider of a secure financial
network connectivity and Internet solutions to credit unions and their
business partners ("Cavion") and a provider of e-commerce services to credit
union members ("Member Emporium-TM-"). Cavion activities include the
operations of providing a connection to the CuiNet and Internet banking
products, which enables credit unions to offer their members a wide array of
financial products and services over the Internet. Member Emporium-TM-
activities include development and implementing e-commerce relationships with
third party merchants and suppliers and, in turn, offering their products to
credit union members. Member Emporium-TM- operations began in the first
quarter of 2000. The accounting policies of the segments are the same as
those applied in the consolidated condensed financial statements.
Intercompany interest is calculated based on monthly balances of intercompany
loans and are eliminated in consolidation. The following is a summary of
information about each of the Company's reportable segments that is used by
the Company to measure the segment's operations:
<TABLE>
<CAPTION>
As of and for the six-months ended June 30, 2000
--------------------------------------------------
Member
Cavion Emporium Consolidated
-------------- ------------- ----------------
<S> <C> <C> <C>
Revenues $ 590,757 $ 150,000 $ 740,757
Segment Losses (5,053,881) (224,045) (5,277,926)
Segment Assets 8,861,506 79,793 8,941,299
</TABLE>
9. SUBSEQUENT EVENTS:
In July 2000, the Company entered into a private stock purchase agreement
with an institutional investor in which the investor committed to buy up to 1
million shares of the Company's Class A Common Stock. This agreement will
enable the Company, in its discretion, to sell up to 1 million shares of its
common stock to this institutional investor, subject to specified terms and
conditions, over the next twenty-four months. In conjunction with the stock
purchase agreement, the Company issued warrants to the investor to purchase
60,000 shares of the Company's
<PAGE>
common stock at a price of $10.17 per share. The fair value of these warrants
on the date of grant was approximately $383,000. The value of these warrants
will be recorded as a reduction of the proceeds received from the stock
issuance. The warrants were valued using the Black-Scholes option pricing
model assuming a volatility factor of 114%, a risk free interest rate of
6.22% and a fair value of the underlying shares of $9.24.
The Company also issued warrants to the placement agent to purchase 80,000
shares of the Company's common stock at a price of $10.17 per share. At the
time of the Company sells its first shares to the investor, the financial
consultant is entitled to be issued a warrant to purchase 100,000 shares of
our common stock at a price of $8.625 per share.
In addition, each time the Company sells shares to the investor, the Company
will issue warrants to the investor equal to 25% of the shares purchased, pay
an escrow fee of $1,500, an 8% placement fee and a 2.64% financial consultant
fee out of the proceeds from the sale of the Company's common stock to the
investor.
The Company has agreed to register the shares purchased by the investor with
the Securities and Exchange Commission. The Company intends to obtain
shareholder ratification of the transaction. No shares will be offered for
resale by the investor except by means of a prospectus.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Cavion offers a secure private network and Internet banking products and
services to credit unions that connect them to other credit unions, their
business partners and members. Cavion builds and maintains a suite of network
products and services for the credit union industry that currently includes:
- a secure private network, CUiNET-TM-, that connects credit unions with
their business partners, enabling business-to-business movement of data and
e-commerce;
- secure Internet banking products, bill payment and secure automated loan
application software with access to third party decision products;
- secure Internet access services for credit unions; and
- e-commerce services for credit union members.
The following discussion of our results of operations includes the results of
our predecessor, LanXtra, Inc., for the period prior to February 1, 1999.
LanXtra was incorporated in June 1992 and was originally engaged in the
business of integrating computer networks and communications technologies for
large business and government clients. In 1997, LanXtra created a software
development division to develop network-based financial services software for
credit unions. In December 1997, LanXtra sold all of its assets except its
credit union financial services business, which we acquired in February 1999.
We were originally incorporated under the name Network Acquisitions, Inc. in
August 1998 for the purpose of acquiring the assets and business operations
of LanXtra. This acquisition was completed on February 1, 1999. At that time,
we changed our name to Cavion Technologies, Inc. and began to conduct some of
our business under the trade name cavion.com
Prior to our acquisition of LanXtra, we did not conduct any business
operations except preparation for the acquisition, including providing bridge
funding to LanXtra with funds raised through a private placement of
promissory notes and related warrants.
In the following discussion, "we" refers both to the business we purchased
from LanXtra on February 1, 1999, and to Cavion since its inception (referred
to below as the combined results).
Our revenues have been historically derived from recurring monthly
connectivity fees, installation services and software licensing fees
associated with our secure Internet access services and secure Internet
financial products. Beginning in January 2000, we changed our pricing policy
and eliminated installation fees for access to CUiNET-TM- and our Internet
banking products. Currently, credit unions pay us a flat monthly fee based on
bandwidth requirements and the mix of products and services we provide to
them. In addition, we charge vendors connected to CUiNET-TM- a flat monthly
fee to be connected to CUiNET-TM- in addition to charges based upon the
number of credit unions to which such vendors provide services. We market a
connection to CUiNET-TM- and our Internet banking products as a packaged
solution to credit unions.
In addition, we offer bill payment services, secure forms servers, secure
Internet access and an online loan application, CUiLOAN-TM-, with access to
third party approval products. Included in the monthly fee is the cost of
hardware, software installation, set up, maintenance, technical assistance
for our services, and any hardware or software upgrades. We do not charge end
user transaction fees or per user fees. Customers pay for a full year of
services in advance when they initially connect with us and on each
anniversary date thereafter. This payment is reflected on the balance sheet
as an increase in deferred revenue and by an increase in cash. As revenues
are deemed earned, deferred revenues are amortized into revenue.
We have recently developed and are beginning to market our e-commerce
product, Member Emporium-TM-, which will allow credit unions to offer their
members products and services at discounted prices. In the future, we expect
<PAGE>
to earn a substantial portion of our revenue from commissions and fees for
transactions conducted over Member Emporium-TM-.
As of June 30, 2000, we had 162 customers under contract to connect to
CUiNET-TM-, which included 148 credit unions and 14 business critical
vendors. Of the 148 credit unions that contracted to connect to CUiNET-TM-,
75 had also subscribed to our Internet banking products. We believe that our
new pricing policy, combined with our new strategy of marketing a CUiNET-TM-
connection and Internet banking products as a packaged solution will increase
the percentage of our credit union customers who also subscribe for Internet
banking products. As of June 30, 2000, 51% of credit unions that contracted
to connect to CUiNET-TM-also subscribed to our Internet banking products, as
compared to 42% through December 31, 1999.
Our operating expenses consist of network access and connectivity expenses,
installation service expenses, selling, general and administrative expenses,
research and development expenses, and amortization of goodwill and other
intangible assets. Network access and connectivity expenses include our
monthly connection costs paid to Convergent and other telecommunications
providers, hardware costs, as well as the ongoing personnel and system
maintenance costs associated with our data center. Our installation services
expenses consist of personnel costs required to implement our secure private
network and Internet banking products. Selling, general and administrative
expenses include marketing expenses, sales commissions, employee compensation
and benefits, amortization of stock-based compensation and occupancy and
general office expenses incurred in the ordinary course of business. Research
and development expenses consist of programmers and engineers allocated
salaries applicable to the amount of time they devoted to development
activities. Amortization of goodwill and other intangible assets is related
to the purchase of LanXtra.
RESULTS OF OPERATIONS FOR CAVIONAND THE PREDECESSOR
The following table sets forth the results of operations of our predecessor
for the periods ended June 30, 1999 and for the one month ended January 31,
1999. Combined operating information for the period ended June 30, 1999 has
been presented to facilitate comparison between these periods.
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR CAVION COMBINED
------------------- ------------------------ ------------------------
FOR THE MONTH ENDED FOR THE SIX-MONTH PERIOD FOR THE SIX-MONTH PERIOD
JANUARY 31, 1999 ENDED JUNE 30, 1999 ENDED JUNE 30, 1999
------------------- ------------------------ ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Network access and connectivity fees $ 24 $ 156 $ 180
Software licensing fees & Installation
fees 14 49 $ 63
------------------- ------------------------ ------------------------
Total revenue 38 205 243
OPERATING EXPENSES:
Network access and connectivity,
installation services and software
licensing 32 134 166
Selling and marketing 73 413 486
General and administrative 109 649 758
Research and development 31 162 193
Amortization of goodwill - 395 395
------------------- ------------------------ ------------------------
Total operating expenses 245 1,753 1,998
LOSS FROM OPERATIONS (207) (1,548) (1,755)
Interest income (expense), net (64) (224) (288)
Other income (expense), net - - -
------------------- ------------------------ ------------------------
NET LOSS $ (271) $(1,772) $(2,043)
=================== ======================== ========================
</TABLE>
<PAGE>
THREE MONTH PERIOD ENDED JUNE 30, 2000 COMPARED TO THREE MONTH PERIOD ENDED
JUNE 30, 1999 (COMBINED CAVION AND LANXTRA)
REVENUE
Total revenue for the three-month period increased approximately $275,000 or
198% from approximately $139,000 for 1999 to approximately $414,000 for 2000.
This increase consisted of an increase of approximately $227,000 in network
access and connectivity revenue and an increase of approximately $75,000 in
preferred merchant fees for Member Emporium-TM-. Installation services and
software license fees decreased approximately $27,000.
NETWORK ACCESS AND CONNECTIVITY FEES. Network access and connectivity fees
increased approximately $227,000 or 225% from approximately $101, 000 for
1999 to approximately $327, 000 for 2000. This increase was due to the
increase in the number of customers connected to CUiNET-TM- from 30 as of
June 30, 1999 to 103 as of June 30, 2000.
PREFERRED MERCHANT FEES. Preferred Merchant fees increased from $0 in 1999 to
$75,000. This was due to the initiation of our Member Emporium-TM- preferred
merchant program in 2000.
INSTALLATION SERVICES AND SOFTWARE LICENSING. Installation services and
software licensing fees decreased approximately $38, 000. This decrease was
due to a change in the way we sell our products in which we no longer charge
for installations.
OPERATING EXPENSES
Total quarterly operating expenses increased approximately $2.2 million or
201% from approximately $1.1 million for 1999 to approximately $3.3 million
for 2000. This increase consisted of an increase of approximately $217,000 in
network access and connectivity expenses, $1.0 million in selling and
marketing expenses, $859,000 in general and administrative expenses and
$110,000 in research and development expenses. These increases were primarily
due to increased personnel and occupancy costs to support our recent growth,
increased commissions paid to sales personnel, and amortization of
stock-based compensation for non-employees. Total operating expenses as a
percentage of total revenue increased from 794% in 1999 to 803% in 2000.
COST OF NETWORK ACCESS AND CONNECTIVITY, INSTALLATION SERVICES AND SOFTWARE
LICENSING. Quarterly costs related to network access and connectivity,
installation services and software licensing revenue increased approximately
$217,000 or 235% from approximately $92,000 for 1999 to approximately
$309,000 for 2000. This increase was due to an increase in the number of
customers connected to CUINET-TM-, and related increased telecommunications
charges, personnel and network maintenance and data center expenses and
associated charges. The Company's data centers are currently being built out
and scaled to support the level of volume anticipated as a result of our
aggressive growth model. As such, network maintenance and data center
expenses are expected to eventually decline as a percentage of related
revenues in future periods as our customer base expands.Cost of network
access and connectivity, installation services and software licensing as a
percentage of related revenue increased from 66% in 1999 to 75% in 2000. As a
result of the change in the way we sell our products and our alliance with
Convergent Communications Services, Inc., we no longer have installation
expenses related to telecommunication installations or equipment. Cost of
installation services is primarily salaries directly related to the
installation services we provide to our customers.
SELLING AND MARKETING. Selling and marketing expenses increased approximately
$1.0 million or 395% from $0.3 million for 1999 to $1.3 million for 2000.
This increase was primarily due to increased sales and sales support
personnel, increased occupancy costs for additional sales offices, increased
commissions paid to sales personnel and amortization of stock-based
compensation. The amount of stock-based compensation included in selling and
marketing for the three-month period ending June 30, 2000 was approximately
$261,000. The fair value of stock-based compensation to non-employees is
estimated on the vesting date using the Black-Scholes option-
<PAGE>
pricing model. As of the date hereof, all options granted to non-employees
are fully vested. We anticipate that our salaries and commissions will
increase as we hire additional personnel to facilitate the growth of our
business.Selling and marketing expenses increased as a percentage of total
revenue from 188% in 1999 to 312% in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
quarter increased approximately $859,000 or 216% from $398,000 for 1999 to
$1.3 million for 2000. This increase was primarily due to increased
personnel, increased occupancy costs for our corporate headquarters and the
expenses associated with the cancelled Form S-1Registration Statement filing
in the second quarter of 2000 of approximately $243.000. We also expect
increased occupancy expenses and corporate infrastructure costs as we
continue to grow. General and administrative expenses increased as a
percentage of total revenue from 286% in 1999 to 304% in 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
approximately $111,000 or 96% from $116,000 in the 1999 quarter to $226,000
for 2000. This increase was primarily due to increased personnel devoted to
development activities. Research and development expenses decreased as a
percentage of total revenue from 83% in 1999 to 55% in 2000.
AMORTIZATION OF GOODWILL. Amortization of goodwill stayed at approximately
the same dollar value but decreased as a percentage of total revenue from
170% in 1999 to 58% in 2000.
INTEREST INCOME AND EXPENSE. Interest income increased approximately $55,000
in 2000 from 1999, and was derived from interest earned on short-term cash
investments. Interest expense totaled approximately $46,000 for 2000,
compared to approximately $151,000 for 1999. The decrease is due to higher
debt service costs during 1999 prior to our initial public offering and
obligations assumed from LanXtra. Interest expense in 2000 primarily related
to capital leases and our notes payable.
SIX MONTH PERIOD ENDED JUNE 30 2000 COMPARED TO SIX MONTH PERIOD ENDED JUNE
30, 1999 (COMBINED CAVION AND LANXTRA)
REVENUE
Total revenue for the six-month period increased approximately $498,000 or
205% from approximately $243,000 for 1999 to approximately $741,000 for 2000.
The increase is comprised of an increase of approximately $388,000 in network
access and connectivity revenue, an increase of approximately $150,000 in
preferred merchant fees for Member Emporium-TM-. and a decrease of
approximately $41,000 in, installation services and software license fees.
NETWORK ACCESS AND CONNECTIVITY FEES. Network access and connectivity fees
increased approximately $389,000 or 216% from approximately $180,000 for 1999
to approximately $569,000 for 2000. This increase was due to the increase in
the number of customers connected to CUiNET-TM- from 30 as of June 30, 1999
to 103 as of June 30, 2000.
PREFERRED MERCHANT FEES. Preferred Merchant fees increased from $0 in 1999 to
$150,000. This was due to the initiation of our Member Emporium-TM- preferred
merchant program in 2000.
INSTALLATION SERVICES AND SOFTWARE LICENSING. Installation services and
software licensing fees decreased approximately $41,000 or 65% from
approximately $63,000 for 1999 to approximately $22,000 for 2000 because, as
noted above, we no longer charge for installations.
<PAGE>
OPERATING EXPENSES
Total operating expenses for the six-month period increased approximately
$4.1 million or 205% from approximately $2.0 million for 1999 to
approximately $6.1 million for 2000. This increase consisted of an increase
of approximately $428,000 in network access and connectivity expenses, $1.7
million in selling and marketing expenses, $1.6 million in general and
administrative expenses, $231,000 in research and development expenses, and
$82,000 of amortization of goodwill. These increases were primarily due to an
additional month of amortization of goodwill from the LanXtra acquisition,
increased personnel and occupancy costs to support our recent growth,
increased commissions paid to sales personnel, and amortization of
stock-based compensation for non-employees. Total operating expenses as a
percentage of total revenue decreased from 854% in 1999 to 817% in 2000.
COST OF NETWORK ACCESS AND CONNECTIVITY, INSTALLATION SERVICES AND SOFTWARE
LICENSING. Costs related to network access and connectivity, installation
services and software licensing revenue increased approximately $428,000 or
259% from approximately $166,000 for 1999 to approximately $594,000 for 2000.
This increase was due to an increase in the number of customers connected to
CUINET-TM-, and related increased telecommunications charges, personnel and
network maintenance and data center expenses and associated charges. The
Company's data centers are currently being built out and scaled to support
the level of volume anticipated as a result of our aggressive growth model.
As such, network maintenance and data center expenses are expected to
eventually decline as a percentage of related revenues in future periods as
our customer base expands. In the beginning of the period ended June 30,
2000, costs of network access and connectivity include the costs to
transition telecommunication providers which included higher telephony costs
and some overlap of charges, which costs were eliminated during the later 3
months of this period. This increase was somewhat offset by a reduction in
prices we were charged for installation services by a new telecommunications
provider. Cost of network access and connectivity, installation services and
software licensing as a percentage of related revenue increased from 68% in
1999 to 80% in 2000. As a result of the change in the way we sell our
products we no longer have installation expenses related to telecommunication
installations or equipment. Cost of installation services is primarily
salaries directly related to the installation services we provide to our
customers.
SELLING AND MARKETING. Selling and marketing expenses increased approximately
$1.7 million or 350% from $486,000 for the first half of 1999 to $2.2 million
for the corresponding period in 2000. This increase was primarily due to
increased sales and sales support personnel, increased occupancy costs for
additional sales offices, increased commissions paid to sales personnel and
amortization of stock-based compensation. The amount of stock-based
compensation included in selling and marketing for the six-month period ended
June 30, 2000 was approximately $436,000. The fair value of stock-based
compensation to non-employees is estimated on the vesting date using the
Black-Scholes option-pricing model. All options granted to non-employees are
fully vested. We anticipate that our salaries and commissions will increase
as we hire additional personnel to facilitate the growth of our
business.Selling and marketing expenses increased as a percentage of total
revenue from 200% in 1999 to 295% in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
approximately $1.6 million or 213% from $759,000 for the first six months in
1999 to $2.4 million for 2000. This increase was primarily due to increased
personnel, increased occupancy costs for our corporate headquarters,
write-off of fees for our cancelled Form S-1 filing in the second quarter of
2000 and amortization of stock-based compensation. The amount of the
write-off for the cancelled S-1 filing was $243,000. The amount of
stock-based compensation included in general and administrative expenses for
the three-month period ended June 30, 2000 was approximately $324,000. All
options granted to non-employees who are not directors are fully vested. We
also expect increased occupancy expenses and corporate infrastructure costs
as we grow. General and administrative expenses increased as a percentage of
total revenue from 312% in 1999 to 320% in 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses for the first six
months of the year increased approximately $231,000 or 119% from $194,000 in
1999 to $425,000 in 2000. This increase was primarily due to increased
personnel devoted to development activities. Research and development
expenses decreased as a percentage of total revenue from 80% in 1999 to 57%
in 2000.
<PAGE>
AMORTIZATION OF GOODWILL. Amortization of goodwill increased approximately
$82,000 or 21% from $385,000 in 1999 to $477,000 in 2000.This increase is due
to the acquisition of LanXtra, and the related goodwill, which occurred on
February 1, 1999. Amortization of goodwill decreased as a percentage of total
revenue from 162% in 1999 to 64% in 2000.
INTEREST INCOME AND EXPENSE. Interest income was approximately $123,000 in
2000, and was derived from interest earned on short-term cash investments.
Interest expense totaled approximately $88,000 for 2000, compared to
approximately $288,000 for 1999. The decrease is due to higher debt service
costs during 1999 prior to our initial public offering and obligations
assumed from LanXtra. Interest expense in 2000 primarily related to capital
leases and our notes payable.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through cash
flow from operations and the net proceeds from public and private sales of
equity and debt securities.Our operations are subject to risks associated
with a rapidly evolving marketplace, including need for additional capital,
technological change, and a dependence on key personnel.. On June 30, 2000,
we had approximately $2.0 million in cash and cash equivalents. We believe
that this cash and other sources of current liquidity, such as receivables,
will be sufficient to fund our operations into September 2000. However,
additional financing will be required to fund our operations, particularly if
we continue to invest in the development of the Member Emporium at the levels
currently planned. In order to facilitate our aggressive growth model,
management is pursuing additional financing as it has done previously.
In July 2000, we entered into a private stock purchase agreement with an
institutional investor in which the investor committed to buy up to 1 million
shares of our Class A Common Stock. This agreement will enable us, in our
discretion, to sell up to 1 million shares of our common stock to this
institutional investor, subject to specified terms and conditions, over the
twenty-four month period following the effectiveness of the registration
statement covering the resale of those shares. As an example of the liquidity
provided by this security, as of August 7th, we would be able to draw
approximately $536,000 in gross proceeds for the current 22-day draw down
period based upon the formulas defined in the agreement. Subsequent draw down
amounts will vary based upon our stock price and the trading volume of our
common stock. In addition, we are in the process of raising up to $3.0
million through a private debt offering. We have also signed a letter
agreement to raise $5.0 million through a private sale of our equity. We
believe that proceeds from these transactions will help provide sufficient
funds to operate our business, including the aggressive expansion related to
Member Emporium, into the second quarter of 2000. Our efforts to provide
funds for operations may have a negative impact on our operating results
(such as in the form of interest expense) and/or dilution to existing
shareholders. There can be no assurance that these transactions will be
consummated. We intend to continue to find acceptable sources of funds and we
would consider a reduction in the scope of our operations to preserve our
cash.
Our operating activities used cash of approximately $633,000 and
approximately $2.0 million during the three months ended June 30, 1999 and
2000, respectively and approximately $991,000 and approximately $3.3 million
during the six months ended June 30, 1999 and 2000, respectively.Cash used by
operating activities in the listed periods primarily resulted from our net
losses, which were partially offset by depreciation and amortization,
accretion of debt discount and putable stock non-cash compensation charge, by
increases in accounts payable and deferred revenue.
Our investing activities used cash of approximately $51,000 and $87,000
during the three and six months ended June 30, 1999, respectively and
approximately $313,000 and $1.0 during the three and six months ended June
30, 2000, respectively, which was primarily related to purchase of new
property and equipment.
<PAGE>
Our financing activities generated (used) cash of approximately $88,000 and
$1.5 million during the three and six months ended June 30, 1999,
respectively and approximately $(0.2) and approximately $1.9 million during
the three and six months ended June 30, 2000. The cash generated by financing
activities during 1999 and 2000 resulted primarily from the sale of equity,
which was offset somewhat by payments of offering costs and principal
payments on capital leases.
As part of the Company's ongoing efforts to continue the financing of the
business, we considered a secondary public offering and filed a Form S-1
registration statement on April 14, 2000. Given the drastic change in market
conditions, which unfortunately arose almost simultaneously, we elected not
to proceed with this offering and are exploring other alternatives. As part
of this filing, we incurred legal and accounting fees and other costs of
approximately $243,000, which was expensed in the second quarter.
In February 2000, we received net proceeds of approximately $2.2 million
through a private placement to two investors. We issued 205,000 shares of
common stock for $12.00 per share.
In March 1999, we received net proceeds of approximately $1.5 million from
the private placement of 567,000 shares of our preferred stock. Subsequent to
March 31, 1999, the Company sold an additional 133,000 shares for a total of
700,000 shares and total net proceeds of approximately $1.8 million. These
shares were converted into 700,000 shares of common stock on November 3, 1999.
We currently lease all of the equipment in our data center. We have a lease
line of credit from Data Sales Company which enables us to lease up to
$500,000 of computer hardware. Interest on the outstanding balance accrues at
the rate of 10.7% annually. As of June 30, 2000 a total of approximately
$102,000 was outstanding on this line. Additionally, we have an agreement
with Convergent Communications in which we pay a monthly fee for data center
equipment, customer equipment, maintenance and related services for the
network. The amount paid and accrued to Convergent Communications during the
six-month period ended June 30, 2000 was approximately $223,000.
In the future, we expect to incur substantial costs in connection with
expanding our telecommunications infrastructure, establishing a sales
presence in key strategic markets, and developing new products. We also
expect to incur increased marketing costs and general and administrative
expenses in connection with the growth of our secure network for the credit
union industry.
Management expects that we will continue to operate at a loss as we expand
our network of credit union clients. These expansion efforts are likely to
cause us to incur significant increases in expenses, both in absolute terms
and as a percentage of revenue, as we prepare for the anticipated future
growth in our credit union customer base. Expenses will increase because of
the need to increase staffing in all categories, acquire additional
equipment, and provide for additional telephone connections. We believe our
operating results may fluctuate significantly as a result of a variety of
factors, some of which are outside of our control. Because of that, we cannot
assure you that we will achieve profitable operations even with a significant
increase in our credit union customer base.
INFLATION
Although our operations are influenced by general economic conditions, we do
not believe that inflation had a material effect on the results of our
operations during the three or six month periods ended June 30, 2000, nor do
we expect that inflation will have a material effect on the results of our
future operations. Our customer contracts have CPI Index provisions that can
be adjusted on an annual basis.
RECENT ACCOUNTING GUIDELINES
During December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition" ("SAB 101"), to establish
guidelines for revenue recognition and enhance revenue recognition disclosure
requirements. SAB 101 clarifies basic criteria for when revenues are taken
into account for purposes of a company's financial statements. SAB 101 is
effective for the quarter ended March 31, 2000.
<PAGE>
However, SAB 101 is not required to be adopted until the quarter ending
December 31, 2000. If we determine that our revenue recognition policies must
change to be in compliance with SAB 101, the implementation of SAB 101 will
require us to restate our quarterly results for 2000 to reflect a cumulative
change in accounting principle as if SAB 101 had been implemented on January
1, 2000. We are currently assessing the implications of adopting SAB 101.
Currently, implementation service fees are recognized over the term of the
underlying contract rather than on completion of implementation. Upon
adoption of SAB 101, previously recognized implementation fees will be
deferred and recognized ratably over the contract term. In the period of
adoption, the cumulative impact will be reported as a change in accounting
principle as dictated by SAB 101.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES.
FOUNDERS SHARES. In August 1998, we issued 2,000,000 shares of $.0001 common
stock to our two founding shareholders at $.0001 per share. These issuances
to the two accredited investors were effected without registration under the
Securities Act of 1933 in reliance upon the exemption from registration
contained in Section 4(2) of the Act. As founding shareholders, they had
access to complete information regarding our business at the time of issuance.
1998-1999 PRIVATE PLACEMENT OF NOTES AND WARRANTS. Between October 20, 1998
and February 8, 1999, we issued $470,000 in 15% secured promissory notes due
October 19, 2000 and a total of 56,400 warrants to purchase shares of Class A
common stock at an exercise price of $.01 per share in a private placement.
We relied on the exemption from registration provided by Section 4(2) of the
Act and Rule 505 of Regulation D adopted under the Act, as well as exemptions
under various state securities laws. The securities were sold to 13 private
investors. One was an accredited investor and 12 were sophisticated
investors. Investors received a private placement memorandum as well as
copies of the documents relating to the sale of the assets of LanXtra to
Cavion which closed in February 1999 and the loan from Cavion to LanXtra
which has since been extinguished. Between December 28, 1998 and February 8,
1999, all of the warrants were exercised. In connection with the offering,
the agent for the offering, First Capital Investments, Inc. was issued an
agent's warrant to purchase 5,640 shares of Class A common stock at $.01 per
share, which was exercised on February 8, 1999. In addition, First Capital
received a total offering commission of $37,600.
MANAGEMENT SHARES. In December 1998, we issued 625,356 shares of Class A
common stock to our management shareholders at $.01 per share. These
issuances to the three sophisticated investors were effected without
registration under the Act in reliance upon the exemption from registration
contained in Section 4(2) of the Act, relating to the sale of securities by
an issuer not involving a public offering. As these individuals were part of
management at the time the shares were issued, they had access to complete
information regarding our business at the time of issuance.
LANXTRA ASSET PURCHASE. In February 1999, we issued 375,214 shares of Class A
common stock and 28,648 shares of Class B common stock to LanXtra, Inc. in
exchange for the assets and liabilities of LanXtra. This issuance was
effected without registration under the Act in reliance upon the exemption
from registration contained in Section 4(2) of the Act. Since Cavion was
formed to purchase the assets and liabilities of LanXtra, the management and
shareholders of LanXtra had access to complete information regarding our
business at the time of issuance.
1999 PRIVATE PLACEMENT OF PREFERRED STOCK. In March and April 1999, we issued
700,000 shares of convertible preferred stock, Series A, convertible into
Class A common stock, for an aggregate of $2,100,000, prior to expenses and
commissions. The initial conversion price was $3.00 per share of Class A
common stock, but the conversion price was subject to adjustment upon certain
events affecting Cavion's capitalization. The shares of preferred stock were
automatically converted into Class A common stock on November 3, 1999, when
we closed our initial public offering. The convertible preferred stock was
sold in reliance on the exemption from registration provided by Section 4(2)
of the Act and Rule 506 of Regulation D adopted thereunder, as well as
exemptions under various state securities laws. The offering was sold to
accredited investors only. Investors received a private placement memorandum
including financial statements. In connection with the offering, the agent
for the offering, Neidiger, Tucker, Bruner, Inc., was issued a five year
agent warrant to purchase 70,000 shares of preferred stock at
<PAGE>
an exercise price of $3.00 per share. Those warrants were subsequently
terminated at NTB's request. In addition, NTB received a commission of
$210,000 and a non-accountable expense allowance of $42,000.
AUGUST 1999 PRIVATE PLACEMENT OF NOTES AND WARRANTS. In August 1999 we raised
$300,000 through the issuance of 14% promissory notes along with warrants to
purchase 30,000 shares of common stock. Each $50,000 note entitled the
subscriber to warrants to purchase 5,000 shares of Class A common stock. The
notes were due on the closing of our initial public offering or one year from
the date of their issuance. The notes were paid in full on November 5, 1999.
The warrants are exercisable for period of five years from November 3, 1999.
The warrant exercise price is $6.50, the price at which common stock was
offered in our initial public offering. The notes and warrants were sold to
four accredited investors. We relied on the exemption from registration
provided by Sections 4(2) and 4(6) of the Act and Rule 506 of Regulation D
adopted under the Act, as well as exemptions under various state securities
laws.
FEBRUARY 2000 PRIVATE PLACEMENT. On February 17, 2000, we raised $2,460,000
through a private placement of 205,000 shares of Class A common stock at
$12.00 per share, the closing price on February 14, the date of the offering
to the investors. The securities were sold in reliance on the exemption from
registration provided by Section 4(2) and 4(6) of the Act and Rule 506 of
Regulation D adopted under the Act, as well as exemptions under various state
securities laws. The offering was sold to two accredited investors who each
received a copy of our most recent registration statement on Form SB-2 (No.
333-93929) which was declared effective by the SEC on February 4, 2000. In
connection with the offering, First Capital Investments, Inc. acted as our
placement agent and received a commission of 8%, or $196,000, and a warrant
to purchase 20,500 shares of our Class A common stock, exercisable at 110% of
the offering price, $13.20, for a period of 5 years from February 17, 2000.
We also agreed to register the shares issued to the investors and the shares
for which the warrants are exercisable as soon as practicable.
USE OF PROCEEDS.
Our initial public offering was effected through a Registration
Statement on Form SB-2 (File No. 333-80421) that was declared effective by
the SEC on October 29, 1999. The IPO commenced on October 29, 1999 and
terminated shortly thereafter on November 3, 1999. The Class A shares of
common stock sold in the IPO were offered for sale by a syndicate of
underwriters represented by Neidiger, Tucker, Bruner, Inc. as the lead
underwriter. We registered an aggregate of 1,380,000 shares of common stock
(including 180,000 shares issuable upon exercise of the underwriters'
over-allotment option) in the IPO at a per share price of $6.50. 1,200,000
registered shares were sold in the IPO and 90,500 were exercised under the
underwriters' over-allotment for a total of 1,290,500 for an aggregate
offering price of $8,388,250. We incurred the following expenses in
connection with the IPO:
<TABLE>
<S> <C>
Underwriting discounts and commissions $ 838,825
Other expenses $ 794,952
----------
Total expenses $1,633,777
==========
</TABLE>
After deducting the expenses set forth above, we received net proceeds of
approximately $6,755,000 with the proceeds from the IPO and the partial
over-allotment option exercised by the underwriters. As of June 30, 2000 we
had used $6,755,000 of the net proceeds approximately as follows:
- $1.3 million to purchase of equipment, infrastructure and establish new
points of presence
- $2.2 million for selling and marketing expenses
- $2.2 for general working capital
- $0.8 to pay debts, accrued interest and accounts payable
- $0.3 to repay our August 1999 promissory notes
These amounts represent our best estimate of our use of proceeds for the
period indicated. No payments were made to our directors or officers or their
associates, holders of 10% or more of any class of our equity securities or
to our affiliates other than regular payments of salaries and directors' fees
and expenses.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of shareholders was held on May 30, 2000.
At the meeting David J. Selina, Jeffrey W. Marshall, Stephen B.
Friedman, John R. Evans and David E. Maus were elected as directors.
Our shareholders also ratified the appointment of Arthur Andersen LLP
as our independent public accountants for the year ending December 31,
2000 and approved an amendment to our Equity Incentive Plan to increase
the number of shares reserved under the Plan to 995,000.
The number of votes cast for, withheld or broker nonvotes for
each director nominee was as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD BROKER NONVOTES
<S> <C> <C> <C>
David J. Selina 3,278,334 212,600 0
Jeffrey W. Marshall 3,278,234 212,700 0
Stephen B. Friedman 3,278,334 212,600 0
John R. Evans 3,278,984 212,950 0
David E. Maus 3,278,064 212,870 0
</TABLE>
The number of votes cast for, against, abstentions and broker
nonvotes for ratification of our independent public accountants was as
follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NONVOTES
<S> <C> <C> <C>
3,488,566 2,201 167 0
</TABLE>
The number of votes cast for, against, abstentions and broker
nonvotes for approval of the amendment to our Equity Incentive Plan was
as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NONVOTES
<S> <C> <C> <C>
3,460,107 29,498 1,329 0
</TABLE>
Because the election of our directors, ratification of our
independent public accountants and approval of the increase in the
number of shares reserved under our Equity Incentive Plan were
considered routine under applicable stock exchange rules, all proxy
shares held in the names of brokers as nominees which were not voted at
the meeting by our shareholders were voted by the brokers at their
discretion.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during
the quarter ended June 30, 2000.
<PAGE>
ITEM 7.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAVION TECHNOLOGIES, INC.
Date: August , 2000 By:
------------------------------------
Marshall E. Aster, Vice President,
Chief Financial Officer and
Principal Financial and
Accounting Officer
