<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-20238
----------------------------------------------------------
First Pacific Networks, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0174188
- --------------------------------------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
871 Fox Lane, San Jose, CA 95131
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 943-7600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 number of shares outstanding of each of the issuer's classes of common
stock, at the latest practicable date:
Class Outstanding as of: November 12, 1996
- ----------------------------- ------------------------------------------
Common Stock, $.001 par value 42,923,639
--------------------
This report on Form 10-Q, including all exhibits, contains 26 pages. The
exhibit index is located on page 19 of this report.
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 and September 30, 1996 1
Condensed Consolidated Statements of Operations -
Three and six months ended September 30, 1995 and 1996 2
Condensed Consolidated Statements of Cash Flows -
Six months ended September 30, 1995 and 1996 3
Notes to Condensed Consolidated Financial Statements 4-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security
Holders 16-17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19-21
ii
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS MARCH 31, SEPTEMBER 30,
1996 1996
--------- -------------
Current assets:
Cash and cash equivalents $ 2,708 $ 443
Stock subscriptions receivable - 3,315
Accounts receivable, net 594 52
Inventories 3,535 3,667
Prepaid expenses and other current assets 739 419
--------- ---------
Total current assets 7,576 7,896
Property and equipment, net 3,714 3,251
Deposits and other assets 334 355
--------- ---------
Total assets $ 11,624 $ 11,502
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Accounts payable $ 1,300 $ 1,167
Accrued expenses 2,656 2,096
--------- ---------
Total current liabilities 3,956 3,263
Capitalized leases, less current portion 184 104
Payable to related party 5,857 6,075
--------- ---------
Total liabilities 9,997 9,442
--------- ---------
Commitments and contingencies (Notes 4 and 7)
STOCKHOLDERS' EQUITY (See Note 8)
Preferred stock, $.001 par value
Authorized:6,060 shares
Issued and outstanding: 4 at March 31, 1996
and 4 shares at September 30, 1996
(Aggregate Liquidation Preference $4,000)
Common stock, $.001 par value
Authorized: 90,000 shares
Issued and outstanding: 33,831 shares at March 31,
1996 and 38,909 shares at September 30, 1996 34 39
Additional paid-in capital 127,854 137,597
Notes receivable from sale of common stock (13) (13)
Accumulated deficit (126,245) (135,561)
Currency translation adjustment (3) (2)
--------- ---------
Total stockholders' equity 1,627 2,060
--------- ---------
Total liabilities and stockholders' equity $ 11,624 $ 11,502
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements
1
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
---- ---- ---- ----
Revenues:
Products $ 2,086 $ 40 $ 2,777 $ 205
Product development and field trial 227 78 1,444 174
------- ------ ------- -------
Total revenues 2,313 118 4,221 379
------- ------ ------- -------
Costs and expenses:
Products 2,249 329 2,646 870
Product development and field trial 229 75 430 165
Research and development 2,032 2,008 4,517 3,972
Sales and marketing 1,692 1,198 3,796 3,062
General and administrative 931 558 1,751 1,426
------- ------ ------- -------
Total costs and expenses 7,133 4,168 13,140 9,495
------- ------ ------- -------
Loss from operations (4,820) (4,050) (8,919) (9,116)
Interest expense, net (164) (103) (259) (200)
------- ------ ------- -------
Net loss $(4,984) $(4,153) $(9,178) $(9,316)
------- ------ ------- -------
------- ------ ------- -------
Shares used in computing per share amount 23,194 37,360 22,521 36,057
------- ------ ------- -------
------- ------ ------- -------
Net loss per share $ (0.21) $ (0.11) $ (0.41) $ (0.26)
------- ------ ------- -------
------- ------ ------- -------
The accompanying notes are an integral part of these financial statements
2
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
1995 1996
---- ----
Cash used in operating activities:
Net loss $ ( 9,178) $ ( 9,316)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 940 665
Interest accrued but not paid 213 218
Changes in assets and liabilities:
Accounts receivable 994 542
Inventories 522 (132)
Prepaid expenses and other current assets 577 119
Deposits and other assets (217) (21)
Accounts payable (2,485) (133)
Accrued expenses (1,201) (359)
Customer advances and deferred revenue (1,016) -
--------- ---------
Net cash used in operating activities (10,851) (8,417)
--------- ---------
Cash used in investing activities:
Acquisition of property and equipment (207) (130)
--------- ---------
Net cash used in investing activities (207) (130)
--------- ---------
Net cash from financing activities:
Proceeds from issuance of preferred stock, net 6,369
Proceeds from issuance of common stock, net 609 64
Proceeds from issuance of 9% Convertible Debentures,
net 5,000
Payments on capitalized leases (60) (152)
--------- ---------
Net cash provided by financing activities 5,549 6,281
--------- ---------
(5,509) (2,266)
Currency translation adjustment 11 1
--------- ---------
Net increase (decrease) in cash (5,498) (2,265)
Cash and cash equivalents at beginning of the period 6,179 2,708
--------- ---------
Cash and cash equivalents at end of the period $ 681 $ 443
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid during the period for interest $ 129 $ 42
Conversion of 9% Convertible Debentures to Common
Stock $ 5,000
Equipment purchased through leases $ 67 $ 72
Conversion of Preferred Stock to Common Stock $ $ 6,400
Stock subscriptions receivable related to Series G
Preferred stock financing $ 3,315
The accompanying notes are an integral part of these financial statements
3
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of the Company's management, the unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the consolidated
financial position as of September 30, 1996, and the condensed consolidated
results of operations for the three and six month periods ended September 30,
1995 and 1996, and cash flows for the six month periods ended September 30, 1995
and 1996. The results of operations for the six month period ended September
30, 1996 are not necessarily indicative of the results for the full year.
The March 31, 1996 consolidated balance sheet data was derived from audited
financial statements. The balance sheet data does not include all disclosures
required by generally accepted accounting principles. These statements should
be read in conjunction with the March 31, 1996 audited consolidated financial
statements and notes thereto.
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation.
BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
Company has sustained recurring losses related primarily to the development and
marketing of its products. Management is actively pursuing additional equity
and debt financing from both institutional and corporate investors. In
addition, the Company is pursuing funding opportunities with strategic corporate
partners. During fiscal 1996, the Company raised $15.9 million from private
placements of 400,000 shares of Common Stock, 7,000 shares of Series C Preferred
Stock, 3,900 shares of Series D Preferred Stock and 9% Convertible Debentures.
During fiscal 1997, the Company raised net proceeds of $4.9 million from the
sale of Series E Preferred Stock, in May 1996, $1.48 million from the sale of
Series F Preferred Stock, in August 1996 and $3.3 million from the sale of
Series G Preferred Stock (see Note 8), in September 1996. Management has
implemented certain cost reductions and cost containment measures including
reductions in its full-time employee base. However, the Company's management
has developed a fiscal 1997 operations plan in which the Company has placed
significant reliance on obtaining outside financing. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
COMPUTATION OF NET LOSS PER SHARE:
Net loss per share is based upon the weighted average number of shares of
common stock outstanding during the period.
4
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. BALANCE SHEET DETAIL: (UNAUDITED)
Accounts receivable, net, comprise:
MARCH 31, SEPTEMBER 30,
--------- -------------
1996 1996
---- ----
Accounts receivable $ 852,000 $ 740,000
Other 150,000
Less allowance for doubtful accounts (408,000) (688,000)
----------- -----------
Accounts receivable, net $ 594,000 $ 52,000
----------- -----------
----------- -----------
Inventories comprise:
Raw materials $ 2,571,000 $ 2,876,000
Work in process 117,000 96,000
Finished goods 847,000 695,000
----------- -----------
$ 3,535,000 $ 3,667,000
----------- -----------
----------- -----------
Property and equipment, net, comprise:
Equipment $ 8,141,000 $ 8,328,000
Furniture and fixtures 1,813,000 1,828,000
Leasehold improvements 497,000 498,000
----------- -----------
10,451,000 10,654,000
Less accumulated depreciation and
amortization (6,737,000) (7,403,000)
----------- -----------
$ 3,714,000 $ 3,251,000
----------- -----------
----------- -----------
Accrued expenses comprise:
Accrued payroll and employee related
expenses $ 578,000 $ 663,000
Accrued contract costs 381,000 381,000
Notes and current portion of capitalized
leases payable 455,000 254,000
Accrued rent 222,000 197,000
Accrued legal costs 769,000 494,000
Other accrued expenses 251,000 107,000
----------- -----------
$ 2,656,000 $ 2,096,000
----------- -----------
----------- -----------
5
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. PAYABLE TO RELATED PARTY:
Payable to related party comprise:
March 31, September 30,
1996 1996
---- ----
Noninterest-bearing obligation, due in March
1998 and 1999 $7,000,000 $7,000,000
Discount based on imputed interest rate
of 7.4% (1,143,000) (925,000)
---------- ----------
$5,857,000 $6,075,000
---------- ----------
---------- ----------
Represents obligation arising from an amendment to a product license
agreement with Entergy Enterprises, Inc. ("Entergy") a stockholder of the
Company.
4. LITIGATION:
On March 17, 1994, the Company entered into a Settlement Agreement and
Release (the Settlement Agreement) relating to an action in the United States
District Court for the Northern District of California (the District Court),
entitled Arthur C. Bass v. First Pacific Networks, Inc., et al. with the estate
of Mr. Bass (the Estate). The Bass lawsuit arose out of the Company's
possession of stock certificates registered in the name of Mr. Bass in the
aggregate amount of 425,307 shares, which Mr. Bass claimed were wrongfully
withheld by the Company. Subsequent to the death of Mr. Bass, in December 1993
the District Court ordered the Company to transfer 367,930 of these shares to
the Probate Court of Shelby County, Tennessee. The order to transfer the Bass
shares was stayed upon the posting of an appeal bond in December 1993 in the
amount of $3.7 million (the Appeal Bond), which bond was posted at the Company's
request by one of its insurers, subject to a reservation of rights. The
remaining 57,377 shares were held by the creditors of the estate of Mr. Bass.
Pursuant to the terms of the Settlement Agreement, the Company was required
to place 367,930 of the previously issued shares with an investment banking firm
to sell the shares. To the extent the net proceeds from the sale of these
shares were less than $15 per share ($5,518,950), the Company was obligated to
pay the difference, up to a maximum of $1.8 million, to the Estate. The Company
was advised that the shares were sold at a price of $8.25 per share and,
accordingly, the Company remitted $1.8 million to the Estate in July 1994. The
Company received insurance proceeds of $550 thousand in July against the
settlement payment. Further, the Company was required to issue to the Estate
(for those shares held by creditors to the Estate) previously unissued shares of
the Company's common stock with an aggregate market value at the time of
approximately $387 thousand (or approximately 53,700 shares). In July 1994,
53,730 shares were issued to the Estate in fulfillment of that provision of the
settlement agreement.
The Estate moved to compel the insurance carrier to pay approximately $686
thousand (plus interest and attorneys' fees) pursuant to the Appeal Bond. The
court issued an order granting the Estate's motion. The insurance carrier and
the Company have jointly filed an appeal from the court's order which appeal was
denied in April 1996 and became final in July 1996. The Estate's motion for an
award of attorneys' fees and costs claimed amount to approximately $152,000
remains pending.
6
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. LITIGATION: (CONTINUED)
In the opinion of management the ultimate outcome of such matters is not
expected to have a material adverse effect on the Company's results of
operations or financial position.
5. RELATED PARTY TRANSACTIONS:
In May 1995, the Company and Entergy Enterprises, Inc. (a subsidiary of
Entergy Corporation and a 4.8% stockholder of the Company) agreed to further
amend a Product License Agreement which had been entered into in July 1991 and
subsequently amended in December 1991 and March 1994. The Amendment provided
for, among other things, elimination of Entergy's obligation to pay $1,000,000
of additional development funding and the Company's obligation to repay $988,000
in customer advances. In connection with the Amendment the Company recognized
approximately $988,000 of development revenue (included in deferred revenue at
March 31, 1995) in the three months ended June 30, 1995.
For the three and six months ended September 30, 1995 $86,000 and
$1,132,000, respectively, of the Company's revenue, representing 4% and 27%,
respectively, of total revenue, was earned under field trial and development
arrangements with Entergy. There was no revenue from activities with Entergy in
the three and six months ended September 30, 1996.
In February 1996, the Company entered into a one year consulting agreement
with the Company's Chairman of the Board, who was a former officer of the
Company. For the three and six months ended September 30, 1996 $61,000 and
$122,000, respectively, was incurred by the Company for consulting expenses
under the agreement. The consulting agreement was terminated in October 1996.
6. SIGNIFICANT CUSTOMERS:
One customer represented 91% of total revenue for the three months ended
September 30, 1995 and three customers represented 68%, 15% and 13% of total
revenue for the three months ended September 30, 1996. Two customers
represented 26% and 51% of total revenue for the six months ended September 30,
1995 and two customers reprsented 58% and 21%of total revenue for the six months
ended September 30, 1996.
7. COMMITMENTS:
LETTERS OF CREDIT
Outstanding letter of credit totalling $260,000 at September 30, 1996. The
letter of credit relates to collateral for leasehold improvements.
As of September 30, 1996, "deposits and other assets" includes $260,000 of
restricted cash for letter of credit arrangements.
PURCHASE COMMITMENTS
At September 30, 1996, the Company has outstanding a non cancelable
commitment to purchase approximately $2,184,000 of inventory from its contract
manufacturer. The Company currently anticipates that it will acquire the
inventory throughout fiscal 1997.
7
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS EQUITY:
PREFERRED STOCK
On May 31, 1996 the Company completed a private placement of 5,000 shares
of Series E Preferred Stock (Series E Stock), par value $.001 per share having a
purchase price of $5,000,000, in reliance on Regulation S promulgated under the
Securities Act of 1933, as amended. The Series E Stock is convertible into the
Company's Common Stock, at a conversion rate of the lower of $3.25 or 80% of
the market value of the Company's Common Stock at the time of conversion. The
Series E Stock is convertible at the option of the holder at any time after 60
days past its issuance date and is subject to mandatory conversion in May 1998.
In August 1996, 2,500 shares of the Series E Stock were converted into 3,138,000
shares of the Company's Common Stock. The Company has the right to redeem
outstanding shares of Series E Stock under certain circumstances. Holders of
Series E Stock are entitled to receive dividends only when and if dividends are
declared on the Company's Common Stock, and will be determined based on the
number of shares of Common Stock the Series E Stock could be converted into at
the time of the declaration of dividends on the Company's Common Stock. The
holders of the Series E Stock have no voting rights.
In the event of any liquidation, dissolution or wind-up of the Company, the
holder's of the Series E Stock are entitled to receive, prior and in preference
to holder's of the Company's Common Stock, the amount of $1,000 per share for
each share of Series E Stock held by them plus an amount equal to all declared
and unpaid dividends on the Series E Stock, if any. At September 30, 1996,
2,500 shares of Series E Stock remain outstanding.
On August 27, 1996 the Company completed a private placement of 1,500
shares of Series F Preferred Stock (Series F Stock), par value $.001 per share
having a purchase price of $1,500,000, in reliance on the exemption from
registration set forth in Regulation D of the Securities Act of 1933, as
amended. The Series F Stock is convertible into the Company's Common Stock, at
a conversion rate of the lower of $1.27 or 80% of the market value of the
Company's common stock at the time of conversion. The Series F Stock is
convertible at the option of the holder at any time after 60 days past its
issuance date and is subject to mandatory conversion on August 27,1998. The
Company has the right to redeem outstanding shares of Series F Stock under
certain circumstances. Holders of Series F Stock are entitled to receive
dividends when and if dividends are declared on the Company's Common Stock, and
will be determined based on the number of shares of Common Stock the Series F
stock could be converted into at the time of the declaration of dividends on the
Company's Common Stock. The holders of the Series F Stock have no voting
rights.
In the event of any liquidation, dissolution or wind-up of the Company, the
holder's of the Series F Stock are entitled to receive, prior and in prference
to holder's of the Company's Common Stock, the amount of $1,000 per share for
each share of Series F Stock held by them plus an amount equal to all declared
and unpaid dividends on the Series F Stock, if any. At September 30, 1996 1,500
shares of the Series F Stock remain outstanding.
On September 26, 1996, the Company entered into stock purchase agreements
with a group of investors for the sale of an aggregate of 3,500 shares of Series
G Preferred Stock ("Series G Stock"), par value $.001 per share having a
purchase price of $3,500,000 (net proceeds of $3,315,000) in a private
placement. The sale of the shares closed on October 1 and 2, 1996 and the
aggregate purchase price of $3,315,000 was included in stock subscriptions
receivable and the corresponding issuance of the Series G Stock was included in
stockholders equity at September 30, 1996. The Series G Stock was offered and
sold in reliance on the exemption from registration set forth in Regulation D of
the Securities Act of 1933, as amended. The Series G Stock is convertible into
the Company's Common Stock, at a conversion rate of the lower of $1.34 or 85% of
the market value of the Company's Common Stock at the time of conversion. The
Series G Stock is convertible at the option of the holder at any time after 60
days past its issuance date and is subject to mandatory conversion on October 1,
1998. The Company has the right to redeem outstanding shares of Series G Stock
under certain
8
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS EQUITY: (CONTINUED)
PREFERRED STOCK (CONTINUED)
circumstances. Holders of Series G Stock are entitled to receive dividends when
and if dividends are declared on the Company's Common Stock, and will be
determined based on the number of shares of Common Stock the Series G stock
could be converted into at the time of the declaration of dividends on the
Company's Common Stock. The holders of the Series G Stock have no voting
rights.
In the event of any liquidation, dissolution or wind-up of the Company, the
holder's of the Series G stock are entitled to receive, prior and in preference
to holder's of the Company's Common Stock, the amount of $1,000 per share for
each share of Series G Stock held by them plus an amount equal to all declared
and unpaid dividends on the Series G Stock, if any.
In May 1996 3,900 shares of the Company's Series D Preferred Stock were
converted into 1,895,000 shares of the Company's common stock. There are no
shares of Series D Preferred Stock outstanding at September 30, 1996.
The Series E Stock, the Series F Stock and Series G Stock have certain
registration rights arrangements. Pursuant to these arrangements the Company is
obligated to use its best efforts to effect a "shelf" registration of the Common
Stock issuable upon conversion of the Preferred Stock. The Company has agreed
to keep the registration statement registering the Series E Stock and Series F
Stock effective for up to six months and the Series G Stock effective for up to
one year. A registration statement related to the Series E Stock and Series F
Stock has been filed with the Securities and Exchange Commission and became
effective in October 1996. A registration statement related to the Series G
Stock was filed with the Securities and Exchange Commission on November 1, 1996.
Following the issuance of the Series G Preferred Stock the Company's
authorized, issued and outstanding shares of Preferred Stock is comprised of the
following:
Preferred Stock $.001 par value
Authorized: 6,060,000 shares
Designated Series A Preferred Stock
Authorized: 1,060,000 shares; Issued and Outstanding: None
Designated Series B Preferred Stock
Authorized: 500,000 shares; Issued and Outstanding: None
Designated Series C Preferred Stock
Authorized: 7,000 shares; Issued and Outstanding: None
Designated Series D Preferred Stock
Authorized: 3,900 shares; Issued and Outstanding: None
Designated Series E Preferred Stock
Authorized: 5,000 shares; Issued and Outstanding: 2,500
Designated Series F Preferred Stock
Authorized:1,500 shares; Issued and Outstanding: 1,500
Designated Series G Preferred Stock
Authorized: 3,500 shares; Issued and Outstanding: 3,500
9
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCKHOLDERS EQUITY: (CONTINUED)
COMMON STOCK
Pursuant to the approval given by the Company's stockholders at its annual
meeting on September 17, 1996 the Company has amended its Restated Certificate
of Incorporation increasing the authorized shares of the Company's Common Stock
to 90,000,000 shares.
In connection with Series E Stock, Series F Stock and Series G Stock
financings the Company has issued warrants, to finders or placement agents, to
purchase an aggregate 500,000 shares of the Company's Common Stock. Warrants to
purchase 150,000 shares at an exercise price of $1.52 per share are immediately
exercisable and expire in August 1999. Warrants to purchase 350,000 shares at
an exercise price of $1.34 per share, become exercisable on November 16, 1996
and expire in October 1999. These warrants have certain registration rights and
the shares issuable upon exercise of the warrants have been included in
registration statements on Form S-3 filed with the Securities and Exchange
Commission in October and November 1996.
In addition, the Company has outstanding warrants with its former
underwriter that are subject to anti-dilution provisions that include both share
and price adjustments and provide for certain registration rights. These
warrants are currently exercisable into approximately 1,450,000 shares of the
Company's Common Stock at an exercise price of $.42 per share. The shares
issuable upon exercise of these warrants have been included in a registration
statement filed with the Securities and Exchange Commission on October 31, 1996.
SUBSEQUENT EVENT
In October and November, 1996, an aggregate of 1,025 shares of Series E
Stock were converted into 1,650,995 shares of the Company's Common Stock and in
October 1996, 1,182 shares of Series F Stock were converted into 2,364,000
shares of the Company's Common Stock.
10
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
The following information should be read in conjunction with the condensed
consolidated interim financial statements and the notes thereto included in Item
1 of this Quarterly Report and with the Company's Annual Report for the fiscal
year ended March 31, 1996.
BACKGROUND
The Company's historical revenues have been derived principally from the
following sources: license fees from one licensee, development and field trial
revenue and product sales. There was no license fee revenue in the three month
periods ended September 30, 1995 and 1996. Development and field trial revenue
represented 34%, and 46%, and product sales represented 66% and 54%, of total
revenues during the six month periods ended September 30, 1995 and 1996,
respectively. To date, the Company has not gained rapid market penetration of
its technology and there can be no assurance that it will be able to do so.
The Company is often required to enter into arrangements with potential
customers to conduct field and/or pilot tests of its products and, in order to
achieve market penetration and visibility and allow customer evaluation of the
Company's products, may ship products under terms which result in no profit
being realized or a loss to the Company. In addition, the Company may
experience significant fluctuations in periodic results in the event license
fees and development fees are derived by the Company. The Company is unable to
predict whether or when any licenses will be entered into or license fees
generated, partially because of the lengthy period of time involved in
negotiating and obtaining a licensing arrangement. Additionally, variability in
periodic operating results may arise from budgeting and purchasing patterns of
customers, the timing of field trials and development arrangements as well as
general economic trends.
The Company has experienced significant operating losses to date and
expects to incur continuing operating losses for the foreseeable future. This
factor has resulted in significant depletion of the Company's cash resources
which has required and will require the Company to obtain additional financing
by early December 1996 in order to continue in existence. During fiscal 1996
and through the second quarter of fiscal 1997 outstanding shares of the
Company's Common Stock has risen to 39 million as a result of funding through
equity transactions. The Company received approval from its stockholders to
increase its level of authorized shares to 90 million for potential future
issuance of Common Stock through financing transactions at its Annual Meeting
held on September 17, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Operations during the six month period ended September 30, 1996 utilized
cash of $8.4 million as compared to $10.9 million for the six month period ended
September 30, 1995. Cash used in operations was primarily attributable to cash
utilized to fund the operating loss. The decrease in cash utilized to fund
operations in the first six months of fiscal 1997 as compared to the same six
months in fiscal 1996 is due principally to reductions to accounts payable,
accrued expenses, customer advances and deferred revenue that took place in
fiscal 1996. The fiscal 1997 operating loss reflects continued investments in
product and market development activities while not attaining sufficient revenue
levels or margins to compensate for the expenditures. Accounts receivable
decreased due primarily to reduced revenue in the comparable quarterly periods,
a result of decreased development and field trial revenue related activity.
Inventory levels at September 30, 1996 are primarily attributed to purchases for
anticipated sales for field trials and early deployments of the Company's
FPN1000-TM- system which have not yet materialized. In addition, the Company
has noncancelable commitments to purchase approximately $2.2 million of
inventory related to its subscriber units. The inventory is currently scheduled
to be received throughout fiscal 1997. These inventory levels are currently in
excess of anticipated short-term needs and
11
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (Continued)
therefore if not utilized could become subject to obsolescence or decline in the
market value causing inventory write-offs against operating results. The
Company expects to utilize its cash resources to continue to finance operations,
product development, sales and marketing activities, and inventory purchases.
The Company had no material capital asset commitments at September 30,
1996. Property and equipment purchases for the first quarter of fiscal 1997
represented the Company's principal investing activity totaling $130
thousand. The purchases relate primarily to purchase of equipment for in-house
test facilities and engineering test equipment for hardware and software
development purposes which are required to continue the development of the
Company's products. The Company anticipates additional equipment purchases in
fiscal 1997 at levels similar to that in fiscal 1996 should current operating
levels continue. The Company has obtained and will continue to seek lease
financing for certain of these equipment additions.
The Company has an office lease expiring in 2001 with total future minimum
lease payments of $3.6 million. At September 30, 1996 the Company had
outstanding letters of credit of $260 thousand associated with leasehold
improvements.
In March 1994, in connection with entering into an Amended License
Agreement with Entergy Enterprises, the Company became obligated, subject to
certain conditions, to pay $7 million to Entergy Enterprises in March 1998. In
connection with a May 1995 amendment to the Product License Agreement Entergy
Enterprises agreed to change the payment date of the obligation such that $3.5
million is now due in March 1998 and $3.5 in March 1999. At September 30, 1996,
the Company is obligated to pay an aggregate in minimum lease payments of $534
thousand under capitalized lease obligations for primarily equipment
acquisitions.
At March 31, 1996, the Company had available net operating loss
carryforwards of approximately $98 million to offset future taxable income for
federal tax purposes. The utilization of the loss carryforwards to reduce
future income taxes will depend on the Company's ability to generate sufficient
taxable income prior to the expiration of the net operating loss carryforwards.
The carryforwards begin to expire in the year 2003. However, the Tax Reform Act
of 1986 limits the maximum annual use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a corporation. As a result of the Company's initial public offering and
other stock issuance's, a change of ownership occurred which will restrict the
Company's use of net operating loss carryforwards for federal tax purposes. The
limitation applies to those net operating loss carryforwards that were incurred
prior to such ownership change. The Company's annual limitation of such net
operating loss carryforwards is currently estimated to be $4-5 million per
year. Further, anticipated future financing transactions could result in
further restrictions to operating and tax credit carryforwards.
Cash provided by financing activities consisted of an aggregate $6.5
million ($6.4 million net of expenses) from the sale of 5,000 shares of Series E
Preferred Stock, in a private placement on May 31, 1996 and the sale of 1,500
shares of Series F Preferred Stock, in a private placement on August 27, 1996.
In addition, the Company entered into stock purchase agreements with a group of
investors on September 26, 1996 for the sale of 3,500 shares of Series G
Preferred Stock at $1,000 per share or an aggregate purchase price of $3.5
million ($3.3million net of expenses). The sale of the shares closed on October
1 and 2, 1996. At September 30, 1996 the Company recorded $3.5 million ($3.3
million net of expenses) in stock subscriptions receivable and a corresponding
amount in stockholder's equity in connection with the Series G Preferred Stock
financing. The Company's Series D Preferred Stock which was outstanding at
March 31, 1996 was converted into 1,895,000 shares of Common Stock during the
first quarter of fiscal 1997. In August, 1996 2,500 shares of Series E
Preferred Stock were converted into 3,138,000 shares of Common Stock. Since
September 30, 1996 1,025 shares of Series E Preferred Stock and 1,182 shares of
Series F Preferred Stock have been converted into 1,650,995 shares and 2,364,000
shares, respectively, of the Company's Common Stock. In connection with the
Series E, Series F and Series G Preferred
12
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Stock financings the Company has agreed to file "shelf" registration statements
with the Securities and Exchange Commission to register the shares issuable upon
conversion of these Series of Preferred Stock. During October, 1996, a
registration statement related to the Series E Preferred Stock and Series F
Preferred Stock became effective. In November, 1996 the Company filed a
registration statement with the Securities and Exchange Commission related to
the Series G Preferred Stock. (See Note 8 of the Notes to Condensed
Consolidated Financial Statements.)
The Company has outstanding warrants that were issued/assigned to employees
of the Comany's former underwriter in its initial public offering. The warrants
which initially aggregated rights to purchase 490,000 shares of Common Stock
provided for certain registration rights and anti-dilution adjustments. As a
result of equity transactions since the initial public offering, in July 1992,
the warrants are currently exercisable into approximately 1,450,000 shares of
Common Stock. In October 1996, the Company filed a "shelf" registration
statement with the Securities and Exchange Commission to register the shares
issuable upon exercise of the warrants. (See Note 8 of Notes to Condensed
Consolidated Financial Statements.)
The Company's principal sources of liquidity are cash and cash equivalents
and receivables. At September 30, 1996, the Company had cash and cash
equivalent balances of $443 thousand and accounts and stock subscriptions
receivable of $3.4 million ($3.3 million due from the sale of Series G Preferred
Stock) The Company's future capital requirements and the adequacy of available
funds will depend on a variety of factors including availability of authorized
shares of Common Stock, market acceptance of HFC networks, the Company's ability
to successfully penetrate its markets, as demonstrated by securing orders,
progress of the Company's product development, the cost, timing and extent of
future field trials, competing technological and market developments and
establishing and maintaining strategic alliance and licensing arrangements. The
Company believes based on its current operating levels that is has sufficient
cash resources at September 30, 1996 together with the proceeds from the Series
G financing for operating activities through November 1996. The Company is
pursuing financing alternatives from both institutional, corporate and other
investors to meet the Company's current cash needs and to satisfy additional
cash requirements for continuation of its operations. The Company does not have
any commitments to obtain funding and there can be no assurance that any
required financing of the Company will be available or if available will be
obtainable on terms favorable to the Company or its stockholders. To the extent
that the Company raises additional capital by issuing equity securities
ownership dilution to shareholders will result. The unavailability of any
required financing, could prevent or delay the continued development and
marketing of the Company's products, may require curtailment of the Company's
operations and could result in the bankruptcy or insolvency of the Company (See
Note 1 of Notes to Condensed Consolidated Financial Statements). The Company's
discussion of the period of time through which its financial resources will be
adequate to support operations contains forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.
RESULTS OF OPERATIONS
Product revenues decreased 98% and 93% to $40 thousand and $205 thousand
for the three and six months ended September 30, 1996, respectively, compared to
$2.1 million and $2.8 million for the three and six months ended September 30,
1995. Product development and field trial revenues decreased 66% and 88% to $78
thousand and $174 thousand for the three and six months ended September 30,
1996, respectively, as compared to $227 thousand and $1.4 million for the three
and six months ended September 30, 1995. The decrease in product revenues for
both the quarter and six month periods reflects primarily product revenue
recognized in the second quarter of fiscal 1996 associated with a field trial of
the Company's energy management products. Product revenues associated with the
Company's energy management products were not significant in the first half of
fiscal 1997. To a lesser extent decreases in product revenue relate to a lower
level of shipments for pilot test and field trials to international (principally
Asia) customers. The decreased product development and field trial to the
Product License agreement with Entergy in the three months ended June 30, 1995
(See Note 5 of Notes to
13
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS (Continued)
Condensed Consolidated Financial Statements). The revenue related to
reimbursement of product development costs incurred by the Company and included
in operations in periods prior to fiscal 1996. The Company recognized the
development revenue in the three months ended June 30, 1995 following a May,
1995 amendment to its Product License Agreement with Entergy. Exclusive of the
product development revenue related to Entergy, product development and field
trial revenue associated principally with the Company's energy management
product PowerView-TM- decreased due principally to reduced activities. A
portion of the field trial revenue recognized in fiscal 1996 was attributable to
expenses reimbursed by Entergy in connection with a field trial in Arkansas,
which was completed in the fall of 1995.
Product costs decreased 85% and 67% to $329 thousand and $870 thousand for
the three and six months ended September 30, 1996, respectively, as compared to
$2.2 million and $2.6 million for the three and six months ended September 30,
1995. The decrease in product costs is due primarily to the aforementioned
decrease in product revenues recognized in conjunction with a field trial of the
Company's energy managemant products. In addition manufacturing departmental
spending decreased due to reduced personnel levels and related costs.
Manufacturing operations costs allocated to research and development, to reflect
support activities conducted by manufacturing personnel, amounted to $257
thousand and $575 thousand for the three and six months ended September 30,
1996, respectively as compared to $323 thousand and $656 thousand for the three
and six month periods ended September 30, 1995.
Product development and field trial costs decreased 67% and 62% to $75
thousand and $165 thousand for the three and six months ended September 30,
1996, as compared to $229 thousand and $430 thousand for the three and six
months ended September 30, 1995, respectively. The decrease primarily reflects
decreased field trial activity in the first half of fiscal 1997 associated with
the Company's energy management products.
Research and development expense decreased 1% and 12% to $2.0 million and
$4.0 million for the three and six months ended September 30, 1996, respectively
as compared to $2.0 million and $4.5 million for the three and six months ended
September 30, 1995, respectively. Research and development expense for the
three months ended September 30, 1996 reflected an increase in labor and
recruitment costs of approximately $128 thousand which was substantially offset
by decreased depreciation expense. The decrease in research and development
expense for the six months ended September 30, 1996 reflects reduced personnel
levels on average during the first half of fiscal 1997 as compared to the same
period a year ago and reduced depreciation expense. Personnel levels at
September 30, 1996 were 52 as compared to 51 at September 30, 1995.
Sales and marketing expenses decreased 29% and 19% to $1.2 million and $3.1
million for the three and six months ended September 30, 1996, respectively as
compared to $1.7 million and $3.8 million for the three and six months ended
September 30, 1995, respectively. The decrease in expense is due primarily to
reduced personnel levels and related costs, reduced consulting expenses and
travel as a result of cost containment efforts. Full-time personnel engaged in
marketing, sales and customer service activities at September 30, 1996 totalled
37 as compared to 44 at September 30, 1995.
General and administrative expense decreased 40% and 19% to $558 thousand
and $1.4 million for the three and six months ended September 30, 1996,
respectively as compared to $931 thousand and $1.8 million for the three and six
months ended September 30, 1995, respectively. The decrease primarily reflects
a $400 thousand decrease in legal fees and litigation costs and reserves in the
second quarter of fiscal 1997 and a reduction in personnel related costs due to
cost containment efforts offset in part by increases to recruiting and
consulting costs for the three and six months ended September 30, 1996. At
September 30, 1996 full-time personnel engaged in general and administrative
activities approximated 21 as compared to 23 at September 30, 1995.
14
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS (Continued)
The Company reflected interest expense, net of interest income, of $103
thousand and $200 thousand for the three and six months ended September 30,
1996, respectively, as compared to $164 thousand and $259 thousand for the three
and six months ended September 30, 1995. The decrease to net interest expense
primarilly reflects the interest accrued on convertible debentures in fiscal
1996.
Historically, inflation has not had significant impact on the operations of
the Company. However, there can be no assurance that inflation will not have a
material impact on the Company's business in the future.
15
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On March 17, 1994, the Company entered into a Settlement Agreement and
Release (the Settlement Agreement) relating to an action in the United States
District Court for the Northern District of California (the District Court),
entitled Arthur C. Bass v. First Pacific Networks, Inc., et al. with the estate
of Mr. Bass (the Estate). The Bass lawsuit arose out of the Company's
possession of stock certificates registered in the name of Mr. Bass in the
aggregate amount of 425,307 shares, which Mr. Bass claimed were wrongfully
withheld by the Company. Subsequent to the death of Mr. Bass, in December 1993
the District Court ordered the Company to transfer 367,930 of these shares to
the Probate Court of Shelby County, Tennessee. The order to transfer the Bass
shares was stayed upon the posting of an appeal bond in December 1993 in the
approximate amount of $3.7 million (the Appeal Bond), which bond was posted at
the Company's request by one of its insurers, subject to a reservation of
rights. The remaining 57,377 shares were held by the creditors of the estate of
Mr. Bass.
Pursuant to the terms of the Settlement Agreement, the Company was required
to place 367,930 of the previously issued shares with an investment banking firm
to sell the shares. To the extent the net proceeds from the sale of these
shares were less than $15 per share ($5,518,950), the Company was obligated to
pay the difference, up to a maximum of $1.8 million, to the Estate. The Company
was advised that the shares were sold at a price of $8.25 per share and,
accordingly, the Company remitted $1.8 million to the Estate in July 1994. The
Company received insurance proceeds of $550 thousand in July against the
settlement payment. Further, the Company was required to issue to the Estate
(for those shares held by creditors to the Estate) previously unissued shares of
the Company's common stock with an aggregate market value at the time of
approximately $387 thousand (or approximately 53,700 shares). In July 1994,
53,730 shares were issued to the Estate in fulfillment of that provision of the
settlement agreement.
The Estate moved to compel the insurance carrier to pay approximately $686
thousand (plus interest and attorneys' fees) pursuant to the Appeal Bond. The
court issued an order granting the Estate's motion. The insurance carrier and
the Company jointly filed an appeal from the court's order which appeal was
denied in April 1996 and became final in July 1996. The Estate's motion for an
award of attorneys' fees and costs claimed to amount to approximately $152,000
remains pending.
In the opinion of management the ultimate outcome of such matters is not
expected to have a material adverse effect on the Company's results of
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 17, 1996, the Annual Meeting of Stockholders of First Pacific
Networks, Inc. was held in San Jose, California.
An election of directors was held with the following individual being
elected to the Board of Directors of First Pacific Networks, Inc. as Class I
director:
TOTAL VOTE FOR TOTAL VOTE WITHHELD
-------------- -------------------
DIRECTOR FROM DIRECTOR
-------- -------------
Robert P. McNamara 30,415,620 305,507
16
<PAGE>
The following individuals' terms of office as directors continued after the
meeting:
Craig J. Brunet
M. Peter Thomas
William A. Wilson
Paul C. O'Brien
Bill B. May, Ph.D.
Other matters voted upon and approved by the stockholders at the meeting
and the number of cotes cast for, against or withheld as well as the number of
abstentions and broker non-votes, with respect to each such matter were as
follows:
1. A proposal to amend the Company's restated certificate of
incorporation to increase the authorized common stock of the Company
from 55,000,000 to 90,000,000 shares:
FOR AGAINST ABSTAIN
--- ------- -------
29,513,994 967,766 239,367
2. A proposal to ratify the appointment of Coopers & Lybrand as the
Company's independent auditors for fiscal year 1997:
FOR AGAINST ABSTAIN
--- ------- -------
30,356,936 169,386 194,805
There were no broker non-votes in connection with the Annual Meeting.
ITEM 5. OTHER INFORMATION
On August 27, 1996 the Company closed a private placement made in reliance
on Regulation D under the Securities Act of 1933, in which it received net
proceeds of $1.4 million from the sale of Series F Preferred Stock. In November
1996 the Company issued 2,364,000 shares of the Company's Common Stock pursuant
to a conversion of 1,182 shares of the Company's Series F Preferred Stock.
On September 26, 1996 the Company closed a private placement made in
reliance on Regulation D under the Securities Act of 1933, in which is received
net proceeds of $3.4 million from the sale of Series G Preferred Stock.
In October and November, 1996 the Company issued an aggregate 1,650,995
shares of the Company's Common Stock pursuant to a conversion of 1,025 shares of
Series E Preferred Stock.
On October 25, 1996 Mr. Paul C. O'Brien was appointed Chairman of the
Board. Mr. O'Brien's appointment followed the resignation of Mr. Craig J.
Brunet as Chairman of the Board effective October 25, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS:
See index to Exhibits on page 19.
(b) REPORTS ON FORM 8-K:
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST PACIFIC NETWORKS, INC.
November 13, 1996 /s/ M. Peter Thomas
---------------------------- -------------------------------------
Date M. Peter Thomas
Chief Executive Officer and President
November 13, 1996 /s/ Kenneth W. Schneider
---------------------------- -------------------------------------
Date Kenneth W. Schneider,
Executive Vice President
and Chief Financial Officer
18
<PAGE>
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3. Exhibits.
---------
3.1 Restated Certificate of Incorporation (1)
3.1(a) Corrected Restated Certificate of Incorporation(21)
3.2 Certificate of Retirement and Prohibition of Reissuance of
Shares (5)
3.3 Certificate of Designation For Series B Preferred Stock (15)
3.4 Fourth Amended and Restated By-Laws of the Company (8)
3.5 Corrected Certificate of Designation for Series C Preferred
Stock (16)
3.6 Certificate of Designation For Series D Preferred Stock (17)
3.7 Certificate of Designation For Series E Preferred Stock (9)
3.8 Certificate of Designation For Series F Preferred Stock (18)
3.9 Certificate of Designation For Series G Preferred Stock (19)
4.1 Form of Rights Agreement between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent (including
as Exhibit A the form of Certificate of Designation,
Preferences and Rights of the Terms of the Series B
Preferred Stock, as Exhibit B the form of Right Certificate,
and as Exhibit C the Summary of Terms of Rights
Agreement)(10)
4.3 Form of 9% Convertible Debenture issued July 13, 1995 (14)
4.4 Form of Series C Preferred Stock Offshore Securities
Subcription Agreement (16)
4.5 Form of Series D Offshore Securities Subscription Agreement
(17)
4.6 Form of Series E Offshore Securities Subscription Agreement
(9)
4.7 Form of Series F Securities Subscription Agreement (18)
4.8 Form of Series G Stock Purchase Agreement (19)
4.9 Form of Registraton Rights Agreement between First Pacific
Networks, Inc. and the Series G Investors executing such
Agreement (19)
4.10 Letter of Agreement between First Granite Securities, Inc.
(placement agent) and First Pacific Networks, Inc. (19)
10.1 Product License Agreement dated as of July 31, 1991 between
the Company and Electec, Inc.(1)
10.4 Investor Rights Agreement dated July 31, 1991 among the
Company, Electec, Inc. and certain shareholders(1)
10.4(a) Revised Form of Amendment No. 1 to Investor Rights
Agreement(1)
10.5 Common Stock Purchase Agreement dated as of July 31, 1991
between the Company and Electec, Inc.(1)
10.7 1991 Stock Option Plan with Form of Stock Option Grant(1)
10.7(a) 1991 Stock Option Plan, as amended(4)
10.8 1990 Stock Option Plan with Form of Stock Option Grant(1)
10.9 Letter of agreement between Newsun Limited and First Pacific
Networks, Inc. (18)
10.10 Employment Agreement dated as of July 31, 1991 between the
Company and Donald G. Marquart(1)
10.11 Employment Agreement dated as of July 31, 1991 between the
Company and Robert P. McNamara, Ph.D.(1)
10.12 Form of Employee Proprietary Information and Invention
Assignment Agreement(1)
10.13 Form of Indemnification Agreement(1)
10.14 Registration Rights Agreement dated as of February 23, 1989
among the Company and certain shareholders(1)
19
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
3. Exhibits. (Continued)
EXHIBIT NO. DESCRIPTION
----------- -----------
10.16(a) Common Stock Warrant dated May 31, 1991 issued by the
Company to Samuel R. Dunlap, Jr. (1)
10.17 Letter Agreement dated April 13, 1992 among the Company,
Holland Pacific B.V., New Special Assets Limited and First
Pacific Company Limited(1)
10.18 Irrevocable Proxy to James K. Gibby/Robert P. McNamara from
Holland Pacific B.V. and New Special Assets Limited(1)
10.18(a) Amendment to Exhibit 10.18(2)
10.19 License Agreement dated October 15, 1989 between the Company
and Wavelengths Lasers, Inc. and Amendment No. 1 thereto(1)
10.22 Debenture Agreement dated September 1, 1989 between the
Company and Kimoto-Seika, Inc. and Waiver thereto dated
March 25, 1992(1)
10.25 Common Stock Purchase Warrant dated April 6, 1992 issued by
the Company to Dan Purjes(1)
10.26 Form of Common Stock Purchase Warrant dated January 10, 1992
issued by the Company to Josephthal Lyon & Ross
Incorporated(1)
10.31 Warrant Agreement between the Company and Josephthal Lyon &
Ross Incorporated(2)
10.32 Form of letter of agreement between holders of Underwriter
Warrants and First Pacific Networks, Inc.(20)
10.38 Common Stock Purchase Warrant issued by the Company to Rajiv
Jaluria dated May 24, 1993(2)
10.39 Warrant Agreement between the Company and First Granite
Securities, Inc. (19)
10.40 Consulting Agreement effective February 1, 1996 between the
Company and Craig J. Brunet(9)
10.41 Employment Agreement dated May 6, 1996 between the Company
and James D. Bletas(9)
10.42 Lease dated December 12, 1993 between the Company and
Sobrato Interests II(5)
10.43 Settlement Agreement and Release dated as of March 17, 1994
by and among the Company, the Estate of Arthur C. Bass (the
"Estate"), Paula C. Bass and Gary Singer as co-executor of
the Estate(6)
10.44 Amendment to Product License Agreement dated March 31, 1994
between the Company and Entergy Enterprises, Inc.(6)
10.45 Warrant Agreement between the the Company and State Capital
Market Group Ltd. (20)
10.46 Warrant Agreement between the Company and Newsun Limited(20)
10.47 Employment Agreement dated as of February 18, 1996 between
the Company and Kenneth W. Schneider(9)
10.48 Employment Agreement effective June 26, 1995 between the
Company and M. Peter Thomas(13)
10.49 Second Amendment to Product License Agreement dated May 24,
1995 between the Company and Entergy Enterprises, Inc.(13)
10.50 1994 Stock Option Plan with Form of Stock Option Grant(11)
10.51 1994 Employee Stock Purchase Plan with Form of Stock
Purchase(12)
10.52 Form of Confidential Reciprocal Non-Disclosure Agreement(13)
11.1 Statement re: computation of per share loss(21)
21.1 List of Subsidiaries (9)
23.1 Consent of Independent Accountants(9)
20
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
3. Exhibits. (Continued)
- -----------------
(1) Filed with and incorporated by reference to the corresponding Exhibit
number of the Company's Registration Statement on Form S-1 filed on May
20, 1992 (File No. 33-47821).
(2) Filed with and incorporated by reference to the corresponding Exhibit
number of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.
(3) Filed with and incorporated by reference to the corresponding Exhibit
number of the Company's Current Report on Form 8-K filed September 21,
1993.
(4) Filed with and incorporated by reference to the corresponding Exhibit
number of the Company's Registration Statement on Form S-3 filed on July
27, 1993 (File No. 33-47821).
(5) Filed with and incorporated by reference to the corresponding Exhibit,
which has been renumbered herewith, of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1994.
(6) Filed with and incorporated by reference to the corresponding Exhibit,
which has been renumbered herewith, to the Company's Current Report on
Form 8-K filed on April 28, 1994.
(7) Filed with and incorporated by reference to the corresponding Exhibit
number to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994.
(8) Filed with and incorporated by reference to the corresponding Exhibit,
which has been renumbered herewith, to the Company's Current Report on
Form 8-K/A filed on May 12, 1995.
(9) Filed and incorporated by reference to the corresponding Exhibit number to
the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1996.
(10) Filed with and incorporated by reference to the corresponding Exhibit,
which has been renumbered herewith, to the Company's Current Report on
Form 8-K filed on February 2, 1995.
(11) Filed with and incorporated by reference to the corresponding Exhibit,
which has been renumbered herewith, to the Company's Report on Form S-8
filed on November 14, 1994.
(12) Filed with and incorporated by reference to the corresponding Exhibit,
which has been renumbered herewith, to the Company's Report on Form S-8
filed on November 15, 1994.
(13) Filed with and incorporated by reference to the corresponding Exhibit
number to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.
(14) Filed with and incorporated by reference to the corresponding Exhibit
number to the Company's Quarterly Report on Form 10Q for the three months
ended June 30, 1995.
(15) Filed with and incorporated by reference, to the Exhibit A, to the
corresponding Exhibit, which has been renumbered herewith, to the
Company's Current Report on Form 8-K filed on February 2, 1995.
(16) Filed with and incorporated by reference to the corresponding Exhibit
number to the Company's Quarterly Report on Form 10Q for the quarterly
period ended September 30, 1995.
(17) Filed with and incorporated by reference, to the Exhibit A, to the
corresponding Exhibit, which has been renumbered herewith, to the
Company's Current Report on 8-K filed on March 23, 1996.
(18) Filed with and incorporated by reference to the corresponding Exhibit
which has been renumbered herewith, to the Company's Registraton Statement
on Form S-3, filed September 12, 1996.
(19) Filed with and incorporated by reference to the corresponding Exhibit
which has been renumbered herewith, to the Company's Registraton Statement
on Form S-3, filed November 1, 1996.
(20) Filed with and incorporated by reference to the corresponding Exhibit
which has been renumbered herewith, to the Company's Registraton Statement
on Form S-3, filed October 31, 1996.
(21) Filed herewith.
21
<PAGE>
EXHIBIT 3.1(a)
--------------------
CORRECTED
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST PACIFIC NETWORKS, INC.
Pursuant to Section 103 and 242 of the General
Corporation Law of the State of Delaware
--------------------
First Pacific Networks, Inc., a Delaware corporation (the "Corporation"),
pursuant to Section 103(f) of the General Corporation Law of the Stae of
Delaware, hereby certifies:
1. That the Certificate of Amendment of Restated Certificate of
Incorporation of First Pacific Networks, Inc. which was filed with the Secretary
of State of the Sate of Delaware on September 26, 1996 is an inaccurate record
of the corporate action therein referred to.
2. That said Certificate of Amendment was inaccurate in that it
inadvertently misstated the total number of shares of all classes of stock which
the Corporation shall have the authority to issue as 90,000,00 rather than
96,060,000 and omitted the reference to 6,060,000 shares of Preferred Stock, par
value $.001 per share which were authorized and inadvertently referenced
approval of the stockholders by written consent rather than by vote at a meeting
of stockholders.
3. That said Certificate of Amendment in correct form is as follows:
First Pacific Networks, Inc., a Delaware corporation (the "Corporation"),
hereby certifies that the Corporation's Board of Directors has duly adopted the
following resolution:
RESOLVED, that the first paragraph of Article III of the Restated
Certificate of Incorporation is hereby amended to read as follows:
1. AUTHORIZATION. (a) The total number of shares of all
classes of stock which the Corporation shall have authority to
issue is 96,060,000, consisting of 90,000,000 shares of Common
Stock, par value $.001 per share (the "Common Stock") and
6,060,000 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock").
CERTIFICATE OF AMENDMENT OF RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT 3.1(a)
2. That the proposed amendment has been duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware and that such action was
taken at an annual meeting of the stockholders of the
Corporation, duly called and held, upon notice in accordance with
Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
The Corporation has caused this Corrected Certificate of Amendment of
Restated Certificate of Incorporation to be signed by Kenneth W. Schneider, its
Chief Financial Officer, this 26th day of September, 1996.
FIRST PACIFIC NETWORKS, INC.
By: /s/ Kenneth W. Schneider
------------------------------------
Kenneth W. Schneider, Vice President of
Finance and Chief Financial Officer
CERTIFICATE OF AMENDMENT OF RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT 11.1
FIRST PACIFIC NETWORKS, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding for the
period 23,194 37.360 22,521 36,057
------- ------- ------- -------
Shares used in loss per share calculation 23,194 37,360 22,521 36,057
------- ------- ------- -------
------- ------- ------- -------
Net loss $(4,984) $(4,153) $(9,178) $(9,316)
------- ------- ------- -------
------- ------- ------- -------
Loss per share applicable to common shareholders $(0.21) $(0.11) $(0.41) $(0.26)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Dilutive common stock warrants and stock options have not been included in the
calculation of common and common equivalent shares used to calculate net loss
per share, as their inclusion would be antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 443
<SECURITIES> 0
<RECEIVABLES> 740
<ALLOWANCES> 688
<INVENTORY> 3,667
<CURRENT-ASSETS> 7,896<F1>
<PP&E> 10,654
<DEPRECIATION> 7,403
<TOTAL-ASSETS> 11,502
<CURRENT-LIABILITIES> 3,263
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 2,021
<TOTAL-LIABILITY-AND-EQUITY> 11,502
<SALES> 165
<TOTAL-REVENUES> 379
<CGS> 541
<TOTAL-COSTS> 9,495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259
<INCOME-PRETAX> (9,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,316)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
<FN>
<F1>INCLUDED 3,315 OF STOCK SUBSCRIPTIONS RECEIVABLE
</FN>
</TABLE>
