<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report: November 9, 1998
Date of earliest event reported: August 26, 1998
FVC.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
000-23305 77-0357037
--------- ----------
(Commission File No.) (IRS Employer Identification No.)
3393 Octavius Drive
Suite 102
Santa Clara, CA 95054
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 567-7200
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
On September 10, 1998, FVC.COM, Inc. filed a Current Report on Form 8-K with
respect to the acquisition of ICAST Corporation by FVC Acquisition Corp., a
wholly owned subsidiary of FVC.COM, Inc. Such Current Report indicated that
the required financial statements and pro forma financial information would
be filed as soon as practicable after the date of such report.
The financial statements and pro forma financial information are filed herewith
as follows:
a. Financial Statements of Business Acquired
Financial statements of the business acquired as of and for the
periods ended December 31, 1996 and 1997 are included herein.
b. Pro Forma Financial Information
Pro forma financial information for the year ended December 31, 1997
and the six months ended June 30, 1998 are included herein.
c. Exhibits
Consent of Ernst & Young LLP
2
<PAGE>
Item 7(a) - Financial Statements of Business Acquired
ICAST CORPORATION
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS....................... F-2
BALANCE SHEETS.......................................................... F-3
STATEMENTS OF OPERATIONS................................................ F-4
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)............................ F-5
STATEMENTS OF CASH FLOWS................................................ F-6
NOTES TO FINANCIAL STATEMENTS........................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
ICAST Corporation
We have audited the accompanying balance sheets of ICAST Corporation (a
development stage company) as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity, and cash flows for the periods
from May 28, 1996 (inception) to December 31, 1996 and 1997, and for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICAST Corporation at December
31, 1997, and the results of its operations and its cash flows for the periods
from May 28, 1996 (inception) to December 31, 1996 and 1997, and for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming ICAST
Corporation will continue as a going concern. As more fully described in Note 1
to the financial statements, ICAST Corporation's ultimate ability to continue as
a going concern is dependent upon the successful commercialization of its
products and its ability to secure adequate sources of capital until ICAST
Corporation is operating profitably and has positive cash flows from operations.
In addition, ICAST Corporation's losses from operations and cash used in
operations during 1997 raise substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Jose, California
February 13, 1998,
except for the first paragraph of Note 7,
as to which the date is
February 24, 1998
F-2
<PAGE>
ICAST CORPORATION
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997 1998
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................. $ 332,223 $ 742,469 $ 262,194
Accounts receivable ....................................... -- 37,737 308,659
Inventory ................................................. -- 23,911 41,032
Prepaid expenses and other assets ......................... 2,500 88,135 70,171
----------- ----------- -----------
Total current assets ......................................... 334,723 892,252 682,056
Property and equipment, net .................................. 42,104 219,122 245,683
Other assets ................................................. 7,394 18,885 21,722
----------- ----------- -----------
$ 384,221 $ 1,130,259 $ 949,461
----------- ----------- -----------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable .......................................... $ 30,527 $ 143,040 $ 39,319
Accrued liabilities ....................................... -- 20,200 167,699
Note payable .............................................. 300,000 -- 1,300,000
Deferred revenue .......................................... -- -- 126,236
Current portion of capital lease obligations .............. -- 50,403 71,988
----------- ----------- -----------
Total current liabilities .................................... 330,527 213,643 1,705,242
Long-term portion of capital lease obligations ............... -- 115,881 144,505
Commitments
Shareholders' equity:
Preferred stock, no par value, 6,000,000 shares
authorized, issuable in series:
Series A convertible preferred stock, 2,400,000
shares designated, 2,400,000 shares issued and
outstanding; aggregate liquidation preference of
$600,000 at December 31, 1996 and 1997, and
June 30, 1998 (unaudited) ........................... 597,000 597,000 597,000
Series B convertible preferred stock, 1,965,001
shares designated, 1,946,482 shares issued and
outstanding at December 31, 1997 and June 30, 1998
(unaudited) (none at December 31, 1996); aggregate
liquidation preference of $2,708,095 ................ -- 2,604,086 2,604,086
Common stock, no par value, 20,000,000 shares
authorized; 800,000, 2,150,000, and 2,421,250 shares
issued and outstanding at December 31, 1996 and 1997,
and June 30, 1998 (unaudited) ........................... 8,000 21,500 30,676
Shareholder note receivable ............................... (8,000) -- --
Deficit accumulated during the development stage .......... (543,306) (2,421,851) (4,132,048)
----------- ----------- -----------
Total shareholders' equity (deficit) ......................... 53,694 800,735 (900,286)
----------- ----------- -----------
Total liabilities and shareholders' equity ................... $ 384,221 $ 1,130,259 $ 949,461
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying Notes
F-3
<PAGE>
ICAST CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Periods From
May 28, 1996 (Inception) to
--------------------------- Year Ended Six Months Ended
December 31, June 30, December 31, June 30,
--------------------------- ----------- ----------- ---------------------------
1996 1997 1998 1997 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues ......................... $ -- $ 106,669 $ 350,788 $ 106,669 $ -- $ 244,119
Cost of revenues ................. -- 15,768 52,202 15,768 -- 36,434
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ..................... -- 90,901 298,586 90,901 -- 207,685
Operating costs and expenses:
Research and development ...... 75,799 1,124,476 452,877 1,048,677 301,516 814,050
Acquired in-process
technology .................. 452,877 452,877 1,938,526 -- -- --
Selling and marketing ......... -- 564,806 1,292,276 564,806 145,922 727,470
General and administrative .... 14,630 429,485 789,523 414,855 148,593 360,038
----------- ----------- ----------- ----------- ----------- -----------
Total operating costs and
expenses ...................... 543,306 2,571,644 4,473,202 2,028,338 596,031 1,901,558
Loss from operations ............. 543,306 2,480,743 (4,174,616) 1,937,437 596,031 1,693,873
Other income and expense, net .... -- (66,663) (80,530) (66,663) (25,938) (13,867)
Interest expense ................. -- 7,771 37,962 7,771 -- 30,191
----------- ----------- ----------- ----------- ----------- -----------
Net loss ......................... $ (543,306) $(2,421,851) $(4,132,048) $(1,878,545) $ (570,093) $(1,710,197)
</TABLE>
F-4
<PAGE>
ICAST CORPORATION
(a development stage company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Periods from May 28, 1996 (inception) to
December 31, 1996 and 1997, and June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Convertible Preferred Stock
------------------------------------------------------
Series A Series B
------------------------ -------------------------
Shares Amount Shares Amount
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock to founder in
July 1996; 800,000 shares issued for note
receivable at $0.01 per share ................. -- $ -- $ --
Issuance of Series A convertible preferred
stock to founder in July 1996; 1,811,508
shares issued for intellectual property
rights and 588,492 shares issued for cash
at $0.25 per share (net of issuance costs
of $3,000) .................................... 2,400,000 597,000 -- --
Net loss ........................................ -- -- -- --
--------- ---------- ---------- -----------
Balance at December 31, 1996 ...................... 2,400,000 597,000 -- --
Issuance of common stock to employees for cash
upon exercise of stock options in January 1997. -- -- --
Issuance of Series B convertible preferred stock
to investors in March 1997; 187,346 shares issued
upon conversion of debt and accrued interest
and 1,759,136 shares issued for cash at $1.35
per share (net of issuance costs of $23,665) .. -- -- 1,946,482 2,604,086
Note receivable forgiven in exchange for services -- -- -- --
Net loss ........................................ -- -- -- --
--------- ---------- ---------- -----------
Balance at December 31, 1997 ...................... 2,400,000 597,000 1,946,482 2,604,086
Issuance of common stock to employees for cash upon
exercise of stock options (unaudited) ......... -- -- -- --
Net loss (unaudited) ............................ -- -- -- --
Balance at June 30, 1998 (unaudited) .............. 2,400,000 $ 597,000 1,946,482 $2,604,086
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumu-
lated
During the Total
Common Stock Note Develop Share-
------------------------ Receiv- -ment holders
Shares Amount able Stage Equity
--------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founder in
July 1996; 800,000 shares issued for note
receivable at $0.01 per share ................. 800,000 $ 8,000 $ (8,000) $ -- $ --
Issuance of Series A convertible preferred
stock to founder in July 1996; 1,811,508
shares issued for intellectual property
rights and 588,492 shares issued for cash
at $0.25 per share (net of issuance costs
of $3,000) .................................... -- -- -- -- 597,000
Net loss ........................................ -- -- -- (543,306) (543,306)
--------- ---------- ---------- ----------- -----------
Balance at December 31, 1996 ...................... 800,000 8,000 (8,000) (543,306) 53,694
Issuance of common stock to employees for cash
upon exercise of stock options in January 1997. 1,350,000 13,500 -- -- 13,500
Issuance of Series B convertible preferred stock
to investors in March 1997; 187,346 shares issued
upon conversion of debt and accrued interest
and 1,759,136 shares issued for cash at $1.35
per share (net of issuance costs of $23,665) .. -- -- -- -- 2,604,086
Note receivable forgiven in exchange for services -- -- 8,000 -- 8,000
Net loss ........................................ -- -- -- (1,878,545) (1,878,545)
--------- ---------- ---------- ----------- -----------
Balance at December 31, 1997 ...................... 2,150,000 21,500 -- (2,421,851) 800,735
Issuance of common stock to employees for cash upon
exercise of stock options (unaudited) ......... 271,250 9,176 -- -- 9,176
Net loss (unaudited) ............................ -- -- -- (1,710,197) (1,710,197)
Balance at June 30, 1998 (unaudited) .............. 2,421,250 $ 30,676 $ -- $(4,132,048) $ (900,286)
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
</TABLE>
F-5
<PAGE>
ICAST CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Periods From
May 28, 1996 (Inception) to
------------------------------------- Year Ended Six Months Ended
December 31 June 30 December 31 December 31
----------------------- ----------- ----------- -------------------------
1996 1997 1998 1997 1997 1998
--------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net loss ....................................... $(543,306) $(2,421,851) $(4,132,048) $(1,878,545) $ (570,093) $(1,710,197)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation ................................. 7,509 60,535 111,446 53,026 19,770 50,911
Preferred stock issued for
intellectual property rights ................ 452,877 452,877 452,877 -- -- --
Note receivable forgiven for services ........ -- 8,000 8,000 8,000 8,000 --
Changes in operating assets
and liabilities:
Accounts receivable .......................... -- (37,737) (308,659) (37,737) (1,602) (270,922)
Inventory .................................... -- (23,911) (41,032) (23,911) -- (17,121)
Prepaid expenses and
other assets ................................ (9,894) (107,020) (91,893) (97,126) (26,342) 15,127
Accounts payable ............................. 30,527 143,040 39,319 112,513 298,581 (103,721)
Accrued liabilities .......................... -- 20,200 167,699 20,200 10,753 147,499
Deferred revenue ............................. -- -- 126,236 -- -- 126,236
--------- ----------- ----------- ----------- ---------- -----------
Net cash used in operating activities .......... (62,287) (1,905,867) (3,668,055) (1,843,580) (260,933) (1,762,188)
Investing activities
Capital expenditures ........................... (49,613) (98,757) (98,757) (49,144) (135,294) --
--------- ----------- ----------- ----------- ---------- -----------
Net cash used in investing activities .......... (49,613) (98,757) (98,757) (49,144) (135,294) --
Financing activities
Proceeds from issuance of Series A
preferred stock, net .......................... 144,123 144,123 144,123 -- -- --
Proceeds from issuance of Series B
referred stock, net ........................... -- 2,354,086 2,354,086 2,354,086 2,354,086 --
Proceeds from issuance of common stock ......... -- 13,500 22,676 13,500 13,500 9,176
Proceeds from issuance of note payable ......... 300,000 550,000 1,850,000 250,000 -- 1,300,000
Repayment of note payable ...................... -- (300,000) (300,000) (300,000) (300,000) --
Principal payments under capital lease
obligations ................................... -- (14,616) (41,879) (14,616) -- (27,263)
--------- ----------- ----------- ----------- ---------- -----------
Net cash provided by financing activities ...... 444,123 2,747,093 4,029,006 2,302,970 2,067,586 1,281,913
--------- ----------- ----------- ----------- ---------- -----------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Periods From
May 28, 1996 (Inception) to
------------------------------------- Year Ended Six Months Ended
December 31 June 30 December 31 December 31
----------------------- ----------- ----------- -------------------------
1996 1997 1998 1997 1997 1998
--------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents ................................... 332,223 742,469 262,194 410,246 1,671,359 (480,275)
Cash and cash equivalents at beginning
of period ..................................... -- -- -- 332,223 332,223 742,469
--------- ----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of period ..... $ 332,223 $ 742,469 $ 262,194 $ 742,469 $2,003,582 $ 262,194
--------- ----------- ----------- ----------- ---------- -----------
--------- ----------- ----------- ----------- ---------- -----------
Supplemental schedules of cash flow
information
Equipment acquired under capital lease
arrangements .................................. $ -- $ 180,900 $ 258,372 $ 180,900 $ -- $ 77,472
Cash paid for interest ......................... $ -- $ 7,771 $ 20,895 $ 7,771 $ -- $ 13,124
Supplemental schedules of noncash transactions
Common stock issued in exchange for
note receivable ............................... $ 8,000 $ 8,000 $ 8,000 $ -- $ 8,000 $ --
Conversion of debt and accrued interest
to Series B preferred stock ................... $ -- $ 252,917 $ 252,917 $ 252,917 $ 252,917 $ --
</TABLE>
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization and Nature of Operations
ICAST Corporation (the Company) was incorporated as ICAST Communications,
Inc. in California on May 28, 1996. In January 1997, the Company's Articles of
Incorporation were amended to change the name of the Company to ICAST
Corporation. The Company develops, markets, and supports software designed for
Internet and Intranet broadcasting of real-time video, audio, and data.
Customers consist primarily of corporations located in the United States. The
Company is still in the development stage, and its principal activities to date
have been recruiting personnel, raising capital, acquiring operating assets, and
performing research and development.
Basis of Presentation
In the course of its development activities, the Company has incurred
significant cumulative losses totaling $2,421,851 and expects additional losses
in 1998. At December 31, 1997, the Company had working capital of $678,609 and
total shareholders' equity of $800,735. The Company's current operating plan
shows that the Company will require substantial additional capital to fund its
operations, continue research and development programs, and commercialize its
product. To date, the Company has financed its operations with the net proceeds
from private placements of its equity securities, notes payable, and capital
equipment lease financing. The Company plans to seek additional funding through
public or private financing or other arrangements with third parties. Currently,
the Company has entered into a nonbinding letter of understanding with investors
to raise approximately $6,000,000 in exchange for the issuance of preferred
stock. There can be no assurance that the financing contemplated by the letter
of understanding will be consummated or that additional funds from any other
sources will be available on acceptable terms. The accompanying financial
statements have been prepared assuming the Company will continue as a going
concern and do not include any adjustments that might result from the outcome of
these uncertainties.
Interim Financial Statements
The accompanying balance sheet as of June 30, 1998 and the statements of
operations and cash flows for the six-month periods ended June 30, 1997 and 1998
are unaudited. In the opinion of management, the unaudited financial statements
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair statement of the financial position, results of operations, and cash
flows for the interim periods. The results of operations for the six-month
period ended June 30, 1998 are not necessarily indicative of operating results
to be expected for the full fiscal year.
F-8
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original maturity dates
of three months or less at the date of acquisition.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out method, or market.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation of property and equipment is provided over the
estimated useful lives of the respective assets, estimated to be three years, on
a straight-line method. Equipment with an aggregate cost of approximately
$180,900 and accumulated amortization of approximately $23,264 at December 31,
1997 is subject to capital lease arrangements. The Company has the option to
purchase the assets under these leases at the conclusion of the lease term at a
stated price.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer and office equipment ......... $ 49,613 $ 261,057
--------- ---------
Furniture and fixtures ................ -- 18,600
--------- ---------
49,613 279,657
Accumulated depreciation .............. (7,509) (60,535)
--------- ---------
Property and equipment, net ........... $ 42,104 $ 219,122
--------- ---------
--------- ---------
</TABLE>
Revenue Recognition
The Company recognizes revenue upon shipment, net of provisions for
estimated future returns, when no significant vendor obligations remain. The
Company offers the right of return of its products under various policies.
Returns to date have not been significant.
F-9
<PAGE>
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
approximately $65,400, $0, and $65,400 for the period from May 28, 1996
(inception) to December 31, 1996, the period from May 28, 1996 (inception) to
December 31, 1997, and for the year ended December 31, 1997, respectively.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees,
officers, directors, and consultants with an exercise price equal to the fair
value of the shares at the date of grant. As permitted under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), the Company accounts for stock option grants to
employees and directors in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25) and,
accordingly, recognizes no compensation expense for stock option grants with an
exercise price equal to the fair value of the shares at the date of grant.
Concentration of Credit Risk
The Company sells its products to various companies across several
industries and geographic locations, primarily in the United States. The Company
generally does not require collateral for accounts receivable. When required,
the Company maintains allowances for credit losses. The Company has incurred
losses to date that have been within management's estimates.
New Accounting Pronouncements
The American Institute of Certified Public Accountants' Statement of
Position, "Software Revenue Recognition" (SOP 97-2), will be effective for the
Company beginning in the first quarter of 1998. The criteria for recognizing
revenue under SOP 97-2 is generally more rigorous than the previous accounting
standard. Due to uncertainties that exist with respect to the appropriate
interpretations and manner of implementation of SOP 97-2 in certain areas, the
effect on the Company is uncertain but could be significant.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130), and Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (FAS 131). FAS 130
established rules for reporting and displaying comprehensive income. FAS 131
will require the Company to use the management approach in disclosing segment
information. Both statements are effective for the Company during 1998. The
Company does not believe that the adoption of either FAS 130 or FAS 131 will
have a material impact on the Company's results of operations, cash flows, or
financial position.
2. Note Payable
In December 1996, the Company received a $300,000 advance from a potential
investor. The note payable was repaid by the Company in February 1997.
F-10
<PAGE>
In February 1997, the Company received a $250,000 convertible promissory
note bearing interest at 7% per year. In March 1997, the note and accrued
interest were converted into 187,346 shares of Series B convertible preferred
stock.
3. Commitments
The Company leases its facilities under noncancelable operating lease
agreements that expire in January 1999 and October 2000.
The Company has an option to extend the term of one of its operating leases
for an additional term of two years. Total rent expense was approximately
$10,000, $69,600, and $59,600 for the period from May 28, 1996 (inception) to
December 31, 1996, the period from May 28, 1996 (inception) to December 31,
1997, and for the year ended December 31, 1997, respectively. In addition, the
Company has a capital lease line available totaling $500,000 at December 31,
1997. At December 31, 1997, $319,100 was unused and available.
Future minimum lease payments under operating and capital leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
-------- --------
<S> <C> <C> <C>
1998 .............................. $145,352 $ 52,468
1999 .............................. 108,080 52,468
2000 .............................. 91,224 52,468
2001 .............................. -- 37,371
Thereafter ........................ -- --
-------- --------
Total minimum payments required ...... $344,656 194,775
--------
Less amount representing interest .... 28,491
--------
Present value of future minimum
lease payments .................... 166,284
Less current portion ................. 50,403
--------
Long-term portion .................... $115,881
--------
</TABLE>
4. Shareholders' Equity
Preferred Stock
The Company's Articles of Incorporation provide for the issuance of up to
6,000,000 shares of preferred stock, 2,400,000 of which have been designated as
Series A and 1,965,001 as Series B. Each holder of a share of preferred stock
votes with the Company's common shareholders on an as-converted basis. Series A
preferred stock has a liquidation preference of $0.25 per share plus any
declared but unpaid dividends. Series B preferred stock has a liquidation
preference of $1.35 per share plus any declared but unpaid dividends, plus an
amount equal to 4% of the original purchase price.
At any time, at the option of the shareholder, each outstanding share of
preferred stock may be converted to one share of common stock. Conversion will
automatically occur upon the
F-11
<PAGE>
earlier of (i) the closing of an underwritten public offering of common stock at
a per share offering price of not less than $6.00 and gross proceeds of not less
than $10,000,000, or (ii) the consent of holders of not less than 50% of the
then outstanding shares of preferred stock.
Series A and B preferred shareholders are entitled to receive noncumulative
dividends at an annual rate of $0.0175 and $0.0945 per share, respectively.
Dividends will only be paid when declared by the Board of Directors out of
legally available funds. No dividends have been declared as of December 31,
1997.
At December 31, 1997, the Company has reserved 4,365,001 shares of common
stock for issuance upon conversion of its Series A and B preferred stock.
Common Stock
In July 1996 and January 1997, the Company issued a total of 2,150,000
shares of common stock to founders for a note receivable and cash. Of this
amount, 1,200,000 shares of common stock are subject to repurchase, at the
original issue price, until vested. Vesting with respect to 12.5% occurred in
July 1997, with the balance vesting ratably over a period of four years. At
December 31, 1997, approximately 940,625 shares were subject to repurchase.
Stock Warrants
In July 1997, in connection with a capital lease line of credit with a
financing company, the Company issued a warrant to purchase 18,519 shares of
Series B preferred stock at an exercise price of $1.35 per share. The warrant
may be exercised at any time on or before the later of July 1, 2004, or three
years from the effective date of an initial public offering. No stock warrants
were exercised in 1997.
Stock Option Plan
Under the 1996 Stock Option Plan (the Plan), which was adopted in September
1996, options may be granted for common stock pursuant to actions by the Board
of Directors or a committee appointed by the board to employees, including
officers, directors, and consultants. Options granted are either incentive stock
options or nonstatutory stock options and become exercisable ratably over a term
specified in each option agreement. The term of the Plan is ten years, and the
Company has initially reserved 1,540,000 shares of common stock for issuance
under the Plan. The Plan was amended in January 1997, to increase the number of
available shares by 1,150,000, bringing the total up to 2,690,000 shares of
common stock.
Incentive stock options, nonstatutory options, and options to 10%
shareholders granted under the Plan are at prices not less than 100%, 85%, and
110%, respectively, of the fair value on the date of grant, as determined by the
Board of Directors, and become exercisable at the date of grant. These options
are subject to repurchase until vested. Options granted under the Plan expire
over periods specified for each grant, not to exceed ten years.
Pro forma information regarding net loss and net loss per share is required
by FAS 123 and has been determined as if the Company had accounted for its
employee stock options under
F-12
<PAGE>
the fair value method of that statement. The fair value for these options was
estimated at the date of grant using the minimum value method with the following
weighted average assumptions used for grants in 1996 and 1997: no dividends, an
expected life of three years, and a risk-free interest rate of 6.3% for the year
ended December 31, 1997, and the period from May 28, 1996 (inception) to
December 31, 1996.
The effect of applying the minimum value method under FAS 123 to the
Company's stock options granted in 1996 did not result in a pro forma net loss
amount that was materially different from historical amounts reported.
Therefore, such pro forma information is not separately presented herein. Pro
forma net loss for 1997 was approximately $1,892,000. Future pro forma net
income (loss) results may be materially different from actual amounts reported.
1997 Directors' Stock Option Plan
The 1997 Directors' Stock Option Plan (the Directors' Plan) was adopted by
the Board of Directors in July 1997. A total of 150,000 shares of common stock
has been reserved for issuance under the Directors' Plan. The Directors' Plan
provides for the granting of nonstatutory stock options to nonemployee directors
of the Company.
The Directors' Plan provides that each person who becomes a nonemployee
director of the Company on or after July 15, 1997, shall be granted a
nonstatutory stock option to purchase 30,000 shares of common stock (the Initial
Grant) on the date on which the optionee first becomes a nonemployee director of
the Company. Thereafter, on each anniversary of a director's Initial Grant, each
nonemployee director shall be granted an additional option to purchase 5,000
shares of common stock (a Succeeding Grant) if, on such date, he or she shall
have served continually on the Company's Board of Directors.
The Directors' Plan provides that the Initial Grant shall become
exercisable in installments as to one-third of the total number of shares
subject to the Initial Grant on each of the first, second, and third
anniversaries of the date of grant of the Initial Grant, and each Succeeding
Grant shall become exercisable in full on the first anniversary of the date of
grant of that Succeeding Grant. The exercise price of all stock options granted
under the Directors' Plan shall be equal to the fair market value of a share of
the Company's common stock on the date of grant of the option. Options granted
under the Directors' Plan have a term of ten years. At December 31, 1997, 60,000
shares were outstanding at a weighted average price of $0.10 with 90,000 shares
available for future grants.
Activity under the Company's option plans for the fiscal year ended
December 31, 1997 is as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Price
---------- --------------
<S> <C> <C>
Balance at December 31, 1996............................ -- $ -
Options granted...................................... 2,291,000 $ 0.04
Options exercised.................................... (1,350,000) $ 0.01
Options forfeited.................................... (30,000) $ 0.01
----------
Balance at December 31, 1997............................ 911,000 $ 0.08
----------
----------
Exercisable at end of year.............................. 911,000 $ 0.08
----------
</TABLE>
As of December 31, 1997, exercise prices for options outstanding ranged
from $0.01 to $0.25. The weighted average remaining contractual life of those
options is 9.4 years.
Pro forma information regarding net loss is required by FAS 123, computed
as if the Company had accounted for its employee stock options under the fair
value based accounting method of that statement. The value for these options was
estimated at the date of grant using the minimum value method option pricing
model. The following weighted average assumptions were used in 1997: (i) a risk
free interest rate of 6.3%, (ii) a dividend yield of zero, and (iii) a weighted
average expected life of the option of three years. The weighted average fair
value of options granted in 1997 was $0.01.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The pro forma
net loss for the year ended December 31, 1997 was $(1,881,909).
The Company has reserved sufficient shares of its common stock for issuance
upon conversion of the convertible preferred stock and exercise of options to
purchase shares of common stock that may be issued under the Directors' Plan.
5. Income Taxes
The Company has no tax provision for the years ended December 31, 1996 and
1997. A reconciliation of the income tax provision at the U.S. statutory rate
(34%) to the income tax provision at the effective tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1997
---- ----
<S> <C> <C>
Income taxes computed at the federal
statutory rate .................. $(185,000) $(639,000)
Operating losses not utilized ...... 185,000 639,000
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
As of December 31, 1997, the Company had federal and state net operating
loss carryforwards totaling approximately $1,800,000. The net operating loss
carryforwards will expire beginning in 2004 through 2012 if not utilized.
Utilization of the net operating losses is subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation will result in
the expiration of net operating losses before utilization.
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1997
--------- ---------
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards .. $ 36,000 $ 747,000
Other individually immaterial items -- 3,000
--------- ---------
Total deferred tax assets ............ 36,000 750,000
Valuation allowance .................. (36,000) (750,000)
--------- ---------
Total net deferred tax assets ........ $ -- $ --
--------- ---------
</TABLE>
The net valuation allowance increased by $36,000 and $714,000 during the
years ended December 31, 1996 and 1997, respectively.
6. Year 2000 (Unaudited)
The Company is aware of the issues associated with the programming code in
existing computer systems as the new millennium (year 2000) approaches. The year
2000 situation is very serious and complex, and virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company has reviewed its existing systems and does not anticipate that
any corrective or reprogramming efforts will be required. The Company's systems
utilize software packages that are purchased off the shelf and involve very
limited customized coding that could potentially require correction or
reprogramming; therefore, management has not assessed any year 2000 compliance
expense and the related potential effect on the Company's business, financial
condition, or results of operations.
7. Subsequent Event
In February 1998, the Company issued $1,100,000 in convertible subordinated
promissory notes to certain Series B preferred stock investors and new
investors, which bear
F-15
<PAGE>
interest at 6%. Principal and interest are due in May 1998. Upon completion of
the Company's next equity financing, all outstanding principal and accrued
interest amounts under the notes will be automatically converted to shares of
capital stock at the same purchase price as such shares are sold to investors in
the equity financing. In connection with the issuance of convertible
subordinated promissory notes, the Company will issue an aggregate of 33,000
shares of common stock to the noteholders for each thirty-day period the
convertible subordinated promissory notes are outstanding. A maximum of 99,000
shares may be issued, and no shares will be issued for partial months
outstanding.
8. Events Subsequent to Date of Auditors' Report (Unaudited)
In May 1998, the Company issued an additional $200,000 in convertible
subordinated promissory notes. In addition, the Company amended the terms of
these notes in that the Company will issue an aggregate of 39,000 shares of
common stock to the noteholders for each thirty-day period the convertible
subordinated promissory notes are outstanding, up to a maximum of 255,000
shares.
On July 30, 1998, the Company entered into an Agreement and Plan of Merger
and Reorganization (the Plan) with First Virtual Corporation. Under the Plan,
the Company's outstanding preferred and common stock would be converted into
shares of First Virtual Corporation common stock. The Company's options and
warrants would be converted to rights to acquire the First Virtual Corporation's
common stock.
F-16
<PAGE>
Item 7(b) - Pro Forma Financial Information
On August 26, 1998, FVC.COM, Inc. ("FVC" or the "Company") acquired all the
outstanding shares of ICAST Corporation ("ICAST"). Prior to the acquisition,
ICAST was a privately-held, development-stage company which had minimal revenues
since its inception in May 1996. ICAST develops, markets and supports software
designed for Internet and Intranet broadcasting of real-time video, audio and
data. Consideration for this purchase was 401,389 shares of FVC's common stock,
a cash payment of $.3 million and the assumption of certain outstanding ICAST
options and warrants. The purchase price, including liabilities assumed of $1.8
million, aggregated approximately $7.6 million, of which $0.7 million was
allocated to tangible assets, $6.2 million to acquired in-process research and
development and $0.7 million to other identified intangibles and goodwill. The
allocation of the purchase price was done on the basis of an independent
appraisal.
The following unaudited pro forma combined condensed financial information
reflects the business combination between FVC and ICAST accounted for using the
purchase method of accounting. The pro forma combined condensed statements of
operations combine FVC's historical statements of operations with ICAST's
historical statements of operations for the year ended December 31, 1997 and the
six months ended June 30, 1998. The pro forma combined condensed statements of
operations reflect the combination as if it had occurred at the beginning of
each period presented. A pro forma combined balance sheet is not being filed
pursuant to Rule 11-02 of Regulation S-X. The consolidated balance sheet of FVC
filed in connection with the FVC.COM, Inc. Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 includes the balance sheet data for ICAST.
The unaudited pro forma combined condensed statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transaction been effected as of the beginning of such period and should
not be construed as representative of future operations.
3
<PAGE>
FVC.COM, INC. AND ICAST CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Year ended
December 31, 1997
------------------------ Pro Forma Pro Forma
FVC.COM, Inc. ICAST Corp. Adjustments Combined
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Revenues .................................. $ 18,771 $ 107 $ 18,878
Cost of revenues .......................... 10,466 16 10,482
-------- -------- --------
Gross profit ...................... 8,305 91 8,396
Operating expenses:
Research and development .......... 5,420 1,049 6,469
Selling, general and administrative 6,997 980 $ 212(1) 8,189
-------- -------- --------
Total operating expenses .................. 12,417 2,029 14,658
-------- -------- --------
Operating loss ............................ (4,112) (1,938) (6,262)
Other (expense) income, net ............... (216) 59 (157)
-------- -------- --------
Net loss .................................. $ (4,328) $ (1,879) $ 212 $ (6,419)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted net loss per share ...... $ (1.44) $ (1.88)
-------- --------
-------- --------
Shares used to compute basic and diluted
net loss per share ................ 3,012 3,413
-------- --------
-------- --------
</TABLE>
See accompanying notes to pro forma combined condensed statements of operations
4
<PAGE>
FVC.COM, INC. AND ICAST CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Year ended
December 31, 1997
------------------------ Pro Forma Pro Forma
FVC.COM, Inc. ICAST Corp. Adjustments Combined
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .................................. $ 20,033 $ 244 $ 20,277
Cost of revenues .......................... 10,805 36 10,841
-------- -------- --------
Gross profit ...................... 9,228 208 9,436
-------- -------- --------
Operating expenses:
Research and development .......... 3,871 814 4,685
Selling, general and administrative 5,347 1,088 $ 106(1) 6,541
-------- -------- --------
Total operating expenses .................. 9,218 1,902 11,226
-------- -------- --------
Operating loss ............................ 10 (1,694) (1,790)
Other expense, net ........................ (381) (16) (397)
-------- -------- -------- --------
Net loss .................................. $ (371) $ (1,710) $ 106 $ (2,187)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted net loss per share ...... $ (0.05) $ (0.28)
-------- --------
-------- --------
Shares used to compute basic and diluted
net loss per share ................ 7,504 7,905
-------- --------
-------- --------
</TABLE>
See accompanying notes to pro forma combined condensed statements of operations
5
<PAGE>
FVC.COM, INC. AND ICAST CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(unaudited)
1. Adjustments to the Pro Forma Combined Condensed Statements of Operations
The pro forma combined condensed statements of operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 include
increases of $212,000 and $106,000, respectively, in selling, general and
administrative expenses to reflect the amortization of goodwill and other
intangible assets in connection with the acquisition over their estimated
useful lives.
2. Nonrecurring Charges
The nonrecurring charge of $6,204,000, resulting from acquired in-process
technology is not reflected in the pro forma information presented herein
pursuant to Article 11 of Regulation S-X. Amounts allocated to technology
were estimated based upon an independent appraisal which used a risk
adjusted income approach applied to specifically identified technologies.
In-process technology was expensed upon acquisition because technological
feasibility had not been established and no alternative future uses
existed.
6
<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 hereunto duly authorized.
FVC.COM, INC.
Dated: November 9, 1998 By: /s/ James O. Mitchell
------------------------------
James O. Mitchell
Vice President, Operations
and Chief Financial Officer
7
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the options assumed By FVC.COM, Inc. originally granted under
the ICAST Corporation 1996 Stock Option Plan of our report dated February 13,
1998, except for the first paragraph of Note 7 as to which the date is February
24, 1998, relating to the financial statements of ICAST Corporation as of
December 31, 1997 included in this Current Report (Form 8-K/A) of FVC.COM, Inc.
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Jose, California
November 9, 1998
