<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 JUNE 30, 2000
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 000-23305
FVC.COM, INC.
(Exact name of registrant in its character)
DELAWARE 77-0357037
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3393 OCTAVIUS DRIVE
SANTA CLARA, CA 95054
(Address of principal executive offices)
(408) 567-7200
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
Common Stock, $0.001 par value 17,263,252
------------------------------------ -------------------------------
(Class) Outstanding as of June 30, 2000
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<PAGE>
FVC.COM, INC.
FORM 10-Q
INDEX
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<TABLE>
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PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at June 30, 2000 and December 31, 1999....................................... 3
Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 2000 and 1999............. 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999.............................. 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 13
Item 2. Changes in Securities........................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.......................... 13
Item 6. Exhibits and Reports on Form 8-K............................................. 14
SIGNATURES........................................................................................ 16
EXHIBIT INDEX..................................................................................... 17
</TABLE>
2.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FVC.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 603 $ 997
Short-term investments.............................................. 29,570 7,824
Accounts receivable, net of allowance of $335 and $1,269............ 14,951 14,066
Inventory........................................................... 7,359 8,104
Prepaid expenses and other current assets........................... 1,628 2,866
------------ --------------
Total current assets............................................ 54,111 33,857
Property and equipment, net.............................................. 2,543 2,880
Other assets............................................................. 2,966 3,462
------------ --------------
$ 59,620 $ 40,199
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................... 124 143
Accounts payable.................................................... 5,354 6,968
Accrued liabilities................................................. 4,856 3,123
Deferred revenue.................................................... 1,133 1,745
------------ --------------
Total current liabilities....................................... 11,467 11,979
Long-term debt, net of current portion................................... 56 85
Minority interest in consolidated subsidiary ............................ 349 323
Stockholders' equity:
Convertible Preferred Stock, $.001 par value; 5,000,000 shares authorized;
27,437 shares and no shares issued and outstanding,
respectively ................................................... - -
Common Stock, $.001 par value; 35,000,000 shares authorized; 17,263,252
and 16,832,522 shares issued and outstanding,
respectively.................................................... 17 17
Additional paid-in capital.......................................... 92,052 65,015
Notes receivable from stockholders.................................. (130) (321)
Accumulated other comprehensive loss................................ (4) (21)
Accumulated deficit................................................. (44,187) (36,878)
------------ --------------
Total stockholders' equity...................................... 47,748 27,812
------------ --------------
$59,620 $ 40,199
============ ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3.
<PAGE>
FVC.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues......................................... $10,772 $ 10,624 $20,855 $ 19,004
Cost of revenues................................. 5,810 5,537 11,360 10,263
----------- ----------- ----------- -----------
Gross profit................................ 4,962 5,087 9,495 8,741
----------- ----------- ----------- -----------
Operating expenses:
Research and development.................... 3,034 2,582 5,715 4,987
Selling, general and administrative......... 5,504 4,658 11,348 9,371
----------- ----------- ----------- -----------
Total operating expenses................ 8,538 7,240 17,063 14,358
----------- ----------- ----------- -----------
Loss from operations............................. (3,576) (2,153) (7,568) (5,617)
Other income, net................................ 209 142 308 368
Minority interest in consolidated subsidiary..... 32 (7) (49) (7)
----------- ----------- ----------- -----------
Net loss......................................... $(3,335) $ (2,018) $(7,309) $ (5,256)
=========== =========== =========== ===========
Basic and diluted net loss per share............. $ (0.19) $ (0.12) $ (0.43) $ (0.33)
=========== =========== =========== ===========
Shares used to compute net loss per share:
Basic and diluted........................... 17,244 16,235 17,093 16,141
=========== =========== ========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4.
<PAGE>
FVC.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $ (7,309) $ (5,256)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 1,036 992
Non-cash stock compensation...................................... 156 246
Other............................................................ 26 431
Changes in assets and liabilities:
Accounts receivable.............................................. (885) (1,414)
Inventory........................................................ 745 (5,928)
Prepaid expenses and other assets................................ 1,416 (1,470)
Accounts payable................................................. (1,614) 201
Accrued liabilities.............................................. 1,733 519
Deferred revenue................................................. (612) (1,396)
------------ ------------
Net cash used in operating activities....................... (5,308) (13,075)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............................... (381) (1,241)
Purchase of short-term investments................................... (25,011) -
Proceeds from sale of short-term investments......................... 3,456 5,013
------------ ------------
Net cash (used in) provided by investing activities......... (21,936) 3,772
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable........................................... - (1,300)
Proceeds from issuance of preferred stock, net....................... 24,437 -
Proceeds from issuance of common stock, net.......................... 2,461 1,158
Repayment of capital lease obligations............................... (48) (70)
------------ ------------
Net cash (used in) provided by financing activities......... 26,850 (212)
------------ ------------
Net decrease in cash and cash equivalents................................. (394) (9,515)
Cash and cash equivalents at beginning of period.......................... 997 10,315
------------ ------------
Cash and cash equivalents at end of period................................ $ 603 $ 800
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5.
<PAGE>
FVC.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included
herein reflect all adjustments, consisting only of normal recurring adjustments,
which, in the opinion of management, are necessary for a fair statement of the
Company's consolidated financial position, results of operations and cash flows
for the periods presented. These consolidated financial statements should be
read in conjunction with the Company's audited consolidated financial statements
included in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1999. The results of operations for the period ended June 30, 2000
are not necessarily indicative of the results to be expected for any subsequent
quarter or for the entire fiscal year ending December 31, 2000. The December 31,
1999 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
2. INVENTORY
Inventories as of June 30, 2000 and December 31, 1999 were (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ --------------
<S> <C> <C>
Raw materials........................................... $1,976 $2,155
Finished goods.......................................... $5,383 $5,949
------------ --------------
Total inventory................................ $7,359 $8,104
============ ==============
</TABLE>
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"). FAS 128
requires the Company to report both basic earnings (loss) per share, which is
based on the weighted-average number of common shares outstanding excluding
contingently issuable or returnable shares such as shares of unvested restricted
common stock, and diluted earnings (loss) per share, which is based on the
weighted-average number of common shares outstanding and dilutive potential
common shares outstanding.
As a result of the losses incurred by the Company for the three months
and six months ended June 30, 2000 and 1999, all potential common shares were
anti-dilutive and were excluded from the diluted net loss per share calculations
for such periods.
The following table summarizes securities outstanding which were not
included in the calculations of diluted net loss per share for the three months
and six months ended June 30, 2000 and 1999, since their inclusion would be
anti-dilutive (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------
2000 1999
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<S> <C> <C>
Unvested restricted common stock 30 348
Common stock options 5,807 554
Common stock warrants 1,016 229
Convertible preferred stock 3,430 --
</TABLE>
Unvested restricted common stock represents stock that has been
issued but which is subject to repurchase to the extent the holder does not
remain associated with the Company until such shares are vested. The common
stock warrants are exercisable at $7.00 to $12.00 per share and expire at
various times from May 2001 through June 2005. The stock options outstanding
at June 30, 2000 had a weighted average exercise price per share of $9.71,
and expire beginning in April 2001 through June 2010. Convertible preferred
stock represents the number of shares of common stock that would result if
the Series A Preferred Stock was converted at a conversion rate of $8.00 per
share.
6.
<PAGE>
4. COMPREHENSIVE LOSS
The Company's comprehensive net loss for the three and six months ended
June 30, 2000 was $3,313,000 and $7,292,000, respectively. The comprehensive net
loss for the three and six months ended June 30, 1999 was $2,030,000 and
$5,268,000, respectively.
5. LITIGATION
On or about April 9, 1999, several purported class action suits were
filed in the United States District Court for the Northern District of
California (the "Court") alleging violations of the federal securities laws
against the Company and certain of its officers and directors in connection with
the Company's reporting of its financial results for the period ended December
31, 1998. The Court dismissed these actions without leave to amend on February
14, 2000. The plaintiffs filed a notice of appeal with the Ninth U.S. Circuit
Court of Appeals on March 29, 2000.
6. ISSUANCE OF CONVERTIBLE PREFERRED STOCK
On June 8, 2000, the Company issued 27,437 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") in a private placement to
Vulcan Ventures Incorporated ("Vulcan") for an aggregate purchase price of
$27,437,000. The Preferred Stock is convertible into 3,429,625 shares of
common stock of the Company, subject to adjustment for dilution in the event
the Company completes an offering of common stock at a price less than $8.00
per share. The Company also issued a five-year warrant to Vulcan to purchase
850,000 shares of common stock at $7.00 per share. On the date of issuance
the warrant had an approximate fair market value of $3,700,000 determined
using the Black-Scholes pricing model. The warrant provides anti-dilution
protection to Vulcan, including protection in the event the Company completes
an offering of common stock at a price less than $7.00 per share.
Each share of preferred stock has voting rights equal to an
equivalent number of shares of common stock into which it is convertible and
votes together as one class with the common stock. The holders of the
preferred stock have dividend rights on parity with the common stock. Each
share of preferred stock has a liquidation preference of $1,000 per share.
The Company must obtain approval from a majority of the holders of the
preferred stock in order to alter the articles of incorporation as related to
preferred stock.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The standard
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Under SFAS No. 133, gains or losses
resulting from changes in the values of derivatives are to be reported in the
statement of operations or as a deferred item, depending on the use of the
derivatives and whether they qualify for hedge accounting. The key criterion
for hedge accounting is that the derivative must be highly effective in
achieving offsetting changes in fair value or cash flows of the hedged items
during the term of the hedge. In June 1999, the FASB issued SFAS No. 137,
"Deferral of the Effective Date of FASB Statement Number 133," to defer for
one year the effective date of implementation of SFAS No. 133. SFAS No. 133,
as amended by SFAS No. 137, is effective for fiscal years beginning after
June 15, 2000, with earlier application encouraged. To date, the Company has
not engaged in any foreign currency hedging activity and does not expect
adoption of this standard to have a significant impact on the Company.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles ("GAAP") to revenue
recognition in financial statements. In March 1999, the SEC issued SAB 101A
that deferred the Company's required adoption of SAB 101 until the quarter
beginning April 1, 2000. In April 2000, the SEC issued SAB 101B that deferred
the Company's required adoption of SAB 101 until the quarter beginning
October 1, 2000. The Company believes its revenue recognition policies are in
accordance with GAAP and does not believe that adoption of SAB 101 will have
a material impact on the consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
FVC.COM, Inc. (the "Company") should be read in conjunction with the Condensed
Consolidated Financial Statements and the Notes thereto included in Item 1 of
this Quarterly Report on Form 10-Q.
7.
<PAGE>
In addition to the historical information contained in this Item, this
Item contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties. These
forward-looking statements include, without limitation, statements containing
the words "believes," "anticipates," "expects," and words of similar import.
Such forward-looking statements will have known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others: the Company's
limited operating history and variability of operating results, market
acceptance of video technology, including the Company's new broadband video
services business, dependence on ATM and other technologies, the Company's
potential inability to maintain business relationships with resellers and
suppliers, competition in the video networking industry, the importance of
attracting and retaining personnel, management of the Company's growth,
consolidation and cost pressures in the video networking industry, dependence on
key employees, and other risk factors referenced in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1999. The Company
assumes no obligation to update any forward-looking statements contained herein.
OVERVIEW
Founded in 1993, FVC.COM, Inc., a Delaware corporation ("FVC" or the
"Company"), provides equipment and services to deliver video applications over
broadband communications networks. The Company combines its expertise in
networking systems and real-time video technology to deliver end-to-end video
communications solutions for a wide range of enterprise video applications,
including video calls, video conferences, video broadcasts and video on demand
over converged multi-service networks. The Company's strategy is to become the
leading provider of high quality, cost-effective, video networking solutions in
broadband Internet and intranet environments for telecommunications carriers and
enterprise customers. With over six years of pioneering work in broadband video,
FVC is a leading provider of video networking hardware, software and services.
Historically, the Company has focused on providing video-networking
systems to the government, education and healthcare markets, both through direct
and indirect sales. FVC's original equipment manufacturer ("OEM") distribution
and system integration partners include Ameritech (a subsidiary of SBC
Communications Inc.), Bell Atlantic Corporation ("Bell Atlantic"), British
Telecommunications plc ("British Telecom" or "BT"), Cisco Systems, Inc.
("Cisco"), Electronic Data Systems Corporation ("EDS"), France Telecom S.A.
("France Telecom"), Ingram Micro, Inc. ("Ingram Micro"), International Business
Machines Corporation ("IBM"), Nortel Networks Corporation ("Nortel"), Qwest
Communications International, Inc. ("Qwest"), and Telstra Corporation Limited
("Telstra").
The Company is leveraging its leadership position in video networking
to capitalize on the rapidly emerging opportunity to provide broadband video
services to the service provider market. The Company intends to address this
opportunity both by providing a full range of video network systems solutions
and through its recently introduced broadband video services offering. To date,
network systems sales announcements by the Company with telecommunications
carriers include expanded customer relationships with Bell Atlantic and British
Telecom, both of which are deploying broadband video services using FVC's
products and solutions. The Company's broadband video services enable
telecommunications carriers to deliver a comprehensive set of video applications
over the carrier's existing broadband networks into conference rooms, as well as
to the users' desktops. These services are delivered through the Company's Video
Operations Center ("VOC"), in Santa Clara, California and other locations. The
Company's web-based Click To Meet(TM) software serves as the user interface and
is designed for the end-user's ease-of-use.
The Company markets its products to enterprise customers (business
customers, government users, education and healthcare providers) and to service
providers (telecommunications carriers, regional Bell operating companies,
competitive local exchange carriers and Internet service providers) through its
internal sales force and indirect sales channels. For the quarter ended June 30,
2000, approximately 83% of the Company's revenues were from enterprise customers
and 17% from service providers. For the second quarter of 1999, revenues from
enterprise customers, and service providers represented 91% and 9%,
respectively, of total revenues. Sales through
8.
<PAGE>
Nortel represented less than 10% of the Company's revenues for the six
months ended June 30, 2000, and 29% and 42% of the Company's revenues for the
years ended December 31, 1999 and 1998, respectively.
The Company maintains a network of distributors in Europe and Asia
licensed to sell its products under the FVC.COM name. Approximately 17% and 11%
of the Company's revenues were generated from customers outside of North America
during the three months ended June 30, 2000 and 1999, respectively. The Company
expects that direct sales from shipments to customers outside of North America
will continue to represent a significant portion of its future revenues. In
addition, the Company believes that a small portion of its sales through Nortel
and other distribution partners is sold to international end-users.
In September 1999, the Company announced its intention to offer
broadband video services to service providers. In February 2000, the Company
introduced Click to Meet(TM), a software product for use in conjunction with
FVC's video services offering. Revenues from the Company's broadband video
services are not expected to be significant until 2001.
In May 2000, the Company signed a definitive agreement with Qwest to
support Qwest's IP-based Video Conferencing solution.
On June 8, 2000, the Company issued 27,437 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") in a private placement to
Vulcan Ventures Incorporated ("Vulcan") for an aggregate purchase price of
$27,437,000. The Preferred Stock is convertible into 3,429,625 shares of
common stock of the Company, subject to adjustment for dilution in the event
the Company completes an offering of common stock at a price less than $8.00
per share. The Company also issued a five-year warrant to Vulcan to purchase
850,000 shares of common stock at $7.00 per share. On the date of issuance
the warrant had an approximate fair market value of $3,700,000 determined
using the Black-Scholes pricing model. The warrant provides anti-dilution
protection to Vulcan, including protection in the event the Company completes
an offering of common stock at a price less than $7.00 per share. (SEE NOTE 6
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
Revenues from the Company's international operations are subject to
various risks, including seasonality, longer payment cycles, changes in
regulatory requirements and tariffs, reduced protection of intellectual property
rights, political and economic restraints, and currency risk, among others.
Revenues are recognized upon shipment of product to customers, provided
no significant obligations remain, collectibility is probable and returns are
estimable. Revenues from sales to certain of the Company's resellers are subject
to agreements allowing rights of return. In such cases, the Company provides
reserves for estimated future returns upon revenue recognition. Such reserves
are estimated based upon historical rates of returns and allowances, reseller
inventory levels, the Company's estimates of sell through by resellers and other
related factors. Actual results could differ from these estimates. In the event
of the inability to estimate returns from any reseller, the Company defers
revenue recognition until the reseller has sold through the products.
Advance payments received from customers and gross margin deferred with
respect to sales to resellers wherein the Company does not have the ability to
estimate returns are recorded as deferred revenue. At June 30, 2000, deferred
revenue totaled $1.1 million.
The Company has experienced, and is likely to experience in the future,
fluctuations in revenues, gross margins and operating results. Various factors
contribute to the fluctuations in revenues, gross margins and operating results,
including the Company's success in developing and marketing its video services
business and in developing, introducing and shipping new products and product
enhancements, the Company's success in accurately forecasting demand for new
orders (which may have short lead-times before required shipment), product mix,
percentage of revenues derived from OEMs versus distributors or resellers, new
product introductions and price reductions by competitors, the efforts of OEMs,
distributors, resellers, and other third parties on behalf of the Company, the
Company's ability to attract, retain and motivate qualified personnel, the
timing and amount of research and development and selling, general and
administrative expenditures, and general economic conditions. Further, a
significant portion of the Company's expenses is fixed. The Company expects that
operating expenses will increase in the future to fund expanded operations,
including the expansion of the Company's broadband video services to
telecommunications carriers. To the extent these increased expenses are not
accompanied by an increase in revenues or gross margin, as is expected to be the
case as the Company expands its broadband video services business, the Company's
business, financial condition and results of operations would be materially
adversely affected. Due to all the foregoing factors, it is likely that in some
future quarter, the Company's results of operations will be below the
expectations of public market analysts and investors.
The Company out-sources certain functions to independent service
providers. The Company's products are primarily manufactured by Saturn
Electronics and Engineering, Inc. and by Celestica Corporation. Through March
31, 2000, Qwest Cyber Solutions, a joint venture between KPMG LLP and Qwest,
performed
9.
<PAGE>
certain accounting and data processing functions. Effective April 1, 2000, the
Company terminated this outsourcing relationship, and began handling these
transactions internally.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
condensed consolidated statements of operations as a percentage of total
revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
2000 1999 2000 1999
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 53.9 52.1 54.5 54.0
---------- ----------- ---------- ----------
Gross profit 46.1 47.9 45.5 46.0
---------- ----------- ---------- ----------
Operating expenses:
Research and development 28.2 24.3 27.4 26.2
Selling, general and administrative 51.1 43.8 54.4 49.3
---------- ----------- ---------- ----------
Total operating expenses (1) 79.3 68.1 81.8 75.5
---------- ----------- ---------- ----------
Loss from operations (33.2) (20.2) (36.3) (29.5)
---------- ----------- ---------- ----------
Other income, net 1.9 1.2 1.5 1.8
Minority interest in consolidated subsidiary 0.3 - (0.2) -
---------- ----------- ---------- ----------
Net loss (31.0)% (19.0)% (35.0)% (27.7)%
========== =========== ========== ==========
</TABLE>
(1) Operating expenses include non-cash stock compensation charges of $72,000
(0.7% of total revenues) and $48,000 (0.5% of total revenues) for the three
months ended June 30, 2000 and 1999, respectively, and $156,000 (0.7% of
total revenues) and $246,000 (1.3% of total revenues) for the six months
ended June 30, 2000 and 1999, respectively.
REVENUES. Revenues were $10.8 million for the three months ended
June 30, 2000, an increase of 1.4% from the three months ended June 30, 1999.
Revenue for the six months ended June 30, 2000 compared to the first six
months of 1999 increased 9.7%, from $19.0 million to $20.9 million. The
increases in revenues for both the three month and six month periods resulted
from increased shipments to service providers, partially offset by lower
revenues from enterprise customers.
GROSS PROFIT. Gross profit consists of revenues less the cost of
revenues, which consists primarily of costs associated with the manufacture of
the Company's products by outside manufacturers and related costs of freight,
inventory obsolescence, royalties and warranties. These manufacturers procure
the majority of materials, except for certain key components, which the Company
purchases from third-party vendors.
Gross margins for the three months ended June 30, 2000 decreased to
46.1% from 47.9% in the comparable period of 1999, primarily as a result of
changes in product mix. Gross profit increased to $9.5 million during the six
months ended June 30, 2000, from $8.7 million in the first six months of 1999.
The increase was primarily due to improvements in product mix, including sales
of the latest release of our Video Access Node (VAN2), an MPEG2 based
full-motion, two way video room system for enterprise customers.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs, costs of contractors and outside consultants,
supplies and materials expenses, equipment depreciation and overhead costs.
Research and development expenses were $3.0 million for the quarter ended
June 30, 2000, an increase of 17.5% from the quarter ended June 30, 1999. For
the six months ended June 30, 2000, research and development expenses
increased by 14.5%, compared to the first six months of 1999. This increase
in dollars was primarily attributable to increases in engineering staff to
support new product development, including activities associated with the
Company's Click to Meet-TM- video services product introduced in February
2000 and the introduction of the new VAN2 in June 2000. Research and
development costs were 28.0% of revenues for the quarter ended June 30, 2000,
compared to 24.3% during the quarter ended June 30, 1999. The Company
believes that research and
10.
<PAGE>
development expenses will continue to increase in absolute dollars for the
foreseeable future, including increases associated with product development for
the Company's broadband video services business. However, such expenses will
fluctuate depending on various factors, including the status of development
projects.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative (SG&A) expenses include personnel and related overhead costs for
sales, marketing, finance, human resources and general management. SG&A expenses
also include costs of outside contractors, advertising trade shows, other
marketing and promotional expenses, and goodwill amortization. As a percent of
revenue, SG&A expenses increased to 51.1% during the quarter ended June 30,
2000, from 43.8% in the quarter ended June 30, 1999, and to 54.4% for the six
months ended June 30, 2000, from 49.3% in the comparable period of 1999. The
increases were primarily due to an increase in sales and marketing personnel
worldwide. The Company anticipates that SG&A expenses will continue to increase
in absolute dollars in the foreseeable future as the Company expands its sales
and marketing efforts.
OTHER INCOME, NET. Other income, net consists primarily of interest
income earned on short-term investments and cash balances, offset by interest
expense relating to the Company's credit facilities and long-term debt. The
changes in both the three month and six month periods ended June 30, 2000,
compared to the comparable periods in 1999, was the result of changes in the
average balances of cash and cash equivalents and short-term investments, and
the resultant interest income on those balances.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY. Minority interest
reflects the interest of minority stockholders in the operating results of the
Company's consolidated subsidiary in the United Kingdom. The Company acquired a
controlling interest in this entity in May 1999. For the three month and six
month periods ended June 30, 2000, and the three month period ended June 30,
1999, the amounts reflect the portion of profits and losses in this subsidiary
that were attributable to minority stockholders.
INCOME TAXES. The Company has incurred losses since inception. No tax
benefit was recorded for any period presented, as the Company believes that,
based on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that it will not be able to
realize the benefit of these net operating losses, and thus a full valuation
reserve has been recorded.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through private and public placements of equity securities and to a lesser
extent through certain credit facilities and long-term debt. As of June 30,
2000, the Company had cash and cash equivalents and short-term investments of
$30.2 million and working capital of $42.6 million.
During the six months ended June 30, 2000, the Company used $5.3
million in operating activities. This was comprised of the loss of $7.3 million
and reductions in accounts payable ($1.6 million) and deferred revenue ($0.6
million), partially offset by reductions in inventory ($0.7 million) and changes
in other asset and liability accounts. During the six months ended June 30,
1999, the Company used $13.1 million of cash in its operating activities,
primarily to fund a net loss of $5.3 million and increases in inventory, prepaid
expenses and other assets, and accounts receivable of $5.9 million, $1.5
million, and $1.4 million, respectively.
Net cash used in investing activities totaled $21.9 million for the
six months ended June 30, 2000, primarily $21.6 million in net purchases of
short-term investments, partially offset by $381,000 used for the acquisition of
property and equipment. Net cash provided by investing activities in the six
months ended June 30, 1999 was $3.8 million, representing $5.0 million in
proceeds from the sale of short-term investments, partially offset by $1.2
million used for the acquisition of property and equipment.
Cash provided by financing activities was $26.9 million for the six
months ended June 30, 2000, principally from the net proceeds from the sale of
Series A Convertible Preferred Stock of $24.4 million. Cash used in financing
activities in the six months ended June 30, 1999 reflected repayment of $1.3
million in notes payable assumed in the acquisition of ICAST Corporation in
August 1998, largely offset by $1.2 million in net proceeds from the issuance of
common stock under the Company's stock plans.
11.
<PAGE>
The Company's working capital line of credit agreement with a bank
expired in June 2000. The Company is currently in negotiations for a new line of
credit.
The Company believes that its cash and cash equivalents and short-term
investments will provide adequate cash to fund its current operations for at
least the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposures as set forth in its Annual Report
on Form 10-K, as amended, for the year ended December 31, 1999 have not
materially changed.
12.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about April 9, 1999, several purported class action suits were
filed in the United States District Court for the Northern District of
California (the "Court") alleging violations of the federal securities laws
against the Company and certain of its officers and directors in connection with
the Company's reporting of its financial results for the period ended December
31, 1998. The Court dismissed these actions without leave to amend on February
14, 2000. The plaintiffs filed a notice of appeal with the Ninth U.S. Circuit
Court of Appeals on March 29, 2000.
ITEM 2. CHANGES IN SECURITIES
On June 8, 2000, the Company issued 27,437 shares of its Series A
Convertible Preferred Stock (the "Preferred Stock") in a private placement to
Vulcan Ventures Incorporated ("Vulcan"), for an aggregate purchase price of
$27,437,000. The Preferred Stock is currently convertible into 3,429,625 shares
of common stock of the Company. The Company also issued Vulcan a warrant for the
purchase of 850,000 shares of the Company's common stock at an exercise price of
$7.00 per share. In connection with the issuance of the Preferred Stock, the
Company filed a Certificate of Designation with the Secretary of State of the
State of Delaware to create and designate the rights, preferences and privileges
of the Preferred Stock, including liquidation and dividend rights for the
Preferred Stock.
This issuance of the securities to Vulcan was intended to be exempt
from registration and prospectus delivery requirements under the Securities Act
of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act and
Regulation D promulgated thereunder. Vulcan, an accredited investor, represented
its intention to acquire the securities for investment only and not with a view
to distribution thereof. Appropriate legends were affixed to the stock
certificates and the warrant. Vulcan was knowledgeable, sophisticated and
experienced in making investment decisions of this kind and received adequate
information about the Company or had adequate access, through its business
relationships with the Company, to information about the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 22, 2000
(the "Annual Meeting"). The following matters were considered and voted upon at
the Annual Meeting:
The first matter related to the election of two director nominees, Neal
M. Douglas and David A. Norman, to serve as directors until the 2003 Annual
Meeting of Stockholders. The votes cast for and against such nominees were as
follows:
NAME FOR WITHHELD
---- --- --------
Neal M. Douglas 13,622,103 146,821
David A. Norman 13,622,103 146,821
The second matter related to the approval of an amendment to the
Company's 1997 Equity Incentive Plan to increase the aggregate number of shares
of Common Stock authorized for issuance under such plan by 500,000 shares, to
5,875,000 shares. There were 12,593,726 votes cast for approval, and 1,152,189
votes cast against approval. There were 23,009 abstentions and no broker
non-votes.
The third matter of business related to the approval of an amendment
to the Company's 1997 Non-Employee Directors' Stock Option Plan to increase
the aggregate number of shares of Common Stock authorized for issuance under
such plan by 100,000 shares, to 350,000 shares. There were 12,490,045 votes
cast for approval and 1,254,488 votes cast against approval. There were
24,391 abstentions and no broker non-votes.
The fourth matter of business related to the ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants of the
Company for its fiscal year ending December 31, 2000. There were 13,731,145
13.
<PAGE>
votes cast for ratification and 21,959 votes cast against ratification. There
were 15,820 abstentions and no broker non-votes.
Based on these voting results, each of the directors nominated was
elected and the second, third, and fourth matters were approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation (1)
3.1(i) Certificate of Ownership and Merger, effective August 3, 1998 (2)
3.1(ii) Certificate of Designation of Series A Convertible Preferred Stock
3.2 Amended Bylaws of the Registrant (3)
4.1 Specimen Common Stock Certificate (2)
4.2 Specimen Series A Convertible Preferred Stock Certificate
10.1 1997 Equity Incentive Plan (4)
10.2 1999 Equity Incentive Plan (4)
10.3 1997 Non-Employee Director's Stock Option Plan (4)
10.4 Stock Purchase Agreement, dated June 8, 2000, between the Company
and Vulcan Ventures Incorporated (Vulcan)
10.5 Warrant to Purchase 850,000 shares of the Company's Common Stock,
dated June 8, 2000, issued by the Company to Vulcan
10.6 Registration Rights Agreement, dated June 8, 2000, between the
Company and Vulcan
*10.7 Video Services Agreement dated May 8, 2000, between the Company and
Qwest Communications Corporation
11.1 Statement of Computation of Earnings (Loss) Per Share (5)
27.1 Financial Data Schedule
</TABLE>
* Confidential Treatment has been requested with respect to certain
portions of this Exhibit
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-1, File No, 333-38755, declared effective on April 29, 1998,
incorporated herein by reference.
14.
<PAGE>
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1998, as filed on August 11, 1998,
incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K, as
amended, for the period ended December 31, 1999, as filed on
April 5, 2000, incorporated herein by reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File No. 333-4159, filed on July 17, 2000.
(5) See Note 3 to Condensed Consolidated Financial Statements.
(b) Reports on Form 8-K
The Company filed one Current Report on Form 8-K during the quarter
ended June 30, 2000, and reported the Company's issuance of its Series A
Preferred stock and warrant to purchase common stock of the Company to Vulcan
Ventures Incorporated.
15.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000 FVC.COM, INC.
By: /s/ Truman Cole
---------------------------------------
Truman Cole
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
16.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
------ ---------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation (1)
3.1(i) Certificate of Ownership and Merger, effective August 3, 1998 (2)
3.1(ii) Certificate of Designation of Series A Convertible Preferred Stock
3.2 Amended Bylaws of the Registrant (3)
4.1 Specimen Common Stock Certificate (2)
4.2 Specimen Series A Convertible Preferred Stock Certificate
10.1 1997 Equity Incentive Plan (4)
10.2 1999 Equity Incentive Plan (4)
10.3 1997 Non-Employee Director's Stock Option Plan (4)
10.4 Stock Purchase Agreement, dated June 8, 2000, between the Company
and Vulcan Ventures Incorporated (Vulcan)
10.5 Warrant to Purchase 850,000 shares of the Company's Common Stock,
dated June 8, 2000, issued by the Company to Vulcan
10.6 Registration Rights Agreement, dated June 8, 2000, between the
Company and Vulcan
*10.7 Video Services Agreement, dated May 8, 2000, between the Company and
Qwest Communications Corporation
11.1 Statement of Computation of Earnings (Loss) Per Share (5)
27.1 Financial Data Schedule
</TABLE>
* Confidential Treatment has been requested with respect to certain
portions of this exhibit.
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-1, File No, 333-38755, declared effective on April 29, 1998,
incorporated herein by reference.
17.
<PAGE>
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1998, as filed on August 11, 1998,
incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K, as
amended, for the period ended December 31, 1999, as filed on
April 5, 2000, incorporated herein by reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form
S-8, File No. 333-4159, filed on July 17, 2000.
(5) See Note 3 to Condensed Consolidated Financial Statements.
18.
