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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to ____________
Commission file number 000-22235
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Video Network Communications, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1707962
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(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
50 International Drive
Portsmouth, NH 03801
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(Address of Principal Executive Offices)
(603) 334-6700
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
APPLICATION ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of August 14, 2000: 8,907,970
Transitional Small Business Disclosure Format (check one):
Yes X No
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEO NETWORK COMMUNICATIONS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,458,363 $2,594,529
Accounts receivable, net 15,735 376,580
Inventory, net 4,630,813 4,913,115
Other current assets 122,110 107,379
---------- ----------
Total current assets 6,227,021 7,991,603
Property and equipment, net 954,724 1,304,785
Trademarks and patents, net 257,841 234,343
Other assets 68,309 68,309
---------- ----------
$7,507,895 $9,599,040
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 60,872 $ 20,000
Accounts payable 746,740 462,065
Deferred revenue 1,092,632 28,068
Accrued liabilities 797,582 858,785
Current portion of long term debt 2,471,530 1,685,536
Obligations under capital lease, current portion 13,927 7,798
---------- ----------
Total current liabilities 5,183,283 3,062,252
Long term debt 909,192 1,717,805
Obligations under capital lease 25,729 37,890
Commitments
Stockholders' equity:
Common stock, par value $.01, 30,000,000 shares authorized; 8,907,970 and
8,812,141 issued and outstanding at June 30, 2000 and December
31, 1999, respectively 89,080 88,121
Additional paid-in capital 57,440,997 57,170,884
Accumulated deficit (56,140,386) (52,477,912)
----------- -----------
Total stockholders' equity 1,389,691 4,781,093
---------- ----------
$7,507,895 $9,599,040
========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
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VIDEO NETWORK COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Products $ 894,394 $ 749,968 $ 1,537,440 $ 1,405,425
Services 898,654 75,070 908,978 75,070
------- ------ ------- ------
1,793,048 825,038 2,446,418 1,480,495
--------- ------- ---------- ---------
Cost of sales:
Products 502,473 319,818 1,027,104 688,520
Services 692,126 22,521 695,223 22,521
--------- ------- --------- -------
1,194,599 342,339 1,722,327 711,041
--------- ------- --------- -------
Gross margin 598,449 482,699 724,091 769,454
--------- ------- ---------- ---------
Operating expenses:
Research and development 993,567 1,068,658 1,933,920 2,085,864
Selling, general and
administrative 1,297,567 1,049,036 2,347,131 2,272,627
--------- --------- --------- ---------
Total operating
expenses 2,291,134 2,117,694 4,281,051 4,358,491
--------- --------- --------- ---------
Loss from operations (1,692,685) (1,634,995) (3,556,960) (3,589,037)
Interest expense, net 51,889 1,687,168 105,514 2,147,745
--------- ------- ---------- ---------
Net loss (1,744,574) (3,322,163) (3,662,474) (5,736,782)
-------------- ----------- ----------- -----------
Cumulative Series B dividend -- (8,297) -- (22,672)
--------- ------- ---------- ---------
Net loss attributable to common
stockholders $(1,744,574) $ (3,330,460) $ (3,662,474) $ (5,759,454)
============ ============= ============= =============
Net loss per common share
-- basic and diluted $ (.20) $ (1.71) $ (.41) $ (4.02)
============ ============= ============= =============
Weighted average shares outstanding
-- basic and diluted 8,878,117 1,944,127 8,907,970 1,433,186
============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
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VIDEO NETWORK COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,662,474) $ (5,736,782)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 366,604 580,101
Amortization 9,903 7,581
Interest expense related to issuance of warrants 25,938 23,745
Interest expense accrued on debentures -- 74,649
Amortization of debt discount -- 1,270,214
Amortization of debt issuance costs -- 472,313
Non-cash compensation expense 19,520 281,844
Changes in operating assets and liabilities:
Accounts receivable 360,845 (464,249)
Other current assets 36,359 (73,500)
Inventory 282,302 472,032
Trademarks and patents (33,401) (33,440)
Accounts payable 284,675 (1,295,698)
Deferred revenue 1,064,564 (40,000)
Accrued liabilities (61,203) 340,081
----------- ------------
Net cash used in operating activities (1,306,368) (4,121,109)
----------- ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 80,580
Purchase of property and equipment (16,543) --
----------- ------------
Net cash provided by (used in) investing
activities (16,543) 80,580
----------- ------------
Cash flows from financing activities:
Net proceeds from the issuance of common stock -- 14,220,814
Net proceeds from the issuance of representative's purchase option -- 100
Net proceeds from the exercise of stock options 251,552 --
Net proceeds from the issuance of unsecured promissory notes and
common stock -- 2,395,604
Repayment of unsecured promissory notes -- (2,850,000)
Repayment of notes payable (10,218) (85,412)
Repayment of long term debt (48,557) (1,175,000)
Proceeds from the issuance of notes payable to related parties -- 36,000
Repayment of notes payable to related parties -- (36,000)
Principal payments on capital leases (6,032) (123,182)
----------- ------------
Net cash provided by financing
activities 186,745 12,382,924
----------- ------------
Net increase (decrease) in cash and cash equivalents (1,136,166) 8,342,395
Cash and cash equivalents, at beginning of period 2,594,529 8,532
----------- ------------
Cash and cash equivalents, at end of period $ 1,458,363 $ 8,350,927
=========== ============
Supplemental disclosure of non-cash investing and
financing activities: See Note 6.
</TABLE>
The accompanying notes are an integral part of
these financial statements.
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VIDEO NETWORK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Video Network
Communications, Inc. (the "Company" or "VNCI") as of June 30, 2000 and for the
three and six months ended June 30, 2000 and 1999 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Form 10-QSB and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, such financial statements contain all
adjustments consisting only of normal recurring entries, necessary to present
fairly the financial position of the Company as of June 30, 2000 and the results
of operations for the three and six months ended June 30, 2000 and 1999. The
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended and as of December 31,
1999 included in the Video Network Communications, Inc. Annual Report on Form
10-KSB, as filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. Certain prior year items have been
reclassified to conform to the current period's format. The results of
operations for the three and six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
To date, the Company has not generated substantial revenues from the sale
of its products and services. The Company recognized $2,395,000 in revenues
during the year 1999, and recognized $2,446,000 in revenues during the six
months ended June 30, 2000. The Company has suffered recurring losses from
operations, has recurring negative cash flow from operations and had an
accumulated deficit of $56,140,000 at June 30, 2000 that 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. The Company has required substantial funding through debt and
equity financings since its inception to complete its development plans and
commence full-scale operations.
The Company requires additional cash to fund operations. At June 30, 2000,
the Company had $1,458,000 in cash. We expect to generate revenues from
operations during the next twelve months. However, we believe that these
additional revenues together with our existing cash may not be sufficient to
fund our operations for that period. Accordingly, we anticipate that we may
require additional financing to fund our operations. We have begun discussions
with some potential financial investors and strategic partners and we are
seeking to complete a private financing in the near future. We intend to
continue to fund our operations with our existing cash and with cash generated
from customer payments until we complete an additional financing. However, the
timing and amount of customer payments is uncertain. Our ability to complete a
financing, the timing of the financing and its terms are subject to a number of
conditions, including market conditions, some of which are beyond our control.
There can be no assurance that we will be able to secure financing or, if
obtained, the timing or the terms of any such financing. If we do not secure
additional financing when needed, we may be forced to consider alternative
methods of maximizing stockholder value, which could include a sale of the
Company, asset sales, workout alternatives or bankruptcy.
2. NET LOSS PER SHARE
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share."
Net loss per common share is based on the weighted average number of common
shares and dilutive common share equivalents outstanding during the periods
presented. Basic earnings (loss) per share are calculated by dividing net income
(loss) by the weighted average shares outstanding. Diluted earnings (loss) per
share reflect the dilutive effect of stock options and warrants and are
presented only if the effect is not anti-dilutive. As the Company incurred
losses for all periods, there is no difference between basic and diluted
earnings per share. Had options and warrants been included in the computation,
shares for the diluted computation would have increased by 5,952,318 and
7,732,339 as of June 30, 1999 and 2000, respectively.
3. INCOME TAXES
The Company did not record a provision for income taxes for the three and
six months ended June 30, 2000 and 1999 since the Company had net operating
losses during each of those periods. The Company recorded a full valuation
allowance against the net
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deferred tax asset generated primarily from its net operating loss
carryforwards.
4. INVENTORY
Inventory consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Raw Materials $4,316,563 $4,355,895
Finished Goods 314,250 557,220
---------- ----------
$4,630,813 $4,913,115
========== ==========
</TABLE>
5. DEBT
SANMINA NOTE
In January 1999, the Company converted outstanding accounts payable to
Sanmina Corporation of $3,200,000 and $1,100,000, the latter representing the
value of inventory and materials located at a subcontract manufacturer, to a
$4,300,000 three-year term note accruing interest at 7% per year. The Company
paid Sanmina $1,100,000 in principal on the note in June 1999 upon completion of
its public offering of units and Sanmina transferred to the Company the title to
the inventory and materials located at Sanmina.
In connection with the restructuring of accounts payable balances to a
long-term note, the Company issued to Sanmina warrants to purchase 39,286 shares
of common stock, with a $19.25 exercise price per share. An independent
appraisal assigned a market value of $127,759 to these warrants. The Company has
recorded the value of the warrants as a discount against the face amount of the
note and will amortize the value of the warrants over the life of the note.
In January 2000, the Company defaulted on the interest payment due to
Sanmina and has not made subsequent interest and principal payments to Sanmina
in 2000 when due. In August 2000, the Company renegotiated the terms of the note
to Sanmina. Under the current terms of the note, the Company is obligated to pay
Sanmina (i) $150,000 on the date on which UNCI consummates a private offering,
(ii) $150,000 on or before November 15, 2000 and (iii) an amount each month
equal to a percentage of the accounts receivable collected in the previous
calendar month, with the percentage ranging from 0% to 5%. The Sanmina note is
secured by some of the Company's personal property and certain other assets.
LEGAL COUNSEL NOTE
In January 1999, the Company also converted $375,000 of outstanding
accounts payable to legal counsel to a two-year term loan accruing interest at
7% per year. The Company paid $75,000 of the principal balance of this note
during 1999. Under the terms of the note, the Company is obligated to make two
semi-annual interest-only payments. In February 2000, the Company was to have
commenced making twelve equal monthly payments to fully amortize the remaining
balance of the note.
In connection with converting the restructuring of accounts payable
balances to a long-term note, the Company issued to legal counsel warrants to
purchase 5,714 shares of common stock, with a $18.59 exercise price per share.
An independent appraisal assigned a market value of $18,583 to these warrants.
The Company has recorded the value of the warrants as a discount against the
face amount of the note and will amortize the value of the warrants over the
life of the note.
In January 2000, the Company did not make the required interest payment to
its counsel and did not make subsequent interest and principal payments to legal
counsel in 2000 when due. Subsequently, the Company paid legal counsel $77,874
on the note, but continue to owe legal counsel $83,200 in late principal and
interest payments. In August 2000, the Company renegotiated the terms of the
note and the outstanding interest payments to legal counsel. Under the terms of
the note, the Company is obligated to pay legal counsel (i) $50,000 on the date
on which VNCI consummates a private offering and (ii) 20,000 each month
thereafter until the note is paid in full.
We cannot assure you that we will be able to make the required
principal and interest payments on these notes when due. In the event of default
on these notes, the Company may lose those assets that serve as security or may
not be able to continue to receive legal services from their attorneys.
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NON-CASH TRANSACTIONS
The following non-cash transactions occurred in the periods indicated:
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Current asset financed by issuance of note payable $51,090 $ --
Dividend on preferred stock -- 22,672
Conversion of preferred stock to common stock -- 1,196,630
Conversion of subordinated debentures to common stock -- 3,275,323
Accounts payable transferred to long term debt -- 3,575,000
Common stock issued with private placement -- 1,270,214
Warrants issued with long term debt -- 146,342
Inventory financed with long term debt -- 1,100,000
Equity financing costs in prepaid expenses -- 28,867
Equity financing costs financed in accounts payable -- 93,797
Reduction in accrued liabilities due to sale of fixed assets -- 181,678
Cost of fixed assets sold -- net -- 262,258
Vendor credit issued against formerly recorded fixed asset -- 10,123
Debt issuance costs in other assets -- net -- 17,917
</TABLE>
7. INVESTMENT
On December 31, 1999, the Company entered into an Agreement with B2B Video
Network, Corp. (formerly b2bvideo.com, Corp.), a high technology startup company
that intends to provide aggregated business video content to the business
market. The Agreement became effective the day after the closing of B2BVideo
Network's private placement of Series A Preferred Stock which closed on March
14, 2000. The Agreement provides that VNCI receive an equity position in
B2BVideo Network in exchange for favorable purchase terms and conditions
regarding products and services provided to B2BVideo Network by VNCI. VNCI
received one million shares of common stock, equivalent to an ownership
percentage of approximately fourteen and one half percent (14.5%) on a fully
diluted basis on the closing date assuming conversion of all Series A Preferred
Stock. Mr. James F. Bunker, Chairman of the Board of VNCI and a director of B2B
Video Network, participated in the private placement purchasing less than one
percent (1%) of the total offering. Ms. Cheryl Snyder, CEO of B2BVideo Network,
is a director of VNCI. The Company is using the cost method to account for this
investment and has valued the investment at zero as there was no tangible
consideration given for the investment.
8. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," as
amended by SAB No. 101A and SAB No. 101B ("SAB 101"), which is effective no
later than the quarter ending December 31, 2000. SAB No. 101 clarifies the
Securities and Exchange Commission's views regarding the recognition of revenue.
The Company will adopt SAB No. 101 in the fourth quarter of 2000. The Company
does not expect the application of SAB No. 101 to have a material impact on the
Company's financial position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No.
44 primarily clarifies (a) the definition of an employee for purposes of
applying APB Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of previously fixed stock options or awards, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions in
FIN No. 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN No. 44 to
have a material impact on the Company's financial position or results of
operations.
9. RELATED PARTY TRANSACTIONS
Included in product revenues in the quarter ended June 30, 2000 was $36,000
related to shipments of equipment to B2B Video Network, Corp. Cost of products
sold included $42,000 related to that sale. Two members of VNCI's board of
directors also serve as
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members of B2B Video's board of directors. Please see note 7.
10. SUBSEQUENT EVENTS
In August 2000, the Company renegotiated the terms of the note
to Sanmina. Under the current terms of the note, the Company is obligated to pay
Sanmina (i) $150,000 on the date UNCI consummates a private offering, (ii)
$150,000 on or before November 15, 2000 and (iii) an amount each month equal to
a percentage of the accounts receivable collected in the previous calendar
month, with the percentage ranging from 0% to 5%. The Sanmina note is secured by
some of the Company's personal property and other assets.
LEGAL COUNSEL NOTE
In August 2000, the Company has agreed to pay legal counsel a lump sum
payment of approximately $50,000 on the date in which UNCI consumates a private
offering and $20,000 each month thereafter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this Quarterly Report on Form 10-QSB, other
than historical financial information, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
such forward-looking statements involve known and unknown risks, uncertainties
or other factors which may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include risks and uncertainties related to our
dependence on the emerging market for video broadcast, retrieval and
conferencing, development of additional products, protection of our intellectual
property, limited marketing experience, limited number of customers, and the
need for additional personnel, as well as risks and uncertainties associated
with our growth strategy, technological changes and competitive factors
affecting us.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto appearing elsewhere in this Quarterly
Report on Form 10-QSB.
OVERVIEW
Video Network Communications is a Delaware corporation formed in 1993 to
design, develop and market full motion, high resolution, cost-effective video
network systems. Users of our VidPhone video network system can view broadcast
video, participate in multi-party video conferences and retrieve stored video on
demand from their desktop. Our VidPhone system distributes video to and from
desktop and laptop personal computers and conference rooms configured with
VidPhone stations, over the same wiring used by the telephone without
interfering with normal telephone usage. We believe that the VidPhone system
offers greater functionality and compatibility with existing infrastructure and
higher quality than other video network or conferencing systems available today.
We are a relatively new company offering a new technology product. We
first introduced our technology and initial products in late 1998 and our
products first demonstrated commercial readiness during the first half of 1999.
The price for our typical 30-user video network system, including installation,
is $132,250. We believe that we have shown revenue and sales growth over the
past year despite limited sales and marketing resources and our unstable
financial condition during the period. However, we believe that in order for our
Company to be successful, we will need to achieve a significantly higher level
of sales in a relatively short time, which may require substantially higher
sales and marketing expenditures in the future.
We reported revenues of $1,793,000 for the quarter ended June 30, 2000 an
increase of 174% when compared with revenues reported for the first quarter of
2000 and an increase of 117% compared to the second quarter of 1999. Our
operating expenses for the quarter ended June 30, 2000 of $2,291,000 were
approximately 15% higher than our operating expenses in the first quarter of
2000 and 8% higher than our operating expenses in the second quarter of 1999. At
this stage of development it is difficult for us to predict with accuracy the
level of our sales in future periods, or when our marketing initiatives will
result in sales. Each sale of our equipment continues to account for a
significant portion of our revenues. Accordingly, we expect to continue to
experience significant, material fluctuations in our revenues on a quarterly
basis for the foreseeable future.
Our VidPhone enterprise video system utilizes patented technology to
distribute TV-quality video, FM-quality stereo audio and
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data to laptop or personal computers using the telephone wiring connecting
telephones to the PBX or CENTREX, bypassing the enterprise's local area network
("LAN"), and, thereby avoiding the issues associated with bandwidth limitations.
We believe that bandwidth limitations have been the major impediment to
delivering full-motion TV-quality video to the desktop on a cost-effective
basis. We are continuing to invest a significant amount of our resources in
research and development, because we consider the commercialization of our
products to be fundamental to our future success. In April 2000, we announced
our implementation of Java technology, V2.0, which will enable us to offer
customers a platform-independent video network solution. In addition to V2.0, we
are currently developing an interface to support Internet protocol (IP)-based
local area network applications. We currently expect that this interface will be
available at the end of 2000.
We have completed a restructuring of our sales and marketing team that began in
November 1999. As part of this effort, we have recently concentrated our sales
and marketing efforts in five vertical markets and we have experienced some
success in each of these markets. We have targeted the finance, medicine,
education, video broadcast and government sectors of the market. We have also
recently had sales to resellers internationally in Europe and Asia. Several of
our recent sales have been to key reference accounts such as the Inter-American
Development Bank (IADB), the Cole Eye Institute of the Cleveland Clinic, and the
First District of the Federal Court System in Concord, New Hampshire. We believe
that further development of these and additional reference accounts will shorten
our sales cycle in the future, while promoting relationships with resellers.
For the remainder of 2000, we intend to focus on selling and marketing our video
network solutions and continuing product development to meet customer demands
for new functionality and to lower the cost of our systems. Specifically, our
goals are to: (i.) develop new strategic partnerships committed to marketing our
video network system as the video solution of choice to business users; (ii) use
our current strategic and reseller arrangements to increase sales of our systems
and create brand name recognition of our product, (iii) significantly enhance
our marketing and public relations programs to create better awareness of our
products among customers, industry analysts and financial analysts, (iv) develop
our direct sales; and (v) continue engineering our video network system to
refine and improve its functionality to meet new customer requirements and to
lower our costs and the price of our system through improved design. Our ability
to meet these objectives is subject to a number of risks and uncertainties,
including our ability to develop new strategic relationships with significant
potential resellers, our ability to sell and market our product and develop
market awareness of our video network system and our ability to obtain financing
when required. We cannot assure you that we will be able to meet these
objectives. We plan to continue to subcontract all major manufacturing and
production activities for the foreseeable future, but we will continue to retain
test and quality assurance functions until all subcontractors are certified with
respect to quality.
We expect to continue to incur significant operating expenses to support our
product development efforts and to enhance our sales and marketing capabilities
and organization, but we anticipate that our product development expenditures
will be lower than in prior years because we have introduced the commercial
version of our video network system. We expect that our results of operations
will vary significantly from quarter to quarter for the foreseeable future.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Revenues. We recognized $1,793,000 in revenues during the three months
ended June 30, 2000 compared to $825,000 recognized in the comparable period of
1999, representing an increase of $968,000 or 117%. The revenues recognized in
the second quarter of 2000 consisted of revenues related to equipment sales,
$894,000, and services, $899,000. In the second quarter of 1999 the Company
recognized equipment sales of $750,000 and service sales of $75,000. The
services revenues recognized in 2000 were related primarily to completed and
accepted installation activities at one significant customer's multiple
locations.
Cost of sales. Cost of sales for the three months ended June 30, 2000 was
$1,195,000. Of the costs of sales recognized in the second quarter of 2000,
$502,000 was related to the cost of equipment sold in the quarter and $692,000
was related to the cost of providing installation services.
Gross Margin. Overall gross margin on revenues recognized in the second
quarter of 2000 was $598,000, yielding a gross margin percentage of
approximately 33%, compared to gross margin earned in the comparable period of
1999 of $ 483,000, or 59%. Gross margin percentage on equipment sales declined
to 44% during the second quarter of 2000 compared to 57% in the second quarter
of 1999 due primarily to favorable pricing granted to a significant reference
account in the second quarter of 2000. The gross margin percentage on service
revenues declined from 70% in the second quarter of 1999 to 23% in same period
of 2000 due to lower margins experienced on a significant systems integration
contract we managed in the second quarter of 2000.
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Research and Development. Research and development costs decreased to
$994,000 in the three months ended June 30, 2000, from $1,069,000 in the
comparable period of 1999, representing a decrease of $75,000 or 7%. The overall
decrease in costs is a result of reduced staffing and recruiting costs,
$187,000, use of professional services, $29,000, equipment rental costs,
$30,000, and depreciation, $72,000, offset by increased materials and testing
costs, $192,000, associated with increased design activities in the second
quarter of 2000 compared to the same period in 1999.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased to $1,298,000 during the three months ended
June 30, 2000, from $1,049,000 during the three months ended June 30, 1999, an
increase of $ 249,000 or 24 %.
Sales and marketing expenses increased $213,000 in the second quarter of
2000 compared to the same period of 1999. Approximately $148,000 of this
increase was due to higher staffing costs within the sales group, partially
offset by a $12,000 reduction in marketing staffing costs. Costs of producing
sales and marketing materials and attending trade shows increased $84,000,
offset by reductions in rent expense, $11,000, and depreciation, $21,000.
Customer support costs increased by $11,000 in the three months ended June
30, 2000 compared to the same period in 1999. Approximately $20,000 of the
increase was due to increased staffing costs and $28,000 was associated with
increased use of materials and uncapitalized tools and equipment. Customer
support costs were reduced by approximately $49,000 in the three months ended
June 30, 2000 compared to the same period in 1999 due to the allocation of a
portion of customer service department costs to cost of sales-services.
General and administrative costs increased by $25,000 in the three months
ended June 30, 2000 compared to the same period in 1999. General and
administrative staff costs increased by $69,000. The increase included increases
in other professional services costs of $70,000, in recruiting costs, $15,000,
in printing, $15,000, and in insurance, $6,000. Offsetting these increases was a
reduction in consulting charges of $141,000 related to options granted to a
financial advisor in the second quarter of 1999. Such charges were not incurred
in the same period of 2000.
Net interest expense in the three months ended June 30, 2000 was $52,000,
compared to $1,687,000 in the comparable period of 1999. Of this, interest
expense of $69,000 was incurred in the second quarter of 2000 compared to
$1,702,000 in the same period of 2000. Included in the interest expense in the
second quarter of 1999 was $1,477,000 related to the amortization of debt
discount and debt issuance costs associated with the unsecured promissory notes.
The remainder of the interest expense was related to long-term debt, to capital
lease obligations, and to vendor finance charges, all of which were reduced in
the second quarter of 2000 as the balances of related indebtedness have been
reduced.
Net Loss. As a result of the foregoing factors, the net loss for the three
months ended June 30, 2000 decreased to $1,745,000, from $3,322,000 in the three
months ended June 30, 1999, a decrease of $1,577,000 or 47%.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Revenues. We recognized $2,446,000 in revenues during the six months ended
June 30, 2000 compared to $1,480,000 recognized in the comparable period in
1999. We recognized $1,537,000 of equipment sales in the first half of 2000
compared to $1,405,000 in the first half of 1999. Revenues related to
installation services and service contracts were $909,000 in the first half of
2000 compared to $75,000 service revenues earned in the comparable period of
1999.
Cost of sales. Cost of sales for the six months ended June 30, 2000 was
$1,722,000 compared to $711,000 recognized in the comparable period of 1999. Of
the cost of sales recognized in the first half of 2000, $1,027,000 was related
to the cost of equipment and $695,000 was related to the cost of providing
installation services. Cost of equipment sales recorded in the first six months
of 1999 was $689,000. Cost of service revenues was $23,000 during the first half
of 1999.
Gross Margin. Overall gross margin on revenues recognized in the first half
of 2000 was $724,000, yielding a gross margin percentage of approximately 30%,
compared to gross margin earned in the comparable period of 1999 of $ 769,000,
or 52%. Gross margin percentage on equipment sales declined to 33% during the
first half of 2000 compared to 51% in the first half of 1999 due primarily to
favorable pricing granted to significant reference accounts in the first six
months of 2000. The gross margin percentage on service revenues declined from
70% in the second quarter of 1999 to 24% in same period of 2000 due to lower
margins experienced on a significant systems integration contract we managed in
the second quarter of 2000.
Research and Development. Research and development costs decreased
$152,000, or 7%, during the six months ended June 30, 2000 compared to the
comparable period of 1999. Staffing costs declined by $390,000, which included a
reduction in recruiting and
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relocation charges of $159,000. The Company also reduced the use of outside
consultants, $26,000, and incurred lower levels of depreciation, $95,000.
Offsetting these reductions was an increase of $471,000 in costs of materials,
of testing, and uncapitalized tools and equipment as the Company increased
development activities relative to the same period of 1999.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased by $75,000, or 3%, in the six months ended
June 30 2000 compared to the comparable period of 1999.
Sales and marketing expenses increased $324,000 in the first half of 2000
compared to the first half of 1999 due to increases in sales staffing costs,
$162,000, recruiting costs, $21,000, increases in travel costs, $50,000,
increased advertising, promotional, and trade show costs, $95,000, and increased
costs associated with outside marketing and sales consulting services, $78,000.
Offsetting these increases were reductions is marketing staff costs, $49,000,
office rent, $14,000, and depreciation, $37,000.
Customer support costs increased $11,000 as staffing and travel increased
to meet the service requirements of a larger installed base. Offsetting these
costs were reductions in depreciation charged to the department and increased
allocations to cost of sales -- services.
General and administrative costs decreased $261,000, or 24%, in the first
six months of 2000 compared to the comparable period of 1999. During the first
half of 1999 the company incurred $282,000 in charges related to the
amortization of expense related to the issuance of options to a financial
advisor. This charge was not incurred in 2000. Other reductions in expenses were
realized in travel costs, $17,000, investor relations costs, $13,000, and
contract labor, $9,000. Offsetting these reductions were higher legal and
accounting costs, $98,000, and recruiting costs, $51,000.
Net Interest (Income) Expense. We recorded $106,000 of net interest expense
in the six months ended June 30, 2000, compared to $2,148,000 of net interest
expense in the comparable period of 1999. Interest expense totaled $147,000
during the first half of 2000, compared to $2,167,000 during the comparable
period of 1999. Included in the interest expense in the first half of 1999 was
$1,740,000 related to the amortization of debt discount and debt issuance costs
associated with the unsecured promissory notes. The remainder of the interest
expense was related to long-term debt, to capital lease obligations, and to
vendor finance charges, all of which were reduced in the first half of 2000 as
the balances of related indebtedness have been reduced.
We earned $42,000 in interest income during the first half of 2000,
compared to $19,000 in interest income during the first half of 1999. The
interest income recorded in the first half of 2000 was earned primarily on the
invested proceeds of the public offering of common stock that we completed in
June 2000. We had lower average cash balances during first half of 2000
available for investment compared to 1999 and accordingly earned less interest
income.
Net Loss. As a result of the foregoing factors, the net loss for the six
months ended June 30, 2000 decreased to $3,662,000 from $5,737,000 in the six
months ended June 30, 1999, a decrease of $2,075,000, or 36%.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative losses aggregating $56.1 million from our
inception through June 30, 2000. We expect to incur additional operating losses
for the foreseeable future, principally as a result of expenses associated with
product development efforts and anticipated sales, marketing, and general and
administrative expenses. During the first six months of 2000, we satisfied our
cash requirements principally from cash on hand as of December 31,1999, from the
exercise of options, and from collections from customers. We expect that we will
continue to require outside debt or equity financing for the forseeable
future. We do not currently have any lines of credit or bank financing, and we
do not anticipate having access to bank financing in the forseeable future.
We had cash and cash equivalents of $1,458,000 at June 30, 2000 compared to
$2,595,000 at December 31, 1999, a decrease of $1,137,000. The decreases in cash
and cash equivalents were primarily the result of cash used in operations offset
by cash generated from customers, and from the exercise of employee stock
options during the first six months of 2000.
Net cash used in operations during the six months ended June 30, 2000 was
$1,306,000. Inventory decreased by $282,000 during the first half of 2000,
primarily as a result of sales made during the first half of 2000 . Accounts
receivable decreased by $361,000 during the first six months of 2000 primarily
as a result of cash received from customers relating to outstanding accounts
receivable. Accounts payable increased by $285,000 in the first six months of
2000 due primarily to increased levels of product development and inventory
purchases.
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We generated $187,000 in cash from investing activities during the six
months ended June 30, 2000. Exercises of employee options generated $252,000 in
the first three months of 2000, offset by payments of $65,000 against
outstanding debt obligations. The Company is in default with respect
to the long-term debt owed to Sanmina Corporation and to the Company's legal
counsel. See a discussion of the restructuring of this debt in Note 5 and
Note 10.
The Company's investing activities in the first six months of 2000
consisted of capital equipment purchases of $17,000.
RISK FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following are some of the important risks associated with our business
and our strategy, which could impact our future financial condition and results
of operations. You should read and consider carefully the following risk
factors.
WE WILL REQUIRE ADDITIONAL FINANCING
After our available cash is exhausted, we will need additional funds to
continue operating. To date, the cash generated from operations has not been
sufficient to fund our business and we have been dependent on financings to
continue operating. We expect that we will continue to require outside debt or
equity financing for the foreseeable future. We do not currently have any lines
of credit or bank financing, and we do not anticipate having access to bank
financing for the foreseeable future. We may not be able to raise any additional
money through equity or debt financings when such funds are required, on
acceptable terms or at all. If we were to raise additional funds through the
issuance of equity or convertible debt securities, your investment in VNCI could
be substantially diluted and those securities could have preferences and
privileges that your securities do not have. If we are not able to complete
additional financings when capital is needed, we will not be able to continue
operating.
WE MAY BE UNABLE TO MEET THE PAYMENT SCHEDULE ON NOTES PAYABLE
We currently have an outstanding note to a trade creditor, Sanmina Corp.,
in the original principal amount of $4.3 million, relating to 1998 accounts
payable due Sanmina which were reduced to a note in January 1999. In January
2000, we defaulted on the interest payment due to Sanmina and have not made
subsequent interest and principal payments to Sanmina in 2000 when due. In
August 2000, the Company renegotiated the terms of the note to Sanmina. Under
the current terms of the note, the Company is obligated to pay Sanmina (i)
$150,000 on the date UNCI consummates a private offering, (ii) $150,000 on or
before November 15, 2000 and (iii) an amount each month equal to a percentage of
the accounts receivable collected in the previous calendar month, with the
percentage ranging from 0% to 5%. The Sanmina note is secured by some of the
Company's personal property and certain other assets.
We also have a note outstanding to our legal counsel for legal fees that
were incurred prior to 1999. Under the terms of the note, we are obligated to
make two semi-annual interest only payments and monthly principal and interest
payments of approximately $26,000 per month. In January 2000, we did not make
the required interest payment to our counsel and we did not make subsequent
interest and principal payments to legal counsel in 2000 when due. Subsequently,
we paid our legal counsel $77,874 on the note, but continue to owe legal counsel
$83,200 in late principal and interest payments. We have agreed to pay legal
counsel a lump sum payment of approximately $50,000 and $20,000 each month until
the note is current and, thereafter, to make payments in accordance with the
terms of the note.
We cannot assure you that we will be able to make the required principal
and interest payments on these notes when due. If we default on these notes, we
may lose those assets that serve as security or we may not be able to continue
to receive legal services from our attorneys and we could be found liable to pay
immediately in one payment all of the aggregate outstanding principal and
interest on the notes.
CUSTOMERS MAY NOT BUY OUR PRODUCTS DUE TO CONCERNS OVER OUR VIABILITY
Due to our recurring losses from operations and lack of cash, some
potential customers may decide not to purchase our video network system because
of concerns that we may be unable to service, enhance or upgrade the systems. If
we are not able to alleviate concerns about our long-term viability, we may not
be able to market and sell our video network system successfully and continue
operations.
WE HAVE A HISTORY OF SIGNIFICANT LOSSES AND EXPECT LOSSES TO CONTINUE
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We have incurred substantial losses from operations to date and had an
accumulated deficit of $56.1 million through June 30, 2000. Our financial
statements for the year ended and as of December 31, 1999, indicate that there
is substantial doubt about our ability to continue as a going concern. We expect
to continue to lose money for the foreseeable future.
We recognized only $2.4 million in revenues during 1999, and recognized
only $766,000 in revenues from the sale of products during 1998. We did not
recognize any revenues in 1997. Accordingly, there is no historical basis for
you to expect that we will be able to realize operating revenues or profits in
the future. We have a limited number of orders for delivery during the remainder
of 2000 and we cannot predict with accuracy what our revenues will be in the
future. Our ability to generate sales and to recognize operating revenues in the
future will depend on a number of factors, certain of which are beyond our
control, including:
o customer acceptance of products shipped and installed to date and in
the future;
o our ability to generate new sales of products and secure customer
acceptance; and
o customer payments.
WE HAVE A LIMITED OPERATING HISTORY
Although we were incorporated in 1993, we focused on research and
development until we shipped our first commercial VidPhone system in the third
quarter of 1998. James F. Bunker, our Chairman, has been with us since July 1998
and Carl Muscari, our President and Chief Executive Officer, joined us in
September 1999. In January 2000, we hired Stephen A. LaMarche as Vice President,
Sales and Marketing. Because of our limited operating history and the relatively
short tenure of several of our key senior managers, you have limited information
on which to assess our ability to realize operating revenues or profits in the
future.
WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS EFFECTIVELY
We Are Dependent on Resellers. We distribute our products primarily through
major sellers of telephony products, system integrators and Value Added
Resellers ("VARs"). Currently, we have agreements with approximately twelve
resellers. These arrangements are for relatively short contractual periods and
may be terminated under certain circumstances. We cannot assure you that we will
be able to maintain existing reseller relationships or establish new ones. We
compete for relationships against third-party resellers with larger,
better-established companies with substantially greater financial resources. If
we cannot maintain our current reseller relationships and cannot develop new
relationships, we may not be able to sell our video network system.
Resellers May Not Be Effective Distributors. Sales to third party resellers
are expected to generate a significant part of our future revenues. However, we
have sold only a limited number of video network systems and components under
our reseller arrangements, and to date have recognized minimal revenues from
those sales. We currently have limited orders from our resellers for additional
sales of VidPhone systems. If our resellers fail to market and sell our
products, or our products fail to become an accepted part of the resellers'
product offerings, the value of your investment could be reduced.
We May Not Be Able To Develop Direct Sales and Marketing Capabilities. We
expect to depend on the marketing efforts of our resellers for the foreseeable
future. However, we are developing a small direct marketing capability to
promote our video network system and to support our resellers. We cannot assure
you that we will be able to create awareness of, and demand for, our products
through our marketing efforts, or that the development of our direct marketing
capabilities will lead to sales of our products and services. If we cannot
successfully develop our own sales and marketing capabilities, we may not
succeed in building brand-name recognition of the VidPhone system, and we will
remain solely dependent on reseller efforts.
THE MARKET FOR VIDEO COMMUNICATIONS PRODUCTS MAY NOT DEVELOP
The market for video communications products is new and is rapidly
evolving. As is typical for a new technology, demand for and market acceptance
of new products is unpredictable. If the market for video communications
products fails to develop or develops more slowly than expected, our business
and financial condition could be materially and adversely affected.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY
Our success will depend, in part, on our ability to protect our
intellectual property rights to our proprietary hardware products. Toward that
end, we rely in part on trademark, copyright and trade secret law to protect our
intellectual property in the U.S. and abroad. The degree of protection provided
by patents is uncertain and involves largely unresolved complex legal and
factual ques-
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tions.
The process of seeking patent and trademark protection can be long and
expensive, and there is no assurance that any pending or future applications
will result in patents and/or registered trademarks. Further, although we have
some patents on our technology, we cannot assure you that these or any other
proprietary rights granted will provide meaningful protection or any commercial
advantage to us. We also cannot assure you that claims for infringement will not
be asserted or prosecuted against us in the future, although we are not
presently aware of any basis for claims. A number of companies have developed
and received proprietary rights to technologies that may be competitive with our
technologies. Most of these entities are larger and have significantly greater
resources than we do. Given the rapid development of technology in the
telecommunications industry, we cannot assure you that our products do not or
will not infringe upon the proprietary rights of others.
WE ARE DEPENDENT ON THIRD PARTIES FOR MANUFACTURING
We outsource the manufacturing and assembly of many of the components of
our products. We cannot assure you that our subcontractors will continue to
perform under our agreements with them or that we will be able to negotiate
continuing arrangements with these manufacturers on acceptable terms and
conditions, or at all. In particular, our failure to pay these manufacturers
when due could affect their willingness to continue working with us. If we
cannot maintain relationships with our current subcontractors, we may not be
able to find other suitable manufacturers. Any difficulties encountered with
these manufacturers could cause product defects and/or delays and cost overruns
and may cause us to be unable to fulfill orders on a timely basis. Any of these
difficulties could materially and adversely affect us.
GOVERNMENT REGULATION
Several components of our video network system, including the VidModem and
VidPhone Switch, must comply with certain regulations of the Federal
Communications Commission ("FCC"). Under FCC regulations, we will be required to
follow a verification procedure consisting of a self-certification that the
VidModem complies with applicable regulations pertaining to radio frequency
devices. A qualified, independent testing facility tested the VidModem, and it
was found to comply with FCC regulations. We obtained equipment registrations
from the FCC for certain VidPhone system components, including the VidPhone
switch that is connected to the public switched telephone network.
Although we believe that at present the VidPhone system complies with all
applicable government regulations, future government regulations could increase
the cost of bringing products to market or adversely affect our ability to
market and sell our products and technology.
NASDAQ DELISTING
The Company's common stock currently is quoted on the Nasdaq SmallCap
Market. In order to maintain quotation of the common stock on the Nasdaq
SmallCap Market, the Company must maintain certain asset, capitalization or
income tests and stock price tests. If the common stock is delisted from
quotation on the Nasdaq SmallCap Market, then there could be material adverse
consequences for the Company, its results of operations and its financial
condition. These consequences include, but are not limited to:
o limited availability of market quotations for the Company's common stock;
o limited news and analyst coverage of the Company;
o adverse affect on the trading market for and market price of the Company's
common stock; and
o adverse affect on the Company's ability to issue additional securities or
secure additional financing in the future.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
3.1 Third Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit No. 3.1 forming a part of the Company's Registration
Statement on Form SB-2 (File No. 333-72429) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1999
Form SB-2")).
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3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2
forming a part of Amendment No. 2 to the Company's Registration Statement
on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
3.3 Certificate of Designations of the Series B 5% Cumulative Preferred Stock
of the Registrant (Incorporated by reference to Exhibit 4.10 forming a part
of Amendment No. 1 to the Registrant's Registration Statement on Form S-3
(File No. 333-62971) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "1998 S-3)).
4.1 Form of Warrant for the Purchase of Shares of Common Stock, issued in
connection with the private placement of $2,000,000 aggregate principal
amount of Bridge Notes (Incorporated by reference to Exhibit 3.4 forming a
part of the Company's Registration statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
4.2 Form of Warrant to Purchase Common Stock of the Company, issued in
connection with the private placement of units in June 1995 and August 1996
(Incorporated by reference to Exhibit 3.5 forming a part of the Company's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended).
4.3 Form of Warrants for the Purchase of 100,000 Shares of Common Stock, $.01
par value per share, issued in connection with the private placement of
Series A Convertible Preferred Stock and warrants in December 1996 and
January 1997 (Incorporated by reference to Exhibit 3.7 forming a part of
the Company's Registration Statement on Form SB-2 (File No. 333-20625)
filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
4.4 Form of Option for the Purchase of 180,000 shares of Common Stock issued to
Barington Capital Group, L.P. (Incorporated by reference to Exhibit 3.8
forming a part of the Company's Registration Statement on Form SB-2 (File
No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
4.5 Form of Stock Option Agreement, dated December 18, 1997, by and between the
Company and Barington Capital Group, L.P. (Incorporated by reference to
Exhibit 10.8 forming a part of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997).
4.6 Specimen certificate evidencing shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.5 forming a part of the 1999 Form
SB-2).
4.7 Form of 5% Convertible Debentures due 2003 of the Registrant (Incorporated
by reference to Exhibits 4.3 and 4.4 forming a part of the Registrant's
Current Report on Form 8-K dated July 1, 1998 and filed July 16, 1998 with
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "July 8-K")).
4.8 Form of Warrants to be issued upon redemption of the 5% Cumulative
Convertible Debentures due 2003 of the Registrant (Incorporated by
reference to Exhibit 4.5 forming a part of the July 8-K).
4.9 Specimen certificate evidencing shares of the Series B 5% Cumulative
Convertible Preferred Stock of the Registrant (Incorporated by reference
to Exhibit 4.9 forming a part of the 1998 S-3).
4.10 Form of Warrant issued in connection with the Series B 5% Cumulative
Convertible Preferred Stock of the Registrant (Incorporated by reference
to Exhibit 4.11 forming a part of the 1998 S-3).
4.11 Senior Note issued to Sanmina Corporation by the Registrant with a
principal amount of $4,300,000. (Incorporated by reference to Exhibit 4.10
forming a part of the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1998 (the "1998 Form 10-KSB").
4.12 Note issued to Shaw Pittman Potts & Trowbridge by the Registrant with a
principal amount of $400,000. (Incorporated by reference to Exhibit 4.11
forming a part of the 1998 Form 10-KSB).
4.13 Form of Warrant for the purchase of 275,000 shares of common stock,
issued to Sanmina Corporation. (Incorporated by reference to Exhibit 4.12
forming a part of the 1998 Form 10-KSB).
4.14 Form of Warrant for the purchase of 40,000 shares of common stock, issued
to Shaw Pittman Potts & Trowbridge. (Incorporated
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by reference to Exhibit 4.13 forming a part of the 1998 Form 10-KSB).
4.15 Form of Unsecured Promissory Note, issued on February 4, 1999 to various
subscribers in private placement. (Incorporated by reference to Exhibit
4.14 forming a part of the 1999 Form SB-2).
10.1 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1 forming
a part of the Company's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.2 1996 Stock Incentive Plan (Incorporated by reference to Exhibit No. 10.2
forming a part of the Company's Registration Statement on Form SB-2 (File
No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.3 Employment Agreement between the Company and Steven A. Rogers
(Incorporated by reference to Exhibit No. 10.3 forming part of Amendment
No. 2 to the Company's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.4 Form of Consulting Agreement by and between the Company and Barington
Capital Group, L.P. (Incorporated by reference to Exhibit No. 10.4 forming
a part of the Company's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.5 Letter Agreement, dated October 7, 1996, between Barington Capital Group
and the Company (Incorporated by reference to Exhibit No. 10.5 forming a
part of Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 33-20625) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
10.6 Letter Agreement, dated December 5, 1995, by and among PVR Securities,
Inc., the Company, Steven A. Rogers and John B. Torkelsen (Incorporated by
reference to Exhibit No. 10.6 forming a part of Amendment No. 2 to the
Company's Registration Statement on Form SB-2 (File No. 333-20625) filed
with the Securities and Exchange Commission under the Securities Act of
1933, as amended).
10.7 Voting Agreement, dated December 19, 1996, by and among the Company,
Steven A. Rogers, Applewood Associates, L.P. and Acorn Technology
Partners, L.P. (Incorporated by reference to Exhibit No. 10.7 forming a
part of Amendment No. 2 to the Company's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.8 Subscription Agreement, dated as of July 8, 1998, by and among the
Registrant and certain Investors (Incorporated by reference to Exhibit 4.2
forming a part of the July 8-K).
10.9 Strategic Alliance and Marketing Agreement between the Registrant and
Unisys Corporation (Incorporated by reference to Exhibit 10.10 forming a
part of the 1998 Form 10-KSB).
10.10 Letter of Intent, dated January 14, 1999, between Southeast Research
Partners, Inc. and the Registrant (Incorporated by reference to Exhibit
10.10 forming a part of the 1999 Form SB-2).
10.11 Agency Agreement, dated as of January 25, 1999, between Southeast
Research and the Registrant (Incorporated by reference to Exhibit 10.11
forming a part of the 1999 Form SB-2).
10.12 Form of Subscription Agreement, dated January 25, 1999, between
Registrant and certain Investors (Incorporated by reference to Exhibit
10.12 forming a part of the 1999 Form SB-2.)
10.13 Employment Agreement, dated July 13, 1998, between the Registrant and
James F. Bunker (Incorporated by reference to Exhibit 10.13 forming a
part of the 1999 Form SB-2).
10.14 Employment Agreement between the Registrant and Steven A. Rogers
(Incorporated by reference to Exhibit 10.3 forming a part of Amendment
No. 2 to the 1997 SB-2).
10.15 Letter Agreement dated January 12, 1999 between the Registrant and Sanmina
Corporation (Incorporated by reference to Ex
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hibit 10.15 to the 1999 Form 10-KSB).
10.16 Letter Agreement dated January 21, 1999 between the Registrant and Shaw
Pittman Potts & Trowbridge (Incorporated by reference to Exhibit 10.16 to
the 1999 Form 10-KSB).
10.17 Form of letter agreement between the Registrant and the holders of the
Series B 5% Cumulative Convertible Preferred Stock (Incorporated by
reference to Exhibit 10.17 to the 1999 Form 10-KSB).
10.18 Form of letter agreement between the Registrant and the holders of the 5%
Convertible Debentures due 2003 (Incorporated by reference to Exhibit
10.17 forming a part of the 1999 Form SB-2).
11 Statement of Computation of Earnings Per Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K during the quarter ended June 30, 2000.
None.
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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.
Video Network Communications, Inc.
By: _______________________________________
Carl Muscari
President and Chief Executive Officer
(duly authorized executive officer)
____________________________________
Robert H. Emery
Chief Financial Officer
Vice President, Administration
(principal financial officer)
August 14, 2000
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