<PAGE> 1
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 March 31, 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)
<TABLE>
<CAPTION>
Delaware 54-1707962
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<S> <C>
(State or Other (I.R.S.
Jurisdiction of Employer
Incorporation or Identification
Organization) No.)
</TABLE>
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 May 12, 2000: 8,907,970
Transitional Small Business Disclosure Format (check one):
Yes _____ No __X__
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEO NETWORK COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,848,455 $ 2,594,529
Accounts receivable 678,155 376,580
Inventory - net 4,534,449 4,913,115
Other current assets 89,213 107,379
------------ ------------
Total current assets 7,150,272 7,991,603
Property and equipment - net 1,134,704 1,304,785
Trademarks and patents - net 256,404 234,343
Other assets 68,309 68,309
------------ ------------
$ 8,609,689 $ 9,599,040
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 20,000 $ 20,000
Accounts payable 282,498 462,065
Deferred revenue 1,015,263 28,068
Accrued liabilities 695,721 858,785
Current portion of long term debt 1,813,693 1,685,536
Obligations under capital lease, current portion 7,798 7,798
------------ ------------
Total current liabilities 3,834,973 3,062,252
Obligations under capital lease 34,908 37,890
Long term debt 1,602,617 1,717,805
Commitments
Stockholders' equity:
Common stock, par value $.01, 30,000,000 shares authorized; 8,907,970 an 8,812,141 and
outstanding at March 31, 2000 and December 31, 1999, respectively 89,080 88,121
Additional paid-in capital 57,443,923 57,170,884
Accumulated deficit (54,395,812) (52,477,912)
------------ ------------
Total stockholders' equity 3,137,191 4,781,093
------------ ------------
$ 8,609,689 $ 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
March 31,
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Products $ 643,046 $ 655,457
Services 10,324 -
----------- -----------
653,370 655,457
----------- -----------
Cost of sales:
Products 524,631 368,702
Services 3,097 -
----------- -----------
527,728 368,702
----------- -----------
Gross margin 125,642 286,755
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Operating expenses:
Research and development 940,353 1,017,206
Selling, general and administrative 1,049,564 1,223,591
----------- -----------
Total operating expenses 1,989,917 2,240,797
----------- -----------
Loss from operations (1,864,275) (1,954,042)
Interest (income) expense, net 53,625 460,577
----------- -----------
Net loss (1,917,900) (2,414,619)
----------- -----------
Cumulative Series B dividend - (14,375)
----------- -----------
Net loss attributable to common stockholders $(1,917,900) $(2,428,994)
=========== ===========
Net loss per common share - basic and diluted $ (0.22) $ (2.65)
=========== ===========
Weighted average shares outstanding - basic
and diluted 8,848,263 916,568
=========== ===========
</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>
Three months ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,917,900) $(2,414,619)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 186,624 290,141
Amortization 4,834 3,757
Interest expense related to issuance of warrants 12,969 10,776
Interest accrued on debentures - 40,776
Amortization of debt discount - 198,360
Amortization of debt issuance costs - 67,058
Non-cash compensation expense 22,446 140,922
Reserve for obsolescence 100,000 -
Changes in operating assets and liabilities:
Accounts receivable (301,575) (411,769)
Other current assets 18,166 19,088
Inventory 278,666 232,039
Trademarks and patents (26,895) (3,880)
Accounts payable (179,567) (81,838)
Deferred revenue 987,195 -
Accrued liabilities (163,064) 181,023
----------- -----------
Net cash used in operating activities (978,101) (1,728,166)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment - 80,580
Purchase of property and equipment (16,543) -
----------- -----------
Net cash (used in) provided by investing activities (16,543) 80,580
----------- -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 251,552 -
Net proceeds from the issuance of unsecured promissory notes and common stock - 2,392,851
Repayment of notes payable - (42,262)
Repayment of long term debt - (25,000)
Proceeds from the issuance of notes payable to related parties - 36,000
Principal payments on capital leases (2,982) (82,186)
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Net cash provided by financing activities 248,570 2,279,403
----------- -----------
Net (decrease) increase in cash and cash equivalents (746,074) 631,817
Cash and cash equivalents, at beginning of period 2,594,529 8,532
----------- -----------
Cash and cash equivalents, at end of period $ 1,848,455 $ 640,349
=========== ===========
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 financial statements of Video Network Communications,
Inc. (the "Company") as of March 31, 2000 and for the three months ended March
31, 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
March 31, 2000 and the results of operations for the three months ended March
31, 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 months ended March 31, 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 $2,365,000 in revenues during the
year 1999, and recognized $653,000 in revenues during the three months ended
March 31, 2000. The Company has suffered recurring losses from operations, has
recurring negative cash flow from operations and had an accumulated deficit of
$54,396,000 at March 31, 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 March 31, 2000, the
Company had approximately $1,848,000 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 on outstanding accounts receivable 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 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 7,634,339 and 1,314,381 as of March 31, 2000
and 1999, respectively.
3. Income taxes
The Company did not record a provision for income taxes for the three months
ended March 31, 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 deferred tax asset generated primarily from its net operating loss
carryforwards.
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4. Inventory
Inventory consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Raw Materials $3,673,344 $4,355,895
Finished Goods 861,105 557,220
---------- ----------
$4,534,449 $4,913,115
========== ==========
</TABLE>
5. Debt
SANMINA NOTE
In January 1999, the Company converted accounts payable to Sanmina
Corporation of $4,300,000, of which $1,100,000 represented 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. In accordance with the
terms of the note, the Company paid Sanmina $1,100,000 in principal on the note
in June 1999 and Sanmina transferred to the Company the title to the inventory
and materials located at a Sanmina subcontractor. The note required
interest-only payments during the first year of the note, payable semi-annually,
in arrears, beginning in July 1999. The Company made the first of the required
interest payments, in the third quarter of 1999. After the first year, the
Company is required to amortize and to pay the remaining principal balance and
interest in equal monthly installments over the remaining life of the note.
In connection with the restructuring of the 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 did not make the scheduled interest payment
on its long-term debt held by Sanmina as required by the terms of the note. In
addition, the Company has not made any of the required monthly payments of
principal and interest on the note, which were required to be paid beginning in
February 2000. The Company is in the process of renegotiating the terms of the
note. However, to date, the Company has not reached agreement with Sanmina
regarding any such re-negotiation and there can be no assurance that any
restructured debt arrangement will be reached. If the Company is unable to
re-negotiate the terms of the note, it could have a material adverse effect on
financial condition, results of operations, and cash flows of the Company.
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. In accordance with the terms of the note governing the term loan,
the Company has paid $75,000 of the principal during 1999. Under the terms of
the loan, the Company is obligated to make two semi-annual interest-only
payments commencing in July 1999 and February 2000. The first of the required
interest payments was made in the third quarter of 1999. The note also requires
the Company to repay the remaining principal balance and interest accrued on the
note in twelve equal monthly payments beginning in February 2000.
In connection with converting the restructuring of the 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 scheduled interest payment
on its long-term debt held by its legal counsel, as required by the term of the
note. Subsequent to the end of the first quarter of 2000 the Company made a
principal and interest payment but has not brought the note current and is in
the process of re-negotiating the terms of the note. However, to date, the
Company has not reached agreement with its legal counsel regarding any such
re-negotiation and there can be no assurance that any restructured debt
arrangement will be reached. If the Company is unable to re-negotiate the terms
of the note, it could have a material adverse effect on financial condition,
results of operations, and cash flows of
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the Company.
6. Non-cash Transactions
The following non-cash transactions occurred in the periods indicated:
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Dividend on preferred stock $ - $ 14,375
Accounts payable transferred to long term debt - 3,575,000
Common stock issued with private placement - 1,305,000
Warrants issued with long term debt - 146,342
Advanced payment financed with long term debt - 1,100,000
Prepaid equity financing costs financed in accounts payable - 255,917
Reduction in accrued liabilities due to sale of assets - 181,678
Cost of fixed assets sold - net - 262,258
Debt issuance costs related to unsecured promissory notes - 429,138
Costs related to issuing common stock with unit financing - 28,011
</TABLE>
7. Investments
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 B2B Video
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 B2B
Video Network in exchange for favorable purchase terms and conditions regarding
technical support and equipment provided to B2B Video 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 of the total offering. Ms. Cheryl Snyder, CEO of B2B Video Network, is a
director of VNCI. The Company is using the cost method to account for this
investment and has elected to value 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 ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as amended by SAB No. 101A, which is effective no later than the
quarter ending June 30, 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 second 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 ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation - an interpretation of APB Opinion No. 25." 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, (d) and 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.
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
We design, develop, manufacture, market and sell real-time video network
systems that operate using our proprietary video switch over existing telephone
lines without interfering with normal telephone system functionality. With our
video systems users can retrieve stored video from a video server and view video
"on demand," broadcast video to users throughout the video intranet and
participate in interpersonal video communications. Our video network systems
offer television quality video applications within the video
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intranet so that voice and video are completely matched, and also enable video
delivery and interpersonal communications to users outside of the video intranet
via the wide area network (WAN). We believe that users need an effective video
network solution, and that VNCI video network solutions offer businesses a high
quality, comprehensive and powerful means to deliver video over the "last mile
of the information superhighway."
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 is approximately $132,250
including installation. 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. At this
time, we do not have the financial resources to expend on the level of sales and
marketing that may be required to achieve this growth and we are not certain
when or whether we will be able to attain those resources.
We reported revenues of $653,000 for the quarter ended March 31, 2000, a
decrease of $2,000, when compared with revenues reported for the first quarter
of 1999. Our operating expenses for the quarter ended March 31, 2000 of
$1,990,000 were approximately $251,000 lower than operating expenses incurred in
the fourth quarter of 1999. At this stage of development it is difficult for us
to predict with accuracy the level of our sales in a 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.
To date, our sales cycle has been relatively long and we expect that, for
new customers, this will continue for the foreseeable future. We are
experiencing repeat orders from some customers and we anticipate that repeat
orders will be an important component of our future sales. It takes substantial
time for us to establish relationships with new resellers and potential end-user
customers. In the case of new resellers, we also have to train their sales
forces about our product.
In addition, our video network system is a new technology product. Video
is still a relatively new tool for businesses and is not widely used in
e-commerce. Further, many prospective customers have invested in or used video
conferencing systems and have been disappointed with the voice and video that
most existing systems offer. For most of our potential end-user customers, our
video network system requires a substantial capital investment. Accordingly, we
have found that we need to educate our resellers and prospective end-user
customers about the benefits to business from investing in our video network
systems. We often need to overcome performance-related concerns about video that
our customers may have.
For all of these reasons, we believe that it takes new end-user customers
at least several months to decide to purchase our video network systems. We
expect our sales cycle will decrease as we establish customer reference
accounts, create greater brand name recognition of our video network systems and
have more established relationships with resellers. We also believe that our
investments in marketing and advertising our video network systems will increase
sales and revenues.
Although we distribute and sell our products primarily through resellers,
we typically ship our video systems directly to end-user customers and install
them at the customers' locations. Our video network systems' technology is new
and the purchase of our systems requires a significant capital investment.
Generally, our policy is to permit new prospective end-user customers to
evaluate our video network systems for 30 to 45 days. After that period, we
generally require customers to pay for systems in full within 30 days, or to
return the product. In some cases, especially with international customers, we
require a down payment at the time an order is placed.
As part of our sales and marketing ramp-up, we have engaged highly
reputable public relations and marketing communications firms. We have retained
these firms to advertise our video network products to the business community in
an effort to familiarize them with our products and their capabilities. These
firms will market our video network system to targeted markets including:
education, the financial services industry, medical facilities, legal, and
government markets. We believe that our video networks offer
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unique, cost-effective benefits and provide an alternative method of providing
training and educational opportunities for these critical targeted markets. In
parallel with these efforts, our management is aggressively recruiting
experienced sales and marketing talent, and continuing to evaluate and develop
the effectiveness of its existing direct sales and reseller organizations.
Stephen A. LaMarche joined the Company in January 2000 as our Vice President
Sales and Marketing.
We also believe that partnering with the right strategic partner(s) would
help our video network systems achieve greater industry presence and gain
recognition among potential business customers, which we believe could
contribute significantly to our business strategy. We continue exploratory
discussions with systems integrators, Internet content providers and others in
the telephone systems and services industry regarding strategic relationships to
jointly deliver video to the business desktop. These discussions are preliminary
so we cannot predict whether we will be successful in our efforts to form
strategic alliances or, if we form those alliances, whether the alliances will
contribute to our success. However, we believe that these strategic joint
ventures would be an excellent means for us to access an existing business
customer base that seeks a cost effective video solution and, thus, could
provide the best opportunity for us to successfully market and advertise our
video network solutions.
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.
YEAR 2000
As many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, they may be unable to
process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the Year 2000 (or "Y2K") issue. The Y2K
issue can arise at any point in a company's supply, manufacturing, processing,
distribution, and financial chains.
We have evaluated the impact of the Y2K issue on our operations. We
believe that the VidPhone system is not susceptible to Y2K problems because the
VidPhone system does not contain an internal clock. We also have evaluated
whether equipment and software that we use or that is embedded in the VidPhone
system is Y2K compliant. Through May 15, 2000, we had not experienced any Y2K
related issues with the VidPhone system. If, however, the equipment or software
currently used or produced by us proves to be susceptible to the Y2K issue, we
may incur significant costs to modify, re-program or replace the effected
equipment or software in the future
As of May 15, 2000, we had not experienced any Y2K-related issues
with any of our major suppliers. Future Y2K-related failure of any of our
significant supplier's systems could result in our inability to supply products
to our customers and adversely effect our financial condition, operating results
and cash flow.
We do not expect our potential customers to reduce their capital
expenditure budgets or to defer purchases of the VidPhone system because of
concern about potential Y2K issues. We do not believe that the existence of Y2K
issues with respect to other technologies will materially adversely effect sales
of VidPhone systems.
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Our assessment of the impact of Y2K on our operations is based on current
facts. Accordingly, we cannot assure you that there will not be interruptions or
other limitations of financial and operation systems functionality or that we
will not incur greater costs than projected to avoid such interruptions. Our
expectations about future costs associated with the Y2K issue are subject to
certain uncertainties that could cause actual results to have a greater
financial impact than currently anticipated. Factors that could influence the
amount and timing of future costs include our success in identifying Y2K issues,
the costs of remediation or avoidance, the costs of assessing third-party
compliance and its impact on our operations, and other factors. Costs incurred
to-date have been insignificant. The forward-looking statements discussed in
this section regarding Y2K compliance involve a number of risks and
uncertainties, including those described above, and general economic conditions,
the competitive environment in which we operate, and other risks and
uncertainties identified elsewhere in this Form 10-KSB.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Revenues. We recognized $653,000 in revenues during the three months ended
March 31, 2000 compared to $655,000 in the comparable period in 1999,
representing a decrease of approximately $2,000. The revenues
recognized in 2000 relate primarily to shipments of VidPhone systems shipped to
and accepted by two end-user customers in the first three months of 2000.
Cost of sales. Cost of sales for the three months ended March 31, 2000 was
$528,000. This represents an increase of $159,000 over the $369,000 recorded in
the comparable period in 1999. Cost of sales as a percentage of sales was
approximately 81% and 56% in the periods ending March 31, 2000 and 1999,
respectively. Included in the cost of sales in the first quarter of 2000 was a
$100,000 charge related to the increase in the inventory obsolescence reserve.
There was no similar charge against in the first quarter of 1999.
Gross Margin on Sales. Gross margin on sales was approximately $126,000,
or 19%, for the period ending March 31, 2000 compared to gross margin of
$287,000, or 44%, for the comparable period in 1999. The gross margin in the
first quarters of 2000 and 1999, exclusive of the effects of the obsolescence
and warranty reserves, were 37% and 50%, respectively. The remaining reduction
in the gross margin is attributable to increased discounts offered to a new
customer.
Research and Development. Research and development costs decreased to
$940,000 in the three months ended March 31, 2000, compared to $1,017,000in the
first quarter of 1999, a decrease of $77,000, or 8%. Approximately $128,000 of
the reduction resulted from reduced staffing costs as overall staffing in the
research and development departments and the use of contract labor was reduced.
Depreciation charged to research and development decreased $66,000, and service
department allocations decreased $92,000 from the first quarter of 1999 to the
comparable period of 2000 due to reduced staffing in those departments.
Offsetting these decreases was an increase of approximately $228,000 in
materials usage in the first quarter of 2000 relative to the same period in 1999
reflecting the effects of a severe cash shortage in the first quarter of 1999
which restricted spending on research and development activities.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased to $1,050,000 during the three months ended
March 31, 2000, from $1,224,000 during the three months ended March 31, 1999, a
decrease of approximately $174,000 or 14%.
Customer support expenses remained virtually unchanged in total from the
period ending March 31, 1999 to the same period of 2000. Increases in salaries,
benefits, travel expenses, and materials costs, totaling approximately $31,000,
were offset by reductions in deprecation expense and service department
allocations.
Sales and marketing expenses increased approximately $111,000 in the first
three months of 2000 as compared to the same period of 1999. Approximately
$67,000 of this increase was due to higher sales personnel costs, offset by a
decrease of approximately $36,000 in stafiing costs related to marketing
personnel. Depreciation charged to the sales and marketing departments declined
$22,000 and service department allocations declined $18,000 due to reduced
staffing in those departments. Offsetting these declining costs were increases
in travel and entertainment costs, $14,000, related to the increased sales
staffing level and the costs associated with advertising and marketing
materials, $14,000, reflecting renewed emphasis on sales and marketing efforts.
Costs associated with consultants increased by $75,000 in the
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first quarter of 2000 relative to the first quarter of 1999 as the Company made
use of public relations and advertising firms' services. Of this expense,
$22,000 was a non-cash charge related to the options granted to the consulting
firms.
General and administrative costs declined by approximately $285,000 in the
three months ended March 31, 2000 compared to the same period in 1999. Of the
decrease, $164,000 was related to decreased costs of professional services. That
decrease was due primarily the fact that deferred expenses related to the
issuance of options to a financial consultant in 1997 were fully amortized in
November of 1999. Salaries and benefits expenses declined by approximately
$36,000, due to reduced staffing in the first quarter of 2000 compared to the
same period of 1999. Travel and other expenses related to seeking additional
funding in the first quarter of 1999 were avoided in the same period of 2000,
reducing the spending in those categories by approximately $32,000. Offsetting
these reductions was a $35,000 increase in recruiting expense in the first
quarter of 2000.
Net Interest Expense. Net interest expense in the first quarter
of 2000 was $54,000, or 88% lower than the $461,000 recorded in the same period
of 1999. Interest expense decreased from $464,000 in the first quarter of 1999
to $78,000 in the first quarter of 2000. The $387,000 reduction in interest
expense was due to the fact that the Company had several debt instruments
outstanding during the first quarter of 1999 which were either paid down
entirely or substantially reduced using the proceeds of the June 1999 financing.
Of the total reduction in interest expense, $309,000 was attributable to the
unsecured promissory notes and $41,000 to the debentures outstanding in the
first quarter of 1999 which were paid down following the public offering in June
1999. The remaining $36,000 of the reduction in interest expense was
attributable to reduced levels of capital lease obligations, notes payable,
and principal amounts on long-term debt.
Interest income increased by $20,000 in the first quarter of 2000 compared
to the comparable period of 1999 due primarily to the increased level of cash
available for investment as a result of the June 1999 financing and cash
generated by sales.
Net Loss: As a result of the foregoing factors, the net loss for the
period ended March 31, 2000 decreased to approximately $1,918,000, from
$2,415,000 in the comparable period of 1999, a decrease of $497,000, or 21%.
LIQUIDITY AND CAPITAL RESOURCES
We have an accumulated deficit of approximately $54.4 million
from our inception through March 31, 2000. We expect to incur additional
operating losses for the foreseeable future, principally as a result of the
expected level of expenses associated with anticipated sales, marketing, and
general and administrative costs and product development efforts. During 1999
and in the quarter ended March 31, 2000, we satisfied our cash requirements
principally from the approximately $14.1 million in net proceeds received from a
public offering of units in June 1999.
We had cash and cash equivalents of $1,848,000 at March 31, 2000 compared
to of $2,595,000 at December 31, 1999, a decrease of approximately $746,000.
Net cash used in operations during the three months ended March 31, 2000
was approximately $978,000. The net loss in the three months ended March 31,
2000 reduced by depreciation, amortization, non-cash compensation and other
non-cash charges was approximately $1,591,000. Inventory decreased by
approximately $379,000 during the three months ended March 31, 2000, primarily
as a result of sales made during the period and a $100,000 charge to the
inventory obsolescence reserve, offset by new inventory purchases. Accounts
receivable increased by $302,000 during the three months ended March 31, 2000 as
a result of new sales during the period, offset by cash received from customers
relating to outstanding accounts receivable. Accounts payable decreased by
approximately $180,000 in the three months ended March 31, 2000. Deferred
revenue increased by $987,000 due primarily to cash payments received in advance
of the services to be performed.
Cash used in investing activities consisted of $17,000 of capital spending
on property and equipment.
Cash provided by financing activities was $249,000, consisting of $252,000
of proceeds from the issuance of common stock as a result of the exercise of
employee stock options during the first quarter of 2000, offset by $3,000 of
payments on the principal balances of capital lease obligations.
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In January of 1999, we re-negotiated amounts due to a trade creditor and
our legal counsel and converted $3,575,000 in accounts payable balance to long
term debt. In connection with the re-negotiation of such obligations, in June
1999, Sanmina Corp. one of the companies with which we re-negotiated the terms
of our outstanding obligations, transferred title to us of an additional
$1,100,000 of inventory located at a Sanmina subcontractor for $1,100,000 of
additional long term debt. During 1999, we repaid $1,175,000 of the principal
amount of the $4,675,000 in long-term debt incurred in the first half of 1999.
In January of 2000, we defaulted on the interest and subsequent interest and
principal payments on these notes. We are actively re-negotiating these notes
and believe that the re-negotiation will be successful. The can be no guarantee
that these re-negotiations will be successful and should we be unable to
re-negotiate these notes and the holders were to sue, there could be a material
adverse effect on the financial condition and cash flows of the Company.
The Company requires additional cash to fund operations. At March 31,
2000, the Company had approximately $1,848,000 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 on outstanding accounts receivable 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.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as amended by SAB No. 101A, which is effective no later than the
quarter ending June 30, 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 second 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 ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation - an interpretation of APB Opinion No. 25." 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, (d) and 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.
RISK FACTORS THAT MAY EFFECT 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.
We estimate that our cash on hand and anticipated receipts from operations
will fund operations for the foreseeable future. However, changes in the market
in which we operate, in our business, or in our business plan could increase our
need for additional capital. Our future capital requirements could exceed our
current expectations as a result of increases in the cost of manufacturing and
marketing activities, the size of our research and development programs, the
length of time required to collect accounts receivable, and competing
technological and market developments.
Should we not achieve our projected level of sales activity we will
exhaust our current cash and will need additional cash 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 on acceptable terms or at all. If we were to raise
additional funds through the issuance of equity or convertible debt securities,
existing investors could be substantially diluted, or we could issue securities
that have preferences and privileges that our outstanding securities do not
have. If we are not able to complete additional financings or generate funds
when capital is needed, we will not be able to continue operating as a going
concern.
We May Be Unable To Meet The Payment Schedule On Notes Payable
In February of 1999, we re-negotiated amounts due to a trade creditor,
Sanmina Corp., and our legal counsel and converted $3,575,000 in accounts
payable balances to long-term debt. In connection with the re-negotiation of
such obligations, in June 1999, Sanmina transferred to us title to an additional
$1,100,000 of inventory located at a Sanmina subcontractor for $1,100,000 of
additional long-term debt. In the first half of 1999, we repaid $1,175,000 of
the principal amount of the $4,675,000 in long-term debt incurred in the first
half of 1999. We are currently re-negotiating the repayment terms of these notes
and consider a successful re-negotiation essential to meeting our business
objectives. While we believe we will be successful in the re-negotiation of the
terms of the notes, there can be no assurance that we will be able to
restructure the terms. Failure to re-negotiate the terms of these notes would
have a materially adverse effect on the financial condition, results of
operations, and cash flows of the Company.
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
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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.
We have incurred substantial losses from operations to date and had an
accumulated deficit of approximately $54.4 million through March 31, 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 $766,000 in revenues from the sale of products during
the year 1998, and recognized only $2.4 million in revenues during 1999. 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 early in 2000 and
we cannot predict with accuracy what our revenues will be in the future. Our
ability to recognize operating revenues in the future will depend on a number of
factors, certain of which are beyond our control, including:
- - customer acceptance of products shipped and installed to date and in the
future;
- - our ability to generate new sales of products and secure customer
acceptance; and
- - the timing of 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 products in the third quarter
of 1998. James F. Bunker, our Chairman, has been with us since only 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. Accordingly, we have limited experience managing the
Company since we shipped our first commercial video network system. Because of
our limited operating history, 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 Depend on Our 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 one dozen
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 relationships or establish new relationships. We
compete for relationships with 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 video network 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 also developing a direct marketing and sales capability
to promote our video network system and to support our resellers and end-user
customers. 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 our
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
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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 questions.
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, we cannot assure
you that any 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 Depend 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 during 1998 and early 1999 could effect 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
effect us.
Sales of a Large Number of Shares in the Public Market Could Reduce the Market
Price of Our Equity Securities.
Substantially all of our currently outstanding shares of common stock have
been registered for sale under the Securities Act of 1933, are eligible for sale
under an exemption from the registration requirements or are subject to
registration rights pursuant to which holders may require us to register their
shares in the future. Sales or the expectation of sales of a substantial number
of shares of our common stock in the public market could adversely effect the
prevailing market price of our common stock and other equity securities.
Our Market Value Is Highly Volatile.
The market price of our common stock has been highly volatile and may
continue to fluctuate in the future. We completed an initial public offering of
295,714 shares of our common stock at a price of $38.50 per share in April 1997.
In November 1997 we completed a second public offering of 142,857 shares of
common stock at a price of $161.875 per share. In June of 1999 we completed a
third public offering of 2,300,000 units, each unit consisting of three shares
of common stock and two warrants with an exercise price of $4.00, at a price of
$7.50 per unit. On May 10, 2000, the last sale price per share of our common
stock as reported on the Nasdaq SmallCap market was $2.000. As a result of our
stock price volatility, it is difficult to determine the market value of our
Company. You cannot be sure how the price of our equity securities might change
in the future.
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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")).
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).
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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 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).
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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 Exhibit 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 March 31, 1999.
None.
17
<PAGE> 18
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)
May 13, 2000
18
<PAGE> 1
EXHIBIT 11
Computation of Earnings Per Share
Information regarding computation of earnings per share is included in
Note 2 to Notes to financial statements included elsewhere in this Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,848,455
<SECURITIES> 0
<RECEIVABLES> 678,155
<ALLOWANCES> 0
<INVENTORY> 4,534,449
<CURRENT-ASSETS> 7,150,272
<PP&E> 5,178,063
<DEPRECIATION> 4,043,359
<TOTAL-ASSETS> 8,609,689
<CURRENT-LIABILITIES> 3,834,973
<BONDS> 0
0
0
<COMMON> 89,080
<OTHER-SE> 3,048,111
<TOTAL-LIABILITY-AND-EQUITY> 8,609,689
<SALES> 653,370
<TOTAL-REVENUES> 653,370
<CGS> 527,728
<TOTAL-COSTS> 527,728
<OTHER-EXPENSES> 1,989,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,625
<INCOME-PRETAX> (1,917,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,917,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,917,900)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
