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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2002
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
--------------------- -----------------------
Commission file number 000-30865
AVICI SYSTEMS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 02-0493372
(State or Other Jurisdiction of Organization) (I.R.S. Employer
Identification No.)
101 Billerica Avenue
North Billerica, Massachusetts 01862
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (978) 964-2000
Indicate by check |X| whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No [ ]
At August 2, 2002, 50,421,169 shares of the registrant's Common Stock, par
value $0.0001 per share, were outstanding.
AVICI SYSTEMS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001 .......................................................... 3
Consolidated Statements of Operations for the three and six months
ended June 30, 2002 and 2001 ............................................... 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001 ..................................................... 5
Notes to Consolidated Financial Statements ................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................. 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .................15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ..........................................................16
ITEM 2. Changes in Securities and Use of Proceeds .................................. *
ITEM 3. Defaults Upon Senior Securities ............................................ *
ITEM 4. Submission of Matters to a Vote of Security Holders ........................16
ITEM 5. Other Information .......................................................... *
ITEM 6. Exhibits and Reports on Form 8-K ...........................................17
SIGNATURE ...................................................................................18
*No information provided due to inapplicability of item.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVICI SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, Except Share and per share amounts)
(unaudited)
June 30, December 31,
2002 2001
--------- ---------
ASSETS
Current assets:
Cash, cash equivalents and investments $ 91,886 $ 128,935
Trade accounts receivable, net 7,202 2,830
Inventories, net 3,091 8,109
Prepaid expenses and other current assets 2,393 2,635
--------- ---------
Total current assets 104,572 142,509
Property and equipment, net 36,146 41,728
Long-term marketable securities 46,659 35,506
Other assets 534 534
--------- ---------
Total assets $ 187,911 $ 220,277
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 1,340 $ 2,319
Accounts payable 5,338 5,901
Accrued payroll and payroll related 3,523 3,523
Accrued supplier commitments 481 2,636
Accrued other 3,414 3,204
Deferred revenue 8,249 8,254
--------- ---------
Total current liabilities 22,345 25,837
--------- ---------
Long-term obligations, less current maturities 293 753
--------- ---------
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized - 5,000,000 shares
Issued and outstanding - none -- --
Common stock, $0.0001 par value:
Authorized - 250,000,000 shares Issued
and outstanding - 50,422,845 shares at
June 30, 2002 and 50,289,099 shares at
December 31, 2001 5 5
Additional paid-in capital 463,197 462,961
Common stock warrants 12,200 12,200
Subscription receivable (2,500) (2,500)
Deferred compensation and other consideration (9,834) (15,172)
Accumulated deficit (297,795) (263,807)
--------- ---------
Total stockholders' equity 165,273 193,687
--------- ---------
Total liabilities and stockholders' equity $ 187,911 $ 220,277
========= =========
See accompanying notes.
AVICI SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(unaudited)
Three months ended Six months ended
June 30, June 30,
--------------------------------- ----------------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Gross revenue $ 9,344 $ 21,414 $ 18,571 $ 37,125
Common stock warrant discount (816) (816) (1,633) (1,633)
---------- ---------- ---------- ----------
Net revenue 8,528 20,598 16,938 35,492
---------- ---------- ---------- ----------
Cost of revenue (1) 3,798 11,772 9,699 20,749
---------- ---------- ---------- ----------
Gross margin 4,730 8,826 7,239 14,743
---------- ---------- ---------- ----------
Operating expenses:
Research and development (2) 14,178 15,862 28,591 30,970
Sales and marketing (2) 3,811 5,279 7,507 10,326
General and administrative (2) 1,968 2,514 3,848 4,822
Stock-based compensation 1,642 3,633 3,705 8,138
---------- ---------- ---------- ----------
Total operating expenses 21,599 27,288 43,651 54,256
---------- ---------- ---------- ----------
Loss from operations (16,869) (18,462) (36,412) (39,513)
Interest income, net 1,038 2,551 2,139 6,452
Other income 285 -- 285 --
---------- ---------- ---------- ----------
Net loss $(15,546) $(15,911) $(33,988) $(33,061)
========== ========== ========== ==========
Net loss per share:
Basic and diluted $ (.31) $ (.32) $ (.68) $ (.68)
========== ========== ========== ==========
Weighted average common shares used in
computing net loss per share:
Basic and diluted 49,820,329 49,207,321 49,788,030 48,962,680
========== ========== ========== ==========
(1) Cost of revenue for the three and six-month periods ended June 30, 2002
includes a credit of $1,696 to recognize the utilization of fully reserved
inventory previously estimated to be in excess of foreseeable requirements.
(2) Excludes noncash, stock-based compensation, as follows:
Research and development $ 996 $ 2,328 $ 2,289 $ 5,227
Sales and marketing 394 997 871 2,162
General and administrative 252 308 545 749
---------- ---------- ---------- ----------
$ 1,642 $ 3,633 $ 3,705 $ 8,138
========== ========== ========== ==========
See accompanying notes.
Avici Systems Inc.
CONSOLIDATED Statements of Cash Flows
(IN THOUSANDS)
(unaudited)
Six Months Ended
June 30,
--------------------------
2002 2001
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (33,988) $(33,061)
Adjustments to reconcile net loss to net cash used in operating
activities -
Depreciation and amortization 11,908 7,669
Common stock warrant discount 1,633 1,633
Compensation expense associated with issuance of stock
options to employees and consultants 3,705 8,138
Gain on disposal of property and equipment (285) --
Changes in current assets and liabilities:
Trade accounts receivable, net (4,372) (2,066)
Inventories, net 5,018 (1,912)
Prepaid expenses and other current assets 242 (1,549)
Accounts payable (563) (8,035)
Accrued payroll and payroll related -- (241)
Accrued supplier commitments (2,155) --
Accrued other 210 (97)
Deferred revenue (5) (2,629)
--------- --------
Cash used in operating activities (18,652) (32,150)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity (purchase) of investments, net (11,153) (11,862)
Purchases of property and equipment (6,406) (23,982)
Proceeds from sale of equipment 365 --
--------- --------
Cash used in investing activities (17,194) (35,844)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock plans 236 3,983
Payments on long-term obligations (1,439) (2,149)
--------- --------
Cash (used in) provided by financing activities (1,203) 1,834
--------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (37,049) (66,160)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 128,935 233,392
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 91,886 $167,232
========= ========
See accompanying notes.
AVICI SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein has been prepared by Avici Systems
Inc., pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) and includes the accounts of Avici Systems Inc. and
subsidiaries (the "Company"). Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations. In the opinion of the Company, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the financial
position at June 30, 2002 and December 31, 2001 and the operating results and
cash flows for the three and six month periods ended June 30, 2002 and 2001.
These consolidated financial statements and notes should be read in conjunction
with the Company's consolidated audited financial statements and notes thereto
for the year ended December 31, 2001, which appear in the Company's annual
report on Form 10-K. The consolidated balance sheet at December 31, 2001 has
been derived from the audited consolidated financial statements as of that date.
The results of operations for the three and six months ended June 30, 2002 are
not necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year ending December 31, 2002.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company recognizes revenue from product sales upon shipment, provided that a
purchase order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the sales price is fixed or
determinable, and collectibility is deemed probable. If uncertainties regarding
customer acceptance exist, the Company recognizes revenue when those
uncertainties are resolved. For arrangements that include the delivery of
multiple elements, revenue is allocated to the various elements based on
vendor-specific objective evidence of fair value (VSOE). The Company uses the
residual value method when VSOE does not exist for one of the delivered elements
in an arrangement. Revenue from support and maintenance contracts is recognized
ratably over the period of the related agreements. Revenue from installation and
other services is recognized as the work is performed. Amounts collected or
billed prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue.
Warranty costs are estimated based on the Company's historical return rates and
repair costs and are recorded at the time of product revenue recognition.
(b) Cash and Cash Equivalents and Investments
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified its cash equivalents and investments as
held-to-maturity and recorded them at amortized cost, which approximates market
value. The Company considers all highly liquid investments with original
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents and investments include money markets,
certificates of deposit and commercial paper. Long-term marketable securities
include commercial paper, corporate bonds and U.S. government obligations with
remaining maturities greater than one year.
Cash, Cash Equivalents, Investments and Long-term Marketable Securities consist
of the following (in thousands):
June 30, December 31,
2002 2001
----------------- -----------------
Cash and cash equivalents $ 15,716 $ 65,383
Short-term investments 76,170 63,552
----------------- -----------------
Subtotal 91,886 128,935
Long-term marketable securities 46,659 35,506
----------------- -----------------
$ 138,545 $ 164,441
================= =================
(c) Use of estimates
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
June 30, December 31,
2002 2001
------- -------
(unaudited)
Finished goods and work in progress $ 2,676 $ 5,202
Raw materials 415 2,907
------- -------
$ 3,091 $ 8,109
======= =======
The Company regularly reviews inventory quantities on hand and inventory
commitments with suppliers and records a provision for excess and obsolete
inventory based primarily on the estimated forecast of product demand for the
next twelve months.
During the second quarter of 2002, the Company recorded a credit to cost of
revenue for the utilization of approximately $1.7 million of inventory
previously deemed to be in excess of foreseeable requirements. The credit is the
result of a refund of $0.8 million earned by the Company from a supplier
relating to its use of certain excess inventory, the utilization of $0.7 million
of inventory previously reserved, and a negotiated settlement relating to future
purchase commitments of $0.2 million less than originally estimated. The
agreement with one supplier for the settlement of excess inventory requires that
supplier to keep potentially usable inventory on hand until March 31, 2003. That
supplier may consume additional amounts of such inventory during the remainder
of 2002 and is required to reimburse the Company should any such inventory be
consumed. In addition, reserved inventory on hand may be utilized by the Company
in the future. Accordingly, the Company will recognize credits to cost of
revenue to the extent that such reserved inventory is actually utilized.
(e) Net Loss per Share
Basic and diluted net loss per share are presented in conformity with SFAS No.
128, Earnings per Share, for all periods presented. In accordance with SFAS No.
128, basic and diluted net loss per common share was determined by dividing net
loss available for common stockholders by the weighted average common shares
outstanding during the period, less shares subject to repurchase. Basic and
diluted net loss per share are the same because all outstanding common stock
options have been excluded, as they are considered antidilutive.
(f) Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations. SFAS No. 141 requires that all business combinations
be accounted for under a single method, the purchase method. This statement is
effective for all business combinations initiated after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement applies to intangibles and goodwill acquired after June
30, 2001, as well as goodwill and intangibles previously acquired. Under this
statement, goodwill as well as other intangibles determined to have an
indefinite life will no longer be amortized; however these assets will be
reviewed for impairment on a periodic basis, at least annually. The Company
adopted this statement as of January 1, 2002. As of June 30, 2002, the Company
had no intangible or goodwill assets impacted by this statement.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses the reporting for the
impairment or disposal of long-lived assets and does not apply to goodwill or
intangible assets that are not being amortized and certain other long-lived
assets. This statement supersedes SFAS No. 121, and reporting provisions of APB
No. 30, Reporting the Results of Operations - Reporting the Effects of a
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business
(as previously defined in that Opinion). This statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. Management adopted
this statement as of January 1, 2002, and it did not have a material impact on
the Company's consolidated financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities. SFAS No. 146 addresses the accounting for costs associated with
restructuring activities and other disposal activities. This statement
supersedes EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. This statement will be
effective for disposal activities initiated after December 31, 2002, and the
Company will adopt this statement for any costs relating to restructuring or
disposal activities initiated after the effective date.
(g) Reclassifications
Certain reclassifications have been made to prior year balances in order to
conform to the current year presentation.
NOTE 3. COMMON STOCK WARRANT DISCOUNT
In December 2000, in connection with the execution of a nonexclusive systems and
services agreement (the Agreement), the Company issued a warrant to a customer
to purchase 850,000 shares of the Company's common stock at a per-share exercise
price of $27.73. The Agreement between the Company and the customer provides the
customer with the ability, but not the obligation, to purchase equipment and
services from the Company. The warrant is non-forfeitable, fully exercisable and
has a term of five years from the date of issuance. The fair value of the
warrant was calculated using the Black-Scholes valuation model to be $9.8
million. The fair value of the warrant has been deferred as a reduction to
equity and is currently being amortized as an offset to gross revenue on a
straight-line basis over the three-year term of the Agreement at the rate of
$0.8 million per quarter. As of June 30, 2002, $5.7 million has been amortized.
NOTE 4. LITIGATION
Twelve purported securities class action lawsuits are currently pending against
the Company and one or more of the Company's underwriters in the Company's
initial public offering, and certain officers and directors of the Company. The
lawsuits allege violations of the federal securities laws and have been docketed
in the U.S. District Court for the Southern District of New York as: Felzen, et
al. v. Avici Systems Inc., et al., C.A. No. 01-CV-3363; Lefkowitz, et al. v.
Avici Systems Inc., et al., C.A. No. 01-CV-3541; Lewis, et al. v. Avici Systems
Inc., et al., C.A. No. 01-CV-3698; Mandel, et. al v. Avici Systems Inc., et al.,
C.A. No. 01-CV-3713; Minai, et al. v. Avici Systems Inc., et al., C.A. No.
01-CV-3870; Steinberg, et al. v. Avici Systems Inc., et al., C.A. No.
01-CV-3983; Pelissier, et al. v. Avici Systems Inc., et al., C.A. No.
01-CV-4204; Esther, et al. v. Avici Systems Inc., et al., C.A. No. 01-CV-4352;
Zhous, et al. v. Avici Systems Inc. et al., C.A. No. 01-CV-4494; Mammen, et al.
v. Avici Systems Inc., et. al., C.A. No. 01-CV-5722; Lin, et al. v. Avici
Systems Inc., et al., C.A. No. 01-CV-5674; and Shives, et al. v. Banc of America
Securities, et al., C.A. No. 01-CV-4956. These lawsuits seek unspecified damages
and allege, among other things,
that the underwriters of the Company's initial public offering (IPO) improperly
required their customers to pay the underwriters excessive commissions and to
agree to buy additional shares of the Company's stock in the aftermarket as
conditions of receiving shares in the Company's IPO. The lawsuits further claim
that these supposed practices of the underwriters should have been disclosed in
the Company's IPO prospectus and registration statement. The Company understands
that various other plaintiffs have filed substantially similar class action
cases against approximately 300 other publicly traded companies and their IPO
underwriters in New York City which, along with the cases against the Company,
have all been transferred to a single federal district judge for purposes of
coordinated case management. The Company and its officers and directors believe
that the claims against the Company lack merit, and intends to defend the
litigation vigorously. In that regard, on July 15, 2002, the Company, together
with the other issuers named as defendants in these coordinated proceedings,
filed a collective motion to dismiss the consolidated amended complaints against
them on various legal grounds common to all or most of the issuer defendants.
This motion is currently pending. While the Company can make no promises or
guarantees as to the outcome of these actions, the Company believes that the
final result of these actions will have no material effect on its consolidated
financial condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this Report on Form 10-Q constitute forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those stated or implied in forward-looking statements due to a
number of factors, including without limitation those discussed under the
caption "Factors That May Affect Future Results" included in the Company's
annual report on Form 10-K as filed with the Securities and Exchange Commission
and elsewhere herein. Forward-looking statements include statements regarding
the future or the Company's expectations, beliefs, intentions or strategies
regarding the future and may be identified by the words "anticipate," "believe,"
"could," "estimate," "expect," "intend," "may," "should," "will," and "would"
and similar expressions. There may be events in the future that could affect
these matters.
Overview
Avici Systems provides high-speed data networking equipment that enables
telecommunications companies and Internet service providers to transmit high
volumes of information across their networks.
Since our inception, we have incurred significant losses. As of June 30, 2002,
we had an accumulated deficit of $297.8 million. Our operating activities from
inception through 1999 were primarily devoted to research and development,
including the design and development of our proprietary application specific
integrated circuits, or ASICs, and software, and system testing the Avici
Terabit Switch Router product, or TSR. Revenue was first recognized during the
first quarter of 2000. We have also built our administrative, marketing, sales,
customer support and manufacturing organizations and developed strategic
relationships with systems integrators, distributors, customers and
complementary vendors. We have not achieved profitability on a quarterly or an
annual basis and anticipate that we will continue to incur significant operating
losses in the foreseeable future. We have a lengthy sales cycle for our products
and, accordingly, we expect to incur significant selling and other expenses
before we realize the related revenue. We expect to incur significant sales and
marketing, research and development and general and administrative expenses as
we expand our business and, as a result, we will need to generate significant
revenues to achieve and maintain profitability.
The TSR became commercially available in the fourth quarter of 1999. During
2001, we introduced the Avici Stackable Switch Router product, or SSR, a
rack-mountable scalable router for carriers and service providers with smaller
core networks. The first SSR sale occurred during the fourth quarter of 2001. We
currently market our products to major carriers in North America through a
direct sales force. We also market our products internationally through systems
integrators, distributors, and a direct sales force in Europe. We currently
provide product installation and customer field support through our internal
customer service organization and third-party support organizations.
Our target end-user customers include incumbent local exchange carriers,
inter-exchange carriers, postal telephone and telegraph operators or PTTs
(international incumbent operators), international competitive carriers,
Internet service providers, and agencies of the United States government.
We expect that in the foreseeable future, substantially all of our revenue will
continue to depend on sales of our TSR and SSR to current customers and a
limited number of potential new customers. Generally, these customers are not
contractually committed to purchase any minimum quantities of products from us.
The TSR has been deployed by AT&T, and the Company and AT&T have entered into a
three year procurement agreement through December 2003 which describes the
conditions under which AT&T may acquire equipment from the Company. The
agreement has no minimum purchase commitment associated with it.
The Company has a procurement agreement with Qwest Communications which provides
for an undisclosed minimum purchase commitment and expires in July 2003.
Deployment of the Company's products by Qwest is dependent upon the successful
completion of ongoing competitive trials, which the Company expects to be
completed during 2002. There can be no assurance as to the timing of the
completion of these trials and tests or that their outcome will be favorable.
In December 2001, the Company amended its procurement agreement with Williams
Communications extending its term through December 2003. The amended agreement
provided for a current cash payment of $8.5 million, which we received in
December 2001 and included $2.7 million for product deliveries made in the
fourth quarter of 2001 and $5.8 million in lieu of remaining purchase
commitments in the original agreement totaling $25 million. The $5.8 million,
which is included in the consolidated balance sheet in deferred revenue at June
30, 2002, can be used as a credit, applied at varying rates, against future
purchases through 2003. Any unused credits become income to the Company upon
expiration.
The TSR has also been deployed by France Telecom in its VTHD R&D research
network, by Chung Hwa Telecom in its Next Generation Test Bed Network, by
several agencies of the United States government, and by the DARPA-funded
National Transparent Optical Network. The Company's TSR and SSR products are
currently in various stages of trials and tests with prospective customers, both
internationally and domestically. There can be no assurance as to the timing of
the completion of these trials and tests or that their outcome will be
favorable.
In response to unfavorable industry conditions, the Company implemented
restructuring programs during the third and fourth fiscal quarters of 2001
designed to decrease operating expenses and align resources with future growth
opportunities. The restructuring programs included workforce reductions totaling
95 employees, or approximately 24% of the workforce. The affected employees
received severance and other benefits pursuant to a benefits program. The
Company recorded charges totaling $0.9 million for these termination benefits
during the third and fourth fiscal quarters of 2001. Approximately $0.6 million
in termination benefits was paid during 2001 and the remaining $0.3 million was
paid during the first quarter of 2002. In addition, the Company recorded a
charge of $1.7 million to dispose of redundant assets and to accrue lease
payments associated with excess facility space.
The Company's restructuring related reserves at June 30, 2002 are summarized as
follows (in thousands):
Restructuring
Accrual at
Total Noncash Cash June 30,
Charge Charges Payments 2002
--------- --------- --------- -----------
Workforce reduction $ 869 $ - $ 869 $ -
Consolidation of facilities and disposal of
assets 1,718 1,330 159 229
Reversal of stock based compensation (1,525) (1,525) - -
--------- --------- --------- -----------
Total $ 1,062 $ (195) $ 1,028 $ 229
========= ========= ========= ===========
The workforce reduction resulted in the forfeiture of employee stock options.
The restructuring charge includes the reversal of $1.5 million of non-cash stock
based compensation expense previously recorded for the forfeited options.
Additionally, in the third quarter of 2001 the Company recorded a charge of
$17.2 million as an element of cost of revenue to reflect a write down of
inventories and inventory commitments for long lead time items which were
considered to be in excess of foreseeable demand. The charge included
commitments to suppliers including ASICs, module components, and TSR bay
components totaling approximately $9.6 million and inventory components and
finished goods on hand relating to the TSR product, totaling approximately $7.6
million were identified as in excess of forecasted demand for the next 12
months. Since the end of the third quarter of fiscal 2001, the Company has paid
approximately $9.4 million to settle inventory commitments with suppliers, and
has discarded approximately $4.8 million of the excess inventory on hand.
During the second quarter of 2002, the Company recorded a credit to cost of
revenue for the utilization of approximately $1.7 million of inventory
previously deemed to be in excess of foreseeable requirements. The credit is the
result of a refund of $0.8 million earned by the Company from a supplier
relating to its use of certain excess inventory, the utilization of $0.7 million
of inventory previously reserved, and a negotiated settlement relating to future
purchase commitments of $0.2 million less than originally estimated. The
agreement with one supplier for the settlement of excess inventory requires that
supplier to keep potentially usable inventory on hand until March 31, 2003. That
supplier may consume additional amounts of such inventory during the remainder
of 2002 and is required to reimburse the Company should any such inventory be
consumed. In addition, reserved inventory on hand may be utilized by the Company
in the future. Accordingly, the Company will recognize credits to cost of
revenue to the extent that such reserved inventory is actually utilized.
The Company expects telecommunications service providers to continue to maintain
conservative levels of capital spending in the near term. Accordingly, should
deterioration in the telecommunications equipment market continue, or should
there be a change in the Company's strategy, there can be no assurance that
further restructuring might not be necessary or that such restructuring actions,
if required, would not have an adverse impact on the results of operations and
financial condition of the Company.
Critical Accounting Policies
The Company considers certain accounting policies related to revenue
recognition, inventory and warranty liabilities to be critical accounting
policies due to the estimation processes involved in each.
The Company recognizes revenue from product sales upon shipment, provided that a
purchase order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the sales price is fixed or
determinable and collectibility is deemed probable. If uncertainties regarding
customer acceptance exist, the Company recognizes revenue when those
uncertainties are resolved. For arrangements that include the delivery of
multiple elements, revenue is allocated to the various elements based on
vendor-specific objective evidence of fair value (VSOE). The Company uses the
residual method when VSOE does not exist for one of the delivered elements in an
arrangement. We also generate revenue from support and maintenance as well as
installation and service. We defer revenue from support and maintenance
contracts and recognize it ratably over the period of the related agreements. We
recognize revenue from installation and other services as the work is performed.
Amounts collected or billed prior to satisfying the above revenue recognition
criteria are recorded as deferred revenue.
We value our inventory at the lower of our actual cost or the current estimated
market value. We regularly review inventory quantities on hand and inventory
commitments with suppliers and record a provision for excess and obsolete
inventory based primarily on our estimated forecast of product demand for the
next twelve months. To the extent that inventory previously considered to be in
excess is ultimately utilized, credits are recorded upon utilization. As
demonstrated during 2001, demand for our products can fluctuate suddenly and
significantly due to changes in economic and business conditions. A significant
increase in demand for our products could result in a short-term increase in the
cost of inventory purchases while a significant decrease in demand could result
in an increase in the amount of excess inventory on hand and at suppliers. In
addition, our industry is characterized by rapid technological change, frequent
new product development, and rapid product obsolescence that could result in an
increase in the amount of obsolete inventory on hand and at suppliers.
Therefore, although we make every effort to ensure the accuracy of our forecasts
of future product demand, any significant unanticipated changes in demand or
technological developments could have a significant impact on the value of our
inventory and our reported operating results.
Our warranties require us to repair or replace defective product returned to us
during such warranty period at no cost to the customer. We record an estimate
for warranty-related costs based on our actual historical return rates and
repair costs at the time of sale. While our warranty costs have historically
been within our expectations and the provisions established, we cannot guarantee
we will continue to experience the same warranty return rates or repair costs
that we have in the past. A significant increase in product return rates, or a
significant increase in the costs to repair our products, could have a material
adverse impact on future operating results for the period or periods in which
such returns or additional costs materialize and thereafter.
Results of Operations
Three Months Ended June 30, 2002 Compared to the Three Months Ended June 30,
2001
Gross Revenue. Gross revenue decreased $12.1 million from $21.4 million during
the second quarter of 2001 to $9.3 million for the second quarter of 2002. The
Company experienced lower unit sales during the 2002 period as a result of
reduced capital spending by telecommunications service providers. Two customers,
namely AT&T and Qwest Communications, each accounted for in excess of 10% of
gross revenue in the 2002 and 2001 period.
Common Stock Warrant Discount. In December 2000, in connection with the
execution of a nonexclusive systems and services agreement (the Agreement), the
Company issued a warrant to a customer to purchase 850,000 shares of the
Company's common stock at a per-share exercise price of $27.73. The Agreement
between the Company and the customer provides the customer with the ability, but
not the obligation, to purchase equipment and services from the Company. The
warrant is non-forfeitable, fully exercisable and has a term of five years from
the date of issuance. The fair value of the warrant was calculated using the
Black-Scholes valuation model to be $9.8 million. The fair value of the warrant
has been deferred as a reduction to equity and is currently being amortized as
an offset to gross revenue on a straight-line basis over the three-year term of
the Agreement at the rate of $0.8 million per quarter. As of June 30, 2002, $5.7
million has been amortized.
Cost of Revenue. Cost of revenue was $3.8 million for the second quarter of
2002, and includes a credit for the utilization of $1.7 million of inventory
previously determined to be in excess of foreseeable requirements. Cost of
revenue includes the cost of manufacturing overhead, and certain customer
support costs. Excluding the credit for the utilization of excess inventory,
cost of revenue as a percentage of gross and net revenue for the second quarter
of 2002 was approximately 59% and 64%, respectively, compared to 55% and 57% for
the second quarter of 2001. The higher percentage reflects the spreading of
fixed overhead costs over a smaller revenue base in the 2002 period as compared
to the 2001 period. The higher percentages were partially offset by cost
reductions achieved with key suppliers and a reduction of fixed overhead costs
as a result of restructuring programs implemented by the Company. We anticipate
the cost of revenue as a percentage of both gross and net revenue to decrease as
we sell more higher margin modules as compared to bays and as fixed overhead
costs are spread over an even greater revenue base.
Research and Development. Research and development expenses decreased $1.7
million from $15.9 million for the second quarter of 2001 to $14.2 million for
the second quarter of 2002. This decrease was due primarily to a decrease of
$2.9 million in salary and salary-related expenses as a result of restructuring
programs implemented by the Company during the second half of fiscal 2001, plus
decreases in other outside service costs. These decreases were partially offset
by a $1.3 million increase in depreciation expense associated with the build out
of the Company's internal development and test network, and increases in other
research and development expenses.
Sales and Marketing. Sales and marketing expenses decreased by $1.5 million from
$5.3 million for the second quarter of 2001 to $3.8 million for the second
quarter of 2002. This decrease was due primarily to a decrease of $1.1 million
in salary and salary-related expenses as a result of restructuring programs
implemented by the Company during the second half of fiscal 2001.
General and Administrative. General and administrative expenses decreased by
$0.5 million from $2.5 million for the second quarter of 2001 to $2.0 million
for second quarter of 2002. The decrease was due primarily to a decrease of $0.4
million in salary and salary-related expenses as a result of restructuring
programs implemented by the Company during the second half of fiscal 2001.
Stock-Based Compensation. Stock-based compensation decreased from $3.6 million
for the second quarter of 2001 to $1.6 million for the second quarter of 2002.
This decrease is a result of certain option grants reaching full vesting, and
the related compensation becoming fully amortized, and the elimination of future
stock based compensation due to employee terminations.
Other Income. During the second quarter of fiscal 2002, the Company recorded a
gain of $0.3 million relating to the excess of insurance proceeds at replacement
value over the net book value of certain information technology equipment
damaged during the first quarter of fiscal 2002.
Interest Income, Net. Interest income, net of interest expense, decreased by
$1.5 million from $2.6 million for the second quarter of 2001 to $1.0 million
for the second quarter of 2002 due to the decrease in invested cash balances
resulting from the use of cash to fund the operations of the Company, and lower
investment yields available in the market.
Results of Operations
Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001
Gross Revenue. Gross revenue decreased $18.6 million from $37.1 million during
the first six months of 2001 to $18.6 million for the same period in 2002. The
Company experienced lower unit sales during the 2002 period as a result of
reduced capital spending by telecommunications service providers. Two customers,
namely AT&T and Qwest Communications, each accounted for in excess of 10% of
gross revenue in the 2002 period. Three customers, namely AT&T, Qwest
Communications and Enron Broadband Services, each accounted for in excess of 10%
of gross revenue in the 2001 period.
Common Stock Warrant Discount. In December 2000, in connection with the
execution of a nonexclusive systems and services agreement (the Agreement), the
Company issued a warrant to a customer to purchase 850,000 shares of the
Company's common stock at a per-share exercise price of $27.73. The Agreement
between the Company and the customer provides the customer with the ability, but
not the obligation, to purchase equipment and services from the Company. The
warrant is non-forfeitable, fully exercisable and has a term of five years from
the date of issuance. The fair value of the warrant was calculated using the
Black-Scholes valuation model to be $9.8 million. The fair value of the warrant
has been deferred as a reduction to equity and is currently being amortized as
an offset to gross revenue on a straight-line basis over the three-year term of
the Agreement at the rate of $0.8 million per quarter. As of June 30, 2002, $5.7
million has been amortized.
Cost of Revenue. Cost of revenue was $9.7 million for the first six months of
2002, and includes a credit for the utilization of $1.7 million of inventory
previously determined to be in excess of foreseeable requirements. Cost of
revenue includes the cost of manufacturing overhead, and certain customer
support costs. Excluding the credit for the utilization of excess inventory,
cost of revenue as a percentage of gross and net revenue for the first six
months of 2002 was approximately 61% and 67%, respectively, compared to 56% and
58% for the same period in 2001. The higher percentage reflects the spreading of
fixed overhead costs over a smaller revenue base in the 2002 period as compared
to the 2001 period. The higher percentages were partially offset by cost
reductions achieved with key suppliers and a reduction of fixed overhead costs
as a result of restructuring programs implemented by the Company. We anticipate
the cost of revenue as a percentage of both gross and net revenue to decrease as
we sell more higher margin modules as compared to bays and as fixed overhead
costs are spread over an even greater revenue base.
Research and Development. Research and development expenses decreased $2.4
million from $31.0 million for the first six months of 2001 to $28.6 million for
the same period in 2002. This decrease was due primarily to a decrease of $6.6
million in salary and salary-related expenses as a result of restructuring
programs implemented by the Company during the second half of fiscal 2001. This
decreases was partially offset by a $3.4 million increase in depreciation
expense associated with the build out of the Company's internal development and
test network, and increases in other research and development expenses.
Sales and Marketing. Sales and marketing expenses decreased by $2.8 million from
$10.3 million for the first six months of 2001 to $7.5 million for the same
period in 2002. This decrease was due primarily to a decrease of $2.2 million in
salary and salary-related expenses as a result of restructuring programs
implemented by the Company during the second half of fiscal 2001.
General and Administrative. General and administrative expenses decreased by
$1.0 million from $4.8 million for the first six month of 2001 to $3.8 million
for same period in 2002. The decrease was due primarily to a decrease of $0.8
million in salary and salary-related expenses as a result of restructuring
programs implemented by the Company during the second half of fiscal 2001.
Stock-Based Compensation. Stock-based compensation decreased from $8.1 million
for the first six months of 2001 to $3.7 million for the same period in 2002.
This decrease is a result of certain option grants reaching full vesting, and
the related compensation becoming fully amortized, and the elimination of future
stock based compensation due to employee terminations.
Other Income. During the second quarter of fiscal 2002, the Company recorded a
gain of $0.3 million relating to the excess of insurance proceeds at replacement
value over the net book value of certain information technology equipment
damaged during the first quarter of fiscal 2002.
Interest Income, Net. Interest income, net of interest expense, decreased by
$4.3 million from $6.5 million for the first six months of 2001 to $2.1 million
for the same period in 2002 due to the decrease in invested cash balances
resulting from the use of cash to fund the operations of the Company, and lower
investment yields available in the market.
Liquidity and Capital Resources
Since our inception, we have financed our operations through an initial public
offering in July 2000, private sales of equity securities, and, to a lesser
extent, equipment lease financing. From inception through June 30, 2002, we
raised approximately $410.3 million from these equity offerings. During the six
months ended June 30, 2002, we used $18.7 million in cash for operating
activities, compared to $32.2 million used in the same period in 2001. The
decrease in cash usage from the 2002 period as compared to the 2001 period is
due to lower operating expenses as a result of restructuring programs
implemented by the Company during the second half of fiscal 2001, and reduced
investments in working capital. We expect working capital requirements will
increase if product sales increase, creating larger customer receivable balances
and the need to build inventory in advance of shipment. In addition, we will
selectively invest in operating costs needed to support the scale of operations.
Purchases of property and equipment were $6.4 million for the six months ended
June 30, 2002, compared to $24.0 million for the same period in 2001, and
consisted primarily of purchases of application software, test equipment and
computer equipment, including workstations, servers and laboratory equipment
primarily to support current research and development activities, customer
support infrastructure and establish management information systems. The Company
expects that its capital expenditures will be approximately $9.0 million for the
remainder of 2002. The timing and amount of future capital expenditures will
depend primarily on our future growth. As of June 30, 2002, our future minimum
lease payment obligations were $1.7 million under capital leases which require
payments of $932,000 for the remainder of 2002, and annual payments of $738,000
in 2003 and $46,000 in 2004. In addition, our future minimum lease payment
obligations under operating leases is $6.8 million which require payments of
$0.9 million for the remainder of 2002, $1.7 million in 2003, $1.3 million in
2004, $1.1 million in 2005 and 2006 and $0.7 million in 2007.
The Company outsources the manufacture and assembly of its products. During the
normal course of business, in order to maintain competitive lead times for
customers and adequate components supply, the Company enters into agreements
with certain suppliers to procure inventory based upon criteria as defined by
the Company. As of June 30, 2002, the Company was committed to purchase
approximately $4.8 million of inventory based upon such criteria.
Other than obligations under capital leases, minimum payments under operating
leases and certain commitments to vendors for long lead time inventory items,
the Company has no additional debt for which it is a guarantor or direct
obligor.
We expect that working capital and capital expenditure requirements may increase
if product sales increase, creating larger customer receivable balances, the
need to build inventory in advance of shipment and the need for increased levels
of test and management information systems equipment. At June 30, 2002, the
Company had cash, cash equivalents, investments and long-term marketable
securities of $138.5 million. We believe that our existing cash, cash
equivalents and investments together with cash flows from operations will be
sufficient to meet our normal operating and capital requirements for the next 24
months. However, we could be required, or could elect, to raise additional funds
during that period and we may need to raise additional capital in the future. We
may not be able to obtain additional capital on terms favorable to us or at all.
The issuance of additional equity or equity-related securities will be dilutive
to our stockholders. If we cannot raise funds on acceptable terms, or at all, we
may not be able to develop or enhance our products or respond appropriately to
competitive pressures, which would seriously limit our ability to increase our
revenue and grow our business.
Factors That May Affect Future Results
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include management's plans and
objectives for future operations, as well as statements regarding the strategy
and plans of the Company. The Company's actual experience may differ materially
from that discussed in the forward-looking statements. Factors that might cause
such a difference include the limited number of customers; continuing acceptance
of the Company's
products and product enhancements; customer purchasing patterns and commitments;
the size, timing and recognition of revenue from customers; the Company's
ability to develop new products and product enhancements; market acceptance of
new product offerings and enhancements to our products and the Company's ability
to predict and respond to market developments; the failure to keep pace with the
rapidly changing requirements of our customers; the Company's ability to attract
and retain key personnel; the development and expansion of the Company's direct
sales force and/or other distributor channels; risks associated with management
of growth; the Company's ability to obtain component parts; the Company being
held liable for defects or errors in our products; the expense of defending and
the outcome of pending and future shareholder litigation; as well as risks of a
further downturn in economic conditions generally, and in the telecommunications
industry specifically, and risks associated with competition and competitive
pricing pressures. For a more detailed description of the risk factors
associated with the Company, please refer to the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission.
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No. 141
requires that all business combinations be accounted for under a single method,
the purchase method. This statement is effective for all business combinations
initiated after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement applies to intangibles and goodwill acquired after June
30, 2001, as well as goodwill and intangibles previously acquired. Under this
statement, goodwill as well as other intangibles determined to have an
indefinite life will no longer be amortized; however these assets will be
reviewed for impairment on a periodic basis, at least annually. The Company
adopted this statement as of January 1, 2002. As of June 30, 2002, the Company
had no intangible or goodwill assets impacted by this statement.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses the reporting for the
impairment or disposal of long-lived assets and does not apply to goodwill or
intangible assets that are not being amortized and certain other long-lived
assets. This statement supersedes SFAS No. 121, and reporting provisions of APB
No. 30, Reporting the Results of Operations - Reporting the Effects of a
Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business
(as previously defined in that Opinion). This statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. Management adopted this statement as of January 1, 2002, and
it did not have a material impact on the Company's consolidated financial
position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities. SFAS No. 146 addresses the accounting for costs associated with
restructuring activities and other disposal activities. This statement
supersedes EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. This statement will be
effective for disposal activities initiated after December 31, 2002, and the
Company will adopt this statement for any costs relating to restructuring or
disposal activities initiated after the effective date.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates. We do not use derivative
financial instruments for speculative or trading purposes.
Interest Rate Sensitivity
We maintain an investment portfolio consisting mainly of investment grade money
market funds, corporate obligations, federal agency obligations, state and
municipal bonds with a weighted-average maturity of less than one year. These
held-to-maturity securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market interest rates were to
increase immediately and uniformly by 10% from levels at June 30, 2002, the fair
market value of these investments would decline by an immaterial amount. We have
the ability to hold our fixed income investments until maturity. Therefore, we
would not expect our operating results or cash flows to be affected to any
significant degree by a sudden change in market interest rates on our securities
portfolio.
Exchange Rate Sensitivity
We presently operate primarily in the United States, and sales to date have been
primarily made in U.S. dollars. Accordingly, there has not been any material
exposure to foreign currency rate fluctuations.
The Company has no off balance sheet concentrations such as foreign exchange
contracts, option contracts or other foreign hedging arrangements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Twelve purported securities class action lawsuits are currently pending against
the Company and one or more of the Company's underwriters in the Company's
initial public offering, and certain officers and directors of the Company. The
lawsuits allege violations of the federal securities laws and have been docketed
in the U.S. District Court for the Southern District of New York as: Felzen, et
al. v. Avici Systems Inc., et al., C.A. No. 01-CV-3363; Lefkowitz, et al. v.
Avici Systems Inc., et al., C.A. No. 01-CV-3541; Lewis, et al. v. Avici Systems
Inc., et al., C.A. No. 01-CV-3698; Mandel, et. al v. Avici Systems Inc., et al.,
C.A. No. 01-CV-3713; Minai, et al. v. Avici Systems Inc., et al., C.A. No.
01-CV-3870; Steinberg, et al. v. Avici Systems Inc., et al., C.A. No.
01-CV-3983; Pelissier, et al. v. Avici Systems Inc., et al., C.A. No.
01-CV-4204; Esther, et al. v. Avici Systems Inc., et al., C.A. No. 01-CV-4352;
Zhous, et al. v. Avici Systems Inc. et al., C.A. No. 01-CV-4494; Mammen, et al.
v. Avici Systems Inc., et. al., C.A. No. 01-CV-5722; Lin, et al. v. Avici
Systems Inc., et al., C.A. No. 01-CV-5674; and Shives, et al. v. Banc of America
Securities, et al., C.A. No. 01-CV-4956. These lawsuits seek unspecified damages
and allege, among other things, that the underwriters of the Company's initial
public offering (IPO) improperly required their customers to pay the
underwriters excessive commissions and to agree to buy additional shares of the
Company's stock in the aftermarket as conditions of receiving shares in the
Company's IPO. The lawsuits further claim that these supposed practices of the
underwriters should have been disclosed in the Company's IPO prospectus and
registration statement. The Company understands that various other plaintiffs
have filed substantially similar class action cases against approximately 300
other publicly traded companies and their IPO underwriters in New York City
which, along with the cases against the Company, have all been transferred to a
single federal district judge for purposes of coordinated case management. The
Company and its officers and directors believe that the claims against the
Company lack merit, and intends to defend the litigation vigorously. In that
regard, on July 15, 2002, the Company, together with the other issuers named as
defendants in these coordinated proceedings, filed a collective motion to
dismiss the consolidated amended complaints against them on various legal
grounds common to all or most of the issuer defendants. This motion is currently
pending. While the Company can make no promises or guarantees as to the outcome
of these actions, the Company believes that the final result of these actions
will have no material effect on its consolidated financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 21, 2002, the
stockholders elected Steven Kaufman, Stephen Diamond and Richard Liebhaber to
serve for three-year terms as Class II Directors of the Company and until their
successors are elected and appointed by the following votes:
Director For Withheld
-------- ---- --------
Kaufman 40,010,571 1,082,942
Diamond 39,822,685 1,270,828
Liebhaber 39,769,587 1,323,926
At the same annual meeting, the stockholders approved an amendment to the
Company's 2000 Amended Stock Option and Incentive Plan increasing the annual per
participant award limitation to 2,000,000 by the following vote:
For Against Abstain Broker Non-Votes
---- ------- ------- ----------------
34,960,363 6,607,217 65,933 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No. Exhibit Description
3.1* Amended and Restated Certificate of Incorporation
of the Company
3.2* Amended and Restated By-laws of the Company
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
* Filed with the Company's Registration Statement on Form S-1 (File No.
333-37316) filed with the Securities and Exchange Commission by the Company in
connection with its initial public offering which became effective July 27,
2000.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K dated July 1, 2002 and a Report
on form 8-K/A dated July 3, 2002, reporting a change in the Company's
certifying accountant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVICI SYSTEMS INC.
Date August 12, 2002 By: /s/ Paul F. Brauneis
--------------- -----------------------------------------------
Paul F. Brauneis
Chief Financial Officer, Treasurer, Senior Vice
President of Finance and Administration, and
Principal Accounting Officer
Exhibit index
Exhibit No. Exhibit Description
3.1* Amended and Restated Certificate of Incorporation of
the Company
3.2* Amended and Restated By-laws of the Company
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
* Filed with the Company's Registration Statement on Form S-1 (File No.
333-37316) filed with the Securities and Exchange Commission by the Company in
connection with its initial public offering which became effective July 27,
2000.