UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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: 0-31093
VINA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0432782
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
39745 Eureka Drive, Newark, CA 94560 (510) 492-0800
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Securities registered to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates (based
upon the closing sale price on the Nasdaq National Market on March 26, 2002) was
approximately $10,667,745.00. As of March 26, 2002, there were 62,259,271 shares
of Common Stock, $0.0001 per share par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors), 11, 12 and 13 of Part III incorporate by
reference information from the registrant's proxy statement to be filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the registrant's 2002 Annual Meeting of Stockholders to be held on
May 22, 2002.
.
VINA TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
PART I............................................................................................................3
Item 1. Business..............................................................................................3
Item 2. Properties...........................................................................................11
Item 3. Legal Proceedings....................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders..................................................11
PART II..........................................................................................................12
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................12
Item 6. Selected Consolidated Financial Data.................................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........................................28
Item 8. Consolidated Financial Statements ...................................................................29
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.................49
PART III.........................................................................................................49
Item 10. Directors and Executive Officers of the Registrant..................................................49
Item 11. Executive Compensation..............................................................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................49
Item 13. Certain Relationships and Related Transactions......................................................49
PART IV..........................................................................................................49
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.......................49
PART I
Item 1. Business
When used in this report the words "may," "will," "could" and similar
expressions are intended to identify forward-looking statements. These are
statements that relate to future periods and include statements as to expected
net losses, expected cash flows, expected expenses, expected capital
expenditures, expected deferred stock compensation, the extent of fluctuations
in gross margins, the adequacy of capital resources, growth in operations, the
ability to integrate companies and operations that we may acquire, expected
reduction of operation costs, the timing and magnitude of cost reductions and
associated charges resulting from our restructuring plan, our ability to reach a
cash flow break-even position, our strategy with regard to protecting our
proprietary technology, the ability to compete and respond to rapid
technological change, the extent to which we can develop new products, expected
customer concentration, ability to execute our business plan, the ability to
resolve the software issues and related applications deficiencies of our MBX
product and the expected date to ship the MBX products, the extent to which we
can maintain relationships with vendors of emerging technologies, the extent to
which and at what rate demand for our services increases, the extent to which
the telecommunications industry experiences consolidation, our ability to expand
our international operations and enter into new markets, the extent to which we
and our ability to actively participate in marketing, business development and
other programs, the extent to which we can expand our field sales operations and
customer support organizations and build our infrastructure, the extent we can
build market awareness of our company and our products, and the performance and
utility of products and services.
Forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. These
risks and uncertainties include, but are not limited to the extent to which the
current economic environment affects our current and potential customers' demand
for our products, the effects of competition, competitive pricing and
alternative technological advances, the extent to which our current and future
products compete with the products of our customers, our ability to implement
successfully and achieve the goals of our corporate restructuring plan, our
ability to design, market and manufacture successfully products that address
market demands, our ability to accurately predict our manufacturing
requirements, our ability to maintain relationships with vendors of emerging
technologies, changes in our business plans, our ability to integrate the former
employees of Metrobility Optical Systems, Inc. into our company, our ability to
retain and attract highly skilled engineers for our research and development
activities, our ability to execute our business plan, and the risks set forth
below under Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Other Factors That May Affect Results." These
forward-looking statements speak only as of the date hereof. We expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in ours expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
In this report, all references to "VINA" "we," "us," "our" or the "Company"
mean VINA Technologies, Inc. and its subsidiaries, except where it is made clear
that the term means only the parent company.
This Form 10-K includes the following registered trademarks as well as
filed applications to register trademarks of VINA Technologies including:
Integrator-300, VINA, VINA Technologies, eLink-100, Multiservice Broadband
Xchange, MX-500, MX-550, and Multiservice Xchange. All other trademarks and
trade names appearing in this Form 10-K are the property of their respective
holders; for example, SLC, ConnectReach and AnyMedia are trademarks and trade
names of Lucent Technologies. The inclusion of other companies' brand names and
products in this Form 10-K is not an endorsement of VINA.
Overview
VINA Technologies develops and markets multiservice broadband access
communications equipment that enable telecommunications service providers to
deliver bundled voice and data services. Our products integrate various
broadband access technologies, including both circuit- and packet-based
technologies, onto a single platform and ease capacity constraints in the first
mile of communications networks by integrating multiple lines for voice, data
and video onto one broadband connection. We believe that, by converging formerly
discrete services and by simultaneously concentrating voice and data, our
solutions lower capital and operational expenses for service providers. Our
products also add revenue opportunities for telecommunications carriers by
enabling them to quickly and cost-effectively deploy bundled broadband services.
These services include local and long-distance telephony, high-speed data,
Internet access, business-to-business electronic commerce, extended local area
networks, outsourced applications services and messaging. By supporting both
circuit- and packet-based technologies, our products also protect service
providers' investments in existing circuit-switched networks and offer them a
cost-effective migration path to emerging packet-based networks. They also
facilitate seamless and remote upgrades and service provisioning by our
customers.
We sell our products to competitive local exchange carriers, interexchange
carriers and incumbent local exchange carriers through our direct sales force
and value added resellers and as an original equipment manufacturer. Our OEM
customers and largest service provider customers include Lucent Technologies,
Allegiance Telecom , Nuvox Communications, Advanced TelCom Group, and BellSouth.
Industry Background
Increasing Demand for Broadband Access
The volume of Internet and other data traffic has grown quickly over the
past several years, due primarily to increased numbers of users and the
proliferation of bandwidth intensive applications such as business-to-business
electronic commerce, web hosting and remote access for telecommuters. Electronic
business applications have become critical business tools and, as a result,
businesses of all sizes increasingly require their telecommunications service
provider to deliver constant broadband connections at affordable rates.
The First Mile Bottleneck
Although service providers have deployed emerging packet-based technologies
to expand the speed and capacity of long distance networks, more limited
investment has been made in local networks, or the first mile, to address the
substantial increase in traffic. As a result, the first mile has become the
telecommunication infrastructure's principal bottleneck, limiting the ability of
service providers to deliver broadband services to the market.
Difficulty of Profitably Connecting Customers to Metro Access Networks
In the past, carriers have lacked the technological means to concentrate
voice and data in the same platform. Instead, they purchased separate pieces of
equipment for each, resulting in an increased burden that multiplied their
hardware costs and consumption of precious space in co-locations and central
office facilities. Further aggravating the companies' capital expenditures was
the longstanding need to invest extensively in specialized telecommunications
devices such as digital loop carriers, digital access cross-connect systems and
Frame Relay switches. To regain control over expenses, service providers have
focused on limiting the concentration of their voice and data to a relatively
few large locations such as central offices and thus minimizing their number of
purchases devices. But the decision to locate the equipment in sites that lie
far from customer premises compounded the carriers' requirements for backhaul
transport and all its associated costs.
Deregulation is Accelerating Competition and the Introduction of Broadband
Access
Historically, in the United States, dominant telephone companies,
principally Regional Bell Operating Companies, were the exclusive operators of
first mile communications networks. The U.S. Telecommunications Act of 1996
opened the local communications market to new entrants. The 1996 Act required
the dominant local carriers, known as incumbent local exchange carriers, or
ILECs, to lease portions of their networks to other carriers to compete in the
first mile. These new entrants are referred to as competitive local exchange
carriers, or CLECs. Expanded competition has accelerated the deployment of new
technologies, including digital subscriber line, or DSL, digital cable and
broadband fixed wireless, into the local market. To date, these broadband
solutions have been introduced as parallel data networks, co-existing alongside
the voice infrastructure controlled by ILECs, complicating the network.
While both CLECs and ILECs have introduced services in the market to
address competition and the need for broadband access, each of them faces
significant challenges in their respective markets.
CLECs. CLECs have targeted the large business market in particular and have
gained market share from ILECs in recent years. Most CLECs have provided either
voice or data services and are facing numerous challenges as they attempt to
achieve profitability. CLECs are seeking to decrease network expense by
improving bandwidth management and reducing customer turnover. They are also
seeking to increase revenue per customer by introducing bundled suites of
enhanced voice and data services, such as long distance, local call routing,
Internet access, business-to-business electronic commerce and web hosting. CLECs
have also taken the lead in offering bundled voice and data services to small to
medium size businesses, a market which we believe has been dominated, but
underserved, by ILECs. These businesses often do not have the financial or
technical resources of large businesses to invest in and manage costly parallel
voice and data networks. We believe that small to medium size businesses present
an opportunity for CLECs to substantially grow their customer base. According to
the Yankee Group, at the end of 2001 the U.S. alone contained approximately 6.3
million small and medium-sized businesses that ranged from two to 499 employees.
ILECs. Historically, ILECs have faced strict regulations limiting their
investment returns in the voice market by tying those returns to their
infrastructure and other costs. ILECs now seek to introduce new enhanced data
services in deregulated markets where their returns are not so constrained.
Although ILECs have traditionally dominated the first mile market, they have
lost substantial market share to CLECs in the large business market and have
begun to lose market share in the small to medium size business market because
CLECs have been able to deliver more cost-effective services. In order to defend
their customer base in the small to medium size business market, ILECs are
seeking to provide bundled voice and data services to their customers. ILECs are
also experiencing a copper wire telecommunication lines shortage in major
metropolitan areas because there has been an increase in the number of phone
lines installed in customer premises for a variety of applications. Due to this
shortage, ILECs face pressure to more efficiently utilize their copper wires to
meet the increasing demand for voice and high-speed data access.
Convergence of Voice and Data Networks
Voice and data networks have evolved into parallel networks as broadband
access networks include both circuit-based networks utilizing time division
multiplexing, or TDM, and packet-based networks utilizing various protocols such
as asynchronous transfer mode, or ATM, internet protocol, or IP, and frame
relay. The deployment of equipment dedicated to circuit-based networks and
packet-based networks has resulted in the creation of a highly complex
telecommunications infrastructure comprised of multiple networks dedicated to
support various protocols. As a result, service providers are subject to high
network operating costs due to the redundancy of operating parallel networks and
limited equipment compatibility. In order for service providers to deliver
cost-effective, bundled voice and data services, we believe these parallel
networks need to be integrated and simplified.
Limitations Constraining the Deployment of Converged Next-Generation
Network Solutions
While many service providers desire to provide bundled voice and data
services, they have been limited in their ability to deliver their services by
the following:
o Uncertain migration path. Service providers have invested billions of
dollars in circuit-based networks. They recognize that separate voice and
data networks must be converged because separate networks are not
cost-effective in the long term. Service providers require products that
support both networks and offer a cost-effective migration path from
circuit-based networks to emerging packet-based networks.
o Multiple Equipment and Protocol Types. Addressing multiple protocols has
historically required service providers to tap multiple vendors and
equipment types, and has resulted in confusion as well as unnecessary
network complexity and expense. Service providers require multiservice
access solutions that integrate readily into their existing networks,
maintain compatibility with other components of their network and provide
remote, dynamic bandwidth and service provisioning, eliminating the need
for expensive manual provisioning and installation.
o Inefficient use of network bandwidth. The rapid increase in demand for
bandwidth and the limited capacity available in the first mile of
telecommunications networks have strained the level of services provided to
end users. Service providers require more efficient multiservice access
solutions that minimize network expense, maximize bandwidth and are
deliverable over a single copper line.
o Operational challenges to infrastructure deployment. The scope and
complexity of existing communication networks pose unique challenges to
service providers in recruiting and training the necessary personnel to
deploy, scale, provision and maintain the network. Simplified network
solutions are needed to help reduce the number of personnel and technical
expertise required.
In order to address these challenges, several communications equipment
companies have introduced broadband integrated access devices, or IADs. First
generation IADs are circuit-based. As service providers plan their converged
next-generation networks, they have become increasingly reluctant to invest in
communication equipment that cannot support asynchronous transfer mode or
Internet protocol traffic. In response, several vendors have introduced
packet-based IADs. However, we believe these new products have not been widely
adopted because service providers have invested billions of dollars in their
circuit-based networks, which they are unwilling to abandon. The transition to
converged, next-generation networks is a costly and complex process that will
take many years to complete. Therefore, service providers are seeking broadband
access solutions that operate in both circuit- and packet-based environments,
enabling them to protect their investment in existing equipment while ensuring a
cost-effective migration path to converged, packet-based networks. This solution
must be affordable, scalable and easy to install and operate.
The VINA Solution
We develop and market broadband access communications equipment that
offers, in one product, access to circuit- and packet-based networks. Our
products enable service providers to offer a complete suite of bundled voice and
data services to end users, including customer premise, voice, video, data and
Internet services, such as business-to-business electronic commerce and web
hosting. Using our products, service providers may remotely and dynamically
customize the services they deliver to individual customers. Furthermore, our
customer premise products allow service providers to cost-effectively deliver
bundled offerings from a single vendor with a single bill. Our customer premise
products require little or no information technology expertise on the end users'
part and allow service providers to deliver products for the first mile which
reduce the cost and complexity associated with purchasing, operating and
maintaining their networks.
We believe that our products offer service providers the following
benefits:
o Defined Network Migration Path. Our products offer a seamless path from the
circuit-based network environment to packet-based voice and data network
environment. We utilize software to migrate our products to packet-based
networks, minimizing or eliminating costly equipment upgrades. Our
equipment is currently being installed in both circuit- and packet-based
networks.
o Reduced Network Complexity and Operating Costs. Our platform-based solution
integrates multiple products, such as routers, firewalls, channel banks,
modems and features of private branch exchanges, or PBXs, which reduce the
operating costs and the complexity of delivering bundled voice and data
services. Service providers are able to operate more responsively and to
roll out services on a cost-effective basis through our software-based
remote bandwidth and service provisioning.
o Increased Value-Added Services. Our solution allows service providers to
enhance revenue derived from their installed customer base by selling
additional software-enabled services, such as a firewall or local call
routing. Our platform-based solution is designed to work with a broad range
of first mile transport technologies.
o Ease of Deployment. Our hardware products incorporate a software-based
management system, including a graphical user interface to facilitate
installation and use and to allow our service provider customers to
remotely manage their product offerings and upgrades. Our product solution,
combined with our extensive service program, simplifies and accelerates the
deployment of bundled voice and data services.
o Robust Service Platform. Our products provide telecommunications grade
quality and reliability. We offer robust solutions that have been designed
to navigate the unpredictable course of technology and standards
development. We design our products to allow software-based upgrades for
anticipated future network transport technologies.
Our customer premise solutions accept multiple transport services into a
single broadband access product. By incorporating various functions, such as
firewall, channel bank and features of a private branch exchange onto a single
platform, we enable our service provider customers to reduce their equipment
costs and network complexity, ease migration from circuit- to packet-based
networks, and enhance revenue opportunity from their installed customer base.
Our Products
We offer a family of products for the first mile designed to allow carriers
to cost-effectively and quickly deliver bundled voice and data services over
broadband connections in the local loop and in metro access networks.
Integrator-300
Our Integrator-300 is a hardware platform solution that allows service
providers to integrate their customers' voice, data, video and Internet
requirements onto a single T1 connection. The multiservice broadband access
products provide toll-quality voice service in both circuit- and packet-based
networks. In addition, it supports software-based value-added features including
intelligent local call routing, firewalls, service level agreement statistics
and Business OfficeXchange, which enables our products to operate as stand-alone
PBX systems. Consequently, the multiservice broadband access products not only
lower deployment costs and streamline provisioning, but also enable our service
providers to differentiate themselves in the market and address end users'
service requirements.
Our Integrator-300's channel bank function converts a T1 digital line
into 24 individual analog telephone circuits. In addition, its integrated
multiplexing and routing functionality allows the allocation of channels for
video and personal computers, or PCs, as well as high-speed, dedicated Internet
and frame relay access. The Integrator-300 also supports standard channel bank
functionality and local call routing, which enables 911, 411 and local toll-free
calls to be switched to ILECs and provides redundancy in the event of an
interruption in T1 service.
Multiservice Xchange product family
Our Multiservice Xchange product family includes the MX-500, MX-550 and
MX-400. The MX-500 and MX-550 are compact, multiservice broadband access
platforms that deliver circuit- and packet-based voice, data, video and Internet
access services. The MX-500 supports up to a maximum of two T1 lines and the
MX-550 supports an international equivalent, E1 line. The MX-500 and MX-550
provide support for the circuit- based TDM network to deliver voice and data
access services. The MX-500 and MX-550 also support asynchronous transfer mode,
or ATM, voice and data services. Accordingly, the MX-500 and MX-550 meet the
needs of both service providers who have implemented ATM networks, as well as
providers who intend to migrate from existing circuit- to ATM packet-based
networks. The MX-500 provides toll-quality voice service in both circuit- and
packet-based networks. The MX-550 also supports telecommunication protocols used
in major international markets. Consequently, the MX-500 and MX-550 enable our
service provider customers to realize savings in deployment, facility and
maintenance costs, streamline provisioning and expand the range of services our
customers are able to offer to end users.
We recently introduced the MX-400, a product originally developed by
Woodwind Communications Systems. The MX-400 is designed to provide a single
point of connectivity for the delivery of integrated network services. These
services include broadband access, continuous Internet access, public and
private voice/facsimile services and private data services using Frame Relay,
ATM or IP over SDSL or T1 delivery technologies. The MX-400 also enables Voice
over IP, or VoIP, with Media Gateway Control Protocol, or MGCP. The ability to
offer MGCP functionality allows service providers to take advantage of the
revenue generating benefits of deploying VoIP services to the small and medium
sized business market.
Our eLink product family of integrated access devices includes the
eLink-108, -208 and -216. VINA's eLink family, first shipped in November 2000,
currently offers a choice of up to eight or 16 analog phone ports and converges
parallel voice, data, video and Internet transmissions over TDM and Frame Relay
on one T1 connection. Both the eLink-208 and -216 further come with an Ethernet
port for data and form a complete solution in one space-saving footprint by
marrying a channel bank, IP router, DHCP server, CSU/DSU and firewall with
Network Address Translation.
The eLink-108, previously named the eLink-100, provides eight analog voice
ports and integrates voice, data, video and Internet traffic over ATM and Frame
Relay on one Synchronous Digital Subscriber Line connection at 2.3 megabits per
second. The eLink-108 is designed to do the work of multiple telecommunications
devices such as a channel bank and router and supports voice-over-Internet
Protocol, MGCP and standards-based quality of service.
Multiservice Broadband Xchange
Designed for installation in sites such as central offices or co-locations,
the Multiservice Broadband Xchange is designed to allow providers to deploy
bundled voice and data services over T1 connections in metro access networks.
Installed in central office and co-locations, the Multiservice Broadband
Xchange, or MBX, is a multiservice platform designed to enable service providers
to deploy bundled voice and data services to the first mile or edge of the
network. The MBX platform provides a software-based migration path from TDM
technology to ATM switching. This platform is designed for options that include
DSL, fiber optics and service mediation with IP services.
The MBX platform is designed to consolidate the voice concentration
functionality of a digital loop carrier, the data aggregation and switching
capabilities of a multiservice ATM switch, and the voice/data interworking
functions of a media gateway. The MBX provides flexibility in its support of
traditional concentration of voice lines with the added support of frame relay
switching. Recently it was discovered that the MBX failed to meet all of its
specified applications. We have temporarily suspended deployment of the MBX. The
MBX is still available to customers that require only limited applications. We
are currently working to resolve the software issues and expect to begin
reshipments of the MBX in the second quarter of 2002. However, we can give no
assurances that we will meet this goal or that we will be able to resolve all
the software issues and application deficiencies presented by the MBX. Failure
to resolve the issues with our MBX product in a timely manner could result in
the loss of customers and a decrease in net revenue and market share.
Sales and Marketing
Sales
We sell our products to service providers directly through our sales force,
and indirectly through our original equipment manufacturer, or OEM, customers
and value added resellers, or VARs. We have established OEM customer and other
marketing relationships in order to serve particular markets and provide our
service provider customers with opportunities to purchase our products in
conjunction with complementary products and services.
o Direct. Direct sales have represented, and we believe will continue to
represent, the majority of our sales. We believe that direct interaction
with service providers offers us the best understanding of the business
models and technical requirements of our customers. Further, we believe
that the competitive nature of the telecommunications equipment industry
requires us to reduce costs by eliminating intermediate steps in the
distribution chain.
o OEM. OEM sales, in particular with Lucent are an important distribution
channel for us in the United States. We believe Lucent's relationships with
CLECs, ILECs and small independent operating companies will continue to
enhance our ability to reach this large customer base. Lucent uses our
products to deliver complete, end-to-end solutions that are installed and
field-serviced by their technical support organizations. We plan to
initiate and develop relationships with additional leaders in the
communications equipment industry as potential OEM customers.
o Value-Added Resellers. In addition to direct sales and our OEM customers,
we have existing relationships with VARs focused on the service provider
market. We intend to leverage our existing VAR relationships to seek new
opportunities for the deployment of our products. In addition to the VARs
we work with in the United States, we are developing relationships with
VARs in Europe, Latin America and South America.
Whether we ship our products directly or through our OEM customers or VARs,
maintaining a direct relationship with each of our service provider customers is
an important part of our sales strategy. Since establishing a strong working
relationship with our customers is critical to sales success and future product
development, we strive to maintain strong visibility across our service provider
customer base, regardless of the distribution channel. As of December 31, 2001,
our sales organization consisted of 43 employees.
Marketing
Our marketing objectives include building market awareness and acceptance
of our company and our products, as well as generating qualified customer leads.
To accomplish these objectives, our marketing activities include public
relations, communications, research, sales support, direct marketing, a web
presence, product marketing, as well as channel marketing. We work directly with
service providers to help them develop business models and introduce product
packages, promotional programs and pricing strategies, all designed to promote
the delivery of multiple voice and data services over a single broadband access
facility. In addition, we actively work with a number of industry and trade
publications and industry analysts to educate service providers on how to
deploy, and the benefits of, multiservice broadband access networks. As of
December 31, 2001, our marketing organization consisted of 10 employees.
Customer Service and Support
Our customer service organization maintains and supports products sold to
service providers and offers technical support to our OEM customer and VARs. We
also assist our OEM customer and VARs in offering installation, maintenance and
support services to their customers for our products. We handle questions and
problems over the Internet, telephone and e-mail. We continually update our
website to enable our direct and indirect customers to download the latest
technical information and tips, along with firmware, software and product
manuals.
Customers
We primarily sell to CLECs, ILECs and independent operating companies
through direct sales and indirectly through our OEM customer and VARs. The
following is a list of some of our direct and indirect service provider
customers:
o Allegiance Telecom o e.spire Communications o Nuvox Communications
o Advanced TelCom Group o FiberNet o TelePacific Communications
o BellSouth o KMC Telecom o Time Warner Telecom.
o Broadwing o MCI WorldCom
Our top three customers, including Lucent, accounted for approximately 74%
of our net revenue for the year ended December 31, 2001, of which Lucent, Nuvox
Communications, and Advanced TelCom Group accounted for 42%, 20%, and 12% of our
net revenue, respectively.
For the year ended December 31, 2000, sales to Lucent accounted for 31% of
our net revenue. Five customers, including Lucent Technologies, accounted for
approximately 75% of our net revenue for the year ended December 31, 2000, of
which sales to Lucent and Nuvox Communications accounted for 31% and 28% of our
net revenue, respectively.
For the year ended December 31, 1999, sales to Lucent accounted for 46% of
our net revenue. Five customers, including Lucent, accounted for approximately
83% of our net revenue for the year ended December 31, 1999.
Strategic Relationships
A key element of our plan is to expand our sales, marketing and
distribution channels through strategic relationships. We have established, and
will continue to pursue, these strategic relationships in order to grow net
revenues, and to provide indirect sales and marketing of our solutions.
Lucent Technologies. In May 1998, we entered into an OEM agreement with
Lucent, which we restated in May 1999. The Lucent agreement expires in May 2002.
The agreement may be terminated by Lucent at any time upon 60 days' notice. Our
working relationship with Lucent offers each of us a number of strategic
advantages. Lucent uses our products to offer a complete end-to-end solution for
the first mile integrating voice and data traffic. In turn, we have the
opportunity to leverage Lucent's extensive sales force and marketing
relationships to reach new customers and markets.
Lucent incorporates our Integrator-300 and MX-500 into its ConnectReach
product family. ConnectReach consists of our Integrator-300 and a seamless
connection to Lucent's SLC-2000 Access System, a digital loop carrier, enabling
the two products to function as a single, integrated voice and data access
system. ConnectReach also interconnects with the AnyMedia Access System, a
next-generation digital loop carrier. Lucent's ConnectReach Plus consists of our
MX500 with a seamless connection with either Lucent's SLC-2000 Access System or
AnyMedia access system. Designed to offer cost-effective enhanced bundled
services to branch offices and small and medium sized businesses, the
ConnectReach Plus seamlessly integrates voice, data, video, and Internet access
over a common T1, E1 or DSL network connection. The ConnectReach Plus can be
deployed today in a TDM network to provide support for existing services such as
TDM voice, data, and Internet access. The same ConnectReach Plus chassis can be
configured for voice over ATM, providing a smooth migration path for service
providers.
Interoperability Relationships
Maintaining product compatibility with a broad range of equipment vendors
and central office gateway protocols is critical to our success as a supplier of
first mile solutions. These relationships allow us to work with other vendors to
develop solutions that continue to simplify the network and enhance our market
position with service providers. We have entered into interoperability
agreements with three vendors in the voice over DSL market--CopperCom, Jetstream
and Tollbridge. These agreements help minimize the technology risk to our
service provider customers.
Technology
Our products and technology enable multiservice access over a single
broadband network with an open architecture. The open nature of our products
allows our solution to be seamlessly integrated into the existing TDM
infrastructure to deliver enhanced bundled services while offering the ability
to migrate the network through hardware or software upgrades, to an asynchronous
transfer mode, or ATM network, and subsequently to an Internet protocol, or IP
network. We have developed extensive core competencies.
Asynchronous Transfer Mode and Frame Relay Expertise
We have developed expertise in packetized voice and data technology. The
two widely deployed and proven packet-based technologies that can be utilized to
integrate voice and data over a single line are ATM and frame relay. Our
expertise with packet-based technology stems from developing advanced system
functions such as digital signal processing, echo cancellation, dynamic call
setup and virtual circuit switching, as well as class of service management
capabilities.
Digital Subscriber Line Expertise
DSL has emerged as the most attractive first mile access technology for
providing high bandwidth data access over existing copper telephone lines. In
addition to high-speed access, DSL technology lowers access costs, compared to
equivalent T1 lines. Several versions of DSL are being implemented for differing
applications, including synchronous digital subscriber line, or SDSL, high-bit
rate digital subscriber line, or HDSL, and HDSL2 for business applications. We
have designed our products to scale quickly and easily add new transmission
technologies. We have implemented HDSL in our Integrator-300 product line and
implemented SDSL in our eLink-100 product line.
Internet and Internet Protocol Expertise
Demand for Internet services has grown exponentially. These services
require an all IP infrastructure, especially in the access network for Web
applications and use, e-commerce and email. Our products incorporate an IP
router which offers firewall options that include circuit level security
technology and packet filtering, as well as network address translation, or NAT,
and a software-based dynamic host control protocol, or DHCP, to provide dynamic
IP address management. These IP elements are necessary to ensure reliable and
secure Internet access. Our products offer our customers a fully integrated
Internet access solution.
Time Division Multiplexing Expertise
Most carrier networks use high bit rate digital systems employing
time-division multiplexing, or TDM. With extensive deployment of T1, digital
local offices and optical transmission, TDM became economically viable in the
1980s and 1990s. The existing telephone network is predominantly based on
digital time division switching, transmission and signaling over the out-of-band
control network. Our family of products has been designed to allow seamless
integration into existing TDM networks and to offer a migration path to emerging
technologies such as ATM or IP.
Hardware Design
Our customers favor telecommunications grade hardware designs. Thus we have
avoided hardware design technology commonly used in the PC industry. Instead our
designs incorporate microprocessors specifically developed for communications
applications and for high reliability and high availability environments. We
utilize design techniques that result in over-design of our digital circuitry,
analog circuitry, cooling and power systems. We incorporate field programmable
gate array logic components where possible to simplify designs and improve
reliability. Our interface designs incorporate popular standard chipsets in
order to assure compatibility with other carrier equipment. Our hardware designs
include many maintenance features that help our customers reduce their operating
costs. Service providers, for example, can use our equipment to test their
analog lines while the line is not inoperable. We design our hardware with a
high degree of modularity that gives the company the flexibility to create
solutions on short notice. Our highly modular designs also produce efficiencies
that allow us to reduce manufacturing costs. We perform extensive environmental
testing on all of our products and most of our products are designed for and
meet network equipment building systems, or NEBs, requirements adopted by most
carriers. Our products are also designed to meet the European telecommunications
and physical standards. We believe that all our designs meet applicable
Underwriters Labs and Federal Communications Commission standards.
Research and Development
We believe that our success is, to a large extent, dependent upon our
responsiveness to the continued technological migration of our customers'
networks. Our research and development group works closely with our OEM
customer, our customer steering committee, and our marketing department for
product definition and to assure compatibility with central office equipment.
Research and development expenses, including stock-based compensation, all
product development, system testing and documentation, were approximately $7.8
million in 1999, $20.6 million in 2000 and $23.3 million in 2001. All of our
product development costs have been expensed as incurred. We have licensed
certain commercially available software from third parties. We conduct the
majority of our research and development at our Newark, California headquarters
and are in the process of establishing additional centers in the United States
and internationally. As of December 31, 2001, we had 103 full-time employees in
research and development.
While we develop some custom products for our OEM customers, most of our
research and development efforts are focused on standard products. We have
significant hardware and software expertise in both TDM and ATM network
technologies. We place heavy emphasis on our design verification processes,
which include extensive testing at our Newark, California facilities and
significant interoperability testing at partner sites.
Manufacturing
We outsource our manufacturing operations to Benchmark Electronics.
Benchmark is located in Angleton, Texas. We believe outsourcing our
manufacturing enables us to benefit from the component purchasing capabilities
of a global contract manufacturer that can accommodate significant increases in
production volume and product mix, as necessary. We use a rolling 12-month
forecast based on anticipated product orders to determine our product
requirements. We, in turn, provide these forecasts to the contract manufacturer,
which purchases the components for our products and assembles them to our
specifications.
Benchmark performs board assembly, systems configuration and testing and
product shipping. We have developed comprehensive inspection tests and use
statistical process controls to assure the reliability and quality of our
products. Our manufacturing engineers develop all test procedures and design and
build all equipment and stations required to test our products. We integrate
these manufacturing tests with our contract manufacturer's build processes. Our
manufacturing personnel work closely with our design engineers to design for
manufacturability, and to ensure that our test methods remain current as
broadband access technologies evolve.
We obtain several of the key components used in our products from single or
limited sources of supply. We have encountered, and expect in the future to
encounter, difficulty in obtaining these components from our suppliers. In the
fourth quarter of 1999, we experienced a severe shortage of components,
particularly subscriber line interface circuits, which jeopardized our ability
to deliver our products in a timely fashion. The suppliers of our components
range from small vendors to large established companies. Components for which we
currently have only a single source include subscriber line interface circuits
that we purchase from Advanced Micro Devices, and microprocessors that we
purchase from Motorola Corporation. Components for which we currently have
limited sources include digital signal processors, DSL modules and flash memory.
We purchase most components on a purchase order basis and do not have guaranteed
supply arrangements with most of our key suppliers. We or our contract
manufacturer may not be able to obtain necessary supplies in a timely manner.
We select manufacturers and suppliers on the basis of technology,
manufacturing capacity, materials management, quality and cost. We may, in the
future, seek additional manufacturers and suppliers to meet our anticipated
requirements and lower the cost of our products. We obtained International
Standards Organization, or ISO, 9001 certification in 2000.
Competition
The market for multiservice broadband access products is extremely
competitive. We believe that competition will increase substantially as the
introduction of new technologies, deployment of broadband access networks, and
potential regulatory changes create new opportunities for established and
emerging companies. Furthermore, DSL- and T1-based solutions compete with
broadband wireless and cable offers. We face competition primarily in two areas:
equipment manufacturers, such as Accelerated Networks, Adtran, Carrier Access
Corporation, Polycom and Zhone Technologies and diversified equipment
manufacturers such as Cisco Systems, Lucent, Siemens, and Alcatel. In addition,
we may in the future compete with SS7 gateway suppliers as well as
Voice-over-DSL, or VoDSL, suppliers.
The principal competitive factors for products utilized in our markets
include:
o pricing;
o product features;
o reliability and scalability;
o performance;
o compatibility with other products;
o ease of installation and use;
o customer relationships, service and support; and
o brand recognition.
Some of our competitors have greater financial and other resources than do
we. With greater resources, our competitors may be able to take better advantage
of new competitive opportunities, including offering lease and other financing
programs. In addition, the rapid technological developments in our industry can
result in frequent changes to our group of competitors. Consolidation in our
industry may also affect our ability to compete. Acquisitions may strengthen our
competitors' financial, technical and marketing resources and provide greater
access to customers or new technologies. As a result, these competitors may be
able to devote greater resources than we can to the development, promotion, sale
and support of their products
Intellectual Property
We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. We currently have four patent applications pending,
and another patent application in process, but no issued patents. Although we
employ a variety of intellectual property in the development and manufacturing
of our products, we believe that none of our intellectual property is
individually critical to our current operations. However, taken as a whole, we
believe our intellectual property rights are significant and that the loss of
all or a substantial portion of such rights could have a material adverse effect
on our results of operations. Our intellectual property protection measures may
be insufficient to prevent misappropriation of our technology. From time to
time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies, processes or rights that are
important to our business. These assertions may result in litigation requiring
us to pay substantial damages or to redesign or stop selling our products. Also,
even if we were to prevail, litigation could be time-consuming and expensive and
could divert our time and attention. In addition, the laws of many foreign
countries do not protect our intellectual properties to the same extent as the
laws of the United States. We may desire or be required to renew or to obtain
licenses from others in order to further develop and market commercially viable
products effectively. Any necessary licenses may not be available on reasonable
terms.
Employees
As of December 31, 2001, we employed 186 full-time employees including 53
in sales and marketing, 11 in operations, 103 in research and development, and
19 in finance and administration. Our employees are not covered by any
collective-bargaining agreements, and we consider our relations with our
employees to be good.
Item 2. Properties
Our headquarters are in Newark, California, where we lease approximately
52,000 square feet of space. We also operate facilities in Richardson, Texas,
Germantown, Maryland and Berkshire, England. As of December 2001, we had
sublease and lease agreements covering approximately 75,000 square feet that
expire on various dates ranging from October 2002 to July 2007. We believe that
our current facilities are adequate to support our current and anticipated
near-term operations and believe that we can obtain additional space we may need
in the future on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of the ordinary course of business. As of the date of this report,
there are no material legal proceedings pending or, to our knowledge, threatened
against us.
Item 4. Submission of Matters to a Vote of Security Holders
On December 17, 2001, at a special meeting of our stockholders, we sought
and obtained stockholder approval for two proposals. The first proposal related
to the issuance of shares of our common stock and warrants to purchase shares of
our common stock in two private placements for an aggregate consideration of
$17.18 million pursuant to securities purchase agreements VINA entered into on
October 17, 2001 and October 19, 2001. In the first stage of the private
placements, we sold 5,619,037 shares and warrants to purchase 1,795,283 shares
to investors, resulting in gross proceeds to VINA of $3,590,564. In Proposal 1,
we sought and obtained stockholder approval for the additional issuance and sale
of up to an aggregate of 21,226,168 shares of common stock and warrants to
purchase 6,794,717 shares of common stock. 24,616,598 shares voted for Proposal
1, 45,971 shares voted against Proposal 1, 190,184 shares abstained, and there
were no broker non-votes. In Proposal 2, we sought and obtained stockholder
approval for the issuance of an aggregate of 2,217,527 shares of common stock,
either directly or upon conversion of promissory notes, to Sierra Ventures VII,
L.P. and Sierra Ventures Associates VII, LLC pursuant to the merger of MOS
Acquisition Corporation with and into VINA. 23,487,492 shares were voted for
Proposal 2, 1,358,588 shares were voted against Proposal 2, 6,673 shares
abstained, and there were no broker non-votes.
EXECUTIVE OFFICERS
Set forth below is information concerning our executive officers who report
under Section 16 of the Securities Exchange Act of 1934, as amended, and their
ages as of March 26, 2002:
Name Age Position(s)
---- --- -----------
Steven M. Bauman 57 President, Chief Executive Officer and Director
Stanley E. Kazmierczak 41 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Thomas J. Barsi 34 Vice President, Business Development and Marketing
Communications
Julie P. Cotton 55 Vice President, Human Resources
Darrell R. Furlong 44 Vice President, Engineering
T. Diane Pewitt 45 Executive Vice President, Operations
C. Reid Thomas 40 Executive Vice President, Sales and Product Marketing
Steven M. Bauman has served as our President, Chief Executive Officer and
as a director since August 1999. Mr. Bauman was a principal at GeoPartners
Research, a Cambridge, Massachusetts-based consultancy from February 1998 to
August 1999. He was Vice President/General Manager, Network Systems Division and
then Vice President of Virtual Private Networks of 3Com, a supplier of network
systems, from October 1995 to February 1998. Mr. Bauman was Vice President and
General Manager, Software Group, Farallon Communications (now Netopia) from 1993
until September 1995.
Stanley E. Kazmierczak has served as our Vice President, Finance and
Administration, Chief Financial Officer and Secretary since July 1999. Mr.
Kazmierczak served as Chief Financial Officer and Vice President, Finance and
Operations of Digital Link, a supplier of networking products, from January 1999
to July 1999, and as Chief Financial Officer from December 1992 to July 1999. He
was Vice President, Finance and Administration of Digital Link from March 1996
to January 1999.
Thomas J. Barsi has served as our Vice President, Business Development and
Marketing Communications since July 2001. Mr. Barsi served as our Vice
President, Business Development from December 1999 to July 2001, our Director of
Sales from January 1999 to December 1999 and our Director of Marketing from July
1996 to January 1999. Prior to joining us, he was Director of Marketing
responsible for the product line of high-end business products for Pacific Bell
Internet from June 1995 to July 1996 and a product manager at Pacific Bell
Internet from September 1994 to June 1995.
Julie P. Cotton has served as our Vice President, Human Resources since
June 2000. Ms. Cotton was Vice President, Human Resources at Pilot Network
Services, an Internet security company, from April 1999 to June 2000. She worked
as a management consultant from April 1998 to April 1999. Ms. Cotton was also
Director of Organizational Effectiveness for Applied Materials, a manufacturer
of semiconductor capital equipment, from October 1995 to April 1998. For a year
prior to her position with Applied Materials, Ms. Cotton worked as an
independent consultant.
Darrell R. Furlong has served as our Vice President, Engineering since
September 2001. Mr. Furlong was Senior Vice President of Research and
Development and Chief Technology Officer for METRObility Optical Systems from
October 1997 to September 2001. Mr. Furlong served as a Director of the router
division of Bay Networks/Wellfleet (acquired by Nortel Networks) from June 1992
to October 1997. He also directed all hardware development activities at Concord
Communications from May 1986 to June 1992.
T. Diane Pewitt has served as our Executive Vice President, Operations
since September 2001. Ms. Pewitt served as our Executive Vice President,
Operations and Research Development from March 2001 until September 2001 and our
Vice President, Operations from March 2000 until March 2001. She served as Vice
President of Messaging for the service provider line of business for Lucent
Technologies from June 1999 to March 2000. She also served as the Vice President
of Operations for Lucent Technologies' Octel Messaging Division from January
1998 to June 1999. Ms. Pewitt was also Director of Operations for Lucent from
June 1994 to January 1998.
C. Reid Thomas has served as our Executive Vice President, Sales and
Product Marketing since July 2001. Mr. Thomas served as our Vice President,
Sales from April 2000 until July 2001. He served as Managing Director, Sales for
Lucent Technologies, where he was responsible for AT&T Markets from August 1996
to April 2000. Prior to his employment with Lucent, Mr. Thomas was Group
Manager, Strategy and Alliances for Octel Communications, from January 1995 to
August 1996.
PART II
Item 5. Market Registrant's Common Equity and Related Stockholder Matters
(a) Our common stock has been traded on the Nasdaq National Market
("Nasdaq") under the symbol "VINA" since our initial public offering. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of our common stock on Nasdaq as reported in its consolidated
transaction reporting system.
High Low
---- ---
Fiscal year ended December 31, 2000
Third Quarter (from August 10, 2000).......... $24.00 $12.25
Fourth Quarter................................ 14.25 3.06
Fiscal year ended December 31, 2001
First Quarter................................. $ 6.00 $ 1.25
Second Quarter................................ 2.34 1.00
Third Quarter................................. 1.85 0.52
Fourth Quarter................................ 2.05 0.54
The last reported sale price of our common stock on the Nasdaq National
Market was $0.75 per share on March 26, 2002. As of March 26, 2002 our common
stock was held by 478 stockholders of record.
We have adopted a stockholder rights plan and declared a dividend
distribution of one right for each outstanding share of common stock to
stockholders of record as of August 6, 2001. Each right, when exercisable,
entitles the registered holder to purchase from VINA one one-thousandth of a
share of a new series of preferred stock, designated as Series A Participating
Preferred Stock, at a price of $35.00 per one one-thousandth of a share, subject
to adjustment. Other than the foregoing, we have never declared or paid any cash
dividends on our capital stock, and we do not currently intend to pay any cash
dividends on our common stock in the foreseeable future. We expect to retain
future earnings, if any, to fund the development and growth of our business. Our
board of directors will determine future dividends, if any.
In October 2001 we issued and sold an aggregate 5,619,037 shares of our
common stock and warrants to purchase 1,795,283 shares of our common stock to a
total of 7 investors, including members of our management and affiliates of our
board of directors, at a per share price of $.639 per share for an aggregate
purchase price of $3.6 million.
In December 2001 we issued and sold 15,006,942 shares of our common stock
and warrants to purchase 4,794,717 shares of our common stock to a total of 7
investors, including members of our management and affiliates of our directors,
at a per share price of $.639 for an aggregate purchase price of $9.6 million.
The exercise price of the warrants is $1.00 per share.
In December 2001 we issued and sold to one investor 1,524,390 shares of our
common stock and warrants to purchase 500,000 shares of our common stock at a
purchase price of $.656 per share for an aggregate purchase price of $1.0
million.
All of the warrants mentioned above have an exercise price of $1.00 per
share. Each warrant has a term of three years. If the closing trading price of
shares of our common stock is $2.00 or more for twenty days during a period of
thirty consecutive trading days, the warrants will terminate early and will
cease to be exercisable ten days following receipt of notice from VINA of such
an occurrence. Upon exercise of the warrants, VINA will determine whether the
exercise price is to be paid in cash or in shares of VINA common stock pursuant
to net issuance provisions. However, if the warrants are exercised upon the
occurrence of an early termination as described above, then the investor may
elect to pay the exercise price in cash or in shares of VINA common stock
pursuant to the net issuance provisions.
In December 2001 we issued an aggregate of 2,217,527 shares of our common
stock to two Sierra Ventures entities pursuant to an agreement and plan of
merger.
The sales of the above securities were considered to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with a view to or for sale with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in these transactions. All recipients had
adequate access, through their relationship with the Company to information
about the Company.
(b) On August 9, 2000, the SEC declared effective our Registration
Statement on Form S-1 (No. 333-36398), relating to the initial public offering
of our common stock. The managing underwriters in the offering were Lehman
Brothers, Inc., Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray, Inc.
The offering commenced on August 10, 2000, and was closed on August 15, 2000,
after we sold all of the 3,000,000 shares of common stock registered under the
Registration Statement. On September 15, 2000, the underwriters purchased
450,000 shares from us in connection with the exercise of the underwriters'
over-allotment option. The initial public offering price was $12 per share for
an aggregate initial public offering of $41.4 million (including the 450,000
shares sold to the underwriters upon exercise of the over-allotment option),
netting proceeds of approximately $36.5 million to us after underwriting fees of
approximately $2.9 million and other offering expenses of approximately $2.0
million. None of these fees and expenses were paid to any director, officer,
general partner of the Company or their associates, persons owning 10% or more
of any class of equity securities of the Company or an affiliate of the Company.
The net proceeds were predominately held in a money market fund and
commercial paper and bonds as of December 31, 2001. Of the net proceeds
approximately $7.5 million was used towards partial consideration of the
purchase of Woodwind Communications Systems, Inc. and $17.1 million was used
towards operating expenses of the business.
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data has been derived from
the audited consolidated financial statements. When you read this selected
consolidated financial data, it is important that you also read the consolidated
financial statements and related notes included in this Form 10-K, as well as
the section of this Form 10-K entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Our historical results are not
necessarily indicative of our future results.
Years Ended December 31,
--------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- ------- --------
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenue ....................................... $ 579 $ 4,393 $ 12,700 $ 32,078 $ 46,896
Cost of revenue (excluding stock-based
compensation) .................................. 542 2,054 7,713 19,240 29,551
-------- -------- -------- -------- --------
Gross profit (excluding stock-based compensation) . 37 2,339 4,987 12,838 17,345
Costs and expenses:
Research and development (excluding stock-
based compensation) ........................ 1,906 4,174 6,690 12,609 18,841
Selling, general and administrative (excluding
stock-based compensation) .................. 2,532 6,414 10,881 21,124 22,898
Stock-based compensation, net (*) ............ 79 154 4,715 24,169 10,570
In-process research and development .......... -- -- -- -- 5,081
Amortization of intangible assets ............ -- -- -- -- 8,243
Restructuring expenses (excluding stock-based
compensation) .............................. -- -- -- -- 991
-------- -------- -------- -------- --------
Total costs and expenses ................... 4,517 10,742 22,286 57,902 66,624
-------- -------- -------- -------- --------
Loss from operations .............................. (4,480) (8,403) (17,299) (45,064) (49,279)
Other income, net ................................ 165 413 223 1,732 1,383
-------- -------- -------- -------- --------
Net loss .......................................... $ (4,315) $ (7,990) $(17,076) $(43,332) $(47,896)
======== ======== ======== ======== ========
Net loss per share, basic and diluted(1) .......... $ (4.83) $ (2.63) $ (3.30) $ (2.63) $ (1.29)
======== ======== ======== ======== ========
Shares used in computation, basic and diluted(1) .. 894 3,038 5,169 16,467 37,121
======== ======== ======== ======== ========
- -------------------------
(*) Stock-based compensation, net:
Cost of revenue ................................... $ -- $ 2 $ 152 $ 1,855 $ 1,016
Research and development .......................... 36 78 1,098 7,985 4,446
Selling, general and administrative ............... 43 74 3,465 14,329 7,677
Restructuring benefit ............................. -- -- -- -- (2,569)
-------- -------- -------- -------- --------
Total ............................................. $ 79 $ 154 $ 4,715 $ 24,169 $ 10,570
======== ======== ======== ======== ========
December 31,
-----------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------ ------- -------
(in thousands)
Consolidated Balance Sheet Data
Cash, cash equivalents and short-term investments $ 3,543 $11,359 $ 2,568 $44,499 $16,305
Working capital (deficit) ....................... 2,896 11,058 (492) 40,657 28,558
Total assets .................................... 4,524 14,456 6,673 58,536 79,911
Long-term debt, less current portion ............ 400 655 534 -- --
Total stockholders' equity ...................... 3,233 11,549 348 44,829 66,274
- ------------
(1) The diluted net loss per share computation excludes potential shares of
common stock issuable pursuant to convertible preferred stock and options
to purchase common stock, as well as common stock subject to repurchase
rights held by us, as their effect would be antidilutive. See Notes 1 and 9
of notes to consolidated financial statements for a detailed explanation of
the determination of the shares used in computing basic and diluted net
loss per share.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section and other parts of this report contain forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in forward looking statements for many
reasons, including but not limited to the risks discussed in this report under
the heading "Other Factors That May Affect Results." The following discussion
and analysis should be read in conjunction with "Selected Consolidated Financial
Data" and the Consolidated Financial Statements and related notes included
elsewhere in this Annual Report on Form 10-K.
Recent Developments
On February 27, 2001, we completed the acquisition of Woodwind
Communications Systems, Inc., a provider of voice-over-broadband network edge
access solutions. We issued 4.1 million shares of common stock and paid $7.5
million in cash in exchange for all of Woodwind's outstanding capital stock. In
addition, we assumed Woodwind's outstanding stock options, which, if fully
vested and exercised, would result in the issuance of 1.1 million shares of VINA
common stock. The transaction was accounted for as a purchase.
During July 2001, we announced and completed a restructuring plan intended
to better align our operations with the changing market conditions. This plan is
designed to prioritize VINA's higher growth areas of business, focus on
opportunities for profit contribution and reduce expenses. This restructuring
included workforce reduction of approximately 40 employees across all functions
and an operational reorganization. During the quarter ended December 31, 2001,
we sold approximately 22.2 million shares of common stock and warrants to
purchase approximately 7.1 million shares of our common stock in a private
offering, resulting in the receipt of gross proceeds by VINA of approximately
$14.2 million. The warrants issued pursuant to this offering have an exercise
price of $1.00 per share, and have a three-year term, subject to earlier
termination if our share price equals or exceeds $2.00 for a period of 20 out of
any 30 consecutive trading days. We expect to use the net proceeds of this
offering for working capital, research and development and general corporate
purposes. Proceeds may also be used to make strategic investments, acquire or
license technology or products, or acquire businesses that may complement our
business.
In December 2001, we acquired optical concentration technology and related
equipment business of Metrobility Optical Systems. In connection with this
acquisition we issued to the Sierra Ventures entities 2.2 million shares of our
common stock valued at $2.5 million on the purchase date. The total purchase
price (including $676,000 in direct acquisition expenses) was allocated on a
fair value basis resulting in $1.9 million of intellectual property (intangible
assets) and $1.3 million of fixed assets.
Overview
VINA Technologies, Inc. is a leading developer of multiservice broadband
access communications equipment that enables communications service providers to
deliver bundled voice and data services. Our products integrate various
broadband access technologies, including existing circuit-based and emerging
packet-based networks, onto a single platform to alleviate capacity constraints
in communications networks.
From our inception in June 1996 through February 1997, our operating
activities related primarily to developing and testing prototype products,
commencing the staffing of our sales and customer service organizations and
establishing relationships with our customers. We began shipping our
Multiservice Integrator-300 product family in March 1997, our Multiservice
Xchange product in May 1999 and our MBX product in September 2001. Since
inception, we have incurred significant losses, and as of December 31, 2001, we
had an accumulated deficit of $121.4 million.
We market and sell our products and services directly to communications
service providers and through OEM customers and value-added resellers, or VARs.
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
and determinable and collectibility is reasonably assured. Product revenue is
generated from the sale of communications equipment embedded with software that
is essential to its functionality, and accordingly, the Company accounts for
these transactions in accordance with SEC Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition in Financial Statements, and Statement of Position
(SOP) 97-2, Software Revenue Recognition. Product revenue is recognized when all
SAB No. 101 and SOP 97-2 criteria are met which generally occurs at the time of
shipment. In multiple element arrangements where there are undelivered elements
at the time of shipment, product revenue is recognized at the time of shipment
as the residual value of the arrangement after allocation of fair value to the
undelivered elements based on vendor specific objective evidence (VSOE). Service
revenue is generated from the sale of installation, training and postcontract
customer support (PCS) agreements related to the communications equipment. The
Company also accounts for these transactions in accordance with SAB No. 101 and
SOP 97-2, and as such recognizes revenue when all of the related revenue
recognition criteria are met which is: (i) at the time the installation or
training service is delivered; and (ii) ratably over the term of the PCS
agreement. In multiple element arrangements where these services are undelivered
when the communications equipment is shipped, the Company defers the fair value
of these undelivered elements based on VSOE and recognizes revenue as the
services are delivered. The Company additionally records a provision for
estimated sales returns and warranty costs at the time the product revenue is
recognized.
Our customer base is highly concentrated. A relatively small number of
customers have accounted for a significant portion of our historical net
revenue. For the year ended December 31, 2001, sales to our three largest
customers accounted for approximately 74% of our net revenue, of which sales to
Lucent Technologies, Nuvox Communications and Advanced TelCom Group accounted
for 42%, 20% and 12% of our net revenue, respectively. While the level of sales
to any specific customer is anticipated to vary from period to period, we expect
that we will continue to experience significant customer concentration for the
foreseeable future. To date, international sales have not been significant.
International sales have been denominated primarily in U.S. dollars and,
accordingly, we have not been exposed to significant fluctuations in foreign
currency exchange rates.
Cost of revenue consists primarily of costs of products manufactured by a
third-party contract manufacturer, component costs, depreciation of property and
equipment, personnel related costs to manage the contract manufacturer and
warranty costs, and excludes amortization of deferred stock compensation. We
conduct program management, manufacturing engineering, quality assurance and
documentation control at our facility in Newark, California. We outsource our
manufacturing and testing requirements to Benchmark Electronics. Accordingly, a
significant portion of our cost of revenue consists of payments to this contract
manufacturer.
We expect our gross margin to be affected by many factors, including
competitive pricing pressures, fluctuations in manufacturing volumes, inventory
obsolescence, costs of components and sub-assemblies, costs from our contract
manufacturers and the mix of products or system configurations sold.
Additionally, our gross margin may fluctuate due to changes in our mix of
distribution channels. Currently, we derive a significant portion of our revenue
from sales made to our OEM customers. A significant increase in revenue to these
OEM customers would adversely reduce our gross margin percentage.
Research and development expenses consist primarily personnel and related
costs, consulting expenses and prototype costs related to the design,
development, testing and enhancement of our multiservice broadband access
products, and excludes amortization of deferred stock compensation. We expense
all of our research and development expenses as incurred.
Selling, general and administrative expenses consist primarily of;
personnel and related costs, including salaries and commissions for personnel
engaged in direct and indirect selling and marketing and other administrative
functions and promotional costs, including trade shows and related costs, and
excludes amortization of deferred stock compensation.
Stock-based compensation consists of the fair value of stock options
granted to non-employees for services and the amortization of deferred stock
compensation on stock options granted to employees. Deferred stock compensation
represents the difference between the deemed fair market value of our common
stock at the time of the grant of the option and the exercise prices of these
options. We are amortizing deferred stock compensation using a multiple option
award valuation approach over the vesting periods of the applicable options,
which is generally four years. The amortization of deferred stock compensation,
based upon options granted through December 31, 2001, was $10.3 million in 2001
and is expected to be $5.0 million in 2002, $1.7 million in 2003 and $406,000
thereafter.
Other income, net, consists primarily of interest earned on our cash, cash
equivalent and short-term investment balances partially offset by interest
expense associated with our debt obligations.
From inception through December 31, 2001, we incurred net losses for
federal and state income tax purposes and have not recognized any income tax
provision or benefit. As of December 31, 2001, we had $72.0 million of federal
and $26.0 million of state net operating loss carryforwards to offset future
taxable income that expire in varying amounts through 2020 and 2005,
respectively. Given our limited operating history and losses incurred to date,
coupled with difficulty in forecasting future results, a full valuation
allowance has been provided against deferred tax assets. Furthermore, as a
result of changes in our equity ownership from our preferred stock offerings and
initial public offering, utilization of net operating losses and tax credits may
be subject to substantial annual limitations due to the ownership change
limitations as defined by Section 382 of the Internal Revenue Code and similar
state provisions. The annual limitation may result in the expiration of net
operating losses and tax credits before utilization.
Results of Operations
The following table sets forth selected consolidated statements of
operations data as a percentage of net revenue for the periods indicated. For
purposes of this table, cost of revenue, gross profit, research and development,
and selling, general and administrative amounts and restructuring expenses do
not include stock-based compensation.
Years Ended December 31,
------------------------------
1999 2000 2001
-------- -------- ---------
Net revenue ................................ 100.0% 100.0% 100.0%
Cost of revenue (excluding stock-based
compensation) ............................ 60.7 60.0 63.0
------ ------ ------
Gross profit (excluding stock-based
compensation) ............................ 39.3 40.0 37.0
------ ------ ------
Costs and expenses:
Research and development (excluding stock-
based compensation) .................. 52.7 39.3 40.2
Selling, general and administrative
(excluding stock-based compensation) . 85.7 65.9 48.8
Stock-based compensation, net (*) ........ 37.1 75.3 22.6
In-process research and development ...... -- -- 10.8
Amortization of intangible assets ........ -- -- 17.6
Restructuring expenses (excluding stock-
based compensation) ................. -- -- 2.1
------ ------ ------
Total costs and expenses ................... 175.5 180.5 142.1
------ ------ ------
Loss from operations ....................... (136.2) (140.5) (105.1)
------ ------ ------
Other income, net .......................... 1.8 5.4 3.0
------ ------ ------
Net loss ................................... (134.4)% (135.1)% (102.1)%
====== ====== ======
-------------------------
(*) Stock-based compensation, net:
Cost of revenue........................ 1.2% 5.8% 2.2%
Research and development............... 8.6% 24.9% 9.5%
Selling, general and administrative.... 27.3% 44.6% 16.4%
Restructuring expenses................. - - (5.5%)
------ ------ ------
Total.................................. 37.1% 75.3% 22.6%
====== ====== ======
Fiscal Years Ended December 31, 2001, 2000 and 1999
Net revenue. Net revenue was $46.9 million in 2001, $32.1 million in 2000
and $12.7 million in 1999. The 46% increase in net revenues in 2001 over 2000
was primarily due to increased unit sales of Integrator-300's and eLink products
to existing customers. The 153% increase in net revenue in 2000 over 1999 was
primarily due to increased unit sales to existing customers and sales to new
customers.
Cost of revenue. Cost of revenue including stock-based compensation was
$30.6 million in 2001, $21.1 million in 2000 and $7.9 million in 1999. Gross
profit including stock-based compensation increased to $16.3 million in 2001
from $11.0 million in 2000 and $4.8 million in 1999. Gross margin including
stock-based compensation increased to 35% in 2001 from 34% in 2000 primarily due
to a reduction in stock-based compensation to $1.0 million in 2001 compared to
$1.9 million in 2000. Gross margin was further impacted in 2001 by a $1.8
million charge for excess inventory purchase commitment incurred in the first
quarter of 2001. The provision for the excess inventory purchase commitments was
primarily the result of a shift in one of our customer's demands from next
generation network equipment to traditional Time Division Multiplex, or
TDMnetwork equipment. Gross margin including stock-based compensation decreased
to 34% in 2000 from 38% in 1999 primarily due to increased stock-based
compensation in cost of revenue. We anticipate that our gross margin may
continue to fluctuate due to many factors, including competitive pricing
pressures, fluctuations in manufacturing volumes, costs of components and
subassemblies, costs from our contract manufacturers, the mix of products or
system configurations sold and changes in our mix of distribution channels.
Research and development expenses. Research and development expenses
including stock-based compensation increased to $23.3 million in 2001 from $20.6
million in 2000 and $7.8 million in 1999. These increases were primarily a
result of additional personnel costs, higher prototype expenses and higher
consulting costs associated with our continuing research and development
efforts. We believe continued investment in research and development is critical
to attaining our strategic product and cost reduction objectives, and as a
result, we expect these research and development expenses to increase in
absolute dollars in the future. Research and development expenses including
stock-based compensation have changed as a percentage of net revenue from 61% in
1999 to 64% in 2000 and 50% in 2001. The increase from 1999 to 2000 was
primarily due to an increase of $6.9 million stock-based compensation expense.
The decrease from 2000 to 2001 was due primarily due to a $3.5 million decrease
in stock-based compensation expense.
Selling, general and administrative expenses. Selling, general and
administrative expenses including stock based compensation decreased to $30.6
million in 2001 from $35.5 million in 2000 due to a decrease in stock-based
compensation of $6.7 million partially offset by a $1.8 million increase in
other general costs. The increase in expense from $14.3 million in 1999 to $35.5
in 2000 was primarily due to an increase in stock-based compensation of $10.9
million, increased personnel costs, including hiring of additional sales and key
management personnel, as well as increased recruiting costs and increased
promotional expenses, including trade shows and advertising. Selling, general
and administrative expenses including stock-based compensation decreased as a
percentage of net revenue from 113% in 1999 to 111% in 2000 and 65% in 2001.
These decreases were a result of net revenue increasing at a rate faster than
selling, general and administrative expenses and fluctuations in stock-based
compensation expenses. We intend to actively participate in marketing, business
development activities, selling and promotional programs, expand our field sales
operations and customer support organizations and build our infrastructure to
support our anticipated business growth and operation as a public company. As a
result, we expect expenses related to these programs to continue to increase
substantially in absolute dollars in the future.
Stock-based compensation. Stock-based compensation expense decreased to
$10.6 million for 2001 from $24.2 million for 2000 and increased from $4.7
million for 1999. The increase from 1999 to 2000 is due to an increased number
of options issued in 2000 with an exercise price below fair market value. The
decrease from 2000 to 2001 is due to using the multiple-award approach for
amortizing stock-based compensation coupled with the net restructuring benefit
of $2.6 million associated with the reversal of prior period estimated stock
compensation expense on previously amortized unvested stock options. Based on
stock options granted through December 31, 2001, we expect to record
amortization of stock compensation expense of $5.0 million and $1.7 million in
2002 and 2003, respectively, and $406,000 thereafter.
In-process research and development. On February 27, 2001, we completed the
acquisition of Woodwind Communications Systems, Inc., or Woodwind. In 2001 we
recorded a one-time charge of $5.1 million for the purchased in-process
technology related to development projects that had not reached technological
feasibility, had no alternative future use, and for which successful development
was uncertain. The conclusion that the in-process development effort, or any
material sub-component, had no alternative future use was reached in
consultation with the our and Woodwind's management.
Amortization of intangible assets. On February 27, 2001 we completed the
acquisition of Woodwind Communications Systems, Inc., or Woodwind. As part of
the acquisition, we acquired goodwill and other intangible assets of $38.5
million. In December 2001 we also purchased optical concentrator technology. As
part of the purchase, we acquired $1.9 million of intellectual property
(intangible assets). These assets are being amortized based on their expected
useful lives. The expense recorded in the year 2001 was $8.2 million.
Restructuring expenses. Restructuring expenses, excluding the impact of
stock-based compensation, of $991,000 for the year ended December 31, 2001
resulted primarily from severance and outplacement costs associated with the
workforce reduction plan in the third quarter of 2001. Including the impact of
stock-based compensation, we recorded a net restructuring benefit of $1.6
million for the year ended December 31, 2001. As of December 31, 2001, we made
$945,000 in severance payments. The remaining balance of $46,000 related to
severance and fringe benefits is expected to be disbursed in the first quarter
of 2002.
Other income, net. Interest and other income, net decreased to $1.4
million, in 2001 from $1.7 million in 2000. This decrease was primarily due to
lower cash balances resulting in lower interest earned. Interest and other
income, net, increased to $1.7 million in 2000 from $223,000 in 1999. This
increase was primarily attributable to higher cash balances resulting in higher
interest income earned offset by interest expense on bank loans incurred in
1999.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 2001 were $15.8 million, compared
to $7.7 million at December 31, 2000. The increase of $8.1 million was
attributable to cash provided by investing activities of $33.8 million and cash
provided by financing activities of $4.6 million offset by cash used in
operating activities of $30.4 million. Cash provided by investing activities was
primarily attributable to proceeds from sales of short-term securities and cash
provided by financing activities was attributable to net proceeds from the sale
of common stock. Cash used in operating activities of $30.4 million consisted
primarily of the net loss of $47.9 million, an increase in accounts receivable
of $4.6 million, an increase in inventory of $2.6 million partially offset by
non-cash charges of $10.1 million for depreciation and amortization, $10.6
million for stock-based compensation and $5.1 million for in-process research
and development. We anticipate operating expenses will constitute a material use
of our cash resources. In addition, we may use cash resources to fund
acquisitions such as our recent acquisition of Woodwind Communications Systems
and of certain assets of Metrobility Optical Systems, or invest in complementary
businesses, technologies or products. We believe our cash on hand will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months.
During July 2001, we announced a restructuring plan intended to better
align our operations with changing market conditions. With our cost reduction
efforts and if we successfully execute our business plan, we believe we will be
able to reach a cash flow break-even position. However, we will from time to
time review and may pursue additional financing opportunities. For example, to
provide for additional working capital needs, in the quarter ended December 31,
2001, we issued approximately 22.2 million shares and warrants to purchase
approximately 7.1 million shares of common stock, resulting in the receipt of
gross proceeds of $14.2 million. If we are unable to execute our business plan
as anticipated we may need to obtain additional funding during 2002, and we may
seek to sell additional equity or debt securities or secure a bank line of
credit. Currently, we have no other immediately available sources of liquidity.
The sale of additional equity or other securities could result in additional
dilution to our stockholders. Arrangements for additional financing may not be
available in amounts or on terms acceptable to us, if at all.
New Accounting Standards
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133,
certain contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The adoption of SFAS No. 133 did not have an impact
on the Company's consolidated financial position, results of operations or cash
flows as the Company does not utilize free-standing and embedded derivative
instruments.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will be tested at least
annually for impairment. The Company will adopt SFAS No. 142 for its fiscal year
beginning January 1, 2002. Upon adoption of SFAS No. 142, the Company will stop
the amortization of intangible assets with indefinite lives (goodwill, which
includes the reclass of workforce-in-place, and tradenames) with a net carrying
value of $27.6 million at December 31, 2001 and annual amortization of $8.8
million that resulted from business combinations initiated prior to the adoption
of SFAS No. 141. The Company has evaluated goodwill under SFAS No. 142 and has
determined the adoption of this statement will not result in an impairment.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for the Company on
January 1, 2002. Management believes the adoption of this statement will not
have an impact on the financial position, results of operations or cash flows of
the Company.
In November 2001, consensus was reached by the Emerging Issues Task Force
(EITF) on EITF No. 01-09, Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor's Products. EITF No. 01-09 addresses the
accounting consideration given by a vendor to a customer. The EITF is effective
for the Company on January 1, 2002. Management has not yet determined the impact
of adoption on the consolidated financial statements.
RISK FACTORS
Risks Related To Our Business
Because we have a limited operating history and operate in a new and rapidly
evolving telecommunications market, you may have difficulty assessing our
business and predicting our future financial results.
We were incorporated in June 1996 and did not begin shipping our products
until March 1997. Due to our limited operating history, it is difficult or
impossible for us to predict our future results of operations.
We have a history of losses, we expect future losses, and we may not be able to
generate sufficient net revenue in the future to achieve or sustain
profitability.
We have incurred significant losses since inception and expect that our net
losses and negative cash flow from operations will continue for the foreseeable
future. We incurred net losses of approximately $17.1 million in 1999, $43.3
million in 2000 and $47.9 million in 2001. As of December 31, 2001, we had an
accumulated deficit of approximately $121.4 million. To achieve profitability,
we will need to generate and sustain substantially higher net revenue while
maintaining reasonable cost and expense levels. We expect to continue to incur
significant expenses for research and development, sales and marketing, customer
support, developing direct sales and distribution channels, and general and
administrative expenses.
We rely on a small number of telecommunications customers for substantial
portions of our net revenue. If we lose one of our customers or experience a
delay or cancellation of a significant order or a decrease in the level of
purchases from any of our customers, our net revenue could decline and our
operating results and business could be harmed.
We derive almost all of our net revenue from direct sales to a small number
of telecommunications customers and our indirect sales through Lucent
Technologies, one of our original equipment manufacturer, or OEM, customers that
sell and market our products. If we lose one of our customers or experience a
delay or cancellation of a significant order or a decrease in the level of
purchases from any of our customers, our net revenue could decline and our
operating results and business could be harmed. Our three largest customers
accounted for approximately 74% of our net revenue for the year ended December
31, 2001, specifically sales to Lucent Technologies, Nuvox Communications, and
Advanced TelCom Group accounted for 42%, 20% and 12%, respectively. We expect
that the telecommunications industry will continue to experience consolidation.
If any of our customers is acquired by a company that is one of our competitors'
customers, we may lose its business. In addition, if an OEM customer is
acquired, we could lose that customer. For example, Intermedia Communications,
one of our service provider customers, was acquired by MCI WorldCom. Also, the
ultimate business success of our direct service provider customers, our OEM
customers and value added resellers, or VARs, and our indirect customers who
purchase our products through an OEM customer and VARs, could affect the demand
for our products. In addition, any difficulty in collecting amounts due from one
or more of our key customers could harm our operating results and financial
condition. If any of these events occur, our net revenue could decline and our
operating results and business could be harmed.
The difficulties experienced by many of our current and potential CLEC customers
have had and are expected to continue to have an adverse effect on our business.
To date, we have sold the majority of our products to competitive local
exchange carrier, or CLEC, customers, either directly or through our OEM
customers. CLECs have experienced extreme difficulties in obtaining financing
for their businesses. As a result, CLECs have been forced to scale back their
operations or terminate their operations. If our customers become unable to pay
for shipped products, we may be required to write-off significant amounts of our
accounts receivable. Similarly, if our customers order products and then suspend
or cancel the orders prior to shipping, we will not generate revenues from the
products we build. In such circumstances, our inventories may increase and our
expenses will increase. Further, we may incur substantially higher inventory
carrying costs and excess inventory that could become obsolete over time. We
expect that our business will continue to be significantly and negatively
affected unless and until there is substantial improvement in the ability of
CLECs to finance their businesses.
Since the telecommunications industry is characterized by large purchase orders
placed on an irregular basis, it is difficult to accurately forecast the timing
and size of orders. Accordingly, our net revenue and operating results may vary
significantly and unexpectedly from quarter to quarter.
We may receive purchase orders for significant dollar amounts on an
irregular basis depending upon the timing of our customers' network deployment
and sales and marketing efforts. Because orders we receive may have short lead
times, we may not have sufficient inventory to fulfill these orders, and we may
incur significant costs in attempting to expedite and fulfill these orders. In
addition, orders expected in one quarter could shift to another because of the
timing of our customers' purchase decisions and order reductions or
cancellations. For example, under our OEM agreement with Lucent, Lucent has the
right to delay previously placed orders for any reason. The time required for
our customers to incorporate our products into their own can vary significantly
and generally exceeds several months, which further complicates our planning
processes and reduces the predictability of our operating results. Accordingly,
our net revenue and operating results may vary significantly and unexpectedly
from quarter to quarter.
Our customers have in the past built, and may in the future build,
significant inventory in order to facilitate more rapid deployment of
anticipated major projects or for other reasons. After building a significant
inventory of our products, these parties may be faced with delays in these
anticipated major projects for various reasons. For example, as a result, Lucent
may be required to maintain a significant inventory of our products for longer
periods than they originally anticipated, which would reduce further purchases.
These reductions, in turn, could cause fluctuations in our future results of
operations and severely harm our business and financial condition.
We have a limited order backlog. If we do not obtain substantial orders in a
quarter, we may not meet our net revenue objectives for that quarter.
Since inception, our order backlog at the beginning of each quarter has not
been significant, and we expect this trend to continue for the foreseeable
future. Accordingly, we must obtain substantial additional orders in a quarter
for shipments in that quarter to achieve our net revenue objectives. Our sales
agreements allow purchasers to delay scheduled delivery dates without penalty.
Our customer purchase orders also allow purchasers to cancel orders within
negotiated time frames without significant penalty. In addition, due in part to
factors such as the timing of product release dates, purchase orders and product
availability, significant volume shipments of our products could occur near the
end of our fiscal quarters. If we fail to ship products by the end of a quarter,
our operating results could be adversely affected for that quarter.
Our products require substantial investment over a long product development
cycle, and we may not realize any return on our investment.
The development of new or enhanced products is a complex and uncertain
process. We and our OEM customers have in the past and may in the future
experience design, manufacturing, marketing and other difficulties that could
delay or prevent the development, introduction or marketing of new products and
enhancements. For example, we expected to begin shipment of our MBX product in
the second quarter of 2001, but the schedule for these shipments was delayed to
the third quarter of 2001 because of continued development issues and then
suspended temporarily due to the MBX's failure to meet all of its specified
applications. Development costs and expenses are incurred before we generate any
net revenue from sales of products resulting from these efforts. We intend to
continue to incur substantial research and development expenses, which could
have a negative impact on our earnings in future periods.
If we do not predict our manufacturing requirements accurately, we could incur
additional costs and suffer manufacturing delays.
We currently provide forecasts of our demand to our contract manufacturer
12 months prior to scheduled delivery of products to our customers. Lead times
for the materials and components that we order vary significantly and depend on
numerous factors, including the specific supplier, contract terms and demand for
a component at a given time. If we overestimate our manufacturing requirements,
demand for our products are lower than forecasted, or a product in our
manufacturing forecast becomes obsolete, our contract manufacturer may have
purchased excess or obsolete inventory. For example, in March 2001 we expensed
$1.8 million for excess inventory purchase commitments. For those parts that are
unique to our products, we could be required to pay for these excess or obsolete
parts and recognize related inventory write-offs. If we underestimate our
requirements, our contract manufacturer may have an inadequate inventory, which
could interrupt manufacturing of our products and result in delays in shipments
which could negatively affect our net revenue in such periods.
If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses, experience product returns and lost sales and
be subject to product liability claims.
Our products are highly technical and are designed to be deployed in very
large and complex networks. While our products have been tested, because of
their nature, they can only be fully tested when deployed in networks that
generate high amounts of voice or data traffic. Because of our short operating
history, some of our products have not yet been broadly deployed. Consequently,
our customers may discover errors or defects in our products after they have
been broadly deployed. For example, following deployment of our MBX product it
was discovered that the MBX failed to meet all of its specified applications. We
have temporarily suspended deployment of the MBX. The MBX is still available to
customers that require only limited applications. We are currently working to
resolve the software issues and expect to begin reshipments of the MBX in our
second quarter of 2002. However, we can give no assurances that we will meet
this goal or that we will be able to resolve all the software issues and
application deficiencies presented by the MBX. Failure to resolve the issues
with our MBX product in a timely manner could result in the loss of customers
and a decrease in net revenue and market share. In addition, our customers may
use our products in conjunction with products from other vendors. As a result,
when problems occur, it may be difficult to identify the source of the problem.
Any defects or errors in our products discovered in the future, or failures of
our customers' networks, whether caused by our products or another vendor's
products, could result in loss of customers or decrease in net revenue and
market share.
We may be subject to significant liability claims because our products are
used in connection with critical communications services. Our agreements with
customers typically contain provisions intended to limit our exposure to
liability claims. However, these limitations may not preclude all potential
claims resulting from a defect in one of our products. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. Any of these claims, whether or not successful, could
seriously damage our reputation and business.
We plan to invest a significant amount of our resources to fund the development,
marketing and sale of our products. However, if we are unable to expand our
sales and marketing operations, we will not be able to generate additional
sales.
We plan to incur significant amount of operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
Our operating expenses are largely based on anticipated personnel requirements
and net revenue trends, and a high percentage of our expenses are, and will
continue to be, fixed. In addition, we may be required to spend more for
research and development than originally budgeted in order to respond to
industry trends. As a result, any delay in generating or recognizing net revenue
could cause significant variations in our operating results from quarter to
quarter and could result in substantial operating losses.
Our net revenue could decline significantly if our relationship with our major
OEM customer deteriorates.
A significant portion of our net revenue is derived from sales to Lucent
Technologies, one of our OEM customers. Our agreement with Lucent is not
exclusive and does not contain minimum volume commitments. Lucent Technologies
accounted for approximately 42% of our net revenue for the year ended December
31, 2001. Our OEM agreement with Lucent expires in May 2002, and we can give no
assurances that we will be able to extend the term of our contract or enter into
a new contract with Lucent. Lucent may terminate the agreement earlier upon 60
days' notice. At any time or after a short period of notice, Lucent could elect
to cease marketing and selling our products. They may so elect for a number of
reasons, including the acquisition by Lucent of one or more of our competitors
or their technologies, or because one or more of our competitors introduces
superior or more cost-effective products. In addition, we intend to develop and
market new products that may compete directly with the products of Lucent, which
may also harm our relationships with this customer. For example, our
Multiservice Broadband Xchange, or MBX, product may compete with products
offered by our OEM customers, including Lucent, which could adversely affect our
relationship with that customer. Our existing relationship with Lucent could
make it harder for us to establish similar relationships with Lucent's
competitors. Any loss, reduction, delay or cancellation in expected sales to our
OEM customers, the inability to extend our contract or enter into a new contract
with Lucent on favorable terms, or our inability to establish similar
relationships with new OEM customers in the future, would hurt our business and
our ability to increase net revenue and could cause our quarterly results to
fluctuate significantly.
Telecommunications networks are comprised of multiple hardware and software
products from multiple vendors. If our products are not compatible with other
companies' products within our customers' networks, orders will be delayed or
cancelled.
Many of our customers require that our products be designed to work with
their existing networks, each of which may have different specifications and
utilize multiple protocols that govern the way devices on the network
communicate with each other. Our customers' networks may contain multiple
generations of products from different vendors that have been added over time as
their networks have grown and evolved. Our products may be required to work with
these products as well as with future products in order to meet our customers'
requirements. In some cases, we may be required to modify our product designs to
achieve a sale, which may result in a longer sales cycle, increased research and
development expense, and reduced operating margins. If our products are not
compatible with existing equipment in our customers' networks, whether open or
proprietary, installations could be delayed, or orders for our products could be
cancelled.
Our failure to enhance our existing products or develop and introduce new
products that meet changing customer requirements and technological advances
would limit our ability to sell our products.
Our ability to increase net revenue will depend significantly on whether we
are able to anticipate or adapt to rapid technological innovation in the
telecommunications industry and to offer, on a timely and cost-effective basis,
products that meet changing customer demands and industry standards. If the
standards adopted are different from those which we have chosen to support,
market acceptance of our products may be significantly reduced or delayed.
Developing new or enhanced products is a complex and uncertain process and
we may not have sufficient resources to successfully and accurately anticipate
technological and market trends, or to successfully manage long development
cycles. We must manage the transition from our older products to new or enhanced
products to minimize disruption in customer ordering patterns and ensure that
adequate supplies of new products are available for delivery to meet anticipated
customer demand. Any significant delay or failure to release new products or
product enhancements on a timely and cost-effective basis could harm our
reputation and customer relationships, provide a competitor with a
first-to-market opportunity or allow a competitor to achieve greater market
share.
If we fail to win contracts at the beginning of our telecommunications
customers' deployment cycles, we may not be able to sell products to those
customers for an extended period of time, which could inhibit our growth.
Our existing and potential telecommunications customers generally select a
limited number of suppliers at the beginning of a deployment cycle. As a result,
if we are not selected as one of these suppliers, we may not have an opportunity
to sell products to that customer until its next purchase cycle, which may be an
extended period of time. In addition, if we fail to win contracts from existing
and potential customers that are at an early stage in their design cycle, our
ability to sell products to these customers in the future may be adversely
affected because they may prefer to continue purchasing products from their
existing vendor. Since we rely on a small number of customers for the majority
of our sales, our failure to capitalize on limited opportunities to win
contracts with these customers could severely harm us.
Since the sales cycle for our products is typically long and unpredictable, we
have difficulty predicting future net revenue and our net revenue and operating
results may fluctuate significantly.
A customer's decision to purchase our products often involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. Our sales cycle varies from a few months to over a year. As a result,
we may incur substantial sales and marketing expenses and expend significant
management effort without any assurance of a sale. A long sales cycle also
subjects us to other risks, including customers' budgetary constraints, internal
acceptance reviews and order reductions or cancellations. Even after deciding to
purchase our products, our customers often deploy our products slowly.
The telecommunications industry is characterized by rapidly changing
technologies. If we are unable to develop and maintain strategic relationships
with vendors of emerging technologies, we may not be able to meet the changing
needs of our customers.
Our success will depend on our ability to develop and maintain strategic
relationships with vendors of emerging technologies. We depend on these
relationships for access to information on technical developments and
specifications that we need to develop our products. We also may not be able to
predict which existing or potential partners will develop leading technologies
or industry standards. We may not be able to maintain or develop strategic
relationships or replace strategic partners that we lose. If we fail to develop
or maintain strategic relationships with companies that develop necessary
technologies or create industry standards, our products could become obsolete.
We could also be at a competitive disadvantage in attempting to negotiate
relationships with those potential partners in the future. In addition, if any
strategic partner breaches or terminates its relationship with us, we may not be
able to sustain or grow our business.
We depend upon a single contractor for most of our manufacturing needs.
Termination of this relationship could impose significant costs on us and could
harm or interfere with our ability to meet scheduled product deliveries.
We do not have internal manufacturing capabilities and have generally
relied primarily on a contract manufacturer, Benchmark Electronics, or
Benchmark, to build our products. Effective April 1, 2001, we transferred
primary manufacturing responsibility of our products from Flextronics
International Limited, or Flextronics to Benchmark. Under our agreement with
Benchmark, Benchmark may cancel the contract on short notice and is not
obligated to supply products to us for any specific period, in any specific
quantity or at any specific price, except as may be provided in a particular
purchase order. Our reliance on Benchmark involves a number of risks, including
the lack of operating history between us and Benchmark, absence of control over
our manufacturing capacity, the unavailability of, or interruptions in, access
to process technologies and reduced control over component availability,
delivery schedules, manufacturing yields and costs. If our agreement or
relationship with Benchmark is terminated, we will not have a primary
manufacturing contract with any third party. We will have to immediately
identify and qualify one or more acceptable alternative manufacturers, which
could result in substantial manufacturing delays and cause us to incur
significant costs. It is possible that an alternate source may not be available
to us when needed or be in a position to satisfy our production requirements at
acceptable prices and quality. Any significant interruption in manufacturing
would harm our ability to meet our scheduled product deliveries to our
customers, harm our reputation and could cause the loss of existing or potential
customers, any of which could seriously harm our business and operating results.
We depend on sole source and limited source suppliers for key components. If we
are unable to buy components on a timely basis, we will not be able to deliver
our products to our customers on time which could cause us to lose customers. If
we purchase excess components to reduce this risk, we may incur significant
inventory costs.
We obtain several of the key components used in our products, including
interface circuits, microprocessors, digital signal processors, digital
subscriber line modules and flash memory, from single or limited sources of
supply. We have encountered, and expect in the future to encounter, difficulty
in obtaining these components from our suppliers. For example, in the fourth
quarter of 1999, we experienced a severe shortage of components, particularly
subscriber line interface circuits, which jeopardized our ability to deliver our
products in a timely fashion. We purchase most components on a purchase order
basis and we do not have guaranteed supply arrangements with most of our key
suppliers. Financial or other difficulties faced by our suppliers or significant
changes in demand for these components could limit the availability of these
components to us at acceptable prices and on a timely basis, if at all. Any
interruption or delay in the supply of any of these components, or our inability
to obtain these components from alternate sources at acceptable prices and
within a reasonable amount of time, would limit our ability to meet scheduled
product deliveries to our customers or force us to reengineer our products,
which may hurt our gross margins and our ability to deliver products on a timely
basis, if at all. A substantial period of time could be required before we would
begin receiving adequate supplies from alternative suppliers, if available. In
addition, qualifying additional suppliers is time consuming and expensive and
exposes us to potential supplier production difficulties or quality variations.
The telecommunications market is becoming increasingly global. While we plan to
expand internationally, we have limited experience operating in international
markets. In our efforts to expand internationally, we could become subject to
new risks which could hamper our ability to establish and manage our
international operations.
We have sales and customer support personnel covering the United Kingdom
and Latin America and have initiated distribution relationships in Europe. We
have limited experience in marketing and distributing our products
internationally and in developing versions of our products that comply with
local standards. In addition, our international operations will be subject to
other inherent risks, including:
o the failure to adopt regulatory changes that facilitate the provisioning of
competitive communications services;
o difficulties adhering to international protocol standards;
o expenses associated with customizing products for other countries;
o protectionist laws and business practices that favor local competition;
o reduced protection for intellectual property rights in some countries;
o difficulties enforcing agreements through other legal systems and in
complying with foreign laws;
o fluctuations in currency exchange rates;
o political and economic instability; and
o import or export licensing requirements.
The complex nature of our telecommunications products requires us to provide our
customers with a high level of service and support by highly trained personnel.
If we do not expand our customer service and support organization, we will not
be able to meet our customers' demands.
We currently have a small customer service and support organization, and we
will need to increase these resources to support any increase in the needs of
our existing and new customers. Hiring customer service and support personnel in
our industry is very competitive due to the limited number of people available
with the necessary technical skills and understanding of our technologies. If we
are unable to expand or maintain our customer service and support organization,
our customers may become dissatisfied and we could lose customers and our
reputation could be harmed. A reputation for poor service would prevent us from
increasing sales to existing or new customers.
The competition for qualified personnel is particularly intense in our industry
and in Northern California. If we are unable to attract and retain key
personnel, we may not be able to sustain or grow our business.
Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, marketing, engineering and
management personnel, many of whom would be difficult to replace. None of our
officers or key employees is bound by an employment agreement for any specific
term, and we do not have "key person" life insurance policies covering any of
our employees. The competition for qualified personnel remains strong in our
industry and in Northern California, where there is a high concentration of
established and emerging growth technology companies. This competition makes it
more difficult to retain our key personnel and to recruit new highly qualified
personnel. To attract and retain qualified personnel, we may be required to
grant large option or other stock-based incentive awards, which may be highly
dilutive to existing shareholders. We may also be required to pay significant
base salaries and cash bonuses to attract and retain these individuals, which
payments could harm our operating results. If we are not able to attract and
retain the necessary personnel, we could face delays in developing our products
and implementing our sales and marketing plans, and we may not be able to grow
our business.
We rely on a combination of patent, copyright, trademark and trade secret laws,
as well as confidentiality agreements and licensing arrangements, to establish
and protect our proprietary rights. Failure to protect our intellectual property
will limit our ability to compete and result in a loss of a competitive
advantage and decreased net revenue.
Our success and ability to compete depend substantially on our proprietary
technology. Any infringement of our proprietary rights could result in
significant litigation costs, and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased net
revenue. We presently have four U.S. patent applications pending, but no issued
patents. Despite our efforts to protect our proprietary rights, existing
copyright, trademark and trade secret laws afford only limited protection. In
addition, the laws of many foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. Attempts may be
made to copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Accordingly, we may not be able to
protect our proprietary rights against unauthorized third party copying or use.
Furthermore, policing the unauthorized use of our products is difficult.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. This litigation could result in substantial
costs and diversion of resources and may not ultimately be successful.
We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use some technologies in the future.
Our industry is characterized by frequent intellectual property litigation
based on allegations of infringement of intellectual property rights. From time
to time, third parties have asserted, and may assert in the future, patent,
copyright, trademark and other intellectual property rights to technologies or
rights that are important to our business. In addition, our agreements may
require that we indemnify our customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of
third parties. Any claims asserting that our products infringe or may infringe
the proprietary rights of third parties, with or without merit, could be
time-consuming, result in costly litigation and divert the efforts of our
technical and management personnel. These claims could cause us to stop selling,
incorporating or using our products that use the challenged intellectual
property and could also result in product shipment delays or require us to
redesign or modify our products or enter into licensing agreements. These
licensing agreements, if required, could increase our product costs and may not
be available on terms acceptable to us, if at all.
If necessary licenses of third-party technology are not available to us or are
very expensive, we may be unable to develop new products or product
enhancements.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. These third-party
licenses may not be available to us on commercially reasonable terms, if at all.
Our inability to obtain necessary third-party licenses may force us to obtain
substitute technology of lower quality or performance standards or at greater
cost, any of which could seriously harm the competitiveness of our products.
Because our headquarters are located in Northern California, which is a region
containing active earthquake faults if a natural disaster occurs or the power
energy crisis continues, our business could be shut down or severely impacted.
Our business and operations depend on the extent to which our facility and
products are protected against damage from fire, earthquakes, power loss and
similar events. Despite precautions taken by us, a natural disaster or other
unanticipated problem could, among other things, hinder our research and
development efforts, delay the shipment of our products and affect our ability
to receive and fulfill orders.
Risks Associated With The Multiservice Broadband Access Industry
Intense competition in the market for our telecommunications products could
prevent us from increasing or sustaining our net revenue and prevent us from
achieving or sustaining profitability.
The market for multiservice broadband access products is highly
competitive. We compete directly with numerous companies, including Accelerated
Networks, Adtran, Alcatel, Carrier Access, Cisco Systems, Lucent Technologies,
Siemens, Zhone Technologies and Polycom. Many of our current and potential
competitors have longer operating histories, greater name recognition,
significantly greater selling and marketing, technical, manufacturing,
financial, customer support, professional services and other resources,
including vendor-sponsored financing programs. As a result, these competitors
are able to devote greater resources to the development, promotion, sale and
support of their products to leverage their customer bases and broaden product
offerings to gain market share. In addition, our competitors may foresee the
course of market developments more accurately than we do and could develop new
technologies that compete with our products or even render our products
obsolete. We may not have sufficient resources to continue to make the
investments or achieve the technological advances necessary to compete
successfully with existing or new competitors. In addition, due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources, including other large
telecommunications equipment manufacturers, may enter our markets and further
intensify competition.
We believe that our existing OEM customers continuously evaluate whether to
offer their own multiservice broadband access devices. If our OEM customers
decide to internally design and sell their own multiservice broadband access
devices, or acquire one or more of our competitors or their broadband access
technologies, they could eliminate or substantially reduce their purchases of
our products. One of our OEM customers, Lucent Technologies, accounted for
approximately 42% of our net revenue for the year ended December 31, 2001. In
addition, our current growth may cause our OEM customers, including Lucent, to
view us as greater competition. Our OEM relationships could also be harmed as we
develop and market new products that may compete directly with the products of
our OEM customer. For example, our MBX product may compete with products offered
by Lucent, which could adversely affect our relationship with that customer. We
cannot assure you that our OEM customers will continue to rely, or expand their
reliance, on us as an external source of supply for their multiservice broadband
access devices. Because we rely on one OEM customer for a substantial portion of
our net revenue, a loss of sales to this OEM customer could seriously harm our
business, financial condition and results of operations.
Because our industry is characterized by consolidation, we could potentially
lose customers, which would harm our business.
The markets in which we compete are characterized by increasing
consolidation, as exemplified by the recent or pending acquisitions of Sonoma
Systems by Nortel Networks, Efficient Networks by Siemens and PairGain
Technologies by ADC Telecommunications. We cannot predict how industry
consolidation will affect our competitors and we may not be able to compete
successfully in an increasingly consolidated industry.
Our products are subject to price reduction and margin pressures. If our average
selling prices decline and we fail to offset that decline through cost
reductions, our gross margins and potential profitability could be seriously
harmed.
In the past, competitive pressures have forced us to reduce the prices of
our products. In the second quarter of 1999, we reduced the price of our T1
Integrator product, now known as the Integrator-300, product in response to
competition, which reduced our gross margins in subsequent periods. We expect
similar price reductions to occur in the future in response to competitive
pressures. In addition, our average selling prices decline when we negotiate
volume price discounts with customers and utilize indirect distribution
channels. If our average selling prices decline and we fail to offset that
decline through cost reductions, our gross margins and potential profitability
would be seriously harmed.
Sales of our products depend on the widespread adoption of multiservice
broadband access services and if the demand for multiservice broadband access
services does not develop, then our results of operations and financial
condition could be harmed.
Our business will be harmed if the demand for multiservice broadband access
services does not increase as rapidly as we anticipate, or if our customers'
multiservice broadband access service offerings are not well received in the
marketplace. Critical factors affecting the development of the multiservice
broadband access services market include:
o the development of a viable business model for multiservice broadband
access services, including the capability to market, sell, install and
maintain these services;
o the ability of competitive local exchange carriers, or CLECs, to obtain
sufficient funding and to successfully grow their businesses.
o cost constraints, such as installation, space and power requirements at the
central offices of incumbent local exchange carriers, or ILECs;
o compatibility of equipment from multiple vendors in service provider
networks;
o evolving industry standards for transmission technologies and transport
protocols;
o varying and uncertain conditions of the communications network
infrastructure, including quality and complexity, electrical interference,
and crossover interference with voice and data telecommunications services;
o domestic and foreign government regulation; and
The market for multiservice broadband access devices may fail to develop
for these or other reasons or may develop more slowly than anticipated, which
could harm our business.
If we fail to comply with regulations and evolving industry standards, sales of
our existing and future products could be harmed.
The markets for our products are characterized by a significant number of
communications regulations and standards, some of which are evolving as new
technologies are deployed. Our customers may require our products to comply with
various standards, including those promulgated by the Federal Communications
Commission, or FCC, standards established by Underwriters Laboratories and
Telcordia Technologies or proprietary standards promoted by our competitors. In
addition, our key competitors may establish proprietary standards which they
might not make available to us. As a result, we may not be able to achieve
compatibility with their products. Internationally, we may also be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International
Telecommunications Union.
Our customers are subject to government regulation, and changes in current or
future laws or regulations that negatively impact our customers could harm our
business.
The jurisdiction of the FCC extends to the entire communications industry,
including our customers. Future FCC regulations affecting the broadband access
industry, our customers or their service offerings may harm our business. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into markets or affect
the prices that they are able to charge. In addition, international regulatory
bodies are beginning to adopt standards and regulations for the broadband access
industry. If our customers are hurt by laws or regulations regarding their
business, products or service offerings, demand for our products may decrease.
Additional Risks That May Affect Our Stock Price
We may engage in future acquisitions or strategic investments that we may not be
able to successfully integrate or manage, which could hurt our business. These
acquisitions or strategic investments may also dilute our stockholders and cause
us to incur debt and assume contingent liabilities.
We may review acquisition prospects and strategic investments that could
complement our current product offerings, augment our market coverage, enhance
our technical capabilities or otherwise offer growth opportunities. For example,
in February 2001 we acquired Woodwind Communications Systems, Inc., a provider
of voice-over-broadband network edge access solutions, and in December 2001 we
acquired certain assets of Metrobility Optical Systems, Inc., in both cases in
exchange for shares of our common stock. The issuance of equity securities in
connection with future acquisitions or investments could significantly dilute
our investors. If we incur or assume debt in connection with future acquisitions
or investments, we may incur interest charges that could increase our net loss.
We have little experience in evaluating, completing, managing or integrating
acquisitions and strategic investments. Acquisitions and strategic investments
may entail numerous integration risks and impose costs on us, including:
o difficulties in assimilating acquired operations, technologies or products
including the loss of key employees;
o unanticipated costs;
o diversion of management's attention from our core business concerns;
o adverse effects on business relationships with our suppliers and customers
or those of the acquired businesses;
o risks of entering markets in which we have no or limited prior experience;
o assumption of contingent liabilities;
o incurrence of significant amortization expenses related to intangible
assets; and
o incurrence of significant write-offs.
Our stock has traded at or below $1.00. If the trading of our common stock falls
below $1.00 for an extended period, our stock may be delisted from the Nasdaq
National Market.
Our common stock has recently traded at or below $1.00. Since February 20,
2002, the closing bid price per share for our common stock has been below $1.00.
If our common stock fails to maintain Nasdaq's minimum bid price closing
requirement of $1.00 and this failure continues ninety days, Nasdaq may
institute delisting proceedings. If our stock is delisted from the Nasdaq
National Market, our stockholders would find it more difficult to dispose of,
and obtain accurate quotations as to the market value of, their shares, and the
market price of our stock would likely decline further.
We may need to raise more capital, but the availability of additional financing
is uncertain. If adequate funds are not available or are not available on
acceptable terms, we may be unable to develop or enhance our products and
services, take advantage of future opportunities or respond to competitive
pressures, which could negatively impact our product development and sales.
In the quarter ended December 31, 2001 we sold 22,150,369 shares of our
common stock and warrants to purchase 7,090,000 shares of our common stock for
approximately $14.2 million. If our capital requirements vary significantly from
those currently planned, we may require additional financing sooner than
anticipated. If additional funds are raised through the issuance of equity
securities, the percentage of equity ownership of our existing stockholders will
be reduced. In addition, holders of these equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. If
additional funds are raised through the issuance of debt securities, we may
incur significant interest charges, and these securities would have rights,
preferences and privileges senior to holders of common stock. The terms of these
securities could also impose restrictions on our operations. Additional
financing may not be available when needed on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures, which could negatively
impact our product development and sales.
Our stock price may be volatile, and you may not be able to resell our shares at
or above the price you paid, or at all.
In August 2000 we completed our initial public offering. Prior to our
initial public offering there had not been a public market for our common stock.
The stock market in general, and the Nasdaq National Market and technology
companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of companies. The trading prices and valuations of many technology companies are
substantially above historical levels. These trading prices and valuations may
not be sustainable. These broad market and industry factors may decrease the
market price of our common stock, regardless of our actual operating
performance.
Substantial future sales of our common stock in the public market could cause
our stock price to fall.
Additional sales of our common stock in the public market after this
offering, or the perception that such sales could occur, could cause the market
price of our common stock to decline.
Many corporate actions would be controlled by officers, directors and affiliated
entities, if they acted together, regardless of the desire of other investors to
pursue an alternative course of action.
As of December 31, 2001, our directors, executive officers and their
affiliated entities beneficially owned approximately 71.1% of our outstanding
common stock after giving affect to the stockholders rights agreement executed
by Jeffrey Drazan and certain entities affiliated with Sierra Ventures. These
stockholders, if they acted together, could exert control over matters requiring
approval by our stockholders, including electing directors and approving mergers
or other business combination transactions. This concentration of ownership may
also discourage, delay or prevent a change in control of our company, which
could deprive our stockholders of an opportunity to receive a premium for their
stock as part of a sale of our company and might reduce our stock price. These
actions may be taken even if they are opposed by our other stockholders,
including those who purchase shares in this offering.
Delaware law, our corporate charter and bylaws and our stockholder rights plan
contain anti-takeover provisions that would delay or discourage take over
attempts that stockholders may consider favorable.
Provisions in our restated certificate of incorporation and bylaws may have
the effect of delaying or preventing a change of control or changes in our
management. These provisions include:
o the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors;
o the ability of the board of directors to alter our bylaws without obtaining
stockholder approval;
o the establishment of a classified board of directors;
o the ability of the board of directors to issue, without stockholder
approval, up to five million shares of preferred stock with terms set by
the board of directors which rights could be senior to those of common
stock; and
o the elimination of the right of stockholders to call a special meeting of
stockholders and to take action by written consent.
Each of these provisions could discourage potential take over attempts and
could lower the market price of our common stock.
We have adopted a stockholder rights plan and declared a dividend
distribution of one right for each outstanding share of common stock to
stockholders of record as of August 6, 2001. Each right, when exercisable,
entitles the registered holder to purchase from VINA one one-thousandth of a
share of a new series of preferred stock, designated as Series A Participating
Preferred Stock, at a price of $35.00 per one one-thousandth of a share, subject
to adjustment. The rights will generally separate from the common stock and
become exercisable if any person or group acquires or announces a tender offer
to acquire 20% or more of our outstanding common stock without the consent of
our board of directors. Because the rights may substantially dilute the stock
ownership of a person or group attempting to take us over without the approval
of our board of directors, our stockholder rights plan could make it more
difficult for a third party to acquire us (or a significant percentage of our
outstanding capital stock) without first negotiating with our board of directors
regarding such acquisition.
In addition, because we are incorporated in Delaware, we are governed by
the provisions of Section 203 of the Delaware General Corporation Law. These
provisions may prohibit large stockholders, in particular those owning 15% or
more of our outstanding voting stock, from merging or combining with us. These
provisions in our charter, bylaws and under Delaware law could reduce the price
that investors might be willing to pay for shares of our common stock in the
future and result in the market price being lower than it would be without these
provisions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks related to interest rates and
foreign currency exchange rates fluctuations. For 2000, our investments in
commercial paper and debt obligations were subject to interest rate risk, but
due to the short-term nature of these investments, interest rate changes did not
have a material impact on their value in 2000. We have no investment in
commercial paper or debt obligation as of December 31, 2001. To date, our
international sales have been primarily denominated in U.S. dollars and
accordingly, a hypothetical change of 10% in the foreign currency exchange rates
would not have a material impact on our consolidated financial position or the
results of operations. The functional currency of our subsidiary in the United
Kingdom is the U.S. dollar and, as the local accounts are maintained in British
pounds, we are subject to foreign currency exchange rate fluctuations associated
with remeasurement to U.S. dollars. A hypothetical change of 10% in the foreign
currency exchange rates would not have a material impact on our consolidated
financial position or the results of operations.
Item 8. Consolidated Financial Statements
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report ............................................................. 30
Consolidated Balance Sheets as of December 31, 2000 and 2001 ............................. 31
Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000 and 2001 32
Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the Years Ended
December 31, 1999, 2000 and 2001 ...................................................... 33
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001 35
Notes to Consolidated Financial Statements ............................................... 36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
VINA Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of VINA
Technologies, Inc. and its subsidiaries (the Company) as of December 31, 2000
and 2001, and the related consolidated statements of operations, stockholders'
equity and comprehensive loss, and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of VINA Technologies, Inc. and its
subsidiaries at December 31, 2000 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
January 21, 2002
VINA TECHNOLOGIES, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31,
------------------------
2000 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 7,740 $ 15,805
Short-term investments ....................................................... 36,759 500
Common stock subscription receivable.......................................... -- 9,589
Accounts receivable, less of allowance for doubtful accounts
of $335 in 2000 and $457 in 2001........................................... 5,243 9,843
Inventories .................................................................. 1,973 4,903
Prepaid expenses and other ................................................... 2,649 1,555
--------- ---------
Total current assets ..................................................... 54,364 42,195
Property and equipment, net .................................................... 4,096 5,271
Other assets ................................................................... 76 356
Acquired intangibles, net....................................................... -- 5,663
Goodwill, net................................................................... -- 26,426
--------- ---------
Total assets ............................................................. $ 58,536 $ 79,911
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 8,536 $ 7,798
Accrued compensation and related benefits .................................... 2,588 2,333
Accrued warranty ............................................................. 686 696
Other current liabilities .................................................... 1,897 2,810
-------- ---------
Total current liabilities ................................................ 13,707 13,637
--------- ---------
Commitments and Contingencies (Note 8)
Stockholders' equity:
Convertible preferred stock; $0.0001 par value; 5,000,000 shares
authorized; none outstanding ............................................... -- --
Common stock; $0.0001 par value; 125,000,000 shares authorized: 2000 and 2001,
shares outstanding: 2000, 32,546,845; 2001, 62,013,759...................... 3 6
Additional paid-in capital ................................................... 144,708 194,814
Deferred stock compensation .................................................. (26,386) (7,106)
Accumulated deficit .......................................................... (73,544) (121,440)
Accumulated other comprehensive income ....................................... 48 --
--------- ---------
Total stockholders' equity ............................................... 44,829 66,274
--------- ---------
Total liabilities and stockholders' equity ............................... $ 58,536 $ 79,911
========= =========
See notes to consolidated financial statements
VINA TECHNOLOGIES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended
December 31,
---------------------------------
1999 2000 2001
----- ----- -----
Net revenue ................................. $ 12,700 $ 32,078 $ 46,896
Cost of revenue
(excluding stock-based compensation) ...... 7,713 19,240 29,551
-------- -------- --------
Gross profit
(excluding stock-based compensation) ...... 4,987 12,838 17,345
-------- -------- --------
Costs and expenses:
Research and development
(excluding stock-based compensation) .... 6,690 12,609 18,841
Selling, general and administrative
(excluding stock-based compensation) .... 10,881 21,124 22,898
Stock-based compensation, net (*).......... 4,715 24,169 10,570
In-process research and development........ -- -- 5,081
Amortization of intangible assets.......... -- -- 8,243
Restructuring expenses
(excluding stock-based compensation).... -- -- 991
-------- -------- --------
Total costs and expenses .............. 22,286 57,902 66,624
-------- -------- --------
Loss from operations ........................ (17,299) (45,064) (49,279)
Interest income ............................. 355 1,757 1,486
Interest expense ............................ (132) (25) --
Other (expense).............................. -- -- (103)
-------- -------- --------
Net loss .................................... ($17,076) ($43,332) ($47,896)
======== ======== ========
Net loss per share, basic and diluted........ ($ 3.30) ($ 2.63) ($ 1.29)
======== ======== ========
Shares used in computation, basic and diluted 5,169 16,467 37,121
======== ======== ========
* Stock-based compensation, net:
Cost of revenue ....................... $ 152 $ 1,855 $ 1,016
Research and development .............. 1,098 7,985 4,446
Selling, general and administrative ... 3,465 14,329 7,677
Restructuring benefit.................. -- -- (2,569)
-------- -------- --------
Total............................... $ 4,715 $ 24,169 $ 10,570
======== ======== ========
See notes to consolidated financial statements
VINA TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
(In thousands, except share amounts)
Convertible Preferred
Preferred Stock Common Stock Additional Stock Deferred
--------------- ------------ Paid-In Subscription Stock
Shares Amount Shares Amount Capital Receivable Compensation
------ ------ ------ ------ ------- ---------- ------------
Balances, January 1, 1999............. 14,279,771 1 6,681,918 1 25,069 (25) (361)
Comprehensive loss:
Net loss ............................ -- -- -- -- -- -- --
Exercise of stock options .............. -- -- 1,608,497 -- 608 -- --
Repurchase of common stock ............. -- -- (344,334) -- (18) -- --
Sale of common stock ................... -- -- 800,000 -- 480 -- --
Sale of Series D convertible preferred
stock................................. 10,746 -- -- -- 65 -- --
Receipt of subscription receivable...... -- -- -- -- -- 25 --
Issuance of non-employee stock options
for services.......... ............... -- -- -- -- 99 -- --
Deferred stock compensation ............ -- -- -- -- 17,778 -- (17,778)
Amortization of deferred stock
compensation ......................... -- -- -- -- -- -- 4,616
----------------------------------------------------------------------------------------
Balances, December 31, 1999............. 14,290,517 1 8,746,081 1 44,081 -- (13,523)
Comprehensive loss:
Net loss ............................ -- -- -- -- -- -- --
Other comprehensive
income, net of tax:
Unrealized gain on available-for-
sale investments................... -- -- -- -- -- -- --
Comprehensive loss ................ -- -- -- -- -- -- --
Exercise of stock options .............. -- -- 3,081,973 -- 3,573 -- --
Repurchase of common stock ............. -- -- (425,866) -- (231) -- --
Sale of Series E convertible preferred
stock (net of issuance of costs of $8) 3,404,140 1 -- -- 23,820 -- --
Issuance of common stock (net of
issuance costs of $4,967)............. -- -- 3,450,000 -- 36,433 -- --
Issuance of non-employee stock option
for services ......................... -- -- -- -- 635 -- --
Conversion of convertible preferred
stock ................................ (17,694,657) (2) 17,694,657 2 -- -- --
Deferred stock compensation ............ -- -- -- -- 36,397 -- (36,397)
Amortization of deferred stock
compensation.......................... -- -- -- -- -- -- 23,534
----------------------------------------------------------------------------------------
Balances, December 31, 2000............. -- -- 32,546,845 3 144,708 -- (26,386)
Comprehensive loss:
Net loss ............................ -- -- -- -- -- -- --
Other comprehensive
loss, net of tax:
Reclassification adjustment for
gains included in net income....... -- -- -- -- -- -- --
Comprehensive loss ..................... -- -- -- -- -- -- --
Exercise of stock options .............. -- -- 1,018,448 -- 485 -- --
Sale of common stock under
employee stock purchase plan.......... -- -- 287,749 -- 760 -- --
Repurchase of common stock ............. -- -- (355,924) -- (706) -- --
Issuance of common stock in
acquisition........................... -- -- 4,148,745 1 42,643 -- (588)
Issuance of common stock
for asset purchase.................... -- -- 2,217,527 -- 2,549 -- --
Private placement of common stock
(net of issuance costs of $505)....... -- -- 22,150,369 2 11,721 -- --
Sale of warrants attached to common
stock in private placement............ -- -- -- -- 1,952 -- --
Stock-based compensation associated
with private placement................ -- -- -- -- 289 -- --
Issuance of non-employee stock option
for services ......................... -- -- -- -- 4 -- --
Net reversal of deferred stock
compensation from forfeitures......... -- -- -- -- (9,591) -- 9,591
Amortization of deferred stock
compensation.......................... -- -- -- -- -- -- 10,277
----------------------------------------------------------------------------------------
Balances, December 31, 2001 -- $ -- 62,013,759 $ 6 $ 194,814 $ -- $ (7,106)
========================================================================================
See notes to consolidated financial statements
VINA TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
(In thousands, except share amounts)
Accumulated
Other Total
Accumulated Comprehensive Stockholders' Comprehensive
Deficit Income Equity Loss
------- ------ ------ ----
Balances, January 1, 1999............... $ (13,136) $ -- $ 11,549
Comprehensive loss:
Net loss ............................ (17,076) -- (17,076) $(17,076)
=========
Exercise of stock options .............. -- -- 608
Repurchase of common stock ............. -- -- (18)
Sale of common stock ................... -- -- 480
Sale of Series D convertible preferred
stock................................ -- -- 65
Receipt of subscription receivable...... -- -- 25
Issuance of non-employee stock
options for service ............... -- -- 99
Deferred stock compensation ............ -- -- --
Amortization of deferred
stock compensation................... -- -- 4,616
----------------------------------------------------
Balances, December 31, 1999............. (30,212) -- 348
Comprehensive loss:
Net loss ............................ (43,332) -- (43,332) $(43,332)
Other comprehensive
income, net of tax:
Unrealized gain on available-for-
sale investments................... -- 48 48 48
--------
Comprehensive loss ................ -- -- -- $(43,284)
=========
Exercise of stock options .............. -- -- 3,573
Repurchase of common stock ............. -- -- (231)
Sale of Series E convertible preferred
stock (net of issuance costs of $8).. -- -- 23,821
Issuance of common stock (net of
(issuance costs of $4,967)........... -- -- 36,433
Issuance of non-employee stock
options for services................. -- -- 635
Conversion of convertible preferred
stock................................ -- -- --
Deferred stock compensation ............ -- -- --
Amortization of deferred stock
compensation......................... -- -- 23,534
------------------------------------------------------
Balances, December 31, 2000............. (73,544) 48 44,829
Comprehensive loss:
Net loss ............................ (47,896) -- (47,896) $(47,896)
Other comprehensive
loss, net of tax:
Reclassification adjustment for
gains included in net income....... -- (48) (48) (48)
-------
Comprehensive loss ..................... -- -- -- $(47,944)
========
Exercise of stock options .............. -- -- 485
Sale of common stock under
employee stock purchase plan.......... -- -- 760
Repurchase of common stock ............. -- -- (706)
Issuance of common stock in
acquisition........................... -- -- 42,056
Issuance of common stock
for asset purchase.................... -- -- 2,549
Private placement of common stock
(net of issuance costs of $505)....... -- -- 11,723
Sale of warrants attached to common
stock in private placement............ -- -- 1,952
Stock-based compensation associated
with private placement................ -- -- 289
Issuance of non-employee stock option
for services ......................... -- -- 4
Net reversal of deferred stock
compensation from forfeitures......... -- -- --
Amortization of deferred stock
compensation, net of forfeitures...... -- -- 10,277
------------------------------------------------------
Balances, December 31, 2001 $ (121,440) $ -- $ 66,274
======================================================
See notes to consolidated financial statements
VINA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
-------------------------------
1999 2000 2001
---- ---- ----
Cash flows from operating activities:
Net loss ........................................................... $(17,076) $(43,332) $(47,896)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization ................................... 640 1,042 10,080
Stock-based compensation, net.................................... 4,715 24,169 10,570
In-process research and development.............................. -- -- 5,081
Accrued interest income on short-term investments ............... -- (1,180) 797
Changes in operating assets and liabilities, net of effects from
acquisition in 2001:
Accounts receivable .......................................... (852) (2,774) (4,594)
Inventories .................................................. (88) (1,877) (2,586)
Prepaid expenses and other ................................... 160 (2,483) 1,222
Other assets ................................................. 70 (58) (220)
Accounts payable ............................................. 2,657 5,015 (1,294)
Accrued compensation and related benefits .................... 441 1,697 (799)
Accrued warranty ............................................. 297 237 10
Other current liabilities .................................... (26) 1,455 (751)
------ ------- -------
Net cash used in operating activities ..................... (9,062) (18,089) (30,380)
------ ------- -------
Cash flows from investing activities:
Purchases of property and equipment ................................ (938) (3,782) (1,108)
Purchases of short-term investments ................................ (3,994) (50,499) (1,050)
Proceeds from sales/maturities of short-term investments ........... 7,998 15,000 36,432
Net cash from acquisition........................................... -- -- (454)
----- ------- -------
Net cash provided by (used in) investing activities ........ 3,066 (39,281) 33,820
----- ------- -------
Cash flows from financing activities:
Net proceeds from sale of convertible preferred stock .............. 90 23,821 --
Net proceeds from sale of common stock ............................. 480 36,433 4,086
Proceeds from the sale of stock under employee stock purchase
and stock option plans............................................ 608 3,573 1,245
Repurchase of common stock ......................................... (18) (231) (706)
Proceeds from issuance of long-term debt ........................... 464 375 --
Repayments of long-term debt ....................................... (415) (1,429) --
----- ------ ------
Net cash provided by financing activities ................... 1,209 62,542 4,625
----- ------ ------
Net change in cash and cash equivalents .............................. (4,787) 5,172 8,065
Cash and cash equivalents, Beginning of year ......................... 7,355 2,568 7,740
------ ------ ------
Cash and cash equivalents, End of year ............................... $2,568 $7,740 $15,805
====== ====== ======
Noncash investing and financing activities:
Deferred stock compensation, net of forfeitures.................. $17,778 $36,397 $(9,591)
======= ======= =======
Conversion of convertible preferred stock into common stock...... $ -- $48,120 $ --
======= ======= =======
Changes in unrealized gain on available-for-sale investments $ -- $ 80 $ (80)
======= ======= =======
Common stock subscription receivable............................ $ -- $ -- $ 9,589
======= ======= =======
Issuance of common stock in acquisition......................... $ -- $ -- $42,056
======= ======= =======
Issuance of common stock for asset purchase..................... $ -- $ -- $ 2,549
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 103 $ 64 $ --
======= ======= =======
See notes to consolidated financial statements
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 2000 and 2001
1. Business and Significant Accounting Policies
Business - VINA Technologies, Inc. (the Company or VINA), incorporated in
June 1996, designs, develops, markets and sells multiservice broadband access
communications equipment that enables telecommunications service providers to
deliver bundled voice and data services. The Company has incurred significant
losses since inception and expects that net losses and negative cash flows from
operations will continue for the foreseeable future.
Basis of Presentation - The consolidated financial statements include the
accounts of VINA Technologies, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect 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
net revenues and expenses during the reporting period. Such management estimates
include an allowance for doubtful accounts receivable, reserves for sales
returns, provisions for inventory to reflect the net realizable value, valuation
allowances against deferred income taxes and accruals for product warranty and
other liabilities. Actual results could differ from those estimates.
Certain Significant Risks and Uncertainties - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash equivalents, short-term investments and accounts receivable.
The Company only invests its cash in highly liquid and high investment grade
instruments. The Company sells its products to distributors and end users
primarily in the United States and generally does not require its customers to
provide collateral or other security to support accounts receivable. To reduce
credit risk, management performs ongoing credit evaluations of its customers'
financial condition and maintains allowances for estimated potential bad debt
losses.
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse effect
on the Company's future consolidated financial position, results of operations
or cash flows: advances, trends in new technologies and developing industry
standards; competitive pressures in the form of new products or price reductions
on current products; changes in the overall demand for products offered by the
Company; changes in certain strategic relationships or customer relationships;
litigation or claims against the Company based on intellectual property, patent,
product, regulatory or other factors; risk associated with changes in domestic
and international economic and/or political conditions or regulations; the
Company's ability to obtain additional capital to support operations; the
Company's ability to integrate acquired businesses and the Company's ability to
attract and retain employees necessary to support its growth.
Certain components and subassemblies used in the Company's products are
purchased from a sole supplier or a limited group of suppliers. In addition, the
Company outsources the production and manufacture of its access integration
devices to a sole turnkey manufacturer. Any manufacturing disruption, shortage
of supply of products or components, or the inability of the Company to procure
products or components from alternative sources on acceptable terms could have a
material adverse effect on the Company's business, consolidated financial
position and results of operations.
Cash Equivalents - The Company classifies all investments in highly liquid
debt instruments with maturities at the date of purchase of three months or less
as cash equivalents.
Short-Term Investments - Short-term investments consist of various
instruments with investment grade credit ratings. All of the Company's
short-term investments are classified as "available-for-sale" based on the
Company's intended use and are stated at fair market value based on quoted
market prices. The difference between amortized cost and fair value representing
unrealized holding gains or losses is recorded as a component of stockholders'
equity, net of tax, as accumulated other comprehensive income. Gains and losses
on sales are determined on a specific identification basis.
Fair Value of Financial Instruments - The Company's financial instruments
include cash equivalents and short-term investments. Cash equivalents are stated
at cost which approximates fair market value based on quoted market prices.
Short-term investments are stated at fair market value based on quoted market
prices.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over estimated useful lives of three to five years.
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the related assets.
Long-Lived Assets - The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized when the
sum of the undiscounted future net cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount. Such
impairment loss would be measured as the difference between the carrying amount
of the asset and its fair value based on the present value of estimated future
cash flows.
Income Taxes - The Company accounts for income taxes under an asset and
liability approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. A valuation allowance is provided to reduce net deferred tax
assets to an amount that is more likely than not to be realized.
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
and to nonemployees using the fair value method in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation.
Revenue Recognition - The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed and determinable and collectibility is reasonably
assured. The Company generates revenue from sale of products and related
services to communications service providers and through original equipment
manufacturers and value added resellers.
Product revenue is generated from the sale of communications equipment
embedded with software that is essential to its functionality, and accordingly,
the Company accounts for these transactions in accordance with SEC Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
and Statement of Position (SOP) 97-2, Software Revenue Recognition. Product
revenue is recognized when all SAB No. 101 and SOP 97-2 criteria are met which
generally occurs at the time of shipment. In multiple element arrangements where
there are undelivered elements at the time of shipment, product revenue is
recognized at the time of shipment as the residual value of the arrangement
after allocation of fair value to the undelivered elements based on vendor
specific objective evidence (VSOE). There is no VSOE on the sales of
communications equipment due to the wide range in customer discounts provided by
the Company.
Service revenue is generated from the sale of installation, training and
postcontract customer support (PCS) agreements related to the communications
equipment. The Company also accounts for these transactions in accordance with
SAB No. 101 and SOP 97-2, and as such recognizes revenue when all of the related
revenue recognition criteria are met which is: (i) at the time the installation
or training service is delivered; and (ii) ratably over the term of the PCS
agreement. In multiple element arrangements where these services are undelivered
when the communications equipment is shipped, the Company defers the fair value
of these undelivered elements based on VSOE and recognizes revenue as the
services are delivered. VSOE of these elements is based on stand-alone sales
(including renewal rates of PCS agreements) of the services. For all periods
presented service revenue has been less than 10% of total net revenue.
The Company additionally records a provision for estimated sales returns
and warranty costs at the time the product revenue is recognized.
Research and Development - Costs incurred in research and development are
charged to operations as incurred.
Foreign Currency - The functional currency of the Company's foreign
subsidiary is the U.S. dollar. Transaction and remeasurement gains and losses
were not significant for any of the periods presented.
Net Loss per Share - Basic earnings per share (EPS) excludes dilution and
is computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding for the period excluding
the weighted average common shares subject to repurchase. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock (convertible preferred stock, common stock options and
warrants using the treasury stock method) were exercised or converted into
common stock. Potential common shares in the diluted EPS computation are
excluded in net loss periods as their effect would be antidilutive.
Comprehensive Loss - In accordance with SFAS No. 130, Reporting
Comprehensive Income, the Company reports by major components and as a single
total, the change in its net assets during the period from nonowner sources in a
consolidated statement of comprehensive loss which has been included with the
consolidated statements of stockholders' equity.
New Accounting Standards - On January 1, 2001, the Company adopted SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133,
as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Under SFAS No. 133, certain contracts
that were not formerly considered derivatives may now meet the definition of a
derivative. The adoption of SFAS No. 133 did not have an impact on the Company's
consolidated financial position, results of operations or cash flows as the
Company does not utilize free-standing or embedded derivative instruments.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will be tested at least
annually for impairment. The Company will adopt SFAS No. 142 for its fiscal year
beginning January 1, 2002. Upon adoption of SFAS No. 142, the Company will stop
the amortization of intangible assets with indefinite lives (goodwill, which
includes the reclass of workforce-in-place, and tradenames) with a net carrying
value of $27.6 million at December 31, 2001 and annual amortization of $8.8
million that resulted from business combinations initiated prior to the adoption
of SFAS No. 141. The Company has evaluated goodwill under SFAS No. 142 and has
determined the adoption of this statement will not result in an impairment.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for the Company on
January 1, 2002. Management believes the adoption of this statement will not
have an impact on the financial position, results of operations or cash flows of
the Company.
In November 2001, consensus was reached by the Emerging Issues Task Force
(EITF) on EITF No. 01-09, Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor's Products. EITF No. 01-09 addresses the
accounting consideration given by a vendor to a customer. The EITF is effective
for the Company on January 1, 2002. Management has not yet determined the impact
of adoption on the consolidated financial statements.
2. Short-Term Investments
The following table presents the amortized cost and fair value of
available-for-sale securities at December 31, 2000 (in thousands):
Amortized Unrealized Holding
Cost Gains Fair Value
------------ -------------------- ------------
Corporate debt obligations.... $34,781 $ 74 $34,855
U.S. Government obligations... 1,898 6 1,904
------------ -------------------- -------------
Short-term investments........ $36,679 $ 80 $36,759
============ ==================== =============
The Company's short-term investments at December 31, 2001 consisted of
certificates of deposit in the amount of $500,000. The amortized cost of the
investments is equivalent to the fair value at December 31, 2001.
Available-for-sale debt securities and certificates of deposit are
classified as current assets as all maturities are within one year.
3. Inventories
Inventories consist of the following (in thousands):
December 31,
------------------------
2000 2001
---------- ----------
Raw materials and subassemblies...... $ 1,034 $ 1,783
Finished goods....................... 939 3,120
------- -------
Inventories.......................... $ 1,973 $ 4,903
======= =======
4. Property and Equipment
Property and equipment consists of the following (in thousands):
December 31,
------------------------
2000 2001
---------- ----------
Computer equipment and software................. $ 1,754 $ 3,066
Machinery and equipment......................... 2,762 4,449
Furniture and fixtures.......................... 890 989
Leasehold improvements.......................... 626 540
------- -------
6,032 9,044
Accumulated depreciation and amortization....... (1,936) (3,773)
------- -------
Property and equipment, net..................... $ 4,096 $ 5,271
======= =======
5. Acquisitions
Woodwind Communications
On February 27, 2001, the Company completed the acquisition of Woodwind
Communications Systems, Inc. (Woodwind), a provider of voice-over-broadband
network edge access solutions, based in Germantown, Maryland. The acquisition
was accounted for as a purchase in accordance with APB No. 16. Under the terms
of the merger agreement, the Company acquired all outstanding capital stock of
Woodwind by paying $7.5 million in cash and issuing 4,148,745 shares of the
Company's common stock. The Company assumed Woodwind's outstanding stock
options, which, if fully vested and exercised, would result in the issuance of
an additional 1,106,892 shares of the Company's common stock. The total purchase
price as of February 27, 2001 has been allocated to the assets acquired and
liabilities assumed based on their respective fair values as follows (in
thousands):
Total purchase price:
Cash consideration .................$ 7,500
Common stock ....................... 39,465
Options assumed..................... 2,591
Acquisition expenses................ 726
-------
$50,282
=======
Purchase price allocation:
Fair market value
of net tangible assets
acquired at February 27, 2001 . $ 6,728
Economic
Life
----
Intangible assets acquired:
Workforce-In-Place 1,236 3
Tradename 346 4
Core technology 3,022 4
Current technology 310 4
In-process research
and development 5,081
Goodwill 35,525 4
Deferred tax liabilities (1,966)
------
$50,282
=======
The Company recorded a one-time charge of $5.1 million in the first quarter
of 2001 for purchased in-process research and development related to development
projects that had not reached technological feasibility, had no alternative
future use, and for which successful development was uncertain. The conclusion
that the in-process research and development effort, or any material
sub-component, had no alternative future use was reached in consultation with
the Company's and Woodwind's management.
The development projects, both the MX-400 (formerly known as ClariNet), and
the eLink-108 (formerly known as Piccolo) are software intensive network edge
products. Both projects are based on the same integrated access gateway (IAG)
platform. The MX-400 is capable of providing end users with Centrex like
features and is designed to operate as a PBX replacement. In addition, the
MX-400 scales in multiples of 4, to a total of 12 voice lines, and can be
stacked to provide coverage to 24 standard voice lines. The eLink-108 is being
developed to be a lower cost alternative aimed at offices that do not need a
robust feature set for future expansion and provides eight voice ports and one
10/100 Mbps Ethernet port, but retains the distributed central office
architecture of the MX-400. Additionally, the Company is in the process of
enhancing the MX-400 and the eLink-108 products with next generation software to
enable voice over internet protocol (VoIP) capabilities as well as asynchronous
transfer mode enhancements, enhanced reliability and new features. Development
of the MX-400 and the eLink-108 will utilize the same software platform. At the
time of acquisition, the product development was approximately 50% complete and
the estimated costs to complete the development of both products was expected to
be an additional $1.1 million. Management expects that products being developed
will become available for sale during the next 12 months; however, no assurances
can be given. The Company expects to benefit from the acquired research and
development related to these products once it begins shipping. Costs incurred on
the projects after the acquisition date through December 31, 2001 are
approximately $630,000. Failure to reach successful completion of these projects
could result in impairment of the associated capitalized intangible assets and
could require the Company to accelerate the time period over which the
intangibles are being amortized, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Significant assumptions that were used to determine the value of in-process
technology, include the following: first, an income approach that focused on the
income producing capability of the acquired technology, and best represented the
presented value of the future economic benefits the Company expected to derive
from them; second, forecasted net cash flows that the Company expected might
result from the development effort were determined using projections prepared by
the Company's management; third, a discount rate of 25% was used, based upon the
estimated weighted average rate of return for Woodwind, which is consistent with
the implied transaction discount rate; and fourth, a premium of 10% for the
in-process technology was added to reflect the additional risk of the in-process
technology, thus resulting in the use of an overall 35% discount rate.
In accordance with FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, the Company recorded the intrinsic
value, measured as the difference between the grant price and fair market value
on the acquisition consummation date, of unvested options assumed in the
acquisition as deferred stock compensation. Such deferred stock compensation,
which aggregated $588,000, is recorded as a separate component of stockholders'
equity and will be amortized over the vesting term of the related options. For
the year ended December 31, 2001, the Company amortized $125,000 as stock-based
compensation related to these options in the accompanying consolidated
statements of operations.
The operating results of Woodwind have been included in the accompanying
consolidated statements of operations since the date of acquisition. The
following selected unaudited pro forma combined results of operations for the
years ended December 31, 2000 and 2001 of the Company and Woodwind have been
prepared assuming that the acquisition had occurred at the beginning of the
periods presented. The following pro forma financial information is not
necessarily indicative of the actual results that would have occurred had the
acquisition been completed at the beginning of the period indicated nor is it
indicative of future operating results (in thousands, except per share data):
December 31,
----------------------
2000 2001
---- ----
Net revenue .................................... $ 32,299 $ 46,898
Net loss ....................................... $(61,469) $(47,594)
Net loss per share ............................. $ (2.98) $ (1.26)
Shares used in calculation of net loss per share 20,616 37,790
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles, goodwill and deferred stock
compensation associated with the acquisition. The $5.1 million charge for
purchased in-process research and development has been excluded from the pro
forma results, as it is a material nonrecurring charge.
Intellectual Property and Related Assets
In December 2001, the Company purchased optical concentrator technology and
related equipment from a related party by issuing 2,217,527 shares of the
Company's common stock valued at $2.5 million on the purchase date. In addition,
the Company incurred approximately $676,000 in direct acquisition expenses. The
total purchase price of $3.2 million was allocated on a fair value basis
resulting in $1.9 million of intellectual property (intangible assets) and $1.3
million of fixed assets. The acquired assets will be amortized over their useful
lives ranging from three to four years.
6. Acquired Intangibles and Goodwill, Net
Acquired intangibles and goodwill, net consist of the following at December
31, 2001 (in thousands):
Workforce-in-place ...... $ 1,236
Tradename ............... 346
Core technology ......... 3,022
Current technology ...... 310
Intellectual property ... 1,859
--------
6,773
Accumulated amortization (1,110)
--------
Acquired intangibles, net $ 5,663
========
Goodwill ................ $ 33,559
Accumulated amortization (7,133)
--------
Goodwill, net ........... $ 26,426
========
7. Restructuring
During the year ended December 31, 2001, the Company announced and
completed a restructuring plan intended to better align its operations with the
changing market conditions. This plan was designed to prioritize VINA's high
growth areas of business, focus on profit contribution and reduce expenses. This
restructuring includes a workforce reduction and other operating reorganization.
As a result of the restructuring efforts, the Company reduced its workforce by
approximately 20%.
A summary of the restructuring benefit and expenses for the year ended
December 31, 2001 is as follows (in thousands):
Accrual at
Restructuring December 31,
Provision Utilized 2001
Workforce reduction ...... $ 991 $ (945) $ 46
Stock compensation benefit (2,569) 2,569 --
------- ------- -------
Restructuring benefit, net $(1,578) $ 1,624 $ 46
======= ======= =======
Workforce Reduction - The restructuring program resulted in the reduction
of approximately 40 employees across all functions. As of December 31, 2001, the
Company made $945,000 in severance and fringe benefits payments. The remaining
balance of $46,000 related to severance and fringe benefits is expected to be
disbursed in the first quarter of 2002.
Stock Compensation Benefit - In connection with the workforce reduction,
the Company recorded a net benefit of $2.6 million. This net benefit resulted
from a $3.0 million benefit for the reversal of prior period estimated stock
compensation expense on forfeited stock options offset by $431,000 of stock
compensation expense resulting from the acceleration of unvested stock options
in accordance with employee separation agreements.
8. Commitments and Contingencies
The Company leases office space under various noncancelable operating
leases that expire through 2007. The Company has an option to renew the primary
facility lease for an additional five years at the then current market rent.
Future obligations under the Company's operating leases are as follows (in
thousands):
Year Ending December 31:
2002............................ $ 1,159
2003............................ 1,087
2004............................ 1,069
2005............................ 943
2006............................ 976
Thereafter...................... 580
---------
Lease commitments............... $ 5,814
=========
Rent expense incurred under the operating leases for 1999, 2000 and 2001
was $302,000, $703,000 and $1.4 million, respectively.
The Company records rent expense under noncancelable operating leases using
a straight-line method after consideration of increases in rental payments over
the lease term, and records the difference between actual payments and rent
expense as deferred rent included within the caption other current liabilities
in the accompanying consolidated balance sheets.
The high technology and telecommunications industry in which the Company
operates is characterized by frequent claims and related litigation regarding
patent and other intellectual property rights. The Company is not a party to any
such litigation; however any such litigation in the future could have a material
adverse effect on the Company's consolidated financial position, results of
operations and cash flows.
9. Stockholders' Equity
Public Offering
In August 2000, the Company completed its initial public offering of
3,450,000 shares of common stock at $12.00 per share, for net proceeds of $36.4
million.
Convertible Preferred Stock
In 1998, the Company issued 4,167 shares of Series D convertible preferred
stock at $6.00 per share, for which the proceeds were not payable until 1999,
and accordingly, the Company established a $25,000 subscription receivable at
December 31, 1998.
In 1999, the Company issued an additional 10,746 shares of Series D
convertible preferred stock at $6.00 per share resulting in proceeds of $65,000.
In 2000, the Company issued 3,404,140 shares of Series E convertible
preferred stock at $7.00 per share resulting in net proceeds of $23.8 million.
Upon completion of the initial public offering, 7,500,000 convertible
preferred shares of Series A, 3,000,000 convertible preferred shares of Series
B, 3,000,000 convertible preferred shares of Series C, 790,517 convertible
preferred shares of Series D and 3,404,140 convertible preferred shares of
Series E were converted into common stock on a one-to-one basis, resulting in
the issuance of 17,694,657 shares of common stock to the then convertible
preferred stockholders.
Restricted Common Stock
Restricted common stock issued under certain stock purchase agreements is
subject to repurchase by the Company. The number of shares subject to repurchase
is generally reduced over a four-year vesting period. At December 31, 2000 and
2001, 433,334 and 260,000, respectively, were subject to repurchase.
Stockholders' Rights Plan
During 2001, the Company's Board of Directors declared a dividend of one
preferred share purchase right (a Right) for each outstanding share of common
stock, of the Company. Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series A Preferred Stock, of
the Company, at a price of $35.00 per one one-thousandth of a share, subject to
certain antidilution adjustment provisions. The Rights, as amended, are
exercisable in the event that a person, entity or group acquires beneficial
ownership of 20% or more of the outstanding shares of VINA's common stock. The
Rights will expire on the earlier of (i) July 25, 2011, (ii) consummation of a
merger transaction meeting certain requirements, or (iii) redemption or exchange
of the Rights by the Company. At December 31, 2001 62,013,759 Rights were
outstanding.
Common Stock - Private Placement
During the fourth quarter of 2001, the Company completed a $14.2 million
private placement equity financing. Under the subscription agreement, the
Company issued 22,150,369 shares of common stock at a weighted average price of
$0.64 per share. In addition, warrants to acquire 7,090,000 shares of the
Company's common stock were attached to the common stock. The warrants are
immediately exercisable at $1.00 per share and expire three years from the date
of issuance or upon the Company's stock price exceeding predefined trading
prices. All such warrants were outstanding at December 31, 2001.
The Company allocated $2.0 million of the sales price to the warrants based
on the relative fair value of the warrants. The fair value for the warrants was
determined using the Black-Scholes option pricing model over the contractual
term of the warrants using the following assumptions: stock volatility, 75%;
risk free interest rate, 3.6% and no dividends during the expected term.
Certain employees participated in the private placement and purchased
375,742 common shares with 120,050 attached warrants at a price below fair
market value. The Company recorded the associated $289,000 of intrinsic value as
stock-based compensation in 2001. The intrinsic value was measured as the
difference between the equity issuance prices and their fair market values on
the date of issuance.
Net Loss Per Share
The following is a calculation of the denominators used for the basic and
diluted net loss per share computations (in thousands):
Years Ended December 31,
---------------------------
1999 2000 2001
---- ---- ----
Weighted average common shares
outstanding.................................. 7,728 18,927 38,239
Weighted average common shares outstanding
subject to repurchase......................... (2,559) (2,460) (1,118)
------ ------ ------
Shares used in computation, basic and diluted... 5,169 16,467 37,121
====== ====== ======
During all periods presented, the Company had securities outstanding which
could potentially dilute basic EPS in the future, but were excluded in the
computation of diluted EPS in such periods, as their effect would have been
antidilutive due to the net loss reported in such periods. Such outstanding
securities consist of the following at: December 31, 1999, 14,290,517 shares of
convertible preferred stock, 2,320,548 shares of common stock subject to
repurchase and options to purchase 7,540,482 shares of common stock; December
31, 2000, 1,859,680 shares of common stock subject to repurchase and options to
purchase 10,692,788 shares of common stock; December 31, 2001, 915,461 shares of
common stock subject to repurchase and options to purchase 13,353,743 shares of
common stock and warrants to purchase 7,090,000 shares of common stock.
Stock Plans
In July 2000, the Company adopted the 2000 Stock Incentive Plan. The 2000
Stock Incentive Plan serves as the successor equity incentive program to the
Company's 1996 Stock Option/Stock Issuance Plan and the 1998 Stock Incentive
Plan, as amended (the Predecessor Plans). Options outstanding under the
Predecessor Plans on July 11, 2000 (9,071,061 shares) were incorporated into the
2000 Stock Incentive Plan. Such incorporated options continue to be governed by
their existing terms, which are similar to the 2000 Stock Incentive Plan. Under
the 2000 Stock Incentive Plan, the Company is authorized to provide awards in
the form of restricted shares, stock units, options or stock appreciation
rights. The number of shares reserved under this plan was 7,301,873 shares which
can be increased for repurchases of unvested common shares issued under the
Predecessor Plans up to a total share reserve of 10,000,000 shares. The share
reserve is automatically increased on January 1 of each calendar year, beginning
in 2001, by an amount equal to the lesser of: (i) 2,500,000 shares; (ii) 4% of
the outstanding shares of stock of the Company on such date; or (iii) a lesser
amount determined by the Company's Board of Directors (2,480,550 shares on
January 1, 2002).
Under the 2000 Stock Incentive Plan, the Company may grant options to
purchase or directly issue common stock to employees, outside directors and
consultants at prices not less than the fair market value at the date of grant
for incentive stock options and not less than par value at the date of grant for
nonstatutory stock options. These options generally expire ten years from the
date of grant and are generally immediately exercisable. The Company has a right
to repurchase (at the option exercise price) common stock issued under option
exercises for unvested shares. The right of repurchase generally expires 25%
after the first 12 months from the date of grant and then ratably over a
36-month period. Settlement and vesting terms for awards of restricted stock,
stock appreciation rights, and stock units are governed by individual
agreements. There were no awards of restricted stock, stock appreciation rights
or stock units in 2000 and 2001.
Stock option activity under the stock plan is summarized as follows:
OUTSTANDING OPTIONS
----------------------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
------------- ----------------
Balances at January 1, 1999 (666,807 shares vested at a weighted
average exercise price of $0.19 per share) ................ 5,191,511 $ 0.34
Granted (weighted average fair value of $3.58 per share) ..... 4,411,500 0.88
Canceled ..................................................... (454,032) 0.42
Exercised .................................................... (1,608,497) 0.38
---------
Balances at December 31, 1999 (1,163,408 shares vested at a
weighted average exercise price of $0.33 per share) ....... 7,540,482 0.64
Granted (weighted average fair value of $6.53 per share) ..... 7,555,391 3.47
Canceled ..................................................... (1,321,112) 1.58
Exercised .................................................... (3,081,973) 1.16
----------
Balances at December 31, 2000 (1,463,399 shares vested at a
weighted average exercise price of $0.643 per share) ....... 10,692,788 2.37
Granted (weighted average fair value of $1.46 per share) ..... 6,802,243 1.51
Canceled ..................................................... (3,122,840) 2.74
Exercised .................................................... (1,018,448) 0.48
----------
Balances at December 31, 2001 ................................ 13,353,743 $ 1.99
===========
At December 31, 2001, the Company had 4,132,334 shares available for future
grants under the 2000 Stock Incentive Plan.
Additional information regarding options outstanding at December 31, 2001
is as follows:
OPTIONS OUTSTANDING VESTED OPTIONS
----------------------------------------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
-------------- ----------- ----------- ------- ------ -------
$0.13 - $0.25 477,089 5.8 $ 0.21 472,380 $0.21
$0.35 - $0.73 2,137,299 8.6 0.59 564,162 0.55
$1.00 - $2.03 7,938,298 8.6 1.35 1,865,223 1.26
$2.66 - $6.50 2,767,057 8.7 5.05 743,987 5.14
$16.50 34,000 8.7 16.50 10,624 16.50
--------- ---------
$0.13 - $16.50 13,353,743 8.5 $ 1.99 3,656,376 $1.85
========== =========
Employee Stock Purchase Plan
In July 2000, the Company adopted the 2000 Employee Stock Purchase Plan
(the ESPP). Under the ESPP, eligible employees are allowed to have salary
withholdings of up to 10% of their base compensation to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of defined purchase periods. Offering periods
commence on February 1 and August 1 of each year. One million eighty thousand
shares of common stock are reserved for issuance under ESPP and will be
increased on the first day of each fiscal year, the lesser of: (a) 80,000
shares; (b) 1% of the Company's outstanding common stock on the day of the
increase; or (c) a lesser number of shares determined by the Company's Board of
Directors (80,000 shares on January 1, 2002).
Shares issued under the ESPP were 287,749 in 2001 at a weighted average
price of $2.64 per share. The weighted average fair value of such shares was
$1.12 per share. There were 792,251 number of shares available for future
issuance under this plan at December 31, 2001.
Stock Compensation
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25.
Accordingly, the Company records deferred stock compensation equal to the
difference between the grant price and deemed fair value of the Company's common
stock on the date of grant. The deferred stock compensation is reduced by
forfeitures of unvested common stock options. Such net deferred stock
compensation aggregated $15.1 million, $36.4 million and a reduction of $9.6
million in 1999, 2000 and 2001, respectively, and is being amortized to expense
over the vesting period of the options, generally four years, using a multiple
option award valuation approach, which results in accelerated amortization of
the expense. Amortization of deferred stock compensation is presented net of
forfeitures of unvested previously amortized stock compensation. Amortization of
deferred stock compensation, net of forfeitures was $4.6 million, $23.5 million
and $10.3 million in 1999, 2000, and 2001 respectively.
In 1999, the Company issued 800,000 shares of common stock to a director at
$0.60 per share resulting in proceeds of $480,000. The Company has a right of
repurchase on such shares at the original issuance price upon termination of
employment. The right of repurchase expires over four years with certain
predefined events triggering accelerated vesting. The Company recorded $2.7
million of deferred stock compensation equal to the difference between the
purchase price and deemed fair value of the Company's common stock on the date
of issuance. Such deferred stock compensation is amortized to expense over the
vesting period using a multiple award option valuation approach.
During 1999, 2000 and 2001, the Company issued nonstatutory options to
nonemployees for the purchase of 23,000, 115,141 and 12,200 shares of common
stock at weighted average exercise prices of $0.84, $3.39 and $1.25 per share,
respectively. Such options were issued for services provided by the nonemployees
and were immediately vested and exercisable. Accordingly, the Company recorded
the $99,000, $635,000 and $4,000 fair values of such awards (using the
Black-Scholes option pricing model), respectively, as stock-based compensation
which was expensed on the date of grant.
Additional Stock Plan Information
Since the Company accounts for its stock-based awards to employees using
the intrinsic value method in accordance with APB No. 25, SFAS No. 123 requires
the disclosure of pro forma net income (loss) and EPS had the Company adopted
the fair value method. Under SFAS No. 123, the fair value of stock-based awards
is calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. The Company's calculations were made using the
Black-Scholes option pricing model which requires subjective assumptions,
including expected time to exercise and future stock price volatility, which
greatly affects the calculated values. The following weighted average
assumptions were used to calculate the fair value of employee awards under the
Company's option plans: expected life, 3.1 years in 1999, 3.2 years in 2000 and
3.2 years in 2001; volatility, 0% in 1999, 29% in 2000 and 75% in 2001; risk
free interest rate, 6% in 1999, 6.4% in 2000 and 4.2% in 2001; and no dividends
during the expected term. The Company's fair value calculations on stock-based
awards under the ESPP in 2001 were also made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life,
six months; volatility, 75%; risk free interest rate of 3.74%; and no dividends
during the expected term. The Company's calculations are based on a multiple
option award valuation and amortization approach, which results in accelerated
amortization of the expense. Forfeitures are recognized as they occur. If the
computed fair values of the employee awards had been amortized to expense over
the vesting period of the awards, the Company's pro forma net loss would have
been $17.4 million ($3.36 per share, basic and diluted) in 1999, $44.2 million
($2.69 per share, basic and diluted) in 2000 and $53.7 million ($1.45 per share,
basic and diluted) in 2001.
10. Income Taxes
The Company recorded no income tax benefit or provision in any of the
periods presented. The difference between the recorded amounts is reconciled to
the federal statutory rate as follows (in thousands):
1999 2000 2001
-----------------------------------
Federal statutory tax benefit at 35%..... $ (5,977) $ (15,166) $ (16,764)
State tax benefit........................ (981) (2,490) (800)
Research and development credits......... (391) (774) (400)
Nondeductible stock compensation......... 1,921 9,848 4,249
In process research and development...... -- -- 2,043
Amortization of goodwill and intangible
assets................................. -- -- 3,313
Change in valuation allowance............ 5,124 8,973 7,779
Other.................................... 304 (391) 580
------------------------------------
Income taxes............................. $ -- $ -- $ --
====================================
The components of net deferred tax assets are as follows (in thousands):
December 31,
-------------------------
2000 2001
---- ----
Deferred tax assets:
Accruals and reserves not currently deductible... $ 1,145 $ 2,730
Net operating loss carryforwards................. 15,671 26,231
Tax credit carryforwards......................... 2,233 2,423
Identified acquisition intangibles............... -- (1,626)
Other............................................ 643 937
-------- --------
19,692 30,695
Valuation allowance................................. (19,692) (30,695)
-------- --------
Net deferred tax assets............................. $ -- $ --
======== ========
Due to the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by approximately $8.0 million during 2001. Approximately $3.2 million
attributable to the Company's merger with Woodwind.
As of December 31, 2001, the Company had available for carryforward net
operating losses for federal and state income tax purposes of approximately
$72.0 million and $26.0 million, respectively. Net operating losses of
approximately $1.3 million and $800,000 for federal and state tax purposes,
respectively, attributable to the tax benefit relating to the exercise of
nonqualified stock options and disqualifying dispositions of incentive stock
options are excluded from the components of deferred income tax assets. The tax
benefit associated with this net operating loss will be recorded as an
adjustment to stockholders' equity when the Company generates taxable income.
Federal net operating loss carryforwards will expire, if not utilized, in 2011
through 2021. State net operating loss carryforwards will expire, if not
utilized, in 2002 through 2006.
As of December 31, 2001, the Company had available for carryforward
research and experimentation tax credits for federal and state income tax
purposes of approximately $1.4 million and $800,000, respectively. Federal
research and experimentation tax credit carryforwards expire in 2011 through
2021. The Company also had approximately $200,000 in California manufacturers
investment credits.
Current federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Use of approximately $9.0 million of the
net operating loss carryforward of Woodwind from periods prior to the merger
with the Company is limited to approximately $2.8 million per year. The
Company's ability to utilize other net operating loss and tax credit
carryforwards may be further limited as a result of an ownership change. Such a
limitation could result in the expiration of carryforwards before they are
utilized.
11. Customer Concentrations
The following table summarizes net revenue and accounts receivable for
customers which accounted for 10% or more of accounts receivable or net revenue:
Accounts Receivable Net Revenue
------------------ ----------------------------
December 31, Years Ended December 31,
------------------ ----------------------------
CUSTOMER 2000 2001 1999 2000 2001
-------- ---- ---- ---- ---- ----
A ................ - 22% - - -
B ................ 16% 10% 46% 31% 42%
C ................ 19% - - - -
D ................ - 26% - - -
E ................ 46% 23% - 28% 20%
F ................ - - - - 12%
G ................ - 16% - - -
12. Employee Benefit Plan
The Company has a 401(k) tax deferred savings plan to provide for
retirement of employees meeting certain eligibility requirements. Employee
contributions are limited to 20% of their annual compensation subject to IRS
annual limitations. The Company may make contributions at the discretion of the
Board of Directors. There were no discretionary employer contributions to the
401(k) plan in 1999, 2000 or 2001.
13. Segment Information
As defined by the requirements of SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information, the Company operates in one reportable
segment: the design, development, marketing and sale of multiservice broadband
access communications equipment. International sales were insignificant for all
periods presented. The Company's chief operating decision maker is its chief
executive officer.
14. Subsequent Event
On January 7, 2002, the Company collected the common stock subscription
receivable outstanding at December 31, 2001 of $9.6 million.
15. Selected Consolidated Quarterly Financial Results (Unaudited)
The following tables set forth selected unaudited quarterly results of
operations for the years ended December 31, 2000 and 2001 (in thousands, except
per share amounts):
Quarter Ended
---------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000 2001 2001 2001 2001
------- ------- -------- -------- ------- ------- -------- --------
Net revenue .................. $ 5,187 $ 6,869 $ 9,174 $ 10,848 $11,029 $12,028 $13,010 $10,829
Gross profit (excluding
stock-based compensation).. 1,948 2,649 3,723 4,518 2,783 4,958 5,211 4,393
Loss from operations ......... (7,931) (11,923) (12,927) (12,283) (19,188) (12,378) (7,496) (10,217)
Net loss ..................... (7,805) (11,653) (12,442) (11,432) (18,576) (11,998) (7,219) (10,103)
Net loss per share, basic and
diluted ................... $ (1.12) $ (1.50) $ (0.60) $ (0.37) $ (0.57) $ (0.34) $ (0.20) $ (0.23)
Shares used in computation,
basic and diluted.......... 6,958 7,794 20,571 30,545 32,783 35,589 36,139 43,974
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item (with respect to identification of
directors and with respect to delinquent filers pursuant to Item 405 of
Regulation S-K) is incorporated by reference from the information under the
caption "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance," respectively, contained in the Company's Proxy Statement
to be filed with the Securities and Exchange Commission in connection with the
solicitation of proxies for the Company's 2002 Annual Meeting of Stockholders to
be held on May 22, 2002 (the "Proxy Statement"). For information with respect to
the executive officers of the Company, see "Executive Officers" at the end of
Part I of this report.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
information under the captions "Election of Directors -- Compensation of
Directors," and "Executive Compensation" contained in the Company's Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
information under the captions "Security Ownership of Certain Beneficial Owners
and Management" contained in the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Transactions" contained in the
Company's Proxy Statement
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements
Reference is made to the Index to Consolidated Financial Statements of VINA
Technologies, Inc., under Item 8 of Part II hereof.
(2) Consolidated Financial Statement Schedule
The following consolidated financial statement is filed as part of this
registration statement and should be read in conjunction with the consolidated
financial statements.
Page
----
Schedule II-- Valuation & Qualifying Accounts 53
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the consolidated financial statements or the notes thereto.
(3) Exhibits
See Item 14(c) below. Each management contract or compensatory plan or
arrangement required to be filed has been identified.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on October 24, 2001 with respect to
the execution of two securities purchase agreements to sell shares of the
Company's common stock and warrants to purchase shares of the Company's common
stock as described in Item 5 of the Form 8-K.
The Company filed a report on Form 8-K on December 24, 2001 with respect to
the completion of the sale of its shares of common stock and warrants to
purchase shares of its common stock as described in Item 5 of the Form 8-K.
(c)
Exhibit
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Merger, dated as of October 30, 2000, by and
among the Registrant, WCS Acquisition Subsidiary, Inc. and Woodwind
Communications Systems, Inc. (incorporated by reference to Exhibit 2.1
to the Company's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on March 5, 2001 (File No.
000-31903)).
2.2 Agreement and Plan of Merger, dated as of October 17, 2001 by and
between the Registrant and MOS Acquisition Corporation (incorporated
by reference to the exhibit of the same number to the Company's
Registration Statement of Form S-1 filed with the Securities and
Exchange Commission on February 15, 2002 (File No. 833-82870)).
3(i) Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3(i).2 to the Company's
Registration Statement on Form S-1 (File No. 333-36398)).
3(ii) Bylaws of the Registrant, as amended (incorporated by reference to
Exhibit 3(ii).2 to the Company's Registration Statement on Form S-1
(File No. 333-36398)).
4.1 Form of Common Stock Certificate (incorporated by reference to the
exhibit of the same number to the Company's Registration Statement on
Form S-1 (File No. 333-36398)).
4.2.1 Rights Agreement dated as of July 25, 2001 by and between the
Registrant and American Stock Transfer & Trust Company (incorporated
by reference to Exhibit 4.1 of the Company's Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on July 25,
2001 (File No. 000-31903)).
4.2.2 Amendment No. 1 to Rights Agreement dated as of October 17, 2001 by
and between the Registrant and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 4.1 to the Company's Amendment
No. 1 to Registration Statement on Form 8-A filed with the Securities
and Exchange Commission on October 24, 2001 (File No. 000-31903)).
4.3.1 Securities Purchase Agreement dated as of October 17, 2001 by and
among the Registrant and the Investors named therein (incorporated by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 24, 2001
(File No. 000-31903)).
4.3.2 Securities Purchase Agreement dated as of October 19, 2001 by and
between the Registrant and Whitman Partners, L.P. (incorporated by
reference to Exhibit 99.3 to the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 24, 2001
(File No. 000-31903)).
4.4 Stockholders' Agreement dated as of October 17, 2001 by and among the
Company and the stockholders listed on the signature pages thereto
(incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission
on October 24, 2001 (File No. 000-31903)).
4.5 Form of Common Stock Purchase Warrant issued to investors in
connection with the securities purchase agreements (incorporated by
reference to Exhibit 99.5 to the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 24, 2001
(File No. 000-31903)).
10.1* 1996 Stock Plan and form of agreements thereunder (incorporated by
reference to the exhibit of the same number to the Company's
Registration Statement on Form S-1 (File No. 333-36398)).
10.1.2* Amended and Restated 1998 Stock Plan and form of agreements
thereunder (incorporated by reference to the exhibit of the same
number to the Company's Registration Statement on Form S-1 (File No.
333-36398)).
10.1.3* 2000 Employee Stock Purchase Plan (incorporated by reference to the
exhibit of the same number to the Company's Registration Statement on
Form S-1 (File No. 333-36398)).
10.1.4* 2000 Stock Incentive Plan (incorporated by reference to the exhibit
of the same number to the Company's Registration Statement on Form S-1
(File No. 333-36398)).
10.1.5* Agreement under the 2000 Stock Incentive Plan (incorporated by
reference to the exhibit of the same number to the Company's
Registration Statement on Form S-1 (File No. 333-36398)).
10.1.6* 1999 Stock Option Plan of Woodwind Communications Systems, Inc.
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on February 27, 2001 (File No. 333-56260)).
10.1.7* 2000 Stock Option Plan of Woodwind Communications Systems, Inc.
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on February 27, 2001 (File No. 333-56256)).
10.2+ General Agreement for the Procurement of Products and Service and the
Licensing of Software dated April 28, 1999 between the Registrant and
Lucent Technologies, Inc. (incorporated by reference to the exhibit of
the same number to the Company's Registration Statement on Form S-1
(File No. 333-36398)).
10.3* Indemnification Agreement between the Registrant and its officers and
directors (incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (File No. 333-36398)).
10.4.1* Offer letter by and between the Registrant and Thomas J. Barsi
dated July 1, 1996 (incorporated by reference to the exhibit of the
same number to the Company's Registration Statement of Form S-1 filed
with the Securities and Exchange Commission on February 15, 2002 (File
No. 833-82870)).
10.4.2* Offer letter by and between the Registrant and Stanley E.
Kazmierczak dated May 24, 1999 (incorporated by reference to the
exhibit of the same number to the Company's Registration Statement of
Form S-1 filed with the Securities and Exchange Commission on February
15, 2002 (File No. 833-82870)).
10.4.3* Offer letter by and between the Registrant and Steven M. Bauman
dated August 16, 1999 (incorporated by reference to the exhibit of the
same number to the Company's Registration Statement of Form S-1 filed
with the Securities and Exchange Commission on February 15, 2002 (File
No. 833-82870)).
10.4.4* Offer letter by and between the Registrant and T. Diane Pewitt
dated January 21, 2000 (incorporated by reference to the exhibit of
the same number to the Company's Registration Statement of Form S-1
filed with the Securities and Exchange Commission on February 15, 2002
(File No. 833-82870)).
10.4.5* Offer letter by and between the Registrant and C. Reid Thomas dated
April 7, 2000 (incorporated by reference to the exhibit of the same
number to the Company's Registration Statement of Form S-1 filed with
the Securities and Exchange Commission on February 15, 2002 (File No.
833-82870)).
10.4.6* Offer letter by and between the Registrant and Julie P. Cotton
dated June 8, 2000 (incorporated by reference to the exhibit of the
same number to the Company's Registration Statement of Form S-1 filed
with the Securities and Exchange Commission on February 15, 2002 (File
No. 833-82870)).
10.5* Settlement Agreement and Release by and between the Registrant and
Joshua W. Soske dated July 17, 2001 (incorporated by reference to the
exhibit of the same number to the Company's Registration Statement of
Form S-1 filed with the Securities and Exchange Commission on February
15, 2002 (File No. 833-82870)).
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Report on Schedule.
24.1 Power of Attorney (see page 52 of this Form 10-K).
+ Confidential treatment has been granted with respect to certain portions of
this agreement.
* Indicates management contract or compensatory plan or arrangement.
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Newark,
State of California on the 1st day of April 2002.
VINA TECHNOLOGIES, INC.
By /s/ STEVEN M. BAUMAN
-----------------------------------
STEVEN M. BAUMAN
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven M. Bauman and Stanley E.
Kazmierczak, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Steven M. Bauman President and Chief Executive Officer April 1, 2002
- ------------------------------ (Principal Executive Officer) and Director
Steven M. Bauman
/s/ Stanley E. Kazmierczak Vice President, Finance and Administration April 1, 2002
- ------------------------------ and Chief Financial Officer (Principal
Stanley E. Kazmierczak Financial and Accounting Officer)
/s/ Jeffrey M. Drazan Director April 1, 2002
- ------------------------------
Jeffrey M. Drazan
/s/ John F. Malone Director April 1, 2002
- ------------------------------
John F. Malone
/s/ Philip J. Quigley Director April 1, 2002
- ------------------------------
Philip J. Quigley
/s/ Paul Scott Director April 1, 2002
- ------------------------------
Paul Scott
/s/ Joshua W. Soske Director April 1, 2002
- ------------------------------
Joshua W. Soske
/s/ W. Michael West Director April 1, 2002
- ------------------------------
W. Michael West
VINA TECHNOLOGIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Deductions-
beginning of costs and write-offs Balance at
period expenses of accounts end of period
------ -------- ----------- -------------
Allowance for doubtful accounts and sales returns
Year ended
December 31, 2001.............................. $335 $222 $100 $457
December 31, 2000.............................. 221 131 17 335
December 31, 1999.............................. 109 131 19 221
Accrued warranty:
Year ended
December 31, 2001.............................. $686 $68 $58 $696
December 31, 2000.............................. 449 393 156 686
December 31, 1999.............................. 152 410 113 449
Inventory reserves:
Year ended
December 31, 2001.............................. $110 $577 $224 $463
December 31, 2000.............................. 90 31 11 110
December 31, 1999.............................. - 90 - 90