UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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: 0-31903
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 or organization)
39745 Eureka Drive, Newark, CA 94560
(Address of principal executive offices)
(510) 492-0800
(Registrant's telephone number, including area code)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of outstanding shares of the registrant's Common Stock, $0.0001 par
value, was 62,189,930 as of March 31, 2003.
VINA TECHNOLOGIES, INC.
INDEX
Page
----
PART I: FINANCIAL INFORMATION...........................................................................3
Item 1. Condensed Consolidated Financial Statements...................................................3
Condensed Consolidated Balance Sheets as of December 31, 2002 and March 31, 2003..............3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2002
and 2003......................................................................................4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002
and 2003......................................................................................5
Notes to Condensed Consolidated Financial Statements..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........12
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................33
Item 4. Controls and Procedures......................................................................33
PART II: OTHER INFORMATION.............................................................................34
Item 1. Legal Proceedings............................................................................34
Item 6. Exhibits and Reports on Form 8-K.............................................................34
Signatures...........................................................................................35
2
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
VINA Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(unaudited)
December 31, March 31,
2002 2003
--------------------------
ASSETS
Current Assets:
Cash, cash equivalents ................................................. $ 4,567 $ 2,673
Restricted cash ........................................................ 3,500 333
Short-term investments ................................................. 50 --
Accounts receivable, net ............................................... 3,348 1,689
Inventories ............................................................ 3,367 3,839
Prepaid expenses and other ............................................. 2,354 1,084
--------- --------
Total current assets ............................................ 17,186 9,618
Property and equipment, net .............................................. 1,968 1,655
Other assets ............................................................. 32 --
Intangible assets, net ................................................... 1,394 1,277
--------- --------
Total assets .................................................... $ 20,580 $ 12,550
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ....................................................... $ 2,979 $ 1,864
Accrued compensation and related benefits .............................. 900 539
Accrued warranty ....................................................... 414 400
Other current liabilities .............................................. 1,915 1,532
Current debt ........................................................... 3,000 --
--------- --------
Total current liabilities ....................................... 9,208 4,335
Commitments (Note 7) ..................................................... -- --
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; shares
outstanding: December 31, 2002, 62,080,636; March 31, 2003, 62,189,930 6 6
Additional paid-in capital ............................................ 189,297 188,786
Deferred stock compensation ........................................... (315) (112)
Accumulated deficit ................................................... (177,616) (180,465)
-------- --------
Total stockholders' equity 11,372 8,215
========= =========
Total liabilities and stockholders' equity $ 20,580 $ 12,550
========= =========
See notes to condensed consolidated financial statements
3
VINA Technologies, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
2002 2003
---- ----
Net revenue .................................................................$ 6,439 $ 2,708
Cost of revenue (excluding stock-based compensation) ........................ 6,125 1,692
-------- --------
Gross profit (loss) (excluding stock-based compensation) .................... 314 1,016
-------- --------
Costs and expenses:
Research and development (excluding stock-based compensation) ............. 5,423 1,828
Selling, general and administrative (excluding stock-based compensation) .. 4,803 1,936
Stock-based compensation, net* ............................................ 1,653 (324)
Amortization of goodwill and intangible assets ............................ 324 116
Impairment of goodwill and intangible assets .............................. 29,276 --
Restructuring expenses (excluding stock-based compensation) ............... -- 309
-------- --------
Total costs and expenses .............................................. 41,479 3,865
-------- --------
Loss from operations ........................................................ (41,165) (2,849)
Other income, net ........................................................... 72 --
-------- --------
Net loss ....................................................................($41,093) ($ 2,849)
======== ========
Net loss per share, basic and diluted .......................................($ 0.67) ($ 0.05)
======== ========
Shares used in computation basic and diluted ................................ 61,531 62,047
======== ========
* Stock-based compensation, net:
Cost of revenue ..........................................................$ 158 $ --
Research and development ................................................. 401 20
Selling, general and administrative ...................................... 1,094 (8)
Restructuring benefit .................................................... -- (336)
-------- --------
$ 1,653 $ (324)
======== ========
See notes to condensed consolidated financial statements
4
VINA Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
2002 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(41,093) $ (2,849)
Reconciliation of net loss to net cash used in operating
activities:
Depreciation and amortization .......................... 909 441
Disposal of property and equipment ..................... 304 --
Impairment of goodwill and intangible assets ........... 29,276 --
Stock-based compensation, net .......................... 1,653 (324)
Changes in operating assets and liabilities:
Accounts receivable .................................... 4,886 1,659
Inventories ............................................ 596 (472)
Prepaid expenses and other ............................. 199 1,270
Other assets ........................................... (2) 32
Accounts payable ....................................... (1,589) (1,115)
Accrued compensation and related benefits .............. (55) (361)
Accrued warranty ....................................... (29) (14)
Other current liabilities .............................. (135) (383)
-------- --------
Net cash used in operating activities ................. (5,080) (2,116)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ...................... (302) (11)
Proceeds from sales/maturities of short-term investments . -- 50
-------- --------
Net cash provided by (used in) investing activities ... (302) 39
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term debt .............................. -- (3,000)
Release of restricted cash .............................. -- 3,167
Proceeds from sale of common stock ...................... 9,803 --
Proceeds from sale of stock under employee stock purchase
plan .................................................... -- 16
Repurchase of common stock .............................. (92) --
-------- --------
Net cash provided by financing activities ............. 9,711 183
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................... 4,329 (1,894)
CASH AND CASH EQUIVALENTS, Beginning of period ............. 15,805 4,567
-------- --------
CASH AND CASH EQUIVALENTS, End of period ................... $ 20,134 $ 2,673
======== ========
See notes to condensed consolidated financial statements
5
VINA TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Unaudited Interim Financial Information
Business - VINA Technologies, Inc. (the Company or VINA), incorporated in June
1996, designs, develops, markets and sells multi-service 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. On March 17, 2003, VINA,
Larscom Incorporated, a Delaware corporation ("Larscom") and a wholly-owned
subsidiary of Larscom, entered into an Agreement and Plan of Merger, under which
the Larscom subsidiary will merge with and into VINA, followed by the merger of
VINA with and into Larscom, with Larscom as the surviving corporation. As a
result of the merger, each issued and outstanding share of VINA common stock
will be automatically converted into the right to receive 0.2659 of a validly
issued, fully paid and nonassessable share of Larscom common stock. The merger
is intended to be a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, and is expected to be treated as a purchase
for financial accounting purposes, in accordance with generally accepted
accounting principles.
Basis of Presentation -- The condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
inter company accounts and transactions have been eliminated in consolidation.
The accompanying interim financial information is unaudited and has been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, it does not include all of the information and
Notes required by generally accepted accounting principles for annual financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim information. Operating results for the
three-months ended March 31, 2003 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2003. For further
information, refer to the Company's reports filed with the Securities and
Exchange Commission, including its Annual Report on Form 10-K for the year ended
December 31, 2002.
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.
Going Concern - The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As of March 31,
2003, we had cash and cash equivalents of $2.7 million and its accumulated
deficit was $180.5 million. These factors among others raise substantial doubt
that we will be able to continue as a going concern for a reasonable period of
time. We has implemented, and is continuing to pursue, aggressive cost cutting
programs in order to preserve available cash.
Our intent is to complete the announced merger with Larscom in the second
quarter. If we are unsuccessful in completing the merger during the second
quarter, then we will need to obtain additional funding during the second
quarter of 2003 to continue operations. 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.
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.
6
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 post
contract 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.
Stock Based Compensation - The Company accounts for employee stock plans under
the intrinsic value method prescribed by Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and Financial
Accounting Standards Board Interpretation ("FIN") No. 44, Accounting for Certain
Transactions Involving Stock Compensation (an Interpretation of APB No. 25) and
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The Company accounts for stock-based compensation
relating to equity instruments issued to non-employees based on the fair value
of options or warrants estimated using the Black-Scholes model on the date of
grant in compliance with the Emerging Issues Task Force No. 96-18, Accounting
for Equity Instruments that are issued to Other than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services. Compensation expense resulting
from non-employee options is amortized using the multiple option approach in
compliance with FIN No. 28, Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans.
Pursuant to FIN No. 44, options assumed in a purchase business combination are
valued at the date of acquisition at their fair value calculated using the
Black-Scholes option pricing model. The fair value of the assumed options is
included as part of the purchase price. The intrinsic value attributable to the
unvested options is recorded as unearned stock-based compensation and amortized
over the remaining vesting period of the related options. Options assumed by the
Company related to the business combination made on behalf of the Company
subsequent to July 1, 2000 (the effective date of FIN No. 44) have been
accounted for pursuant to FIN No. 44.
For purposes of pro forma disclosure under SFAS No. 123, the estimated fair
value of the options is assumed to be amortized to expense over the options'
vesting period, using the multiple option method. Pro forma information is as
follows (in thousands, except per share amounts):
7
March 31,
-----------------------
2002 2003
Net loss, as reported ............................................. $ (41,093) $ (2,849)
Add: Stock-based compensation included in reported net loss,
net of related tax effects .................................. 1,653 (324)
Less: Stock-based compensation expense determined under fair
value method for all awards, net of related tax effects..... (1,396) (446)
--------- --------
Pro forma net (loss) .............................................. $ (40,836) $ (3,619)
========= ========
Net loss per share, as reported - basic and diluted ............... $ (0.67) $ (0.05)
========= ========
Pro forma loss per share, as reported - basic and diluted ......... $ (0.66) $ (0.06)
========= ========
Comprehensive Loss - Comprehensive loss for the three months ended March 31,
2002 and March 31, 2003 was the same as net loss.
Recent Accounting Standards - In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (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 adopted SFAS No. 142 on January 1, 2002. Upon adoption of SFAS No. 142,
the Company has stopped the amortization of intangible assets with indefinite
lives (goodwill, which includes the re-class of workforce-in-place) 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 evaluated goodwill under SFAS No. 142 upon
adoption, on January 1, 2002, and determined that there was no impairment.
However, in accordance with SFAS No. 142, the Company was required to reevaluate
goodwill and other intangibles for impairment in March 2002 because events and
circumstances changed that more likely than not would reduce the fair value of
the reporting unit below its carrying amount (See Note 4).
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. The adoption of this statement did not have an impact on the
financial position, results of operations or cash flows of the Company.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses financial accounting and reporting
for costs associated with exit or disposal activities and supersedes Emerging
Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This statement requires that a
Liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an exit cost
as defined in Issue 94-3 was recognized at the date of an entity's commitment to
an exit plan. This statement also establishes that the liability should
initially be measured and recorded at fair value. This statement is effective
8
for the Company on January 1, 2003. The adoption of this statement did not have
an impact on the financial position, results of operations or cash flows of the
Company.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. This statement is effective for
the Company's fiscal year beginning January 1, 2003. The Company has elected to
continue accounting for employee stock option plans according to APB No. 25, and
the Company adopted the disclosure requirements under SFAS No. 148 commencing on
December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires the guarantor
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. It also elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued and to be made in regard
of product warranties. Disclosures required under FIN 45 are included in these
financial statements (see Note 7 concerning the reserve for warranty costs).
However, the initial recognition and initial measurement provisions of this FIN
are applicable for guarantees issued or modified after December 31, 2002. The
adoption of the recognition and measurement provisions of FIN 45 did not have a
material effect on the Company's consolidated financial statements.
2. Inventories
Inventories consist of the following (in thousands):
December 31, March 31,
2002 2003
----------- --------
Raw materials and subassemblies... 1,684 1,572
Finished goods.................... 1,683 2,267
----- -----
Inventories....................... 3,367 3,839
===== =====
3. 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):
Three Months Ended
March 31,
------------------
2002 2003
---- ----
Weighted average common shares outstanding .......... 62,207 62,152
Weighted average common shares outstanding subject to
repurchase ....................................... (676) (105)
------- -------
Shares used in computation, basic and diluted ....... 61,531 62,047
======= =======
During the three months ended March 31, 2002 and 2003, we had securities
outstanding which could potentially dilute basic earnings per share in the
future, but were excluded in the computation of diluted earnings per shares 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: March 31, 2002, 577,774 shares of common stock subject to repurchase and
options to purchase 12,668,119 shares of common stock and warrants to purchase
7,090,000 of our common stock; March 31, 2003, 70,075 shares of common stock
subject to repurchase and options to purchase 6,743,377 shares of common stock,
and warrants to purchase 7,090,000 shares of common stock.
9
4. Goodwill and Intangible Assets
As VINA operates in one reportable segment, the design, development, marketing
and sale of multiservice broadband access communications equipment, and has only
one reporting unit, VINA consolidated, the measurement of the fair value for our
goodwill is our market capitalization. The deterioration of the telecom industry
and the decline in our current product sales in the first quarter were factors
that required the Company to evaluate the fair value of the goodwill. Management
evaluated our fair value as determined by its market capitalization against its
carrying value, net assets, and determined that goodwill was impaired. In
addition, under SFAS No. 144 "Accounting for the impairment of Disposal of
Long-Lived Assets" the Company evaluated the intangible assets for impairment
and determined a portion of the intangible assets were impaired. We recorded a
$29.3 million impairment charge during the quarter ended March 31, 2002. The
amount was comprised of $27.3 million of goodwill and $2.0 million of intangible
assets.
Intangible assets consist of the following (in thousands):
December 31, 2002 March 31, 2003
Gross Gross
Amortization Carrying Accumulated Carrying Accumulated
Period Amount Amortization Net Amount Amortization Net
--------- ---------- ---------- --------- ---------- ----------- ---------
Intellectual property 4 years $1,859 (465) $1,394 $1,859 (582) $1,277
========== ========== ========= ========== =========== =========
Estimated future amortization expense is as follows (in thousands):
Fiscal year Total
-----
(Remaining nine months) 2003 $ 347
2004 465
2005 465
------------------
Total Amortization $ 1,277
==================
5. Restructuring
During January 2003, VINA announced and completed restructuring plans intended
to better align its operations with the changing market conditions. These plans
were designed to focus on profit contribution and reduce expenses. The
restructuring includes a workforce reduction and other operating
reorganizations. As a result of the restructuring efforts, the Company reduced
its workforce by approximately 35%. The 2003 restructuring actions were
accounted for in accordance with the guidance set forth in SFAS No. 146.
A summary of the restructuring benefit and expenses for the month ended March
31, 2003 is as follows (in thousands):
Stock
Workforce Compensation Abandonment of
Reductions Benefits Facilities Total
2002 remaining provision $ - $ - $ 98 $ 98
January 2003 provision 309 (336) - (27)
Net provision utilized (309) 336 98 71
----- ----- ----- -----
Balance March 31, 2003 $ - $ - $ - $ -
===== ===== ===== =====
6. 2002 Stock Option Exchange Program
On February 17, 2003, we granted 2,601,982 option grants as part of the Stock
Option Exchange Program approved by the Board of Directors in May 2002. Under
this program, eligible employees were able to make an election to exchange
10
certain outstanding stock option grants with an exercise price greater than or
equal to $1.00 for a new option to purchase the same number of shares of VINA
Technologies Inc. common stock. The replacement option was issued per the Option
Exchange Program at least six months and one day after the cancellation date of
August 15, 2002. The new options were issued from our 2000 Stock Option Plan and
are non-statutory stock options. The individuals participating in this program
were employees of VINA Technologies, Inc. on the replacement grant date making
them eligible to receive the new stock options. No consideration for the
canceled stock options was provided to individuals terminating employment prior
to the replacement grant date. The new option has an exercise price of $0.16,
which is equal to VINA Technologies Inc. Common stock's closing price on the
date prior to the replacement grant. The new stock options will continue to vest
on the same schedule as the canceled options.
7. Commitments and Contingencies
The Company's contract manufacturer has obtained or has on order substantial
amounts of inventory to meet their revenue forecasts. If future shipments do not
utilize the committed inventory, the contract manufacturer has the right to bill
for any excess component and finished goods inventory. The Company also has a
non-cancelable purchase order with a major chip supplier for one of its critical
components. As of March 31, 2003, the estimated purchase commitments and
non-cancelable purchase orders to those companies is approximately $870,000. In
August 2002, the Company placed $1.0 million on deposit with its contract
manufacturer as security against these purchase commitments, of which $600,000
was used in April 2003 to pay outstanding balances. The remaining $400,000 is
still on deposit with its contract manufacturer.
As of March 31, 2003, we have lease commitments of $1.8 million for leases on
two properties, which expire by July 31, 2007.
The Company provides a full 60-month parts and factory labor warranty against
defects in materials and workmanship for all VINA Integrated Access Device (IAD)
product lines. A 12-month parts and factory labor warranty against defects in
materials and workmanship is provided for all VINA Integrated Multi-Service
Access Platform (IMAP) product lines. All VINA-supplied software is also covered
by a 60-month warranty for IAD products, and a 12-month warranty for IMAP
products. The Company accounts for warranty liability by taking a charge in the
period of shipment for the estimated warranty costs that will be incurred
related to shipments. A weighted average of the cost per warranty transaction
per product line is developed taking into consideration: the costs of freight,
replacement, rework and repair. Estimated returns over time are calculated
taking into account experience by product line. A warranty liability is
calculated by applying the number of units under warranty against a factor
representing the likelihood of a return and the estimated cost per return
transaction. Actual warranty charges are tracked and reported separately from
other transactions.
The changes in the warranty reserve balances during the three months ended March
31, 2003 and the year ended December 31, 2002 are as follows (in thousands):
Balance at January 1, 2002 .......................... $ 696
Additions related to current period sales ........... (18)
Warranty costs incurred in the current period ....... (228)
Adjustments to accruals related to prior period sales (36)
-----
Balance at December 31, 2002
414
Additions related to current period sales ........... (5)
Warranty costs incurred in the current period ....... (8)
Adjustments to accruals related to prior period sales (1)
-----
Balance at March 31, 2003 ........................... $ 400
-----
Certain of the Company's sales agreements require that the Company indemnify the
customer for any expenses or liabilities resulting from claimed infringements of
patents, trademarks or copyrights of third parties.
11
The high technology and telecommunications industry in which we operate is
characterized by frequent claims and related litigation regarding patent and
other intellectual property rights. We are not a party to any such litigation;
however any such litigation in the future could have a material adverse effect
on our consolidated operations and cash flows.
8. Subsequent Event
In April 2003, VINA received a letter from Larscom under which Larscom indicates
that it is reserving its rights arising from an alleged breach by VINA of the
merger agreement. In its letter Larscom stated that, while reserving its rights,
it intends to work toward the consummation of the merger. VINA also intends to
work with Larscom toward the consummation of the merger. In that regard, VINA
and Larscom have filed with the Securities and Exchange Commissions a joint
proxy statement/prospectus on SEC Form S-4 in connection with the merger. VINA
and Larscom mailed the joint proxy statement/prospectus to stockholders of
Larscom and VINA on or about May 2, 2003. Under the merger agreement, VINA made
a representation and warranty that its anticipated revenue for the first quarter
of 2003 would not be materially below $3.5 million. VINA's revenue for the first
quarter of 2003 was approximately $2.7 million. Under the terms of the merger
agreement, either party may terminate the merger agreement if a breach of any
representation or warranty, individually or in the aggregate, by the other party
has had or is reasonably likely to have a material adverse effect on such party
as defined in the merger agreement. VINA does not believe that its first quarter
2003 revenue shortfall would permit a termination of the merger agreement,
because, among other things, VINA's value cannot be measured by one quarter's
operating results.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
satisfaction of closing conditions of the proposed merger with Larscom, our
belief that failure to achieve certain revenue results would not permit a
termination of the merger agreement with Larscom, the ability to integrate
companies and operations that we may acquire, expected reduction of operating
costs, 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 identify and resolve software issues and related applications
deficiencies of our Multiservice Broadband Exchange (MBX) product and the market
acceptance of 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, satisfaction of certain conditions to closing of the proposed
merger, including the risk that stockholder approval might not be obtained in a
timely manner or at all, the ability to successfully integrate the two companies
and achieve expected synergies following the merger, the ability of the combined
company to develop and market successfully and in a timely manner new products,
the risk that Larscom may assert that our failure to have $3.5 million in
revenue in the first quarter of 2003 allows Larscom to terminate the proposed
merger, 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 retain and attract
highly skilled engineers for our research and development activities, our
ability to execute our business plan, and the risks set forth within Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements speak only as of the date hereof.
We expressly disclaim any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
12
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
This Form 10-Q includes the following registered trademarks as well as
filed applications to register trademarks of VINA Technologies including:
Integrator-300, VINA, VINA Technologies, Multiservice Broadband Xchange,
Multiservice Xchange, and MX-500. All other trademarks and trade names appearing
in this Form 10-Q 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-Q is not an endorsement of VINA.
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto set forth in Item
1 of this quarterly report. We also urge readers to review and consider our
disclosures describing various factors that could affect our business, including
the disclosures under Management's Discussion and Analysis of Financial
Condition and Results of Operations and Risk Factors and the audited financial
statements and notes thereto contained in our Annual Report on Form 10-K, filed
with the Securities and Exchange Commission for the year ended December 31,
2002.
On March 17, 2003, VINA, Larscom Incorporated, a Delaware corporation
("Larscom") and a wholly-owned subsidiary of Larscom, entered into an Agreement
and Plan of Merger, under which the Larscom subsidiary will merge with and into
VINA, followed by the merger of VINA with and into Larscom, with Larscom as the
surviving corporation. As a result of the merger, each issued and outstanding
share of VINA common stock will be automatically converted into the right to
receive 0.2659 of a validly issued, fully paid and nonassessable share of
Larscom common stock. The merger is intended to be a tax-free reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended, and is
expected to be treated as a purchase for financial accounting purposes, in
accordance with generally accepted accounting principles.
In April 2003, VINA received a letter from Larscom under which Larscom
indicates that it is reserving its rights arising from an alleged breach by VINA
of the merger agreement. In its letter Larscom stated that, while reserving its
rights, it intends to work toward the consummation of the merger. VINA also
intends to work with Larscom toward the consummation of the merger. In that
regard, VINA and Larscom have filed with the Securities and Exchange Commissions
a joint proxy statement/prospectus on SEC Form S-4 in connection with the
merger. VINA and Larscom mailed the joint proxy statement/prospectus to
stockholders of Larscom and VINA on or about May 2, 2003. Under the merger
agreement, VINA made a representation and warranty that its anticipated revenue
for the first quarter of 2003 would not be materially below $3.5 million. VINA's
revenue for the first quarter of 2003 was approximately $2.7 million. Under the
terms of the merger agreement, either party may terminate the merger agreement
if a breach of any representation or warranty, individually or in the aggregate,
by the other party has had or is reasonably likely to have a material adverse
effect on such party as defined in the merger agreement. VINA does not believe
that its first quarter 2003 revenue shortfall would permit a termination of the
merger agreement, because, among other things, VINA's value cannot be measured
by one quarter's operating results.
The consummation of the merger is subject to the approval of the
stockholders of VINA and Larscom, SEC clearance and other customary closing
conditions. There can be no assurance that all the closing conditions to the
merger will be met and the merger will be completed. A copy of the merger
agreement and the exhibits to the merger agreement were filed with the
Securities and Exchange Commission on a Current Report on Form 8-K on March 20,
2003.
13
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, our eLink product family in November 2000, and our
MBX product in September 2001. Since inception, we have incurred significant
losses, and as of March 31, 2003, we had an accumulated deficit of $180.5
million.
We market and sell our products and services directly to communications
service providers and through OEM customers and value-added resellers, or VARs.
We recognize 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, we account 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. We also
account 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, we defer the fair value of these
undelivered elements based on VSOE and recognize revenue as the services are
delivered. We additionally record 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, 2002, sales to our three largest
customers accounted for approximately 71% of our net revenue, of which sales to
Allegiance Telecom, Lucent Technologies, and Nuvox Communications, accounted for
37%, 18% and 16% 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. Any decrease in sales or reduced pricing on products sold to
these customers will substantially reduce our net revenue. 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 manufacturer and the mix of products or system configurations sold.
Additionally, our gross margin may fluctuate due to changes in our mix of
14
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 affect our gross margin percentage.
Research and development expenses consist primarily of personnel and
related costs, depreciation expenses and prototype costs related to the design,
development, testing and enhancement of our products, and exclude 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
professional costs and exclude 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.
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, 2002, 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, 2002, we had $98.0 million of federal
and $36.0 million of state net operating loss carry forwards to offset future
taxable income that expire in varying amounts through 2022 and 2014,
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.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles. We believe
the following critical accounting policies, among others, affect the more
significant judgments and estimates used in the preparation of our financial
statements:
Revenue Recognition - We recognize 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, we
account 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
post contract customer support (PCS) agreements related to the communications
equipment. We also account for these transactions in accordance with SAB No. 101
and SOP 97-2, and as such recognize 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, respectively. In multiple element arrangements where these services
are undelivered when the communications equipment is shipped, we defer the fair
15
value of these undelivered elements based on VSOE and recognize revenue as the
services are delivered. We also record a provision for estimated sales returns
and warranty costs at the time the product revenue is recognized.
Allowance for Doubtful Accounts - We continuously monitor collections and
payments from our customers and maintain a provision for estimated credit losses
based upon the age of outstanding invoices and any specific customer collection
issues that we have identified. Since our accounts receivable are concentrated
in a relatively few number of customers, a significant change in the financial
position of any one of these customers could have a material adverse impact on
the collectability of our accounts receivable, which would require that
additional allowances be recorded.
Inventory Reserves - We regularly review the volume and composition of our
inventory on hand and compare it to our estimated forecast of product demand and
production requirements. We record write downs for estimated obsolescence or
unmarketable inventory for the difference between the cost and the estimated
market value based upon these reviews. If actual future demand or market
conditions are less favorable than our estimates, then additional write-downs
may be required.
On January 1, 2003, we adopted SFAS No. 146, which requires that a
liability for a cost associated with an exit or disposal activity initiated
after December 31, 2002 be recognized when the liability is incurred and that
the liability be measured at fair value. During 2002, the accounting for
restructuring costs required us to record provisions and charges when we had a
formal and committed plan. In connection with these plans, we have recorded
estimated expenses for severance and outplacement costs, lease cancellations,
asset write-offs and other restructuring costs. We continually evaluate the
adequacy of the remaining liabilities under our restructuring initiatives.
Although we believe that these estimates accurately reflect the costs of our
restructuring plans, actual results may differ, thereby requiring us to record
additional provisions or reverse a portion of such provisions.
We perform impairment tests on our intangible assets whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable in accordance with the guidance in Statement of Financial Accounting
Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS No. 144"). We recognize impairment losses if the carrying amount of the
intangible asset is not recoverable and exceeds its fair value. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows we expect to result from our use of the asset.
Stock-based compensation - The Company accounts for employee stock plans
under the intrinsic value method prescribed by Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and Financial
Accounting Standards Board Interpretation ("FIN") No. 44, Accounting for Certain
Transactions Involving Stock Compensation (an Interpretation of APB No. 25) and
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The Company accounts for stock-based compensation
relating to equity instruments issued to non-employees based on the fair value
of options or warrants estimated using the Black-Scholes model on the date of
grant in compliance with the Emerging Issues Task Force No. 96-18, Accounting
for Equity Instruments that are issued to Other than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services. Compensation expense resulting
from non-employee options is amortized using the multiple option approach in
compliance with FIN No. 28, Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans.
Results of Operations
Three Months Ended March 31, 2003 and 2002
Net revenue. Net revenue decreased to $2.7 million for the three months
ended March 31, 2003 from $6.4 million for the three months ended March 31,
2002. This decrease in net revenue was primarily due to decreased unit sales to
existing customers and lower average selling prices on our Integrator-300 and
eLink products and to the significant decline in orders from Allegiance Telecom,
our top customer in 2002. Net revenue attributable to Allegiance for the first
three months of 2003 was $33,000, compared to $2.7 million of direct and
indirect net revenue in the first three months of 2002. Allegiance has advised
us that it is pursuing a two vendor strategy in the integrated access device
16
product category, which will reduce our opportunity for sales to Allegiance in
future periods and will create additional competitive pricing pressures. As a
result, we did not expect to receive any significant revenue from Allegiance in
the first quarter of 2003 as Allegiance began purchasing from the second vendor.
We expect our net revenue from Allegiance in 2003 to decrease significantly from
2002 levels. The decline in net revenue in the first quarter of 2003 was
primarily due to decreased unit sales of Integrator-300 and MX-500 products to
existing customers.
Cost of revenue. Cost of revenue including stock-based compensation
decreased to $1.7 million for the three months ended March 31, 2003 from $6.3
million for the three months ended March 31, 2002. This decrease is a result of
lower net revenue in the first three months ended March 31, 2003, as compared to
the first three months ended March 31, 2002. Gross profit increased to $1.0
million for the three months ended March 31, 2003 from $156,000 for the three
months ended March 31, 2002. This increase is a result of less excess inventory
charges in the three months ended March 31, 2003, as compared to the three
months ended March 31, 2002. Gross profit as a percentage of net revenue
increased to 38% in the first quarter of 2003 from 2% in the first quarter of
2002. This increase is primarily a result of lower excess inventory costs in
three months ended March 31, 2003.
Research and development expenses. Research and development expenses
including stock-based compensation decreased to $1.8 million for the three
months ended March 31, 2003 from $5.8 million for the three months ended March
31, 2002. These decreases were primarily a result of decreased personnel costs,
and to a lesser extent prototype and stock-based compensation expenses. Research
and development expenses including stock-based compensation decreased as a
percentage of net revenue to 68% in the first quarter of 2003 compared to 90% in
the first quarter of 2002. The decrease from 2002 to 2003 was primarily due to
net revenue decreasing at a lesser rate than expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses including stock-based compensation decreased to $1.9
million for the three months ended March 31, 2003 from $5.9 million for the
three months ended March 31, 2002. This decrease was primarily attributable to
decreased personnel costs, as well as decreased stock-based compensation
expenses. Selling, general and administrative expenses including stock-based
compensation increased as a percentage of net revenue to 71% for the first
quarter of 2003 compared to 90% for the first quarter of 2002. The decrease from
2002 to 2003 was primarily due to net revenue decreasing at a lesser rate than
expenses.
Stock-based compensation. Stock-based compensation benefit for the three
months ended March 31, 2003 was $324,000 as compared to a stock-based
compensation expense of $1.7 million for the three months ended March 31, 2002.
This decrease was due primarily to the reversal of prior period estimated
stock-based compensation expense on forfeited stock options.
Goodwill and intangible assets. As VINA operates in one reportable segment,
the design, development, marketing and sale of multi-service broadband access
communications equipment, and has only one reporting unit, VINA consolidated,
the measurement of the fair value for our goodwill is our market capitalization.
The deterioration of the telecom industry and the decline in our current product
sales in the first quarter of 2002 required us to evaluate the fair value of the
company's goodwill. We evaluated the fair value of our company as determined by
our market capitalization against our carrying value, net assets, and determined
that goodwill was impaired and we recorded a charge of $27.3 million for
impairment of goodwill. In addition, under SFAS No. 144 "Accounting for the
Impairment of Disposal of Long-Lived Assets", we evaluated our intangible assets
for impairment and determined a portion of the intangible assets were impaired
and we recorded a charge of $2.0 million for impairment of intangible assets.
Amortization expense in the first three months ended March 31, 2003 was
$116,000.
Restructuring expenses. Restructuring expenses, excluding the impact of
stock-based compensation, of $309,000 for the three months ended March 31, 2003
resulted primarily from severance and outplacement costs. Including the impact
of stock-based compensation, we recorded a net restructuring benefit of $27,000
for the three months ended March 31, 2003.
17
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2003 were $2.7 million, compared to
$4.6 million at December 31, 2002. The decrease of $1.9 million was attributable
to cash used in operating activities of $2.1 million offset by cash provided by
financing activities of $183,000. Cash provided by financing activities was
attributable to the release of restricted cash. Cash used by financing
activities was attributable to payment of short-term debt. Cash used in
operating activities consists primarily of net loss of $2.8 million, a decrease
in accounts payable of $1.1 million, a decrease in other liabilities of
$383,000, partially offset by a $1.7 million decrease in accounts receivable and
a $1.3 million decrease in prepaid expenses and other.
Our contract manufacturer has obtained or has on order substantial amounts
of inventory to meet our revenue forecasts. If future shipments do not utilize
the committed inventory, the contract manufacturer has the right to bill us for
any excess component and finished goods inventory. We also have a non-cancelable
purchase order with a major chip supplier for one of our critical components. As
of March 31, 2003, the estimated purchase commitments and non-cancelable
purchase orders to those companies was $870,000. In August 2002, we placed $1.0
million on deposit with our contract manufacturer as security against these
purchase commitments, of which $600,000 was used in April 2003 to pay
outstanding balances. The remaining $400,000 is still on deposit with our
contract manufacturer.
We also have an irrevocable letter of credit of $333,000 that is used as
collateral for the lease on the Newark, California facility.
We currently have lease commitments of $1.8 million for leases on two
properties, which expire by July 30, 2007. Future annual obligations under our
operating leases are as follows: $259,000 in 2003; $337,000 in 2004; $430,000 in
2005; $491,000 in 2006; $292,000 in 2007.
In February 2003, we established an asset secured credit line with a bank
for up to $3.5 million. We need to meet monthly covenants to be able to borrow
against this credit line and can meet them currently. The credit line has a
one-year duration and terms of prime plus 2%. We currently do not have any
outstanding balance on this credit line.
Our intent is to complete the announced merger with Larscom in the second
quarter. If we are unsuccessful in completing the merger during the second
quarter, then we will need to obtain additional funding during the second
quarter of 2003 to continue operations. We will from time to time review and may
pursue additional financing opportunities, including sales of additional equity
or debt securities, or utilizing our credit line. 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. Further, our recent transfer from the Nasdaq
National Market to the Nasdaq SmallCap Market may make it even more difficult
for us to raise funds. The factors described above raise substantial doubt as to
our ability to continue as a going concern for the foreseeable future.
On March 17, 2003, VINA, Larscom and a Larscom subsidiary, entered into an
Agreement and Plan of Merger pursuant to which the Larscom subsidiary will merge
with and into VINA, followed by the merger of VINA with and into Larscom, with
Larscom as the surviving corporation. As a result of the merger, each issued and
outstanding share of VINA common stock will be automatically converted into the
right to receive 0.2659 of a validly issued, fully paid and nonassessable share
of Larscom common stock. The merger is intended to be a tax-free reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended, and is
expected to be treated as a purchase for financial accounting purposes, in
accordance with generally accepted accounting principles.
In April 2003, VINA received a letter from Larscom under which Larscom
indicates that it is reserving its rights arising from an alleged breach by VINA
of the merger agreement. In its letter Larscom stated that, while reserving its
rights, it intends to work toward the consummation of the merger. VINA also
intends to work with Larscom toward the consummation of the merger. In that
regard, VINA and Larscom have filed with the Securities and Exchange Commissions
18
a joint proxy statement/prospectus on SEC Form S-4 in connection with the
merger. VINA and Larscom mailed the joint proxy statement/prospectus to
stockholders of Larscom and VINA on or about May 2, 2003. Under the merger
agreement, VINA made a representation and warranty that its anticipated revenue
for the first quarter of 2003 would not be materially below $3.5 million. VINA's
revenue for the first quarter of 2003 was approximately $2.7 million. Under the
terms of the merger agreement, either party may terminate the merger agreement
if a breach of any representation or warranty, individually or in the aggregate,
by the other party has had or is reasonably likely to have a material adverse
effect on such party as defined in the merger agreement. VINA does not believe
that its first quarter 2003 revenue shortfall would permit a termination of the
merger agreement, because, among other things, VINA's value cannot be measured
by one quarter's operating results.
The consummation of the merger is subject to the approval of the
stockholders of VINA and Larscom, SEC clearance and other customary closing
conditions. There can be no assurance that all the closing conditions to the
merger will be met and the merger will be completed. A copy of the merger
agreement and the exhibits to the merger agreement, were filed with the
Securities and Exchange Commission on a Current Report on Form 8-K on March 20,
2003.
FACTORS THAT MAY AFFECT RESULTS
The risks and uncertainties described below are not the only ones facing
our company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business operations. If
any of the following risks actually occur, our business, financial condition and
results of operations could be materially and adversely affected.
Risks Related to the Proposed Merger with Larscom
Our business could suffer in response to the announcement of our proposed merger
with Larscom.
The announcement of our proposed merger with Larscom may have a negative
impact on our ability to sell our products and services, attract and retain key
management, development or other personnel, maintain and attract new customers,
and maintain strategic relationships with third parties. For example, our
customers may, in response to the announcement of the proposed merger, delay or
defer purchasing decisions. If our customers delay or defer purchasing
decisions, our revenue could materially decline. Also, speculation regarding the
likelihood of the closing of the merger could increase the volatility of VINA's
share prices. In addition, our employees may experience uncertainty about their
future role with Larscom. If the merger is not completed, we could be harmed by
these adverse changes in our business or the expectation of these changes, and
restoring our business to its pre-announcement value could take a long time and
be costly, and may not occur.
While Larscom's and VINA's share prices have been volatile in recent periods,
the merger exchange ratio is fixed and no adjustment to the exchange ratio will
be made as a result of fluctuations in the market prices of Larscom or VINA
common stock.
Larscom's stock price has been volatile in the past and may continue to be
volatile in the future. On completion of the merger, each share of our common
stock will be exchanged for 0.2659 of a share of Larscom common stock. The
exchange ratio will not change even if the market price of either or both the
VINA common stock and Larscom common stock fluctuates. In addition, neither
party may withdraw from the merger or resolicit the vote of its stockholders
solely because of changes in the market price of VINA common stock or Larscom
common stock. Any reduction in Larscom's stock price will result in VINA
stockholders receiving less value in the merger at closing. The specific dollar
value of Larscom common stock that VINA stockholders will receive on completion
of the merger will depend on the market value of Larscom common stock at that
time. Stockholders will not know the exact value of Larscom common stock to be
issued to VINA stockholders in the merger until the merger has been completed.
During the pendency of the merger, VINA may not be able to enter into a merger
or business combination with another party at a favorable price because of
restrictions in the merger agreement.
19
Covenants in the merger agreement may impede the ability of VINA to make
acquisitions or complete other transactions that are not in the ordinary course
of business pending completion of the merger. As a result, if the merger is not
completed, we may be at a disadvantage to our competitors. In addition, while
the merger agreement is in effect and subject to very narrowly defined
exceptions, we are prohibited from soliciting, initiating, encouraging or
entering into certain extraordinary transactions, such as a merger, sale of
assets or other business combination outside the ordinary course of business,
with any third party. Any such transactions could be favorable to our
stockholders.
Failure to complete the merger may result in VINA paying a termination fee and
could harm VINA's common stock price and future business and operations.
If the merger is not completed, VINA may be subject to the following risks:
o if the merger agreement is terminated under certain circumstances,
VINA will be required to pay the other party a termination fee of
$185,000;
o the price of VINA common stock may decline to the extent that the
current market price of VINA common stock reflects a market assumption
that the merger will be completed; and
o costs related to the merger, such as legal, accounting and certain
financial advisory fees, must be paid even if the merger is not
completed.
In addition, if the merger agreement is terminated and VINA's board of
directors determines to seek another merger or business combination, there can
be no assurance that it will be able to find a partner willing to pay an
equivalent or more attractive price than the price to be paid in the merger.
VINA and Larscom may not realize the benefits they expect from the merger.
The integration of Larscom and VINA will be complex, time consuming and
expensive and may disrupt Larscom's and VINA's businesses. The combined company
will need to overcome significant challenges in order to realize any benefits or
synergies from the merger. These challenges include the timely, efficient and
successful execution of a number of post-merger events, including:
o integrating the operations and technologies of the two companies;
o retaining and assimilating the key personnel of each company;
o retaining existing customers of both companies and attracting
additional customers;
o retaining strategic partners of each company and attracting new
strategic partners; and
o creating uniform standards, controls, procedures, policies and
information systems.
The execution of these post-merger events will involve considerable risks and
may not be successful. These risks include:
o the potential disruption of the combined company's ongoing business
and distraction of its management;
o the potential strain on the combined company's financial and
managerial controls and reporting systems and procedures;
o unanticipated expenses and potential delays related to integration of
the operations, technology and other resources of the two companies;
o the impairment of relationships with employees, suppliers and
20
customers as a result of any integration of new management personnel;
o greater than anticipated costs and expenses related to restructuring,
including employee severance or relocation costs and costs related to
vacating leased facilities; and
o potential unknown liabilities associated with the merger and the
combined operations.
The combined company may not succeed in addressing these risks or any other
problems encountered in connection with the merger. The inability to
successfully integrate the operations, technology and personnel of Larscom and
VINA, or any significant delay in achieving integration, could have a material
adverse effect on the combined company after the merger and, as a result, on the
market price of Larscom's common stock.
The cost of the merger could harm the financial results of the combined company.
VINA and Larscom expect to incur transaction costs of approximately $2.0
million in connection with the merger. If the benefits of the merger do not
exceed the associated costs, including costs associated with integrating the two
companies and dilution to Larscom's stockholders resulting from the issuance of
shares in connection with the merger, the combined company's financial results,
including earnings per share, could be materially harmed.
The merger could cause VINA or Larscom to lose key personnel, which could
materially affect the combined company's business and require it to incur
substantial costs to recruit replacements for lost personnel.
As a result of the merger, current and prospective VINA and Larscom
employees could experience uncertainty about their future roles within Larscom.
This uncertainty may adversely affect the ability of VINA and Larscom to attract
and retain key management, sales, marketing and technical personnel. In
addition, in connection with the merger, certain current employees of VINA will
be entitled to acceleration of vesting of stock options, which may adversely
affect the ability of the combined company to retain such employees following
the merger. Further, in connection with the merger, certain employees of Larscom
may be entitled to acceleration of vesting of stock and stock options, which may
adversely affect the ability of the combined company to retain such employees
following the merger. Any failure to attract and retain key personnel could have
a material adverse effect on the business of Larscom and VINA.
Larscom has alleged a breach of the terms of the merger agreement by VINA.
VINA has received a letter from Larscom, under which Larscom indicates that
it is reserving its rights arising from an alleged breach by VINA of a
representation and warranty under the merger agreement. Under the merger
agreement, VINA made a representation and warranty that its anticipated revenue
for the first quarter of 2003 would not be materially below $3.5 million. VINA's
revenue for the first quarter of 2003 was approximately $2.7 million. Under the
terms of the merger agreement, either party may terminate the merger agreement
if a breach of any representation or warranty, individually or in the aggregate,
by the other party has had or is reasonably likely to have a material adverse
effect on such party as defined in the merger agreement.
The merger may be completed even though material adverse changes may result from
the announcement of the merger, industry-wide changes and other causes.
In general, either party can refuse to complete the merger if there is a
material adverse change affecting the other party between the date of signing,
March 17, 2003, and the closing. However, certain types of changes will not
prevent the merger from going forward, even if they would have a material
adverse effect on Larscom or VINA, including:
o changes resulting from any failure by a party to meet or exceed
analysts' published revenues or earnings predictions or any change in
a party's stock price or trading volume, in and of itself;
o with some limited exceptions, any changes resulting from the
21
announcement or pendency of the merger agreement or the merger, or
o with some limited exceptions, changes affecting generally the industry
or industries in which a party participates, the U.S. economy as a
whole or foreign economies in any locations where a party has material
operations or sales, unless such condition disproportionately
adversely affects a party.
If adverse changes occur but Larscom and VINA must still complete the merger,
Larscom's stock price may suffer. This in turn may reduce the value of the
merger to Larscom and VINA stockholders.
Risks Related To Our Business
We will need to obtain additional funding during second quarter of 2003. If we
are unable to raise more capital, we may not have sufficient funds to continue
operations.
During the year ended December 31, 2002, we used cash in operating
activities of $20.3 million. As of March 31, 2003, we had cash and cash
equivalents of $2.7 million and an accumulated deficit of $180.5 million. If the
merger with Larscom is not consummated, we will need to obtain additional
funding during the second quarter of 2003. 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. Our recent move from the Nasdaq National Market to
the Nasdaq SmallCap Market may make it even more difficult for us to raise
funds. If we are unable to raise additional capital, we will not have sufficient
funds to continue operations.
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 would decline and our
operating results and business would 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 manufacturers, 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 would decline and our
operating results and business would be harmed. For the year ended December 31,
2002, sales to our three largest customers accounted for approximately 71% of
our net revenue, of which sales to Allegiance Telecom, Lucent Technologies and
Nuvox Communications accounted for 37%, 18% and 16% of our net revenue,
respectively. We believe that we have been the primary supplier of integrated
access devices to Allegiance in the past. Allegiance has advised us that it is
now pursuing a two vendor strategy in this product category, which will reduce
our opportunity for sales to Allegiance in future periods and will create
additional competitive pricing pressures. As a result, we did receive any
significant revenue from Allegiance in the first quarter of 2003 as Allegiance
began purchasing from the second vendor, and we expect our net revenue from
Allegiance in 2003 to decrease significantly from 2002 levels. Our concentrated
customer base continues to expose us to risks resulting from potential adverse
changes in these relationships and risks resulting from the financial condition
of these customers.
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. 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. For example, Advanced Telecom Group, one of our largest customers in
2001, declared bankruptcy in May 2002, and we are no longer shipping any product
22
to them. In addition, any difficulty in collecting amounts due from one or more
of our key customers would harm our operating results and financial condition.
If any of these events occur, our operating results and business would be
harmed.
The difficulties experienced by many of our current and potential CLEC customers
have had and may 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. For example, our CLEC customer,
Advanced Telecom Group, recently filed for bankruptcy protection. 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.
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, $48.6 million in 2001 and $55.4 million in 2002. As of March
31, 2003, we had an accumulated deficit of approximately $180.5 million. To
achieve profitability, we will need to generate and sustain higher net revenue
while lowering our cost and expense levels.
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 would be adversely affected for that quarter.
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.
Competitive pressures have forced us to reduce the prices of our products.
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.
We depend upon a single contractor for most of our manufacturing needs.
Termination of this relationship could impose significant costs on us and could
23
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 to build our products. Currently,
our primary contract manufacturer is Benchmark Electronics. 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.
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 Technologies,
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, Lucent may be
required to maintain a significant inventory of our products for longer periods
than they originally anticipated, which would reduce future purchases. These
reductions, in turn, could cause fluctuations in our future results of
operations and severely harm our business and financial condition.
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 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.
24
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. 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
four to six 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. Our contract manufacturer has obtained
or has on order substantial amounts of inventory to meet our revenue forecasts.
If future shipments do not utilize the committed inventory, the contract
manufacturer has the right to bill us for any excess component and finished
goods inventory. We also have a non-cancelable purchase order with a major chip
supplier for one of our critical components. As of March 31, 2003, the estimated
purchase commitments and non-cancelable purchase orders to those companies is
approximately $870,000. In August 2002, we placed $1.0 million on deposit with
our contract manufacturer as security against these purchase commitments, of
which $600,000 was used in April 2003 to pay outstanding balances. The remaining
$400,000 is still on deposit with our contract manufacturer. If we overestimate
our manufacturing requirements, demand for our products is 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 and in March 2002 we expensed $1.7 million for excess inventory. 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 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, products it was
discovered that the MBX failed to meet all of its specified applications. We
then temporarily suspended deployment of the MBX. The MBX is now fully available
to customers for all applications. There can be no assurance that additional
defects or errors may not arise or be discovered in the future. 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.
25
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 18% of our net revenue for the year ended December
31, 2002. Our OEM agreement with Lucent expires in May 2003, 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 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 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.
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, in particular with our MBX
product, 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.
26
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 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. 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 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 has been 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 has been strong in our
industry and in Northern California, where there is a high concentration of
established and emerging growth technology companies. This competition could
make it more difficult to retain our key personnel and to recruit new highly
qualified personnel. Our Chief Executive Officer resigned April 1, 2002. W.
Michael West, Chairman of the Board of Directors, has been appointed Chief
Executive Officer. In addition, our Vice President of Business Development and
27
Marketing Communications and our Vice President of Human Resources both resigned
in January 2003. We currently are not planning on re-hiring for these two
positions. 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. These
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, and one patent
issued. 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.
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.
28
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.
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 Adtran,
Alcatel, Carrier Access Corporation, Cisco Systems, Lucent Technologies,
Siemens, Verilink and Zhone Technologies. 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
29
technologies, they could eliminate or substantially reduce their purchases of
our products. One of our OEM customers, Lucent Technologies, accounted for 18%
of our net revenue for the year ended December 31, 2002. In addition, growth of
our business 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.
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; and
o domestic and foreign government regulation.
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 that 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.
30
We are currently certified for ISO 9001 per the 1994 standard. Our
registration expires in September 2003. We must be recertified against the new,
2000 ISO 9001 standard. Failure to achieve recertification could affect our
relationships with many of our customers who require or prefer their vendors to
be ISO 9001 certified.
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
Our stock has traded at or below $1.00 for more an extended period of time and
may be subject to delisting from the Nasdaq SmallCap Market.
Our common stock has recently traded at or below $1.00 and was subject to
delisting from the Nasdaq National Market. After an oral hearing before the
Nasdaq Listing Qualifications Panel, on September 20, 2002, the listing of our
common stock was transferred from the Nasdaq National Market to the Nasdaq
SmallCap Market. Similar to the requirements of the Nasdaq National Market, one
of the continued listing requirements for the Nasdaq SmallCap Market is the
$1.00 minimum bid price requirement. On October 2, 2002, Nasdaq granted us a
180-day grace period, until March 30, 2003, to meet the $1.00 minimum bid price
requirement. If shares of our common stock do not meet the minimum $1.00 per
share closing bid price requirement on or before March 30, 2003, our stock could
be delisted from the Nasdaq Stock Market. On April 7, 2003, Nasdaq granted us an
additional 90-day grace period, until July 7, 2003, to meet the $1.00 minimum
bid price requirement. If shares of our common stock do not meet the minimum
$1.00 per share closing bid price requirement on or before July 7, 2003, our
stock could be delisted from the Nasdaq Stock Market. If our stock is delisted
from the Nasdaq Stock Market, our stockholders could 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 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;
31
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 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 Stock 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 below historical levels. These broad market and industry factors
may further decrease the market price of our common stock, regardless of our
actual operating performance.
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 March 31, 2003, our directors, executive officers and their
affiliated entities beneficially owned approximately 65% of our outstanding
common stock after giving effect to the stockholders 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.
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.
32
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. We have amended the stockholder rights plan to
exempt the merger agreement and the voting agreement between certain VINA
stockholders and Larscom executed in connection with the merger agreement from
triggering the plan.
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 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks related to interest rates and
foreign currency exchange rates. Our investments in commercial paper and debt
obligations are subject to interest rate risk, but due to the short-term nature
of these investments, interest rate changes would not have a material impact on
their value as of March 31, 2003. To date, our international sales have been
denominated primarily 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 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-Q, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
33
PART II: OTHER INFORMATION
Item 1. 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Exhibit
--- -------
2.1 Agreement and Plan of Merger, dated as of March 17, 2003, by and among
Larscom Incorporated, London Acquisition Corp. and VINA Technologies,
Inc. (incorporated by reference to Exhibit 2.1 to our Current Report
on Form 8-K filed with the Securities and Exchange Commission on March
20, 2003).
99.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) We filed a report on Form 8-K on March 20, 2003 with respect to the
merger of the Company with Larscom Incorporated, as described in Item
5 of the Form 8-K.
34
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VINA TECHNOLOGIES, INC.
Date: May 14, 2003 By: /s/ W. Michael West
----------------------
W. Michael West
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2003 By: /s/ Stanley E. Kazmierczak
-----------------------------
Stanley E. Kazmierczak
Chief Financial Officer
(Principal Financial and Accounting
Officer)
35
Exhibit
No. Description of Document
--- -----------------------
2.1 Agreement and Plan of Merger, dated as of March 17, 2003, by and among
Larscom Incorporated, London Acquisition Corp. and VINA Technologies,
Inc. (incorporated by reference to Exhibit 2.1 to our Current Report
on Form 8-K filed with the Securities and Exchange Commission on March
20, 2003).
99.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
36
CERTIFICATIONS
I, W. Michael West, certify that:
1. I have reviewed this quarterly report on Form 10-Q of VINA Technologies,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ W. Michael West
------------------------
W. Michael West
Chief Executive Officer
(Principal Executive Officer)
37
I, Stanley E. Kazmierczak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of VINA Technologies,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ Stanley E. Kazmierczak
--------------------------------
Stanley E. Kazmierczak
Chief Financial Officer
(Principal Financial and Accounting Officer)
38