UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 000-23305
FIRST VIRTUAL COMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0357037
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
303 TWIN DOLPHIN DRIVE, SUITE 600
REDWOOD CITY, CA 94065
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(Address of Principal Executive Offices) (Zip Code)
(650) 801-6500
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(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.001
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 121(b)2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
State the number of shares of Common Stock outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: as of
November 29, 2005 was 16,613,486.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ............................................. 1
Item 2. Management's Discussion and Analysis ............................. 2
Item 3. Controls and Procedures .......................................... 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 6
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 6
Item 3. Defaults upon Senior Securities .................................. 6
Item 4. Submission of Matters to a Vote of Security Holders .............. 6
Item 5. Other Information ................................................ 6
Item 6. Exhibits ......................................................... 6
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Net Liabilities in Liquidation
at September 30, 2005 ................................................. F-1
Condensed Consolidated Statements of Changes in Net Liabilities
in Liquidation for the three and nine months ended September 30, 2005.. F-2
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 2004, Going Concern Basis ..............F-3
Condensed Consolidated Statement of Cash Flow for the nine months
ended September 30, 2004, Going Concern Basis ......................... F-4
Notes to Condensed Consolidated Financial Statements ....................... F-5
1
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FIRST VIRTUAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF
NET LIABILITIES IN LIQUIDATION
SEPTEMBER 30, 2005
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
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ASSETS
Cash and cash equivalents $ 1,701
-------
Total assets in liquidation $ 1,701
=======
LIABILITIES
Estimated settlements to unsecured creditors $ 500
Estimated liquidation expenses 1,573
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Total liabilities in liquidation 2,073
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Net liabilities in liquidation $ (372)
=======
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-1
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FIRST VIRTUAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
NET LIABILITIES IN LIQUIDATION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005
(Unaudited)
(Amounts in thousands)
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Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
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Changes in net liabilities in liquidation:
Cash and cash equivalents $ (154) $ 1,041
Accounts receivable -- (1,681)
Property and equipment -- (57)
Intangible assets -- (4,360)
Secured liability settlements -- 4,458
Estimated liquidation expenses 189 1,531
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Decrease in net liabilities in liquidation 35 932
Net liabilities in liquidation at beginning of period (407) (1,304)
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Net liabilities in liquidation at end of period $ (372) $ (372)
======= =======
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-2
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FIRST VIRTUAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
GOING CONCERN BASIS
(Unaudited)
(Amounts in thousands, except per share data)
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Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
------------------ ------------------
Revenue
Software $ 994 $ 5,791
Product -- 193
Support service 1,469 4,484
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Total revenue 2,463 10,468
Cost of sales
Software 28 178
Product -- --
Support service 444 1,553
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Total cost of sales 472 1,731
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Gross profit 1,991 8,737
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Operating expense
Research and development 1,557 5,376
Sales and marketing 2,294 8,042
General and administrative 1,507 4,524
Restructuring and other non-recurring charges 1,857 4,792
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Total operating expense 7,215 22,734
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Operating loss (5,224) (13,997)
Other Income, net 248 195
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Net loss $ (4,976) $(13,802)
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Basic and diluted net loss per share $ (0.31) $ (0.87)
======== ========
Shares used in computing basic and diluted net
loss per share 16,106 15,783
======== ========
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-3
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FIRST VIRTUAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
GOING CONCERN BASIS
(Unaudited)
(Amounts in thousands)
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Cash flows from operating activities:
Net loss $(13,802)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 901
Provision for returns and doubtful accounts (23)
Other (76)
Changes in operating assets and liabilities:
Accounts receivable 140
Prepaid expenses and other assets (538)
Accounts payable 122
Accrued liabilities 1,129
Deferred revenue (668)
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Net cash used in operating activities (12,815)
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Cash flows from investing activities:
Acquisition of property and equipment (404)
Sale of short-term investments 507
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Net cash provided by investing activities 103
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Cash flows from financing activities:
Proceeds from issuance of common stock, net 3,705
Payment related to issuance of common stock (128)
Proceeds from drawdown of term loan 917
Payment on loan term debt (917)
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Net cash provided by financing activities 3,577
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Net decrease in cash and cash equivalents (9,135)
Cash and cash equivalents at beginning of period 11,562
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Cash and cash equivalents at end of period $ 2,427
========
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-4
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FIRST VIRTUAL COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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1. DESCRIPTION OF REORGANIZATION AND SALE OF SUBSTANTIALLY ALL ASSETS
BANKRUPTCY AND REORGANIZATION
On January 20, 2005 First Virtual Communications, Inc. ("FVC") filed Chapter 11
bankruptcy under the United States Bankruptcy Code (the "Bankruptcy Code") on
behalf of itself and its wholly owned domestic subsidiary, CUseeMe Networks,
Inc. ("CUseeMe") (collectively, the "Company"). The Company has continued
limited operations as debtors in possession (the "Debtors") under the
jurisdiction of the United States Bankruptcy Court (the "Bankruptcy Court") in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court.
On June 8, 2005, the Bankruptcy Court entered an order, upon an amended joint
application filed by the Debtors and the Official Committee of Unsecured
Creditors (the "Creditors' Committee"), approving the employment of Gregory
Sterling as Chief Restructuring Officer ("CRO") of the Debtors and designating
Mr. Sterling as the person responsible for the Debtors as debtors in possession.
The Company reported the terms and conditions of Mr. Sterling's employment in
its Form 8-K filed with the Securities and Exchange Commission (the "SEC") on
May 24, 2005. Mr. Sterling was also designated as the Plan's Liquidating
Trustee.
On August 25, 2005, the Company and the Creditors' Committee jointly filed a
plan of reorganization and a related disclosure statement with the Bankruptcy
Court that were amended on September 21, 2005. On November 14, 2005, the
Bankruptcy Court approved the amended reorganization plan (the "Plan"), which
was entered on November 29, 2005 (the "Confirmation Order"), and became
effective on December 12, 2005 (the "Effective Date").
The purpose of the Plan is to (1) facilitate a merger of FVC with U.S. Dry
Cleaning Corporation (i.e. a planned reverse Merger), (2) make payments to
creditors of and holders of interests in the Debtors by distributing proceeds
received from the sale of the Debtors' assets (i.e. liquidation of substantially
all of the Company's assets), any amounts recovered in litigation, and any other
property received or recovered by the related Liquidating Trust, and (3)
distribute the New Common Stock, as defined, to be issued pursuant to the
Merger. The assets described above shall be held by the Liquidating Trustee, who
will administer and distribute the assets as specified in the Plan. The Plan is
intended to resolve all claims against the Debtors, and all equity interests in
the Debtors of whatever character, and whether or not allowed by the Bankruptcy
Court pursuant to Section 502 of the Bankruptcy Code.
The Plan calls for U.S. Dry Cleaning Corporation to merge with and into FVC.
Upon successful completion of the Merger, the Liquidating Trust will receive
275,698 shares of New Common Stock for the benefit of the beneficiaries of the
Liquidating Trust in accordance with the Plan, the Liquidating Trust Agreement,
the Confirmation Order and applicable law. Additionally, the Liquidating Trustee
will receive 0.75% of common stock in the reorganized debtor, or approximately
63,600 shares of New Common Stock, upon successful completion of the Merger.
As more fully described in the Plan, it is anticipated that the common stock of
the Reorganized Debtor, will begin to be publicly traded on the Over-the-Counter
Bulletin Board approximately two months following confirmation of the Plan. For
purposes of calculating distributions to be made under the Plan, the value of
the 275,698 shares of New Common Stock shall be calculated based upon the
average closing bid price for a share of stock for the five (5) trading days
prior to the close of trading on the sixtieth day following the first day that
such stock was traded publicly. The Liquidating Trustee shall not distribute any
of the New Common Stock any earlier than the later of (a) the sixtieth day
following the first day that such stock was traded publicly, and (b) the date of
the initial distribution (other than New Common Stock) to holders of general
unsecured claims.
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F-5
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FIRST VIRTUAL COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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The following are certain other significant provisions of the Plan and the
Confirmation Order issued by the Bankruptcy Court:
o All assets and liabilities of FVC and CUseeMe were deemed merged and
treated as though they were held and owed, respectively, by a single
entity for all purposes related to the Plan including, voting,
confirmation, and distribution. No distribution shall be made on
account of any intercompany claim. All obligations arising from
guarantees or joint or several liability were substantively
consolidated, which shall not, other than for purposes of the Plan,
affect the legal and corporate structures of the Debtors.
o All executory contracts and unexpired leases were deemed rejected.
o On the Effective Date, all preferred and common stock interests were
cancelled and extinguished. It is expected that there will not be
any funds available for distribution to holders of such interests.
o Except as otherwise provided in the Plan, the Company shall, as a
reorganized debtor, continue to exist after the Effective Date as a
corporate entity, with all the powers of a corporation under
applicable law and in the jurisdiction in which it is incorporated
and pursuant to its certificate or articles of incorporation and
bylaws in effect prior to the Effective Date, provided, however,
that as of the Effective Date, the Debtors' property will be deemed
to vest in the Liquidating Trust consistent with the terms of the
Plan and Liquidating Trust Agreement.
o Except as otherwise provided in the Plan, all common stock of the
reorganized Debtor issued to holders of allowed claims (including
common stock to be issued to the CRO), will be issued under the
exemption from registration requirements of Section 5 of the
Securities Act of 1933, as amended, (and the equivalent state
securities laws) provided by Section 1145(a)(1) of the Bankruptcy
Code.
o Except as otherwise provided in the Plan or in any agreement entered
into in connection with the Plan, on the Effective Date all
mortgages, deeds of trust, liens and any other security interests in
or against the property of the Liquidating Trust were fully released
and discharged, and all right, title and interest of the holders of
such interests, (including any rights to collateral thereunder)
shall remain vested in the Liquidating Trust.
o Except for professionals employed in the Chapter 11 cases, all
requests for payment of administrative expenses must be filed with
the Bankruptcy Court and served on certain parties on or before ten
days after the Effective Date.
SALE OF ASSETS
On February 28, 2005, following a competitive bidding process conducted under
the supervision of the Bankruptcy Court, FVC, with the approval of the
Creditors' Committee, accepted the offer of RADvision Ltd. ("RADvision") to
purchase substantially all the assets of the Company for $7.15 million in cash
plus certain additional consideration, subject to Bankruptcy Court approval. The
"Purchase Agreement" consisted of an asset purchase agreement dated February 21,
2005 among FVC, CUseeMe, and RADvision, a letter dated February 28, 2005 from
RADvision to the Company setting forth certain terms of RADvision's improved
bid, and certain portions of the record of the solicitation conference conducted
on February 28, 2005 during which RADvision modified its improved bid. On March
14, 2005, the Bankruptcy Court entered an order ("Sale Order") approving the
Purchase Agreement.
On March 15, 2005, FVC and CUseeMe completed a sale of substantially all their
assets under the Purchase Agreement with RADvision, which acquired substantially
all the operating assets, intellectual property and customer contracts of FVC
and CUseeMe for $7.15 million in cash and assumption of certain liabilities in
exchange for the assets, free and clear of any liens, claims, or other
interests. In accordance with the Sale Order, FVC and CUseeMe used a portion of
the proceeds to repay all their outstanding secured indebtedness and to pay a
$150,000 break-up fee under a prior asset purchase agreement between FVC,
CUseeMe, and an investment partnership led by Millennium Technology Value
Partners, L.P., a New York-based private equity fund, Silicon Valley Bank and
Morrison & Foerster LLP. The Sale Order also provided for certain employee
protections and other benefits, subject to the consent of the Creditors
Committee, and certain other payments associated with the sale transaction. FVC
and CUseeMe used the remaining proceeds to finance their bankruptcy cases.
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F-6
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FIRST VIRTUAL COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and pursuant
to the rules and regulations of the SEC. Accordingly; they do not include all of
the information and footnotes required by GAAP for complete financial
statements. The unaudited interim financial statements, in the opinion of
management, reflect all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation, except for the sale of
substantially all assets as described above.
These condensed consolidated financial statements and notes should be read in
conjunction with the Company's audited consolidated financial statements for the
year ended December 31, 2004 and notes thereto ("December 31, 2004 Financial
Statements"), included in the Company's Annual Report on Form 10-KSB filed with
the SEC on December 15, 2005.
The accompanying condensed consolidated financial statements for the three and
nine months ended September 30, 2004 are presented on the going concern basis of
accounting, which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. As previously reported in the
Company's December 31, 2004 Financial Statements, management determined that
liquidation was imminent on December 31, 2004. Accordingly, the condensed
consolidated financial statements as of and for the three and nine months ended
September 30, 2005 were prepared on the liquidation basis of accounting. This
basis of accounting is considered appropriate when, among other things,
liquidation of a company is probable and the net realizable value of assets is
reasonably determinable. Under this basis of accounting, assets are valued at
their estimated net realizable values and liabilities are stated at their
estimated settlement amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. Significant estimates include the net
realizable values of assets and the settlement amount of liabilities, in
accordance with the liquidation basis of accounting.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FVC and its
subsidiary. All significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE
The net realizable value of accounts receivable that was reflected in the
Company's December 31, 2004 Financial Statements, totaling $1,681,000, was
collected from customers during the first quarter of 2005.
PROPERTY AND EQUIPMENT
Substantially all property and equipment was sold to RADvision in March 2005.
The net realizable value of property and equipment that was reflected in the
Company's December 31, 2004 Financial Statements, totaling $57,000, was based on
the purchase price allocation included in the RADvision Purchase Agreement.
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F-7
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FIRST VIRTUAL COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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INTANGIBLE ASSETS
Intangible assets, which were sold to RADvision in March 2005, were recorded at
their estimated net realizable value at December 31, 2004 based on the price
paid by RADvision as set forth in the purchase price allocation included in the
aforementioned Purchase Agreement. Such intangible assets were comprised of
technology and distribution networks at values of $3,295,000 and $1,065,000,
respectively.
SECURED LIABILITY SETTLEMENTS
Secured liability settlements totaling $4,458,000 were recorded at their
estimated net settlement amount at December 31, 2004 and were disbursed to the
secured creditors during March 2005 out of the proceeds received from the sale
of assets to RADvision under the provisions of the Plan and as directed by the
Bankruptcy Court.
ESTIMATED SETTLEMENTS DUE TO UNSECURED CREDITORS
Estimated settlements to unsecured creditors are presented at their estimated
settlement amounts and are based on the Liquidating Trustee's estimate of the
remaining cash that will be available after disbursement of all other claims
with higher priority in accordance with the Plan.
ESTIMATED LIQUIDATION EXPENSES
Estimated liquidation expenses represent the estimated administrative expenses
to liquidate the Company and consist primarily of legal and accounting fees.
3. LITIGATION
As discussed in Note 1 to the Company's December 31, 2004 Financial Statements,
the Company became subject to a federal class-action securities lawsuit in late
2004 relating to the decline in the value of its common stock. The case against
the Company was withdrawn in early 2005; however, certain former Company
officers are still defendants.
Except as otherwise provided in the Plan, the Liquidating Trust Agreement, the
related Confirmation Order, or in any other agreement entered into in connection
with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the
estate and the Liquidating Trust shall retain and may; enforce, sue on, settle,
or compromise (or decline to do any of the foregoing) all causes of action and
defenses that the Debtors may hold against any person or entity. The Liquidating
Trustee, in consultation with the Creditors' Committee, may pursue such causes
of action and defenses, as appropriate, in accordance with the best interests of
the estate or its successor(s) who hold such rights. Such causes of action and
defenses are not barred or waived (or deemed to be barred or waived) under the
doctrine of RES JUDICATA or other legal principles. Nothing in the Confirmation
Order or in the Plan shall have any preclusive effect on such causes of action
or defenses.
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F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements including, but not limited to, those
related to the growth and strategies, future operating results and financial
position as well as economic and market events and trends of the Company. All
forward-looking statements made by the Company, including such statements
herein, include material risks and uncertainties and are subject to change based
on factors beyond the control of the Company. Accordingly, the Company's actual
results and financial position could differ materially from those expressed or
implied in any forward-looking statement as a result of various factors,
including without limitation those described in the Company's filings with the
Securities and Exchange Commission regarding risks affecting the Company's
financial conditions and results of operations.
BANKRUPTCY FILING
On January 20, 2005 First Virtual Communications, Inc. ("FVC") filed Chapter 11
bankruptcy under the United States Bankruptcy Code (the "Bankruptcy Code") on
behalf of itself and its wholly owned domestic subsidiary, CUseeMe Networks,
Inc. ("CUseeMe") (collectively, the "Company"). The Company has continued
limited operations as debtors in possession (the "Debtors") under the
jurisdiction of the United States Bankruptcy Court (the "Bankruptcy Court") in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court.
COURT CONFIRMATION OF THE COMPANY'S PLAN OF REORGANIZATION
On August 25, 2005, the Company and the Official Committee of Unsecured
Creditors (the "Creditors' Committee") jointly filed a plan of reorganization
and a related disclosure statement with the Bankruptcy Court that were amended
on September 21, 2005. On November 14, 2005, the Bankruptcy Court approved the
amended reorganization plan (the "Plan"), which was entered on November 29, 2005
(the "Confirmation Order"), and became effective on December 12, 2005 (the
"Effective Date").
The purpose of the Plan is to (1) facilitate a merger of FVC with U.S. Dry
Cleaning Corporation (i.e. a planned reverse Merger), (2) make payments to
creditors of and holders of interests in the Debtors by distributing proceeds
received from the sale of the Debtors' assets (i.e. liquidation of substantially
all of the Company's assets), any amounts recovered in litigation, and any other
property received or recovered by the related Liquidating Trust, and (3)
distribute the New Common Stock, as defined, to be issued pursuant to the
Merger. The assets described above shall be held by the Liquidating Trustee, who
will administer and distribute the assets as specified in the Plan. The Plan is
intended to resolve all claims against the Debtors, and all equity interests in
the Debtors of whatever character, and whether or not allowed by the Bankruptcy
Court pursuant to Section 502 of the Bankruptcy Code.
The Plan calls for U.S. Dry Cleaning Corporation to merge with and into FVC.
Upon successful completion of the Merger, the Liquidating Trust will receive
275,698 shares of New Common Stock for the benefit of the beneficiaries of the
Liquidating Trust in accordance with the Plan, the Liquidating Trust Agreement,
the Confirmation Order and applicable law.
It is anticipated that the common stock of the Reorganized Debtor, will begin to
be publicly traded on the Over-the-Counter Bulletin Board approximately two
months following confirmation of the Plan. For purposes of calculating
distributions to be made under the Plan, the value of the 275,698 shares of New
Common Stock shall be calculated based upon the average closing bid price for a
share of stock for the five (5) trading days prior to the close of trading on
the sixtieth day following the first day that such stock was traded publicly.
The Liquidating Trustee shall not distribute any of the New Common Stock any
earlier than the later of (a) the sixtieth day following the first day that such
stock was traded publicly, and (b) the date of the initial distribution (other
than New Common Stock) to holders of general unsecured claims
2
PAYMENT OF RETAINED PROFESSIONALS IN THE BANKRUPTCY CASE OF THE COMPANY AND ITS
SUBSIDIARIES
On June 8, 2005, the Bankruptcy Court entered an order, upon an amended joint
application filed by the Debtors and the Creditors' Committee, approving the
employment of Gregory Sterling as Chief Restructuring Officer ("CRO") of the
Debtors and designating Mr. Sterling as the person responsible for the Debtors
as debtors in possession. The Company reported the terms and conditions of Mr.
Sterling's employment in its Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on May 24, 2005. Mr. Sterling was also designated as the
Plan's Liquidating Trustee. Additionally, the Liquidating Trustee will receive
0.75% of common stock in the reorganized debtor, or approximately 63,600 shares
of New Common Stock, upon successful completion of the Merger.
CRITICAL ACCOUNTING ESTIMATES
In connection with the adoption of the Plan, the liquidation of substantially
all assets, and the planned reverse merger, we adopted the liquidation basis of
accounting effective December 31, 2004, whereby assets are valued at their
estimated net realizable cash values and liabilities are stated at their
estimated settlement amounts. The preparation of consolidated financial
statements using the liquidation basis of accounting requires us to make
assumptions, judgments and estimates that can have a significant impact on our
reported net liabilities in liquidation. We base our assumptions, judgments and
estimates on the most recent information available and various other factors
that we believe to be reasonable under the circumstances. Actual results could
differ materially from these estimates under different assumptions or
conditions. On a regular basis we evaluate our assumptions, judgments and
estimates and make changes accordingly. We believe that the assumptions,
judgments and estimates involved in the accounting for the estimated settlements
to secured and unsecured creditors, estimated costs to be incurred during
liquidation, and estimated net realizable values of assets, including accounts
receivable, intangible assets, and property and equipment, have the greatest
potential impact on our consolidated financial statements, so we consider these
estimates to be our critical accounting policies. We discuss below the critical
accounting estimates associated with these policies.
Estimated Settlement Costs
- --------------------------
Secured liability settlements totaling $4,458,000 were recorded at their
estimated net settlement amount at December 31, 2004 and were disbursed to the
secured creditors during March 2005 out of the proceeds received from the sale
of assets to RADVision under the provisions of the Plan and as directed by the
Bankruptcy Court. Therefore, estimated settlement costs to secured creditors
were estimated at zero at September 30, 2005. Estimated settlements to unsecured
creditors are presented at their estimated settlement amounts and are based on
the Liquidating Trustee's estimate of the remaining cash that will be available
after disbursement of all other claims with higher priority in accordance with
the Plan ESTIMATED LIQUIDATION EXPENSES Under the liquidation basis of
accounting, we accrue for the remaining estimated costs to be incurred during
liquidation, including compensation, fees of professional service providers and
miscellaneous other costs. Such costs were estimated at $1.573 million at
September 30, 2005. Our estimates are based on actual expenses incurred to
liquidate the Company in 2005 plus additional estimates to complete the reverse
merger and wind of the affairs of the Plan. If there are delays, or we are not
successful in achieving these objectives, actual costs incurred during
liquidation may increase, reducing any assets that may be available in
liquidation. ESTIMATED NET REALIZABLE VALUE OF ACCOUNTS RECEIVABLE
The net realizable value of accounts receivable that was recorded at December
31, 2004, totaling $1,681,000; was collected from customers during the first
quarter of 2005. Therefore, we estimated the net realizable value of accounts
receivable at September 30, 2005 to be zero.
Estimated Net Realizable Value of Intangible Assets
- ---------------------------------------------------
Intangible assets, which were sold to RADvision in March 2005, were recorded at
their estimated net realizable value at December 31, 2004 based on the price
paid by RADvision as set forth in the purchase price allocation included in the
related Purchase Agreement. Such intangible assets were comprised of technology
and distribution networks at values of $3,295,000 and $1,065,000, respectively.
Since substantially all of the assets were sold in March 2005, we estimate the
net realizable value to be zero at September 30, 2005.
3
Estimated Net Realizable Value of Property and Equipment
- --------------------------------------------------------
Substantially all property and equipment was sold to RADvision in March 2005.
The net realizable value of property and equipment recorded at December 31,
2004, totaling $57,000, was based on the purchase price allocation included in
the RADvision Purchase Agreement. Since substantially all of the assets were
sold in March 2005, we estimate the net realizable value to be zero at September
30, 2005.
Liquidity and Capital Resources
- -------------------------------
As previously mentioned, the Company is operating as a debtor-in-possession
under the provisions of Chapter 11 of the Bankruptcy Code. Our primary objective
is to complete the reverse merger with U.S. Dry Cleaning Corporation and to
wind-up the affairs of the Chapter 11 Bankruptcy.
On February 28, 2005, following a competitive bidding process conducted under
the supervision of the Bankruptcy Court, FVC, with the approval of the
Creditors' Committee, accepted the offer of RADvision Ltd. ("RADvision") to
purchase substantially all the assets of the Company for $7.15 million in cash
plus certain additional consideration, subject to Bankruptcy Court approval. On
March 14, 2005, the Bankruptcy Court entered an order ("Sale Order") approving
the Purchase Agreement.
On March 15, 2005, FVC and CUseeMe completed a sale of substantially all their
assets under the Purchase Agreement with RADvision, which acquired substantially
all the operating assets, intellectual property and customer contracts of FVC
and CUseeMe for $7.15 million in cash and assumption of certain liabilities in
exchange for the assets, free and clear of any liens, claims, or other
interests. In accordance with the Sale Order, FVC and CUseeMe used a portion of
the proceeds to repay all their outstanding secured indebtedness and to pay a
$150,000 break-up fee under a prior asset purchase agreement between FVC,
CUseeMe, and an investment partnership led by Millennium Technology Value
Partners, L.P., a New York-based private equity fund, Silicon Valley Bank and
Morrison & Foerster LLP. The Sale Order also provided for certain employee
protections and other benefits, subject to the consent of the Creditors
Committee, and certain other payments associated with the sale transaction. FVC
and CUseeMe used the remaining proceeds to finance their bankruptcy cases.
At September 30, 2005, we estimate that there are $1.573 million of remaining
liquidation costs, and $500,000 of remaining cash to be distributed as
settlements to unsecured creditors. Estimated liquidation expenses decreased by
$1.531 million from $3.104 million at December 31, 2004 due to net cash
disbursements (not including secured creditor payments) during the nine months
ended September 30, 2005.
Net liabilities in liquidation decreased to $(0.372) million at September 30,
2005 from $(1.304) million at December 31, 2004. This decrease is due to the
sale of substantially all assets to RADvision and represents the net effect of
liquidating the assets for cash, but not being able to pay all outstanding
creditors at the time of sale due to priorities imposed by the Bankruptcy Code
and Court. Additionally, the estimated liquidation expenses reduction as
described above contributed to the net decrease in net liabilities in
liquidation.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
Estimated liquidation expenses decreased by $0.189 million from $1.762 million
at June 30, 2005 due to net cash disbursements for administrative liquidation
costs during the three months ended June 30, 2005 which reduced the estimated
remaining administrative costs necessary to complete the liquidation of the
business.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2005
The Company's operations have been substantially suspended with the filing of
Chapter 11 bankruptcy on January 20, 2005, so the Company is no longer engaged
in the conduct of business and now operates for the sole purpose of holding and
liquidating its assets and completing the reverse merger with U.S. Dry Cleaning
Corporation as described above. A comparison of the results of operations
between fiscal periods would not be helpful to investors due to the Chapter 11
filing.
As mentioned above, the Company completed a sale of substantially all their
assets to RADvision for $7.15 million in cash and assumption of certain
liabilities on March 15, 2005. A substantial portion of the proceeds were used
to pay all of the Company's outstanding secured indebtedness, totaling $4.458
million, and other obligations.
4
Estimated liquidation expenses decreased by $1.531 million from $3.104 million
at December 31, 2004 due to net cash disbursements for administrative
liquidation costs, offset by an increase in the estimated costs to liquidate the
business, which reduced the estimated remaining administrative costs necessary
to complete the liquidation of the business.
Pre-petition unsecured liabilities whose disposition may be subject to
settlement or otherwise dependent on the outcome of the Chapter 11 case have
been segregated and classified as estimated settlements to unsecured creditors
in the accompanying September 30, 2005 condensed consolidated statement of net
liabilities in liquidation.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was not performed under the supervision and with the participation
of our management, including the Chief Restructuring Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report on Form
10-QSB. Officers and management of the Company who may have performed such
evaluation are no longer present or in a capacity to certify. The Company's
Chief Restructuring Officer was not hired until June 8, 2005.
During the fourth quarter of 2004, substantially all personnel resigned or were
terminated thereby leaving significant deficiencies in internal control over
financial reporting. The CFO and Controller left the Company in November 2004,
but did return as consultants to assist with the closing of the financial
statements for the year ended December 31, 2004. There were no changes in
internal control over financial reporting during the quarter ended September 30,
2005 that affected or were reasonably likely to affect our internal control over
financial reporting.
5
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company became subject to a federal class-action securities lawsuit in late
2004 related to the decline in the value of its common stock. The case against
the Company was withdrawn in early 2005; however, the officers are still
defendants.
Except as otherwise provided in the Plan, the Liquidating Trust Agreement, the
Confirmation Order, or in any other agreement entered into in connection with
the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the estate
and the Liquidating Trust shall retain and may; enforce, sue on, settle, or
compromise (or decline to do any of the foregoing) all causes of action and
defenses that the Debtors may hold against any person or entity. The Liquidating
Trustee, in consultation with the Creditors' Committee, may pursue such causes
of action and defenses, as appropriate, in accordance with the best interests of
the estate or its successor(s) who hold such rights. Such causes of action and
defenses are not barred or waived (or deemed to be barred or waived) under the
doctrine of RES JUDICATA or other legal principles. Nothing in the Confirmation
Order or in the Plan shall have any preclusive effect on such causes of action
or defenses.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit
No. Description of Document
- ---- --------------------------------------------------------------
31.1 Certification Pursuant to Rule 15d-14 of the Securities and
Exchange Act as amended, as Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
6
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST VIRTUAL COMMUNICATIONS, INC.
By: /s/ GREGORY STERLING Date: December 23, 2005
---------------------------------
Gregory Sterling
Chief Restructuring Officer
(Duly Authorized Officer and
Principal Financial Officer)
EXHIBIT INDEX
Exhibit
No. Description of Document
- ---- --------------------------------------------------------------
31.1 Certification Pursuant to Rule 15d-14 of the Securities and
Exchange Act as amended, as Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002