-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQZEifCDJGN0T8RZHrCmZUXW/k86Z7qqvkK85T9pQ1LHpzmk5Q5T0eiPiOix+Qp+ ZQ7XUGO2vmU7G4j65V1jzw== 0001185185-05-000488.txt : 20051223 0001185185-05-000488.hdr.sgml : 20051223 20051223132509 ACCESSION NUMBER: 0001185185-05-000488 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051223 DATE AS OF CHANGE: 20051223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST VIRTUAL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000920317 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 770357037 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23305 FILM NUMBER: 051284843 BUSINESS ADDRESS: STREET 1: 3200 BRIDGE PARKWAY SUITE 202 CITY: REDWOOD CITY STATE: CA ZIP: 94065 BUSINESS PHONE: 650 801 6500 MAIL ADDRESS: STREET 1: 3200 BRIDGE PARKWAY SUITE 202 CITY: REDWOOD CITY STATE: CA ZIP: 94065 FORMER COMPANY: FORMER CONFORMED NAME: FVC COM INC DATE OF NAME CHANGE: 19980811 FORMER COMPANY: FORMER CONFORMED NAME: FIRST VIRTUAL CORP DATE OF NAME CHANGE: 19971010 10QSB 1 firstvirtual10qsb093005.txt FIRST VIRTUAL 10-QSB 09.30.05 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- 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. ---------------------------------- (Exact Name of Registrant as Specified in Its Charter) DELAWARE 77-0357037 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 303 TWIN DOLPHIN DRIVE, SUITE 600 REDWOOD CITY, CA 94065 ---------------- ----- (Address of Principal Executive Offices) (Zip Code) (650) 801-6500 ------------- (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 - -------------------------------------------------------------------------------- FIRST VIRTUAL COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION SEPTEMBER 30, 2005 (UNAUDITED) (AMOUNTS IN THOUSANDS) - -------------------------------------------------------------------------------- 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 ------- Total liabilities in liquidation 2,073 ------- Net liabilities in liquidation $ (372) ======= - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements. F-1 - -------------------------------------------------------------------------------- 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) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, 2005 September 30, 2005 ------------------ ------------------ 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 ------- ------- Decrease in net liabilities in liquidation 35 932 Net liabilities in liquidation at beginning of period (407) (1,304) ------- ------- Net liabilities in liquidation at end of period $ (372) $ (372) ======= =======
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements. F-2 - -------------------------------------------------------------------------------- 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) - --------------------------------------------------------------------------------
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 -------- -------- Total revenue 2,463 10,468 Cost of sales Software 28 178 Product -- -- Support service 444 1,553 -------- -------- Total cost of sales 472 1,731 -------- -------- Gross profit 1,991 8,737 -------- -------- 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 -------- -------- Total operating expense 7,215 22,734 -------- -------- Operating loss (5,224) (13,997) Other Income, net 248 195 -------- -------- Net loss $ (4,976) $(13,802) ======== ======== 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 ======== ========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements. F-3 - -------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------- 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) -------- Net cash used in operating activities (12,815) -------- Cash flows from investing activities: Acquisition of property and equipment (404) Sale of short-term investments 507 -------- Net cash provided by investing activities 103 -------- 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) -------- Net cash provided by financing activities 3,577 -------- Net decrease in cash and cash equivalents (9,135) Cash and cash equivalents at beginning of period 11,562 -------- Cash and cash equivalents at end of period $ 2,427 ======== - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed consolidated financial statements. F-4 - -------------------------------------------------------------------------------- FIRST VIRTUAL COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- F-5 - -------------------------------------------------------------------------------- FIRST VIRTUAL COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- F-6 - -------------------------------------------------------------------------------- FIRST VIRTUAL COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- F-7 - -------------------------------------------------------------------------------- FIRST VIRTUAL COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 EX-31 2 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 I, Gregory Sterling, the Chief Restructuring Officer of First Virtual Communications, Inc. and subsidiary (the "Company" or the "small business issuer"), certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 23, 2005 FIRST VIRTUAL COMMUNICATIONS, INC. By: /s/ Gregory Sterling ---------------------------- Gregory Sterling Chief Restructuring Officer (Duly Authorized Officer and Principal Financial Officer) EX-32 3 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 Certification Pursuant to Exchange Act Rule 15d-14(b) and 18 U.S.C. Section 1350 In connection with the Quarterly Report of First Virtual Communications, Inc. and subsidiary (the "Company") on Form 10-QSB for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory Sterling, Chief Restructuring Officer of the Company, certify, to the best of my knowledge, pursuant to Exchange Act Rule 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that: i. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and ii. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to First Virtual Communications, Inc. and will be retained by First Virtual Communications, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Date: December 23, 2005 FIRST VIRTUAL COMMUNICATIONS, INC. By: /s/ Gregory Sterling ---------------------------- Gregory Sterling Chief Restructuring Officer (Duly Authorized Officer and Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----