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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: OCTOBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 0-11552
TELEVIDEO SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2383795
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2345 HARRIS WAY, SAN JOSE, CALIFORNIA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-8333
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
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 X NO__
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THE APPROXIMATE AGGREGATE MARKET VALUE OF REGISTRANT'S COMMON STOCK HELD
BY NON-AFFILIATES ON JANUARY 21, 1997 (BASED UPON THE CLOSING SALES PRICE OF
SUCH STOCK AS REPORTED IN THE NASDAQ NATIONAL MARKET AS OF SUCH DATE) WAS
$19,155,126.80.
AS OF JANUARY 21, 1997, 45,404,745 SHARES OF REGISTRANT'S COMMON STOCK
WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF THE DEFINITIVE PROXY STATEMENT FOR REGISTRANT'S 1997 ANNUAL
MEETING OF STOCKHOLDERS (TO BE HELD MARCH 24, 1997) ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT ON FORM 10-K.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]
(Remainder of this page was intentionally left blank)
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INTRODUCTORY STATEMENT
This Report on Form 10-K of TeleVideo Systems, Inc. incorporates by
reference, pursuant to Rule 12b-23 under the general rules and regulations of
the Securities Exchange Act of 1934, as amended, certain information contained
in the definitive Proxy Statement to be filed for the Annual Meeting of
Stockholders to be held on March 24, 1997 (herein the "Proxy Statement").
References in this Form 10-K to "TeleVideo," the "Registrant" or the "Company"
refer to TeleVideo Systems, Inc. and its subsidiaries unless the context
indicates otherwise. This report contains registered and unregistered trademarks
of other companies.
PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1975, TeleVideo is a market leader providing innovative
high-end monitor and terminal display products; graphics boards, sound boards
and multilingual multimedia upgrade kits. The Company markets its products
worldwide through distributors, mass merchants, retail stores, value-added
resellers ("VARs"), systems integrators and original equipment manufacturers
("OEMs").
TeleVideo operates in one industry segment.
PRODUCTS
Computer Monitors
In November 1996, TeleVideo launched the SuperView Pro Series and
SuperView Series monitors. These monitors provide a choice for a broad range of
uses from home applications to business and sophisticated CAD/CAM applications.
The high quality SuperView Pro Series monitors include the SVP350 21-inch
monitor (19.9" viewable area) and the SVP250 17-inch monitor (15.7" viewable
area). The monitors provide features such as high resolutions and wide range of
scanning rates. The SVP350 delivers 1600 x 1200 maximum resolution at 89Hz. The
SVP250 features 1600 x 1200 maximum resolution at an exceptional 77Hz refresh
rate and a fine Aperture Grille of .25 mm. Both monitors use the Aperture Grille
technology which deliver flicker free images and create sharp, crystal-clear
images for graphic designers and engineers for rendering intricate images as in
CAD/CAM design work.
The SuperView Series offers affordable, high-capability monitors for a
full range of applications, such as conventional business use, home office,
games, entertainment and education. The SV200 17-inch monitor (15.7" viewable
area) delivers a flicker free setting of 1024 x 768 at 86Hz plus a finer .26 dot
pitch than you'd expect in this class. The SV100 15" (13.8" viewable area) has a
flicker free setting of 1024 x 768 resolution at 85Hz and a fine .28 dot pitch.
Both SuperView Series monitors feature Shadow Mask technology which produces
sharp and crisp images needed for rendering intricate images as in CAD/CAM
design work.
The monitor products retail from $400 to $2,000.
Video Display Terminals
TeleVideo designs, manufactures, markets and supports a broad range of
industry standard, high performance character-based Windows, Point-of-Sale,
ASCII, ANSI and PC TERM video display terminals.
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The product line includes a high-end 14- or 9-inch AlphaWindow terminal, a
midrange 14-inch ASCII terminal, a midrange 14-inch ASCII, ANSI, PC TERM
terminal and a low-end 14-inch ASCII terminal.
The terminals feature high quality, low flicker, high contrast, high
resolution and non-glare screens. All have strong, lightweight injection molded
plastic enclosures to serve the general purpose terminal market.
The TeleVideo 9096 14-inch color terminal is a high-performance and
low-cost ASCII, ANSI, PC terminal designed to meet productivity goals into the
21st century. It features an IBM-compatible keyboard interface for wedge type
bar code scanners, wand readers, credit card readers, and specialized keyboards
for point-of-sale, bank teller, and similar applications. The TeleVideo 9096
supports standard ANSI color command and MicroColor code color substitution for
visual attributes for legacy software with 64 colors available for both
foreground and background.
The TeleVideo 9085 is a high-resolution, color AlphaWindow display
terminal which provides 64 colors for both foreground and background selections
in each of the eight windows. The 9085 has a power management screen saver which
protects the environment and promotes energy conservation.
The TeleVideo 9070 is a 9-inch AlphaWindow terminal with up to 256K bytes
of battery-backed RAM available for local storage of transactions. This allows
for continuous point-of-sales station operation during peak platform usage or
when the platform is down. The 9070 provides a fast input response through the
PS/2 style mouse, which, the Company believes, is a major benefit when selecting
and sizing windows or utilizing the cut and paste features.
The TeleVideo 9-inch model 9060 high-performance display terminal is a
multi-session, multi-personality terminal with ASCII, ANSI and PC TERM operating
modes. It can function as an independent terminal in single or dual host
computer environments. It can also connect to light pen, bar code scanner and
magnetic strip readers for point-of-sale, financial and similar applications.
The TeleVideo 995 is a monochrome AlphaWindow terminal. With the TeleVideo
995, the user gets AlphaWindowing capability at a non-windowing price for new or
existing software applications. The windows capability provides increased
productivity for applications running on UNIX. Moreover, the 995 also has a
power management screen saver which protects the environment and promotes energy
conservation.
The TeleVideo 995-65 14-inch terminal is specifically designed to address
the needs of customers who require a powerful, yet versatile solution which can
emulate a wide range of industry-standard terminals. It features multi-session,
multi-personality emulation of over 34 terminals, and is capable of operating as
an independent terminal in single or dual-host computer environments.
The TeleVideo 990 is a general purpose terminal with ASCII, ANSI and PC
TERM operating modes. For maximum versatility and flexibility, the terminal
provides a choice of ASCII, AT or DEC style keyboards. Moreover, the 990's
mini-DIN keyboard connector permits connection to low-cost industry standard
wedge type devices. This allows the user to interface to a bar code scanner,
wand reader, credit card reader, electronics scale or a variety of specialized
keyboards for point-of-sale or point-of-transaction processing.
The video display terminal products retail from $200 to $450. These
products collectively accounted for approximately 34%, 44% and 66% of the total
revenue in fiscal 1996, 1995 and 1994, respectively.
Multimedia Products
TeleVideo is a developer of video graphics cards, sound boards and
multilingual multimedia kit products for the personal computer market. The sales
volume of multimedia products increased substantially during fiscal 1996 and
accounted for approximately 48% ($10,000,000) of the total annual sales revenue.
The TeleSOUND 3D is a plug-and-play 16-bit sound board for PC audio
systems which, the Company believes, delivers true CD-quality stereophonic
sound. Based on an OPL3 FM synthesis device, the
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TeleSOUND 3D is compatible with existing multimedia sound standards including
the Sound Blaster Pro, Ad Lib, Windows Sound System, MPU-40, and Windows 3.1 and
Windows 95. All kits are MPC compliant.
The TeleWAVE Q32/3D sound board features surround sound, 32 polyphony, 16
MIDI channels, 4 operator 22 voice FM music synthesizer, a General MIDI and 100
MIPs DSP wavetable power all in one board. The Company believes that it provides
professional music studio quality stereophonic sound of real musical
instruments. Using advanced DSP technology, the TeleWAVE Q32/3D allows users to
turn their PC into a professional PC audio system with 128 general MIDI musical
instrument sounds.
The TeleGRAPHICS SX64+ is the next generation ultra fast GUI accelerator
board utilizing 64-bit graphics acceleration chipset technology. This technology
allows complete graphics acceleration support for 4/8/16/24/32 bits per pixel
modes. It supports high resolution of up to 1600x1200 at color depth of 256 and
800x600 with 16.7 million colors, as well as true color acceleration of up to
32-bits per pixel.
The TeleGRAPHICS 3D is a high performance plug-and-play 3D graphics
accelerator board designed for high resolution true color and multimedia
capabilities on PC hardware and software platforms. It features an ultra-fast
PCI host interface and integrated SVGA for boot-up compatibility. 3D performance
is approximately 20 fps and resolution is 640x480 at 75Hz.
The TeleMEDIA Carnaval Oro is an upgrade kit developed for the Spanish
speaking market. The kit includes a 16-bit plug-and-play sound card that is
wavetable upgradeable; an internal IDE CD-ROM drive; amplified 10 watt stereo
speakers; compilation of software titles chosen for their educational and play
values.
TeleVideo also bundles CD-ROM drives with TeleVideo sound boards and other
multimedia products to meet the needs and requirements of OEMs, distributors,
resellers and systems integrators. CD-ROM bundles are configured according to
customer needs and requirements.
Multimedia products retail from $25 to $400. These products collectively
accounted for approximately 48% and 23% of the total revenues in fiscal 1996 and
1995, respectively.
Computer Enhancement Products
The Company, through its OMTI product line, manufactures and markets
multi-function data storage products for various bus architectures. These
products generally retail for $80 to $270, and collectively accounted for
approximately 6%, 9% and 19% of total revenues in fiscal 1996, 1995 and 1994,
respectively.
PRODUCT DEVELOPMENT
Markets that TeleVideo serve are characterized by rapid technological
change. TeleVideo has an ongoing program to develop new products. The Company's
reseach and development staff consists of 7 employees as of January 21, 1997.
During fiscal 1996, TeleVideo spent approximately $1.1 million on
company-sponsored research and development. Company-sponsored research and
development expenses for fiscal 1995 and 1994 were approximately $1.8 million
and approximately $1.6 million, respectively. The Company did not engage in any
customer-sponsored research and development during such years.
Because of the fast pace of technological advances, particularly for
multimedia products, the Company must be prepared to design, develop and
manufacture new and more powerful low-cost products in a relatively short time.
TeleVideo believes it has had mixed success to date in accomplishing these goals
simultaneously. Like other companies in the computer industry, it will continue
to experience delays in completing new product design and tooling. There is no
assurance that the Company will be able to design and manufacture new products
that respond to the rapid changes in the market place.
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CUSTOMERS, MARKETING AND DISTRIBUTION
North American sales are handled from TeleVideo sales offices located in
San Jose and Newport Beach, California and Hoffman Estates, Illinois. Products
are sold through distributors, mass merchants, retail stores, value-added
resellers ("VARs"), systems integrators and OEMs. The Company also sells
directly to end users in North America.
Products sold in Europe, the Pacific Rim, Africa and Latin America are
handled by the Company's San Jose, California office through distributors, OEMs
and international representatives.
TeleVideo distributors generally do not have exclusive geographic
territories. Distributor contracts can be terminated by either party without
cause upon 30 days or 60 days' written notice. TeleVideo's distributors
typically handle a variety of computer-related products, including products
competitive with those of TeleVideo. The typical distribution arrangement
requires the distributor to purchase TeleVideo products with certain limited
stock rotation rights. Distributors may also exercise price protection rights
should the Company's product price be reduced.
TeleVideo, through its headquarters' marketing and supporting staff, plans
to continue to work closely with its distributors, mass merchants, retail
stores, value-added resellers ("VARs"), systems integrators and original
equipment manufacturers ("OEMs"). TeleVideo staff also provide the customers
with training, sales and promotional materials, cooperative advertising
programs, and sales leads. The Company spent approximately 2.4% and 4.6% of its
revenues on advertising in fiscal 1996 and fiscal 1995, respectively.
TeleVideo's customers typically purchase the Company's products on an
as-needed basis. Therefore, the Company will continue to manufacture its
products based on sales forecasts and upon customer orders. As a result of this
strategy, the Company believes that backlog is not material to its business
taken as a whole. The Company's order backlog as of October 31, 1996 was
approximately $2.8 million, as compared with approximately $3.0 million at
October 31, 1995, and approximately $2.3 million at October 31, 1994.
TeleVideo's order backlog are orders with a specified delivery schedule within
twelve months. Because of the possibility of customer changes in delivery
schedules or cancellation of orders, which is not uncommon in the computer
industry, the Company's backlog as of any particular date may not be indicative
of actual net sales for any succeeding period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
TeleVideo's largest customer accounted for approximately 10.23% ($2.2
million) of net sales in fiscal 1996. The Company believes that loss of this
customer would not have an adverse effect on the net sales of the Company.
TeleVideo's product sales are primarily made for cash, due net 30, 45 or
60 days, or in the case of some foreign sales, payment by letter of credit is
required.
INTERNATIONAL SALES
International sales of TeleVideo's products constituted approximately
$3.41 million (15.8%) of net sales for fiscal 1996, approximately $4.13 million
(24%) of net sales for fiscal 1995 and approximately $3.63 million (27%) of net
sales for fiscal 1994.
TeleVideo's international sales are subject to certain risks common to
non-United States operations, including but not limited to governmental
regulations, import restrictions and export control regulations, changes in
demand resulting from fluctuations in exchange rates, as well as risks such as
tariff regulations. TeleVideo's international sales are U.S. dollar-denominated
and, therefore, are not directly subject to international currency fluctuations.
The strength of the dollar in relation to certain international currencies may,
however, adversely affect the Company's sales to international customers.
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FOREIGN JOINT VENTURE ACTIVITY
Commonwealth of Independent States
TeleVideo continues to pursue business opportunities in the former Soviet
Union, now referred to as the Commonwealth of Independent States. These may or
may not involve sale or production of the Company's products, and TeleVideo may
invest cash in these ventures.
Three H
Three H Partners (owned equally by TeleVideo and a Russian entity) was
formed in fiscal 1991 and the initial investment was $16,000. In July 1996, the
Company further invested $60,000 in the joint venture.
In February 1993, the Company loaned the Three H joint venture $1.0
million as working capital for the purpose of conducting short term commodities
trading. The loan was unsecured and bore interest at 20% per annum. In fiscal
1994, a total amount of $800,000 was repaid to the Company. The remaining
balance of $200,000 was received in fiscal 1996.
InterTerminal
In April 1994, the Company acquired a 51% ownership of the "InterTerminal"
joint venture in exchange for a $5,100 cash investment and a commitment to fund
a $3.65 million loan, 20% interest rate, interest free for one year, to the
venture. The main purpose of the joint venture was the construction of a truck
terminal (approximately 100,000 square feet) approximately 25 miles outside of
Moscow, and the construction was complete in early 1995. TeleVideo sold its 51%
ownership in May 1995. The $3.65 million loan was repaid to the Company in
fiscal 1995. An additional amount of $1,369,500 was received and recognized as a
gain in fiscal 1996.
TeleVideo-RUS
In January 1996, TeleVideo set up a company called "TeleVideo-RUS" in the
Commonwealth of Independent States with an initial investment of $150,000. The
main purpose of this company is to act as a liaison between TeleVideo and the
authorities in the CIS. One of the projects that the Company is anticipating
will be the construction of truck terminals similar to the "InterTerminal" joint
venture. There is no assurance, however, that any additional projects will be
undertaken or that any of the ventures will prove to be profitable.
Risks of Operations in the Commonwealth of Independent States
There are a number of risks involved in TeleVideo's participation in
foreign joint ventures located in the Commonwealth of Independent States. These
risks include the ability to execute and enforce the agreements, the future
regulations governing the repatriation of funds, the political and economic
instability and the dependence on future events which can influence the success
or failure of the ventures and, thus, may affect the recoverability of the
amounts invested by TeleVideo. Management of the Company is aware of the
attendant risks relating to these ventures and continually monitors the
conditions in the CIS and the activities of the joint ventures. Management
further believes the investments to be secure and thus no reserves were required
as of October 31, 1996. However, there can be no assurance that conditions in
the CIS will not deteriorate and place the Company's investments in jeopardy.
Kabil Electronics Company, Ltd.
The Company owned a 35% interest in Kabil Electronics Company, Ltd. of
South Korea and the total investments were approximately $3.3 million. Since
Kabil continued to sustain losses from operations, the Company wrote off its
investments in fiscal 1990 and fiscal 1993. In December 1994, the Company
accepted an offer to sell its 35% interest in Kabil to the majority owners for
$1.5 million, less expenses, which was paid in installments over the 1995 and
1996 fiscal years. Approximately $555,000 was received in fiscal 1995. An
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additional $866,652 was received in January of 1996 and had been accrued as
income for the year ended October 31, 1995.
COMPETITION
TeleVideo believes that brand recognition, product quality, availability,
extensive standard product features, service and price are significant
competitive factors in the Company's markets. In addition to the factors listed
above, the principal considerations for distributors and resellers in
determining which products to offer include profit margins, immediate delivery,
product support and credit terms. TeleVideo has continued and in the future will
likely continue to face significant competition, with respect to these factors,
particularly from the large international manufacturers. Most of these companies
have significantly greater financial, marketing and technological resources than
the Company, and may be able to command better terms with their suppliers due to
higher purchasing volumes. Therefore, there is no assurance that the Company
will be able to successfully compete in the future.
PRODUCTION
TeleVideo does not have any long term contracts with overseas
manufacturers. The Company subcontracts all of the manufacture of its terminal,
monitor and multimedia products to manufacturers in Hong Kong, Taiwan, The
People's Republic of China and South Korea. The testing, inspection and some
minor assembling work are done at its California headquarters.
Although for the most part, the Company generally uses standard parts and
components for its products, certain components are presently available and
secured only from a single source. The Company's largest suppliers accounted for
approximately 23.7% (approximately $4.3 million), 18.2% (approximately $3.3
million), 13.8% (approximately $2.5 million) and 13.2% (approximately $2.4
million), respectively, of net purchases in fiscal 1996. Loss of one of these
suppliers might have an adverse effect on the product supply of the Company. The
Company believes, however, that in most cases, alternative sources of supply
could be arranged as and when needed by the Company. To date, TeleVideo has not
experienced any material difficulties or delays in production of its terminal
and multimedia products.
PRODUCT SERVICE AND WARRANTY
TeleVideo's products are serviced worldwide primarily by distributors and
OEMs.
The Company provides end-user customers with a one-year factory warranty
on terminal products and a three-year factory warranty on monitor and multimedia
products.
PROPRIETARY RIGHTS
The Company regards certain aspects of its products as proprietary and
relies upon a combination of trademark and copyright laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company has registered trademarks in the United States and in over
20 foreign countries for "TeleVideo" and the TeleVideo logo.
The continuing development of the Company's products and business is
dependent, primarily, on the knowledge and skills of certain of its employees.
To protect its rights to its proprietary information, the Company requires all
employees and consultants to enter into confidentiality agreements that prohibit
the disclosure of confidential information to persons unaffiliated with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's technology or other confidential
information in the event of any unauthorized use or disclosure. There also can
be no assurance that third parties will not independently develop products
similar to or duplicative of products of the Company.
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The Company believes that due to the rapid pace of technological change in its
industry, the Company's success is likely to depend more upon continued
innovation, technical expertise, marketing skill and customer support than on
legal protection of the Company's proprietary rights.
GOVERNMENT REGULATIONS
Most of the Company's products are subject to regulations adopted by the
Federal Communications Commission ("FCC"), which establishes radio frequency
emanation standards for computing equipments. TeleVideo believes that all of the
Company's products that are subject to such regulations comply with these
regulations. Although there can be no assurance, the Company has no reason to
believe that new products will not also be approved. Failure to comply with the
FCC specifications could preclude the Company from selling noncomplying systems
in the United States until appropriate modifications are made. To date, the
Company has not encountered any FCC compliance problems.
EMPLOYEES
As of January 21, 1997, the Company's full-time employees totaled 58, a
decrease of approximately 16% of the total number of employees (69) reported at
the end of fiscal 1995. Of the total number of employees, 25 were engaged in
product research, engineering, development and manufacturing; 21 in marketing
and sales; and 12 in general management and administration. The decrease in the
number of employees from the 1995 fiscal year end was the result of the
reorganization of the sales and marketing departments for the multimedia
products. As a result, a higher sales volume was achieved with a smaller work
force. The Company believes that its future success will depend, in part, on its
ability to continue to attract and retain highly skilled technical, marketing
and management personnel.
None of the Company's employees is subject to a collective bargaining
agreement or represented by a union, and the Company has never experienced a
work stoppage. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters, research and development and administrative
operations are housed in a 69,630 square foot building located on 2.5 acres in
San Jose, California, which is owned by the Company. The Company's operations
use approximately 80% of the building. Management believes these facilities will
be adequate for its anticipated growth for the foreseeable future.
The Company leases a domestic sales office in Hoffman Estates, Illinois.
The lease is on a yearly basis which will expire on August 31, 1997, and has a
monthly rental rate of $716.23. Management believes that, prior to its
expiration, the Company would be able to secure extension to the lease if such
extension is deemed necessary in the future. The Company also leases a domestic
sales office in Newport Beach, California. The lease is on a monthly basis and
has a monthly rental rate of $281.
ITEM 3. LEGAL AND OTHER PROCEEDINGS
Tax Audits
As of October 31, 1996, the only issues pending are the Massachusetts
State Tax audit and the California Franchise Tax exposure resulting from the
previous Federal Income Tax audits. The Company believes that a resolution of
one or both of these audits could occur in fiscal 1997 and its maximum exposure,
collectively, will not exceed $600,000. The Company has accrued this full amount
at October 31, 1996.
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Other Legal Proceedings
The Company has been named, along with dozens of other manufacturers,
designers, and distributors of computer equipment, as a defendant in several
lawsuits regarding product liability in connection with the alleged defective
design of computer terminal keyboards and the size of the computer monitor
screens. The first issue alleges that the various plaintiffs have suffered some
form of severe wrist injury from the use of these keyboards. The second issue
alleges that there was false advertising which claimed that the video screens
were 17 inches in size, when in reality they were only 15 inches. The Company's
attorneys have prepared a defense for these cases and the Company's insurance
carriers are informed of the plaintiffs' claims. The Company intends to
vigorously defend against the allegations of these suits. Management believes
that the ultimate outcome of these lawsuits will not have a material adverse
effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on the Nasdaq National Market under the symbol "TELV." The
following table sets forth for the periods indicated the high and low last sales
prices for the Common Stock as reported by Nasdaq. The prices quoted below
reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1995:
First Quarter $0.3750 $0.3750
Second Quarter 0.9375 0.8125
Third Quarter 0.7188 0.6250
Fourth Quarter 0.9375 0.8125
Fiscal 1996:
First Quarter $0.7500 $0.6563
Second Quarter 0.6250 0.5000
Third Quarter 0.5000 0.4688
Fourth Quarter 0.4375 0.4063
</TABLE>
There were 2,743 holders of record of the Company's Common Stock at
January 21, 1997.
On January 21, 1997, the closing price of the Company's Common Stock in
the over-the-counter market, as reported on the Nasdaq National Market, was
$0.4219 per share.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
presently intends to retain any earnings for use in its business.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data reflects the continuing operations
of TeleVideo. The data below has been derived from the Company's audited
consolidated financial statements for the years presented.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ......................... $ 21,576 $16,914 $ 13,232 $ 15,251 $20,298
Income (loss) from continuing
operations ................... (2,917)(3) 415(2) (907) (9,618)(1) 466
Net income (loss) ................. (2,917)(3) 415(2) (907) (9,618)(1) 466
Income (loss) from continuing
operations (per share) ....... (0.06) 0.01 (0.02) (0.22) 0.01
Net income (loss) (per share) .. (0.06) 0.01 (0.02) (0.22) 0.01
BALANCE SHEET DATA:
Cash and cash equivalents $ 4,496 $ 5,145 $ 2,131 $ 3,148 $ 6,081
Working capital ................ 15,239 13,035 7,246 8,479 8,780
Total assets ................... 23,090 24,600 24,045 26,479 38,077
Stockholders' equity ........... 18,544 21,345 20,832 21,738 31,346
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Consolidated Financial Statements
for a discussion of operating results, liquidity needs and acquisitions and
dispositions during the periods.
(1) Including a charge of $9,531,000 to write down the cost of property
to estimated fair market value.
(2) Includes net gains (loss) from the following (in thousands):
<TABLE>
<S> <C>
(A) Sale of building $ 1,350
(B) Disposition of Russian joint venture interest 1,910
(C) Sale of interest in Kabil Electronics 1,422
(D) Disposal of SMS product line (346)
-------
$ 4,336
=======
</TABLE>
(3) Includes net gain from the sale of InterTerminal joint venture
interest of $1,370,000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The forward-looking statements contained herein are based
on current expectations, and actual results may differ materially. Factors that
might cause such differences include, but are not limited to, those discussed
under "Factors that may Affect Future Results," below.
GENERAL
The Company completely phased-out its personal computer product line in
fiscal year 1993 and focused its resources and energy on the terminal and
multimedia product lines. Also, in November 1996, the Company announced its
entry into the computer monitors market. Efforts continued to expand in the
development of new multimedia products and upgrade kits in fiscal 1996. Results
in fiscal 1996 were additionally impacted by a continued shift in product mix,
with the Company's multimedia products becoming an increasingly significant
portion of product sales.
The Company has reduced its marketing and sales force from 27 employees at
October 31, 1995 to 21 employees at October 31, 1996, primarily the result of
its continuing effort to reduce operating costs and to improve operating
efficiency. In order to lower the production costs, the Company has continued to
negotiate with its suppliers and has also shifted its production process from
in-house to overseas manufacturing.
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Net sales for fiscal 1996 were approximately $21.58 million, or an
increase of approximately 27.6% from the approximately $16.91 million in net
sales reported in fiscal 1995. The increase in net sales in fiscal 1996 was
principally generated from the sale of the multimedia products (approximately
$10.35 million) which accounted for approximately 48% of the total sales revenue
in fiscal 1996, compared to approximately 23% and 0.2% of total sales revenue in
fiscal 1995 and 1994, respectively.
Cost of sales increased from approximately $14.77 million in fiscal 1995
to approximately $20.63 million in fiscal 1996, and increased as a percentage of
sales from approximately 87.3% to approximately 95.6% during the same period.
The percentage increase in cost of sales and the corresponding decrease in gross
margins in fiscal 1996 (a decrease from approximately 12.7% to 4.4%) were
primarily the results of the lower profit margin and intensive price competition
on multimedia products, a trend that the Company expects to continue, coupled
with the increase in the inventory reserve on multimedia inventory noted below.
Inventory reserves were increased in the aggregate by $50,000 for fiscal
1996. The increase resulted from the Company scrapping approximately $868,000 of
fully reserved inventory during the year (which reduced the inventory reserve on
a dollar for dollar basis, resulting in no net impact on cost of sales), and at
the same time, recording an additional reserve of $918,000 in the fourth quarter
of fiscal 1996 to cover existing inventory on hand at year end. The additional
reserve increased cost of goods sold by a like amount.
Manufacturing expenses increased from $1,098,000 in fiscal 1995 to
$1,151,000 in fiscal 1996, an increase of $53,000 (approximately 4.8%) from the
prior year. The increase was primarily due to the increase in the actual
compensation expense from $667,000 in fiscal 1995 to $789,000 in fiscal 1996, an
increase of $122,000 (approximately 18.3%) from the prior year while the
workforce for manufacturing, assembling and inspecting remained at the same
level of 18 employees for both years. This increase was offset by miscellaneous
reductions in other expense categories.
Marketing expenses decreased as a percentage of sales in fiscal 1996 from
approximately 18.8% in fiscal 1995 to 11.3% in fiscal 1996, while actual
marketing expenses decreased from $3.2 million in fiscal 1995 to $2.4 million in
fiscal 1996, a decrease of 23.8% from the prior year. The decrease in marketing
expenses
12
<PAGE> 13
was due primarily to decreased expenditures resulting from the decrease
in employee staffing levels and purchased services and advertising expenses. The
number of sales and marketing employees decreased from 27 in fiscal 1995 to 21
in fiscal 1996, while actual compensation expense decreased from $1.84 million
in fiscal 1995 to $1.44 million in fiscal 1996. Total advertising expense
decreased from $0.79 million in fiscal 1995 to $0.52 million in fiscal 1996.
Research and development expenses decreased as a percentage of sales from
approximately 10.8% in fiscal 1995 to 5.1% in fiscal 1996, while actual research
and development expenses decreased from $1.8 million in fiscal 1995 to $1.1
million in fiscal 1996, a decrease of 39.8% from the fiscal 1995 levels. The
decrease in actual research and development expenses in fiscal 1996 compared to
the same period in the prior year was primarily a result of the decrease in
employee staffing levels from 14 in fiscal 1995 to 7 in fiscal 1996 while actual
compensation expense decreased from $1.2 million in fiscal 1995 to $0.8 million
in fiscal 1996.
General and administrative expenses decreased as a percentage of sales
from approximately 11.1% in fiscal 1995 to 9.6% in fiscal 1996, while actual
expenses increased from $1.9 million in fiscal 1995 to $2.1 million in fiscal
1996, an increase of 9.9% from fiscal 1995 levels. The higher expense level in
fiscal 1996 was primarily due to the increase in the reserve for accounts and
notes receivable of approximately $760,000 in the fourth quarter of fiscal 1996.
The loss from operations reported in fiscal 1996 decreased approximately
2.2%, from $4.7 million in fiscal 1995 to $4.6 million in fiscal 1996. This
decrease was primarily due to the decrease in operating expenses but was
partially offset by the increase in cost of sales of multimedia products and the
decrease in the net sales of the terminal and other computer enhancement
products which historically provide higher profit margins.
The Company recognized a net gain from the sale of InterTerminal joint
venture interest of $1,370,000 in fiscal 1996 which offset the loss from
operations.
Interest income earned in fiscal 1996 decreased from $810,000 in fiscal
1995 to $697,000 in fiscal 1996, a 14.0% decrease from the prior year. Such
decrease was primarily due to the lower cash levels and the retirement of
various notes receivables principally with respect to joint venture activities
in the Commonwealth of Independent States.
Net loss for the fiscal year of 1996 was approximately $2.9 million,
compared with a net gain of $0.4 million in fiscal 1995. The loss in fiscal 1996
was a result of the various factors noted above.
As a result of the foregoing, net loss per share in fiscal 1996 was $0.06,
based on 45,328,368 weighted average shares outstanding, compared to a net
income per share in fiscal 1995 of $0.01, based on 44,878,339 weighted average
shares outstanding.
No income tax expense or credit was provided for in fiscal 1996. The
Company has approximately $86 million in federal net operating loss and credit
carryovers and approximately $26 million in state net operating loss carryovers
to offset future federal and state corporate income tax liabilities. No net
deferred tax asset has been recognized by the Company for any future tax benefit
to be provided from the loss carryforwards since realization of any such benefit
is not assured.
Inflation had no significant impact on the Company's business or results
of operations.
13
<PAGE> 14
Fiscal 1995 Compared to Fiscal 1994
Net sales for fiscal 1995 were approximately $16.91 million, or an
increase of approximately 27.8% from the approximately $13.23 million in net
sales reported in fiscal 1994. The increase in net sales in fiscal 1995 was
principally generated from the sale of the multimedia products (approximately
$3.92 million) which accounted for approximately 23% of the total sales revenue
in fiscal 1995 compared to approximately 0.2% of total sales revenue in fiscal
1994.
Cost of sales increased from approximately $9.52 million in fiscal 1994 to
approximately $14.77 million in fiscal 1995, and increased as a percentage of
sales from approximately 72% to approximately 87% during the same period. The
percentage increase in cost of sales and the corresponding decrease in gross
margins in fiscal 1995 (a decrease from approximately 28% to 13%) were primarily
the results of the lower profit margin and intensive price competition on
multimedia products, coupled with the increase in the inventory reserve on
multimedia inventory noted below.
Inventory reserves were decreased in aggregate by $149,000 for fiscal
1995. However, the Company scrapped approximately $759,000 of fully reserved
inventory during the year which reduced the inventory reserve on a dollar for
dollar basis, resulting in no net impact on cost of sales. The Company did
record an additional reserve of $610,000 in the fourth quarter of fiscal 1995 to
cover existing inventory on hand at year end which directly increased cost of
goods sold by a like amount.
Manufacturing expenses increased from $902,000 in fiscal 1994 to
$1,098,000 in fiscal 1995, an increase of $196,000 (approximately 22%) from the
prior year. The increase was primarily due to the increase in the number of
employees from 12 in fiscal 1994 to 18 in fiscal 1995 for the manufacturing,
assembling and inspecting of the multimedia products. The actual compensation
expense increased from $499,000 in fiscal 1994 to $667,000 in fiscal 1995, an
increase of $168,000 (approximately 34%) from the prior year.
Marketing expenses increased as a percentage of sales in fiscal 1995 from
approximately 17.1% in fiscal 1994 to 18.8% in fiscal 1995, while actual
marketing expenses increased from $2.3 million in fiscal 1994 to $3.2 million in
fiscal 1995, an increase of 40.4% from the prior year. The increase in marketing
expenses was due primarily to increased expenditures resulting from the increase
in employee staffing levels and purchased services and advertising expenses on
multimedia products. The number of sales and marketing employees increased from
21 in fiscal 1994 to 27 in fiscal 1995, while actual compensation expense
increased from $1.42 million in fiscal 1994 to $1.84 million in fiscal 1995.
Total advertising expense increased from $0.30 million in fiscal 1994 to $0.79
million in fiscal 1995.
Research and development expenses decreased as a percentage of sales from
approximately 12.4% in fiscal 1994 to 10.8% in fiscal 1995, while actual
research and development expenses increased from $1.6 million in fiscal 1994 to
$1.8 million in fiscal 1995, an increase of 11.3% from the fiscal 1994 levels.
The increase in actual research and development expenses in fiscal 1995 compared
to the same period in the prior year from $1.1 million in fiscal 1994 to $1.2
million in fiscal 1995 was primarily a result of the increase in employee
staffing levels.
General and administrative expenses decreased as a percentage of sales
from approximately 12.7% in fiscal 1994 to 11.1% in fiscal 1995, while actual
expenses increased from $1.7 million in fiscal 1994 to $1.9 million in fiscal
1995, an increase of 11.7% from fiscal 1994 levels. The higher expense level in
fiscal 1995 was primarily due to the increase in the reserve for accounts and
notes receivable of approximately $300,000.
The loss from operations reported in fiscal 1995 increased approximately
153.7%, from $1.9 million in fiscal 1994 to $4.7 million in fiscal 1995. This
increase was primarily due to the high production, research and development, and
marketing costs on the multimedia products, the decrease in terminal product
line sales and the elimination of the SMS product line which historically
provide higher profit margins.
On December 12, 1994, the Company sold its real property located at 550
East Brokaw Road, San Jose, California which consists of approximately 19.8
acres of real property containing a building of 292,800 square feet for $11
million. After netting certain expenses of sales, the Company received $5.4
million in cash
14
<PAGE> 15
upon close of escrow. The remaining $5.0 million is in the form
of a promissory note which shall be due and payable in twenty-four months at an
interest rate of 9.5% per annum. Interest is paid on a monthly basis and
approximately $475,000 in cash is generated as interest annually. Since the
Company had written down the net book value of this real property to $9.4
million at October 31, 1993, a gain of $1.35 million was recognized in fiscal
1995.
The Company recognized the following significant net gains (losses) in
fiscal 1995 which offset the loss from operations:
<TABLE>
<CAPTION>
$(000's)
<S> <C>
(1) Sale of Brokaw Building $ 1,350
(2) Sale of Ordynka Joint Venture Interest 2,313
(3) Sale of Kabil Investment 1,422
(4) Write-off of Tatiana and PharmaPlant
Investments (403)
(5) Disposal of SMS Product Line (346)
-------
$ 4,336
=======
</TABLE>
Interest income earned in fiscal 1995 increased from $602,000 in fiscal
1994 to $810,000 in fiscal 1995, a 34.6% increase from the prior year. Such
increase was due to the interest earned on various notes receivables principally
with respect to joint venture activity in the Commonwealth of Independent States
and the sale of the Brokaw building, and the higher cash levels and higher short
term interest rates.
As a result of the foregoing, net income per share in fiscal 1995 was
$0.01, based on 44,878,339 weighted average shares outstanding, compared to a
net loss per share in fiscal 1994 of $0.02 based on 44,623,755 weighted average
shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled approximately $4.5 million at October
31, 1996, down $649,000 (approximately 12.6%) from fiscal 1995 year-end levels
of $5.1 million. The decrease in the cash and cash equivalents resulted
primarily from the net cash used in operating activities of $1.9 million while
partially offset by the net cash provided by investing activities of $1.2
million.
Approximately $2.5 million in certificates of deposit were pledged as
collateral for comparable amounts of stand-by and sight letters of credit under
the letter of credit agreements as of the end of fiscal 1996. At October 31,
1996, the Company had approximately $2.1 million in outstanding letters of
credit which were secured by the pledged deposits under this agreement.
Net accounts receivable of $4.39 million at the end of fiscal 1996 were up
approximately 22.3% from the 1995 year-end level of $3.59 million due primarily
to increased sales volume. Days sales outstanding in accounts receivable
increased from 88 days in fiscal 1995 to 89 days in fiscal 1996.
Net inventories of approximately $5.83 million at the end of fiscal 1996
were up approximately 1.7% from the 1995 year-end level of $5.74 million due
primarily to increased product purchases to meet forecasted demand at the end of
fiscal 1996.
Working capital at the end of fiscal 1996 was approximately $15.2 million,
up approximately 16.9% from the fiscal 1995 year-end level of approximately
$13.0 million.
The Company sold its 51% ownership in the InterTerminal joint venture in
May 1995. Approximately $1.4 million in cash was received and recognized as a
gain in fiscal 1996.
15
<PAGE> 16
At the current consumption rate, the Company's cash balance of
approximately $4.5 million at October 31, 1996 (which includes $2.5 million
pledged as security for stand-by and sight letters of credit) was anticipated to
be adequate to fund the Company's fiscal 1997 operations at projected levels.
The Company also generated, subsequent to year end, cash of $5,000,000
from the repayment of its note receivable resulting from the sale of its former
headquarters which became due in full in December of 1996. See "Subsequent
Events" for further information on significant cash inflows received by the
Company subsequent to October 31, 1996.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The terminal, monitor and multimedia product markets are intensely
competitive. The principal elements of competition are pricing, product quality
and reliability, price/performance characteristics, compatibility, marketing and
distribution capability, service and support, and reputation of the
manufacturer. TeleVideo competes with a large number of manufacturers, most of
which have significantly greater financial, marketing and technological
resources than TeleVideo. There can be no assurance that the Company will be
able to continue to compete effectively.
The Company markets its products worldwide. In addition, a large portion
of the Company's part and component manufacturing, along with key suppliers, are
located outside the United States. Accordingly, the Company's future results
could be adversely affected by a variety of factors, including without
limitation, fluctuation in foreign currency exchange rates, changes in a
specific country's or region's political or economic conditions, trade
protection measures, import or export licensing requirements, unexpected changes
in regulatory requirements and natural disasters.
The computer market, particularly the multimedia product market, is
characterized by rapid technological change and product obsolescence, often
resulting in short product life cycles and rapid price declines. The Company's
success will continue to depend primarily on its ability to continue to reduce
costs through manufacturing efficiencies and price negotiation with suppliers,
the continued market acceptance of its existing products and its ability to
develop and introduce new products. There can be no assurance that TeleVideo
will successfully develop new products or that the new products it develops will
be introduced in a timely manner and receive substantial market acceptance.
There can also be no assurance that product transitions will be managed in such
a way to minimize inventory levels and product obsolescence of discontinued
products. The Company's operating results could be adversely affected if
TeleVideo is unable to manage all aspects of product transitions successfully.
The Company generally utilizes standard parts and components available
from multiple suppliers. However, certain parts and components used in the
Company's products are available from a single source. If, contrary to its
expectations, the Company is unable to obtain sufficient quantities of any
single-sourced components, the Company will experience delays in product
shipments.
The Company offers its products through various channels of distribution.
Changes in the financial condition of, or in the Company's relationship with,
its distributors could cause actual operating results to vary from those
expected . Also, the Company's customers generally order products on an
as-needed basis. Therefore, virtually all product shipments in a given fiscal
quarter result from orders received in that quarter. The Company anticipates
that the rate of new orders will vary significantly from month to month. The
Company's manufacturing plans and expenditure levels are based primarily on
sales forecasts. Consequently, if anticipated sales and shipments in any quarter
do not occur when expected, expenditure and inventory levels could be
disproportionately high and the Company's operating results for that quarter,
and potentially future quarters, would be adversely affected.
The market price of TeleVideo's common stock could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the computer
technology industry, as well as general economic conditions and other factors
external to the Company.
16
<PAGE> 17
SUBSEQUENT EVENTS
In November 1996, the Company invested $150,000 in exchange for a 20%
ownership in TLK, Inc. for the China Power Plant projects in Lin Zhang, Quin
Yuan and Henan Provinces in China. There is no assurance that the venture will
prove to be profitable.
In December 1996, the Company received $5,000,000 in cash from its note
receivable resulting from the sale of its former headquarters in December 1994.
In December 1996, the Company received $100,000 from AdMOS for the partial
payment of the $284,000 outstanding loans.
(The remainder of this page was left blank intentionally.)
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE NO.
IN 10-K
-------
<S> <C>
Report of Independent Certified Public Accountants....................... 19
Consolidated Balance Sheets - October 31, 1996 and
1995 .................................................................... 20
Consolidated Statements of Operations for the Years
Ended October 31, 1996, 1995 and 1994.................................... 21
Consolidated Statement of Stockholders' Equity for
the Years Ended October 31, 1996, 1995 and 1994.......................... 22
Consolidated Statements of Cash Flows for the Years
Ended October 31, 1996, 1995 and 1994.................................... 23
Notes to Consolidated Financial Statements .............................. 24
</TABLE>
(Remainder of page left blank intentionally)
18
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
TeleVideo Systems, Inc.
We have audited the accompanying consolidated balance sheets of TeleVideo
Systems, Inc. and Subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended October 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TeleVideo Systems,
Inc. and Subsidiaries as of October 31, 1996 and 1995, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended October 31, 1996, in conformity with generally
accepted accounting principles.
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
San Jose, California
December 20, 1996
19
<PAGE> 20
TELEVIDEO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
October 31,
------------------------
ASSETS 1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (including restricted cash of
$2,500 in 1996 and $3,500 in 1995) $ 4,496 $ 5,145
Marketable securities -- 40
Accounts receivable, less allowance of $888 in 1996 and $478 in 1995 4,394 3,593
Receivables from related parties,
net of allowance of $391 in 1996 and $363 in 1995 -- 1,441
Inventories 5,834 5,735
Prepayments and other 62 336
Note receivable from sale of building 5,000 --
-------- --------
Total current assets 19,786 16,290
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 890 890
Building 1,035 1,035
Production equipment 1,263 1,181
Office furniture and equipment 1,753 1,757
Building improvements 1,105 1,098
-------- --------
6,046 5,961
Less accumulated depreciation and amortization 2,968 2,705
-------- --------
Property, plant and equipment, net 3,078 3,256
NOTE RECEIVABLE FROM SALE OF BUILDING -- 5,000
INVESTMENTS IN AFFILIATES 226 54
-------- --------
Total assets $ 23,090 $ 24,600
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,080 $ 1,662
Accrued liabilities 855 982
Income taxes 611 611
-------- --------
Total current liabilities 4,546 3,255
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized--75,000,000 shares
Outstanding--45,402,245 shares in 1996 and 45,148,120
shares in 1995 454 451
Additional paid-in capital 95,634 95,560
Unrealized loss on marketable securities -- (39)
Accumulated deficit (77,544) (74,627)
-------- --------
Total stockholders' equity 18,544 21,345
-------- --------
Total liabilities and stockholders' equity $ 23,090 $ 24,600
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
TELEVIDEO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET SALES $ 21,576 $ 16,914 $ 13,232
COST OF SALES 20,627 14,773 9,517
-------- -------- --------
GROSS PROFIT 949 2,141 3,715
OPERATING EXPENSES:
Marketing 2,428 3,185 2,268
Research and development 1,097 1,821 1,636
General and administration 2,062 1,876 1,680
-------- -------- --------
Total operating expenses 5,587 6,882 5,584
-------- -------- --------
Loss from operations (4,638) (4,741) (1,869)
GAIN ON SALE OF BUILDING -- 1,350 --
GAIN ON SALES OF INVESTMENTS IN
UNCONSOLIDATED AFFILIATES 1,369 3,329 --
LOSS FROM SALE OF SMS PRODUCT LINE -- (346) --
EQUITY IN LOSS OF AFFILIATE (33) -- --
INTEREST AND OTHER INCOME, net 385 823 962
-------- -------- --------
Net income (loss) $ (2,917) $ 415 $ (907)
======== ======== ========
Net income (loss) per share $ (0.06) $ 0.01 $ (0.02)
======== ======== ========
Average shares outstanding 45,328 44,878 44,624
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
TELEVIDEO SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
THREE YEARS ENDED
OCTOBER 31, 1996, OCTOBER 31, 1995 AND OCTOBER 31, 1994
<TABLE>
<CAPTION>
Common Stock Additional Earnings/ Total
------------------ Paid in Other (Accumulated Stockholders'
Shares Amount Capital Adjustment Deficit) Equity
------ ------ ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance - October 31, 1993 44,598 $446 $95,418 $ 9 $(74,135) $ 21,738
Equity adjustment from foreign
currency translation -- -- -- (9) -- (9)
Exercise of employee stock options 43 -- 10 -- -- 10
Net loss -- -- -- -- (907) (907)
------ ---- ------- ---- -------- --------
Balance - October 31, 1994 44,641 446 95,428 -- (75,042) 20,832
Unrealized loss from marketable securities -- -- -- (39) -- (39)
Exercise of employee stock options 507 5 132 -- -- 137
Net income -- -- -- -- 415 415
------ ---- ------- ---- -------- --------
Balance - October 31, 1995 45,148 451 95,560 (39) (74,627) 21,345
Unrealized loss from marketable securities -- -- -- 39 -- 39
Exercise of employee stock options 254 3 74 -- -- 77
Net loss -- -- -- -- (2,917) (2,917)
------ ---- ------- ---- -------- --------
Balance - October 31, 1996 45,402 $454 $95,634 $ -- $(77,544) $ 18,544
====== ==== ======= ==== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
22
<PAGE> 23
TELEVIDEO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (2,917) $ 415 $ (907)
Charges (credits) to operations not affecting cash:
Provision for bad debts 410 383 14
Provision for excess and obsolete inventories 50 610 366
Net loss (gain) on sales of property and investment 44 (1,350) -
Depreciation and amortization 275 320 506
Interest income accrued - (77) -
Accrued profit on sale of foreign investment - (866) -
Loss on write off of foreign investments and loans 95 403 -
Changes in operating assets and liabilities:
Accounts receivable (1,211) (1,810) 478
Inventories (149) (588) (2,224)
Prepayment and other 274 (128) (121)
Accounts payable 1,418 299 638
Accrued liabilities and royalties (126) (257) (622)
Current and deferred income taxes - - (1,544)
--------- --------- --------
Net cash used in operating activities (1,837) (2,646) (3,416)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (98) (3,286) (91)
Reduction (investment) in marketable securities 35 (11) 3,487
Loans to affiliate and other - (184) (3,142)
Reduction (increase) in investments (205) 187 173
Payments received on notes receivable from affiliate and other 513 3,321 1,971
Proceeds from sales of property and investment 866 5,496 -
--------- --------- --------
Net cash provided by investing activities 1,111 5,523 2,398
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 77 137 10
Equity adjustment from foreign currency translation - - (9)
--------- --------- ---------
Net cash provided by financing activities 77 137 1
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (649) 3,014 (1,017)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR 5,145 2,131 3,148
--------- --------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 4,496 $ 5,145 $ 2,131
========= ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ - $ - $ 1,544
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
TELEVIDEO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and certain of its majority owned subsidiaries, after elimination of
intercompany accounts and transactions. The Company's investments in joint
ventures in the Commonwealth of Independent States, some of which represent
a majority interest in the joint venture, are not consolidated due to the
lack of reliable financial information from the entity. Such investments are
carried at cost. (See "Joint Ventures.")
Revenue Recognition
The Company recognizes revenue when products are shipped. The Company
performs periodic evaluations of its customers' financial condition and
generally, no collateral is required under normal sales terms. TeleVideo
maintains a reserve for potential credit losses and adjusts the reserve
periodically to reflect both actual and potential credit losses. Product
warranties are based on the ongoing assessment of actual warranty expenses
incurred. Reserves for product warranties were $169,000, $169,000 and
$173,000 as of October 31, 1996, 1995 and 1994, respectively.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common shares and dilutive common share equivalents outstanding during each
period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenues and expenses during the reporting
period. Actual results could differ from those estimates.
24
<PAGE> 25
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a
currently adjusted standard basis (which approximates average cost) for both
finished goods and work-in-process and includes material, labor and
manufacturing overhead costs. The cost of purchased parts is determined on a
first-in, first-out basis. Amounts shown are net of reserves for
obsolescence of $663,000 and $613,000 in 1996 and 1995, respectively:
<TABLE>
<CAPTION>
October 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Purchased parts and subassemblies $ 4,040 $ 3,390
Work-in-process 422 1,170
Finished goods 1,372 1,175
--------- ---------
$ 5,834 $ 5,735
========= =========
</TABLE>
Property, Plant and Equipment
Depreciation and amortization are provided over the estimated useful lives
of the assets using both straight-line and accelerated methods.
<TABLE>
<S> <C>
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
</TABLE>
2. ACQUISITIONS AND DIVESTITURES:
Kabil Electronics Company, Ltd.
The Company owned a 35% interest in Kabil Electronics Company, Ltd. of South
Korea and the total investments were approximately $3.3 million. Since Kabil
continued to sustain losses from operations, the Company wrote off its
investments in fiscal 1990 and fiscal 1993. In December 1994, the Company
accepted an offer to sell its 35% interest in Kabil to the majority owners
for $1.5 million, less expenses, which was paid in installments over the
1995 and 1996 fiscal years. Approximately $555,000 was received in fiscal
1995. An additional $866,652 was received in January of 1996 and had been
accrued as income for the year ended October 31, 1995.
AdMOS Technologies Inc.
During fiscal 1991, the Company acquired through its wholly owned
subsidiary, Silicon Logic, Inc., a 20% equity interest in a chip engineering
firm (AdMOS Technologies Inc.) in exchange for certain assets and a nominal
cash payment, the total value of which was $145,000. The acquisition of this
interest had been accounted for on the cost method. This investment was
written off in fiscal 1992 due to the continued economic difficulties
experienced by AdMOS.
In fiscal 1991 and 1992, the Company loaned AdMOS a total of $470,000, which
has been partially repaid. The outstanding balance at October 31, 1996 was
$104,000. The repayment of a portion of this loan is personally guaranteed
by the President and controlling shareholders of AdMOS. Due to the economic
difficulties AdMOS is currently experiencing, the principal and interest
balances due on this note have been fully reserved.
In February 1995, the Company further loaned AdMOS $384,000 at an interest
rate of 10% per annum. Approximately $104,000 was repaid to the Company in
August 1995. In November 1995, the Company
25
<PAGE> 26
received another $100,000 from AdMOS. The Company has fully reserved the
unpaid balance of $180,000 plus accrued interest as of October 31, 1996.
Russian Joint Ventures
In fiscal 1994, 1995 and 1996, the Company acquired interests in various
joint ventures, primarily in the Commonwealth of Independent States. These
investments are accounted for on the cost method.
Three H
Three H Partners (owned equally by TeleVideo and a Russian entity) was
formed in fiscal 1991 and the initial investment was $16,000. In July 1996,
the Company further invested $60,000 in the joint venture.
In February 1993, the Company loaned the Three H joint venture $1.0 million
as working capital for the purpose of conducting short term commodities
trading. The loan was unsecured and bore interest at 20% per annum. In
fiscal 1994, a total amount of $800,000 was repaid to the Company. The
remaining balance of $200,000 was received in fiscal 1996.
InterTerminal
In April 1994, the Company acquired a 51% ownership of the "InterTerminal"
joint venture in exchange for a $5,100 cash investment and a commitment to
fund a $3.65 million loan, 20% interest rate, interest free for one year, to
the venture. The main purpose of the joint venture was the construction of a
truck terminal (approximately 100,000 square feet) approximately 25 miles
outside of Moscow, and the construction was complete in early 1995.
TeleVideo sold its 51% ownership in May 1995. The $3.65 million loan was
repaid to the Company in fiscal 1995. An additional $1,369,500 was received
and recognized as a gain in fiscal 1996.
TeleVideo-RUS
In January 1996, TeleVideo set up a company called "TeleVideo-RUS" in the
Commonwealth of Independent States with an initial investment of $150,000.
The main purpose of this company is to act as a liaison between TeleVideo
and the authorities in the CIS. One of the projects that the Company is
anticipating will be the construction of truck terminals similar to the
"InterTerminal" joint venture.
Risks of Operations in the Commonwealth of Independent States
There are a number of risks involved in TeleVideo's participation in foreign
joint ventures located in the Commonwealth of Independent States. These
risks include the ability to execute and enforce the agreements, the future
regulations governing the repatriation of funds, the political and economic
instability and the dependence on future events which can influence the
success or failure of the ventures and, thus, may affect the recoverability
of the amounts invested by TeleVideo. Management of the Company is aware of
the attendant risks relating to these ventures and continually monitors the
conditions in the CIS and the activities of the joint ventures. Management
further believes the investments to be secure and thus no reserves are
required as of October 31, 1996. However, there can be no assurance that
conditions in the CIS will not deteriorate and place the Company's
investment in jeopardy.
3. LETTER OF CREDIT AGREEMENT:
The Company has two letter of credit agreements with the banks whereby the
banks will issue up to a total of $2.5 million of standby and sight letters
of credit. These agreements are contingent upon the Company maintaining cash
deposits at the banks as collateral in a total amount no less than the
outstanding borrowings. At October 31, 1996, the Company had letters of
credit outstanding of approximately $2.1 million which were secured by cash
deposits of $2.5 million. These deposits earn interest at the rate of
approximately 5.205% per annum.
26
<PAGE> 27
4. RELATED PARTY TRANSACTIONS:
During 1996, 1995, and 1994 the Company has had transactions with its
affiliates as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Note receivable at October 31:
AdMOS (1) $ 104 $ 104 $ 200
AdMOS (1) 180 280 -
Kabil - 866 -
Three H Joint Venture - 200 200
InterTerminal - 213 3,284
Interest receivable at October 31:
AdMOS (1) 65 55 42
AdMOS (1) 42 24 -
Three H Joint Venture - 62 22
(1) Amounts are fully reserved.
</TABLE>
5. CAPITAL STOCK:
Preferred Stock
The Company has authorized 3,000,000 shares of preferred stock. No preferred
stock has been issued to date.
Stock Option Plans
The Company has granted options to employees and directors to purchase
shares of the Company's common stock at fair value under a qualified 1981
Incentive Stock Option Plan and at not less than 85% of fair value under a
non-qualified 1981 Supplemental Stock Option Plan. These options may be
exercised ratably over periods of five years, generally commencing one year
from the date of employment. The options typically expire five years from
the date of grant.
Information with respect to these plans is as follows:
<TABLE>
<CAPTION>
1981 Incentive Stock
Option Plan
---------------------------
Option
Outstanding Prices
-------------- -------
<S> <C> <C>
Balance at October 31, 1994 420,000 $ 0.22
Exercised (379,125) 0.22
Terminated or canceled (19,250) 0.22
--------------
Balance at October 31, 1995 21,625 $0.22
Exercised (9,000) 0.22
Terminated or canceled - -
-------------
Balance at October 31, 1996 12,625 $0.22
=============
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
1981 Supplemental Plan
------------------------------
Option
Outstanding Prices
------------- -------------
<S> <C> <C>
Balance at October 31, 1994 205,000 $0.19 - $0.22
Exercised (5,000) 0.22
Terminated or canceled (50,000) 0.19
-------------
Balance at October 31, 1995 150,000 $0.22
Exercised -
Terminated or canceled -
-------------
Balance at October 31, 1996 150,000 $0.22
=============
</TABLE>
On November 22, 1991, all options granted and outstanding under both the
1981 incentive and supplemental plans with a grant price in excess of $0.22
were repriced at $0.22 per share, the fair market value of the shares at
that date.
At October 31, 1996, options to purchase 12,625 shares of common stock were
exercisable under the 1981 Incentive Stock Option Plan at a price of $0.22
per share. At October 31, 1996, options to purchase 150,000 shares of common
stock were exercisable under the 1981 Supplemental Stock Option Plan at a
price of $0.22 per share.
Both the Incentive Stock Option Plan and the Supplemental Plan expired on
October 28, 1991. Pursuant to the provisions of the plans, no further
options may be granted after the October 28, 1991 expiration date.
The Company may also grant options to employees and outside directors to
purchase up to 4,000,000 shares and 600,000 shares of the Company's common
stock at fair value under a 1991 Incentive Stock Option Plan and a 1992
Outside Directors' Stock Option Plan, respectively. These options may be
exercised ratably over periods of five years, generally commencing six
months from the date of grant. The options typically expire ten years from
the date of grant. No options have been granted under the Outside Directors'
Plan.
Information in respect to the 1991 Incentive Stock Option Plan is as
follows:
<TABLE>
<CAPTION>
1991 Incentive Stock Option Plan
------------------------------------------------
Available Option
for Grant Outstanding Prices
------------- ------------- -------------
<S> <C> <C> <C>
Balance at October 31, 1994 2,903,500 1,096,500 $0.25 - $0.72
Granted (1,823,500) 1,823,500 0.28 - 1.53
Exercised - (123,000) 0.25 - 0.72
Terminated or canceled 133,875 (133,875) 0.25 - 0.72
------------- -------------
Balance at October 31, 1995 1,213,875 2,663,125 $0.25 - $1.53
Granted (829,000) 829,000 0.38 - 0.75
Exercised - (245,125) 0.25 - 0.72
Terminated or canceled 1,916,000 (1,916,000) 0.28 - 1.53
------------- -------------
Balance at October 31, 1996 2,300,875 1,331,000 $0.25 - $1.03
============= =============
</TABLE>
28
<PAGE> 29
At October 31, 1996, options to purchase 329,750 shares of common stock were
exercisable under the 1991 Incentive Stock Option Plan at prices ranging
from $0.25 to $1.03 per share.
6. INCOME TAXES:
At October 31, 1996, the Company had tax loss carryforwards of approximately
$86 million for federal income tax and approximately $26 million for state
income tax reporting purposes, respectively. The net operating loss
carryforwards expire through fiscal 2011. The Tax Reform Act of 1986
contains provisions which may limit the net operating loss carryforwards to
be used in any given year upon occurrence of certain events, including
significant changes in ownership interests.
The Company adopted, effective November 1, 1993, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," issued
in February 1992. Under the liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities as measured
by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in deferred tax
assets and liabilities.
No deferred tax asset or benefit was recorded at October 31, 1996, as all
amounts have been fully reserved. The components are as follows: (in
thousands). The valuation allowance has increased by $6,780 and $3,170 for
the 1996 and 1995 fiscal years.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss $ 34,500 $ 27,900
Other 1,150 970
--------- ---------
35,650 28,870
Less valuation allowance (35,650) (28,870)
---------- ---------
Net benefit $ - $ -
========= =========
</TABLE>
The following is a reconciliation of expected tax expense (benefit) to
actual for each of the three years ended October 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Book income (loss) $ (2,917) $ 415 $ (907)
--------- --------- ----------
Expected tax expense (benefit) (1,160) 167 (308)
Adjustments to reconcile expected to actual expense (benefit):
Effect of change in valuation allowance (net) 1,160 (167) 308
--------- --------- ----------
Actual tax expense (benefit) $ - $ - $ -
========= ========= ==========
</TABLE>
The Company has been in various stages of federal and state income and sales
tax audits for the past several years. The federal income tax audit for the
taxable years of 1982 through 1985 were finalized in fiscal 1994. The total
tax liability, plus interest and penalty, aggregated $1.53 million, and the
total payment was made by the Company in November 1993. The California Sales
and Use Tax audit for the period of April 1990 through June 1994 was also
finalized. In fiscal 1995, tax payments including penalty and interest of
approximately $270,000 were made, all of which had been previously accrued
by the Company in prior years.
29
<PAGE> 30
As of October 31, 1996, the only issues pending are the Massachusetts State
Tax audit and the California Franchise Tax exposure resulting from the
aforementioned Federal Income Tax audits. The Company believes that a
resolution of one or both of these audits could occur in fiscal 1997 and its
maximum exposure, collectively will not exceed $600,000. The Company has
accrued this full amount at October 31, 1996.
7. LITIGATION AND OTHER:
The Company has been named, along with dozens of other manufacturers,
designers, and distributors of computer equipments, as a defendant in
several lawsuits regarding product liability in connection with the alleged
defective design of computer terminal keyboards and the size of the computer
monitor screens. The first issue alleges that the various plaintiffs have
suffered some form of severe wrist injury from the use of said keyboards.
The second issue alleges that there was false advertising which claimed that
the video screens were 17 inches in size, when in reality they were only 15
inches. The Company's attorneys have prepared a defense for these cases and
the Company's insurance carriers are informed of the plaintiff's claims. The
Company intends to vigorously defend against the allegations of these suits.
Management believes that the ultimate outcome of these lawsuits will not
have a material adverse effect on the Company's financial position.
8. SEGMENT INFORMATION:
The Company, which operates in a single industry segment, designs, produces
and markets video display terminals, computer monitors and multimedia
products designed for office and home automation both domestically and
internationally. The Company had export sales primarily to Europe, Asia and
Latin America of approximately $3.41 million, $4.13 million and $3.63
million during fiscal 1996, 1995, and 1994, respectively. For the fiscal
year ended October 31, 1996, one customer accounted for 10.23% and another
customer accounted for 8.80% of net sales. For the fiscal year ended October
31, 1995, one customer accounted for 6.6% and another customer accounted for
6.0% of net sales. For the fiscal year ended October 31, 1994, one customer
accounted for 18.5% and another customer accounted for 10.1% of net sales.
9. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS:
The Company recorded the following significant adjustments in the fourth
quarter of fiscal 1996: (in thousands)
<TABLE>
<CAPTION>
Effect on Net Income
Increase (Decrease)
-------------------
<S> <C>
Reserve for bad debt allowance $ (760)
Reserve for obsolete and excess inventory (918)
---------
$ (1,678)
</TABLE>
The above adjustments affected the fourth quarter results of operations as
follows: increased cost of goods sold by $918,000, increased general and
administrative expenses by $760,000, for a total increase in loss from
operations of $1,678,000.
30
<PAGE> 31
10. NOTE RECEIVABLE:
The $5.0 million note receivable from the sale of the Company's former
headquarters was collateralized by a first deed of trust on the building.
The interest was payable monthly at 9.5% per annum and the principal was
paid in full on December 12, 1996.
11. ACCRUED LIABILITIES:
Accrued liabilities consist of the following at October 31: (In thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Employee compensation and benefits $ 288 $ 338
Warranty 169 169
Legal reserve 200 200
Accrued sales and use tax 11 -
Professional fees 81 91
Other 106 184
--------- ---------
$ 855 $ 982
========= =========
</TABLE>
12. VALUATION AND QUALIFYING ACCOUNTS:
The Company's reserves for doubtful accounts and inventory obsolescence
consist of the following: (In thousands)
<TABLE>
<CAPTION>
Charged
Balance at (Credited) Balance at
Beginning to Costs & End of
of Period Expense Deductions Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1994
Reserve for doubtful accounts $ 725 $ 14 $ (209)(1) $ 530
Reserve for inventory obsolescence $ 2,560 $ 366 $ (2,164)(2) $ 762
YEAR ENDED OCTOBER 31, 1995:
Reserve for doubtful accounts $ 530 $ 383 $ (72)(1) $ 841
Reserve for inventory obsolescence $ 762 $ 610 $ (759)(2) $ 613
YEAR ENDED OCTOBER 31, 1996:
Reserve for doubtful accounts $ 841 $ 760 $ (321)(1) $1,280
Reserve for inventory obsolescence $ 613 $ 918 $ (868)(2) $ 663
</TABLE>
(1) Deductions represent write-offs of fully reserved receivables.
(2) Reductions due to sales or scrap of fully reserved inventory.
31
<PAGE> 32
13. SUBSEQUENT EVENTS:
In November 1996, the Company invested $150,000 in exchange for a 20%
ownership in TLK, Inc. for the China Power Plant projects in Lin Zhang, Quin
Yuan and Henan Provinces in China. The Company expects to have a return on
investment within the next twelve months.
In December 1996, the Company received $100,000 from AdMOS for the
partial payment of the $284,000 outstanding loans.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
(The remainder of this page was left blank intentionally.)
32
<PAGE> 33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company as of January 21,
1997, are as follows:
<TABLE>
<CAPTION>
Name Age Title
- -------------------- ------ ----------------------------------------
<S> <C> <C>
K. Philip Hwang 60 Chairman of the Board and
Chief Executive Officer
K. David Kim 63 Vice President, Business Development, and
Chief Financial Officer
Kristine Kim 32 Vice President of Sales
Anthony Thia 30 Vice President of Marketing
Robert E. Larson 58 Director
Stephen S. Kahng 47 Director
</TABLE>
Dr. K. Philip Hwang is the founder of the Company and has been Chairman
of the Board and Chief Executive Officer since October 1976. From August 8, 1990
to April 6, 1991, he served as the Acting Chief Financial Officer. Since 1991,
Dr. Hwang has also served as Chairman of AdMOS (Advanced MOS Systems), an
engineering firm specializing in ASIC chip design. ADMOS is a private
corporation in which TeleVideo holds a 20% interest.
Mr. David Kim rejoined the Company in January 1991 as Vice President,
Business Development, and since April 6, 1991, he has served as the Company's
Chief Financial Officer. Mr. Kim was with the Company from 1981 to 1987 as
Director of Terminal Manufacturing Operations and in 1988, he was appointed as
Vice President, International Operations. From July 1988 to January 1991, Mr.
Kim was Executive Vice President of Kabil Electronics Co., Ltd., a TeleVideo OEM
of CRT terminals and personal computers in Seoul, Korea.
Ms. Kristine Kim has been serving TeleVideo since January 1988 and has
successfully managed various Sales and Marketing Departments. She was promoted
to Vice President of Sales and was elected as a member of the Board in February
1996. In May 1992, she achieved her MBA degree in International Corporate
Management and Professional Export Management at Golden Gate University of
California. Ms. Kim also has a BA degree in Economics and International
Relations from UC Davis.
Mr. Anthony Thia joined TeleVideo as VP of Marketing in
August 1996. Prior to coming to TeleVideo, Mr. Thia was the Director of
Marketing at ASI (Asia Source Inc), a national PC distributor headquartered in
California, from 1994 to 1996. From 1990 to 1994, Mr. Thia was the Sales and
Marketing Manager at ASI. Mr. Thia holds a B.S. in Computer Science
from Iowa State University.
Dr. Robert E. Larson joined the Company as a member of the Board of
Directors effective December 1, 1989. Since September 1983, he has served as
General Partner of Woodside Fund, a venture capital fund, and since September
1985, he has been a member of the Board of Directors of Skye Investment
Advisers, a registered investment advisor firm. Since 1973, Dr. Larson has been
a Consulting Professor in the Engineering-Economic Systems Department at
Stanford University.
33
<PAGE> 34
Mr. Stephen S. Kahng joined the Company as a member of the Board of
Directors effective November 28, 1994. Since November 1993, Mr. Kahng has been
the President and Chief Executive Officer of Power Computing Corporation which
manufactures Power PC-based workstations. From December 1991 to November 1993,
he served as the President of Up To Date Technology, Inc. which is a system
design consulting company to the personal computer industry. Prior thereto, from
September 1987 until December 1991, Mr. Kahng was the Senior Vice President and
General Manager of Chips and Technologies, Inc. which was a supplier of ASICs to
the personal computer industry.
There are no family relationships among any of the Company's officers
and directors.
The following items included in the Company's Definitive Proxy
Statement dated February 17, 1997 to be used in connection with the Company's
Annual Meeting of Stockholders to be held on March 24, 1997 are incorporated
herein by reference:
<TABLE>
<CAPTION>
Pages in
Proxy Statement
---------------
<S> <C> <C>
ITEM 11. EXECUTIVE COMPENSATION 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 5
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
</TABLE>
34
<PAGE> 35
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report.
1. Financial Statements.
The Consolidated Financial Statements, Notes thereto and the Report of
Grant Thornton LLP, Independent Public Accountants, thereon are included in Part
II of this Report on Form 10-K.
2. Financial Statement Schedules.
All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the accompanying Consolidated Financial
Statements.
3. Exhibits. See Exhibit Index, below.
(b) Reports on Form 8-K. NONE
(The remainder of this page was left blank intentionally.)
35
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER FOOTNOTE
- ------ --------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company............................................. (1)
3.2 Bylaws of the Company............................................................................ (1)
10.1 TeleVideo Systems, Inc. 1991 Incentive Stock Option Plan......................................... (2)
10.2 Form of Stock Option Agreement for TeleVideo Systems, Inc. 1991 Incentive Stock Option Plan...... (2)
10.3 Televideo Systems, Inc. 1992 Outside Directors' Stock Option Plan................................ (2)
10.4 Management Bonus Plan effective fiscal 1984...................................................... (3)
10.5 Form Distributor and Licensing Agreement......................................................... (2)
10.6 Form Original Equipment Manufacturer Agreement................................................... (2)
10.8 Three H Promissory Notes......................................................................... (4)
10.9 InterTerminal Agreements and Promissory Notes................................................... (5)
22.0 Subsidiaries
24.1 Consent of Grant Thornton LLP, Independent Certified Public Accountants
27.0 Financial Data Schedule
</TABLE>
- --------------------------------------
FOOTNOTES TO EXHIBIT INDEX
(1) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1987, filed January 29, 1988.
(2) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1991, filed January 27, 1992.
(3) Incorporated by reference from the corresponding exhibit description in
the Company's annual reports on Form 10-K, filed January 29, 1985 and
January 28, 1986, respectively.
(4) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1993, filed February 10, 1994.
(5) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1994, filed February 10, 1995.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TELEVIDEO SYSTEMS, INC.
----------------------
(REGISTRANT)
DATE: JANUARY 21, 1997 BY: /s/ JOYCE YAU
----------------------
JOYCE YAU
TREASURER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ K. PHILIP HWANG CHAIRMAN OF THE BOARD AND JANUARY 21, 1997
- ------------------------- CHIEF EXECUTIVE OFFICER
K. Philip Hwang
/S/ K. DAVID KIM VICE PRESIDENT, BUSINESS JANUARY 21, 1997
- ------------------------- DEVELOPMENT, AND CHIEF
K. David Kim FINANCIAL OFFICER
/S/ KRISTINE KIM VICE PRESIDENT OF SALES JANUARY 21, 1997
- -------------------------------
Kristine Kim
/S/ ROBERT E. LARSON DIRECTOR JANUARY 21, 1997
- -------------------------------
Robert E. Larson
/S/ STEPHEN S. KAHNG DIRECTOR JANUARY 21, 1997
- -------------------------------
Stephen S. Kahng
</TABLE>
37
<PAGE> 38
TELEVIDEO SYSTEMS, INC.
EXHIBITS
TO
REPORT ON FORM 10-K
FOR
FISCAL YEAR ENDED OCTOBER 31, 1996
38
<PAGE> 1
EXHIBIT 22.0
TELEVIDEO SYSTEMS, INC.
SUBSIDIARIES
DOMESTIC
* Advanced MOS Technology Associates, Inc., a California corporation (20%)
* TeleVideo Venture Corporation, a Virginia corporation (Inactive)
* Trimeter Technologies Corporation, a Pennsylvania corporation (36.6%)
(Inactive)
FOREIGN
* TeleVideo Informatique Systems, S.A.R.L., a French corporation (Inactive)
* TeleVideo Systems Deutschland GmbH, a West German corporation (Inactive)
* TeleVideo Systems International, a Virgin Islands corporation (Inactive)
* TeleVideo Systems International B.V., a Netherlands corporation (Inactive)
* TeleVideo Systems International, Ltd., a United Kingdom corporation
(Inactive)
* "Three H" Joint Venture, a Commonwealth of Independent States corporation
(50%)
* "TeleVideo-RUS," a Commonwealth of Independent States corporation (100%)
* "TLK, Inc.," a China corporation (20%)
39
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report dated December 20, 1996, accompanying the consolidated
financial statements included in the Annual Report of TeleVideo Systems, Inc.
and Subsidiaries on Form 10-K for the year ended October 31, 1996. We hereby
consent to the incorporation by reference of said report in the Registration
Statement of TeleVideo Systems, Inc. on Form S-8 (File No. 33-26203, effective
November 2, 1992).
/S/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
San Jose, California
December 20, 1996
40
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,496
<SECURITIES> 0
<RECEIVABLES> 5,282
<ALLOWANCES> 888
<INVENTORY> 5,834
<CURRENT-ASSETS> 19,786
<PP&E> 6,046
<DEPRECIATION> 2,968
<TOTAL-ASSETS> 23,090
<CURRENT-LIABILITIES> 4,546
<BONDS> 0
0
0
<COMMON> 454
<OTHER-SE> 18,090
<TOTAL-LIABILITY-AND-EQUITY> 23,090
<SALES> 21,576
<TOTAL-REVENUES> 21,576
<CGS> 20,627
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</TABLE>
