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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: APRIL 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________________ TO _________________
COMMISSION FILE NUMBER: 0-11552
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TELEVIDEO, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2383795
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2345 HARRIS WAY, SAN JOSE, CALIFORNIA 95131
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-8333
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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 NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK, AS OF JUNE 8,
1998 IS: 11,391,085.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the quarter ended April 30, 1998,
includes certain statements that may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts, included
in this Report that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future,
including, but not limited to, such matters as future product development,
business development, marketing arrangements, future revenues from contracts,
business strategies, expansion and growth of the Company's operations and
other such matters are forward-looking statements. These statements are
based on certain assumptions and analyses made by the Company in light of its
experience and perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of assumptions, risks
and uncertainties, including the risk factors discussed below, general
economic and business conditions, the business opportunities (or lack
thereof) that may be presented to and pursued by the Company, changes in law
or regulations and other factors, many of which are beyond control of the
Company. Such statements are not guarantees of future performance and actual
results or developments may differ materially from those projected in the
forward-looking statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TELEVIDEO, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1998 AND 1997 QUARTERLY DATA
The condensed consolidated financial statements included herein have been
prepared by the management of TeleVideo, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to such rules and regulations, although
the Company believes the disclosures which are made are adequate to make the
information presented not misleading. Further, the condensed consolidated
financial statements reflect, in the opinion of management, all adjustments
(which included only normal recurring adjustments) necessary to present fairly
the financial position and results of operations as of and for the periods
indicated.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Report on Form 10-K for the fiscal year ended October 31, 1997.
The results of operations for the six-month period ended April 30, 1998,
are not necessarily indicative of the results to be expected for the entire
fiscal year ending October 31, 1998.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
April 30, Oct. 31,
ASSETS 1998 1997
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (including restricted cash of $0 in 1998
and $3,000 in 1997) $ 1,185 $ 3,604
Accounts receivable, less allowance of $646 in 1998 and $731 in 1997 3,234 4,191
Note receivable 700 -
Inventories 4,093 2,923
Loan receivable from major customer 485 900
Prepayments and other 319 220
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Total current assets 10,016 11,838
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PROPERTY, PLANT AND EQUIPMENT:
Land $ 890 $ 890
Building 1,035 1,035
Production equipment 530 524
Office furniture and equipment 1,144 1,140
Building improvements 1,105 1,105
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4,704 4,694
Less accumulated depreciation and amortization (2,056) (1,934)
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Property, plant and equipment, net 2,648 2,760
Long term receivable from major customer 608 608
INVESTMENTS IN AFFILIATES 2,506 2,712
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Total assets $ 15,778 $ 17,918
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-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,043 $ 1,539
Accrued liabilities 728 730
Income taxes 361 361
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Total current liabilities 2,132 2,630
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STOCKHOLDERS' EQUITY:
Common stock, $.04 par value;
Authorized--75,000,000 shares
Outstanding--11,391,368 shares in 1998 and 11,375,093
shares in 1997 455 455
Additional paid-in capital 95,701 95,671
Accumulated deficit (82,510) (80,838)
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Total stockholders' equity 13,646 15,288
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Total liabilities and stockholders' equity $ 15,778 $ 17,918
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1998 AND APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
NET SALES $ 3,155 $ 4,110
COST OF SALES 2,933 3,660
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GROSS PROFIT 222 450
OPERATING EXPENSES:
Sales and Marketing 716 487
Research and development 92 242
General and administration 333 326
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Total operating expenses 1,141 1,055
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Loss from operations (919) (605)
INTEREST INCOME, net 42 120
OTHER INCOME (EXPENSE), net (32) (28)
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Net loss $ (909) $ (513)
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Net loss per share $(0.080) $(0.045)
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Average shares outstanding 11,388 11,351
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 AND APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
NET SALES $ 7,694 $ 8,574
COST OF SALES 7,006 7,518
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GROSS PROFIT 688 1,056
OPERATING EXPENSES:
Sales and Marketing 1,498 1,262
Research and development 226 428
General and administration 679 618
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Total operating expenses 2,403 2,308
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Loss from operations (1,715) (1,252)
INTEREST INCOME, net 82 276
OTHER INCOME (EXPENSE), net (38) (50)
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Net loss $(1,671) $(1,026)
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Net loss per share $(0.147) $(0.090)
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Average shares outstanding 11,385 11,351
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 AND APRIL 30, 1997
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (1,671) $ (1,026)
Charges (credits) to operations not affecting cash:
Depreciation and amortization 121 182
Changes in operating assets and liabilities:
Accounts receivable (net) 957 1,078
Note receivable (700) -
Inventories (net) (1,170) 2,518
Prepayments and other 316 4,909
Accounts payable (497) (2,585)
Accrued liabilities and royalties (2) (101)
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Net cash provided by (used in) operating activities (2,646) 4,975
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net retirements of (additions to) property, plant and equipment (10) (16)
Investments in affiliate 206 (2,375)
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Net cash provided by (used in) investing activities 197 (2,391)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 30 1
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Net cash provided by financing activities 30 1
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,420) 2,585
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR 3,604 4,496
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CASH AND CASH EQUIVALENTS AT THE END OF THE QUARTER $ 1,184 $ 7,081
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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TELEVIDEO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The condensed 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.
TRANSLATION
The Company applies Statement of Financial Accounting Standards No. 52 for
purposes of translating foreign currency financial statements of its
foreign subsidiaries. Translation gains and losses resulting from the
translation of foreign currency financial statements are deferred and
classified as adjustments to stockholders' equity.
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Approximately
$1.0 million is invested in short term certificates of deposit.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs are 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 $560,000 and $523,000 in 1998 and 1997,
respectively:
<TABLE>
<CAPTION>
April 30, Oct. 31,
1998 1997
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<S> <C> <C>
Purchased parts and subassemblies $1,255 $1,075
Work-in-process 256 459
Finished goods 2,582 1,389
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$4,093 $2,923
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</TABLE>
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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>
<CAPTION>
<S> <C>
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
</TABLE>
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
shares of Common Stock outstanding during each period.
2. ACQUISITIONS AND DIVESTITURES:
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 April 30, 1998
was $4,000. 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 received another $100,000 from
AdMOS. The outstanding balance at April 30, 1998 was $180,000.
The Company has fully reserved the unpaid balance of $184,000 plus accrued
interest as of April 30, 1998.
TLK, INC.
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 investment is carried at cost.
KORAM, INC.
On March 3, 1997, the Company invested $224,820 in exchange for a 50%
ownership in Koram, Inc. which will conduct food services in Seoul of
Korea. The amount deposited has been written down to $109,820 due to the
devaluation of the Korean currency.
APPLIED PHOTONICS TECHNOLOGY, INC.
On April 16, 1997, the Company entered into a Common Stock Purchase
Agreement with Applied Photonics Technology, Inc., a California Corporation
("APT") whereby the Company purchased 30% of the Common Stock of APT for
$3.0 million. The Company has also loaned APT $700,000 at an interest rate
of prime plus 1% per annum in March, 1998.
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Founded in October 1996, APT is a high-tech engineering firm specializing
in the development of electronics display technology. The markets for
APT's Outdoor Media Display system include the high end of the billboard
and illuminated sign markets, sports stadiums and arenas, transportation
terminals, volume retailers and malls, and safety/public information
displays. APT has not recorded any sales to date. APT expects its initial
sales to commence toward the end of fiscal 1998.
The Company accounts for its investment in APT using the equity method of
accounting. The excess of the cost of the investment over the book value
of the 30% interest acquired totaled $2,054,366 and is being amortized to
operations over a 5 year period.
On March 3, 1998, the Company announced the intent to acquire the remaining
70% of APT's common stock. The completion of the acquisition is subject
to the satisfaction of certain conditions including among others,
requisite approvals and consents.
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.
At the indicated dates the Company had the following investments in
affiliates and joint ventures: (in thousands)
<TABLE>
<CAPTION>
April 30, Oct. 31,
1998 1997
-------- --------
<S> <C> <C>
TLK, Inc. $ 150 $ 150
Koram, Inc. 110 110
Applied Photonics Technology, Inc. 2,171 2,377
Three H 76 76
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$2,507 $2,713
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</TABLE>
3. LETTER OF CREDIT AGREEMENT:
The Company has a letter of credit agreement effective May, 1998 with a
bank whereby the bank will issue up to $500,000 of standby and sight
letters of credit. This agreement is contingent upon the Company
maintaining cash deposits of $500,000 at the bank as collateral. This fund
is held in 30 days certificate of deposit and earn interest at the rate of
5.05% per annum.
4. INCOME TAXES:
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. The change from the deferred method
to the liability method of accounting for income taxes had no material
impact on the financial position or results of operations of the Company
for the quarter ended April 30, 1998.
As of April 30, 1998, the only tax issue pending is the California
Franchise Tax exposure resulting from the previous Federal Income Tax
audits. The Company believes that a resolution of this audit could occur
in
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fiscal 1998 and its maximum exposure will not exceed $250,000. The Company
has accrued this full amount at April 30, 1998.
5. LITIGATION AND OTHER:
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 video
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 in which the actual
viewable size of the video screens were smaller than they were claimed.
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.
6. RELATED PARTY TRANSACTIONS:
During 1998 and 1997 the Company has had transactions with its affiliates
as follows (in thousands):
April 30, Oct. 31,
1998 1997
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Note receivable:
AdMOS (1) $ 4 $ 4
AdMOS (1) 180 180
APT 700 -
Interest receivable:
AdMOS (1) 68 68
AdMOS (1) 69 60
APT 11 -
(1) Amounts are fully reserved.
7. TRANSACTIONS WITH MAJOR CUSTOMER
The Company has entered into the following transactions with one of its
major customers, Applied Computer Technology, Inc., (ACT). Sales to ACT
for the year ended October 31, 1997 aggregated approximately $3,308,000 or
16.6% of net sales.
1) In June, 1997, the Company loaned ACT $2,300,000. Interest on the
loan accrues at 2% per month. All interest income accrued on the loan
is being deferred by the Company until the amounts are received. As
of October 31, 1997, the loan principal balance was $900,000. The
loan has since been paid down to $485,000.
2) At October 31, 1997, ACT owed the Company approximately $2.1 million
in trade receivables, which represented approximately 41% of net trade
receivables. Subsequent to year end, the Company agreed to exchange
$900,000 of outstanding trade receivables for $900,000 of Series A
convertible preferred stock of ACT. The preferred shares are
convertible into common stock at the option of the holder, based on
the 5 day average closing bid price of ACT common stock prior to
conversion, subject to a floor of $2.50 per share and a ceiling of
$4.25 per share. Subsequently, at February 17, 1998, the
conversion rate was revised and is currently subject to a floor of
$1.00 per share and a ceiling of $3.00 per share. ACT has the
obligation to register the shares by filing a registration statement
with the Securities and Exchange Commission and the preferred shares
will be automatically converted once the registration statement
becomes effective.
The preferred shares were issued in December 1997. As of January 31, 1998,
the Company has reflected the $900,000 as a long term receivable and has
further provided a reserve of $292,500 against the
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$900,000 to reflect the fair value of the preferred shares ultimately
issued, taking into consideration the lack of liquidity of the securities.
In summary, at April 30, 1998, the Company's balance sheet reflects net
assets of $1,959,000 from ACT, $866,000 in trade receivable, $485,000 in
current loans receivable and $608,000 in a net long term receivable
subsequently converted into preferred stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net sales for the second quarter of fiscal 1998 were approximately $3.16
million, or a decrease of 23.2% from the approximately $4.11 million in net
sales reported in the second quarter of fiscal 1997. The decrease in net sales
was principally due to the decrease in the sales volume of multimedia products
from $1.81 million in the second quarter of fiscal 1997 to $0.43 million in the
second quarter of fiscal 1998 as the Company gradually phases out the multimedia
products. However, the loss was somewhat offset as the sales of monitors
increased from $0.15 million in the second quarter of fiscal 1997, having been
launched in the preceding first quarter of fiscal 1997, to $0.89 million in the
second quarter of fiscal 1998. Net sales for the six months ended April 30,
1998 of approximately $7.70 million were approximately 10% below the same period
of time a year ago which totaled approximately $8.57 million.
Cost of sales decreased from approximately $3.66 million in the second
quarter of fiscal 1997 to approximately $2.93 million in the second quarter
of fiscal 1998, but increased as a percentage of sales from approximately
89% to 93% during the same periods. The percentage increase in cost of sales
and the corresponding decrease in gross margin in fiscal 1998 (a decrease
from approximately 11% to 7%) were primarily the results of the major
product line shift from multimedia products to monitors. As the competition
for multimedia products intensified and prices of multimedia products
plummeted, the Company decided to shift its focus from the multimedia
products to high-end monitors whose cost of sales is greater than multimedia
products.
Cost of sales were approximately $7.01 million for the six months ended
April 30, 1998, or 6.81% lower than approximately $7.52 million reported in the
same period a year ago. However, cost of sales increased as a percentage of
sales from approximately 87.7% in fiscal 1997 to approximately 91.1% in fiscal
1998.
Sales and marketing expenses increased as a percentage of sales from
approximately 12% in the second quarter of fiscal 1997 to 23% in the second
quarter of fiscal 1998 as actual sales and marketing expenses also increased
from $489,000 in the second quarter of fiscal 1997 to $716,000 in the second
quarter of fiscal 1998, an increase of 46.4% from the prior year. On a six
month basis, sales and marketing expenses increased as a percentage of sales
from approximately 14.7% in fiscal 1997 to 19.5% in fiscal 1998, while actual
expenses increased approximately 18.8%. The increase in sales and marketing
expenses was primarily due to the increased advertising expenses of monitor.
Research and development expenses decreased as a percentage of sales from
approximately 6% in the second quarter of fiscal 1997 to 3% in the second
quarter of fiscal 1998 as actual research and development expenses decreased
from $242,000 in fiscal 1997 to $92,000 in fiscal 1998, a decrease of 62% from
the prior year. On a six month basis, research and development expenses
decreased as a percentage of sales from approximately 5.0% in fiscal 1997 to
2.9% in fiscal 1998, while actual expenses decreased approximately 47.1%. The
decrease in percentage and actual research and development expenses in fiscal
1997 compared to the same period in the prior year was primarily a result of the
decrease in employee staffing levels.
General and administrative expenses increased as a percentage of sales from
approximately 8% in the second quarter of fiscal 1997 to 11% in the second
quarter of fiscal 1998 while actual expenses decreased approximately 2% over
this same period. On a six month basis, general and administrative expenses
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increased as a percentage of sales from approximately 7.2% in fiscal 1997 to
8.8% in fiscal 1998 as actual expenses increased approximately 9.8% over this
same six month period.
The loss from operations increased approximately 51.8%, from $605,000 in
the second quarter of fiscal 1997 to $919,000 in the second quarter of fiscal
1998. Operating loss for the six months ended April 30, 1998 of approximately
$1.71 million was approximately 37.0% greater than the same period in fiscal
1997 which totaled approximately $1.25 million.
Interest income earned decreased from $276,000 in the first six months of
fiscal 1997 to $82,000 in the first six months of fiscal 1998, a 70 % decrease
from the prior year. Such decrease was primarily due to lower cash balance in
April 30, 1998 compared to April 30, 1997.
Net loss for the second quarter of fiscal 1998 was approximately $909,000,
or $0.080 per share, compared to a net loss of $513,000 in the second quarter of
fiscal 1997, or $0.045 per share, a year ago for the same three month period.
Net loss for the six months ended April 30, 1998 totaled approximately
$1,671,000, or $0.147 per share, compared to a net loss of $1,026,000, or $0.080
per share, for the same period a year ago. The Company effected a 1-for-4
reverse stock split on April 22, 1998.
As a result of the foregoing, net loss per share in the second quarter of
fiscal 1998 was $0.080, based on 11,388,243 weighted average shares outstanding,
compared to a net loss per share in the second quarter of fiscal 1997 of $0.045,
based on 11,351,186 weighted average shares outstanding.
No income tax expense or credit was provided for in the quarter ended April
30, 1998, as the Company believes that it has adequate net operating loss and
credit 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled approximately $1.2 million at April 30,
1998, down $1.4 million (approximately 38%) from fiscal 1997 year-end levels of
$3.6 million. The decrease in the cash and cash equivalents is primarily due to
$700,000 loan to Applied Photonics Technology, Inc. (APT), an affiliate of the
Company, in March, 1998.
Net accounts receivable of $3.23 million at the end of the second quarter
of fiscal 1998 decreased approximately 22% from the 1997 year-end level of $4.19
million.
Net inventories of approximately $4.09 million at the end of the quarter
ended April 30, 1998 increased approximately 40% from the 1997 year-end level of
$2.92 million. The increase is mainly due to the increase in monitor inventory.
Working capital at the end of the second quarter of fiscal 1998 was
approximately $7.82 million, down approximately 15% from the fiscal 1997
year-end level of approximately $9.21 million.
At the current consumption rate, the Company's cash balance of
approximately $1.18 million at April 30, 1998, together with anticipated
revenues from operations and other non-operating cash receipts including the
proposed sale of the Company's building, was anticipated to be adequate to fund
the Company's fiscal 1998 operations at projected levels.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
Competition. The Company encounters aggressive competition in all areas of
its business activity. The Company's competitors are numerous, ranging from
some of the world's largest corporations to many relatively small and highly
specialized firms. The Company competes primarily on the basis of technology,
performance, price, quality, reliability, distribution and customer service and
support. Product life cycles are short, and, to remain competitive, the Company
will be required to develop new products, periodically enhance its existing
products and compete effectively on the basis of the factors described above.
In particular, the Company anticipates that it will have to continue to adjust
prices of many of its products to stay competitive and it will have to
effectively manage financial returns with reduced gross margins. There is no
assurance that it will be successful in this regard.
Inventory Management. Inventory management has become increasingly complex
as the Company continues to sell a mix of products, especially monitors,
terminals and multimedia products, through third-party distribution channels.
Resellers constantly adjust their ordering patterns in response to the Company's
and its competitors' supply into the channel and the timing of their of their
new product introductions. Resellers may increase orders during times of
shortages, cancel orders if the channel is filled with currently available
products, or delay orders in anticipation of new products. Any excess supply
could result in price reductions and inventory write downs, which in turn would
adversely affect the Company's results of operations.
Reliance on Suppliers. Portions of the Company's operations are dependent
on the ability of suppliers to deliver quality subassemblies and completed
products in time to meet critical distribution schedules. The Company
periodically experiences constrained supply of certain product lines as a result
of strong demand in the industry for those products. Such constraints, if
persistent, may adversely affect the Company's operating results until alternate
sourcing can be developed. In order to secure these products, the Company at
times makes advance payments to certain suppliers, and often enters into
non-cancelable purchase commitments with vendors for such products. Volatility
in the prices of these products and a temporary oversupply could adversely
affect the Company's future operating results.
Reliance on Third-Party Distribution Channels. The Company continues to
expand into third-party distribution channels. As a result, the financial
health of resellers of the Company's products, and the Company's continuing
relationships with such resellers, are becoming more important to the Company's
success. Some of these companies are thinly capitalized and maybe unable to
withstand changes in business conditions. The Company's financial results could
be adversely affected if the financial conditions of certain of these resellers
substantially weakens or if the Company's relationship with such resellers
deteriorates.
International. Sales outside the United States make up a portion of the
Company's revenues. In addition, a portion of the Company's product
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 changes in a specific country's or region's
political or economic conditions, trade protection measures, import or export
licensing requirements, the overlap of different tax structures, unexpected
changes in regulatory requirements and natural disasters.
Acquisitions, Strategic Alliances, Joint Ventures and Divestitures. As a
matter of course, the Company from time to time, engages in discussions with a
variety of parties relating to possible acquisitions, strategic alliances, joint
ventures and divestitures. Although consummation of most transactions is
unlikely to have a material effect on the Company's results as a whole, the
implementation or integration of a transaction may contribute to the Company's
results differing from the investment community's expectation in a given
quarter. Divestitures may result in the cancellation of orders and charges to
earnings. Acquisitions and strategic alliances may require, among other things,
integration or coordination with a different company culture, management team
organization and business infrastructure. They may also require the
development, manufacture and marketing of product offerings with the Company's
products in a way that enhances the performance of the combined business or
product line. Depending on the size and complexity of the transactions,
successful integration depends on a variety of factors, including the hiring and
retention of key employees, management of geographically separate facilities,
and the integration or coordination of different
12
<PAGE>
research and development and product manufacturing facilities. All these
efforts require varying levels of management resources, which may temporarily
adversely impact other business operations.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is assessing
the readiness of its internal computer systems for handling the year 2000. The
Company expects to implement successfully the systems and programming changes
necessary to address year 2000 issues, and does not believe that the cost of
such actions will have a material effect on the Company's results of operations
of financial condition. There can be no assurance, however, that there will not
be a delay in, or increased costs associated with, the implementation of such
changes, and the Company's inability to implement such changes could have an
adverse effect on future results of operations or financial conditions.
The Company is also assessing the possible effects on the Company's
operations of the year 2000 readiness of key suppliers and subcontractors. The
Company's reliance on suppliers and subcontractors, and, therefore, on the
proper functioning of their information systems and software, means that failure
to address year 2000 issues could have a material impact on the Company's
operations and financial results; the potential impact and related costs are not
known at this time.
(The remainder of this page is intentionally left blank)
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 5 of "Notes to Condensed Consolidated Financial Statements."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of stockholders on April 21, 1998,
at which K. Philip Hwang, Robert E. Larson, Woo K. Kim and Phillip Annen were
elected by the stockholders as Directors of the Company.
The stockholders also: (1) approved the amendment of the Company's
Certificate of Incorporation to effect a 1-for-4 reverse stock split.; and (2)
ratified the appointment of Grant Thornton LLP as the Company's independent
public accountant for the fiscal year ending October 31, 1998.
The following are the number of votes cast for each of the three proposals
during the stockholders meeting on April 21, 1998:
<TABLE>
<CAPTION>
Against/
For Withhold Abstentions
--- -------- -----------
<S> <C> <C> <C>
Proposal No. 1
For nominees for Board of Directors:
Dr. K. Phillip Hwang 42,559,651 342,307 none
Mr. Phillip Annen 42,589,911 312,047 none
Mr. Woo K. Kim 42,590,311 311,647 none
Dr. Robert E. Larson 42,591,511 310,447 none
Proposal No. 2
Reverse 1-for-4 stock split 41,798,581 776,462 89,213
Proposal No. 3
Ratification of Grant Thornton LLP as
Company's independent auditors 42,686,775 128,181 87,002
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT(S).
Exhibit 27.0 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
14
<PAGE>
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, INC.
------------------
(REGISTRANT)
DATE: JUNE 10, 1998 BY: /S/ K. PHILIP HWANG
-------------------
DR. K. PHILIP HWANG
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER AND
ACTING PRINCIPAL ACCOUNTING AND
FINANCIAL OFFICER
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 1,185
<SECURITIES> 0
<RECEIVABLES> 3,879
<ALLOWANCES> 646
<INVENTORY> 4,093
<CURRENT-ASSETS> 10,016
<PP&E> 4,704
<DEPRECIATION> 2,056
<TOTAL-ASSETS> 15,778
<CURRENT-LIABILITIES> 2,132
<BONDS> 0
0
0
<COMMON> 455
<OTHER-SE> 13,191
<TOTAL-LIABILITY-AND-EQUITY> 15,778
<SALES> 7,694
<TOTAL-REVENUES> 7,797
<CGS> 7,006
<TOTAL-COSTS> 2,404
<OTHER-EXPENSES> 53
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,666)
<INCOME-TAX> 5
<INCOME-CONTINUING> (1,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,671)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
