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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------
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: JULY 31, 1998
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
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
--------------------------------------------
(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
--- ---
THE NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK, AS OF
SEPTEMBER 10, 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 July 31, 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 management of TeleVideo, Inc. (the Company") has prepared the
condensed consolidated financial statements included herein, 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
are 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 three and nine-month periods ended
July 31, 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>
July 31, Oct. 31,
ASSETS 1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents
(including restricted cash of $1,000 in 1998
and $3,000 in 1997) $ 2,848 $ 3,604
Accounts receivable, less allowance of
$644 in 1998 and $731 in 1997 2,961 4,191
Note receivable 1,200 -
Inventories (net) 3,134 2,923
Loan receivable from major customer 485 900
Prepayments and other 667 220
-------- --------
Total current assets 11,295 11,838
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 890 890
Building 1,035 1,035
Production equipment 530 524
Office furniture and equipment 1,148 1,140
Building improvements 1,105 1,105
-------- --------
4,708 4,694
Less accumulated depreciation and amortization (2,100) (1,934)
-------- --------
Property, plant and equipment, net 2,608 2,760
Long term receivable from major customer 608 608
INVESTMENTS IN AFFILIATES 2,403 2,712
-------- --------
Total assets $ 16,914 $ 17,918
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 980 $ 1,539
Notes payable 2,000 -
Accrued liabilities 776 730
Income taxes 361 361
-------- --------
Total current liabilities 4,117 2,630
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.04 par value;
Authorized--75,000,000 shares
Outstanding--11,391,085 shares in 1998
and 11,375,093 shares in 1997 456 455
Additional paid-in capital 95,700 95,671
Accumulated deficit (83,359) (80,838)
-------- --------
Total stockholders' equity 12,797 15,288
-------- --------
Total liabilities and stockholders' equity $ 16,914 $ 17,918
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $3,061 $4,983 $10,756 $13,558
Costs of sales 2,775 4,328 9,781 11,847
----- ----- ----- ------
GROSS PROFIT 286 655 975 1,711
OPERATING EXPENSES:
Sales & marketing 520 830 2,018 2,091
Engineering department 86 185 312 612
General & administration 490 329 1,170 948
----- ----- ----- ------
TOTAL OPERATING EXPENSES 1,096 1,344 3,500 3,651
----- ----- ----- ------
NET LOSS FROM OPERATIONS (810) (689) (2,525) (1,940)
Interest income (expense) 36 99 99 374
Other income (expense) (75) 1 (94) (49)
----- ----- ----- ------
NET INCOME (LOSS) $(849) $(589) $(2,520) $(1,615)
----- ----- ----- ------
----- ----- ----- ------
Earnings per share - basic $(0.075) $(.052) $(0.221) $(.14)
Earnings per share - diluted $(0.073) $(.052) $(0.217) $(.14)
</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 NINE MONTHS ENDED JULY 31, 1998 AND JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,520) $ (1,615)
Charges (credits) to operations not affecting
cash:
Depreciation and amortization 166 276
Changes in operating assets and liabilities:
Accounts receivable (net) 1,229 238
Notes receivable (1,200) 0
Inventories (net) (211) 3,223
Prepayments and other (32) (2,379)
Accounts payable (560) (2,443)
Notes payable 2,000 0
Accrued liabilities and royalties 46 (146)
--------- ---------
Net cash provided by (used in) operating
activities (1,082) (2,846)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net retirements of (additions to) property, plant
and equipment (14) (16)
Investments in affiliate 309 (2,375)
Payments received on notes receivable from
affiliate and other 0 5,000
--------- ---------
Net cash provided by (used in) investing
activities 295 2,609
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 30 1
--------- ---------
Net cash provided by financing activities 30 1
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (756) (236)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR 3,604 4,496
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 2,848 $ 4,260
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELEVIDEO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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 $349,000 and $523,000 in 1998 and
1997, respectively:
<TABLE>
<CAPTION>
July 31, Oct. 31,
1998 1997
-------- --------
<S> <C> <C>
Purchased parts and subassemblies $ 1,254 $ 1,075
Work-in-process 182 459
Finished goods 1,698 1,389
-------- --------
$ 3,134 $ 2,923
-------- --------
-------- --------
</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.
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
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 July 31, 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 Company has fully reserved the unpaid balance of $180,000
plus accrued interest as of July 31, 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, 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. Additionally, the Company has also
loaned APT $1.2 million at an interest rate of prime plus 1% per annum
through July 15, 1998. Subsequent to July 31, 1998, the
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Company accepted a convertible subordinated note from APT due August 20,
1999 for $1.0 million, of which $500,000 in new funds were given to APT
and the other $500,000 were from the $1.2 million promissory note dated
July 15, 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 transaction has not been
consummated as the Company continues to conduct due diligence and
consider the advisability of proceeding with the acquisition.
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>
July 31, Oct. 31,
1998 1997
-------- ---------
<S> <C> <C>
TLK, Inc. $ 150 $ 150
Koram, Inc. 110 110
Applied Photonics Technology, Inc. 2,068 2,377
Three H 76 76
-------- ---------
$ 2,404 $ 2,713
-------- ---------
-------- ---------
</TABLE>
3. LETTER OF CREDIT AGREEMENT:
The Company has a letter of credit agreement with a bank whereby the
bank will issue up to $1.0 million of standby and sight letters of
credit. This agreement is contingent upon the Company maintaining cash
deposits of $1.0 million at the bank as collateral. These funds are
held in 30-day certificates of deposit and earn interest at the rate of
approximately 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 July 31, 1998.
As of July 31, 1998, the only tax issues 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 fiscal 1998 and its maximum exposure, collectively will not
exceed $250,000. The Company has accrued this full amount at July 31,
1998.
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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):
<TABLE>
<CAPTION>
July 31, Oct. 31,
1998 1997
------- -------
<S> <C> <C>
Note receivable:
AdMOS (1) $ 4 $ 4
AdMOS (1) 180 180
APT 1,200 -
Interest receivable:
AdMOS (1) 68 68
AdMOS (1) 73 60
APT 33 -
(1) Amounts are fully reserved.
</TABLE>
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 trades 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, originally 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 July 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 $900,000 to
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reflect the fair value of the preferred shares ultimately issued, taking
into consideration the lack of liquidity of the securities.
In summary, as of July 31, 1998, the Company's balance sheet reflects
net assets of $1,958,000 from ACT, $865,000 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 third quarter of fiscal 1998 were approximately $3.06
million, a decrease of approximately 39% from the approximately $4.98 million
in net sales reported in the third quarter of fiscal 1997. The decrease in
net sales was mainly due to the decrease in the sales volume of multimedia
products from $1.2 million, and OMT board, spares and miscellaneous products
from $1.2 million, in the third quarter of fiscal 1997 to $170,000 and
$160,000 respectively, in the third quarter of fiscal 1998. The Company is
gradually phasing out its multimedia products. Net sales for the nine months
ended July 31, 1998 of $10.8 million were approximately 21% lower than the
same period last year, which totaled approximately $13.6 million.
Cost of sales decreased from approximately $4.3 million in the third
quarter of fiscal 1997 to approximately $2.8 million in the third quarter of
fiscal 1998, and increased as a percentage of sales from approximately 87% to
approximately 91% during the same period last year. The percentage increase
in cost of sales and the corresponding decrease in gross margins in fiscal
1998 (a decrease from approximately 13% to 9%) were primarily the results of
the product line shift from multimedia products to monitors.
Cost of sales were approximately $9.8 million for the nine months ended
July 31, 1998, or 17% lower than the approximately $11.8 million reported in
the same period a year ago. Cost of sales increased as a percentage of sales
from approximately 87% in fiscal 1997 to approximately 91% in fiscal 1998.
Sales and marketing expenses were 17% of net sales for the third quarter
of fiscal 1998, unchanged from the same period last year, while actual sales
and marketing expenses decreased from $830,000 in 1997 to $520,000 in 1998,
or 37%. On a nine month basis, sales and marketing expenses increased as a
percentage of sales from approximately 15% in fiscal 1997 to 19% in fiscal
1998, while actual expenses decreased from $2.1 million in 1997 to $2.0
million in 1998, or 4%. The decrease in sales and marketing expenses were
due primarily to the decrease in the number of employees and business travel
expenses, offset by an increase in advertising expenses.
Research and development expenses decreased as a percentage of sales
from approximately 4% in the third quarter of fiscal 1997 to 3% in the third
quarter of fiscal 1998, as actual research and development expenses decreased
from $185,000 in fiscal 1997 to $86,000 in fiscal 1998, or 53%. On a nine
month basis, research and development expenses decreased as a percentage of
sales from approximately $612,000 or 5% in fiscal 1997 to $312,000 or 3% in
fiscal 1998, while actual expenses decreased by $300,000 or 49%. The
decrease in research and development expenses was due mainly to the decrease
in the number of employees and outsourcing expenses.
General and administrative expenses increased as a percentage of sales
from approximately 7% in the third quarter of fiscal 1997 to 16% in the third
quarter of fiscal 1998, as actual expenses increased from $329,000 in fiscal
1997 to $490,000 in fiscal 1998 or 49%. On a nine month basis, general and
administrative expenses increased as a percentage of sales from $948,000 or
7% in fiscal 1997 to $1.2 million or 11% in fiscal 1998. The increase was
mainly due to the amortization of goodwill in relation to APT investment.
The loss from operations increased approximately 18%, from $689,000 in
the third quarter of fiscal 1997 to $810,000 in the third quarter of fiscal
1998. Operating loss for the nine months ended July 31, 1998 of approximately
$2.5 million was approximately 30% higher compared to the same period in
fiscal 1997 which totaled approximately $1.9 million.
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Interest income earned decreased from $374,000 in the first nine months
of fiscal 1997 to $99,000 in the first nine months of fiscal 1998, a 74%
decrease from the prior year. Such decrease was primarily due to the lower
cash balance in fiscal 1998 compared to fiscal 1997.
Net loss for the third quarter of fiscal 1998 was approximately
$849,000, or $0.075 per share, compared to a net loss of $589,000 in the
third quarter of fiscal 1997, or $.052 per share. Net loss for the nine
months ended July 31, 1998 totaled approximately $2.5 million, or $0.221 per
share, compared to a net loss of $1.6 million, or $.140 per share, for the
same period a year ago. The Company effected a 1-for-4 reverse stock split
on April 22, 1998.
No income tax expense or credit was provided for in the quarter ended
July 31, 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 carry forward
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 $2.8 million at July 31,
1998, down $756,000 (approximately 21%) from fiscal 1997 year-end levels of
$3.6 million. The decrease in the cash and cash equivalents is primarily due
to operating losses and the $1.2 million additional loan to Applied Photonics
Technology, offset by a note payable of $2.0 million secured by the Company
owned building.
Net accounts receivable of $2.96 million at the end of the third quarter
of fiscal 1998 were down approximately 30% from the 1997 year-end level of
$4.2 million. A total of $219,000 uncollectable account has been written off
from receivables.
Net inventories of approximately $3.1 million at the end of the quarter
ended July 31, 1998 were up approximately 7% from the 1997 year-end level of
$2.9 million.
Working capital at the end of the third quarter of fiscal 1998 was
approximately $7.2 million, down approximately 22% from the fiscal 1997
year-end level of approximately $9.2 million.
At the current consumption rate, the Company's cash balance of
approximately $2.8 million at July 31, 1998 (which includes $1.0 million
pledged as security for stand-by and sight letters of credit), together with
anticipated revenues from operations and other non-operating cash receipts,
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 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 weaken 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, is 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
11
<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 or 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.
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12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 5 of "Notes to Condensed Consolidated Financial Statements."
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.
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13
<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: SEPTEMBER 8, 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
14
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