<PAGE>
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, 1999
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.
-----------------------------------
(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
(408) 954-8333
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
----------------------------------------
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
8, 1999 IS: 11,271,085.
----------------------------------------
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Company's Quarterly Report on Form 10-Q for the quarter ended July
31, 1999 includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. 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. Prospective investors are cautioned
that any such statements are not guarantees of future performance and that
actual results or developments may differ materially from those projected in
the forward-looking statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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.
These condensed consolidated financial statements should 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, 1998.
The results of operations for the three- and nine-month periods ended
July 31, 1999, are not necessarily indicative of the results to be expected
for the entire fiscal year ending October 31, 1999.
<PAGE>
TELEVIDEO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Jul. 31, Oct. 31,
1999 1998
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,284 $ 1,640
Certificate of Deposit 1,000 0
Accounts receivable, less allowance of $1,319 in 1999 and $1,352 in 1998 1,288 2,420
Inventories, net 2,092 2,275
Prepayments and other 523 420
Notes receivable 176 0
-------- --------
Total current assets 10,363 6,755
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 0 890
Building 0 1,035
Production equipment 624 530
Office furniture and equipment 1,150 1,146
Building improvements 0 1,105
Leased property under capital lease 6,270 0
-------- --------
8,044 4,706
Less accumulated depreciation and amortization 1,902 2,138
-------- --------
Property, plant and equipment, net 6,142 2,568
INVESTMENTS IN AFFILIATES 1,336 1,336
LONG-TERM NOTE RECEIVABLE 2,713 0
-------- --------
Total assets $ 20,554 $ 10,659
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 762 $ 541
Notes payable 0 2,500
Accrued liabilities 1,259 820
Income taxes 361 361
Obligation under capital lease--current 418 0
Deferred gain on sale of land and building--current 1,147 0
-------- --------
Total current liabilities 3,947 4,222
-------- --------
Obligation under capital lease--long-term 5,852 0
Deferred gain on sale of land and building--long-term 6,600 0
-------- --------
Total liabilities 16,399 4,222
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized--75,000,000 shares
Outstanding--11,271,085 shares in 1999 and 1998
(net of 120,000 treasury shares) 453 453
Additional paid-in capital 95,703 95,703
Accumulated deficit (92,001) (89,719)
-------- --------
Total stockholders' equity 4,155 6,437
-------- --------
Total liabilities and stockholders' equity $ 20,554 $ 10,659
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JULY 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
----------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 1,926 $ 3,061 $ 5,635 $ 10,756
COST OF SALES 1,844 2,775 5,215 9,781
-------- -------- -------- --------
GROSS PROFIT 82 286 420 975
OPERATING EXPENSES:
Sales and Marketing 599 520 1,558 2,018
Research and development 230 86 424 312
General and administration 505 490 1,344 1,170
-------- -------- -------- --------
Total operating expenses 1,334 1,096 3,326 3,500
-------- -------- -------- --------
Loss from operations (1,252) (810) (2,906) (2,525)
INTEREST INCOME, NET 125 36 270 99
OTHER INCOME (EXPENSE), NET 196 (75) 355 (94)
-------- -------- -------- --------
Net loss $ (931) $ (849) $ (2,281) $ (2,520)
-------- -------- -------- --------
LOSS PER SHARE:
Basic and diluted $ (0.08) $ (0.08) $ (0.20) $ (0.22)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common shares outstanding, and 11,271 11,391 11,271 11,387
common and potentially dilutive common shares
outstanding
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from operations $(2,281) $(2,520)
Charges (credits) to operations not affecting cash:
Depreciation and amortization 263 166
Provision for bad debts (33) 0
Provision for excess and obsolete inventories 175 0
Changes in operating assets and liabilities:
Accounts receivable 1,166 1,229
Inventories 8 (211)
Prepayments and other (103) (31)
Accounts payable 222 (560)
Notes payable (2,500) 2,000
Accrued liabilities 437 46
Deferred gain on sale of land and building,
net of long term receivable 5,028 0
------- -------
Net cash provided by operating activities 2,382 119
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Certificate of Deposit (1,000) 0
Net retirements of (additions to) property, plant and equipment 2,433 (14)
Investments in affiliate 0 309
Increase in note receivable (171) (1,200)
------- -------
Net cash provided by (used in) investing activities 1,262 (905)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 30
------- -------
Net cash provided by financing activities 0 30
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,644 (756)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 1,640 3,604
------- -------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 5,284 $ 2,848
------- -------
------- -------
</TABLE>
Non Cash investing/financing activities:
In December 1998, the Company sold and concurrently leased back its main
facility property (land and building). As a result of the sale for $11.0
million (which includes a $2.750 million note receivable) a deferred gain of
approximately $8.0 million was recorded and the building component was leased
back under a capital lease, whereby leased building and capital lease
obligation were recorded at approximately $6.270 million.
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEVIDEO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. The information at July
31, 1999 and for the three and nine months ended July 31, 1999 and 1998
includes all adjustments (consisting only of normal recurring
adjustments) that the management of the Company believes are necessary
for fair presentation for the results of the periods presented.
Results for any interim period are not necessarily indicative of results
for any future interim period or for the entire year. The accompanying
financial statements and notes thereto should be read in conjunction
with the financial statements and notes thereto included in the
Company's annual report on Form 10-K.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and certain of its majority owned subsidiaries, after elimination
of inter-company 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.
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.
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 approximately $821,000 and $646,000 in 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
Jul. 31, Oct. 31,
1999 1998
------- -------
<S> <C> <C>
Purchased parts and subassemblies $ 624 $1,196
Work-in-process 235 91
Finished goods 1,233 988
------ ------
$2,092 $2,275
------ ------
------ ------
</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>
<CAPTION>
<S> <C>
Building, Including leased property 15-40 years
Production equipment 1-10 years
Office furniture 1-10 years
</TABLE>
LOSS PER SHARE
Loss per share is based on the weighted average number of shares of Common
Stock outstanding during each period.
RECLASSIFICATIONS
Certain reclassifications were made to the 1998 accompanying
consolidated financial statements to conform to the 1999 presentation.
<PAGE>
2. ACQUISITIONS AND DIVESTITURES:
Applied Photonics Technology, Inc.
----------------------------------
On April 16, 1997, the Company entered into a Common Stock Purchase
agreement with Applied Photonics Technology, Inc. ("APT"), a California
corporation, whereby the Company purchased a 30% interest in APT for $3.0
million.
During fiscal 1998, the Company loaned APT $1.7 million at an annual
interest rate of prime plus one for its operations.
Founded in October 1996, APT is a developmental stage enterprise
specializing in the development of electronics display technology. The
anticipated markets for APT's outdoor media display system include the high
end of 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. The Company
has been advised by APT that APT estimates its first sales will commence in
fiscal 1999.
The Company accounted for its investment in APT using the equity method of
accounting during previous fiscal years. For the year ended October 31,
1998, the Company has written off its investment, related goodwill, and
note receivable aggregating approximately $4.08 million as APT's existing
capital and internally generated funds were not adequate for APT capital
requirements through fiscal 1999. Substantial additional funds will be
required from external sources to support APT's operations during fiscal
1999 and beyond. During the first quarter of fiscal 1999, the Company
loaned APT an additional $176,000 at annual interest rate of 10% to support
APT's operations. The Company has, since then, been advised that APT
expects to receive such substantial additional funds through equity
investment during fiscal 1999, which may be adequate for its capital
requirements through fiscal 1999 and beyond. However, there can be no
assurance that additional funds will be available, or, if available, that
such funds will be available on acceptable terms.
mySimon, inc.
-------------
In September, 1998, the Company invested $1 million in the online
comparison shopping Internet company, mySimon, inc. The investment has been
accounted for on the cost method.
mySimon, inc. uses proprietary intelligent agent technology called Virtual
Learning Agent (VLA) to assist online shoppers by scouring the Internet to
instantly find the best prices on products from thousands of online
merchants.
At the indicated dates the Company had the following investments in
affiliates and joint ventures: (in thousands)
<TABLE>
<CAPTION>
Jul. 31, Oct. 31,
1999 1998
-------- --------
<S> <C> <C>
TLK, Inc. $ 150 $ 150
Three H 76 76
Koram 110 110
mySimon, inc 1,000 1,000
------ ------
$1,336 $1,336
------ ------
------ ------
</TABLE>
3. LETTER OF CREDIT AGREEMENT:
The Company has one letter of credit agreement with the bank whereby the
bank will issue up to a total of $1.0 million of standby and sight
letter of credits. This agreement is contingent upon the Company
maintaining time deposits (CD's) at the bank as collateral in a total
amount no less than the outstanding borrowings. At July 31, 1999, the
Company had no letters of credit outstanding.
4. LITIGATION:
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 claim alleges that the various
plaintiffs have suffered some form of severe wrist injury from the use of
said keyboards. The second claim 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.
5. TREASURY SHARES:
In October, 1996, the Company received 120,000 shares (adjusted for the 1
for 4 reverse stock split in 1998) of the Company's stock in partial
settlement of a claim against a former employee. The Company paid no
consideration for these shares, which have been held in treasury since
receipt and have not been retired.
6. SUBSEQUENT EVENT:
In September 1999, the Company loaned APT $125,000. The note bears interest
at the rate of 6% per annum and is due on December 1, 1999. The Company has
received a guarantee of payment from a third party that is expected to
provide additional funds to APT (Refer to Note 2). In September 1999, the
Company entered into a consulting agreement with APT in which APT will
undertake two engineering Development projects for the Company, whereby
the Company made an advance payment of $125,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED JULY 31, 1999 TO THE THREE MONTHS ENDED
JULY 31, 1998
Net sales for the third quarter of fiscal 1999 were $1.9 million,
compared with $3.1 million in the third quarter of fiscal 1998, a decrease of
$1.2 million, or 39%. The decrease in net sales reflects the Company's
continued shift away from the sale of monitors and multimedia products.
During the third quarter of fiscal 1999, sales of monitors and multimedia
products totaled approximately $0.2 million, as compared with approximately
$1.1 million in the prior year quarter.
Cost of sales were $1.8 million in the third quarter of fiscal 1999,
compared with $2.8 million in the third quarter of fiscal 1998, a decrease of
$1.0 million, or 36%. The decrease is primarily due to the decrease in sales
from the prior year period.
Sales and marketing expenses were $0.6 million in the third quarter of
fiscal 1999, compared with $0.5 million in the third quarter of fiscal 1998.
As a percentage of net sales, sales and marketing expenses increased to 31%
in the third quarter of fiscal 1999 compared with 17% in the third quarter of
fiscal 1998. The increase reflects additional ongoing costs incurred by the
Company to launch its TeleCLIENT product line.
Research and development expenses were $0.2 million in the third quarter
of fiscal 1999, compared with $0.1 million in the third quarter of fiscal
1998, an increase of $0.1 million. As a percentage of net sales, research and
development expenses increased to 12% in the third quarter of fiscal 1999
compared with 3% in the third quarter of fiscal 1998. The increase represents
increased costs associated with the continued development of the Company's
TeleCLIENT product line.
General and administrative expenses were $0.5 million in the third
quarter of fiscal 1999, the same level as in the third quarter of fiscal
1998. As a percentage of net sales, general and administrative expenses
increased to 26% in the third quarter of fiscal 1999 compared with 16% in the
third quarter of fiscal 1998. The increase, as a percentage of sales, is
primarily due to lease expenses that the Company began making in fiscal 1999
in accordance with the sale and leaseback of the Company's headquarters
facility. In the third quarter of fiscal 1999, the Company recorded a
provision for bad debts of approximately $10,000, as compared with $219,000
in the third quarter of 1998.
The Company's loss from operations was approximately $1.3 million in the
third quarter of fiscal 1999 compared with approximately $0.8 million in the
third quarter of fiscal 1998.
Interest income, net of interest expense, was $125,000 in the third
quarter of fiscal 1999, compared with $36,000 in the third quarter of fiscal
1998, an increase of $89,000, or 247%. The increase was due to increased
interest income resulting from the $2.75 million, 7.25% promissory note that
the Company received pursuant to the sale of its building in December 1998,
as well as to additional cash that the Company had during the quarter due to
the building sale.
Other income was $196,000 in the third quarter of fiscal 1999, compared
with $75,000 expense in the third quarter of fiscal 1998, an increase of
$271,000. The increase was due primarily to the amortization of the deferred
gain on the sale of the Company's building.
Net loss for the third quarter of fiscal 1999 was $0.9 million compared
with a net loss of $0.8 million in the third quarter of fiscal 1998.
COMPARISON OF THE NINE MONTHS ENDED JULY 31, 1999 TO THE NINE MONTHS ENDED
JULY 31, 1998
Net sales for the first nine months of fiscal 1999 were $5.6 million,
compared with $10.8 million in the first nine months of fiscal 1998, a
decrease of $5.2 million, or 48%. The decrease in net sales reflects the
Company's continued shift away from the sale of monitors and multimedia
products. For the first nine months of fiscal 1999, sales of monitors and
multimedia products totaled approximately $0.8 million, as compared with
approximately $4.7 million in the prior year period.
Cost of sales were $5.2 million in the first nine months of fiscal 1999,
compared with $9.8 million in the first nine months of fiscal 1998, a
decrease of $4.6 million, or 47%. This decrease is in line with the decrease
in sales from the prior year period.
Sales and marketing expenses were $1.6 million in the first nine months
of fiscal 1999, compared with $2.0 million in the first nine months of fiscal
1998, a decrease of $0.4 million, or 20%. As a percentage of net sales, sales
and marketing expenses increased to 28% in the first nine months of fiscal
1999 compared with 19% in the first nine months of fiscal 1998. The increase
represents costs incurred by the Company to launch its TeleCLIENT product
line during the first nine months of fiscal 1999.
<PAGE>
Research and development expenses were $0.4 million in the first nine
months of fiscal 1999, compared with $0.3 million in the first nine months of
fiscal 1998. As a percentage of net sales, research and development expenses
increased to 8% in the first nine months of fiscal 1999 compared with 3% in
the first nine months of fiscal 1998. The increase represents increased costs
associated with the continued development of the Company's TeleCLIENT product
line.
General and administrative expenses were $1.3 million in the first nine
months of fiscal 1999, compared with $1.2 million in the first nine months of
fiscal 1998, an increase of $0.1 million or 8%. As a percentage of net sales,
general and administrative expenses increased to 24% in the first nine months
of fiscal 1999 compared with 11% in the first nine months of fiscal 1998. The
increase, as a percentage of sales, is primarily due to lease expenses that
the Company began making in fiscal 1999 in accordance with the sale and
leaseback of the Company's headquarters facility.
The Company's loss from operations was approximately $2.9 million for
the first nine months of fiscal 1999 and $2.5 million for the first nine
months of fiscal 1998.
Interest income, net of interest expense, was $270,000 in the first nine
months of fiscal 1999, compared with $99,000 in the first nine months of
fiscal 1998, an increase of $171,000, or 173%. The increase was due to
increased interest income resulting from the $2.75 million, 7.25% promissory
note that the Company received pursuant to the sale of its building in
December 1998, as well as to additional cash that the Company had as a result
of the building sale.
Other income was $355,000 in the first nine months of fiscal 1999,
compared with $94,000 expense in the first nine months of fiscal 1998, an
increase of $449,000. The increase was due primarily to the amortization of
the deferred gain on the sale of the Company's building.
Net loss for the first nine months of fiscal 1999 was approximately $2.3
million, compared with a net loss of approximately $2.5 million in the first
nine months of fiscal 1998, a decrease of $0.2 million, or 8%.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999, the Company had $5.3 million in cash and cash
equivalents, an increase of approximately $3.7 million over the same balances
at the end of fiscal 1998 of $1.6 million. This increase excludes a $1.0
million certificate of deposit which the Company purchased in fiscal 1999.
Net cash provided by operating activities increased from $119,000 in the nine
months ended July 31, 1998 to $2.4 million for the same period in fiscal 1999.
Net accounts receivable were $1.2 million at July 31, 1999, compared
with $2.4 million at October 31, 1998, a decrease of $1.2 million, or 50%,
while net inventories were $2.1 million at July 31, 1999, as compared with
$2.3 million at October 31, 1998, a decrease of $0.2 million.
Working capital at the end of the third quarter of fiscal 1999 was
approximately $6.4 million, an increase of 156% from the fiscal 1998 year-end
level of approximately $2.5 million primarily as a result of the proceeds
from the sale of the Company's headquarters facility.
The Company believes that, with respect to its current operations, the
Company's cash balance of approximately $5.3 million at July 31, 1999, its
$1.0 million certificate of deposit, plus revenues from operations and other
non-operating cash receipts, will be sufficient to meet the Company's working
capital and capital expenditure needs for the next twelve months.
IMPACT OF YEAR 2000 ISSUES
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Following December 31, 1999, the Company's computer equipment and software
that is time sensitive, including equipment with embedded technology such as
telephone systems and facsimile machines, may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to engage in normal business activities.
The Company has completed assessing its computer systems, software and
operations infrastructure, including systems being developed to improve
business functionality, to identify computer hardware, software and process
control systems that are not Y2K compliant. The Company internally evaluated
the Y2K compliance of its existing computer systems, software and operations
infrastructure and any Y2K issues of third parties of business importance to
the Company. The Company is trying to minimize any disruptions to the
Company's business which could result from the Y2K problem and to minimize
liabilities which the Company might incur as a result of such disruptions.
During the third quarter of fiscal 1999, the Company began implementation of
a new accounting and operations system that has been warranted by the
manufacturer of the system to be Y2K compliant. Although the Company's
existing accounting and operations system is believed to be materially Y2K
compliant, the Company has chosen to upgrade to a new system to take
advantage of various enhancements offered by the new system. The Company
expects to spend less than $100,000 to fully implement its new system and
expects the implementation to be completed by November 1, 1999.
The Company has also initiated communications with its significant
suppliers and service providers and certain strategic customers to determine
the extent to which such suppliers, providers or customers will be affected
by any significant Y2K issues. The Company believes that these communications
will permit the Company to determine the extent to which the Company may be
affected by the failure of these third parties to address their own Y2K
issues and may facilitate the coordination of Y2K solutions between the
Company and these third parties. There can be no guarantee, however, that
third parties of business importance to the Company will successfully and
timely evaluate and address their own Y2K issues. The failure of any of these
third parties to achieve Y2K compliance in a timely fashion could have a
material adverse effect on the Company's business, financial position,
results of operations or cash flows. The Company does not expect that the
costs of replacing or modifying the computer equipment and software will be
substantially different, in the aggregate, from the normal, recurring costs
incurred by the Company for systems development, implementation and
maintenance in the ordinary course of business.
The Company does not presently believe that the Y2K issue will pose
significant operational problems for the Company. However, if all Y2K issues
are not properly identified, or assessment, replacement or modification and
testing are not effected in a timely fashion with respect to Y2K problems
that are identified, there can be no assurance that the Y2K issue will not
have a material adverse effect on the Company's business, financial position,
results of operations or cash flows or adversely affect the Company's
relationships with customers, suppliers or others.
The Company has not developed a contingency plan for dealing with the
operational problems and costs, including loss of revenues, that would be
reasonably likely to result from failure by the Company and certain third
parties to achieve Y2K compliance on a timely basis.
The foregoing assessment of the impact of the Y2K problem on the Company
is based on management's best estimates as of September 9, 1999, which are
based on numerous assumptions as to future events. There can be no assurance
that these estimates will prove accurate, and actual results could differ
materially from those estimated if these assumptions prove inaccurate or
inadequate.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 4 of "Notes to Condensed Consolidated Financial Statements."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of July 31, 1999, the Company had a long-term note receivable (the
"Note") of $2.7 million. The Company received the Note, which bears interest
at a fixed rate of 7.25% per annum, as partial consideration for the sale of
the Company's headquarters facility in December 1998. The interest rate on
the Note is fixed over the life of the Note, with principal and interest
payable in equal monthly installments of $21,735 each on the first day of
each month commencing on January 1, 1999. If not earlier paid in full, any
unpaid principal and all accrued interest shall be due and payable to
TeleVideo, Inc. on December 1, 2013.
Because the interest rate on the Note is fixed for the term of the Note,
any change in interest rates would not affect the Company's earnings or cash
flows if it chose to hold onto the note, although a change in interest rates
could affect the market value of the Note if the Company chose to sell the
note prior to maturity.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT.
Exhibit 27.0 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None.
<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 14, 1999 BY: /S/ JAMES D. WHEAT
---------------------------------------
JAMES D. WHEAT
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
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