<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: January 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
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Televideo, Inc.
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(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
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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
--- ---
The number of shares outstanding of registrant's Common Stock, as of March
12, 1999 is: 11,391,085.
-----------
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Company's Quarterly Report on Form 10-Q for the first quarter ended
January 31, 1999, which is incorporated by reference herein, include 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.
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1
<PAGE>
TELEVIDEO, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JAN. 31, OCT. 31,
ASSETS 1999 1998
--------- ---------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,616 $ 1,640
Accounts receivable, less allowance
of $1,376 in 1999 and $1,352 in 1998 1,377 2,420
Notes receivable 176 0
Inventories, net 2,780 2,275
Prepayments and other 481 420
--------- ---------
Total current assets 12,430 6,755
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 0 890
Building 0 1,035
Production equipment 580 530
Office furniture and equipment 1,146 1,146
Building improvements 0 1,105
Leased property under capital lease 6,270 0
--------- ---------
7,996 4,706
Less accumulated depreciation and
amortization 1,666 2,138
--------- ---------
Property, plant and equipment, net 6,330 2,568
--------- ---------
INVESTMENTS IN AFFILIATES 1,336 1,336
LONG-TERM NOTE RECEIVABLE 2,745 0
--------- ---------
Total assets $ 22,841 $ 10,659
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 962 $ 541
Notes payable 500 2,500
Accrued liabilities 885 820
Income taxes 381 361
Obligation under capital lease - current 418 0
Deferred gain on sale of land and building -
current 1,147 0
--------- ---------
Total current liabilities 4,293 4,222
--------- ---------
Obligation under capital lease - long-term 5,852 0
Deferred gain on sale of land and building -
long-term 6,899 0
--------- ---------
Total liabilities 17,044 4,222
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized--75,000,000 shares
Outstanding--11,391,085 shares in 1999 and
11,391,085 shares in 1998 458 458
Additional paid-in capital 95,698 95,698
Accumulated deficit (90,359) (89,719)
--------- ---------
Total stockholders' equity 5,797 6,437
--------- ---------
Total liabilities and stockholders'
equity $ 22,841 $ 10,659
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
TELEVIDEO, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
NET SALES $ 1,787 $ 4,539
COST OF SALES 1,592 4,073
--------- ---------
GROSS PROFIT 195 466
OPERATING EXPENSES:
Sales and Marketing 498 782
Research and development 64 134
General and administration 310 346
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Total operating expenses 872 1,262
--------- ---------
Loss from operations (677) (796)
INTEREST INCOME, net 32 30
OTHER INCOME, net 7 4
--------- ---------
Net loss $ (636) $ (762)
--------- ---------
--------- ---------
Net loss per share, basic and assuming
dilution $ (0.058) $ (0.067)
--------- ---------
--------- ---------
Average shares outstanding 11,391 11,381
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TELEVIDEO, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND JANUARY 31, 1998
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss from operations $ (638) $ (762)
Charges (credits) to operations not affecting cash:
Depreciation and amortization 27 71
Provision (recovery) for bad debts 24 (34)
Provision for excess and obsolete inventories 49 130
Changes in operating assets and liabilities:
Accounts receivable 1,020 (742)
Inventories (554) (1,409)
Prepayments and other (62) 354
Accounts payable 421 993
Notes payable (2,000) 0
Accrued liabilities and royalties 83 (12)
Deferred gain on sale of land and building 5,296 0
--------- ---------
Net cash provided by (used in)
operating activities 3,666 (1,411)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net retirements of (additions to) property,
plant and equipment 2,481 (6)
Investments in affiliate 0 103
Increase in note receivable (171) 0
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Net cash provided by (used in)
investing activities 2,310 97
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 16
--------- ---------
Net cash provided by
financing activities 0 16
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,976 (1,298)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 1,840 3,604
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 7,616 $ 2,306
--------- ---------
--------- ---------
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.
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TELEVIDEO, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The interim 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 interim 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 interim 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, 1998.
The results of operations for the three-month period ended January 31,
1999, are not necessarily indicative of the results to be expected for
the entire fiscal year ending October 31, 1999.
PRINCIPLES OF CONSOLIDATION
The interim 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 $695,000 and $646,000 in 1999 and
1998, respectively:
<TABLE>
<CAPTION>
Jan.31 Oct. 31,
1999 1998
-------- ---------
<S> <C> <C>
Purchased parts and subassemblies $ 615 $ 1,196
Work-in-process 95 91
Finished goods 2,070 988
-------- ---------
$ 2,780 $ 2,275
-------- ---------
-------- ---------
</TABLE>
5
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful lives
of the assets using both straightline and accelerated methods.
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
2. 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 line of standby and sight
letter of credits. This agreement is contingent upon the Company
maintaining time deposits (CD's) at the banks as collateral in a total
amount no less than the outstanding borrowings. At January 31, 1999, the
Company had letters of credit outstanding of approximately $400,484.
3. 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
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 plaintiffs claims. The Company intends to vigorously defend against
the allegations of these suits. Management believes that the ultimate
outcome of these lawsuits will not have a material adverse effect on the
Company's financial positions.
4. RELATED PARTY TRANSACTIONS:
During 1999 and 1998 the Company has had transactions with its
affiliates as follows (in thousands):
<TABLE>
<CAPTION>
Jan. 31, 1999 Oct. 31, 1998
------------ -------------
<S> <C> <C>
Note receivable:
AdMOS(1) $ 4 $ 4
AdMOS(1) 180 180
Interest receivable:
AdMOS(1) 69 69
AdMOS(1) 82 77
(1) Amounts are fully reserved.
</TABLE>
The Company also borrowed $500,000 from Gem Management, Inc., a company
owned by the majority shareholder's spouse, on September 15, 1998. The
unsecured loan bears annual interest at a prime rate with principal and
interest due on demand. Subsequent to the quarter end, the outstanding
loan principal and interest has been paid in full.
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6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1999 were approximately $1.79
million, a decrease of approximately 61% from the approximately $4.54 million in
net sales reported in the first quarter of fiscal 1998. The decrease in net
sales was due to weak demands from Europe affected by the economic conditions
and the overall industry trend towards lower-priced products, particularly in
monitors. Sale prices increases effective November 1, 1998 also contributed to
the decrease in net sales this quarter as many customers preordered products in
October, 1998 in anticipation of such price increases. During the first quarter
of fiscal 1999, the Company's product mix continued to shift towards terminals
with the continuing phase-out of multimedia products.
Cost of sales decreased from approximately $4.07 million in the first
quarter of fiscal 1998 to approximately $1.60 million in the first quarter of
fiscal 1999, a decrease of approximately $2.5 million or 61%, directly
attributable to the decrease in net sales.
Sales and marketing expenses increased as a percentage of sales from
approximately 17.2% in the first quarter of fiscal 1998 to 27.9% in the first
quarter of fiscal 1999 while actual expenses decreased from $782,000 in the
first quarter of fiscal 1998 to $498,000 in the first quarter of fiscal 1999, a
decrease of 36% from the prior year. The percentage increase in expenditures
for marketing is primarily attributable to introduction by the Company of
TeleCLIENT products, which were launched at Comdex in November, 1998. One-time
expenditure for Comdex amounted to approximately $156,000, or 31% of total sales
and marketing expenses.
Research and development expenses increased slightly as a percentage
of sales from approximately 3.0% in the first quarter of fiscal 1998 to
approximately 3.6% in the first quarter of fiscal 1999, while actual expenses
decreased significantly from $134,000 to $64,000 during the same period in
1999, a decrease of 52%.
General and administrative expenses increased as a percentage of sales
from approximately 7.6% in the first quarter of fiscal 1998 to approximately
17.4% in the first quarter of fiscal 1999, while actual expenses decreased
from $346,000 in the first quarter of fiscal 1998 to $310,000 during the same
period in 1999, a decrease of approximately 10.4%. In accordance with the
sales-leaseback agreement, the Company began making lease payments. The
increase as the percentage of sale is attributable to the lease payment,
which was approximately $157,000, or 50% of total general and administrative
expenses.
The loss from operations decreased from $796,000 in the first quarter of
fiscal 1998 to $677,000 in the first quarter of fiscal 1999, a decrease of
approximately 15%. However, the loss from operations increased as a percentage
of sales from 17.5% in the first quarter of fiscal 1998 to 37.9% during the same
period in 1999.
Interest income net of interest expense increased from $30,000 in the first
quarter of fiscal 1998 to $32,000 in the first quarter of fiscal 1999, an
increase of 7.9%.
Net loss for the first quarter of fiscal 1999 was approximately
$638,000, compared with a net loss of $762,000 in the first quarter of fiscal
1998, a decrease of approximately 16%. The gain (approximately $8.0 million)
from the sale of the Company's building in December was deferred with only
the January portion of deferred gain recorded in the first quarter.
As a result of the foregoing, net loss per share in the first quarter of
fiscal 1999 was $0.056, based on 11,391,085 weighted average shares outstanding,
compared to a net loss per share in the first quarter of fiscal 1998 of $0.067,
based on 11,380,610 weighted average shares outstanding.
7
<PAGE>
No income tax expense or credit was provided for in the first quarter of
fiscal 1999 as the Company 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 forwards 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
At January 31, 1999, the Company had $7.6 million in cash and cash
equivalents, an increase of approximately $6.0 million over the same balances
at the end of fiscal 1998 of $1.6 million. During the first quarter of
fiscal 1999, the Company's primary source of cash was from net proceeds of
$5.6 million, net of $2.0 million used to pay off a secured short-term loan,
from the sale of the Company's headquarter building in December, 1998.
Net accounts receivable decreased by $1.1 million from $2.42 million in
fiscal year ending October 31, 1998 to $1.38 million in the first quarter ending
January 31, 1999, a decrease of 43%.
Net inventories increased to $2.78 million during the first quarter of
fiscal 1999 from $2.27 million in fiscal year ending October 31, 1998, an
increase of approximately $505,000 or 22.2%.
Working capital at the end of the first quarter of fiscal 1999 was
approximately $8.1 million, up approximately 221% from the fiscal 1998
year-end level of approximately $2.5 million.
At the current consumption rate, the Company's cash balance of
approximately $7.6 million at January 31, 1999, which includes $1.0 million
pledged as collateral to support letters of credits, plus revenues from
operations and other non-operating cash receipts is deemed adequate to fund the
Company's fiscal 1999 operations at projected levels.
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8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 5 of "Notes to Interim Condensed Consolidated Financial
Statements."
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.
(a) EXHIBIT(S).
Exhibit 27.0 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. Form 8-K was filed on January 12th.
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9
<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: MARCH 17, 1999 BY: /S/ K. PHILIP HWANG
------------------------------
DR. K. PHILIP HWANG
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER AND
ACTING CHIEF FINANCIAL OFFICER
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 7,616
<SECURITIES> 0
<RECEIVABLES> 2,754
<ALLOWANCES> 1,376
<INVENTORY> 2,780
<CURRENT-ASSETS> 15,175
<PP&E> 7,996
<DEPRECIATION> 1,666
<TOTAL-ASSETS> 14,795
<CURRENT-LIABILITIES> 2,728
<BONDS> 0
0
0
<COMMON> 458
<OTHER-SE> 5,339
<TOTAL-LIABILITY-AND-EQUITY> 14,795
<SALES> 1,787
<TOTAL-REVENUES> 1,826
<CGS> 1,592
<TOTAL-COSTS> 872
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (616)
<INCOME-TAX> 21
<INCOME-CONTINUING> (638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (638)
<EPS-PRIMARY> (0.056)
<EPS-DILUTED> (0.056)
</TABLE>
