<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED: OCTOBER 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.
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2383795
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2345 HARRIS WAY, SAN JOSE, CALIFORNIA 95131
-------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-8333
---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
-----------------------------
(TITLE OF CLASS)
------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
<PAGE>
THE APPROXIMATE AGGREGATE MARKET VALUE OF REGISTRANT'S COMMON STOCK
HELD BY NON-AFFILIATES ON FEBRUARY 8, 1999 (BASED UPON THE CLOSING SALES PRICE
OF SUCH STOCK AS REPORTED IN THE NASDAQ NATIONAL MARKET AS OF SUCH DATE) WAS
$3,922,673.
AS OF FEBRUARY 8, 1999, 11,271,085 SHARES OF REGISTRANT'S COMMON STOCK
WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Definitive
Proxy Statement to be used in connection with Registrant's Annual Meeting of
Stockholders to be held on April 6, 1999 (Part III).
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended October
31, 1998 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 Annual 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 kinds of statements are signified by words such as
"believes," "anticipates," "expects," "intends," "may," "will" and other
similar expressions. However, these words are not the exclusive means of
identifying such 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. 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.
(Remainder of this page was intentionally left blank)
2
<PAGE>
INTRODUCTORY STATEMENT
References in this Form 10-K to "TeleVideo," the "Registrant" or the
"Company" refer to TeleVideo, Inc. and its subsidiaries unless the context
indicates otherwise. This report contains registered and unregistered trademarks
of other companies.
PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1975, TeleVideo is a market leader providing innovative
high-end PC and Mac-compatible monitors and terminal display products; graphics
boards, sound boards and multilingual multimedia upgrade kits. The Company
markets its products worldwide through distributors, mass merchants, retail
stores, value-added resellers ("VARs"), systems integrators and original
equipment manufacturers ("OEMs").
TeleVideo operates in one industry segment.
PRODUCTS
WINDOWS-BASED TERMINALS
TeleVideo has made a strategic return into the server based network
computing market by introducing the TeleCLIENT-TM- Windows-based terminal
product line. The TeleCLIENT-TM-, with Microsoft's Windows-TM- CE operating
system, allows users to access Windows-TM-, Java, and UNIX applications with
Microsoft Windows-TM- NT 4.0 Terminal Server Edition and Citrix WinFrame and
MetaFrame server operating systems. The TeleCLIENT is a network connected,
diskless desktop device in which all applications and data are executed and
stored on the server, and therefore reduces the total cost of ownership
(TCO), increases productivity, and strengthens security throughout a
corporate network computing environment.
During Fall Comdex 1998, TeleVideo introduced a family of sleek and
powerful TeleCLIENT-TM- Windows-based terminals. The TC7000 is a modular,
compact, stand alone box that is ideal where desktop space is valuable. The
TC7150 is an integrated solution with TeleVideo's 15" CRT monitor, while the
TC7170 is integrated with TeleVideo's 17" CRT monitor. These two models also
reduce the footprint at the desktop.
With TeleVideo's 2.5 million customer installation base of text
terminals, the TeleCLIENT-TM- product line is the ideal migration path for
all it's existing customers and other text terminal users. The TeleCLIENT-TM-
will allow users to access Windows-TM- applications, i.e. Microsoft Office
products, and emulate TeleVideo's 955 terminal. TeleVideo 925/950/965/990,
Wyse 50/60/325, ADDS VP/A2 UNIX console, DEC VT52/100/220/320, and IBM
3151/3270/5250 emulations will also be embedded onto the TeleCLIENT-TM-. The
TeleCLIENT-TM- will also feature a embedded internet browser. This browser
will allow users to run Java applications to their desktop.
TeleCLIENT-TM- TC7000, TC7150, and TC7170 Windows-based terminals
provide a cost-effective solution for replacing both enterprise PCs and
antiquated character based terminals. These low-cost, state-of-art
TeleCLIENT-TM-Windows-based terminals will be the ideal solution for task
oriented applications, such as retail, help desk, medical, government,
financial, education, and manufacturing industries.
3
<PAGE>
COMPUTER MONITORS
In November 1996, TeleVideo announced two product lines of quality PC
and Mac compatible color monitors, the SuperView Pro Series and SuperView
Series. These finely crafted monitors allow a variety of utilization home,
business, the ever-evolving digital world of Internet, DVD, sophisticated
point-oriented desktop publishing, CAD/CAM applications and more.
The high quality SuperView Pro Series monitors include the SVP350
21-inch monitor (19.9" diagonal viewable area), the SVP300 19-inch monitor
(18.0" diagonal viewable area), the SVP270 17-inch monitor (15.8" diagonal
viewable area) and the SVP260 17-inch monitor (16.0" diagonal viewable area).
These monitors feature high resolutions, advanced On Screen Display (OSD) and
wide range of scanning frequency. The SVP260, SVP270 and SVP350 monitors feature
Mitsubishi's award winning Diamondtron Aperture Grille technology which delivers
flicker-free, sharp, and crystal-clear images for graphic designers and
engineers for rendering intricate images as in CAD/CAM design work.
The SVP350 features an Aperture Grille pitch of 0.28mm and a maximum
resolution of 1600 x 1200 at an exceptional 85Hz refresh rate. Its horizontal
scanning frequencies range from 30 to 107KHz and vertical frequencies of 50 to
160Hz. The SVP270 has an Aperture Grille pitch of 0.25mm and a maximum
resolution of 1600 x 1200 at 75Hz refresh rate for flicker-free display. It's
horizontal scanning frequency range from 30 to 95KHz and vertical frequencies
from 50 to 160Hz. The SVP260 features an Aperture Grille pitch of 0.25mm and a
maximum resolution of 1600 x 1200 at 65Hz refresh rate, rising to a flicker-free
77Hz refresh rate at 1280 x 1024 resolution. Horizontal scanning frequencies are
from 24 to 82KHz and vertical frequencies from 50 to 120Hz.
The SuperView Series offers affordable, high-capability monitors
designed primarily for conventional business use, home office, games,
entertainment and education. The SV210 17-inch color monitor (16.0" diagonal
viewable area) is a flat-screen monitor featuring a dot pitch of 0.26mm, a
maximum resolution of 1280 x 1024 at 65Hz refresh rate, scanning frequencies of
30 to 70KHz horizontal and 50 to 120Hz vertical for flicker-free operation. The
SV200 17-inch color monitor (16.0" diagonal viewable area) features a small
footprint with a 0.28mm dot pitch, maximum resolution of 1280 x 1024 with a 65Hz
refresh rate, and scanning frequencies of 30 to 70KHz horizontal and 50 to 120Hz
vertical for flicker-free display. The SV100 15" (13.8" diagonal viewable area)
has a fine 0.28mm dot pitch with resolution reaching 1280 x 1024 at 65Hz refresh
rate. All three SuperView Series monitors feature Shadow Mask technology
producing vivid images needed for a full range of applications.
TeleVideo has streamlined its monitor line for 1999. TeleVideo will be
offering its award winning SV100, SV210, and SVP300 CRT monitors. The SVP260,
SVP270, and SVP350 aperture grill monitors has been phased out.
All TeleVideo monitors include TELEXPRES (TeleVideo Exchange Program
for Resellers and End-User Service, one of the most comprehensive "hassle free"
3 year warranty and DOA replacement policy in the industry. All TeleVideo
monitors come with a 3-year CRT, parts and labor warranty, unlimited technical
support, BBS and Internet access to customers.
These products collectively accounted for approximately 29% and 18% of
the total revenues in fiscal 1998 and 1997 respectively.
4
<PAGE>
MULTIMEDIA PRODUCTS
TeleVideo develops and markets an array of video graphics cards, sound
boards and multilingual multimedia kit products for the personal computer (PC)
market. The current products include:
TeleSOUND 3D, a plug-and-play 16-bit sound board for PC audio systems
and delivers true CD-quality stereophonic sound. It features 32 polyphony, 16
MIDI channels, 4 operator, 20-voice FM synthesis, and a General MIDI all in one
board. Based on an OPL3 FM synthesis device, the TeleSOUND 3D is compatible with
existing multimedia sound standards including the Sound Blaster Pro, Ad Lib,
Windows Sound System, MPU-40, and Windows 3.1 and Windows 95. All kits are MPC
compliant.
TeleWAVE Q32/3D featured surround sound, 32 polyphony, 16 MIDI
channels, 4 operator, 22-voice FM music synthesizer, a General MIDI and 100 MIPs
DSP wavetable power all in one board. It provides professional music studio
quality stereophonic sound of real musical instruments. Using advanced DSP
technology, the TeleWAVE Q32/3D allows users to turn their PC into a
professional PC audio system with 128 general MIDI musical instrument sounds.
TeleGRAPHICS SX64V+ is the next-generation ultra fast graphics and
video accelerator board. It utilizes a 64-bit graphics engine with unique
stream processor technology, enhanced 2D graphics acceleration and hardware
assisted video playback. Features include 64-bit graphics and video
co-processor, integrated 24-bit RAM-DAC with 135 MHz output pixel rate and
dual clock synthesizer for true color (up to 32-bit per pixel) acceleration.
It supports high resolution of up to 1600 x 1200 at color depth of 256 and
800 x 600 with 16.7 million colors.
The TeleGRAPHICS 3D is a high performance plug-and-play 3D graphics
accelerator board designed for high resolution true color and multimedia
capabilities on PC hardware and software platforms. It features an advanced
64-bit PCI video graphics accelerator designed to give realistic 3 dimensional
graphics for educational, entertainment and other multimedia applications. This
highly advanced video processor with hardware-assisted video playback is capable
of scaling full-screen MPEG video clips up to 30 frames-per-second. It is also
capable of full-screen display resolutions up to 1600 x 1200 with high picture
quality.
TeleVideo also bundles CD-ROM drives with TeleVideo sound boards and
other multimedia products to meet the needs and requirements of OEMs,
distributors, resellers and systems integrators. CD-ROM bundles are configured
according to customer needs and requirements.
During fiscal 1998, the Company began a phase-out of all multimedia
products. As a result, multimedia products collectively accounted for
approximately 13% of the total revenue in fiscal 1998 while these products
accounted for 35% and 48% of the total revenue in fiscal 1997 and 1996,
respectively.
VIDEO DISPLAY TERMINALS
TeleVideo designs, manufactures, markets and supports a broad range of
industry standard, high performance character-based Windows, Point-of-Sale,
ASCII, ANSI and PC TERM video display terminals and terminal boxes which feature
high quality, low flicker, high contrast, high resolution and non-glare screens.
Current terminal series include:
The TeleVideo 9099 color terminal box, a high-performance and low-cost
ASCII, ANSI, PC terminal is designed to meet productivity goals into the 21st
century. It features an IBM-compatible keyboard interface for wedge type bar
code scanners, wand readers, credit card readers, and/or specialized keyboards
for point-of-sale, bank teller, and similar applications. The 9099 also supports
standard ANSI color commands and MicroColor (color substitution for visual
attributes) for legacy software with 64 colors available for both foreground and
background. In addition, the 9099 offers increased flexibility by allowing
the user to select any monitor size for particular application.
5
<PAGE>
The TeleVideo 9089 is a high-resolution, color windows terminal box
that provides 64 colors for both foreground and background selections in each
of the six windows. The 9089 allows the user to work in multiple applications
and toggle or copy and paste between the applications in different windows or
hosts. It also offers flexibility by allowing user to select any monitor size
for particular application.
The TeleVideo 9060 high-performance 9-inch display terminal is a
multi-session, multi-personality terminal with ASCII, ANSI and PC TERM operating
modes. It can function as an independent terminal in single or dual host
computer environments. It can also connect to light pen, bar code scanner and
magnetic strip readers for point-of-sale, financial and similar applications.
The TeleVideo 995 14-inch monochrome AlphaWindow terminal allows the
user AlphaWindowing capability at a non-windowing price for new or existing
software applications. The windows capability provides increased productivity
for applications running on UNIX. The 995 also has a power management screen
saver which protects the environment and promotes energy conservation.
The TeleVideo 995-65 14-inch terminal is specifically designed to
address the needs of customers who require a powerful, yet versatile solution
which can emulate a wide range of industry-standard terminals. It features
multi-session, multi-personality emulation of over 34 terminals, and is capable
of operating as an independent terminal in single or dual-host computer
environments.
The TeleVideo 990 terminal is a general purpose terminal with ASCII,
ANSI and PC TERM operating modes. For maximum versatility and flexibility, the
terminal provides a choice of ASCII, AT or DEC style keyboards. The 990's
mini-DIN keyboard connector permits connection to low-cost industry standard
wedge type devices. This allows the user to interface to a bar code scanner,
wand reader, credit card reader, electronics scale or a variety of specialized
keyboards for point-of-sale or point-of-transaction processing.
The video display terminal products collectively accounted for
approximately 51%, 38% and 34% of the total revenue in fiscal 1998, 1997 and
1996, respectively.
COMPUTER ENHANCEMENT PRODUCTS
The Company, through its OMTI product line, manufactures and markets
multi-function data storage products for various bus architectures. These
products collectively accounted for approximately 3%, 4% and 6% of total
revenues in fiscal 1998, 1997 and 1996, respectively.
PRODUCT DEVELOPMENT
Markets that TeleVideo serves are characterized by rapid technological
change. TeleVideo has an ongoing program to develop new products. Although the
Company's research and development staff consists of 4 employees as of January
19, 1999, various joint projects of the Company are supported by many talented
pools of engineers from participating companies. During fiscal 1998, TeleVideo
spent approximately $0.4 million on company-sponsored research and development.
Company-sponsored research and development expenses for fiscal 1997 and 1996
were approximately $0.8 million and $1.1 million, respectively. The Company did
not engage in any customer-sponsored research and development during such years.
Because of the fast pace of technological advances, the Company must be
prepared to design, develop and manufacture new and more powerful low-cost
products in a relatively short time. TeleVideo believes it has had mixed success
to date in accomplishing these goals simultaneously. Like other companies in the
computer industry, it will continue to experience delays in completing new
product design and tooling. There is no assurance that the Company will be able
to design and manufacture new products, including thin clients, that respond to
the rapid changes in the market place.
6
<PAGE>
SALES, MARKETING AND CUSTOMERS
North American sales are handled from TeleVideo sales offices located
in San Jose, California; Morristown, New Jersey and Hoffman Estates, Illinois.
Products are sold through distributors, mass merchants, retail stores, VARs,
systems integrators and OEMs.
Products sold in Europe, Asia Pacific, Africa and Latin America are
handled by the Company's office in San Jose, California through distributors,
OEMs and international representatives.
TeleVideo distributors generally do not have exclusive geographic
territories. Distributor contracts can be terminated by either party without
cause upon advanced written notice of 30 days or 60 days. TeleVideo's
distributors typically handle a variety of computer-related products, including
products competitive with those of TeleVideo. The typical distribution
arrangement requires the distributor to purchase TeleVideo products with certain
limited stock rotation rights. Distributors may also exercise price protection
rights should the Company's product price be reduced.
TeleVideo, through its headquarters' marketing and supporting staff,
plans to continue to work closely with its distributors, mass merchants, retail
stores, VARs, systems integrators and original OEMs. TeleVideo marketing staffs
also provide the customers with training, sales and promotional materials,
cooperative advertising programs, trade show participation and sales leads. The
marketing organization also leads the product marketing role giving direction
to product management and competitive positioning. The Company spent
approximately 7.3% ($1.07 million), 6.6% ($1.3 million) and 2.4% ($0.52
million) of its revenues on advertising in fiscal 1998, 1997 and 1996,
respectively.
TeleVideo's customers typically purchase the Company's products on an
as-needed basis. Therefore, the Company will continue to manufacture its
products based on sales forecasts and upon customer orders. As a result of this
strategy, the Company believes that backlog is not material to its business
taken as a whole. The Company's order backlog as of October 31, 1998 was
approximately $0.9 million, as compared with approximately $1.4 million at
October 31, 1997, and approximately $2.8 million at October 31, 1996.
TeleVideo's order backlog includes orders with a specified delivery schedule
within twelve months. Because of the possibility of customer changes in delivery
schedules or cancellation of orders, which is not uncommon in the computer
industry, the Company's backlog as of any particular date may not be indicative
of actual net sales for any succeeding period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
TeleVideo's largest customer accounted for approximately 12.3% ($1.8
million) of net sales in fiscal 1998. Another customer accounted for 11.2%
($1.66 million) of net sales in fiscal 1998. TeleVideo's product sales are
primarily made for cash, due net 30, 45 or 60 days, or in the case of some
foreign sales, payment by letter of credit is required.
INTERNATIONAL SALES
International sales of TeleVideo's products constituted approximately
$2.1 million (14.0%) of net sales for fiscal 1998, approximately $2.7 million
(13.7%) of net sales for fiscal 1997 and approximately $3.41 million (15.8%) of
net sales for fiscal 1996.
TeleVideo's international sales are subject to certain risks common to
non-United States operations, including but not limited to governmental
regulations, import restrictions and export control regulations, changes in
demand resulting from fluctuations in exchange rates, as well as risks such as
tariff regulations. TeleVideo's international sales are U.S. dollar-denominated
and, therefore, are not directly subject to international currency fluctuations.
The strength of the dollar in relation to certain international currencies may,
however, adversely affect the Company's sales to international customers.
7
<PAGE>
FOREIGN JOINT VENTURE ACTIVITY
COMMONWEALTH OF INDEPENDENT STATES
TeleVideo continues to pursue business opportunities in the former
Soviet Union, now referred to as the Commonwealth of Independent States. These
may or may not involve sale or production of the Company's products, and
TeleVideo may invest cash in these ventures.
INTERTERMINAL
In April 1994, the Company acquired a 51% ownership of the
"InterTerminal" joint venture in exchange for a $5,100 cash investment and a
commitment to fund a $3.65 million loan, at a 20% interest rate, interest free
for one year, to the venture. The main purpose of the joint venture was the
construction of a truck terminal (approximately 100,000 square feet)
approximately 25 miles outside of Moscow, and the construction was complete in
early 1995. TeleVideo sold its 51% ownership in May 1995. The $3.65 million loan
was repaid to the Company in fiscal 1995. An additional amount of $1,369,500 was
received and recognized as a gain in fiscal 1996.
TELEVIDEO-RUS
In January 1996, TeleVideo set up a company called "TeleVideo-RUS" in
the Commonwealth of Independent States with an initial investment of $150,000.
The main purpose of this company is to act as a liaison between TeleVideo and
the authorities in the CIS. One of the projects that the Company is anticipating
will be the construction of truck terminals similar to the "InterTerminal" joint
venture.
In October 1997, the Company received $250,000 from the sale of
TeleVideo-RUS. The Company recognized a $100,000 profit during fiscal 1997.
THREE H
Three H Partners, owned equally by TeleVideo and a Russian entity,
was formed in fiscal 1991. The Company invested a total of $76,000 into Three
H. The Company has restated its financial statements to reflect a write off
of this investment at October 31, 1996 (Refer to Note 15).
8
<PAGE>
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 Company has restated its financial
statements to reflect a write-off of this investment at October 31, 1997.
(Refer to Note 15)
KORAM, INC.
On March 3, 1997, the Company deposited $224,820 in escrow in Korea,
which amount was used to purchase a 50% interest in a restaurant venture in
Seoul, Korea. The amount deposited has been written down to $109,820 due to
the devaluation of the Korean won. The Company accounts for this investment
on the equity basis of accounting.
COMPETITION
TeleVideo believes that brand recognition, product quality,
availability, extensive standard product features, service and price are
significant competitive factors in the Company's markets. In addition to the
factors listed above, the principal considerations for distributors and
resellers in determining which products to offer include profit margins,
immediate delivery, product support, and credit terms. TeleVideo has continued
and in the future will likely continue to face significant competition, with
respect to these factors, particularly from the large international
manufacturers. Most of these companies have significantly greater financial,
marketing and technological resources than the Company, and may be able to
command better terms with their suppliers due to higher purchasing volumes.
Therefore, there is no assurance that the Company will be able to successfully
compete in the future.
PRODUCTION
The Company subcontracts all of the manufacture of its terminal,
monitor and multimedia products to manufacturers in Japan, Taiwan, The People's
Republic of China and South Korea. TeleVideo does not have any long-term
contracts with its overseas manufacturers. The testing, inspection and some
minor assembly work are done at its California headquarters. The Company
believes its current manufacturing facilities in California will continue to be
adequate for its purposes for the foreseeable future.
The Company generally uses standard parts and components for its
products, although certain components are presently available and secured
only from a single source. The Company's largest supplier accounted for
approximately 26.2% (approximately $3.9 million), 7.1% (approximately $1.1
million), and 5.6% (approximately $0.8 million), respectively, of net
purchases in fiscal 1998. Loss of this supplier might have an adverse effect
on the product supply of the Company. The Company believes, however, that in
most cases, alternative sources of supply could be arranged as and when
needed by the Company. To date, TeleVideo has not experienced any significant
difficulties or delays in production of its monitor, terminal and multimedia
products.
9
<PAGE>
PRODUCT SERVICE AND WARRANTY
TeleVideo's products are serviced worldwide primarily by distributors
and OEMs.
The Company provides end-user customers with a one-year factory
warranty on terminal products and a three-year factory warranty on monitor and
multimedia products.
PROPRIETARY RIGHTS
The Company regards certain aspects of its products as proprietary and
relies upon a combination of trademark and copyright laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company has registered trademarks in the United States and in over
20 foreign countries for "TeleVideo" and the TeleVideo logo.
The continuing development of the Company's products and business is
dependent, primarily, on the knowledge and skills of certain of its employees.
To protect its rights to its proprietary information, the Company requires all
employees and consultants to enter into confidentiality agreements that prohibit
the disclosure of confidential information to persons unaffiliated with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's technology or other confidential
information in the event of any unauthorized use or disclosure. There also can
be no assurance that third parties will not independently develop products
similar to or duplicative of products of the Company. The Company believes that
due to the rapid pace of technological change in its industry, the Company's
success is likely to depend more upon continued innovation, technical expertise,
marketing skill and customer support than on legal protection of the Company's
proprietary rights.
GOVERNMENT REGULATIONS
Most of the Company's products are subject to regulations adopted by
the Federal Communications Commission ("FCC"), which establishes radio frequency
emanation standards for computing equipment. TeleVideo believes that all of the
Company's products that are subject to such regulations comply with these
regulations. Although there can be no assurance, the Company has no reason to
believe that new products will not also be approved. Failure to comply with the
FCC specifications could preclude the Company from selling non-complying systems
in the United States until appropriate modifications are made. To date, the
Company has not encountered any FCC compliance problems.
EMPLOYEES
As of January 19, 1999, the Company's full-time employees totaled
41, a decrease of 25% in the number of employees, which was 56, reported at
the end of fiscal 1997. Of the total number of employees, 21 are engaged in
product research, engineering, development and manufacturing; 8 in marketing
and sales; and 12 in general management and administration. The Company-wide
reorganization, which had started in previous fiscal years, has been
completed during fiscal 1998. The Company has now stabilized its workforce
and is well poised to embark on future tasks. The Company believes that its
future success will depend, in part, on its ability to continue to attract
and retain highly skilled technical, marketing and management personnel.
None of the Company's employees is subject to a collective bargaining
agreement or represented by a union, and the Company has never experienced a
work stoppage. The Company believes that its employee relations are good.
10
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters, research and development and
administrative operations are housed in a 69,630 square foot building located
on 2.5 acres in San Jose, California, which was owned by the Company. On
December 28, 1998, the Company sold the building and has leased it back. The
lease expires on December 31, 2013.
The Company leases a domestic sales office in Hoffman Estates,
Illinois. The lease is on a month to month basis with a current monthly
rental rate of $1,201. Management believes that the Company would be able to
secure an extension to the lease if such an extension is deemed necessary in
the future. In May 1997, the Company opened an eastern regional sales office
in Morristown, New Jersey. The office is currently located at the residence
of the employee until such time that an appropriate site is located. During
fiscal 1997, the Company closed its domestic sales office in Newport Beach,
California.
ITEM 3. LEGAL AND OTHER PROCEEDINGS
TAX AUDITS
On July 14, 1997, the State of Massachusetts issued to the Company a
certificate of withdrawal to do business in the state. Consequently, $250,000
was removed from deferred taxes and was recognized as other income. The only
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 fiscal 1999 and its maximum exposure will not
exceed $350,000. The Company has accrued this full amount at October 31, 1998.
OTHER LEGAL PROCEEDINGS
The Company has been named, along with dozens of other manufacturers,
designers, and distributors of computer equipment, as a defendant in several
lawsuits regarding product liability in connection with the alleged defective
design of computer terminal keyboards and the size of the computer monitor
screens. The first claim alleges that the various plaintiffs have suffered some
form of severe wrist injury from the use of these 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 position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market
and prices are quoted on the Nasdaq National Market under the symbol "TELV."
The following table sets forth for the periods indicated the high and low
last sales prices for the Common Stock as reported by Nasdaq. The prices
quoted below reflect inter-dealer prices, without retail mark-ups, markdowns
or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
FISCAL 1997:
First Quarter $2.2500 $1.3752
Second Quarter 1.7500 0.8752
Third Quarter 1.8752 1.1252
Fourth Quarter 4.1252 1.2500
FISCAL 1998:
First Quarter $3.3750 $1.7500
Second Quarter 3.1250 1.3750
Third Quarter 2.0625 0.9688
Fourth Quarter 1.0313 0.7188
</TABLE>
There were 756 holders of record of the Company's Common Stock at
February 8, 1999.
On February 8, 1999, the closing price of the Company's Common Stock
in the over-the-counter market, as reported on the Nasdaq National Market,
was $0.90625 per share. The Company effected a 4-for-1 reverse stock split of
its outstanding common stock on April 23, 1998 in order to meet the Nasdaq
National Market Maintenance Criteria. Stock prices after the effective date
of the reverse split reflect the reverse stock split. Stock prices before the
effective date of the reverse split also reflect the reverse stock split
retroactively.
The Company has never paid cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The
Company presently intends to retain any earnings for use in its business.
(The remainder of this page was left blank intentionally.)
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data reflects the continuing
operations of TeleVideo. The data below has been derived from the Company's
audited consolidated financial statements for the fiscal years presented and
should be read in conjunction with such audited financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented elsewhere herein.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------------------------
1998 1997 1996
(Restated) (Restated) (Restated) 1995 1994
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $14,751 $19,884 $21,576 $16,914 $13,232
Income (loss) from continuing
operations (4,727) (3,115) (4,638) (4,741) (1,869)
Net (loss) income (8,881)(4) (3,444)(3) (2,993)(2) 415(1) (907)
Net (loss) income (per share),
Basic and diluted (0.79) (0.31) (0.26) 0.04 (0.08)
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,640 $ 3,604 $ 4,496 $ 5,145 $ 2,131
Working capital 2,533 9,208 13,239 13,035 7,246
Total assets 10,433 17,692 23,014 24,600 26,045
Stockholders' equity 6,211 15,062 18,468 21,345 21,832
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Consolidated Financial Statements
for a discussion of operating results, liquidity needs and acquisitions and
dispositions during the periods.
<TABLE>
<S> <C>
(1) Includes net gains (loss) from the following (in thousands):
(A) Sale of building $1,350
(B) Disposition of Russian joint venture interest 1,910
(C) Sale of interest in Kabil Electronics 1,422
(D) Disposal of SMS product line (346)
------
$4,336
------
------
(2) Includes net gain from the sale of InterTerminal joint venture
interest of $1,370,000.
(3) Includes net gains(loss) from the following (in thousands):
(A) Loss from investment in APT venture $ (623)
(B) Gain from Russian investment 100
(C) Gain from tax settlement 250
(D) Korean currency valuation adjustment (115)
(E) Loss from write-off of TLK (150)
-----
$ (538)
------
------
(4) Includes net loss from investment in APT venture of $ 4,076,903.
(5) Refer to Note 15
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The forward-looking statements contained herein are based
on current expectations, and actual results may differ materially. Factors that
might cause such differences include, but are not limited to, those discussed
under "Factors that may Affect Future Results," below.
GENERAL
The Company focused its resources on the terminal and multimedia
product lines after the Company completed a phase-out of its personal
computer products in fiscal 1993. In November 1996, the Company announced its
entry into the computer monitors market. Efforts continued to expand in the
development of new multimedia products and upgrade kits in fiscal 1996 and
fiscal 1997. During fiscal 1998, with continued expansion of monitor
products, the Company started a phase-out of its multimedia products. Results
in fiscal 1998, as well as in previous fiscal 1997, were also impacted by a
continued shift in product mix, with the Company's monitors and terminal
products contributing approximately 80% of the total sales. In November 1998,
the Company launched its Windows-based terminal products.
The Company has reduced its marketing and sales force from 15 employees
at October 31, 1997 to 8 employees at October 31, 1998, as a result of
its continuing effort to reduce operating costs and to improve operating
efficiency. In order to lower the production costs, the Company has continued to
negotiate with its suppliers and has also shifted its production process from
in-house to overseas manufacturing.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal year 1998 were approximately $14.75 million, a
decrease of approximately 25.8% compared to $19.88 million net sales in
fiscal 1997. The decrease in net sales in fiscal 1998 was mainly due to the
decrease in the sale of multimedia products, which the Company is gradually
phasing out, from approximately $6.5 million in 1997 to approximately $1.9
million in 1998, a decrease of 70.7%. Additionally, there were decreases in
the sales of OMTI board, spares, repairs and miscellaneous products from
approximately $2.3 million in 1997 to $1.2 million in 1998, or 52.4%. Sales
of OMTI boards have decreased as demand from customers has shifted toward
newer technologies. The Company sells OMTI boards only to existing customers
who continue to use this particular technology. Sales of spares, repairs and
miscellaneous products decreased in 1998 as price decreases made it more cost
effective for customers to replace, rather than to repair, their related
equipment. However, monitor net sales increased from $3.5 million in 1997 to
$4.4 million in 1998, an increase of 24%, to offset the decrease in net sales
of multimedia and other products.
Cost of sales decreased from approximately $17.79 million in 1997 to
$13.38 million in 1998, a decrease of 24.8%. Cost of sales as a percentage of
net sales increased from 89.5% in 1997 to 90.7% in 1998, due primarily to
lower profit margins on sales of both multimedia products and monitors.
During 1998, the Company phased out its multimedia product lines and sold
most of its multimedia inventory at below average gross margins to reduce its
excess stock. The Company's net inventory level decreased by 22% in 1998, to
$2.3 million, from $2.9 million at October 31, 1997. The Company also
experienced competitive pricing pressure on the sale of monitors, leading to
lower gross margins for some of its monitors in stock when compared with
gross margins in 1997. Manufacturing expenses (which are included in cost of
sales) decreased from approximately $1.3 million in fiscal 1997 to
approximately $1.1 million in fiscal 1998, a decrease of $182,000 or 14.4%.
The decrease was mainly due to the decrease in number of employees from 27 in
1997 to 17 in 1998.
Sales and marketing expenses decreased from approximately $3.0
million in fiscal 1997 to approximately $2.4 million in fiscal 1998, a
decrease of 18.6%. As a percentage of net sales, sales and marketing expenses
were almost the same for 1997 and 1998 from 15% to 16.5%, respectively. The
decrease in actual expenses was primarily due to the decrease in employee
headcount in sales and marketing departments and a reduction in advertising
expenses.
14
<PAGE>
Research and development expenses decreased as a percentage of net
sales from approximately 4% in fiscal 1997 to 3% in fiscal 1998, as actual
expenses decreased from $762,000 in 1997 to $370,000 in 1998, a decrease of
51.4%. The decrease was due mainly to the further reduction in employee
headcount in the Company's engineering department.
General and administrative expenses increased as a percentage of net
sales from approximately 7.3% in fiscal 1997 to approximately 22.3% in fiscal
1998 while actual expenses also increased from approximately $1.46 million in
fiscal 1997 compared to approximately $3.3 million in fiscal 1998, a 126%
increase. The increase was due primarily to the increase in bad debts from
approximately $293,000 in fiscal 1997 to approximately $2.3 million in 1998.
The increase in bad debts was due to the Company's write-off of its accounts
and notes receivable balance from Applied Computer Technology, Inc., of
approximately $1.96 million.
The loss from operations reported in fiscal 1998 increased
approximately $1.6 million or approximately 52%, from approximately $3.1
million in fiscal 1997 to approximately $4.7 million in fiscal 1998. The
increase was primarily due to the increase in general and administration
expenses stemming from the recognition of bad debt from major customers, and
the decrease in net sales from $19.9 million in fiscal 1997 to $14.8 million
in fiscal 1998.
The net loss for fiscal year 1998 was approximately $8.9 million,
compared with a $3.4 million net loss for fiscal 1997. In addition to the
various factors noted above, the loss from equity investment in Applied
Photonics Technology, Inc. of approximately $4.08 million was the paramount
reason for the approximately 162% increase in net loss.
Net loss per share in fiscal 1998 was $0.79 based on 11,267,685
weighted average shares outstanding, compared to a net loss per share in fiscal
1997 of $0.31 based on 11,254,810 weighted average shares outstanding. The
shares outstanding numbers reflect a 4-for-1 reverse stock split effected in
April 1998.
No income tax expense or credit was provided for in fiscal 1998. The
Company has approximately $98 million in federal net operating loss and credit
carryovers and approximately $32 million in state net operating loss carryovers
to offset future federal and state corporate income tax liabilities. No net
deferred tax asset has been recognized by the Company for any future tax benefit
to be provided from the loss carry forwards since realization of any such
benefit is not assured.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal year 1997 were approximately $19.88 million, a
decrease of approximately 7.8% from approximately $21.58 million in net sales
reported in fiscal 1996. The decrease in net sales in fiscal 1997 was mainly due
to the decrease in the sale of multimedia products from approximately $10.35
million in 1996 to approximately $6.5 million in 1997, a decrease of $3.85
million or 37.2%. However, the launching of computer monitor products starting
in November 1996 offset the decrease in multimedia sales. Computer monitor sales
for fiscal 1997 were approximately $3.55 million or 17.9% of net sales.
Cost of sales decreased from approximately $20.63 million in fiscal
1996 to approximately $17.79 million in fiscal 1997, resulting in a decrease in
the percentage of sales from approximately 95.6% to 89.4% during the same
period. The percentage decrease in cost of sales and the corresponding increase
in gross margin in fiscal 1997 (an increase from approximately 4.4% to 10.6%)
were primarily the results of lower multimedia sales which historically have a
lower profit margin.
Inventory reserves were decreased by approximately $140,000 for fiscal
1997. The Company reduced the reserve during the year by $519,000 reflecting
reductions in ending reserved inventory and increased the reserve by $379,000
reflecting additional charges to cost of goods sold for obsolete and slow moving
inventory.
15
<PAGE>
Manufacturing expenses increased from approximately $1.2 million in
fiscal 1996 to approximately $1.3 million in fiscal 1997, an increase of
$113,000 or 9.8%. The increase was mainly due to the increase in depreciation
of production equipment and outside consulting.
Marketing expenses increased as a percentage of sales in fiscal 1997
from approximately 11.3% in fiscal 1996 to 15.1% in fiscal 1997, while actual
expenses also increased from $2.4 million in fiscal 1996 to $3.0 million in
1997, a 23.3% increase. The increase in marketing expenses was due primarily to
the increase in advertising expenses incurred in connection with the launching
of high-end PC and Mac compatible monitor introduced in fiscal 1997 and an
increase in outside consulting. These increases were offset by reductions in
other expense categories.
Research and development expenses decreased as a percentage of sales
from approximately 5.1% in fiscal 1996 to 3.8% in fiscal 1997, while actual
research and development expenses also decreased from $1.1 million in fiscal
1996 to $0.8 million in fiscal 1997, a 30.5% decrease. The decrease in actual
expenses was due mainly to the further reduction in employee headcount from 7 in
fiscal 1996 to 5 in fiscal 1997.
General and administrative expenses decreased as a percentage of sales
from approximately 9.6% in fiscal 1996 to approximately 7.8% in fiscal 1997,
while actual expenses also decreased from $2.1 million in fiscal 1996 compared
to $1.46 million in fiscal 1997, a 30% decrease. The decrease was due primarily
to the reduction in the provision for doubtful accounts from $760,000 in 1996 to
$292,500 in 1997.
The loss from operations reported in fiscal 1997 decreased
approximately $1.5 million or approximately 30.7%, from $4.6 million in fiscal
1996 to $3.1 million in fiscal 1997. The decrease was due primarily to the
decrease in cost of sales and to the decrease in operating expenses in research
and development and general and administration, partially offset by the increase
in sales and marketing due to the increase in advertising expense.
The Company recognized a net gain from the sale of TeleVideo-RUS in
the amount of $100,000 in fiscal 1997. A loss of $390,000 is also recognized
representing 30% equity interest in Advanced Photonics Technology, Inc. and
$115,000 due to currency devaluation of the Korean won in the Company's
investment with Koram. Additionally, the Company's re-stated financial
results reflect a write-off of the Company's $150,000 investment in TLK for
the fiscal year ended October 31, 1997, and a write-off of the Company's
$76,000 investment in Three H for the fiscal year ended October 31, 1996.
(Refer to Note 15)
Interest income earned in fiscal 1997 decreased to $410,000 from
$697,000 in fiscal 1996, a 41.2% decrease. The decrease was primarily due to
lower cash level in 1997 than in 1996.
Net loss for fiscal year 1997 was approximately $3.4 million, compared
with $3.0 million net loss for fiscal 1996. The loss in fiscal 1997 was a result
of the various factors noted above.
Net loss per share in fiscal 1997 was $0.31 based on 11,254,810
weighted average shares outstanding, compared to a net loss per share in
fiscal 1996 of $0.26 based on 11,351,000 weighted average shares outstanding.
No income tax expense or credit was provided for in fiscal 1997. The
Company has approximately $89.9 million in federal net operating loss and credit
carryovers and approximately $27.4 million in state net operating loss
carryovers to offset future federal and state corporate income tax liabilities.
No net deferred tax asset has been recognized by the Company for any future tax
benefit to be provided from the loss 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.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled approximately $1.64 million at
October 31, 1998, down $1.96 million (approximately 54.5%) from fiscal 1997
year-end levels of $3.6 million. The decrease in the cash and cash
equivalents resulted primarily from the net cash used in operating activities
of approximately $2.2 million and the cash used for investments and advance
to affiliate aggregating $2.7 million offset by the net cash provided by
notes payable of approximately $2.5 million.
Approximately $1.0 million in certificates of deposit were pledged as
collateral for comparable amounts of stand-by and sight letters of credit under
the letter of credit agreements as of the end of fiscal 1998. At October 31,
1998, the Company had approximately $230,000 in outstanding letters of credit
which were secured by the pledged deposits under this agreement.
Net account receivables of $2.4 million at the end of fiscal 1998
were down $1.77 million (approximately 42.3%) from the 1997 year-end level of
$4.2 million. The decrease in net account receivables was primarily due to
having written off account receivable of approximately $865,000 from one of
the Company's major customers. In addition, there was a decrease in net
sales, combined with increase in collection of account receivables. Days
sales outstanding in accounts receivables decreased from 72 days in fiscal
1997 to 60 days in fiscal 1998.
Net inventories of approximately $2.27 million at the end of fiscal
1998 were down approximately 22% from the 1997 year-end level of $2.92 million.
Working capital at the end of fiscal 1998 was approximately $2.5
million, down approximately 70% from the fiscal 1997 year-end level of
approximately $9.2 million.
At the current consumption rate, the Company's cash balance of
approximately $1.64 million at October 31, 1998 (which includes $1.0 million
pledged as security for stand-by and sight letters of credit) with additional
fund proceeds from building sale, subsequent to year end, was anticipated
to be adequate to fund the Company's fiscal 1999 operations at projected levels.
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 is in the process of 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 is internally
evaluating 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. The Company currently anticipates that its Y2K assessment
efforts will be completed by the end of second quarter of fiscal 1999.
17
<PAGE>
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. Although, as of February 1, 1999, the Company
has not received a significant number of responses to its inquiries, 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. In this regard, in the ordinary course of replacing computer
equipment and software, the Company attempts to obtain replacements that are
Y2K compliant.
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 yet 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 Company does
have a plan to perform its analysis of the problems and costs associated with
the failure to achieve Y2K compliance and to establish a contingency plan in
the event of such failure by December 31, 1999.
The foregoing assessment of the impact of the Y2K problem on the
Company is based on management's best estimates as of the date of this Annual
Report, 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The terminal, monitor and multimedia product markets are intensely
competitive. The principal elements of competition are pricing, product quality
and reliability, price/performance characteristics, compatibility, marketing and
distribution capability, service and support, and reputation of the
manufacturer. TeleVideo competes with a large number of manufacturers, most of
which have significantly greater financial, marketing and technological
resources than TeleVideo. There can be no assurance that the Company will be
able to continue to compete effectively.
The Company markets its products worldwide. In addition, a large
portion of the Company's part and component manufacturing, along with key
suppliers, are located outside the United States. Accordingly, the Company's
future results could be adversely affected by a variety of factors, including
without limitation, fluctuation in foreign currency exchange rates, changes in a
specific country's or region's political or economic conditions, trade
protection measures, import or export licensing requirements, unexpected changes
in regulatory requirements and natural disasters.
18
<PAGE>
The computer market, particularly the multimedia product market, is
characterized by rapid technological change and product obsolescence, often
resulting in short product life cycles and rapid price declines. The Company's
success will continue to depend primarily on its ability to continue to reduce
costs through manufacturing efficiencies and price negotiation with suppliers,
the continued market acceptance of its existing products and its ability to
develop and introduce new products. There can be no assurance that TeleVideo
will successfully develop new products or that the new products it develops will
be introduced in a timely manner and receive substantial market acceptance.
There can also be no assurance that product transitions will be managed in such
a way to minimize inventory levels and product obsolescence of discontinued
products. The Company's operating results could be adversely affected if
TeleVideo is unable to manage all aspects of product transitions successfully.
The Company generally utilizes standard parts and components available
from multiple suppliers. However, certain parts and components used in the
Company's products are available from a single source. If, contrary to its
expectations, the Company is unable to obtain sufficient quantities of any
single-sourced components, the Company will experience delays in product
shipments.
The Company offers its products through various channels of
distribution. Changes in the financial condition of, or in the Company's
relationship with, its distributors could cause actual operating results to vary
from those expected. Also, the Company's customers generally order products on
an as-needed basis. Therefore, virtually all product shipments in a given fiscal
quarter result from orders received in that quarter. The Company anticipates
that the rate of new orders will vary significantly from month to month. The
Company's manufacturing plans and expenditure levels are based primarily on
sales forecasts. Consequently, if anticipated sales and shipments in any quarter
do not occur when expected, expenditure and inventory levels could be
disproportionately high and the Company's operating results for that quarter,
and potentially future quarters, would be adversely affected.
The market price of TeleVideo's common stock could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the computer
technology industry, as well as general economic conditions and other factors
external to the Company.
(Remainder of this page was intentionally left blank)
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE NO.
IN 10-K/A
---------
<S> <C>
Report of Independent Certified Public Accountants.................. 21
Consolidated Balance Sheets - October 31, 1998 (Restated) and
1997 (Restated)..................................................... 22
Consolidated Statements of Operations for the Years Ended
October 31, 1998 (Restated), 1997 (Restated) and 1996 (Restated).... 23
Consolidated Statement of Stockholders' Equity for the Years Ended
October 31, 1998 (Restated), 1997 (Restated) and 1996 (Restated).... 24
Consolidated Statements of Cash Flows for the Years Ended
October 31, 1998 (Restated), 1997 (Restated) and 1996 (Restated).... 25
Notes to Consolidated Financial Statements ......................... 26
</TABLE>
(Remainder of page left blank intentionally)
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
TeleVideo, Inc.
We have audited the accompanying consolidated balance sheets of TeleVideo, Inc.
and Subsidiaries as of October 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended October 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TeleVideo, Inc.
and Subsidiaries as of October 31, 1998 and 1997, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended October 31, 1998, in conformity with generally
accepted accounting principles.
As discussed in Note 15, the accompanying consolidated balance sheets as of
October 31, 1998 and 1997 and the related consolidated statements of
operations, stockholder's equity, and cash flows for each of the three years
in the period ended October 31, 1998 have been restated.
/s/ GRANT THORNTON LLP
- -----------------------
Grant Thornton LLP
San Jose, California
December 18, 1998
(except for note 14, as to which the
date is December 28, 1998, note 4, as
to which the date is February 16, 1999
and notes 2 and 15, as to which the date
is November 12, 1999.)
21
<PAGE>
<TABLE>
TELEVIDEO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(RESTATED)
<CAPTION>
October 31,
----------------------------
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (including restricted cash of
$1,000 in 1998 and $3,000 in 1997) $ 1,640 $ 3,604
Accounts receivable, less allowance of $1,352 in 1998 and $438 in 1997 2,420 4,191
Inventories 2,275 2,923
Prepayments and other 420 220
Loan receivable from major customer, less allowance of $313 in 1997 - 900
----------- -----------
Total current assets 6,755 11,838
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 890 890
Building 1,035 1,035
Production equipment 530 524
Office furniture and equipment 1,146 1,140
Building improvements 1,105 1,105
----------- -----------
4,706 4,694
Less accumulated depreciation and amortization 2,138 1,934
----------- -----------
Property, plant and equipment, net 2,568 2,760
Long term receivable from major customer, less allowance of $292 in 1997 - 608
INVESTMENTS IN AFFILIATES 1,110 2,486
----------- -----------
Total assets $ 10,433 $ 17,692
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 541 $ 1,539
Notes payable 2,500 -
Accrued liabilities 820 730
Income taxes 361 361
----------- -----------
Total current liabilities 4,222 2,630
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized--75,000,000 shares
Outstanding--11,271,085 shares in 1998 and 11,254,810
shares in 1997 (net of 120,000 treasury shares) 453 450
Additional paid-in capital 95,703 95,676
Accumulated deficit (89,945) (81,064)
----------- -----------
Total stockholders' equity 6,211 15,062
----------- -----------
Total liabilities and stockholders' equity $ 10,433 $ 17,692
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
22
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(RESTATED)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NET SALES $ 14,751 $ 19,884 $ 21,576
COST OF SALES 13,381 17,785 20,627
-------- -------- --------
GROSS PROFIT 1,370 2,099 949
OPERATING EXPENSES:
Sales and Marketing 2,438 2,995 2,428
Research and Development 370 762 1,097
Provision for Bad Debts 2,300 293 760
General and Administrative 989 1,164 1,302
-------- -------- --------
Total Operating Expenses 6,097 5,214 5,587
-------- -------- --------
Loss from Operations (4,727) (3,115) (4,638)
GAIN ON SALES OF INVESTMENTS IN
UNCONSOLIDATED AFFILIATES - - 1,369
EQUITY IN LOSS OF AFFILIATES (4,077) (888) (109)
INTEREST AND OTHER INCOME (EXPENSE), net (77) 559 385
-------- -------- --------
Net loss $ (8,881) $ (3,444) $ (2,993)
======== ======== ========
Net loss per share, Basic and diluted $ (0.79) $ (0.31) $ (0.26)
======== ======== ========
Shares used in computing basic and diluted net loss per share 11,268 11,255 11,351
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
THREE YEARS ENDED
OCTOBER 31, 1998, OCTOBER 31, 1997, OCTOBER 31, 1996
(RESTATED)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------- Paid in Other (Accumulated Stockholders'
Shares Amount Capital Adjustment Deficit) Equity
-------- -------- ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance - October 31, 1995 11,287 $451 $95,560 $(39) $(74,627) $21,345
Unrealized loss from marketable securities - - - 39 - 39
Exercise of employee stock options 63 3 74 - - 77
Treasury stock (120) (5) 5 - - -
Net loss - - - - (2,993) (2,993)
-------- -------- ------- ----- ---------- --------
Balance - October 31, 1996 11,230 449 95,639 - (77,620) 18,468
Exercise of employee stock options 25 1 37 - - 38
Net loss - - - - (3,444) (3,444)
-------- -------- -------- ----- ---------- --------
Balance - October 31, 1997 11,255 450 95,676 - (81,064) 15,062
Exercise of employee stock options 16 3 27 - - 30
Net loss - - - - (8,881) (8,881)
-------- -------- -------- ----- ---------- --------
Balance - October 31, 1998 11,271 $453 $95,703 $ - $(89,945) $ 6,211
-------- -------- -------- ----- ---------- --------
-------- -------- -------- ----- ---------- --------
</TABLE>
The accompanying notes are an integral part of this financial statement.
24
<PAGE>
TELEVIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1998 1997 1996
(Restated) (Restated)
------ ------ -------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(8,881) $(3,444) $(2,993)
Charges (credits) to operations not affecting cash:
Provision (recovery) for bad debts on receivables 2,300 293 410
Provision for excess and obsolete inventories 123 (379) 50
Net loss on sales of property and investment - 12 44
Loss on investment in unconsolidated affiliates 4,077 888 109
Depreciation and amortization 204 362 275
Loss on write off of foreign investments and loans - - 97
Income tax settlement - (250) -
Changes in operating assets and liabilities:
Accounts receivable 564 (697) (1,211)
Inventories 524 3,290 (149)
Prepayment and other (200) (159) 274
Accounts payable (998) (1,540) 1,418
Accrued liabilities 90 (126) (126)
------- ------- -------
Net cash used in operating activities (2,197) (1,750) (1,802)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (12) (55) (98)
Loans to affiliate and other (1,700) (2,300) -
Increase in investments in affiliates (1,000) (3,225) (205)
Payments received on notes receivable from affiliate and other 415 6,400 513
Proceeds from sales of property and investment - - 866
------- ------- -------
Net cash (used in) provided by investing activities (2,297) 820 1,076
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 30 38 77
Proceeds from note payable - affiliate 500 - -
Proceeds from note payable - other 2,000 - -
------- ------- -------
Net cash provided by financing activities 2,530 38 77
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (1,964) (892) (649)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR 3,604 4,496 5,145
------- ------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 1,640 $ 3,604 $ 4,496
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ - $ - $ -
Interest $ 98 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
TELEVIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and certain of its majority owned subsidiaries, after elimination of
inter-company accounts and transactions.
INVESTMENTS IN AFFILIATES
All of the Company's unconsolidated affiliates are accounted for using
either the equity or the cost method.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped. The Company
performs periodic evaluations of its customers' financial condition and
maintains a reserve for potential credit losses and adjusts the reserve
periodically to reflect both actual and potential credit losses. Product
warranties are based on the ongoing assessment of actual warranty expenses
incurred.
BASIC AND DILUTED NET LOSS PER SHARE
The Company adopted SFAS No. 128 "Earnings per Share" during the year ended
October 31, 1998. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common
equivalent shares consist of the incremental common shares issuable upon
conversion of convertible securities (using the if-converted method) and
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The Company does not incur any
direct-response advertising costs. Advertising expense totaled approximately
$1.07 million for 1998, approximately $1.3 million in 1997 and $0.5 million
in 1996.
26
<PAGE>
RESEARCH AND DEVELOPMENT COSTS
Costs incurred for the development and enhancement of new products and
services are charged to expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, accounts receivable, trade
payables and notes payable approximates carrying value due to the short
term nature of such instruments.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on a
currently adjusted standard basis (which approximates average cost) for both
finished goods and work-in-process and includes material, labor and
manufacturing overhead costs. The cost of purchased parts is determined on a
first-in, first-out basis. Amounts shown are net of reserves for
obsolescence of $646,000 and $523,000 in 1998 and 1997, respectively:
<TABLE>
<CAPTION>
October 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
Purchased parts and subassemblies $1,196 $1,075
Work-in-process 91 459
Finished goods 988 1,389
------ ------
$2,275 $2,923
------ ------
------ ------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful lives
of the assets using both straight-line and accelerated methods.
<TABLE>
<S> <C>
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to conform to the 1998
presentation, including changes which effect comparability of the annual
financial information to previously filed quarterly information. None of
such reclassifications are material to the financial statements taken as a
whole.
ADOPTIONS OR RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("the FASB")
issued SFAS No. 130, Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 is not
expected to have any impact on the Company's consolidated results of
operations, financial position or cash flows.
27
<PAGE>
In June 1997, The FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after
December 15, 1997. Financial statement disclosures for prior periods are
required to be restated. The adoption of SFAS No. 131 is not expected to
have any impact on the Company's consolidated results of operations,
financial position or cash flows.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) which is effective for
fiscal years commencing after June 15, 1999. The adoption of SFAS No. 133
is not expected to have any impact on the Company's consolidated results
of operations, financial position or cash flows.
2. ACQUISITIONS AND DIVESTITURES:
MYSIMON, INC.
In September 1998, the Company invested $1 million in the online
comparison shopping Internet company, mySimon, Inc., receiving convertible
preferred stock that represents a 7.7% ownership interest in mySimon as
of April 7, 1999. 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 among
thousands of online merchants.
ADMOS TECHNOLOGIES INC.
During fiscal 1991, the Company acquired through its wholly owned
subsidiary, Silicon Logic, Inc., a 20% equity interest in a chip engineering
firm (AdMOS Technologies Inc.) in exchange for certain assets and a nominal
cash payment, the total value of which was $145,000. The acquisition of this
interest had been accounted for on the cost method. This investment was
written off in fiscal 1992 due to the continued economic difficulties
experienced by AdMOS.
In fiscal 1991 and 1992, the Company loaned AdMOS a total of $470,000, which
has been partially repaid. The outstanding balance at October 31, 1996 was
$104,000. The repayment of a portion of this loan is personally guaranteed
by the President and controlling shareholders of AdMOS. Due to the economic
difficulties AdMOS is currently experiencing, the principal and interest
balances due on this note have been fully reserved.
In February 1995, the Company further loaned AdMOS $384,000 at an interest
rate of 10% per annum. Approximately $104,000 was repaid to the Company in
August 1995. In November 1995, the Company received another $100,000 from
AdMOS. The Company has fully reserved the unpaid balance of $184,000 plus
accrued interest as of October 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 Company has restated its
financial statements to reflect a write-off of this investment for the
fiscal year ended October 31, 1997.
THREE H
Three H Partners, owned equally by TeleVideo and a Russian entity, was
formed in fiscal 1991. The Company invested a total of $76,000 into Three H.
The Company has restated its financial statements to reflect a write off of
this investment at October 31, 1996 (Refer to Note 15).
28
<PAGE>
KORAM, INC.
On March 3, 1997, the Company deposited $224,820 in escrow in Korea, which
amount is to be used to purchase a 50% ownership in a restaurant venture in
Seoul, Korea. In February 1998, the Company completed its purchase of a 50%
interest in Koram, Inc. The Company's investment has been written down to
$109,820 due to the devaluation of the Korean won. This investment is
accounted for under the equity method of accounting.
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.
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 equity investment, related
goodwill, and note receivable aggregating approximately $4.1 million. The
total loss from APT is as follows:
<TABLE>
<S> <C>
Equity Investment $ 556,000
Goodwill $1,821,000
Note Receivable $1,700,000
----------
$4,077,000
----------
----------
</TABLE>
The Company currently expects that APT's existing capital and internally
generated funds would not be adequate for APT capital requirements
through fiscal 1999. Substantial additional funds will be required from
external sources to support APT's operation during fiscal 1999 and
beyond. The Company has been advised that APT expects to receive such
substantial additional funds through equity investment during early
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. The Company has not guaranteed any
obligations of APT and has made no commitments to APT to provide additional
financial support.
Condensed financial information of APT follows:
BALANCE SHEET:
<TABLE>
<CAPTION>
October 31
--------------------------
1998 1997
----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets $ 54 $ 1,632
Other Assets 506 669
------ -------
Total Assets 560 2,301
------ -------
------ -------
Liabilities 2,828 321
Common Stock 3,626 3,626
Accumulated Deficit (5,894) (1,646)
------ -------
Total Liabilities and Equity $ 560 $ 2,301
------ -------
------ -------
</TABLE>
29
<PAGE>
STATEMENT OF OPERATIONS:
<TABLE>
<S> <C> <C>
Operating Expenses ($4,455) ($ 1,515)
Interest & Misc. Income 39 37
------- --------
Net Loss ($4,416) ($ 1,478)
------- --------
------- --------
</TABLE>
RUSSIAN JOINT VENTURES
In fiscal 1994, 1995 and 1996, the Company acquired interests in various
joint ventures, primarily in the Commonwealth of Independent States.
INTERTERMINAL
In April 1994, the Company acquired a 51% ownership of the
"InterTerminal" joint venture in exchange for a $5,100 cash investment
and a commitment to fund a $3.65 million loan, 20% interest rate,
interest free for one year, to the venture. The main purpose of the joint
venture was the construction of a truck terminal, completed in early
1995, approximately 25 miles outside of Moscow. TeleVideo sold its
51% ownership in May 1995. The $3.65 million loan was repaid to the
Company in fiscal 1995. An additional $1,369,500 was received and
recognized as a gain in fiscal 1996.
TELEVIDEO-RUS
In January 1996, TeleVideo set up a company called "TeleVideo-RUS" in the
Commonwealth of Independent States (the "CIS") with an initial investment
of $150,000. The main purpose of this company was to act as a liaison
between TeleVideo and the authorities in the CIS by being the investment
arm of the Company for any future investments in the CIS.
In October 1997, the Company sold its interest in TeleVideo-RUS for
$250,000 and recognized a $100,000 profit upon the sale. The Company has
incurred no additional expenses on behalf of TeleVideo-RUS subsequent to
the sale.
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 letters
of credit. These agreements are 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 October 31, 1998, the Company had letters of
credit outstanding of approximately $230,000 which were secured by CD's
of $1.0 million.
30
<PAGE>
4. RELATED PARTY TRANSACTIONS:
During 1998, 1997, and 1996 the Company has had transactions with its
affiliates as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Note receivable at October 31:
AdMOS (1) $ 4 $ 4 $104
AdMOS (1) 180 180 180
Interest receivable at October 31:
AdMOS (1) 69 68 65
AdMOS (1) 77 60 42
</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. On February 16, 1999, the outstanding loan
principal and interest has been paid in full.
(1) Amounts are fully reserved.
5. TRANSACTIONS WITH MAJOR CUSTOMERS
The Company has entered into the following transactions with one
of its major customers, Applied Computer Technology, Inc., (ACT).
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. Since then the loan has
been paid down to $485,000, which was the loan balance at October 31,
1998 prior to the write-off discussed below.
2) At October 31, 1997, ACT had owed the Company approximately $2.1 million
in trade receivables, which represented approximately 41% of net trade
receivables. Subsequently, 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 were 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. The conversion rate was
subsequently changed. ACT had the obligation to register the shares by
filing a registration statement with the Securities and Exchange
Commission (SEC) and the preferred shares would have been automatically
converted once the registration statement became effective. However, ACT
failed to register the shares with SEC.
The preferred shares were issued in December, 1997. As of October 31,
1997, the Company had reflected the $900,000 as a long term receivable
and had further provided a reserve of $292,500 against the $900,000 to
reflect the fair value of the preferred shares ultimately issued, taking
into consideration the lack of liquidity of the securities.
Additionally, $864,620 was outstanding as trade receivables due from ACT
at October 31, 1998.
ACT has experienced a significant downturn in its business and the
Company has written off a total amount of $1,957,120 as uncollectible
receivables, which include $864,620 trade receivables, $607,500
long term note receivable and $485,000 note receivable.
31
<PAGE>
6. CAPITAL STOCK:
The Company effected a 4-for-1 reverse stock split of its outstanding
common stock on April 23, 1998. All shares and per share amounts have been
retroactively adjusted for such reverse stock split.
PREFERRED STOCK
The Company has authorized 3,000,000 shares of preferred stock. No preferred
stock has been issued to date.
STOCK OPTION PLANS
The Company has three stock option plans, the 1991 ISO Plan ("1991 ISO
Plan"), the 1981 ISO Plan ("1981 ISO Plan") and the 1981 Supplemental Plan
(the "Supplemental Plan") accounted for under the APB Opinion 25 and related
interpretations. The 1991 ISO Plan provides for the granting of incentive
and non- statutory options to employees including officers and directors who
are employees for up to 4,000,000 shares. The options, which have a term of
ten years when issued, vest over five years. The exercise price of each
option equals to market price of the Company's stock on the date of grant.
Both the 1981 ISO Plan and the Supplemental Plan expired in October 1991 and
the exercise price for options granted under those plans was re-priced at
$0.22 per share in November 1991, the market price of the Company's common
stock at that date. Accordingly, no compensation cost has been recognized
for any of the plans. Had compensation cost for the plans been determined
based on the fair value of the options at the grant dates consistent with
the method of Statement of Financial Accounting Standards 123, Accounting
for Stock-Based Compensation ("SFAS 123"), the Company's net loss and loss
per share would have been changed to the pro forma amounts indicated below.
Pro forma results for 1998 and 1997 may not be indicative of the pro forma
results in the future periods because the pro forma amounts do not include
pro forma compensation cost for options granted prior to November 1, 1995.
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Net loss (in thousands)
As reported ($8,881) ($3,444)
Pro forma ($8,987) ($3,544)
Loss per share, basic and diluted
As reported ($0.79) ($0.31)
Pro forma ($0.80) ($0.31)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997 respectively: no expected
dividends; weighted average risk-free interest rate of 6.69% and 6.05%;
stock volatility 164% in 1998 and 139% in 1997; and expected lives of 10
years. The weighted average fair value of options granted were $1.49,
$1.24 and $2.44 in 1998, 1997 and 1996, respectively.
32
<PAGE>
A summary of the status of the Company's stock option plans as of October
31, 1998, and changes during the three years ending October 31, 1998 is
presented below:
OPTIONS OUTSTANDING
OCTOBER 31, 1998
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- ---------------------------
WTD AVG. WTD AVG. WTD AVG.
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONT. LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
1991 ISO PLAN
$0.88 - $1.32 125,062 7.97 $0.97 56,812 $1.02
$1.52 - $2.12 51,188 7.57 $1.73 27,562 $1.69
$2.64 - $2.88 5,250 6.41 $2.73 3,625 $2.73
$4.12 2,500 6.87 $4.12 1,875 $4.12
Totals 184,000 7.80 $1.27 89,874 $1.36
------- ---- ----- ------ -----
------- ---- ----- ------ -----
1981 SUPPLEMENTAL PLAN
$0.88 37,500 3.06 $ 0.88 37,500 $ 0.88
1981 ISO PLAN
$0.88 750 3.06 $ 0.88 750 $ 0.88
</TABLE>
Summary of Changes:
1981 ISO PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE PRICE
------------ --------------
<S> <C> <C>
Balance, October 31, 1995 5,406 $0.88
Granted - -
Exercised (2,250) $0.88
Canceled - -
------
Balance, October 31, 1996 3,156 $0.88
Granted - -
Exercised (844) $0.88
Canceled (1,083) $0.88
------
Balance, October 31, 1997 1,250 $0.88
Granted - -
Exercised (500) $0.88
Canceled - -
------
Balance, October 31, 1998 $ 750 $0.88
------
------
</TABLE>
33
<PAGE>
1981 SUPPLEMENTAL PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance, October 31, 1995 37,500 $0.88
Exercised - -
Canceled - -
------
Balance, October 31, 1996 37,500 $0.88
Exercised - -
Canceled - -
------
Balance, October 31, 1997 37,500 $0.88
Exercised - -
Canceled - -
------
Balance, October 31, 1998 37,500 $0.88
------
------
</TABLE>
1991 ISO PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE
--------- ----------- --------------
<S> <C> <C> <C>
Balance, October 31, 1995 303,469 665,781 $2.24
Granted (207,250) 207,250 $2.48
Exercised - (61,281) $1.24
Terminated/Canceled 479,000 (479,000) $2.60
-------- --------
Balance, October 31, 1996 575,219 332,750 $2.08
Granted (12,250) 12,250 $1.24
Exercised - (23,688) $1.58
Terminated/Canceled 110,125 (110,125) $2.20
-------- --------
Balance, October 31, 1997 673,094 211,187 $1.96
Granted (111,875) 111,875 $1.37
Exercised - (10,775) $1.64
Terminated/Canceled 128,288 (128,288) $2.43
-------- --------
Balance, October 31, 1998 688,507 184,000 $1.27
-------- --------
-------- --------
</TABLE>
7. INCOME TAXES:
At October 31, 1998, the Company had tax loss carry forwards of
approximately $98 million for federal income tax and approximately $32
million for state income tax reporting purposes, respectively. The net
operating loss carry forwards expire through fiscal 2013. The Tax Reform Act
of 1986 contains provisions which may limit the net operating loss carry
forwards to be used in any given year upon occurrence of certain events,
including significant changes in ownership interests.
The Company adopted, effective November 1, 1993, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," issued
in February 1992. Under the liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities as measured
by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in deferred tax
assets and liabilities.
34
<PAGE>
No deferred tax asset or benefit was recorded at October 31, 1998, as all
amounts have been fully reserved. The valuation allowance increased by
$3,823 in fiscal 1998 and increased by $2,997 in fiscal 1997. The
components are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net operating loss $ 35,168 $ 31,844
Other 1,328 829
-------- --------
36,496 32,673
Less valuation allowance (36,496) (32,673)
-------- --------
Net benefit $ - $ -
-------- --------
-------- --------
</TABLE>
The following is a reconciliation of expected tax expense (benefit) to
actual for each of the years ended October 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Book income (loss) $(8,881) $(3,444) $(2,993)
------- ------- -------
Expected tax expense (benefit) (3,020) (1,170) (1,197)
------- ------- -------
Adjustments to reconcile
expected to actual expense
(benefit):
Effect of change in
valuation allowance (net) 3,020 1,170 1,197
------- ------- -------
Actual tax expense (benefit) $ - $ - $ -
------- ------- -------
------- ------- -------
</TABLE>
As of October 31, 1998, the Company has pending a 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 1999 and its
maximum exposure will not exceed $350,000. The Company has accrued this full
amount at October 31, 1998.
8. 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 issue alleges that the various plaintiffs have
suffered some form of severe wrist injury from the use of said keyboards.
The second issue alleges that there was false advertising which claimed that
the video screens were 17 inches in size, when in reality they were only 15
inches. The Company's attorneys have prepared a defense for these cases and
the Company's insurance carriers are informed of the plaintiff's claims. The
Company intends to vigorously defend against the allegations of these suits.
Management believes that the ultimate outcome of these lawsuits will not
have a material adverse effect on the Company's financial position.
35
<PAGE>
9. CONCENTRATIONS:
The Company, which operates in a single industry segment, designs, produces
and markets video display terminals, computer monitors and multimedia
products designed for office and home automation both domestically and
internationally. The Company had export sales primarily to Europe, Asia and
Latin America of approximately 14.0% ($2.1 million), 13.7% ($2.7 million)
and 15.8% ($3.4 million) of net sales during fiscal 1998, 1997, and 1996,
respectively.
For the fiscal year ended October 31, 1998, one customer accounted for 12.3%
and another customer accounted for 11.2%. For the fiscal year ended October
31, 1997, one customer accounted for 16.6% and another customer accounted
for 16.1% of net sales. For the fiscal year ended October 31, 1996, one
customer accounted for 10.2% and another customer accounted for 8.8% of net
sales.
Information about the Company's operations in different geographic locations
is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
United Europe Other Total
(in thousands) States
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Total Revenues $12,681 $1,685 $ 385 $14,751
Operating
(Loss)/Income (5,188) 354 107 (4,727)
Identifiable Assets 10,433 0 0 10,433
1997
Total Revenues $17,197 $2,242 $ 445 $19,884
Operating
(Loss)/Income (3,657) 408 134 (3,115)
Identifiable Assets 17,692 0 0 17,692
1996
Total Revenues $18,157 $2,157 $1,262 $21,576
Operating
(Loss)/Income (5,180) 235 307 (4,638)
Identifiable Assets 23,014 0 0 23,014
</TABLE>
10. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS:
Included in the equity in loss of affiliate of $4.077 million
is the Company's 30% share of APT's net loss of $1.32 million
based on the unaudited financial statements of as of October
31, 1998. The Company's proportionate share of such losses were not
reflected in the quarterly information as such information was not
available. The remaining equity in loss of affiliate of approximately
$2.76 million resulted from an impairment of value determination made at
year end.
11. NOTE PAYABLE:
In June 1998, the Company has borrowed $2.0 million from Redwood Mortgage
Corp. collateralized by the real property. The loan is due in 24 months from
the date of funding and bore an annual interest at a fixed rate of 12%.
Subsequent to year end, the loan was repaid.
12. ACCRUED LIABILITIES:
Accrued liabilities consist of the following at October 31: (In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Employee compensation and benefits $173 $212
Warranty 169 169
Legal reserve 200 200
Accrued sales and use tax 1 -
Professional fees 60 57
Other 217 92
---- ----
$820 $730
---- ----
---- ----
</TABLE>
36
<PAGE>
13. VALUATION AND QUALIFYING ACCOUNTS:
The Company's reserves for doubtful accounts receivable and inventory
obsolescence consist of the following: (In thousands)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT (CREDITED) BALANCE AT
BEGINNING TO COSTS & END OF
OF PERIOD EXPENSE DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1996:
Reserve for doubtful accounts $ 841 $ 760 $(321)(1) $1,280
Reserve for inventory obsolescence $ 613 $ 918 $(868)(2) $ 663
YEAR ENDED OCTOBER 31, 1997:
Reserve for doubtful accounts $1,280 $ 293 $(530)(1) $1,043
Reserve for inventory obsolescence $ 663 $ 379 $(519)(2) $ 523
YEAR ENDED OCTOBER 31, 1998:
Reserve for doubtful accounts $1,043 $2,300 $(1,991)(1) $1,352
Reserve for inventory obsolescence $ 523 $ 813 $(690)(2) $ 646
(1) Deductions represent write-offs of fully reserved receivables.
(2) Reductions due to sales or scrap of fully reserved inventory.
</TABLE>
14. SUBSEQUENT EVENTS:
In December 1998, the Company sold its 69,630 sq. ft. building, including
land and improvements, located at 2345 Harris Way, San Jose, California 95131
("Harris Building") to TVCA, LLC., an unaffiliated Delaware limited liability
company ("TVCA") for $ 11.0 million. The nature of the consideration is
$ 8.25 million in cash and a $ 2.75 million Promissory Note. The note bears
interest at 7.25% per annum. Principal and accrued interest shall be 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. The purchase price was determined by negotiations
between the parties based on an independent third party real estate appraisal.
In connection with the sale, the Company entered into a lease agreement with
TVCA for the period of 15 years commencing on December 28, 1998 through
December 31, 2013. Pursuant to the lease agreement, an initial monthly
payment of $ 109,973 is required. Monthly lease payments increase during the
lease term as stipulated in the lease agreement.
The accounting for this sale-leaseback transaction involving real estate will
result in a deferred gain to be amortized over the lease term. The land
component has been recorded as an operating leaseback. The building elements
has been accounted for as a capital lease, whereby a leased building asset
and capital lease obligation were recorded at the fair value of approximately
$6.27 million. As a result of the sale for $11.0 million (which includes the
$2.75 million note receivable) a deferred gain of approximately $8.0 million
was recorded. The deferred gain attributable to the land element, which
approximates $3.44 million, is being amortized over the 15 year lease life on
a straight line method. The deferred gain attributable to the building
element, which approximates $4.56 million, is being amortized over the leased
building asset life, which has been determined to be the 15 year lease term,
on a straight line method.
15. PRIOR PERIOD ADJUSTMENTS
The Company's financial statements as of October 31, 1998 and 1997 and for
each of the three years in the period ended October 31, 1998 have been
restated to reflect the effects of a write-off of the Company's investments
in Three H and TLK due to impairment of value in these two investments. The
Three H investment of $76,000 has been written off in fiscal year 1996 and
the Net Loss and Net loss per share for 1996 were increased by $76,000 and
$0.00, respectively. The TLK investment of $150,000 has been written off in
fiscal year 1997 and the Net Loss and Net Loss per share were increased by
$150,000 and $0.01, respectively.
Additionally, in October 1996 the Company received 120,000 shares of its
Common Stock as a settlement of a claim against a former employee. The
Company paid no consideration for these shares, which are held in treasury
and not retired as of October 31, 1998. The financial statements as of
October 31, 1998 and 1997 and for each of the three years in the period ended
October 31, 1998 have been restated. As of October 31, 1998 and 1997 Common
Stock and Additional paid-in capital have been decreased and increased
$5,000, respectively. The Net Loss per share has been increased by $0.01,
$0.01 and $0.00 for 1998, 1997 and 1996, respectively.
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
PART III
The following items included in the Company's Definitive Proxy
Statement dated March 10, 1999 used in connection with the Company's Annual
Meeting of Stockholders held on April 13, 1999 are incorporated herein by
reference:
<TABLE>
<CAPTION>
PAGES IN
PROXY STATEMENT
---------------
<S> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 3
ITEM 11. EXECUTIVE COMPENSATION 9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 5
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
</TABLE>
(The remainder of this page was left blank intentionally.)
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report.
1. FINANCIAL STATEMENTS.
The Consolidated Financial Statements, Notes thereto and the Report of
Grant Thornton LLP, Independent Public Accountants, thereon are included in Part
II of this Report on Form 10-K/A.
2. FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the accompanying Consolidated Financial
Statements.
3. EXHIBITS. See Exhibit Index, below.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the
Company with respect to the quarter ended
October 31, 1998.
(The remainder of this page was left blank intentionally.)
39
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER FOOTNOTE
------- --------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company............... (1)
3.2 Bylaws of the Company.............................................. (1)
10.1* TeleVideo, Inc. 1991 Incentive Stock Option Plan................... (2)
10.2* Form of Stock Option Agreement for TeleVideo, Inc.
1991 Incentive Stock Option Plan................................... (2)
10.3* TeleVideo, Inc. 1992 Outside Directors' Stock Option Plan.......... (2)
10.4* Management Bonus Plan effective fiscal 1984........................ (3)
10.5 Form Distributor and Licensing Agreement........................... (2)
10.6 Form Original Equipment Manufacturer Agreement..................... (2)
10.9 InterTerminal Agreements and Promissory Notes...................... (4)
21 Subsidiaries....................................................... (5)
23 Consent of Grant Thornton LLP, Independent Certified
Public Accountants................................................. (6)
27 Financial Data Schedule............................................ (6)
- ---------------------------
</TABLE>
FOOTNOTES TO EXHIBIT INDEX
* Indicates a management contract or compensatory plan or arrangement.
(1) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1987, filed January 29, 1988.
(2) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1991, filed January 27, 1992.
(3) Incorporated by reference from the corresponding exhibit description in
the Company's annual reports on Form 10-K, filed January 29, 1985 and
January 28, 1986, respectively.
(4) Incorporated by reference from the corresponding exhibit description in
the Company's annual report on Form 10-K for the fiscal year ended
October 31, 1994, filed February 10, 1995.
(5) Previously filed as an Exhibit to the Company's original filing of
its annual report on Form 10-K for the fiscal year ended October 31,
1998, filed on February 16, 1999.
(6) Filed herewith.
40
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TELEVIDEO, INC.
Date: November 23, 1999 By: /s/ James Wheat
------------------------------------------
James Wheat
Chief Financial Officer
(Principal Accounting and
Financial Officer)
41
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our report dated December 18, 1998 (except for note 14, as to
which the date is December 28, 1998 and note 4, as to which the date is February
16, 1999 and notes 2 and 15, as to which the date is November 12, 1999)
accompanying the consolidated financial statements included in the Annual Report
of TeleVideo, Inc. and Subsidiaries on Form 10-K for the year ended October 31,
1998. We hereby consent to the incorporation by reference of said report in the
Registration Statement of TeleVideo, Inc. on Form S-8 (File No. 33-26203,
effective November 2, 1992).
/s/ Grant Thornton LLP
- -----------------------------
Grant Thornton LLP
San Jose, California
November 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 1,640
<SECURITIES> 0
<RECEIVABLES> 3,772
<ALLOWANCES> 1,352
<INVENTORY> 2,275
<CURRENT-ASSETS> 6,755
<PP&E> 4,706
<DEPRECIATION> 2,138
<TOTAL-ASSETS> 10,433
<CURRENT-LIABILITIES> 4,222
<BONDS> 0
0
0
<COMMON> 453
<OTHER-SE> 5,758
<TOTAL-LIABILITY-AND-EQUITY> 10,433
<SALES> 14,751
<TOTAL-REVENUES> 14,751
<CGS> 13,381
<TOTAL-COSTS> 19,478
<OTHER-EXPENSES> (4,077)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (77)
<INCOME-PRETAX> (8,881)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,881)
<EPS-BASIC> (0.79)
<EPS-DILUTED> (0.79)
</TABLE>
