<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: APRIL 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-11552
TELEVIDEO, INC.
----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2383795
- ------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2345 HARRIS WAY, SAN JOSE, CALIFORNIA 95131
-------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-8333
-----------------------------
----------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
THE NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK, AS OF JUNE 7,
1999 IS: 11,271,085.
----------
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 1999 includes certain statements that may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements, other than statements of historical
facts, included in this report that address activities, events or developments
that the Company expects, believes or anticipates will or may occur in the
future, including, but not limited to, such matters as future product
development, business development, marketing arrangements, future revenues from
contracts, business strategies, expansion and growth of the Company's operations
and other such matters, are forward-looking statements. These statements are
based on certain assumptions and analyses made by the Company in light of its
experience and perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of assumptions, risks and
uncertainties, including the risk factors discussed below, general economic and
business conditions, the business opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in law or regulations and other
factors, many of which are beyond control of the Company. Prospective investors
are cautioned that any such statements are not guarantees of future performance
and that actual results or developments may differ materially from those
projected in the forward-looking statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TELEVIDEO, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1999 AND 1998 QUARTERLY DATA
The condensed consolidated financial statements included herein have been
prepared by the management of Televideo, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to such rules and regulations, although
the Company believes the disclosures which are made are adequate to make the
information presented not misleading. Further, the condensed consolidated
financial statements reflect, in the opinion of management, all adjustments
(which included only normal recurring adjustments) necessary to present fairly
the financial position and results of operations as of and for the periods
indicated.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Report on Form 10-K for the fiscal year ended October 31, 1998.
The results of operations for the and six-month period ended April 30,
1999, are not necessarily indicative of the results to be expected for the
entire fiscal year ending October 31, 1999.
1
<PAGE>
TELEVIDEO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Apr. 30, Oct. 31,
1999 1998
---- ----
(Unaudited) (Audited)
(Restated) (Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,695 $ 1,640
Accounts receivable, less allowance of $1,370 in 1999 and $1,352 in 1998 1,226 2,420
Inventories, net 2,349 2,275
Prepayments and other 591 420
Notes receivable 176 0
-------- --------
Total current assets 11,037 6,755
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 0 890
Building 0 1,035
Production equipment 644 530
Office furniture and equipment 1,146 1,146
Building improvements 0 1,105
Leased property under capital lease 6,270 0
-------- --------
8,060 4,706
Less accumulated depreciation and amortization 1,794 2,138
-------- --------
Property, plant and equipment, net 6,266 2,568
INVESTMENTS IN AFFILIATES 1,110 1,110
LONG-TERM NOTE RECEIVABLE 2,729 0
-------- --------
Total assets $ 21,142 $ 10,433
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 748 $ 541
Notes payable 0 2,500
Accrued liabilities 1,016 820
Income taxes 361 361
Obligation under capital lease--current 418 0
Deferred gain on sale of land and building--current 1,147 0
-------- --------
Total current liabilities 3,690 4,222
-------- --------
Obligation under capital lease--long-term 5,852 0
Deferred gain on sale of land and building--long-term 6,741 0
-------- --------
Total liabilities 16,283 4,222
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized--75,000,000 shares
Outstanding--11,271,085 shares in 1999 (net of 120,000 treasury shares)
and 11,271,085 shares in 1998 (net of 120,000 treasury shares) 453 453
Additional paid-in capital 95,703 95,703
Accumulated deficit (91,297) (89,945)
-------- --------
Total stockholders' equity 4,859 6,211
-------- --------
Total liabilities and stockholders' equity $ 21,142 $ 10,433
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 1,922 $ 3,155 $ 3,709 $ 7,694
COST OF SALES 1,779 2,933 3,371 7,006
---------------- ----------------- ---------------- -----------------
GROSS PROFIT 143 222 338 688
OPERATING EXPENSES:
Sales and Marketing 461 716 959 1,498
Research and development 130 92 194 226
General and administration 529 333 839 679
---------------- ----------------- ---------------- -----------------
Total operating expenses 1,120 1,141 1,992 2,403
---------------- ----------------- ---------------- -----------------
Loss from operations (977) (919) (1,654) (1,715)
INTEREST INCOME, NET 113 42 145 82
OTHER INCOME (EXPENSE), NET 152 (32) 159 (38)
---------------- ----------------- ---------------- -----------------
Net loss $ (712) $ (909) $ (1,350) $ (1,671)
================ ================= ================ =================
LOSS PER SHARE:
Basic $ (0.06) $ (0.08) $ (0.12) $ (0.15)
================ ================= ================ =================
Diluted $ (0.06) $ (0.08) $ (0.12) $ (0.15)
================ ================= ================ =================
Weighted average number of common shares
outstanding 11,271 11,268 11,271 11,265
Weighted average number of common and
potentially dilutive common shares outstanding 11,271 11,268 11,271 11,265
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from operations $(1,350) $(1,671)
Charges (credits) to operations not affecting cash:
Depreciation and amortization 156 121
Provision for bad debts 18 0
Provision for excess and obsolete inventories 78 0
Changes in operating assets and liabilities:
Accounts receivable 1,177 957
Inventories (152) (1,170)
Prepayments and other (171) 316
Accounts payable 208 (497)
Notes payable (2,500) 0
Accrued liabilities and royalties 194 (2)
Deferred gain on sale of land and building,
net of long term receivable 5,153 0
------- -------
Net cash provided by (used in) operating activities 2,811 (1,946)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net retirements of (additions to) property, plant and equipment 2,415 (10)
Investments in affiliate 0 206
Increase in note receivable (171) (700)
------- -------
Net cash provided by (used in) investing activities 2,244 (504)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 30
------- -------
Net cash provided by financing activities 0 30
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,055 (2,420)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 1,640 3,604
------- -------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 6,695 $ 1,184
======= =======
</TABLE>
Non Cash investing/financing activities:
In December 1998, the Company sold its main facility (land and building) for
approximately $11.0 million and concurrently leased back this facility over a
15 year lease term expiring in December 2013. The land component has been
recorded as an operating leaseback. The building element 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 a $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 leased building asset
life, which has been determined to be the 15 year lease term, on a straight
line method.
The $2.75 million note receivable 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 accompanying notes are an integral part of these financial statements.
4
<PAGE>
TELEVIDEO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The interim condensed consolidated financial statements included herein
have been prepared by the management of Televideo, Inc. (the "Company"),
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
pursuant to such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information presented
not misleading. Further, the interim condensed consolidated financial
statements reflect, in the opinion of management, all adjustments (which
included only normal recurring adjustments) necessary to present fairly
the financial position and results of operations as of and for the
periods indicated.
It is suggested that these interim condensed consolidated financial
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's Report on Form 10-K for the
fiscal year ended October 31, 1998.
The results of operations for the three- and six-month periods ended
April 30, 1999, are not necessarily indicative of the results to be
expected for the entire fiscal year ending October 31, 1999.
Principles of Consolidation
---------------------------
The condensed consolidated financial statements include the accounts of the
Company and certain of its majority owned subsidiaries, after elimination of
inter-company accounts and transactions. All of the Company's unconsolidated
affiliates are accounted for using either the equity or the cost method.
Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Inventories
-----------
Inventories are stated at the lower of cost or market. Costs are computed on
a currently adjusted standard basis (which approximates average cost) for
both finished goods and work-in-process and includes material, labor and
manufacturing overhead costs. The cost of purchased parts is determined on a
first-in, first-out basis. Amounts shown are net of reserves for
obsolescence of approximately $724,000 and $646,000 in 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
Apr. 30 Oct. 31,
1999 1998
--------- ---------
<S> <C> <C>
Purchased parts and subassemblies $ 611 $ 1,196
Work-in-process 163 91
Finished goods 1,575 988
--------- ---------
$ 2,349 $ 2,275
========= =========
</TABLE>
Property, Plant and Equipment
-----------------------------
Depreciation and amortization are provided over the estimated useful lives
of the assets using both straight-line and accelerated methods.
<TABLE>
<S> <C>
Building 15-40 years
Production equipment 1-10 years
Office furniture 1-10 years
</TABLE>
5
<PAGE>
Loss Per Share
--------------
Loss per share is based on the weighted average number of shares of Common
Stock outstanding during each period.
2. ACQUISITIONS AND DIVESTITURES:
AdMOS Technologies Inc.
-----------------------
During fiscal 1991, the Company acquired through its wholly owned
subsidiary, Silicon Logic, Inc., a 20% equity interest in a chip engineering
firm (AdMOS Technologies Inc.) in exchange for certain assets and a nominal
cash payment, the total value of which was $145,000. The acquisition of this
interest had been accounted for on the cost method. This investment was
written off in fiscal 1992 due to the continued economic difficulties
experienced by AdMOS.
In fiscal 1991 and 1992, the Company loaned AdMOS a total of $470,000, which
has been partially repaid. The outstanding balance at 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 fully reserved the unpaid balance of $184,000 plus
accrued interest as of April 30, 1999.
Applied Photonics Technology, Inc.
----------------------------------
On April 16, 1997, the Company entered into a Common Stock Purchase
agreement with Applied Photonics Technology, Inc. (APT), a California
corporation, whereby the Company purchased a 30% interest in APT for $3.0
million.
During fiscal 1998, the Company loaned APT $1.7 million at annual interest
rate of prime plus one for its operation.
Founded in October 1996, APT is a developmental stage enterprise
specializing in the development of electronics display technology. The
anticipated markets for APT's outdoor media display system include the high
end of billboard and illuminated sign markets, sports stadiums and arenas,
transportation terminals, volume retailers and malls, and safety/public
information displays. APT has not recorded any sales to date. The Company
has been advised by APT that APT estimates its first sales will commence in
fiscal 1999.
The Company accounted for its investment in APT using the equity method of
accounting during previous fiscal years. For the year ended October 31,
1998, the Company has written off its investment, related goodwill, and note
receivable aggregating approximately $4.08 million as APT's existing capital
and internally generated funds were not adequate for APT capital
requirements through fiscal 1999. Substantial additional funds will be
required from external sources to support APT's operation during fiscal 1999
and beyond. During the first quarter of fiscal 1999, the Company loaned APT
additional $176,000 at annual interest rate of 10% to support APT's
operation.
The Company has, since then, been advised that APT expects to receive such
substantial additional funds through equity investment during fiscal 1999,
which may be adequate for its capital requirements through fiscal 1999 and
beyond. However, there can be no assurance that additional funds will be
available, or, if available, that such funds will be available on acceptable
terms.
The Company has not guaranteed any obligations of APT and has made no
commitments to APT to provide additional financial support.
6
<PAGE>
mySimon, inc.
-------------
In September, 1998, the Company invested $1 million in the online comparison
shopping Internet company, mySimon, inc. The investment has been accounted
for on the cost method.
mySimon, inc. uses proprietary intelligent agent technology called Virtual
Learning Agent (VLA) to assist online shoppers by scouring the Internet to
instantly find the best prices on products from thousands of online
merchants.
At the indicated dates the Company had the following investments in
affiliates and joint ventures: (in thousands)
<TABLE>
<CAPTION>
Apr. 30, Oct. 31,
1999 1998
-------- --------
<S> <C> <C>
Koram $ 110 $ 110
mySimon, inc. 1,000 1,000
--------- ---------
$ 1,110 $ 1,110
========= =========
</TABLE>
3. LETTER OF CREDIT AGREEMENT:
The Company has one letter of credit agreement with the bank whereby the
bank will issue up to a total of $1.0 million of line of standby and sight
letter of credits. This agreement is contingent upon the Company maintaining
time deposits (CD's) at the banks as collateral in a total amount no less
than the outstanding borrowings. At April 30, 1999, the Company had letters
of credit outstanding of approximately $235,816.
4. LITIGATION AND OTHER:
The Company has been named, along with dozens of other manufacturers,
designers, and distributors of computer equipment, as a defendant in several
lawsuits regarding product liability in connection with the alleged
defective design of computer terminal keyboards and the size of the computer
monitor screens. The first claim alleges that the various plaintiffs have
suffered some form of severe wrist injury from the use of said keyboards.
The second claim alleges that there was false advertising which claimed that
the video screens were 17 inches in size, when in reality they were only 15
inches. The Company's attorneys have prepared a defense for these cases and
the Company's insurance carriers are informed of the 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.
7
<PAGE>
5. RELATED PARTY TRANSACTIONS:
During 1999 and 1998 the Company has had transactions with its affiliates as
follows (in thousands):
<TABLE>
<CAPTION>
Apr. 30, 1999 Oct. 31, 1998
------------- -------------
<S> <C> <C>
Note receivable:
AdMOS (1) $ 4 $ 4
AdMOS (1) 180 180
Interest receivable:
AdMOS (1) 69 69
AdMOS (1) 86 77
</TABLE>
(1) Amounts are fully reserved.
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. During the second quarter the outstanding loan
principal and interest has been paid in full.
6. SALE AND LEASEBACK OF BUILDING
In December 1998, the Company sold its main facility (land and building) for
approximately $11.0 million and concurrently leased back this facility over
a 15 year lease term expiring in December 2013. The land component has been
recorded as an operating leaseback. The building element 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 a $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 leased
building asset life, which has been determined to be the 15 year lease term,
on a straight line method.
The $2.75 million note receivable 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 building sale and concurrent leaseback transaction was recorded in
accordance with Statement of Financial Accounting Standards ("SFAS")
Numbers 13, 28, and 66. The transaction qualified as a sale pursuant to
SFAS 66, while the leaseback was accounted for in accordance with SFAS 13.
[The remainder of this page is intentionally left blank.]
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 1999 TO THE THREE MONTHS ENDED
APRIL 30, 1998
Net sales for the second quarter of fiscal 1999 were $1.9 million,
compared with $3.2 million in the second quarter of fiscal 1998, a decrease of
$1.3 million, or 41%. The decrease in net sales was due to continued weak demand
in Europe and an overall industry trend toward lower-priced products,
particularly in monitors. During the second quarter of fiscal 1999, the
Company's product mix continued to shift towards terminals and away from
multimedia products.
Cost of sales were $1.8 million in the second quarter of fiscal 1999,
compared with $2.9 million in the second quarter of fiscal 1998, a decrease of
$1.1 million, or 38%. The decrease reflects the decrease in sales from the prior
year period.
Sales and marketing expenses were $461,000 in the second quarter of
fiscal 1999, compared with $716,000 in the second quarter of fiscal 1998, a
decrease of $255,000, or 36%. As a percentage of net sales, sales and marketing
expenses increased slightly to 24% in the second quarter of fiscal 1999 compared
with 23% in the second quarter of fiscal 1998.
Research and development expenses were $130,000 in the second quarter
of fiscal 1999, compared with $92,000 in the second quarter of fiscal 1998, an
increase of $38,000, or 41%. As a percentage of net sales, research and
development expenses increased to 7% in the second quarter of fiscal 1999
compared with 3% in the second quarter of fiscal 1998. The increase represents
increased costs associated with the continued development of the Company's
TeleCLIENT product line.
General and administrative expenses were $529,000 in the second quarter
of fiscal 1999, compared with $333,000 in the second quarter of fiscal 1998, an
increase of $196,000, or 59%. As a percentage of net sales, general and
administrative expenses increased to 28% in the second quarter of fiscal 1999
compared with 11% in the second quarter of fiscal 1998. The increase is
primarily due to lease payments that the Company began making in fiscal 1999 in
accordance with the sale and leaseback of the Company's headquarters facility.
Additional details about the sale and leaseback transaction are contained in
"Liquidity and Capital Resources."
The Company's loss from operations was approximately $977,000 in the
second quarter of fiscal 1999 compared with approximately $919,000 in the second
quarter of fiscal 1998.
Interest income, net of interest expense, was $113,000 in the second
quarter of fiscal 1999, compared with $42,000 in the second quarter of fiscal
1998, an increase of $71,000, or 169%. The increase was due to an increase in
interest income resulting from the $2.75 million, 7.25% promissory note that the
Company received pursuant to the sale of its building in December 1998, as well
as to additional cash that the Company had during the quarter due to the
building sale.
Other income was $152,000 in the second quarter of fiscal 1999,
compared with $32,000 expense in the second quarter of fiscal 1998, an increase
of $184,000. The increase was due primarily to the amortization of the deferred
gain on the sale of the Company's building. In addition, during the second
quarter of fiscal 1999, the Company changed the amortization period of the
deferred gain to 15 years to correspond with the lease term of the building.
Net loss for the second quarter of fiscal 1999 was $712,000 compared
with a net loss of $909,000 in the second quarter of fiscal 1998, a decrease of
$197,000, or 22%.
9
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 1999 TO THE SIX MONTHS ENDED
APRIL 30, 1998
Net sales for the first half of fiscal 1999 were $3.7 million, compared
with $7.7 million in the first half of fiscal 1998, a decrease of $4.0 million,
or 52%. The decrease in net sales was due to continued weak demand in Europe and
an overall industry trend toward lower-priced products, particularly in
monitors. In the first half of fiscal 1999, the Company's product mix continued
to shift towards terminals and away from multimedia products.
Cost of sales were $3.4 million in the first half of fiscal 1999,
compared with $7.0 million in the first half of fiscal 1998, a decrease of $3.6
million, or 51%. This decrease is in line with the decrease in sales from the
prior year period.
Sales and marketing expenses were $959,000 in the first half of fiscal
1999, compared with $1,498,000 in the first half of fiscal 1998, a decrease of
$539,000, or 36%. As a percentage of net sales, sales and marketing expenses
increased to 26% in the first half of fiscal 1999 compared with 19% in the first
half of fiscal 1998. The increase represents costs incurred by the Company to
launch its TeleCLIENT product line during the first half of fiscal 1999.
Research and development expenses were $194,000 in the first half of
fiscal 1999, compared with $226,000 in the first half of fiscal 1998, a
decrease of $32,000, or 14%. As a percentage of net sales, research and
development expenses increased to 5% in the first half of fiscal 1999 compared
with 3% in the first half of fiscal 1998. The increase, as a percentage of net
sales, represents increased costs associated with the continued development of
the Company's TeleCLIENT product line.
General and administrative expenses were $839,000 in the first half of
fiscal 1999, compared with $679,000 in the first half of fiscal 1998, an
increase of $160,000, or 24%. As a percentage of net sales, general and
administrative expenses increased to 23% in the first half of fiscal 1999
compared with 9% in the first half of fiscal 1998. The increase is primarily due
to lease payments that the Company began making in fiscal 1999 in accordance
with the sale and leaseback of the Company's headquarters facility.
Additional details about the sale and leaseback transaction are contained in
"Liquidity and Capital Resources."
The Company's loss from operations was approximately $1.7 million in
both the first half of fiscal 1999 and the first half of fiscal 1998.
Interest income, net of interest expense, was $145,000 in the first
half of fiscal 1999, compared with $82,000 in the first half of fiscal 1998, an
increase of $63,000, or 77%. The increase was due to an increase in interest
income resulting from the $2.75 million, 7.25% promissory note that the Company
received pursuant to the sale of its building in December 1998, as well as to
additional cash that the Company had during the first half of the year as a
result of the building sale.
Other income was $159,000 in the first half of fiscal 1999, compared
with $38,000 expense in the first half of fiscal 1998, an increase of $197,000.
The increase was due primarily to the amortization of the deferred gain on the
sale of the Company's building. In addition, during the second quarter of fiscal
1999, the Company changed the amortization period of the deferred gain to 15
years to correspond with the lease term of the building.
Net loss for the first half of fiscal 1999 was approximately $1.4
million, compared with a net loss of approximately $1.7 million in the first
half of fiscal 1998, a decrease of $0.3 million, or 18%.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1999, the Company had $6.7 million in cash and cash
equivalents, an increase of approximately $5.1 million over the same balances at
the end of fiscal 1998 of $1.6 million.
In December 1998, the Company sold its 69,360 square foot
headquarters building in San Jose, California, including land and
improvements, to TVCA, LLC, an unaffiliated Delaware limited liability
company ("TVCA") for $11.0 million. The nature of the consideration was $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 are payable in equal
monthly installments of $21,735 on the first day of each month, commencing
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.
In December 1998, the Company leased back this facility over a 15
year lease term expiring in December 2013. The land component 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 result of the sale for $11.0 million, 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 on a straight line basis over the leased building asset life,
which has been determined to be the 15 year lease term. In 1999, the
Company's monthly payment under the lease agreement is approximately
$110,000, while the corresponding monthly depreciation expense is
approximately $34,000.
Net accounts receivable were $1.2 million at April 30, 1999, compared
with $2.4 million at October 31, 1998, a decrease of $1.2 million, or 50%, while
net inventories were essentially flat at $2.3 million at both April 30, 1999 and
October 31, 1998.
Working capital at the end of the second quarter of fiscal 1999 was
approximately $7.3 million, an increase of approximately 190% from the fiscal
1998 year-end level of approximately $2.5 million.
The Company believes that, with respect to its current operations, the
Company's cash balance of approximately $6.7 million at April 30, 1999, which
includes $1.0 million pledged as collateral to support letters of credits, plus
revenues from operations and other non-operating cash receipts, will be
sufficient to meet the Company's working capital and capital expenditure needs
for the next twelve months.
IMPACT OF YEAR 2000 ISSUES
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Following December 31, 1999, the Company's computer equipment and software that
is time sensitive, including equipment with embedded technology such as
telephone systems and facsimile machines, may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to engage in normal business activities.
The Company has completed assessing its computer systems, software and
operations infrastructure, including systems being developed to improve business
functionality, to identify computer hardware, software and process control
systems that are not Y2K compliant. The Company internally evaluated the Y2K
compliance of its existing computer systems, software and operations
infrastructure and any Y2K issues of third parties of business importance to the
Company. The Company is trying to minimize any disruptions to the Company's
business which could result from the Y2K problem and to minimize liabilities
which the Company might incur as a result of such disruptions.
The Company has also initiated communications with its significant
suppliers and service providers and certain strategic customers to determine the
extent to which such suppliers, providers or customers will be affected by any
significant Y2K issues. The Company believes that these communications will
permit the Company to determine the extent to which the Company may be affected
by the failure of these third parties to address their own Y2K issues and may
facilitate the coordination of Y2K solutions between the Company and these third
parties. There can be no guarantee, however, that third parties of business
importance to the Company will successfully and timely evaluate and address
their own Y2K issues. The failure of any of these third parties to achieve Y2K
compliance in a timely fashion could have a material adverse effect on the
Company's business, financial position, results of operations or cash flows. The
Company does not expect that the costs of replacing or modifying the computer
equipment and software will be substantially different, in the aggregate, from
the normal, recurring costs incurred by the Company for systems development,
implementation and maintenance in the ordinary course of business. In this
regard, in the ordinary course of replacing computer equipment and software, the
Company attempts to obtain replacements that are Y2K compliant.
11
<PAGE>
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 June 7, 1999, which are
based on numerous assumptions as to future events. There can be no assurance
that these estimates will prove accurate, and actual results could differ
materially from those estimated if these assumptions prove inaccurate or
inadequate.
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12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 4 of "Notes to Condensed Consolidated Financial Statements."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of April 30, 1999, the Company had a long-term note receivable (the
"Note") of $2.7 million. The Company received the Note, which bears interest at
a fixed rate of 7.25% per annum, as part consideration for the sale of the
Company's headquarters facility in December 1998. The interest rate on the Note
is fixed over the life of the note, with principal and interest payable in equal
monthly installments of $21,735 each on the first day of each month commencing
on January 1, 1999. If not earlier paid in full, any unpaid principal and all
accrued interest shall be due and payable to TeleVideo, Inc. on December 1,
2013.
Because the interest rate on the Note is fixed for the term of the
Note, any change in interest rates would not affect the Company's earnings or
cash flows if it chose to hold onto the note, although a change in interest
rates could affect the market value of the Note if the Company chose to sell the
note prior to maturity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of stockholders on April 13, 1999,
at which K. Philip Hwang, Woo K. Kim, Robert E. Larson and Jun Keun Yum were
elected by the stockholders as Directors of the Company.
The stockholders also ratified the appointment of Grant Thornton LLP as
the Company's independent public accountant for the fiscal year ending October
31, 1999.
Following are the number of votes cast for each of the two proposals during the
stockholders meeting on April 13, 1999:
<TABLE>
<CAPTION>
Against/
For Withhold Abstentions
--- -------- -----------
<S> <C> <C> <C>
Proposal No. 1
Election of four Directors of the Company
Dr. K. Philip Hwang 10,370,728 51,807 None
Mr. Woo K. Kim 10,370,780 51,755 None
Dr. Robert E. Larson 10,371,280 51,255 None
Mr. Jun Keun Yum 10,371,280 51,255 None
Proposal No. 2
Ratification of Grant Thornton LLP as the
Company's independent public accountants for
the year ending October 31, 1999 10,384,489 22,627 15,419
</TABLE>
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT.
Exhibit 27.0 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None.
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14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELEVIDEO, INC.
---------------------------------------
(REGISTRANT)
DATE: NOVEMBER 23, 1999 BY: /S/ JAMES D. WHEAT
---------------------------------------
JAMES D. WHEAT
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 6,695
<SECURITIES> 0
<RECEIVABLES> 2,596
<ALLOWANCES> 1,370
<INVENTORY> 2,349
<CURRENT-ASSETS> 11,037
<PP&E> 8,060
<DEPRECIATION> 1,794
<TOTAL-ASSETS> 21,142
<CURRENT-LIABILITIES> 3,690
<BONDS> 0
0
0
<COMMON> 453
<OTHER-SE> 4,406
<TOTAL-LIABILITY-AND-EQUITY> 21,142
<SALES> 3,709
<TOTAL-REVENUES> 4,094
<CGS> 3,371
<TOTAL-COSTS> 1,992
<OTHER-EXPENSES> 186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> (1,307)
<INCOME-TAX> 43
<INCOME-CONTINUING> (1,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,350)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
