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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------
FORM 10-Q
(MARK ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 31, 2000
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) (Zip Code)
(408) 954-8333
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of
1934 during the preceding 12 months (or for such shorter periods 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date.
Outstanding at
Class July 31, 2000
----------------- ----------------
Common Stock 11,310,272
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TELEVIDEO, INC.
FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements .................................................................. 3
Condensed Consolidated Balance Sheets -
July 31, 2000 (unaudited) and October 31,
1999 .................................................................................. 3
Condensed Consolidated Statements of
Operations - Three and Nine Months Ended July 31,
2000 and 1999 (unaudited) ............................................................. 5
Condensed Consolidated Statements of Cash
Flows - Nine Months Ended July 31, 2000 and 1999 (unaudited) .......................... 6
Notes to Condensed Consolidated Financial
Statements (unaudited)................................................................. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................... 14
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ........................................................................... 20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders ............................................................................... 21
Item 5. Other Information...................................................................... 21
Item 6. Exhibits and Reports on Form 8-K....................................................... 21
Signatures ..................................................................................... 22
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TELEVIDEO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
--------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,528 $ 4,487
Marketable securities 6,140 -
Accounts receivable, net 1,033 1,523
Inventories, net 1,637 1,464
Prepayments and other 615 987
Notes receivable - current 67 67
--------------- -------------
Total current assets 11,020 8,528
--------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Production equipment 624 624
Office furniture and equipment 1,179 1,152
Leased property under capital lease 6,270 6,270
--------------- -------------
8,073 8,046
Less accumulated depreciation and
amortization 2,247 2,010
--------------- -------------
Property, plant and equipment, net 5,826 6,036
--------------- -------------
INVESTMENTS IN AFFILIATES 6,157 1,117
NOTE RECEIVABLE, LESS CURRENT PORTION 2,580 2,636
--------------- -------------
Total assets $ 25,583 $ 18,317
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 662 $ 964
Accrued liabilities 1,138 1,160
Income taxes 170 -
Deferred tax liabilities 2,237 -
Obligation under capital lease - current 270 270
Deferred gain on sale of land and building -
current 538 538
--------------- -------------
Total current liabilities 5,015 2,932
--------------- -------------
Obligation under capital lease - long-term 5,636 5,812
Deferred gain on sale of land and building -
long-term 6,645 7,069
--------------- -------------
Total liabilities 17,296 15,813
--------------- -------------
</TABLE>
(continued on following page)
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
---------------- ---------------
(Unaudited)
STOCKHOLDERS' EQUITY:
<S> <C> <C>
Common stock, $.01 par value:
Authorized - 75,000,000 shares
Outstanding -- 11,430,272 shares at
July 31, 2000 and 11,271,085 shares
at October 31, 1999 (net of
120,000 treasury shares) 453 453
Additional paid-in capital 95,735 95,703
Accumulated other comprehensive income 3,356 0
Accumulated deficit (91,257) (93,652)
---------------- ---------------
Total stockholders' equity 8,287 2,504
---------------- ---------------
Total liabilities and stockholders'
equity $ 25,583 $ 18,317
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
JULY 31, JULY 31,
--------------------------- -------------------------
2000 1999 2000 1999
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 1,729 $ 1,926 $4,946 $5,635
COST OF SALES 1,614 1,844 4,622 5,215
------------ ---------- ----------- ---------
GROSS PROFIT 115 82 324 420
OPERATING EXPENSES:
Sales and marketing 545 599 1,996 1,558
Research and development 266 230 740 424
General and administrative 512 505 1,546 1,344
------------ ---------- ----------- ---------
Total operating expenses 1,323 1,334 4,282 3,326
------------ ---------- ----------- ---------
Loss from operations (1,208) (1,252) (3,958) (2,906)
INTEREST INCOME, net 66 125 285 270
OTHER INCOME (LOSS), net 84 218 549 421
Gain from sale of marketable
securities 4,161 0 5,696 0
------------ ---------- ----------- ---------
Earnings (loss) before income tax 3,103 (909) 2,572 (2,215)
Income tax expense 4 22 172 66
------------ ---------- ----------- ---------
Net income (loss) $ 3,099 $ (931) $ 2,400 $(2,281)
============ ========== =========== =========
Net income (loss) per share
- basic $ 0.27 $ (.08) $ 0.21 $ (0.2)
------------ ---------- ----------- ---------
- diluted $ 0.27 $ (.08) $ 0.21 $ (0.2)
------------ ---------- ----------- ---------
Shares used in per share
amounts - basic 11,310 11,271 11,299 11,271
============ ========== =========== =========
- diluted 11,310 11,271 11,299 11,271
============ ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELEVIDEO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31.
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided (used in) operating
activities $ (2,172) $ 2,382
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Certificate of Deposit - (1,000)
Additions to property, plant and equipment (27) 2,433
Payment received (increases) on note receivable 56 (171)
Proceeds from sales of CNET stock 4,368 -
Investments in affiliates (5,040) -
---------- ---------
Net cash (used in) provided by investing activities (643) 1,262
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 32 -
Payments on lease obligations (176) -
---------- ---------
Net cash used in financing activities (144) -
---------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,959) 3,644
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 4,487 1,640
---------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 1,528 $ 5,284
========== =========
</TABLE>
Non cash investing/financing activities:
During the nine months ended July 31, 2000, the company recognized unrealized
gains of $3.4 million, net of taxes of $2.2 million, on its investment in CNET
stock.
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 lease. 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.
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The $2.75 million note receivable bears interest at 7.25% per annum. Principal
and accrued interest is payable in equal monthly installments of $21,735 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 is due and payable to the
Company on December 1, 2013.
The accompanying notes are an integral part of these financial statements.
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TELEVIDEO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information. The
information at July 31, 2000 and for the three and nine months ended July 31,
2000 and 1999 includes all adjustments that the management of the Company
believes are necessary for fair presentation for the results of the periods
presented.
Results for any interim period are not necessarily indicative of
results for any future interim period or for the entire year. The accompanying
financial statements and notes thereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1999.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries, after elimination of
inter-company accounts and transactions. All of the Company's unconsolidated
affiliates are accounted for using the equity or the cost method.
USE OF ESTIMATES
In preparing financial statements in conformity with accounting
principles generally accepted in the United States Of America, 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.
8
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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
$0.3 million at July 31, 2000 and $1.0 million at October 31, 1999.
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
------------ -------------
<S> <C> <C>
Purchased parts and subassemblies $ 592 $ 216
Work-in-process 331 313
Finished goods 714 935
------------ -------------
$ 1,637 $ 1,464
============ =============
</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>
Production equipment 1-10 years
Office furniture 1-10 years
Leased property 15 years
</TABLE>
INCOME/(LOSS) PER SHARE
Income/(Loss) per share is based on the weighted average number of
shares of common stock outstanding during each period. Diluted earnings per
share is computed using the weighted average number of potentially dilutive
securities outstanding during the period. Approximately 382,500 shares
outstanding under various Incentive Stock Options plans have been excluded from
the computation for the three and nine months ended July 31, 2000 and 1999, as
their effect is antidilutive.
MARKETABLE SECURITIES
The Company adopted Statement Of Accounting Standrds No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designations as of
each balance sheet date. The investment in CNET common stock classified as
available for sale, is reported at market value, with the unrealized gain or
loss, net of tax, reported as separate component of other comprehensive
income (loss) in stockholders' equity. Realized gains and losses on sales of
investments is included in operating results.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The
difference between the Company's net income and its total comprehensive
income for 2000 was attributed to net unrealized gains on available for sale
marketable securities of $3,356000. Total comprehensive income for the three
and nine months ended July 31, 2000 was $6,455,000 and $5,756,000
respectively. There was no difference between the Company's net loss and its
total comprehensive loss for 1999.
9
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2. ACQUISITIONS AND DIVESTITURES
K&T TELECOM, INC.
In July 2000, the Company purchased for $600,000 in cash an
aggregate of 9,608 shares of Stock of K&T Telecom, Inc. The Company's
investment in K&T Telecom, Inc. represents a 49% interest in this
privately-held corporation. The cash investment will be accounted for on the
cost method of accounting. The purchase price and other terms of the
investment were arrived at by negotiation between the Company and K&T
Telecom, Inc. with the per share price determined by the K&T Telecom, Inc.
Board of Directors in good faith based on financial and business information
and other relevant factors currently known to and considered by the K&T
Telecom, Inc. board members. The purchase price was paid for out of the
Company's working capital. Preferred distribution: If K&T Telecom, Inc.
subsequently increases its capital, TeleVideo will be given the opportunity
to participate in stock issuance in order to maintain the percentage of stock
currently held by TeleVideo. K&T Telecom, Inc. is a Korean company, with head
office located at Dongnam Bldg. 309, Kuro-dong 437, Kuro-ku, Seoul, Republic
Of Korea and the main activity is represented by manufacturing
telecommunication and electronics devices.
SYNERTEK, INC.
In June 2000, the Company purchased for $1,000,000 in cash an aggregate
of 285,714 shares of common stock of Synertek, Inc., a Nevada corporation,
representing an 8% interest in this company. The cash investment will be
accounted for on the cost method of accounting. The purchase price and other
terms of the investment were arrived at by negotiation between the Company and
Synertek, Inc. with the per share price determined by the Synertek, Inc., Board
of Directors in good faith based on financial and business information and other
relevant factors currently known to and considered by the Synertek, Inc., board
members. The purchase price was paid for out of the Company's working capital.
INVESTMENT IN KEYIN TELECOM CO. LTD.
On May 12, 2000, the Company purchased an aggregate of 15,278
ordinary shares of Keyin Telecom Co. Ltd. ("Keyin"). Keyin is a private
company located in Seoul, Korea, which is engaged in developing powerline
communications technology. The Company's investment in Keyin represents a
5.75% interest in this corporation. The cash investment of $2,522,972 will be
accounted for on the cost method of accounting. The purchase price and other
terms of the investment were arrived at by negotiation between the Company
and Keyin, with the per share price determined by the Keyin Board of
Directors in good faith based on financial and business information and other
relevant factors currently known to and considered by the Keyin board
members. The purchase price was paid for out of the Company's working capital.
The Company has the right to participate in future sales of Keyin
securities to maintain its proportionate interest in Keyin. In the event the
Company wants to sell all or a portion of its shares, it has given Keyin and its
controlling shareholder, who is also its President and Chief Executive Officer,
a right of first refusal to purchase the shares. Keyin also agreed
10
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to keep the Company expressly advised regarding certain specified kinds of
events and transactions that could materially impact Keyin's business, capital
structure and financial condition. Keyin has agreed that it will not transfer
its powerline communications ("PLC") technology to a third party without the
prior written consent of the Company, except in the context of a strategic
technology transfer agreement approved by the Keyin Board. The restrictions and
promises in the agreement will terminate at such time as the Company has sold at
least 70% of the shares it acquired under the agreement.
The investment agreement also contemplates that TeleVideo will
participate in a strategic alliance with Keyin under the terms of which
TeleVideo will support Keyin in its overseas marketing and sales activities
related to Keyin's PLC technology. In addition, TeleVideo and Keyin will
cooperate to incorporate Keyin's PLC technology into TeleVideo's computer
products, including the Tele-Client series. The parties contemplate entering
into a separate sales and marketing agreement to more fully document the terms
and conditions of the strategic relationship.
INVESTMENT IN BIOMAX CO, LTD.
On May 12, 2000, the Company purchased an aggregate of 45,000 ordinary
shares of Biomax Co., Ltd. ("Biomax"). Biomax is a startup company with its
principal offices located in Seoul, Korea, which is engaged in developing an
herbal product to help lower cholesterol levels in humans. Its existing
technology was developed by and obtained from the Korea Research Institute of
Bioscience and Biotechnology. The Company's investment in Biomax represents a
15% interest in this privately-held corporation. The cash investment of $917,431
will be accounted for on the cost method of accounting. The purchase price and
other terms of the investment were arrived at by negotiation between the Company
and Biomax, with the per share price determined by the Biomax Board of Directors
in good faith based on financial and business information and other relevant
factors currently known to and considered by the Biomax board members. The
purchase price was paid for out of the Company's working capital.
The agreement gives the Company the right to nominate one member to the
Biomax Board of Directors. Dr. K. Philip Hwang, the Company's Chairman of the
Board and Chief Executive Officer, was nominated and elected to the Biomax
board.
The Company has the right to participate in future sales of Biomax
securities to maintain its proportionate interest in Biomax. In the event the
Company wants to sell all or a portion of its shares, it has given Biomax and
Biomax's President, who is its controlling shareholder, a right of first refusal
to purchase the shares. The controlling shareholder also must obtain the
Company's prior written consent in order to sell over 10% of Biomax. Biomax also
agreed to discuss with the Company certain specified kinds of events and
transactions that could materially impact Biomax's business, capital structure
and financial condition. The agreement further prohibits Biomax from sharing its
technology with third parties or assisting with research and development efforts
of third parties without the prior written consent of the Company, other than in
the normal course of business, and further prohibits the controlling shareholder
from engaging in businesses that could compete with Biomax. The restrictions and
promises in the agreement will terminate at such time as the Company has sold at
least 70% of the shares it acquired under the agreement.
11
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MULIX, INC.
On February 28, 2000, the Company purchased for $1 million in cash an
aggregate of 14,269,230 shares of unregistered Series A Convertible Preferred
Stock of Mulix, Inc., a Delaware corporation. The Company's investment in Mulix
represents a 35% interest in this privately-held corporation. The cash
investment will be accounted for on the equity method of accounting. The
purchase price and other terms of the investment were arrived at by negotiation
between the Company and Mulix, with the per share price determined by the Mulix
Board of Directors in good faith based on financial and business information and
other relevant factors currently known to and considered by the Mulix board
members. The purchase price was paid for out of the Company's working capital.
Each share of Series A Preferred Stock is convertible into one share of
Mulix Common Stock, at the option of the Company. The Series A Preferred Stock
is automatically convertible into Common Stock under certain circumstances,
including a firm commitment underwritten public offering of Mulix Common Stock
with proceeds, net of underwriter's fees, of not less than $15,000,000. Prior to
conversion, the Series A Preferred Stock is entitled to one vote per share. In
connection with the investment, the Company entered into a Voting Agreement with
the founders of Mulix regarding board size and membership. Dr. K. Philip Hwang,
the Company's Chairman and Chief Executive Officer, has accepted an appointment
to the Mulix Board of Directors, in accordance with the Voting Agreement. The
three founders of Mulix constitute the remainder of the board.
The Company has the right of first offer on future sales of Mulix
equity securities, subject to certain exceptions such as issuances of stock or
options under employee option plans.
MYSIMON, INC.
In September 1998, the Company invested in the online comparison
shopping Internet company, mySimon, Inc., receiving convertible preferred stock.
On February 29, 2000, CNET Networks, Inc. (formerly, CNET, Inc.) completed the
acquisition of mySimon, Inc. As a result of this acquisition, the Company
received 375,108 shares of common stock of CNET Networks, Inc. in exchange for
100% of its interest in mySimon. During same period of time, the Company also
adjusted its balance sheet to reflect the conversion to a marketable security.
The cost method used to book the investment in mySimon was changed to market
value method to record the investment in CNET stock. As a result, the Company
recognized an unrealized gain of 6.2 million, net of taxes of 4.2 million, from
its investment in CNET stocks.
KORAM, INC.
In February 1998, the Company purchased a 50% interest in Koram, Inc, a
Korean restaurant venture. 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.
12
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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 billboard
and illuminated sign markets, sports stadiums and arenas, transportation
terminals, volume retailers and malls, and safety/public information displays.
The Company accounts for its investment in APT using the equity method
of accounting. During the fiscal year ended October 31, 1998, the Company wrote
off its equity investment, related goodwill, and note receivable of
approximately $4.1 million.
In December 1998, the Company loaned APT $176,000. This note bears
interest at the rate of 10% per annum and was due on December 1, 1999. In
September 1999, the Company loaned APT an additional $125,000. The $125,000 note
bears interest at the rate of 6% per annum and was due on December 1, 1999. In
September 1999, the Company entered into a consulting agreement with APT in
which APT agreed to undertake two engineering development projects for the
Company. The Company made an advance payment of $125,000 under the agreement,
which is the entire amount of the Company's obligation. The Company wrote off
the $426,000 in loans and advances to APT as of October 31, 1999. The Company
has not guaranteed any obligations of APT and has made no commitments to provide
additional financial support to APT.
3. LETTER OF CREDIT AGREEMENT
The Company has one letter of credit agreement with its bank whereby
the bank will issue up to a total of $1.0 million of standby and sight letters
of credit. This agreement is contingent upon the Company maintaining time
deposits at the bank as collateral in a total amount no less than the
outstanding borrowings. At July 31, 2000 the Company had no letters of credit
outstanding.
4. RELATED PARTY TRANSACTION
In April 2000, GEM management, Inc., a company owned by the wife of
TeleVideo's chairman and chief executive officer, invested $800,000 into APT.
The total commitment of the investment will be $1,000,000 in exchange for 5%
equity ownership in APT.
5. SUBSEQUENT EVENTS
ALPHA TECHNOLOGY, INC.
In August 2000, the Company purchased for $650,000 in cash an aggregate
of 9,608 shares of Stock of Alpha Technology, Inc. The Company's investment in
Alpha Technology, Inc. represents a 49% interest in this privately-held
corporation. The cash investment will be accounted for on the equity method of
accounting. The purchase price and other terms of the investment were arrived at
by negotiation between the Company and Alpha Technology, Inc. with the per share
price determined by the Alpha Technology, Inc. Board of Directors in good faith
based on financial and business information and other relevant factors currently
known to and considered by the Alpha Technology
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board members. The purchase price was paid for out of the Company's working
capital.
Televideo has the right to participate in future sales of Alpha
Technology, Inc. securities to maintain its proportionate interest in this
company. If Alpha Technology, Inc. increases its capital thereafter,
TeleVideo will be given the opportunity to participate in the stock issuance
in order to maintain the percentage of stock held currently by TeleVideo.
Alpha Technology, Inc. is a Korean company, with head office located at
698-13 Maeng-ri , Wonsam-myon, Yongin-si, Gyeonggido, Republic Of Korea and the
main activity is represented by manufacturing electronics and car accessories.
PROMISE ENGINEERING, INC. (PEI)
In August 2000, the Company acquired Promise Engineering, Inc., a
Washington corporation for $316,433. After acquisition, PEI will become
Televideo Mobile Electronics Division (TMED). Televideo has paid cash of
$166,433. The difference of $150,000 shall be paid within ten (10) business days
from the earliest date of occurrence of one of the three events:
- PEI or TMED receives Non Recurring Engineering fee of $400,000
from Cartell, Inc.;
- PEI or TMED signs a procurement contract and its first shipment
of products is accepted by Cartell, Inc.;
- PEI or TMED gross sales revenue reaches $10,000,000 in any 12
month period.
The first portion of purchase price ($166,433) was paid for out of the
Company's working capital. Televideo further warrants to PEI that
Televideo will issue, transfer and convey to Kil S. Chung the first one
hundred thousand (100,000) shares of the common stock of Televideo in
the event of annual sales revenue of TMED reaches $10,000,000 in any 12
month period. However, Televideo may issue, transfer and convey to Kil
S. Chang the first 100,000 shares collectively within six months of the
establishment of TMED if in the sole opinion of Chairman and CEO, Dr.
K. Philip Hwang, Mr. Chung's performance is satisfactory and
acceptable. A second block of 100,000 shares of the common stock of
Televideo shall be issued, transferred and conveyed to Kil S. Chang if
the annual sales revenue of TMED reaches $20,000,000 in any 12 month
period. When computing sales revenue of $20,000,000, the $10,000,000
sales revenue referred above shall be included. If TMED executes a
non-cancelable, non-revocable procurement with Cartell, Inc. with a
minimum term of three (3) or more years and the first manufacturing
product shipment is accepted by Cartell, Inc. then, within thirty (30)
days of the said acceptance, an additional nine hundred thousand
(900,000) shares of common stock of Televideo shall be transferred and
conveyed to Kil S. Chung. PEI is a research and development company,
focused on cooling and heating car systems.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for the quarterly
periods ended July 31, 2000 and 1999. The following discussion should be read in
conjunction with the Financial Statements and Notes thereto appearing elsewhere
in this Report on Form 10-Q and in conjunction with the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1999. Some of the information
in this Report contains forward-looking statements which involve substantial
risks and uncertainties. These statements can be identified by forward-looking
words such as "may," "will," "expect," "anticipate," "believe," "estimate" and
"continue" or similar words. Investors should read statements that contain these
or similar words carefully because they (1) discuss our expectations about the
Company's future performance; (2) contain projections of the Company's future
operating results or of the Company's future financial condition; (3) state
other "forward-looking" information. The Company believes it is important to
communicate its expectations to its investors. There may be events in the
future, however, that the Company is not accurately able to predict or over
which it has no control. The risk factors discussed in "Factors that may Affect
Future Results," later in this Report, as well as any cautionary language in
this Report, provide examples of risks, uncertainties and events that may cause
the Company's actual results to differ materially from the expectations
described in the forward-looking statements. Additional risks will be described
from time to time in the Company's other filings with the SEC. Investors should
be aware that the occurrence of any of the events described in the risk factors
and elsewhere in this Report and in the Company's other periodic SEC filings
could have a material and adverse effect on its business, results of operations
and financial condition.
GENERAL
The Company continues to focus its efforts toward providing
high-performance Windows-based terminals to the business and consumer markets.
In recent years, the Company has phased out the sale of multimedia products and
monitors to focus on utilizing its expertise in server-based network computing
to forge new ground in delivering thin-client solutions. In November 1998, the
Company launched its Windows-based terminal products and in April 1999, launched
its TeleCLIENT product line. This shift in focus has been the key reason for the
changes in results of operations between the three and nine months ended
July 31, 2000 and 1999.
The Company strengthened its sales organization in fiscal 1999 and into
fiscal 2000 to provide more efficient geographical coverage and market
penetration for its thin-client products. The Company faces strong competition
in the marketplace and continues to look for ways to improve operating
efficiency. In order to lower the production costs, the Company has continued to
negotiate with its suppliers and has also shifted many production processes
overseas.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JULY 31, 2000 TO THE THREE MONTHS
ENDED JULY 31, 1999
Net sales for the third quarter of fiscal 2000 were $1,729,000, as
compared with $1,926,000 in the third quarter of fiscal 1999, a decrease of
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$197,000, or approximately 10.2%. The decrease in net sales reflects a decrease
in the sales of monitors and terminals of approximately $152,000 and $435,000,
respectively, from the year ago quarter, offset partially by increased sales of
TeleCLIENT products of $501,000, which the Company introduced in the second
quarter of fiscal 1999. Also, the sales of spare parts have decreased $136,000.
Cost of sales was $1,614,000 in the third quarter of fiscal 2000,
compared with $1,844,000 in the third quarter of fiscal 1999, a decrease of
$230,000, or approximately 12.5%. As a percentage of net sales, gross margin was
6.7% in the third quarter of fiscal 2000, compared with 4.3% in the third
quarter of fiscal 1999. The increase, as a percentage of sales, primarily
reflects the changes in the sales structure, a larger portion been represented
in the third quarter of FY 2000 by TeleCLIENT, with a gross margin higher then
the old terminals.
Total operating expenses were $1,323,000 in the third quarter of fiscal
2000 compared to $1,334,000 in the comparable period in 1999, reflecting a
decrease of approximately 0.8% in 2000. This is due to the following changes:
Sales and marketing expenses were $545,000 in the third quarter of
fiscal 2000, compared with $599,000 in the third quarter of fiscal 1999. The
$54,000 decrease was attributed in principal to the decrease in salary
expenses in this category.
Research and development expenses were $266,000 in the third quarter of
fiscal 2000, compared with $230,000 in the second quarter of fiscal 1999, an
increase of $36,000. As a percentage of net sales, research and development
expenses is approximately 15.4% in the third quarter of fiscal 2000 compared
with approximately 11.9% in the third quarter of fiscal 1999. The increase
represents increased costs associated with the continued development of the
Company's TeleCLIENT product line.
General and administrative expenses were $512,000 in the third quarter
of fiscal 2000, compared with $505,000 in the third quarter of fiscal 1999. As a
percentage of net sales, general and administrative expenses were approximately
29.6% in the third quarter of fiscal 2000 compared with approximately 26.2% in
the third quarter of fiscal 1999.
The Company's loss from operations was $1,208,000 in the third quarter
of fiscal 2000 compared with $1,252,000 in the third quarter of fiscal 1999.
Interest income, net of interest expense, was $66,000 in the third
quarter of fiscal 2000, compared with $125,000 in the third quarter of fiscal
1999, an decrease of $59,000.
Other income was $84,000 in the third quarter of fiscal 2000, compared
with $218,000 in the same period of fiscal 1999, an decrease of $134,000.
In the third and second quarters of fiscal 2000, the Company sold
120,000 and 50,000 shares, respectively of CNET Networks stock that was obtained
when mySimon, Inc. was purchased by CNET Networks in February 2000. The Company
realized gains of $4,161,000 and $1,535,000 in the third and second quarters of
fiscal year 2000 respectively, from the sale of these shares.
Net income for the third quarter of fiscal 2000 was $3,099,000 as
compared with a net loss of $931,000 in the third quarter of fiscal 1999. The
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<PAGE>
net income reflected in the 2000 period was the result of the sale of the CNET
stock discussed above. In the absence of that gain, the Company would have had a
net loss of $1,062,000 for the quarter.
COMPARISON OF THE NINE MONTHS ENDED JULY 31, 2000 TO THE NINE MONTHS
ENDED JULY 31, 1999
Net sales for the first nine months of fiscal 2000 were $4,946,000, as
compared with $5,635,000 in the first nine months of fiscal 1999, a decrease of
$689,000, or approximately 12.2%. The decrease in net sales reflects a decrease
in sales of monitors of approximately $787,000 from the year ago period and a
decrease in terminal sales of approximately $777,000, offset partially by sales
of TeleCLIENT products, which the Company introduced in the second quarter of
fiscal 1999.
Cost of sales was $4,622,000 in the first nine months of fiscal 2000,
compared with $5,215,000 in the first nine months of fiscal 1999, a decrease of
$593,000, or 11.4%. As a percentage of net sales, gross margin was approximately
6.6% in the first nine months of fiscal 2000, compared with approximately 7.5%
in the first nine months of fiscal 1999. The decrease, as a percentage of sales,
primarily reflects royalty expenses incurred by the Company in the first nine
months of fiscal 2000 under the licensing agreement for the operating system
software used in the Company's TeleCLIENT products. In the first nine months of
fiscal 2000, the Company accrued $589,000 in royalty expenses. In the first nine
months of fiscal 1999, the Company accrued $97,000 in royalty expenses.
Total operating expenses, consisting of sales and marketing,
research and development and general and administrative, were $4,282,000 in
the first nine months of fiscal 2000 compared to $3,326,000 in the comparable
period in 1999, reflecting an increase of approximately 28.7% in 2000. This
reflects an increase in all categories of operating expenses, as follows:
Sales and marketing expenses were $1,996,000 in the first nine months
of fiscal 2000, compared with $1,558,000 in the first nine months of fiscal
1999. As a percentage of net sales, sales and marketing expenses increased to
approximately 40.4% in the first nine months of fiscal 2000 compared with
approximately 27.6% in the first nine months of fiscal 1999. The increase
reflects the additional costs incurred in support of the Company's launch of its
TeleCLIENT product line.
Research and development expenses were $740,000 the first nine months
of fiscal 2000, compared with $424,000 in the first nine months of fiscal 1999,
an increase of $316,000. As a percentage of net sales, research and development
expenses increased to approximately 15.0% in the first nine months of fiscal
2000 compared with approximately 7.5% in the first nine months of fiscal 1999.
The increase represents increased costs associated with the continued
development of the Company's TeleCLIENT product line.
General and administrative expenses were $1,546,000 in the first nine
months of fiscal 2000, compared with $1,344,000 in the first nine months of
fiscal 1999. As a percentage of net sales, general and administrative expenses
increased to approximately 31.3% in the first nine months of fiscal 2000
compared with approximately 23.9% in the first nine months of fiscal 1999. The
increase is due primarily to lease expenses resulting from the sale and
leaseback of the Company's headquarters facility, which lease payments are
reflected in each month of the fiscal 2000 period, but only beginning in January
1999 of the prior year. Additional details about the sale and
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<PAGE>
leaseback transaction are described in "Liquidity and Capital Resources," below.
The Company's loss from operations was $3,958,000 in the first nine
months of fiscal 2000 compared with $2,906,000 in the first nine months of
fiscal 1999.
Interest income, net of interest expense, was $285,000 in the first
nine months of fiscal 2000, compared with $270,000 in the first nine months of
fiscal 1999, an increase of $15,000.
Other income was $549,000 in the first nine months of fiscal 2000,
compared with $421,000 in the first half of fiscal 1999, an increase of
$128,000. The Increase was due primarily to the rental income from subleasing
the office building to APT and Telemann Inc.
In the second and third quarters of fiscal 2000, the Company sold
170,000 shares of CNET Networks stock (from a total of 375,108 owned) that was
obtained when mySimon, Inc. was purchased by CNET Networks in February 2000.
These sales resulted in a gain of $5,696,000 for the first nine months of fiscal
2000.
For the first nine months of fiscal 2000 the Company recorded a net
income of $2,400,000 compared with a net loss of $2,281,000 in the first nine
months of fiscal 1999. This income is due to the $5,696,000 gain from the
sale of CNET shares, without it the net loss for the nine month period would
have increased to $3,296,000.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company had approximately $1,528,000 in cash and
cash equivalents, a decrease of approximately $2,959,000 from the $4,487,000 on
hand at October 31, 1999.
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
the Company 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 $6,270,000. As a result of the
sale for $11,000,000, a deferred gain of approximately $8,000,000 was recorded.
The deferred gain attributable to the land element, which approximates
$3,440,000, is being amortized over the 15 year lease life on the straight line
method. The deferred gain attributable to the building element, which
approximates $4,560,000, is being amortized on the straight line method over the
leased building asset life, which has been determined to be the 15 year lease
term.
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<PAGE>
Net accounts receivable were $1,033,000 at July 31, 2000, as compared
with $1,523,000 at October 31, 1999, a decrease of $490,000, or approximately
32.1%. The decrease in accounts receivable reflects a greater emphasis on
collection and more strict credit policies during the quarter.
Net inventories were $1,637,000 at July 31, 2000, as compared with
$1,464,000 at October 31, 1999, an increase of $173,000. The increase in
inventory reflects the purchase of additional TeleCLIENT products.
Working capital at the end of the third quarter of fiscal 2000 was
$6,005,000, an increase of 7.3% from the fiscal 1999 year-end level of
$5,596,000. The increase is due primarily to the common stock in CNET Networks,
Inc., which the Company received in the second quarter of fiscal 2000 as a
result of the acquisition of mySimon, Inc. by CNET Networks. At July 30, 2000,
the Company held 205,108 shares of common stock in CNET Networks, Inc.,
representing a total market value of $6,140,000.
The Company believes that, with respect to its current operations, the
Company's cash balance of approximately $1,528,000 at July 31, 2000, its CNET
common stock, 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
COMPETITIVE MARKETS. The markets in which the Company competes,
including thin client, other terminals and monitors, is 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.
PRODUCT DEVELOPMENT. The computer 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 ways to minimize inventory levels and product obsolescence
of discontinued products. The Company's operating results could be adversely
affected if it is unable to manage all aspects of product transitions
successfully.
SINGLE SOURCED PRODUCTS. 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 only 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.
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<PAGE>
RELIANCE ON FORECASTS. 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.
FACTORS THAT COULD AFFECT STOCK PRICE. 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.
FOREIGN CURRENCY AND POLITICAL RISK. The Company markets its products
worldwide. In addition, a large portion of the Company's parts and components
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of July 31, 2000, the Company had a long-term note receivable (the
"Note") of approximately $2,647,000. The Company received the Note, which bears
interest at a fixed rate of 7.25% per annum, as partial consideration for the
sale of the Company's headquarters facility in December 1998. The interest rate
on the Note is fixed over the life of the Note, with principal and interest
payable in equal monthly installments of $21,735 each on the first day of each
month commencing on January 1, 1999. If not earlier paid in full, any unpaid
principal and all accrued interest shall be due and payable to the Company 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 fair value of the Note if the Company chose to sell the
note prior to maturity.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 18, 2000, the Company held its annual meeting of stockholders.
At the meeting, the stockholders voted on the election of directors, the
approval of the 2000 Stock Option Plan (the "Plan") and the ratification of
independent auditors. The following four nominees were elected to the board
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<PAGE>
of directors for a one-year term: K. Philip Hwang, Robert E. Larson, Woo K. Kim
and J.K. Yum. Additionally, the proposal to adopt the Plan was approved and the
appointment of Grant Thornton LLP as the Company's independent auditors for the
fiscal year ending October 31, 2000 was ratified. The total number of votes
represented at the meeting in person or by proxy was 10,589,006, representing
approximately 93.6% of the outstanding shares on the record date of February 25,
2000. The number of votes cast for, against, or withheld, as well as the number
of abstentions and broker non-votes, for each proposal, are as follows:
A. Election of Directors
<TABLE>
<CAPTION>
DIRECTOR NOMINEE VOTES FOR VOTES WITHHELD
<S> <C> <C>
K. Philip Hwang 10,469,438 119,569
Robert E. Larson 10,495,729 93,278
Woo K. Kim 10,469,679 119,328
J.K. Yum 10,469,554 119,453
</TABLE>
B. Approval of the 2000 Incentive Stock Option Plan
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
<S> <C> <C> <C>
Approval of the 2000
Incentive Stock Option
Plan 7,956,629 331,697 69,536
</TABLE>
C. Ratification of the appointment of Grant Thornton LLP as
independent auditors for the fiscal year ending October 31, 2000:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
<S> <C> <C> <C>
Appointment of Grant
Thornton LLP as
independent auditors 10,543,482 29,207 18,365
</TABLE>
ITEM 5. OTHER INFORMATION
As of June 1, 2000, Dr. K. Philip Hwang, the Company's Chairman of the
Board and Chief Executive Officer, has also assumed the title and
responsibilities of Chief Financial Officer. James D. Wheat, the former Chief
Financial Officer, left the Company at the end of May 2000 to pursue other
opportunities.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.
(a) EXHIBIT(S).
Exhibit 27.0 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
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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.
Date: September 14, 2000
TELEVIDEO, INC.
(REGISTRANT)
By: /s/ K. Philip Hwang
---------------------------------
Chairman of the Board,
Chief Executive Officer
and Chief Financial
Officer
(Principal Executive,
Financial and Accounting
Officer)
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