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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
April 30, 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 June 1, 2000
-------------- ---------------
Common Stock 11,310,272
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TELEVIDEO, INC.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements .................................................................. 3
Condensed Consolidated Balance Sheets - April 30, 2000
(unaudited) and October 31, 1999 ...................................................... 3
Condensed Consolidated Statements of Operations - Three and Six Months
Ended April 30, 2000 and 1999 (unaudited) ............................................. 5
Condensed Consolidated Statements of Cash Flows - Six Months
Ended April 30, 2000 and 1999 (unaudited) ............................................. 6
Notes to Condensed Consolidated Financial
Statements (unaudited)................................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................... 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ........................................................................... 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ................................... 18
Item 5 Other Information...................................................................... 19
Item 6. Exhibits and Reports on Form 8-K ...................................................... 19
Signatures...................................................................................... 20
</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>
April 30, October 31,
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,534 $ 4,487
Marketable securities 11,237 0
Accounts receivable, net 1,193 1,523
Inventories, net 1,722 1,464
Prepayments and other 695 987
Notes receivable - current 67 67
--------- -------
Total current assets 18,448 8,528
--------- -------
PROPERTY, PLANT AND EQUIPMENT:
Production equipment 624 624
Office furniture and equipment 1,170 1,152
Leased property under capital lease 6,270 6,270
-------- --------
8,065 8,046
Less accumulated depreciation and amortization 2,183 2,010
-------- --------
Property, plant and equipment, net 5,882 6,036
-------- --------
INVESTMENTS IN AFFILIATES 1,117 1,117
NOTE RECEIVABLE, LESS CURRENT PORTION 2,597 2,636
-------- --------
Total assets $ 28,043 $ 18,317
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Obligation under capital lease - current $ 270 $ 270
Accounts payable 1,194 964
Accrued liabilities 1,196 1,160
Income taxes 170 0
Deferred tax liabilities 4,148 0
Deferred gain on sale of land and building - current 538 538
------- -------
Total current liabilities 7,517 2,932
------- -------
Obligation under capital lease - long-term 5,682 5,812
Deferred gain on sale of land and building - long-term 6,786 7,069
------- -------
Total liabilities 19,985 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>
April 30, October 31,
2000 1999
---------- -------------
(Unaudited)
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized - 75,000,000 shares
Outstanding -- 11,429,772 shares at April 30, 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 6,222 0
Accumulated deficit (94,352) (93,652)
--------- ---------
Total stockholders' equity 8,058 2,504
--------- --------
Total liabilities and stockholders' equity $ 28,043 $ 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 Six Months Ended
April 30, April 30,
----------------------- -------------------
2000 1999 2000 1999
------- ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $ 1,696 $ 1,922 $ 3,217 $ 3,709
COST OF SALES 1,604 1,779 3,008 3,371
GROSS PROFIT 92 143 209 338
OPERATING EXPENSES:
Sales and marketing 799 461 1,451 959
Research and development 253 130 474 194
General and administrative 571 529 1,034 839
------ ----- ------ -----
Total operating expenses 1,623 1,120 2,959 1,992
------ ------ ------ ------
Loss from operations (1,531) (977) (2,750) (1,654)
INTEREST INCOME, net 130 113 219 145
OTHER INCOME, net 278 152 464 159
Gain from sale of marketable securities 1,535 0 1,535 0
------ ------ ------ ------
Earnings(loss) before income tax 412 (712) (532) (1,350)
Income tax expense 151 0 168 0
------ ------ ------ ------
Net income (loss) $ 261 $ (712) $ (700) $(1,350)
======= ======== ======== ========
Net income (loss) per share
- basic $ 0.02 $ (.06) $ (0.06) $ (0.12)
------ ------- -------- --------
- diluted $ 0.02 $ (.06) $ (0.06) $ (0.12)
------ ------- -------- --------
Shares used in per share
amounts - basic 11,309 11,271 11,293 11,271
====== ====== ====== ======
- diluted 11,451 11,271 11,293 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 SIX MONTHS ENDED APRIL 30.
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided (used in) operating activities (1,543) $ 2,811
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (19) 2,415
Payment received (increases) on note receivable 39 (171)
Proceeds from sales of CNET stock 1,668 0
Increased investments in Mulix (1,000) 0
-------- ------------
Net cash provided by investing activities 688 2,244
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 32 0
Payments on lease obligations (130) 0
--------- --------
Net cash used in financing activities (98) 0
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (953) 5,055
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 4,487 1,640
--------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 3,534 $ 6,695
========= ========
</TABLE>
Non cash investing/financing activities:
During the six month ended April 30, 2000, the company recognized unrealized
gains of $6.2 million, net of taxes of $4.2 million, on its investment in CNET
stocks.
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.
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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
APRIL 30, 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 April 30, 2000 and for the three and six months ended April 30,
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 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.
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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 April 30, 2000 and $1.0 million at October 31, 1999.
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
-------- ----------
<S> <C> <C>
Purchased parts and subassemblies $ 867 $ 216
Work-in-process 82 313
Finished goods 1,069 935
------- ------
$ 1,722 $ 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.
Production equipment 1-10 years
Office furniture 1-10 years
Leased property 15 years
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 400,000 shares
outstanding under various Incentive Stock Option plans have been excluded from
the computation for the six months ended April 30, 2000 and 1999,and also the
three months ended April 30, 1999, as their effect is antidilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to conform to the 2000
presentation. None of such reclassifications are material to the financial
statements taken as a whole.
2. ACQUISITIONS AND DIVESTITURES
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
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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.
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
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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.
In April 2000, Gem Management, Inc., a company owned by the wife of
TeleVideo's chairman and chief executive officer, invested $800,000 of total
$1,000,000 commitment into APT in exchange for 5% equity ownership in 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 April 30, 2000, the Company had letters of credit
outstanding in the amount of $266,866.
4. RELATED PARTY TRANSACTION
In April 2000, GEM management, Inc., a company owned by the wife of
TeleVideo's chairmen 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
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
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its controlling shareholder, who is also its President and Chief Executive
Officer, a right of first refusal to purchase the shares. Keyin also agreed
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
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agreement will terminate at such time as the Company has sold at least 70% of
the shares it acquired under the agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 April 30, 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 six months ended April
30, 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.
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RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 2000 TO THE THREE MONTHS
ENDED APRIL 30, 1999
Net sales for the second quarter of fiscal 2000 were $1,696,000, as
compared with $1,922,000 in the second quarter of fiscal 1999, a decrease of
$226,000, or approximately 12%. The decrease in net sales reflects a decrease in
the sales of monitors and terminals of approximately $200,000 and $500,000,
respectively, from the year ago quarter, offset partially by increased sales of
TeleCLIENT products, which the Company introduced in the second quarter of
fiscal 1999.
Cost of sales was $1,604,000 in the second quarter of fiscal 2000,
compared with $1,779,000 in the second quarter of fiscal 1999, a decrease of
$175,000, or approximately 9.8%. As a percentage of net sales, gross margin was
5.4% in the second quarter of fiscal 2000, compared with 7.4% in the second
quarter of fiscal 1999. The decrease, as a percentage of sales, primarily
reflects royalty expenses incurred by the Company in the second quarter of
fiscal 2000 under the licensing agreement for the operating system software used
in the Company's TeleCLIENT products. In the second quarter of fiscal 2000, the
Company accrued $196,000 in royalty expenses. In the second quarter of fiscal
1999, the Company did not incur any charge for royalty expenses.
Total operating expenses were $1,623,000 in the second quarter of
fiscal 2000 compared to $1,120,000 in the comparable period in 1999, reflecting
an increase of approximately 45% in 2000. This reflects an increase in all
categories of operating expenses, as follows:
Sales and marketing expenses were $799,000 in the second quarter of
fiscal 2000, compared with $461,000 in the second quarter of fiscal 1999. As a
percentage of net sales, sales and marketing expenses increased to approximately
47% in the second quarter of fiscal 2000 compared with approximately 24% in the
second quarter of fiscal 1999. The increase reflects primarily the additional
costs incurred in support of Company's launch of its TeleCLIENT product line,
which occurred in April 1999.
Research and development expenses were $253,000 in the second quarter
of fiscal 2000, compared with $130,000 in the second quarter of fiscal 1999, an
increase of $123,000. As a percentage of net sales, research and development
expenses increased to approximately 15% in the second quarter of fiscal 2000
compared with approximately 7% in the second 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 $571,000 in the second quarter
of fiscal 2000, compared with $529,000 in the second quarter of fiscal 1999. As
a percentage of net sales, general and administrative expenses increased to
approximately 34% in the second quarter of fiscal 2000 compared with
approximately 28% in the second quarter of fiscal 1999. The increase is due
primarily to a charge for bad debts taken in the second quarter of fiscal 2000
of approximately $105,000. Included in this charge is $57,000 relating to a
former European customer that recently declared bankruptcy. In the second
quarter of fiscal 1999, the Company did not incur any significant charge for bad
debts.
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The Company's loss from operations was $1,531,000 in the second
quarter of fiscal 2000 compared with $977,000 in the second quarter of
fiscal 1999.
Interest income, net of interest expense, was $130,000 in the second
quarter of fiscal 2000, compared with $113,000 in the second quarter of fiscal
1999, an increase of $17,000.
Other income was $278,000 in the second quarter of fiscal 2000,
compared with $152,000 in the same period of fiscal 1999, an increase of
$126,000. The increase was due primarily to the rental income from subleasing
the office building to APT and Telemann Inc.
In the second quarter of fiscal 2000, the Company sold 50,000 shares of
CNET Networks stock that was obtained when mySimon, Inc. was purchased by CNET
Networks in February 2000. The Company realized a gain of $1,535,000 from the
sale of these shares.
Net income for the second quarter of fiscal 2000 was $261,000 as
compared with a net loss of $712,000 in the second quarter of fiscal 1999. The
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 $1,123,000 for the quarter.
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 2000 TO THE SIX MONTHS
ENDED APRIL 30, 1999
Net sales for the first six months of fiscal 2000 were $3,217,000, as
compared with $3,709,000 in the first six months of fiscal 1999, a decrease of
$492,000, or approximately 13%. The decrease in net sales reflects a decrease in
sales of monitors of approximately $700,000 from the year ago period and a
decrease in terminal sales of approximately $400,000, offset partially by sales
of TeleCLIENT products, which the Company introduced in the second quarter of
fiscal 1999.
Cost of sales was $3,008,000 in the first six months of fiscal 2000,
compared with $3,371,000 in the first six months of fiscal 1999, a decrease of
$363,000, or 11%. As a percentage of net sales, gross margin was approximately
6.5% in the first six months of fiscal 2000, compared with approximately 9.1% in
the first six months of fiscal 1999. The decrease, as a percentage of sales,
primarily reflects royalty expenses incurred by the Company in the first six
months of fiscal 2000 under the licensing agreement for the operating system
software used in the Company's TeleCLIENT products. In the first six months of
fiscal 2000, the Company accrued $388,000 in royalty expenses. In the first six
months of fiscal 1999, the Company did not incur any charge for royalty
expenses.
Total operating expenses, consisting of sales and marketing, research
and development and general and administrative, were $2,959,000 in the first six
months of fiscal 2000 compared to $1,992,000 in the comparable period in 1999,
reflecting an increase of approximately 49% in 2000. This reflects an increase
in all categories of operating expenses, as follows:
Sales and marketing expenses were $1,451,000 in the first six months of
fiscal 2000, compared with $959,000 in the first six months of fiscal 1999. As a
percentage of net sales, sales and marketing expenses increased to approximately
45% in the first six months of fiscal 2000 compared with
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approximately 26% in the first six months of fiscal 1999. The increase
reflects the additional costs incurred in support of the Company's launch of
its TeleCLIENT product line, which occurred in April 1999.
Research and development expenses were $474,000 the first six months of
fiscal 2000, compared with $194,000 in the first six months of fiscal 1999, an
increase of $280,000. As a percentage of net sales, research and development
expenses increased to approximately 15% in the first six months of fiscal 2000
compared with approximately 5% in the first six 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 $1,034,000 in the first six
months of fiscal 2000, compared with $839,000 in the first six months of fiscal
1999. As a percentage of net sales, general and administrative expenses
increased to approximately 32% in the first six months of fiscal 2000 compared
with approximately 23% in the first six months of fiscal 1999. The increase is
due primarily to a charge for bad debts taken in the second quarter of fiscal
2000 of approximately $105,000, as well as 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 leaseback
transaction are described in "Liquidity and Capital Resources," below.
The Company's loss from operations was $2,750,000 in the first
six months of fiscal 2000 compared with $1,654,000 in the first six months of
fiscal 1999.
Interest income, net of interest expense, was $219,000 in the first six
months of fiscal 2000, compared with $145,000 in the first six months of fiscal
1999, an increase of $74,000. The increase primarily reflects 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.
Other income was $464,000 in the first half of fiscal 2000, compared
with $159,000 in the first half of fiscal 1999, an increase of $305,000. The
Increase was due primarily to the rental income from subleasing the office
building to APT and Telemann Inc.
In the second quarter of fiscal 2000, the Company sold 50,000 shares of
CNET Networks stock that was obtained when mySimon, Inc. was purchased by CNET
Networks in February. This sale resulted in a gain of $1,535,000 for the first
six months of fiscal 2000.
Net loss for the first six months of fiscal 2000 was $700,000 compared
with a net loss of $1,350,000 in the first six months of fiscal 1999. However,
without giving effect to the $1,535,000 gain from the sale of CNET shares in the
second quarter of fiscal 2000, the net loss for the six month period would have
increased to $2,067,000.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2000, the Company had approximately $3,534,000 in cash and
cash equivalents, a decrease of approximately $1,000,000 over the $4,487,000 on
hand at October 31, 1999. Net cash used in operating activities was
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$1,030,000 and provided by investing activities was $672,000 during the
quarter ended April 30, 2000.
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.
Net accounts receivable were $1,193,000 at April 30, 2000, as
compared with $1,523,000 at October 31, 1999, a decrease of $330,000, or
approximately 22%. The decrease in accounts receivable reflects a great
effort on collection and more strict credit policies during the quarter. Net
inventories were $1,722,000 at April 30, 2000, as compared with $1,464,000 at
October 31, 1999, an increase of $258,000. The increase in inventory reflects
the purchase of additional TeleClient products.
Working capital at the end of the second quarter of fiscal 2000 was
$10,931,000, an increase of 95% from the fiscal 1999 year-end level of
$5,596,000. This 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 April 30, 2000,
the Company held 325,108 shares of common stock in CNET Networks, Inc.,
representing a total market value of $11,237,000.
The Company believes that, with respect to its current operations, the
Company's cash balance of approximately $3,500,000 at April 30, 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
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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 way
to minimize inventory levels and product obsolescence of discontinued products.
The Company's operating results could be adversely affected if TeleVideo is
unable to manage all aspects of product transitions successfully.
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.
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 part and component
manufacturing, along with key suppliers, are located outside the United States.
Accordingly, the Company's future results could be adversely affected by a
variety of factors, including without limitation, fluctuation in foreign
currency exchange rates, changes in a specific country's or region's political
or economic conditions, trade protection measures, import or export licensing
requirements, unexpected changes in regulatory requirements and natural
disasters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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As of April 30, 2000, the Company had a long-term note receivable (the
"Note") of approximately $2,700,000. 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 market 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 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
DIRECTOR NOMINEE VOTES FOR VOTES WITHHELD
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
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B. Approval of the 2000 Incentive Stock Option Plan
VOTES FOR VOTES AGAINST ABSTENTIONS
Approval of the 2000
Incentive Stock Option Plan 7,956,629 331,697 69,536
C. Ratification of the appointment of Grant Thornton LLP as independent
auditors for the fiscal year ending October 31, 2000:
VOTES FOR VOTES AGAINST ABSTENTIONS
Appointment of Grant
Thornton LLP as
independent auditors 10,543,482 29,207 18,365
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) EXHIBITS
Exhibit 27.0 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on March 14, 2000 to
report the Company's acquisition of Mulix, Inc. and the acquisition of CNET
Networks, Inc. (formerly CNET, Inc.) Common Stock through the acquisition of
mySimon, Inc. by CNET.
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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 amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 15, 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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