FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 2-331855
Go-Video, Inc.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0492122
- ----------------------- ----------------------
(State of Incorporation) (IRS E.I.N.)
14455 North Hayden Road, Suite 219, Scottsdale, Arizona 85260
- -------------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(602) 998-3400
----------------
(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 Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
11,301,012 shares of Common Stock were outstanding as of August 10, 1995
<PAGE>
GO-VIDEO, INC.
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
At June 30, 1995 and March 31, 1995 3
Consolidated Statements of Operations --
Three months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows --
Three months ended June 30, 1995 and 1994 5-6
Notes to Consolidated Financial Statements -- 7-8
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9-11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures S-1
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS June 30, 1995 March 31, 1995
---------------- -----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents 148,317 166,819
Receivables - less allowance
for doubtful accounts of
$133,000 and $130,000, respectively 3,520,698 4,634,330
Inventories 5,309,634 5,146,808
Prepaid expenses and other assets 134,535 87,277
------------ ------------
Total current assets 9,113,184 10,035,234
------------ ------------
EQUIPMENT AND IMPROVEMENTS:
Furniture, fixtures & equipment 246,354 244,179
Leasehold improvements 30,557 30,557
Office equipment 350,752 344,985
Tooling 273,000 947,472
------------ ------------
Total 900,663 1,567,193
Less accumulated depreciation
and amortization 535,995 1,374,063
------------ ------------
Equipment and improvements - net 364,668 193,130
------------ ------------
DUAL-DECK VCR PATENTS,
net of amortization of $34,750
and $33,053 respectively 80,638 82,335
GOODWILL, net of amortization of $4,262 166,201 0
OTHER ASSETS, net of amortization
of $407,580 and $389,774, respectively 165,343 189,498
------------ ------------
TOTAL $ 9,890,034 $ 10,500,197
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,421,526 $ 780,547
Accrued expenses 539,021 397,027
Other current liabilities 322,798 237,545
Warranty reserve - current 130,000 118,000
Line of credit 804,379 1,650,892
------------ ------------
Total current liabilities 3,217,724 3,184,011
------------ ------------
WARRANTY RESERVE - Long-Term 5,000 5,000
DEFERRED RENT 0 1,245
------------ ------------
Total liabilities 3,222,724 3,190,256
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized,
50,000,000 shares; issued and outstanding,
11,301,012 and 11,273,012 shares,
respectively 11,301 11,273
Additional capital 18,825,654 18,780,762
Accumulated deficit (12,169,645) (11,482,094)
------------ ------------
Total stockholders' equity 6,667,310 7,309,941
------------ ------------
TOTAL $ 9,890,034 $ 10,500,197
============ ============
See notes to consolidated financial statements.
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For The Three
Months Ended June 30,
----------------------
1995 1994
---- ----
SALES $ 6,939,368 $ 7,713,323
COST OF SALES 5,945,386 6,609,464
-------------- --------------
Gross profit 993,982 1,103,859
-------------- --------------
OTHER OPERATING COSTS:
Sales and marketing 611,302 592,242
Research and development 151,753 80,364
General and administrative expenses 815,760 432,228
-------------- --------------
Total other operating costs 1,578,815 1,104,834
-------------- --------------
Operating (loss) (584,833) (975)
-------------- --------------
OTHER REVENUES (EXPENSES):
Interest income 413 1,322
Interest expense (104,282) (138,664)
Other 1,151 (497)
-------------- --------------
Total other (expense) (102,718) (137,839)
-------------- --------------
NET (LOSS) $ (687,551) $ (138,814)
============== ==============
NET (LOSS) PER COMMON SHARE $ (0.06) $ (0.01)
============== ==============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,277,155 11,108,812
============== ==============
See notes to consolidated financial statements.
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
For the Three
Months Ended June 30
--------------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (687,551) $ (138,814)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 84,839 136,589
Provision for doubtful accounts (3,005) 0
Change in operating assets and
liabilities-net of effect of acquisition:
Receivables 1,182,603 660,889
Inventories (83,824) (2,127,404)
Prepaid expenses and other assets (47,258) (21,617)
Other assets 6,349 (1,735)
Accounts payable 561,408 925,353
Accrued expenses 133,159 (100,635)
Other current liabilities 69,853 38,951
Warranty reserve 12,000 (88,813)
Other liabilities (1,245) (4,380)
----------- -----------
Net cash provided by (used in)
operating activities 1,227,328 (721,616)
----------- -----------
INVESTING ACTIVITIES:
Equipment and improvement expenditures (202,204) (9,324)
Cash acquired from acquisition 39,951 0
----------- -----------
Net cash used in in investing activities (162,253) (9,324)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 20,250 635
Net (repayments) borrowings
under line of credit (846,513) 771,223
Payment of debt assumed in acquisition (257,314) 0
----------- -----------
Net cash (used in) provided
by financing activities (1,083,577) 771,858
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (18,502) 40,918
CASH AND CASH EQUIVALENTS,
beginning of period 166,819 235,432
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 148,317 $ 276,350
=========== ===========
SUPPLEMENTAL INFORMATION TO CASH FLOW
STATEMENT:
Interest paid $ 104,282 $ 138,664
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
In connection with the acquisition,
liabilities were assumed as follows:
Liabilities assumed $ 361,120 $ 0
Fair value of assets acquired,
including $39,951 in cash $ 190,657 0
----------- -----------
Excess of cost over fair value
of assets acquired $ 170,463 $ 0
=========== ===========
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------
GENERAL
- -------
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal reoccurring accruals)
necessary to present fairly the financial position of the Company and the
results of its operations and changes in its financial position for the periods
reported. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
Inventories at June 30, 1995, consisted of $311,468 of raw materials and service
parts and $4,998,166 of finished goods.
Goodwill of approximately $170,000 resulting from the acquisition is being
amortized on the straight line basis over ten years.
The Company is engaged in one business segment, the design, development,
marketing and licensing of electronic video communication products. The
Company's current primary focus is the design, marketing, sale, and distribution
of several models of its Dual-Deck(TM) videocassette recorder. Sales to two
customers totaled 10% or more of net sales for the three months ended June 30,
1995. Sales to Circuit City Stores and Damark International were $1,147,644, and
$1,044,287 respectively for the three month period ended June 30, 1995. Accounts
receivable from these customers at June 30, 1995 were $589,318 and $998,128
respectively.
Certain reclassifications have been made to the prior financial statements to
conform to the classifications used in fiscal 1996.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective August 1, 1993. This statement
supersedes "Accounting Principles Board Opinion No. 11" which has been utilized
by the Company in prior periods. The Company recorded a net deferred tax asset
of $7,591,000. This amount has been completely offset by a valuation allowance.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred tax asset as of June 30, 1995 are as follows:
Deferred Tax Liabilities:
Differences between book & tax
basis of property $ 185,000
Deferred Tax Assets:
Reserves not currently deductible 225,000
Operating loss carryforwards 6,877,000
Contribution carryforwards 6,000
Tax credit carryforwards 189,000
Other intangibles 79,000
---------
Subtotal 7,406,000
---------
Tax Asset net of liability 7,591,000
Valuation Allowance (7,591,000)
---------
Net Deferred Asset $ 0
===========
The information presented within the financial statements should be read in
conjunction with the Company's audited Financial Statements for the eight month
transition period ended March 31, 1995 and the fiscal year ended July 31, 1994
and Management's Discussion and Analysis of Financial Condition and Results of
Operations" from the 1995 Transition Report on Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended June 30, 1995 compared with the three months ended June 30,
- --------------------------------------------------------------------------------
1994:
- ----
Net sales decreased 10.0% to $6.9 million during the three months ended June 30,
1995 from $7.7 million during the three months ended June 30, 1994. The decline
in net sales was caused by lower unit sales of the GV30xx series (VHS/VHS
Dual-Deck VCRs) product line. Overall, the Company's unit sales for the three
months ended June 30, 1995 decreased 8.9% as compared to the three months ended
June 30, 1994. The Company anticipates that unit sales of the VHS/VHS Dual-Deck
product line will continue to decline in comparison to prior periods until the
Company substantially completes the introduction of its next generation of
VHS/VHS models, the GV40xx series, in the third quarter of fiscal 1996. The
Company received its first shipment of the high end model of the GV40xx series,
the GV4060, in August 1995. The Company expects to receive initial shipments of
the leader and middle models of the GV40xx series in October and December 1995,
respectively. Net sales of the Company's Security Products Division, which was
acquired on April 1, 1995, were less than 3% of total net sales for the three
months ending June 30, 1995.
Gross profit was $1.0 million and $1.1 million for the three months ended June
30, 1995 and 1994, respectively, representing a 10% decrease in gross profit
dollars. Gross profit as a percentage of net sales was 14.3% for the three month
periods ended June 30, 1995 and 1994. Average revenue per unit decreased 1.2%
for the three months ended June 30, 1995 over the same period of the prior year
while average cost of sales per unit decreased by 1.3%. Once introduced, the
Company anticipates that the GV40xx series model line will provide higher gross
margins per unit to the Company than the GV30xx series it replaces. If the
current introduction schedule is met, the Company expects to begin realizing
higher gross profit margins in the third quarter of fiscal year 1996. There is
no assurance that this will occur.
Sales and marketing expenses increased 3.2% to $0.6 million for the three months
ended June 30, 1995 compared to the three months ended June 30, 1994. As a
percentage of sales, sales and marketing expenses increased from 7.7% in the
three months ended June 30, 1994, to 8.8% in the three months ended June 30,
1995. The increase in sales and marketing expenses as a percentage of sales is
primarily due to expenses incurred in marketing the Company's Security Products
Division and lower overall sales levels.
Research and development expenses increased 88.8% to $0.2 million for the three
months ended June 30, 1995 from $0.1 million for the three months ended June 30,
1994. The increase in research and development expenses is due primarily to
software and hardware design and testing expenses related to the Company's
development of the GV40xx series.
General and administrative expenses increased 88.7% to $0.8 million for the
three months ended June 30, 1995 from $0.4 million for the three months ended
June 30, 1994. As a percentage of net sales, general and administrative expense
increased from 5.6% for the three months ended June 30, 1995 to 11.8% for the
three months ended June 30, 1994. The increase in general and administrative
expense is primarily due to compensation expense recorded by the Company
relating to a Separation Agreement for an employee, increased consulting and
legal fees related to the implementation of its corporate strategy, and the
timing of shareholder administration costs as a result of the change in the
fiscal year end from July 31 to March 31.
As a result of the above, the Company recorded an operating loss of $584,833 for
the three months ended June 30, 1995 compared with an operating loss of $975 for
the three months ended June 30, 1994. The Company recorded net other expense of
$102,718 for the three months ended June 30, 1995 compared with net other
expense of $137,839 for the same period of the prior year. The reduction in net
other expense was primarily due to reduced interest expense caused by a
reduction in the average daily loans outstanding during the three month period
ending June 30, 1995 as compared to the three month period ending June 30, 1994,
and renegotiated, lower letter of credit fees, offset in part by an increase in
the average interest rate on loans caused by increases in the prime rate over
the earlier period.
The net loss for the three months ended June 30, 1995 was $687,551 compared with
a net loss of $138,814 for the three months ended June 30, 1994. The Company did
not recognize an income tax benefit for either quarter due to recording a
valuation allowance to completely offset the potential tax benefit of the
losses.
Seasonality
- -----------
In prior periods, seasonal factors affecting the Company's sales levels have
been overshadowed by the growth of the Company's distribution network. As the
growth of the current distribution network has slowed, seasonal factors have
become more evident in the Company's operating results. Accordingly, the Company
expects to experience peaks in its sales during the holiday selling season,
which primarily occurs during the Company's third fiscal quarter.
Capital Resources and Liquidity
- -------------------------------
Net cash provided by operating activities was $1.2 million for the three months
ended June 30, 1995 compared to cash used in operations of $0.7 million for the
three months ended June 30, 1994. The more significant factors comprising the
net cash provided were a $1.2 million decrease in receivables and a $0.6 million
increase in accounts payable which were offset in part by the net loss of $0.7
million. The decrease in the receivable balance from March 31, 1995 to June 30,
1995 was primarily due to timing of shipments as the Company's average
collection experience has generally remained consistent. The increase in the
accounts payable balance was primarily due to inventory-in-transit at June 30,
1995. The Company had less inventory-in-transit at March 31, 1995.
The Company had working capital of $5.9 million and $6.9 million at June 30,
1995 and March 31, 1995 respectively. At June 30, 1995, the Company's current
ratio (the ratio of current assets to current liabilities) was 2.8 to 1.
Samsung requires the Company, thirty days prior to order shipment, to post a
letter of credit for the full amount of an order of Dual-Deck VCRs. The letters
of credit are drawn thirty days after shipment of the product, which in turn is
generally sold on open account. The Company's sales seasonality requires
incremental working capital for investment primarily in inventories and
receivables during its peak selling season. The primary source of funds over the
three months ended June 30, 1995 has been cash from operations. The financing
agreement was entered into in October 1992 and was amended in May 1993, November
1993, and August 1994. The maximum line of credit, as amended, is $14,000,000,
limited by specific inventory and receivable balances used as a borrowing base,
and provides for cash loans, letters of credit, and acceptances. The agreement,
as amended, has a term of four years, with an origination fee of 1%, an annual
facility fee of 0.5%, a non-use fee of 1/4%, and a prepayment (if applicable)
fee of 1%. Loans are priced at prime plus 2 1/2%. The lender is collateralized
by all assets of the Company. The unused and available line of credit at June
30, 1995 was $2,512,012. The Company has capitalized $427,155 of closing costs
related to the origination and amendment of the financing agreement. These costs
are being amortized over the term of the agreement. Management believes its
current financial resources to be adequate to support operations over the next
twelve months.
The Company is exploring development of a new VHS/VHS Dual Deck VCR line which
would be expected to facilitate marketing and sales of Dual-Deck VCRs in the
mass merchant and European (PAL format) market places. Based on prior experience
with the development of similar product lines, the Company anticipates that it
would incur approximately $1.0 million of expenditures for tooling and hardware
to bring the product to production over a development time frame of twelve to
fifteen months.
The Company moved to its current office and warehouse space in November 1989
with approximately twenty employees and prior to the existence of a product
line. As the Company has expanded in size, it has leased adjacent space as
available in its current facility. Since the last expansion, the Company has
continued to grow, increasing to 43 employees and significantly increasing sales
volume, leaving the existing space inadequate for its current and expected
needs. The Company entered into a new lease agreement for office and warehouse
space to be built in north Scottsdale, Arizona. The facility, approximately 67%
larger than the Company's current space, is scheduled for completion in October
1995. As a result of the increased space and slightly higher rent per square
foot, rental expense will approximately double in October 1995 from the current
level.
As previously discussed in the 1995 Transition Report on Form 10-K, the Company
has Separation Agreements with two employees of the Company which as of August
1995 could result in a compensation expense charge of approximately $550,000
upon notice of separation of one of the employees.
Inflation
- ---------
Inflation has had no material effect on the Company's operations or financial
condition.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibit is filed as part of this Report:
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
b. Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GO-VIDEO, INC. (Registrant)
Date: August 10, 1995 By /S/ ROGER B. HACKETT
-------------------------
Roger B. Hackett
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
Date: August 10, 1995 By /S/ DOUGLAS P. KLEIN
-------------------------
Douglas P. Klein
Vice President, Finance,
Secretary and Treasurer
(principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 148,317
<SECURITIES> 0
<RECEIVABLES> 3,653,454
<ALLOWANCES> 132,756
<INVENTORY> 5,309,634
<CURRENT-ASSETS> 9,113,184
<PP&E> 900,663
<DEPRECIATION> 535,995
<TOTAL-ASSETS> 9,890,034
<CURRENT-LIABILITIES> 3,217,724
<BONDS> 0
<COMMON> 11,301
0
0
<OTHER-SE> 6,656,009
<TOTAL-LIABILITY-AND-EQUITY> 9,890,034
<SALES> 6,939,368
<TOTAL-REVENUES> 6,940,932
<CGS> 5,945,386
<TOTAL-COSTS> 5,945,386
<OTHER-EXPENSES> 1,578,815
<LOSS-PROVISION> 2,756
<INTEREST-EXPENSE> 104,282
<INCOME-PRETAX> (687,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (687,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (687,551)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
