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 SEPTEMBER 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
---------- ----------
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 November 10, 1995
<PAGE>
GO-VIDEO, INC.
INDEX
Page No.
-------
Part I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
At September 30, 1995 and March 31, 1995 3
Consolidated Statements of Operations --
Three and Six months ended September 30, 1995
and 1994 4
Consolidated Statements of Cash Flows --
Six months ended September 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 9-12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures S-1
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS September 30, 1995 March 31, 1995
------------------ --------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents 155,624 166,819
Receivables - less allowance for doubtful
accounts of $133,000 and $130,000,
respectively 6,243,801 4,634,330
Inventories 8,392,725 5,146,808
Prepaid expenses and other assets 99,925 87,277
-------------- --------------
Total current assets 14,892,075 10,035,234
-------------- --------------
EQUIPMENT AND IMPROVEMENTS:
Furniture, fixtures & equipment 257,606 244,179
Leasehold improvements 30,557 30,557
Office equipment 363,799 344,985
Tooling 244,080 947,472
-------------- --------------
Total 896,042 1,567,193
Less accumulated depreciation
and amortization 711,558 1,374,063
-------------- --------------
Equipment and improvements - net 184,484 193,130
-------------- --------------
DUAL-DECK VCR PATENTS, net of
amortization of $36,446 and
$33,053 respectively 78,942 82,335
GOODWILL, net of amortization of $8,523 161,940 0
OTHER ASSETS, net of amortization
of $431,386 and $389,774, respectively 156,143 189,498
-------------- --------------
TOTAL $ 15,473,584 $ 10,500,197
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,178,488 $ 780,547
Accrued expenses 523,382 397,027
Other current liabilities 390,789 237,545
Warranty reserve - current 135,000 118,000
Line of credit 4,514,850 1,650,892
-------------- --------------
Total current liabilities 8,742,509 3,184,011
-------------- --------------
WARRANTY RESERVE - Long-term 5,000 5,000
DEFERRED RENT 0 1,245
-------------- --------------
Total liabilities 8,747,509 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 18,855,323 18,780,762
Accumulated deficit (12,140,549) (11,482,094)
-------------- --------------
Total stockholders' equity 6,726,075 7,309,941
-------------- --------------
TOTAL $ 15,473,584 $ 10,500,197
============== ==============
See notes to consolidated financial statements.
<PAGE>
<TABLE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<CAPTION>
For The Three For The Six
Months Ended September 30, Months Ended September 30,
------------------------------ ------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 9,170,337 $ 12,176,571 $ 16,109,705 $ 19,889,892
COST OF SALES 6,985,475 9,607,475 12,930,861 16,216,938
------------- ------------- ------------- -------------
Gross profit 2,184,862 2,569,096 3,178,844 3,672,954
------------- ------------- ------------- -------------
OTHER OPERATING COSTS:
Sales and marketing 1,088,730 834,416 1,700,033 1,423,763
Research and development 162,681 125,766 314,434 206,130
General and administrative 783,401 490,478 1,599,160 925,598
------------- ------------- ------------- -------------
Total other operating costs 2,034,812 1,450,660 3,613,627 2,555,491
------------- ------------- ------------- -------------
Operating (loss) income 150,050 1,118,436 (434,783) 1,117,463
------------- ------------- ------------- -------------
OTHER (EXPENSE) REVENUES:
Interest income 1,356 4,525 1,769 16,154
Interest expense (128,910) (151,483) (233,192) (300,868)
Other 6,600 (14,823) 7,751 (14,905)
------------- ------------- ------------- -------------
Total other expense - net (120,954) (161,781) (223,672) (229.619)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 29,096 $ 956,655 $ (658,455) $ 817,844
============= ============= ============= =============
NET INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ 0.09 $ (0.06) $ 0.07
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,301,012 11,125,077 11,289,149 11,117,933
============= ============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
For the Six
Months Ended September 30,
-------------------------------
1995 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (658,455) $ 817,844
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 290,785 223,493
Provision for doubtful accounts (3,005) 1,000
Change in operating assets and liabilities-
net of effect of acquisition:
Receivables (1,540,500) (715,228)
Inventories (3,064,865) (864,660)
Prepaid expenses and other assets (12,648) (96,713)
Other assets 6,743 (18,170)
Accounts payable 2,318,370 2,469,654
Accrued expenses 117,520 26,455
Other current liabilities 137,844 (51,752)
Warranty reserve 17,000 (84,129)
Other liabilities (1,245) (8,415)
------------- -------------
Net cash (used in) provided by
operating activities (2,392,456) 1,699,379
------------- -------------
INVESTING ACTIVITIES:
Equipment, improvement, and tooling
expenditures (270,584) (20,216)
Cash acquired from acquisition 39,951 0
------------- -------------
Net cash used in investing activities (230,633) (20,216)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from issuance of
common stock 20,250 19,135
Net borrowings (repayments)
under line of credit 2,863,958 (1,883,495)
Payment of financing costs (15,000) 0
Payment of debt assumed in
acquisition (257,314) 0
------------- -------------
Net cash provided by (used in)
financing activities 2,611,894 (1,864,360)
------------- -------------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (11,195) (185,197)
CASH AND CASH EQUIVALENTS,
beginning of period 166,819 235,432
------------- -------------
CASH AND CASH EQUIVALENTS,
end of period $ 155,624 $ 50,235
============= =============
SUPPLEMENTAL INFORMATION
TO CASH FLOW STATEMENT:
Interest paid $ 233,192 $ 300,868
============= =============
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 September 30, 1995, consisted of $494,780 materials and service
parts and $7,897,945 of finished goods.
Goodwill of approximately $170,000 resulting from the acquisition of the
Company's Security Products Division 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 Circuit
City Stores totaled 10% or more of net sales for the six months ended September
30, 1995. Sales to Circuit City Stores were $2,186,528 for the six month period
ended September 30, 1995. Accounts receivable from Circuit City Stores at
September 30, 1995 was $1,185,249.
Certain reclassifications have been made to the prior financial statements to
conform to the current year classifications.
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 $7,643,000. 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 September 30, 1995 are as follows:
Deferred Tax Assets:
Differences between book & tax
basis of property $ 230,000
Reserves not currently deductible 262,000
Operating loss carryforwards 6,877,000
Contribution carryforwards 6,000
Tax credit carryforwards 189,000
Other intangibles 79,000
-----------
Tax Asset 7,643,000
Valuation Allowance (7,643,000)
-----------
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended September 30, 1995 compared with the three months ended
- --------------------------------------------------------------------------------
September 30, 1994:
- ------------------
Net sales decreased 24.7% to $9.2 million during the three months ended
September 30, 1995 from $12.2 million during the three months ended September
30, 1994. The decline in net sales was primarily due to the Company only having
the high end model of its new VHS/VHS line, the GV40xx series, available for
sale during the period. In addition, the comparative period of the prior year
included revenue from a one-time royalty payment related to an 8mm-to-VHS
Dual-Deck license agreement. Overall, the Company's unit sales for the three
months ended September 30, 1995 decreased 17.4% as compared to the three months
ended September 30, 1994. The Company received the initial shipment of the price
leader model of the GV40xx series near the end of the three month period ended
September 30, 1995. The Company expects to have the entire GV40xx model line
available for sale during the third quarter of the current fiscal year. Thus,
the Company does not anticipate that the decline in unit sales for comparative
periods will continue after the end of the most recent fiscal quarter. However,
there is no assurance that this will occur as other factors such as sales price
and demand could fluctuate. Net sales of the Company's Security Products
Division, which was acquired in April 1995, were less than 3% of total net sales
for the three months ending September 30, 1995.
Gross profit was $2.2 million and $2.6 million for the three months ended
September 30, 1995 and 1994, respectively, representing a 15% decrease in gross
profit dollars. Gross profit as a percentage of net sales increased to 23.8% for
the three month period ended September 30, 1995 compared to 21.1% for the three
months ended September 30, 1994. Average revenue per unit decreased 8.8% for the
three months ended September 30, 1995 compared to the same period of the prior
year while average cost of sales per unit decreased by 12.0%. The increase in
gross profit as a percentage of sales is primarily due to the increased profit
margins realized on the GV40xx series. Additionally, the Company's product sales
mix for the three months ended September 30, 1995 included a high percentage of
the high end model of the GV40xx series which provides the Company with higher
gross profit margins than the comparative mix of models of the GV30xx series
sold in the same period of the prior year. If the current introduction schedule
is met, the Company expects to continue realizing higher gross profit margins in
the third quarter of fiscal year 1996, although there is no assurance that this
will occur.
Sales and marketing expenses increased 30.5% to $1.1 million for the three
months ended September 30, 1995 compared to $0.8 million for the three months
ended September 30, 1994. As a percentage of sales, sales and marketing expenses
increased from 6.9% in the three months ended September 30, 1994, to 11.9% in
the three months ended September 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 and lower overall sales levels.
Research and development expenses increased 29.4% to $0.2 million for the three
months ended September 30, 1995 from $0.1 million for the three months ended
September 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 59.7% to $0.8 million for the
three months ended September 30, 1995 from $0.5 million for the three months
ended September 30, 1994. As a percentage of net sales, general and
administrative expense increased from 4.0% for the three months ended September
30, 1994 to 8.5% for the three months ended September 30, 1995. The increase in
general and administrative expense is primarily due to compensation expense
recorded by the Company relating to a Separation Agreement for an executive
officer and increased consulting fees related to the implementation of its
corporate strategy.
As a result of the above, the Company recorded an operating profit of $150,050
for the three months ended September 30, 1995 compared with an operating profit
of $1,118,436 for the three months ended September 30, 1994. The Company
recorded net other expense of $120,954 for the three months ended September 30,
1995 compared with net other expense of $161,781 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 amortization of closing costs
related to the Company's financing agreement.
Net income for the three months ended September 30, 1995 was $29,096 compared
with net income of $956,655 for the three months ended September 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.
Six months ended September 30, 1995 compared with the six months ended September
- --------------------------------------------------------------------------------
30, 1994:
- --------
Net sales decreased 19.0% to $16.1 million during the six months ended September
30, 1995 from $19.9 million during the six months ended September 30, 1994. The
decline in net sales was primarily due to the Company only having the high end
model of its new VHS/VHS line, the GV40xx series, available for sale during the
last three months of the period and lower unit sales of the GV30xx product line
during the first three months of the six month period. Additionally, the
comparative period of the prior year includes revenue from a one-time royalty
payment related to an 8mm-to-VHS Dual-Deck license agreement. Overall, the
Company's unit sales for the six months ended September 30, 1995 decreased 13.9%
as compared to the six months ended September 30, 1994. The Company received the
initial shipment of the price leader model of the GV40xx series near the end of
the six month period ended September 30, 1995. The Company expects to have the
entire GV40xx model line available for sale during the third quarter of the
current fiscal year. Thus, the Company does not anticipate that the decline in
unit sales for comparative periods will continue after the end of the most
recent fiscal quarter. However, there is no assurance that this will occur as
other factors such as sales price and demand could fluctuate. 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 six months ending September 30, 1995.
Gross profit was $3.2 million and $3.7 million for the six months ended
September 30, 1995 and 1994, respectively, representing a 13.5% decrease in
gross profit dollars. Gross profit as a percentage of net sales increased to
19.7% for the six month period ended September 30, 1995 compared to 18.5% for
the six months ended September 30, 1994. Average revenue per unit decreased 5.9%
for the six months ended September 30, 1995 compared to the same period of the
prior year while average cost of sales per unit decreased by 7.4%. The increase
in gross profit as a percentage of sales is primarily due to the increased
profit margins realized on the GV40xx series. Additionally, the Company's
product sales mix for the six months ended September 30, 1995 included a high
percentage of the high end model of the GV40xx series which provides the Company
with higher gross profit margins than the comparative mix of models of the
GV30xx series sold in the same period of the prior year. If the current
introduction schedule is met, the Company expects to continue realizing higher
gross profit margins in the third quarter of fiscal year 1996, although there is
no assurance that this will occur.
Sales and marketing expenses increased 19.4% to $1.7 million for the six months
ended September 30, 1995 compared to $1.4 million for the six months ended
September 30, 1994. As a percentage of sales, sales and marketing expenses
increased from 7.2% in the six months ended September 30, 1994, to 10.6% in the
six months ended September 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 and lower overall sales levels.
Research and development expenses increased 52.5% to $0.3 million for the six
months ended September 30, 1995 from $0.2 million for the six months ended
September 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 72.8% to $1.6 million for the six
months ended September 30, 1995 from $0.9 million for the six months ended
September 30, 1994. As a percentage of net sales, general and administrative
expense increased from 4.7% for the six months ended September 30, 1994 to 9.9%
for the six months ended September 30, 1995. The increase in general and
administrative expense is primarily due to increased consulting and legal fees
related to the implementation of its corporate strategy, compensation expense
recorded by the Company relating to a Separation Agreement for an executive
officer 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 $434,783 for
the six months ended September 30, 1995 compared with an operating profit of
$1,117,463 for the six months ended September 30, 1994. The Company recorded net
other expense of $223,672 for the six months ended September 30, 1995 compared
with net other expense of $299,619 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, renegotiated,
lower letter of credit fees, and a reduction in the amortization of closing
costs related to the Company's financing agreement, 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 six months ended September 30, 1995 was $658,455 compared
with net income of $817,844 for the six months ended September 30, 1994. The
Company did not recognize an income tax benefit for either period 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 used in operating activities was $2.4 million for the six months ended
September 30, 1995 compared to cash provided by operations of $1.7 million for
the six months ended September 30, 1994. The more significant factors comprising
the net cash used were a $3.1 million increase in inventory, a $1.5 million
increase in accounts receivables, and a net loss of $0.7 million which were
offset in part by an increase in accounts payable of $2.3 million.
The increase in the accounts payable and inventory balances from March 31, 1995
to September 30, 1995 was primarily due to the increase in inventory in transit
ordered for the Christmas selling season and a corresponding increase in
acceptances outstanding. The Company had less inventory-in-transit at March 31,
1995. The increase in the receivable balance from March 31, 1995 to September
30, 1995 is primarily due to the timing of shipments during the six months ended
September 30, 1995 which were weighted heavily near the end of the three month
period, as the Company's average collection experience has generally remained
consistent.
The Company had working capital of $6.1 million and $6.9 million at September
30, 1995 and March 31, 1995 respectively. At September 30, 1995, the Company's
current ratio (the ratio of current assets to current liabilities) was 1.7 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
six months ended September 30, 1995 has been borrowings under the Company's line
of credit. The financing agreement was entered into in October 1992 and was
amended in May 1993, November 1993, August 1994, and August 1995. 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 September 30, 1995 was
$983,835. The Company has capitalized $442,155 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 nine to
twelve 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 46 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 December
1995. As a result of the increased space and slightly higher rent per square
foot, rental expense will approximately double in December 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 November
1995 could result in a compensation expense charge of approximately $400,000
upon notice of separation of one of the employees.
Inflation
- ---------
Inflation has had no material effect on the Company's operations or financial
condition.
<PAGE>
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
- ---------- -----------
10.23 Amendment to Financing Agreement between Go-Video, Inc.
And Congress Financial Corporation, dated August 11, 1995.
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: November 10, 1995 By /S/ ROGER B. HACKETT
-------------------------
Roger B. Hackett
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
Date: November 10, 1995 By /S/ DOUGLAS P. KLEIN
-------------------------
Douglas P. Klein
Vice President and Chief Financial Officer,
Secretary and Treasurer
(principal financial and
accounting officer)
THIRD COMBINED AMENDMENT TO FINANCING AGREEMENTS
THIS THIRD COMBINED AMENDMENT TO FINANCING AGREEMENTS, dated as of August
11, 1995 ("Amendment") is entered into between GO-VIDEO, INC., a Delaware
corporation ("Go-Video") and CONGRESS FINANCIAL CORPORATION (WESTERN)
("Congress").
FACT ONE: As of October 12, 1992, Go-Video and Congress entered into that
--------
certain Accounts Financing Agreement [Security Agreement], together with certain
addenda and supplements thereto (collectively, as amended, the "Agreement").
FACT TWO: The Agreement has previously been amended by combined amendments
--------
dated August 16, 1994 and by letter agreement dated January 27, 1995.
FACT THREE: Go-Video has requested, and Congress has agreed, to further
----------
amend certain of the terms and conditions contained in the Agreement and to
amend and restate all previous addenda and amendments to the Agreement and the
various supplements and related agreements.
In consideration of the mutual covenants, conditions, and provisions
hereafter set forth, the parties hereto agree as follows:
1. Attached hereto as Exhibits "A" through "C" are the following Combined
Amendments which have amended and restated all prior Addenda and Amendments
relating to each of such Agreements:
(a) Third Combined Amendment to Accounts Financing [Security Agreement];
(b) Third Combined Amendment to Agreement Re: Inventory Loans; and
(c) Third Combined Amendment to Trade Financing Agreement Supplement to
Accounts Financing Agreement [Security Agreement].
2. Paragraph 2.6 of the Inventory and Equipment Security Agreement Supplement
to Accounts Financing Agreement[Security Agreement]between Go-Video and Congress
is hereby amended by adding the following thereto:
"as of the last Business Day of each month during the term of this
Agreement, the aggregate value of: (a) our Inventory (excluding any
parts but including Inventory in transit); plus (b) the aggregate
face amount of all outstanding Credits, shall not exceed Twenty
Million Dollars ($20,000,000) in the case of the month ending
September 30, 1995 and Eighteen Million Dollars ($18,000,000) in
all other months."
3. The effectiveness of this Amendment, and of all documents in connection
herewith, is subject to Go-Video paying to Congress, concurrently herewith, an
amendment fee in the amount of Fifteen Thousand Dollars ($15,000), which fee
shall be fully earned when paid and which shall be charged to Go-Video's loan
account.
4. Go-Video shall pay to Congress all sums, costs, and expenses incurred by
Congress and its attorneys and agents in connection with the negotiation,
preparation and delivery of this Amendment and any related agreements or
documents. Congress' rights herein shall be in addition to any and all rights
contained in Section 9.5 of the Agreement.
5. Except as expressly amended hereby, and in Exhibits "A" through "C" hereto,
the Agreement shall remain unchanged and in full force and effect.
GO-VIDEO, INC., a Delaware corporation
By /s/ Douglas P. Klein
-------------------------------------------
Title: Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
CONGRESS FINANCIAL CORPORATION
(WESTERN), a California corporation
By /s/ Ron Dacher
-------------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
EXHIBIT "A"
THIRD COMBINED AMENDMENT TO
---------------------------
ACCOUNTS FINANCING AGREEMENT
----------------------------
[SECURITY AGREEMENT]
--------------------
This THIRD COMBINED AMENDMENT TO ACCOUNTS FINANCING AGREEMENT [SECURITY
AGREEMENT] (this "Amendment") amends and shall be considered a part of that
certain Accounts Financing Agreement [Security Agreement] (the "Agreement"),
dated as of October 12, 1992, by and between Congress Financial Corporation
(Western), a California corporation ("Congress"), and Go-Video, Inc., a Delaware
corporation ("Borrower"). Congress and Borrower hereby agree as follows:
1. The definition of "Eligible Accounts" contained in the Agreement is
hereby amended by deleting the last sentence thereof and replacing it with the
following:
"In general, an Account shall not be deemed eligible unless: (a) the
Account Debtor on such Account is and at all times continues to be
acceptable to you; (b) such Account complies in all respects with the
representations, covenants and warranties hereinafter set forth; (c)
such Account is not owed by an Account Debtor that has failed to pay
when due fifty percent (50%) or more of its accounts owed to us; (d)
such Account is not owed by an Account Debtor which is not a resident of
the United States; (e) such Account is due and payable (i) within thirty
(30) days of its creation, or, (ii) with respect to certain new Accounts
(to be determined in your discretion (an "Extended Dating Account"))
within sixty (60) days of the date of its creation; and (f) no more than
ninety (90) days have passed since the invoice date of such Account or,
with respect to an Extended Dating Account,no more than one hundred
twenty (120) days have passed since the invoice date of such Account."
2. Section 1.7 of the Agreement is hereby amended to read as follows:
"1.7 'Maximum Credit' shall mean Fourteen Million Dollars
($14,000,000)."
3. Section 1 of the Agreement is hereby amended by inserting the
following at the end thereof:
"1.12 'Licensing/Manufacturing Agreements' means collectively, the
License and Technical Assistance Agreement between Borrower and Samsung
Electronics Co., Ltd. ("Samsung") and that certain Manufacturing
Agreement between Borrower and Samsung, and any replacements,
extensions, restatements or amendments thereto."
4. Section 2.1 of the Agreement is hereby amended in its entirety to
read as follows:
"You shall, in your discretion, make loans to us from time to time (and
as frequently as daily), at our request, of up to seventy-five percent
(75%) of the Net Amount of Eligible Accounts (or such greater or lesser
percentage thereof as you shall in your sole discretion determine from
time to time).
5. Sections 3.5 and 3.6 of the Agreement are hereby deleted in their
entirety and replaced by the following new Sections 3.5 and 3.6:
"3.5. We shall pay to you an annual facility fee equal to one-half of
one percent (0.50 %) per annum of the Maximum Credit amount then in
effect. This fee shall be payable simultaneously with the execution
hereof and thereafter on each anniversary of such execution during the
term, including all renewal terms, of this Agreement or so long as any
of the Obligations are outstanding.
"3.6. We shall pay to you and we authorize you to accordingly charge an
auditing fee of Five Hundred Dollars ($500) per day per auditor, and we
shall reimburse you for all of your itemized, reasonable, out-of-pocket
expenses which you may incur in engaging or performing verifications and
audits of our books and records."
6. Section 3 of the Agreement is hereby amended by adding the following
as a new Section 3.7:
"3.7. If the average outstanding daily principal balance of all loans by
you to us under this Agreement or any supplement hereto in any calendar
month shall be less than the Maximum Credit, we shall pay to you on or
before the tenth (10th) day of the next succeeding calendar month an
unused line fee equal to one-quarter of one percent (0.25%) per annum
upon the amount by which the Maximum Credit exceeds the average
outstanding daily principal balance of all such loans in respect of such
month."
7. Section 5.2 of the Agreement is hereby amended by adding the
following at the end thereof:
"Prior to an Event of Default, your rights under this Section 5.2 to
access to our Records and Collateral shall be limited to our regular
business hours."
8. Section 6.4 of the Agreement is hereby amended by adding the
following after the first sentence thereof:
"To the extent that, in the ordinary course of our business, we shall
amend our shipping forms, invoices, or related documents in the future,
you have agreed not to unreasonably withhold your consent to such
modified forms."
9. Section 6 of the Agreement is hereby amended by adding the following
as new sections:
"6.11. During 1994, we shall maintain on our books a reserve for
seasonal returns of at least One Hundred Fifty Thousand Dollars
($150,000), which reserve will be increased at the rate of Seventy Five
Thousand Dollars ($75,000) per week commencing December 1, 1994 until it
reaches Four Hundred Fifty Thousand Dollars ($450,000). Commencing April
1, 1995, the seasonal reserve shall be reduced at the rate of Seventy
Five Thousand Dollars ($75,000) per week until it reaches Two Hundred
Twenty Five Thousand Dollars ($225,000). The seasonal reserve will be
increased at the rate of Seventy Five Thousand Dollars ($75,000) per
week commencing December 1, 1995 until it reaches Four Hundred Fifty
Thousand Dollars ($450,000). Commencing April 1, 1996, the seasonal
reserve shall be reduced at the rate of Seventy Five Thousand Dollars
($75,000) per week until it reaches Two Hundred Twenty Five Thousand
Dollars ($225,000). The seasonal reserve shall be increased at a rate of
Seventy Five Thousand Dollars ($75,000) per week commencing December 1,
1996 until it reaches for Four Hundred Fifty Thousand Dollars
($450,000). Commencing April 1, 1997, the seasonal reserve shall be
reduced at the rate of Seventy-Five Thousand Dollars ($75,000) per week
until it reaches Two Hundred Twenty-Five Thousand Dollars ($225,000)."
"6.12. We agree to furnish you monthly (or more frequently if requested
by you) a report on video cassette recorder units ("Units") sold."
10. Section 7.1 of the Agreement is hereby amended by adding the
following to the end of Clause (f) thereof:
"provided, however that no such release shall be required to the extent
that such liability is finally determined, by a court of competent
jurisdiction, to have arisen from the gross negligence or willful
misconduct of you or your officers, employees, or designees."
11. Clause (a) of Section 8.1 of the Agreement is hereby amended by
adding the following at the end thereof:
"including, without limitation, any breach or termination of (whether at
maturity or by failure to renew, or otherwise), or default under any of
the Licensing/Manufacturing Agreements."
12. Sections 9.1 and 9.2 of the Agreement are hereby deleted in their
entirety and replaced by the following:
"9.1. This Agreement shall become effective upon acceptance by you and
shall continue in full force and effect for a term ending October 12,
1997 (the "Renewal Date") and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Either party may
terminate this Agreement on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving the other party at least sixty
(60) days prior written notice by registered or certified mail, return
receipt requested, and, in addition, you shall have the right to
terminate this Agreement immediately at any time upon the occurrence of
an Event of Default. No termination of this Agreement, however, shall
relieve or discharge us of our duties, obligations and covenants
hereunder until all Obligations have been paid in full, and your
continuing security interest in the Collateral shall remain in effect
until such Obligations have been fully discharged.
9.2. If you terminate this Agreement upon the occurrence of an Event of
Default or at our request, in view of the impracticability and extreme
difficulty of ascertaining actual damages and by mutual agreement of the
parties as to a reasonable calculation of your lost profits as a result
thereof, we hereby agree that we shall pay to you, upon the effective
date of such termination, an early termination fee in an amount equal to
one percent (1%) of the Maximum Credit. Such termination fee shall be
presumed to be the amount of damages sustained by said early termination
and we agree that it is reasonable under the circumstances currently
existing. The early termination fee provided for in this paragraph 9.2
shall be deemed included in the Obligations. Notwithstanding the
foregoing, there shall not be any early termination fee payable if all
of the following occur:
(i) we request early termination of this Agreement after the
second anniversary hereof;
(ii) no Event of Default has occurred and is continuing;
(iii) we have obtained replacement financing on terms (fees,
interest rates, advance rates, line limits, security, and
other material credit terms) which are more favorable
than the terms being offered by you at such time; and
(iv) we have offered you the opportunity to continue to
finance us on such more favorable terms and you have
declined to do so."
13. Notwithstanding anything to the contrary contained in the Agreement
or in any other agreement between Congress and Borrower, at any such time as
Borrower has no outstanding loan balances and no outstanding obligations with
respect to any letters of credit, and there is a positive cash balance in any
lockbox or other restricted deposit account over which Congress has control,
Congress will, upon request by Borrower, promptly deliver such cash balances to
Borrower pursuant to Borrower's direction.
14. Congress shall have a continuing right, in its sole discretion, to
withhold a reserve against Eligible Accounts equal to: (a) thirty-five percent
(35%) of the face amount of all documentary letters of credit issued for the
purchase of Eligible Inventory and which are outstanding at any one time during
the week commencing August 11, 1995, which rate shall be increased by two
percentage points (2%) on October 2, 1995 and on each Monday thereafter until
and including November 13, 1995, and by one percentage (1.0%) point on November
20, 1995 on which date such rate shall be and remain fifty percent (50%); or
(b) one hundred percent (100%) of the face amount of all other letters of
credit, including standby letters of credit, in each case increased by all duty
and freight on the subject Inventory.
15. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern.
16. Except as expressly amended or modified pursuant to this Amendment,
the Agreement shall remain otherwise unchanged and in full force and effect.
IN WITNESS WHEREOF, Borrower and Congress have executed this Amendment
as of the 11th day of August, 1995.
CONGRESS FINANCIAL CORPORATION
(WESTERN), a California corporation
By /s/ Ron Dacher
----------------------------------------------
Title Vice President
-------------------------------------------
GO-VIDEO, INC.,
a Delaware corporation
By /s/ Douglas P. Klein
----------------------------------------------
Title Vice President and Chief Financial Officer
-------------------------------------------
<PAGE>
EXHIBIT "B"
THIRD COMBINED AMENDMENT TO AGREEMENT
-------------------------------------
Re: INVENTORY LOANS
-------------------
This THIRD COMBINED AMENDMENT TO AGREEMENT Re: INVENTORY LOANS (this
"Addendum") amends and shall be considered a part of that certain Agreement Re:
Inventory Loans (the "Agreement"), dated as of October 12, 1992, executed by
Go-Video, Inc., a Delaware corporation ("Borrower") in favor of Congress
Financial Corporation (Western), a California corporation ("Congress"). Congress
and Borrower hereby agree as follows:
1. Section 1(a) of the Agreement is hereby amended by inserting the
following at the end thereof:
"that Eligible Inventory shall also include Inventory in transit to
us so long as such Eligible Inventory is consigned to you or your
designee, we have delivered to you all of the original documents of
title (including, but not limited to, bills of lading) for such
Inventory required to perfect your security interest therein, and
the same is covered by insurance satisfactory to you in all
respects."
2. Section 2 of the Agreement is hereby amended in its entirety to
read as follows:
"2. In addition to loans which may be made by you to us, pursuant to
Section 2 of the Accounts Agreement, you shall, in your sole
discretion, make loans to us from time to time, at our request, of
up to (a) sixty five percent (65%) (or such lesser percentages
thereof as you shall, in your sole discretion, determine from time
to time) of the Value of the Eligible Inventory (excluding our
"Security Products Division" Inventory) until and including October
29, 1995; (b) sixty percent (60%) (or such lesser percentages
thereof as you shall, in your sole discretion, determine from time
to time) of the Value of the Eligible Inventory (excluding our
"Security Products Division" Inventory) from October 30, 1995 to and
including November 14, 1995; (c) fifty five percent (55%) (or such
lesser percentages thereof as you shall, in your sole discretion,
determine from time to time) of the Value of the Eligible Inventory
(excluding our "Security Products Division" Inventory) from November
15, 1995 to and including November 29, 1995; and (d) at all times,
with respect to our "Security Products Division" Eligible Inventory,
or from and after November 30, 1995, with respect to all other
Eligible Inventory, the lesser of (i) fifty percent (50%) (or such
greater or lesser percentages thereof as you shall, in your sole
discretion, determine from time to time) of the Value of such
Eligible Inventory and; (ii) eighty percent (80%) of the "Orderly
Liquidation Value" of such Eligible Inventory as established by
third party appraisals conducted pursuant to the terms of Paragraph
2.6 of the Inventory and Equipment Supplement to the Accounts
Agreement."
3. Section 3 of the Agreement is hereby amended and restated to read
as follows:
"3. Except in your sole discretion, the outstanding aggregate
principal amount of loans by you to us hereunder shall not exceed,
at any time, the lower of (a) the aggregate amount of the above
percentages of the Value of Eligible Inventory or (b) Five Million
Dollars ($5,000,000) during the period of August 11, 1995 to and
including January 15, 1996, and Four Million Dollars ($4,000,000) at
all other times."
4. In the event of a conflict between the terms and provisions of
this Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern.
5. Except as expressly amended or modified pursuant to this
Amendment, the Agreement shall remain otherwise unchanged and in full force and
effect.
IN WITNESS WHEREOF, Borrower and Congress have executed this
Amendment as of the 11th day of August, 1995.
GO-VIDEO, INC.,
a Delaware corporation
By /s/ Douglas P. Klein
---------------------------------------------
Title Vice President and Chief Financial Officer
------------------------------------------
CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By /s/ Ron Dacher
-------------------------------------------
Title Vice President
----------------------------------------
<PAGE>
EXHIBIT "C"
THIRD COMBINED AMENDMENT TO
---------------------------
TRADE FINANCING AGREEMENT SUPPLEMENT
------------------------------------
TO ACCOUNTS FINANCING AGREEMENT
-------------------------------
[SECURITY AGREEMENT]
--------------------
This THIRD COMBINED AMENDMENT TO TRADE FINANCING AGREEMENT SUPPLEMENT TO
ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT] (this "Amendment") amends and
shall be considered a part of that certain Trade Financing Agreement Supplement
to Accounts Financing Agreement [Security Agreement] (the "Agreement"), dated as
of October 12, 1992, by and between Congress Financial Corporation (Western), a
California corporation ("Congress") and Go-Video, Inc., a Delaware corporation
("Borrower"). Congress and Borrower hereby agree as follows:
1. Section 1.1 of the Agreement is hereby amended by adding the
following clause (d) to the end of the first sentence thereof:
"(d) issue or guarantee drafts and acceptances relating to the foregoing
or otherwise."
2. Section 1.3 of the Agreement is hereby amended in its entirety to
read as follows:
"Our loan availability under the Agreement and any other Supplements
thereto will be reduced by: (a) an amount equal to one hundred percent
(100%) of the outstanding Credits consisting of standby letters of
credit; and (b) an amount equal to thirty-five (35%) percent of the
outstanding Credits consisting of documentary letters of credit
outstanding, which rate shall be increased by two percentage points (2%)
on October 2, 1995 and on each Monday thereafter until and including
November 13, 1995, and by one percentage point (1.0%) on November 20,
1995 on which date such rate shall be and remain fifty percent (50%); or
such lesser amount as you may elect in your discretion."
3. Section 1.5 of the Agreement is hereby amended in its entirety to
read as follows:
"1.5 Except in your sole discretion, the amount of all Credits and all
other commitments and obligations made or incurred by you for our
account in connection herewith shall not exceed, in the aggregate at any
time outstanding $10,000,000 during the period from August 11, 1995 to
and including November 30, 1995, and $9,000,000 at all other times."
4. Section 1.8 of the Agreement is hereby amended in its entirety to
read as follows:
"1.8 In addition to all other fees, charges and expenses payable under
the Agreement, this Supplement, and to any bank or other issuer or
correspondent in connection with any Credit, we agree to pay to you the
following commission for your services hereunder, which shall be due and
payable monthly in arrears, a commission equal to two and one-half
percent 2 1/2%) per annum of the face amount of any Credit calculated on
the basis of a 360 day year and actual days elapsed. We also agree to
pay to you, your and any bank's, other issuer's or correspondent's
customary charges for amendments, extensions and administration,
relating to any Credit, which charges shall be due and payable on the
first day of the month following the date of incurrence and, at your
option may be charged to any of our account(s) maintained by you.
We also agree to pay to you a servicing fee in the amount of Five
Hundred Dollars ($500) per month in connection with this Supplement,
which fee shall be due and payable in arrears on the first day of each
month during the term of the Agreement."
5. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern.
6. Except as expressly amended or modified pursuant to this Amendment,
the Agreement shall remain otherwise unchanged and in full force and effect.
IN WITNESS WHEREOF, Borrower and Congress have executed this Amendment
in Los Angeles, California, as of the 11th day of August, 1995.
CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By /s/ Ron Dacher
----------------------------------------------
Title Vice President
-------------------------------------------
GO-VIDEO, INC.,
a Delaware corporation
By /s/ Douglas P. Klein
----------------------------------------------
Title Vice President and Chief Financial Officer
-------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 155,624
<SECURITIES> 0
<RECEIVABLES> 6,376,557
<ALLOWANCES> 132,756
<INVENTORY> 8,392,725
<CURRENT-ASSETS> 14,892,075
<PP&E> 896,042
<DEPRECIATION> 711,558
<TOTAL-ASSETS> 15,473,584
<CURRENT-LIABILITIES> 8,742,509
<BONDS> 0
<COMMON> 11,301
0
0
<OTHER-SE> 6,714,774
<TOTAL-LIABILITY-AND-EQUITY> 15,473,584
<SALES> 16,109,705
<TOTAL-REVENUES> 16,119,225
<CGS> 12,930,861
<TOTAL-COSTS> 12,930,861
<OTHER-EXPENSES> 3,613,627
<LOSS-PROVISION> 2,756
<INTEREST-EXPENSE> 233,192
<INCOME-PRETAX> (658,455)
<INCOME-TAX> 0
<INCOME-CONTINUING> (658,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (658,455)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
