FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
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Commission File No.2-331855
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GO-VIDEO, INC.
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(Exact name of registrant as specified in its charter)
Delaware 86-0492122
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7835 East McClain Drive
Scottsdale, Arizona 85260-1732
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 998-3400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock American Stock Exchange
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Common Stock Purchase Warrants American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based upon the closing price of the stock quoted on the American Stock Exchange
on June 19, 1996 the aggregate market value of common stock held by
non-affiliates of the Registrant was approximately $12,804,000. See Item 5 of
this Form 10-K.
The number of shares of common stock outstanding as of June 19, 1996, was
11,331,012.
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement relating to its Annual Meeting of Stockholders to be held August 29,
1996, are incorporated by reference in Part III of this Form 10-K.
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TABLE OF CONTENTS
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<TABLE>
PART I
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Item 1. Business............................................................................1
Executive Officers of the Registrant............................................... 9
Item 2. Properties.........................................................................10
Item 3. Legal Proceedings..................................................................10
Item 4. Submission of Matters to a Vote of Security Holders................................10
PART II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters...................................................11
Item 6. Selected Financial Data............................................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................13
Item 8. Financial Statements and Supplementary Data........................................17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................17
PART III
Item 10. Directors and Executive Officers of the Registrant.................................18
Item 11. Executive Compensation.............................................................18
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................18
Item 13. Certain Relationships and Related Transactions.....................................18
PART IV
Item 14. Exhibits, Financial Statement, Schedules and Reports on Form 8-K...................18
SIGNATURES........................................................................S-1
</TABLE>
THIS ANNUAL REPORT ON FORM 10-K MAY CONTAIN "FORWARD LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE ITEM 1, ITEM 5, AND
ITEM 7. ALSO SEE "MANAGMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" IN PART II, ITEM 7 FOR A DISCUSSION OF IMPORTANT
FACTORS THAT COULD AFFECT THE VALIDITY OF ANY SUCH FORWARD LOOKING STATEMENTS.
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PART I
ITEM 1. BUSINESS
Overview
Go-Video, Inc. ("Go-Video" or the "Company") designs, develops, and markets
consumer electronic video products. The Company believes that it and its
licensees are the exclusive North American distributors of video cassette
player/recorders ("VCRs") with two decks built into one unit - the Dual-Deck(TM)
VCR. The Company patented the Dual-Deck system which incorporates proprietary
circuitry and software to perform duplicating, dual recording, editing, and
video view switching functions not available from single deck VCRs. The
Dual-Deck VCR has constituted substantially all of the Company's sales over the
last five fiscal years. The Company expanded its product line into home and
business security and surveillance products in April 1995.
Go-Video was incorporated in Arizona in 1984, completed its initial public
offering in 1986, and reincorporated in Delaware in 1987. In 1984, the Company
filed its first successful patent application that was ultimately issued in
August 1988 for the Dual-Deck VCR. The Company pursued a manufacturer and source
for critical components until 1989 when the Company entered into manufacturing
and license agreements with Samsung Corporation ("Samsung"), one of the world's
largest manufacturers of consumer electronics. Sales of the Dual-Deck VCR began
in June 1990. The Company obtained a second manufacturer in January 1996, when
it entered into a manufacturing agreement with Shintom Company Ltd. and Talk
Corporation ("Shintom").
The Company's executive office is located at 7835 East McClain Drive,
Scottsdale, Arizona, 85260-1732, and its telephone number is (602) 998-3400. The
Company has regional sales offices in Plano, Texas and Pittsburgh, Pennsylvania.
Business Strategy
The Company believes that the VCR market continues to offer opportunity for the
Company's core Dual-Deck VCR business line. For 1996, the size of the VCR market
is estimated to be approximately $2.7 billion with over thirteen million VCRs
sold at an average retail price around $250. The Company's current market share
is approximately 0.5% with an average retail price around $650. The Company
believes that it can capitalize on its patented technology, engineering and
industry know-how, product distribution network, and reputation for bringing
innovative products to the consumer electronics marketplace to increase its
market share through a product development strategy of lowering prices and
improving features while protecting or increasing gross profit margins.
The more significant components of the Company's business strategy include:
Redesigning the Dual-Deck VCR Product Line. The Company is introducing,
beginning in June 1996, a new line of Dual-Deck VCRs, the GV60xx series, that
have been manufactured for the Company by Shintom. The new model is manufactured
at lower cost to the Company than models manufactured by the Company's current
manufacturer, Samsung. The Company anticipates that the new generation of
Dual-Deck VCRs will allow the Company to improve profitability and increase
market share.* Upon introduction of the GV60xx series, the Company intends to
begin development of a PAL (European television broadcasting format) Dual-Deck
VCR for distribution beginning in 1997, although there can be no assurance that
the Company will successfully develop and distribute such a product.*
Broadening the Distribution Channels. With the introduction of the
GV60xx and the addition of video security products, the Company anticipates that
it will be able to open new retail accounts, including additional national
retailers with significant market share of the consumer electronics market and
thereby expand its already strong distribution network.* The new Dual-Deck VCR
and video
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* May contain "Forward Looking Statements."
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security product lines are designed to offer these retailers higher quality and
improved sales opportunities over existing product lines. In addition, the
Company intends to develop a PAL Dual-Deck VCR to open European and other
international distribution.* The Company expects that a PAL product line would
be available for sale by the beginning of the Company's 1998 fiscal year
although there is no assurance that this will occur.*
Acquiring and Developing Complementary Products and Technology. The
Company believes its ability to penetrate the retail consumer electronics
marketplace with the Dual-Deck VCR will provide opportunities for
diversification and revenue growth through the acquisition of synergistic
product lines and/or technology and through product development relationships
with technology partners.* The resulting product lines can be integrated into
the Company's product development, marketing, sales and distribution assets. The
Company made its first such acquisition in April 1995 when it acquired the
assets of Dublin Companies (the "Dublin Acquisition"), a distributor of home and
business video security and surveillance products sold under the Private Eye(TM)
label.
The Company also began joint development of a prototype LCD projection
television with Prolux Corporation which will be targeted for the mid-range and
high-end consumer and home theater markets. The Company intends to begin
distribution of the projection television, which uses the patented Prolux
LightCast(TM) technology, during the first half of the 1997 calendar year. There
is no assurance that the joint development will produce a product that is both
technically and financially viable for distribution by the Company.* In
addition, the Company is developing a distribution alliance with Loewe Opta, a
German manufacturer of television and home audio consumer electronics, for the
exclusive North American distribution rights for selected high-end digital
televisions and other consumer products. The Company anticipates that
distribution of the products would begin in calendar 1997.* However, there is no
assurance that this will occur.
Because of the potential cost and opportunistic and highly variable nature of an
acquisition and product development strategy, there is no assurance that the
Company will be successful in pursuing additional diversification.*
Industry Background
The consumer electronics industry is highly competitive, with declining prices
and improving quality and features. Manufacturing is dominated by Japanese and
Korean-based companies plus two European-based companies. Manufacturing
dominance is maintained by substantial technological and entry cost barriers.
Generally, sales of consumer electronic products in the United States are
becoming consolidated into national and regional consumer electronics chains and
mass merchants. Independent and smaller regional retailers are, in many regions
of the U.S., under considerable competitive pressures against larger retailers,
particularly in the lower and mid-priced consumer electronic product categories.
As a result, many of these stores concentrate on premium consumer electronic
products, such as high-end home theater systems and specialized audio components
and speakers. Go-Video's Dual-Deck VCRs and video security product lines are
sold primarily through national and regional consumer electronic chains, mass
merchant outlets, and warehouse clubs.
As a result of the industry consolidation, there are substantial hurdles for
bringing new products to the consumer electronic marketplace, particularly if
the company offering the product is not already distributing other consumer
electronic products. Retailers of consumer electronic products have considerable
negotiating power and generally require that suppliers have sufficient
financial, operational, and marketing wherewithal to provide a high level of
support for any product line carried by that retailer. Go-Video is one of few
companies over the last ten years that has been able to bring a new product line
and category into the consumer electronic home entertainment marketplace.
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* May contain "Forward Looking Statements."
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Principal Products
Go-Video markets and distributes two main product lines: Dual-Deck VCRs and
video security products. During the fiscal year ended March 31, 1996, Dual-Deck
VCRs and related products and services accounted for nearly all of the Company's
revenues. The Company's Security Products Division accounted for less than 3% of
revenues during the fiscal year ended March 31, 1996.
Dual-Deck VCRs. Go-Video offers Dual-Deck VCRs in VHS/VHS and 8mm/VHS
formats. Among other features, the Dual-Deck VCR allows the user to, with one
touch of a button, duplicate prerecorded video tapes while maintaining a near
original level of picture quality and to easily edit video tapes to eliminate
unwanted segments or to combine material from two or more tapes.
All current models of the VHS/VHS Dual-Deck VCRs contain the patented technology
and proprietary software of the "AmeriChrome" circuitry that facilitates
electronic signal preservation and transfer from deck to deck without external
wiring. AmeriChrome circuitry allows home consumers to create a high quality
duplicate of original VHS or VHS-C format videocassette tapes. AmeriChrome is an
improvement over the current technology of duplicating prerecorded video tapes
which requires that two single-deck videocassette recorders be externally wired
together by the consumer. Many prerecorded tapes contain electronic encoded
signals to take advantage of single deck VCR design weaknesses, resulting in
poor or unusable copies. AmeriChrome is not subject to such limitations.
The Dual-Deck VCR has been designed for home use as a full featured video
cassette recorder. Company-prepared literature and owner manuals caution
consumers that the Dual-Deck VCR should not be used in a manner which infringes
on the rights of owners of copyrighted material. However, the Company cannot
predict the likelihood that distribution of current or future Dual-Deck VCR
models will be challenged for any reason, or that laws governing home recording
devices will be amended or applied in the future so as to require changes to the
operation or performance of the Dual-Deck VCR. The Company believes that the
Dual-Deck VCR is the video equivalent or betterment of the dual-transport audio
tape deck, which has become an accepted audio industry standard, and that it
would have meritorious defenses to any challenge*. The Company is not currently
developing a digital formatted player/recorder and is unable to predict the
impact on the Company of developing digital technologies.
The Company introduced its current line of Dual-Deck VCRs, the GV40xx series, in
the second quarter of fiscal 1996. The GV40xx models were an improvement over
previous models in that they offer superior picture quality and automatic
assembly editing. The GV40xx series models are differentiated from one another
by various designs and functions to appeal to customer preferences. Two of the
models include high-fidelity MTS stereo playback/recording and 4-head
play/record for special effects.
The Company is introducing the GV60xx series VHS-to-VHS Dual Deck VCRs to
complement the current line of GV40xx series Dual-Deck VCRs. The principal
objective for introducing the new series is to update the product line of
VHS-to-VHS Dual-Deck VCRs with current technology and manufacturing techniques,
such that consumers can be offered a more popularly priced product line,
manufacturing costs can be reduced, and manufacturing efficiency can be
improved. Introduction of the GV60xx series is scheduled to occur beginning with
the price leader model, the GV6010, in June 1996, followed by the high end model
which is expected to be introduced in September 1996* . The GV60xx series will
include two VCR decks "stacked" within one housing. Features are designed so
that consumers can enjoy a convenient, easy-to-operate, multi-function Dual-Deck
VCR.
The Company developed and introduced an 8mm/VHS format Dual-Deck VCR line in
July 1994. The 8mm/VHS Dual-Deck VCR allows consumers to easily make
high-quality copies of their 8mm tapes to VHS format. The Company has not been
successful in marketing the 8mm/VHS Dual-Deck VCR. As a result, the Company does
not intend to have additional models manufactured and will cease offering them
for sale once the current inventory is sold. The Company reduced the price on
the 8mm/VHS Dual Deck VCR and recorded a one-time adjustment for the remaining
inventory on hand at March 31, 1996
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* May contain "Forward Looking Statements."
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(see "Management's Discussion and Analysis of Financial Condition"). The Company
licensed the 8mm/VHS technology to Samsung Corporation in April 1996 (see
"Licensing").
Security Products and Accessories. The Company currently markets and
distributes its security products line to many of the same retail and catalog
accounts through which it currently distributes Dual-Deck VCRs. The Company
faces significant direct competition from other manufacturers and distributors
of similar video security products (see "Competition").
The Company has three general types of security products: (i) systems with one
or more cameras wired into a central dedicated monitor; (ii) systems with one or
more wireless cameras transmitting to a central dedicated monitor; and (iii)
systems where the picture from wired or wireless cameras is viewed on a normal
television set. Through variations of this technology and differentiating
marketing themes, the Company generally sells its security products through its
sales distribution network to small businesses for security uses and homeowners
for security or safety monitoring of children or infirm adults. All of the
products are designed to be easily installed and operated.
Competition
The consumer electronics market is highly competitive and is characterized by
technological change and general price erosion. The Company's competitors have
substantially greater financial, manufacturing, and technical resources than
does the Company. Moreover, most of these companies have larger marketing,
sales, and distribution channels that also afford them a competitive advantage.
Dual-Deck VCRs. The Company believes that, over the remainder of the
decade, the VCR market in the United States will be relatively mature with a
majority of sales consisting of replacement, upgrade, and second-unit purchases.
While, to the Company's best knowledge, no other company is selling a consumer
VHS-to-VHS Dual-Deck VCR in the United States, several companies have the
technical skill and practical ability to design, manufacture, and sell such a
product. "Double deck videocassette recorders" have been developed by potential
competitors of the Company. An English company, Amstrad, introduced a product
stacking two video cassettes within one housing, formatted for the European
television standard (PAL) and not compatible with U.S. television standards
(NTSC). Amstrad announced in July 1990 that it had no current plans to introduce
its product in the United States and announced in 1994 that it was ceasing all
distribution of its PAL units in Europe. Orion is believed to sell a PAL
formatted "double deck" VCR in Germany. In Japan, Panasonic has developed a
VHS-C to VHS VCR for editing VHS-C tapes, and Sony has developed an 8mm-to-VHS
VCR. Hitachi and other Japanese companies have marketed in Japan "twin loading"
VHS VCRs which load two tapes in succession to a single deck VCR transport
mechanism. There is no assurance that a potential competitor will not attempt to
introduce competing products in the United States in the future. However, the
Company intends to vigorously enforce its proprietary technology rights*.
The Company believes that its principal North American competition is currently
from top-end single-deck VCRs offering a variety of features and available at
various prices, all of which are less expensive than comparable Dual-Deck VCRs.
Samsung has the right under its agreement with the Company, upon payment of a
royalty to the Company, to manufacture and sell, under certain conditions,
Dual-Deck VCRs incorporating the Company's proprietary technology, thereby
allowing Samsung to compete with the Company in its principal marketplace (see
"Licensing"). Samsung has not to date exercised its right to enter the North
American marketplace. The Company believes that if Samsung were to exercise its
right, the Company's net revenues and profitability could be affected in a
materially adverse manner. The Company has agreed to license to Samsung the
worldwide nonexclusive right to manufacture, use, and sell the 8mm-to-VHS format
Dual-Deck VCR (see "Licensing").
Video Security Products. Within the past decade as consumers have
become more concerned about personal and property security, video security and
surveillance systems have become more broadly
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accepted in the retail marketplace and are now sold packaged and ready to
install in a small business or home environment. The Company believes that
additional growth will come through expanded product offerings, including
addition of products that are more convenient to install and operate than
current models and more suited to home use, broader retail distribution into
retailers, catalogs, and other sales channels now carrying limited or no video
security products, and increased consumer demand in response to concerns about
personal and property security.* Competitors compete on the basis of features,
price, and ease and suitability to use. Major competitors include Magnavox,
Ultrak, Goldbeam, Vivitar, Linear, Focus, and Polestar.
Licensing
The Company and Samsung Corporation entered into a License Agreement in February
1989 under which the Company granted Samsung, under certain conditions, the use
of its patented and proprietary technology to: (i) on an exclusive basis,
manufacture and distribute Dual-Deck VCRs in the Republic of Korea; (ii) the
right to manufacture Dual-Deck VCRs for the Company; (iii) on a non-exclusive
basis, manufacture and distribute Dual-Deck VCRs in all markets except the
United States and its territories; and (iv) on a non-exclusive basis,
manufacture and distribute Dual-Deck VCRs in the United States and its
territories under Samsung's own trademark and trade names. Sales of licensed
Dual-Deck VCRs by Samsung to any party other than Go-Video is subject to a per
unit royalty based as a percentage of the net selling price. To date, the
Company has not received royalty payments under the Agreement. The License
Agreement requires that the Company offer improvements in its Dual-Deck
technology without additional fee or royalty to Samsung throughout the life of
the License Agreement and survives termination of the Manufacturing Agreement
unless such termination is for any cause attributable to Samsung. Unless
terminated earlier, the License Agreement expires in October 2004. The
Manufacturing Agreement is automatically renewed in one year increments unless
notice of cancellation is given at least six months prior to its expiration and
currently extends through February 1997 (see "Product Development and
Manufacturing").
In July 1994, the Company entered into an agreement with Goldstar U.S.A., Inc.
in which the Company granted Goldstar the non-exclusive, non-assignable,
non-transferable right and license to manufacture, sell and distribute worldwide
8mm-to-VHS VCRs. Payment for the license was received as a one-time fee in July
1994. The Goldstar agreement expires when the last of certain patents held by
the Company expire. The Company has no further obligation under the license
agreement and therefore the license fee was fully recognized as revenue in July
1994.
In April 1996, the Company agreed to license to Samsung, upon payment of a
one-time fee to the Company, the worldwide nonexclusive right to manufacture,
use, and sell the 8mm-to-VHS format Dual-Deck VCR. The fee was payable by
Samsung to the Company within three months of the date of the agreement. The
Company has no further obligations under the license agreement and therefore the
license fee was fully recognized as revenue in April 1996.
Sales and Marketing
The Company's product lines are sold primarily to quality retailers, catalogs,
and direct mailers with the support of independent manufacturer's
representatives that represent specific geographic or channel categories
throughout North America and who also represent numerous other consumer
electronic companies. The Company sells its Dual-Deck product and security
product lines to over two hundred accounts in North America, including some of
the better known retailers and catalogs such as Circuit City, Montgomery Ward
Electric Avenue, Damark, Fingerhut, The Good Guys, Nobody Beats The Wiz, Sharper
Image, Sun T.V., Tandy, ABC Warehouse, Rent-A-Center, Future Shop, Spiegel,
Ultimate Electronics, Rex Stores, Capital Audio, Armed Forces Exchanges and PX,
Fry's Electronics, Capital
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* May contain "Forward Looking Statements."
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Sales, QVC, Steinbergs, Sound Advice, Magnolia Hi-Fi, Herrington, P. C.
Richards, and Tops Appliance. The Company also distributes its Dual-Deck product
line through direct mail syndicator Roy Thomas, Inc. Many of these accounts
currently carry limited or no video security product lines. The Company's
marketing methods include attendance at trade shows, trade publication
advertising, sales promotion and other sales support programs, and publicity.
The Company competes in the consumer electronics industry, which experiences
seasonal buying patterns with a majority of sales occurring between September
and January. The Company's product line is subject to the same seasonality,
although overall sales growth between 1990 and 1994 mitigated the effects of
seasonal sales. As the Company's product and distribution lines have become more
established, seasonal factors have become more evident in the Company's
operating results. Accordingly, the Company expects to experience peaks in its
sales during its third fiscal quarter.*
The Company's terms of sale vary according to the quantity and price of units
purchased and the creditworthiness of the purchaser, but generally do not exceed
thirty days. Warranty terms vary according to the model offered. The most
extensive warranty currently offered is three months labor and one year parts
for both VCRs and video security products. The Company's initial Dual-Deck
model, the GV2000, which was sold during fiscal 1991 and subsequently replaced,
included a five year parts and labor warranty. The Company has service
agreements for its current models of Dual-Deck VCRs with service centers located
throughout the United States and also provides service work at its Scottsdale,
Arizona location. The Company believes it has established adequate reserves for
its warranty contingencies.*
Significant Customers
During the fiscal year ended March 31, 1996, sales to Circuit City represented
14% of the Company's revenues. For the transition period ended March 31, 1995,
Circuit City represented 13% of the Company's revenues. For the fiscal year
which ended July 31, 1994, Roy Thomas, Inc. and Damark represented 16% and 11%
of the Company's revenues, respectively. Although the Company's significant
customers fluctuate over time, the loss of a significant customer could have a
materially adverse effect on its operating results.
Backlog Orders
The Company's practice is to maintain sufficient inventories to fill orders
promptly and not to carry a backlog of orders. The Company did not have a
material level of backlog at June 19, 1996 or June 23 of the previous year.
Product Development and Manufacturing
The Company's product development activities consist of hardware and software
design and engineering as well as co-development and engineering of new products
with manufacturers and technology partners. The Company has focused its research
and product development on the development of the next generation of Dual-Deck
VCRs, development of a PAL format Dual-Deck VCR, development of unique features
and/or quality enhancements for the Company's new line of video security
products, development of a prototype LCD projection television with Prolux
Corporation, identifying technical changes necessary to distribute Loewe Opta's
televisions in North America, and evaluation of potential new products,
acquisitions, or joint ventures.
All of the Company's products are manufactured for the Company by independent
manufacturers. The Company's line of Dual-Deck VCRs are manufactured for the
Company by Samsung and Shintom. The
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* May contain "Forward Looking Statements."
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Company and Samsung entered into a Manufacturing Agreement in February 1989 (see
"Licensing") under which Samsung manufactures VHS-to-VHS Dual-Deck VCRs to the
Company's specifications in conformity to the highest standards of quality
maintained by Samsung in the manufacturing of VCRs. Quality control and
assurance is performed by Samsung at the manufacturing facility and the Company
samples and verifies product quality by sample testing upon the products arrival
in the United States. The Company generally places purchase orders for Dual-Deck
VCRs three months prior to production in accordance with its forecasted needs.
The Manufacturing Agreement sets forth statistical defect tolerances and
indicates that the costs of quality defects above the level of standards is to
be borne by Samsung. The Company purchases the Dual-Deck VCRs from Samsung
F.O.B. Korea using commercial import letters of credit opened approximately
thirty days prior to ship date. Payment for the product is by draft due thirty
days after the bill of lading (ship) date. The Manufacturing Agreement is
automatically renewed for one year periods unless terminated by six months
advance notice in writing from either party. The Manufacturing Agreement
currently extends to February 1997.
The Company entered into a second agreement with Samsung effective September 14,
1993, pursuant to which Samsung agreed to manufacture, and the Company agreed to
purchase, on a non-exclusive basis certain models of the Company designed
8mm-to-VHS Dual-Deck VCR. Under this manufacturing agreement, Samsung
manufactured 8mm-to-VHS Dual-Deck VCRs for the Company in conformity to the
highest standards of quality maintained by Samsung in the manufacturing of VCRs.
The Company will not purchase additional 8mm-to-VHS Dual-Deck VCRs under this
agreement. The Company reduced the price on the 8mm-VHS Dual Deck VCR and
recorded an adjustment for the remaining inventory on hand at March 31, 1996
(see "Management's Discussion and Analysis of Financial Condition"). In April,
1996, the Company agreed to license to Samsung the worldwide nonexclusive right
to manufacture, use, and sell the 8mm-to-VHS format Dual-Deck VCR.
The Company and Shintom entered into a Manufacturing Agreement in January 1996
under which Shintom manufactures VHS-to-VHS Dual-Deck VCRs to the Company's
specifications in conformity to the highest standards of quality maintained by
Shintom in the manufacturing of VCRs. Quality control and assurance is performed
by Shintom at the manufacturing facility and the Company samples and verifies
product quality by sample testing upon the products arrival in the United
States. The Company generally places purchase orders for Dual-Deck VCRs three
months prior to production in accordance with its forecasted needs. The
Manufacturing Agreement sets forth statistical defect tolerances and indicates
that the costs of quality defects above the level of standards is to be borne by
Shintom. The Company purchases the Dual-Deck VCRs from Shintom F.O.B. Singapore
using commercial import letters of credit opened approximately fourteen days
prior to ship date. Payment for the product is by sight draft. The initial term
of this manufacturing agreement is two years. The manufacturing agreement is
automatically renewed for one year periods unless terminated by twelve months
advance notice from either party.
The Company's security product line is currently manufactured under purchase
orders by Goldbeam Electronics Inc., a Korean manufacturing company. The Company
purchases security products from Goldbeam F.O.B. Korea using commercial import
letters of credit opened approximately thirty days prior to ship date. Payment
for the product is by sight draft. The Company is currently evaluating
additional suppliers for its Security Products Division.
Patents, Trademarks, and Proprietary Rights
In August 1988, the Company obtained United States Patent No. 4,768,110 entitled
"Videocassette Recorder(s) Having Dual Decks For Selective Simultaneous
Functions". The Company had by that date filed corresponding Japanese
applications, and has since filed additional U.S. and foreign patent
applications for enhancements related to the Dual-Deck VCR. The Dual-Deck VCR
technology is complex, and as a result the Company's patent claims are also
complex. In general terms, the patent covers a videocassette recorder system
that has two decks contained in one housing and that has
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switching combinations which permit simultaneous and/or auxiliary functions to
occur, such as allowing one deck to record while the other plays. In July 1992,
the Company obtained U.S. Patent No. 5,124,807, entitled "Dual Deck
Videocassette Recorder System", featuring the further enhanced ability of a
Dual-Deck VCR system to duplicate high quality videocassette tapes with good
fidelity and avoidance of copy degradation.
During fiscal 1993, the Company was issued four new U.S. patents. The first
patent issued, No. 5,194,963, relates to a unique circuit that results in
high-quality duplication of a videocassette tape for in-home use. This circuit
is identified by the registered trademark "AmeriChrome7". A second patent, No.
5,216,552, relates to a unique Dual-Deck VCR video switching system with or
without a built-in tuner. The third patent, No. 5,216,499, relates to a Cable
Select Box Supplemental Splitter, identified by the trademark "Cable Ready
Plus". The fourth patent, No. 5,189,691, relates to a Dual-Deck VCR that
includes an answering machine logic that allows the VCR to be used to answer a
video telephone system.
During fiscal 1994, the Company was issued three new U.S. patents. The first
patent issued, No. 5,307,193, relates to a method of control over an infrared
controlled device such as a TV, VCR, or stereo without the use of an infrared
emitter. This method of control uses voltage-induced energy for direct control
of a device with or without a line of sight. A second patent, No. 5,177,618,
relates to additional AmeriChrome circuitry and identification and hardware
control in the presence of certain anticopy encoding on a videocassette. A third
patent, No. 5,249,087, relates to a rotating scanning device for use with
magnetic storage media. Other U.S. and foreign patent applications are currently
pending. There is no assurance that any additional patents will be granted to
the Company or that the Company's patents will provide meaningful protection
from competition. The Company intends to vigorously enforce its proprietary
technology rights*.
The Company has registered its "Go-Video" service mark and its "Go-Video",
"AmeriChrome", "Palm-Mate", "Private Eye", and "VCR-2" trademarks with the
United States Patent and Trademark Office and has registered "Go-Video" as a
trademark with the State of Arizona. The Company has filed for registration with
the United States Patent and Trademark Office for various other trademarks. The
Company has developed and owns the proprietary operating system software
relating to the Dual-Deck VCR. The Company believes that patents, trademarks,
trade names, and proprietary rights, once established, are generally important
in the consumer electronics market, and the loss, denial, or infringement of
such patents, trademarks, trade names, and proprietary rights could have a
materially adverse effect on the Company.
Environmental Matters
Although the Company is subject to various federal, state, and local
environmental laws and regulations, compliance with such laws and regulations
has not had a material effect on the Company.
Employees
As of June 19, 1996, the Company employed 46 full-time employees, including its
five executive officers. None of the Company's employees is represented by a
labor union. The Company considers its relations with its employees to be good.*
- ----------
* May contain "Forward Looking Statements."
8
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
The following table sets forth certain information concerning the executive
officers of the Company.
Executive Officers:
- -------------------
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Roger B. Hackett 45 Chief Executive Officer, President, and Chief Operating Officer
Kevin P. Sullivan 51 Executive Vice President, Sales and Marketing
Douglas P. Klein 35 Vice President, Chief Financial Officer, Secretary and Treasurer
Edward J. Brachocki 40 Vice President, Corporate Development
</TABLE>
Roger B. Hackett was first elected to the Board of Directors in December 1992
and joined the Company as President and Chief Operating Officer in January 1993.
In March 1994, Mr. Hackett was elected Chief Executive Officer and Chairman of
the Board. Prior to joining the Company as President, Mr. Hackett served as an
executive officer of Serving Software Inc., a Minneapolis, Minnesota-based
provider of computer software used in the health care industry. In 1986, Mr.
Hackett founded the CAMS division of ATI Medical, Inc., a provider of "critical
care" medical equipment, and over six years developed CAMS into a leading
provider of bar-code-based information systems. In January 1992, Mr. Hackett
negotiated the sale of the CAMS division to Serving Software Inc., where he then
served as Vice President of the CAMS division until being named Senior Vice
President, Corporate Affairs in January 1993. He also served as a director of
Serving Software from January 1993 until September 1994 when Serving Software
was acquired by HBO & Co., a health care information systems company. Mr Hackett
serves as a director of Medi-Serve, a privately-held company providing health
care information systems. Mr. Hackett received a Bachelor of Science Degree in
Business Administration from Ohio State University.
Kevin P. Sullivan joined the Company in September 1991 as Vice President, Sales
and was named Executive Vice President, Sales and Marketing, in February 1993.
From July 1990 until joining the Company, Mr. Sullivan was the principal of KPS
& Associates, a consumer electronics sales consulting firm. From 1983 through
June 1990, Mr. Sullivan served in various sales management positions, most
recently as Vice President of Sales, for Mitsubishi Electronics' audio/video
group, a major manufacturer and distributor of consumer electronic products.
Prior to his nine years with Mitsubishi, Mr. Sullivan was President of
Sullivan's, Inc., which distributed a broad line of brand name electronics
equipment to dealers throughout six New England states. He has also held sales
management positions with Sharp Electronics, Quasar Electronics, and the
Magnavox Company. Mr. Sullivan received a Bachelor of Science Degree from
Fairfield University in Connecticut.
Douglas P. Klein joined the Company in April 1993 as Assistant Treasurer and was
named Vice President, Finance and Treasurer in October 1993, Corporate Secretary
in April 1994, and Chief Financial Officer in September 1995. Mr. Klein was
previously employed from June 1983 through October 1992 by Continental Bank
N.A., Chicago, Illinois, where he served in various accounting and corporate
banking positions. From February 1991 through October 1992, Mr. Klein was
Portfolio Manager in the Large Corporate Division where he was responsible for
structuring, syndicating and managing credit and derivative exposure to
Continental's largest Midwestern-based clients. From January 1990 through
February 1991, Mr. Klein served as Portfolio Manager for the Investment Grade
Division. Earlier positions with Continental included Commercial Lending
Officer, Senior Credit Analyst, Senior Planning Analyst, and Senior Internal
Auditor. Mr. Klein received a Bachelor of Science
9
<PAGE>
Degree in Management from Purdue University, and a Masters Degree in Management
from the J.L. Kellogg Graduate School of Management, Northwestern University.
Edward J. Brachocki joined the Company in February 1993 as Vice President,
Marketing, and was named to his current position of Vice President, Corporate
Development, in August 1994. From July 1992 until joining the Company, Mr.
Brachocki was a Senior Associate for MTA/EMCI, a Washington, D.C.-based
consulting firm for the telecommunications and cable television industries,
where he advised clients on marketing issues for technology-based consumer
products. From November 1989 to June 1992, he was Director of Marketing and
Business Development for Goldstar Products Co., Ltd. Prior to joining Goldstar,
Mr. Brachocki served for two years as a consultant and General Manager of Bliss
Marketing, a Phoenix, Arizona-based marketing and strategic planning company.
Mr. Brachocki received a Bachelor of Science Degree in Psychology from Fairfield
University in Connecticut.
Item 2. Properties
----------
The Company leases a 33,000 square foot executive office and warehouse facility
in north Scottsdale, Arizona, which is fully utilized, in good condition, and
adequate for the Company's needs. The lease began in January 1996 and has a term
of seven years, with one three year extension at the option of the Company.
Item 3. Legal Proceedings
-----------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of Security Holders during the fourth
quarter of the fiscal year ended March 31, 1996.
10
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
-----------------------------------------------------------------------
Matters
-------
The Company's Common Stock and Warrants began trading on the AMEX on September
26, 1990. Prior to September 26, 1990, the Company's Common Stock was traded on
the NASDAQ Market System. The following table sets forth the high and low sales
prices for the Common Stock during the period from August 1, 1993 through March
31, 1996 as reported to the Company by the American Stock Exchange. Sales prices
do not include commissions or other adjustments to the selling price.
Year Ended July 31, 1994 High Low
------------------------ ---- ---
First Quarter $ 3.0625 $ 2.2500
Second Quarter $ 3.1250 $ 2.3125
Third Quarter $ 2.8125 $ 1.8750
Fourth Quarter $ 2.3750 $ 1.2500
Eight Month Transition Period
Ended March 31, 1995 High Low
-------------------- ---- ---
First Quarter $ 2.5000 $ 1.5625
Second Quarter $ 2.7500 $ 1.7500
Third Quarter $ 2.1875 $ 1.5625
Year Ended March 31, 1996 High Low
------------------------- ---- ---
First Quarter $ 1.9375 $ 1.5000
Second Quarter $ 1.8750 $ 1.5000
Third Quarter $ 2.0000 $ 1.1250
Forth Quarter $ 1.3750 $ 1.0000
As of March 31, 1996, the Company believes there were approximately 11,000
beneficial holders of the Company's Common Stock, including approximately 2,000
stockholders of record (certificate holders registered directly rather than on
account at various brokerages or trustees).
The Company has never paid cash dividends on its Common Stock, and it intends
for the foreseeable future to retain any earnings to support the growth of its
business.* Any payment of cash dividends in the future, as determined at the
discretion of the Board of Directors, will be dependent on the Company's
financial condition, capital requirements, and other factors deemed relevant.
- ----------
* May contain "Forward Looking Statements."
11
<PAGE>
Item 6. Selected Financial Data
-----------------------
The selected financial data of the Company set forth below, insofar as relates
to the period from August 1, 1990 to March 31, 1996, has been derived from the
Company's audited Consolidated Financial Statements, certain of which are
included elsewhere herein. This data should be read in conjunction with the
Consolidated Financial Statements, related Notes and other financial information
included elsewhere in this Annual Report on Form 10-K.
Statement of Operations
<TABLE>
<CAPTION>
Fiscal Year Eight Months
Ended March 31 Ended March 31 Fiscal Year Ended July 31
-------------- -------------- ----------------------------------------------------------
Data 1996 1995 1994 1993 1992 1991
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales $ 34,646,406 $ 27,602,708 $ 41,192,644 $ 30,928,531 $ 16,188,205 $ 12,524,627
Litigation
settlement
revenues 0 0 0 0 0 4,825,000
Net
income (loss) (2,871,170) 117,801 105,741 116,706 (1,362,956) (1,388,911)
Net income
(loss) per share (0.25) 0.01 0.01 0.01 (0.13) (0.16)
Weighted
average
shares 11,304,261 11,194,200 11,090,549 10,592,326 10,395,879 8,900,707
Balance Sheet
March 31, July 31,
---------------------------- ----------------------------------------------------------
Data 1996 1995 1994 1993 1992 1991
- ---- ---- ---- ---- ---- ---- ----
Current
assets $ 9,630,183 $ 10,035,234 $ 10,165,288 $ 9,697,545 $ 7,180,602 $ 8,689,235
Current
liabilities 6,236,720 3,184,011 3,608,489 3,967,437 1,335,679 1,883,609
Long-term
assets (net) 1,567,803 464,963 541,940 1,249,167 764,034 538,687
Long-term
liabilities 283,405 6,245 19,004 63,803 112,378 205,323
Total
assets 11,197,986 10,500,197 10,707,228 10,946,712 7,944,636 9,227,922
Total
liabilities 6,520,125 3,190,256 3,627,493 4,031,240 1,448,057 2,088,932
Stockholders'
equity 4,677,861 7,309,941 7,079,735 6,915,472 6,496,579 7,138,990
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Overview
The Company was incorporated in May 1984 and was engaged in development-stage
activities until the fiscal year ended July 31, 1990, when it began its primary
operations of procuring and marketing the Dual-Deck VCR. The Company experienced
substantial losses from its formation through the fiscal year ended July 31,
1992. In February 1995, the Company changed its fiscal year end from July 31 to
March 31. Consequently, the following comparison of results of operations
includes a discussion of the fiscal year ended March 31, 1996 and the eight
month transition period ended March 31, 1995, and a comparison of the fiscal
years ended March 31, 1996 and July 31, 1994 and 1993.
Results of Operations
The table below highlights significant information in a percentage relationship
to net sales with regard to the Company's results of operations during the
periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Eight Months
Ended March 31 Ended March 31 Fiscal Year Ended July 31
-------------- -------------- -------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 15.5% 17.7% 15.7% 17.2%
Sales and marketing exp 11.7% 9.0% 7.5% 6.4%
Research and development exp 2.1% 1.5% 0.8% 1.4%
General and administrative exp 8.1% 5.4% 5.4% 8.1%
Total operating expenses 21.9% 15.9% 13.7% 15.9%
Operating profit (loss) (6.4%) 1.9% 2.0% 1.3%
Other income (expense) (1.9%) (1.4%) (1.8%) (1.0%)
Net income (loss) (8.3%) 0.4% 0.3% 0.4%
</TABLE>
Fiscal year ended March 31, 1996, compared with the eight month transition
- --------------------------------------------------------------------------------
period ended March 31, 1995
- ---------------------------
Net sales were $34.6 million for the fiscal year ended March 31, 1996, compared
to $27.6 million for the eight month transition period ended March 31, 1995.
Average revenue per unit decreased 11.0% from the eight month transition period
ended March 31, 1995 to the fiscal year ended March 31, 1996 due primarily to
reduced selling prices on the Company's current model line, the GV40xx series
(VHS/VHS Dual-Deck VCRs), compared with the GV30xx series offered during the
eight month transition period ended March 31, 1995. Sales of the Company's
Security Products Division, which was acquired in April 1995, were less than 3%
of total net sales for the fiscal year ended March 31, 1996.
Gross profit as a percentage of net sales was 15.5% for the fiscal year ended
March 31, 1996 and 17.7% for the eight month transition period ended March 31,
1995. The reduction in gross profit as a percentage of net sales was primarily
due to the discontinuation of the 8mm-to-VHS product line during the fourth
quarter of the fiscal year ended March 31, 1996. The Company reduced the price
on its 8mm-to-VHS product line and recorded a one-time adjustment for the
remaining inventory, which reduced gross profit dollars by approximately $1.3
million. The Company was unsuccessful in marketing the 8mm-to-VHS product at a
retail price that could provide adequate profit margins.
Sales and marketing expenses were $4.1 million for the fiscal year ended March
31, 1996 and $2.5 million for the eight month transition period ended March 31,
1995. As a percentage of net sales, sales
13
<PAGE>
and marketing expenses increased from 9.0% to 11.7% over the same period. The
increase in the percentage of net sales was primarily due to sales and marketing
expenses incurred in marketing the Company's new line of security products.
Research and development expenses were $0.7 million for the fiscal year ended
March 31, 1996 and $0.4 million in for the eight month transition period ended
March 31, 1995. As a percentage of net sales, research and development expenses
increased from 1.5% to 2.1% over the same period, primarily due to costs
incurred in connection with the Company's development of its GV60xx series and
of a prototype LCD projection television. The Company believes the first model
of the GV60xx series will be available for sale beginning in June 1996.
General and administrative expenses were $2.8 million for the fiscal year ended
March 31, 1996 and $1.5 million for the eight month period ended March 31, 1995.
As a percentage of net sales, general and administrative expenses increased from
5.4% for the eight months ended March 31, 1995 to 8.1% for the fiscal year ended
March 31, 1996. The increase was 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 loss of $2.2 million
for the fiscal year ended March 31, 1996 and an operating profit of $0.5 million
for the eight month transition period ending March 31, 1995. The Company
recorded other net expense of $0.7 million for the fiscal year ended March 31,
1996 and other net expense of $0.4 million for the eight month transition period
ended March 31, 1995.
The Company had a net loss of $2,871,170 for the fiscal year ended March 31,
1996, compared with net income of $117,801 for the eight month transition period
ended March 31, 1995. The Company did not recognize an income tax benefit for
either fiscal year due to recording a valuation allowance.
Fiscal year ended March 31, 1996, compared with fiscal year ended July 31, 1994
- -------------------------------------------------------------------------------
Net sales decreased 15.9% to $34.6 million for the fiscal year ended March 31,
1996 from $41.2 million for the fiscal year ended July 31, 1994. The decrease in
net sales was caused by a 9.7% reduction in unit sales and a 6.9% decrease in
average revenue per unit on the Company's Dual-Deck VCRs. The decrease in the
average revenue per unit was due primarily to reduced selling prices on the
Company's current model line, the GV40xx series (VHS/VHS Dual-Deck VCRs),
compared with the GV30xx series offered during the fiscal year ended July 31,
1994. Sales of the Company's Security Products Division, which was acquired in
April 1995, were less than 3% of total net sales for the fiscal year ended March
31, 1996.
Gross profit was $5.4 million and $6.5 million for the fiscal years 1996 and
1994, respectively, representing a 16.8% decrease in gross profit dollars. Gross
profit as a percentage of net sales was 15.5% for fiscal 1996 and 15.7% for
fiscal 1994. The Company's average cost per unit decreased 6.7% from the fiscal
year ended July 31, 1994 to the fiscal year ended March 31, 1996. During the
fourth quarter of the fiscal year ended March 31, 1996, the Company reduced the
price on its 8mm-to-VHS product line and recorded a one-time adjustment for the
remaining inventory which reduced gross profit dollars by approximately $1.3
million. The Company was unsuccessful in marketing the 8mm-to-VHS product at a
retail price that could provide adequate profit margins.
Sales and marketing expenses increased 31.3% to $4.1 million in fiscal 1996 from
$3.1 million in fiscal 1994. As a percentage of net sales, sales and marketing
expenses increased from 7.5% to 11.7% over the same period. Contributing to the
increase were sales and marketing expenses incurred in marketing the Company's
new line of security products, increased printing costs relating to product
promotion, the addition of marketing personnel and increased in-store training
expenses.
Research and development expenses increased 123.2% to $0.7 million in
14
<PAGE>
fiscal 1996 from $0.3 million in fiscal 1994. The increase in research and
development expenses was due to costs incurred in connection with the Company's
development of its GV60xx series and of a prototype LCD projection television.
The Company believes the first model of the GV60xx series will be available for
sale beginning in June 1996.
General and administrative expenses increased 27.3% to $2.8 million in fiscal
1996 from $2.2 million in fiscal 1994. As a percentage of net sales, general and
administrative expenses increased from 5.4% to 8.1% over the same period. The
increase was 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 loss of $2.2 million
for fiscal 1996, compared with an operating profit of $0.8 million for fiscal
1994. The Company recorded other net expense of $0.7 million for fiscal 1996,
compared with other net expense of $0.7 million for fiscal 1994. The Company's
interest expense decreased from $0.8 million for fiscal 1994 to $0.6 million for
fiscal 1996. The decrease in interest expense was due to the reduction of the
average daily loans outstanding from fiscal 1994 to fiscal 1996, 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 reduction of interest expense was offset in part by the
decrease in interest income due to reduced interest on receivable balances from
customers.
The Company had a net loss of $2,871,170 in fiscal 1996, compared with net
income of $105,741 in fiscal 1994. The Company did not recognize an income tax
benefit for either fiscal year due to recording a valuation allowance.
Fiscal year ended July 31, 1994, compared with fiscal year ended July 31, 1993
- ------------------------------------------------------------------------------
Net sales increased 33.2% to $41.2 million in fiscal 1994 from $30.9 million in
fiscal 1993, primarily due to expansion of distribution channels and accounts
for the Company's Dual-Deck VCRs. Contributing to the increase during fiscal
1994 was the Company's expansion of its product line by adding the 8mm-to-VHS
Dual-Deck VCR, which was shipped for the first time in July 1994, and a
one-time, up-front license fee payment fully recognized as revenue in July 1994
from Goldstar, in return for granting them a right and license to manufacture,
sell and distribute worldwide an 8mm-to-VHS VCR. The Company's unit sales
increased 36.4% during fiscal 1994 as compared to fiscal 1993, offset slightly
by a decrease in the average selling price per unit of 2.4%. The lower average
selling price resulted primarily from price reductions and allowances, which
were offered during the year and are described in more detail below. The average
cost per unit sold decreased from fiscal 1993 by 0.6% per unit as a result of
pricing concessions received from the manufacturer, which are also described in
more detail below.
Gross profit was $6.5 million and $5.3 million for the fiscal years 1994 and
1993, respectively, representing a 21.6% increase in gross profit dollars. Gross
profit as a percentage of net sales decreased to 15.7% for fiscal 1994 from
17.2% for fiscal 1993. The decrease in gross profit percentage was due to price
reductions offered by the Company to its customers, which were not offset by
corresponding price reductions on inventory purchased from the manufacturer over
the same time period. The Company reduced the dealer price of the GV3000 model
effective December 1993. The Company had previously anticipated that this leader
model would be in the greatest demand and had ordered production from Samsung
accordingly. However, actual retail sales favored the more expensive Hi-Fi
models. The Company increased its orders for production of Hi-Fi models, but
most of the new inventory arrived in December 1993 and January 1994, after the
peak holiday season. The Company consequently offered temporary dealer price
allowances on January 1994 orders of the Hi-Fi models in order to reduce
inventory after the holiday season. The Company negotiated new lower pricing on
all models purchased from the manufacturer subsequent to January 31, 1994. These
pricing reductions ranged by model from 2.0% to 4.6%. The Company began to
realize the benefits of these pricing adjustments during the fourth quarter of
fiscal 1994 after the inventory purchased at the old higher pricing was sold.
15
<PAGE>
Sales and marketing expenses increased 56.3% to $3.1 million in fiscal 1994 from
$2.0 million in fiscal 1993. As a percentage of net sales, sales and marketing
expenses increased from 6.4% to 7.5% over the same period. Contributing to the
increase were higher market development and cooperative advertising expenses
related to the expansion of stores carrying the product line, higher commission
expense related primarily to the overall increase in sales volume, the addition
of sales and marketing personnel, promotional expenses related primarily to the
Company's store kiosk display program, and increased marketing efforts,
including advertising placement.
Research and development expenses decreased 23.4% to $0.3 million in fiscal 1994
from $0.4 million in fiscal 1993. This was generally due to the timing of
outside engineering and product-development costs for the 3000 series VCR models
in which the majority of these costs were incurred during fiscal year 1992.
General and administrative expenses decreased 11.9% to $2.2 million in fiscal
1994 from $2.5 million in fiscal 1993. As a percentage of net sales, general and
administrative expenses decreased from 8.1% to 5.4% over the same period. The
dollar decrease in general and administrative expense resulted from lower
consulting fees and lower salary and benefit expenses. The decrease was offset
in part by legal expenses incurred by the Company in response to Goldstar's
announcement of its upcoming introduction of an 8mm-to-VHS VCR in the United
States. The Company subsequently entered into a licensing agreement with
Goldstar.
As a result of the above, the Company recorded an operating profit of $0.8
million for fiscal 1994, compared with an operating profit of $0.4 million for
fiscal 1993. The Company recorded other net expense of $0.7 million for fiscal
1994, compared to other net expense of $0.3 million for fiscal 1993. The
increase was primarily due to higher interest and letter of credit expenses
which increased to $0.8 million for fiscal 1994 from $0.3 million for fiscal
1993. The increase in interest expense was primarily due to the increase in the
average daily loans outstanding in fiscal 1994 to $3.1 million from $90,000 in
fiscal 1993, higher letter of credit fees resulting from higher inventory
purchases to support the increase in sales over the prior year, and recognition
of a full year of amortization of costs incurred in connection with obtaining
and amending the financing agreement.
The Company had net income of $105,741 in fiscal 1994, compared with net income
of $116,706 in fiscal 1993. The Company did not incur income tax expense for
either fiscal year, due to the net operating loss carryforward.
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
generally expects to experience peaks in its sales from September through
January, which covers the holiday selling season.*
Future Results
- --------------
The Company's future operating results may be affected by a number of factors,
including the general economic conditions in the markets in which the Company
operates, the Company's ability to design, distribute and sell its products
profitably, competition in general and competitive pricing in particular.
Capital Resources and Liquidity
- -------------------------------
Net cash provided by operating activities was $1.1 million for the fiscal year
ended March 31, 1996. The
- ----------
* May contain "Forward Looking Statements."
16
<PAGE>
more significant factors comprising the cash provided were a $1.7 million
increase in accounts payable, a $0.6 million decrease in receivables, and $1.1
million of depreciation and amortization, offset in part by a $2.9 million net
loss.
The increase in the account payable balance from March 31, 1995 to March 31,
1996 was due to an increase in letter of credit acceptances for inventory the
Company had received in March 1996, and tooling payments payable to Samsung for
the GV40xx series. The decrease in the receivable balance from March 31, 1995 to
March 31, 1996 was primarily due to reduced sales in March 1996, compared with
March 1995 as the Company's average collection experience has generally remained
consistent.
The increase in depreciation and amortization charges for the fiscal year ended
March 31, 1996 as compared with the fiscal year ended July 31, 1994 resulted
from amortization of warrants during the fiscal year ended March 31, 1996. These
warrants were issued for services during the eight month transition period ended
March 31, 1995.
The Company had net working capital of $3.4 million and $6.9 million at March
31, 1996 and March 31, 1995, respectively. At March 31, 1996, the Company's
current ratio (current assets to current liabilities) was 1.5 to 1.
Samsung and Shintom require the Company, prior to shipment, to post a letter of
credit for the full amount of an order of Dual-Deck VCRs. The letters of credit
for orders to Samsung are drawn 30 days after shipment of the product, which in
turn is generally sold on open account. The letters of credit for orders to
Shintom are sight drafts. 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 fiscal year ended
March 31, 1996 was borrowings under the line of credit. The financing agreement
was entered into in October 1992 and was amended in May 1993, November 1993,
August 1994, August 1995 and June 1996. The maximum line of credit, as amended,
is $14.0 million, 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 five years, with an
origination fee of 1%, an annual facility fee of 0.5%, a non-use fee of 0.25%,
and a prepayment (if applicable) fee of 1%. Loans are priced at prime plus 2.5%.
The lender is collateralized by all assets of the Company. The unused and
available line of credit at March 31, 1996 was approximately $380,000. The
Company has capitalized $0.5 million 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.* Management
believes that additional financing through debt or equity may be required to
expand the Company's existing business and to support the LCD projection
television project, the Loewe Opta television project, and other product lines
currently being considered.* No final determination as to the form and amount of
such financing has yet been made, and there is no assurance that such financing,
when required, would be available on terms favorable to the Company.
Inflation
- ---------
Inflation has had no material effect on the Company's operations or financial
condition.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Pages F-1 through F-16
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------------
Financial Disclosure
--------------------
None
- ----------
* May contain "Forward Looking Statements."
17
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of March 31, 1996 and 1995, and the Related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
the Year Ended March 31, 1996, the Eight Month Period Ended March 31, 1995 and
Each of the Two Years in the Period Ended July 31, 1994 and Independent
Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Go-Video, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Go-Video, Inc.
and subsidiary (the "Company") as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended March 31, 1996, the eight month period ended March 31, 1995 and
each of the two years in the period ended July 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 1996 and
1995, and the results of its operations and its cash flows for the year ended
March 31, 1996, the eight month period ended March 31, 1995 and for each of the
two years in the period ended July 31, 1994 in conformity with generally
accepted accounting principles.
May 2, 1996 DELOITTE & TOUCHE LLP
F-1
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------------------
ASSETS (Note 9) 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 313,916 $ 166,819
Receivables - less allowance for doubtful accounts of
$130,000 in 1996 and 1995 4,147,143 4,634,330
Inventories (Note 4) 5,127,103 5,146,808
Prepaid expenses and other assets 42,021 87,277
------------- -------------
Total current assets 9,630,183 10,035,234
------------- -------------
EQUIPMENT AND IMPROVEMENTS (Note 7):
Furniture, fixtures and equipment 507,990 244,179
Leasehold improvements 173,157 30,557
Office equipment 483,861 344,985
Tooling 1,107,970 947,472
------------- -------------
Total 2,272,978 1,567,193
Less accumulated depreciation and amortization 1,100,386 1,374,063
------------- -------------
Equipment and improvements - net 1,172,592 193,130
DUAL-DECK VCR PATENTS - Net of amortization of $40,041
and $33,053, respectively 76,710 82,335
GOODWILL - Net of amortization of $17,046 (Note 10) 153,417
OTHER ASSETS - Net of amortization of $471,321 and $389,774,
respectively 165,084 189,498
------------- -------------
TOTAL $ 11,197,986 $ 10,500,197
============= =============
</TABLE>
(Continued)
F-2
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,512,594 $ 780,547
Accrued expenses 375,972 397,027
Current portion of long-term obligations (Note 7) 108,937
Other current liabilities 622,887 237,545
Warranty reserve - current 186,000 118,000
Line of credit (Note 9) 2,430,330 1,650,892
-------------- ---------------
Total current liabilities 6,236,720 3,184,011
WARRANTY RESERVE - Long-term 5,000 5,000
DEFERRED RENT 15,520 1,245
LONG-TERM OBLIGATIONS (Note 7) 262,885
-------------- ---------------
Total liabilities 6,520,125 3,190,256
-------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
STOCKHOLDERS' EQUITY (Note 5):
Common stock, $.001 par value - authorized, 50,000,000 shares; issued
and outstanding, 11,331,012 and 11,273,012 shares, respectively 11,331 11,273
Additional capital 19,054,796 18,943,342
Unamortized consulting services (35,002) (162,580)
Accumulated deficit (14,353,264) (11,482,094)
-------------- ---------------
Total stockholders' equity 4,677,861 7,309,941
-------------- ---------------
TOTAL $ 11,197,986 $ 10,500,197
============== ===============
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-3
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Month Years Ended
Ended Period Ended July 31,
March 31, March 31, --------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
SALES $ 34,646,406 $ 27,602,708 $ 41,192,644 $ 30,928,531
COST OF SALES 29,266,086 22,713,535 34,729,561 25,611,970
------------- ------------- ------------- -------------
Gross profit 5,380,320 4,889,173 6,463,083 5,316,561
------------- ------------- ------------- -------------
OTHER OPERATING COSTS:
Sales and marketing 4,068,170 2,480,610 3,097,989 1,982,438
Research and development 713,600 408,668 319,711 417,552
General and administrative
expenses 2,809,573 1,486,543 2,207,637 2,505,302
------------- ------------- ------------- -------------
Total other operating costs 7,591,343 4,375,821 5,625,337 4,905,292
------------- ------------- ------------- -------------
Operating (loss) income (2,211,023) 513,352 837,746 411,269
------------- ------------- ------------- -------------
OTHER REVENUES
(EXPENSES):
Interest income 4,258 4,622 85,481 30,352
Interest expense (648,804) (410,334) (804,888) (251,564)
Other (15,601) 10,161 (12,598) (73,351)
------------- ------------- ------------- -------------
Total other expenses - net (660,147) (395,551) (732,005) (294,563)
------------- ------------- ------------- -------------
NET (LOSS) INCOME (2,871,170) 117,801 105,741 116,706
============= ============= ============= =============
NET (LOSS) INCOME PER
COMMON SHARE $ (0.25) $ 0.01 $ 0.01 $ 0.01
============= ============= ============= =============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 11,304,261 11,194,200 11,090,549 10,592,326
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED MARCH 31, 1996, EIGHT MONTH PERIOD ENDED
MARCH 31, 1995 AND YEARS ENDED JULY 31, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unamortized
Common Stock Additional Consulting Accumulated
------------------------
Shares Amount Capital Services Deficit Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1992 (Note 5) 10,411,812 $ 10,412 $ 18,308,509 $(11,822,342) $ 6,496,579
Stock options exercised for
cash at $.50 to $2.375 per share 194,000 194 139,556 139,750
Private warrants exercised for
cash at $.50 per share during
April, May and June 1993 381,400 381 190,319 190,700
Registration costs -
underwriters fees (28,263) (28,263)
Net income 116,706 116,706
---------- -------- ------------- ------------ -----------
BALANCE, JULY 31, 1993 (Note 5) 10,987,212 10,987 18,610,121 (11,705,636) 6,915,472
Stock options exercised for
cash at $.50 per share 10,200 10 5,090 5,100
Private warrants exercised for
cash at $.50 per share during
August, September,
October 1993 and March 1994 118,600 119 59,181 59,300
Registration costs -
underwriters fees (5,878) (5,878)
Net income 105,741 105,741
---------- -------- ------------- ------------ -----------
BALANCE, JULY 31, 1994 (Note 5) 11,116,012 11,116 18,668,514 (11,599,895) 7,079,735
Stock options exercised for
cash at $.50 per share 140,000 140 69,860 70,000
Stock options exercised for
cash at $1.625 per share 17,000 17 27,608 27,625
Warrants issued for
consulting services 177,360 $(177,360)
Amortization of consulting costs 14,780 14,780
Net income 117,801 117,801
---------- -------- ------------- --------- ------------ -----------
BALANCE, MARCH 31, 1995 (Note 5) 11,273,012 11,273 18,943,342 (162,580) (11,482,094) 7,309,941
Stock options exercised for
cash at $.50 per share 3,000 3 1,497 1,500
Stock options exercised for
cash at $.75 per share 25,000 25 18,725 18,750
Stock options exercised for
cash at $.8475 per share 30,000 30 25,320 25,350
Warrants issued for
consulting services 65,912 (65,912)
Amortization of consulting costs 193,490 193,490
Net loss (2,871,170) (2,871,170)
---------- -------- ------------- --------- ------------ -----------
BALANCE, MARCH 31, 1996 (Note 5) 11,331,012 $ 11,331 $ 19,054,796 $ (35,002) $(14,353,264) $ 4,677,861
========== ======== ============= ========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Month
Ended Period Ended Years Ended
March 31, March 31, July 31,
------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (2,871,170) $ 117,801 $ 105,741 $ 116,706
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,149,677 212,881 934,783 320,808
Provision for losses on
accounts receivable (5,761) 5,000 25,000 70,000
Loss on sale of equipment - net 1,752 6,454 68
Change in operating assets and
liabilities - net of acquisition:
Restricted cash 981,868
Receivables 558,914 1,275,546 22,490 (3,681,658)
Inventories 98,708 (1,159,871) (441,335) (927,035)
Prepaid expenses and
other assets 45,256 2,360 (53,335) 52,793
Patents (1,363) (14,135) (19,087)
Other assets 27,868 11,614 47,365
Accounts payable 1,652,476 (1,186,515) 854,830 391,543
Accrued expenses (29,890) 13,735 10,022 (46,843)
Other current liabilities 369,942 80,402 70,543 (54,945)
Warranty reserve 68,000 7,990 (34,310) 14,988
Other long-term liabilities 14,274 (10,759) (16,299) (3,075)
------------- ------------- --------- ---------
Net cash provided by (used in)
operating activities 1,078,683 (641,430) 1,482,063 (2,736,504)
------------- ------------- --------- ---------
INVESTING ACTIVITIES:
Repayments from related party 32,433
Proceeds from sale of equipment 3,800
Equipment and improvement
expenditures (1,454,261) (51,794) (140,870) (551,551)
Cash acquired from acquisition 39,951
------------- ------------- --------- ---------
Net cash used in investing
activities (1,414,310) (51,794) (140,870) (515,318)
============= ============= ========= =========
</TABLE>
(Continued)
F-6
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Eight Month
Ended Period Ended Years Ended
March 31, March 31, July 31,
------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from issuance of 45,600 97,625 64,400 330,450
common stock
Registration costs (5,878) (28,263)
Net borrowings (repayments)
under line of credit 779,438 657,910 (1,288,533) 2,281,515
Payment of financing costs (85,000) (60,000) (90,619) (286,536)
Payment of debt assumed in
acquisition (257,314)
------------- ------------- --------- ---------
Net cash provided by (used in)
financing activities 482,724 695,535 (1,320,630) 2,297,166
------------- ------------- --------- ---------
NET INCREASE (DECREASE) IN
CASH EQUIVALENTS 147,097 2,311 20,563 (954,656)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 166,819 164,508 143,945 1,098,601
------------- ------------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 313,916 $ 166,819 $ 164,508 $ 143,945
============== ============ =========== ==========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest $ 567,257 $ 326,771 $ 625,069 $ 126,423
============== ============ =========== ==========
Warrants issued for consulting
services (Note 5) $ 65,912 $ 177,360
= ============== ============
SUPPLEMENTAL DISCLOSURES
OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations
enetered into by Company $ 399,435
==============
In connection with the acquisition:
Liabilities assumed $ 361,120
==============
Fair value of assets acquired,
including $39,951 in cash $ 190,657
======= ==============
Excess of cost over fair value of
acquired assets $ 170,463
==============
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-7
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 1996, EIGHT MONTH PERIOD ENDED
MARCH 31, 1995 AND YEARS ENDED JULY 31, 1994 AND 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Go-Video, Inc. and subsidiary (the "Company") develops, designs, engineers
and markets consumer electronic video products. The Company currently
contracts with independent consumer electronics manufacturers to produce
its products to its specific standards. The Company normally receives such
products at its Scottsdale, Arizona facility. Distribution of its products
occurs upon receipt of customer orders.
The following are the significant accounting and financial policies used
in the preparation of the consolidated financial statements of the
Company.
a. Change in Year-End - In February 1995, the Company adopted a March 31
year-end.
b. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Go-Video Productions, Inc.
(the "Subsidiary"), which has not initiated operations.
c. Cash and cash equivalents consisted of the following:
March 31,
----------------------------------
1996 1995
Money market funds $ 285,824 $ 130,562
Cash in checking accounts 28,092 36,257
----------- -----------
Total $ 313,916 $ 166,819
=========== ===========
Cash and cash equivalents have initial maturity dates of three months
or less and are stated at cost which approximates market.
d. Inventories are stated at the lower of cost (first-in, first-out) or
market.
e. Equipment and improvements are stated at cost. Depreciation is
calculated by the straight-line method over the estimated useful lives
of the assets of two to five years. Amortization, by the straight-line
method, of leased furniture and improvements to leased property is
based upon the term of the applicable lease or the estimated useful
lives of such assets, whichever is less. Tooling costs primarily relate
to Dual-Deck VCRs. Depreciation of tooling is calculated using the
number of new units sold (not to exceed two years) as the tooling costs
relate directly to the manufacturing of the new units.
F-8
<PAGE>
f. Dual-Deck VCR patents represent professional fees and other costs
incurred in connection with obtaining patents for the Dual-Deck VCR.
The patent costs are amortized by the straight-line method over the
life of the patents.
g. Revenue Recognition - Sales of products are recognized once the product
is shipped to the customer and the title passes.
h. Income Taxes - The Company files a consolidated tax return. As of
August 1, 1993, the Company adopted the Financial Accounting Standards
Board's ("FASB") Statement of Financial Accounting Standard ("SFAS")
No. 109, Accounting for Income Taxes, which requires the use of the
liability method of accounting for deferred income taxes.
i. Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding
during each fiscal year. The amounts do not give consideration to
outstanding stock options and warrants because their effects would be
anti-dilutive in all periods presented.
j. New Accounting Pronouncements - During 1995, the FASB issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. This pronouncement will be
implemented beginning in fiscal year 1997. The Company does not believe
that the adoption of the Statement will have a material effect on its
financial condition or results of operations. In addition, the FASB
issued SFAS No. 123, Accounting For Stock Based Compensation. The
Company has determined that it will not change to the fair value method
and will continue to use Accounting Principles Board Opinion No. 25 for
measurement and recognition of employee stock based transactions (Note
5).
k. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
l. Product Concentration - The market for the Company's products is
characterized by changing technology and short product life cycles. The
company has derived substantially all of its revenues from the sale of
Dual-Deck VCRs throughout the United States.
m. Certain reclassifications have been made to the prior year financial
statements to conform to the classifications used in 1996.
2. COMPANY OPERATIONS
The Company was incorporated in May 1984 and was engaged in development
stage activities until late in the fiscal year ended July 31, 1990 when
the Company began its primary operations of distribution and marketing
Dual-Deck VCRs, which are being manufactured for the Company by Samsung
Electronics Company Ltd. ("Samsung") and Shintom Company Ltd., and Talk
Corporation ("Shintom & Talk"). The Company also distributes and markets a
line of video security products.
F-9
<PAGE>
Sales and Marketing - The Company's current marketing strategy is to sell
Dual-Deck VCRs and video security products with the support of independent
sales representatives that represent specific geographic territories
throughout the United States and who also represent many other brand name
consumer electronic products. The Company currently sells its product
lines directly to retailers nationwide including numerous national and
regional chains, catalog accounts, specialty stores, and Armed Services
PXs.
During fiscal 1993, sales to the Company's major customer totaled
$4,911,355. This amount represents 16% of the Company's 1993 sales.
Accounts receivable from this customer totaled $740,781 at July 31, 1993.
During fiscal 1994, sales to the Company's two major customers totaled
$6,749,000 and $4,425,000, respectively; these amounts represent 16% and
11%, respectively, of the Company's 1994 sales. Accounts receivable from
these customers totaled $670,000 and $652,000, respectively, at July 31,
1994.
During the eight month period ended March 31, 1995, sales to the Company's
major customer totaled $3,552,650. This amount represents 13% of the
Company's 1995 sales. Accounts receivable from this customer totaled
$834,416 at March 31, 1995.
During fiscal 1996, sales to the Company's major customer totaled
$4,879,435. This amount represents 14% of the Company's 1996 sales.
Accounts receivable from this customer totaled $1,072,393 at March 31,
1996.
3. DUAL-DECK VCR MANUFACTURING AND LICENSING
On February 28, 1989, the Company entered into an agreement with Samsung,
pursuant to which Samsung has agreed to manufacture Dual-Deck VCRs to the
Company's design and specification ("Manufacturing Agreement"). As part of
its arrangement with Samsung, the Company has licensed to Samsung the use
of the Company's proprietary and patented technology: (1) the right to
manufacture Dual-Deck VCRs for the Company; (2) on an exclusive basis, the
right to manufacture, use and sell Dual-Deck VCRs in the Republic of
Korea; (3) on a non-exclusive basis, the right to manufacture, use and
sell the Dual-Deck VCRs in all markets except the United States and its
territories; and (4) on a non-exclusive basis, the right to sell Dual-Deck
VCRs under its own trademark and trade name in the United States and its
territories. Under the license agreement, the Company is entitled to
receive royalties calculated as a percentage of net sales of Dual-Deck
VCRs by Samsung or its sublicensees. The license agreement has a term of
15 years but may be terminated by the Company if the Manufacturing
Agreement is terminated for any cause attributable to Samsung. The Company
has received no royalties to date from Samsung under this agreement.
Under the Manufacturing Agreement, Samsung manufactures Dual-Deck VCRs for
the Company pursuant to the Company's specifications. Quality control and
assurance is performed by Samsung at the manufacturing facility, and the
Company verifies product quality by sample testing in the United States.
The Manufacturing Agreement sets forth statistical defect tolerances, and
indicates that the costs of any quality defects above the level of
standards will be borne by Samsung. Generally, the Company purchases
Dual-Deck VCRs from Samsung FOB Korea. The Manufacturing Agreement is
automatically renewed for one year periods unless terminated by written
notice from either party and currently extends until at least February 28,
1997.
F-10
<PAGE>
Effective July 11, 1994, the Company entered into an agreement with
Goldstar, pursuant to which the Company has granted Goldstar the
non-exclusive, non-assignable, non-transferable right and license to
manufacture, sell and distribute worldwide an 8mm/VHS VCR ("License
Agreement") for a one-time payment. The License Agreement expires when the
last of certain patents held by the Company for an 8mm/VHS VCR expires.
The Company has no further obligation under the License Agreement and,
therefore, the license payment was fully recognized as revenue in July
1994.
On January 9, 1996, the Company entered into an agreement with Shintom &
Talk pursuant to which Shintom & Talk have agreed to manufacture Dual-Deck
VCR's to the Company's design and specification. Under the Manufacturing
Agreement, the Dual-Deck VCR will be manufactured for the Company pursuant
to the Company's specifications. The Manufacturing Agreement sets forth
statistical defect tolerances, and indicates that the costs of any quality
defects above the level of standards will be borne by Shintom & Talk.
Generally, the Company will purchase Dual-Deck VCRs FOB Singapore. The
initial term of the Manufacturing Agreement is two years. The
Manufacturing Agreement will automatically renew for one year periods
unless terminated by either party.
4. INVENTORIES
Inventories consisted of the following:
March 31,
----------------------------
1996 1995
Service replacement parts and raw materials $ 324,739 $ 321,753
Finished goods 4,802,364 4,825,055
----------- -----------
Total $ 5,127,103 $ 5,146,808
=========== ===========
5. STOCKHOLDERS' EQUITY
Stock Warrants - On October 15, 1992, the Company issued warrants to a
broker to purchase 44,444 shares of the Company's common stock in partial
consideration for services performed. The warrants are exercisable for
five years from November 16, 1992. As of March 31, 1996, none of these
warrants had been exercised.
During the year ended March 31, 1996, and the eight month period ended
March 31, 1995, the Company entered into four separate consulting
agreements. In exchange for services, the Company issued 110,000 and
300,000 warrants, respectively, for each period. Each warrant entitles the
holder to purchase one share of the Company's common stock. The warrants
are exercisable for four years, commencing one year after the date of
grant. The associated consulting costs for one of the agreements are being
amortized ratably over the term of the contract. The consulting costs for
the other three agreements have been fully amortized as of March 31, 1996.
Unamortized consulting costs at March 31, 1996 were $35,002.
F-11
<PAGE>
A summary of warrant activity is as follows:
<TABLE>
<CAPTION>
Warrants Warrant
Outstanding Price per Share
<S> <C> <C> <C>
Balance, July 31, 1992 3,088,951 $ 0.500 - $ 8.250
Issued 44,444 2.250
Exercised (381,400) 0.500
Expired (100,000) 6.500 - 4.625
--------- ------- -------
Balance, July 31, 1993 2,651,995 0.500 - 8.250
Exercised (118,600) 0.500
Expired (125,000) 3.813 - 4.625
--------- ------- -------
Balance, July 31, 1994 2,408,395 2.250 - 8.250
Issued 300,000 1.688
--------- ------- -------
Balance, March 31, 1995 2,708,395 1.688 - 8.250
Issued 110,000 1.563 - 1.688
Expired (185,000) 3.375 - 4.200
--------- ------- -------
Balance, March 31, 1996 2,633,395 $ 1.563 - $ 8.250
========= ======= =======
</TABLE>
Stock Option Plans - Effective December 1986, the Company adopted a
Nonstatutory Stock Option plan. Pursuant to the terms of the plan, only
employees of the Company are eligible to participate. Eligibility is
determined by a committee (the "Committee") appointed by the Board of
Directors to administer the plan. The Company reserved 2,000,000 shares of
its common stock to be granted under the plan.
Effective November 1989, the Board of Directors approved the 1989
Nonstatutory Stock Option Plan. Pursuant to the terms of the plan, only
full-time employees and directors of the Company or any entity in which
the Company has at least 50% ownership are eligible to participate.
Eligibility is determined by the Committee which administers the plan. The
Company has reserved 500,000 shares of its common stock to be granted
under the 1989 plan.
Effective November 1991, the Company's stockholders approved the Go-Video,
Inc. 1991 Employee Stock Option Plan. This plan provides for the granting
of incentive and nonqualified stock options to eligible officers and
employees of the Company as determined by the plan Committee who
administers the plan. The Company reserved 500,000 shares of its common
stock to be granted under the plan.
Effective December 1993, the Company's stockholders approved the Go-Video,
Inc. 1993 Employee Stock Option Plan. The plan provides for the granting
of incentive and nonqualified stock options to officers and key employees
of the Company as determined by the 1993 plan committee who administers
the plan. The Company reserved 500,000 shares of its common stock to be
granted under the plan.
Options granted under the above plans expire up to ten years after the
date of grant. The exercise price of such shares, as determined by the
committees on the date of grant, may be equal to or in excess of the fair
market value of the Company's registered common stock on the date of
grant. Options that expire or terminate prior to exercise are added to the
shares available for future grants.
F-12
<PAGE>
Effective November 1991, the Company's stockholders approved a
Nonstatutory Directors' Stock Option Plan. The plan provides for the
automatic annual grant of stock options to the Chairman of the Board and
directors of the Company. The Company reserved 500,000 shares of its
common stock to be granted under the plan. During fiscal 1996, the Company
reserved an additional 250,000 shares to be granted under the plan.
Options granted under the plan expire ten years after the date of grant.
The exercise price of such shares is the fair market value on the date of
grant. Participants are entitled to exercise such options at any time six
months after date of grant. Options that expire or terminate prior to
exercise are added to the shares available for future grants.
A summary of changes in stock options is as follows:
<TABLE>
<CAPTION>
Shares Options Option Price
---------------------------- -----------------------
Reserved Outstanding Available Per Share
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1992 1,989,000 1,351,600 637,400 $ 0.500 - $ 8.500
Granted 164,500 (164,500) 2.250 - 3.000
Exercised (194,000) (194,000) 0.500 - 2.375
Cancelled (71,500) 71,500 1.630 - 8.000
--------- --------- ------- ------- ---------
Balance, July 31, 1993 1,795,000 1,250,600 544,400 0.500 - 8.500
Reserved 500,000 500,000
Granted 471,480 (471,480) 2.375 - 2.688
Exercised (10,200) (10,200) 0.500
Cancelled (84,000) 84,000 2.375 - 4.750
--------- --------- ------- ------- ---------
Balance, July 31, 1994 2,284,800 1,627,880 656,920 0.500 - 4.750
Granted 280,000 (280,000) 1.750 - 1.875
Exercised (157,000) (157,000) 0.500 - 1.625
Cancelled (106,000) 106,000 3.000 - 4.750
--------- --------- ------- ------- ---------
Balance, March 31, 1995 2,127,800 1,644,880 482,920 0.500 - 4.750
Reserved 250,000 250,000
Granted 240,000 (240,000) 1.500 - 1.750
Exercised (58,000) (58,000) 0.500 - 0.845
Cancelled (49,900) 49,900 1.750 - 4.750
--------- --------- ------- ------- ---------
Balance, March 31, 1996 2,319,800 1,776,980 542,820 $ 0.500 - $ 4.750
========= ========= ======= ======= =========
</TABLE>
401(k) Plan - Effective January 1, 1996, the Company established a 401(k)
plan for its employees. Employees may contribute between 1% and 16% of
their total compensation to the Plan. The Company may make matching
contributions, on a discretionary basis, equal to a percentage of an
employee's covered compensation contributed to the Plan for the year. In
addition, the Company may make an annual profit sharing contribution to
the Plan. The Company's contribution to the Plan was $8,054 during fiscal
year 1996.
6. INCOME TAXES
The Company adopted SFAS No. 109, Accounting for Income Taxes, effective
August 1, 1993. SFAS No. 109 requires an asset and liability approach for
financial accounting and reporting for income taxes. The effect on the
Company of adopting SFAS No. 109 is off-set completely by a valuation
allowance as noted below.
F-13
<PAGE>
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 effect of significant items comprising the Company's net deferred
tax asset as of March 31, 1996 and March 31, 1995 are as follows:
1996 1995
Current - reserves not currently deductible $ 461,000 $ 150,000
Non-current:
Difference between book and tax basis of property 353,000 193,000
Operating loss carryforwards 7,722,000 6,850,000
Tax credit carryforwards 189,000 189,000
Contribution carryforwards 9,000 6,000
Other intangibles 95,000 95,000
--------- ----------
Net deferred tax asset 8,829,000 7,483,000
Valuation allowance (8,829,000) (7,483,000)
--------- ----------
Net deferred asset $ 0 $ 0
========== ==========
At March 31, 1996, for income tax purposes, the Company had available the
following net operating loss and investment and research and development
tax credit carryforwards:
Net Investment Research and
Operating Tax Development
Date of Expiration Loss Credit Tax Credit
1999 $ 22,000
2000 228,000 $ 1,700
2001 197,000 $ 300
2002 1,126,000
2003 1,323,000 3,400
2004 3,420,000 3,200
2005 7,336,000 22,400
2006 602,000 60,400
2007 1,513,000 97,600
2008 680,000
2009 196,000
2010 327,000
2011 2,085,000
------------- -------- -----------
Total $ 19,055,000 $ 1,700 $ 187,300
============= ======== ===========
7. COMMITMENTS AND CONTINGENCIES
The Company leases equipment, furniture and office space under capital and
operating lease agreements having initial periods ranging from two to
seven years. The Company currently has an operating lease for a 33,000
square foot facility. The term of the lease is seven years and began on
January 26, 1996. Monthly rentals are based on a fixed schedule which
provides for periodic rental adjustments during the lease term. Upon
expiration of the initial term of the lease, the Company has the option to
extend the term for an additional three years.
F-14
<PAGE>
At March 31, 1996, future minimum payments required under noncancelable
operating leases and the present value of future minimum capital lease
payments with terms in excess of one year are as follows:
Future
Minimum
Capital Operating
Leases Lease
Payments
1997 $ 137,601 $ 292,289
1998 102,548 294,847
1999 102,548 296,893
2000 87,938 307,126
2001 11,846 309,173
Thereafter 585,588
----------- -----------
Total 442,481 $ 2,085,916
Less imputed interest-rates ranging from 11% to 14% 70,659
-----------
Present value of minimum capital lease obligation 371,822
Less current portion of capital lease obligation 108,937
-----------
Long-term portion of capital lease obligation $ 262,885
===========
The Company's rental expense for the year ended March 31, 1996, the eight
month period ended March 31, 1995 and years ended July 31, 1994 and 1993
was $321,389, $118,155, $194,442 and $167,722, respectively.
In conjunction with the Manufacturing Agreement discussed in Note 3, the
Company has agreed to reimburse Shintom & Talk for the cost of certain
tooling equipment required for the production of a new series of Dual-Deck
VCRs. Under the terms of the agreement, the Company made the final
reimbursement of approximately $165,000 subsequent to March 31, 1996.
8. RELATED PARTY TRANSACTIONS
During the year ended March 31, 1996, the eight month period ended March
31, 1995 and the years ended July 31, 1994 and 1993, the Company paid its
directors $150,151, $48,750, $156,198 and $123,625, respectively, for
directors' fees, legal services and consulting services rendered.
Additional related party transactions are disclosed in other notes to the
consolidated financial statements.
9. FINANCING AGREEMENT
In October 1992, the Company entered into a financing agreement, amended
on May 12, 1993, November 16, 1993, August 16, 1994 and August 11, 1995 to
facilitate additional product purchases. The maximum line of credit, as
amended, is $14,000,000, limited by specific inventory and receivable
balances, and provides for cash loans, letters of credit and acceptances.
The agreement, as amended, has a term of five years, with an origination
fee of 1% and an annual facility fee of .5%. Interest is charged at prime
(8.25% at March 31, 1996) plus 2.5%. The Company pays a monthly fee on the
unused balance of the line of credit of .25% per year. The line of credit
is collateralized by all assets of the Company. The line of credit is
estimated to approximate fair value as the actual rate is consistent with
the rate estimated to be currently available for debt of similar terms.
F-15
<PAGE>
Certain information relative to the line of credit is as follows:
<TABLE>
<CAPTION>
Year Eight Month
Ended Period Ended Years Ended
March 31, March 31, July 31,
-------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Maximum amount of loans outstanding
during the period $6,518,547 $4,823,777 $6,733,854 $2,281,515
Average daily loans outstanding
during the period 2,733,610 1,313,401 3,131,461 90,723
Average effective interest rate 11.25 % 10.6 % 8.5 % 8.5 %
</TABLE>
The Company capitalized $512,155 of costs incurred in connection with
obtaining, amending and renewing the financing which is being amortized
over the life of the agreement. Amortization expense for the year ended
March 31, 1996, the eight month period ended March 31, 1995 and the years
ended July 31, 1994 and 1993 was $81,547, $83,662, $179,819 and $125,141,
respectively.
The Company had letters of credit of $1,066,585 outstanding at March 31,
1996. The unused and available line of credit at March 31, 1996 was
approximately $380,000.
10. BUSINESS COMBINATION
On April 1, 1995, the Company acquired the net assets of Dublin Companies,
a home and business video security products marketer and distributor. The
transaction was accounted for using the purchase method. The fair value of
assets acquired and liabilities assumed was $190,657 and $361,120,
respectively. The excess of cost over the fair value of assets acquired of
$170,463 was recorded as goodwill. The goodwill is being amortized on a
straight-line basis over a period of 10 years. The acquired company became
the Security Products Division of Go-Video, Inc.
* * * * * *
F-16
<PAGE>
PART III
Item 10. Directors, and Executive Officers of the Registrant
---------------------------------------------------
The information regarding executive officers required by Item 10 is furnished
under "Executive Officers of the Registrant" in Part I of this Report. The other
information required by Item 10 is hereby incorporated by reference from the
Company's definitive proxy statement relating to its annual meeting of
stockholders to be held on August 29, 1996 (the "Proxy Statement").
Item 11. Executive Compensation
----------------------
Information on executive compensation is incorporated herein by reference from
the Registrant's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Information on security ownership of certain beneficial owners and management is
incorporated herein by reference from the Registrant's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information on certain relationships and related transactions is incorporated
herein by reference from the Registrant's Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
<TABLE>
<CAPTION>
Page or
Method of Filing
-----------------
(a) Financial Statements:
<S> <C> <C>
(1) Report of Deloitte & Touche Page F-1
(2) Financial Statements and Notes to Financial Statements of the Page F-2
Company for the fiscal year ended March 31, 1996, the eight month period
ended March 31, 1995, and the fiscal years ended July 31, 1994,
and 1993.
(b) Financial Statement Schedules:
Schedules have been omitted because of the absence of conditions under which
they are required or because the required material information is included in
the Financial Statements or Notes to the Financial Statements included herein.
(c) Exhibits
The following exhibits are filed as part of this Report.
18
<PAGE>
Exhibit Page or
No. Description Method of Filing
- ------- ----------- ----------------
3.1 Certificate of Incorporation of the Company Incorporated by
reference to Exhibit 3-A
of S-1 No. 33-17277
3.2 Bylaws of the Company Incorporated by
reference to Exhibit 4-B
to S-2 No. 33-38445
4.1 Specimen Certificate representing Common Stock Incorporated by
reference to Exhibit 4-A
to S-1 No. 33-17277
4.2 Specimen Warrant Certificate Incorporated by
reference to Exhibit 4-B
to S-1 No. 33-17277
4.3 Form of Warrant Agreement Incorporated by
reference to Exhibit 4-C
to S-1 No. 33-17277
10.2 Assignment of U.S. Patent Rights to Go-Video, Inc., Incorporated by
by R. Terren Dunlap and Richard A. Lang, dated reference to
October 11, 1985 Exhibit 10-B(1) to S-1
No. 33-17277
10.3 Assignment of Japanese Patent Rights to Go-Video, Inc., Incorporated by
by R. Terren Dunlap and Richard A. Lang, dated reference to Exhibit
August 5, 1987 10-B(2) to S-1 No.
33-17277
10.4 Assignment of U.S. Patent Rights to Go-Video, Inc., Incorporated by
by R. Terren Dunlap, John Berkheimer, and Dwayne reference to Exhibit
Woodmas, dated August 4, 1988 10-B(3) to Annual
Report on Form10K for
the fiscal year ended
July 31, 1988 (the
"1988 10K")
10.5 Assignment of U.S. Patent Rights to Go-Video, Inc., Incorporated by
by R. Terren Dunlap, John Berkheimer, and reference to Exhibit
Richard Otto, dated September 9, 1988 10-B(4) to Company's
1988 10K.
10.6 * Form of 1987 Nonstatutory Stock Option Plan, as amended Incorporated by
reference to Exhibit 4-A
to S-8 No. 33-18428
10.7 * Form of 1989 Nonstatutory Stock Option Plan, as amended Incorporated by
reference to Exhibit
10-C (2) to S-2 No.
33-33033
10.8 * Form of 1991 Directors' Nonstatutory Stock Option Plan, Incorporated by
19
<PAGE>
as amended reference to Exhibit
28.1 to S-8 No.
33-49924 and Exhibit
A to the Company's
1995 Proxy Statement.
10.9 * Form of 1991 Employee Stock Option Plan Incorporated by
reference to Exhibit
28.1 to S-8 No. 33-49926
10.10 Financing Agreement between Go-Video, Inc. Incorporated by
and Congress Financial Corporation, dated reference to Exhibit
October 12, 1992. 4-D to Annual Report
Form 10K for fiscal
year ended July 31,
1992.
10.11 Settlement Agreement, Manufacturing Agreement, Incorporated by
License and Technical Assistance Agreement and Mutual reference to
Release between Go-Video, Inc., and Samsung Exhibit 10-E(10) to
Electronics Co. Ltd., dated February 28, 1989. S-1 No. 33-18433
10.13 Amendment Number One to Accounts Incorporated by
Financing Agreement between Go-Video, Inc. reference to
and Congress Financial Corporation, dated Exhibit 10.13 to
May 14, 1993. Annual Report Form
10K for fiscal year
ended July 31, 1993
(the "1993 10K").
10.14 ** Manufacturing Agreement between Go-Video, Inc. Incorporated by
and Samsung Corporation, dated September 14, 1993. reference to
Exhibit 10.14 to
1993 10K.
10.15 * Separation Agreement between R. Terren Dunlap and Incorporated by
Go-Video, Inc., dated August 2, 1993. reference to
Exhibit 10.15 to
1993 10K.
10.16 * Separation Agreement between Roger B. Hackett Incorporated by
and Go-Video, Inc., dated August 2, 1993. reference to
Exhibit 10.16 to
1993 10K.
10.17 ** License Agreement between Go-Video Inc. Incorporated by
and Goldstar U.S.A., Inc., dated July 11, 1994. reference to
Exhibit 10.17 to
Annual Report Form
10K for fiscal year
ended July 31, 1994
(the "1994 10K").
10.18 * First Amendment to the Separation Agreement Incorporated by
20
<PAGE>
between Go-Video, Inc. and R. Terren Dunlap, reference to
dated August 10, 1994. Exhibit 10.18 to
1994 10K.
10.19 Second Combined Amendment to Financing Incorporated by
Agreements between Go-Video, Inc. and Congress reference to
Financial Corporation, dated August 16, 1994. Exhibit 10.19 to
1994 10K.
10.22 Office Lease Agreement between Go-Video Inc. Incorporated by
and 78 McClain, L.L.C., for premises at 7835 East reference to
McClain Drive, Scottsdale, AZ., dated November Exhibit 10.22 to
15, 1994. Quarterly Report
Form 10Q for the
quarter ended
January 31, 1995.
10.23 Purchase Agreement between Go-Video Inc. Incorporated by
and Dublin Companies reference to
Exhibit 10.23 to
the Transition
Report 1995
10K.
10.24 *Form of 1993 Employee Stock Option Plan Incorporated by
reference to
Exhibit 10.24 to
the Transition
Report 1995
10K.
10.25 Amendment to Financing Agreement between Go- Incorporated by
Video, Inc. and Congress Financial Corporation, dated reference to
August 11, 1995. Exhibit 10.25 to
Quarterly Report
Form 10Q for the
quarter ended
September 30, 1995.
10.26 **Manufacturing Agreement between Go-Video, Inc. Incorporated by
and Shintom Co. Ltd. and Talk Corporation, dated reference to
January 9, 1996. Exhibit 10.26 to
Quarterly Report
Form 10Q for the
quarter ended
December 31, 1995.
10.27 **First Amendment to Manufacturing Agreement between Filed Herewith
Go-Video, Inc. and Samsung Corporation dated
April 1, 1996.
10.28 Amendment to Financing Agreement between Go-Video, Filed Herewith
Inc. and Congress Financial dated June 4, 1996.
21 List of Subsidiaries Incorporated by
21
<PAGE>
reference to Exhibit 22
to Annual Report Form
10K for fiscal year
ended July 31, 1988.
23 Independent Auditor's Schedule Filed Herewith
27 Financial Data Schedule Filed Herewith
</TABLE>
- --------------------------------------------------------------------------------
* Management contract or compensatory plan
** Confidential treatment requested
(d) Reports on Form 8-K:
The Company did not file any 8-K reports during the fourth quarter of
the fiscal year ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GO-VIDEO, INC.
By /s/ Roger B. Hackett
-------------------------
Roger B. Hackett
Chairman of the Board of Directors,
Chief Executive Officer, President,
and Chief Operating Officer
Dated: June 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name and Signature Title Date
------------------ ----- ----
<S> <C> <C>
/s/ Roger B. Hackett Chairman of the Board of June 19, 1996
- ----------------------------- Directors, Chief Executive Officer,
Roger B. Hackett President, and Chief Operating Officer
(principal executive officer)
/s/ Douglas P. Klein Vice President, Chief Financial Officer, June 19, 1996
- ----------------------------- Secretary and Treasurer
Douglas P. Klein (principal financial and
accounting officer)
/s/ R. Terren Dunlap Director June 19, 1996
- -----------------------------
R. Terren Dunlap
/s/ Thomas F. Hartley, Jr. Director June 19, 1996
- -----------------------------
Thomas F. Hartley, Jr
/s/ Thomas E. Linnen Director June 19, 1996
- -----------------------------
Thomas E. Linnen
/s/ Ralph F. Palaia Director June 19, 1996
- -----------------------------
Ralph F. Palaia
/s/ William T. Walker, Jr. Director June 19, 1996
- -----------------------------
William T. Walker, Jr.
</TABLE>
S-1
AMENDMENT NO. 1
This Amendment No. 1 is made this ____ day of February, 1996, between
Samsung Electronics Co., Ltd., a corporation formed under the laws of Korea
having its office at Joong- Ang Daily News Building, 7, Soonwha-Dong, Chung-Ku,
C.P.O. Box 2775, Seoul, Korea ("Samsung") and Go-Video, Inc., a Delaware
corporation having its headquarters at 7835 East McClain Drive, Scottsdale,
Arizona 85260-1732 ("Go-Video") to amend that certain Manufacturing Agreement,
dated September 14, 1993 between Samsung and Go-Video (the "Agreement").
Samsung and Go-Video agree to amend the Agreement as provided below:
1. Section 3.2 of the Agreement shall be deleted in its entirety.
2. A new Article 16 shall be added to the Agreement which shall read in
its entirety as follows:
Article 16 Non-Exclusive License
16.1 In exchange for the license fee set forth in
Schedule 5 payable by Samsung to Go-Video within three months
of the date of this Amendment No. 1 (the "License Fee"), Go-
Video grants to Samsung, to be effective during the term of
this Agreement, the worldwide nonexclusive right and license
to manufacture, use, and sell the Products under the Patents
and using the Technical Information, with such features and
technology as are included in the Products at the date hereof,
under Samsung's own trademarks and trade names only.
16.2 The license provided in this Amendment No. 1
shall not include any improvements or inventions relating to
the Products or in connection with the design, manufacture,
use, or sale of the same after the date hereof. Go-Video
agrees to consider requests by Samsung for additional licenses
relating to improvements or further inventions relating to the
Products.
16.3 Except for the License Fee, Samsung shall have
no obligation to pay additional royalties to Go-Video related
to the license provided in this Amendment No. 1.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed by their duly authorized representatives on the day and year
first written above.
SAMSUNG ELECTRONICS CO., LTD.
By:______________________________________
Insoon Kang
Executive Managing Director
Video Division
Audio and Video Business
GO-VIDEO, INC.
By:______________________________________
Roger Hackett
Chairman and Chief Executive Officer
3
<PAGE>
Schedule 5
License Fee of $********
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
4
June 4, 1996
Go-Video, Inc.
7835 McClain Drive
Scottsdale, Arizona 85260
Re: Accounts Financing Agreement [Security Agreement],
dated as of October 12, 1992 (as amended to date, the
"Accounts Agreement"), between Go-Video, Inc. ("Go")
and Congress Financial Corporation (Western)
("Congress"), Agreement Re: Inventory Loans, dated as
of October 12, 1992 (as amended to date, the "Inventory
Agreement"), between Go and Congress, Trade Financing
Agreement Supplement to Accounts Financing Agreement
[Security Agreement], dated October 12, 1992 (as
amended to date, the "Trade Financing Agreement"),
between Go and Congress.
Gentlemen:
Reference is hereby made to the fact that the currently effective
amendments to the Accounts Agreement, the Inventory Agreement and the Trade
Financing Agreement are set forth in the Third Combined Amendment to Financing
Agreements, dated as of August 11, 1995, together with the various amendments to
each such agreement (each an "Amendment") referred to therein, and that certain
letter agreement dated as of October 19, 1995.
The purpose of this letter is to amend the Accounts Agreement, the
Inventory Agreement and the Trade Financing Agreement, and the Amendments to
each, as follows:
1. Paragraph 6 of the Accounts Agreement is hereby amended by deleting
Section 6.11 thereto and replacing it with the following:
"6.11. Commencing June, 4, 1996, we shall maintain on our
books a reserve for returns of at least $112,500, which reserve will be
increased at a rate of $75,000 per week commencing December 1, 1996,
until it reaches $337,500 on December 15, 1996
<PAGE>
Go-Video
June 4, 1996 Page 2
and shall remain at that level until March 31, 1997. The reserve for
returns shall be reduced at the rate of $75,000 per week commencing on
April 1, 1997, until it returns to $112,500 on April 15, 1997."
2. Paragraph 14 of the Amendment to the Accounts Agreement is hereby
amended in its entirety to read as follows:
"14. Congress shall have a continuing right, in its sole
discretion, to withhold a reserve against Eligible Accounts equal to:
(a) 35% of the face amount of all documentary letters of credit issued
for the purchase of Eligible Inventory consisting of dual deck VCRs
(series 4000 and 6000 only), and which are outstanding at any one time
during the period commencing June 4, 1996 through November 17, 1996,
which rate shall be increased for such letters of credit by 5
percentage points on November 18, 1996, and by an additional 5
percentage points on each subsequent Monday thereafter until such rate
is 50%; (b) 50% of the face amount of all other documentary letters of
credit; or (c) 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."
3. The Inventory Agreement is hereby amended as follows:
(a) Section 2 is 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) the lower of (i) 80% of the "Orderly Liquidation Value" of
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 and (ii) either (y) 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
consisting of dual deck VCRs (Series 4000 and 6000 only) until November
17, 1996, which rate shall reduce by 5 percentage points on November
18, 1996 and by an additional 5 percentage points on each subsequent
Monday until such rate shall be reduced to 50%, or (z) 50% (or such
greater or lesser percentages thereof as you shall, in your sole
discretion, determine from time to time) of the Value of any Eligible
Inventory other than dual deck VCRs (Series 4000 and 6000)."
<PAGE>
Go-Video
June 4, 1996 Page 3
(b) Section 3 is amended in its entirety 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 the lower of (a) the aggregate amount of the above percentages
of the Value of Eligible Inventory or (b) $4,500,000 during the period
of June 4, 1996 through November 17, 1996, and $4,000,000 at all other
times."
In the event of a conflict between the terms and provisions of this
letter, on the one hand, and the terms and provisions of the Accounts Agreement,
the Inventory Agreement, the Trade Financing Agreement, or any of the
Amendments, on the other hand, the terms of this letter shall govern.
The effectiveness of this letter is subject to Go's paying to Congress,
concurrently herewith, an amendment fee of $25,000, which fee shall be fully
earned when paid and which shall be charged to Go's loan account.
Go 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 letter 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 Accounts Agreement.
GO-VIDEO, INC.,
a Delaware corporation
By:_______________________________________
Title:____________________________________
CONGRESS FINANCIAL CORPORATION
(WESTERN), a California corporation
By:_______________________________________
Title:____________________________________
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Go-Video, Inc.
Scottsdale, Arizona
We consent to the incorporation by reference in Registration Statements Nos.
33-18428 on Form S-8, No. 33-39859 on Form S-8, No. 33-49924 on Form S-8, No.
33-49926 on Form S-8 and No. 33-58720 on Form S-3 of our report dated May 2,
1995 appearing in this Annual Report on Form 10-K of Go-Video, Inc. for the year
ended March 31, 1996.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
June 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 313,916
<SECURITIES> 0
<RECEIVABLES> 4,147,143
<ALLOWANCES> 130,000
<INVENTORY> 5,127,103
<CURRENT-ASSETS> 9,630,183
<PP&E> 1,172,592
<DEPRECIATION> 1,100,386
<TOTAL-ASSETS> 11,197,986
<CURRENT-LIABILITIES> 6,236,720
<BONDS> 0
0
0
<COMMON> 11,331
<OTHER-SE> 4,666,530
<TOTAL-LIABILITY-AND-EQUITY> 11,197,986
<SALES> 34,646,406
<TOTAL-REVENUES> 34,650,664
<CGS> 29,266,086
<TOTAL-COSTS> 29,266,086
<OTHER-EXPENSES> 7,591,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 648,804
<INCOME-PRETAX> (2,871,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,871,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,871,170)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
