FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to _____________________
Commission File No. 2-331855
Go-Video, Inc.
--------------
(Exact name of registrant as specified in its charter)
Delaware 86-0492122
-------- ----------
(State of Incorporation) (IRS E.I.N.)
7835 East McClain Drive, Scottsdale, Arizona 85260
- --------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(602) 998-3400
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
11,331,012 shares of Common Stock were outstanding as of August 6, 1996
<PAGE>
GO-VIDEO, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
Part I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
At June 30, 1996 and March 31, 1996 3
Consolidated Statements of Operations --
Three months ended June 30, 1996 and
1995 4
Consolidated Statements of Cash Flows --
Three months ended June 30, 1996 and 1995 5-6
Notes to Consolidated Financial Statements -- 7-8
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9-11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures S-1
</TABLE>
2
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 251,569 313,916
Receivables - less allowance for doubtful accounts of
$130,000 and $130,000, respectively 4,121,331 4,147,143
Inventories 4,233,632 5,127,102
Prepaid expenses and other assets 96,173 42,021
------------ -----------
Total current assets 8,702,705 9,630,182
------------ -----------
EQUIPMENT AND IMPROVEMENTS:
Furniture, fixtures & equipment 507,990 507,990
Leasehold improvements 200,707 173,157
Office equipment 493,370 483,861
Tooling 1,272,660 1,107,970
------------ -----------
Total 2,474,727 2,272,978
Less accumulated depreciation and amortization 1,211,900 1,100,386
------------ -----------
Equipment and improvements - net 1,262,827 1,172,592
------------ -----------
DUAL-DECK VCR PATENTS, net of amortization of $38,143
and $41,758, respectively 74,994 76,711
GOODWILL, net of amortization of $21,408, and $17,046,
respectively 149,155 153,417
OTHER ASSETS, net of amortization $492,988 and
$471,324, respectively 168,417 165,083
------------ -----------
TOTAL $ 10,358,098 $11,197,985
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,954,706 $ 2,512,594
Accrued expenses 590,622 375,972
Other current liabilities 641,803 731,824
Warranty reserve - current 184,000 186,000
Line of credit 1,856,181 2,430,330
------------ -----------
Total current liabilities 5,227,312 6,236,720
------------ -----------
WARRANTY RESERVE - Long-term 5,000 5,000
DEFERRED RENT 19,446 15,520
LONG TERM OBLIGATIONS 233,380 262,885
------------ -----------
Total liabilities 5,485,138 6,520,125
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock $.001 par value - authorized, 50,000,000 shares;
issued and outstanding, 11,331,012 and
11,331,012 shares, respectively 11,331 11,331
Additional capital 19,054,796 19,054,796
Unamortized consulting services (27,502) (35,002)
Accumulated deficit (14,165,665) (14,353,264)
------------ -----------
Total stockholders' equity 4,872,960 4,677,861
------------ -----------
TOTAL $10,358,098 $11,197,985
=========== ===========
</TABLE>
3
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For The Three
Months Ended June 30,
-------------------------------
1996 1995
---- ----
SALES $ 8,188,015 $ 6,939,368
COST OF SALES 6,318,456 5,945,386
----------- -------------
Gross profit 1,869,559 993,982
----------- -------------
OTHER OPERATING COSTS:
Sales and marketing 707,468 734,442
Research and development 225,080 151,753
General and administrative expenses 610,172 692,620
----------- -------------
Total other operating costs 1,542,720 1,578,815
----------- -------------
Operating income (loss) 326,839 (584,833)
----------- -------------
OTHER REVENUES (EXPENSES):
Interest income 2,153 413
Interest expense (142,052) (104,282)
Other 658 1,151
----------- -------------
Total other (expense) (139,241) (102,718)
----------- -------------
NET INCOME (LOSS) $ 187,598 $ (687,551)
============ ==============
NET INCOME (LOSS) PER COMMON SHARE $ 0.02 $ (0.06)
============ ==============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,331,012 11,277,155
=========== ===========
4
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended June 30
--------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 187,598 $ (687,551)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 146,630 84,839
Provision for doubtful accounts 0 (3,005)
Change in operating assets and liabilities-net of effect of acquisition:
Receivables 25,812 1,182,603
Inventories 893,470 (83,824)
Prepaid expenses and other assets (54,152) (47,258)
Other assets 0 6,349
Accounts payable (557,888) 561,408
Accrued expenses 214,650 133,159
Other current liabilities (90,021) 69,853
Warranty reserve (2,000) 12,000
Other liabilities (25,578) (1,245)
---------- ------------
Net cash provided by operating activities 738,521 1,227,328
---------- ------------
INVESTING ACTIVITIES:
Equipment and improvement expenditures (201,719) (202,204)
Cash acquired from acquisition 0 39,951
---------- ------------
Net cash used in investing activities (201,719) (162,253)
---------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 20,250
Net (repayments) borrowings under line of credit (574,149) (846,513)
Payment of financing costs (25,000)
Payment of debt assumed in acquisition 0 (257,314)
---------- ------------
Net cash used in financing activities (599,149) (1,083,577)
---------- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (62,347) (18,502)
CASH AND CASH EQUIVALENTS, beginning of period 313,916 166,819
---------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 251,569 $ 148,317
========== ===========
SUPPLEMENTAL INFORMATION TO CASH FLOW
STATEMENT:
Interest paid $ 117,385 $ 104,282
========== ============
</TABLE>
5
<PAGE>
(Continued)
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended June 30
--------------------
1996 1995
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
In connection with the acquisition, liabilities were assumed as follows:
Liabilities assumed $ 0 $ 361,120
--------------- ---------
Fair value of assets acquired, including $39,951
in cash $ 0 $ 190,657
--------------- ---------
Excess of cost over fair value of assets acquired $ 0 $ 170,463
=============== =========
</TABLE>
6
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------
GENERAL
- -------
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal reoccurring accruals)
necessary to present fairly the financial position of the Company and the
results of its operations and changes in its financial position for the periods
reported. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
Inventories at June 30, 1996, consisted of $536,709 of raw materials and service
parts and $3,696,923 of finished goods.
Goodwill of approximately $170,000 resulting from the acquisition of the
Company's Security Products Division is being amortized on the straight line
basis over ten years.
The Company is engaged in one business segment, the design, development,
marketing and licensing of electronic video communication products. The
Company's current primary focus is the design, marketing, sale, and distribution
of several models of its Dual-Deck(TM) videocassette recorder. Sales to two
customers totaled 10% or more of net sales for the three months ended June 30,
1996. Sales to Circuit City Stores and Roy Thomas Inc. were $2,076,460, and
$1,393,700 respectively for the three month period ended June 30, 1996. Accounts
receivable from these customers at June 30, 1996 were $12,170 and $460,938
respectively.
Certain reclassifications have been made to the prior financial statements to
conform to the current classifications.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred tax asset as of June 30, 1996 are as follows:
7
<PAGE>
Deferred Tax Assets:
Current-reserves not currently
deductible $ 441,000
Noncurrent:
Differences between book & tax
basis of property $ 399,000
Operating loss carryforwards 7,722,000
Contribution carryforwards 8,000
Tax credit carryforwards 189,000
Other intangibles 95,000
-----------
Net Deferred Tax Asset 8,854,000
Valuation Allowance (8,854,000)
-----------
Net Deferred Asset $ -0-
===========
The information presented within the financial statements should be read in
conjunction with the Company's audited Financial Statements for the fiscal year
ended March 31, 1996, the eight month transition period ended March 31, 1995,
and the fiscal year ended July 31, 1994 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" from the 1996 Annual
Report on Form 10-K.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended June 30, 1996 compared with the three months ended June 30,
- --------------------------------------------------------------------------------
1995:
- -----
Net sales increased 18.0% to $8.2 million during the three months ended June 30,
1996 from $6.9 million during the three months ended June 30, 1995. The increase
in net sales was primarily due to a 29.3% increase in net units sold for the
three months ended June 30, 1996 compared to the three months ended June 30,
1995, offset in part by a 8.7% decrease in average revenue per unit for the two
periods. The increase in net unit sales was due to the introduction of the
Company's GV6010(VHS/VHS Dual-Deck VCR) during the three months ended June 30,
1996, sales of the Company's GV40xx series VCRs introduced in August 1995, and
higher sales of security products. The GV6010 is replacing the Company's GV4010
and is expected to be offered for sale at retail for approximately 25% below the
former GV4010 retail price. The decrease in average revenue per unit was
primarily due to an overall decrease in the per unit selling price of the GV6010
and GV40xx series models compared to the GV30xx series models which were sold
during the three months ended June 30, 1996, and the Company's product sales mix
which included a higher percentage of its less expensive price leader models
during the three months ended June 30, 1996 as compared with the three months
ended June 30, 1995. Net sales of the Company's Security Products Division,
which was acquired on April 1, 1995, were less than 7% of total net sales for
the three months ending June 30, 1996.
Gross profit was $1.9 million and $1.0 million for the three months ended June
30, 1996 and 1995, respectively, representing an 88% increase in gross profit
dollars. Gross profit as a percentage of net sales increased to 22.8% for the
three month period ended June 30, 1996 compared to 14.3% for the three month
period ended June 30, 1995. The increase in gross profit as a percentage of
sales is primarily due to the increased profit margins realized on the GV40xx
series over the close-out of the GV30xx series in the three months ended June
30,1995.
Sales and marketing expense was $0.7 million for the three months ended June 30,
1996 and three months ended June 30, 1995. As a percentage of sales, sales and
marketing expenses decreased from 10.6% in the three months ended June 30, 1995,
to 8.6% in the three months ended June 30, 1996. The decrease in sales and
marketing expenses as a percentage of sales is primarily due to lower commission
expense resulting from reduced commission rates, and higher net sales during the
three months ended June 30, 1996.
Research and development expenses increased 48.3% to $0.2 million for the three
months ended June 30, 1996 from $0.1 million for the three months ended June 30,
1995. The increase in research and development expenses is due primarily to
expenses incurred in connection with the Company's development of a prototype
LCD projection television.
General and administrative expenses decreased 11.9% to $0.6 million for the
three months ended June 30, 1996 from $0.7 million for the three months ended
June 30, 1995. As a percentage of net sales, general and administrative expense
decreased from 10.0% for the three months ended June 30, 1995 to 7.5% for the
three months ended June 30, 1996. The decrease in general and administrative
expense is primarily due to compensation expense recorded by the Company during
the three months ended June 30, 1995 relating to a Separation Agreement for an
employee and reduced consulting fees.
As a result of the above, the Company recorded an operating profit of $326,839
for the three months ended June 30, 1996 compared with an operating loss of
$584,834 for the three months ended June 30, 1995. The Company recorded net
other expense of $139,241 for the three months ended June 30, 1996
9
<PAGE>
compared with net other expense of $102,718 for the same period of the prior
year. The increase in net other expense was primarily due to increased interest
expense caused by an increase in the average daily loans outstanding during the
three month period ending June 30, 1996 as compared to the three month period
ending June 30, 1995.
Net income for the three months ended June 30, 1996 was $187,598 compared with a
net loss of $687,551 for the three months ended June 30, 1995. The Company did
not recognize income tax expense for the three months ended June 30, 1996 due to
its net operating loss carryforwards. For the three months ended June 30, 1995,
the Company did not recognize an income tax benefit due to recording a valuation
allowance to offset the potential tax benefit of the loss.
Seasonality
- -----------
In prior periods, seasonal factors affecting the Company's sales levels have
been overshadowed by the growth of the Company's distribution network. As the
growth of the current distribution network has slowed, seasonal factors have
become more evident in the Company's operating results. Accordingly, the Company
expects to experience peaks in its sales from September through January, which
covers the holiday season.*
Future Results
- --------------
This Report on Form 10Q 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. 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 $0.7 million for the three months
ended June 30, 1996 compared to cash provided by operations of $1.2 million for
the three months ended June 30, 1995. The more significant factors comprising
the net cash provided were a $0.9 million decrease in inventory, $0.2 million of
net income and $0.1 million in depreciation and amortization. The decrease in
the inventory balance from March 31, 1996 to June 30, 1996 was primarily due to
increased sales during the three months ended June 30, 1996.
The Company had net working capital of $3.5 million and $3.4 million at June 30,
1996 and March 31, 1996, respectively. At June 30, 1996, the Company's current
ratio (the ratio of current assets to current liabilities) was 1.7 to 1.
The Company's sales seasonality requires incremental working capital for
investment primarily in inventories and receivables. The primary source of funds
over the three months ended June 30, 1996 has been cash from operations. The
Company has a line of credit that 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 June 30, 1996 was
$2,157,814. The Company has capitalized $0.5 million of closing costs related to
the origination
- --------
*May contain "Forward Looking Statements".
10
<PAGE>
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.
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.
Inflation
- ---------
Inflation has had no material effect on the Company's operations or financial
condition.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibit is filed as part of this Report:
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
b. Reports on Form 8-K
NONE
- ---------------
*May contain "Forward Looking Statements".
11
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GO-VIDEO, INC. (Registrant)
Date: August 6, 1996 By /S/ ROGER B. HACKETT
-------------------------
Roger B. Hackett
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
Date: August 6, 1996 By /S/ DOUGLAS P. KLEIN
-------------------------
Douglas P. Klein
Vice President, Chief Financial Officer,
Secretary and Treasurer
(principal financial and
accounting officer)
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 251,569
<SECURITIES> 0
<RECEIVABLES> 3,991,331
<ALLOWANCES> 130,000
<INVENTORY> 4,233,632
<CURRENT-ASSETS> 8,702,705
<PP&E> 1,262,827
<DEPRECIATION> 1,211,900
<TOTAL-ASSETS> 10,358,098
<CURRENT-LIABILITIES> 5,227,312
<BONDS> 0
0
0
<COMMON> 11,331
<OTHER-SE> 4,861,629
<TOTAL-LIABILITY-AND-EQUITY> 10,358,098
<SALES> 8,188,015
<TOTAL-REVENUES> 8,190,168
<CGS> 6,318,456
<TOTAL-COSTS> 6,318,456
<OTHER-EXPENSES> 1,542,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,052
<INCOME-PRETAX> 187,598
<INCOME-TAX> 0
<INCOME-CONTINUING> 187,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187,598
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
