As filed with the Securities and Exchange Commission on November 7, 1996
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
GO-VIDEO, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0492122
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7835 East McClain Drive
Scottsdale, Arizona 85260
(602) 998-3400
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
_______________
Roger B. Hackett, Chief Executive Officer and President
Go-Video, Inc.
7835 East McClain Drive
Scottsdale, Arizona 85260
(602) 998-3400
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
_______________
Copy to:
Jon S. Cohen, Esq.
Samuel C. Cowley, Esq.
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
(602) 382-6300
_______________
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to securityholders,
or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this
form, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
==================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Unit Offering Price(2) Fee(6)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value 1,130,000 shares $ (2) $1,579,375 478.55
Common Stock, $0.001 par value 95,466 shares $1.25(3) $ 119,332.50 36.16
Common Stock, $0.001 par value 3,000,000 shares $1.25(4) $3,750,000 1,136.25
Common Stock, $0.001 par value 360,000 shares $1.25(5) $ 450,000 136.25
==================================================================================================================
</TABLE>
(Facing Page Continued on Following Page)
<PAGE>
(1) In the event of a stock split, stock dividend, or similar transaction
involving the Common Stock of the Company, in order to prevent dilution,
the number of shares registered shall be automatically increased to cover
the additional shares in accordance with Rule 416(a) under the Securities
Act of 1933.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) for shares issued in connection with the exercise
of warrants. The fees are calculated based on (i) the price calculated
pursuant to Rule 457(c) for 720,000 warrants with an exercise price at or
below such price, (ii) the warrant exercise price of $1.6875 per share
for 310,000 warrants, and (iii) the warrant exercise price of $1.5625 per
share for 100,000 warrants.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) for shares that may be sold by certain selling
shareholders.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) for shares issued in connection with the exercise
of convertible notes.
(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) for the shares issued in connection with the
interest to be issued in the form of Common Stock to be delivered to
holders of convertible notes.
(6) The registration fee for 2,223,395 shares of Common Stock was previously
paid in connection with Registration Statement No. 33-58720.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
filed as a part of this registration statement will be used as a combined
prospectus with Registration Statement no. 33-58720.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS
6,808,861 SHARES OF COMMON STOCK
GO-VIDEO, INC.
The Securities offered by this Prospectus are 6,808,861 shares of Common
Stock, $.001 per value, of Go- Video, Inc. (the "Company" or "Go-Video").
2,146,951 shares of the Common Stock offered hereby are issuable upon the
exercise of Common Stock purchase warrants issued in connection with the sale to
the public of 1,145,000 Units in March 1990 (the "Publicly Issued Warrants").
486,444 shares of the Common Stock offered hereby are issuable upon the exercise
of Common Stock purchase warrants previously issued in various private
transactions (the "Private Warrants"). 95,466 shares of Common Stock may be sold
by selling shareholders (the "Selling Shareholders").
The balance of the Common Stock offered hereby includes (i) up to
3,000,000 shares issuable upon the conversion of 10% Convertible Subordinated
Notes (the "Notes"); (ii) 600,000 shares issuable upon the exercise of Common
Stock purchase warrants to be issued to holders of the Notes (the "Unit
Warrants"); (iii) 360,000 shares to be issued in connection with the interest to
be issued in the form of Common Stock ("Interest") to be delivered to holders of
the Notes; and (iv) 120,000 shares issuable upon the exercise of Common Stock
purchase warrants issued to the placement agent for the Notes.
Specific terms of the Securities described above are set forth in
"Description of Securities." The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders.
The Common Stock is traded on the American Stock Exchange under the
symbol "VCR ." On November 1, 1996, the last reported sales price of the Common
Stock, as reported by the American Stock Exchange, was $1.25 per share.
ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PURSUANT TO RULE 429 OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), THIS
COMBINED PROSPECTUS ALSO RELATES TO REGISTRATION STATEMENT NO. 33-58720.
The date of this Prospectus is ____________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy, and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. The Company's
Common Stock is listed on the American Stock Exchange and similar information
can be inspected and copied at its offices at 86 Trinity Place, New York, New
York 10006.
The Company has filed with the Commission a registration statement (the
"Registration Statement") with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information contained in the Registration Statement
and the exhibits thereto. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits thereto. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete and, in each instance, reference is made to the copy of
such document as so filed. Each such statement is qualified in its entirety by
such reference.
No person is authorized to give any information or make any
representation other than those contained or incorporated by reference in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company with the
Commission and are hereby incorporated by reference into this Prospectus: (1)
Annual Report on Form 10-K for the fiscal year ended March 31, 1996; (2)
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; and (3) the
Proxy Statement for the 1996 Annual Meeting of Shareholders. All other documents
and reports filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the termination of
this offering shall be deemed to be incorporated by reference in this Prospectus
and to be made a part hereof from the date of the filing of such reports and
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all documents incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in the document which this Prospectus
incorporates). Requests for such documents should be directed to Go- Video,
Inc., 7835 East McClain Drive, Scottsdale, Arizona 85260, Attention: Chief
Financial Officer. The Company's executive office telephone number is (602)
998-3400.
2
<PAGE>
INFORMATION ATTACHED WITH RESPECT TO THE COMPANY
This Prospectus is accompanied by a copy of the Company's most recent
Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including all documents incorporated by reference,
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All statements other than
statements of historical facts included in this Prospectus, including without
limitation, statements under "The Company" and "Risk Factors" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, may be forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed under "Risk Factors" and elsewhere in this Prospectus and information
incorporated by reference into this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the factors discussed below in
evaluating the Company and its business before purchasing any of the shares of
Common Stock offered hereby. This Prospectus contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus and information incorporated by
reference into this Prospectus. See "Disclosure Regarding Forward-Looking
Statements."
Accumulated Deficit
Incorporated in 1984, the Company began generating revenues from sales of
its Dual-Deck VCR in 1990 after discontinuing prior operations. At June 30,
1996, the Company had an accumulated deficit of $14.2 million. There is no
assurance that the Company will achieve profitable operations in the future.
Dependence on Dual-Deck VCR Product
The Company expects that the majority of its operating revenues for at
least the next two fiscal years will be derived from sales of the Dual-Deck VCR.
In 1995, the Company introduced the GV40xx series, which is manufactured for the
Company under contract by Samsung Electronics Co. Ltd. ("Samsung"). The GV40xx
series features a redesigned chassis and other internal components which reduced
manufacturing costs over the preceding series. In 1996, the Company introduced
the GV60xx series, which is manufactured for the Company under contract by
Shintom Co. Ltd. and Talk Corporation ("Shintom"). The GV60xx series features a
stacked design and a further reduction of manufacturing costs over the GV40xx
series. Samsung reduced its selling prices to the Company on the GV40xx series
for purchases of new inventory after March 1996, although not to the levels
available to the Company from Shintom. The Company subsequently reduced its
selling price on certain models of the Dual-Deck VCR line to its customers and
anticipates reducing prices on other models in the future to increase sales. The
success of these models depends on a variety of factors, including general and
retail economic conditions, the effectiveness of the Company's sales and
marketing efforts, and the reliable supply of inventory from both manufacturers.
There is no assurance that these models or future models will enjoy market
acceptance at quantities and prices necessary to be commercially successful and
profitable to the Company.
The Dual-Deck VCR has been designed for home use as a full featured video
cassette player/recorder. Company- prepared literature and owner's 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. The Company cannot
predict the likelihood that distribution of the current or future Dual-Deck
models will be challenged for any reason, but the Company believes that
3
<PAGE>
it would have meritorious defenses to any challenge. 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 industry standard. The Company is
not currently developing a digital formatted player or recorder and is unable to
predict the impact on the Company of developing digital technologies. In
addition, the Company is unable to predict the impact on the Company of any
changes to intellectual property rights resulting from legislation related to
the development of digital consumer video products.
The Company's business strategy includes the acquisition or development
of new consumer electronic products to increase revenues and to decrease the
Company's reliance on sales of the Dual-Deck VCR. 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.
Distribution
The Company's current marketing strategy is to continue to sell its
products to retailers, catalogs, and direct mail syndicators with the support of
independent manufacturers' sales representatives that represent specific
geographic or industry territories throughout North America and who also
represent many other manufacturers of consumer electronic products. The Company
is marketing its products in overseas markets directly to distributors and
retailers. There can be no assurance that the Company's distribution and
marketing strategies will be successful or cost effective.
For the fiscal year ended March 31, 1996, Circuit City represented 14% of
the Company's revenues. No other account represented more than 10% of the
Company's revenues. The loss of Circuit City or another significant customer
could have an adverse affect on operating results.
Competition
The consumer electronics market is competitive and is characterized by
rapid technological change, general price erosion, and periodic shortages of
components. Most of the Company's actual and potential competitors have
substantially greater financial, manufacturing, technical, and marketing
resources than does the Company. Moreover, most of these companies have
established distribution channels that afford them a competitive advantage.
There is no assurance that the Company will be able to compete successfully in
its chosen markets.
Manufacturing and Licensing
The Company does not have manufacturing facilities and therefore will
continue to be dependent on Samsung and Shintom, or any other manufacturers with
which the Company might contract for the manufacture of its products. A change
in the ability or willingness of Samsung or Shintom to manufacture Dual-Deck
VCRs for the Company could have a materially adverse impact on the Company. The
Company also has license agreements with Samsung whereby the Company has
licensed to Samsung the non-exclusive right to use the Company's patented and
proprietary technology to manufacture and sell Dual-Deck VCRs for sale under its
own brand worldwide in competition with the Company. The Company believes that
if Samsung were to exercise its rights under the VHS/VHS License Agreement, the
Company's revenues and profitability could be affected in a materially adverse
manner.
Product Enhancements and New Products
Because of the rapid rate of technological change in the consumer
electronics industry, the Company's success will depend in large part on its
ability to introduce products on a timely basis that meet a market need at a
competitive price and with acceptable profit margins. There can be no assurance
that the Company will be successful in overcoming engineering obstacles and
other impediments and in introducing any new products on a profitable basis.
Patents, Trademarks, and Proprietary Rights
The Company has made significant investments in certain patents,
trademarks, and proprietary rights. The Company believes that patents,
trademarks, and proprietary rights once established are generally important in
the consumer electronics market, and the loss, denial, or infringement of such
patents, trademarks, and proprietary rights
4
<PAGE>
could have a materially adverse effect on the Company.
Need for Additional Funds
Management believes that the Company's current capital resources will be
sufficient to meet its cash requirements for the next twelve months. However,
management also believes that additional financing through debt or equity may be
required to materially expand the Company's current business or to support the
development and introduction of new products such as the LCD projection or
digital direct-view televisions. No final determination as to the forms and
amounts 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.
Shares Available for Future Sale and Possible Dilution
There are 11,426,478 shares of the Company's Common Stock outstanding as
of October 21, 1996. In addition, as of October 21, 1996, the Company had
outstanding warrants and options to purchase up to an aggregate of 5,028,328
shares of Common Stock at varying prices per share and Notes convertible into up
to 3,000,000 shares of Common Stock. Of the shares underlying the outstanding
warrants and options, 3,752,495 have been registered under the Securities Act.
The Company's Certificate of Incorporation authorizes issuance of a total
of 50,000,000 shares of Common Stock without further action by stockholders.
The existence of options, warrants, and convertible securities, as well
as any future issuance of Common Stock available under the Company's Certificate
of Incorporation, could reduce the prevailing market price of the Common Stock,
and could adversely affect the terms at which the Company may be able to obtain
additional equity financing. In addition, the ability of the Company to use
authorized but unissued shares of Common Stock without further stockholder
approval for financing or for other corporate purposes may cause further
dilution of the stockholders' and warrant holders' actual or potential equity
interest in the Company.
No Dividends
The Company has paid no dividends to its stockholders since its inception
and does not plan to pay dividends in the foreseeable future. The Company
intends to reinvest earnings, if any, in the development and expansion of its
business.
5
<PAGE>
THE COMPANY
Go-Video is a consumer electronics marketing, development, and
distribution company that designs, develops, and markets electronic video
products for home and business use. The Company retains an experienced and
motivated management team that oversees a broad marketing and distribution
network which includes many of the major consumer electronics retailers in North
America, such as: Circuit City, Sears, Montgomery Ward Electric Avenue, Nobody
Beats the Wiz, The Good Guys, Thorne America, Sharper Image, and Sun T.V.
In addition to its retail distribution, the Company has been successful
in marketing its products through alternative marketing venues such as credit
card inserts and catalogs. As a result of its presence throughout the consumer
electronics marketplace, Go-Video has established itself as an innovative
marketer and developer of high-end, high margin product lines and is positioned
to launch a variety of technologically advanced products over the next several
years.
Go-Video currently derives most of its revenue from the distribution of
video cassette player/recorders ("VCRs") with two decks built into one unit the
Dual-Deck(TM) VCR. Since its introduction six years ago, the Go-Video Dual- Deck
VCR has been established as a new category in consumer electronics, growing to a
$35 million per year business with over 350,000 decks sold to date. The Company
developed and 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 Company
recently introduced a line of wireless home and business video security and
surveillance products and the Company is currently involved in the development
of digital television products and home theater systems for consumer and
commercial use.
Since current management took control in 1994, the Company has (i) added
a second Dual-Deck manufacturer to reduce manufacturing costs, reduce product
sourcing risks, and increase marketing and sales flexibility; (ii) built a
strong executive management team with a mix of industry and high-tech business
experience; (iii) discontinued slow-moving product lines and written off
obsolete inventory; and (iv) begun development of an international Dual-Deck VCR
to reach sizable overseas markets.
Go-Video was incorporated in Arizona in 1984, completed its initial
public offering in 1986, and reincorporated in Delaware in 1987. Sales of the
Dual-Deck VCR began in June 1990. In August 1996, the Company completed a
private placement of the Notes. The Company's executive office is located at
7835 E. McClain Drive, Scottsdale, Arizona, 85260, and its telephone number is
(602) 998-3400. The Company has regional sales offices in Pittsburgh and Dallas.
USE OF PROCEEDS
The net proceeds to the Company from the exercise of the warrants is
estimated to be approximately $19.2 million. However, the Company is unlikely to
receive proceeds in this amount because a substantial number of the warrants
have a high exercise price and expire in March 1997. In addition, there can be
no assurance that any of the warrants will be exercised. The Company anticipates
using any net proceeds for working capital and general and administrative
expenses.
DILUTION
The net tangible book value of the Company as of June 30, 1996, was
$4,525,781 or $0.40 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. Net
tangible book value dilution per share represents the difference between the
amount per share paid by investors upon exercise of the Publicly Issued Warrants
and the Private and Unit Warrants, in exchange for Common Stock and the net
tangible book value per share after the exercise of such warrants. After giving
effect to the exercise of the Publicly Issued Warrants and the Private and Unit
Warrants and the assumed net proceeds to the Company of $19,161,720, the net
tangible book value of the Company
6
<PAGE>
as of June 30, 1996, would have been $23,687,501, or approximately $1.61 per
share. This represents an immediate increase of net tangible book value of $1.21
per share for existing shareholders, an immediate dilution of $6.49 per share
for holders of the Publicly Issued Warrants, and an immediate increase of
tangible book value of $0.14 per share for the holders of the Private and Unit
Warrants who exercise their warrants, as illustrated in the following table:
<TABLE>
<CAPTION>
Publicly Issued Warrants Private and Unit Warrants
------------------------ -------------------------
<S> <C> <C>
Assumed exercise price per share $8.10 $1.47
Net tangible book value per share at $0.40 $0.40
June 30, 1996
Pro forma net tangible book value per $1.61 $1.61
share after exercise of all Publicly
Traded Warrants and Other Warrants
(Dilution of) increase in net tangible ($6.49) $0.14
book value per share to warrant
holders who exercise their warrants
</TABLE>
SELLING SHAREHOLDERS
The following table provides information with respect to Common Stock
owned by the Selling Shareholders as of October 21, 1996, and as adjusted to
reflect the sale of the securities offered hereby, by the Selling Shareholders.
Except as otherwise indicated, to the knowledge of the Company, the Selling
Shareholders have sole voting and investment power with respect to their
securities, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below.
<TABLE>
<CAPTION>
Common Stock Common Stock
Beneficially Common Stock Beneficially
Owned Prior to to be Sold Owned After
the Offering(1) in the Offering the Offering(2)
Name of ------------------ --------------- -------------------
Selling Shareholder Number Percent Number Number Percent
- ------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
R. Terren Dunlap(3) 607,518(4) 5.0% 35,466 572,052(4) 4.8%
Private Investors Equity Group 44,250 * 44,250 0 *
Paladin Holdings, L.L.P. 15,750 * 15,750 0 *
</TABLE>
* Less than one percent.
(1) Includes all Common Stock beneficially owned by Selling Shareholder as
a percentage of the Common Stock outstanding on October 21, 1996.
(2) Assumes that the Selling Shareholders dispose of all of the Shares of
Common Stock covered by this Prospectus and owned by the Selling
Shareholders and does not acquire any additional Common Stock. Assumes
no other exercise of options, warrants or conversion rights or
issuances of additional securities.
(3) Mr. Dunlap was a co-founder of the Company and served as Chairman and
Chief Executive Officer from April 1988 to March 1994. Prior to that
time, he served as President and a director. Mr. Dunlap retired as a
director on August 29, 1996.
(4) Includes options and warrants to acquire 538,312 Shares of Common
Stock.
7
<PAGE>
PLAN OF DISTRIBUTION
The Securities offered by this Prospectus are 6,808,861 shares of
Common Stock.
2,146,951 shares of the Common Stock offered hereby are issuable upon
the exercise of the Publicly Issued Warrants. 486,444 shares of the Common Stock
offered hereby are issuable upon the exercise of the Private Warrants. 95,466
shares of Common Stock may be sold by the Selling Shareholders.
The balance of the Common Stock offered hereby includes (i) up to
3,000,000 shares issuable upon the conversion of the Notes; (ii) 600,000 shares
issuable upon the exercise of the Unit Warrants; (iii) 360,000 shares to be
issued to holders of the Notes as Interest; and (iv) 120,000 shares issuable
upon the exercise of Common Stock purchase warrants issued to the placement
agent for the Notes.
This Prospectus may be used from time to time by the Company for the
issuance of Common Stock to the warrant holders and Note holders for
transactions in which such holders are or may be deemed to be underwriters
within the meaning of the Securities Act. Additionally, the shares of Common
Stock offered herein by the Selling Shareholders may be sold by the Selling
Shareholders from time to time in either underwritten public offerings, in
transactions pursuant to Rule 144 under the Securities Act, in privately
negotiated transactions, through the facilities of the American Stock Exchange,
or otherwise, at market prices prevailing at the time of such sale, at prices
relating to such prevailing market prices, or at negotiated prices. The Company
will not receive any of the proceeds from the sale of shares of Common Stock
offered herein by the Selling Shareholders. The Selling Shareholders may elect
to sell all, a portion or none of the Common Stock offered by them hereunder.
It is anticipated that the broker dealers participating in the sales of
Common Stock will receive the usual and customary selling commissions.
DESCRIPTION OF SECURITIES
Common Stock
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $0.001 par value per share, of which 11,426,478 shares were
outstanding as of October 21, 1996. Each share of Common Stock is entitled to
share pro rata in dividends and distributions, if any, when and if declared by
the Board of Directors, from funds legally available therefor. The Company has
not paid any cash dividends on its Common Stock and does not anticipate paying
cash dividends in the foreseeable future. No holder of any shares of Common
Stock has any pre-emptive right with respect to any securities of the Company to
be issued. The issued and outstanding Common Stock is fully paid and
nonassessable. Stockholders as such are not personally liable for debts of the
Company. Holders of Common Stock will share ratably in the net assets of the
Company in the event of liquidation, unless there are then preferred shares
which may have preferences on liquidation. There are no redemption, sinking
fund, or conversion rights applicable to the Common Stock.
Holders of Common Stock are entitled to one vote for each share of
record on each matter submitted to a vote of stockholders. Subject to the rights
of holders of any class or series of shares having a preference over the Common
Stock as to dividends or upon liquidation, holders of Common Stock are entitled
to such dividends as may be declared by the Company's Board of Directors out of
funds lawfully available therefor, and are entitled upon liquidation to receive
pro rata the assets available for distribution to shareholders. Holders of the
Common Stock have no preemptive, subscription or conversion rights. The Common
Stock is not subject to assessment and have no redemption provisions.
8
<PAGE>
The Notes
On July 15, 1996, the Company privately offered the Notes in the amount
of $250,000 each. The Notes have the following characteristics:
Conversion Privilege. Each of the Notes is convertible into 200,000
shares of the Company's Common Stock at $1.25 per share. The Notes may be
converted into shares of Common Stock at the holder's election at any time after
issuance or at the Company's election after the third anniversary of the
issuance of the Notes.
Conversion Terms. Holders of the Notes may convert at any time provided
that the holder notifies the Company with written notice via U.S. Mail, courier,
or confirmed facsimile transmission of the intention to convert. The Company may
call for mandatory conversion at any time after the third anniversary of the
issuance of the Notes by providing written notice of its intention to call for
conversion to the holders ten (10) business days prior to the Conversion Date.
Conversion Price. Upon conversion of the Notes, the Conversion Price
shall be the lesser of the Stated Conversion Price of $1.25 per share or the
Adjusted Conversion Price. The Adjusted Conversion Price shall be calculated as
the greater of (i) seventy percent (70%) of the closing price for the Common
Stock as reported on the American Stock Exchange on the trading day preceding
receipt by the Company of Notice from the Holder of the intention to exercise
its conversion privilege; (ii) the average closing price of the Common Stock for
the ten (10) trading days immediately preceding receipt by the Company of Notice
from the holder of the intention to exercise its conversion privilege; or (iii)
$0.50 per share. The minimum and maximum number of shares of Common Stock per
Note that would be issued upon conversion would be 200,000 and 500,000,
respectively. The Notes must be converted in full.
Interest. The holders of each Note are entitled to receive annual
interest in the form of Common Stock of the Company equal to 10 percent (10%) of
the principal amount of the Note. Interest shall be due and payable on each
annual anniversary of the issuance of the Notes. The number of shares of Common
Stock to be issued for payment of accrued interest shall be based upon the
average closing price of the Common Stock for the twenty trading days
immediately preceding such anniversary date. In the event that fractional shares
would be issuable, the Company shall pay the fractional amount with cash.
Interest shall accrue on a quarterly basis. Note holders who convert their Notes
prior to the annual anniversary date shall be entitled to receive accrued but
unpaid interest at the time they convert.
Liquidation Preference. In the event of a liquidation or capital
restructuring of the Company under the Bankruptcy Code, holders of the Notes
shall be subordinated to all other claims, with the exception that holders of
the Notes shall enjoy liquidation preference over Common stockholders.
The Unit Warrants
The Company also privately offered on July 15, 1996 Unit Warrants to
holders of the Notes. Each Unit Warrant is eligible to purchase 100,000 shares
of Common Stock per Note at $1.25 per share, as described below:
Time and Condition of Issue. The Unit Warrants will be issued to
holders of the Notes on the Warrant Issuance Date which is the earlier of (i)
three (3) months after this registration statement has been declared effective
or (ii) six months after the issuance of the Notes. Holders who have converted
the Notes into Common Stock prior to the Warrant Issuance Date shall not be
entitled to receive Unit Warrants.
Exercise Price, Expiration, Redemption. The Unit Warrants when issued
shall entitle the holder to purchase an aggregate of 100,000 shares of the
Company's Common Stock at an exercise price of $1.25 per share or such lower
price as the Board of Directors may in its sole discretion determine. The Unit
Warrants will expire three (3) years following the Warrant Issuance Date. The
Unit Warrants will be redeemable by the Company at any time when the closing
price of the Company's Common Stock is equal to at least $3.00 for twenty (20)
consecutive trading days, after which the Company must notify holders of Unit
Warrants of such redemption within ten (10) business days. If not exercised by
the holder within fifteen
9
<PAGE>
(15) business days after notice of redemption is given, the Unit Warrants may be
redeemed by the Company. The redemption price of each Warrant will be $0.05.
Options, Other Warrants, and Other Rights to Purchase Common Stock Currently
Outstanding
At October 21, 1996, there were outstanding 3,153,395 warrants (not
including any warrants related to the Notes) to purchase shares of Common Stock
at prices per share between $1.25 and $8.25 and 1,874,933 options to purchase
shares of Common Stock at prices per share between $0.50 and $4.75. Of the
outstanding warrants, 2,146,951 were listed on the American Stock Exchange and
may be redeemed by the Company at any time, upon thirty days notice, at a price
of $0.50 per warrant. Such warrants expire in March 1997 and have an exercise
price of $8.25 per share. With regard to such warrants, the Company may, at the
sole discretion of the Board of Directors, reduce the exercise price, increase
the number of shares that may be purchased upon exercise of the warrants, or
extend the expiration date of the warrants if it deems such actions to be in the
best interests of the Company. The remaining warrants and options contain
various terms including anti-dilution provisions to avoid dilution of the equity
interest represented by the underlying shares of Common Stock upon the
occurrence of certain events including share dividends or splits, mergers, or
acquisitions. Certain holders of the warrants and options have been granted
certain rights to have the shares issuable upon exercise thereof registered by
the Company under the Securities Act.
Transfer Agent
American Securities Transfer, Inc., Denver, Colorado, is the registrar
and transfer agent for the Common Stock.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona
85004-0001.
EXPERTS
The consolidated financial statements of Go-Video, Inc. incorporated in
this Prospectus by reference from the Company's Annual Report on Form 10-K for
the year ended March 31, 1996, have been audited by Deloitte & Touche LLP,
independent auditors, as included therein and incorporated herein by reference.
Such financial statements are stated in their report, which is incorporated by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
10
<PAGE>
================================================================================
No dealer, sales representative, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, the Selling Shareholders, or any other
person. This Prospectus does not constitute an offer of any securities other
than those to which it relates or an offer to sell, or a solicitation of an
offer to buy, to any person in any jurisdiction where such an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
and thereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
_________________
TABLE OF CONTENTS
Page
----
Available Information ..................................................... 2
Information Incorporated
by Reference ............................................................ 2
Information Attached with Respect
to the Company .......................................................... 3
Disclosure Regarding Forward-
Looking Statements ...................................................... 3
Risk Factors .............................................................. 3
The Company ............................................................... 6
Use of Proceeds ........................................................... 6
Dilution .................................................................. 6
Selling Shareholders ...................................................... 7
Plan of Distribution ...................................................... 8
Description of Securities ................................................. 8
Legal Opinions ............................................................ 10
Experts ................................................................... 10
6,808,861 Shares of Common Stock
GO-VIDEO, INC.
__________
PROSPECTUS
__________
____________, 1996
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus.
Item 14. Other Expenses of Issuance and Distribution.
The following are the estimated expenses in connection with the
issuance and distribution of the securities being registered, all of which
expenses will be paid by the Company:
Securities and Exchange Commission
Registration Fee........................................... $
American Stock Exchange Listing Fee..........................
Legal Fees and Expenses......................................
Accounting Fees and Expenses.................................
Blue Sky Fees and Expenses...................................
Transfer Agent Fees and Expenses.............................
Miscellaneous................................................
Total............................................... $
=======
Item 15. Indemnification of Directors and Officers.
Article X of Go-Video, Inc.'s (the "Company") Bylaws provides a right
of indemnification generally applicable to any person who is, or is threatened
to be made, a party to any judicial or governmental proceeding by reason of
serving as a director, officer, employee, or agent of the Company or by reason
of serving in any of the foregoing capacities with another entity at the request
of the Company. The indemnification applies to expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement incurred by the person
in connection with the proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company
and, in a criminal proceeding, if he also had not reasonable cause to believe
his conduct was unlawful. Indemnification is available in a derivative action
brought on behalf of the Company in which the person is adjudged liable to the
Company if and only to the extent that the court in which the action is brought
specifically finds that, despite the adjudication of liability but in view of
all circumstances of the case, the person is fairly and reasonably entitled to
indemnification. Notwithstanding the foregoing, such person is entitled to
indemnification against expenses incurred if he is successful on the merits or
otherwise in any such proceeding, whether direct or derivative, or in defense of
any claim, issue, or matter therein.
The determination to grant indemnification under Article X is to be
made either (i) by a majority of a quorum of disinterested directors, or (ii) if
such a quorum is unobtainable or a majority of such a quorum so directs, by
independent legal counsel in a written opinion, or (iii) by the Stockholders.
Expenses incurred in defending a proceeding are to be paid by the Company in
advance but such expenses must be repaid if it is ultimately determined that the
recipient has not satisfied the requirements for indemnification set forth
above.
The indemnification provided for in Article X is not exclusive of any
other rights to which the recipient may be entitled. Article X further provides
that the Company has the power to purchase liability insurance covering any
person whose status makes him eligible for indemnification, regardless of
whether the Company would have the power to indemnify such person against such
liability under Article X. The right to indemnification granted by Article X
continues to be available after a person ceases to occupy a status which would
make him eligible for indemnification and inures to the benefit of his heirs,
executors, and administrators.
1
<PAGE>
Section 145 of the Delaware General Corporation Law, as amended, grants
to corporations incorporated in Delaware, such as the Company, a right to
indemnify persons that is substantially coextensive with the right to
indemnification granted by Article X of the Company's Bylaws.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation 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 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
4.4 Form of Mandatory Convertible Filed herewith
Subordinated Note
4.5 Form of Unit Warrant Filed herewith
5 *Opinion of Snell & Wilmer L.L.P.
10.2 Assignment of U.S. Patent Rights to Incorporated by reference to Exhibit 10-B(1)
Go-Video, Inc., by R. Terren Dunlap to S-1 No. 33-17277
and Richard A. Lang, dated October
11, 1985
10.3 Assignment of Japanese Patent Rights Incorporated by reference to Exhibit 10-B(2)
to Go-Video, Inc., by R. Terren Dunlap to S-1 No. 33-17277
and Richard A. Lang, dated August 5,
1987
10.4 Assignment of U.S. Patent Rights to Incorporated by reference to Exhibit 10-B(3)
Go-Video, Inc., by R. Terren Dunlap, to Annual Report on Form 10K for the fiscal
John Berkheimer, and Dwayne Woodmas, year ended July 31, 1988 (the "1988 10K")
dated August 4, 1988
10.5 Assignment of U.S. Patent Rights to Incorporated by reference to Exhibit 10-B(4)
Go-Video, Inc., by R. Terren Dunlap, to Company's 1988 10K
John Berkheimer, and Richard Otto,
dated September 9, 1988
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
10.6 ** Form of 1987 Nonstatutory Stock Incorporated by reference to Exhibit 4-A to
Option Plan, as amended S-8 No. 33-18428
10.7 ** Form of 1989 Nonstatutory Stock Incorporated by reference to Exhibit 10-C(2)
Option Plan, as amended to S-2 No. 33-33033
10.8 ** Form of 1991 Directors' Nonstatutory Incorporated by reference to Exhibit 28.1 to
Stock Option Plan, as amended S-8 No. 33-49924 and Exhibit A to the
Company's 1995 Proxy Statement
10.9 ** Form of 1991 Employee Stock Option Incorporated by reference to Exhibit 28.1 to
Plan S-8 No. 33-49926
10.10 Financing Agreement between Go- Incorporated by reference to Exhibit 4-D to
Video, Inc. and Congress Financial Annual Report Form 10K for fiscal year
Corporation, dated October 12, 1992 ended July 31, 1992
10.11 Settlement Agreement, Manufacturing Incorporated by reference to Exhibit 10-E
Agreement, License and Technical (10) to S-1 No. 33-18433
Assistance Agreement and Mutual
Release between Go-Video, Inc., and
Samsung Electronics Co. Ltd., dated
February 28, 1989
10.13 Amendment Number One to Accounts Incorporated by reference to Exhibit 10.13
Financing Agreement between Go- to Annual Report Form 10K for fiscal year
Video, Inc. and Congress Financial ended July 31, 1993 (the "1993 10K")
Corporation, dated May 14, 1993
10.14 *** Manufacturing Agreement between Incorporated by reference to Exhibit 10.14
Go-Video, Inc. and Samsung to 1993 10K.
Corporation, dated September 14, 1993
10.15 ** Separation Agreement between R. Incorporated by reference to Exhibit 10.5
Terren Dunlap and Go-Video, Inc., to 1993 10K
dated August 2, 1993
10.16 ** Separation Agreement between Roger Incorporated by reference to Exhibit 10.16
B. Hackett and Go-Video, Inc., dated to 1993 10K
August 2, 1993
10.17 *** License Agreement between Go-Video, Incorporated by reference to Exhibit 10.17
Inc. and Goldstar U.S.A., Inc., dated to Annual Report Form 10K for fiscal year
July 11, 1994 ended July 31, 1994 (the "1994 10K")
10.18 ** First Amendment to the Separation Incorporated by reference to Exhibit 10.18
Agreement between Go-Video, Inc. to 1994 10K
and R. Terren Dunlap, dated August
10, 1994
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
10.19 Second Combined Amendment to Incorporated by reference to Exhibit 10.19
Financing Agreements between 1994 10K
Go-Video, Inc. and Congress
Financial Corporation, dated
August 16, 1994
10.20 Office Lease Agreement between Go- Incorporated by reference to Exhibit 10.22
Video, Inc. and 78 McClain, L.L.C., to Quarterly Report Form 10Q for the
for premises at 7835 East McClain quarter ended January 31, 1995
Drive, Scottsdale, AZ, dated
November 15, 1994
10.23 Purchase Agreement between Incorporated by reference to Exhibit 10.23
Go-Video, Inc. and Dublin Companies to the Transition Report 1995 10K
10.24 ** Form of 1993 Employee Stock Option Incorporated by reference to Exhibit 10.24
Plan to the Transition Report 1995 10K
10.25 Amendment to Financing Agreement Incorporated by reference to Exhibit 10.25
between Go-Video, Inc. and Congress to Quarterly Report Form 10Q for the
Financial Corporation, dated August quarter ended September 30, 1995
11, 1995
10.26 *** Manufacturing Agreement between Incorporated by reference to Exhibit 10.26
Go-Video, Inc. and Shintom Co. Ltd. to Quarterly Report Form 10Q for the
and Talk Corporation, dated January quarter ended December 31, 1995
9, 1996
10.27 *** First Amendment to Manufacturing Incorporated reference to Exhibit 10.27 to
Agreement between Go-Video, Inc. to Annual Report Form 10K for fiscal
and Samsung Corporation dated year ended March 31, 1996
April 1, 1996
10.28 Amendment to Financing Agreement Incorporated by reference to Exhibit 10.28
between Go-Video, Inc. and Congress to Annual Report Form 10-K to fiscal year
Financial dated June 4, 1996 ended March 31, 1996
13.1 Form 10-K for the Company's fiscal Filed herewith
year ended March 31, 1996
13.2 Form 10-Q for the Company fiscal Filed herewith
quarter ended June 30, 1996
23.1 *Consent of Deloitte & Touche LLP.
23.2 *Consent of Snell & Wilmer L.L.P.
(included in Exhibit 5)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
24 Power of Attorney (included on
signature page of Registration Statement)
27 Financial Data Schedule Filed herewith
</TABLE>
* To be filed by amendment.
** Management contract or compensatory plan.
*** Confidential treatment requested.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually, or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's Annual
Report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
II-5
<PAGE>
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Scottsdale, State of Arizona, on November 4, 1996.
GO-VIDEO, INC.
By /S/ ROGER B. HACKETT
--------------------------
Roger B. Hackett
Chairman, Chief Executive Officer,
President, and Chief Operating Officer
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Douglas P. Klein, and each of them, his
attorneys-in-fact, each with a power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/S/ ROGER B. HACKETT Chairman of the Board of November 4, 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, November 4, 1996
- ----------------------------------- Secretary and Treasurer
Douglas P. Klein (principal financial and
accounting officer)
/S/ THOMAS F. HARTLEY, JR. Director November 4, 1996
- -----------------------------
Thomas F. Hartley, Jr.
/S/ THOMAS E. LINNEN Director November 4, 1996
- ---------------------------------
Thomas E. Linnen
/S/ RALPH F. PALAIA Director November 4, 1996
- -----------------------------------
Ralph F. Palaia
/S/ WILLIAM T. WALKER, JR. Director November 4, 1996
- ----------------------------
William T. Walker, Jr.
</TABLE>
II-7
, 1996 Note No.___________
Go-Video, Inc.
10% CONVERTIBLE SUBORDINATED NOTE
$250,000 Principal Amount
Registered Owner:
For value received, Go-Video, Inc., a Delaware corporation (the
"Company"), grants the following rights to the registered owner of this Note.
1. Interest. The Company promises to pay interest on the principal
amount of this Note at the rate per annum shown above. Interest will accrue on
the Note quarterly from the date the Note is issued (the "Note Issuance Date")
and shall be calculated on the basis of the actual number of days in the
interest accrual period for the Note and a 365-day year. The Company will pay
the interest on each anniversary date following the issuance of the Note (the
"Interest Payment Date"), provided that the Note has not as of such date been
converted into shares of Common Stock of the Company, as provided below. If the
Note is converted prior to the Interest Payment Date, interest accrued but
unpaid will be due and payable on the Conversion Date.
2. Method of Payment. The Company will pay interest on the Note to the
persons who are registered holders of the Note at the close of business 15 days
preceding the Interest Payment Date. The Company will pay accrued interest in
the form of shares of the Company's Common Stock. The number of shares of Common
Stock to be issued for payment of accrued interest shall be based upon the
average closing price of the Common Stock for the twenty trading days
immediately preceding such anniversary date. In the event that fractional shares
would be issuable, the Company shall pay the fractional amount with cash.
Interest shall accrue on a quarterly basis.
3. Registrar and Agent. The Company shall act as Registrar, Paying
Agent, Conversion Agent, and agent for service of notices and demands. The
Company may change the Registrar or any agent without notice. The address of the
Company is 7835 East McClain Drive, Scottsdale, Arizona, 85260, attn: Chief
Financial Officer.
4. Limitations. The Note is a general unsecured obligation of the
Company limited to $250,000 principal amount. The Note does not impose
limitations on the ability of the Company to, among other things, make payments
in respect to its Common or Preferred Stock, merge or consolidate with any other
Person and sell, lease, transfer or otherwise dispose of its products or assets.
5. Mandatory Forced Conversion of Note into Common Stock of the
Company. The Company may, at its option, following the third anniversary of the
Note Issuance Date, require the conversion of the Note into shares of its Common
Stock in accordance with the conversion provisions stated below.
6. Notice of Redemption. Notice of redemption will be mailed at least
ten (10) days prior to issuance by the Company of shares of Common Stock at the
then applicable conversion rate. On and after the redemption date, interest
ceases to accrue on the Note or portions thereof.
7. Conversion. The Registered Owner may convert the Note into shares of
<PAGE>
Common Stock of the Company at any time after the Note Issuance Date and before
the close of business on any date fixed for redemption, provided that the holder
notifies the Company with written notice via U.S. Mail, courier, or confirmed
facsimile transmission of the intention to convert. The Note is convertible into
200,000 shares of the Company's Common Stock at $1.25 per share, or in such
greater number as may be provided below. The Company may call for mandatory
conversion at any time after the third anniversary of the issuance of the Notes
by providing written notice of its intention to call for conversion to the
holders ten (10) business days prior to the Conversion Date.
To convert the Note, the Registered Owner must (i) complete and sign the
conversion notice, (ii) surrender the Note to the Conversion Agent, (iii)
furnish appropriate endorsements and transfer documents if required by the
Registrar or Conversion Agent, and (iv) pay any transfer or similar tax if
required. Partial conversions are not permitted.
If the Company is a party to a consolidation or merger or a transfer or lease of
all or substantially all of its assets, the right to convert the Note into
shares of Common Stock may be changed into a right to convert it into
securities, cash, or other assets of the Company or other Person.
8. Conversion Price. Upon conversion of the Note, the Conversion Price
shall be the lesser of the Stated Conversion Price of $1.25 per share or the
Adjusted Conversion Price. The Adjusted Conversion Price shall be calculated as
the greater of (i) seventy percent (70%) of the closing price for the Common
Stock as reported on the American Stock Exchange on the trading day preceding
receipt by the Company of Notice from the Holder of the intention to exercise
its conversion privilege; (ii) the average closing price of the Common Stock for
the ten (10) trading days immediately preceding receipt by the Company of Notice
from the holder of the intention to exercise its conversion privilege; or (iii)
$0.50 per share. The minimum and maximum number of shares of Common Stock per
Note that will be issued upon conversion is 200,000 and 500,000, respectively.
The Note must be converted in full.
9. Subordination. This Note is subordinated to all other indebtedness,
present or future, of the Company. To the extent and in the manner provided in
the Note, other indebtedness must be paid before any payment may be made to any
holders of Notes. Any holder by accepting this Note agrees to the subordination
and authorizes any trustee or other agent to give it effect. The Note has
liquidation priority over Common and Preferred Stockholders.
In addition to all other rights of other non-subordinated indebtedness, such
indebtedness shall continue to be non-subordinated indebtedness and entitled to
the benefits of the subordination provisions irrespective of any amendment,
modification, or waiver of any term of any instrument relating to
non-subordinated indebtedness or extension or renewal of non-subordinated
indebtedness.
10. Persons Deemed Owners. The Registered Owner of a Note may be
treated as its owner for all purposes.
11. Amendment and Waiver. The terms of the Note may not be amended in a
manner that would be adverse to the rights of the Note holder without the
written consent of the Registered Owner. The Company may amend the terms of the
Note to, among other things, cure any ambiguity, defect, or inconsistency or
make any other change that does not adversely affect the rights of the Note
holder.
12. Successors. When a successor assumes all of the obligations of its
predecessor under the Note, the predecessor will be released from those
obligations.
<PAGE>
13. No Recourse Against Others. No stockholder, director, officer,
affiliate, or incorporator, as such, past, present, and future, of the Company
or any successor corporation shall have any liability for any obligation of the
Company under the Note or for any claim based on, in respect of, or by reason
of, such obligations or the creation. Each holder of a Note by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Note.
14. Authentication. This Note shall not be valid unless the Chief
Executive Officer and Corporate Secretary have signed the Note and caused to be
placed on the Note the Corporate Seal.
15. Transfer. This Note may be sold, transferred, or pledged only if
the Company has been provided with an option of counsel satisfactory to the
Company that such sale, transfer, or pledge is permitted by exemptions under
federal and applicable state securities laws. Upon such transfer, the Registered
Owner shall be listed on the Note transfer records of the Company.
<PAGE>
IN WITNESS WHEREOF, Go-Video, Inc. has signed this Note by its duly
authorized officers effective as of the ______ day of , 1996.
Go-Video, Inc.
By: ________________________________________________
Roger Hackett
Chairman, Chief Executive Officer, and President
ATTEST:
By: ______________________________________
Douglas Klein
Vice President, Chief Financial Officer,
Secretary and Treasurer
Note Conversion Form
To: Go-Video, Inc.
Attn. Chief Financial Officer
The undersigned hereby requests that this Note be converted into shares
of Common Stock as provided for in the terms of the Subscription Agreement and
that a certificate for the appropriate number of shares of Common Stock be
issued in the name of the undersigned and delivered to the at the address
specified below.
Date: _____________________________
By: _____________________________
Printed Name: ______________________
Title: _____________________________
Address: ___________________________
___________________________
___________________________
Signature Guaranteed By:
, 1996 Warrant No.____________
Go-Video, Inc.
COMMON STOCK PURCHASE WARRANTS
(AND WARRANT EXERCISE FORM)
EXPIRING ON ________________, 1999
Registered Owner:
For value received, Go-Video, Inc.., an Delaware corporation ("GVI"),
grants the following rights to the registered owner of this Warrant.
(a) RESTRICTED STOCK; REGISTRATION. The shares of Common Stock of GVI
purchased upon exercise of this Warrant shall not be transferrable except upon
the conditions stated below, which are intended to ensure compliance with
federal and state securities laws. The certificates representing these shares of
stock, unless the same are registered prior to exercise of this Warrant, shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state. The securities have been acquired for
investment and may not be sold, offered for sale or transferred in the
absence of an effective registration under the Securities Act of 1933,
as amended, and any applicable state securities laws, or an opinion of
counsel satisfactory in form and substance to counsel for Go-Video,
Inc. that the transaction shall not result in a violation of state or
federal securities laws."
GVI has agreed to file a registration statement with respect to the Common Stock
underlying the Warrants within 60 days following the close of the private
placement of the Units containing the warrants.
(b) ISSUE. Upon tender to GVI (as defined in paragraph (f) hereof), GVI
shall issue to the registered owner hereof up to the number of shares specified
in paragraph (c) hereof of fully paid and nonassessable shares of Common Stock
of GVI that the registered owner is otherwise entitled to purchase.
(c) NUMBER OF SHARES. The total number of shares of Common Stock of GVI
that the registered owner of this Warrant is entitled to receive upon exercise
of this Warrant is 100,000 shares for an exercise price of $125,000 (the
"Exercise Price"), or $1.25 per share. Partial exercise is not permitted. GVI
shall at all times reserve and hold available sufficient shares of Common Stock
to satisfy all conversion and purchase rights represented by outstanding
convertible securities, options and warrants, including this Warrant. GVI
covenants and agrees that all shares of Common Stock that may be issued upon the
exercise of this Warrant shall, upon issuance, be duly and validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges with respect
to the purchase and the issuance of the shares.
(d) WARRANTS REDEEMABLE. The Warrants will be redeemable by GVI after
the closing price of the Common Stock as reported by the American Stock Exchange
is not less than $3.00 per share for twenty (20) consecutive trading days, after
which GVI must notify the holders of such
<PAGE>
redemption within ten (10) business days of such a trading period. Partial
redemption is not permitted.
(e) REDEMPTION PRICE. The redemption price of each Warrant will be
$0.05.
(f) EXERCISE PERIOD. This Warrant may only be exercised for up to and
including 1095 days from the issuance hereof, or __________________ , 1999, 5:00
P.M. Pacific time ("Exercise Period"). If not exercised during this period, this
Warrant and all rights granted under this Warrant shall expire and lapse.
(g) TENDER. The exercise of this Warrant must be accomplished by actual
delivery of the Exercise Price in cash, certified check, or official bank draft
in lawful money of the United State of America, and by actual delivery of a duly
executed exercise form, a copy of which is attached to this Warrant as Exhibit
"1," properly executed by the registered owner of this Warrant, and by surrender
of this Warrant. The payment and exercise form must be delivered, personally or
by mail, to the registered office of GVI, directed to the attention of the Chief
Financial Officer. Documents sent by mail shall be deemed to be delivered when
they are received by GVI.
IN WITNESS WHEREOF, Go-Video, Inc. has signed this Warrant by its duly
authorized officers effective as of the ______ day of , 1996.
Go-Video, Inc.
By: ________________________________________________
Roger Hackett
Chairman, Chief Executive Officer, and President
ATTEST:
By: ______________________________________
Douglas Klein
Vice President, Chief Financial Officer,
Secretary and Treasurer
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
-----------------------
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
------- ------
Commission File No.2-331855
-----------------
GO-VIDEO, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0492122
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7835 East McClain Drive
Scottsdale, Arizona 85260-1732
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 998-3400
----------------
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
------------ -----------------------
Common Stock Purchase Warrants American Stock Exchange
------------------------------ -----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(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.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
PART I
<S> <C> <C>
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.
-i-
<PAGE>
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
- ----------
* May contain "Forward Looking Statements."
<PAGE>
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.
- ----------
* May contain "Forward Looking Statements."
<PAGE>
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
- ----------
* May contain "Forward Looking Statements."
<PAGE>
(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
4
<PAGE>
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
- ----------
* May contain "Forward Looking Statements."
5
<PAGE>
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
- ----------
* May contain "Forward Looking Statements."
6
<PAGE>
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
7
<PAGE>
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>
Common Stock Unamortized
------------------------ 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
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
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Go-Video, Inc.
Scottsdale, Arizona
We consent to the incorporation by reference in this Registration Statement of
Go-Video, Inc. on Form S-2 of our report dated May 2, 1996, appearing in the
Annual Report on Form 10-K of Go-Video, Inc. for the year ended March 31, 1996
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 1, 1996
