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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 2-331855
Go-Video, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 86-0492122
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(State of Incorporation) (IRS E.I.N.)
7835 East McClain Drive, Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip code)
(602) 998-3400
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(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
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12,143,069 shares of Common Stock were outstanding as of August 8, 1997
<PAGE>
GO-VIDEO, INC.
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
At June 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations --
Three Months Ended June 30, 1997
and 1996 4
Consolidated Statements of Cash Flows --
Three Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements -- 6-7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8-10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures S-1
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
ASSETS June 30, 1997 March 31, 1997
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(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 369,578 302,788
Receivables - less allowance for doubtful accounts of
$130,000 5,604,569 7,125,384
Inventories 6,872,773 5,026,149
Prepaid expenses and other assets 158,306 35,353
------------ -----------
Total current assets 13,005,226 12,489,674
------------ -----------
EQUIPMENT AND IMPROVEMENTS:
Furniture, fixtures & equipment 568,783 563,246
Leasehold improvements 208,888 208,888
Office equipment 668,261 664,002
Tooling 1,339,860 1,296,260
------------ -----------
Total 2,785,792 2,732,396
Less accumulated depreciation and amortization 1,745,566 1,595,705
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Equipment and improvements - net 1,040,226 1,136,691
------------ -----------
DUAL-DECK VCR PATENTS, net of amortization of $47,564
and $45,894, respectively 65,957 67,626
GOODWILL, net of amortization of $38,354, and $34,092,
respectively 132,109 136,371
OTHER ASSETS 50,942 50,942
------------ -----------
TOTAL $ 14,294,460 $13,881,304
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,291,007 $ 1,226,644
Accrued expenses 857,075 980,163
Other current liabilities 663,442 1,122,940
Warranty reserve 166,000 173,000
Line of credit 2,533,378 1,964,103
Income tax payable 10,000 20,000
------------ -----------
Total current liabilities 5,520,902 5,486,850
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DEFERRED RENT 30,356 29,739
------------ -----------
LONG TERM OBLIGATIONS 158,348 180,059
------------ -----------
MANDATORY CONVERTIBLE SUBORDINATED DEBT 1,058,333 1,058,333
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock $.001 par value - authorized, 50,000,000 shares;
issued and outstanding, 11,905,785 and
11,837,285 shares, respectively 11,906 11,837
Additional capital 19,664,602 19,588,421
Accumulated deficit (12,149,987) (12,473,935)
------------ -----------
Total stockholders' equity 7,526,521 7,126,323
------------ -----------
TOTAL $14,294,460 $13,881,304
============ ===========
</TABLE>
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GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For The Three
Months Ended June 30,
1997 1996
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<S> <C> <C>
SALES $ 9,759,307 $ 8,188,015
COST OF SALES 7,387,790 6,318,456
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Gross profit 2,371,517 1,869,559
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OTHER OPERATING COSTS:
Sales and marketing 870,099 802,048
Research and development 359,504 144,669
General and administrative expenses 701,315 596,003
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Total other operating costs 1,930,918 1,542,720
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Operating income 440,599 326,839
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OTHER REVENUES (EXPENSES):
Interest income 1,925 2,153
Interest expense (109,287) (142,052)
Other (9,292) 658
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Total other (expense) (116,654) (139,241)
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INCOME BEFORE PROVISION FOR $ 323,945 $ 187,598
INCOME TAXES
PROVISION FOR INCOME TAXES 5,000 0
------------ -----------
NET INCOME $ 318,945 $ 187,598
============ ===========
NET INCOME PER COMMON SHARE $ 0.03 $ 0.02
============ ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,860,222 11,331,012
============ ===========
</TABLE>
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GO-VIDEO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended June 30,
---------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 318,945 $ 187,598
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 190,333 146,630
Loss on sale of equipment 9,845 0
Change in operating assets and liabilities
Receivables 1,520,815 25,812
Inventories (1,846,624) 893,470
Prepaid expenses and other assets (122,953) (54,152)
Accounts payable 64,362 (557,888)
Accrued expenses (123,088) 214,650
Other current liabilities (459,498) (90,021)
Warranty reserve (7,000) (2,000)
Other liabilities 619 3,927
Income taxes payable (10,000) 0
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Net cash (used) provided in operating activities (464,244) 768,026
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INVESTING ACTIVITIES:
Equipment and improvement expenditures (92,780) (201,719)
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Net cash used in investing activities ( 92,780) (201,719)
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FINANCING ACTIVITIES:
Proceeds from issuance of common stock 76,250 0
Payment on capital lease obligations (21,711) (29,505)
Net borrowings (repayments) under line of credit 569,275 (574,149)
Payment of financing costs 0 (25,000)
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Net cash provided (used) in financing activities 623,814 (628,654)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 66,790 (62,347)
CASH AND CASH EQUIVALENTS, beginning of period 302,788 313,916
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 369,578 $ 251,569
=========== ============
SUPPLEMENTAL INFORMATION TO CASH FLOW
STATEMENT:
Interest paid $ 109,287 $ 117,385
=========== ============
</TABLE>
<PAGE>
GO-VIDEO, INC. AND SUBSIDIARY
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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GENERAL
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In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal reccurring 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, 1997 consisted of $657,492 of raw materials and service
parts and $6,215,281 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-DeckJ videocassette recorder. For the three months
ended June 30, 1997, Sam's Club, Costco Warehouse, and Circuit City represented
21%, 15%, and 12% of the Company's revenue respectively. Accounts receivable
from Sam's Club, Costco Warehouse, and Circuit City were $1,417,659, $846,398,
and $908,781 respectively at June 30, 1997. Certain reclassifications have been
made to the prior financial statements to conform to the current
classifications.
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128 "Earnings Per Share" which is effective for both
interim and annual periods ending after December 15, 1997. The Company does not
believe the adoption of the standard will have a significant effect on
previously reported earnings per share.
The Financial Accounting Standards Board recently issued SFAS No. 130 on
"Reporting Comprehensive Income" and SFAS No. 131 on "Disclosure about Segments
of an Enterprise and Related Information." The "Reporting Comprehensive Income"
standard is effective for fiscal years beginning after December 15, 1997. The
standard changes the reporting certain items currently reported in the common
stock equity section of the balance sheet. The Company is currently evaluating
what impact this standard will have on the Company's financial statments. The
"Disclosure about Segments of an Enterprise and Related Information" standard is
effective for fiscal years beginning after December 15, 1997. This standard
requires that public companies report certain information about operating
segments in their financial statements. It also establishes related disclosures
about products and services, geographic areas, and major customers. The Company
is currently evaluating what impact this standard will have on its disclosures.
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, 1997 are as follows:
Deferred Tax Assets:
Current-reserves not currently
deductible $ 516,000
Noncurrent:
Differences between book & tax
basis of property $ 254,000
Operating loss carryforwards 6,787,000
Tax credit carryforwards 189,000
Other intangibles 95,000
-----------
Net Deferred Tax Asset 7,841,000
Valuation Allowance (7,841,000)
-----------
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, 1997, and March 31, 1996, the eight month transition period
ended March 31, 1995, and the fiscal year ended July 31, 1994 and AManagement's
Discussion and Analysis of Financial Condition and Results of Operations" from
the 1997 Annual Report on Form 10-K.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended June 30, 1997 compared with the three months ended June 30,
- --------------------------------------------------------------------------------
1996:
- -----
Net sales increased 19.2% to $9.8 million during the three months ended June 30,
1997 from $8.2 million during the three months ended June 30, 1996. The increase
in net sales was primarily due to a 44% increase in net units sold for the three
months ended June 30, 1997 compared to the three months ended June 30, 1996,
offset in part by a 17% decrease in average revenue per unit for the two
periods. The increase in net units sold was primarily due to increased demand
for the Company=s lowest-priced Dual-Deck VCR model. This lowest-priced model,
which sold at most retail locations for approximately 20% below the comparable
model it replaced, was available for sale for only one month of the three months
ended June 30, 1996. Net sales of the Company=s Security Products Division were
less than 5% of total net sales for the three months ended June 30, 1997.
Gross profit was $2.4 million and $1.9 million for the three months ended June
30, 1997 and 1996, respectively, representing a 26.8% increase in gross profit
dollars. Gross profit as a percentage of net sales increased to 24.3% for the
three month period ended June 30, 1997 from 22.8% for the three month period
ended June 30, 1996. The increase in gross profit as a percentage of sales was
primarily due to higher sales margins realized on its current Dual-Deck VCR
model lines due to reduced manufacturing costs from both of the Company's
suppliers.
Sales and marketing expense increased 8.5% to $0.9 million for the three months
ended June 30, 1997 from $0.8 million for the three months ended June 30, 1996.
As a percentage of sales, sales and marketing expenses deceased from 9.8% in the
three months ended June 30, 1996, to 8.9% in the three months ended June 30,
1997. The increase in sales and marketing expense was primarily due to increased
commission expense due to higher sales offset in part by reduced market
development funds during the three months ended June 30, 1997.
Research and development expenses increased 148.5% to $0.4 million for the three
months ended June 30, 1997 from $0.1 million for the three months ended June 30,
1996. As a percentage of sales, research and development expenses increased from
1.8% in the three months ended June 30, 1996 to 3.7% for the three months ended
June 30, 1997. The increase in research and development expenses was due
primarily to expenses incurred in connection with the Company=s development of
digital direct view televisions.
General and administrative expenses increased 17.7% to $0.7 million for the
three months ended June 30, 1997 from $0.6 million for the three months ended
June 30, 1996. As a percentage of net sales, general and administrative expense
decreased from 7.3% for the three months ended June 30, 1996 to 7.2% for the
three months ended June 30, 1997.
As a result of the above, the Company recorded operating profit of $440,599 for
the three months ended June 30, 1997 compared with operating profit of $326,839
for the three months ended June 30, 1996. The Company recorded net other expense
of $116,654 for the three months ended June 30, 1997 compared with net other
expense of $139,241 for the same period of the prior year. The decrease in net
other expense was primarily due to reduced interest expense resulting from a
lower interest rate on the Company's line of credit and lower letter of credit
fees.
Net income for the three months ended June 30, 1997 was $318,945 compared with
net income of $187,598 for the three months ended June 30, 1996. The Company
recorded a provision for income taxes of $5,000 for the three months ended June
30, 1997 representing its alternative minimum tax liability. The Company did not
recognize income tax expense for the three months ended June 30, 1996 due to its
net operating loss carryforwards.
Seasonality
- -----------
The Company's primary product lines compete within the consumer electronics
industry, which generally experiences seasonality in sales. 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 expectations for results of operations and other forward-looking
statements contained in this report on Form 10-Q involve a number of risks and
uncertainties. Among the factors that could affect future operating results are
the following: business conditions and general economic conditions; competitive
factors, such as the pricing and marketing efforts of rival companies; timing of
product introductions; success of competing technologies; ability to negotiate
reduced product costs; and the pace and success of product research and
development, particularly with overseas distributors of the Dual-Deck and the
direct view digital television development with Loewe Opta GmbH.
Capital Resources and Liquidity
- -------------------------------
Net cash used in operating activities was $0.5 million for the three months
ended June 30, 1997 compared to cash provided by operations of $0.7 million for
the three months ended June 30, 1996. The more significant factors comprising
the net cash used were a $1.8 million increase in inventories and a $0.5 million
decrease in other current liabilities offset in part by a $1.5 million decrease
in accounts receivable. The increase in the inventory balance from March 31,
1997 to June 30, 1997 was primarily due to increased transit inventory at June
30, 1997. The decrease in accounts receivable was primarily due to the timing of
shipments in March 1997 which were weighted heavily toward the end of the
period, as the Company's average collection experience has generally remained
consistent.
The Company had net working capital of $7.5 million and $7.0 million at June 30,
1997 and March 31, 1997, respectively. At June 30, 1997, the Company's current
ratio (the ratio of current assets to current liabilities) was 2.3 to 1.
The Company's sales seasonality requires incremental working capital for
investment primarily in inventories and receivables. The financing agreement was
entered into in October 1992 and was last amended in November 1996. The maximum
line of credit, as amended, is $14.0 million, limited by a borrowing base
determined by specific inventory and receivable balances and provides for cash
loans, letters of credit and acceptances. The agreement, as amended, has a term
of three years with a prepayment (if applicable) fee of 1.0%. Loans are priced
at prime plus 1.0%. The lender is collateralized by all assets of the Company.
The unused and available line of credit at June 30, 1997 was approximately $3.7
million. The Company capitalized $0.5 million of closing costs related to the
origination and amendment of the financing agreement. These costs were fully
amortized at June 30, 1997. Management believes its current financial resources
to be adequate to support operations over the next twelve months.
The Company sold $1.5 million of convertible subordinated notes in a private
placement with institutional holders in August 1996. The notes must be converted
to common stock within three years. As of June 30, 1997, $250,000 of the notes
had been converted into common stock.
The Company expects to continue its current rate of research and development
expenses related to the digital direct view television project with Loewe Opta
and the continued development and enhancement of its Dual Deck VCR model lines,
including models designed solely for international distribution. The Company
expects to incur fees totaling approximately $2.3 million for the exclusive
right to market and distribute Loewe Opta direct view televisions in North
America after completion of a commercial agreement between the two companies.
The payment, as now structured, would be due in installments through August 1998
with the first payment payable upon ratification of the commercial agreement.
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 6. Exhibits and Reports on Form 8-K
a. The following exhibit is filed as part of this Report:
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
b. Reports on Form 8-K
NONE
<PAGE>
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 8, 1997 By /S/ ROGER B. HACKETT
--------------------------------
Roger B. Hackett
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
Date: August 8, 1997 By /S/ DOUGLAS P. KLEIN
--------------------------------
Douglas P. Klein
Vice President, Chief Financial Officer,
Secretary and Treasurer
(principal financial and
accounting officer)
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 369,578
<SECURITIES> 0
<RECEIVABLES> 5,604,569
<ALLOWANCES> 130,000
<INVENTORY> 6,872,773
<CURRENT-ASSETS> 13,005,226
<PP&E> 2,785,792
<DEPRECIATION> 1,745,566
<TOTAL-ASSETS> 14,294,460
<CURRENT-LIABILITIES> 5,520,902
<BONDS> 0
0
0
<COMMON> 11,906
<OTHER-SE> 7,514,615
<TOTAL-LIABILITY-AND-EQUITY> 14,294,460
<SALES> 9,759,307
<TOTAL-REVENUES> 9,761,232
<CGS> 7,387,790
<TOTAL-COSTS> 7,387,790
<OTHER-EXPENSES> 1,930,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,287
<INCOME-PRETAX> 323,945
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 318,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318,945
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
