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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number 000-18404
April 1, 1995
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RASTEROPS
(Exact name of registrant as specified in its charter)
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CALIFORNIA 77-0161747
(State of Incorporation) (I.R.S. Employer Identification No.)
2500 Walsh Avenue 95051
Santa Clara, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code
(408) 562-4200
Indicate by check mark whether the Registrant (1) has filed 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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Number of shares of Common Stock outstanding as of April 1, 1995: 9,580,590
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INDEX
RASTEROPS
Page
PART I - FINANCIAL INFORMATION Number
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Item 1: Consolidated Interim Financial Statements:
Consolidated Interim Balance Sheets -
April 1, 1995 and June 30, 1994 3
Consolidated Interim Statements of Operations - Three months
and nine months ended April 1, 1995 and March 31, 1994 4
Consolidated Interim Statements of Cash Flows -
Nine months ended April 1, 1995 and March 31, 1994 5
Notes to Consolidated Interim Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I - FINANCIAL INFORMATION
RasterOps
Consolidated Interim Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
April 1, 1995 June 30, 1994
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(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,293 $ 8,254
Accounts receivable, net 9,922 11,022
Inventory 11,159 16,331
Prepaid expenses and other 4,566 1,099
Deferred income taxes 359 540
Income taxes receivable -- 648
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Total current assets 30,299 37,894
Property and equipment, net 3,101 4,858
Licenses, intangibles and other assets, net 445 496
Deferred income taxes 1,453 1,453
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Total assets $35,298 $44,701
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 924 $ --
Accounts payable 11,665 10,329
Accrued employee compensation 837 1,023
Accrued litigation settlement 6,600 --
Other accrued liabilities 4,939 2,366
Current portion of long-term obligations 251 505
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Total current liabilities 25,216 14,223
Long-term obligations 41 247
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Total liabilities 25,257 14,470
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Shareholders' equity:
Common stock 39,197 38,971
Accumulated deficit (29,010) (8,747)
Cumulative translation adjustment (146) 7
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Total shareholders' equity 10,041 30,231
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Total liabilities and shareholders' equity $35,298 $44,701
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</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
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<TABLE>
<CAPTION>
RasterOps
Consolidated Interim Statements of Operations Three Months Ended Nine Months Ended
(Unaudited) April 1, March 31, April 1, March 31,
1995 1994 1995 1994
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(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 16,012 $ 19,380 $ 50,034 $ 62,015
Cost of sales 10,479 13,154 41,214 43,438
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Gross profit 5,533 6,226 8,820 18,577
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Operating expenses:
Research and development 1,762 1,824 5,072 6,241
Selling, general and administrative 4,233 6,248 16,542 19,255
Restructuring and other costs -- -- 3,654 6,460
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5,995 8,072 25,268 31,956
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Loss from operations (462) (1,846) (16,448) (13,379)
Interest income 6 54 59 195
Interest expense (70) (28) (154) (106)
Other income (expense), net 7 (10) (45) (117)
Settlement of litigation (3,675) -- (3,675) --
------------------------- ------------------------
Loss before benefit from income taxes (4,194) (1,830) (20,263) (13,407)
Benefit from income taxes -- 732 -- 1,018
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Net loss $ (4,194) $ (1,098) $(20,263) $(12,389)
------------------------- ------------------------
------------------------- ------------------------
Net loss per share $ (0.44) $ (0.12) $ (2.12) $ (1.31)
------------------------- ------------------------
------------------------- ------------------------
Weighted average common shares 9,573 9,487 9,558 9,466
------------------------- ------------------------
------------------------- ------------------------
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
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<TABLE>
<CAPTION>
RasterOps
Consolidated Interim Statements of Operations Nine Months Ended
(Unaudited) April 1, March 31,
1995 1994
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(in thousands)
<S> <C> <C>
OPERATING CASH FLOWS:
Net loss $ (20,263) $ (12,389)
Adjustments to reconcile net loss to
used in operating activities:
Provision for doubtful accounts 393 (457)
Depreciation and other amortization 2,281 2,466
Loss on disposal of fixed assets 126 545
Income tax benefit from disqualifying dispositions
of employee stock options -- 97
Deferred income taxes 181 220
Cumulative translation adjustment (153) 180
Changes in assets and liabilities:
Accounts receivable 707 4,356
Inventory 5,172 4,320
Prepaid expenses and other assets (3,467) 381
Income taxes receivable 648 2,099
Accounts payable 1,336 (2,461)
Accrued employee compensation (186) (451)
Accrued litigation settlement 6,600 --
Accrued Restructuring 523 (583)
Other accrued liabilities 2,050 64
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Net cash used in operating activities (4,052) (1,613)
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INVESTING CASH FLOWS:
Acquisition of property and equipment (369) (855)
Acquisition of licenses, intangibles and other assets (230) (11)
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Net cash used in investing activities (599) (866)
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FINANCING CASH FLOWS:
Proceeds from line of credit 1,000 --
Principal payment on line of credit (76) --
Repayment of long-term obligations (460) (374)
Issuance of Common Stock 226 661
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Net cash provided by financing activities 690 287
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Net decrease in cash (3,691) (2,192)
Cash, beginning of period 8,254 10,586
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Cash, end of period $ 4,293 $ 8,394
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SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest $ 155 $ 106
Income taxes $ 10 $ 18
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Accounting Policies
Reporting Year - As stated in the prior quarter's Form 10Q, the Company
changed to a fiscal calendar and its reporting year will end on the Saturday
closest to June 30, which for 1995 is July 1. Each quarter also ends on the
Saturday closest to the end of September, December and March. The Company's
third quarter of fiscal 1995 ended on April 1, 1995.
Basis of Presentation - The consolidated interim financial statements
presented in this Quarterly Report on Form 10-Q are unaudited. However, in the
opinion of management, all adjustments have been made for a fair statement of
the results for the interim periods presented. The consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report to
Shareholders for the year ended June 30, 1994.
The results of operations for the three-month and nine-month periods ended
April 1, 1995 are not necessarily indicative of the results that may be expected
for the year ending July 1, 1995.
NOTE 2 - Inventory
A summary of inventory follows: (in thousands)
<TABLE>
<CAPTION>
April 1, June 30,
1995 1994
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<S> <C> <C>
Purchased parts and subassemblies $ 5,766 $ 7,226
Work-in-progress 4,246 3,529
Finished goods 1,147 5,576
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Total $ 11,159 $ 16,331
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</TABLE>
NOTE 3 - Property and Equipment
A summary of property and equipment follows: (in thousands)
<TABLE>
<CAPTION>
April 1, June 30,
1995 1994
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<S> <C> <C>
Computer equipment and machinery $ 12,781 $ 13,089
Furniture and fixtures 932 923
Leasehold improvements 431 521
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Subtotal 14,144 14,533
Less: Accumulated depreciation (11,043) (9,675)
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Total $ 3,101 $ 4,858
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--------- ---------
</TABLE>
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NOTE 4 - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding. Shares issuable upon the exercise of stock options
and warrants have not been included in the computation because they are anti-
dilutive.
NOTE 5 - Restructuring Charges
A summary of charges for restructuring and other costs along with the respective
remaining reserves follows (in thousands):
<TABLE>
<CAPTION>
original remaining original remaining
charge reserves charge reserves
Sept. 30 payments/ April 1 Sept. 30 payments/ April 1
1994 other 1995 1993 other 1995
<S> <C> <C> <C> <C> <C> <C>
Product discontinuance $ 2,283 $ (2,163) $ 120 $ 5,110 $ (4,782) $ 328
Downsizing / integration 1,216 (694) 522 550 (550) --
Writedown of non-
performing assets/ other 155 (155) -- 800 (800) --
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Total $ 3,654 $ (3,012) $ 642 $ 6,460 $ (6,132) $ 328
-------------------------------------- --------------------------------------
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</TABLE>
NOTE 6 - Advance Cash Receipts
Included in other accrued liabilities at April 1, 1995 is $1.5 million of
cash received in advance representing the residual proceeds received from Avid
Technology during the quarter ended December 31, 1994 for the future delivery of
certain Truevision video products. The maximum cash to be applied against
amounts due to the Company from Avid is limited to $500,000 per quarter. During
the quarter ended April 1, 1995 the Company reduced advance cash receipts by
$500,000 related to shipments of product to Avid during the third quarter.
NOTE 7 - Income Taxes
No provision or benefit for income taxes was recorded for the periods ended
April 1, 1995. The Company no longer has any significant carryback potential.
Gross deferred tax assets aggregate approximately $18.3 million and are
comprised of the tax benefit for net operating loss and credit carryforwards and
future deductible items. The Company has a valuation allowance recorded in the
amount of $16.5 million, thereby leaving it with net deferred tax assets of $1.8
million; future taxable income would need to exceed $4.7 million for the
Company's net deferred tax assets to be realized based on statutory tax rates.
NOTE 8 - Commitments and Contingencies
In June 1992, two virtually identical class action lawsuits were filed
against the Company and certain of its current and former officers and directors
alleging violations of the federal securities laws, which on August 26, 1992
were consolidated into one complaint. In February 1993, plaintiffs filed a
derivative
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complaint purporting to assert claims on behalf of the Company against the
individual defendants for breach of fiduciary duty and violation of California
Corporations Code 25502.5. The original complaints alleged, among other things,
that the Company and the individual defendants artificially inflated the price
of RasterOps Common Stock by making misrepresentations and omissions of material
facts in various public statements issued during the alleged class period,
beginning October 18, 1990 and ending October 2, 1991, and that certain officers
and directors sold shares of RasterOps Common Stock during the alleged class
period while in possession of material non-public information. The complaints
sought unspecified compensatory damages and costs and attorneys' fees on behalf
of purchasers of the Company's Common Stock during the alleged class period.
The cause of action for violation of Corporations Code Section 25502.5 has been
dismissed without prejudice by plaintiffs and defendants have filed answers to
the remainder of the derivative complaint. In June 1994, plaintiffs filed a
third consolidated class action complaint alleging violations of section 10(b)
and 20(a) of the Securities and Exchange Act of 1934. On October 28, 1994,
motions to dismiss the third amended complaint were granted in part and denied
in part, and defendants have filed answers to the third amended complaint. The
parties agreed to continue the discovery cut-off until June 30, 1995, and to
continue the trial date until October 16, 1995. The court entered an order to
that effect. In March of 1995, the parties entered into a memorandum of
understanding regarding settlement of both actions. The terms of the settlement
call for a $3.0 million cash payment at the Company's option and either a) an
additional $3.5 million cash payment or b) the issuance of the Common Stock of
the Company with a value of $3.5 million and a minimum number of shares to be
issued of 750,000. The Company's option to elect cash instead of stock expires
August 2, 1995. The total value of the proposed settement is $6.5 million. The
proposed settlement must be approved by the federal court to become effective.
Of the total settlement amount, the Company has recorded as prepaid and other
assets $3.0 million expected to be reimbursed by its directors and officers
liability insurance carrier.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CURRENT QUARTER COMPARED TO PRIOR QUARTER AND PRIOR YEAR QUARTER
Net sales were $16.0 million for the three-month period ended April 1, 1995
representing a decrease of $3.4 million or 17.4% from the corresponding period
of the previous year, and a decrease of approximately $1.7 million, or 9.8%,
from the immediately preceding quarter. At the end of the quarter ended April
1, 1995, the Company was left with a significant backlog of Truevision video
graphics and OEM products. Approximately $1.0 million of this backlog was
requested by the Company's customers to be shipped in March 1995, however due to
materials or other operations-related issues, shipments of this product were
delayed beyond the end of the quarter. During the quarter ended April 1, 1995,
net sales of Truevision video graphics and OEM products were approximately $11.8
million, or 73.8% of the Company's total net sales. This represents an increase
of $1.4 million, or 13.5% and $4.2 million, or 55.3% from the prior quarter and
prior years' quarter, respectively. During the quarters ended December 31, 1995
and March 31, 1994, net sales of Truevision video graphics and OEM products as a
percentage of total net sales were 58.8% and 39.2%, respectively. The growth in
net sales of Truevision video graphics and OEM products in terms of both dollars
and units shipped is consistent with the Company's focus in this area. Lower
net sales when compared to the prior year period are attributable in part to
integration of Macintosh graphics acceleration by Apple into the Power Macintosh
computers and a corresponding drop in demand for such products by customers.
Also, worldwide monitor sales have decreased consistently in terms of both
dollars and units over the past three quarters of fiscal 1995. Monitors
generally command low margins and, therefore, the Company's intent during fiscal
1995 is to gradually withdraw from the monitor business, in accordance with its
licensing agreement with Nissei Sangyo (Hitachi), (See discussion in "Certain
factors That May Affect The Company's Future Results Of Operations" section
below). During the quarter ended April 1, 1995, the Company's royalty revenues
generated from this agreement were not material. North American net sales were
$11.4 million for the three-month period ended April 1, 1995, representing an
increase of $634,000 from the corresponding period of the previous year.
However, North American net sales decreased $2.5 million, or 17.9% during the
third quarter of fiscal 1995 over those of the prior quarter. International net
sales were $4.6 million for the three-month period ended April 1, 1995,
representing a decrease of $4.0 million from the same period in the previous
year. International net sales increased $750,000, or 19.4% during the third
quarter of fiscal 1995 over international net sales of the prior quarter.
International net sales have in prior periods consisted predominantly of
Macintosh graphics acceleration products and monitors, however the Company
increased its shipments of video graphics products during the third quarter of
fiscal 1995.
The Company recorded gross profits of $5.5 million, or 34.6% of net sales,
during the three-month period ended April 1, 1995, compared to gross profits of
$6.2 million, or 32.1% of net sales, for the three-month period in the previous
year, and a gross profit of $5.8 million, or 32.6%, of net sales in the
immediately preceding quarter. The decrease in gross profits for the three
months ended April 1, 1995, compared to the same quarter of the prior year is
mainly due to a decrease in net sales of $1.8 million during the third quarter
of fiscal 1995. However, during the quarter ended April 1, 1995, the Company's
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net sales included a higher percentage of video and graphics products that carry
higher gross margins than monitors when compared to that of the prior quarter
and the prior year's quarter.Research and development expense was $1.8 million
for the three-month periods ended April 1, 1995 and March 31, 1994. Research
and development expense as a percentage of net sales increased to 11.0% for the
three-month period ended April 1, 1995 compared to 9.4% for the corresponding
period of the previous year. Research and development expense increased
$231,000 during the quarter ended April 1, 1995 compared to the quarter ended
December 31, 1994. The increase in research and development expense from the
prior quarter is attributable in part to increased project spending and a slight
increase in headcount . Because of the inherent uncertainty of development
projects, there can be no assurance that increased research and development
efforts will result in successful product introductions or increased sales.
Selling, general and administrative expense decreased $2.0 million, or 32.3%, to
$4.2 million for the three-month period ended April 1, 1995 compared to the same
period in the prior year. During the quarter ended April 1, 1995, selling,
general and administrative expense decreased $215,000, or 4.8% over that of the
prior quarter. As a percentage of net sales, selling, general and
administrative expense was 26.4% for the three months ended April 1, 1995
compared with 32.2% for the same period in the previous year and 25.1% during
the three months ended December 31, 1994. The decrease in selling, general and
administrative expense for the quarter ended April 1, 1995 compared to the prior
quarter can be attributed in part to lower legal expenses and in part to lower
selling expenses incurred primarily as a result of lower net sales for the
quarter. As a comparison to the period in the prior year, selling, general and
administrative expense was lower in the current period due in part to the
integration and downsizing of the Company's finance and administrative group.
The integration and downsizing occurred primarily as a result of combining
operations between the Company's Santa Clara and Indianapolis locations. In
addition, these decreases when compared to the prior year period can be
attributed in part to reduced commissions and related expenses due to lower net
sales, lower advertising and promotional spending.
Interest income decreased $48,000 during the three-month period ended April 1,
1995 compared to the corresponding period of the previous year. The decrease is
due to less invested cash. Interest expense increased $18,000 and $42,000,
respectively, over the prior quarter and same quarter of the prior year and is
mainly the result of the Company's borrowings on its line of credit during the
third quarter of fiscal 1995 (see Liquidity and Capital Resources).
For the discussion related to the Company's litigation settlement see Note 8.
For the discussion related to the Company's income taxes see Note 7.
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CURRENT NINE-MONTH PERIOD COMPARED TO PRIOR YEAR NINE-MONTH PERIOD
Net sales were $50.0 million for the nine-month period ended April 1, 1995
representing a decrease of $12.0 million or 19.3% from the corresponding period
of the previous year. During the nine months ended April 1, 1995, net sales of
Truevision video graphics and OEM products were approximately $31.1 million, or
62.2% of the Company's total net sales. This represents an increase of $10.6
million, or 51.7% from the corresponding period of the prior year where net
sales of Truevision video graphics and OEM products were 33.1% of the Company's
total net sales. The growth in net sales of Truevision video graphics and OEM
products in terms of both dollars and units shipped is consistent with the
Company's focus in this area. North American net sales were $37.2 million for
the nine-month period ended April 1, 1995, representing an increase of $2.0
million from the corresponding period of the previous year. International net
sales were $12.8 million for the nine-month period ended April 1, 1995,
representing a decrease of $10.0 million from the same period in the previous
year. Lower net sales when compared to the prior year period are attributable
in part to the integration of Macintosh graphics acceleration by Apple into the
Power Macintosh computers and a corresponding drop in demand for such products
by customers. Also, worldwide monitor sales have decreased consistently in
terms of both dollars and units over the past three quarters of fiscal 1995.
Monitors generally command low margins and, therefore, the Company's intent
during fiscal 1995 was to gradually withdraw from the monitor business and focus
on the video graphics market.
The Company recorded a gross profit of $8.8 million, or 17.6% of net sales,
during the nine-month period ended April 1, 1995, compared to gross profits of
$18.6 million, 30.0% of net sales, for the nine-month period in the previous
year. The decrease in gross profits for the nine months ended April 1, 1995
compared to the same period in fiscal 1994 is due, in part, to sales of low
margin products which were subject to the $6 million of inventory reserves the
Company recorded in the quarter ended September 30, 1994, in addition to lower
net sales for the nine-month period ending April 1, 1995. During the quarter
ended September 30, 1994, the Company had determined that the future realizable
value for certain of its monitor and Macintosh graphics products was likely to
be less than its current inventory value.
Research and development expense decreased $1.2 million or 18.7%, to $5.1
million for the nine-month period ended April 1, 1995 compared to the same
period in the prior year. Research and development expense as a percentage of
net sales remained flat at 10.1% for the nine-month periods ended April 1, 1995
and March 31, 1994. The decrease in research and development expense when
compared to the previous year, is attributable, in part to a reduction in
engineering management related to the consolidation of engineering functions
between the Company's Santa Clara and Indianapolis facilities, in part to
decreased project spending with respect to discontinued products and other non-
current product line research, and in part to the discontinuance of its printer
software engineering operation located in Boulder, Colorado during the third
quarter of fiscal 1994.
Selling, general and administrative expense decreased $2.7 million, or 14.1%, to
$16.5 million for the nine-month period ended April 1, 1995 compared to the same
period in the prior year. As a percentage of net sales, selling, general and
administrative expense increased to 33.1% for nine months ended April 1, 1995
compared with 31.0% for the same period in the previous year. As a comparison
to the period in the prior year, selling, general and administrative expense was
lower in the current period due in part to
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the integration and downsizing of the Company's customer service group and its
finance and administrative group between the Company's Santa Clara and
Indianapolis locations. In addition, these decreases can be attributed to
reduced commissions and related expenses due to lower net sales and lower
advertising and promotional spending.
For discussion of restructuring and other charges during the current period, see
the section below on Restructuring and Other Charges.
Interest income decreased $136,000 during the nine-month period ended April 1,
1995 compared to the corresponding period of the previous year. The decrease is
due to less invested cash. Interest expense increased $48,000 during the nine-
month period ended April 1, 1995 compared to the same period of the prior year
and is mainly the result of the Company's bank borrowings during the third
quarter of fiscal 1995 (see Liquidity and Capital Resources).
For the discussion related to the Company's litigation settlement see Note 8.
For the discussion related to the Company's income taxes see Note 7.
RESTRUCTURING AND OTHER CHARGES RECORDED IN THE QUARTER ENDED SEPTEMBER 30, 1994
During the quarter ended September 30, 1994, the Company recorded a charge for
restructuring and other costs of $3.7 million. Late in the quarter ended
September 30, 1994, the Company made the decision to terminate the production of
its entire PC graphics product line which consisted of a variety of graphics
acceleration cards. The Company established a reserve in the amount of $1.9
million to reduce the related inventory to net realizable value, and during the
six months ended April 1, 1995, adjusted the reserve downward by $1.5 million
for sales of related products. The Company believes that the remaining
inventory is adequately reserved. Due to the discontinuance of these products,
the Company recorded additional charges aggregating $383,000 for prepaid
royalties no longer having economic value and cancellation charges on inventory
purchase commitments. Also included in the restructuring charge were costs
aggregating $1.2 million associated with downsizing of the Company's worldwide
operations, including lease terminations for offices located in California,
Indiana, Germany, France, United Kingdom and Japan and employee severance.
These lease terminations will reduce facilities and amortization expenses by
$149,000 during the remainder of fiscal 1995. The reserve for employee
severance has been fully utilized. The Company has a remaining restructuring
reserve balance of $642,000 as of April 1, 1995 related to this restructuring
(Note 5).
RESTRUCTURING AND OTHER CHARGES RECORDED IN THE QUARTER ENDED SEPTEMBER 30, 1993
During the quarter ended September 30, 1993, the Company recorded a charge for
restructuring and other costs of $6.5 million, of which $5.4 million was non-
cash related. This charge included costs of downsizing and integrating its
current operations, a write-down of certain assets as a result of the
discontinuance of certain product lines, which included its CorrectPrint series
of color printers, Sweet 16 monitors and other products, and a write-off of
other impaired assets. The total reserve for the related
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inventory was $4.3 million of which approximately $328,000 remains at April 1,
1995. Also, due to the discontinuance of these products, the Company had non-
cash write-offs of certain other assets in the amount of $500,000, including
prepaid royalties and fixed assets no longer having economic value, which are
included in the charge. These fixed asset reductions decreased depreciation
expense for the three-months and nine-months ended April 1, 1995 by $33,000 and
$141,000. Also included in the restructuring and other costs charge at
September 30, 1993 are severance and related costs associated with the
integration of the Company's customer support and manufacturing operations in
fiscal 1994 with respect to its Santa Clara and Indianapolis locations, and the
write-off of $225,000 of certain other assets and legal fees of $470,000
associated with the Company's class action lawsuit (Note 8).
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended April 1, 1995, the Company's cash decreased
$1.9 million to $4.3 million and is due primarily to an increase in inventory of
$2.5 million offset by bank borrowings of $924,000. For the nine-month period
ended April 1, 1995, the Company's cash decreased $3.7 million from $8.3 million
at June 30, 1994. The $3.7 million decrease in cash for the nine-month period
is due primarily to the net loss of $20.3 million which includes numerous non-
cash expenses. Working capital was $5.0 million at April 1, 1995, a decrease of
$4.0 million and a decrease of $18.7 million from $9.0 million at December 31,
1995 and $23.7 million at June 30, 1994, respectively.
The Company has a $5.0 million revolving line of credit with a bank, and is
currently within certain covenants or has obtained waivers effective through
July 1, 1995 for certain covenants with which the Company was not in compliance.
As of April 1, 1995 the Company had $924,000 in borrowings and $1.3 million in
guarantees issued on letters of credit under the Credit Agreement, which is due
to expire December 31, 1995.
The Company believes that its existing capital resources, in addition to cash
generated from operations and amounts under the credit facility will be
sufficient to meet the Company's cash requirements based on current levels of
operating revenues for the next twelve months. However, due to unstable market
conditions, the Company is reviewing possibilities for raising additional funds
through debt or equity securities and is currently in negotiations which might
provide additional working capital. The sale of additional debt or equity
securities could result in an adverse effect on operations due to unfavorable
terms and or result in dilution to existing shareholders. If adequate financing
sources are insufficient or not available, the Company's financial position and
results of operations could be materially adversely affected.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
Future operating results will depend on many factors, including, without
limitation, the demand for the Company's products, the level of competition and
the ability of the Company to develop and market new products and to control
costs.
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The Company believes that its resources will be best applied in the future by
focusing sales, marketing, research and development on its video graphics
product line. Therefore, the Company expects that its sales and gross margins
for the remainder of fiscal 1995 and beyond will be substantially influenced by
the degree to which the Company is able to generate volume sales of these higher
margin products. The Company has experienced continued competitive price
pressure on both its monitor and Macintosh graphics products, and the Company
expects that these pricing pressures will continue which may adversely affect
both revenues and gross margins. In addition, over time, the Company has
experienced a significant reduction in customer demand for Macintosh graphics
acceleration products. During the quarter ended December 31, 1994, the Company
entered into an trademark license agreement with Nissei Sangyo America, Ltd.
The agreement provided for a trademark license that would allow Nissei Sangyo to
distribute direct to the marketplace RasterOps-branded monitors. The Company
believes that the effect of this agreement will be a reduction in net sales of
lower margin monitor products.
The Company's distribution and VAR customers place orders on an "as-needed"
basis, while OEM's place orders with somewhat longer notice. As a result,
backlog at the beginning of each quarter does not fully reflect all of the
product sales anticipated in that quarter. Quarterly net sales and operating
results therefore depend on the volume and timing of bookings received during a
quarter, which are difficult to forecast. The lack of a comprehensive backlog
limits the Company's ability to predict appropriate production and inventory
levels, which has had and could have in the future an adverse effect on
operating results.
The personal computer and workstation industry and the related computer imaging
market are characterized by intense competition, rapidly changing technology and
evolving industry standards, often resulting in short product life cycle and
rapid price declines. Accordingly, the Company's success is highly dependent on
its ability to develop, introduce to the marketplace in a timely manner and sell
complex new products. The Company has in the past experienced some delays in
product introductions due to longer than anticipated development and the time
required to obtain necessary components. If the Company were to experience
similar delays in the future, the Company's results of operations could be
materially adversely affected. Many of the Company's current and prospective
competitors have significantly greater financial, technical, manufacturing and
marketing resources than the Company. In addition to products currently in
production by such competitors, the Company expects that additional competitive
products will be developed. The Company believes that its ability to compete
depends on elements both within and outside its control, including the success
and timing of new product development by the Company and its competitors,
product performance and price, distribution and customer support. In addition,
The Company's future operating results could be adversely affected by general
economic conditions or by a downturn in the demand for personal computers or
workstations. There can be no assurance that the Company will be able to
compete successfully with respect to these or to other factors, and the
Company's results of operations may fluctuate from quarter to quarter due to
these and other factors.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) Information related to an action in which the Company is involved is
provided in Note 8 to the consolidated interim financial statements included in
this quarterly report, and such information is incorporated herein by reference.
(b) During the quarter ended September 30, 1994, the Company terminated active
prosecution of its lawsuit claiming patent infringement on the part of Radius
Inc. On December 1, 1994, a settlement agreement was entered into by and
between the Company, Apple Computer, and Radius, Inc. providing for a cross
license of the Company's patent and a certain Apple patent, with a provision
allowing Apple Computer to sublicense the Company's patent to Radius, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on January 26, 1995,
pursuant to the Notice of Annual Meeting of Shareholders and Proxy Statement
dated December 24, 1994, the following matters were submitted to the Company's
shareholders. Set forth after each nominee for director are the number of votes
for and the number of votes withheld and for each other matter presented are the
number of votes for, the number of votes against, the number of abstentions, and
the number of broker non-votes, respectively:
(1) the election of Walter W. Bregman (8,847,252: 217,932: 0: 0), Louis J.
Doctor (8,970,727: 94,457), Kieth E. Sorenson (8,740,324: 324,860: 0:
0), Conrad J. Wredberg (8,857,732: 207,452: 0: 0), and Daniel D.
Tompkins Jr. (8,966,302: 98,882: 0: 0) as directors of the Company;
(2) the approval of an amendment to the Company's Amended 1988 Incentive
Stock Plan to increase the number of shares of Common Stock authorized
for issuance thereunder by 476,000 shares (8,176,935: 786,781: 86,768:
14,700); and
(3) the ratification of the appointment of Price Waterhouse LLP as the
Company's independent accountants for fiscal 1995 (8,991,203: 41,606:
32,375: 0).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K. There were no reports on Form 8-K filed for the
quarter ended April 1, 1995.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: May 11, 1995 by: /s/ R. John Curson
--------------------------------------------
R. John Curson
Senior Vice President, Chief Financial
Officer and Secretary
(signing as duly authorized signatory on
behalf of the registrant and in his capacity
as principal financial officer of the
registrant.)
-16-
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