<PAGE>
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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
September 30, 1995
____________
TRUEVISION, INC.
(Exact name of registrant as specified in its charter)
____________
DELAWARE 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 / /
Number of shares of Common Stock outstanding
as of September 30, 1995: 12,444,789
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<PAGE>
INDEX
TRUEVISION, INC.
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1: Consolidated Interim Financial Statements
Consolidated Interim Balance Sheets -
September 30, 1995 and July 1, 1995 3
Consolidated Interim Statements of Operations-
Three months ended September 30, 1995 and 1994 4
Consolidated Interim Statements of Cash Flows
- Three months ended September 30, 1995 and 1994 5
Notes to Consolidated Interim Financial Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
PART I - FINANCIAL INFORMATION
Truevision, Inc.
Consolidated Interim Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, 1995 JULY 1, 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,809 $ 10,377
Accounts receivable, net 13,887 10,726
Inventory 10,997 10,613
Prepaid expenses and other assets 1,148 4,295
Deferred income taxes 60 60
Income taxes receivable 299 299
------- ------
Total current assets 34,200 36,370
Property and equipment, net 2,713 2,668
Other assets 264 235
Deferred income taxes 1,453 1,453
------- ------
Total assets $ 38,630 $ 40,726
------- ------
------- ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,864 $ 1,684
Accounts payable 8,728 9,156
Accrued employee compensation 631 678
Accrued litigation settlement -- 6,600
Other accrued liabilities 3,105 3,837
Current portion of long-term obligations 200 200
------- ------
Total current liabilities 14,528 22,155
Long-term obligations -- 44
------- ------
Total liabilities 14,528 22,199
------- ------
Shareholders' equity:
Preferred stock -- --
Common stock 52,873 47,657
Accumulated deficit (28,607) (28,978)
Cumulative translation adjustment (164) (152)
------- ------
Total shareholders' equity 24,102 18,527
------- ------
Total liabilities and shareholders' equity $ 38,630 $ 40,726
------- ------
------- ------
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
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<PAGE>
Truevision, Inc.
Consolidated Interim Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Net sales $17,044 $16,280
Cost of sales 10,837 18,778
------ ------
Gross profit (loss) 6,207 (2,498)
------ ------
Operating expenses:
Research and development 1,765 1,779
Selling, general and administrative 4,012 7,861
Restructuring and other costs -- 3,654
------ ------
Total operating expenses 5,777 13,294
------ ------
Income (loss) from operations 430 (15,792)
Interest income 37 41
Interest expense (59) (33)
Other income (expense), net (27) --
------ ------
Income (loss) before provision for
income taxes 381 (15,784)
Provision for income taxes 10 --
------ ------
Net income (loss) $ 371 $(15,784)
------ ------
Net income (loss) per share $0.03 $(1.65)
------ ------
Weighted average common shares and 13,333 9,557
equivalents ------ ------
------ ------
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
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<PAGE>
Truevision, Inc.
Consolidated Interim Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
OPERATING CASH FLOWS:
Net income (loss) $ 371 $ (15,784)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Provision for doubtful accounts 177 498
Depreciation and amortization 489 962
Loss on disposal of fixed assets 49 7
Income tax benefit from disqualifying
dispositions of employee stock options 206 --
Other (12) 13
Changes in assets and liabilities:
Accounts receivable (3,338) 849
Inventory (384) 7,994
Prepaid expenses and other assets 3,147 72
Accounts payable (428) (448)
Accrued employee compensation (47) (1)
Litigation settlement (6,600) --
Other accrued liabilities (866) 1,329
Accrued restructuring (91) 1,779
------ -------
Net cash used in operating activities (7,327) (2,730)
------ -------
INVESTING CASH FLOWS:
Acquisition of property and equipment (355) (118)
Acquisition of other assets (32) (205)
------ -------
Net cash used in investing activities (387) (323)
------ -------
FINANCING CASH FLOWS:
Proceeds from line of credit, net 180 --
Repayment of long-term obligations (44) (124)
Issuance of common stock, net 5,010 147
------ -------
Net cash provided by financing activities 5,146 23
------ -------
Net decrease in cash and cash equivalents (2,568) (3,030)
Cash and cash equivalents, beginning
of period 10,377 8,254
------ -------
Cash and cash equivalents, end
of period $ 7,809 $ 5,224
------ -------
------ -------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest $ 59 $ 33
Income taxes $ 13 $ 10
Noncash investing and financing activities:
Property and equipment acquired under
capital leases $ 225 $ --
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
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<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - 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
fiscal year ended July 1, 1995.
The results of operations for the three-month period ended September 30,
1995 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 29, 1996.
NOTE 2 - INVENTORY
A summary of inventory follows (in thousands):
September 30, July 1,
1995 1995
------------- ---------
Purchased parts and subassemblies $ 6,342 $ 6,812
Work-in-progress 3,176 2,153
Finished goods 1,479 1,648
-------- --------
Total $ 10,997 $ 10,613
-------- -------
-------- -------
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
September 30, July 1,
1995 1995
------------- ---------
Computer equipment and machinery $ 13,134 $ 12,785
Furniture and fixtures 880 879
Leasehold improvements 406 431
-------- --------
Subtotal 14,420 14,095
Less: Accumulated depreciation (11,707) (11,427)
-------- --------
Total $ 2,713 $ 2,668
-------- --------
-------- --------
NOTE 4 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed on the basis of the weighted
average number of common shares outstanding plus common share equivalents,
when dilutive.
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<PAGE>
NOTE 5 - RESTRUCTURING COSTS
A summary of charges for restructuring and other costs follows for the
quarters ended (in thousands):
September 30, September 30,
1995 1994
------------- -------------
Product discontinuance* $ -- $ 2,283
Downsizing and integration -- 1,242
Writedown of non-performing assets
and other -- 129
-------- --------
Total $ 0 $ 3,654
-------- --------
-------- --------
* Includes reserves for inventory of $1.9 million for the period
ended September 30, 1994.
NOTE 6 - SHAREHOLDERS' EQUITY
On August 8, 1995 the Company issued 650,000 shares of its Common Stock in
a private placement to multiple investors for $6.26 per share; the net
proceeds from the sale were $ 4.1 million. The proceeds were used primarily
to fund the settlement of the Company's shareholder class action lawsuit. (See
Note 7 for related discussion.)
NOTE 7 - SHAREHOLDER LITIGATION SETTLEMENT
In early August 1995, the Company made a payment totaling $3.6 million and
the Company's insurance carrier paid $3 million which the Company had
recorded in prepaid expenses and other assets liquidating the July 1, 1995
$6.6 million accrual. On August 28, 1995, the federal court approved the
settlement agreement.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
interim financial statements and notes thereto, and the Annual Report on Form
10-K for the fiscal year ended July 1, 1995.
RESULTS OF OPERATIONS
NET SALES. Total net sales were $17.0 million for the three-month period
ended September 30, 1995, an increase of $0.8 million or 5% from the
corresponding period of the previous year, and an increase of $0.8 million or
5% from the immediately preceeding quarter. During the latter part of the
first quarter of fiscal 1995 the Company began to separate and analyze its
product lines in terms of "Truevision" and "RasterOps" products. The
Truevision product line consists of all video and OEM products, while
RasterOps product line consists of Macintosh and PC graphics acceleration
cards and monitors. At that time, the Company elected to terminate its
entire PC graphics product line, reduce its dependency upon monitor sales and
focus its future on its higher-margin Truevision (desktop digital video)
product line.
The results for the three-months ended September 30, 1995 are comprised of
revenues of $16.1 million of Truevision products and $0.9 million of
RasterOps products. This compares with $14.2 million and $2.1 million,
respectively, in the prior quarter, and $8.8 million and $7.5 million,
respectively, in the immediately preceding quarter. The product mix change in
terms of revenue dollars is due to a shift in the Company's product focus
during fiscal 1995. The following table compares Truevision and RasterOps
product line revenues for the quarters ended September 30, 1995, July 1, 1995
and September 30, 1994:
<TABLE>
<CAPTION>
(in millions, except gross margin percentage) FY1996 Q1 FY1995 Q4 FY1995 Q1
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Truevision $16.1 $14.2 $ 8.8
RasterOps:
Monitors 0.0 0.4 5.8
Graphic boards 0.9 1.7 1.7
------- ------- -------
$ 0.9 $ 2.1 $ 7.5
-------- ------- -------
Total $17.0 $16.3 $16.3
-------- ------- -------
-------- ------- -------
GROSS MARGIN PERCENTAGE 36.4% 36.2% 1.2%
-------- ------- -------
-------- ------- -------
</TABLE>
During fiscal 1995 the Company also began focusing its efforts on building
its OEM customer base. Sales to OEM's during the three-months ended
September 30, 1995 were $9.2 million or 54% of total net sales compared to
$2.7 million or 16% for the corresponding period of the previous year, and
$7.8 million or 47.9% for the immediately preceding quarter. During fiscal
1995, the Company negotiated a three-year agreement with Avid which accounted
for 42% of total net sales for the three-months ended September 30, 1995.
During the quarter and fiscal year ended July 1, 1995, Avid accounted for
approximately 29% and 16%, respectively, of the Company's total net sales.
International net sales were $3.5 million for the three-month period ended
September 30, 1995, a decrease of $0.8 million from the same period in the
previous year. International net sales represented 20% of total net sales
for the three-months ended September 30, 1995, compared to 26% for the
corresponding period of the previous year, which were comprised of 63%
RasterOps products. Although international sales decreased in total for the
quarter ended September 30, 1995 compared to the same period in the previous
year, sales of video graphics products have increased to $3.2 million from
$1.6 million.
Truevision's non-OEM customers generally place orders on an "as-needed"
basis and, as a result, backlog at the beginning of each quarter represents
only a portion 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
absence of backlog also 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. Truevision's results of operations
may fluctuate from
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<PAGE>
quarter to quarter due to these and other factors, such as announcements by
Truevision, its competitors or the manufacturers of platforms with which
Truevision's products are used.
GROSS PROFIT. The Company had a gross profit of $6.2 million or 36.4% of
net sales during the quarter ended September 30, 1995 compared to a gross
loss of $2.5 million or 15.3% of net sales for the same period in the
previous year, and a gross profit of $5.8 million or 35.6% of net sales in
the immediately preceeding quarter. The Company's gross margins have improved
as the Company shifted its focus to developing, manufacturing and selling
more high-margin desktop video products and at the same time exiting the
low-margin monitor business. In the quarter ended September 30, 1994, the
Company recorded additional inventory reserves of $6.0 million (excluding the
$1.9 million included in restructuring costs) to reduce net realizable values
to reflect management's current plans and market expectations.
RESEARCH AND DEVELOPMENT EXPENSES. For both quarters ended September 30,
1995 and 1994, research and development expenses were approximately 10% of
net sales. In the absence of unusual circumstances or events, the Company
expects that research and development spending as a percentage of sales will
remain relatively constant through the remainder of fiscal 1996.
The Company believes that continued investment in research and development
is critical to its future growth and competitive position in its market for
broadcast video and color imaging systems and is directly related to timely
development of new and enhanced products. The Company, therefore, may
experience increased research and development spending in future periods.
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 enable to maintain or increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense decreased $3.9 million, or 49%, to $4.0 million for
the three-month period ended September 30, 1995 compared to $7.9 million for
the corresponding period of the previous year. As a percentage of net sales,
selling, general and administrative expense decreased to 24% in the
three-month period ended September 30, 1995 compared with 48% for the
corresponding period of the previous year. The decrease of $3.9 million is
primarily due to increased expenses in the prior year quarter due to:
(1) increased reserves for bad debts attributable to two of the
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<PAGE>
Company's foreign distributors; (2) lease terminations; and (3) legal fees.
Additionally, the Company instituted ongoing efforts for reducing the
Company's overhead costs after the first quarter of fiscal 1995. The Company
expects that selling, general and administrative spending will remain
relatively constant through the remainder of fiscal 1996.
OTHER INCOME (EXPENSE). Other expense for the three-month period ended
September 30, 1995 is comprised primarily of transaction losses from foreign
exchange.
SPECIAL CHARGES
FISCAL 1995 - 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 elected 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 nine months ended July 1, 1995, adjusted the reserve
downward by $1.8 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
reduced facilities and amortization expenses by $317,000 during fiscal 1995
and will decrease facilities and amortization expense by $267,000 during
fiscal 1996. The reserve for employee severance has been fully utilized.
The Company has a remaining restructuring reserve balance of $383,000 and
$478,000 as of September 30, 1995 and July 1, 1995, respectively, related to
this restructuring.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. For the three-month period ended September
30, 1995, the Company had cash and cash equivalents of $7.8 million, compared
to $10.4 million at July 1, 1995. Working capital increased from
$14.2 million at July 1, 1995 to $24.1 million at September 30, 1995. During
the first quarter of fiscal 1996, net cash used in operating activities was
$7.3 million compared to $2.7 million during the first quarter of fiscal 1995.
The increase in cash used in operating activities is due primarily to the
Company's settlement payment of $3.5 million made in August 1995 related to
the shareholder class action lawsuit, and an increase of accounts receivables
due to increased revenues and the timing of revenues (i.e., late in the
quarter).
The Company spent approximately $0.4 million and $0.1 million for new
equipment during the quarters ended September 30, 1996 and 1995,
respectively. Additionally, the Company acquired new equipment under capital
leases totaling $0.2 million in the first quarter of fiscal 1996. The Company
has no material commitments for the purchase of capital equipment.
Substantially all of the Company's sales are made directly to OEMs,
distributors, value added resellers (VAR's), authorized independent dealers
and retail chains. While the Company intends to continue its policy of
careful inventory and receivables management, it believes that in the future
somewhat greater levels of inventory and receivables relative to sales may be
needed to serve its distribution channels.
The Company satisfied its cash requirements for the first quarter of fiscal
1996 primarily from its beginning balance of $10.4 million, funds of $5
million generated from the issuance of 650,000 shares of the Company's common
stock in a private placement to multiple investors in August 1995 ($4.1
million, net of issuance costs) and proceeds from sale under employee stock
purchase plan and stock options exercised, and cash generated from operations
(i.e., net income plus noncash transactions affecting net income). For the
first quarter of fiscal 1995, the Company's cash requirements were satisfied
primarily from its beginning balance of $8.3 million and cash generated from
operations. On June 13, 1995, the Company amended the bank line of credit
agreement allowing it to borrow up to $7 million based upon percentages of
eligible accounts receivable. As of September 30, 1995, the Company had
borrowings of $1.9 million under the bank line of credit and guarantees
through issuance of letters of credit to suppliers of $1.3 million.
The Company believes that its current cash and cash generated from operations
together with its existing credit facilities will be sufficient to meet the
Company's cash requirements for at least the next year.
The Company believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of
opportunities as they may arise. The Company may, from time to time, as
market and business conditions warrant, invest in or acquire complementary
businesses, products or technologies. The Company may effect additional
equity or debt financings to fund such activities. The sale of additional
equity or convertible debt securities could result in additional dilution in
the equity ownership of the Company's shareholders.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) Information related to an action in which the Company was
involved is provided in Note 7 to the consolidated interim financial
statements included in this quarterly report, and such information is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on October 24, 1995,
pursuant to the Notice of Annual Meeting of Shareholders and Proxy Statement
dated September 24, 1995, 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 (10,812,983:151,840), Louis J.
Doctor (10,814,621:150,202), Gordon E. Eubanks, Jr.
(10,819,483:145,340), William H. McAleer (10,820,983:143,840),
Keith E. Sorenson (10,757,051:207,772), and Conrad J. Wredburg
(10,820,983:143,840) as directors of the Company; and
(2) the approval of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common
Stock to 25,000,000 shares (10,678,639:270,164:16,020:0); and
(3) the approval of a change in the Company's state of incorporation
from California to Delaware by means of a merger of the Company with
a wholly owned subsidiary of the Company
(6,606,857:937,746:12,840:3,407,380); and
(4) 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 515,000 shares
(9,719,015:1,212,404:33,405:0); and
(5) the approval of an amendment to the Company's Amended and Restated
1991 Director Option Plan to increase the number of shares of Common
Stock authorized for issuance thereunder by 100,000 shares
(9,649,202:1,255,985:59,636:0); and
(6) the approval of an amendment to the Company's Amended and Restated
1991 Director Option Plan to provide for a one-time grant of an
option to purchase 25,000 shares of Common Stock to any non-employee
who acts as Chairman of the Board of Directors of the Company
(10,406,939:498,759:59,125:0); and
(7) the ratification of the appointment of Price Waterhouse LLP as the
Company's independent accountants for fiscal 1996
(10,906,720:41,340:16,763:0).
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 September 30, 1995.
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<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: November 14, 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.)
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,809
<SECURITIES> 0
<RECEIVABLES> 14,629
<ALLOWANCES> 742
<INVENTORY> 10,997
<CURRENT-ASSETS> 34,200
<PP&E> 14,420
<DEPRECIATION> 11,707
<TOTAL-ASSETS> 38,630
<CURRENT-LIABILITIES> 14,528
<BONDS> 0
<COMMON> 52,873
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,630
<SALES> 17,044
<TOTAL-REVENUES> 17,081
<CGS> 10,837
<TOTAL-COSTS> 10,837
<OTHER-EXPENSES> 5,863
<LOSS-PROVISION> 177
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 430
<INCOME-TAX> 10
<INCOME-CONTINUING> 430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
