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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 1, 1995 Commission file number 000-18404
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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, SANTA CLARA, 95051
CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (408) 562-4200
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
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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. ( )
Aggregate market value of the Common Stock held by non-affiliates of the
Registrant based on the closing price of such stock on September 6, 1995:
$100,798,867
Number of shares of Common Stock outstanding as of September 6, 1995:
12,430,407
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DOCUMENT INCORPORATED BY REFERENCE
The following document is incorporated by reference in those Parts of this
Annual Report on Form 10-K, as are set forth below, but only to the extent
specifically stated in such Parts hereof:
(1) Portions of the Proxy Statement for Annual Meeting of Shareholders held on
October 24, 1995, referred to herein as the "Proxy Statement", are
incorporated as provided above in Part III.
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<PAGE>
PART 1
ITEM 1. BUSINESS
RasterOps designs, develops, manufactures and markets professional quality
digital video production and imaging subsystems and true-color, photo realistic
graphics and imaging products for Apple and IBM-compatible personal computers.
The Company has two primary lines of business: its Truevision line of digital
video production subsystems and its RasterOps line of graphics and imaging
products.
BACKGROUND
The digital video industry is a large and diverse business encompassing such
broad applications as the production of commercials for broadcast on television,
general post production video, animation, corporate videos, film and medical
imaging. Developments over the past few years have allowed the personal computer
users in the video, animation, film and medical industries the ability to
create, develop, view, or use applications employing a combination of data
formats, including full motion video, digital audio, still photographs,
animation, graphics, and text. In the past, these types of applications were
primarily confined to very expensive analog equipment.
The video graphics industry is also a large and diverse business
encompassing the production of magazines, newspapers, print advertising,
packaging, labeling, product brochures, annual reports and a wide variety of
printed material. Developments over the past few years have allowed personal
computer users in the graphic arts and other industries the ability to create,
develop, view or use applications employing a combination of data formats,
including full motion video, digital audio, telecommunications, still
photographs, animation, graphics and text. These applications once were confined
to expensive, high-performance workstations.
STRATEGY
RasterOps' primary goal is to be the leading supplier of desktop computer
video solutions for business and broadcast applications. Until recently, digital
video production systems, although significantly cheaper than analog video
systems, have been significantly slower than such analog systems, and the
picture quality has been inadequate for many high-end applications. As a result
of this and other factors, digital video systems currently account for a
relatively small percentage of the total professional video authoring market.
The Company believes that recent improvements in digital video technology are
permitting the introduction of products with increased speed and higher picture
quality. As the speed and quality of digital video continue to improve, the
Company believes that there is an emerging market opportunity to transition
users of analog video systems to digital. RasterOps' strategy is to take
advantage of this emerging opportunity through the Company's array of Truevision
digital video products.
RasterOps anticipates that personal computer users will continue to demand
ever-increasing performance and features from their computer peripherals at
ever-decreasing costs. RasterOps also expects that the trend to make computers
smaller in size will continue, which will require peripherals to become smaller.
Therefore, through its in-house circuit design capabilities, RasterOps continues
to emphasize the development of proprietary high-performance VLSI chips which
reduce on-board space and power requirements while lowering manufacturing costs.
RasterOps products are driven primarily by its proprietary software,
portions of which reside as firmware on RasterOps' circuit boards and portions
of which are provided on floppy disks. RasterOps' strategy is to continue
extensive software development to provide greater functionality, to facilitate
development of application software and to expand the number of computer
platforms with which its products can be integrated.
RasterOps will continue to work closely with other industry leaders to
improve their product offerings to end-user customers. The Company's primary
Original Equipment Manufacturer (OEM)
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customers such as AVID Technology, Cognex, Datacard Corporation, Dai Nippon
Manufacturing Company, Microtime, Inc. and Sony Corp. continue to incorporate
the Company's multimedia and video technology into some of their products.
PRODUCTS
RasterOps' products are primarily add-in boards for Apple and IBM-compatible
personal computers that convert analog video input into digital format and
capture it for subsequent processing by the Company's products. The products
then permit users to edit and manipulate the digital video, combine it with
graphics, animation and other information and ultimately display the resulting
output. The products are used principally by video professionals to replace or
supplement traditional analog video editing systems.
The major Truevision and RasterOps products and product lines consist of the
following (1):
<TABLE>
<CAPTION>
PRODUCT FAMILY PRODUCT DESCRIPTION MARKET SEGMENT SERVED
- ---------------- ---------------------------------------------------------------- ------------------------------
<S> <C> <C>
TARGA 2000 An integrated digital production engine designed to meet the On air broadcast
E (EISA) needs of the digital video production industry by providing Post-production video
N (NuBus) professional quality capture, playback and non-linear editing Desktop post-production
P (PC) capabilities with JPEG compression and CD quality stereo audio. Desktop video production
OEM The TARGA 2000 captures and plays back full-motion, full
resolution digital video (including composite, S-VHS and
component formats) on various computer bus standards (including
NuBus, EISA and PCI).
TARGA+ An industry standard video capture and playback board that On air broadcast
provides professional quality video capabilities for PCs. The Industrial imaging
TARGA+ offers the ability to combine live video input, graphics Video/graphics overlay
and text and to output the result with broadcast quality. Video image capture
VISTA A programmable, 32-bit/pixel video graphics board for On air broadcast
ATVista Macintoshes and PCs that can integrate video with computer Post-production video
NuVista graphics or the output of graphics with videotape. Animation
Presentation CAD
Industrial imaging
Paintboard Accelerated 24-bit graphics cards for Macintosh computers with Desktop publishing
Prism NuBus bus architecture. Supports large screen display Business productivity
Prism GT resolutions of up to 1152 x 870. Business presentation
Graphics design
<FN>
- ------------------------
(1) In addition to these products, Truevision manufactures and sells a number
of specially designed OEM products for individual applications.
</TABLE>
The most recent additions to the Truevision product line (i.e., the TARGA 2000
family) are based on the Company's proprietary DVR architecture. The DVR
architecture consists of a chipset that provides for analog video input in
various video formats, an analog to digital converter to render the video in
digitized form, digital video compression chips, on-board memory to speed
processing of the video and a central hub to control the entire process. The
architecture is modular, to permit the Company more easily to incorporate
advances in technologies as they occur, and to permit end users to upgrade their
systems more cheaply and easily. In this respect, the Company has recently
developed and continues to develop versions of its Targa 2000 board for the PCI
bus, which is expected to and currently offers significantly increased
processing speed and quality of video output.
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MARKETING AND SALES
RasterOps' products are sold to end-users through OEMs, value added
resellers (VARs), authorized resellers and national and international
distributors. Selling prices to such customers include competitive discounts
from RasterOps' suggested retail prices. RasterOps grants limited rights of
return based on negotiations with individual customers and generally such rights
are based on volume purchases. In addition, in the normal course of business,
RasterOps also will have warranty returns for product failure. RasterOps
provides warranties for its products for periods of one to three years. Warranty
returns are reserved for at the time of sale based on historical warranty
returns, which have not been significant since RasterOps' inception.
Substantially all of RasterOps' domestic sales are made directly through
OEMs, national distributors and chains, independent resellers, and VARs. The
field sales force, consisting of Company sales office personnel and
manufacturers' representative firms, is responsible for selling RasterOps'
products to resellers, national distributors and chains, and provides marketing
training and technical support.
RasterOps generates substantially all of its international sales through a
network of distributors located in Europe, the Pacific Rim and South America, as
well as in other areas of the world. Total international net sales represented
approximately 29.6%, 30.7%, and 42.9% of total net sales for the fiscal years
ended 1995, 1994, and 1993, respectively.
RasterOps operates on an international basis with virtually all transactions
denominated in U.S. dollars. International operations are subject to risks
common to export activities, including governmental regulations and trade
barriers. For a more complete discussion, see "Certain Factors That May Affect
the Company's Future Results of Operations -- International Operations."
Substantially all of RasterOps' international sales must be licensed by the
Office of Export Administration of the U.S. Department of Commerce. RasterOps
has not experienced any material difficulties to date in obtaining export
licenses.
During the fiscal year ended 1995 only one individual customer accounted for
greater than 10% of RasterOps total revenue.
MANUFACTURING
RasterOps' manufacturing operations consist primarily of component sourcing
and testing, kitting, quality assurance, final testing and packaging. RasterOps
currently procures substantially all of its parts from outside suppliers. For
the assembly of its products, RasterOps relies primarily on two subcontractors
who use components purchased, tested and kitted by RasterOps. RasterOps has
developed a comprehensive quality assurance program with its subcontractors, and
each product undergoes thorough quality inspection and testing at the final
assembly stage.
During the later part of fiscal 1994 and during the early part of fiscal
1995, substantial efforts were devoted to integrating the manufacturing
operations of Truevision with those of RasterOps. All component purchasing and
final product testing and packaging functions are now performed at its Santa
Clara, California location. The Company implemented this integration in an
effort to achieve greater buying power with its vendors, add more cohesiveness
in terms of its planned production strategy, and lower manufacturing costs. In
addition in fiscal 1994, RasterOps sold its entire color printing business, thus
enabling the Company to concentrate all of its manufacturing efforts on graphics
and video products. For a more complete discussion, see "Certain Factors That
May Affect the Company's Future Results of Operations -- Risks Associated with
Manufacturing Operations."
Nearly all components used in RasterOps' products are available from
multiple sources. However, as is common with others in the electronics industry,
RasterOps has in the past paid premium prices to obtain certain components that
were in short supply and there can be no assurance that shortages will not occur
in the future. Such shortages may significantly increase the cost or delay the
shipment of RasterOps' products. Some components used in RasterOps' products are
available only from sole
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suppliers, such as certain ASIC's that are available only from LSI Logic Corp.,
American Microsystems, Inc., NEC Electronics Inc., and Toshiba America
Electronic Components, Inc. RasterOps expects these vendors to continue to
supply its requirements for these items. At the present time world demand for
these types of components and various memory chips continues to grow at an
unprecedented pace, creating supplier capacity shortages. This is causing lead
times to be lengthened, making it more difficult to meet changes in customer
demand or engineering specifications in a timely manner. RasterOps purchases
these components pursuant to purchase orders placed from time to time in the
ordinary course of business and has no guaranteed supply arrangements with its
suppliers. There can be no assurance that shortfalls will not occur. An extended
supply interruption for any of the components currently obtained from a single
source could have an adverse impact on RasterOps' results of operations. For a
more complete discussion, see "Certain Factors That May Affect the Company's
Future Results of Operations -- Dependence on Sole and Limited Source Suppliers
and Subcontractors."
RasterOps' retail and distributor customers generally place orders on an
as-needed basis, and, as a result, backlog at the beginning of a quarter
generally represents only a small percentage of product sales anticipated in
that quarter. Quarterly revenues and operating results therefore depend on the
volume and timing of bookings received during the quarter, which are difficult
to forecast. RasterOps' results of operations may fluctuate from quarter to
quarter due to changes in backlog and to other factors such as announcements by
RasterOps, its competitors or the manufacturers of platforms with which
RasterOps' products are used.
TECHNOLOGY AND PRODUCT DEVELOPMENT
RasterOps expects the demand for high-performance video systems to continue
in the coming years. In order to maintain its competitive position in existing
and emerging markets, RasterOps believes that it must continue to introduce
products that offer high price-performance solutions to its customers. RasterOps
has traditionally supported both the Macintosh and the PC based marketplaces
with various video and graphics products. This will continue to be the case in
the coming year and is made easier with the almost universal adoption of the PCI
expansion bus by both Macintosh and PC vendors. Although many of the hardware
differences between the two platforms are disappearing, their are still
important software differences and RasterOps will continue to maintain qualified
software engineering staffs for both Macintosh and PC systems.
RasterOps continues its focus on the development of hardware and software
solutions for users who wish to integrate real-time video, stereo sound and
photo realistic color with their applications. Products like the TARGA 2000 line
of professional-quality multimedia/desktop video editing products have been
instrumental in the continual transformation of personal computers into
high-performance multimedia and video production workstations.
In-house proprietary ASICs continue to be the cornerstone of RasterOps
efforts at developing state-of-the-art imaging solutions. Many of these ASICs
serve as building blocks for multiple products, thereby reducing design time and
enhancing RasterOps ability to develop products faster.
As part of its technology development efforts, RasterOps has formed several
OEM partnerships with industry leaders in the video production marketplace. Avid
Technologies, a world leader in non-linear editing systems for the television
and film industries, has had RasterOps products at the heart of their systems
since Avid's inception in the late 1980s.
RasterOps believes that the competitive nature of the computer industry,
along with the rapid pace of technological change, requires that it continue to
introduce innovative products on a timely basis. RasterOps' product development
efforts focus on expanding its digital video expertise, maximizing product cost
efficiencies, and broadening its product mix to address the needs of emerging
markets.
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Expenditures for research and development in fiscal 1995, 1994 and 1993 were
approximately $6,831,000, $7,844,000 and $8,816,000, respectively. RasterOps did
not capitalize any software development costs as no significant costs were
incurred after technology feasibility was established.
At July 1, 1995 RasterOps employed 34 engineers, 17 of whom were engaged in
software development or related activities and 17 in hardware development or
related activities.
COMPETITION
The markets for RasterOps products are extremely competitive and RasterOps
expects the competition to continue to increase. Radius, VideoLogic Inc., Data
Translation Inc., Matrox Inc., and Fast Electronics GmbH are its principal
competitors.
Many of RasterOps current and prospective competitors have significantly
greater financial, technical, manufacturing and marketing resources than
RasterOps, and may produce additional products competitive with those of
RasterOps. There can be no assurance that RasterOps could compete effectively
with such products. RasterOps 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 RasterOps and its competitors, product performance
and price, distribution and customer support. There can be no assurance that
RasterOps will be able to compete successfully with respect to these factors.
Moreover, to the extent that competitive pressures require price reductions more
rapidly than RasterOps is able to cut its costs, profitability may be adversely
affected. RasterOps expects gross margins to continue to be affected by price
pressures in fiscal 1996. For a more complete discussion, see "Certain Factors
That May Affect the Company's Future Results of Operations -- Competition."
PATENTS AND TRADEMARKS
On July 20, 1993, RasterOps was granted U.S. patent No. 5,229,852 for "Real
time Video Converter Providing Special Effects." This technology is used in
RasterOps video-in-a-window products and incorporates such special affects as
scaling and clipping. On February 22, 1994, RasterOps was granted U.S. patent
No. 5,289,565 for "Method and Apparatus for CYMK-RGB RAMDAC" and on June 28,
1994, Truevision was granted U.S. patent No. 5,325,195 for "Video Normalizer for
a Display Monitor." On July 5, 1994, RasterOps was granted U.S. patent No.
5,327,243 for "Real time Video Converter." RasterOps also has two patent
applications pending in the United States for live video technology, color
calibration and color management. This technology is currently used in various
RasterOps products.
RasterOps attempts to protect its trade secrets and other intellectual
property through agreements with customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures. While RasterOps ability to compete may be affected by its ability to
protect its intellectual property, RasterOps believes that, because of the rapid
pace of technological change in the industry, its technical expertise and
ability to innovate on a timely basis will be important in maintaining its
competitive position in addition to rigorously protecting its intellectual
property. Although RasterOps continues to implement protective measures and
intends to defend its intellectual property rights, there can be no assurance
that these measures will be successful. For a more complete discussion, see
"Certain Factors That May Affect the Company's Future Results of Operations --
Uncertainty Regarding Proprietary Rights."
EMPLOYEES
As of July 1, 1995, RasterOps had 176 employees, of whom 42 were engaged in
research and development, 47 in manufacturing and 87 in sales, general and
administration. RasterOps' future success will depend, in part, on its ability
to continue to attract, retain and motivate highly qualified technical,
marketing and management personnel, who are in great demand. RasterOps'
employees are not represented by any collective bargaining organization, and
RasterOps has never experienced a
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work stoppage. RasterOps believes that its employee relations are good. For a
more complete discussion, see "Certain Factors That May Affect the Company's
Future Results of Operations -- Dependence on Key Personnel; Recent Management
Changes."
ITEM 2. PROPERTY
RasterOps' principal facilities are located in Santa Clara, California and
Indianapolis, Indiana, and consist of approximately 60,000 and 30,000 square
feet, respectively, of office space leased pursuant to agreements that expire in
1996 and 1998, respectively. This space is used for product development,
manufacturing, sales, marketing and administration. RasterOps leases sales
offices outside the United States in France, United Kingdom, Germany and an
office in the Netherlands. RasterOps believes its existing facilities are
adequate to meet current and foreseeable requirements and that suitable
additional or alternative space will be available as needed on commercially
reasonably terms.
ITEM 3. LEGAL PROCEEDINGS
(a) 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 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 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 which
called for payments totaling $6.5 million paid in August of 1995. The total
settlement of $6.5 million was approved by the federal court on August 28, 1995.
(b) On July 20, 1993, RasterOps was granted U.S. Patent No. 5,229,852 for
"Real time Video Converter Providing Special Effects." This technology is used
in RasterOps' and its subsidiary, Truevision's video-in-a-window products. On
October 11, 1993, after reviewing Radius' VideoVision products, RasterOps
demanded that Radius cease the production, selling and use of these products and
any other products infringing on this patent. On November 23, 1993, RasterOps
filed a lawsuit in the Federal District Court of Northern California alleging
patent infringement. In September of 1994, the Company determined that the
continuing costs of this action were not in the Company's best interest and, as
a result, legal action was terminated in December 1994.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1995 to a vote
of the Company's security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company are as follows:
<TABLE>
<S> <C> <C>
Louis J. Doctor 37 President and Chief Executive Officer
R. John Curson 52 Senior Vice President, Chief Financial Officer and
Secretary
Carl C. Calabria 36 Senior Vice President, Engineering
Robert J. O'Brien 45 Senior Vice President, Worldwide Sales
William M. Carter 46 Vice President, Operations
Rondal J. Moore 37 General Counsel, Vice President
Harvey Chesler 37 Corporate Controller
</TABLE>
All executive officers serve at the pleasure of the Board of Directors.
There are no family relationships among the directors or executive officers of
the Company.
Mr. Louis J. Doctor has been President and Chief Executive Officer since he
joined the Company in October 1994. Prior to joining the Company he was
president of the Arbor Group, which offered corporate clients a full range of
strategic services in the technology arena since May 1994. He also held
positions of Executive Vice President and Vice President of Business Development
at SuperMac Technology, Inc. from June 1991 to April 1994. In March 1981, Mr.
Doctor co-founded Raster Technologies, an industry pioneer in high-end graphics
and imaging systems, and served as its President until January 1989. Mr. Doctor
was an independent consultant from January 1989 to June 1991.
Mr. R. John Curson has been Senior Vice President, Chief Financial Officer
and Secretary since he joined the Company in November 1993. Prior to Joining the
Company he served as Chief Financial Officer at LH Research, Inc. from 1992 to
1993. Additionally, Mr. Curson has held positions such as Chief Financial
Officer for Martec Corporation and Chief Financial Officer for Dysan. He also
held Vice President of Finance positions for Xidex Corporation and Dataproducts
Corporation.
Mr. Carl C. Calabria has been Senior Vice President, Engineering since July
1994. From July 1990 through June 1994 he served as Executive Vice President,
Engineering of Truevision, Inc. From September 1987 until July 1990, he served
as Co-President and Director of Engineering of Truevision Inc., and from
September 1987 until December 1991, he served as a Director of Truevision, Inc.
In June 1984, Mr. Calabria co-founded the AT&T EPI Center and served as Senior
Design Engineer until 1986 when he was appointed Manager of Research and
Development.
Mr. Robert J. O'Brien has been Senior Vice President, Sales since joining
the Company in December 1994. Prior to joining the Company, Mr. O'Brien was
Senior Vice President, Sales and Marketing for ULSI Systems, Inc. from 1992 to
1994. Additionally, Mr. O'Brien has held positions such as Vice President, Sales
and Marketing InfoChip Systems, Inc. and Vice President/General Manager for
Western Digital Corporation. He also held National Sales Manager positions for
Tecmar Corporation, SoftSmith, and The GAP Stores.
Mr. William Matt Carter has been Vice President Operations since joining the
Company in April 1995. Prior to joining the Company, Mr. Carter founded Photon
Machines Incorporated in 1991. Mr. Carter served as President and Chief
Executive Officer. Prior to founding Photon Machines Inc. Mr. Carter was a
founder of Radius, Inc., a manufacturer of large screen monitors and graphics
peripherals for Apple Macintosh and IBM compatible personal computers. Mr.
Carter served as Vice President Operations, Corporate Secretary and as a member
of the Board of Directors. Before founding Radius, Inc. Mr. Carter held
management positions at other companies such as Apple Computer, Inc., and Four
Phase Systems, Inc.
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Mr. Harvey Chesler has been Corporate Controller since joining the Company
in July 1994. Prior to joining the Company, Mr. Chesler was Vice President of
Finance for the Merchandising Division of MCA/Universal from September 1992 to
July 1994. Additionally, Mr. Chesler has held Controller positions at Xidex
Corporation and Peripheral Technology.
Mr. Rondal J. Moore has been Vice President and General Counsel for the
Company since May 1995. Mr. Moore had been General Counsel since joining the
Company in November 1994. Prior to joining the Company, he served as Associate
Counsel for Business Development as well as in various other positions with
SuperMac Technology from December 1989 through November 1994. Additionally, Mr.
Moore has served as the General Manager for a transportation company, S & M
Marketing, and as a Supply Officer in the United States Navy.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
COMMON STOCK MARKET PRICE:
<TABLE>
<CAPTION>
MARCH DECEMBER SEPTEMBER
QUARTER ENDED 1995 JULY 1 31 31 30
- -------------------------------------------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
High........................................ $6 5/8 $5 1/4 $4 3/4 $ 4 3/4
Low......................................... $4 $2 3/4 $2 1/4 $ 3 1/8
<CAPTION>
JUNE MARCH DECEMBER SEPTEMBER
QUARTER ENDED 1994 30 31 31 30
- -------------------------------------------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
High........................................ $6 1/8 $9 $9 $11
Low......................................... $4 1/8 $5 1/8 $6 5/8 $ 8 1/8
</TABLE>
The table above sets forth for the quarters indicated the high and low sales
prices for the common stock as reported on the NASDAQ National Market System. As
of September 6, 1995, the Company had approximately 336 shareholders. The price
for the common stock as of the close of business on September 6, 1995 was $9.50.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JULY 1, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
YEAR ENDED 1995 1994 1993 1992 1991
- ------------------------------------------------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales........................................ $ 66,318 $ 79,175 $ 100,023 $ 121,699 $ 105,518
Restructuring and other costs.................... 3,654 6,694 9,590 -- --
Litigation settlement expense.................... 3,675 -- -- -- --
Income (loss) before income taxes................ (20,231) (20,865) (16,730) 8,359 11,711
Net income (loss)................................ (20,231) (20,865) (12,163) 5,157 7,543
Net income (loss) per share...................... (2.12) (2.20) (1.49) 0.64 0.92
Average common shares and equivalents............ 9,565 9,466 8,189 8,115 8,164
YEAR END STATUS
Total assets..................................... $ 40,726 $ 44,701 $ 66,704 $ 74,590 $ 64,104
Long-term obligations............................ $ 44 $ 247 $ 747 $ 1,250 $ 1,008
Shareholders equity.............................. $ 18,527 $ 30,231 $ 50,193 $ 50,779 $ 44,500
Working capital.................................. $ 14,215 $ 23,671 $ 42,487 $ 42,571 $ 37,878
Current ratio.................................... 1.6 2.7 3.7 2.9 3.0
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data and the consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS. The following tables set forth items in the
consolidated statements of operations as a percentage of net sales for each of
the three fiscal years in the period ended July 1, 1995, and the year-to-year
percentage change in the dollar amounts of certain items in fiscal 1995 and 1994
($ in thousands, except per share data):
<TABLE>
<CAPTION>
JULY 1, JUNE 30, JUNE 30,
PERCENTAGE OF NET SALES 1995 1994 1993
- ------------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Net sales..................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................. 77.8 76.2 64.5
----- ----- -----
Gross profit.................................................................. 22.2 23.8 35.5
Operating expenses:
Research and development.................................................... 10.3 9.9 8.8
Selling, general and administrative......................................... 31.0 31.9 34.4
Restructuring and other costs............................................... 5.5 8.5 9.6
----- ----- -----
Loss from operations.......................................................... (24.6) (26.5) (17.3)
Litigation, interest and other income (expense), net.......................... (5.9) 0.1 0.6
----- ----- -----
Loss before benefit from income taxes......................................... (30.5) (26.4) (16.7)
Benefit from income taxes..................................................... -- -- 4.5
----- ----- -----
Net loss...................................................................... (30.5)% (26.4)% (12.2)%
----- ----- -----
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
1995 CHANGE 1994 CHANGE 1993
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................................ $ 66,318 (16)% $ 79,175 (21)% $ 100,023
Gross profit............................................. 14,695 (22)% 18,882 (47)% 35,501
Operating expenses....................................... 31,021 (22)% 39,825 (25)% 52,827
Net loss................................................. (20,231) (3)% (20,865) 72% (12,163)
Net loss per share....................................... (2.12) (4)% (2.20) 48% (1.49)
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. RasterOps' total net sales for fiscal 1995 decreased $12.9
million, or 16.3%, to $66.3 million compared to total net sales of $79.2 million
in fiscal 1994. International net sales represented 30% of total net sales
compared to 31% in fiscal 1994. The decrease in net sales is due to a shift in
the Company's product focus during fiscal 1995. During the latter part of the
first quarter of fiscal 1995 the Company began to separate, view and analyze its
product lines in terms of "Truevision" and "RasterOps" products. The Truevision
product line consists of all video and OEM products, while the RasterOps product
line consists of its traditional products, such as Macintosh boards, PC graphics
acceleration cards and monitors. At that time, the Company elected to terminate
its entire PC graphics product line, reduce its dependency upon monitor sales
and focus its future on its higher-margin Truevision (desktop digital video)
product line.
10
<PAGE>
The following table indicates the total net sales by product line for the
years ended July 1, 1995 and June 30, 1994 ($ in millions):
<TABLE>
<CAPTION>
YEAR-YEAR %
PRODUCT LINE: 1995 % SALES 1994 % SALES CHANGE
- ------------------------------------------ --------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
RasterOps:
Macintosh boards........................ $ 7.1 10.7% $ 13.4 16.9%
Monitors................................ 13.7 20.7 30.4 38.4
PC graphics boards, other............... .2 0.3 2.3 2.9
--------- ----- --------- -----
21.0 31.7 46.1 58.2 (54.4)%
--------- ----- --------- -----
Truevision:
Macintosh OEM........................... 7.1 10.7 6.8 8.6
Video................................... 24.8 37.4 20.4 25.7
Video OEM............................... 12.0 18.1 5.9 7.5
Other................................... 1.4 2.1 -- --
--------- ----- --------- -----
45.3 68.3 33.1 41.8 36.9 %
--------- ----- --------- -----
Total net sales........................... $ 66.3 100.0% $ 79.2 100.0% (16.3)%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
Historically, the Company's net sales have consisted of a significant amount
of low-margin monitor products, however, in fiscal 1995 the Company exited
substantially all the monitor business. Of the $13.7 million of monitor sales
for fiscal 1995, the Company shipped only $400,000 during the last quarter of
fiscal 1995.
During fiscal 1995 the Company also focused its efforts to building its OEM
customer base. Sales to OEM's during fiscal 1995 were $19.1 million, or 28.8% of
total net sales, compared to $12.7 million, or 16.0% for fiscal 1994. During
fiscal 1995, the Company negotiated a three-year agreement with Avid who
accounted for 15.7% of the Company's total net sales for fiscal 1995.
RasterOps' 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
small percentage 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. RasterOps'
results of operations may fluctuate from quarter to quarter due to changes in
backlog and to other factors such as announcements by RasterOps, its competitors
or the manufacturers of the platforms with which its products are used.
GROSS PROFIT. Gross profit as a percent of net sales decreased from 24% in
fiscal 1994 to 22% in fiscal 1995. During the first quarter of fiscal 1995 the
Company increased its inventory reserves by $6.0 million (excluding the $1.9
million included in restructuring) to reduce to the net realizable value its
Macintosh boards and monitor products as the Company was experiencing a
significant reduction in customer demand for these products. The Company
believes the demand reduction in graphics products was due primarily to
intensified competition, particularly late in the first quarter, and Apple
Computer Inc.'s integration of graphics acceleration features into its Macintosh
computers and the monitor business was receiving increased competition with
entry of Apple and Sony into this market. The Company's gross margins have
improved during the last three quarters of fiscal 1995 as the Company shifted
its focus to developing, manufacturing and selling more high-margin desktop
video products and at the same time gradually exiting the low-margin monitor
business.
RESEARCH AND DEVELOPMENT EXPENSES. For both fiscal 1995 and fiscal 1994,
research and development expenses were 10% of net sales. Spending decreased in
fiscal 1995 $1.0 million compared to that in fiscal 1994. This decrease in
fiscal 1995 can be attributed in part to reduced headcount, prototype material
purchases and the discontinuance of its printer software engineering operations
located in Boulder, Colorado during the quarter ended March 31, 1994.
11
<PAGE>
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. The Company estimates
that research and development spending as a percentage of sales will remain
relatively constant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percent of net sales,
selling, general and administrative expenses were 31% and 32% in fiscal 1995 and
1994, respectively. The dollar decrease of $4.8 million in fiscal 1995 compared
to 1994 was principally a result of reduced commissions, partially due to
increasing OEM business, and related variable expenses due to lower net sales,
lower advertising and promotional spending.
INTEREST AND OTHER INCOME (EXPENSE). The decrease in interest income in
fiscal 1995 compared to fiscal 1994 was due to a lower level of invested funds.
The increase in interest expense in fiscal 1995 compared to fiscal 1994 was due
primarily to the Company's borrowings on its line of credit offset by the
partial repayment of notes payable.
INCOME TAXES. No net provision for income taxes was recorded for fiscal
years 1995 and 1994 as the Company incurred net operating losses for each of
those years. As of July 1, 1995, the Company no longer has any further carryback
potential. Because the Company believes there is sufficient uncertainty
regarding the utilization of all of the Company's tax loss and credit
carryovers, it recorded a valuation allowance for a portion of its net deferred
tax assets, which includes an amount relative to its current year's pretax loss
(Note 7).
SPECIAL CHARGES.
FISCAL 1995 -- Late in the quarter ended September 30, 1994, the Company
elected to terminate the production of its entire recently introduced PC
graphics product line which consisted of a variety of graphics acceleration
cards and record a charge for restructuring and other costs of $3.7 million. The
detail is as follows:
a) reserve of $1.9 million to reduce the related inventory to net
realizable value, and during the nine months ended July 1, 1995, the reserve
was virtually eliminated, yielding no margin on sales of related products.
The Company believes that the remaining inventory is adequately reserved;
b) 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;
c) $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; and
d) $155,000 of other costs.
The Company has a remaining restructuring reserve balance of $478,000 as of
July 1, 1995 related to this restructuring (Note 2), which it believes is
adequate to complete the restructuring.
SETTLEMENT OF LITIGATION EXPENSE. As part of the $6.5 million settlement
agreement, which was approved by the federal court on August 28, 1995 of the
Company's class-action lawsuit (Note 10), the Company recorded litigation
expense of $3.7 million, which is net of proceeds received after July 1, 1995
from the Company's Director's and Officer's liability insurance carrier.
12
<PAGE>
FISCAL 1994 -- During the quarter ended September 30, 1993, the Company
recorded a charge for restructuring and litigation of $6.5 million utilizing
$4.9 million during fiscal year 1994. This charge included costs of downsizing
and integrating its current operations, write-down of certain assets as a result
of the discontinuance of certain product lines and write-off of other impaired
assets.
In September 1993, the Company decided to discontinue the production of its
CorrectPrint series of color printers, Sweet 16 monitors and other products. The
detail is as follows:
a) writedown of the related inventory was $4.3 million, of which
approximately $91,000 of inventory remains and is fully reserved;
b) write-offs of certain other assets in the amount of $500,000,
including prepaid royalties and fixed assets no longer having economic
value. These fixed asset reductions decreased depreciation expense in fiscal
years 1995 and 1994 by $156,000 and $254,000, respectively;
c) severance and related costs associated with the integration of
RasterOps and Truevision's customer support and manufacturing operations in
fiscal 1994, and the write-off of $225,000 of certain other assets; and
d) legal fees of $470,000 associated with the Company's class action
lawsuit (Note 10). Subsequent to the first quarter of fiscal 1994, the
Company incurred additional legal costs of $234,000 related to its class
action lawsuit.
FISCAL 1993 -- During the quarter ended March 31, 1993, RasterOps undertook
a series of actions to reduce costs and expenses. Restructuring charges totaling
$6.7 million were recorded, which included severance related costs, downsizing
of its current operations and write-off of non-performing assets as a result of
the discontinuance of certain product lines.
In connection with the merger with Truevision on August 28, 1992, RasterOps
recorded a charge for restructuring and merger costs of approximately $2.9
million to reflect the combination of operations of the companies. This includes
professional fees and other direct transaction costs associated with the merger,
severance related costs primarily for termination of redundant employees,
elimination and/or relocation of duplicate sales operations and write-off of
excess property and equipment and inventory which became obsolete by the merger.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. RasterOps' total net sales for fiscal 1994 decreased $20.8
million, or 21%, to approximately $79.2 million compared to total net sales of
$100.0 million in fiscal 1993. International net sales represented 31% of total
net sales in fiscal 1994 compared to 43% in fiscal 1993. During fiscal 1994 and
fiscal 1993, European and Asia/Pacific net sales, as a percent of net sales,
declined two percentage points and seven percentage points, respectively. The
Company believes that the declines in both years resulted from greater price
pressures on both its Macintosh monitor and board products and decreased unit
volume due to research and development and part availability related delays in
planned shipments of new products. Both domestic and international net sales for
fiscal 1994 were additionally affected by customer hesitation in anticipation of
Apple's transition to the Power Macintosh platform.
GROSS PROFIT. Gross profit as a percent of net sales declined from 36% in
fiscal 1993 to 24% in fiscal 1994. The decrease can be attributed to lower
average selling prices resulting from continuing competitive price pressures and
to shifts in the Company's product mix towards lower margin products. In
addition, in the fourth quarter of fiscal 1994, the Company incurred a $3.2
million write-off associated with excess inventory on certain products which did
not meet sales volume goals, in part due to market uncertainty regarding the
impact of the Power Macintosh.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
10% of net sales for fiscal 1994, compared to 9% for fiscal year 1993. Although
spending decreased $972,000, expenses as a percent of sales increased primarily
to the decrease in sales. The decrease in spending during
13
<PAGE>
fiscal 1994 can be attributed in part to the inclusion in fiscal 1993 of a
one-time charge of compensation expense of $247,000 in connection with the
Company's acquisition of Truevision, and the discontinuance of its printer
software engineering operations located in Boulder, Colorado during the quarter
ended March 31, 1994.
During fiscal 1994, RasterOps spent approximately 40% of its research and
development dollars on PC related products and 60% on Macintosh related
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percent of net sales,
selling, general and administrative expenses were 32% and 34% in fiscal 1994 and
1993, respectively. The decrease of $9.1 million in fiscal 1994 compared to 1993
was a result of reduced commissions and related variable expenses due to lower
net sales, lower advertising and promotional spending. In addition there were
reductions resulting from the Company's cost cutting measures implemented during
the first quarter of fiscal 1994 and a one time allocation of compensation
expense of $420,000 in fiscal 1993 in connection with the Company's acquisition
of Truevision, Inc. Sales and technical support expenditures also decreased
significantly during fiscal 1994 as the Company implemented its consolidation of
Macintosh and PC related technical support groups in an effort to provide better
customer support and further reduce expenses.
INTEREST AND OTHER INCOME (EXPENSE). Other expense in fiscal 1994 is
comprised primarily of transaction losses from foreign exchange. In fiscal 1993,
the Company sold its equity investment in two high technology companies which
resulted in a gain of $516,000.
The decrease in interest income in fiscal 1994 compared to fiscal 1993 was
due to a lower level of invested funds combined with lower interest rates.
The decrease in interest expense in fiscal 1994 compared to fiscal 1993 was
due primarily to the partial repayment of notes payable.
INCOME TAXES. No net provision for income taxes was recorded for fiscal
1994 as the Company incurred a net operating loss for the year ended June 30,
1994. This compares to a benefit of $4.6 million, or 27% of pretax loss, in
fiscal 1993. In fiscal 1993, the Company was able to record income tax benefit
from carryback of its net operating loss for federal income tax purposes. As of
June 30, 1994, the Company no longer had any substantial carryback potential.
The Company also recorded a valuation allowance for a portion of its total net
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES. At July 1, 1995, RasterOps had cash and
cash equivalents of $10.4 million, compared to $8.3 million at June 30, 1994.
Working capital decreased from $23.7 million at June 30, 1994 to $14.2 million
at July 1, 1995. During fiscal 1995, net cash used in operating activities was
$7.1 million compared to $1.3 million during fiscal 1994. In fiscal years 1995
and 1994, the net losses in addition to changes in working capital items
contributed to net cash used. Additionally, the Company spent $0.6 million and
$1.2 million on equipment purchases in fiscal 1995 and 1994, respectively. The
net cash position at July 1, 1995 improved primarily as a result of equity
financing, as discussed below.
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 RasterOps 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. RasterOps has no material commitments for the
purchase of capital equipment.
RasterOps satisfied its cash requirements for fiscal 1995 primarily from its
beginning balance of $8.3 million, $8.7 million (net of issuance costs),
generated from the issuance of 2,000,000 shares of the Company's Common Stock in
a private placement to multiple investors in June 1995, and borrowings of $1.7
million on its line of credit. For fiscal 1994, the Company's cash requirements
were satisfied primarily from the beginning balance offset by changes in working
capital. For fiscal 1993, the Company's cash requirements were satisfied
primarily from $9.5 million, net of issuance costs,
14
<PAGE>
generated from the issuance of 1,250,000 shares of the Company's Common Stock in
the private placement to Scitex Corporation Ltd. In January 1995, the Company
executed a revolving line of credit with a bank under which up to $5,000,000 may
be borrowed based upon percentages of eligible accounts receivable. On June 13,
1995, the Company amended the original Credit Agreement allowing it to borrow up
to $7,000,000 based upon percentages of eligible accounts receivable. As of July
1, 1995, the Company had borrowings of $1.7 million under the Credit Agreement
and guarantees through issuance of letters of credit to suppliers of $800,000
and was eligible to borrow an additional $3.7 million.
On August 8, 1995, the Company issued an additional 650,000 shares of its
Common Stock in a private placement to multiple investors for proceeds to the
Company of $6.26 per share, or $4,067,700, net of issuance costs. The proceeds
were used primarily to fund the settlement of the Company's class action
lawsuit, which the court has approved.
RasterOps believes that its current cash and cash to be generated from
operations in addition to 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.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS.
SUBSTANTIAL RECENT OPERATING LOSSES
From 1992 to 1993, the Company's revenues declined by approximately $21.7
million (or 18%), from 1993 to 1994, the Company's revenues declined by
approximately $20.8 million (or 21%) and from 1994 to 1995, the Company's
revenues declined by approximately $12.9 million (or 16%). In addition, the
Company has experienced significant operating losses during such periods. There
can be no assurance that revenues in the quarter ending September 30, 1995, will
equal or exceed revenues for the quarter ended July 1, 1995, or that the Company
will not experience significant operating losses in the future. Since inception
and as of July 1, 1995, the Company had an accumulated deficit of approximately
$29.0 million. The Company believes that continued investment in its business,
particularly research and development, is critical to its future growth and
competitive position. The Company, therefore, may experience increased operating
expenses, and in particular, research and development expenses in future
periods. There can be no assurance that increased research and development and
other efforts will result in successful product introductions or enable the
Company to maintain or increase sales, and there can be no assurance that the
Company will ever return to profitability.
SIGNIFICANT VOLATILITY IN OPERATING RESULTS
In the past, the Company has experienced significant fluctuations in its
quarterly operating results, and it anticipates that such fluctuations will
continue and could intensify in the future. Fluctuations in operating results
may result in volatility in the price of the Company's common stock. Operating
results may fluctuate as a result of many factors, including announcements by
the Company, its competitors or the manufacturers of the platforms with which
its products are used, volume and timing of orders received during the period,
the timing of new product introductions by the Company and its competitors,
product line maturation, the impact of price competition on the Company's
average selling prices, the availability and pricing of components for the
Company's products, changes in product or distribution channel mix and product
returns or price protection charges from customers. Many of these factors are
beyond the Company's control. In addition, due to
15
<PAGE>
the short product life cycles that characterize the Company's markets, the
Company's failure to introduce new, competitive products consistently and in a
timely manner would adversely affect operating results for one or more product
cycles.
The volume and timing of orders received during a quarter are difficult to
forecast. The Company's retail and distribution customers generally place orders
on an as-needed basis and, as a result, backlog at the beginning of each quarter
represents only a small percentage of the product sales anticipated in that
quarter for those customers. Quarterly net sales and operating results therefore
depend on the volume and timing of bookings received during a quarter, which are
difficult to forecast. As a result, a shortfall in sales in any quarter in
comparison to expectations may not be identifiable until the end of the quarter.
In addition, in large part due to delays in receipt of component supplies and
manufacturing delays, the Company has in the past recorded a substantial portion
of its revenues in the last weeks of the quarter. Notwithstanding the difficulty
in forecasting future sales, the Company generally must plan production, order
components and undertake its development, sales and marketing activities and
other commitments months in advance. Accordingly, any shortfall in revenues in a
given quarter may impact the Company's operating results due to an inability to
adjust expenses or inventory during the quarter to match the level of revenues
for the quarter. Excess inventory could also result in cash flow difficulties as
well as expenses associated with inventory writeoffs.
RISKS ASSOCIATED WITH MANUFACTURING OPERATIONS
Recent events at the Company have subjected it to significant manufacturing
risks. A significant part of the RasterOps product line was monitors that were
acquired fully assembled from the Company's suppliers and that had relatively
high unit prices. Truevision products are primarily complex board level
products, which require significantly more sophisticated manufacturing
technologies and operations and some of which sell for significantly less per
unit than monitors. In addition, the Company has recently transitioned its
Truevision manufacturing operations from Indiana to its Santa Clara, California
headquarters. Furthermore, the Company has recently introduced several new,
complex board level products. These factors have placed a substantial strain on
the Company's manufacturing operations, and the Company has experienced delays
in product shipments in connection with these factors. The Company's future
operating results will depend in part on its ability to rapidly and
cost-effectively ramp manufacturing of complex new and existing board products.
Any delays or dislocations in this process could have a material adverse effect
on the Company's business and results of operations.
DISCONTINUANCE OF RASTEROPS GRAPHICS PRODUCTS; INCREASING DEPENDENCE ON
TRUEVISION VIDEO GRAPHICS PRODUCTS
Historically, the Company has derived a significant majority of its revenues
from sales of RasterOps color graphics products for the Apple platform. In the
years ended June 30, 1994 and July 1, 1995, sales of RasterOps products
accounted for $46.1 million (or 58% of revenues) and $21.0 million (or 32% of
revenues), respectively. In particular, the Company's RasterOps monitor business
contributed $30.4 million and $13.7 million to the Company's revenues in fiscal
1994 and 1995, respectively. This shift in focus was based in part on a
reduction in demand for RasterOps products due primarily to intensified
competition, particularly late in the first quarter of fiscal 1995, and Apple
Computer Inc.'s integration of graphics acceleration features into its Macintosh
computers. In addition, the RasterOps monitor business was receiving increased
competition with the entry of Apple and Sony into this market. In recent
periods, the Company has determined to eliminate several RasterOps product lines
(including its monitor products) and to shift its focus from RasterOps products
to Truevision products generally. The accumulated charges associated with the
Company's restructurings aggregate $10.1 million in fiscal 1995 and 1994. In the
quarter ended July 1, 1995, RasterOps products accounted for approximately $2.1
million (or 13% of product sales), and Truevision and OEM products accounted for
approximately $14.2 million (or 87% product sales). In light of the declines in
sales of
16
<PAGE>
RasterOps products, the Company's future operating results will substantially
depend upon sales of Truevision and OEM products. There can be no assurance that
the Company will be successful in maintaining or increasing sales of Truevision
and OEM products.
DEPENDENCE ON EMERGING MARKET
The market for digital desktop video authoring products is an emerging one,
and the size and timing of its development are subject to substantial
uncertainties and are outside the control of the Company. There can be no
assurance of the rate, if any, that applications requiring development of new
video content will develop or of the rate, if any, at which digital,
open-system, desktop solutions for video authoring will achieve market
acceptance. If the market for digital desktop video authoring were to fail to
develop, or were to develop more slowly than anticipated, the Company's
business, financial position and results of operations could be materially
adversely affected.
RAPID TECHNOLOGICAL CHANGE; NEED FOR MARKET ACCEPTANCE OF DVR ARCHITECTURE
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 cycles 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. In this respect, the Company has
recently introduced and plan to introduce additional new versions of its Targa
2000 product for the PCI bus. 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, as well as delays in market
acceptance. If the Company were to experience similar delays in the future, with
respect to its PCI bus product or otherwise, the Company's results of operations
could be materially adversely affected.
The Company's most recent introductions in the Truevision product line,
including the Targa 2000, are based on the Company's DVR architecture, and it is
expected that any new Truevision products introduced in the foreseeable future
will also be based on the DVR architecture. The DVR architecture is a new
technology that has not yet achieved widespread commercial acceptance, and there
can be no assurance that it will do so in the future. Failure of the DVR
architecture to achieve widespread commercial acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS AND SUBCONTRACTORS
Certain components used in the Company's products are currently available
only from a single source, and others are available from only a limited number
of sources. In particular, the Company's "hub" chips that are the basis of the
most recent generation of Truevision products are available only from LSI Logic
Corporation and are subject to substantial lead times, and other components
(particularly certain ASICs) are also available only from single sources. In the
past, the Company has experienced delays in the receipt of certain of its key
components and discontinuations of certain components, which have resulted in
delays in product deliveries. In particular, delays in receipt of certain
components interfered with the Company's ability to ship certain products in the
quarter ended April 1, 1995, and had a material adverse effect on the Company's
results of operations for that quarter. There can be no assurance that delays in
key components and product deliveries will not recur in the future or that these
vendors will continue to supply the Company. The inability to obtain sufficient
key components as required, or to develop alternative sources if and as required
in the future, could result in delays or reductions in product shipments to the
Company's customers. Any such delays or reductions could have a material adverse
effect on the Company's reputation and customer relationships which could, in
turn, have a material adverse effect on the Company's business and results of
operations. In addition, shortages of raw materials or production capacity
constraints at the Company's subcontractors or suppliers could negatively affect
the Company's ability to meet its production obligations and result in increased
prices for components. Any such reduction may result in delays in shipments of
the Company's products or increase the prices of components, either of which
could have a material adverse effect on the Company's business and results of
operations.
17
<PAGE>
For the assembly of its products, the Company relies primarily on
subcontractors who use components purchased, tested and kitted by the Company.
The Company has in the past experienced interruptions in these services and
delays in product deliveries, which have in certain cases had a material adverse
effect on the Company's results of operations for particular periods (including
the quarter ended April 1, 1995), and there can be no assurance that such
problems will not recur in the future. The process of qualifying additional
subcontractors could be a lengthy one, and the inability of any of the Company's
subcontractors to provide the Company with these services in a timely fashion
could have a material adverse effect on the Company's operations until such time
as alternate sources of such services are established and the quality of such
services reaches an acceptable level.
FUTURE CAPITAL NEEDS UNCERTAIN
The Company's future capital requirements will depend upon many factors,
including the extent and timing of the Company's products in the market, the
progress of the Company's research and development, the Company's operating
results and the status of competitive products. The Company anticipates that its
existing capital resources and cash generated from operations, if any, will be
sufficient to meet the Company's cash requirements for at least the next twelve
months at its current level of operations. The Company's actual capital needs
are difficult to predict, however, and there can be no assurance that the
Company will not require additional capital prior to such time. In particular,
the Company may seek additional funding during the next twelve months and would
likely do so after such time to finance working capital, although the Company is
unable to predict the amount and timing of such capital needs at this time.
There can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all, when required by the Company. Shortages
of working capital may cause delays in the Company's ability to timely obtain
adequate supplies of components or sub-contracted services. The Company has in
the past experienced, and may continue to experience, difficulties and delays in
obtaining certain components and services on a timely basis due to working
capital constraints. Any such difficulties or delays could have a material
adverse effect on the Company's business and results of operations. Moreover, if
additional financing was not available, the Company could be required to reduce
or suspend its operations, seek a merger partner or sell securities on terms
that are highly dilutive or otherwise disadvantageous to the Company's current
shareholders. In this respect, the Company has elected in both the fourth
quarter of fiscal 1995 and the first quarter of fiscal 1996 to raise capital
through private placements of equity securities at prices less than fair market
value on the date of the issuance. If adequate financing sources are
insufficient or not available, the Company's financial position and results of
operations could be materially adversely affected.
The Company has a line of credit with a commercial bank that includes
financial and other covenants that must be satisfied for borrowings to be
permitted and that limits borrowings to percentages of accounts receivable. The
Company has within the last twelve months been in violation of certain of the
covenants. Specifically, the Company was in violation of the quick ratio,
tangible net worth, debt to tangible net worth and profitability covenants as
well as a nonfinancial covenant of its previous line of credit. Since
negotiating the new line of credit in June 1995, the Company has not violated
any of its financial covenants. Although the Company is currently in compliance
with the bank agreement, there can be no assurance that waivers would be granted
in the future if necessary. If the Company were unable to access the line of
credit as required, its business, financial position and results of operations
could be materially adversely affected.
COMPETITION
The Company's markets are intensely competitive, and the Company expects
this competition to continue to increase. The Company has experienced continued
competitive pricing pressures on a number of its product lines, and the Company
expects that these pricing pressures will continue. To the extent that
competitive pressures require price reductions more rapidly than the Company is
able to cut its costs, the Company's gross margins and results of operations
will be adversely affected. Many of the Company's competitors are more
established, have greater name recognition and have significantly greater
financial, technological, production and sales and marketing resources than the
18
<PAGE>
Company. In addition to products currently in production by such competitors,
the Company expects that additional competitive products will be developed and
that new companies will enter its markets, both of which will continue to
increase competition. There can be no assurance that products or technologies
developed by others will not render the Company's products or technologies
noncompetitive or obsolete. 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 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 other factors, and the Company's results of operations may fluctuate
from quarter to quarter due to these and other factors.
DEPENDENCE ON KEY PERSONNEL; RECENT MANAGEMENT CHANGES
The Company's future success substantially depends on the efforts of certain
of its officers and key technical and other employees, many of whom have only
recently joined the Company. In particular, the Company's Chief Executive
Officer was hired in October 1994, and since that date, the Company has hired
several new executive officers. The loss of any one of these officers or
employees could have a material adverse effect on the Company's business and
results of operations. The Company believes that its future success also
substantially depends on its ability to attract, retain and motivate highly
skilled employees, who are in great demand. There can be no assurance that the
Company will be successful in doing so.
SHORT PRODUCT LIFE CYCLES
The market in which the Company operates is increasingly being characterized
by frequent new product introductions, which can result in short product life
cycles. The Company must continually monitor industry trends and make difficult
choices in selecting new technologies and features to incorporate into its
products. Each new product cycle presents new opportunities for current or
prospective competitors of the Company to gain market share. If the Company does
not successfully introduce new products within a given product cycle, the
Company's sales will be adversely affected for that cycle and possibly
subsequent cycles. Moreover, because of the possibility of short product life
cycles coupled with long lead times for many components used in the Company's
products, the Company may not be able to quickly reduce its production or
inventory levels in response to unexpected shortfalls in sales or, conversely,
to increase production in response to unexpected demand.
As is customary for high technology companies, sales of individual products
can often be characterized by steep declines in sales, pricing and margins
toward the end of the respective product's life cycle, the precise timing of
which may be difficult to predict. As new products are planned and introduced,
the Company attempts to monitor closely the inventory of older products and to
phase out their manufacture in a controlled manner. Nevertheless, the Company
has in the past experienced and could in the future experience unexpected
reductions in sales of older generation products as customers anticipate new
products. These reductions have resulted in and could in the future give rise to
additional charges for obsolete or excess inventory, returns of older generation
products by distributors, or substantial price protection charges. To the extent
that the Company is unsuccessful in managing product transitions, its business
and operating results could be materially adversely affected.
DEPENDENCE ON AVID
During the quarter and the fiscal year ended July 1, 1995, Avid Technology,
Inc. ("Avid") accounted for approximately 29.2% and 15.7%, respectively, of the
Company's revenues. The Company's operating results have depended increasingly
upon its ability to obtain orders from, maintain relationships with and provide
support to Avid and other key customers, and this dependence could increase in
the future. In addition, Avid or other key customers could design their own
products competitive with those of the Company. Any cancellation of, or
reduction or delay in, orders from Avid or other customers could have a material
adverse effect on the Company's business and results of operations. In any
event, the agreement with Avid will expire by its terms in calendar 1997. In
addition, the Company's agreement with Avid provides that Avid has the right to
manufacture
19
<PAGE>
products upon payment of a royalty rather than purchasing them from the Company.
Avid does not yet manufacture any of the Company's products. If Avid chooses to
manufacture the Company's products rather than purchase them, the Company's
revenues, gross margins and operating income would be adversely affected. There
can be no assurance that Avid will not choose to manufacture the Company's
products in the future.
RELATIONSHIP WITH SYSTEM SOFTWARE VENDORS
The Company's open systems, desktop strategy is substantially dependent on
its ability to maintain product compatibility and informal relationships with
system software vendors such as Microsoft and Apple. If the Company's
relationship with either Microsoft or Apple were to deteriorate, its business
and results of operations could be materially adversely affected.
UNCERTAINTY REGARDING PROPRIETARY RIGHTS
The Company attempts to protect its intellectual property rights through
patents, trademarks, trade secrets and a variety of other measures. There can be
no assurance, however, that such measures will provide adequate protection for
the Company's intellectual property, that the Company's trade secrets or
proprietary technology will not otherwise become known or become independently
developed by competitors or that the Company can otherwise meaningfully protect
its intellectual property rights. There can be no assurance that any patent
owned by the Company will not be invalidated, that any rights granted thereunder
will provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the claim
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop similar products, duplicate the Company's products or
design around the patents owned by the Company or that third parties will not
assert intellectual property infringement claims against the Company. The
failure of the Company to protect its proprietary rights could have a material
adverse effect on its business, financial condition and results of operations.
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
management resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. From time to time in
the past the Company has received communications from third parties alleging
that the Company may be in violation of such third parties' intellectual
property rights, and there can be no assurance that such claims, or claims for
indemnification resulting from infringement claims against others, will not be
asserted in the future. If any such claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third parties'
intellectual property rights. There can be no assurance, however, that a license
would be obtainable on reasonable terms or at all. In addition, should the
Company be required to litigate any such claims, such litigation could be
extremely expensive and time consuming and could materially adversely affect the
Company's business, financial condition and results of operations, regardless of
the outcome of the litigation.
INTEGRATION OF PRODUCT FUNCTIONALITY BY MOTHERBOARD MANUFACTURERS
In general, the Company's products are individual add-in subsystems which
function with computer systems to provide additional functionality.
Historically, as a given functionality becomes technologically stable and widely
accepted by users, the cost of providing the functionality is typically reduced
by means of large scale integration onto semiconductor chips which are then
incorporated onto motherboards. The Company has experienced such integration and
incorporation and expects that it will continue to occur with respect to the
functionality provided by the Company's products. The Company's success will
remain dependent, in part, on its ability to continue to develop products which
incorporate new and rapidly evolving technologies that computer makers have not
yet fully incorporated into motherboards, and there can be no assurance that
incorporation of new functionality's onto motherboards will not adversely affect
the market for the Company's products.
20
<PAGE>
INTERNATIONAL OPERATIONS
For the fiscal years ended June 30, 1994 and July 1, 1995, approximately 31%
and 30%, respectively, of the Company's net sales were derived from sales to
international customers. The Company expects that international sales will
continue to represent a significant portion of net sales. Although the Company's
sales are denominated in dollars, its international business may be affected by
changes in demand resulting from fluctuations in exchange rates as well as by
risks such as unexpected changes in regulatory requirements, tariffs and other
trade barriers, costs and risks of localizing products for foreign countries,
longer accounts receivable payment cycles, difficulties in managing
international distributors, potentially adverse tax consequences, repatriation
of earnings and the burdens of complying with a wide variety of foreign laws. In
addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been volatile and trading
volumes have been relatively low. Factors such as variations in the Company's
revenue, operating results and cash flow and announcements of technological
innovations or price reductions by the Company, its competitors, or providers of
alternative products could cause the market price of the Company's Common Stock
to fluctuate substantially. In addition, the stock markets have experienced
significant price and volume fluctuations that particularly have affected
technology-based companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies. Such broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS PAGE
----
Report of Independent Accountants................. 22
Consolidated Balance Sheets -- July 1, 1995 and
June 30, 1994.................................... 23
Consolidated Statements of Operations -- Three
years ended July 1, 1995......................... 24
Consolidated Statements of Shareholders' Equity --
Three years ended July 1, 1995................... 25
Consolidated Statements of Cash Flows -- Three
years ended July 1, 1995......................... 26
Notes to Consolidated Financial Statements........ 27
2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule of
RasterOps for the three years ended July 1, 1995 is filed as part of this
Report and should be read in conjunction with the Consolidated Financial
Statements of RasterOps.
SCHEDULE PAGE
- -------------------------------------------------- ----
II Valuation and Qualifying Accounts.............. 40
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein
is included in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of RasterOps
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
RasterOps and its subsidiaries at July 1, 1995 and June 30, 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended July 1, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
August 10, 1995, except as to
the litigation settlement described in Note 10,
which is as of August 28, 1995
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 1, 1995 JUNE 30, 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 10,377 $ 8,254
Accounts receivable, less allowance for doubtful
accounts of
$897 and $622................................... 10,726 11,022
Inventory (Note 3)............................... 10,613 16,331
Prepaid expenses and other assets (Note 10)...... 4,295 1,099
Deferred income taxes (Note 7)................... 60 540
Income taxes receivable.......................... 299 648
------------ -------------
Total current assets......................... 36,370 37,894
Property and equipment, net (Note 4)............... 2,668 4,858
Other assets....................................... 235 496
Deferred income taxes (Note 7)..................... 1,453 1,453
------------ -------------
Total assets................................. $ 40,726 $44,701
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 6).......................... $ 1,684 $ --
Current portion of long-term obligations (Note
5).............................................. 200 505
Accounts payable................................. 9,156 10,329
Accrued employee compensation.................... 678 1,023
Accrued litigation settlement (Note 10).......... 6,600 --
Other accrued liabilities........................ 3,837 2,366
------------ -------------
Total current liabilities.................... 22,155 14,223
Long-term obligations (Note 5)..................... 44 247
------------ -------------
Total liabilities............................ 22,199 14,470
------------ -------------
Commitments and contingencies (Note 11)
Shareholders' equity (Note 8):
Preferred Stock, no par value; 2,000,000 shares
authorized;
none issued or outstanding...................... -- --
Common Stock, no par value; 15,000,000 shares
authorized;
11,587,000 and 9,516,000 shares issued and
outstanding..................................... 47,657 38,971
Accumulated deficit.............................. (28,978) (8,747)
Cumulative translation adjustment................ (152) 7
------------ -------------
Total shareholders' equity......................... 18,527 30,231
------------ -------------
Total liabilities and shareholders' equity... $ 40,726 $44,701
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
JULY 1, 1995 JUNE 30, 1994 JUNE 30, 1993
------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales............................... $ 66,318 $ 79,175 $100,023
Cost of sales........................... 51,623 60,293 64,522
------------ ------------- -------------
Gross profit............................ 14,695 18,882 35,501
------------ ------------- -------------
Operating expenses:
Research and development.............. 6,831 7,844 8,816
Selling, general and administrative... 20,536 25,287 34,421
Restructuring and other costs......... 3,654 6,694 9,590
------------ ------------- -------------
Total operating expenses............ 31,021 39,825 52,827
------------ ------------- -------------
Loss from operations.................... (16,326) (20,943) (17,326)
Other income (expense), net............. (76) (41) 561
Interest income......................... 84 255 309
Interest expense........................ (238) (136) (274)
Litigation settlement expense (Note
10).................................... (3,675) -- --
------------ ------------- -------------
Loss before benefit from income taxes... (20,231) (20,865) (16,730)
Benefit from income taxes (Note 7)...... -- -- (4,567)
------------ ------------- -------------
Net loss................................ $(20,231) $(20,865) $(12,163)
------------ ------------- -------------
------------ ------------- -------------
Net loss per share...................... $ (2.12) $ (2.20) $ (1.49)
------------ ------------- -------------
------------ ------------- -------------
Average common shares................... 9,565 9,466 8,189
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED JULY 1, 1995
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------------- ACCUMULATED TRANSLATION
SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
--------- --------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1992........................... 7,867 $ 26,510 $ 24,281 $ (12) $ 50,779
Issuance of Common Stock to an investor, net........ 1,250 9,540 -- -- 9,540
Exercise of Common Stock incentive options.......... 49 90 -- -- 90
Issuance of common stock in connection with Employee
Stock Purchase Plan................................ 193 1,777 -- -- 1,777
Tax benefit associated with stock options........... -- 64 -- -- 64
Issuance of Common Stock in exchange for RIPS Common
Stock.............................................. 38 328 -- -- 328
Currency translation adjustment..................... -- -- -- (222) (222)
Net loss............................................ -- -- (12,163) -- (12,163)
--------- --------- ------------ ----------- ----------
BALANCES AT JUNE 30, 1993........................... 9,397 38,309 12,118 (234) 50,193
Exercise of Common Stock incentive options.......... 58 250 -- -- 250
Issuance of Common Stock in connection with Employee
Stock Purchase Plan................................ 61 412 -- -- 412
Currency translation adjustment..................... -- -- -- 241 241
Net loss............................................ -- -- (20,865) -- (20,865)
--------- --------- ------------ ----------- ----------
BALANCES AT JUNE 30, 1994........................... 9,516 38,971 (8,747) 7 30,231
Issuance of Common Stock to investors, net.......... 2,000 8,428 -- -- 8,428
Exercise of Common Stock incentive options.......... 6 29 -- -- 29
Issuance of Common Stock in connection with Employee
Stock Purchase Plan................................ 65 229 -- -- 229
Currency translation adjustment..................... -- -- -- (159) (159)
Net loss............................................ -- -- (20,231) -- (20,231)
--------- --------- ------------ ----------- ----------
BALANCES AT JULY 1, 1995............................ 11,587 $ 47,657 $ (28,978) $ (152) $ 18,527
--------- --------- ------------ ----------- ----------
--------- --------- ------------ ----------- ----------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JULY 1,
1995 JUNE 30, 1994 JUNE 30, 1993
----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING CASH FLOWS:
Net loss............................................................... $ (20,231) $ (20,865) $ (12,163)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 2,771 3,328 2,890
Gain on sale of investments........................................ -- -- (516)
Income tax benefit from disqualifying dispositions of employee
stock options..................................................... -- -- 64
Compensation expense resulting from issuance of common stock....... -- -- 711
Deferred income taxes.............................................. 480 1,273 (414)
Other.............................................................. 129 770 907
Changes in assets and liabilities:
Accounts receivable................................................ 296 6,484 5,474
Inventory.......................................................... 5,718 6,832 (2,619)
Prepaid expenses and other assets.................................. (3,196) 370 690
Income taxes receivable............................................ 349 2,099 (2,747)
Accounts payable................................................... (1,173) (717) (3,636)
Accrued litigation settlement...................................... 6,600 -- --
Accrued expenses................................................... 1,126 (826) (289)
Income taxes payable............................................... -- -- (2,872)
----------- ------------- -------------
Net cash used in operating activities.................................. (7,131) (1,252) (14,520)
----------- ------------- -------------
INVESTING CASH FLOWS:
Acquisitions of property and equipment................................. (564) (1,237) (3,070)
Proceeds from sale of investments...................................... -- -- 1,223
Acquisitions of other assets........................................... (44) (7) (41)
----------- ------------- -------------
Net cash used in investing activities.................................. (608) (1,244) (1,888)
----------- ------------- -------------
FINANCING CASH FLOWS:
Proceeds from line of credit, net...................................... 1,684 -- --
Repayment of long-term obligations..................................... (508) (498) (503)
Issuance of Common Stock, net.......................................... 8,686 662 10,696
----------- ------------- -------------
Net cash provided by financing activities.............................. 9,862 164 10,193
----------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................... 2,123 (2,332) (6,215)
Cash and cash equivalents, beginning of year........................... 8,254 10,586 16,801
----------- ------------- -------------
Cash and cash equivalents, end of year................................. $ 10,377 $ 8,254 $ 10,586
----------- ------------- -------------
----------- ------------- -------------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest........................................................... $ 238 $ 136 $ 274
Income taxes....................................................... $ 36 $ 95 $ 1,466
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated
financial statements of the Company include the financial statements of
RasterOps and its wholly-owned subsidiaries, after elimination of intercompany
accounts and transactions. During 1995, the Company changed its reporting year
to end on the Saturday closest to June 30, which for 1995 was July 1. The
Company's reporting year end for 1994 and 1993 ended on June 30 each year.
FOREIGN CURRENCY TRANSLATION The Company operates on a multinational basis
and a portion of its business is conducted in currencies other than the U.S.
dollar. Local currencies are the functional currencies in each of the Company's
foreign subsidiaries. Assets and liabilities of foreign operations are
translated to U.S. dollars at current rates of exchange, and revenues and
expenses are translated using average rates for the period. Gains and losses
from foreign currency translation are included in shareholders' equity under the
caption "cumulative translation adjustment."
CASH EQUIVALENTS The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORY Inventory is stated at the lower of cost or market; cost is
determined on a first-in, first-out basis, and includes materials, labor and
manufacturing overhead.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method based
upon the shorter of the estimated useful lives of the assets, generally three to
five years, or the lease term of the respective assets, if applicable.
INCOME TAXES The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS 109
generally considers all expected future events other than enactment of changes
in the tax law or rates.
REVENUE RECOGNITION Sales are generally recognized upon shipment. The
Company grants customers limited rights to return products and records reserves
to cover these rights of return at the time of sale.
RESEARCH AND DEVELOPMENT EXPENSES The Company charges research and
development expenditures to operations as incurred. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs after technological feasibility has been established.
Based upon the Company's product development process, technological feasibility
of software is established upon the completion of beta testing. Development
costs incurred by the Company following completion of beta testing and prior to
commercial release have been insignificant, and to date all software development
costs have been expensed as incurred.
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
stock equivalents, when dilutive.
CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company places its cash and cash equivalents, primarily
checking and money market accounts at July 1, 1995 and June 30, 1994, with high
credit-quality financial institutions and does not believe that any significant
credit risk is associated with these financial instruments. The Company has net
accounts receivable from customers located primarily in the United States,
Europe and Asia/Pacific and other geographic areas of $8,567,000, $1,840,000 and
27
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$319,000, respectively. The Company performs various evaluations of its
customers' financial condition and credit worthiness, and maintains an allowance
for uncollectable accounts receivable based upon expected collectibility of all
accounts receivable. The Company believes the recorded value of financial
instruments approximate fair value at each balance sheet date.
NOTE 2. RESTRUCTURING AND OTHER COSTS
During the quarter ended September 30, 1994, the Company recorded a charge
for restructuring and other costs of $3.7 million resulting primarily from the
Company's 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 nine months ended July 1,
1995, utilized $1.8 million for sales of related products. The $94,000 of
inventory as of July 1, 1995 is fully 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
essentially been fully utilized. The Company has remaining reserves of $478,000
as of July 1, 1995 related to this restructuring.
During the quarter ended September 30, 1993, the Company recorded a charge
for restructuring and litigation of $6.5 million. This charge includes costs of
downsizing and integrating its current operations, write-down of certain assets
as a result of the discontinuance of certain product lines and write-off of
other impaired assets.
In September 1993, the Company decided to discontinue the production of its
CorrectPrint series of color printers, Sweet 16 monitors and other products. The
total writedown of the related inventory was $4.3 million, of which
approximately $91,000 as of July 1, 1995 remains fully reserved. 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.
Also included in the restructuring and litigation charge are severance and
related costs associated with the integration of RasterOps and Truevision's
customer support and manufacturing operations in fiscal 1994, 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 10).
During the quarter ended March 31, 1993, RasterOps undertook a series of
actions to reduce costs and expenses. Restructuring charges totaling $6.7
million were recorded, which includes severance related costs, downsizing of its
current operations and write-off of non-performing assets as a result of the
discontinuance of certain product lines.
In connection with the merger with Truevision on August 28, 1992, RasterOps
recorded a charge for restructuring and merger costs of approximately $2.9
million to reflect the combination of operations of the companies. This includes
professional fees and other direct transaction costs associated with the merger,
severance related costs primarily for termination of redundant employees,
elimination and/or relocation of duplicate sales operations and write-off of
excess property and equipment and inventory which became obsolete by the merger.
28
<PAGE>
NOTE 2. RESTRUCTURING AND OTHER COSTS (CONTINUED)
A summary of charges for restructuring and other costs along with the
respective remaining reserves follows (in thousands):
<TABLE>
<CAPTION>
NON-
PRODUCT PERFORMING LEASE LITIGATION MERGER
SEVERANCE DISCONTINUANCE ASSETS TERMINATIONS COSTS COSTS OTHER TOTALS
--------- -------------- ---------- ----------- --------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charges....................... $ 568 $ 4,200 $ 1,615 $ -- $ 550 $ 1,879 $ 778 $ 9,590
Payments / other.............. (392) (13) -- -- (82) (1,879) (842) (3,208)
Utilization of inventory
reserves..................... -- (3,164) -- -- -- -- -- (3,164)
Asset write-offs.............. -- -- (1,731) -- (550) -- -- (2,281)
--------- ------- ---------- ----------- --------- ------- ----- -------
Balance 6/30/93............... 176 1,023 (116) -- (82) -- (64) 937
Charges....................... 500 4,310 1,130 -- 704 -- 50 6,694
Payments / other.............. (657) (253) (648) -- (237) -- 38 (1,757)
Utilization of inventory
reserves..................... -- (2,853) -- -- -- -- -- (2,853)
Asset write-offs.............. -- -- (766) -- (467) -- (2) (1,235)
Reclassifications............. (48) (228) 214 -- 82 -- -- 20
--------- ------- ---------- ----------- --------- ------- ----- -------
Balance 6/30/94............... (29) 1,999 (186) -- -- -- 22 1,806
Charges....................... 270 2,383 106 740 -- -- 155 3,654
Payments / other.............. (248) (474) -- (284) -- -- (172) (1,178)
Utilization of inventory
reserves..................... -- (3,521) -- -- -- -- -- (3,521)
Asset write-offs.............. -- -- (102) -- -- -- -- (102)
Reclassifications............. 15 (202) 182 (80) -- -- (5) (90)
--------- ------- ---------- ----------- --------- ------- ----- -------
Balance 7/01/95............... $ 8 $ 185 $ -- $ 376 $ -- $ -- $ -- $ 569
--------- ------- ---------- ----------- --------- ------- ----- -------
--------- ------- ---------- ----------- --------- ------- ----- -------
</TABLE>
NOTE 3. INVENTORY
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
JULY 1,
1995 JUNE 30, 1994
----------- -------------
<S> <C> <C>
Purchased parts and subassemblies........................................... $ 6,812 $ 7,226
Work-in-progress............................................................ 2,153 3,529
Finished goods.............................................................. 1,648 5,576
----------- -------------
Total................................................................... $ 10,613 $ 16,331
----------- -------------
----------- -------------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
JULY 1,
1995 JUNE 30, 1994
----------- -------------
<S> <C> <C>
Computer equipment and machinery............................................ $ 12,785 $ 13,089
Furniture and fixtures...................................................... 879 923
Leasehold improvements...................................................... 431 521
----------- -------------
Subtotal.................................................................... 14,095 14,533
Less: accumulated depreciation.............................................. (11,427) (9,675)
----------- -------------
Total................................................................... $ 2,668 $ 4,858
----------- -------------
----------- -------------
</TABLE>
29
<PAGE>
NOTE 5. LONG-TERM OBLIGATIONS
Long-term obligations at July 1, 1995 consists of four unsecured notes
payable in the aggregate amount of $244,000. The notes are payable in quarterly
installments ranging from $4,000 to $22,000, plus interest at 9%, through
September 1996. Annual maturities of the notes payable will total $200,000 and
$44,000 in fiscal years 1996 and 1997, respectively.
NOTE 6. LINE OF CREDIT
Under the terms of a revolving credit agreement with a bank (the "Credit
Agreement") which expires June 13, 1996, the Company may borrow up to 75% of
eligible accounts receivable plus the lesser of 20% of the value of eligible
inventory or $1,250,000, subject to a maximum of $7,000,000. The Credit
Agreement provides for interest based on the bank's prime rate plus 2.75%. As a
condition of the Credit Agreement, the Company is required to maintain a minimum
net worth and certain financial ratios. Borrowings under the Credit Agreement
are collateralized by the Company's assets. As of July 1, 1995, the Company was
in compliance with its bank covenants and had $1,684,000 outstanding and
$3,715,000 available under the Credit Agreement. The amount available under the
Credit Agreement at July 1, 1995 has been reduced by letter of credit totaling
$800,000 issued as guarantees of payment to certain suppliers.
NOTE 7. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
JULY 1, 1995 JUNE 30, 1994 JUNE 30, 1993
------------ ------------- -------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal............................. $(209) $(1,225) $(4,302)
State............................... -- (80) 77
Foreign............................. 19 32 72
------ ------------- -------------
Subtotal........................ (190) (1,273) (4,153)
------ ------------- -------------
Deferred tax expense (benefit):
Federal............................. 190 1,121 (31)
State............................... -- 152 (383)
------ ------------- -------------
Subtotal........................ 190 1,273 (414)
------ ------------- -------------
Total......................... $ -- $ -- $(4,567)
------ ------------- -------------
------ ------------- -------------
</TABLE>
Deferred tax assets (liabilities) consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 1,
1995 JUNE 30, 1994 JUNE 30, 1993
----------- ------------- -------------
<S> <C> <C> <C>
Inventory reserves........................................... $ 1,021 $ 2,002 $ 1,168
Other reserves and amortization.............................. 295 273 728
Accrued expenses............................................. 616 746 518
Other........................................................ 76 131 495
Credit carryovers............................................ 1,468 1,268 404
Net operating loss carryovers................................ 15,602 6,566 507
----------- ------------- -------------
Gross deferred tax assets................................ 19,078 10,986 3,820
----------- ------------- -------------
Valuation allowance.......................................... (17,430) (8,723) --
----------- ------------- -------------
Depreciation................................................. (135) (270) (415)
Other........................................................ -- -- (139)
----------- ------------- -------------
Gross deferred tax liabilities........................... (135) (270) (554)
----------- ------------- -------------
Total net deferred tax assets.......................... $ 1,513 $ 1,993 $ 3,266
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
30
<PAGE>
NOTE 7. INCOME TAXES (CONTINUED)
Management believes sufficient uncertainty exists regarding the
realizability of the gross deferred tax assets that a valuation allowance of
$17,140,000 was recorded and is allocated pro rata to federal and state current
and noncurrent deferred tax assets. The ultimate realization of the net July 1,
1995 deferred tax asset is dependent upon approximately $3,900,000 of future
taxable income, which management believes is attainable.
The Company has approximately $39,000,000 of net operating loss and credit
carryovers that expire in 2000 through 2010. Net operating losses may be limited
due to changes in ownership under section 382 of the Internal Revenue Code.
The provision for income taxes differs from the amount of income tax
permitted by applying the applicable U.S. statutory rate to pretax income as a
result of the following differences:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate............................... (34.0)% (34.0)% (34.0)%
State income taxes, net of federal tax benefit....... (6.1) (3.9) (1.2)
Increase in valuation allowance...................... 41.6 41.8 --
Non-deductible merger costs.......................... -- -- 5.9
Other, net........................................... (1.5) (3.9) 2.0
------- ------- -------
Total.......................................... --% --% (27.3)%
------- ------- -------
------- ------- -------
</TABLE>
NOTE 8. SHAREHOLDERS' EQUITY
COMMON STOCK. In June 1995 the Company issued 2,000,000 shares of Common
Stock in a private placement to investors in exchange for cash of $4.43 per
share. As part of the sale of shares to the investors, the Company issued
warrants to the investors for the purchase of 500,000 additional shares of
Common Stock and also issued a warrant to the placement agent of the private
placement for the purchase of 135,824 shares of Common Stock. The purchase price
of each share issuable upon exercise of each warrant is $5.22. Additionally,
subsequent to July 1, 1995, the Company, issued an additional 650,000 shares of
its Common Stock in a private placement to multiple investors for proceeds, net
of issuance costs, to the Company of $6.26 per share, or $4,067,700.
In October 1994, the Company issued a warrant to Mr. Lou Doctor, the
Company's president and chief executive officer, for the purchase of 400,000
shares of Common Stock. The warrant vested 25% during the first three months and
1/48 per month thereafter. The purchase price of each share issuable upon
exercise of the warrant is $2.75 and, as of July 1, 1995, a total of 150,000
shares of the Company's Common Stock may be purchased under the warrant.
In June 1993, the Company, as part of the sale of shares to an investor,
issued a warrant to the investor for the purchase of up to such number of
additional shares of Common Stock such that the aggregate investor holding of
Common Stock, acquired directly from the Company as of the date of any such
purchase, will not exceed 19.99% of the then issued and outstanding Common Stock
of the Company. The purchase price of each share issuable upon exercise of the
rights under the warrant is $9. As of August 8, 1995 a total of 1,461,875 shares
may be purchased under the warrant.
INCENTIVE STOCK. During the year ended June 30, 1988, the Company adopted
the 1988 Incentive Stock Plan (the "Option Plan"). Under the Option Plan,
2,526,300 shares of Common Stock have been reserved for issuance to employees
and consultants of the Company, as approved by the Board of Directors. The
Option Plan, which expires in 1998, provides for incentive as well as non
statutory stock options and stock purchase rights.
Options and stock purchase rights under the Option Plan are granted at
prices determined by the Board, subject to certain conditions more fully
described in the Option Plan. Generally, these conditions specify floor prices
for the grants ranging from 85% to 110% of the fair market value of the stock at
the date of the grant, as determined by the Board, based upon the type of the
award and the number
31
<PAGE>
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
of shares of Common Stock held by the grantees at the date of the award. No
options have been granted at exercise prices less than 100% of such fair market
value at the date of grant. Options granted under the Option Plan expire over
ten years.
Options granted generally vest 25% one year after issuance and 1/48th each
month thereafter for 36 months. Options are adjusted pro rata for any changes in
the capitalization of the Company, such as stock splits and stock dividends. In
addition, the outstanding options issued under the Option Plan will terminate
within a period set by the Board after termination of employment. As of July 1,
1995, options for a total of 238,169 shares were exercisable under the Option
Plan.
1991 DIRECTOR OPTION PLAN. In July 1991, the Board of Directors of the
Company adopted the RasterOps 1991 Director Option Plan (the "Plan") which
provides for the granting of non-statutory stock options to non-employee
directors of the Company. A total of 150,000 shares of Common Stock have been
reserved for issuance under the Plan. Under the terms of the Plan, non-employee
directors receive an option to purchase 10,000 shares of Common Stock of the
Company, which will become exercisable at the rate of 25% per year for four
years following the date of grant. In addition, under the terms of the Plan,
each non-employee director will receive, on each anniversary of the date such
director joined the Board (or in the case of the directors who were members of
the Board on July 25, 1991 on each anniversary of July 1, 1991) an additional
option to purchase 2,500 shares of Common Stock subject to the four-year vesting
from the date of grant similar to the vesting provisions set forth above.
Options granted under the Plan have a term of ten years. As of July 1, 1995,
options to purchase 80,000 shares of Common Stock are outstanding under the
Plan, 24,375 of which are exercisable.
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE STOCK OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
--------------- ------------- -----------------
<S> <C> <C> <C>
BALANCES AT JUNE 30, 1992........................... 810,191 751,598
Shares reserved..................................... -- --
Options granted..................................... (1,616,477) 1,616,477 $4.88 - $11.25
Options exercised................................... -- (49,891) $1.65 - $ 8.00
Options canceled.................................... 1,121,187 (1,121,187) $0.90 - $28.50
--------------- -------------
BALANCES AT JUNE 30, 1993........................... 314,901 1,196,997
Shares reserved..................................... 300,000 --
Options granted..................................... (565,125) 565,125 $4.50 - $ 9.75
Options exercised................................... -- (57,940) $0.22 - $ 7.50
Options canceled.................................... 568,858 (568,858) $2.25 - $13.25
--------------- -------------
BALANCES AT JUNE 30, 1994........................... 618,634 1,135,324
Shares reserved..................................... 476,000 --
Options granted..................................... (1,669,109) 1,669,109 $2.75 - $ 4.12
Options exercised................................... -- (5,969) $4.50 - $ 5.12
Options canceled.................................... 1,048,993 (1,048,993) $2.75 - $11.25
--------------- -------------
BALANCES AT JULY 1, 1995............................ 474,518 1,749,471
--------------- -------------
--------------- -------------
Shares Exercisable at July 1, 1995.................. 231,735
-------------
-------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In August 1990, the Board of Directors
adopted an Employee Stock Purchase Plan which enables substantially all
employees in the United States to subscribe to shares of Common Stock on
semi-annual offering dates at a purchase price of 85% of the fair market value
of the shares on the offering date or, if lower, 85% of the fair market value of
the shares on the
32
<PAGE>
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
semi-annual exercise date. A maximum of 500,000 shares are authorized for
subscription over a 20 year period. During fiscal years 1995 and 1994, there
were 64,991 and 60,610 shares, respectively, issued under the Plan.
The Company has reserved such number of shares of Common Stock as necessary
to cover shares issuable under options, warrants and its Employee Stock Purchase
Plan.
NOTE 9. INDUSTRY, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment which is computer peripherals.
The Company has no significant foreign assets. Export sales by geographic area,
as a percentage of total net sales, for the years ended July 1, 1995, and June
30, 1994 and 1993, consist of the following:
<TABLE>
<CAPTION>
JULY 1, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- --------------- ---------------
<S> <C> <C> <C>
Europe............................................. 20.9% 18.3% 20.4%
Asia/Pacific....................................... 7.7 8.2 14.7
Other.............................................. 1.0 4.2 7.8
--- --- ---
Total........................................ 29.6% 30.7% 42.9%
--- --- ---
--- --- ---
</TABLE>
During fiscal 1995, the Company entered into an agreement with a major
customer under which the customer has agreed to make minimum aggregate purchases
of certain products of $40,000,000 during calendar years 1995 through 1997 and
at July 1, 1995 had advanced the Company $1,000,000 for future purchases. In the
event that the customer fails to meet its obligations to purchase product
pursuant to the agreement, the Company's obligations under the agreement would
remain in effect but the amount of the manufacturing royalty would increase
based upon a schedule set forth in the agreement. The customer also, under
certain circumstances, has the right to manufacture certain of the Company's
products pursuant to this agreement and will be required to pay related
royalties. Management believes the customer has not manufactured any of the
specified products. This customer accounted for 15.7% of the Company's sales
during 1995. No customer accounted for more than 10% of sales in 1994 or 1993.
NOTE 10. SHAREHOLDER LITIGATION SETTLEMENT
During fiscal 1992, and as later amended, the Company and certain of its
current and former officers and directors were named in a shareholder class
action lawsuit alleging certain violations of federal securities laws and other
statutes of the state of California seeking unspecified damages and attorneys
fees on behalf of the plaintiffs. In March 1995, the Company entered into a
memorandum of understanding with the plaintiffs regarding settlement of all
claims; consequently at July 1, 1995 the total settlement of $6,600,000,
including legal costs, was accrued as a liability. In early August 1995, the
Company made a payment totaling $3,500,000, and the Company's insurance carrier
paid $3,000,000 which the Company had recorded in prepaid expenses and other
assets at July 1, 1995. On August 28, 1995, the federal court approved the
settlement agreement.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company occupies its present principal facilities under non-cancelable
leases expiring February 1996 and June 1998. These lease agreements also provide
the Company options to extend the lease terms through February 2006 at the then
determined fair rental value for the renewal period. In addition, the Company is
required to pay taxes, insurance and maintenance expenses. The Company also
leases other facilities and equipment under operating leases. Rent expense under
non-cancelable operating leases, principally for the rental of office space, for
the years ended July 1, 1995 and June 30, 1994 and 1993 was $1,132,000,
$1,797,000 and $1,689,000, respectively.
33
<PAGE>
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments at July 1, 1995 under non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR ENDING LEASES
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
1996..................................................................................... $ 1,028,000
1997..................................................................................... 565,000
1998..................................................................................... 552,000
-------------
Total................................................................................ $ 2,145,000
-------------
-------------
</TABLE>
The Company, in the normal course of business, receives and makes inquiries
with respect to possible patent infringements and other litigation. The Company
believes that it is unlikely that the outcome of the patent infringement
inquiries and other litigation will have an adverse material effect on the
Company's financial position or results of operations.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JULY 1 APRIL 1 DECEMBER 31 SEPTEMBER 30
- --------------------------------------------------- --------- --------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1995
Net sales.......................................... $ 16,284 $ 16,012 $ 17,742 $ 16,280
Gross profit (loss)................................ 5,875 5,533 5,785 (2,498)
Restructuring, litigation and other costs.......... -- (3,675) -- (3,654)
Income (loss) from operations...................... 122 (462) (194) (15,792)
Net income (loss).................................. 32 (4,194) (285) (15,784)
Net income (loss) per share........................ $ 0.00 $ (0.44) $ (0.03) $ (1.65)
<CAPTION>
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
--------- --------- ------------ -------------
<S> <C> <C> <C> <C>
FISCAL 1994
Net sales.......................................... $ 17,160 $ 19,380 $ 21,600 $ 21,035
Gross profit....................................... 305 6,226 7,296 5,055
Restructuring, litigation and other costs.......... (234) -- -- (6,460)
Loss from operations............................... (7,564) (1,830) (628) (10,905)
Net loss........................................... (8,476) (1,098) (387) (10,904)
Net loss per share................................. $ (0.89) $ (0.12) $ (0.04) $ (1.16)
</TABLE>
During the quarter ended June 30, 1994, the Company increased its valuation
allowance for deferred tax assets by $1.0 million and recorded as a cost of
sales write-down for obsolete and excess inventory of approximately $3.2
million.
During the quarters ended September 30, 1994 and 1993, the Company recorded
as a cost of sales write-down for obsolete and excess inventory of approximately
$6.0 million and $4.3 million, respectively.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
34
<PAGE>
PART III
Certain information required by Part III is omitted from this report in that
the registrant will file a definitive proxy statement pursuant to Regulation 14A
with respect to the 1995 Annual Meeting of Shareholders (the "Proxy Statement")
with the Securities and Exchange Commission; certain information to be included
therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information concerning the Company's directors required by this Item
is incorporated by reference to the section entitled "Election of Directors --
Nominees," "-- Information Concerning Nominees," "Certain Relationships and
Related Transactions" and "Miscellaneous -- Section 16 Filings" in the Company's
Proxy Statement.
(b) The information concerning the Company's executive officers required by
this Item is incorporated by reference to the section in Part I entitled
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
sections entitled "Compensation of Directors," "Executive Compensation --
Summary Compensation Table," "Option Grants In Last Fiscal Year," "Aggregated
Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values,"
"Employment Agreements" and "Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Security Ownership Of Certain Beneficial Owners And
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Election of Directors -- Nominees," "-- Information Concerning
Nominees" and "Certain Relationships and Related Transactions" in the Company's
Proxy Statement.
With the exception of the information explicitly incorporated by reference
to the Company's Proxy Statement in Part IV of this Form 10-K, the Company's
Proxy Statement is not deemed as filed as part of this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS -- see Item 8
(b) REPORTS FILED ON FORM 8-K
During the quarter ended July 1, 1995, the registrant filed one report
on Form 8-K on June 20, 1995, reporting the issuance and sale of the
Company's Common Stock in the private placement between RasterOps and
various purchasers.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation (1)...............................
3.2 Bylaws, as amended (2)...........................................................
4.1 See Exhibit 3.1..................................................................
4.2 Modification Agreement dated October 27, 1988, as amended March 12, 1990. (2)....
10.1 Amended 1988 Incentive Stock Plan (2)............................................
10.2 Form of Incentive Stock Option Agreement (3).....................................
10.3 Form of Incentive Stock Option Agreement (provides for payment by promissory
note) (3).......................................................................
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------
<C> <S> <C>
10.4 Form of Nonstatutory Stock Option Agreement (3)..................................
10.5 Form of Nonstatutory Stock Option Agreement (provides for payment by promissory
note) (3).......................................................................
10.6 Form of Stock Purchase Agreement (3).............................................
10.7 Form of Stock Purchase Agreement (provides for payment by promissory note) (3)...
10.8 Form of Stock Bonus Agreement (3)................................................
10.9 1990 Employee Stock Purchase Plan (3)............................................
10.10 Form of 1990 Employee Stock Purchase Plan Subscription Agreement (3).............
10.11 1991 Director Option Plan (4)....................................................
10.12 Certificate of Amendment to the 1991 Director Option Plan (1)....................
10.13 Form of director Option Agreement (4)............................................
10.14 Lease Agreement for the Company's executive offices in Santa Clara, California
dated February 1989, as amended May 1989 (2)....................................
10.15 Lease Agreements for Truevision's executive offices in Indianapolis, Indiana,
dated June 7, 1991 (6)..........................................................
10.16 Form of Indemnification Agreement (2)............................................
10.17 Form of Promissory Note with Officers (2)........................................
10.18 Form of Indemnification agreement dated May 8, 1990 among the Company, Kieth
Sorenson and David Smith (2)....................................................
10.19 Revolving Credit Agreement by and among the Company and Silicon Valley Bank dated
January 4, 1995 and amendment to the agreement dated June 13, 1995..............
10.20 Employment Agreement by and between RasterOps and Kieth E. Sorenson, dated as of
January 5, 1994 (6).............................................................
10.21 Employment Agreement by and between RasterOps and Paul J. Smith, dated as of
April 7, 1993 (6)...............................................................
10.22 Agreement and Plan of Reorganization among RasterOps, RasterOps Acquisition
Corporation II and Truevision, Inc., dated as of May 21, 1992 (1)...............
10.23 Agreement and Plan of Merger between Truevision, Inc. and RasterOps Acquisition
Corporation II, dated as of May 21, 1992 (1)....................................
10.24 Private Placement Agreement between RasterOps and Scitex Corporation Ltd., dated
as of June 7, 1993 (5)..........................................................
10.25 Agreement between Truevision, Inc. and Avid Technology dated December 30, 1994
(7).............................................................................
10.26 Form of Employment Agreement between the Company and Lou Doctor (7)..............
21.1 List of Subsidiaries (7).........................................................
24.1 Consent of Independent Accountants. (See page 39)................................
</TABLE>
NOTES TO EXHIBITS
(1) Filed as an exhibit to the Company's Registration Statement on Form S-4,
File No. 33-48114, which was declared effective on July 24, 1992, and
incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1,
File No. 33-33995 which was declared effective May 8, 1990, incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-8,
Filed February 1, 1991, and incorporated herein by reference.
36
<PAGE>
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K, for the
fiscal year ended June 30, 1991 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's report on Form 8-K, filed June 8, 1993
and incorporated herein by reference.
(6) Filed as an exhibit to the Company's report on Form 10-K, for the fiscal
year ended June 30, 1994 and incorporated herein by reference.
(7) Filed as an exhibit to the Company's report on Form 10-K, for the fiscal
year ended July 1, 1995 and incorporated herein by reference.
(d) FINANCIAL STATEMENT SCHEDULES
See Item (a) above.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K/A
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Santa Clara, State of California, on November 8, 1995.
TRUEVISION, INC.
By: ________/s/_R. JOHN CURSON________
R. John Curson
V.P. FINANCE, CFO AND SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
38
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-53458, 33-36138, 33-38886, 33-86288 and 33-63135)
of RasterOps of our report dated August 10, 1995 (except as to the litigation
settlement described in Note 10, which is as of August 28, 1995) appearing on
page 22 in this Annual Report on Form 10-K/A.
PRICE WATERHOUSE LLP
San Jose, California
November 8, 1995
39
<PAGE>
RASTEROPS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 1, 1995, AND JUNE 30, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------------------------------------
DEDUCTIONS
BALANCE CHARGED TO CHARGED TO FROM BALANCE
BEGINNING COSTS AND OTHER RESERVES AT END
OF PERIOD EXPENSES (1) ACCOUNTS (2) OF PERIOD
----------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995:
Allowance for sales returns, doubtful accounts
and price protection............................ $ 1,360 $ 381 $ 228 $ 678 $ 1,291
1994:
Allowance for sales returns, doubtful accounts
and price protection............................ $ 4,018 $ 1,276 -- $ 3,934 $ 1,360
1993:
Allowance for sales returns, doubtful accounts
and price protection............................ $ 4,753 $ 1,347 -- $ 2,082 $ 4,018
</TABLE>
- ------------------------
(1) Includes amounts charged to net sales for sales returns.
(2) Includes amounts charged to reserves for sales returns.
40
