<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 28, 1996 Commission file number 000-18404
-----------------------------
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, CALIFORNIA 95051
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 562-4200
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 .
------- -------
Number of shares of Common Stock outstanding as of December 28, 1996:
12,678,601
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<PAGE>
INDEX
TRUEVISION, INC.
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ----------
Item 1: Consolidated Interim Financial Statements
Consolidated Interim Balance Sheets -
December 28, 1996 and June 29, 1996 3
Consolidated Interim Statements of Operations -
Three months ended December 28, 1996 and
December 30, 1995, and six months ended
December 28, 1996 and December 30, 1995 4
Consolidated Interim Statements of Cash Flows -
Six months ended December 28, 1996 and
December 30, 1995 5
Notes to Consolidated Interim Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
- ---------------------------
Item 6: Exhibits and Reports on Form 8-K 19
SIGNATURES 20
- ----------
2
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PART I - FINANCIAL INFORMATION
TRUEVISION, INC.
CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
Dec. 28, June 29,
1996 1996
- ------------------------------------------------- -------- --------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,949 $ 6,101
Accounts receivable, net 4,422 17,413
Inventory 15,274 9,627
Prepaid expenses and other assets 1,345 1,662
Deferred income taxes 60 60
Income taxes receivable 230 230
--------- --------
Total current assets 25,280 35,093
Property and equipment, net 3,014 3,131
Other assets, net 247 251
Deferred income taxes 1,453 1,453
--------- --------
Total assets $ 29,994 $ 39,928
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 3,565 $ 3,437
Accounts payable 4,747 6,288
Accrued employee compensation 953 541
Advances on inventory held by distributors 739 --
Other accrued liabilities 1,650 2,165
Current portion of long-term obligations 281 243
--------- --------
Total current liabilities 11,935 12,674
Long-term obligations 112 151
--------- --------
Total liabilities 12,047 12,825
--------- --------
Stockholders' equity:
Preferred stock -- --
Common stock 52,878 52,680
Accumulated deficit (34,751) (25,352)
Cumulative translation adjustment (180) (225)
--------- --------
Total stockholders' equity 17,947 27,103
--------- --------
Total liabilities and stockholders' equity $ 29,994 $ 39,928
--------- --------
--------- --------
See accompanying notes to Consolidated Interim Financial Statements.
3
<PAGE>
TRUEVISION, INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------- -------------------------
Dec. 28, Dec. 30, Dec. 28, Dec. 30,
1996 1995 1996 1995
- --------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Net sales $ 10,911 $ 18,174 $ 20,959 $ 35,218
Cost of sales 6,750 11,180 14,122 22,017
-------- -------- -------- --------
Gross profit 4,161 6,994 6,837 13,201
-------- -------- -------- --------
Operating expenses:
Research and development 1,517 1,746 3,260 3,511
Selling, general and administrative 3,324 4,199 7,614 8,211
-------- -------- -------- --------
Total operating expenses 4,841 5,945 10,874 11,722
-------- -------- -------- --------
Income (loss) from operations (680) 1,049 (4,037) 1,479
Interest income 1 1 3 36
Interest expense (72) (71) (127) (128)
Other income (expense), net (232) (101) (380) (128)
-------- -------- -------- --------
Income (loss) before provision for income taxes (983) 878 (4,541) 1,259
and cumulative effect of change in accounting
principle
Provision for income taxes -- 26 -- 36
-------- -------- -------- --------
Income (loss) before cumulative effect of change
in accounting principle (983) 852 (4,541) 1,223
Cumulative effect of change in accounting
principle -- -- (4,858) --
-------- -------- -------- --------
Net income (loss) $ (983) $ 852 $ (9,399) $ 1,223
-------- -------- -------- --------
-------- -------- -------- --------
Per common share:
Income (loss) before cumulative effect of
change in accounting principle $ (0.08) $ 0.06 $ (0.36) $ 0.09
Cumulative effect of change in accounting
principle $ -- $ -- $ (0.38) $ --
Net income (loss) $ (0.08) $ 0.06 $ (0.74) $ 0.09
Weighted average common shares and equivalents 12,679 13,587 12,677 13,486
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
4
<PAGE>
TRUEVISION, INC.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
-----------------------
Dec. 28, Dec. 30,
1996 1995
- ---------------------------------------------------- -------- --------
<S> <C> <C>
(in thousands)
OPERATING CASH FLOWS:
Net income (loss) $ (9,399) $ 1,223
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Cumulative effect of change in accounting principle 4,858 --
Provision for doubtful accounts 162 (58)
Depreciation and other amortization 1,144 945
(Gain) loss on disposal of fixed assets (16) 58
Income tax benefit from disqualifying dispositions of employee
stock options -- 301
Other 45 (40)
Changes in assets and liabilities:
Accounts receivable 2,607 (4,262)
Inventory (435) (1,002)
Prepaid expenses and other assets 317 2,915
Income taxes receivable -- 68
Accounts payable (1,541) (838)
Accrued employee compensation 412 81
Advances on inventory held by distributors 739 --
Other accrued liabilities (515) (1,610)
Accrued litigation settlement -- (6,600)
-------- -------
Net cash used in operating activities (1,622) (8,819)
-------- -------
INVESTING CASH FLOWS:
Acquisitions of property and equipment (540) (566)
Acquisitions of other assets (315) (33)
-------- -------
Net cash used in investing activities (855) (599)
-------- -------
FINANCING CASH FLOWS:
Proceeds from line of credit, net 128 837
Borrowings (repayments) of debt obligations, net (1) (71)
Issuance of common stock, net 198 4,573
-------- -------
Net cash provided by financing activities 325 5,339
-------- -------
Net decrease in cash and cash equivalents (2,152) (4,079)
Cash and cash equivalents, beginning of period 6,101 10,377
-------- -------
Cash and cash equivalents, end of period $ 3,949 $ 6,298
-------- -------
-------- -------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest $ 127 $ 128
Income taxes $ 79 $ 13
Noncash investing and financing activities:
Property and equipment acquired under capital leases $ -- $ 399
Property and equipment transferred from inventory $ 152 $ --
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. Basis of Presentation
The consolidated interim financial statements presented in this Quarterly
Report on Form 10-Q are unaudited. However, in the opinion of management, all
adjustments have been made for a fair presentation of the interim periods
presented. The consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 29, 1996.
The results of operations for the three month and six month periods ended
December 28, 1996 are not necessarily indicative of the results that may be
expected for the year ending June 28, 1997.
During fiscal 1995, the Company changed to a fiscal calendar and its
reporting year ends on the Saturday closest to June 30.
NOTE 2. Inventory
A summary of inventory follows (in thousands):
Dec. 28, June 29,
1996 1996
-------- --------
Purchased parts and subassemblies $ 4,282 $ 4,194
Work-in-progress 2,065 1,237
Finished goods 6,236 4,196
Finished goods held by distributors 2,691 --
-------- --------
Total $ 15,274 $ 9,627
-------- --------
-------- --------
NOTE 3. Property and Equipment
A summary of property and equipment follows (in thousands):
Dec. 28, June 29,
1996 1996
-------- --------
Computer equipment and machinery $ 12,471 $ 12,758
Furniture and fixtures 807 819
Leasehold improvements 171 105
-------- --------
Subtotal 13,449 13,682
Less: Accumulated depreciation (10,435) (10,551)
-------- --------
Total $ 3,014 $ 3,131
-------- --------
-------- --------
NOTE 4. Accounting Change - Recognition of Distributor Revenue
Revenue from product sales to OEM and other end users is recognized upon
shipment. In the quarter ended September 28, 1996, the Company changed its
accounting method for recognizing distributor revenue, whereby the Company
recognizes revenue, and does not relieve inventory on shipments to
distributors, until shipment by the distributor. Previously, the Company
recognized revenue, after recording appropriate reserves for sales returns
from distributors and allowances granted to them, at the time of shipment to
the distributor. Distributor agreements allow certain rights of return and
price protection on products held by distributors. Cash received in advance
of recognizing distributor revenue is recorded as advances on inventory held
by distributors. The Company believes that deferral of distributor sales and
related gross margins until the product is shipped by the distributors
results in a more meaningful measurement of operations and is a preferable
method of accounting for distributor revenue.
6
<PAGE>
The cumulative effect on prior years of changing the accounting method was a
charge of $4.9 million, or $0.38 per share. This amount was reflected in the
quarter ended September 28, 1996. The estimated pro forma amounts for the
quarter ended December 30, 1995 assuming the new method of accounting had
been applied retroactively would be net sales of $18.7 million and net income
of $1.1 million, or $0.08 per share. The estimated pro forma amounts for the
six month period ended December 30, 1995 assuming the new method of
accounting had been applied retroactively would be net sales of $34.3 million
and a net income of $0.8 million, or $0.08 per share.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The text of this document includes forward-looking statements which are
subject to certain risks and uncertainties. Actual results may differ
materially from those described herein, depending on such factors as are
described herein, including without limitation those described under "Certain
Factors That May Affect The Company's Future Results Of Operations."
RESULTS OF OPERATIONS
CURRENT QUARTER COMPARED TO PRIOR QUARTER AND PRIOR YEAR QUARTER
On September 27, 1996, the Company announced a change in its method of
accounting for recognizing distributor revenue. As a result, the quarter
ended September 28, 1996 includes a $4.9 million, or $0.38 per share, charge
for the cumulative effect of the change in accounting principle. For a more
complete discussion, see "Accounting Change". The following table sets forth
net sales and gross profit for the quarters ended December 28, 1996,
September 28, 1996, and December 30, 1995. Note, the net sales and gross
profit reflected in the table for the quarter ended December 30, 1995 is on a
pro forma basis assuming the new method had been applied retroactively (in
millions):
Dec. 28, Sept. 28, Dec. 30,
1996 1996 1995
-------- --------- --------
NET SALES:
OEM $ 2.3 $ 2.0 $ 10.4
Retail/Distribution 8.6 8.0 8.3*
-------- --------- --------
Total net sales $ 10.9 $ 10.0 $ 18.7
-------- --------- --------
-------- --------- --------
GROSS PROFIT $ 4.2 $ 2.7 $ 7.2
-------- --------- --------
-------- --------- --------
* As compared to net sales of $7.8 million for the quarter ended December 30,
1995 under the previous accounting method.
NET SALES. Net sales were $10.9 million for the quarter ended December 28,
1996, an increase of $0.9 million, or 9%, from the quarter ended September 28,
1996, and a pro forma decrease of $7.8 million, or 42%, from the quarter ended
December 30, 1995. International net sales represented 36% of net sales for the
quarter ended December 28, 1996, compared to 29% for the quarter ended September
28, 1996, and 24% for the quarter ended December 30, 1995.
OEM net sales were $2.3 million for the quarter ended December 28, 1996, an
increase of $0.3 million, or 15%, from the quarter ended September 28, 1996,
and a decrease of $8.1 million, or 78%, from the quarter ended December 30,
1995. The OEM business remained weak during the current quarter compared to
the quarter ended December 30, 1995. The decrease in OEM business from the
quarter ended December 30, 1995 was primarily due to a reduction in sales to
Avid Technology, Inc. ("Avid") as discussed below.
During fiscal 1995, the Company entered into a three-year OEM agreement with
Avid under which Avid agreed to make minimum aggregate purchases of certain
products during calendar years 1995 through 1997. The agreement also provided
Avid the right to manufacture certain Truevision products rather than
purchasing them from the Company and Avid would be required to pay related
royalties. In the fourth quarter of fiscal 1996, Avid exercised that right
with respect to the current products of the Company that were used by Avid
and a fully paid license for Avid to manufacture the current products used by
Avid was negotiated. As a result, the Company does not expect to receive any
further revenues or royalties resulting from Avid's manufacture and use of
such products. Avid accounted for 35.9% and 15.7% of net sales for fiscal
1996 and fiscal 1995, respectively. The Company has no further obligations
to Avid.
Sales to the retail/distribution channel during the quarter ended December
28, 1996 were $8.6 million, compared to $8.0 million for the quarter ended
September 28, 1996, and pro forma $8.3
8
<PAGE>
million for the quarter ended December 30, 1995. Sales to the
retail/distribution channel increased slightly during the quarter but were
adversely impacted by delays in the availability of third party software
applications. During the quarter, the Company's software development
partners made significant progress toward the completion of new applications
for the Company's high-end TARGA 2000 RTX. Two such applications were
released in early January. Future sales could be adversely impacted if third
party software applications are still not readily available.
Truevision's non-OEM customers generally have not placed scheduled orders in
advance and historically, backlog at the beginning of each quarter represents
only a portion of the product sales anticipated in that quarter. Quarterly net
sales and operating results therefore depend on the volume and timing of
bookings received during a quarter and continued sell-through of products by the
distribution channel, which are difficult to forecast. The absence of backlog
has limited the Company's ability to predict appropriate production and
inventory levels, which has had and could have in the future an adverse effect
on operating results. Truevision's results of operations may fluctuate from
quarter to quarter due to these and other factors, such as announcements by
Truevision, its competitors or the manufacturers of platforms with which
Truevision's products are used.
OEM net sales for the quarters ended December 28, 1996 and December 30, 1995
included $0.5 million and $0.3 million, respectively, of revenues from license
fees under product license agreements and engineering services revenue from
product design and development agreements. There were no such revenues recorded
during the quarter ended September 28, 1996.
GROSS PROFIT. The Company had a gross profit of $4.2 million, or 38% of net
sales, for the quarter ended December 28, 1996, compared to $2.7 million, or
27% of net sales, for the quarter ended September 28, 1996, and pro forma
$7.2 million, or 39% of net sales, for the quarter ended December 30, 1995.
The Company's gross margins for the quarter ended September 28, 1996
decreased primarily due to a write-down of certain inventory to lower of cost
or market, reduction of certain products'average selling prices and
absorption of period costs (i.e., other cost of sales) over a lower sales
base. Additionally, the gross profit for the quarter ended December 30, 1995
is slightly higher than normal due to revenue from license fees and
engineering services revenue for the period. The revenue from license fees
and engineering services revenue for the quarter ended December 28, 1996
approximated the related costs. The Company's lower production levels in the
current quarter could result in lower margins in future quarters because the
fixed manufacturing overhead costs have been spread over fewer units
produced, which may be partially offset by the sale of higher margin products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$1.5 million for the quarter ended December 28, 1996, compared to $1.7
million for the quarters ended September 28, 1996 and December 30, 1995.
Research and development expenses for the quarter ended December 28, 1996
decreased primarily due to a shift in resources to support engineering
services revenue as discussed above. In the absence of unusual circumstances
or events, the Company expects that research and development spending in
absolute dollars will increase slightly through the remainder of fiscal 1997.
The Company believes that continued investment in research and development is
critical to its future growth and competitive position in its market for
broadcast video and color imaging systems and is directly related to timely
development of new and enhanced products. The Company, therefore, may
experience increased research and development spending in future periods.
Because of the inherent uncertainty of development projects, there can be no
assurance that increased research and development efforts will result in
successful product introductions, or enable to maintain or increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3.3 million for the quarter ended December 28,
1996, compared to $4.3 million for the quarter ended September 28, 1996, and
$4.2 million for the quarter ended December 30, 1995. Selling, general and
administrative expenses for the current quarter decreased primarily due to
lower variable costs related to lower sales levels and the Company's efforts
to reduce expense levels.
OTHER INCOME (EXPENSE). Other expense for the quarter ended December 28,
1996 is comprised primarily of charges associated with the discontinuance of
the initial development of a separate computer system product line and
residual expenses associated with the old RasterOps product line. Other
expense for the quarter ended December 30, 1995 is comprised primarily of
residual expenses associated with the old RasterOps product line.
9
<PAGE>
CURRENT SIX MONTH PERIOD COMPARED TO PRIOR YEAR SIX MONTH PERIOD
On September 27, 1996, the Company announced a change in its method of
accounting for recognizing distributor revenue. As a result, the quarter
ended September 28, 1996 includes a $4.9 million, or $0.38 per share, charge
for the cumulative effect of the change in accounting. For a more complete
discussion, see "Accounting Change". The following table sets forth net
sales and gross profit for the six-month period ended December 28, 1996 and
December 30, 1995. Note, the net sales and gross profit reflected in the
table for the six month period ended September 30, 1995 is on a pro forma
basis assuming the new method had been applied retroactively (in millions):
Six months ended
----------------------------
Dec. 28, Dec. 30,
1996 1995
--------- --------
NET SALES:
OEM $ 4.4 $ 19.9
Retail/Distribution 16.6 14.4*
--------- --------
Total net sales $ 21.0 $ 34.3
--------- --------
--------- --------
GROSS PROFIT $ 6.8 $ 12.7
--------- --------
--------- --------
* As compared to net sales of $15.3 million for the six month period quarter
ended December 30, 1995 under the previous accounting method.
NET SALES. Net sales were $21.0 million for the six month period ended
December 28, 1996, a pro forma decrease of $13.3 million, or 39%, from the
six month period ended December 30, 1995. International net sales
represented 33% for the six month period ended December 28, 1996, compared to
22% for the six month period ended December 30, 1995.
OEM net sales were $4.4 million for the six month period ended December 28,
1996, a decrease of $15.5 million, or 78%, from the six month period quarter
ended December 30, 1995. The OEM business remained weak during the current
six month period compared to the six month period ended December 30, 1995.
The decrease in OEM business from the six month period quarter ended December
30, 1995 was primarily due to a reduction in sales to Avid Technology, Inc.
("Avid") as discussed below.
During fiscal 1995, the Company entered into a three-year OEM agreement with
Avid under which Avid agreed to make minimum aggregate purchases of certain
products during calendar years 1995 through 1997. The agreement also provided
Avid the right to manufacture certain Truevision products rather than
purchasing them from the Company and Avid would be required to pay related
royalties. In the fourth quarter of fiscal 1996, Avid exercised that right
with respect to the current products of the Company that were used by Avid
and a fully paid license for Avid to manufacture the current products used by
Avid was negotiated. As a result, the Company does not expect to receive any
further revenues or royalties resulting from Avid's manufacture and use of
such products. Avid accounted for 35.9% and 15.7% of net sales for fiscal
1996 and fiscal 1995, respectively. The Company has no further obligations
to Avid.
Sales to the retail/distribution channel for the six month period ended
December 28, 1996 were $16.6 million, compared to pro forma $14.4 million for
the six month period ended December 30, 1995. Sales to the
retail/distribution channel for the six month period ended December 28, 1996
increased primarily due to the addition of the RTX and Bravado product lines
but sales were still adversely impacted by delays in the availability of
third party software applications. During the second quarter of fiscal 1997,
the Company's software development partners made significant progress toward
the completion of new applications for the Company's high-end TARGA 2000 RTX.
Two such applications were released in early January. Future sales could be
adversely impacted if third party software applications are still not
readily available.
Truevision's non-OEM customers generally have not placed scheduled orders in
advance and historically, backlog at the beginning of each quarter represents
only a portion of the product sales
10
<PAGE>
anticipated in that quarter. Quarterly net sales and operating results
therefore depend on the volume and timing of bookings received during a
quarter and continued sell-through of products by the distribution channel,
which are difficult to forecast. The absence of backlog has limited the
Company's ability to predict appropriate production and inventory levels,
which has had and could have in the future an adverse effect on operating
results. Truevision's results of operations may fluctuate from quarter to
quarter due to these and other factors, such as announcements by Truevision,
its competitors or the manufacturers of platforms with which Truevision's
products are used.
OEM net sales for each of the six month periods ended December 28, 1996 and
December 30, 1995 included $0.5 million each revenues from license fees under
product license agreements and engineering services revenue from product
design and development agreements.
GROSS PROFIT. The Company had a gross profit of $6.8 million, or 32% of net
sales, for the six month period ended December 28, 1996, compared to pro
forma $12.7 million, or 37% of net sales, for the six month period ended
December 30, 1995. The Company's gross margins decreased primarily due to a
write-down of certain inventory to lower of cost or market, reduction of
certain products'average selling prices and absorption of period costs (i.e.,
other cost of sales) over a lower sales base during the first quarter of
fiscal 1997. Additionally, the gross profit for the six month period ended
December 30, 1995 is slightly higher than normal due to revenue from license
fees and engineering services revenue for the period. The Company's lower
production levels in the second quarter of fiscal 1997 could result in lower
margins in future quarters because the fixed manufacturing overhead costs have
been spread over fewer units produced, which may be partially offset by the
sale of higher margin products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$3.3 million for the six month period ended December 28, 1996, compared to
$3.5 million for the six month period ended December 30, 1995. Research and
development expenses for the current six month period decreased primarily due
to a shift in resources to support engineering revenue as discussed above. In
the absence of unusual circumstances or events, the Company expects that
research and development spending in absolute dollars will increase slightly
through the remainder of fiscal 1997.
The Company believes that continued investment in research and development is
critical to its future growth and competitive position in its market for
broadcast video and color imaging systems and is directly related to timely
development of new and enhanced products. The Company, therefore, may
experience increased research and development spending in future periods.
Because of the inherent uncertainty of development projects, there can be no
assurance that increased research and development efforts will result in
successful product introductions, or enable to maintain or increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $7.6 million for the six month period ended
December 28, 1996, compared to $8.2 million for the six month period ended
December 30, 1995. Selling, general and administrative expenses for the
current six month period decreased primarily due to lower variable costs
related to lower sales levels and the Company's efforts to reduce expense
levels.
OTHER INCOME (EXPENSE). Other expense for the six month period ended
December 30, 1996 is comprised primarily of charges associated with the
discontinuance of the initial development of a separate computer system
product line and residual expenses associated with the old RasterOps product
line. Other expense for the six month period ended December 30, 1995 is
comprised primarily of residual expenses associated with the old RasterOps
product line.
ACCOUNTING CHANGE
In the quarter ended December 28, 1996, the Company changed its accounting
method for recognizing distributor revenue, whereby the Company recognizes
revenue, and does not relieve inventory on shipments to distributors, until
shipment by the distributor. Previously, the Company recognized revenue,
after recording appropriate reserves for sales returns from distributors and
allowances granted to them, at the time of shipment to the distributor.
Distributor agreements allow certain rights of return and price protection on
products held by distributors. Cash received in advance of recognizing
distributor revenue is recorded as advances on inventory held by
distributors. The Company believes that deferral of distributor sales and
related gross margins until the product is shipped by the distributors
results in a more meaningful measurement of operations and is a preferable
method of accounting for distributor revenue.
The cumulative effect on prior years of changing the accounting method was a
charge of $4.9 million, or $0.38 per share. This amount was reflected in the
quarter ended September 28, 1996. This amount was
11
<PAGE>
expensed in the quarter ended September 28, 1996. The estimated pro forma
amounts for the quarter ended December 30, 1995 assuming the new method of
accounting had been applied retroactively would be net sales of $18.7 million
and net income of $1.1 million, or $0.08 per share. The estimated pro forma
amounts for the six month period ended December 30, 1995 assuming the new
method of accounting had been applied retroactively would be net sales of
$34.3 million and a net income of $0.8 million, or $0.08 per share.
LIQUIDITY AND CAPITAL RESOURCES
At December 28, 1996, the Company had cash and cash equivalents of $3.9
million, compared to $6.1 million at June 29, 1996. Net cash used in
operations was $1.6 million during the six month period ended December 28,
1996, compared to $8.8 million during the six month period ended December 30,
1995. During the first six months of fiscal 1996, cash flow from operations
was negatively impacted by the Company's settlement payment in August 1995
related to the stockholders class action lawsuit, and an increase of accounts
receivable due to increased revenues and the timing of revenues (i.e., late
in the quarter).
Net cash used in investing activities was $0.9 million during the six month
period ended December 28, 1996, compared to $0.6 million during the six month
period ended December 30. 1995. The Company spent approximately $0.6 million
for new equipment during each of the six month periods ended December 28, 1996
and December 30, 1995. Additionally, the Company acquired equipment under
capital leases totaling $0.4 million during the six month ended December 30,
1995. The Company has no material commitments for the purchase of capital
equipment.
Net cash provided by financing activities was $0.3 million in the six month
period ended December 28, 1996, compared to $5.3 million during the six month
period ended December 30, 1995. In August 1995, the Company issued 650,000
shares of its common stock in a private placement to investors.
The Company satisfied its cash requirements for the six month period ended
December 28, 1996 primarily from its beginning balance of $6.1 million, and
proceeds from sales of stock under the employee stock purchase plan and stock
options exercised. For the six month period ended December 30, 1995, the
Company's cash requirements were satisfied primarily from its beginning
balance of $10.4 million, and funds generated from the issuance of 650,000
shares of the Company's common stock in August 1995. The Company has a bank
line of credit agreement allowing it to borrow up to $7 million based upon
percentages of eligible accounts receivable. The credit agreement contains
various financial covenants, including maintaining certain financial ratios
and tests. The primary financial covenants include quick ratio, tangible net
worth, debt to tangible net worth and profitability covenants. At December
28, 1996, the Company was in violation of certain financial covenants.
However, a waiver has been obtained from the bank and the Company is in the
process of re-negotiating the covenants. As of December 28, 1996, the
Company had borrowings of $3.6 million under the bank line of credit.
The Company believes that its current cash and cash generated from operations
together with its existing credit facilities will be sufficient to meet the
Company's cash requirements for at least the next year at its current level of
operations, but may not be sufficient to allow for significant changes in
operating level.
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 stockholders.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
SUBSTANTIAL RECENT OPERATING LOSSES. From fiscal 1992 to 1993, the Company's
net sales declined by $21.7 million, or 18%; from fiscal 1993 to 1994, the
Company's net sales declined by $20.8 million, or 21%; and from fiscal 1994
to 1995, the Company's net sales declined by $12.9 million or 16%. In
addition, the Company experienced significant operating losses during such
periods. During the first and second fiscal quarters of 1997, the Company
again experienced significant operating
12
<PAGE>
losses. There can be no assurance that net sales will not decline in the
future, or that the Company will not experience significant operating losses
in the future. Since inception and as of December 28, 1996, the Company had
an accumulated deficit of $34.8 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 both as a total amount
and in relation to revenue levels, and in particular, increased relative
levels of research and development expenses in future periods. There can be
no assurance that such research and development and other efforts will result
in successful product introductions or enable the Company to maintain or
increase net sales, and there can be no assurance that the Company will
operate profitably.
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 of the Company's average selling
prices, the availability and pricing of components for the Company's
products, and changes in product or distribution channels. Many of these
factors are beyond the Company's control. In addition, due to 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 the Company's business, financial condition and
results of operations for one or more product cycles. Furthermore, the
Company adopted a deferred revenue recognition policy with respect to sales
made through distributors. While the Company believes that such a method is
more conservative and better reflects sales performance of the Company's
products, such a method is likely to be more seasonally volatile than a
revenue recognition policy based on shipments to distributors.
The volume and timing of recognition of revenue from distributors and orders
received from other direct customers during a quarter are difficult to
forecast. Truevision's customers (other than some OEM customers) generally do
not place scheduled orders in advance 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 by the Company
and sales made by distributors 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,
release of new products which introduce manufacturing delays, and the timing
of orders received from certain customers, the Company has in the past
recorded a substantial portion of its net sales 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 net sales in a given quarter may
disproportionately impact the Company's business, financial condition and
results of operations due to an inability to adjust expenses or inventory
during the quarter to match the level of sales for the quarter. Excess
inventory could also result in cash flow difficulties as well as expenses
associated with inventory write-offs.
DEPENDENCE ON KEY CUSTOMERS. The Company's operating results have depended
increasingly upon its ability to obtain orders from, maintain relationships
with and provide support to Avid Technology and other key customers. In
addition, these key customers could design their own products competitive
with those of the Company. Any cancellation of, or reduction or delay in,
orders from these key customers could have a material adverse effect on the
Company's business, financial condition and results of operations. In fiscal
1996 and 1995, Avid accounted for 35.9% and 15.7%, respectively, of the
Company's net sales,. Also, the Company's agreement with Avid provides that
Avid has the right to manufacture certain Truevision products rather than
purchasing them from the Company and Avid will be required to pay related
royalties. In the fourth quarter of fiscal 1996, Avid exercised that right
with respect to the current products of the Company that are used by Avid.
Because Avid and the Company negotiated a fully paid license for Avid to
manufacture the current products used by Avid, which are not the Company's
most advanced product offering, the Company does not expect to receive any
further revenues or royalties resulting from Avid's manufacture and use of
such products. This will have a negative impact on the Company's net sales in
future periods when compared with prior periods.
13
<PAGE>
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 and
are subject to substantial lead times, and other components (particularly
certain ASICs) are also available only from single sources such as LSI and
Toshiba. 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 the receipt of 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, financial condition
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, financial condition and results of operations.
For the assembly of its products, the Company relies primarily on
subcontractors who use components purchased, tested and kitted by the Company,
in addition to one contract manufacturer who purchases components, manufactures
products, conducts all testing and delivers fully packaged finished products.
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, and there
can be no assurance that such problems will not recur in the future. The process
of qualifying additional subcontractors is 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
business, financial condition and results of operations until such time as
alternate sources of such services are established and the quality of such
services reaches an acceptable level.
RISKS ASSOCIATED WITH MANUFACTURING OPERATIONS. Truevision products are
primarily complex, board-level products, which require sophisticated
manufacturing technologies and operations. Furthermore, the Company has
recently introduced several new, complex, board-level products. The
manufacture of increasingly complex products places a substantial strain on
the Company's contract manufacturing operations, and the Company has in the
past 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, financial condition
and results of operations.
DISCONTINUANCE OF RASTEROPS GRAPHICS PRODUCTS; INCREASING DEPENDENCE ON
TRUEVISION VIDEO PRODUCTS. In the past, the Company derived a significant
portion of its net sales from sales of the RasterOps color graphics products,
including monitors for the Apple Macintosh computer platform. For fiscal
1994, 1995 and 1996, sales of the RasterOps product line accounted for $46.1
million (or 58.2%), $21.0 million (or 31.7%), and $0.9 million (or 1.2%),
respectively, of the Company's net sales. In particular, sales of the
Company's RasterOps monitor products contributed $30.4 million, $13.7 million
and $0.0 million to the Company's net sales in fiscal 1994, 1995 and 1996,
respectively. The Company does not anticipate that their will be any material
revenues in the future derived from the RasterOps product line. This shift
in contribution resulted in part from 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 ("Apple") integration
of graphics acceleration features into its Macintosh computers. In addition,
the RasterOps monitor business was receiving increased competition with the
entry of large competitors such as Apple and Sony into the market for
computer monitors. As a result of the increased competition and declining
profit margins for the RasterOps product line, the Company decided to
eliminate all RasterOps products (including its monitor products) and to
shift its focus from the RasterOps product line to the Truevision product
14
<PAGE>
line. The accumulated charges associated with the Company's restructuring
aggregated $10.1 million in fiscal 1995 and 1994. In light of the decline in
sales of the RasterOps product line, the Company's future operating results
will substantially depend on sales of the Truevision product line. There can
be no assurance that the Company will be successful in maintaining or
increasing sales of the Truevision product line.
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 that
applications requiring development of new video content, if any, will develop
or of the rate, if at all, at which digital, open system, desktop solutions
for video authoring will achieve market acceptance. Additionally, there can
be no assurance that third-party software application developers, which are
necessary to implement the Company's open systems approach, will be
successful in developing and bringing to market applications that will gain
market acceptance. If the market for digital desktop video authoring
products were to fail to develop, or were to develop more slowly than
anticipated, the Company's business, financial condition 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 plans 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 time and 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 business, financial condition and 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.
FUTURE CAPITAL NEEDS UNCERTAIN. The Company's future capital requirements will
depend upon many factors, including the extent and timing of the introduction 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, but may not be sufficient to allow for unrestricted growth. 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, it is likely that the Company will seek additional
funding during the next twelve months to finance working capital. There can be
no assurance that additional financing will be available to the Company on
acceptable terms, or at all, when required. Shortages of working capital may
cause delays in the Company's ability to timely obtain adequate supplies of
components or subcontracted 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, financial condition and results of operations. Moreover, if
additional financing was not available, the Company could be required to
restrict, 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 stockholders. In this respect, the Company 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 that fair
market value on the date of the issuance. If adequate financing sources are
insufficient or not available, the Company's business, financial condition and
results of operations could be materially adversely affected.
15
<PAGE>
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 borrowing to percentages of accounts receivable.
The more significant financial covenants of the current line of credit are
quick ratio, tangible net worth, debt to tangible net worth and profitability
covenants. The Company is currently and has in the past been in violation of
certain of the covenants, in each instance, a waiver of such violations has
been obtained from the bank. Although the Company currently has a waiver of
its covenant violations from the bank, 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 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 well
established, have substantial name recognition and have greater financial,
technological, production and sales and marketing resources than the Company. In
addition to products currently in production by such competitors, the Company
expects that additional competitive products will be developed and that new
companies will enter its market, 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. The Company's future success substantially
depends on the efforts of certain of its officers and key technical and other
employees. The loss of any one of these officers or employees could have a
material adverse effect on the Company's business, financial condition 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 characterized by frequent new product introductions, which
results 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 on a timely basis 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. For example, to the extent that the
Company is unsuccessful in managing product transitions, its business,
financial condition and operating results could be materially adversely
affected.
16
<PAGE>
DEPENDENCE ON SOFTWARE DEVELOPERS. The Company's open system strategy places
greater reliance by the Company on the development efforts of software
developers such as Adobe, Avid, D Vision, in:sync, Kinetix (Autodesk),
Macromedia, Scitex, SoftImage (Microsoft) and others. Other than its ability
to provide development assistance and marketing and other support, the
Company has little or no control of the time of introduction of these
developers software applications or their feature sets. To enable to Company
to compete successfully with providers of complete systems such as Avid, Data
Translation and Scitex, among others, it is imperative that independent
software applications of sufficient quality are available at a competitive
price, both of which are out of the Company's ability to control. Several of
these independent software developers have experienced delays in releasing
their software applications which have in turn adversely impacted the ability
of the Company's products to compete effectively in the market. The Company
believes that market pressures will force application vendors to offer ever
increasing feature sets and performance at ever decreasing prices; however
there can be no assurance that this would ever happen or that it would happen
in a timely enough manner to avoid having an material adverse impact on the
Company's net sales and results of operations.
RELATIONSHIP WITH SYSTEM SOFTWARE VENDORS. The success of 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 Apple and Microsoft. If the Company's relationship
with either Apple or Microsoft 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 that
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 with respect to its RasterOps
branded products and expects that integration and incorporation will continue
to occur with respect to the functionality provided by the Truevision
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.
17
<PAGE>
INTERNATIONAL OPERATIONS. For fiscal 1996, 1995 and 1994, international
sales represented 25.2%, 29.6% and 30.7%, respectively, of the Company's net
sales. 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 PRICES. The market price of the Company's Common Stock
has been volatile and trading volumes at times have been relatively low.
Factors such as variations in the Company's net sales, operating results and
cash flows, 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 and
general economic conditions may adversely affect the market price of the
Company's Common Stock.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
December 28, 1996.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 10, 1997 by: /s/ R. John Curson
------------------------------------------
R. John Curson
Senior Vice President, Chief Financial
Officer and Secretary
(signing as duly authorized signatory on
behalf of the registrant and in his
capacity as principal financial officer
of the registrant.)
20
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