<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 26, 1998 Commission file number 000-18404
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TRUEVISION, INC.
(Exact name of registrant as specified in its charter)
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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 26, 1998: 13,104,398
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<PAGE>
INDEX
TRUEVISION, INC.
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
----------------
<S> <C>
Item 1: Consolidated Interim Financial Statements
Consolidated Balance Sheets -
December 26, 1998 and June 27, 1998 2
Consolidated Interim Statements of Operations -
Three months ended December 26, 1998 and December 27, 3
1997, and six months ended December 26, 1998 and
December 27, 1997
Consolidated Interim Statements of Cash Flows -
Six months ended December 26, 1998 4
and December 27, 1997
Notes to Consolidated Interim Financial Statements 5
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 13
SIGNATURES 14
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
TRUEVISION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 26, June 27,
1998 1998
- ---------------------------------------------- -------- --------
(In thousands) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,938 $ 4,973
Accounts receivable, net 2,843 3,911
Inventory (Note 2) 5,433 4,551
Prepaid expenses and other assets 2,063 2,754
Income taxes receivable -- 32
-------- --------
Total current assets 12,277 16,221
Property and equipment, net (Note 3) 1,486 1,721
Other assets, net 115 112
-------- --------
Total assets $ 13,878 $ 18,054
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,825 $ 4,285
Accrued employee compensation 831 1,334
Accrued restructuring and other costs (Note 4) -- 403
Advances on inventory held by distributors 254 49
Other accrued liabilities 1,993 2,004
Current portion of long-term obligations 36 46
-------- --------
Total current liabilities 5,939 8,121
Long-term obligations 27 44
-------- --------
Total liabilities 5,966 8,165
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock 53,746 53,684
Accumulated deficit (45,834) (43,795)
-------- --------
Total stockholders' equity 7,912 9,889
-------- --------
Total liabilities and stockholders' equity $ 13,878 $ 18,054
-------- --------
-------- --------
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
2
<PAGE>
TRUEVISION, INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------- --------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1998 1997 1998 1997
- ---------------------------------------------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 6,363 $ 10,039 $ 13,873 $ 20,131
Cost of sales 4,205 5,537 8,849 11,394
-------- -------- -------- --------
Gross profit 2,158 4,502 5,024 8,737
-------- -------- -------- --------
Operating expenses:
Research and development 1,400 1,219 2,492 2,624
Selling, general and administrative 2,294 2,524 4,543 4,908
-------- -------- -------- --------
Total operating expenses 3,694 3,743 7,035 7,532
-------- -------- -------- --------
Income (loss) from operations (1,536) 759 (2,011) 1,205
Interest income 5 10 26 38
Interest expense (21) (39) (51) (128)
Other income (expense), net (1) 2 (3) (20)
-------- -------- -------- --------
Income (loss) before provision for income taxes (1,553) 732 (2,039) 1,095
-------- -------- -------- --------
Provision for income taxes -- 22 -- 33
-------- -------- -------- --------
Net income (loss) $ (1,553) $ 710 $ (2,039) $ 1,062
-------- -------- -------- --------
-------- -------- -------- --------
Basic earnings per share:
Net income (loss) per share $ (0.12) $ 0.06 $ (0.16) $ 0.08
Diluted earnings per share:
Net income (loss) per share $ (0.12) $ 0.05 $ (0.16) $ 0.08
Weighted average common shares and equivalents:
Basic 13,104 12,832 13,093 12,796
Diluted 13,104 13,788 13,093 13,367
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
3
<PAGE>
TRUEVISION, INC.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
--------------------
Dec. 26, Dec. 27,
1998 1997
- ------------------------------------------------------ -------- --------
(In thousands)
<S> <C> <C>
OPERATING CASH FLOWS:
Net income (loss) $(2,039) $ 1,062
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for doubtful accounts -- 100
Depreciation and other amortization 544 793
Loss on disposal of fixed assets 5 16
Changes in assets and liabilities:
Accounts receivable 1,068 374
Inventory (893) 3,730
Prepaid expenses and other assets 687 (1,377)
Income taxes receivable 32 40
Accounts payable (1,460) (380)
Accrued employee compensation (503) 31
Accrued restructuring and other costs (403) (788)
Advances on inventory held by distributors 205 (425)
Other accrued liabilities (11) (68)
------- -------
Net cash provided by (used in) operating activities (2,768) 3,108
------- -------
INVESTING CASH FLOWS:
Acquisitions of property and equipment (299) (125)
Acquisitions of other assets (3) --
------- -------
Net cash used in investing activities (302) (125)
------- -------
FINANCING CASH FLOWS:
Payments on line of credit, net -- (3,738)
Payments on debt obligations, net (27) (20)
Issuance of common stock, net 62 258
------- -------
Net cash provided by (used in) financing activities 35 (3,500)
------- -------
Net decrease in cash and cash equivalents (3,035) (517)
Cash and cash equivalents, beginning of period 4,973 4,549
------- -------
Cash and cash equivalents, end of period $ 1,938 $ 4,032
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest $ 54 $ 143
Income taxes $ 5 $ 3
Noncash investing and financing activities:
Property and equipment transferred from inventory $ 11 $ 21
Property and equipment acquired under capital leases $ -- $ 27
</TABLE>
See accompanying notes to Consolidated Interim Financial Statements.
4
<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 interim 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 27, 1998.
The results of operations for the three month and six month periods ended
December 26, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 26, 1999.
The Company's fiscal calendar and its operating year ends on the Saturday
closest to June 30.
NOTE 2. Inventory
A summary of inventory follows (in thousands):
<TABLE>
<CAPTION>
Dec. 26, June 27,
1998 1998
------------- -------------
<S> <C> <C>
Purchased parts and subassemblies $ 1,674 $ 398
Work-in-progress 1,176 2,398
Finished goods 1,906 1,125
Finished goods held by distributors 677 630
-------------- -------------
Total
$ 5,433 $ 4,551
-------------- -------------
------------- -------------
</TABLE>
NOTE 3. Property and Equipment
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
Dec. 26, June 27,
1998 1998
------------- -------------
<S> <C> <C>
Computer equipment and machinery $ 8,543 $ 8,298
Furniture and fixtures 684 688
Leasehold improvements 161 111
------------- -------------
Subtotal 9,388 9,097
Less: Accumulated depreciation (7,902) (7,376)
------------- -------------
Total $ 1,486 $ 1,721
------------- -------------
------------- -------------
</TABLE>
NOTE 4. Restructuring and Other Costs
During the quarter ended June 28, 1997, the Company recorded a charge for
restructuring and other costs of $1,680,000. This charge primarily consisted of
costs associated with downsizing facilities and reduction in headcount. Also, as
a result of the Company's decision to close its European offices, the
restructuring charge included costs associated with lease terminations and
write-off of fixed assets for the sales offices located in France and the United
Kingdom, and the write-off of the cumulative translation adjustment.
5
<PAGE>
During the six months ended December 26, 1998, the Company utilized the final
$403,000 of restructuring reserves remaining at June 27, 1998. A summary of
restructuring activities during the six months ended December 26, 1998 follows
(in thousands):
<TABLE>
<CAPTION>
Reserve Reserve
balance balance
June 27, Dec. 26,
1998 Payments 1998
------------- -------------- -------------
<S> <C> <C> <C>
Downsizing facilities $ 356 $ (356) $ --
Other 47 (47) --
------------- -------------- -------------
Total $ 403 $ (403) $ --
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
NOTE 5. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), EARNINGS PER SHARE. The
Company has presented earnings per share for all periods in accordance with the
new standard. SFAS 128 requires the presentation of basic and diluted earnings
per share. Basic earnings per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
share includes the effect of dilutive potential common shares (options) issued
during the period (using the treasury stock method). The following data is
presented in thousands, except per share data:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Three months ended Six months ended
------------------------------- --------------------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1998 1997 1998 1997
-------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,553) $ 710 $ (2,039) $ 1,062
-------------- --------------- -------------- ----------------
Weighted average shares outstanding-basic 13,104 12,832 13,093 12,796
Dilutive options -- 956 -- 571
-------------- --------------- -------------- ----------------
Weighted average shares outstanding-diluted 13,104 13,788 13,093 13,367
-------------- --------------- -------------- ----------------
Earnings per share
Basic $ (0.12) $ 0.06 $ (0.16) $ 0.08
Dilutive effect of outstanding options -- (0.01) -- --
-------------- --------------- -------------- ----------------
Diluted $ (0.12) $ 0.05 $ (0.16) $ 0.08
-------------- --------------- -------------- ----------------
</TABLE>
Options and warrants to purchase 2,953,790 and 722,590 shares of common stock
were outstanding at December 26, 1998 and December 27, 1997, respectively, but
were not included in the computations of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares, or because inclusion would have been antidilutive to the
Company's net loss per share.
NOTE 6. Stock Options and Warrants
On December 7, 1998, the Company offered to all individuals holding
outstanding stock options and to one individual holding an outstanding
warrant (the "Outstanding Awards") the opportunity to amend such Outstanding
Awards to lower the exercise price to $0.75 per share, the fair market value
on December 7, 1998. In consideration of the lower exercise price, holders
electing to reprice have agreed to cancellation of 10% of the total number of
shares originally granted. Of the 3,233,473 shares under Outstanding Awards
at December 7, 1998, options representing 2,253,023 shares and warrants
representing 400,000 shares were repriced. After the repricing options
totaling 2,093,790 shares and warrants totaling 860,000 shares were
outstanding.
6
<PAGE>
NOTE 7. Comprehensive Income
Effective June 28, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), REPORTING COMPREHENSIVE INCOME. SFAS
130 requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. SFAS 130 also requires that an entity classify items of
other comprehensive earnings by their nature in an annual financial
statement. As the Company had no elements of other comprehensive income
during the period, adoption of SFAS 130 did not have a material effect on the
Company's financial statements.
NOTE 8. Merger Agreement
On December 16, 1998, the Company entered into a definitive agreement to be
acquired by Pinnacle Systems, Inc. (Pinnacle), Mountain View, California.
Pinnacle is a leading supplier of digital video solutions to the broadcast,
professional and consumer markets.
The transaction is a stock-for-stock, taxable purchase transaction valued
at approximately $14.0 million as of the date of the agreement, and is
expected to close in March 1999 subject to various conditions including
customary regulatory approvals and the approval by the stockholders of the
Company.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Interim Financial Statements and the Notes thereto, and the Annual Report on
Form 10-K for the year ended June 27, 1998. The following discussion contains
forward-looking statements which are subject to certain risks and uncertainties.
Actual results may differ materially from those described depending on such
factors as are described herein, and those described under "Certain Factors That
May Affect the Company's Future Results of Operations" in the Company's Annual
Report on Form 10-K for the year ended June 27, 1998.
CURRENT QUARTER COMPARED TO PRIOR QUARTER AND PRIOR YEAR QUARTER
RESULTS OF OPERATIONS
NET SALES. Net sales were $6.4 million for the quarter ended December 26,
1998, compared to $10.0 million for the quarter ended December 27, 1997, and
$7.5 million for the quarter ended September 26, 1998. The Company believes
that revenue will continue to be under pressure, however revenues are
expected to level off or increase slightly over the second half of the fiscal
year based on benefits from the introduction of new products and timing of
revenue from OEM engineering contracts. International net sales represented
23% of net sales for the quarter ended December 26, 1998, compared to 33% for
the quarter ended December 27, 1997, and 22% for the quarter ended September
26, 1998.
Net sales to the retail/distribution channel during the quarter ended
December 26, 1998 were $4.6 million, compared to $6.7 million for the quarter
ended December 27, 1997, and $5.2 million for the quarter ended September 26,
1998. Sales to the retail/distribution channel decreased during the quarters
ended December 26, 1998 and September 26, 1998 primarily due to a decline in
international sales because of slower business in Asia and lower sales of low
end products.
In January 1998, the Company began selling completely configured video
production workstations directly to end-users, and in June 1998 through its
dealer network, based on Avid's popular MCXpress NT non-linear editing software,
its own award winning TARGA products and IBM's newest IntelliStation M Pro
computer system. Net sales of workstations for the quarters ended December 26,
1998 and September 26, 1998 were $0.6 million and $0.6 million respectively.
In April 1998, the Company announced four new members of its award-winning
TARGA video card family: TARGA 2000 DDR, the first single-slot, uncompressed,
serial digital capture and output solution; TARGA 2000 RTX3D and SDX3D, the
first non-linear editing solution with a fully integrated broadcast 3D DVE; and
the TARGA DV2000 RTX, the first real-time, dual-stream DV card fully supporting
the consumer DV, DVCAM and DVCPRO formats. Net sales of TARGA 2000 RTX3D and
SDX3D were $0.4 million and $0.4 million for the quarters ended December 26,
1998 and September 26, 1998, respectively. TARGA 2000 DDR and TARGA DV2000 RTX
are expected to ship in future quarters of fiscal 1999.
In April 1998, the Company began shipping its new BRAVADO 2000 for Windows.
BRAVADO 2000 is the next-generation video editing solution of the BRAVADO 1000
designed to help first time non-linear video users create professional quality
content quickly and easily. Net sales of BRAVADO 2000 for the quarters ended
December 26, 1998 and September 26, 1998 were $0.3 million and $0.2 million,
respectively.
In August 1998, the Company began shipping its new BRAVADO DV2000, a
complete firewire (IEEE 1394) video editing solution for Windows. BRAVADO
DV2000 includes a full version of Adobe Premiere-Registered Trademark- 5.1.
Net sales of BRAVADO DV2000 were $0.5 million and $0.3 million for the
quarters ended December 26, 1998 and September 26, 1998, respectively.
8
<PAGE>
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 non-OEM customers generally do not place scheduled orders in
advance and, as a result, backlog at the beginning of each quarter represents
only a portion of the product sales anticipated in that quarter. Quarterly net
sales and operating results therefore depend on the volume and timing of
bookings received during a quarter and sales made by distributors during a
quarter, 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 were $1.8 million for the quarter ended December 26, 1998,
compared to $3.2 million for the quarter ended December 27, 1997, and $2.3
million for the quarter ended September 26, 1998. The decrease in OEM net
sales was primarily attributable to the timing of revenue from OEM engineering
contracts.
GROSS PROFIT. The Company had a gross profit of $2.2 million, or 34% of net
sales, for the quarter ended December 26, 1998, compared to $4.5 million, or 45%
of net sales, for the quarter ended December 27, 1997, and $2.9 million, or 38%
of net sales, for the quarter ended September 26, 1998. The decrease in the
gross profit percentage from 45% for the quarter ended December 27, 1997 and 38%
for the quarter ended September 26, 1998 to 34% for the quarter ended December
26, 1998 was due primarily to lower margins on OEM net sales and price decreases
in the TARGA 2000 RTX and SDX product lines.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$1.4 million for the quarter ended December 26, 1998, compared to $1.2 million
for the quarter ended December 27, 1997, and $1.1 million for the quarter ended
September 26, 1998.
The Company believes that continued investment in research and development
is critical to its future growth and its competitive position in the video
products market and is directly related to timely development of new and
enhanced products. The Company, therefore, may incur 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
the Company to maintain or increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2.3 million for the quarter ended December 26,
1998, compared to $2.5 million for the quarter ended December 27, 1997, and $2.3
million for the quarter ended September 26, 1998. Although the Company has
reduced its sales and marketing promotions and believes that such promotions are
sufficient for the current sales level, there can be no assurance that the
current or increased sales and marketing promotions will enable the Company to
maintain or increase its current level of sales.
CURRENT SIX MONTH PERIOD COMPARED TO PRIOR YEAR SIX MONTH PERIOD
NET SALES. Net sales were $13.9 million for the six months ended December
26, 1998, compared to $20.1 million for the six months ended December 27,
1997. International net sales represented 22% for the six months ended
December 26, 1998, compared to 31% for the six months ended December 27, 1997.
Net sales to the retail/distribution channel for the six months ended
December 26, 1998 were $9.8 million, compared to $14.0 million for the six
months ended December 27, 1997. Sales to the retail/distribution channel
decreased primarily due to a decline in international sales because of slower
business in Asia and lower sales of low end products.
In January 1998, the Company began selling completely configured video
production workstations directly to end-users, and in June 1998 through its
dealer network, based on Avid's popular MCXpress NT non-linear editing software,
its own award winning TARGA products and IBM's newest IntelliStation M Pro
computer system. Net sales of workstations were $1.2 million for the six months
ended December 26, 1998.
In April 1998, the Company announced four new members of its award-winning
TARGA video card family: TARGA 2000 DDR, the first single-slot, uncompressed,
serial digital capture and output
9
<PAGE>
solution; TARGA 2000 RTX3D and SDX3D, the first non-linear editing solution with
a fully integrated broadcast 3D DVE; and the TARGA DV2000 RTX, the first
real-time, dual-stream DV card fully supporting the consumer DV, DVCAM and
DVCPRO formats. Net sales of TARGA 2000 RTX3D and SDX3D were $0.8 million for
the six months ended December 26, 1998. TARGA 2000 DDR and TARGA DV2000 RTX are
expected to ship in future quarters of fiscal 1999.
In April 1998, the Company began shipping its new BRAVADO 2000 for Windows.
BRAVADO 2000 is the next-generation video editing solution of the BRAVADO 1000
designed to help first time non-linear video users create professional quality
content quickly and easily. Net sales of BRAVADO 2000 were $0.5 million for the
six months ended December 26, 1998.
In August 1998, the Company began shipping its new BRAVADO DV2000, a
complete firewire (IEEE 1394) video editing solution for Windows. BRAVADO
DV2000 includes a full version of Adobe Premiere-Registered Trademark- 5.1.
Net sales of BRAVADO DV2000 were $0.8 million for the six months ended
December 26, 1998.
OEM net sales were $4.1 million for the six months ended December 26,
1998, compared to $6.1 million for the six months ended December 27, 1997.
The decrease in OEM net sales was primarily attributable to the timing of
revenue from OEM engineering contracts.
GROSS PROFIT. The Company had a gross profit of $5.0 million, or 36% of net
sales, for the six months ended December 26, 1998, compared to $8.7 million, or
43% of net sales, for the six months ended December 27, 1997. The decrease in
the gross profit percentage between the two periods was due primarily to lower
margins on OEM net sales and price decreases in the TARGA 2000 RTX and SDX
product lines.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$2.3 million for the six months ended December 26, 1998, compared to $2.6
million for the six months ended December 27, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.5 million for the six months ended December 26,
1998, compared to $4.9 million for the six months ended December 27, 1997.
Although the Company has reduced its sales and marketing promotions and believes
that such promotions are sufficient for the current sales level, there can be no
assurance that the current or increased sales and marketing promotions will
enable the Company to maintain or increase its current level of sales.
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 1998, the Company had cash and cash equivalents of $1.9
million, a decrease of $3.1 million from the $5.0 million at June 27, 1998 and a
decrease of $1.7 million from the $3.6 million at September 26, 1998. Working
capital totaled $6.3 million at December 26, 1998, a decrease of $1.8 million
from the $8.1 million at June 27, 1998 and a decrease of $1.5 million from the
$7.8 million at September 26, 1998.
10
<PAGE>
Net cash used in operating activities was $2.8 million during the six months
ended December 26, 1998, compared to net cash provided by operating activities
of $3.1 million during the six months ended December 27, 1997. During the six
months ended December 26, 1998, the Company used cash flow from operations
primarily due to a net loss of $2.0 million, a decrease in accounts payable of
$1.5 million and an increase in inventory of $0.9 million. These factors were
partially offset by a decrease in accounts receivable of $1.1 million and the
non-cash effect from depreciation and amortization of $0.5 million.
In August 1997, the Company entered into an agreement with a major supplier
to purchase $1.6 million of a certain component during fiscal 1998 and 1999.
During the quarter ended December 26, 1998, $0.5 million of the component was
purchased, completing the Company's obligation under the agreement.
Net cash used in investing activities was $0.3 million during the six months
ended December 26, 1998, compared to $0.1 million during the six months ended
December 27, 1997. At December 26, 1998, the Company had no material commitments
for the purchase of capital equipment.
Net cash provided by financing activities was $35,000 during the six months
ended December 26, 1998, compared to $3.5 million used in financing activities
during the six months ended December 27, 1997. During the six months ended
December 27, 1997, the Company repaid $3.7 million in borrowings under the line
of credit.
The Company has a one-year revolving line of credit agreement allowing the
Company to borrow up to $4.25 million, as amended, based upon percentages of
eligible accounts receivable and inventory. The primary financial covenants
of the line of credit relate to quick ratio, tangible net worth, debt to
tangible net worth and profitability. As of December 26, 1998, the Company
was in violation of the quick ratio and profitability covenants of the line
of credit. The bank has provided a waiver of these defaults. In the event the
Company continues to be in default, the Company may need to renegotiate terms
with the bank or seek alternative sources of funds. The Company has received
indication from the bank of its willingness to enter into such negotiations.
As of December 26, 1998, the Company had no borrowings and $2.3 million
available under the line of credit. As of January 22, 1999, the Company had
$1.0 million in borrowings and an additional $1.3 million available under the
line of credit.
On December 16, 1998, the Company received a notice from the Nasdaq
Stock Market that the Company's common stock, traded on the Nasdaq National
Market under the symbol "TRUV," had failed to maintain minimum closing bid
price of greater than or equal to $1.00 for thirty consecutive trading days.
In order to maintain continued listing for trading on the Nasdaq National
Market, the Company has 90 calendar days in which to regain compliance with
the $1.00 minimum bid price requirement. In order to comply with this
requirement, the Company's common stock must comply with the $1.00 minimum
bid price requirement for a minimum of ten consecutive trading days. If the
Company's common stock has not complied with this requirement on or before
the end of the ninety day period ending March 18, 1999, the Company's common
stock will be delisted at the opening of trading on March 22, 1999. In the
event of such a delisting, the Company's common stock would likely be traded
on the OTC-Bulletin Board, which could have a material adverse effect on the
Company, the trading price and liquidity of its common stock and the
Company's ability to raise capital. In addition, although there would be no
substantive change in the Company's business, if the Company effects a
reverse stock split in order to meet the $1 minimum bid price requirement,
there could be a material adverse effect on the trading price of the
Company's common stock.
The Company's year-to-date operating losses have resulted in the need to
address the Company's liquidity position. The Company's plans include the
pending merger agreement with Pinnacle Systems, Inc. (see "Merger Agreement"
below), the introduction of new products, and, if necessary, inventory and
cost reduction measures. Management believes that these plans, when coupled
with available credit facilities as discussed above, will enable the Company
to continue as a going concern at least through June 26, 1999.
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 require additional equity or debt financing to
fund such activities. However, there can be no assurance that the Company will
be able to obtain these funds on terms and conditions acceptable to the Company.
In addition, the sale of additional equity or convertible debt securities could
result in additional dilution in the equity ownership of the Company's
stockholders.
MERGER AGREEMENT
On December 16, 1998, the Company entered into a definitive agreement to be
acquired by Pinnacle Systems, Inc. (Pinnacle), Mountain View, California.
Pinnacle is a leading supplier of digital video solutions to the broadcast,
professional and consumer markets.
The transaction is a stock-for-stock, taxable purchase transaction valued
at approximately $14.0 million as of the date of the agreement, and is
expected to close in March 1999 subject to various conditions including
customary regulatory approvals and the approval by the stockholders of the
Company.
11
<PAGE>
IMPACT OF YEAR 2000
Like many other companies, Year 2000 computer issues create certain risks for
Truevision. If the Company's internal management information systems do not
correctly recognize and process date information beyond the Year 1999, there
could be an adverse impact on the Company's operations. To address these Year
2000 issues with its internal systems, the Company has initiated a program to
evaluate its internal systems. Assessment and remediation are proceeding in
parallel and the Company currently plans to have changes to these information
systems completed and tested by June 1999. These activities are intended to
encompass all major categories of internal systems used by the Company,
including manufacturing, sales and financial systems. An initial assessment
indicates that certain internal systems should be upgraded or replaced as part
of a solution to the Year 2000 problem. Certain of the costs related to upgrades
of such hardware and software systems are covered by ongoing maintenance
agreements. Additional costs of purchasing, installing, modifying and testing
the internal systems are not expected to exceed $250,000.
To assist customers in evaluating their Year 2000 issues, the Company has
completed a program to assess the capability of its current products to handle
the Year 2000. The Company believes that all current products shipping, which
run under Microsoft Windows NT, Windows 95/98 or Apple Macintosh OS, are "Year
2000 Compliant." Testing of older products, which are no longer shipping, will
not be performed. The Company is also working with key suppliers of products and
services to determine that their operations and products are Year 2000 Compliant
or to monitor their progress toward Year 2000 compliance, as appropriate. In
addition, the Company has begun internal discussions concerning contingency
planning to address potential problem areas with internal systems and with
suppliers and other third parties. It is expected that assessment, remediation
and contingency planning activities will be on-going throughout calendar year
1999 with the goal of appropriately resolving all material internal systems and
third party issues.
Except as implied in any limited product warranty, the Company does not
believe it is legally responsible for costs incurred by customers related to
ensuring Year 2000 compliance. Nevertheless, the Company is incurring various
costs to provide customer support and customer satisfaction services regarding
Year 2000 issues. As used by Truevision, "Year 2000 Compliant" means that when
used properly and in conformity with the product information provided by the
Company, and when used with "Year 2000 Compliant" computer systems, the product
will accurately store, display, process, provide, and/or receive data from,
into, and between the twentieth and twenty-first centuries, including leap year
calculations, provided that all other technology used in combination with the
Truevision product properly exchanges date data with the Truevision product.
There can be no assurance that (i) third party technologies used in combination
with Truevision products will be Year 2000 Compliant and (ii) Truevision
products will not be adversely affected when used with such third party
technologies, nor can the Company represent that any modifications to its
products made by a party other than Truevision will be Year 2000 Compliant. The
costs incurred to date related to these programs have not been material. The
cost which will be incurred by the Company regarding the testing of current
products for Year 2000 compliance, and answering and responding to customer
requests related to Year 2000 issues, including both incremental spending and
redeployed resources, is currently not expected to exceed $100,000. The total
cost estimate does not include potential costs related to any customer or other
claims or the cost of internal software and hardware replaced in the normal
course of business. In some instances, the installation schedule of new software
and hardware in the normal course of business is being accelerated to also
afford a solution to Year 2000 compliance issues. The total cost estimate is
based on the current assessment of the projects and is subject to change as the
project progresses. Based on currently available information, the Company does
not believe that the Year 2000 matters discussed above related to products sold
to customers will have a material adverse impact on its financial condition or
overall trends in results of operations; however, it is still uncertain to what
extent the Company may be affected by such matters. In addition, customers may
delay purchase decisions because of uncertainty about Year 2000 issues. There
also can be no assurance that the failure to ensure Year 2000 compliance by a
supplier or another third party would not have a material adverse effect on the
Company.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On December 18, 1998, the Company filed a Report on Form 8-K for the
Agreement and Plan of Reorganization dated December 16, 1998 with
Pinnacle Systems, Inc., Bernardo Merger Corporation and Walsh Merger
Corporation.
13
<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: January 22, 1999 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.)
14
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