<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------------------ ------------------
Commission file number 34-0-23-858
VIDEOLABS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 47-1726281
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10925 Bren Road East
Minnetonka, MN 55343
(Address of principal executive offices)
(612) 988-0055
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of May 10, 1996: 3,134,948
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE> 2
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEOLABS, INC.
INTERIM CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
UNAUDITED AUDITED
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ...................... $ 549,294 $ 687,508
Certificate of deposit (Note 5) ................ 423,377 576,900
Marketable Securities (Note 4) ................. 353,963 353,963
Interest Receivable ............................ 4,266 9,251
Accounts Receivable, less allowance for
doubtful accounts of $31,383 on March 31,
1996 and $25,400 on December 31, 1995 ........ 817,304 1,266,109
Inventories .................................... 2,547,824 2,399,947
Deferred tax asset ............................. 30,000 30,000
Prepaid expenses ............................... 118,568 106,802
---------- ----------
Total Current assets ....................... 4,844,596 5,430,480
---------- ----------
Property and Equipment
Office and computer equipment .................. 346,880 324,067
Machinery and equipment ........................ 312,723 312,723
European real estate ........................... 137,578 137,579
Vehicles ....................................... 0 31,623
Leasehold improvements ......................... 21,250 21,250
---------- ----------
Total equipment ................................ 818,431 827,242
Less accumulated depreciation ................ 319,520 265,107
---------- ----------
Net equipment ................................ 498,911 562,135
---------- ----------
Total assets ................................. $5,343,507 $5,992,615
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................... $ 418,540 $ 770,356
Customer deposits and other liabilities ........ 6,270 21,125
Accrued compensation ........................... 14,203 64,612
Accrued Expenses ............................... 15,776 48,000
---------- ----------
Total current liabilities .................... 454,789 904,093
---------- ----------
Stockholders' Equity
Common stock, $.01 par value; Authorized
20,000,000 shares issued and outstanding,
3,133,948 shares at March 31, 1996 and 3,133,948
shares at December 31, 1995 .................... 31,339 31,339
Additional paid in capital ..................... 5,511,653 5,511,653
Deferred Profit from RSI Inc common stock
(Note 4) ..................................... 219,215 219,215
Accumulated deficit ............................ (873,489) (673,685)
---------- ----------
Total stockholders' equity ................... 4,888,718 5,088,522
---------- ----------
Total liabilities and stockholders' equity.. $5,343,507 $5,992,615
========== ==========
</TABLE>
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<PAGE> 3
INTERIM CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
---------- ----------
<S> <C> <C>
Sales ........................................ $1,450,805 $1,602,082
Cost of goods sold ........................... 972,210 932,660
---------- ----------
Gross profit ................................. 478,595 669,422
Selling, general and administrative expenses.. 695,004 782,467
---------- ----------
Operating profit (loss) ...................... (216,409) (113,045)
Other income (expense)
Interest income .............................. 16,605 34,731
Gain (loss) on sale of assets ................ 0 0
---------- ----------
Total other income (expense) ................. 16,605 34,731
Net Income (loss) ............................ $ (199,804) $ (78,314)
========== ==========
Income (loss) per common share ...................($0.06) ($0.03)
</TABLE>
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1996
------------------
<S> <C>
Cash Flows From Operations:
Net cash provided by operations .......................... $(300,548)
Cash Flows From Investing:
Capital expenditures ..................................... 8,812
Purchase/Sale of certificate of deposit .................. 153,523
Purchase/Sales of U.S. Treasury securities ............... 0
Sales of held to maturity securities ..................... 0
---------
Net cash from investing ................................ 162,335
Cash Flows From Financing:
Net proceeds from sale of common stock ................... 0
Payment of Bridge Notes .................................. 0
Stock offering costs ..................................... 0
Net proceeds from sale of bridge notes ................... 0
---------
Net cash from financing ................................ 0
---------
Net increase (decrease) in cash and cash equivalents ....... (138,213)
Cash and cash equivalents at beginning of period ........... 687,508
---------
Cash and cash equivalents at end of period ................. $ 549,295
=========
</TABLE>
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<PAGE> 4
FOOTNOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The results of operations for the interim periods shown in this report
are not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments (consisting only of normally recurring adjustments) necessary to
make the results of operations for the interim periods a fair statement of such
operations.
NOTE 2. INITIAL PUBLIC OFFERING
On May 17, 1994, the Company closed the public offering and sale of
1,500,000 shares of the Company's common stock at a public offering price of
$3.50 per share. After deducting an underwriting discount of $0.35 per share,
this public offering resulted in net proceeds to the Company of $4,275,000.
Bridge notes totaling $750,000, plus accrued interest, were paid at the time of
closing along with a three percent (3%) non-accountable expense allowance of
$157,500 (less $15,000 that was prepaid to the underwriter).
NOTE 3. INCOME (LOSS) PER COMMON SHARE
Income or loss per common share amounts were computed using the
weighted average number of shares outstanding during each period. Diluted
income per common share amounts were computed using the treasury stock method.
The number of average shares outstanding for the quarters ending March 31,
1996, and 1995, were 3,133,948.
NOTE 4. DEFERRED PROFIT ON RSI, INC. COMMON STOCK
The carrying value on the Company books at December 31, 1994, of RSI,
Inc. Common stock was $5,000 consisting of the net between the amount of the
note receivable and deferred income on that date. The value for reporting
purposes of the 63,888 shares of RSI, Inc. common stock held by the Company at
March 31, 1995, was calculated at $4.50 per share plus the basis of the shares
on the Company books. The market value of RSI, Inc. Common stock on March 31,
1995, was approximately $8.00 per share. The RSI, Inc. Common stock held by the
Company is restricted from sale until November 15, 1996 unless prior consent of
the underwriter of RSI, Inc. is obtained.
NOTE 5. BANK LINE OF CREDIT
On July 26, 1995, the Company entered into a loan agreement with a bank
for $500,000. On September 20, 1995, the Company entered into a second loan
agreement with the same bank for an additional $500,000. On April 10, 1996 a
new loan agreement was entered into for $1,500,000 which expires on April 10,
1997. The line of Credit bears interest at 1% over the First Bank National
Association Reference Rate. The notes are secured by all corporate assets and
require cash collateral of $500,000. At March 31, 1996, the line of credit was
being used to secure letters of credit to suppliers amounting to $872,500. A
$500,000 certificate of deposit is on deposit with the bank as cash collateral
required by the loan terms and conditions.
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ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS
Net revenues for the quarter ended March 31, 1996, were $1,450,805
compared to $1,602,082 for the first quarter of 1995, a 9 percent decrease.
Revenue performance for the quarter was off from last year due to the product
transition from the $595 to the $395 FlexCam product and a weak revenue
performance in the Asia/Pacific Region.
Gross margins of the Company are determined by deducting from net
revenues all materials, labor, packaging, manuals and related overhead costs
which are directly attributable to the cost of manufacture and shipment of the
Company's products. Royalty and commission costs related to the sales of
products are not included in cost of goods, but are included in selling
expenses. The Company's gross margin on sales during the first quarter of 1996,
was $478,595 or 32% as compared to $669,422 or 41% for the first quarter of
1995. The product transition also affected gross margins of the Company due to
late production of the new lower cost cameras, which permitted the price
reduction, and the delivery of the older higher cost product to fill new orders
for the lower priced product. Had production of the new camera been delivered on
time, management believes that the 41% gross margin as in the first quarter of
1995 could have been repeated in the first quarter of 1996. This would have
improved gross margins approximately $130,000 in the first quarter of 1996.
Selling, general and administrative expenses include all costs of the
Company except those related directly to the manufacture of products described
above and other income and expense items described below. These expenses
decreased from $782,467 in the first quarter 1995, to $695,004 in the first
quarter of 1996. However, as a result of the decrease in revenue discussed
above, these expenses remained even at 48% of revenue. Major selling, general
and administrative expense differences between the first quarter 1995, and 1996,
are set forth in the table below.
MAJOR SELLING GENERAL AND ADMINISTRATIVE EXPENSE DIFFERENCES
<TABLE>
<CAPTION>
1996 1995
Expense ---------------------- ----------------------
Type Amount % of sales Amount % of sales
---- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Salaries Wages & Comm. $220,484 15.2 $136,221 8.5
Royalties 52,931 3.6 60,328 3.8
Advertising 49,304 3.4 58,037 3.6
Trade shows 32,400 2.2 25,246 1.6
International selling costs 29,079 2.0 89,174 5.6
Manufacturing consulting 7,700 0.5 11,250 0.7
Various reserves 15,750 1.1 18,750 1.2
**Public Company Expenses 0 0.0 76,020 4.7
Other expenses 287,356 19.8 307,442 19.2
-------- ---- -------- ----
Total SG&A Expenses $695,004 42.4 $782,468 48.8
======== ==== ======== ====
</TABLE>
**Public Company reserve account was set up and accrued monthly in 1995 to
adequately cover the public company expenses for the year ending in 1995, but
incurred in the first quarter of 1996.
Page 5
<PAGE> 6
Operating loss increased in the first quarter of 1996, to $216,409 as
compared to operating losses of $113,045 for the first quarter of 1995.
Management attributes this primarily to the Company's product transition during
the first quarter of 1996 from the $595 FlexCam product to the $395 product and
the related delay in production of the lower cost product mentioned above.
Other income for the quarter ended March 31, 1996, is almost exclusively
interest from the investment of the cash generated from the Company's public
offering of its Common Stock. Interest income is expected to diminish as the
Company uses the funds for financing inventories and accounts receivable.
Net loss for the first quarter 1996, was $199,804 compared to a loss of
$78,314 for the first quarter of 1995. Management attributes this increased loss
principally to the company's product transition discussed above.
Loss per share increased to $0.06 per share for the first quarter in
1996, as compared to a loss of $0.03 per share for the first quarter of 1995.
Management attributes this to the factors discussed above. Primary and fully
diluted earnings per share for the quarters ended March 31, 1996, and 1995, were
computed based on weighted average number of shares actually outstanding. The
weighted average number of shares outstanding for the quarter ended March 31,
1996, and 1995, were 3,133,948 shares. Stock options and warrants for the
purchase of Common Stock were less than 3% but were included in the computations
of diluted earnings per share.
Working capital, which consists principally of cash, receivables and
inventories, was $4,389,807 at March 31, 1996, and $4,526,387 at December 31,
1995. The ratio of current assets to current liabilities was 11:1 at March 31,
1996, and 6:1 at December 31, 1995. Working capital remained approximately the
same and the increase in the current ratio was due to reductions in accounts
payable and other current liabilities. Inventory is high at March 31, 1996, due
to stocking of approximately $1,000,000 of inventory for the introduction of the
digital camera product. It was anticipated that the digital camera product would
be in production during the fourth quarter of 1995. The product is now
anticipated to be in production during the second quarter of 1996. If the
product is not completed and put into production, the planned cash flows of the
Company could be materially adversely affected. The goal of management is to
turn inventory between 4 and 5 times per year and intends to reduce inventories
over the balance of 1996 accordingly.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601.
None
(b) Reports on form 8-K
None
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<PAGE> 8
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VIDEOLABS, INC.
Date: May 15, 1996 By: /s/ Ward Johnson
--------------- -------------------------------
Ward Johnson
President
/s/ F. J. Broghammer
-------------------------------
F. Broghammer
Chief Financial Officer
Page 8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) 10QSB
</LEGEND>
<CIK> 0000892020
<NAME> VIDEOLABS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 972,671
<SECURITIES> 353,963
<RECEIVABLES> 852,953
<ALLOWANCES> 31,383
<INVENTORY> 2,547,824
<CURRENT-ASSETS> 4,844,596
<PP&E> 818,431
<DEPRECIATION> 319,520
<TOTAL-ASSETS> 5,343,507
<CURRENT-LIABILITIES> 454,789
<BONDS> 0
0
0
<COMMON> 31,339
<OTHER-SE> 4,857,379
<TOTAL-LIABILITY-AND-EQUITY> 5,343,507
<SALES> 1,450,805
<TOTAL-REVENUES> 1,450,805
<CGS> 972,210
<TOTAL-COSTS> 695,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,605
<INCOME-PRETAX> (199,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,804)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
