<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 June 30, 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 No ___X___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of August 10, 1996: 3,134,948
Transitional Small Business Disclosure Format (check one):
Yes X No ______
<PAGE> 2
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
VIDEOLABS, INC.
INTERIM CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
Unaudited Audited
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................ $ 482,227 $ 687,508
Certificate of deposit (Note 5) ......... 500,000 576,900
Marketable Securities (Note 4) .......... 62,873 353,963
Interest Receivable ..................... 7,886 9,251
Accounts Receivable, less allowance
for doubtful accounts of $37,383 on
June 30, 1996 and $25,400 on
December 31, 1995 ..................... 1,050,118 1,266,109
Inventories ............................. 2,806,170 2,399,947
Deferred tax asset ...................... 0 30,000
Prepaid expenses ........................ 117,295 106,802
---------- ------------
Total Current assets ................ 5,026,569 5,430,480
---------- ------------
Property and Equipment
Office and computer equipment ........... 370,052 324,067
Machinery and equipment ................. 307,775 312,723
European real estate .................... 137,578 137,579
Vehicles ................................ 0 31,623
Leasehold improvements .................. 21,250 21,250
---------- ------------
Total equipment ........................... 836,655 827,242
Less accumulated depreciation ........... 371,748 265,107
---------- ------------
Net equipment ........................... 464,907 562,135
---------- ------------
Total assets ............................ $5,491,476 $5,992,615
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................ $ 755,269 $ 770,356
Customer deposits and other liabilities.. 48,796 21,125
Accrued compensation .................... 33,223 64,612
Accrued Expenses ........................ 34,526 48,000
---------- ------------
Total current liabilities ............. 871,814 904,093
---------- ------------
Stock holders' Equity
Common stock, $.01 par value; Authorized
20,000,000 shares issued and outstanding,
3,134,948 shares at June 30, 1996 and
3,133,948 shares at December 31, 1995 ... 31,349 31,339
Additional paid in capital .............. 5,514,293 5,511,653
Deferred Profit from RSI Inc common stock
(Note 4) ................................ 0 219,215
Accumulated deficit ....................... (925,980) (673,685)
---------- ------------
Total stockholders' equity .............. 4,619,662 5,088,522
---------- ------------
Total liabilities and stockholders'
equity ............................... $5,491,476 $5,992,615
========== ============
</TABLE>
<PAGE> 3
INTERIM CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ................... $ 1,815,484 $ 1,379,648 $ 3,266,289 $ 2,981,730
Cost of goods sold ...... 1,126,595 846,932 2,098,805 1,779,592
----------- ----------- ----------- -----------
Gross profit ............ 688,889 532,716 1,167,484 1,202,138
Selling, general and
administrative expenses . 955,129 681,396 1,650,133 1,463,863
----------- ----------- ----------- -----------
Operating Loss .......... (266,240) (148,680) (482,649) (261,725)
Other income (expense)
Interest income ......... 12,168 26,681 28,177 61,412
Gain (loss) on sale of
assets ................. 231,581 0 232,177 0
Recovery of income taxes (30,000) 0 (30,000) 0
----------- ----------- ----------- -----------
Total other income
(expense) ............... 213,749 26,681 230,354 61,412
Net Income (loss) ....... $ (52,491) $ (121,999) $ (252,295) $ (200,313)
=========== ============ =========== ===========
Income (loss) per common
share (Note 3) .......... $ (0.02) $ (0.03) $ (0.08) $ (0.06)
</TABLE>
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1996 1995
---------- ------------
<S> <C> <C>
Cash Flows From Operations:
Net cash provided by operations ................. $(579,470) $(672,173)
Cash Flows From Investing:
Capital expenditures ............................ (9,413) (94,203)
Purchase/Sale of certificate of deposit ....... 76,900 100,000
Purchase/Sales of U.S. Treasury securities .... 2,505,109
Sale of RSI, Inc. Common Stock ............... 304,052
---------- ----------
Net cash from investing .................... 371,539 2,510,906
Cash Flows From Financing:
Net proceeds from sale of common stock .......... 2,650 0
Payment of Bridge Notes ......................... 0 0
Stock offering costs ............................ 0 0
Net proceeds from sale of bridge notes .......... 0 0
---------- ----------
Net cash from financing .................... 2,650 0
---------- ----------
Net increase (decrease) in cash and cash equivalents (205,281) 1,838,733
Cash and cash equivalents at beginning of period .. 687,508 237,392
---------- ----------
Cash and cash equivalents at end of period ........ $ 482,227 $2,076,125
========== ==========
</TABLE>
<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 $.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
underwr
NOTE 3. INCOME (LOSS) PER COMMON SHARE
Loss per common share amounts were computed using the weighted average
number of shares outstanding during each period as the effect of including
the common stock equivalents would be anti-dilutive. The number of average
shares outstanding for the quarter ending June 30, 1996 was 3,134,948, and
for the quarter ending June 30, 1995 was 3,133,948. Stock options and
warrants for the purchase of Common Stock were considered to
be anti-dilutive and have not been included in the computations.
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. was obtained. The
stock was sold at a discount during May, 1996, at a book profit of $230,354.
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 June 30, 1996 the line
of credit was being used to secure letters of credit to suppliers amounting
to $800,000. A $500,000 certificate of deposit is on deposit with the bank as
cash collateral required by the loan terms and conditions
<PAGE> 5
ITEM 2: MANAGEMENT DISCSSION AND ANALYSIS
Net revenues for the quarter ended June 30, 1996 were $1,815,484 compared
to $1,379,648 for the second quarter of 1995, an increase of 32 percent.
Net revenues for the six months ended June 30, 1996 were $3,266,289 compared
to $2,981,730 for the same period in 1995, a 10 percent increase. The
results for the second quarter met the expectations of management. Results
for the six months were below expectations and were negatively affected by
the product transition from the $595 to the $395 FlexCam product discussed in
the 10qsb for the period ended March 31, 1996.
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 costs 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 second quarter of
1996 was $688,889 or 38% as compared to $532,716 or 39% for the second
quarter of 1995. Gross margins for the six months ended June 30, 1996
were $1,167,484 or 36% as compared to $1,202,138 or 40% for the same period
in 1995. The decrease in gross margin as a percentage of revenues reflects
the results of the product transition from the higher priced to lower priced
cameras during the first quarter of 1996. The Company has a goal to
maintain gross margins in the 40% range. There is no assurance that it will
be able to do so.
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 below. These expenses
increased from $681,396 in the second quarter of 1995 to $955,129 in the
second quarter of 1996 and from 49% in 1995 to 52% of revenue in 1996.
For the six months ended June 30 1996 these expenses were $1,650,133 or 50%
of revenues versus $1,463,863 or 49% of revenues for the six months ended
June 30, 1995. The major items affecting these costs were sales costs
including advertising, trade show participation and sales representatives.
The Company expects that it will continue to spend substantial sums on sales
related expenses in an effort to expand the market for the Company's
products.
Major selling, general and administrative expense differences between the
second 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. $262,360 14.5 $205,850 14.9
Royalties 42,370 2.3 51,066 3.7
Advertising 124,279 6.8 55,133 4.0
Trade shows 28,096 1.5 19,160 1.4
Promotional Materials 43,845 2.4 (9,882) (0.7)
International selling costs 63,506 3.5 30,469 2.2
Bank Charges 19,510 1.1 3,433 0.2
Manufacturing consulting 0 0.0 23,140 1.7
R & D Consulting 91,160 5.0 12,003 0.8
Other expenses 280,003 15.4 291,024 21.0
-------- ---- -------- ----
Total SG&A Expenses $955,129 52.6 $681,396 48.8
======== ==== ======== ====
</TABLE>
<PAGE> 6
Operating losses for the second quarter of 1996 were $266,240 compared to
$148,680 for 1995 and $482,649 for the six months ended June 30, 1996
compared to $261,725 for the same period in 1995. Management believes that
the loss from operations was primarily adversely impacted by the sales
related costs and research and development expenses discussed above during
the second quarter and the product transition to lower price point video
cameras during the first quarter. For the balance of 1996, management a
on the fact that unit volume of camera sales was up significantly in the
most recent two months.
The other income in the second quarter 1996 was primarily from the gain on
the sale of RSI stock which the Company was holding and sold in May, 1996.
This transaction generated a non-operating profit of $231,581. The
remaining other income is almost exclusively from interest on the investment
of the cash generated from the Company's public offering of its Common
Stock. Such income is expected to diminish as the Company uses the funds
for financing inventories and accounts receivable. During the second quarter
of 1996 the Company wrote its deferred tax asset amounting to $30,000 off the
books.
Net loss for the second quarter 1996 was $52,491 compared to a loss of
$121,999 for the second quarter of 1995 and $252,295 for the six months
ended June 30, 1996 compared to $200,313 for the same period in 1995.
The amount of the loss was affected by the sale of the RSI, Inc. Common
stock in the second quarter of 1996.
Primary and fully diluted earnings per share for the quarters ended
June 30, 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 June 30, 1996 was 3,134,948 and
June 30, 1995 was 3,133,948. Stock options and warrants for the purchase
of Common Stock were anti-dilutive and have not been included in the
computations.
Working capital, which consists principally of cash, receivables and
inventories, was $4,154,755 at June 30, 1996 and $4,526,387 at December 31,
1995. The ratio of current assets to current liabilities was 6:1 at June
30, 1996 and 6:1 at December 31, 1995. Working capital decreased
approximately $371,000 during the six months ended June 30, 1996 primarily
due to operating losses incurred during the six month period.
<PAGE> 7
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has filed a suit against David E. Krekelberg, a former Vice
President of Engineering and Director of the Company until the end of 1995
and a consultant since that time, alleging that he attempted to give plans
and designs of an advanced digital camera module to a contract fabricator of
the Company. Mr. Krekelberg has countersued alleging that the Company owes
him royalties on certain Company products. The Company anticipates that the
suits will be settled to the satisfaction of the parties.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on May 2, 1996.
At the meeting Ward C. Johnson, Richard F. Craven and John Collins were each
elected to the Company's Board of Directors. There were no other Directors
whose term of office as a Director continued after this meeting.
The Company's shareholders also ratified the Company's appointment of Boulay,
Heutmaker, Zibell & Co., as the independent auditors of the Company for its
fiscal year ending December 31, 1996.
The VideoLabs, Inc. Report of Election dated May 2, 1996 provides all of the
information reference For, Against and abstentions of votes and is attached
hereto and incorporated herein by reference.
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
<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: August 14, 1996 By: /s/ Ward Johnson
----------------- ----------------------------------
Ward C. Johnson
President
/s/ F. J. Broghammer
----------------------------------
F. Broghammer
Chief Financial Officer
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 982,227
<SECURITIES> 62,873
<RECEIVABLES> 1,050,118
<ALLOWANCES> 0
<INVENTORY> 2,806,170
<CURRENT-ASSETS> 5,026,569
<PP&E> 836,655
<DEPRECIATION> 371,748
<TOTAL-ASSETS> 5,491,476
<CURRENT-LIABILITIES> 871,814
<BONDS> 0
0
0
<COMMON> 31,349
<OTHER-SE> 4,588,313
<TOTAL-LIABILITY-AND-EQUITY> 5,491,476
<SALES> 3,266,289
<TOTAL-REVENUES> 3,266,289
<CGS> 2,098,805
<TOTAL-COSTS> 1,650,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (482,649)
<INCOME-TAX> 30,000
<INCOME-CONTINUING> (512,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 260,354
<CHANGES> 0
<NET-INCOME> (252,295)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
VIDEOLABS, INC.
OATH OF INSPECTORS OF ELECTION
STATE OF MINNESOTA )
)SS
COUNTY OF HENNEPIN )
The undersigned do hereby swear to, faithfully and to the best of their
ability, execute and perform the duties of Inspectors of Election with
strict impartiality at the Annual Meeting of the Shareholders of VideoLabs,
Inc. to be held at the UMAGA Gift Mart, 10301 Bren Road W., Minnetonka,
Minnesota 55343 on Thursday, May 2, 1996, at 4:00 P.M., local time.
/s/ Tammy Brusehaven
-----------------------
/s/ Mary Theno
-----------------------
Sworn to before me this
2nd day of May, 1996
/s/ Kimberly C Rathe
- -------------------------
Notary Public
BALLOT FOR ANNUAL MEETING
VIDEOLABS, INC.
MAY 2, 1996
The undersigned hereby cast(s) the following votes:
1. FOR Election of directors
2,493,715 Ward C. Johnson
--------------
2,493,915 Richard F. Craven
--------------
2,493,615 John Collins
--------------
2. FOR 2,545,968
-------------
AGAINST 8,405
-----------
Proposal to ratify the appointment of Boulay, Heutmaker, Zibell & Co. as
the independent auditors for the Company for the fiscal year ending
December 31, 1996.
/s/ Frank Broghammer
--------------------------
Frank Broghammer
/s/ Jill R. Larson
--------------------------
Jill R. Larson
VIDEOLABS, INC.
REPORT OF ELECTION
The undersigned Inspectors of Election at the Annual Meeting of Shareholders
of VideoLabs, Inc. report as follows:
There were 3,133,948 shares of Common Stock entitled to vote at the meeting
---------
and a total of 2,557,781 shares (81.62 percent) were represented at the
--------- -----
meeting.
1. Election Directors:
WITHHOLD
FOR AUTHORITY
Ward C. Johnson 2,493,715 64,066
--------- ---------
Richard F. Craven 2,493,915 63,866
--------- ---------
John Collins 2,493,615 64,166
--------- ---------
2. Proposal to ratify the appointment of Boulay, Heutmaker, Zibell & Co. as
the independent auditors for the Company for the fiscal year ending
December 31, 1996.
FOR 2,545,968 AGAINST 8,405 ABSTAIN 3,408 BROKER NON-VOTE N/A
--------- ----- ----- -----
/s/ Tammy Brusehaven
-------------------------------
/s/ Mary Theno
-------------------------------
Dated: May 2, 1996
