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, 1997.
[ ] 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, 1997: 3,134,948
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEOLABS, INC.
INTERIM CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
UNAUDITED AUDITED
------------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................................... $434,048 $631,456
Certificate of deposit (Note 4)............................................... 513,788 513,788
Interest Receivable................................................................ 12,957 6,157
Accounts Receivable, less allowance for doubtful accounts of $29,591 on March 31,
1997 and $25,400 on December 31, 1996............................................ 653,379 799,799
Inventories........................................................................ 1,686,004 1,830,300
Prepaid expenses................................................................... 56,610 154,749
------------- ----------
Total Current assets............................................................. 3,356,786 3,936,249
Property Held for Sale, net of accumulated depreciation............................... 96,447 99,774
Property and Equipment
Office and computer equipment...................................................... 335,678 356,126
Machinery and equipment............................................................ 289,263 280,262
Vehicles........................................................................... 0 0
Leasehold improvements............................................................. 21,250 21,249
------------- ----------
Total equipment.................................................................... 646,191 657,637
Less accumulated depreciation.................................................. 387,108 355,877
------------- ----------
Net equipment................................................................. 259,083 301,760
------------- ----------
Total assets................................................................... $3,712,316 $4,337,783
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................... $421,507 $1,057,869
Current maturities of long-term debt............................................... 14,288 10,285
Customer deposits and other liabilities............................................ 24,305 15,070
Accrued compensation............................................................... 105,252 153,607
Purchase commitments, reserves and other........................................... 574,966 575,000
------------- ----------
Total current liabilities........................................................ 1,140,318 1,811,831
Long-Term Debt, net of current maturities............................................. 16,110 16,110
Stock holders' Equity
Common stock, $.01 par value; Authorized 20,000,000 shares issued and outstanding,
3,134,948 shares at March 31, 1997 and 3,134,948 shares at December 31, 1996...... 31,349 31,349
Additional paid in capital......................................................... 5,514,293 5,514,293
Accumulated deficit................................................................ (2,989,754) (3,035,800)
------------- -----------
Total stockholders' equity....................................................... 2,555,888 2,509,842
------------- ----------
Total liabilities and stockholders' equity..................................... $3,712,316 $4,337,783
============= ==========
</TABLE>
INTERIM CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
------------------
MARCH 31
--------
1997 1996
---- ----
Sales..............................................$1,599,487 $1,450,805
Cost of goods sold................................. 945,826 972,210
---------- ----------
Gross profit....................................... 653,661 478,595
Selling, general and administrative expenses....... 607,157 695,004
---------- ----------
Operating Income (loss)............................ 46,504 (216,409)
Other income (expense)
Interest income (expense).......................... 10,893 16,605
Gain or (loss) on sale of assets................... (11,350) 0
----------- ----------
Total other income (expense)....................... (457) 16,605
Income Tax Benefit................................. 0 0
---------- ----------
Net Income (loss)..................................$ 46,047 $ (199,804)
========== ===========
Income (loss) per common share..................... $0.01 ($0.06)
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
-------------------
MARCH 31
--------
1997 1996
---- ----
Cash Flows From Operations:
Net cash provided by operations....................$(208,855) $(300,548)
Cash Flows From Investing:
Capital expenditures............................... 11,447 8,812
Purchase/Sale of certificate of deposit............ 0 153,523
Purchase/Sales of U.S. Treasury securities......... 0 0
Sale of RSI, Inc. Common Stock..................... 0 0
--------- ---------
Net cash from investing......................... 11,447 162,335
Cash Flows From Financing:
Net proceeds from sale of common stock............. 0 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.......................... 0 0
--------- ---------
Net increase (decrease) in cash and cash equivalents.... (197,408) (138,213)
Cash and cash equivalents at beginning of period........ 631,456 687,508
--------- ---------
Cash and cash equivalents at end of period.............. $434,048 $549,295
======== ========
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, 1997 were
3,134,948 and 3,133,948 for March 31, 1996.
NOTE 4. BANK LINE OF CREDIT
On March 31, 1997 the Company had a discretionary working capital
line of credit with its bank of the lesser of $1,500,000 or 80% of eligible
accounts receivable (as defined) plus $500,000 in cash collateral, with
outstanding borrowings due April 10, 1997. The available line of credit is
reduced by outstanding irrevocable letters of credit which totaled $401,909 at
March 31, 1997. The letters of credit may be drawn upon by major suppliers of
the Company. The letters of credit expire from March 1997 through May 1997.
There were no borrowings outstanding under this line of credit at March 31,
1997. Advances under the note are secured by substantially all corporate assets,
including assignment of a certificate of deposit with a minimum amount of
$500,000. Interest is charged at 1% over the bank's "index rate". The interest
rate at December 31, 1996 was 9.25%.
The Company negotiated with the same bank a $500,000 line of credit on
April 10, 1997 that would be supported by the Company's accounts receivable and
cash collateral of a $200,000 certificate of deposit thus making available the
$300,000 of the preceding certificate of deposit. The requirement for the
$200,000 certificate of deposit will be reviewed by the bank in 90 days and
could be withdrawn subject to the Company meeting its planned objectives for
that 90 day period. This line of credit would be used to support letters of
credit with the Company's suppliers and will expire on April 10, 1998.
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS
As provided under the Private Securities Reform Act of 1995, the
Company wishes to caution investors of the following factors which could affect
the Company's results of operations and cause such results to differ materially
from those anticipated in forward-looking statements made in this document or
elsewhere by or on behalf of the Company: technology changes, new competitors,
reduced current cost for items in inventory, changes in currency valuations,
government regulations and ongoing litigation.
Net revenues for the quarter ended March 31, 1997 were $1,599,487
compared to $1,450,805 for the first quarter of 1996, an increase of 9 percent.
This increase is attributed to the increase of sales into the professional
markets. The Company is focused on the professional markets including the
education, audio-visual, security and medical markets, while de-emphasizing
sales to highly competitive retail markets where the Company has experienced
declines.
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 first quarter of 1997
was $653,661 or 41% as compared to $478,595 or 33% for the first quarter of
1996. This increase in gross margin as a percentage of revenues is mainly
attributable to the reduction of manufacturing overhead costs and the reduction
of direct material costs. The Company has a goal to maintain gross margins in
the 40% range, but 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 decreased from
$695,004 in the first quarter of 1996 to $607,157 in the first quarter of 1997
and decreased from 48% of revenues in 1996 to 38% of revenue in 1997. The
Company is making progress towards its efforts in cost control. The Company has
reduced research and development costs for the first quarter of 1997 compared to
the first quarter of 1996 by approximately $53,000 and has reduced selling
expenses for the first quarter of 1997 compared to the first quarter of 1996 by
approximately $90,000.
Operating income for the first quarter of 1997 was $46,504 compared to
an operating loss of $216,409 for the same period in 1996. Management believes
that the operating income from operations was primarily impacted by increased
revenues during the first quarter of 1997 compared to 1996 and the efforts
gained by the Company's cost control efforts.
The other income is interest income on the investment of cash. The loss
on the sale of assets consisted of computer equipment that was sold during the
quarter.
Net income for the first quarter of 1997 was $46,047 compared to a net
loss of $199,804 for the first quarter of 1996. Management attributes this
increase in profit to the Company's increased sales revenues and the increase in
margins as discussed above.
Primary and fully diluted earnings per share for the quarters ended
March 31, 1997 and 1996 were computed based on weighted average number of shares
actually outstanding. The weighted average number of shares outstanding for the
quarter ended March 31, 1997 was 3,134,948 and March 31, 1996 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 and liquidity, which consists principally of cash,
receivables and inventories, was $2,216,468 at March 31, 1997 and $2,124,418 at
December 31, 1996. The ratio of current assets to current liabilities was 3:1 at
March 31, 1997 and 2:1 at December 31, 1996. Working capital increased
approximately $92,050 during the three months ended March 31, 1997 primarily due
to operating income incurred during the three month period. Inventories at March
31, 1997 were approximately $1.7 million. The Company had anticipated that
inventories would decrease during the first two quarters of 1997, however the
Company, to keep good relations with a current supplier, decided to take, at a
discount, inventories that had been scheduled for delivery in the late third
quarter, delivery in the second quarter. The Company did negotiate a discount on
such inventory and extended payment terms into the late third quarter, so cash
flow will not be affected. Inventories and accounts payable will, however
increase in the second quarter.
The Company sold the apartment in Europe in April 1997. The Company
will book a small profit from that sale in the second quarter of 1997. The
Company received approximately $98,000.
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
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 13, 1997 By: /s/ James Hansen
-------------- -----------------
James W. Hansen
Acting President & CEO
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 434,048
<SECURITIES> 513,788
<RECEIVABLES> 653,379
<ALLOWANCES> 29,591
<INVENTORY> 1,686,004
<CURRENT-ASSETS> 3,356,786
<PP&E> 646,191
<DEPRECIATION> 387,108
<TOTAL-ASSETS> 3,712,316
<CURRENT-LIABILITIES> 1,140,318
<BONDS> 0
0
0
<COMMON> 31,349
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,712,316
<SALES> 1,599,487
<TOTAL-REVENUES> 1,599,487
<CGS> 945,826
<TOTAL-COSTS> 607,157
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<INCOME-PRETAX> 46,047
<INCOME-TAX> 0
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<NET-INCOME> 46,047
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