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 September 30, 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.)
5960 Golden Hills Drive
Golden Valley, MN 55343
(Address of principal executive offices)
(612) 542-0061
(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 November 10, 1997: 3,245,283
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
<PAGE>
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEOLABS, INC.
INTERIM CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
UNAUDITED AUDITED
----------- -----------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents ................................................ $ 1,846,208 $ 631,456
Certificate of deposit (Note 4) .......................................... 293,333 513,788
Interest Receivable ...................................................... 5,808 6,157
Accounts Receivable, less allowance for doubtful accounts of $22,914 on
September 30, 1997 and $25,400 on December 31, 1996 ................... 832,312 799,799
Inventories .............................................................. 1,028,008 1,830,300
Prepaid expenses ......................................................... 42,871 154,749
----------- -----------
Total Current assets ................................................... 4,048,540 3,936,249
Property Held for Sale, net of accumulated depreciation ................... 0 99,774
Property and Equipment
Office and computer equipment ............................................ 357,490 356,126
Machinery and equipment .................................................. 289,263 280,262
Vehicles ................................................................. 0 0
Leasehold improvements ................................................... 32,613 21,249
----------- -----------
Total equipment .......................................................... 679,366 657,637
Less accumulated depreciation ........................................ 434,719 355,877
----------- -----------
Net equipment ....................................................... 244,647 301,760
Other Assets
Deferred tax asset ....................................................... 60,000 0
----------- -----------
Total assets ......................................................... $ 4,353,187 $ 4,337,783
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ......................................................... $ 516,647 $ 1,057,869
Current maturities of long-term debt ..................................... 7,673 10,285
Customer deposits and other liabilities .................................. 97 15,070
Accrued compensation ..................................................... 18,123 153,607
Purchase commitments, reserves and other ................................. 631,989 575,000
----------- -----------
Total current liabilities .............................................. 1,174,529 1,811,831
Long-Term Debt, net of current maturities ................................... 56,110 16,110
Stock holders' Equity
Common stock, $.01 par value; Authorized 20,000,000 shares issued and
outstanding, 3,245,283 shares at September 30, 1997 and 3,134,948 shares
at December 31, 1996 .................................................... 32,453 31,349
Treasury Stock ........................................................... (35,625)
Additional paid in capital ............................................... 5,588,877 5,514,293
Accumulated deficit ...................................................... (2,463,157) (3,035,800)
----------- -----------
Total stockholders' equity ............................................. 3,122,548 2,509,842
----------- -----------
Total liabilities and stockholders' equity ........................... $ 4,353,187 $ 4,337,783
=========== ===========
</TABLE>
<PAGE>
INTERIM CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales................................................ $ 1,770,482 $ 2,201,032 $ 5,408,191 $ 5,467,320
Cost of goods sold .................................. 1,036,514 1,421,521 3,137,903 3,520,326
----------- ----------- ----------- -----------
Gross profit ........................................ 733,968 779,511 2,270,288 1,946,994
Selling, general and administrative expenses ........ 502,289 786,903 1,784,613 2,437,035
----------- ----------- ----------- -----------
Operating profit (loss) ............................. 231,679 (7,392) 485,675 (490,041)
Other income (expense)
Interest income (expense) ........................... 22,463 14,513 47,789 42,690
Gain (loss) on sale of assets ....................... (3,454) 0 (20,820) 232,177
----------- ----------- ----------- -----------
Total other income (expense) ........................ 19,009 14,513 26,969 274,867
Income tax benefit (Note 5) ......................... 35,000 0 60,000 (30,000)
----------- ----------- ----------- -----------
Net Income (loss).................................... $ 285,688 $ 7,121 $ 572,644 $ (245,174)
=========== =========== =========== ===========
Income (loss) per common share (Note 3) ............. $ 0.06 $ 0.00 $ 0.13 $ (0.08)
</TABLE>
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operations:
Net cash provided by operations $ 388,011 $(579,470)
Cash Flows From Investing:
Capital expenditures (52,319) (9,413)
Purchase/Sale of certificate of deposit 11,667 76,900
Purchase/Sales of U.S. Treasury securities (35,625) 0
Sale of RSI, Inc. Common Stock 0 304,052
----------- ---------
Net cash from investing (76,277) 371,539
Cash Flows From Financing:
Net proceeds from sale of common stock 75,688 2,650
Payment of Bridge Notes 0 0
Stock offering costs 0 0
Net proceeds from sale of bridge notes 0 0
----------- ---------
Net cash from financing 75,688 2,650
----------- ---------
Net increase (decrease) in cash and cash equivalents 387,422 (205,281)
Cash and cash equivalents at beginning of period 1,458,786 687,508
----------- ---------
Cash and cash equivalents at end of period $ 1,846,208 $ 482,227
=========== =========
</TABLE>
<PAGE>
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
Primary and fully diluted earnings per share for the quarter and six
months ended September 30, 1997 were computed based on the weighted average
number of shares outstanding, plus the shares that would be outstanding assuming
exercise of options and warrants which are considered to be common stock
equivalents, less the shares assumed to be acquired by the Company using the
proceeds from the assumed exercise of options and warrants based on market
prices. Earnings per share for all other periods were computed based only on the
weighted average number of shares outstanding as the effect of including the
common stock equivalents would be antidilutive. Primary and fully diluted shares
considered outstanding were 3,772,867 and 4,504,907, respectively for the
quarter ended and nine months ended September 30, 1997. The weighted average
number of shares outstanding were 3,245,283 for the quarter ended and nine
months ended September 30, 1996.
NOTE 4. BANK LINE OF CREDIT
On September 30, 1997 the Company had a discretionary working capital
line of credit with its bank of the lesser of $500,000 or 75% of eligible
accounts receivable (as defined) plus $200,000 in cash collateral, with
outstanding borrowings due April 10, 1998. The available line of credit is
reduced by outstanding irrevocable letters of credit which totaled $200,000 at
November 10, 1997. The letters of credit may be drawn upon by major suppliers of
the Company. The letters of credit expire April 10, 1998. There were no
borrowings outstanding under this line of credit at September 30, 1997. Advances
under the note are secured by substantially all corporate assets. Interest is
charged at 1% over the bank's "index rate". The interest rate at December 31,
1996 was 9.25%.
NOTE 5. INCOME TAXES
During the quarter and nine months ended September 30, 1997, the
Company recorded a net deferred tax asset of $60,000, reflecting the benefit of
approximately $819,000 of net operating loss carryforward, reduced by a deferred
tax allowance valuation.
NOTE 6. NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards No.
128, "Earnings Per Share" and No. 129 "Disclosure of Information about Capital
Structure" was approved for issuance. In July of 1997, Statement of Financial
Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and
Related
<PAGE>
Information" was approved for issuance. The Company will adopt these statements
for the year ended December 31, 1997. The effect of these Statements has not
been determined, however, the impact on the Company's financial position and
results of operations is not expected to be material.
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 September 30, 1997 were $1,770,482
compared to $2,201,032 for the third quarter of 1996, a decrease of 20 percent.
This decrease is attributed to the decrease of sales into the computer markets.
The Company is focused on professional markets including education,
audio-visual, security and medical markets, while de-emphasizing sales to highly
competitive retail markets where the Company had experienced declines and low
margins.
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 third quarter of 1997
was $733,968 or 42% as compared to $779,511 or 35% for the third 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
$786,903 in the third quarter of 1996 to $502,289 in the third quarter of 1997
and decreased from 36% of revenues in 1996 to 28% 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 third quarter of 1997 compared to
the third quarter of 1996 by approximately $60,000 and has reduced selling
expenses for the third quarter of 1997 compared to the third quarter of 1996 by
approximately $140,000. The Company has reduced selling, general and
administrative expenses for the nine month period ending September 30, 1997
compared to the same period of 1996 by approximately $650,000.
Operating income for the third quarter of 1997 was $231,679 compared to
an operating loss of $7,392 for the same period in 1996. Management believes
that the operating income from operations was primarily impacted by increased
margins during the third 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.
During the quarter and nine months ended September 30, 1997, the
Company recorded a net deferred tax asset of $60,000, reflecting the benefit of
approximately $819,000 of net operating loss carryforward, reduced by a deferred
tax allowance valuation. If the Company continues to be profitable, additional
tax benefit will be recorded.
<PAGE>
Net income for the third quarter of 1997 was $285,688 compared to a net
income of $7,121 for the third quarter of 1996. Management attributes this
increase in profit to the Company's increase in margins and cost control efforts
as discussed above.
Primary and fully diluted earnings per share for the quarter and nine
months ended September 30, 1997 were computed based on the weighted average
number of shares outstanding, plus the shares that would be outstanding assuming
exercise of options and warrants which are considered to be common stock
equivalents, less the shares assumed to be acquired by the Company using the
proceeds from the assumed exercise of options and warrants based on market
prices. Earnings per share for all other periods were computed based only on the
weighted average number of shares outstanding as the effect of including the
common stock equivalents would be antidilutive. Primary and fully diluted shares
considered outstanding were 3,772,867 and 4,504,907, respectively for the
quarter ended and nine months ended September 30, 1997. The weighted average
number of shares outstanding were 3,245,283 for the quarter ended and nine
months ended September 30, 1996.
Working capital and liquidity, which consists principally of cash,
receivables and inventories, was $2,894,010 at September 30, 1997 and $2,124,418
at December 31, 1996. The ratio of current assets to current liabilities was
3.5:1 at September 30, 1997 and 2:1 at December 31, 1996. Working capital
increased approximately $328,654 during the three months ended September 30,
1997 primarily due to operating income incurred during the three month period.
Inventories at September 30, 1997 were approximately $1 million.
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.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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: November 12, 1997 By: /s/ James Hansen
------------------ -----------------
James W. Hansen
President, CEO, Treasurer and Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000892020
<NAME> VIDEOLABS INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,846,208
<SECURITIES> 293,333
<RECEIVABLES> 832,312
<ALLOWANCES> 22,914
<INVENTORY> 1,028,008
<CURRENT-ASSETS> 4,048,540
<PP&E> 679,366
<DEPRECIATION> 434,719
<TOTAL-ASSETS> 4,353,187
<CURRENT-LIABILITIES> 1,174,529
<BONDS> 0
0
0
<COMMON> 32,453
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,353,187
<SALES> 1,770,482
<TOTAL-REVENUES> 1,770,482
<CGS> 1,036,514
<TOTAL-COSTS> 502,289
<OTHER-EXPENSES> 19,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 285,688
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285,688
<EPS-PRIMARY> .08
<EPS-DILUTED> .06
</TABLE>
