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, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to __________________
Commission file number 0-23858
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 55416
(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 May 8, 2000: 5,750,440
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>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
UNAUDITED AUDITED
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents ........................................................ $ 294,082 $ 212,435
Certificate of deposit-restricted (Note 3) ....................................... 158,000 158,000
Accounts Receivable, less allowance for doubtful accounts of $98,644 on March 31,
2000 and $100,000 on December 31, 1999 ........................................ 2,908,623 2,894,495
Other Receivables ................................................................ 128,999 22,114
Inventories ...................................................................... 4,214,744 3,707,528
Deferred income taxes ............................................................ 220,000 220,000
Prepaid expenses ................................................................. 99,125 71,253
------------ ------------
Total Current assets ........................................................... 8,023,573 7,285,825
Property and Equipment
Office and computer equipment .................................................... 688,928 673,749
Machinery and equipment .......................................................... 328,077 325,468
Tooling .......................................................................... 724,651 703,541
Leasehold improvements ........................................................... 52,446 52,446
------------ ------------
Total equipment .................................................................. 1,794,102 1,755,204
Less accumulated depreciation ................................................ 1,005,014 921,523
------------ ------------
Net property and equipment ................................................... 789,088 833,681
Other Assets
Investment (Note 9) .............................................................. 150,000 0
Patents, net ..................................................................... 143,626 150,769
Other tangibles, net (Note 8) .................................................... 1,937,920 1,986,480
------------ ------------
Total other assets ........................................................... 2,231,546 2,137,249
Total assets ................................................................. $ 11,044,207 $ 10,256,755
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................................................. $ 1,952,941 $ 1,446,930
Bank line of credit (Note 5) ..................................................... 1,053,559 670,605
Note Payable - Non Compete (Note 7) .............................................. 750,000 750,000
Unearned Maintenance Contracts ................................................... 472,350 520,660
Current maturities of long-term debt ............................................. 35,854 35,854
Customer deposits and other liabilities .......................................... 75,496 22,248
Accrued compensation ............................................................. 129,286 411,493
Reserves and other ............................................................... 159,311 241,578
------------ ------------
Total current liabilities ...................................................... 4,628,797 4,099,368
Long-Term liabilities
Long-Term Debt, net of current maturities ........................................ 84,589 98,418
Unearned Maintenance Contracts, net of current maturities ........................ 108,505 108,240
------------ ------------
Total other liabilities .......................................................... 193,094 206,658
Stockholders' Equity
Common stock, $.01 par value; Authorized 20,000,000 shares issued and outstanding,
5,747,940 shares at March 31, 2000 and 5,675,440 shares at December 31, 1999 ..... 57,479 56,754
Additional paid in capital ....................................................... 7,613,193 7,494,437
Accumulated deficit .............................................................. (1,447,826) (1,600,462)
------------ ------------
Total stockholders' equity ..................................................... 6,222,846 5,950,729
------------ ------------
Total liabilities and stockholders' equity ................................... $ 11,044,207 $ 10,256,755
============ ============
</TABLE>
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<PAGE>
INTERIM CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
2000 1999
----------- -----------
<S> <C> <C>
Sales.............................................. $ 4,660,821 $ 1,855,865
Cost of goods sold ................................. 2,906,624 1,152,322
----------- -----------
Gross profit ....................................... 1,754,197 703,543
Selling, general and administrative expenses ....... 1,578,417 647,612
----------- -----------
Operating Income ................................... 175,780 55,931
Other income (expense)
Interest income .................................... 4,452 17,039
Interest expense ................................... (27,516) (781)
Gain or (loss) on sale of assets ................... (80) 94
----------- -----------
Total other income (expense) ....................... (23,144) 16,352
Income Tax Benefit ................................. 0 0
----------- -----------
Net Income......................................... $ 152,636 $ 72,283
=========== ===========
Basic earnings per common share .................... $ 0.03 $ 0.02
Weighted average shares outstanding ................ 5,747,940 4,505,562
Diluted earnings per common share .................. $ 0.03 $ 0.02
Diluted shares outstanding ......................... 6,123,603 4,553,465
</TABLE>
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operations:
Net cash from (used for) operations ........... $ (218,068) $ 46,742
Cash Flows From Investing:
Capital expenditures .......................... (38,898) (30,318)
Business Combinations ......................... (150,000) 0
----------- -----------
Net cash from (used for) investing ............ (188,898) (30,318)
Cash Flows From Financing:
Issuance of common stock and warrants ......... 119,480 42,000
Bank Line of Credit ........................... 382,954 0
Capital Leases ................................ (13,829) 0
Repurchase of common stock and warrants ....... 0 (36,454)
----------- -----------
Net cash from (used for) financing .......... 488,605 5,546
----------- -----------
Net increase (decrease) in cash and cash equivalents 81,639 21,970
Cash and cash equivalents at beginning of period ... 212,435 1,514,561
----------- -----------
Cash and cash equivalents at end of period ......... $ 294,074 $ 1,536,531
=========== ===========
</TABLE>
Page 3
<PAGE>
FOOTNOTES TO 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. INCOME PER COMMON SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share is similar to the computation of basic
earnings per share, except that the denominator is increased for the assumed
exercise of dilutive options using the treasury stock method. All amounts
presented have been restated to conform to the new presentation. The components
of the earnings per share are as follows:
MARCH 31,
2000 1999
--------- ---------
Weighted average common shares outstanding for
Basic earnings per share ............... 5,747,940 4,505,562
Effect of dilutive securities:
Stock Options and Warrants ............. 375,663 47,903
--------- ---------
Shares used in diluted earnings per share .... 6,123,603 4,553,465
========= =========
NOTE 3. CERTIFICATES OF DEPOSIT
At March 31, 2000 and December 31, 1999, restricted certificates of
deposit, served as collateral for one irrevocable letter of credit.
NOTE 4. INCOME TAXES
The Company has recorded a net deferred tax asset of $220,000 after a
reduction of deferred tax allowance, reflecting the benefit of approximately
$496,000 of net operating loss carryforward and other timing differences.
NOTE 5. LINE OF CREDIT
The Company has available a $2,000,000 revolving note, with an
asset-based lender, secured by substantially all assets, that expires in
September 2001. Interest is computed on actual days elapsed, at an annual rate
equal to 1.5% per annum in excess of the Prime Rate at Norwest Bank of
Minnesota, NA. The note requires a minimum interest rate of 9% per annum, not
less than $7,900 per month. At December 31, 1999 the interest rate was 10% and
at March 31, 2000 the interest rate was 10.5%. The note is payable on demand.
The terms of the note require the Company to maintain certain financial ratios.
NOTE 6. ACQUISITION - ACOUSTIC COMMUNICATION SYSTEMS, INC.
On August 3, 1999, the Company closed on the acquisition of Acoustic
Communication Systems, Inc. Mr. Sheeley, the owner of Acoustic Communication
Systems, Inc. was given merger consideration of $500,000 cash and 1,209,678
common shares which equals $1,500,000 in value based on an average share price
of $1.24 of the ten trading days immediately preceding the closing of the
merger.
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<PAGE>
NOTE 7. NOTE PAYABLE - NON COMPETE
On August 3, 1999, as a part of the acquisition of Acoustic
Communication Systems, Inc., Mr. Sheeley, the owner of Acoustic Communication
Systems, Inc. was given a $750,000 note in consideration for his agreement to
not compete with the Company in any business competitive with the business of
Acoustic Communication Systems, Inc. or VideoLabs, Inc. for a period of twelve
years. The note was paid in full on April 7, 2000. Mr. Sheeley, at his
discretion may defer payment of the note in whole, or in part for up to twelve
one year periods in which event the note shall accrue interest at the Company's
short term cost of borrowing. Should Mr. Sheeley leave the employment of the
Company and violate the non-compete the unamortized portion of the non-compete
is immediately due and payable back to the Company.
NOTE 8. OTHER INTANGIBLES
In connection with the Acquisition of Acoustic Communication Systems,
Inc. the Company recorded goodwill in the amount of $2,067,414. For book
purposes the Company discounted the $1,500,000 value of restricted shares to
$1,122,732 because of the lack of marketability. All goodwill except the
goodwill related to the non-compete is being amortized over a period of ten
years for book purposes and fifteen years for tax purposes. $750,000 of the
goodwill related to the non-compete is being amortized over a period of twelve
years for book purposes and fifteen years for tax purposes.
NOTE 9. INVESTMENT
On February 28, 2000, the Company entered into an agreement to sell
certain assets acquired in the Video Dynamics, Inc. acquisition, for $108,000
payable over three years. In addition, the remaining related employment
agreement obligations were terminated as was a $10,000 note payable.
As part of the agreement, the Company invested $150,000, for a 20%
ownership, in MedCam Technology, Inc., a new company begun by the Video Dynamic,
Inc. founders payable over 12 months. In addition, a three-year reseller
agreement was executed with MedCam Technology, Inc., which entitles the Company
to a 5% royalty on non-intercompany sales of the MedCam Pro and MedCam Pro Plus
products.
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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: sales projections, technology changes,
new competitors, reduced current cost for items in inventory, changes in
currency valuations, government regulations and ongoing litigation.
Sales for the quarter ended March 31, 2000 were $4,660,821 compared to
$1,855,865 for the first quarter of 1999, an increase of 151%. This increase is
attributed to an increase in revenues in the Company's international and
videoconferencing markets along with revenues derived from new products. The
Company's sales increased 35% for the quarter as if the results of the recently
acquired Acoustic Communication Systems, Inc. had been fully accounted for in
the first quarter of 1999.
The Company closed on the acquisition of Acoustic Communication
Systems, Inc. located in Plymouth, Minnesota on August 3, 1999. Acoustic
Communication Systems, Inc. was the leading independent provider of
collaboration solutions involving data and video conferencing in the Midwest and
one of the largest value added resellers of Picturetel and Polycom communication
equipment in the country. Acoustic was a manufacturer of several peripheral
devices (carts, speakers, furniture, microphones, etc.) for video based
solutions and had
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<PAGE>
launched an E-commerce site, www.meetingroomtools.com. The Company continues to
pursue other synergistic acquisitions that can add to our core capabilities and
improve earnings per share.
Gross margins of the Company are determined by deducting from sales all
materials, labor, packaging, manuals and 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 2000 was $1,754,197 or 38% as
compared to $703,543 or 38% for the first quarter of 1999. 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 increased from
$647,612 in the first quarter of 1999 to $1,578,417 in the first quarter of
2000. This increase is related to the Company's efforts to invest in new product
development, sales and marketing expenses related to new product launches and
the additional selling, general and administrative expenses of the newly
acquired Acoustic Communication Systems, Inc.
Operating income for the first quarter of 2000 was $175,780 compared to
operating income of $55,931 for the same period in 1999. Earnings before
interest, taxes, depreciation and amortization (EBITDA) was $314,974 in the
quarter.
Other income and expenses consist of interest income on the investment
of cash and interest expense.
As of March 31, 2000, the Company had an estimated net deferred tax
asset of $220,000, reflecting the benefit of approximately $496,000 of net
operating loss carryforward, reduced by a deferred tax allowance valuation.
Net income for the first quarter of 2000 was $152,636 compared to net
income of $72,283 for the first quarter of 1999.
Basic and fully diluted earnings per share for the quarter ended March
31, 2000 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. Basic and fully
diluted shares considered outstanding were 5,747,940 and 6,123,603, respectively
for the quarter ended March 31, 2000. Basic and fully diluted shares considered
outstanding were 4,505,562 and 4,553,465, respectively for the quarter ended
March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities totaled $218,068 for the three
months ended March 31, 2000 compared to cash provided by operating activities of
$46,742 for the three months ended March 31, 1999. The decrease in cash used for
operations is due primarily to cash used for the increase in inventory and
accounts receivable to support the increased sales activity.
Net cash used for investing activities totaled $188,898 for the three
months ended March 31, 2000 compared to cash used for investing activities of
$30,318 for the three months ended March 31, 1999. The increase in cash used for
investing activities was attributed to the investment in MedCam Technology, Inc.
Net cash provided from financing activities in the first three months
of 2000 was $488,605. The cash provided from financing in the first three months
of 1999 was $5,546. The increase in net cash provided from
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<PAGE>
financing activities is attributable to the proceeds from the bank line of
credit and from the exercising of non-qualified options in the quarter.
During the first three months of 2000 certain option-holders have
exercised a total of 72,500 options. The Company received a total of $119,480 in
proceeds from the exercise of these options into the Company's common stock.
The board of directors of the Company approved in March of 1997 a stock
buy back of 100,000 shares and in May of 1998 a stock buy back of another
100,000 shares. In November 1998, the Company's Board of Directors approved a
third stock buy back of up to 1,000,000 shares of the Company's common stock.
The Company has repurchased approximately 400,000 shares of the Company's common
stock in private and public transactions and retired all shares repurchased.
Working capital and liquidity, which consists principally of cash,
receivables and inventories, was $3,395,041 at March 31, 2000 and $3,186,457 at
December 31, 1999. The ratio of current assets to current liabilities was 2:1 at
March 31, 2000 and 2:1 at December 31, 1999.
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 12, 2000 By: /s/ James Hansen
--------------- -----------------
James W. Hansen
President, CEO, Treasurer and Chairman
Page 7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 294,082
<SECURITIES> 158,000
<RECEIVABLES> 2,908,623
<ALLOWANCES> 98,644
<INVENTORY> 4,214,744
<CURRENT-ASSETS> 8,023,573
<PP&E> 1,794,102
<DEPRECIATION> 1,005,014
<TOTAL-ASSETS> 11,044,207
<CURRENT-LIABILITIES> 4,628,797
<BONDS> 0
0
0
<COMMON> 57,479
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,044,207
<SALES> 4,660,821
<TOTAL-REVENUES> 4,660,821
<CGS> 2,906,624
<TOTAL-COSTS> 1,578,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,516
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,636
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
