SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-25036
VIDEONICS, INC.
(Exact name of Registrant as specified in its charter)
California 77-0118151
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1370 Dell Ave, Campbell, California 95008
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 866-8300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
As of October, 31, 1996, there were 5,660,505 shares of the Registrant's
Common Stock outstanding.
This quarterly report on form 10-Q, including all exhibits, contains 13 pages,
of which this is page 1. The exhibit index is located on page 11 of this report.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VIDEONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Net revenues $ 6,770 $8,691 $20,884 $25,449
Cost of revenues 3,551 4,111 10,742 12,913
Gross profit 3,219 4,580 10,142 12,536
Operating expenses:
Research and development 1,260 681 3,500 2,051
Selling and marketing 1,550 1,351 4,610 3,722
General and administrative 352 299 938 894
Charge for purchased research
and development 1,965 1,965
Amortization of intangibles 98 295
3,260 4,296 9,343 8,632
Operating income (loss) (41) 284 799 3,904
Other income, net 89 156 283 648
Income before income taxes 48 440 1,082 4,552
Provision for income taxes 17 108 390 1,670
Net income $ 31 $ 332 $ 692 $ 2,882
Net income per share $ 0.01 $ 0.06 $ 0.12 $ 0.50
Weighted average shares outstanding 5,942 5,813 5,929 5,780
The accompanying notes are an integral
part of these financial statements.
VIDEONICS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
ASSETS 1996 1995
(unaudited)
Current assets:
Cash and cash equivalents $ 8,862 $ 7,287
Marketable securities 1,507 4,708
Accounts receivable, net 2,652 3,824
Inventories 9,317 5,561
Deferred income taxes 1,410 1,410
Prepaid income taxes 311 254
Prepaids and other current assets 555 284
Total current assets 24,614 23,328
Property and equipment, net 1,805 1,350
Other assets 15 11
Intangible assets, net 2,365 2,661
Total assets $28,799 $27,350
LIABILITIES
Current liabilities:
Notes payable $ 1,000
Accounts payable $ 2,864 1,226
Accrued expenses 588 975
Total current liabilities 3,452 3,201
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,647 shares at
September 30, 1996 and 5,351 shares at
December 31, 1995 19,965 19,459
Retained earnings 5,382 4,690
Total shareholders' equity 25,347 24,149
Total liabilities and shareholders' equity $28,799 $27,350
<PAGE>
The accompanying notes are an integral
part of these financial statements.
VIDEONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net cash provided by (used in) operating activities 480 (1,015)
Cash flows from investing activities:
Purchase of property and equipment (832) (602)
Net cash paid in acquisition (350) (3,920)
Purchases of marketable securities (3,508) (4,508)
Proceeds from sales of marketable securities 6,709 --
Net cash provided by (used in) investing activities 2,019 (9,030)
Cash flows from financing activities:
Proceeds from issuance of common stock 76 131
Repayments on notes payable (1,000) --
Net cash provided by (used in) financing activities (924) 131
Increase (decrease) in cash and cash equivalents 1,575 (9,914)
Cash and cash equivalents at beginning of year 7,287 16,493
Cash and cash equivalents at end of period $ 8,862 $ 6,579
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements at September 30, 1996 and for the nine
month period then ended are unaudited (except for the balance sheet
information as of December 31, 1995, which is derived from the Company's
audited financial statements) and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The condensed financial statements should
be read in conjunction with the financial statements and notes thereto,
together with management's discussion and analysis of financial condition
and results of operations, contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. The results of operations for
this nine month period ended September 30, 1996 are not necessarily
indicative of the results for the year ending December 31, 1996, or any
future interim period.
2. Inventories comprise (in thousands):
September 30, December 31,
1996 1995
(unaudited)
Raw materials $ 5,834 $3,659
Work in process 2,076 1,095
Finished goods 1,407 807
-------- --------
$ 9,317 $5,561
3. Acquisitions:
Acquisition of KUB Systems:
Effective May 24, 1996, the Company hired all the personnel and
acquired certain assets and certain liabilities of KUB Systems ("KUB"). KUB
is a developer and manufacturer of advanced digital video production
equipment for the broadcast, post-production, and institutional video
production markets. Under the terms of the acquisition, the Company paid
KUB $350,000 in cash. The acquisition has been accounted for as a purchase
transaction and the results of operations of KUB have been included with
those of the Company since May 24, 1996, the date the purchase was
consummated.
<PAGE>
Acquisition of KUB Systems, (continued):
The purchase price consisted of (in thousands):
Cash paid $ 350
The purchase price was allocated to assets and liabilities acquired as
follows (in thousands):
Inventory 276
Other assets 6
Property and equipment 133
Accrued expenses (65)
---------------- ----
$350
Acquisition of Nova and Abbate:
In September 1995, the Company hired all the personnel, acquired
substantially all the assets and certain liabilities of Nova Systems
("Nova") and incurred a one time charge of $2.0 million, for purchased
in-process research and development. In addition, in September of 1995,
the Company hired the personnel and acquired substantially all the
assets of Abbate Video ("Abbate"). See the Company's 1995 Form 10-K for
further information.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion in this section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains trend
analysis and other forward looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward looking statements as a result of the factors set
forth below and elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
NET REVENUES. Net revenues decreased approximately 22% in the third
quarter of 1996 compared to the third quarter of 1995 and 18% in the first nine
months of 1996 compared to the first nine months of 1995. This decrease is due
to decreased sales of certain of the Company's older products, partially offset
by the addition of Nova's revenues.
GROSS PROFIT. Gross profit decreased approximately 30% in the third
quarter of 1996 compared to the third quarter of 1995 and 19% in the first nine
months of 1996 compared to the first nine months of 1995, directly related to
decreased revenue in the comparable periods. Gross profit, as a percentage of
net revenues, decreased to approximately 48% for the third quarter of 1996
compared to approximately 53% for the third quarter of 1995. The percentage
decrease is principally a result of reduced revenues, and a change in product
mix, in the third quarter of 1996. Gross profit remained at 49% for the
comparable nine month periods.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 85%
and 71%, respectively, between the quarterly and nine month comparison periods
and increased as a percentage of net revenues. The increased expenses were
primarily due to the Company's hiring of additional hardware and software
engineers who are working on the development of the Company's new products. In
addition, since September 1995, research and development expenses include the
personnel of Nova and Abbate, and beginning in the second quarter of 1996, the
personnel of KUB. These employees are principally in engineering. The Company
anticipates that research and development expenses will continue to increase in
absolute terms due to ongoing and future product development.
SELLING AND MARKETING. Selling and marketing expenses increased 15% in
the third quarter of 1996 over the comparable third quarter of 1995 and 24% in
the first nine months of 1996 over the comparable first nine months of 1995.
Expenses increased from 16% to 23% of net revenues between the third quarter
comparison periods of the respective years and from 15% to 22% of net revenues
for the years' nine month comparison periods. This increase in expenses as a
percentage of net revenues was primarily a result of decreased revenues. The
absolute dollar increase is primarily a result of the inclusion of Nova's
selling and marketing expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
18% and 5% respectively between the 1995 and 1996 quarterly and nine month
comparison periods. As a percentage of net revenues, expenses increased from 3%
to 5% for the quarterly comparison periods and remained flat at 4% of net
revenues for the nine month comparison periods.
INTEREST INCOME. Interest income decreased 43% to $89,000 in the third
quarter of 1996 compared to $156,000 in the third quarter of 1995 and decreased
56% for the nine month comparison periods. This decrease is primarily due to a
switch from taxable to tax free investments beginning July 1995 and lower
average investment balances during the nine months ended September 1996, due to
the acquisitions of Nova and KUB, which required the use of $5.4 million in
cash.
<PAGE>
Factors That May Affect Future Results of Operations: The Company
believes that in the future its results of operations could be impacted by
factors such as delays in shipment of the Company's new products and major new
versions of existing products, market acceptance of new products and upgrades,
growth in the marketplace in which it operates, competitive product offerings,
and adverse changes in general economic conditions in any of the countries in
which the Company does business.
Due primarily to the factors noted above, the Company has already
experienced substantial volatility in its operations for the first nine months
of 1996. The Company's future earnings and stock price may continue to be
subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. Additionally, the Company may
not learn of such shortfalls until late in the fiscal quarter, which could
result in an even more immediate and adverse effect on the trading price of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which often results in significant volatility of the Company's common
stock price. See the Company's 1995 Form 10-K section entitled "Business -
Research and Development".
LIQUIDITY AND CAPITAL RESOURCES
From the Company's inception until its initial public offering in
December 1994, which resulted in net proceeds of $15.8 million, the Company
financed its operations through private sales of equity, shareholder loans, cash
flow from operations, and bank borrowings. As of September 30, 1996 the Company
had $8.9 million of cash and cash equivalents. The increase in cash and cash
equivalents from $7.3 million at September 30, 1995 to $8.9 million at September
30, 1996, was primarily attributable to net sales of marketable securities of
$3.2 million offset by $1.0 million in payments on a note issued in connection
with the Nova acquisition and $350,000 paid in the acquisition of KUB.
Net cash provided by operations was $480,000 for the nine months ended
September 30, 1996 compared to net cash used by operations of $1.0 million for
the same period last year. The increase in cash from operating activities during
the nine months ended September 30, 1996 is primarily due to net income before
depreciation and amortization, a decrease in receivables and an increase in
payables, both of which are partially offset by an increase in inventories. Net
cash provided by investing activities was $2.0 million, primarily due to the
sale of marketable securities offset partially by the acquisition of property
and equipment and the acquisition of KUB. Net cash used in financing activities
was $924,000, due to $1.0 million in payments on a note issued in connection
with the Nova acquisition, offset partially by the receipt of cash from the
exercise of the stock options issued under the Company's Stock Option Plan. The
only financing activity during the nine month period ended September 30, 1995
was the receipt of cash from the exercise of the stock options.
The Company believes that the net proceeds from its initial public
offering, together with its operating cash flows will be sufficient to meet the
Company's requirements for working capital, and capital expenditures, through
September 30, 1997.
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Document
11 Statement of Computation of
Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 6, 1996, the Company filed with the Commission a current
report on Form 8-K for the purpose of reporting the acquisition of
substantially all the assets and certain liabilities of KUB Systems.
The Company filed an amendment to such Form 8-K including KUB Systems'
financial statements on August 6, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VIDEONICS, INC.
---------------
Registrant
November 13, 1996
-----------------
Date
By:/s/ James A. McNeill
James A. McNeill
Vice President of Finance,
Chief Financial Officer and
Assistant Secretary
(Principal Accounting Officer
and Authorized Signatory)
<PAGE>
INDEX OF EXHIBITS
Exhibits:
11. Statement Regarding Computation of Earnings Per Share..........12
27. Financial Data Schedule........................................13
<PAGE>
EXHIBIT 11
VIDEONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Net income ............................. $ 31 $ 332 $ 692 $2,882
Weighted average number
of common shares outstanding .... 5,621 5,428 5,598 5,377
Adjustments for options calculated
under the treasury stock method . 321 385 331 403
Weighted average common and
equivalent shares outstanding ... 5,942 5,813 5,929 5,780
Net income per share(1) ...............$ 0.01 $ 0.06 $ 0.12 $ 0.50
(1)There is no difference between primary and fully diluted net income
per share.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
VIDEONICS, INC.
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INCOME STATEMENT AND BALANCE SHEET DATED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000932113
<NAME> Videonics, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 8,862
<SECURITIES> 1,507
<RECEIVABLES> 2,652
<ALLOWANCES> 0
<INVENTORY> 9,317
<CURRENT-ASSETS> 24,614
<PP&E> 1,805
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,799
<CURRENT-LIABILITIES> 3,452
<BONDS> 0
0
0
<COMMON> 19,965
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,799
<SALES> 20,884
<TOTAL-REVENUES> 20,884
<CGS> 10,742
<TOTAL-COSTS> 10,742
<OTHER-EXPENSES> 9,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,082
<INCOME-TAX> 390
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
