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 June 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 July, 31, 1996, there were 5,614,728 shares of the Registrant's
Common Stock outstanding.
This quarterly report on form 10-Q, including all exhibits, contains 12 pages,
of which this is page 1. The exhibit index is located on page 11 of this report.
<PAGE>
The accompanying notes are an integral
part of these financial statements.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
VIDEONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
------------- ---------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------- ------- -------
Net revenues ............................................... $ 7,055 $ 8,505 $14,114 $16,758
Cost of revenues ........................................... 3,633 4,435 7,191 8,802
------- ------- ------- -------
Gross profit ...................................... 3,422 4,070 6,923 7,956
------- ------- ------- -------
Operating expenses:
Research and development ................................ 1,120 639 2,240 1,370
Selling and marketing ................................... 1,631 1,215 3,060 2,371
General and administrative .............................. 337 261 586 595
Amortization of intangibles ............................. 98 197
------- ------- -------
3,186 2,115 6,083 4,336
------- ------- ------- -------
Operating income .................................. 236 1,955 840 3,620
------- ------- ------- -------
Other income (expense), net ................................ 96 239 194 492
------- ------- ------- -------
Income before income taxes ........................ 332 2,194 1,034 4,112
Provision for income taxes ................................. 120 833 373 1,562
------- ------- ------- -------
Net income ........................................ $ 212 $ 1,361 $ 661 $ 2,550
======= ======= ======= =======
Net income per share ....................................... $ 0.04 $ 0.24 $ 0.11 $ 0.44
======= ======= ======= =======
Weighted average shares outstanding ........................ 5,946 5,763 5,923 5,764
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<TABLE>
<CAPTION>
VIDEONICS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
ASSETS 1996 1995
------ -----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................... $ 7,798 $ 7,287
Marketable securities ............................................................... 3,508 4,708
Accounts receivable, net ............................................................ 2,479 3,824
Inventories ................................................................... 7,934 5,561
Deferred income taxes ............................................................... 1,410 1,410
Prepaid income taxes ................................................................ 225 254
Prepaids and other current assets ................................................... 321 284
------- -------
Total current assets ....................................................... 23,675 23,328
Property and equipment, net ............................................................ 1,735 1,350
Other assets ........................................................................... 13 11
Intangible assets, net ................................................................. 2,464 2,661
------- -------
Total assets ............................................................ $27,887 $27,350
======= =======
LIABILITIES
Current liabilities:
Notes payable ....................................................................... $ 500 $ 1,000
Accounts payable .................................................................... 1,401 1,226
Accrued expenses .................................................................... 827 975
------- -------
Total current liabilities .................................................. 2,728 3,201
------- -------
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,611 shares at
June 30, 1996 and 5,351 shares at
December 31, 1995 ................................................................ 19,808 19,459
Retained earnings ...................................................................... 5,351 4,690
------- -------
Total shareholders' equity ................................................. 25,159 24,149
------- -------
Total liabilities and shareholders' equity .............................. $27,887 $27,350
======= =======
</TABLE>
<PAGE>
The accompanying notes are an integral
part of these financial statements.
<TABLE>
<CAPTION>
VIDEONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net cash provided by (used in) operating activities .......................... 698 (528)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment .................................................. (567) (409)
Net cash paid in acquisition ........................................................ (350) --
Purchases of marketable securities .................................................. (3,508) --
Proceeds from sales of marketable securities ........................................ 4,708 --
-------- --------
Net cash provided by (used in) investing activities .......................... 283 (409)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .............................................. 30 --
Repayments on notes payable ......................................................... (500) --
-------- --------
Net cash used in financing activities ........................................ (470) --
-------- --------
Increase (decrease) in cash and cash equivalents ....................................... 511 (937)
Cash and cash equivalents at beginning of year ......................................... 7,287 16,493
-------- --------
Cash and cash equivalents at end of period ............................................. $ 7,798 $ 15,556
======== ========
</TABLE>
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements at June 30, 1996 and for the six
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
six month period ended June, 1996 are not necessarily indicative of
the results for the year ending December 31, 1996, or any future
interim period.
The Company's year end is December 31; the Company's quarters end on
the Sunday nearest the last day of the calendar quarter. For clarity
of presentation herein, all fiscal periods, including quarters, are
described as ending on a calendar month-end.
2. Inventories comprise (in thousands):
June 30, December 31,
1996 1995
(unaudited)
Raw materials ........................$5,002 $3,659
Work in process ...................... 1,733 1,095
Finished goods ........................1,199 807
------ ------
$7,934 $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 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 17% in the second
quarter of 1996 compared to the second quarter of 1995 and 16% in the first six
months of 1996 compared to the first six 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 16% in the second
quarter of 1996 compared to the second quarter of 1995 and 13% in the first six
months of 1996 compared to the first six months of 1995, directly related to
decreased revenue in the comparable periods. Gross profit, as a percentage of
net revenues, increased to approximately 49%, in the second quarter and first
six months of 1996 compared to approximately 48% and 47% respectively, for the
second quarter and first six months of 1995. The percentage increase is
principally attributable to the addition of Nova sales which generated slightly
higher margins.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 75%
and 64%, respectively, between the quarterly and six 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 June 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 34%
between the second quarter of 1996 and the second quarter of 1995 and 29%
between the first six month of 1996 and the first six months of 1995. Expenses
increased from 14% to 23% of net revenues between the quarterly comparison
periods and from 14% to 22% of net revenues for the six 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
29% between the quarterly comparison periods and decreased 2% between the six
month comparison periods. As a percentage of net revenues, expenses increased
from 3% to 5% between the quarterly comparison periods and remained flat at 4%
of net revenues for the six month comparison periods.
INTEREST INCOME. Interest income decreased 60% to $96,000 in the second
quarter of 1996 compared to $239,000 in the second quarter of 1995 and decreased
61% for the six month comparison periods. This decrease is due to a switch from
taxable to tax free investments beginning July 1995 and lower cash available for
investment, as approximately $4.5 million was used in the acquisition of
substantially all the assets and certain liabilities of Nova and as $350,000 was
used in the acquisition of certain assets and liabilities of KUB.
<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 to the factors noted above, the Company's future earnings and stock
price may 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 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 June 30, 1996 the Company had
$7.8 million of cash and cash equivalents. The decrease in cash and cash
equivalents from $15.6 million at June 30, 1995 to $7.8 million at June 30,
1996, was primarily attributable to the purchase of marketable securities of
$3.5 million and the purchase of the assets and certain liabilities of Nova for
$4.5 million and KUB for $350,000 in cash.
Net cash provided by operations was $698,000 for the six months ended
June 30, 1996 compared to net cash used by operations of $528,000 for the same
period last year. The increase in cash from operating activities during the six
months ended June 30, 1996 is primarily due to net income before depreciation
and amortization and a decrease in receivables partially offset by an increase
in inventories. Net cash provided by investing activities was $283,000,
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 $470,000, due to a $500,000 payment 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. There were no financing activities during the six month period ended June
30, 1995.
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
the end of 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<TABLE>
<CAPTION>
At the Annual Meeting of Shareholders on May 29, 1996, the following
members were elected to the Board of Directors:
Affirmative Votes
Votes Withheld Abstained
<S> <C> <C> <C>
Michael L. D'Addio ... 5,426,372 29,930 0
Mark C. Hahn ......... 5,426,372 29,930 0
Carl E. Berg ......... 5,426,372 29,930 0
N. William Jasper, Jr 5,426,372 29,930 0
</TABLE>
There were 5,442,539 shares of Common Stock represented at the meeting.
<TABLE>
<CAPTION>
The following proposals were approved at the Company's Annual Meeting:
Affirmative Votes
Votes Against Abstained
<S> <C> <C> <C>
To ratify the appointment of
Coopers & Lybrand L.L.P ......
as the independent accountants
of the Company for the fiscal
year ending December 31, 1996 5,442,539 9,018 4,395
Approval of the Company's 1996
Stock Option Plan ............ 3,406,106 790,831 19,745
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Statement of Computation of Earnings Per Share.
(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
August 8, 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 Signer)
<PAGE>
INDEX OF EXHIBITS
Exhibits:
11. Statement Regarding Computation of Earnings Per Share..............11
27. Videonics, Inc. Financial Data Schedule............................12
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
VIDEONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Quarter Ended Six Months Ended
June 30, June 30,
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income ............................. $ 212 $1,361 $ 661 $2,550
====== ====== ====== ======
Weighted average number
of common shares outstanding .... 5,606 5,351 5,587 5,351
Adjustments for options calculated
under the treasury stock method . 340 412 336 413
Weighted average common and
equivalent shares outstanding ... 5,946 5,763 5,923 5,764
====== ====== ====== ======
Net income per share ................... $ 0.04 $ 0.24 $ 0.11 $ 0.44
====== ====== ====== ======
</TABLE>
(1)There is no difference between primary and fully diluted net income
per share.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's income statment and balance sheet dated June 30, 1996 and is qualified
in its entirety by reference to such financial statments. Amounts are in
thousands except per share data.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1996
<PERIOD-END> Jun-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 7,798
<SECURITIES> 3,508
<RECEIVABLES> 2,479
<ALLOWANCES> 0
<INVENTORY> 7,934
<CURRENT-ASSETS> 23,675
<PP&E> 1,735
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,837
<CURRENT-LIABILITIES> 2,728
<BONDS> 0
0
0
<COMMON> 19,808
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,887
<SALES> 14,114
<TOTAL-REVENUES> 14,114
<CGS> 7,191
<TOTAL-COSTS> 7,191
<OTHER-EXPENSES> 6,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,034
<INCOME-TAX> 373
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 661
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
