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, 1997
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, 1997, there were 5,736,295 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
<TABLE>
VIDEONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 5,467 $ 7,055 $ 9,968 $14,114
Cost of revenues 3,177 3,633 6,719 7,191
------- ------- ------- -------
Gross profit 2,290 3,422 3,249 6,923
------- ------- ------- -------
Operating expenses:
Research and development 1,607 1,120 3,590 2,240
Selling and marketing 1,925 1,631 3,711 3,060
General and administrative 407 337 1,006 586
Amortization of intangibles 98 98 197 197
------- ------- ------- -------
4,037 3,186 8,504 6,083
------- ------- ------- -------
Operating income (loss) (1,747) 236 (5,255) 840
------- ------- ------- -------
Other income, net 78 96 169 194
------- ------- ------- -------
Income (loss) before income taxes (1,669) 332 (5,086) 1,034
Provision for (benefit from) income taxes (448) 120 (1,453) 373
------- ------- ------- -------
Net income (loss) $(1,221) $ 212 $(3,633) $ 661
======= ======= ======= =======
Net income (loss) per share $ (0.21) $ 0.04 $ (0.63) $ 0.11
======= ======= ======= =======
Weighted average shares outstanding 5,736 5,946 5,733 5,923
======= ======= ======= =======
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
VIDEONICS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
ASSETS 1997 1996
------ -----
(unaudited)
Current assets:
Cash and cash equivalents $ 4,497 $ 6,538
Marketable securities -- 1,500
Accounts receivable, net 2,161 3,406
Inventories 9,823 9,309
Deferred income taxes 1,299 1,299
Recoverable income taxes 2,131 1,094
Prepaids and other current assets 334 493
------- -------
Total current assets 20,495 23,639
Property and equipment, net 2,087 2,037
Other assets 266 14
Intangible assets, net 2,070 2,268
------- -------
Total assets $24,668 $27,958
======= =======
LIABILITIES
Current liabilities:
Accounts payable $ 929 $ 1,090
Accrued expenses 1,496 1,137
------- -------
Total current liabilities 2,425 2,227
------- -------
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,736 shares at
June 30, 1997 and 5,705 shares at
December 31, 1996 20,442 20,297
Retained earnings 1,801 5,434
------- -------
Total shareholders' equity 22,243 25,731
------- -------
Total liabilities and shareholders' equity $24,668 $27,958
======= =======
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
<TABLE>
VIDEONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities (2,914) 698
--------- -------
Cash flows from investing activities:
Purchase of property and equipment (674) (567)
Net cash paid in acquisition - (350)
Purchases of marketable securities - (3,508)
Proceeds from sales of marketable securities 1,500 4,708
--------- -------
Net cash provided by investing activities 826 283
--------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 47 30
Repayments on notes payable - (500)
--------- -------
Net cash provided by (used in) financing activities 47 (470)
--------- -------
Increase (decrease) in cash and cash equivalents (2,041) 511
Cash and cash equivalents at beginning of year 6,538 7,287
--------- -------
Cash and cash equivalents at end of period $4,497 $7,798
========= =======
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements at June 30, 1997 and for the six
month period then ended are unaudited (except for the balance sheet
information as of December 31, 1996, 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, 1996. The results of operations for this
six month period ended June 30, 1997 are not necessarily indicative of
the results for the year ending December 31, 1997, or any future
interim period.
2. Inventories comprise (in thousands):
June 30, December 31,
1997 1996
-------- ------------
(unaudited)
Raw materials $ 6,294 $6,210
Work in process 1,110 1,437
Finished goods 2,419 1,662
------- -------
$ 9,823 $9,309
======= ======
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 was 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.
5
<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
====
6
<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 in this Form 10-Q, in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and in the Company's other public filings.
Results of Operations
Net Revenues. Net revenues decreased approximately 23% in the second
quarter of 1997 compared to the second quarter of 1996 and 29% in the first six
months of 1997 compared to the first six months of 1996. The decrease is
primarily attributable to decreased sales of older Videographer products, slower
than expected acceptance of PowerScript in the Broadcast channels, a delay in
the introduction of new products to the domestic and international markets, and
reduced revenues from a Nova OEM contract which was cancelled in the second
quarter of 1997.
Gross Profit. Gross profit decreased approximately 33% in the second
quarter of 1997 compared to the second quarter of 1996 and 53% in the first six
months of 1997 compared to the first six months of 1996. Gross profit, as a
percentage of net revenues, decreased to approximately 42% in the second quarter
and to 33% in the first six months of 1997 compared to approximately 49% for
both the second quarter and first six months of 1996. The percentage decrease is
principally attributable to the higher material costs associated with new
product shipments and manufacturing costs spread over lower revenue. Adjustments
totaling $733,000 to inventory reserves for components rendered obsolete by
product revisions and to warranty reserves for new product hardware updates were
made in the first quarter of 1997.
Research and Development. Research and development expenses increased
44% and 60%, respectively, between the quarterly and six month comparison
periods in fiscal years 1996 and 1997 and increased as a percentage of net
revenues. The increased expenses were primarily due to the addition of KUB
Systems' personnel and associated product development expenses since May 1996,
as well as increases in various categories related to the large number of new
products that the Company is developing.
Selling and Marketing. Selling and marketing expenses increased 18%
between the second quarter of 1997 and the second quarter of 1996 and 21%
between the first six month of 1997 and the first six months of 1996. The
increase is related primarily to expenses to support the DeskTop and Broadcast
markets and the Company's new German sales office.
General and Administrative. General and administrative expenses
increased 21% between the quarterly comparison periods and increased 72% between
the six month comparison periods in fiscal years 1996 and 1997. The increase
relates primarily to the addition of the KUB Systems' personnel and expenses and
a first quarter charge of $263,000 to bad debt reserves for specific accounts.
Interest Income, net. Interest income decreased 19% to $78,000 in the
second quarter of 1997 compared to $96,000 in the second quarter of 1996 and
decreased 13% for the six month comparison periods from $194,000 to $169,000.
This decrease is primarily due to lower cash available for investment.
7
<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 development and 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. The Company's results in prior
years have been affected by these factors, particularly with respect to
developing and introducing new products such as PowerScript.
Due primarily to the factors noted above, the Company has already
experienced substantial volatility in its operations. 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 or anticipated by the Company based upon
product development and introduction schedules 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
1996 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 June 30, 1997, the Company had
$4.5 million of cash and cash equivalents.
Net cash used by operations was $2.9 million for the first six months
ended June 30, 1997 compared to net cash provided by operations of $698,000 for
the same period last year. The decrease in cash from operating activities during
the first six months ended June 30, 1997 is primarily due to a net loss before
the provisions for doubtful accounts, excess and obsolete inventories, and
depreciation and amortization, an increase in inventories, an increase in
recoverable income taxes, offset partially by a decrease in receivables. The
cash provided by operating activities during the first six months of 1996 was
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 for the first six months ended June 30, 1997 was
$826,000, primarily due to the sale of marketable securities offset partially by
property and equipment expenditures, primarily for computers, software and
engineering equipment used in research and development and other activities. Net
cash provided by investing activities for the first six months of 1996 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
provided by financing activities during the first six months of 1997 was
$47,000, due entirely to the receipt of cash from the exercise of the stock
options issued under the Company's Stock Option Plan. Net cash used in financing
activities during the first six months of 1996 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.
The Company believes that its cash balances, 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 1997.
8
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on May 22, 1997, the following
persons were elected to the Board of Directors:
Votes
Affirmative -----------------------------
Votes Withheld Abstained
----- -------- ---------
Michael L. D'Addio 5,514,797 42,315 0
Mark C. Hahn 5,514,997 42,115 0
Carl E. Berg 5,514,997 42,115 0
N. William Jasper, Jr. 5,514,997 42,115 0
There were 5,557,112 shares of Common Stock represented at the meeting.
The following proposals were approved at the Company's Annual Meeting:
Votes
Affirmative ---------------------
Votes Against Abstained
----- ------- ---------
To ratify the appointment of
Coopers & Lybrand L.L.P.
as the independent accountants
of the Company for the fiscal
year ending December 31, 1997 5,538,442 9,370 9,300
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) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
9
<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 6, 1997
--------------------
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)
10
<PAGE>
INDEX OF EXHIBITS
Exhibits:
11 Computation of Earnings Per Share.............. 12
27 Financial Data Schedule........................ 13
11
Exhibit 11
<TABLE>
VIDEONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(1,221) $ 212 $(3,633) $ 661
======== ====== ======== ======
Weighted average number
of common shares outstanding 5,736 5,606 5,733 5,587
Adjustments for options calculated
under the treasury stock method - 340 - 336
-------- ------ -------- ------
Weighted average common and
equivalent shares outstanding 5,736 5,946 5,733 5,923
======== ====== ======== ======
Net income (loss) per share (1) $(0.21) $0.04 $(0.63) $0.11
======== ====== ======== ======
<FN>
(1) There is no difference between primary and fully diluted net income per
share.
</FN>
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INCOME STATEMENT AND BALANCE SHEET DATED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 4,497
<SECURITIES> 0
<RECEIVABLES> 2,161
<ALLOWANCES> 0
<INVENTORY> 9,823
<CURRENT-ASSETS> 20,245
<PP&E> 2,087
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,668
<CURRENT-LIABILITIES> 2,425
<BONDS> 0
<COMMON> 20,442
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,668
<SALES> 9,968
<TOTAL-REVENUES> 9,968
<CGS> 6,719
<TOTAL-COSTS> 6,719
<OTHER-EXPENSES> 8,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,086)
<INCOME-TAX> (1,453)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,633)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
