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 March 31, 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)(Zip Code)
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 April, 30, 1997, there were 5,735,045 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 10 of this report.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VIDEONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended
March 31,
---------------
1997 1996
---- ----
Net revenues $ 4,501 $ 7,059
Cost of revenues 3,542 3,558
------- -------
Gross profit 959 3,501
------- -------
Operating expenses:
Research and development 1,983 1,120
Selling and marketing 1,786 1,429
General and administrative 599 249
Amortization of intangible assets 99 99
------- -------
4,467 2,897
------- -------
Operating income (loss) (3,508) 604
Other income, net 91 98
------- -------
Income (loss) before income taxes (3,417) 702
Provision for (benefit from) income taxes (1,005) 253
------- -------
Net income (loss) $(2,412) $ 449
======= =======
Net income (loss) per share $ (0.42) $ 0.08
======= =======
Weighted average shares outstanding 5,730 5,900
======= =======
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
VIDEONICS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
ASSETS 1997 1996
------ -----
(unaudited)
Current assets:
Cash and cash equivalents $ 6,287 $ 6,538
Marketable securities -- 1,500
Accounts receivable, net 1,814 3,406
Inventories 10,181 9,309
Deferred income taxes 1,299 1,299
Recoverable income taxes 1,604 1,094
Prepaids and other current assets 405 493
------- -------
Total current assets 21,590 23,639
Property and equipment, net 2,144 2,037
Other assets 266 14
Intangible assets, net 2,168 2,268
------- -------
Total assets $26,168 $27,958
======= =======
LIABILITIES
Current liabilities:
Accounts payable $ 1,434 $ 1,090
Accrued expenses 1,357 1,137
------- -------
Total current liabilities 2,791 2,227
------- -------
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,735 shares at
March 31, 1997 and 5,705 shares at
December 31, 1996 20,355 20,297
Retained earnings 3,022 5,434
------- -------
Total shareholders' equity 23,377 25,731
------- -------
Total liabilities and shareholders' equity $26,168 $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>
Quarter Ended
March 31,
----------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities (1,343) (30)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (454) (199)
Purchases of marketable securities -- (3,508)
Proceeds from marketable securities 1,500 3,508
------- -------
Net cash provided by (used in) investing activities 1,046 (199)
------- -------
Cash flows from financing activities:
Repayment of note payable -- (500)
Proceeds from issuance of common stock 46 18
------- -------
Net cash provided by (used in) financing activities 46 (482)
------- -------
Decrease in cash and cash equivalents (251) (711)
Cash and cash equivalents at beginning of year 6,538 7,287
------- -------
Cash and cash equivalents at end of quarter $ 6,287 $ 6,576
======= =======
<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 March 31, 1997 and for the three
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
three month period ended March 31, 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):
March 31, December 31,
1997 1996
---- ----
(unaudited)
Raw materials $ 6,405 $6,210
Work in process 1,443 1,437
Finished goods 2,333 1,662
------- ------
$10,181 $9,309
======= ======
3. 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.
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
====
5
<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 36% from $7.1 million
in the first quarter of 1996 to $4.5 million in the first quarter of 1997. The
decrease is primarily attributable to decreased sales of older Videographer
products, a delay in shipments under a Nova OEM contract, slower than expected
acceptance of PowerScript in the Broadcast channels, a delay in the introduction
of new products to the international markets and the cancellation of an OEM
contract which resulted in a one-time adjustment of $335,000.
Gross Profit. Gross profit decreased approximately 73% from $3.5 million
in the first quarter of 1996 to $959,000 in the first quarter of 1997. Gross
profit, as a percentage of net revenues, decreased to approximately 21% in the
first quarter of 1997 from approximately 50% for the first quarter of 1996. The
percentage decrease is principally attributable to the higher material costs
associated with new product shipments, manufacturing costs spread over lower
revenue, and adjustments totaling $733,000 to inventory reserves for components
rendered obsolete by product revisions and to warranty reserves for new product
hardware updates.
Research and Development. Research and development expenses increased 77%
to $2.0 million during the first quarter of 1997 compared to $1.1 million in the
first quarter of 1996, related primarily 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
approximately 25% to $1.8 million in the first quarter of 1997 compared to $1.4
million in the first quarter of 1996. As a percentage of net revenues, these
expenses increased to 40% in the first quarter of 1997 compared to 20% in the
first quarter of 1996. The increase is related primarily to expenses to support
the DeskTop and Broadcast markets, and to support the new German sales office.
General and Administrative. General and administrative expenses increased
approximately 141% to $599,000 in the first quarter of 1997 compared to $249,000
in the first quarter of 1996. As a percentage of net revenues, these expenses
increased to 13% in the first quarter of 1997 compared to 4% in the first
quarter of 1996. The increase relates to the addition of KUB Systems' personnel
and expenses and a charge of $263,000 to bad debt reserves for specific
accounts.
Interest Income. Interest income decreased 7% to $91,000 in the first
quarter of 1997, compared to $98,000 in the first quarter of 1996. This decrease
is due to a switch from tax free investments to taxable investments beginning in
January 1997 combined with lower cash available for investment.
6
<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 March 31, 1997 the Company had
$6.3 million of cash and cash equivalents.
Net cash used by operations was $1.3 million for the first quarter of
1997 compared to net cash used in operations of $30,000 for the same period last
year. The decrease in cash from operating activities during the first quarter of
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, offset partially by a decrease in receivables. The use of cash
in operating activities during the first quarter of 1996 was primarily due to an
increase in inventories, partially offset by net income before depreciation and
amortization and by a decrease in receivables. Net cash provided by investing
activities for the first quarter of 1997 was $1.0 million, 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 financing
activities was $46,000, 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 quarter of 1996 was $482,000, 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 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 1997.
7
<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) No reports on Form 8-K were filed during the quarter ended March 31,
1997.
8
<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
May 8, 1997
--------------------
Date
/s/ James A. McNeill
--------------------
James A. McNeill
Vice President of Finance,
Chief Financial Officer and
Assistant Secretary
(Principal Accounting Officer
and Authorized Signer)
9
<PAGE>
INDEX OF EXHIBITS
Exhibits:
11. Statement of Computation of Earnings Per Share........ 11
27. Financial Data Schedule............................... 12
10
EXHIBIT 11
VIDEONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Quarter Ended
March 31,
---------------
1997 1996
---- ----
Net income (loss) $(2,412) $ 449
======= =======
Weighted average number of common shares outstanding 5,730 5,567
Adjustments for options calculated under the treasury
stock method -- 333
------- -------
Weighted average common and equivalent shares outstanding 5,730 5,900
======= =======
Net income (loss) per share(1) $ (0.42) $ 0.08
======= =======
(1) There is no difference between primary and fully diluted net income per
share.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INCOME STATEMENT AND BALANCE SHEET DATED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,287
<SECURITIES> 0
<RECEIVABLES> 1,814
<ALLOWANCES> 0
<INVENTORY> 10,181
<CURRENT-ASSETS> 21,590
<PP&E> 2,144
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,168
<CURRENT-LIABILITIES> 2,791
<BONDS> 0
<COMMON> 20,355
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,168
<SALES> 4,501
<TOTAL-REVENUES> 4,501
<CGS> 3,542
<TOTAL-COSTS> 3,542
<OTHER-EXPENSES> 4,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,417)
<INCOME-TAX> (1,005)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,412)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
