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, 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 October, 31, 1997, there were 5,765,299 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 I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
VIDEONICS, INC.
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $5,360 $6,770 $15,328 $20,884
Cost of revenues 2,916 3,551 9,635 10,742
--------- ---------- -------- -------
Gross profit 2,444 3,219 5,693 10,142
--------- ---------- -------- -------
Operating expenses:
Research and development 1,615 1,260 5,205 3,500
Selling and marketing 2,097 1,550 5,808 4,610
General and administrative 341 352 1,347 938
Amortization of intangibles 98 98 295 295
--------- ---------- -------- -------
4,151 3,260 12,655 9,343
--------- ---------- -------- -------
Operating income (loss) (1,707) (41) (6,962) 799
--------- ---------- -------- -------
Other income, net 69 89 238 283
--------- ---------- -------- -------
Income (loss) before
income taxes (1,638) 48 (6,724) 1,082
Provision for (benefit from)
income taxes (470) 17 (1,923) 390
--------- ---------- -------- -------
Net income (loss) $ (1,168) $ 31 $ (4,801) $ 692
========= ======= ========= =======
Net income (loss) per share $ (0.20) $ 0.01 $ (0.84) $ 0.12
========= ======= ========= =======
Weighted average shares outstanding 5,741 5,942 5,735 5,929
======== ======= ======== =======
<FN>
The accompanying notes are an integral
part of these condensed, consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
VIDEONICS, INC.
CONDENSED, CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,717 $6,538
Marketable securities - 1,500
Accounts receivable, net 1,910 3,406
Inventories 11,270 9,309
Deferred income taxes 1,299 1,299
Recoverable income taxes 2,602 1,094
Prepaids and other current assets 505 493
--------- ----------
Total current assets 20,303 23,639
Property and equipment, net 2,332 2,037
Other assets 266 14
Intangible assets, net 1,971 2,268
--------- ----------
Total assets $24,872 $27,958
========= ==========
LIABILITIES
Current liabilities:
Accounts payable $2,556 $1,090
Accrued expenses 1,218 1,137
--------- ----------
Total current liabilities 3,774 2,227
--------- ----------
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,753 shares at
September 30, 1997 and 5,705 shares at
December 31, 1996 20,465 20,297
Retained earnings 633 5,434
--------- ----------
Total shareholders' equity 21,098 25,731
--------- ----------
Total liabilities and shareholders' equity $24,872 $27,958
========= ==========
<FN>
The accompanying notes are an integral
part of these condensed, consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
VIDEONICS, INC.
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities (4,167) 480
------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,204) (832)
Net cash paid in acquisition - (350)
Purchases of marketable securities - (3,508)
Proceeds from sales of marketable securities 1,500 6,709
------- -------
Net cash provided by investing activities 296 2,019
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 50 76
Repayments on notes payable - (1,000)
------- -------
Net cash provided by (used in) financing activities 50 (924)
------- -------
Increase (decrease) in cash and cash equivalents (3,821) 1,575
Cash and cash equivalents at beginning of year 6,538 7,287
------- -------
Cash and cash equivalents at end of period $2,717 $8,862
======= =======
<FN>
The accompanying notes are an integral
part of these condensed, consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed, consolidated financial statements at September 30, 1997
and for the nine 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 nine month period ended September 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):
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
Raw materials $ 8,003 $6,210
Work in process 873 1,437
Finished goods 2,394 1,662
------- ------
$11,270 $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.
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 21% in the third
quarter of 1997 compared to the third quarter of 1996 and 27% in the first nine
months of 1997 compared to the first nine months of 1996. This 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 24% in the third
quarter of 1997 compared to the third quarter of 1996 and 44% in the first nine
months of 1997 compared to the first nine months of 1996. Gross profit, as a
percentage of net revenues, decreased to approximately 46% for the third quarter
of 1997 compared to approximately 48% for the third quarter of 1996 and
decreased to 37% in the first nine months of 1997 compared to 49% in the first
nine months of 1996. The percentage decrease is principally a result of reduced
revenues and a change in product mix. The decrease in gross margin between the
nine month comparison periods relates primarily to first quarter 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 28%
and 49%, respectively, between the quarterly and nine month comparison periods.
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, combined with increased salary levels.
Selling and Marketing. Selling and marketing expenses increased 35% in
the third quarter of 1997 over the comparable third quarter of 1996 and 26% in
the first nine months of 1997 over the comparable first nine months of 1996.
This increase in expenses is related primarily to increased convention and
advertising costs and the expenses of our German sales office.
General and Administrative. General and administrative expenses decreased
3% between the quarterly comparison periods and increased 44% between the nine
month comparison periods in fiscal years 1996 and 1997. The increase between the
nine month comparison periods 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. Interest income decreased 22% to $69,000 in the third
quarter of 1997 compared to $89,000 in the third quarter of 1996 and decreased
16% for the nine month comparison periods from $283,000 to $238,000. This
decrease is primarily due to 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. The Company's
recent delay in delivering new products in a timely fashion directly has caused
losses in the Company's operations. While the Company believes that it will
shortly begin delivery of such products, failure to do so or failure of customer
acceptance of such new products, will cause such losses to continue.
Due primarily to the factors noted above, the Company has already
experienced substantial volatility in its operations, particularly for the
current 1997 calendar year. 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 September 30, 1997, the Company
had $2.7 million of cash and cash equivalents.
Net cash used by operations was $4.2 million for the nine months ended
September 30, 1997 compared to net cash provided by operations of $480,000 for
the same period last year. The decrease in cash from operating activities during
the nine months ended September 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 nine months of 1996 was
primarily due to net income before depreciation and amortization, a decrease in
receivables and an increase in payables, both of which were partially offset by
an increase in inventories. Net cash provided by investing activities for the
nine months ended September 30, 1997 was $296,000, 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 nine months ended September 30, 1996 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 provided by financing
activities during the first nine months of 1997 was $50,000, due entirely to the
receipt of cash from the exercise of stock options issued under the Company's
Stock Option Plan. Net cash used in financing activities during the first nine
months of 1996 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 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 the 1997 fiscal year.
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 Net Income (Loss)
Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September
30, 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
November 12, 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)
9
<PAGE>
INDEX OF EXHIBITS
Exhibits:
11 Statement Regarding Computation of Net Income (Loss) Per Share.... 11
27 Financial Data Schedule........................................... 12
10
EXHIBIT 11
<TABLE>
VIDEONICS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(1,168) $ 31 $(4,801) $ 692
======= ======= ======= =======
Weighted average number
of common shares outstanding 5,741 5,621 5,735 5,598
Adjustments for options calculated
under the treasury stock method -- 321 -- 331
------- ------- ------- -------
Weighted average common and
equivalent shares outstanding 5,741 5,942 5,735 5,929
======= ======= ======= =======
Net income (loss) per share (1) $ (0.20) $ 0.01 $ (0.84) $ 0.12
======= ======= ======= =======
<FN>
(1)There is no difference between primary and fully diluted net income (loss) per share.
</FN>
</TABLE>
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
VIDEONICS, INC.
FINANCIAL DATA SCHEDULE
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INCOME STATEMENT AND BALANCE SHEET DATED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 2,717
<SECURITIES> 0
<RECEIVABLES> 1,910
<ALLOWANCES> 0
<INVENTORY> 11,270
<CURRENT-ASSETS> 20,303
<PP&E> 2,332
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,872
<CURRENT-LIABILITIES> 3,774
<BONDS> 0
0
0
<COMMON> 20,465
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,872
<SALES> 15,328
<TOTAL-REVENUES> 15,328
<CGS> 9,635
<TOTAL-COSTS> 9,635
<OTHER-EXPENSES> 12,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,724)
<INCOME-TAX> (1,923)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,801)
<EPS-PRIMARY> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
