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, 1998
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, 1998, there were 5,812,899 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.
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The accompanying notes are an integral part of these financial statements.
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,
1998 1997
Net revenues $4,719 $4,501
Cost of revenues 2,977 3,542
Gross profit 1,742 959
Operating expenses:
Research and development 1,382 1,983
Selling and marketing 1,641 1,786
General and administrative 424 599
Amortization of intangible assets - 99
3,447 4,467
Operating loss (1,705) (3,508)
Interest income (expense), net (1) 91
Loss before income taxes (1,706) (3,417)
Benefit from income taxes - (1,005)
Net loss $(1,706) $(2,412)
======= =======
Net loss per common share and per
common share - assuming dilution $ (0.29) $ (0.42)
====== ======
Shares used in computing net loss per
common share and per common share
- assuming dilution 5,790 5,730
===== =====
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VIDEONICS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
ASSETS 1998 1997
(unaudited)
Current assets:
Cash and cash equivalents $1,030 $992
Accounts receivable, net 1,453 1,291
Inventories 9,369 9,938
Prepaid income taxes 173 550
Prepaids and other current assets 254 219
Total current assets 12,279 12,990
Property and equipment, net 2,305 2,438
Other assets 266 266
Total assets $14,850 $15,694
====== ======
LIABILITIES
Current liabilities:
Note payable to shareholder $619
Accounts payable 1,661 $1,442
Accrued expenses 1,657 1,646
Total current liabilities 3,937 3,088
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,813 shares at
March 31, 1998 and 5,785 shares at
December 31, 1997 20,626 20,613
Retained deficit (9,713) (8,007)
Total shareholders' equity 10,913 12,606
Total liabilities and shareholders' equity $14,850 $15,694
====== ======
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The accompanying notes are an integral part of these financial statements.
VIDEONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
1998 1997
Cash flows from operating activities:
Net cash used in operating activities $ (439) $(1,343)
Cash flows from investing activities:
Purchase of property and equipment (155) (454)
Proceeds from marketable securities - 1,500
Net cash provided by (used in) investing activities (155) 1,046
Cash flows from financing activities:
Proceeds from issuance of note payable 619 -
Proceeds from issuance of common stock 13 46
Net cash provided by financing activities 632 46
Increase in cash and cash equivalents 38 (251)
Cash and cash equivalents at beginning of year 992 6,538
Cash and cash equivalents at end of quarter $ 1,030 $ 6,287
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</TABLE>
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VIDEONICS, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. The condensed financial statements at March 31, 1998 and for the three
month period then ended are unaudited (except for the balance sheet
information as of December 31, 1997, 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, 1997. The results of operations for the
three-month period ended March 31, 1998 are not necessarily indicative
of the results for the year ending December 31, 1998, or any future
interim period.
2. Inventories comprise (in thousands):
March 31, December 31,
1998 1997
(unaudited)
Raw materials $ 7,277 $7,649
Work in process 727 437
Finished goods 1,365 1,852
------ ------
$9,369 $9,938
====== ======
3. Note Payable to Shareholder:
During the quarter ended March 31, 1998, the Company issued a secured
promissory note due to a certain shareholder of the Company for
repayment of a loan to the Company in the principal amount of $619,000
(the "Promissory Note"). The principal amount bears simple interest at
a rate of 8.5% per year. Principal and accrued interest are due upon
demand.
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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, 1997 and in the Company's other public filings.
Results of Operations
Net Revenues. Net revenues increased approximately 5% from $4.5 million
in the first quarter of 1997 to $4.7 million in the first quarter of 1998.
Revenues between comparison quarters would have been similar if not for the
cancellation of an OEM contract in the first quarter of 1997 which resulted in a
one-time adjustment to revenues of $335,000.
Gross Profit. Gross profit increased approximately 82% from $959,000 in
the first quarter of 1997 to $1.7 million in the first quarter of 1998. Gross
profit, as a percentage of net revenues, increased to approximately 37% in the
first quarter of 1998 from approximately 21% for the first quarter of 1997.
Gross margins between comparison quarters would have been similar if not for
cost of revenue adjustments in the first quarter of 1997 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 decreased
approximately 30% to $1.4 million during the first quarter of 1998 compared to
$2.0 million in the first quarter of 1997, related primarily to decreased
personnel and reduced use of consultants.
Selling and Marketing. Selling and marketing expenses decreased
approximately 8% to $1.6 million in the first quarter of 1998 compared to $1.8
million in the first quarter of 1997. As a percentage of net revenues, these
expenses decreased to 35% in the first quarter of 1998 compared to 40% in the
first quarter of 1997. The decrease is related primarily to decreased personnel
and reduced advertising expenses.
General and Administrative. General and administrative expenses
decreased approximately 29% to $424,000 in the first quarter of 1998 compared to
$599,000 in the first quarter of 1997. As a percentage of net revenues, these
expenses decreased to 9% in the first quarter of 1998 compared to 13% in the
first quarter of 1997. Excluding a charge in the first quarter of 1997 totaling
$263,000 to bad debt reserves for specific accounts, expenses for the first
quarter 1998 were 26% higher due primarily to higher legal, audit and tax
preparation expenses.
Interest Income (Expense). The Company had net interest expense of
$1,000, in the first quarter of 1998 compared to interest income of $91,000 in
the first quarter of 1997. This difference is primarily due to interest expense
calculated on the Promissory Note only partially offset by interest income on
lower cash balances available for investment.
Benefit from Income Taxes. During the first quarter of 1998, the
Company maintained a 100% valuation allowance against its deferred tax assets
due to the uncertainty surrounding the realization of such assets. If it is
determined that it is more likely than not that the deferred tax assets are
realizable, the valuation allowance will be reduced. During the first quarter of
1997, the Company recorded a tax benefit totaling $1.0 million. This benefit was
based on a 30 percent tax rate which had been calculated based on anticipated
net income for the year.
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, MXPro, and Effetto
Pronto.
Due primarily to the factors noted above, the Company has 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 1997 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. In January of 1998, the Company again
financed its operations through a shareholder loan totaling $619,000. As of
March 31, 1998, the Company had $1.0 million of cash and cash equivalents.
Net cash used by operations was $439,000 for the first quarter of 1998
compared to net cash used in operations of $1,343,000 for the same period last
year. The use of cash from operating activities during the first quarter of 1998
is primarily due to a net loss before the provisions for doubtful accounts,
excess and obsolete inventories and depreciation, an increase in receivables,
offset partially by a decrease in inventories and prepaid income taxes and an
increase in accounts payable. The use of cash in operating activities during the
first quarter of 1997 was primarily due to a net loss before the provisions for
doubtful accounts, excess and obsolete inventories, depreciation and
amortization, and an increase in inventories, all offset partially by a decrease
in receivables. Net cash used by investing activities for the first quarter of
1998 was $155,000, due to 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
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
during the first quarter of 1998 was $632,000, primarily because of the
Promissory Note and the receipt of cash from the exercise of the stock options
issued under the Company's Stock Option Plans. Net cash used in financing
activities during the first quarter of 1997 was $46,000 received from the
exercise of the stock options issued under the Company's Stock Option Plans.
The Company believes that loans from a shareholder, 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 1998.
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Document
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
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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 12, 1998
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)
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INDEX OF EXHIBITS
Exhibits:
27. Financial Data Schedule......................................12
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANYS INCOME STATEMENT AND BALANCE SHEET DATED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> Videonics, Inc.
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<PERIOD-START> JAN-01-1998
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