<PAGE>
UNITED STATES
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 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 0-25898
-------
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2821358
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Hartwell Avenue, Lexington, MA 02173
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 674-0009
--------------
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
--- ---
The number of shares outstanding of the registrant's common stock at May 3, 1996
was 8,992,681.
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information:
- - -------------------------------
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 30, 1996 and
December 30, 1995 3
Condensed Consolidated Statements of Operations for the three months ended
March 30, 1996 and April 1, 1995 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 30, 1996 and April 1, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information: 12
- - ----------------------------
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5- Other Information
Item 6 - Exhibits and Reports on Form 8-K
11 Statement Regarding Computation of Net Income (Loss) per Share
27 Financial Data Schedule
SIGNATURE(S) 13
</TABLE>
2
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 30, 1996 December 30, 1995
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,141 $ 5,235
Accounts receivable, trade, net of
allowances for doubtful accounts
of $510 and $878, at March 30, 1996
and December 30, 1995 20,522 27,646
Receivables from manufacturing
contractor 7,343 9,100
Related party notes receivable 164 164
Inventories 24,459 26,493
Prepaid expenses 911 2,147
Deferred tax assets 3,185 2,889
------- -------
Total current assets 60,725 73,674
Property and equipment, net 1,409 1,166
Capitalized software costs, net 1,204 940
Other assets 244 251
------- -------
Total assets $63,582 $76,031
======= =======
Current liabilities:
Revolving line of credit $ 9,603 $ 8,733
Current portion of note payable - 19
Accounts payable 17,923 30,365
Accrued expenses and other current
liabilities 1,476 1,952
Current portion of capital lease
obligations 97 100
------- -------
Total current liabilities 29,099 41,169
Capital lease obligations 46 67
Deferred taxes 280 280
Stockholders' equity:
Preferred Stock, $.01 par value;
5,000,000 shares
authorized; no shares issued or
outstanding - -
Common Stock, $.01 par value;
20,000,000 shares authorized;
8,939,781 shares issued and
outstanding at March 30, 1996;
8,757,781 shares issued and
outstanding at December 30, 1995 89 88
Additional paid-in capital 35,512 35,301
Accumulated deficit (1,444) (874)
------- -------
Total stockholders' equity 34,157 34,515
------- -------
Total liabilities and
stockholders' equity $63,582 $76,031
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Net Sales $32,035 $25,704
Cost of sales 27,470 20,972
------- -------
Gross profit 4,565 4,732
Operating expenses:
Selling, general, and
administrative 4,367 2,755
Research and development 984 706
------- -------
Total operating expenses 5,351 3,461
Income (loss) from operations (786) 1,271
Other expense (income):
Interest expense 204 190
Other expense (income) (124) (130)
------- -------
Income (loss) before income taxes (866) 1,211
Provision (benefit) for income taxes (296) 460
------- -------
Net income (loss) $ (570) $ 751
======= =======
Net income (loss) per common
and common equivalent share $(0.06) $0.10
======= =======
Weighted average number of
common and common equivalent
shares outstanding 8,832 7,485
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (570) $ 751
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 166 117
Amortization of capitalized
software costs 150 82
Provision for bad debts (99) 121
Deferred taxes (296) -
Change in operating assets and
liabilities:
Accounts receivable 7,223 752
Receivable due from
manufacturing contractor 1,757 -
Inventories 2,034 328
Prepaids and other assets 1,243 (672)
Accounts payable (12,442) (819)
Accrued expenses and other
current liabilities (348) (26)
Income taxes payable - 310
-------- -------
Net cash provided by (used
for) operating activities (1,182) 944
Cash flows from investing activities:
Purchase of property and equipment (409) (263)
Capitalized software costs (414) (146)
-------- -------
Net cash used for investing
activities (823) (409)
Cash flows from financing activities:
Proceeds from exercise of common
stock options 84 -
Proceeds (payments) from revolving
line of credit, net 870 (1,330)
Principal payments on note payable (19) (24)
Principal payments on capital
lease obligations (24) (25)
Proceeds from receipt of principal
on related party notes
receivable, net - 35
-------- -------
Net cash provided by (used
for) financing activities 911 (1,344)
-------- -------
Net change in cash and cash equivalents (1,094) (809)
Cash and cash equivalents, beginning
of period 5,235 3,057
-------- -------
Cash and cash equivalents, end of
period $ 4,141 $ 2,248
======== =======
Supplemental disclosures of cash flow
information:
Interest paid: $ 5 $ 192
Income taxes paid: $ - $ 150
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
----------------------
The accompanying condensed unaudited consolidated financial statements
have been prepared by Number Nine Visual Technology Corporation (the "Company")
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the applicable rules and regulations of
the Securities and Exchange Commission. The condensed unaudited consolidated
financial statements include the accounts of the Company, its foreign sales
corporation and its wholly-owned German subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation. In the opinion
of management, the accompanying financial statements contain all adjustments
(consisting of normal and recurring accruals) necessary to present fairly all
financial statements. The financial statements herein should be read in
conjunction with the Company's consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for its fiscal
year ended December 30, 1995. Operating results for the three month period ended
March 30, 1996 may not necessarily be indicative of the results to be expected
for any other interim period or for the full year.
In 1995, the Company began operating under a 52-53 week fiscal year with
thirteen week quarters that end on the Saturday closest to the calendar quarter
end. Prior to 1995, the Company operated on a calendar quarter end.
B. Cash and Cash Equivalents:
--------------------------
As of March 30, 1996, included in cash and cash equivalents is
approximately $4.1 million invested in money market mutual funds comprised of
obligations which are issued or guaranteed as to principal and interest by the
U.S. government and thus constitute direct obligations of the United States of
America with a dollar-weighted average maturity of 90 days or less.
C. Inventories:
------------
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
March 30, 1996 December 30, 1995
-------------- -----------------
<S> <C> <C>
Raw materials $13,043 $12,485
Work in process 8,405 11,418
Finished goods 3,111 2,590
------- -------
$24,459 $26,493
======= =======
</TABLE>
The market for the Company's products is characterized by rapid
technological advances, frequent new product life cycles, product obsolescence,
changes in customer requirements, evolving industry standards, significant
competition and rapidly changing prices.
The Company had outstanding at March 30, 1996 a $7.3 million receivable due
from a manufacturing contractor, related to components sold by the Company to
the contractor for assembly into finished goods.
6
<PAGE>
D. Debt:
-----
The Company is party to an amended loan and security agreement with a
commercial bank providing for a revolving credit facility of $15 million.
The agreement contains financial covenants including, but not limited to, a
minimum current ratio, minimum tangible net worth, a maximum debt to tangible
net worth ratio, and minimum quarterly net loss. The agreement also gives the
lender the right to call the loan in the event of a material adverse change in
the Company's business and prohibits the Company from paying dividends without
the consent of the lender. The Company was in compliance with all financial
covenants under the agreement at March 30, 1996.
Pursuant to this agreement, the Company may borrow an amount equal to 75%
of qualified accounts receivable (as defined) up to the maximum amount at an
interest rate per annum equal to either the prime rate (8.5% as of March 30,
1996) plus 1% or at the Libor Rate (as defined) plus 2.5%, plus an unused line
fee at a rate of 0.5% per annum on the unused portion of the maximum borrowing
amount. The agreement expires on December 2, 1998 and is renewable on a yearly
basis thereafter. The loan balance is collateralized by substantially all of the
Company's assets, except for certain fixed assets subordinated to the Company's
long-term debt agreement. Also, pursuant to the agreement, the Company has
unused letters of credit pursuant to this agreement of approximately $1.15
million at March 30, 1996.
E. Stockholders' Equity:
---------------------
All share and per share data in the accompanying consolidated financial
statements reflect the 8-for-1 Common Stock split on April 5, 1995, the
reclassification of the Company's Class A and Class B Common stock into shares
of Common Stock on May 25, 1995 and the conversion of Series A Redeemable
Convertible Preferred Stock into Common Stock on June 2, 1995.
F. Income Taxes:
-------------
Realization of approximately $1.9 million of the net deferred tax asset is
dependent on generating sufficient taxable income in future periods. The amount
of this net deferred tax asset considered realizable, however, could be reduced
in the near term if estimates of future taxable income are reduced. Although
realization is not assured, management believes it is more likely than not that
the majority of the deferred tax asset will be realized. The Company has
recorded a valuation allowance of approximately $1.7 million, of which $1.2
million will be recorded as a credit to additional paid-in capital upon
realization or release of the valuation allowance.
G. Contingencies:
--------------
The Company is involved in a dispute with one of its sub-contractors with
respect to its commitment, if any, to purchase a quantity of DRAM memory chips
at prices significantly above current price levels. The Company is attempting
to resolve the dispute but at this time cannot predict the ultimate outcome or
financial exposure related to the situation. If the dispute is not resolved
satisfactorily for the Company, there could be a material adverse effect on
future financial position and results of operations and, accordingly, income
(loss).
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since its founding in 1982, Number Nine has introduced successive
generations of video/graphics subsystems providing advanced video/graphics
performance in desktop PCs. The Company has focused on providing a broad line of
high-performance hardware and software video/graphics solutions, targeting both
OEM and two-tier and retail distribution customers. The Company's 128-bit
proprietary Imagine 128 accelerator is recognized as one of the highest
performance graphics products available to the desktop PC market, and the
Company has begun shipping its second generation Imagine 128 accelerator based
on the Company's proprietary Imagine 128 Series 2 chip. This next-generation
accelerator chip is designed to increase 2-D graphics performance while
incorporating video acceleration, 3-D graphics and an architecture that enables
both VRAM and DRAM frame buffer implementations. The Company also introduced
HawkEye95, an upgraded version of its proprietary display control utilities and
driver software suite, which enhances user control over various graphics
functions and improves PC system graphics performance under Windows95. In
addition, the Company has begun to ship or has announced the introduction of
several new video/graphics products, including an Imagine 128 accelerator board
for Apple PowerMac PCI computers, 3-D products targeted at the desktop PC games
market, and next-generation merchant-silicon-based products in its Vision,
Motion, Media and Reality product families. During 1996, the Company currently
plans to market several different products with 3-D capabilities and anticipates
that most of its products will also incorporate motion video acceleration.
The Company's past operating results have been, and its future operating
results will continue to be, subject to fluctuations from quarter to quarter due
to a variety of factors, including: the gain or loss of significant customers;
changes in the mix of products sold and in the mix of sales by distribution
channels; the Company's ability to introduce new technologies and products on a
timely basis; availability and timing of component shipments and cost of
components obtained from the Company's suppliers; availability and cost of
manufacturing and foundry capacity; new product introductions by the Company's
competitors; delays in related product introductions by others; market
acceptance of the Company's products; product returns or price protection
charges from customers; reductions in sales of older generation products as
customers anticipate new products, giving rise to charges for obsolete or excess
inventory; and changes in product prices by the Company, its competitors and
suppliers, including possible decreases in unit average selling prices of the
Company's products caused by competitive pressures. In particular, in the fourth
quarter of 1995, the Company incurred a charge of approximately $8.0 million as
a result of obsolete and excess finished goods and component inventory. A
majority of these charges related to VL-bus product transition and excess
printed circuit boards which are not expected to generate substantial sales in
1996. Operating results can also be adversely affected by general economic and
other conditions affecting the timing of customer orders, a downturn in the
market for PCs, and order cancellations or rescheduling. The Company's sales to
original equipment manufacturers ("OEMs"), which accounted for 59.4% of net
sales during the first three months of 1996, 52.8% of net sales in 1995 and
60.3% of net sales during the first three months of 1995, are particularly
susceptible to fluctuations.
The Company's sales to OEMs typically generate lower gross margins than
retail and distributor sales, but also generally entail lower marketing, sales
and product support costs. The Company's net sales, gross margins and profits
have in the past, and may in the future, vary significantly depending on the
proportion of is sales to OEMs and other distribution channels, as well as the
mix of products sold in each channel. The Company's sales of merchant-based
technology products are typically at a significantly lower margin than the sales
of its proprietary technology products. The gross margin on all of the Company's
products is significantly impacted by costs of components, particularly memory
costs, which have varied widely over the past several years.
8
<PAGE>
Results of Operations for the Quarters Ended March 30, 1996 and April 1, 1995
Net Sales: Net sales increased 24.5%, to $32.0 million in the first quarter
of 1996 from $25.7 million in the first quarter of 1995. This increase was
attributable to increased sales of higher-end VRAM products. Net sales of
higher-end VRAM products, 64-bit and 128-bit, increased 50% to $21.7 million
in the first quarter of 1996 from $14.5 million in the first quarter of 1995,
representing 67.8% of net sales in the first quarter of 1996 compared to 56.4%
of net sales in the first quarter of 1995. Sales to OEMs increased 23%, to
approximately $19.0 million in the first quarter of 1996 from $15.5 million in
the first quarter of 1995, representing 59.4% of net sales in the first quarter
of 1996 compared to 60.3% in the first quarter of 1995. The increase in OEM
sales was a result of increased sales to Unisys Corporation and the addition of
Micron Electronics, Inc. as an OEM customer. Sales to Dell Computer Corporation
represented 46.0% of net sales in the first quarter of 1996 compared to 55.7% of
net sales in the first quarter of 1995. Net sales to international two-tier
distribution customers increased 47% to $4.4 million in the first quarter of
1996 from $3.0 million in the first quarter of 1995. Total international sales
increased 19% to $7.6 million in the first quarter of 1995 from $6.4 million in
the first quarter of 1995.
Gross Profit: Gross profit decreased 2%, to $4.6 million in the first
quarter of 1996 from $4.7 million in the first quarter of 1995. The Company's
gross profit margin decreased to 14.3% in the first quarter of 1996 from 18.4%
in the first quarter of 1995, due primarily to higher proportions of sales of
excess finished goods and use of higher cost component inventories, particularly
memory. As the Company still has higher cost component inventories, the Company
is unlikely to be able to improve its gross margins on the products which
utilize these components for some time.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased 57%, to $4.4 million in the first quarter of
1996 from $2.8 million in the first quarter of 1995, primarily as a result of
increased sales and marketing costs to support growth in the Company's two-tier
and retail distribution channel sales, including personnel, advertising and
channel promotion activities. In addition, the Company has increased staffing
and related expenses in its customer support and administrative departments, and
also incurred costs related to being a public company. As a percentage of net
sales, selling, general and administrative expenses increased to 13.8% in the
first quarter of 1996 from 10.9% in the first quarter of 1995, primarily
attributable to increased expenses and lower-than-expected sales in the recent
quarter.
Research and Development Expenses: Research and development expenses
increased 43%, to $1.0 million in the first quarter of 1996 from $0.7 million in
the first quarter of 1995, resulting primarily from increased staffing to
support continued development of both proprietary and merchant-based
video/graphics products. During the first quarter of 1996, the Company began the
development of its next-generation Imagine 128 Series 3 chip, released to
production products based on the Imagine 128 Series 2 chip and substantially
completed development of its 9FX Reality 332 product based on S3's Virge chip.
As a percentage of net sales, research and development expenses increased to
3.1% in the first quarter of 1996 from 2.7% in the first quarter of 1995.
Interest Expense/Income: Interest expense for the first quarter of 1996
was $204,000 compared to interest expense of $190,000 in the first quarter of
1995.
Other Expense/Income: Other income totaled $124,000 in the first quarter
of 1996 compared to other income of $130,000 in the first quarter of 1995.
Other income during the first quarter of 1996 was primarily attributable to
interest earned on cash and cash equivalents, other income during the first
quarter of 1995 was primarily attributable to foreign currency gains.
Provision for Income Taxes: The Company has provided an income tax benefit
in the amount of $296,000 for the first quarter of 1996 which the Company
expects to recover in future tax returns based on future taxable income.
9
<PAGE>
Certain Factors That May Affect Future Results of Operations
This report contains forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. The Company cautions investors
that there can be no assurance that actual results or business conditions will
not differ materially from those projected or suggested in such forward-looking
statements as a result of various factors, including, but not limited to the
following:
The Company is dependent on sole or limited source suppliers for certain
key components and in 1995 experienced limited availability, delays in shipments
and unanticipated cost fluctuations related to the supply of memory components,
both DRAM and VRAM. The Company is actively working with memory component
suppliers to secure pricing and volume commitments for future production.
However, there can be no assurance that commitments will be secured in
sufficient amounts to meet the increasing needs of the Company or at prices
that will enable the Company to maintain current gross margin rates. The Company
currently has inventories of components obtained at costs in excess of recent
market costs, particularly memory, the price of which has dropped significantly
in recent months. The Company is involved in a dispute with one of its sub-
contractors with respect to its commitment, if any, to purchase a quantity of
DRAM memory chips at prices significantly above current price levels. The
Company is attempting to resolve the dispute but at this time cannot predict the
ultimate outcome or financial exposure related to the situation. If the dispute
is not resolved satisfactorily for the Company, there could be a material
adverse effect on future gross margin performance, and accordingly, income
(loss).
The PC industry in general, and the market for the Company's products in
particular, are characterized by rapid technological advances, frequent new
product introductions, short product life cycles, product obsolescence, changes
in customer requirements, evolving industry standards significant competition,
and rapidly changing pricing. In this regard, the life cycle of products in the
Company's markets can be as short as six to twelve months. Therefore, the
Company's future prospects will depend in part on its ability to enhance the
functionality of its existing products in a timely manner and to continue to
identify, develop and achieve market acceptance of products that incorporate new
technologies and standards and meet evolving customer needs. There can be no
assurance that the Company will be successful in managing product transitions,
including controlling inventory of older generation products as new products are
introduced. The Company could experience reductions in sales of older generation
products as customers anticipate new products. While the Company reserves for
anticipated returns based upon historical rates of product returns and other
factors, there can be no assurance that reductions in sales and returns of older
generation products by distributors, which are primarily attributable to
customer stock rotation, will not give rise to anticipated charges for obsolete
or excess inventory or substantial price protection charges.
The volume and timing of orders received during a particular quarter are
very difficult to forecast. The Company's customers can change delivery
schedules or cancel orders with limited or no penalties. Customers generally
order on an as-needed basis, and as a result, the Company has historically
operated without significant backlog. Moreover, as is often the case in the PC
industry, a disproportionate percentage of the Company's net sales in any
quarter may be generated in the final month or weeks of a quarter. Consequently,
a shortfall in sales in any quarter as compared to management expectations may
not be identifiable until the end of the quarter. Because a significant portion
of operating expense levels are relatively fixed, the timing of increases in
expense levels is based in large part on the Company's expectations of future
sales. As a result, if sales do not meet the Company's expectations, it may be
unable to quickly adjust spending, which could have a material adverse effect on
the Company's operating results.
Due primarily to industry seasonality, demand for the Company's products
historically has been strongest during the fourth calendar quarter, and sales in
the subsequent calendar quarter have tended to decline. Net sales decreased
12.2% in the first quarter of 1996 from the fourth quarter of 1995 and 8.7% in
the first quarter of 1995 from the fourth quarter of 1994, although period-to-
period comparisons of financial results should not be relied upon as an
indication of future performance. Quarterly peaks in sales also tend to coincide
with peak working capital requirements.
10
<PAGE>
Liquidity and Capital Resources
Several factors in the development of the Company's business during 1995
and the first quarter of 1996 have had a significant impact on its balance sheet
and cash flows. The Company experienced a significantly higher than expected
proportion of sales to two-tier and retail distribution channel customers. These
customers tend to order toward the end of each quarter and to pay more slowly
than OEM customers. In addition, the Company's manufacturing strategy has
focused on purchasing a higher proportion of components directly from
manufacturers, which reduces component costs but requires longer-term
commitments and faster payment compared to distributor suppliers. Finally, the
increased cost of memory components has resulted in lower gross and operating
margins, and limited availability has required the use of cash when necessary to
secure supplies of memory. During the fourth quarter of 1995, the Company
recorded a charge of $8.0 million to cost of sales associated with obsolete and
excess inventory. The Company determined that the market value for this material
was substantially less than the cost to procure and build, and the Company has
written down the components to estimated net realizable value less selling
costs. In combination, these factors have resulted in the Company requiring more
working capital and generating less cash flow from operations than anticipated.
The Company's operating activities used cash of $1.2 million during the
first three months of 1996, compared to operating activities which provided cash
of $944,000 during the first three months of 1995. During the first three months
of 1996, net decreases in accounts receivable, receivable due from a
manufacturing contractor, and inventories provided cash of $7.2 million, $1.8
million and $2.0 million, respectively, which was offset by a decrease of $12.4
million in accounts payable. Decreases in accounts receivable have primarily
been attributable to the collection of receivables owed from two-tier and retail
distribution sales. As a result, days sales outstanding decreased to 58 days at
the end of the first quarter 1996 from 68 days at the end of the fourth quarter
1995. The Company believes it can operate with lower levels of working capital
relative to net sales and has committed additional resources to the management
and control of its receivables and inventories. At March 30, 1996, the Company's
principal sources of liquidity consisted of $4.1 million of cash and cash
equivalents and approximately $5.4 million available under its revolving line of
credit.
During the first three months of 1996, investing activities used cash of
approximately $409,000 for purchases of computer and office equipment and
$414,000 for capitalized software development costs compared to $263,000 and
$146,000 during the first three months of 1995, respectively. Financing
activities provided cash of $1.0 million during the first three months of 1996,
primarily attributable to balances on the Company's revolving line of credit
which increased $870,000 during the first three months of 1996. During the
first three months of 1995, financing activity used cash of $1.3 million,
attributable to payments made on the Company's revolving line of credit.
As of March 30, 1996 $9.6 million was outstanding under the Company's
revolving credit facility. The agreement contains financial covenants including,
but not limited to, a minimum current ratio, minimum tangible net worth, a
maximum debt to tangible net worth ratio, and minimum quarterly net loss. The
agreement also gives the lender the right to call the loan in the event of a
material adverse change in the Company's business and prohibits the Company from
paying dividends without the consent of the lender. The Company was in
compliance with all financial covenants under the agreement at March 30, 1996.
The Company believes that its existing cash balances plus additional funds
currently expected to be generated from product sales and available bank debt
are sufficient to fund operations at current levels through 1996. However,
future growth in sales, for example the addition of another significant OEM
customer, and/or continued increases in working capital required by the
Company's business could result in the need for the Company to seek additional
equity or debt financing. No assurances can be given that these funds will be
available to the Company on acceptable terms, if at all. In addition, because of
the Company's need for funds to support future operations, it may seek to obtain
funds when conditions are favorable, even if it does not have an immediate need
for additional capital at such time.
11
<PAGE>
Part II. Other Information:
- - ----------------------------
Item 1 - Legal Proceedings
The Company currently is not a party to any legal proceedings, the adverse
outcome of which, individually or in the aggregate, management believes would
have a material adverse effect on the financial position or results of
operations of the Company.
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
The following is a list of exhibits filed as part of this Quarterly Report
on Form 10-Q.
Exhibit
Number Description
------- -----------
11 Statement Regarding Computation of Net Income(Loss)
per Share
27 Financial Data Schedule
- - ----------------------------------------------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarterly period ended
March 30, 1996.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
Date: May 14, 1996 /s/ Andrew Najda .
-------------------------------------------
Andrew Najda
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1996 /s/ Daniel W. Muehl .
-------------------------------------------
Daniel W. Muehl
Corporate Controller and Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibits Page
- - -------------- ----------------------- ----
11 Statement Regarding Computation of
Net Income (Loss) per Share 15
27 Financial Data Schedule
14
<PAGE>
Exhibit 11
NUMBER NINE VISUAL TECHNOLOGY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)(2)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Ended
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Historical
Common Stock Outstanding, beginning of the period 8,758 5,490
Weighted average cheap stock - 688
Weighted average redeemable common stock - 814
Weighted average number of common stock issued 74 -
Weighted average of common stock equivalents - 510
Less: assumed purchase of treasury shares - (17)
------ ------
Weighted average number of common and
common equivalent shares outstanding 8,832 7,485
====== ======
Net income (loss) $ (570) $ 751
====== ======
Net income (loss) per share $(0.06) $0.10
</TABLE>
(1) Primary and fully diluted calculation are substantially the same
(2) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, issuances of common stock and common stock
equivalents, within the one year prior to the initial filing of the
Company's registration statement, at share prices below the assumed
mid-point of the initial public offering price of $11.00 per share,
are considered to have been made in anticipation of the Company's
public offering. Accordingly, these stock issuances are treated as if
issued and outstanding, using the treasury stock method, since the
inception of the Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000936448
<NAME> NUMBER NINE VISUAL TECHNOLOGY CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 4,141
<SECURITIES> 0
<RECEIVABLES> 28,029
<ALLOWANCES> 510
<INVENTORY> 24,459
<CURRENT-ASSETS> 4,096
<PP&E> 1,409
<DEPRECIATION> 0
<TOTAL-ASSETS> 63,582
<CURRENT-LIABILITIES> 29,099
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 34,068
<TOTAL-LIABILITY-AND-EQUITY> 63,582
<SALES> 32,035
<TOTAL-REVENUES> 32,035
<CGS> 27,470
<TOTAL-COSTS> 32,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> (866)
<INCOME-TAX> (296)
<INCOME-CONTINUING> (296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (570)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
