UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-11552
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Televideo, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-2383795
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2345 Harris Way, San Jose, California 95131
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(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 954-8333
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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 No X
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The number of shares outstanding of registrant's Common Stock, as of May 31,
2001 is 11,307,000.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for TeleVideo Inc. (the "Company") for
the second quarter ended April 30, 2001, includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. All statements, other
than statements of historical facts, included in this report that address
activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future, including, but not limited to, such
matters as future product development, business development, marketing
arrangements, future revenues from contracts, business strategies, expansion and
growth of the Company's operations and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, general economic and business conditions, the business opportunities (or
lack thereof) that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond control of the
Company. Prospective investors are cautioned that any such statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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TELEVIDEO, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
April 30, October 31,
ASSETS 2001 2000
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(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 347 $ 3,261
Accounts receivable, net 1,054 1,560
Inventories, net 3,045 1,239
Marketable Securities 398 1,259
Prepayments and other 263 761
Notes receivable - current 73 73
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Total current assets 5,180 8,153
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PROPERTY, PLANT AND EQUIPMENT:
Production equipment 671 669
Office furniture and equipment 1,140 1,128
Leased property under capital lease 6,270 6,270
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8,081 8,067
Less accumulated depreciation 2,627 2,401
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Property, plant and equipment, net 5,454 5,666
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OTHER ASSETS 0 166
INVESTMENTS IN AFFILIATES 5,105 6,807
NOTE RECEIVABLE, LESS CURRENT PORTION 2,521 2,557
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Total assets $ 18,260 $ 23,349
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Obligation under capital lease - current $ 296 $ 296
Accounts payable 1,210 808
Accrued liabilities 1,198 1,238
Income taxes (334) 85
Deferred gain on sale of land and building -
current 845 845
Deferred gain on sale to Ningbo 1,280
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Total current liabilities 4,495 3,272
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Obligation under capital lease - long-term 5,516 5,516
Deferred gain on sale of land and building -
long-term 5,963 6,245
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Total liabilities 15,974 15,033
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized--75,000,000 shares
Outstanding--11,307,000 shares at
May 31, 2001 and 11,307,000 shares
at October 31, 2000 454 454
Additional paid-in capital 95,734 95,734
Accumulated other comprehensive income, net (4,876) 1,153
Accumulated deficit (89,026) (89,025)
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Total stockholders' equity 2,286 8,316
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Total liabilities and stockholders'
equity $ 18,260 $ 23,349
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The accompanying notes are an integral part of these financial statements.
TELEVIDEO, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2001 AND APRIL 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
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2001 2000 2001 2000
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NET SALES $ 1,441 $ 1,696 $ 2,979 $ 3,217
COST OF SALES 1,523 1,604 2,941 3,008
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GROSS PROFIT (81) 92 38 209
OPERATING EXPENSES:
Sales and marketing 844 799 1,413 1,451
Research and development 307 253 531 474
General and administration 540 571 867 1,034
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Total operating expenses 1,691 1,623 2,811 2,959
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Loss from operations (1,772) (1,531) (2,773) (2,750)
INTEREST INCOME, net 45 130 108 219
OTHER INCOME, net 397 127 678 296
GAIN FROM SALE OF SECURITIES 74 1,535 240 1,535
SUBSIDIARY EQUITY LOSS (729) 0 (729) 0
UNREALIZED LOSS ON SECURITIES (3,053) 0 (3,053) 0
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Net (loss) income $(5,038) $ 261 $(5,529) $ (700)
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Net loss per share, basic and diluted $ (.45) $ .02 $ (.49) $ (.06)
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Weighted average shares outstanding 11,307 11,451 11,307 11,293
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The accompanying notes are an integral part of these financial statements.
TELEVIDEO, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED APRIL 30, 2001 AND APRIL 30, 2000
(IN THOUSANDS)
(Unaudited)
Six Months Ended
April 30,
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2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES:
Net cash used in operating activities $ (2,892) $ (1,543)
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CASH FLOW FROM INVESTING ACTIVITIES:
Net proceeds from sale of land and building - -
Net additions to property, plant and equipment - (19)
Net cash (used in) investments (2,000) (1,000)
Deferred gain from Ningbo China 1,280 --
Proceeds from sales of CNET stock 87 1,668
Note receivable 36 (39)
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Net cash (used in) provided by
investing activities (597) 688
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 32
Loans 575 -
Payments on lease obligations - (130)
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Net cash provided by (used in)
financing activities 575 (98)
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(DECREASE) IN CASH AND CASH EQUIVALENTS (2,914) (953)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 3,261 4,487
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CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 347 $ 3,534
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Non cash investing/financing activities:
In February 2001, the Company borrowed approximately $375,000 from Salomon
Smith Barney, a member of Citigroup, money used for regular operations expenses.
This loan was secured with the 39,508 Company's CNET shares of stock. In April
2001, due to the decrease in stock price, the Company was requested to pay off a
portion of the loan and, consequently, we sold approximately 7,000 of shares of
CNET stock.
Because the stock price decreased again, we were required to pay off
another portion of this loan. The Company decided not to sell shares, and we
loaned approximately $200,000 from Gem Management, Inc., a company owned by the
majority shareholder's spouse. The unsecured loan bears annual interest at a
prime rate with principal and interest due when the Company will receive the
next payment of $450,000 from the contract with Ningbo China.
In December 1998, the Company sold its main facility (land and building)
for approximately $11.0 million and concurrently leased back this facility over
a 15 year lease term expiring in December 2013. The land component has been
recorded as an operating leaseback. The building element has been accounted for
as a capital lease, whereby a leased building asset and capital lease obligation
were recorded at the fair value of approximately $6.27 million. As a result of
the sale for $11.0 million (which includes a $2.75 million note receivable) a
deferred gain of approximately $8.0 million was recorded. The deferred gain
attributable to the land element, which approximates $3.44 million, is being
amortized over the 15 year lease life on a straight line method. The deferred
gain attributable to the building element, which approximates $4.56 million, is
being amortized over leased building asset life, which has been determined to be
the 15 year lease term, on a straight line method.
The $2.75 million note receivable bears interest at 7.25% per annum.
Principal and accrued interest is payable in equal monthly installments of
$21,735 each on the first day of each month commencing on January 1, 1999. If
not earlier paid in full, any unpaid principal and all accrued interest is due
and payable to TeleVideo, Inc. on December 1, 2013.
The accompanying notes are an integral part of these financial statements.
TELEVIDEO, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. The information at
April 30, 2001 and for the six months ended April 30, 2001 and 2000 include all
adjustments that the management of the company believes are necessary for fair
presentation for the results of the periods presented.
Results for any interim period are not necessarily indicative of results
for any future interim period or for the entire year. The accompanying financial
statements and notes thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-K.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries, after elimination of inter-company
accounts and transactions. All of the Company's unconsolidated affiliates are
accounted for using the equity or the cost method.
USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs are computed
on a currently adjusted standard basis (which approximates average cost) or both
finished goods and work-in-process and includes material, labor and
manufacturing overhead costs. The cost of purchased parts is determined on a
first-in, first-out basis. Amounts shown are net of reserves for obsolescence of
$0.5 million at both April 30, 2001 and October 31, 2000, respectively:
April 30, October 31,
2001 2000
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Purchased parts and subassemblies $ 111 $ 98
Work-in-process 192 314
Finished goods 2,742 827
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$ 3,045 $ 1,239
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PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful lives
of the assets using both straight line and accelerated methods.
Production equipment 1-10 years
Office furniture 1-10 years
Leased property 15 years
LOSS PER SHARE
Loss per share is based on the weighted average number of shares of common
stock outstanding during each period. Diluted earnings per share is computed
using the weighted average number of common and common equivalent shares
outstanding during the period.
RECLASSIFICATIONS
Certain reclassifications have been made to conform to the 2001
presentation. None of such reclassifications are material to the financial
statements taken as a whole.
2. ACQUISITIONS AND DIVESTITURES
EQUITY METHOD
Applied Photonics Technology, Inc.
On April 16, 1997, the Company entered into a Common Stock Purchase
Agreement with Applied Photonics Technology, Inc. (APT), a California
corporation, whereby the Company purchased a 30% interest in APT for $3.0
million.
During the fiscal year ended October 31, 1998, the Company wrote off its
equity investment, related goodwill, and note receivable of approximately
$4.1 million. During 1999, the Company granted and wrote off loans and
advances to APT totaling $426,000. The Company has not guaranteed any
obligations of APT and has made no commitments to provide additional
financial support to APT.
Mulix, Inc.
On February 2000, the Company purchased for $1,000,000 in cash an aggregate
of 14,269,230 shares of unregistered Series A Convertible Preferred Stock of
Mulix, Inc., a Delaware corporation. The Company's investment in Mulix
represents a 35% interest in this privately held corporation. The investment is
accounted for on the equity method of accounting.
Mulix was dissolved effective November 30, 2000. Thus, the entire
investment was written off as of October 31, 2000.
K&T Telecom, Inc.
In July 2000, the Company purchased for $600,000 in cash an aggregate of
9,608 shares of stock of K&T Telecom, Inc, a Korean company. Its main activity
is manufacturing telecommunication and electronics devices, including hands-free
accessories and collision sensors. The Company's investment in K&T Telecom, Inc.
represents a 49% interest in this privately held corporation. The investment is
accounted for on the equity method of accounting.
If K&T Telecom, Inc. subsequently increases its capital, TeleVideo will be
given the opportunity to participate in the stock issuance in order to maintain
the percentage of stock currently held by TeleVideo.
During the second quarter of fiscal 2001, due to the change in financial
position of K&T Telecom, the Company adjusted the carrying value of this
investment on the financial statements from $600,000 to $296,168.
Also, the Company is considering the possibility to withdraw from this
joint venture in the next period.
Alpha Technology, Inc.
In August 2000, the Company purchased for $650,000 in cash an aggregate of
9,608 shares of stock of Alpha Technology, Inc. Alpha Technology, Inc. is a
Korean company manufacturing electronic and car accessories, including two way
car alarm systems. The Company's investment in Alpha Technology, Inc. represents
a 49% interest in this privately held corporation. The investment is accounted
for on the equity method of accounting.
TeleVideo has the right to participate in future sales of Alpha Technology,
Inc. securities to maintain its proportionate interest in this company. If Alpha
Technology, Inc. increases its capital thereafter, TeleVideo will be given the
opportunity to participate in the stock issuance in order to maintain the
percentage of stock currently held by TeleVideo.
During the second quarter of fiscal 2001, due to the change in financial
position of Alpha Technology, the Company adjusted the carrying value of this
investment on the financial statements from $600,000 to $222,261.
Also, the Company is considering the possibility to withdraw from this
joint venture in the next period.
COST METHOD
mySimon, Inc.
In September 1998, the Company invested $1 million in the online comparison
shopping Internet company, mySimon, Inc., receiving convertible preferred stock.
On February 29, 2000, CNET Networks, Inc. (formerly, CNET, Inc. or CNET)
completed the acquisition of mySimon, Inc. As a result of this acquisition,
the Company received 375,108 shares of common stock of CNET in exchange for
100% of its interest in mySimon, Inc. During the same period of time, the
Company also adjusted its balance sheet to reflect the conversion to a
marketable security. The cost method used to book the investment in mySimon
was changed to market value method in accordance with SFAS 115 to record the
investment in CNET stock.
During the fiscal year 2000, the Company recognized gains from the sales
of CNet stocks of $10.1 million. On June 1st, 2001, the Company owned
approximately 32,500 shares of CNET common stock and the market value was
approximately $11.13 per share.
Koram, Inc.
In February 1998, the Company purchased a 50% interest in Koram, Inc, a
Korean restaurant venture. This investment was accounted for under the equity
method of accounting. During 2000, the Company decided to discontinue its
participation in this joint venture. The Company's venture partner agreed to
transfer the funds for its participation into the TeleVideo account when the
exchange rate for the Korean Won and US Dollar will be the most advantageous. As
such, the Company accounts for this investment under the cost method of
accounting.
In April 2001, the Company has withdrawn from this joint venture and,
consequently, we received approximately 120,000,000 Korean Won. The money were
deposited into a bank in Korea, following to be converted in US dollars when the
exchange rate will be more advantageous.
Also, the Company wrote off $30,780 representing the difference between
the original investment in amount of $116,817 and the proceeds from
withdrawing in amount of $86,037.
Biomax Co, Ltd.
On May 12, 2000, the Company purchased for a cash investment of $917,431 an
aggregate of 45,000 ordinary shares of Biomax Co., Ltd. (Biomax). Biomax is a
startup company, with its principal offices located in Seoul, Korea, engaged in
developing an herbal product to help lower cholesterol levels in humans. Its
existing technology was developed by and obtained from the Korea Research
Institute of Bioscience and Biotechnology. The Company's investment in Biomax
represents a 15% interest in this privately held corporation. The investment is
accounted for on the cost method of accounting.
The agreement gives the Company the right to nominate one member to the
Biomax Board of Directors. Dr. K. Philip Hwang, the Company's Chairman of the
Board and Chief Executive Officer, was nominated and elected to the Biomax
board.
The Company has the right to participate in future sales of Biomax
securities to maintain its proportionate interest in Biomax. In the event the
Company wants to sell all or a portion of its shares, it has given Biomax and
Biomax's President, who is its controlling shareholder, a right of first refusal
to purchase the shares. The controlling shareholder also must obtain the
Company's prior written consent in order to sell over 10% of Biomax.
Biomax also agreed to discuss with the Company certain specified kinds of
events and transactions that could materially impact Biomax's business, capital
structure and financial condition. The agreement further prohibits
Biomax from sharing its technology with third parties or assisting with research
and development efforts of third parties without the prior written consent of
the Company, other than in the normal course of business, and further prohibits
the controlling shareholder from engaging in businesses that could compete with
Biomax. The restrictions and promises in the agreement will terminate at such
time as the Company has sold at least 70% of the shares it acquired under the
agreement.
During the second quarter of fiscal 2001, due to the change in financial
position of Biomax, the Company adjusted the carrying value of this investment
on the financial statements from $917,431 to $109,781.
Keyin Telecom Co. Ltd.
On May 12, 2000, the Company purchased for $2,522,972 an aggregate of
15,278 ordinary shares of Keyin Telecom Co. Ltd. (Keyin). Keyin is a private
company located in Seoul, Korea, engaged in developing power line technology for
electricity transportation. The Company's investment in Keyin represents a 5.75%
interest in this corporation. The investment is accounted for on the cost method
of accounting.
The Company has the right to participate in future sales of Keyin
securities to maintain its proportionate interest in Keyin. In the event the
Company wants to sell all or a portion of its shares, it has given Keyin and its
controlling shareholder, who is also its President and Chief Executive Officer,
a right of first refusal to purchase the shares.
Keyin also agreed to keep the Company expressly advised regarding certain
specified events and transactions that could materially impact Keyin's business,
capital structure and financial condition. Keyin has agreed that it will not
transfer its power line communications (PLC) technology to a third party without
the prior written consent of the Company, except in the context of a strategic
technology transfer agreement approved by the Keyin Board. The restrictions and
promises in the agreement will terminate at such time when the Company sells at
least 70% of the shares it acquired under the agreement.
The investment agreement also contemplates that TeleVideo will participate
in a strategic alliance with Keyin under the terms of which TeleVideo will
support Keyin in its overseas marketing and sales activities related to Keyin's
PLC technology. In addition, TeleVideo and Keyin will cooperate to incorporate
Keyin's PLC technology into TeleVideo's computer products, including the
TeleCLIENT series. The parties contemplate entering into a separate sales and
marketing agreement to fully document the terms and conditions of the strategic
relationship.
During the second quarter of fiscal 2001, due to the change in financial
position of Keyin, the Company adjusted the carrying value of this investment on
the financial statements from $2,522,972 to $277,058.
Synertek, Inc.
In June 2000, the Company purchased for $1,000,000 in cash an aggregate of
285,714 shares of common stock of Synertek, Inc., a Nevada corporation,
representing an 8% interest in this company. Synertek, Inc. manufactures and
sells handheld digital multimedia and communications appliances. The cash
investment is accounted for on the cost method of accounting.
Ningbo China
In October 2000, the Company invested $1,000,000 in Televideo (China) Co.,
Ltd. (Ningbo China) for a 10% interest. The Company has agreed to invest an
additional $2,000,000 in December 2000. The total investment will represent a
30% interest in this company, which will manufacture computer
terminals and monitors. This investment is currently accounted for using the
cost method.
The investment agreement also provides for the use of TeleVideo's technical
production skill of terminal products. For the use of this technology Ningbo
China will pay the Company $2.5 million dollars over two years as follows: $1.2
million is to be received in December 2000 and the remaining $1.3 million in two
installments of $650 thousand in June 2001 and June 2002. For this money,
TeleVideo will give Ningbo China the right to use its technology and provide
professional training for the use of this technology. The most important
technology is related to the processor used for TeleCLIENT.
During December 2000, the Company invested $2,000,000 in Ningbo China for
an additional 20% ownership interest. Accordingly, in December 2000, the Company
changed its method of accounting for this investment to the equity method.
During December 2000, the Company received approximately $960,000 from
Ningbo China. In January 2001 and April 2001, the Company received additional
$120,000 and $200,000, respectively. The Company is expecting the difference of
$450,000 from $650,000 for the year 2001 in the next few weeks.
Because TeleVideo has 30% interest in Ningbo and the technology provided by
the Company is not yet used, the Company decided that the income resulting from
the contract with Ningbo to be deferred until the technology is used.
3. LETTER OF CREDIT AGREEMENT
At June 10, 2001, the Company had no letters of credit agreements.
4. SALE AND LEASEBACK OF BUILDING
In December 1998, the Company sold its main facility (land and
building) for approximately $11.0 million and concurrently leased back this
facility over a 15 year lease term expiring in December 2013. The land component
has been recorded as an operating leaseback. The building element has been
accounted for as a capital lease, whereby a leased building asset and capital
lease obligation were recorded at the fair value of approximately $6.27 million.
As a result of the sale for $11.0 million (which includes a $2.75 million note
receivable) a deferred gain of approximately $8.0 million was recorded. The
deferred gain attributable to the land element, which approximates $3.44
million, is being amortized over the 15 year lease life on a straight line
method. The deferred gain attributable to the building element, which
approximates $4.56 million, is being amortized over leased building asset life,
which has been determined to be the 15 year lease term, on a straight line
method.
The $2.75 million note receivable bears interest at 7.25% per annum.
Principal and accrued interest is payable in equal monthly installments of
$21,735 each on the first day of each month commencing on January 1, 1999. If
not earlier paid in full, any unpaid principal and all accrued interest is due
and payable to TeleVideo, Inc. on December 1, 2013.
5. SUBSEQUENT EVENTS
At the end of May 2001, after analyzing the objectives and performance for
the last 6 months and the objectives for the next 6-12 months, the Company
decided that it was necessary to reorganize personnel, and approximately 9
employees, or 23% from the total personnel, were laid-off.
The departments affected in principal were production, engineering and
the Mobile Electronics Division. In the future, the Company will concentrate
its efforts on sales, marketing and customer support.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 2001 TO THE THREE MONTHS ENDED
APRIL 30, 2000
Net sales for the second quarter of fiscal 2001 were $1.4 million, as
compared with $1.7 million in the second quarter of fiscal 2000, a decrease of
$0.3 million, or 18%. The decrease in net sales is due in principal to the
economic slowdown recorded in the last period. Subsequently, some of our large
customers went out of business during this period.
Cost of sales was $1.5 million in the second quarter of fiscal 2001,
compared with $1.4 million in the second quarter of fiscal 2000, an increase of
$0.1 million, or 7%. The cost was higher in the second quarter of 2001 compared
with the second quarter of 2000 because in 2001 the Company scrapped inventory
in amount of around $0.2 million. Consequently, the gross margin reported to net
sales were negative 5.8% in the second quarter of 2001, compared with 17.6% in
the second quarter of 2000.
Sales and marketing expenses were $0.7 million in the second quarter of
fiscal 2001, compared with $0.8 million in the second quarter of fiscal 2000. As
a percentage of net sales, sales and marketing expenses increased to 50% in the
second quarter of fiscal 2001 compared with 47% in the second quarter of fiscal
1999. The increase is the direct result of the decrease in the net sales.
Research and development expenses were $0.3 million in the second quarter
of fiscal 2001, same as in the second quarter of fiscal 2000. As a percentage of
net sales, research and development expenses increased to 21% in the second
quarter of fiscal 2001 compared with 18% in the second quarter of fiscal 2000.
The increase is due in principal to the decrease in net sales.
General and administrative expenses were $0.8 million in the second quarter
of fiscal 2001, compared with $0.6 million in the second quarter of fiscal 2000.
As a percentage of net sales, general and administrative expenses increased to
57% in the second quarter of fiscal 2001 compared with 35% in the second quarter
of fiscal 2000. The increase is due primarily to the supplementary expenses
incurred by the operation of the new Mobile Electronics Division.
The Company's loss from operations was approximately $1.8 million in the
second quarter of fiscal 2001 as compared with approximately $1.5 million in the
second quarter of fiscal 2000.
Interest income, net of interest expense, was $45,000 in the second quarter
of fiscal 2001, compared with $130,000 in the second quarter of fiscal 2000, a
decrease of $85,000.
In the second quarter of fiscal 2001, the Company sold approximately 7,500
shares of CNET Networks stock. The Company realized a gain of approximately
$74,000 from the sale of these shares.
At the end of the second quarter of 2001, the Company adjusted the carrying
value of its investments in affiliates, and recorded a loss from investments in
amount of approximately $3.8 million.
Net loss for the second quarter of fiscal 2001 was $5.0 million as compared
with a net loss of $0.3 million in the second quarter of fiscal 2000.
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 2001 TO THE SIX MONTHS ENDED
APRIL 30, 2000
Net sales for the first six months of fiscal 2001 were $3.0 million, as
compared with $3.2 million in the first six months of fiscal 2000, a decrease of
$0.2 million, or 6%. The decrease in net sales is due in principal to the
economic slowdown recorded in the last few months.
Cost of sales was $2.9 million in the first six months of fiscal 2001,
compared with $2.6 million in the first six months of fiscal 2000, an increase
of $0.3 million, or 12%. As a percentage of net sales, gross margin was 1% in
the first six months of fiscal 2001, compared with 6% in the first six months of
fiscal 2000. The decrease, as a percentage of sales, primarily reflects the
scraped inventory in amount of approximately $0.2 million recorded in the second
quarter of fiscal year 2001.
Sales and marketing expenses were $1.1 million in the first six months of
fiscal 2001, compared with $1.5 million in the first six months of fiscal 2000.
As a percentage of net sales, sales and marketing expenses decreased to 37% in
the first six months of fiscal 2001 compared with 47% in the first six months of
fiscal 2000. The decrease reflects the closing of three sales offices at the
middle of the year 2000.
Research and development expenses were $0.5 million in the first six months
of fiscal 2000, same as in the first six months of fiscal 2000. As a percentage
of net sales, research and development expenses increased to 17% in the first
six months of fiscal 2001 compared with 16% in the first six months of fiscal
2000. The increase is due to the decrease in net sales.
General and administrative expenses were $1.2 million in the first six
months of fiscal 2001, compared with $1.0 million in the first six months of
fiscal 2000. As a percentage of net sales, general and administrative expenses
increased to 40% in the first six months of fiscal 2001 compared with 31% in the
first six months of fiscal 2000. The increase is due primarily to the expenses
of approximately $0.3 million incurred by operations of the new Mobile
Electronics Division, which started its activity at the end of the year 2000.
The Company's loss from operations was approximately $2.8 million in the
first six months of fiscal 2001 compared with approximately $2.7 million in the
first six months of fiscal 2000.
Interest and rental income, net of interest and rental expense, was $0.5
million in the first six months of fiscal 2001, compared with $0.2 million in
the first six months of fiscal 2000, an increase of $0.3 million. The increase
primarily reflects rental income resulting from the sublease of a headquarters
space in January 2001, for a period of three years.
In the first six months of fiscal 2001, the Company sold shares of CNET
stock and recorded a gain in amount of approximately $0.2 million, compared with
a gain in amount of approximately $1.5 million in the first six months of fiscal
2000.
In the second quarter of 2001, the Company adjusted the carrying value of
its investments in affiliates, and recorded a loss from investments in amount of
approximately $3.8 million.
Net loss for the first six months of fiscal 2001 was $5.5 million compared
with a net loss of $0.7 million in the first six months of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2001, the Company had $0.3 million in cash and cash
equivalents, a decrease of approximately $3.0 million over the same balances at
the end of fiscal 2000 of approximately $3.3 million. Net cash used in operating
activities increased from $1.5 million used in the six months ended April 30,
2000 to $2.9 million used for the same period in fiscal 2001. This increase is
due primarily to the investment in Ningbo China, made in December 2000, and to
the loss from operations.
In December 2000, the Company subleased a part of it's headquarter space.
The leasing agreement is for a period of three years, beginning January 2001,
and this will bring a monthly income of approximately $81,000. This sublease
will not affect the company manufacturing facilities.
In December 1998, the Company sold its 69,360 square foot headquarters
building in San Jose, California, including land and improvements, to TVCA, LLC,
an unaffiliated Delaware limited Liability Company ("TVCA") for $11.0 million.
The nature of the consideration was $8.25 million in cash and a $2.75 million
promissory note. The note bears interest at 7.25% per annum. Principal and
accrued interest are payable in equal monthly installments of $21,735 on the
first day of each month, commencing January 1, 1999. If not earlier paid in
full, any unpaid principal and all accrued interest shall be due and payable to
TeleVideo, Inc. on December 1, 2013.
In December 1998, the Company leased back this facility over a 15 year
lease term expiring in December 2013. The land component has been accounted for
as a capital lease, whereby a leased building asset and capital lease obligation
were recorded at the fair value of approximately $6.27 million. As result of the
sale for $11.0 million, a deferred gain of approximately $8.0 million was
recorded. The deferred gain attributable to the land element, which approximates
$3.44 million, is being amortized over the 15 year lease life on a straight line
method. The deferred gain attributable to the building element, which
approximates $4.56 million, is being amortized on a straight line basis over the
leased building asset life, which has been determined to be the 15 year lease
term.
Net accounts receivable were $1.1 million at April 30, 2001, compared with
$1.6 million at October 31, 2000, a decrease of $0.5 million, or 19%, while net
inventories were $3.0 million at April 30, 2001, as compared with $1.2 million
at October 31, 2000, an increase of $1.8 million. The decrease in accounts
receivable reflects large collections in the first six months of fiscal 2001 and
the write off of approximately $50,000 bad debts. The increase in inventory
reflects the purchase of additional terminal and TeleCLIENT products during the
period, and also the purchase of the inventory of Mobile Electronics Division
products, in total amount of over $1.0 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
COMPETITIVE MARKETS
The terminal market is intensely competitive. The principal elements of
competition are pricing, product quality and reliability, price/performance
characteristics, compatibility, marketing and distribution capability, service
and support, and reputation of the manufacturer. TeleVideo competes with a large
number of manufacturers, most of which have significantly greater financial,
marketing and technological resources than TeleVideo. There can be no assurance
that the Company will be able to continue to compete effectively.
PRODUCT DEVELOPMENT
The computer market is characterized by rapid technological change and
product obsolescence, often resulting in short product life cycles and rapid
price declines. The Company's success will continue to depend primarily on its
ability to continue to reduce costs through manufacturing efficiencies and price
negotiation with suppliers, the continued market acceptance of its existing
products and its ability to develop and introduce new products. There can be no
assurance that TeleVideo will successfully develop new products or that the new
products it develops will be introduced in a timely manner and receive
substantial market acceptance. There can also be no assurance that product
transitions will be managed in such a way to minimize inventory levels and
product obsolescence of discontinued products. The Company's operating results
could be adversely affected if TeleVideo is unable to manage all aspects of
product transitions successfully.
SINGLE SOURCED PRODUCTS
The Company generally utilizes standard parts and components available from
multiple suppliers. However, certain parts and components used in the Company's
products are available from a single source. If, contrary to its expectations,
the Company is unable to obtain sufficient quantities of any single-sourced
components, the Company will experience delays in product shipments.
RELIANCE ON FORECASTS
The Company offers its products through various channels of distribution.
Changes in the financial condition of, or in the Company's relationship with its
distributors could cause actual operating results to vary from those expected.
Also, the Company's customers generally order products on an as-needed basis.
Therefore, virtually all product shipments in a given fiscal quarter result from
orders received in that quarter. The Company anticipates that the rate of new
orders will vary significantly from month to month. The Company's manufacturing
plans and expenditure levels are based primarily on sales forecasts.
Consequently, if anticipated sales and shipments in any quarter do not occur
when expected, expenditure and inventory levels could be disproportionately high
and the Company's operating results for that quarter, and potentially future
quarters, would be adversely affected.
FACTORS THAT COULD AFFECT STOCK PRICE
The market price of TeleVideo's common stock could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the computer
technology industry, as well as general economic conditions and other factors
external to the Company.
FOREIGN CURRENCY AND POLITICAL RISK
The Company markets its products worldwide. In addition, a large portion of
the Company's part and component manufacturing, along with key suppliers, are
located outside the United States. Accordingly, the Company's future results
could be adversely affected by a variety of factors, including without
limitation, fluctuation in foreign currency exchange rates, changes in a
specific country's or region's political or economic conditions, trade
protection measures, import or export licensing requirements, unexpected changes
in regulatory requirements and natural disasters.
INVESTMENTS IN AFFILIATES
Investments in affiliates represent approximately 28% of the Company's
total assets at April 30, 2001. As a result, the Company's success will be
adversely affected if the investees fail to execute their business plans. If
there is impairment in the carrying value of the affiliate investments the
Company will reduce the carrying of such investments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of April 30, 2001, the Company had a long-term note receivable (the
"Note") of $2.6 million. The Company received the Note, which bears interest at
a fixed rate of 7.25% per annum, as partial consideration for the sale of the
Company's headquarters facility in December 1998. The interest rate on the Note
is fixed over the life of the Note, with principal and interest payable in equal
monthly installments of $21,735 each on the first day of each month commencing
on January 1, 1999. If not earlier paid in full, any unpaid principal and all
accrued interest shall be due and payable to TeleVideo, Inc. on December 1,
2013.
Because the interest rate on the Note is fixed for the term of the Note,
any change in interest rates would not affect the Company's earnings or cash
flows if it chose to hold onto the note, although a change in interest rates
could affect the market value of the Note if the Company chose to sell the note
prior to maturity.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 17, 2001, the Company held its 2001 shareholders meeting.
Proxy and Annual Report for the fiscal 2000 were sent to all the shareholders on
file at February 25, 2001, and also were filed with SEC on February 28, 2001.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.
(a) EXHIBIT(S).
None
(b) REPORTS ON FORM 8-K.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TELEVIDEO, INC.
------------------------------
(REGISTRANT)
DATE: June 14, 2001 BY: /s/ K. PHILIP HWANG
------------------------------
K. PHILIP HWANG
CHAIRMAN AND C.E.O.
AND ACTING
CHIEF FINANCIAL OFFICER