-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UVwWO2sQYHknrPKEDNUoyQUjfycZKG+xbR/qj1u2uyFqBtP//iShXZGUWPIVyxpS HuSGqqbenGULehoke6/BBw== 0001047469-99-035735.txt : 19990916 0001047469-99-035735.hdr.sgml : 19990916 ACCESSION NUMBER: 0001047469-99-035735 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEVIDEO INC CENTRAL INDEX KEY: 0000353779 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 942383795 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11552 FILM NUMBER: 99711487 BUSINESS ADDRESS: STREET 1: 550 E BROKAW RD STREET 2: PO BOX 49048 CITY: SAN JOSE STATE: CA ZIP: 95161 BUSINESS PHONE: 4089548333 FORMER COMPANY: FORMER CONFORMED NAME: TELEVIDEO SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------------------------- 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: JULY 31, 1999 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: 0-11552 TELEVIDEO, INC. ----------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2383795 -------- ---------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2345 HARRIS WAY SAN JOSE, CALIFORNIA 95131 (408) 954-8333 ---------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: ---------------------------------------- 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 REGISTRANT'S COMMON STOCK, AS OF SEPTEMBER 8, 1999 IS: 11,271,085. ---------------------------------------- DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1999 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. The condensed consolidated financial statements included herein have been prepared by the management of Televideo, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Report on Form 10-K for the fiscal year ended October 31, 1998. The results of operations for the three- and nine-month periods ended July 31, 1999, are not necessarily indicative of the results to be expected for the entire fiscal year ending October 31, 1999. TELEVIDEO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Jul. 31, Oct. 31, 1999 1998 ----------- --------- (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,284 $ 1,640 Certificate of Deposit 1,000 0 Accounts receivable, less allowance of $1,319 in 1999 and $1,352 in 1998 1,288 2,420 Inventories, net 2,092 2,275 Prepayments and other 523 420 Notes receivable 176 0 -------- -------- Total current assets 10,363 6,755 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land 0 890 Building 0 1,035 Production equipment 624 530 Office furniture and equipment 1,150 1,146 Building improvements 0 1,105 Leased property under capital lease 6,270 0 -------- -------- 8,044 4,706 Less accumulated depreciation and amortization 1,902 2,138 -------- -------- Property, plant and equipment, net 6,142 2,568 INVESTMENTS IN AFFILIATES 1,336 1,336 LONG-TERM NOTE RECEIVABLE 2,713 0 -------- -------- Total assets $ 20,554 $ 10,659 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 762 $ 541 Notes payable 0 2,500 Accrued liabilities 1,259 820 Income taxes 361 361 Obligation under capital lease--current 418 0 Deferred gain on sale of land and building--current 1,147 0 -------- -------- Total current liabilities 3,947 4,222 -------- -------- Obligation under capital lease--long-term 5,852 0 Deferred gain on sale of land and building--long-term 6,600 0 -------- -------- Total liabilities 16,399 4,222 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; Authorized--75,000,000 shares Outstanding--11,271,085 shares in 1999 and 1998 (net of 120,000 treasury shares) 453 453 Additional paid-in capital 95,703 95,703 Accumulated deficit (92,001) (89,719) -------- -------- Total stockholders' equity 4,155 6,437 -------- -------- Total liabilities and stockholders' equity $ 20,554 $ 10,659 -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. TELEVIDEO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED JULY 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, ----------------------- ---------------------- 1999 1998 1999 1998 -------- -------- -------- -------- NET SALES $ 1,926 $ 3,061 $ 5,635 $ 10,756 COST OF SALES 1,844 2,775 5,215 9,781 -------- -------- -------- -------- GROSS PROFIT 82 286 420 975 OPERATING EXPENSES: Sales and Marketing 599 520 1,558 2,018 Research and development 230 86 424 312 General and administration 505 490 1,344 1,170 -------- -------- -------- -------- Total operating expenses 1,334 1,096 3,326 3,500 -------- -------- -------- -------- Loss from operations (1,252) (810) (2,906) (2,525) INTEREST INCOME, NET 125 36 270 99 OTHER INCOME (EXPENSE), NET 196 (75) 355 (94) -------- -------- -------- -------- Net loss $ (931) $ (849) $ (2,281) $ (2,520) -------- -------- -------- -------- LOSS PER SHARE: Basic and diluted $ (0.08) $ (0.08) $ (0.20) $ (0.22) -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of common shares outstanding, and 11,271 11,391 11,271 11,387 common and potentially dilutive common shares outstanding
The accompanying notes are an integral part of these financial statements. TELEVIDEO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 1999 AND 1998 (IN THOUSANDS) (UNAUDITED)
1999 1998 ------ ------ INCREASE (DECREASE) IN CASH: CASH FLOWS FROM OPERATING ACTIVITIES: Loss from operations $(2,281) $(2,520) Charges (credits) to operations not affecting cash: Depreciation and amortization 263 166 Provision for bad debts (33) 0 Provision for excess and obsolete inventories 175 0 Changes in operating assets and liabilities: Accounts receivable 1,166 1,229 Inventories 8 (211) Prepayments and other (103) (31) Accounts payable 222 (560) Notes payable (2,500) 2,000 Accrued liabilities 437 46 Deferred gain on sale of land and building, net of long term receivable 5,028 0 ------- ------- Net cash provided by operating activities 2,382 119 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Certificate of Deposit (1,000) 0 Net retirements of (additions to) property, plant and equipment 2,433 (14) Investments in affiliate 0 309 Increase in note receivable (171) (1,200) ------- ------- Net cash provided by (used in) investing activities 1,262 (905) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 0 30 ------- ------- Net cash provided by financing activities 0 30 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,644 (756) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 1,640 3,604 ------- ------- CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 5,284 $ 2,848 ------- ------- ------- -------
Non Cash investing/financing activities: In December 1998, the Company sold and concurrently leased back its main facility property (land and building). As a result of the sale for $11.0 million (which includes a $2.750 million note receivable) a deferred gain of approximately $8.0 million was recorded and the building component was leased back under a capital lease, whereby leased building and capital lease obligation were recorded at approximately $6.270 million. The accompanying notes are an integral part of these financial statements. TELEVIDEO, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The information at July 31, 1999 and for the three and nine months ended July 31, 1999 and 1998 includes all adjustments (consisting only of normal recurring 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 certain of its majority owned subsidiaries, after elimination of inter-company accounts and transactions. The Company's investments in joint ventures in the Commonwealth of Independent States, some of which represent a majority interest in the joint venture, are not consolidated due to the lack of reliable financial information from the entity. Such investments are carried at cost. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, 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) for 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 approximately $821,000 and $646,000 in 1999 and 1998, respectively:
Jul. 31, Oct. 31, 1999 1998 ------- ------- Purchased parts and subassemblies $ 624 $1,196 Work-in-process 235 91 Finished goods 1,233 988 ------ ------ $2,092 $2,275 ------ ------ ------ ------
PROPERTY, PLANT AND EQUIPMENT Depreciation and amortization are provided over the estimated useful lives of the assets using both straight-line and accelerated methods.
Building, Including leased property 15-40 years Production equipment 1-10 years Office furniture 1-10 years
LOSS PER SHARE Loss per share is based on the weighted average number of shares of Common Stock outstanding during each period. RECLASSIFICATIONS Certain reclassifications were made to the 1998 accompanying consolidated financial statements to conform to the 1999 presentation. 2. ACQUISITIONS AND DIVESTITURES: 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 fiscal 1998, the Company loaned APT $1.7 million at an annual interest rate of prime plus one for its operations. Founded in October 1996, APT is a developmental stage enterprise specializing in the development of electronics display technology. The anticipated markets for APT's outdoor media display system include the high end of billboard and illuminated sign markets, sports stadiums and arenas, transportation terminals, volume retailers and malls, and safety/public information displays. APT has not recorded any sales to date. The Company has been advised by APT that APT estimates its first sales will commence in fiscal 1999. The Company accounted for its investment in APT using the equity method of accounting during previous fiscal years. For the year ended October 31, 1998, the Company has written off its investment, related goodwill, and note receivable aggregating approximately $4.08 million as APT's existing capital and internally generated funds were not adequate for APT capital requirements through fiscal 1999. Substantial additional funds will be required from external sources to support APT's operations during fiscal 1999 and beyond. During the first quarter of fiscal 1999, the Company loaned APT an additional $176,000 at annual interest rate of 10% to support APT's operations. The Company has, since then, been advised that APT expects to receive such substantial additional funds through equity investment during fiscal 1999, which may be adequate for its capital requirements through fiscal 1999 and beyond. However, there can be no assurance that additional funds will be available, or, if available, that such funds will be available on acceptable terms. mySimon, inc. ------------- In September, 1998, the Company invested $1 million in the online comparison shopping Internet company, mySimon, inc. The investment has been accounted for on the cost method. mySimon, inc. uses proprietary intelligent agent technology called Virtual Learning Agent (VLA) to assist online shoppers by scouring the Internet to instantly find the best prices on products from thousands of online merchants. At the indicated dates the Company had the following investments in affiliates and joint ventures: (in thousands)
Jul. 31, Oct. 31, 1999 1998 -------- -------- TLK, Inc. $ 150 $ 150 Three H 76 76 Koram 110 110 mySimon, inc 1,000 1,000 ------ ------ $1,336 $1,336 ------ ------ ------ ------
3. LETTER OF CREDIT AGREEMENT: The Company has one letter of credit agreement with the bank whereby the bank will issue up to a total of $1.0 million of standby and sight letter of credits. This agreement is contingent upon the Company maintaining time deposits (CD's) at the bank as collateral in a total amount no less than the outstanding borrowings. At July 31, 1999, the Company had no letters of credit outstanding. 4. LITIGATION: The Company has been named, along with dozens of other manufacturers, designers, and distributors of computer equipment, as a defendant in several lawsuits regarding product liability in connection with the alleged defective design of computer terminal keyboards and the size of the computer monitor screens. The first claim alleges that the various plaintiffs have suffered some form of severe wrist injury from the use of said keyboards. The second claim alleges that there was false advertising which claimed that the video screens were 17 inches in size, when in reality they were only 15 inches. The Company's attorneys have prepared a defense for these cases and the Company's insurance carriers are informed of the plaintiff's claims. The Company intends to vigorously defend against the allegations of these suits. Management believes that the ultimate outcome of these lawsuits will not have a material adverse effect on the Company's financial position. 5. TREASURY SHARES: In October, 1996, the Company received 120,000 shares (adjusted for the 1 for 4 reverse stock split in 1998) of the Company's stock in partial settlement of a claim against a former employee. The Company paid no consideration for these shares, which have been held in treasury since receipt and have not been retired. 6. SUBSEQUENT EVENT: In September 1999, the Company loaned APT $125,000. The note bears interest at the rate of 6% per annum and is due on December 1, 1999. The Company has received a guarantee of payment from a third party that is expected to provide additional funds to APT (Refer to Note 2). In September 1999, the Company entered into a consulting agreement with APT in which APT will undertake two engineering Development projects for the Company, whereby the Company made an advance payment of $125,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. COMPARISON OF THE THREE MONTHS ENDED JULY 31, 1999 TO THE THREE MONTHS ENDED JULY 31, 1998 Net sales for the third quarter of fiscal 1999 were $1.9 million, compared with $3.1 million in the third quarter of fiscal 1998, a decrease of $1.2 million, or 39%. The decrease in net sales reflects the Company's continued shift away from the sale of monitors and multimedia products. During the third quarter of fiscal 1999, sales of monitors and multimedia products totaled approximately $0.2 million, as compared with approximately $1.1 million in the prior year quarter. Cost of sales were $1.8 million in the third quarter of fiscal 1999, compared with $2.8 million in the third quarter of fiscal 1998, a decrease of $1.0 million, or 36%. The decrease is primarily due to the decrease in sales from the prior year period. Sales and marketing expenses were $0.6 million in the third quarter of fiscal 1999, compared with $0.5 million in the third quarter of fiscal 1998. As a percentage of net sales, sales and marketing expenses increased to 31% in the third quarter of fiscal 1999 compared with 17% in the third quarter of fiscal 1998. The increase reflects additional ongoing costs incurred by the Company to launch its TeleCLIENT product line. Research and development expenses were $0.2 million in the third quarter of fiscal 1999, compared with $0.1 million in the third quarter of fiscal 1998, an increase of $0.1 million. As a percentage of net sales, research and development expenses increased to 12% in the third quarter of fiscal 1999 compared with 3% in the third quarter of fiscal 1998. The increase represents increased costs associated with the continued development of the Company's TeleCLIENT product line. General and administrative expenses were $0.5 million in the third quarter of fiscal 1999, the same level as in the third quarter of fiscal 1998. As a percentage of net sales, general and administrative expenses increased to 26% in the third quarter of fiscal 1999 compared with 16% in the third quarter of fiscal 1998. The increase, as a percentage of sales, is primarily due to lease expenses that the Company began making in fiscal 1999 in accordance with the sale and leaseback of the Company's headquarters facility. In the third quarter of fiscal 1999, the Company recorded a provision for bad debts of approximately $10,000, as compared with $219,000 in the third quarter of 1998. The Company's loss from operations was approximately $1.3 million in the third quarter of fiscal 1999 compared with approximately $0.8 million in the third quarter of fiscal 1998. Interest income, net of interest expense, was $125,000 in the third quarter of fiscal 1999, compared with $36,000 in the third quarter of fiscal 1998, an increase of $89,000, or 247%. The increase was due to increased interest income resulting from the $2.75 million, 7.25% promissory note that the Company received pursuant to the sale of its building in December 1998, as well as to additional cash that the Company had during the quarter due to the building sale. Other income was $196,000 in the third quarter of fiscal 1999, compared with $75,000 expense in the third quarter of fiscal 1998, an increase of $271,000. The increase was due primarily to the amortization of the deferred gain on the sale of the Company's building. Net loss for the third quarter of fiscal 1999 was $0.9 million compared with a net loss of $0.8 million in the third quarter of fiscal 1998. COMPARISON OF THE NINE MONTHS ENDED JULY 31, 1999 TO THE NINE MONTHS ENDED JULY 31, 1998 Net sales for the first nine months of fiscal 1999 were $5.6 million, compared with $10.8 million in the first nine months of fiscal 1998, a decrease of $5.2 million, or 48%. The decrease in net sales reflects the Company's continued shift away from the sale of monitors and multimedia products. For the first nine months of fiscal 1999, sales of monitors and multimedia products totaled approximately $0.8 million, as compared with approximately $4.7 million in the prior year period. Cost of sales were $5.2 million in the first nine months of fiscal 1999, compared with $9.8 million in the first nine months of fiscal 1998, a decrease of $4.6 million, or 47%. This decrease is in line with the decrease in sales from the prior year period. Sales and marketing expenses were $1.6 million in the first nine months of fiscal 1999, compared with $2.0 million in the first nine months of fiscal 1998, a decrease of $0.4 million, or 20%. As a percentage of net sales, sales and marketing expenses increased to 28% in the first nine months of fiscal 1999 compared with 19% in the first nine months of fiscal 1998. The increase represents costs incurred by the Company to launch its TeleCLIENT product line during the first nine months of fiscal 1999. Research and development expenses were $0.4 million in the first nine months of fiscal 1999, compared with $0.3 million in the first nine months of fiscal 1998. As a percentage of net sales, research and development expenses increased to 8% in the first nine months of fiscal 1999 compared with 3% in the first nine months of fiscal 1998. The increase represents increased costs associated with the continued development of the Company's TeleCLIENT product line. General and administrative expenses were $1.3 million in the first nine months of fiscal 1999, compared with $1.2 million in the first nine months of fiscal 1998, an increase of $0.1 million or 8%. As a percentage of net sales, general and administrative expenses increased to 24% in the first nine months of fiscal 1999 compared with 11% in the first nine months of fiscal 1998. The increase, as a percentage of sales, is primarily due to lease expenses that the Company began making in fiscal 1999 in accordance with the sale and leaseback of the Company's headquarters facility. The Company's loss from operations was approximately $2.9 million for the first nine months of fiscal 1999 and $2.5 million for the first nine months of fiscal 1998. Interest income, net of interest expense, was $270,000 in the first nine months of fiscal 1999, compared with $99,000 in the first nine months of fiscal 1998, an increase of $171,000, or 173%. The increase was due to increased interest income resulting from the $2.75 million, 7.25% promissory note that the Company received pursuant to the sale of its building in December 1998, as well as to additional cash that the Company had as a result of the building sale. Other income was $355,000 in the first nine months of fiscal 1999, compared with $94,000 expense in the first nine months of fiscal 1998, an increase of $449,000. The increase was due primarily to the amortization of the deferred gain on the sale of the Company's building. Net loss for the first nine months of fiscal 1999 was approximately $2.3 million, compared with a net loss of approximately $2.5 million in the first nine months of fiscal 1998, a decrease of $0.2 million, or 8%. LIQUIDITY AND CAPITAL RESOURCES At July 31, 1999, the Company had $5.3 million in cash and cash equivalents, an increase of approximately $3.7 million over the same balances at the end of fiscal 1998 of $1.6 million. This increase excludes a $1.0 million certificate of deposit which the Company purchased in fiscal 1999. Net cash provided by operating activities increased from $119,000 in the nine months ended July 31, 1998 to $2.4 million for the same period in fiscal 1999. Net accounts receivable were $1.2 million at July 31, 1999, compared with $2.4 million at October 31, 1998, a decrease of $1.2 million, or 50%, while net inventories were $2.1 million at July 31, 1999, as compared with $2.3 million at October 31, 1998, a decrease of $0.2 million. Working capital at the end of the third quarter of fiscal 1999 was approximately $6.4 million, an increase of 156% from the fiscal 1998 year-end level of approximately $2.5 million primarily as a result of the proceeds from the sale of the Company's headquarters facility. The Company believes that, with respect to its current operations, the Company's cash balance of approximately $5.3 million at July 31, 1999, its $1.0 million certificate of deposit, plus revenues from operations and other non-operating cash receipts, will be sufficient to meet the Company's working capital and capital expenditure needs for the next twelve months. IMPACT OF YEAR 2000 ISSUES The Year 2000 ("Y2K") issue is the result of computer programs being written using two digits rather than four to define the applicable year. Following December 31, 1999, the Company's computer equipment and software that is time sensitive, including equipment with embedded technology such as telephone systems and facsimile machines, may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to engage in normal business activities. The Company has completed assessing its computer systems, software and operations infrastructure, including systems being developed to improve business functionality, to identify computer hardware, software and process control systems that are not Y2K compliant. The Company internally evaluated the Y2K compliance of its existing computer systems, software and operations infrastructure and any Y2K issues of third parties of business importance to the Company. The Company is trying to minimize any disruptions to the Company's business which could result from the Y2K problem and to minimize liabilities which the Company might incur as a result of such disruptions. During the third quarter of fiscal 1999, the Company began implementation of a new accounting and operations system that has been warranted by the manufacturer of the system to be Y2K compliant. Although the Company's existing accounting and operations system is believed to be materially Y2K compliant, the Company has chosen to upgrade to a new system to take advantage of various enhancements offered by the new system. The Company expects to spend less than $100,000 to fully implement its new system and expects the implementation to be completed by November 1, 1999. The Company has also initiated communications with its significant suppliers and service providers and certain strategic customers to determine the extent to which such suppliers, providers or customers will be affected by any significant Y2K issues. The Company believes that these communications will permit the Company to determine the extent to which the Company may be affected by the failure of these third parties to address their own Y2K issues and may facilitate the coordination of Y2K solutions between the Company and these third parties. There can be no guarantee, however, that third parties of business importance to the Company will successfully and timely evaluate and address their own Y2K issues. The failure of any of these third parties to achieve Y2K compliance in a timely fashion could have a material adverse effect on the Company's business, financial position, results of operations or cash flows. The Company does not expect that the costs of replacing or modifying the computer equipment and software will be substantially different, in the aggregate, from the normal, recurring costs incurred by the Company for systems development, implementation and maintenance in the ordinary course of business. The Company does not presently believe that the Y2K issue will pose significant operational problems for the Company. However, if all Y2K issues are not properly identified, or assessment, replacement or modification and testing are not effected in a timely fashion with respect to Y2K problems that are identified, there can be no assurance that the Y2K issue will not have a material adverse effect on the Company's business, financial position, results of operations or cash flows or adversely affect the Company's relationships with customers, suppliers or others. The Company has not developed a contingency plan for dealing with the operational problems and costs, including loss of revenues, that would be reasonably likely to result from failure by the Company and certain third parties to achieve Y2K compliance on a timely basis. The foregoing assessment of the impact of the Y2K problem on the Company is based on management's best estimates as of September 9, 1999, which are based on numerous assumptions as to future events. There can be no assurance that these estimates will prove accurate, and actual results could differ materially from those estimated if these assumptions prove inaccurate or inadequate. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See Note 4 of "Notes to Condensed Consolidated Financial Statements." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of July 31, 1999, the Company had a long-term note receivable (the "Note") of $2.7 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBIT. Exhibit 27.0 Financial Data Schedule. (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 report to be signed on its behalf by the undersigned, thereunto duly authorized. TELEVIDEO, INC. --------------------------------------- (REGISTRANT) DATE: SEPTEMBER 14, 1999 BY: /S/ JAMES D. WHEAT --------------------------------------- JAMES D. WHEAT CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) EX-27 2 EXHIBIT 27
5 1,000 9-MOS OCT-31-1999 NOV-01-1998 JUL-31-1999 5,284 1,000 2,607 1,319 2,092 10,363 8,044 1,902 20,554 3,947 0 0 0 453 3,702 20,554 5,635 5,635 5,215 3,326 (355) 0 270 (2,281) 0 (2,281) 0 0 0 (2,281) (0.20) (0.20)
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