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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED: OCTOBER 31, 2000
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.
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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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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
-------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
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(TITLE OF CLASS)
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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
--- ---
THE APPROXIMATE AGGREGATE MARKET VALUE OF REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES ON FEBRUARY 8, 2001 (BASED UPON THE CLOSING SALES PRICE OF
SUCH STOCK AS REPORTED IN THE OVER THE COUNTER MARKET AS OF SUCH DATE) WAS
$3,550,365.
AS OF FEBRUARY 8, 2001, 11,307,000 SHARES OF REGISTRANT'S COMMON STOCK WERE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's
Definitive Proxy Statement to be used in connection with Registrant's Annual
Meeting of Stockholders to be held on April 17, 2001 have been incorporated
by reference into Part III of this Annual Report on Form 10-K.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
(The remainder of this page was left blank intentionally.)
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended October 31, 2000
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 Annual 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 kinds of statements are signified by words such as
"believes," "anticipates," "expects," "intends," "may," "will", and other
similar expressions. However, these words are not the exclusive means of
identifying such 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. 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.
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TABLE OF CONTENTS
PART I
Item 1. Business.......................................................................................... 3
Item 2. Properties........................................................................................ 9
Item 3. Legal Proceedings.................................................................................10
Item 4. Submission of Matters to a vote of Security Holders...............................................10
Supplemental Item. Executive Officers of the Company....................................................... 10
PART II
Item5. Market for Registrant's Common Stock and Related Stockholder Matters...............................11
Item6. Selected Financial Data............................................................................12
Item7. Management's Discussions and Analysis of Financial Condition and Result of Operations..............13
Item7A. Quantitative and Qualitative Disclosures about Market Risk.........................................17
Item 8. Financial Statements and Supplementary Data........................................................17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............40
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................Proxy 5
Item 11. Executive Compensation.......................................................................Proxy 10
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................Proxy 8
Item 13. Certain Relationships and Related Transactions...............................................Proxy 11
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K...................................41
Signatures..................................................................................................42
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INTRODUCTORY STATEMENT
References in this Form 10-K to "TeleVideo," the "Registrant", "We" or the
"Company" refer to TeleVideo, Inc. and its subsidiaries unless the context
indicates otherwise. This report contains registered and unregistered
trademarks of other companies.
PART I
ITEM 1. BUSINESS
THE COMPANY
Founded in 1975, TeleVideo is a market leader providing innovative high
performance terminal and network computer products to the business and
consumer markets. The Company markets its products worldwide primarily
through distributors, value-added resellers ("VARs"), systems integrators and
original equipment manufacturers "OEMs").
The Company first became a leader in the video display terminal industry by
introducing a new generation of "smart" terminals based on the Intel
microprocessor at a time when dumb terminals were the industry standard.
TeleVideo holds a number of proprietary terminal emulations, including the
TV910 and TV9425, which have been an industry standard for more than 15 years
and are currently used in millions of terminals worldwide. Today, TeleVideo
is utilizing its expertise in server-based network computing to forge new
ground in delivering thin-client solutions. Thin-client is used to define a
terminal category which doesn't have local storage devices, all the data been
saved on the server.
PRODUCTS
TeleCLIENT Family
TeleVideo's TeleCLIENT products consist of a family of thin-client
Windows-based terminals. The TC7000 is a stand alone design that can be
connected to a variety of monitors to meet specific needs. The TC7150 and
TC7170 are integrated units with 15 and 17-inch color CRT monitors,
respectively. The TeleCLIENT TC7300 Series is a fully integrated
Windows-based thin-client with a built-in high-resolution thin film
transistor (TFT) LCD screen. Bundled as an all-in-one design, the
TC7300 Series is designed for use in limited workspaces.
The TeleCLIENT family of products is designed for use in the healthcare;
government, education, retail and other task-oriented client/server based
computing environments. TeleVideo's thin-clients are accelerated by a
Pentium-class 233MHz microprocessor. Windows CE powers TeleCLIENT
thin-clients, which enable fast and easy access to business-critical
applications.
The TeleCLIENT family of products also provides flexibility to choose the
Remote Desktop Protocol that executes either the Windows NT 4.0 Terminal
Server Edition, or the Citrix ICA protocol through Citrix MetaFrame or
WinFrame. Windows CE gives the TC7005, TC7150, TC7170 and the TC7300 Series
server-side access to popular Windows-based business applications such as the
Microsoft Office suite and Java, as well as the Internet.
In September 2000 TeleVideo launched the new TeleManager 2.2 software that
provides complete remote administration of TeleClients from one central
location.
Video Display Terminals
The 990 is a general-purpose terminal with ASCII, ANSI and PC TERM operating
modes. For maximum versatility and flexibility, the terminal is compatible
with a wide variety of keyboard styles and allows users to interface to a bar
code scanner, wand reader, credit card reader, electronic scale or other
specialized keyboards for point-of-sale or point-of-transaction processing.
The TeleVideo 995-65 14-inch monochrome terminal allows the user
AlphaWindowing capability at a non-windowing price for new or existing
software applications. The windows capability provides increased productivity
for applications running on UNIX. The 995 also has a power management screen
saver, which protects the environment and promotes energy conservation.
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iTelePC
TeleVideo's iTelePC iT2000 is an "internet appliance," a new and relatively
low-cost PC, designed for Internet access and specialized business use, but
without the full capabilities of a personal computer. The iTelePC iT2000
comes integrated with a 15-inch monitor that brings the Internet to the
household or business in a small, easy-to-use design. Powered by Microsoft
Windows CE, the 233 MHz iT2000 comes with no set-up required.
PRODUCT DEVELOPMENT
TeleVideo serves markets that are characterized by rapid technological change
and the Company has continuous ongoing programs to develop new products.
Although the Company's research and development staff consists of 8 employees
as of January 8, 2001, engineers from participating companies support various
joint projects of the Company. During fiscal 2000, TeleVideo spent
approximately $0.9 million on Company-sponsored research and development.
Company-sponsored research and development expenses for fiscal 1999 and 1998
were approximately $0.6 million and $0.4 million, respectively. The Company
did not engage in any customer-sponsored research and development program
during such years.
Because of the fast pace of technological advances, the Company must be
prepared to design, develop and manufacture new and more powerful low-cost
products in a relatively short time. TeleVideo believes it has had mixed
success to date in accomplishing these goals simultaneously. Like other
companies in the computer industry, it will continue to experience delays in
completing new product design and tooling. There is no assurance that the
Company will be able to design and manufacture new products, including its
iTelePC and TeleCLIENT family of products that respond to the rapid changes
in the marketplace.
SALES, MARKETING AND CUSTOMERS
North American sales are handled from TeleVideo sales offices located in San
Jose, California; Lake Forest, California and Hoffman Estates, Illinois.
Products are sold through distributors, mass merchants, retail stores, VARs,
systems integrators and OEMs. In July and August 2000 the Company closed its
sales offices in Wharton, New Jersey, Gainesville, Georgia and Dallas,
Texas.
Products sold in Europe, Asia Pacific, Africa and Latin America are handled
by the Company's office in San Jose, California through distributors, OEMs
and international representatives. The Company also appointed, in fiscal
2000, an agent in the United Kingdom to manage existing customer
relationships and to build new ones throughout Europe.
TeleVideo distributors generally do not have exclusive geographic
territories. Either party can generally terminate distributor contracts
without cause upon advanced written notice of 30 days or 60 days. TeleVideo's
distributors typically handle a variety of computer-related products,
including products competitive with those of TeleVideo. The typical
distribution arrangement requires the distributor to purchase TeleVideo
products with certain limited stock rotation rights. Distributors may also
exercise price protection rights should the Company's product price be
reduced.
TeleVideo, through its headquarters' marketing and supporting staff,
continues to work closely with its distributors, mass merchants, retail
stores, VARs, systems integrators and original OEMs. TeleVideo's marketing
staff also provides the customers with training, sales and promotional
materials, cooperative advertising programs, trade show participation and
sales leads. The marketing organization also leads the product marketing role
giving direction to product management and competitive positioning. The
Company spent approximately 3% ($0.2 million), 9% ($0.7 million) and
7% ($1.1 million) of its net revenues on advertising in fiscal 2000, 1999 and
1998, respectively.
TeleVideo's customers typically purchase the Company's products on an
as-needed basis. Therefore, the Company will continue to manufacture its
products based on sales forecasts and upon customer orders. As a result of
this strategy, the Company believes that backlog is not material to its
business taken as a whole. Because of the possibility of customer changes in
delivery schedules or cancellation of orders, which is not uncommon in the
computer industry, the Company's backlog as of any particular date may not be
indicative of actual net sales for any succeeding period.
For the fiscal year ended October 31, 2000, TeleVideo's largest customer
(Savior, Inc.) accounted for 12% of the Company's sales. In July of 2000,
Savoir was acquired by Avnet. The terms of the Company's sales to Avnet and
the sales volume has remained the same since the acquisition of Savoir by
Avnet and we expect the volume of sales to Avnet to be at the same level or
to increase during the next 12 months. TeleVideo's sales terms are typically
net 30 or net 45 days.
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INTERNATIONAL SALES
The Company had export sales (primarily to Europe, Asia and Latin America) of
approximately $2.4 million in fiscal 2000 (representing 34.0% of total net
sales), $1.6 million in fiscal 1999 (19.4% of total sales) and $2.1 million
in fiscal 1998 (14.0% of total net sales). In fiscal 2000, the Company
appointed an agent in the United Kingdom to manage existing customer
relationships and to build new ones throughout Europe. The Company is
evaluating the feasibility of establishing a fully equipped TeleVideo
presence in Europe but has made no commitments in this regard.
TeleVideo's international sales are subject to certain risks common to
non-United States operations, including but not limited to governmental
regulations, import restrictions and export control regulations, changes in
demand resulting from fluctuations in exchange rates, as well as risks such
as tariff regulations. TeleVideo's international sales are generally U.S.
dollar-denominated and, therefore, are not directly subject to international
currency fluctuations. The strength of the dollar in relation to certain
international currencies may, however, adversely affect the Company's sales
to international customers.
JOINT VENTURE AND INVESTMENT ACTIVITY
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. K&T Telecom, Inc. is a Korean company;
and its main activity is manufacturing telecommunication and electronics
devices, including hands-free accessory 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.
Alpha Technology, Inc.
5
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 held currently by TeleVideo.
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 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 January 11, 2001, The Company owned
approximately 39,800 shares of CNET common stock and the market value was
approximately $14.00per 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 our participation into the TeleVideo account when the
exchange rate Korean Won and US Dollar will be the most advantageous. As such,
the Company accounts for this investment under the cost method of accounting.
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 Korean 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
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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.
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, which is 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 kinds of 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 as the Company has sold 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 Tele-Client series. The parties contemplate entering into a
separate sales and marketing agreement to more fully document the terms and
conditions of the strategic relationship.
7
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 we will give to Nimbo China the right to use our technology and we will
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 $1,000,000 from
Ningbo China. During January 2001, the Company received an additional
$120,000 from Ningbo China.
COMPETITION
TeleVideo believes that brand recognition, product quality, availability,
extensive standard product features, service and price are significant
competitive factors in the Company's markets. In addition to the factors
listed above, the principal considerations for distributors and resellers in
determining which products to offer include profit margins, immediate
delivery, product support, and credit terms. TeleVideo has continued and in
the future will likely continue to face significant competition, with respect
to these factors, particularly from the large international manufacturers.
Most of these companies have significantly greater financial, marketing and
technological resources than the Company, and may be able to command better
terms with their suppliers due to higher purchasing volumes. Therefore, there
is no assurance that the Company will be able to successfully compete in the
future.
PRODUCTION
The Company subcontracts substantially all of the manufacturing of its
products to manufacturers in Taiwan, the People's Republic of China and South
Korea. The testing, inspection and some minor assembly work are done at our
California headquarters. We believe our current facilities in California will
continue to be adequate for our purposes for the foreseeable future.
The Company's largest supplier accounted for approximately 54% (approximately
$2.3 million) of net purchases in fiscal 2000. Loss of this supplier might
have an adverse effect on the product supply of the Company. The Company
believes, however, that in most cases, alternative sources of supply could be
arranged as and when needed by the Company. To date, TeleVideo has not
experienced any significant difficulties or delays in production of its
products.
PROPRIETARY RIGHTS
The Company regards certain aspects of its products as proprietary and relies
upon a combination of trademark and copyright laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The
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Company has registered trademarks in the United States and in over 20 foreign
countries for "TeleVideo" and the TeleVideo logo.
The continuing development of the Company's products and business is
dependent, primarily, on the knowledge and skills of certain of its
employees. To protect its rights to its proprietary information, the Company
requires all employees and consultants to enter into confidentiality
agreements that prohibit the disclosure of confidential information to
persons unaffiliated with the Company. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's
technology or other confidential information in the event of any unauthorized
use or disclosure. There also can be no assurance that third parties will not
independently develop products similar to or duplicative of products of the
Company. The Company believes that due to the rapid pace of technological
change in its industry, the Company's success is likely to depend more upon
continued innovation, technical expertise, marketing skill and customer
support than on legal protection of the Company's proprietary rights.
GOVERNMENT REGULATIONS
Most of the Company's products are subject to regulations adopted by the
Federal Communications Commission ("FCC"), which establishes radio frequency
emanation standards for computing equipment. TeleVideo believes that all of
the Company's products that are subject to such regulations comply with these
regulations. Although there can be no assurance, the Company has no reason to
believe that new products will not also be approved. Failure to comply with
the FCC specifications could preclude the Company from selling non-complying
systems in the United States until appropriate modifications are made. To
date, the Company has not encountered any FCC compliance problems.
EMPLOYEES
As of January 15, 2001, the Company's full-time employees totaled 38, as
compared with 43 reported at the end of fiscal 1999. Of the total number of
employees, 18 are engaged in product research, engineering, development and
manufacturing; 12 in marketing and sales and 8 in general management and
administration. We believe that our future success will depend, in part, on
our ability to continue to attract and retain highly skilled technical,
marketing and management personnel.
None of the Company's employees are subject to a collective bargaining
agreement or represented by a union, and the Company has never experienced a
work stoppage. We believe that our employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters, research and development and administrative
operations are housed in a 69,630 square foot building located on 2.5 acres
in San Jose, California. On December 28, 1998, the Company sold the building
and has leased it back. The aggregate monthly lease amounts are $104,000.
Please refer to Note 9 of the financial statements ("Sale and Leaseback of
Building") for additional details. The lease expires on December 31, 2013.
The Company leases domestic sales offices in Hoffman Estates, Illinois and
Lake Forest, California. Both are month-to-month tenancy leases. Management
believes that the Company would be able to secure an extension to the leases
if such extensions are deemed necessary in the future. Both leases are
accounted for as operating leases.
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ITEM 3. LEGAL AND OTHER PROCEEDINGS
LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
EXECUTIVE OFFICERS
The following sets forth certain information with regard to executive
officers of TeleVideo (ages are as of January 10, 2001):
Executive Officer Age Position
- ----------------- --- --------
Dr. K. Philip Hwang 65 Chairman of the Board and Chief
Executive Officer, acting Principal Financial and Accounting Officer
TeleVideo, Inc.
Jun Keun Yum 49 Vice President of Operations, Chief Technology Officer and
Director of Sales
TeleVideo, Inc.
- ----------------
Dr. K. Philip Hwang, age 65, is the founder of the Company and has been
Chairman of the Board and Chief Executive Officer since October 1976. From
August 1990 to April 1991 and from June 2000 to present, he has served as the
Acting Chief Financial Officer. Dr. Hwang is also a member of the Board of
Directors of Biomax Co., Ltd.
Jun Keun Yum, age 49, joined TeleVideo in January 1999 as Vice President of
Operations and Chief Technology Officer. From February 2000 to present, he
served as the Vice President of Sales. Mr. Yum was a General Manager and
Executive Director of Samsung Electronics Co., Ltd., Seoul, Korea from
January 1993 to December 1998. From October 1986 to December 1992, he was
co-founder and President of Pixelab, Inc. of Lisle, Illinois. Mr. Yum has a
BS degree in Electrical Engineering from Han Yang University of Seoul, Korea
and an MS degree in Electrical Engineering from Illinois Institute of
Technology.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market and
quoted on the NASD electronic bulletin board under the symbol "TELV". The
following table sets forth for the periods indicated the high and low last
sales prices for the common stock. The prices quoted below reflect
inter-dealer prices, without retail mark-ups, markdowns or commissions and
may not necessarily represent actual transactions.
HIGH LOW
-------- -------
FISCAL 1999:
First Quarter $1.0000 $0.6250
Second Quarter 1.0938 0.3750
Third Quarter 1.0312 0.3750
Fourth Quarter 0.8125 0.5625
FISCAL 2000:
First Quarter $3.0000 $0.5312
Second Quarter 3.0000 0.7500
Third Quarter 1.0625 0.5938
Fourth Quarter 0.8750 0.4062
On February 7, 2001 there were 746 holders of record of the Company's Common
Stock and the closing price of the Company's common stock in the
over-the-counter market was $0.315 per share.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
presently intends to retain any earnings for use in its business.
(The remainder of this page was left blank intentionally.)
11
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data reflect the continuing operations of
TeleVideo for the fiscal years ended October 31, 2000 through 1996. The data
below has been derived from the Company's audited consolidated financial
statements for the fiscal years presented and should be read in conjunction
with such audited financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" presented
elsewhere herein.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2000 1999 1998(5) 1997(5) 1996
-------- -------- ---------- ---------- --------
Statement of Operations Data:
Net sales $ 6,974 $ 8,070 $ 14,751 $ 19,884 $ 21,576
Operating loss (4,918) (4,570) (4,727) (3,115) (4,638)
Net income (loss) 4,627(1) (3,707) (8,881)(2) (3,444)(3) (2,993)(4)
Net income (loss) per share
Basic and diluted 0.41 (0.33) (0.79) (0.31) (0.26)
Balance Sheet Data:
Cash and cash equivalents $ 3,261 $ 4,487 $ 1,640 $ 3,604 $ 4,496
Working capital 4,881 5,596 2,533 9,208 13,239
Total assets 23,349 18,317 10,433 17,692 23,014
Stockholders' equity 8,316 2,504 6,211 15,062 18,468
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the accompanying Notes to Consolidated Financial Statements for
a discussion of operating results, liquidity needs and acquisitions and
dispositions during the periods.
(1) INCLUDES NET GAINS FROM THE SALES OF C-NET STOCKS OF $10,059,000.
(2) INCLUDES NET LOSS FROM INVESTMENT IN APT VENTURE OF $4,076,903.
(3) INCLUDES NET GAINS(LOSS) FROM THE FOLLOWING (IN THOUSANDS):
(A) LOSS FROM INVESTMENT IN APT VENTURE $ (623)
(B) GAIN FROM RUSSIAN INVESTMENT 100
(C) GAIN FROM TAX SETTLEMENT 250
(D) KOREAN CURRENCY VALUATION ADJUSTMENT (115)
(E) LOSS FROM WRITE-OFF OF TLK (150)
------
$ (538)
======
(4) INCLUDES NET GAIN FROM THE SALE OF INTERTERMINAL JOINT VENTURE
INTEREST OF $1,370,000.
(5) AMOUNTS REFLECTS RESTATEMENT IN 1998 TO WRITE OFF COMPANY'S INVESTMENT
IN THREE H AND TLK DUE TO IMPAIRMENT IN 1996 AND 1997 RESPECTIVELY.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company continues to focus its efforts toward providing high-performance
Windows-based terminals to the business and consumer markets. In recent
years, the Company has phased out the sale of multimedia products and
monitors to focus on utilizing its expertise in server-based network
computing to forge new ground in delivering thin-client solutions. In
November 1998, the Company launched its Windows-based terminal products.
In August 2000 the Company acquired Promise Engineering, Inc., subsequently
renamed TeleVideo Mobile Electronics Division, which provides a channel for
products produced by Televideo investees (Alpha and K&T). These products are
represented by car accessories, which includes car alarms and hands-free phone
accessories. The new product line did not have significant operations in 2000.
For more details, please see Note 5 "Acquisition" from Notes to Consolidated
Financial Statements.
The Company faces strong competition in the marketplace and continues to look
for ways to improve operating efficiency. In order to lower the production
costs, the Company has continued to negotiate with its suppliers and has also
shifted many production processes overseas to subcontractors.
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales for fiscal year 2000 were approximately $7.0 million, compared with
$8.1 million in fiscal 1999, a decrease of $1.1 million, or 14%. In fiscal
2000, monitor and multimedia sales totaled $58,000 as compared with fiscal
1999, when sales of monitors and multimedia products totaled $1.0 million.
Sales of terminals decreased in fiscal 2000 to $4.5 million from $6.0 million
in fiscal 1999, a decrease of 25%. This decrease reflects the Company focus
on the sales of its new TeleClient, instead of the old terminals. The sales
of TeleClient were approximately $2.1 million in the year 2000, compared with
$89,000 in the year 1999.
Cost of sales for fiscal year 2000 was approximately $6.4 million, compared
with $8.1 million in fiscal 1999, a decrease of $1.7 million, or 21%. Cost of
sales as a percentage of net sales also decreased to 92% in 2000 from 100% in
1999. The decrease of cost of sales as a percentage of total sales in 2000,
is due in principal to the decrease in sales of multimedia and monitors,
products with a low gross margin and a $0.4 million expense for inventory
obsolescence recorded during 1999.
Sales and marketing expenses for fiscal year 2000 were approximately
$2.5 million, compared with $2.2 million in fiscal 1999, an increase of
$0.3 million, or 14%. As a percentage of net sales, sales and marketing
expenses increased to 36% in fiscal 2000 from 27% in fiscal 1999. The
increase primarily represents costs incurred by the Company for promoting its
new TeleCLIENT product line.
Research and development expenses were $0.9 million in fiscal 2000, compared
with $0.6 million in fiscal 1999. As a percentage of net sales, research and
development expenses increased to 13% in fiscal 2000 compared with 7% in
fiscal 1999. The increase represents increased costs associated with the
continued development of new products, including the Company's TeleCLIENT
product line.
General and administrative expenses were $2.1 million in fiscal 2000, compared
with $1.8 million in fiscal 1999, an increase of $0.3 million or 17%. As a
percentage of net sales, general and administrative expenses were 30% in fiscal
2000, compared with 22% in 1999. This increase is due principally to the write
off of accounts receivable in the amount of over $0.4 million in 2000.
The Company's loss from operations was approximately $4.9 million in fiscal
2000 as compared with $4.6 million in fiscal 1999.
Other income was $9.6 million in fiscal 2000 as compared with $0.5 million in
fiscal 1999. Other income represents primarily the gain from CNET stock
sales of approximately $10.1 million, partially offset by the write off of
the investment in Mulix, an equity method investee, in the amount of $1.0
million.
13
The net income for fiscal year 2000 was approximately $4.6 million, compared
with a net loss of $3.7 million in fiscal 1999, an increase of $8.3 million,
or 224%. This increase is due to the gain from CNET stock sales, partially
offset by the loss from operations.
An income tax of $0.1 million was recorded in fiscal 2000, as the Company was
required to pay income taxes generated on sale of CNET stock. The Company's
utilization of net operating loss carryovers was limited and therefore the
gains of sales from CNET stock generated alternative minimum tax liability.
The Company has approximately $90.0 million in federal net operating loss and
credit carryovers and approximately $5.0 million in state net operating loss
carryovers to offset future federal and state corporate income tax
liabilities. No net deferred tax asset has been recognized by the Company for
any future tax benefit to be provided from the loss carry forwards since
realization of any such benefit is not assured.
Net income per share in fiscal 2000 was $0.41 based on 11,307,000 weighted
average shares outstanding, compared to a net loss per share in fiscal 1999
of ($0.33) based on 11,271,000 weighted average shares outstanding.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal year 1999 were approximately $8.1 million, compared with
$14.8 million in fiscal 1998, a decrease of $6.7 million, or 45%. The
decrease in net sales reflects the Company's continued shift away from the
sale of monitors and multimedia products. In fiscal 1999, monitor and
multimedia sales totaled $1.0 million as compared to in fiscal 1998, when
sales of monitors and multimedia products totaled $6.3 million. Sales of
terminals decreased in fiscal 1999 to $6.0 million from $7.5 million in
fiscal 1998.
Cost of sales for fiscal year 1999 was approximately $8.1 million, compared
with $13.4 million in fiscal 1998, a decrease of $5.3 million, or 40%.
However, cost of sales as a percentage of net sales increased from 92% in 1998
to 100% in 1999. The increase in cost of sales as a percentage of sales in
1999 is due in part to royalty payments that the Company began making in
fiscal 1999 under a licensing agreement for the operating system software used
in the Company's TeleCLIENT products, which the Company began selling in
fiscal 1999. The Company also recorded a provision for obsolescence in the
fourth quarter of fiscal 1999 for multimedia products and monitors, which the
Company is in the process of phasing out.
Sales and marketing expenses for fiscal year 1999 were approximately
$2.2 million, compared with $2.4 million in fiscal 1998, a decrease of
$0.2 million, or 8%. As a percentage of net sales, sales and marketing
expenses increased to 27% in fiscal 1999 from 16% in fiscal 1998. The
increase primarily represents costs incurred by the Company to launch its
TeleCLIENT product line in fiscal 1999.
Research and development expenses were $0.6 million in fiscal 1999, compared
with $0.4 million in fiscal 1998. As a percentage of net sales, research and
development expenses increased to 7% in fiscal 1999 compared with 3% in
fiscal 1998. The increase represents increased costs associated with the
continued development of new products, including the Company's TeleCLIENT
product line.
General and administrative expenses were $1.8 million in fiscal 1999,
compared with $3.3 million in fiscal 1998, a decrease of $1.5 million or 45%.
As a percentage of net sales, general and administrative expenses were 22% in
fiscal 1999 and 1998. In fiscal 1999, the Company began incurring lease
expenses from the sale and leaseback of the Company's headquarters facility.
Additional details about the sale and leaseback transaction can be found in
"Liquidity and Capital Resources" and in Note 9 to the financial statements,
"Sale and Leaseback of Building." In fiscal 1998, the Company incurred a
charge of approximately $2.0 million to reflect a write-off of its accounts
and notes receivable from Applied Computer Technology, Inc.
The Company's loss from operations was approximately $4.6 million in fiscal
1999 as compared with $4.7 million in fiscal 1998.
Other income, net, was $0.5 million in fiscal 1999, as compared with other
expense, net, of $4.2 million in fiscal 1998. Other income includes the
amortization of the deferred gain on the December 1998 sale of the Company's
building offset by interest expense on the related capital lease and the
write off of the Company's investment in Applied Photonics Technology, Inc of
approximately $4.1 million.
14
The net loss for fiscal year 1999 was approximately $3.7 million, compared
with a net loss of $8.9 million in fiscal 1998, a decrease of $5.2 million,
or 58%.
Net loss per share in fiscal 1999 was $0.33 based on 11,271,000 weighted
average shares outstanding, compared to a net loss per share in fiscal 1998
of $0.79 based on 11,268,000 weighted average shares outstanding.
An income tax credit of $0.4 million was recorded in fiscal 1999 as the
Company reduced its tax liability originally set up for various tax exposure.
The Company had approximately $102 million in federal net operating loss and
credit carryovers and approximately $34 million in state net operating loss
carryovers to offset future federal and state corporate income tax
liabilities. No net deferred tax asset has been recognized by the Company for
any future tax benefit to be provided from the loss carry forwards since
realization of any such benefit is not assured.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company had $3.3 million in cash and cash
equivalents versus $4.5 million at October 31, 1999. The decrease is due in
principal to the investments in affiliates and to the loss from operations in
fiscal 2000.
Approximately $1.0 million money market funds were pledged as collateral
for comparable amounts of stand-by and sight letters of credit. At
October 31, 2000, the Company had no outstanding letters of credit, which
were secured by the pledged deposits under this agreement.
In March 2000, the Company received approximately 375,000 shares of CNET
common stock, when CNET acquired the Internet company, mySimon, an investment
made in 1998. During the fiscal year 2000, TeleVideo sold approximately
335,000 shares of CNET stock, the proceeds of which aggregated $10,953,000.
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 is due
and payable to the Company on December 1, 2018.
The Company 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 component has been accounted for as a
capital lease, whereby a leased building asset and capital lease obligation
was recorded at the fair value of approximately $6.27 million. Accumulated
amortization on the building as of October 31, 2000 and 1999 was
$0.787 million and $0.35 million, respectively. As a 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 the
straight-line method. The deferred gain attributable to the building element,
which approximates $4.56 million, is being amortized over the leased building
asset life, which has been determined to be the 15-year lease term, on a
straight-line method.
Working capital at the end of the fiscal 2000 was approximately $4.9 million,
a decrease of $0.7 million, or 13%, from the fiscal 1999 year-end level of
approximately $5.6 million, primarily as a result of the investments in
affiliates made during the fiscal year 2000 and the loss from operations,
offset partially by the proceeds from the sale of shares of CNet stock.
The Company believes that, with respect to its current operations, the
Company's cash balance of approximately $3.3 million at October 31, 2000,
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. In addition, our chief executive officer,
Dr. K. Philip Hwang, has pledged to provide up to $500,000 in funds for
working capital purposes.
Operating and non-operating cash receipts for the next twelve months will be
from the following: cash return from investments in NINGBO China, rental
income from the subleasing of a part of headquarter space, notes receivable.
Also, the sale of the inventory of $1.0 million of new mobile electronics
products, which just received all the necessary approvals (FCC, etc.) and
will begin to be shipped to the customers, will be another source of cash.
15
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 obtained 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. In fiscal 2000, the highest price for TeleVideo shares of
stock was $3.00, and the lowest price was $0.41.
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 29% of the Company's total
assets at October 31, 2000. As a result, the Company's success will be
adversely affected if the investees fail to execute their business plans. If
there is an impairment in the carrying value of the affiliate investments the
Company will reduce the carrying value of such investments.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risk for changes in interest
rates is not significant because the Company's investments are limited to
highly liquid instruments with maturities of three months or less. At October
31, 2000, the Company has approximately $3.3 million classified as cash and
equivalents. The Company is also subject to equity price risk related to its
investments in marketable securities. At October 31, 2000, the Company owned
approximately 39,800 shares of CNET common stock. As of October 31, 2000, the
estimated fair value of these marketable securities was approximately
$1,259,000. All of the Company's transactions with international customers and
suppliers are denominated in US dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE NO.
IN 10-K
--------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................. 20
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets............................................... 21
Consolidated Statements of Operations..................................... 22
Consolidated Statement of Stockholders' Equity............................ 23
Consolidated Statements of Cash Flows..................................... 24
Notes to Consolidated Financial Statements................................ 25
(Remainder of page left blank intentionally)
17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
TeleVideo, Inc.
We have audited the accompanying consolidated balance sheets of TeleVideo,
Inc. and Subsidiaries as of October 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended October 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TeleVideo, Inc.
and Subsidiaries as of October 31, 2000 and 1999, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended October 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
- -----------------------
San Jose, California
January 11, 2001
18
TELEVIDEO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
OCTOBER 31,
---------------------
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including restricted cash
of $1,000 in 2000 and 1999) $ 3,261 $ 4,487
Accounts receivable, less allowance of
$145 in 2000 and $1,383 in 1999 1,560 1,523
Inventories 1,239 1,464
Prepayments and other 761 987
Marketable Securities 1,259 -
Notes receivable - current 73 67
-------- --------
Total current assets 8,153 8,528
PROPERTY, PLANT AND EQUIPMENT:
Production equipment 669 624
Office furniture and equipment 1,128 1,101
Leased property under capital lease 6,270 6,270
-------- --------
8,067 7,995
Less accumulated depreciation and amortization 2,401 1,959
-------- --------
Property, plant and equipment, net 5,666 6,036
OTHER ASSETS 166 -
INVESTMENTS IN AFFILIATES 6,807 1,117
NOTE RECEIVABLE, LESS CURRENT PORTION 2,557 2,636
-------- --------
Total assets $ 23,349 $ 18,317
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Obligation under capital lease - current $ 296 $ 270
Accounts payable 808 964
Accrued liabilities 1,238 1,160
Income taxes 85 0
Deferred gain on sale of land and building - current 845 538
-------- --------
Total current liabilities 3,272 2,932
Obligation under capital lease, less current portion 5,516 5,812
Deferred gain on sale of land and building, less current portion 6,245 7,069
-------- --------
Total liabilities 15,033 15,813
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
Authorized - 75,000,000 shares
Outstanding - 11,309,772 and 11,271,085 shares at October 31, 2000 454 453
and 1999, respectively (net of 120,000 treasury shares in 2000 and 1999)
Additional paid-in capital 95,734 95,703
Accumulated other comprehensive income, net of tax 1,153 -
Accumulated deficit (89,025) (93,652)
-------- --------
Total stockholders' deficit 8,316 2,504
-------- --------
Total liabilities and stockholders' deficit $ 23,349 $ 18,317
======== ========
The accompanying notes are an integral part of these financial statements.
19
TELEVIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED OCTOBER 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
NET SALES $ 6,974 $ 8,070 $ 14,751
COST OF SALES 6,403 8,082 13,381
-------- -------- --------
GROSS PROFIT (LOSS) 571 (12) 1,370
OPERATING EXPENSES:
Sales and marketing 2,530 2,183 2,438
Research and development 890 598 370
General and administration 2,069 1,777 3,289
-------- -------- --------
Total operating expenses 5,489 4,558 6,097
-------- -------- --------
Loss from operations (4,918) (4,570) (4,727)
EQUITY IN (LOSS) GAIN OF AFFILIATES (1,000) 7 (4,077)
GAIN ON SALE OF SECURITIES 10,059 - -
REALIZED GAIN ON SALE-LEASEBACK 517 470 -
INTEREST EXPENSE (433) (444) (98)
OTHER INCOME (EXPENSE), NET 498 469 21
-------- -------- --------
Income (Loss) before income taxes 4,723 (4,068) (8,881)
Income Tax Expense (Benefit) 96 361 -
-------- -------- --------
Net Income (loss) $ 4,627 $ (3,707) $ (8,881)
======== ======== ========
Net income (loss) per share, basic and diluted $ 0.41 $ (0.33) $ (0.79)
======== ======== ========
Shares used in computing basic net earnings (loss) per share 11,302 11,271 11,268
======== ======== ========
Shares used in computing diluted net earnings (loss) per share 11,307 11,271 11,268
======== ======== ========
The accompanying notes are an integral part of these financial statements.
20
TELEVIDEO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
THREE YEARS ENDED OCTOBER 31, 2000
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------- PAID IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME EQUITY INCOME
------ ------ ---------- ----------- ------------- ------------- -------------
Balance, October 31, 1997 11,255 $ 450 $ 95,676 $ (81,064) $ - $ 15,062 $ -
Exercise of employee stock options 16 3 27 - - 30 -
Net loss - - - (8,881) - (8,881) (8,881)
------ ------ ---------- ----------- ------------- ------------- -------------
Balance, October 31, 1998 11,271 453 95,703 (89,945) - 6,211 (8,881)
====== ====== ========== =========== ============= ============= =============
Net loss - - - (3,707) - (3,707) (3,707)
------ ------ ---------- ----------- ------------- ------------- -------------
Balance, October 31, 1999 11,271 $ 453 $ 95,703 $ (93,652) - $ 2,504 (3,707)
====== ====== ========== =========== ============= ============= =============
Exercise of employee stock options 39 1 31 - - 32 -
Net income - - - 4,627 - 4,627 4,627
Unrealized gains on securities,
net of reclassification
adjustment - - - - 1,153 1,153 1,153
------ ------ ---------- ----------- ------------- ------------- -------------
Balances, October 31, 2000 11,310 $ 454 $ 95,734 $ (89,025) $ 1,153 $ 8,316 $ 5,780
====== ====== ========== =========== ============= ============= =============
The accompanying notes are an integral part of these financial statements.
21
TELEVIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED OCTOBER 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,627 $ (3,707) $ (8,881)
Charges (credits) to operations not affecting cash:
Provision for bad debts on receivables 342 572 2,300
Amortization of deferred gain (517) (470) -
Provision for excess and obsolete inventories 190 680 813
Net gain on sales of property and investment (10,059) - -
Loss on investment in unconsolidated affiliates 1,000 - 4,077
Depreciation and amortization 442 370 204
Changes in operating assets and liabilities:
Accounts receivable (379) 323 564
Inventories 35 131 (166)
Prepayments and other 226 (567) (200)
Accounts payable (156) 423 (998)
Accrued liabilities 78 342 90
Income taxes 85 (361) -
-------- -------- --------
Net cash used in operating activities (4,086) (2,264) (2,197)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of land and building - 7,859 -
Additions to property, plant and equipment (72) (100) (12)
Loans to affiliate and other - (7) (1,700)
Increase in investments in affiliates (7,690) - (1,000)
Proceeds from sale of investments 10,953 - -
Payments received on notes receivable 73 47 415
Increase in other assets (166) - -
-------- -------- --------
Net cash provided by (used in) investing activities 3,098 7,799 (2,297)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 32 - 30
Proceeds from note payable - affiliate - - 500
Proceeds from note payable - other - - 2,000
Payments on lease obligations (270) (2,688) -
-------- -------- --------
Net cash (used in) provided by financing activities (238) (2,688) 2,530
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,226) 2,847 (1,964)
Cash and cash equivalents at the beginning of the year 4,487 1,640 3,604
-------- -------- --------
Cash and cash equivalents at the end of the year $ 3,261 $ 4,487 $ 1,640
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 433 $ 444 $ 98
Amount converted from investments in affiliates to
marketable securities 1,000 - -
The accompanying notes are an integral part of these financial statements.
22
TELEVIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000, 1999, AND 1998
NOTE 1 - SUMMARY OF SIGNIFIANT ACCOUNTING POLICIES
THE COMPANY
Founded in 1975, TeleVideo, Inc. is a market leader providing innovative high
performance terminal and network computer products to the business and
consumer markets. The Company markets its products worldwide primarily
through distributors, value-added resellers ("VARs"), systems integrators and
original equipment manufacturers ("OEMs").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries, after elimination of inter-company accounts
and transactions.
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. Cost is computed on a
currently adjusted standard cost basis (which approximates average cost) for
both finished goods and work-in-process and includes material, labor and
manufacturing overhead costs. Amounts shown are net of reserves for
obsolescence of $0.5 million and $1.0 million as of October 31, 2000 and
1999, respectively: (in thousands)
OCTOBER 31,
------------------
2000 1999
------ ------
Purchased parts and subassemblies $ 98 $ 216
Work-in-process 314 313
Finished goods 827 935
------ ------
$1,239 $1,464
====== ======
MARKETABLE SECURITIES
Investments in marketable equity and debt securities are classified as
available-for-sale in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Available-for-sale securities are securities not
classified as either trading or held-to-maturity. Securities
available-for-sale are reported at fair value with unrealized gains and
losses, net of tax, included in accumulated other comprehensive income (loss)
in stockholders' equity. Premiums and discounts are included in interest
income over the period to maturity using the interest method. Gains and
losses on sale are determined using the specific identification method.
23
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are provided
over the estimated useful lives of the assets using both straight-line and
accelerated methods. Leasehold improvements and property under capital lease
are amortized over the shorter of the lease term or economic life of the
asset. The estimated lives used in determining depreciation are:
Building 40 years
Production equipment 1-10 years
Office furniture 1-10 years
Leased property 15 years
INVESTMENTS IN AFFILIATES
Investments in affiliated companies, owned 20% or more, are accounted for on
the equity method. Accordingly, consolidated net income includes the
Company's share of their net earnings. Investments of less than 20% are
carried at cost. The Company makes periodic evaluations of the recoverability
of its investments in affiliates based upon internal and external events
effecting expected realization of the Company's investment.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped. The Company
performs periodic evaluations of its customers' financial condition and
maintains a reserve for potential credit losses and adjusts the reserve
periodically to reflect both actual and potential credit losses. In addition,
such allowances provide for returns resulting from stock balancing agreements
and price protection programs. Product warranties are based on the ongoing
assessment of actual warranty expenses incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $0.2 million in fiscal 2000, approximately $0.7 million in
fiscal 1999 and $1.1 million in fiscal 1998.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred for the development and enhancement of new products and
services are charged to expense as incurred.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
109"). Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees. Accordingly, no accounting
recognition is given to stock options granted at fair market value until they
are exercised. Compensation expense related to employee stock options is
recorded if, on the date of grant, the fair value of the underlying stock
exceeds the exercise price.
24
SEGMENT REPORTING
The Company's business is conducted in a single operating segment. The
Company's Chief Executive Officer reviews a single set of financial data that
encompasses the Company's entire operations for purposes of making operating
decisions and assessing performance.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share reflects potential dilution from outstanding stock options
using the treasury stock method. Potentially dilutive securities are excluded
from the earnings per share calculations when their inclusion would be
anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, accounts receivable, trade
payables approximates carrying value due to the short-term nature of such
instruments. The fair value of notes receivable is estimated by discounting
the future cash flows using current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same maturities.
The carrying amount and estimated fair value of notes receivable as of
October 31, 2000 was approximately $2,600,000 and $2,300,000, respectively.
The carrying amount and estimated fair value of notes receivables as of
October 31, 1999 was approximately $2,700,000 and $2,600,000, respectively.
The fair value of investment securities is based on quoted market prices, if
available.
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.
RECLASIFICATIONS
Certain reclassifications have been made to conform to the 2000 presentation,
including changes which effect comparability of the annual financial
information to previously filed quarterly information. None of such
reclassifications are material to the financial statements taken as a whole.
NOTE 2 - REALIZATION OF ASSETS
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
However, the Company's has sustained recurring losses from operations and
used cash in operations for each of the three years ended October 31, 2000,
and had an accumulated deficit of $89,025,000 and $93,652,000 as of
October 31, 2000 and 1999, respectively.
25
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
financial statements is dependent upon continued operations of the Company,
which in turn is dependent upon the Company's ability to meet its financing
requirements on a continuing basis, and to succeed in its future operations.
In order for operations to continue through October 31, 2001, the Company may
need to reduce operating expenses, sell its investment in marketable
securities or raise additional capital through debt or equity financing. The
ultimate success of the Company will depend on increasing revenues and
generating income from operations.
The consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or amounts
and classification of liabilities that might be necessary should the Company
be unable to continue in existence.
(Remainder of page left blank intentionally)
26
NOTE 3 - MARKETABLE SECURITIES
The amortized cost, unrealized gains and losses, and fair values of the
Company's available-for-sale securities held at October 31, 2000 are summarized
as follows: (in thousands)
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Available-for-Sale Securities
Equity Securities $ 106 $ 1,153 $ - $ 1,259
Proceeds on sales of securities classified as available-for-sale were
$10,953,000 in 2000. Gains of $10,059,000 were realized on these sales.
NOTE 4 - INVESTMENTS IN AFFILIATES
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. Founded in October 1996, APT is a developmental stage
enterprise specializing in the development of electronic display
technology.
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.
In 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. ("Mulix"), a Delaware corporation. The Company's investment
in Mulix represents a 35% interest in this privately-held corporation. The
investment was accounted for using the equity method of accounting. Mulix
was dissolved as effective November 30, 2000. Thus, the entire investment
was written off as of October 31, 2000.
27
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. The Company's investment in K&T
Telecom, Inc. represents a 49% interest in this privately-held corporation
whose primary operations include manufacturing telecommunication and
electronics devices (hands-free phones accessories and collision sensors).
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. The Company's investment in
Alpha Technology, Inc. represents a 49% interest in this privately-held
corporation whose primary operations include manufacturing electronics and
car accessories (two way car alarm systems).
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.
In February 2000, CNET Networks, Inc. (formerly, CNET, Inc.) completed the
acquisition of mySimon, Inc. As a result of this acquisition, the Company
received 375,108 shares of common stock of CNET Networks, Inc. ("CNET") in
exchange for 100% of its interest in mySimon, Inc. During 2000, the cost
method used to book the investment in mySimon was changed to the market
value method in accordance with SFAS 115 to record the investment in CNET
stock.
KORAM INC.
On March 3, 1997, the Company deposited $224,820 in escrow in Korea, to
purchase a 50% ownership in Koram, Inc. ("Koram"), a restaurant venture in
Seoul, Korea. In February 1998, the Company completed its purchase of a
50% interest in Koram. The Company's investment was written down to
$109,820 during 1997, due to the devaluation of the Korean won.
During 2000, the Company decided to discontinue it participation in this
joint venture and entered into an agreement with its venture partner
whereby the venture partner will pay $116,000 for the Company's 50%
interest. As such the Company accounts for this investment under the cost
method of accounting. This investment was previously accounted for under
the equity method of accounting.
BIOMAX CO., LTD.
In May 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,
which is engaged in developing an herbal product to help lower cholesterol
levels in humans. 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.
KEYIN TELECOM CO., LTD.
In May 2000, the Company purchased for $2,522,972 in cash an aggregate of
15,278 ordinary shares of Keyin Telecom Co. Ltd. ("Keyin"). Keyin is a
private company located in Seoul, Korea, which is engaged in developing
powerline communications technology. The Company's investment in Keyin
represents a 5.75% interest in this corporation. The investment is
accounted for using the cost method of accounting.
28
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
investment is accounted for using 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 invested an additional
$2,000,000 in December 2000. The total investment will represent a 30%
interest in this entity. This investment is accounted for using the cost
method at October 31, 2000.
The investment agreement also provides for the use of Televideo's technical
production skill for 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.
A summary of the changes in the Company's investments in affiliates for the
two years ended October 31, 2000 follows: (in thousands)
EQUITY METHOD AFFILIATES
-----------------------------------
MULIX K&T ALPHA SUBTOTAL
------- ----- ----- --------
Balance, October 31, 1998 $ - $ - $ - $ -
Equity in Earnings (Loss) of Affiliates - - - -
------- ----- ----- --------
Balance, October 31, 1999 - - - -
Investment 1,000 600 650 2,250
CNET Networks Inc. Acquisition - - - -
Equity in Earnings (Loss) of Affiliates $(1,000) - - $ (1,000)
------- ----- ----- --------
Balance, October 31, 2000 $ - $ 600 $ 650 $ 1,250
======= ===== ===== ========
COST METHOD AFFILIATES
-------------------------------------------------------------------------------------
NINGBO CHINA mySimon KORAM BIOMAX KEYIN SYNERTEK SUBTOTAL TOTAL
------------ ------- ----- ------ ----- -------- -------- -------
$ - $ 1,000 $ 100 $ - $ - $ - $ 1,100 $ 1,100
Balance, October 31, 1998
Equity in Earnings (Loss) of Affiliates - - 7 - - - 7 7
------ ------- ----- ------ ----- ------ ------- -------
Balance, October 31, 1999 - 1,000 117 - - - 1,117 1,117
Investment 1,000 917 2,523 1,000 5,440 7,690
CNET Networks Inc. Acquisition - (1,000) - - - - (1,000) (1,000)
Equity in Earnings (Loss) of Affiliates - - - - - - - (1,000)
------ ------- ----- ------ ----- ------ ------- -------
Balance, October 31, 2000 $1,000 $ - $ 117 $ 917 $2,523 $1,000 $ 5,557 $ 6,807
====== ======= ===== ====== ====== ====== ======= =======
NOTE 5 - ACQUISITION
PROMISE ENGINEERING, INC. ("PEI")
In August 2000, the Company acquired Promise Engineering, Inc., a
Washington corporation for $316,433. After acquisition, PEI was renamed
Televideo Mobile Electronics Division ("TMED"). PEI was a research and
development company, focused on cooling and heating car systems. Televideo
paid cash of $166,433.
29
Televideo further warrants to PEI that Televideo will issue, transfer
and convey to a former officer of PEI, now an employee of TMED ("TMED
Employee") one hundred thousand (100,000) shares of the common stock of
Televideo and will pay the difference of $150,000 in the event of annual
sales revenue of TMED reaches $10,000,000 in any 12 month period.
However, Televideo may issue, transfer and convey to TMED Employee the
first 100,000 shares collectively within six months of the establishment
of TMED if in the sole opinion of Chairman and CEO, Dr. K. Philip Hwang,
TMED Employee's performance is satisfactory and acceptable. A second block
of 100,000 shares of the common stock of Televideo shall be issued,
transferred and conveyed to TMED Employee if the annual sales revenue of
TMED reaches $20,000,000 in any 12 month period. When computing sales
revenue of $20,000,000, the $10,000,000 sales revenue referred above
shall be included. If TMED executes a non-cancelable, non-revocable
procurement with Cartell, Inc. with a minimum term of three (3) or more
years and the first manufacturing product shipment is accepted by
Cartell, Inc. then, within thirty (30) days of the said acceptance, an
additional nine hundred thousand (900,000) shares of common stock of
Televideo shall be transferred and conveyed to TMED Employee.
NOTE 6 - VALUATION AND QUALIFYING ACCOUNTS
The Company's reserves for doubtful accounts receivable and inventory
obsolescence consist of the following: (in thousands)
CHARGED
BALANCE AT (CREDITED) BALANCE AT
BEGINNING TO COSTS & END OF
OF PERIOD EXPENSE DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
Year ended October 31, 1998:
Reserve for doubtful accounts $1,043 $2,300 $ (1,991) $1,352
Reserve for inventory obsolescence 523 813 (690) 646
Year ended October 31, 1999:
Reserve for doubtful accounts 1,352 572 (541) 1,383
Reserve for inventory obsolescence 646 680 (289) 1,037
Year ended October 31, 2000:
Reserve for doubtful accounts 1,383 342 (1,580) 145
Reserve for inventory obsolescence 1,037 190 (746) 481
30
NOTE 7 - ACCRUED LIABILITIES
Accrued liabilities consist of the following at October 31: (in thousands)
2000 1999
------ ------
Co-op advertising $ 173 $ 252
Employee compensation and benefits 132 209
Warranty 169 169
Professional fees 59 77
Royalties 453 175
Other 252 278
------ ------
$1,238 $1,160
====== ======
NOTE 8 - LETTER OF CREDIT AGREEMENT
The Company has a letter of credit agreement with a bank whereby the bank
will issue up to a total of $1.0 million of standby and sight letters of
credit. These agreements are contingent upon the Company maintaining
deposits in a money market account at the bank as collateral in a total
amount no less than the outstanding borrowings. At October 31, 2000, the
Company had no letters of credit outstanding.
NOTE 9 - 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 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. Accumulated amortization on the building as of October 31,
2000 and 1999 was $0.77 million and $0.35 million, respectively. 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 aggregate monthly lease payments are $104,000. These
payments escalate to $126,000 through 2013.
31
Future aggregate minimum lease payments are as follows: (in thousands)
FUTURE
MINIMUM
YEAR ENDING GUARANTEED
OCTOBER 31, PAYMENTS
----------- ----------
2001 $ 1,242
2002 1,242
2003 1,293
2004 1,304
2005 1,304
Thereafter 11,654
----------
Total minimum lease payments $ 18,039
==========
Amounts representing interest (11,931)
Current portion of capital lease obligations (296)
----------
Present value of obligations under capital leases $ 5,812
==========
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, which the Company began
receiving on January 1, 1999. If not earlier paid in full, unpaid principal
and accrued interest shall be due and payable to TeleVideo, Inc. on
December 1, 2018.
32
NOTE 10 - CAPITAL STOCK
The Company effected a 4-for-1 reverse stock split of its outstanding
common stock on April 23, 1998. All shares and per share amounts have been
retroactively adjusted for such reverse stock split.
PREFERRED STOCK
The Company has authorized 3,000,000 shares of preferred stock. No
preferred stock has been issued to date.
STOCK OPTION PLANS
The Company has three stock option plans, the 1991 ISO Plan ("1991 ISO
Plan"), the 1981 ISO Plan ("1981 ISO Plan") and the 1981 Supplemental
Plan (the "Supplemental Plan") accounted for under the APB Opinion 25
and related interpretations. The 1991 ISO Plan provides for the granting
of incentive options to employees, including officers, for up to
4,000,000 shares. Both the 1981 ISO Plan and the Supplemental Plan
expired in October 1991. The outstanding options have a term of ten
years when issued and vest over five years. The exercise price of each
option equals the market price of the Company's stock on the date of
grant. Accordingly, no compensation cost has been recognized for any
grants under the plans. Had compensation cost for the plans been
determined based on the fair value of the options at the grant dates
consistent with the method of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"),
the Company's net income (loss) and net income(loss) per share would
have been changed to the pro forma amounts indicated below. Pro forma
results may not be indicative of the pro forma results in the future
periods.
OCTOBER 31,
----------------------------------
2000 1999 1998
------ -------- --------
(in thousands, except per share data)
Net income (loss)
As reported $4,627 $(3,707) $(8,881)
Pro forma $4,498 $(3,826) $(8,987)
Income (loss) per share, basic and diluted
As reported $ 0.41 $ (0.33) $ (0.79)
Pro forma $ 0.40 $ (0.34) $ (0.80)
33
NOTE 10 - CAPITAL STOCK (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998 respectively: no
expected dividends; weighted average risk-free interest rate of 6.13%,
6.00% and 6.69%; stock volatility 150%, 219% and 164%; and expected lives
of 10 years. The weighted average fair value of options granted were $1.12,
$0.84 and $1.49 in 2000, 1999 and 1998, respectively.
A summary of the status of the Company's stock option plans as of
October 31, 2000, and changes during the three years ending
October 31, 2000 is presented below:
OUTSTANDING EXERCISABLE
------------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- --------- ----------- --------
1991 ISO Plan
$0.47 - $0.84 173,875 8.80 $0.78 31,219 $0.84
$0.88 - $1.32 125,250 7.09 1.10 52,688 1.00
$1.52 - $2.12 46,125 7.95 1.73 10,250 1.65
$2.64 - $2.88 2,875 4.56 2.77 2,718 2.77
------- ---- ----- ------ -----
Totals 348,125 8.04 $1.04 96,875 $1.06
======= ==== ===== ====== =====
1981 ISO Plan
$0.88 250 1.06 $0.88 250 $0.88
34
WEIGHTED
AVERAGE
1981 SUPPLEMENTAL PLAN OUTSTANDING EXERCISE PRICE
----------- --------------
Balance, October 31, 1997 37,500 $ 0.88
Granted - -
Exercised - -
Canceled - -
---------
Balance, October 31, 1998 37,500 0.88
Granted - -
Exercised - -
Canceled - -
---------
Balance, October 31, 1999 37,500 0.88
Granted - -
Exercised (37,500) -
Canceled - -
---------
Balance, October 31, 2000 - $ -
=========
WEIGHTED
AVERAGE
1981 ISO PLAN OUTSTANDING EXERCISE PRICE
----------- --------------
Balance, October 31, 1997 1,250 $ 0.88
Granted - -
Exercised (500) 0.88
Canceled - 0.88
---------
Balance, October 31, 1998 750 0.88
Granted - -
Exercised (500) 0.88
Canceled - -
---------
Balance, October 31, 1999 250 0.88
Granted - -
Exercised - -
Canceled - -
---------
Balance, October 31, 2000 250 $ 0.88
=========
35
WEIGHTED
AVERAGE
1991 ISO PLAN AVAILABLE OUTSTANDING EXERCISE PRICE
--------- ----------- --------------
Balance, October 31, 1997 673,094 211,188 $ 1.96
Granted (111,875) 111,875 1.37
Exercised - (10,775) 1.64
Canceled 128,288 (128,288) 2.43
--------- -----------
Balance, October 31, 1998 689,507 184,000 1.27
Granted (205,500) 205,500 0.84
Exercised - - -
Canceled 102,000 (102,000) 1.37
--------- -----------
Balance, October 31, 1999 586,007 287,500 1.06
Granted (154,000) 154,000 1.14
Exercised - 1,190 0.93
Canceled 92,185 (92,185) 0.94
--------- -----------
Balance, October 31, 2000 524,192 348,125 $ 1.04
========= ===========
NOTE 11 - INCOME TAXES
At October 31, 2000, the Company had tax loss carryforwards of
approximately $90 million for federal income tax and approximately $5
million for state income tax reporting purposes, respectively. The net
operating loss carryforwards expire through fiscal 2014. The Tax Reform Act
of 1986 contains provisions that may limit the net operating loss
carryforwards to be used in any given year upon occurrence of certain
events, including significant changes in ownership interests.
No deferred tax asset or benefit was recorded at October 31, 2000 and 1999,
as all amounts have been fully reserved. The valuation allowance decreased
by $1,023,000 in fiscal 2000 and increased by $1,046,000 in fiscal 1999.
The components are as follows: (in thousands)
2000 1999
--------- --------
Net operating loss and tax credit carryforwards $ 35,405 $ 36,192
Other 1,114 1,350
--------- --------
36,519 37,542
Less valuation allowance (36,519) (37,542)
--------- --------
$ - $ -
========= ========
36
The following is a reconciliation of expected tax expense (benefit) to
actual for each of the years ended October 31 (in thousands):
2000 1999 1998
--------- -------- --------
Book income (loss) $ 4,627 $ (3,707) $ (8,881)
======== ======== ========
Expected tax benefit 1,573 1,353 3,020
Adjustments to reconcile
expected to actual benefit:
Alternate minimum tax 96 - -
Reduction of estimated
tax liability - (361) -
Effect of change in valuation allowance (net) (1,573) 1,353 (3,020)
-------- -------- --------
Actual tax expense (benefit) $ 96 $ (361) $ -
======== ======== ========
The Company had pending a California Franchise tax exposure estimate of
$361,000 resulting from previous income tax audits. During the fiscal year
ended October 31, 1999, the Company recorded a tax benefit in the
accompanying statement of operations as the Company believed that no
further liability existed at October 31, 1999.
NOTE 12 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and the denominators
used in the basic and diluted net income (loss) per share for each of the
years ended October 31 (in thousands):
2000 1999 1998
--------- -------- --------
Numerator used for basic and diluted net income
(loss) per share:
Net income (loss) $ 4,627 $ (3,707) $ (8,881)
Denominator:
Weighted average shares outstanding 11,302 11,271 11,268
Diluted effect of stock options 5 - -
--------- -------- --------
Denominator for diluted net income per share $ 11,307 $ 11,271 $ 11,268
========= ======== ========
A total of 331,400 options in 2000, 325,250 options in 1999, and 249,938
options in 1998 were excluded from the computation of diluted earnings per
share because either (1) the option's exercise price was greater than then
average market price of the common shares, or (2) the inclusion of the
options in 1999 and 1998 would have been antidilutive because the Company
experienced a net loss during those years.
37
NOTE 13 - CONCENTRATIONS
The Company, which operates in a single operating segment, designs,
produces and markets high performance terminals and monitors designed for
office and home automation both domestically and internationally. The
Company had export sales primarily to Europe, Asia and Latin America of
approximately 34% ($2.4 million), 19.8% ($1.6 million), and 14.0% ($2.1
million) of net sales during fiscal 2000, 1999, and 1998, respectively.
For the fiscal year ended October 31, 2000, one customer accounted for 12%
of the Company's sales. For the fiscal year ended October 31, 1999, one
customer accounted for 10% of the Company's sales, while another customer
accounted for 9%. For the fiscal year ended October 31, 1998, one customer
accounted for 12% and another customer accounted for 11% of net sales.
Information about the Company's operations in different geographic
locations is as follows:
UNITED
(in thousands) STATES EUROPE OTHER TOTAL
-------- -------- ------- -------
2000
Total revenues $ 4,599 $ 1,209 $1,166 $ 6,974
Operating (loss) income (5,393) 242 233 (4,918)
Identifiable assets 23,349 - - 23,349
1999
Total revenues 6,503 1,023 544 8,070
Operating (loss) income (5,024) 253 201 (4,570)
Identifiable assets 18,317 - - 18,317
1998
Total revenues 12,681 1,685 385 14,751
Operating (loss) income (5,188) 354 107 (4,727)
Identifiable assets 10,433 - - 10,433
NOTE 14 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 2000, the Company recorded a $185,000 expense for
inventory obsolescence for certain of its computer monitors and terminals
in inventory at October 31, 2000. The Company also expensed $248,000 of
prepaid expenses.
38
NOTE 15 - SUBSEQUENT EVENTS
INVESTMENTS IN AFFILIATES
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 $1,000,000 from
Ningbo China. During January 2001, the Company received an additional
$120,000 from Ningbo China.
COMMITMENTS AND CONTINGENCIES
In December 2000, the Company entered into two lease agreements to sublease
portions of its main facility. The operating subleases provide that the
sublessees pay taxes, maintenance, insurance and other occupancy expense
applicable to the subleased premises.
The minimum sublease rental commitments, under operating subleases are as
follows:
YEAR ENDING
OCTOBER 31,
-----------
2001 $ 975,000
2002 1,014,000
2003 1,055,000
-----------
Total minimum payments required $ 3,044,000
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
The following items included in the Company's Definitive Proxy
Statement dated February 28, 2001 used in connection with the Company's Annual
Meeting of Stockholders to be held on April 17, 2001 are incorporated herein by
reference:
PAGES IN
PROXY STATEMENT
---------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 4
ITEM 11. EXECUTIVE COMPENSATION 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 3
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
(The remainder of this page was left blank intentionally.)
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
1. FINANCIAL STATEMENTS.
The Consolidated Financial Statements, Notes thereto and the Report
of Grant Thornton LLP, Independent Public Accountants, thereon are included
in Part II of this Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the accompanying Consolidated Financial
Statements.
3. EXHIBITS.
The following exhibits have been or are being filed herewith and are
numbered in accordance with Item 601 of Regulation S-K:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------------------------------------------------
3.1 (1) Restated Certificate of Incorporation of Registrant, as amended
and currently in effect
3.2 (2) Bylaws of the Registrant
10.1 (3) TeleVideo, Inc. 1991 Incentive Stock Option Plan and form of
Incentive Stock Option Agreement
10.2 (3) TeleVideo, Inc. 1992 Outside Directors' Stock Option Plan+
10.3 (4) Management Bonus Plan effective fiscal 1984, as amended
10.4 (2) Form of Distributor and Licensing Agreement
10.5 (2) Form of Original Equipment Manufacturer Agreement
10.6 (5) Real Estate Purchase Agreement dated December 28, 1998 and
accompanying Lease and Agreement of
Lease, Escrow Agreement, Pledge and Security Agreement and
Assignment between the Registrant and TVCA, LLC, dated
December 28, 1998
21.1 (1) Subsidiaries
23.1 (1) Consent of Grant Thornton LLP
[cad 217] Denotes a management contract or compensatory plan or arrangement.
- -----------------------
(1) Filed herewith.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1987, filed on January 29, 1988.
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1991, filed January 27, 1992.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K,
filed January 29, 1985 and Annual Report on Form 10-K, filed
January 28, 1986.
(5) Incorporated by reference from the Registrant's Current Report on Form 8-K,
filed on January 2, 1999.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Company with
respect to the quarter ended October 31, 2001.
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.
41
TELEVIDEO, INC.
-----------------------------------
(Registrant)
Date: February 28, 2001 By: /s/ K. Philip Hwang
-----------------------------------
K. Philip Hwang
Chairman of the Board,
Chief Executive Officer and Acting
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------- ----------------------------- -----------------
/s/ K. Philip Hwang Chairman of the Board and February 28, 2001
- --------------------------- Chief Executive Officer
K. Philip Hwang (Principal Executive Officer)
/s/ Robert E. Larson Director February 28, 2001
- ---------------------------
Robert E. Larson
/s/ Woo K. Kim Director February 28, 2001
- ---------------------------
Woo K. Kim
42
RESTATED CERTIFICATE OF
INCORPORATION OF
TELEVIDEO SYSTEMS, INC.
TeleVideo Systems, Inc. a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is TeleVideo Systems, Inc., and the date of
filing of its original certificate of incorporation with the Secretary of State
was January 13, 1987.
2. The text of the Certificate of Incorporation is hereby amended and
restated to read in full as follows:
ARTICLE 1
The name of the Corporation is TeleVideo Systems, Inc.
ARTICLE 2
The address of the registered office of the Corporation in the State of
Delaware is 1219 Orange Street, in the city of Wilmington, County of New Castle.
The name of its registered agent at that address is The Corporation Trust
Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which the corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE 4
The total number of shares of stock of all classes which the Corporation
has authority to issue is 78,000,000 shares, consisting of 75,000,000 shares of
common stock with a par value of $0.01 per share, and 3,000,000 shares of
Preferred Stock with a par value of $0.01 per share.
The Board of Directors is authorized to provide for the issuance of the
shares of the Preferred Stock in one or more series, to establish from time to
time the number of shares to be included in each such series, to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding).
ARTICLE 5
Stockholders of the Corporation holding a majority of the Corporation's
outstanding voting stock shall have the power to adopt, amend or repeal Bylaws.
The Board of Directors of the Corporation shall also have the power to adopt,
amend or repeal Bylaws of the Corporation, except as such power may be expressly
limited by Bylaws adopted by the shareholders.
ARTICLE 6
Election of Directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE 7
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
43
Any repeal or modification of the foregoing provisions of this Article 7
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
3. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, TeleVideo Systems, Inc., has caused this certificate to
be signed and attested by its duly authorized officers this 21 day of January,
1987.
TELEVIDEO SYSTEMS, INC.
By: /s/ K. Philip Hwang
---------------------
K. Philip Hwang
Chairman of the Board
Attest:
By: /s/ Allan D. Smirni
-------------------------
Allan D. Smirni
Secretary
44