TELEVIDEO INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 31, 2002

o	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: 000-11552

Televideo, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

94-2383795
(IRS Employer Identification No.)

2345 Harris Way, San Jose, California 95131
(Address of principal executive offices)

Registrant's telephone number, including area code: (408) 954-8333

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 ý No o

The number of shares outstanding of registrant's Common Stock, as of August 31, 2002 is: 11,310,000.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for TeleVideo Inc. (the "Company") for the third quarter ended July 31, 2002, includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, included in this report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including, but not limited to, such matters as future product development, business development, marketing arrangements, future revenues from contracts, business strategies, expansion and growth of the Company's operations and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below, general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond control of the Company. Prospective investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TELEVIDEO, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

			July 31, 2002			October 31, 2001
			(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents, including $0.1 million restricted cash at July 31, 2002		$	774		$	870
	Accounts receivable, net			1,475			1,683
	Inventories, net			1,441			2,331
	Marketable Securities			37			160
	Prepayments and other			262			252
	Notes receivable—current			82			78

		Total current assets		4,071			5,374

PROPERTY, PLANT AND EQUIPMENT:
	Production equipment			672			671
	Office furniture and equipment			1,250			1,142
	Leased property under capital lease			6,270			6,270

				8,192			8,083
	Less accumulated depreciation and amortization			3,218			2,860

		Property, plant and equipment, net		4,974			5,223

INVESTMENTS IN AFFILIATES				2,121			2,827
OTHER ASSETS (RECEIVABLE FROM ALPHA TECHNOLOGY)				926			—
NOTE RECEIVABLE, LESS CURRENT PORTION				2,417			2,479

		Total assets	$	14,509		$	15,903

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
	Obligation under capital lease—current		$	336		$	318
	Accounts payable			637			812
	Notes payable			2,017			1,500
	Accrued liabilities			767			745
	Deferred tax liabilities (CNET)			—			—
	Deferred gain on sale of land and building—current			564			538

		Total current liabilities		4,321			3,913

	Obligation under capital lease—long-term			4,943			5,198
	Deferred gain on sale of land and building—long-term			5,564			6,013

		Total liabilities		14,828			15,124

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
	Authorized—23,000,000 shares Outstanding—11,310,000 shares at July 31, 2002 and October 31, 2001			454			454
	Additional paid-in capital			95,734			95,734
	Accumulated other comprehensive income, net			(48)			80
	Accumulated deficit			(96,459	)		(95,489	)

		Total stockholders' equity		(319)			779

		Total liabilities and stockholders' equity	$	14,509		$	15,903

The accompanying notes are an integral part of these financial statements.

TELEVIDEO, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

			Three Months Ended July 31,				Nine Months Ended July 31,
			2002		2001		2002		2001
NET SALES			$	2,057	$	1,644	$	5,758		4,624
COST OF SALES				1,683		1,320		4,498		4,261

GROSS PROFIT				374		324		1,260		363
OPERATING EXPENSES:
	Sales and marketing			425		388		1,231		1,491
	Research and development			155		182		473		713
	General and administration			398		536		1,278		1,713

		Total operating expenses		978		1,106		2,982		3,917

		Loss from operations		(604)		(782)		(1,722)		(3,554)
INTEREST (EXPENSES) INCOME, net				(81)		42		(238)		147
AFFILIATES EQUITY LOSS				(60)		(203)		(140)		(930)
UNREALIZED LOSS ON SECURITIES				(88)		(778)		(146)		(3,831)
OTHER INCOME, net				430		388		1,278		1,306

		Net loss	$	(403)	$	(1,333)	$	(968)		(6,862)

Net loss per share, basic and diluted			$	(.04)	$	(.12)	$	(.09)		(.61)

Weighted average shares outstanding				11,310		11,307		11,310		11,307

The accompanying notes are an integral part of these financial statements.

TELEVIDEO, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2002 AND JULY 31, 2001
(IN THOUSANDS)
(Unaudited)

		Nine Months Ended July 31,
		2002		2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities		$	(747)	$	(3,495)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Net proceeds from sale of land and building		—		—
	Net additions to property, plant and equipment		(105)		—
	Investment in Ningbo China		—		(2,000)
	Deferred gain from Ningbo China		—		1,280
	Note receivable		58		54
	Proceeds from investments, including sales of CNET stock		418		87

Net cash provided by (used in) investing activities			371		(579)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from notes payable		517		—
	Loans (from Smith Barney and Gem Management)		—		1,575
	Payments on lease obligations		(237)		—

Net cash provided by (used in) financing activities			280		1,575

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(96)		(2,499)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD			870		3,261

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD		$	774	$	762

Non cash investing/financing activities:

In December 1998, the Company sold its main facility (land and building) for approximately $11.0 million and concurrently leased back this facility over a 15-year lease term expiring in December 2013. The land component has been recorded as an operating leaseback. The building element has been accounted for as a capital lease, whereby a leased building asset and capital lease obligation were recorded at the fair value of approximately $6.27 million. As a result of the sale for $11.0 million (which includes a $2.75 million note receivable) a deferred gain of approximately $8.0 million was recorded. The deferred gain attributable to the land element, which approximates $3.44 million, is being amortized over the 15 year lease life on a straight line method. The deferred gain attributable to the building element, which approximates $4.56 million, is being amortized over leased building asset life, which has been determined to be the 15 year lease term, on a straight line method.

The $2.75 million note receivable bears interest at 7.25% per annum. Principal and accrued interest is payable in equal monthly installments of $21,735 each on the first day of each month commencing on January 1, 1999. If not earlier paid in full, any unpaid principal and all accrued interest is due and payable to TeleVideo, Inc. on December 1, 2013.

In May 2001 the Company obtained a line of credit from Gem Management, a company owned by Gemma Hwang, the spouse of majority stockholder, in amount of $3.5 million, including $200,000 previously loaned. The Company can borrow money under this line of credit when needed, in order to assure the continuity of the operations. In consideration of Gem Management loan to the Company, the Company pleads and grants to Gem Management a secured interest in the following described property:

a) 15,278 shares of the common stock of Xeline (Keyin Telecom);

b) 45,000 shares of the common stock of Biomax;

c) 285,714 shares of the common stock of Synertech;

d) 30% from the TeleVideo Ningbo China equity, equivalent to 30% of the outstanding shares of TeleVideo Ningbo China;

e) any and all intellectual property of TeleVideo, including but not limited to patents, hardware and software engineering documents;

f) any and all trademarks, trade names and intangible assets of TeleVideo.

Under this line of credit, which bears interest at 8% per annum, payable monthly, the Company received $200,000 in February, $300,000 in June, $500,000 in July, $500,000 in September, $500,000 in December 2001 and $500,000 in April 2002. In November 2001 the Company paid back approximately $500,000 from this loan by giving in exchange its interest in Alpha Technology and the proceeds from Koram investment. On September 1, 2002 the outstanding balance for this loan was approximately $2,017,000.

In June 2002 Gem Management agreed to lower the interest rate for its note with the Company and, consequently, beginning with June 1, 2002, the interest rate for this note will be equal with the prime rate published by The Wall Street Journal on the first working day of the month, plus one percent. Currently, the interest rate for the note is 5.75%.

The accompanying notes are an integral part of these financial statements.

TELEVIDEO, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2002

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The information at July 31, 2002 and for the three and nine months ended July 31, 2002 and 2001 include all adjustments that the management of the Company believes are necessary for fair presentation for the results of the periods presented.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries, after elimination of inter-company accounts and transactions. All of the Company's unconsolidated affiliates are accounted for using the equity or the cost method.

USE OF ESTIMATES

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market. Costs are computed on a currently adjusted standard basis (which approximates average cost) or both finished goods and work-in-process and includes material, labor and manufacturing overhead costs. The cost of purchased parts is determined on a first-in, first-out basis. Amounts shown are net of reserves for obsolescence of $0.5 million and $0.7 million at July 31, 2002 and October 31, 2001, respectively (in thousands):

	July 31, 2002		October 31, 2001
Purchased parts and subassemblies	$	197	$	146
Work-in-process		372		448
Finished goods		872		1,737

	$	1,441	$	2,331

Last year, the Company shipped back to Alpha Technology car alarm systems in value of approximately $0.9 million, in order to be fixed some functional problems. Because we considered that would be hard for us to sell these products, Alpha agreed to sell these products and to refund us their value, and, consequently, we have reclassified these amounts from inventory to other receivable, resulting an important decrease in the inventory value.

PROPERTY, PLANT AND EQUIPMENT

Depreciation and amortization are provided over the estimated useful lives of the assets using both straight line and accelerated methods.

Production equipment		1-10 years
Office furniture		1-10 years
Leased property		15 years

LOSS PER SHARE

Loss per share is based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period.

RECLASSIFICATIONS

Certain reclassifications have been made to conform to the 2002 presentation. None of such reclassifications are material to the financial statements taken as a whole.

2. ACQUISITIONS AND DIVESTITURES

Equity Method

Applied Photonics Technology, Inc.

On April 16, 1997, the Company entered into a Common Stock Purchase Agreement with Applied Photonics Technology, Inc. (APT), a California corporation, whereby the Company purchased a 30% interest in APT for $3.0 million.

During the fiscal year ended October 31, 1998, the Company wrote off its equity investment, related goodwill, and note receivable of approximately $4.1 million. During 1999, the Company granted and wrote off loans and advances to APT totaling $426,000. The Company has not guaranteed any obligations of APT and has made no commitments to provide additional financial support to APT.

Mulix, Inc.

On February 2000, the Company purchased for $1,000,000 in cash an aggregate of 14,269,230 shares of unregistered Series A Convertible Preferred Stock of Mulix, Inc., a Delaware corporation. The Company's investment in Mulix represents a 35% interest in this privately held corporation. The investment is accounted for on the equity method of accounting.

Mulix was dissolved effective November 30, 2000. Thus, the entire investment was written off as of October 31, 2000.

K&T Telecom, Inc.

In July 2000, the Company purchased for $600,000 in cash an aggregate of 9,608 shares of stock of K&T Telecom, Inc. K&T Telecom, Inc. is a Korean company; and its main activity is manufacturing telecommunication and electronics devices, including a 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.

During the fiscal years 2001 and 2002, due to the decrease in the estimated fair market value of K&T Telecom, the Company decreased the carrying value of this investment on the financial statements from $600,000 to $209,176, proportionally with its interest in this company.

Also, the Company is considering the possibility to withdraw from this joint venture.

Alpha Technology, Inc.

In August 2000, the Company purchased for $650,000 in cash an aggregate of 9,608 shares of stock of Alpha Technology, Inc. Alpha Technology, Inc. is a Korean company, manufacturing electronic and car accessories, including two way car alarm systems. The Company's investment in Alpha Technology, Inc. represents a 49% interest in this privately held corporation. The investment is accounted for on the equity method of accounting.

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.

In the fiscal year 2001, due to the decrease in the estimated fair market value of Alpha Technology, the Company adjusted the carrying value of this investment on the financial statements from $600,000 to $418,033.

In November 2001, the Company decided to withdraw from this joint venture, and to sell our interest in Alpha Technology to Gem Management, a company owned by Gemma Hwang, Dr. Hwang's wife.

In exchange for the 9,608 shares of Alpha Technology, the amount of approximately $418,000 (the value of transaction and the book value of Alpha Technology investment as of July 31, 2001) will be deducted from the Note Payable owed by TeleVideo to Gem Management.

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 equity 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. In January 2001 and April 2001, the Company received additional $120,000 and $200,000, respectively. The difference up to $1,400,000 was expensed as government and transfer fees. The Company agreed with Ningbo to reschedule the payment for the remaining amount of $1,100,000 as follows: $150,000 to be paid in June 2002, $250,000 to be paid in September 2002, $300,000 to be paid in December 2002 and $400,000 to be paid by March 31, 2003. Until September 10, 2002, the Company has not received yet the money due in June and September 2002.

In the third quarter of fiscal 2001, because two investors have withdrawn from this joint venture, the capital of Ningbo was decreased to around $5.0 million, from an initial amount of 10.0 million. Due to this fact, the Chinese government asked Ningbo to change the initial agreement with TeleVideo and to record the payments made by Ningbo to TeleVideo as withdraw of investment, instead of payments for the technology and training. The Company agreed with this change, and, consequently, we have reduced the amount showed as investment on the financial statements from $3.0 million to $1.7 million.

Also, due to the decrease recorded in the estimated fair market value of Ningbo, the Company adjusted the carrying value of this investment on the financial statements from $1.7 million to $1.4 million, proportionally with its interest in this company.

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 and 2001, the Company recognized gains from the sales of CNET stocks of $10.1 million and $0.3 million respectively.

On September 5, 2002, the Company owned approximately 32,500 shares of CNET common stock and the market value was approximately $1.10 per share.

Koram, Inc.

In February 1998, the Company purchased a 50% interest in Koram, Inc, a Korean restaurant venture. This investment was accounted for under the equity method of accounting. During 2000, the Company decided to discontinue its participation in this joint venture. The Company's venture partner agreed to transfer the funds for 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.

In November 2001, the Company decided to pay back a portion from the Gem Management's loan with the funds deposited in Korea, which were in a total amount of approximately $64,000.

Biomax Co, Ltd.

On May 12, 2000, the Company purchased for a cash investment of $917,431 an aggregate of 45,000 ordinary shares of Biomax Co., Ltd. (Biomax). Biomax is a startup company, with its principal offices located in Seoul, Korea, engaged in developing an herbal product to help lower cholesterol levels in humans. Its existing technology was developed by and obtained from the Korea Research Institute of Bioscience and Biotechnology. The Company's investment in Biomax represents a 15% interest in this privately held corporation. The investment is accounted for on the cost method of accounting.

The agreement gives the Company the right to nominate one member to the Biomax Board of Directors. Dr. K. Philip Hwang, the Company's Chairman of the Board and Chief Executive Officer, was nominated and elected to the Biomax board.

The Company has the right to participate in future sales of Biomax securities to maintain its proportionate interest in Biomax. In the event the Company wants to sell all or a portion of its shares, it has given Biomax and Biomax's President, who is its controlling shareholder, a right of first refusal to purchase the shares. The controlling shareholder also must obtain the Company's prior written consent in order to sell over 10% of Biomax.

Biomax also agreed to discuss with the Company certain specified kinds of events and transactions that could materially impact Biomax's business, capital structure and financial condition. The agreement further prohibits Biomax from sharing its technology with third parties or assisting with research and development efforts of third parties without the prior written consent of the Company, other than in the normal course of business, and further prohibits the controlling shareholder from engaging in businesses that could compete with Biomax. The restrictions and promises in the agreement will terminate at such time as the Company has sold at least 70% of the shares it acquired under the agreement.

During the fiscal years 2001 and 2002, due to the decrease in the estimated fair market value of Biomax, the Company adjusted the carrying value of this investment on the financial statements from $917,431 to $110,765, proportionally with its interest in this company.

Xeline (Keyin) Telecom Co. Ltd.

On May 12, 2000, the Company purchased for $2,522,972 an aggregate of 15,278 ordinary shares of Xeline (Keyin) Telecom Co. Ltd. (Xeline). Xeline 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 Xeline (Keyin) securities to maintain its proportionate interest in Xeline (Keyin). In the event the Company wants to sell all or a portion of its shares, it has given Xeline (Keyin) and its controlling shareholder, who is also its President and Chief Executive Officer, a right of first refusal to purchase the shares.

Xeline (Keyin) also agreed to keep the Company expressly advised regarding certain specified kinds of events and transactions that could materially impact Xeline (Keyin)'s business, capital structure and financial condition. Xeline (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 Xeline (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 Xeline (Keyin) under the terms of which TeleVideo will support Xeline (Keyin) in its overseas marketing and sales activities related to Xeline (Keyin)'s PLC technology. In addition, TeleVideo and Xeline (Keyin) will cooperate to incorporate Xeline (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.

During the fiscal year 2001 and 2002, due to the decrease of the estimated fair market value of Xeline (Keyin), the Company adjusted the carrying value of this investment on the financial statements from $2,522,972 to $199,890, proportionally with its interest in this company.

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.

During the fiscal years 2001 and 2002, due to the decrease of the estimated fair market value of Synertek, the Company adjusted the carrying value of this investment on the financial statements from $1,000,000 to $179,019, proportionally with its interest in this company.

3. LETTER OF CREDIT AGREEMENT

At July 31, 2002, the Company had one letter of credit agreement in amount of approximately $0.1 million. Accordingly with the agreement between the Company and the bank, we have deposited approximately $0.1 million into a restricted account, following that the bank to pay the vendor from this account when the products will be shipped, but no later than September 30^th, 2002.

4. SALE AND LEASEBACK OF BUILDING

The $2.75 million note receivable bears interest at 7.25% per annum.

Principal and accrued interest is payable in equal monthly installments of $21,735 each on the first day of each month commencing on January 1, 1999. If not earlier paid in full, any unpaid principal and all accrued interest is due and payable to TeleVideo, Inc. on December 1, 2013.

In December 2000, the Company subleased a part of it's headquarter space. The leasing agreement is for a period of three years, beginning January 2001 with a monthly rent amount of approximately $81,000. This sublease will not affect the Company's manufacturing facilities.

Under the lease agreement, the sublessee is required to open a standby letter of credit in the TeleVideo favor in amount of $500,000. The letter of credit has an initial term of one year, beginning January 2001, and this term will be automatically extended until the end of the leasing contract, which is January 10, 2004.

5. SUBSEQUENT EVENTS

None.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JULY 31, 2002 AND THE THREE MONTHS ENDED JULY 31, 2001

Net sales for the third quarter of fiscal 2002 were $2.1 million, compared with $1.6 million in the third quarter of fiscal 2001, an increase of $0.5 million or 31%. The increase is due in principal to the supplementary revenue provided by the sales of our new TeleClient line of products, TC7370/7380 and TC7320, introduced in June 2001. These models have additional features compared with the older models, like LCD panel, touch-screen or wireless option.

Cost of sales was $1.7 million in the third quarter of fiscal 2002, compared with $1.3 million in the third quarter of fiscal 2001. In principal, this increase is the result of the increase recorded in the total sales amount.

Sales and marketing expenses were $0.4 million in the third quarter of fiscal 2002 and in the third quarter of fiscal 2001. As a percentage of net sales, sales and marketing expenses decreased to 19% in the third quarter of fiscal 2002 compared with 25% in the third quarter of fiscal 2001. The decrease of this percentage has occurred in principal as result of our efforts to use more efficiently the marketing funds.

Research and development expenses were $0.2 million in the third quarters of fiscal 2002 and 2001.

General and administrative expenses were $0.4 million in the third quarter of fiscal 2002, compared with $0.5 million in the third quarter of fiscal 2001. As a percentage of net sales, general and administrative expenses decreased to 19% in the third quarter of fiscal 2002 compared with 31% in the third quarter of fiscal 2001. The decrease is due primarily to the increase in total net sales.

The Company's loss from operations was approximately $0.6 million in the third quarter of fiscal 2002 compared with approximately $0.8 million in the third quarter of fiscal 2001.

Other income was $0.4 million in the third quarters of fiscal 2002 and 2001.

The loss from investments was $0.1 million in the third quarter of fiscal 2002, compared with a loss of $1.0 million in the third quarter of fiscal 2001.

Net loss for the third quarter of fiscal 2002 was $0.4 million compared with a net loss of $1.3 million in the third quarter of fiscal 2001.

COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED JULY 31, 2002 AND THE NINE MONTHS ENDED JULY 31, 2001

Net sales for the first nine months of fiscal 2002 were $5.8 million, compared with $4.6 million in the first nine months of fiscal 2001, an increase of $1.2 million or 26%. The increase is due in principal to the supplementary revenue provided by the sales of our new TeleClient line of products, TC7370/7380 and TC7320, introduced in June 2001. These models have additional features compared with the older models, like LCD panel, touch-screen or wireless option.

Cost of sales was $4.5 million in the first nine months of fiscal 2002, compared with $4.3 million in the first nine months of fiscal 2001.

Sales and marketing expenses were $1.2 million in the first nine months of fiscal 2002, compared with $1.5 million in the first nine months of fiscal 2001. As a percentage of net sales, sales and marketing expenses decreased to 21% in the first nine months of fiscal 2002 compared with 33% in the first nine months of fiscal 2001. The decrease of this percentage has occurred in principal as result of our efforts to use more efficiently the marketing funds.

Research and development expenses were $0.5 million in the first nine months of fiscal 2002, compared with $0.7 million in the first nine months of fiscal 2001. The decrease is due primarily to the reduction occurred in salary expenses, by the decrease of the number of employee used in research and development activities.

General and administrative expenses were $1.3 million in the first nine months of fiscal 2002, compared with $1.7 million in the first nine months of fiscal 2001. As a percentage of net sales, general and administrative expenses decreased to 22% in the first nine months of fiscal 2002 compared with 37% in the first nine months of fiscal 2001. The decrease is due primarily to the increase in total net sales.

The Company's loss from operations was approximately $1.7 million in the first nine months of fiscal 2002 compared with approximately $3.6 million in the first nine months of fiscal 2001.

Other income was $1.3 million in the first nine months of fiscal 2002, same as in the first nine months of fiscal 2001.

The loss from investments was $0.3 million in the first nine months of fiscal 2002, compared with a loss of $4.8 million in the first nine months of fiscal 2001.

Net loss for the first nine months of fiscal 2002 was $1.0 million compared with a net loss of $6.9 million in the first nine months of fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2002, the Company had $0.8 million in cash and cash equivalents, including $0.1 million restricted cash for letter of credit, compared with $0.9 million at the end of fiscal 2001. Net cash used in operating activities decreased from $3.5 million used in the nine months ended July 31, 2001 to $0.7 million used for the same period in fiscal 2002. This decrease is due primarily to the decrease recorded in loss from operations.

In December 1998, the Company sold its 69,360 square foot headquarters building in San Jose, California, including land and improvements, to TVCA, LLC, an unaffiliated Delaware limited liability company ("TVCA") for $11.0 million. The nature of the consideration was $8.25 million in cash and a $2.75 million promissory note. The note bears interest at 7.25% per annum.

Principal and accrued interest are payable in equal monthly installments of $21,735 on the first day of each month, commencing January 1, 1999. If not earlier paid in full, any unpaid principal and all accrued interest shall be due and payable to TeleVideo, Inc. on December 1, 2013.

In December 1998, the Company leased back this facility over a 15-year lease term expiring in December 2013. The land component has been accounted for as a capital lease, whereby a leased building asset and capital lease obligation were recorded at the fair value of approximately $6.27 million. As 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 a straight line method. The deferred gain attributable to the building element, which approximates $4.56 million, is being amortized on a straight line basis over the leased building asset life, which has been determined to be the 15 year lease term.

Net accounts receivable were $1.5 million and net inventories were $1.4 million at July 31, 2002, compared with $1.7 million and $2.3 million, respectively, as of October 31, 2001. The decrease in accounts receivable is the result of the low level of sales recorded during the month of July.
Last year, the Company shipped back to Alpha Technology car alarm systems in value of approximately $0.9 million, in order to be fixed some functional problems. Because we considered that would be hard for us to sell these products, Alpha agreed to sell these products and to refund us their value, and, consequently, we have reclassified these amounts from inventory to other receivable, resulting an important decrease in the inventory value.

FACTORS THAT MAY AFFECT FUTURE RESULTS

COMPETITIVE MARKETS

The terminal market is intensely competitive. The principal elements of competition are pricing, product quality and reliability, price/performance characteristics, compatibility, marketing and distribution capability, service and support, and reputation of the manufacturer. TeleVideo competes with a large number of manufacturers, most of which have significantly greater financial, marketing and technological resources than TeleVideo. There can be no assurance that the Company will be able to continue to compete effectively.

PRODUCT DEVELOPMENT

The computer market is characterized by rapid technological change and product obsolescence often resulting in short product life cycles and rapid price declines. The Company's success will continue to depend primarily on its ability to continue to reduce costs through manufacturing efficiencies and price negotiation with suppliers, the continued market acceptance of its existing products and its ability to develop and introduce new products. There can be no assurance that TeleVideo will successfully develop new products or that the new products it develops will be introduced in a timely manner and receive substantial market acceptance. There can also be no assurance that product transitions will be managed in such a way to minimize inventory levels and product obsolescence of discontinued products. The Company's operating results could be adversely affected if TeleVideo is unable to manage all aspects of product transitions successfully.

SINGLE SOURCED PRODUCTS

The Company generally utilizes standard parts and components available from multiple suppliers. However, certain parts and components used in the Company's products are available from a single source. If, contrary to its expectations, the Company is unable to obtain sufficient quantities of any single-sourced components, the Company will experience delays in product shipments.

RELIANCE ON FORECASTS

The Company offers its products through various channels of distribution. Changes in the financial condition of, or in the Company's relationship with, its distributors could cause actual operating results to vary from those expected. Also, the Company's customers generally order products on an as-needed basis. Therefore, virtually all product shipments in a given fiscal quarter result from orders received in that quarter. The Company anticipates that the rate of new orders will vary significantly from month to month. The Company's manufacturing plans and expenditure levels are based primarily on sales forecasts. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenditure and inventory levels could be disproportionately high and the Company's operating results for that quarter, and potentially future quarters, would be adversely affected.

FACTORS THAT COULD AFFECT STOCK PRICE

The market price of TeleVideo's common stock could be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the computer technology industry, as well as general economic conditions and other factors external to the Company.

FOREIGN CURRENCY AND POLITICAL RISK

The Company markets its products worldwide. In addition, a large portion of the Company's part and component manufacturing, along with key suppliers, are located outside the United States.

Accordingly, the Company's future results could be adversely affected by a variety of factors, including without limitation, fluctuation in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, unexpected changes in regulatory requirements and natural disasters.

INVESTMENTS IN AFFILIATES

Investments in affiliates represent approximately 15% of the Company's total assets at July 31, 2002. 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 fair market value of the affiliate investments, the Company will reduce the carrying value of such investments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As of July 31, 2002, the Company had a long-term note receivable (the "Note") of $2.7 million. The Company received the Note, which bears interest at a fixed rate of 7.25% per annum, as partial consideration for the sale of the Company's headquarters facility in December 1998. The interest rate on the Note is fixed over the life of the Note, with principal and interest payable in equal monthly installments of $21,735 each on the first day of each month commencing on January 1, 1999. If not earlier paid in full, any unpaid principal and all accrued interest shall be due and payable to TeleVideo, Inc. on December 1, 2013.

Because the interest rate on the Note is fixed for the term of the Note, any change in interest rates would not affect the Company's earnings or cash flows if it chose to hold onto the note, although a change in interest rates could affect the market value of the Note if the Company chose to sell the note prior to maturity.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

ITEM 5. OTHER INFORMATION
None.

ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.

(a) EXHIBIT(S).
None.

(b) REPORTS ON FORM 8-K.
None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TELEVIDEO, INC.

	(REGISTRANT)

DATE: September 13, 2002	BY:	/s/ K. PHILIP HWANG
		K. PHILIP HWANG CHAIRMAN AND C.E.O.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

PART I. FINANCIAL INFORMATION
    ITEM 1. FINANCIAL STATEMENTS.
           TELEVIDEO, INC. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
            TELEVIDEO, INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            TELEVIDEO, INC. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
             TELEVIDEO, INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002
   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

PART II. OTHER INFORMATION
    ITEM 1. LEGAL PROCEEDINGS.
    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
    ITEM 5. OTHER INFORMATION.
    ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.

SIGNATURES