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

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

Securities registered pursuant to Section 12(b) of the Act:
None

Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2). Yes [  ] No [X].

This Annual Report on Form 10-K for the fiscal year ended October 31, 2003 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. How ever, 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.

To obtain a free copy of this Form 10-K, please send your written request to TeleVideo, Inc., 2345 Harris Way, San Jose, CA 95131. More information about TeleVideo is available on our website, at www.televideo.com

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.

Founded in 1975, TeleVideo has been 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").

TeleVideo TeleCLIENT thin clients product families are the ideal thin clients, designed and optimized for use with all business critical applications. TeleCLIENTs are also designed to lower the Total Cost of Ownership (TCO) in client/server based network environments by increasing security and reducing administration at every desktop. All TeleCLIENTs are loaded with either Microsoft's Remote Desktop Protocol (RDP) that executes along Microsoft Windows 2000 and 2003 Server or the Citrix Independent Computing Architecture (ICA) protocol through Citrix MetaFrame products.

With the deployment of TeleCLIENTs in the network, users have the ability to access and manage Windows based applications for healthcare, manufacturing, education, financial, government, hospitality, and POS (point of sale) applications, all within the familiar Microsoft Windows user interface. Compared to traditional display terminals, TeleCLIENTs allow access to legacy servers and the Internet, thereby allowing the use of traditional mainframe applications together with the performance of web-based services.

TeleCLIENTs can be loaded with any of the Microsoft Windows CE.net, Microsoft XPe, or Linux operating systems. Integrated with a 15- or 17-inch LCD, stand-alone, internal wireless, touchscreen, and smart card readers are just a few of the features, options, and form factors TeleCLIENT supports.

TeleManager Management Software reduces the cost of deploying and managing TeleCLIENTs with an easy to use, integrated Microsoft Management Console-compatible solution that provides operating system deployment, configuration, and remote administration.

TeleManager provides administrators a single point for deployment, management, migration, and support for TeleCLIENTs. Based on SNMP and TCP/IP networking protocols, TeleManager can prepare an entire department for operating system upgrades, remote configuration of network properties, and edit and create RDP and ICA sessions. TeleManager provides maximum flexibility by providing management tools to remotely configure TeleCLIENT TC7000, TC8000, and MC series of thin clients.

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 Alpha Windowing capability at a non-windowing price for new or existing software applications. The windowing capability provides increased productivity for applications running on UNIX. The 995 also has a power management screen saver that protects the environment and promotes energy conservation.

In October 2000, the Company introduced a new line of products, mobile electronics, represented by Aladdin-2000 and Mobile Secretary KFH-2001K. Also, during fiscal 2001, the Company introduced another auto safety product, Back-Up View.

The Aladdin-2000 is an advanced two-way remote vehicle starting and security system, providing around-the-clock surveillance and security. The interactive bi-directional remote control is in constant communication with the system module, allowing the vehicle to be monitored closely through visual warning and audible or vibrating alarm. The Mobile Secretary is designed to allow the safe use of cellular phones while driving, and the Back-Up View is a system that can detect if there is an obstacle at a certain distance behind the vehicle, when the car is moving back. Due to the high level of competition in the market for these products, the Company did not meet its goals regarding sales and revenue expected for the first two quarters of the fiscal 2001. Consequently, in the third quarter of fiscal 2001, the Company decided to discontinue the production of auto safety devices.

TeleVideo serves markets that are characterized by rapid technological change, and the Company has continuous ongoing efforts to develop new products. The Company has recently introduced stand-alone versions of its thin-client products with varying monitor sizes, ranging up to 17" flat-panel displays. In addition, the Company is continuing the development of a wireless thin-client product using the 802.11b protocol. Although the Company's research and development staff consists of 6 employees as of January 9, 2004, engineers from participating companies support various joint projects of the Company. During fiscal 2003, TeleVideo spent approximately $0.7 million on Company-sponsored research and development. Company-sponsored research and development expenses for fiscal 2002 and 2001 were approximately $0.6 million and $0.8 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 may 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 can respond to the rapid changes in the marketplace.

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.

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 2003 an agent in the United Kingdom.

TeleVideo distributors 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.

TeleVideo, through its headquarters' marketing and supporting staff, continues to work closely with its distributors, mass merchants, retail stores, VARs, systems integrators, and OEMs. TeleVideo's marketing staff provides customers with training, sales and promotional materials, trade show participation, and sales leads. The marketing staff also serves the product-marketing role, giving direction to product management and competitive positioning. The Company spent approximately 1% ($0.1 million), 1% ($0.1 million), and 4% ($0.3 million) of its net revenues on advertising in fiscal 2003, 2002, and 2001, respectively.

TeleVideo 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, 2003, one customer represented 11% of total net revenue. In fiscal years 2002 and 2001, no customer represented 10% or more of total net revenue. TeleVideo sales terms are typically net 30 or net 45 days.

TeleVideo had export sales (primarily to Europe, Asia and Latin America) of approximately $1.1 million in fiscal 2003 (representing 13% of total net sales), $1.2 million in fiscal 2002 (15% of total sales) and $1.5 million in fiscal 2001 (21% of total net sales). In fiscal 2003, we appointed an agent in the United Kingdom to manage the sales on the European market.

The Company reevaluates its investment portfolio for eventual impairments on a periodic basis. Our investment portfolio includes equity and debt investments in publicly-traded and privately-held emerging technology companies. These emerging technology companies are still in the start-up or development stage. Our investments in these companies are inherently risky because the technologies or products they have under development are typically in the early stages and may never become successful. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial info rmation and current market rates; liquidation values; the values of recent rounds of financing; and quoted market prices of comparable public companies. In order to determine whether a decline in value is other than temporary, we evaluate, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company's industry; the company's relative competitive position within the industry; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Koram, Inc.

In February 1998, the Company purchased a 50% interest in Koram, Inc, a Korean restaurant venture. 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 of the Korean Won and the US Dollar would be the most advantageous.

In November 2001, the Company decided to pay back a portion of the loan from Gemma Hwang, the spouse of the Company's CEO, with the funds deposited in Korea, which were in a total amount of approximately $0.1 million.

K&T Telecom, Inc.

Total assets were approximately $0.9 million, and total liabilities were approximately $0.5 million at September 30, 2002, resulting in total stockholders' equity of approximately $0.4 million. Considering that TeleVideo's interest in this company is 49%, the fair market value of this investment was estimated at approximately $0.2 million at the end of fiscal 2002. In reaching this valuation, TeleVideo considered the following factors: K&T Telecom's shares are not publicly traded, there have been no known recent transactions in K&T Telecom's shares, no financial projections are available from K&T Telecom's management, and prior operating results have been negative. Therefore, in accordance with the valuation methodology adopted by TeleVideo, this company has been valued on a pro-rata share of stockholders' equity basis. K&T Telecom's most recent financial results are not available to TeleVideo, and the stockholders' equity figure includes approximately $0.2 million in quick assets, or more than 45% of the stockholders' equity figure.

During the second quarter of the fiscal 2003, K&T Telecom filed for bankruptcy and, consequently, the entire book value of approximately $0.2 million was written off.

Alpha Technology, Inc.

In August 2000, the Company purchased for $0.7 million in cash an aggregate of 9,608 shares of common stock of Alpha Technology, Inc. Alpha Technology, Inc. was a Korean company that manufactured electronic and car accessories, including two-way car alarm systems. The Company's investment in Alpha Technology, Inc. represented a 49% interest in this privately held corporation.

TeleVideo has the right to participate in future sales of Alpha Technology, Inc. securities to maintain its proportionate interest in this company. If Alpha Technology, Inc. increases its capital thereafter, TeleVideo will be given the opportunity to participate in the stock issuance in order to maintain the percentage of stock currently held by TeleVideo.

In fiscal 2001, due to the decrease of the fair market value of Alpha Technology investment, the Company adjusted the carrying value of this investment from $0.7 million to $0.4 million. In November 2001, the Company decided to withdraw from this joint venture and to sell its interest in Alpha Technology to Gemma Hwang, the spouse of the Company's CEO and majority stockholder, Dr. K.P. Hwang. In exchange for the 9,608 shares of Alpha Technology, the amount of approximately $0.4 million (the value of transaction and the book value of Alpha Technology investment as of July 31, 2001) was deducted from the note payable owed by TeleVideo to Gemma Hwang. Immediately prior to the transaction, the Company owed Gemma Hwang $1.5 million, bearing an annual interest of 8%.

Ningbo China

Under the terms of the investment, TeleVideo was to provide certain technology and professional training on its terminal products, including technology relating to the processor used for TeleClient, in exchange for $2.5 million payable over a two-year term.

During fiscal year ended October 31, 2001,TeleVideo received $1.3 million of the $2.5 million due from Ningbo. At one point, TeleVideo agreed to reschedule Ningbo's payments for the remaining $1.2 million, but Ningbo failed to make any of the new payments.

In the third quarter of fiscal 2001, the capital of Ningbo decreased due to the departure of two investors from the venture. Thereafter, the Chinese government requested that Ningbo change its initial agreement with TeleVideo to allow the payments made by Ningbo to TeleVideo to be recorded as a withdrawal of TeleVideo's investment instead of as payments for technology and training provided by TeleVideo. TeleVideo agreed to this change, and consequently, TeleVideo reduced the carrying value of this investment on its financial statements from $3.0 million to $1.5 million.

In November 2002, TeleVideo learned that certain persons involved with Ningbo had stolen or embezzled funds from that company. TeleVideo had undertaken efforts, including retaining investigators and attorneys, to seek the recovery of any portion of its investment.

While the investment in this company is described as an equity investment, TeleVideo had been valuing it in accordance with TeleVideo's expected recovery of the funds invested after the embezzlement was discovered. TeleVideo has therefore not applied its valuation methodology to this investment.

During the second quarter of 2003, Ningbo definitively stopped all its operations and closed all of its facilities. Consequently, the Company wrote off the value of this investment of approximately $0.7 million, as of April 30, 2003. The estimated fair value of the proceeds from the liquidation of Ningbo was determined considering total assets of $0.9 million, less depreciation and liabilities of $0.1 million. The cost of liquidation was estimated at 20% from the liquidation value, resulting total net proceeds from liquidation in amount of approximately $0.7 million. Considering that TeleVideo has 60% interest in Ningbo, the estimated proceeds from the liquidation of this investment, amounting to approximately $0.4 million, were recorded in the Company's financial statements under the other assets section.

After all further attempts to recover the money from this investment failed, the Company decided to write off its entire balance. Consequently, the balance amount of approximately $0.4 million was written off as of July 31, 2003.

In September 1998, the Company invested $1.0 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. In connection with the transaction, the Company adjusted its balance sheet to reflect the conversion to a marketable security classified as available for sale. The cost method used to book the investment in mySimon was changed to the market value method in accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities", to record the investment in CNET stock.

During the fiscal years 2000 and 2001, the Company recognized gains from the sales of CNET stock of $10.1 million and $0.3 million, respectively.

Biomax Co, Ltd.

On May 12, 2000, the Company purchased, for a cash investment of approximately $0.9 million, an aggregate of 45,000 ordinary shares of Biomax Co., Ltd. ("Biomax"). Biomax was 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 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 these shares.

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.

In reaching this valuation, TeleVideo considered the following factors: the company's shares are not publicly traded, there have been no known recent transactions in the company's shares, no financial projections are available from the company's management, and prior operating results have been negative. Therefore, in accordance with the valuation methodology adopted by TeleVideo, this company has been valued on a pro-rata share of stockholders' equity basis.

Xeline (Keyin) Telecom Co. Ltd.

On May 12, 2000, the Company purchased for approximately $2.5 million an aggregate of 15,278 ordinary shares of Xeline (Keyin) Telecom Co. Ltd. ("Xeline"). Xeline is a private company located in Seoul, Korea, that is engaged in developing power line technology for electricity transportation. The Company's investment in Xeline represents a 5.75% interest in this corporation.

The Company has the right to participate in future sales of Xeline securities to maintain its proportionate interest in Xeline. In the event the Company wants to sell all or a portion of its shares, it has given Xeline and its controlling shareholder, who is also its President and Chief Executive Officer, a right of first refusal to purchase the shares.

Xeline also agreed to keep the Company expressly advised regarding certain specified kinds of events and transactions that could materially impact Xeline's business, capital structure and financial condition. Xeline 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 Board.

The investment agreement also contemplates that TeleVideo will participate in a strategic alliance with Xeline under the terms of which TeleVideo will support Xeline in its overseas marketing and sales activities related to Xeline's PLC technology. In addition, TeleVideo and Xeline will cooperate to incorporate Xeline's PLC technology into TeleVideo's computer products, including the TeleClient series. The parties contemplate entering into a separate sales and marketing agreement to more fully document the terms and conditions of the strategic relationship.

In reaching this valuation, TeleVideo considered the following factors: the company's shares are not publicly traded, there have been no known recent transactions in the company's shares, no financial projections are available from the company's management, and prior operating results have been negative. Therefore, in accordance with the valuation methodology adopted by TeleVideo, this company has been valued on a pro-rata share of stockholders' equity basis. For the most recent period for which TeleVideo has financial results, the company recorded a loss in excess of its gross sales for the period. Based on this result, any analysis other than the stockholders' equity method would result in a negative value for the business. However, the company has $3.4 million in current assets, which lends support to its stockholders' equity figure.

MultiMedia SOC, Inc. (formerly described as Synertek, Inc.)

In June 2000, the Company purchased for $1.0 million in cash an aggregate of 285,714 shares of common stock of MultiMedia SOC, Inc. (formerly described as Synertek, Inc.), a Nevada corporation, representing an 8% interest in this company. MultiMedia SOC, Inc. manufactured handheld digital multimedia and communications appliances.

The financial statements sent to the Company by MultiMedia SOC, Inc. reported sales of approximately $35,000 and a net loss of approximately $0.6 million for the fiscal year ended on December 31, 2002. The accumulated deficit recorded from the start of the business was approximately $1.7 million at December 31, 2002.

In reaching this valuation, TeleVideo considered the following factors: the company's shares are not publicly traded, there have been no known recent transactions in the company's shares, no financial projections are available from the company's management, and prior operating results have been negative. Therefore, in accordance with the valuation methodology adopted by TeleVideo, this company has been valued on a pro-rata share of stockholders' equity basis. This method values the company at approximately $1.9 million.

Because the investment was not consummated, MultiMedia SOC, Inc. was dissolved, and, consequently, the entire balance of approximately $0.2 million was written off as of July 31, 2003.

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 because of volume discounts. The Company's two dominant competitors have approximately 40% and 16% of the worldwide market, compared to less than 2% for the Company. Therefore, there is no assurance that the Company will be able to successfully compete in the future.

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 27% (approximately $2.0 million) of net purchases in fiscal 2003. 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.

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 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 b e 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.

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.

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.

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. Refer to Note 8 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.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended October 31, 2003.

On December 3, 2004, there were 758 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 $0.17 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.

 Item 6. Selected Financial Data

The following selected financial data reflect the continuing operations of TeleVideo for the fiscal years ended October 31, 1999 through 2003. 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.

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, restatement of financial statements and acquisitions and dispositions during the periods.

 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Management's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventories, asset impairments, income taxes, warranty obligations, restructuring charges, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual res ults may differ from these estimates or our estimates may be affected by different assumptions or conditions.

The following discussion and analysis should be read in conjunction with "Selected Financial Data" and our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. Except as otherwise noted, the discussion of financial results gives effect to the accounting adjustments described in "Restatement of Financial Statements" below.

Shortly before the end of fiscal 2003, the Company's former accountants informed us that they did not register with the Public Company Accounting Oversight Board, would no longer be permitted to perform audits of public companies, and were therefore unable to continue as the Company's independent auditors. At that time, the Company began an intensive search for a new independent accounting firm with the expertise and experience necessary to provide the quality auditing services required by a public company. As previously disclosed in our current report on Form 8-K, filed January 5, 2004, the Company appointed Burr, Pilger & Mayer LLP ("BPM") as its new independent accountants to audit the Company's financial statements for the fiscal year ended October 31, 2003.

Preparation of the financial statements required for the Company's annual report on Form 10-K for the fiscal year ended October 31, 2003 has required BPM to re-audit the financial statements for the fiscal years ended October 31, 2002 and 2001. Based on BPM's findings, management recommended to the Company's board of directors that the Company's historical financial statements for fiscal years 2002 and 2001 along with all the quarterly periods since October 31, 2000, be restated. TeleVideo filed a Form 8-K on March 5, 2004, notifying its investors, the SEC, and the general public that the filing of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2003 would be delayed pending completion of the restatement.

The Company has restated its consolidated financial statements for the fiscal years ended October 31, 2001 and 2002 and for the quarters ended January 31, 2001 through July 31, 2003. All applicable financial information contained in this Annual Report on Form 10-K gives effect to these restatements. Accordingly, the financial statements for those fiscal periods described above that have been included in the Company's previous filings with the Securities and Exchange Commission or included in previous announcements should not be relied upon.

The net effect of all of the restatement adjustments is to increase the Company's net loss by $18,000 in fiscal year 2000, and to decrease the Company's net loss by $133,000 in fiscal year 2001 and by $74,000 in fiscal year 2002. The Company's consolidated statements of cash flows have been restated to reflect the reclassification of changes in assets and liabilities during the periods as discussed above.

A summary of the significant effects of the restatement is as follows (in thousands, except per share amounts):

The effect of the revenue adjustments on pre-tax loss was partially offset by the adjustments of the cost of good sold for these shipments. These adjustments caused the pre-tax loss to decrease by $61,000 in fiscal 2002 and $59,000 in fiscal 2001.

Reviewing the previously filed consolidated financial statements, the Company identified several accrued liability items for which it concluded that the amount of the liability, the timing of the liability recognition, or the timing of the release of the liability could not presently be substantiated or was in error and should be adjusted. In summary, the effects of the adjustments are:

During the 1999-2000 period, the Company accrued a liability for legal contingencies in the amount of $200,000 to cover potential legal liabilities resulting from open and possible lawsuits existing at that time. After reviewing the basis for these accruals, it was determined that the risk for these liabilities no longer existed as of November 1, 2000. Consequently, the legal contingency accrual of approximately $190,000 was written off and the effect of this adjustment was to decrease the accumulated deficit as of November 1, 2000 by $190,000;

The Company identified that it had not been accounting for its lease expenses, starting on January 1999, on a straight-line basis in accordance with Financial Accounting Standards Board ("FASB") Technical Bulletin ("FTB") 85-3. As a result, the Company adjusted its lease expense and the related deferred lease liability. The deferred rent adjustment increased the net loss by $148,000 for fiscal years 2002 and 2001, respectively, and increased the accumulated deficit at November 1, 2000 by $296,000;

After introducing the new TeleClient line of products in 1998, the sales agreements signed with some of our top vendors, the Company committed to participate in cooperative advertising programs, if certain criteria regarding sales performance and the content of advertising programs were met. After reviewing the sales agreements with existing customers, the Company concluded that the cooperative advertising accrual balance of $252,000 was no longer necessary at January 31, 2002 because all these contracts were either expired or renegotiated and the clause regarding cooperative advertising programs was excluded from the new contracts. Consequently, the entire balance of this account was written off in the first quarter of fiscal 2002, and the effect of this adjustment was to decrease the net loss for fiscal 2002 by $252,000;

There were also certain adjustments and reclassifications of expenses with little or no effect on the net loss for the restated years.

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 made by companies in which TeleVideo invested: Alpha and K&T. These products were car accessories, including car alarms and hands-free phone accessories. The new product line did not have significant operations in 2000. In fiscal 2001, because of lower than expected sales activity for these products, the Company discontinued the production of car accessories products.

The Company faces strong competition in the marketplace and continues to look for ways to improve operating efficiency. To lower the production costs, the Company has continued to negotiate with its suppliers and has also shifted many production processes overseas to subcontractors.

Net sales for fiscal year 2003 were approximately $8.6 million, compared to $8.0 million in fiscal 2002, an increase of $0.6 million, or 8%. Sales of terminals have decreased in fiscal 2003 to $2.2 million from $2.3 million in fiscal 2002, a decrease of $0.1 million or 4%. This decrease reflects the Company's focus on the sales of its new TeleClient products rather than the old terminals. The sales of TeleClients were approximately $6.3 million in fiscal 2003, compared to approximately $5.6 million in fiscal 2002, an increase of $0.7 million or 13%.

Cost of sales for fiscal year 2003 was approximately $7.6 million, compared to $7.0 million in fiscal 2002, an increase of $0.6 million, or 8%. The increase in cost of sales was due in principal to the increase in net sales, as the gross profit remained at the same level of approximately $1.0 million for fiscal years 2003 and 2002.

Sales and marketing expenses for fiscal year 2003 were approximately $1.6 million, compared to $1.3 million in fiscal year 2002. As a percentage of net sales, sales and marketing expenses increased to 19% in fiscal 2003 from 17% in fiscal year ended in 2002. The increase is due in principal to the effect of the cooperative advertising accrual written off in 2002 of approximately $0.3 million. Without this adjustment, sales and marketing expenses would have decreased as a percentage of net sales from 20% in fiscal 2002 to 19% in fiscal 2003.

Research and development expenses were approximately $0.7 million in fiscal 2003, compared to $0.6 million in fiscal 2002. As a percentage of net sales, research and development expenses were 9% in fiscal 2003, compared to 7% in fiscal 2002. The increase in research and development expenses is primarily the result of the increase in payroll expenses recorded in fiscal 2003. In fiscal 2003, the number of personnel involved in research and development increased from 4 to 6 people, resulting in additional salary expenses of approximately $0.1 million.

General and administrative expenses were approximately $1.6 million in fiscal 2003, compared to $1.8 million in fiscal 2002, a decrease of $0.2 million or 10%. As a percentage of net sales, general and administrative expenses were 18% in fiscal 2003, compared to 22% in 2002. The decrease is due in principal to the decrease in salary expenses of this department after the workforce was reduced during fiscal 2002.

The Company's loss from operations was approximately $2.9 million in fiscal 2003, compared to $2.7 million fiscal 2002, an increase of $0.2 million or 7%.

Other income net of other expenses was approximately $0.1 million in fiscal 2003, the same as in fiscal 2002.

The net loss for fiscal 2003 was approximately $2.8 million, compared to a net loss of $2.6 million in fiscal 2002, an increase of $0.2 million, or 10%. The increase is due in principal to the effect of the cooperative advertising accrual written off in 2002 of approximately $0.3 million. Without this adjustment, the net loss would be approximately $2.9 million in fiscal 2002, compared to approximately $2.8 million in fiscal 2003.

Net loss per share in fiscal 2003 was $0.25, compared to a net loss per share in fiscal 2002 of $0.23, based on 11,310,000 weighted average shares outstanding.

Net sales for fiscal year 2002 were approximately $8.0 million, compared to $6.8 million in fiscal 2001, an increase of $1.2 million, or 18%. Sales of terminals have decreased in fiscal 2002 to $2.3 million from $3.3 million in fiscal 2001, a decrease of 30%. This decrease reflects the Company focus on the sales of its new TeleClient, rather than the old terminals. The sales of TeleClients were approximately $5.6 million in the year 2002, compared to $3.1 million in the year 2001, an increase of 81%.

Cost of sales for fiscal year 2002 was approximately $7.0 million, compared to $5.6 million in fiscal 2001, an increase of $1.4 million, or 24%. Cost of sales as a percentage of net sales increased to 87% in 2002 from 83% in 2001. The increase of cost of sales as percentage of total net sales is due in principal to the scrapped inventory of mobile electronics products, in the amount of approximately $0.5 million, during fiscal year 2002.

Sales and marketing expenses for fiscal year 2002 were approximately $1.3 million compared with $2.2 million in fiscal 2001, a decrease of $0.9 million, or 40%. As a percentage of net sales, sales and marketing expenses decreased to 17% in fiscal 2002 from 33% in fiscal 2001. The decrease represents the results of the cooperative advertising accrual written off in 2002, of approximately $0.3 million, and of the Company's efforts to decrease all the categories of expenses.

Research and development expenses were approximately $0.6 million in fiscal 2002, compared to $0.8 million in fiscal 2001. As a percentage of net sales, research and development expenses decreased to 7% in fiscal 2002 compared to 12% in fiscal 2001. In fiscal 2002, the personnel involved in research and development decreased from 5 to 4 people, resulting in a reduction in salary expenses of approximately $0.1 million.

General and administrative expenses were approximately $1.8 million in fiscal 2002, compared to $1.2 million in fiscal 2001, an increase of $0.6 million or 53%. As a percentage of net sales, general and administrative expenses were 22% in fiscal 2002, compared to 17% in 2001.

As a result, the Company's loss from operations was approximately $2.7 million in fiscal 2002, compared to $3.0 million in fiscal 2001, a decrease of $0.4 million or 13%.

Other income, net of other expenses were approximately $0.1 million in fiscal 2002 as compared to other expenses of $3.3 million in fiscal 2001. The decrease is due in principal to the decrease recorded in the loss from investments, from $4.7 million in fiscal 2001 to $1.1 million in fiscal 2002.

The net loss for fiscal year 2002 was approximately $2.6 million compared to a net loss of $6.3 million in fiscal 2001, a decrease of $3.8 million, or 60%. This decrease is due principally to the decrease of loss from investments, from approximately $4.7 million recorded in 2001 to $1.1 million recorded in the fiscal 2002.

No income tax was recorded for fiscal years 2002 and 2001. The Company has approximately $94.0 million in federal net operating losses and credit carryovers and approximately $15.1 million in state net operating loss carryovers available 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 & credit carry forwards since realization of any such benefit is not assured.

Net loss per share in fiscal year 2002 was $0.23, compared to a net loss per share in fiscal 2001 of $0.56 based on 11,310,000 weighted average shares outstanding.

During fiscal 2003, the Company used $0.6 million of cash in operating activities, as compared to $1.0 million in fiscal 2002. The decrease is due in principal to the increase in accounts payable, partially offset by the increase in inventory, in fiscal 2003 compared to fiscal 2002.

In March 2000, the Company received approximately 375,000 shares of CNET common stock when CNET acquired mySimon, an Internet company. During fiscal 2000, TeleVideo sold approximately 335,000 shares of CNET stock, the aggregate proceeds of which were $10,953,000. During fiscal 2001, the Company sold approximately 8,000 shares of CNET stock for approximately $0.3 million.

In December 1998, the Company sold its 69,360 square foot headquarters building in San Jose, California, including land and improvements, to TVCA, LLC, a Delaware limited liability company ("TVCA") unaffiliated with TeleVideo, for $11.0 million. Consideration consisted of $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 through December 1, 2013, with the remaining principal due at that time.

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 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 $3.5 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 $4.5 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.

In December 2000, the Company entered into a lease agreement to sublease a portion of its main facility to a company unaffiliated with TeleVideo. The operating sublease provided that the sublessee pay taxes, maintenance, insurance and other occupancy expense applicable to the subleased premises.

The lease agreement expired on January 10, 2004 and was not renewed.

In December 2000, the Company borrowed approximately $282,000 from Salomon Smith Barney, a member of Citigroup, for working capital purposes. This loan was collateralized by 39,808 shares of the Company's CNET stock. In April 2001, due to a decrease in the CNET stock price, the Company was requested to pay off a portion of the loan and, consequently, sold approximately 8,000 of shares of CNET stock.

Because the CNET stock price decreased again that month, the Company was required to pay off another portion of this loan. The Company decided not to sell shares, and it borrowed approximately $0.2 million from Gemma Hwang, the spouse of the Company's CEO and majority shareholder, Dr. K.P. Hwang.

At the end of fiscal 2003, the Company had a working capital deficit of approximately $2.1 million, compared to a $0.3 million capital deficit recorded at the end of fiscal 2002, an increase of $1.8 million, or 648%.

In May 2001, the Company obtained a line of credit from Gemma Hwang ("Mrs. Hwang"), the spouse of the Company's CEO and majority stockholder, Dr. K. P. Hwang, in the amount of $3.5 million, including the previous loan of $0.2 million. The Company can borrow money under this line of credit when needed, in order to assure the continuity of the operations. The Company granted to Mrs. Hwang a security interest in the following described property as collateral for the line of credit:

Under this line of credit, which bears interest at prime plus one percent per annum, payable monthly, the Company received $0.3 million in June 2001, $0.5 million in July 2001, $0.5 million in September 2001, $0.5 million in December 2001, $0.5 million in April 2002, $0.5 million in October 2002, $0.5 million in April 2003 and $0.2 million in June 2003. In November 2001, the Company paid back approximately $0.5 million from this loan by giving its interest in Alpha Technology and the proceeds from the Koram investment. Starting in May 2003, the interest for this note began to be accrued, rather then paid, as agreed between the Company and Mrs. Hwang. As of October 31, 2003 the outstanding balance of this note was $3.3 million, including $0.1 million accrued interest and is payable on demand.

The Company believes that as of October 31, 2003, with respect to its current operations, the Company's cash balance of approximately $0.6 million at October 31, 2003, plus revenues from operations and other non-operating cash receipts, including rental income from the subleasing of a part of the headquarter space, notes receivable and the line of credit from Gemma Hwang, will be sufficient to meet the Company's working capital and capital expenditure needs for the next twelve months. However, revenues could decline below our expectations, resulting in an increase in the cash flow used in operating activities. As a result, we could be required, or could elect, to raise additional funds during that period. Additional capital may not be available at all, or may only be available on terms unfavorable to us. We have not entered into any off-balance sheet financing arrangements, we have not established any variable interest entities, we do not have any unconditional purchase obligations, nor do we have non-cancelable commitments for capital expenditures. We have not guaranteed the debt or obligations of other entities or entered into options on non-financial assets.

The thin client and terminal markets are 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 compete effectively against these companies.

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 operations 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 as to minimize inventory levels and obsolescence of discontinued products. The Company's operating results could be adversely affected if TeleVideo is unable to manage successfully all aspects of product transitions.

The Company generally uses 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.

The Company offers its products through various distribution channels. 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.

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, and market conditions in the computer technology industry, as well as general economic conditions and other factors external to the Company. In fiscal 2003, the highest price for TeleVideo shares of stock was $0.50, and the lowest price was $0.04.

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 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 represent approximately 2% of the Company's total assets at October 31, 2003. As a result, the Company's success will be adversely affected if such companies fail to execute their business plans. If there is additional impairment in the carrying value of the affiliate investments, the Company will reduce the carrying value of such investments. During fiscal year 2003, the Company decreased the carrying value of its affiliate investments by approximately $1.1 million.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company believes that the adoption of FIN 46 will not have a material impact on the financial position or results of operations of the Company.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for existing or new contracts for fiscal periods beginning after December 15, 2003. The Company believes that the adoption of SFAS 150 will not have a material impact on the financial position or results of operations of the Company.

In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on recognition and measurement guidance previously discussed under EITF 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The consensus clarifies the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and investments accounted for under the cost method or the equity method. The recognition and measurement guidance is applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. In September 2004, the EITF delayed the requirement to record impairment losses under EITF 03-01 until new guidance is issued. The adoption of this consensus caused the recognition of cost method impairment losses of investment in affiliates as reflected within the consolidated statement of operations for the years ended October 31, 2003, 2002 and 2001.

In March 2004, the FASB issued a proposed Statement, Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB 25 and would require that such transactions be accounted for using a fair-value-based method and recognized as expenses in our consolidated statement of earnings. The proposed Statement would require that the modified prospective method be used, which requires that the fair value of new awards granted from the beginning of the year of adoption, plus unvested awards at the date of adoption, be expensed over the applicable vesting period . The recommended effective date of the proposed Statement for public companies is for all quarters beginning after June 15, 2005. We are currently evaluating option valuation methodologies and assumptions in light of the evolving accounting standards related to employee stock options. Current estimates of option values using the Black-Scholes method may not be indicative of results from valuation methodologies ultimately adopted in the final rules.

In accordance with Security and Exchange Commission ("SEC") Staff Accounting Bulletin No. 104 "Revenue recognition in financial statements," the Company recognizes revenue when products are shipped and all four of the following criteria are met: (i) persuasive evidence of arrangements exists; (ii) delivery has occurred; (iii) the Company's price to the buyer is fixed or determinable; and (iv) collectibility is reasonably assured. The Company performs periodic evaluations of its customers' financial condition, 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.

The Company makes ongoing assumptions relating to the collectibility of accounts receivable in the calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company make judgments about the creditworthiness of customers based on ongoing credit evaluations and assess current economic trends affecting our customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers historical level of credit losses. The Company's reserves historically have been adequate to cover actual credit losses. If actual credit losses were to be significantly greater than the reserves we have established, selling, general and administrative expenses would increase. Conversely, if actual credit losses were to be significantly less than reserves, selling, general and administrative expenses would decrease.

The Company accounts for income taxes using the asset and liability method in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". 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. A deferred tax valuation allowance is provided for deferred tax assets when it is determined that it is more likely than not that amounts will not be recovered.

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.

The Company is subject to market risk for changes in CNET stock price. As of October 31, 2003, the Company has CNET stock evaluated at approximately $0.3 million, and, if the market price decrease, the Company can incur loses. In January 2004, the Company sold all its CNET shares of stock, and the proceeds from this sale were approximately $0.3 million.

The market risk for changes in the interest rate for the Company's investments is not significant because these investments are limited to highly liquid instruments with maturities of three months or less. At October 31, 2003, the Company had approximately $0.6 million classified as cash and cash equivalents.

The Board of Directors and Stockholders of TeleVideo, Inc.

We have audited the accompanying consolidated balance sheets of TeleVideo, Inc. as of October 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended October 31, 2003. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.

As more fully described in Note 9 to the consolidated financial statements, the Company did not maintain adequate accounting records needed in order to provide stock option financial statement disclosures that are required under accounting principles generally accepted in the United States of America. However, as a result of this departure from accounting principles generally accepted in the United States of America there was no impact on the October 31, 2003 and 2002 consolidated balance sheets or the related consolidated statements of operations, stockholders' equity (deficit) or cash flows for each of the three years in the period ended October 31, 2003.

In our opinion, except that the omission of the stock option information is an incomplete presentation of the financial statement disclosures as explained in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TeleVideo, Inc. at October 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the accompanying consolidated financial statements, the Company has restated its consolidated financial statements for the years ended October 31, 2002 and 2001.

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

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

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

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

Due to the high level of competition on the market for auto safety device products, the Company was unable to sell its stock of these products of approximately $0.9 million. Consequently, the entire inventory of auto safety device products was marked as obsolete and $0.4 million and $0.5 million were written off during fiscal years 2003 and 2002, respectively.

Property, plant and equipment consist of the following (in thousands):

Depreciation and amortization expense was $470,000, $473,000 and $478,000 for the years ended October 31, 2003, 2002 and 2001, respectively.

Property and equipment includes $6,270,000 of land and building under capital lease at October 31, 2003, 2002 and 2001. Accumulated amortization of assets under capital lease totaled $2,020,000, $1,602,000 and $1,184,000 at October 31, 2003, 2002 and 2001, respectively.

Investments in affiliated companies of which the Company owns 20% or more are accounted for using the equity method. Accordingly, consolidated net loss includes the Company's share of the net losses of those companies. Investments in affiliated companies of which the Company owns 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 affecting the expected realization of the Company's investment.

The Company has elected to use the intrinsic value method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employee" (APB 25), as permitted by Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), subsequently amended by SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" to account for stock-based awards issued to its 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. The Company did not maintain adequate supporting documentation necessary in order to provide stock option financial statement disclosures required under accounting principles generally accepted in the United Stated of America, including SFAS 123 and 148. See Note 9 for more information regarding stock options.

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.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. However, the Company has sustained recurring losses from operations and used cash in operations for each of the three years ended October 31, 2003, 2002 and 2001 and had an accumulated deficit of $100,739,000 and $97,934,000 as of October 31, 2003 and 2002, respectively. As of October 31, 2003, the Company has a working capital deficit of approximately $2.1 million and a stockholders' deficit of approximately $4.4 million. During 2003 and 2002, the Company has relied on financial support from its related party.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated 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, the Company may need to reduce operating expenses 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.

In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on recognition and measurement guidance previously discussed under EITF 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The consensus clarifies the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and investments accounted for under the cost method or the equity method. The recognition and measurement guidance is applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. In September 2004, the EITF delayed the requirement to record impairment losses under EITF 03-01 until new guidance is issued. The adoption of this consensus caused the recognition of cost method impairment losses of investment in affi liates as reflected within the consolidated statement of operations for the years ended October 31, 2003, 2002 and 2001.

In March 2004, the FASB issued a proposed Statement, Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB 25 and would require that such transactions be accounted for using a fair-value-based method and recognized as expenses in our consolidated statement of earnings. The proposed Statement would require that the modified prospective method be used, which requires that the fair value of new awards granted from the beginning of the year of adoption, plus unvested awards at the date of adoption, be expensed over the applicable vesting period . The recommended effective date of the proposed Statement for public companies is for all quarters beginning after June 15, 2005. We are currently evaluating option valuation methodologies and assumptions in light of the evolving accounting standards related to employee stock options. Current estimates of option values using the Black-Scholes method may not be indicative of results from valuation methodologies ultimately adopted in the final rules.

The Company has restated its consolidated financial statements for the fiscal years ended October 31, 2001 and 2002 and for the quarters ended January 31, 2001 through July 31, 2003. All applicable financial information contained in this Annual Report on Form 10-K gives effect to these restatements. Accordingly, the consolidated financial statements for those fiscal periods described above that have been included in the Company's previous filings with the Securities and Exchange Commission or included in previous announcements should not be relied upon. For information regarding the quarterly restatements for the quarters ended between January 31, 2001 and July 31, 2003, see Note 15 - Supplementary Quarterly Data.

The net effect of all of the restatement adjustments is to decrease the Company's net loss by $133,000 in fiscal year 2001 and by $74,000 in fiscal year 2002. The Company's consolidated statements of cash flows have been restated to reflect the reclassification of changes in assets and liabilities during the period as discussed above.

A summary of the significant effects of the restatement is as follows (in thousands, except per share amounts):

The effect of the revenue adjustments on pre-tax loss was partially offset by the adjustments of the cost of good sold for these shipments. These adjustments caused the pre-tax loss to decrease by $61,000 in fiscal 2002 and $59,000 in fiscal 2001.

Reviewing the previously filed consolidated financial statements, the Company identified several accrued liability items for which it concluded that the amount of the liability, the timing of the liability recognition, or the timing of the release of the liability could not presently be substantiated or was in error and should be adjusted. In summary, the effects of the adjustments are:

During the 1999-2000 period, the Company accrued a liability for legal contingencies in the amount of $200,000 to cover potential legal liabilities resulting from open and possible lawsuits existing at that time. After reviewing the basis for these accruals, it was determined that the risk for these liabilities no longer existed as of November 1, 2000. Consequently, the legal contingency accrual of approximately $190,000 was written off and the effect of this adjustment was to decrease the accumulated deficit as of November 1, 2000 by $190,000;

The Company identified that it had not been accounting for its lease expenses, starting on January 1999, on a straight-line basis in accordance with Financial Accounting Standards Board ("FASB") Technical Bulletin ("FTB") 85-3. As a result, the Company adjusted its lease expense and the related deferred lease liability. The deferred rent adjustment increased the net loss by $148,000 for fiscal years 2002 and 2001, respectively, and increased the accumulated deficit at November 1, 2000 by $296,000;

After introducing the new TeleClient line of products in 1998, on the sales agreements signed with some of our top vendors, the Company committed to participate in cooperative advertising programs, if certain criteria regarding sales performance and the content of advertising programs were met. After reviewing the sales agreements with existing customers, the Company concluded that the cooperative advertising accrual balance of $252,000 was no longer necessary at January 31, 2002 because all these contracts were either expired or renegotiated and the clause regarding cooperative advertising programs was excluded from the new contracts. Consequently, the entire balance of this account was written off in the first quarter of fiscal 2002, and the effect of this adjustment was to decrease the net loss for the fiscal 2002 by $252,000;

There were also certain adjustments and reclassifications of expenses with little or no effect on the net loss for the restated years.

The amortized cost, unrealized gains and losses, and fair values of the Company's available-for-sale securities held at October 31 for the previous three years are summarized as follows (in thousands):

No sales of these securities were made during fiscal years 2002 or 2003. All marketable securities are corporate securities with no stated maturity.

In February 1998, the Company purchased a 50% interest in Koram, Inc, a Korean restaurant venture. 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 would be the most advantageous.

In November 2001, the Company decided to pay back a portion of the loan from Gemma Hwang, spouse of the Company's CEO, with the funds deposited in Korea, which were in a total amount of approximately $0.1 million.

During the second quarter of the fiscal 2003, K&T Telecom filed for bankruptcy and, consequently, the entire book value of approximately $0.2 million was written off.

In November 2001, the Company sold its interest in Alpha Technology to Gemma Hwang. In exchange for the 9,608 shares of Alpha Technology, approximately $0.4 million (the value of transaction and the book value of Alpha Technology investment as of July 31, 2001) was deducted from the note payable owed by the Company to Gemma Hwang.

During the second quarter of 2003, Ningbo definitively stopped all its operations and closed all of its facilities. After all attempts to recover the money from this investment failed, the Company decided to write off its entire balance. Consequently, the entire balance of this investment was written off as of July 31, 2003.

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. In connection with this transaction, the Company adjusted its balance sheet to reflect the conversion to a marketable security.

In June 2000, the Company purchased for $1.0 million in cash an aggregate of 285,714 shares of common stock of MultiMedia SOC, Inc., a Nevada corporation, representing an 8% interest in this company. MultiMedia SOC, Inc. manufactures and sells handheld digital multimedia and communications appliances.

Because the investment was not consummated, MultiMedia SOC, Inc. was dissolved, and, consequently, the entire balance of approximately $0.2 million was written off as of July 31, 2003.

 Summaries of the changes in the Company's investments in affiliates are follows (in thousands):

The Company's reserves for doubtful accounts receivable, inventory obsolescence and deferred tax assets consist of the following (in thousands):

Accrued liabilities consist of the following at October 31, (in thousands):

In May 2001, the Company obtained a line of credit payable on demand from Gemma Hwang ("Mrs. Hwang"), the spouse of the Company's CEO and majority stockholder, Dr. K. P. Hwang, in the amount of $3.5 million. The Company can borrow money under this line of credit when needed in order to assure the continuity of the operations. The Company granted to Mrs. Hwang a security interest in the following described property as collateral for the line of credit:

1. 15,278 shares of the common stock of Xeline (Keyin Telecom);
2. 45,000 shares of the common stock of Biomax;
3. 285,714 shares of the common stock of Synertech;
4. 30% from the TeleVideo Ningbo China equity;
5. any and all intellectual property of TeleVideo, including but not limited to patents, hardware and software engineering documents;
6. any and all trademarks, trade names and intangible assets of TeleVideo.

Under this line of credit, which bears interest at prime plus one percent per annum, payable monthly, the Company received $0.3 million in June 2001, $0.5 million in July 2001, $0.5 million in September 2001, $0.5 million in December 2001, $0.5 million in April 2002, $0.5 million in October 2002, $0.5 million in April 2003 and $0.2 million in June 2003. In November 2001, the Company paid back approximately $0.5 million from this loan by giving its interest in Alpha Technology and the proceeds from the Koram investment. Starting in May 2003, the interest for this note began to be accrued, rather then paid, as agreed between the Company and Mrs. Hwang. As of October 31, 2003 and 2002 the outstanding balance of this note was $3.3 million and $2.5 million, respectively. The accrued interest as of October 31, 2003 was in amount of $0.1 million, and the interest rate was 5%.

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 lease. 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. As a result of the sale for $11.0 million (which includes a $2.75 million promissory note), a deferred gain of approximately $8.0 million was recorded. The deferred gain attributable to the land element, which approximates $3.5 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 $4.5 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 $109,000 as of October 31, 2003. These payments escalate to $126,000 through 2013.

The Company amortized $0.5 million of the deferred gain from the sale of the land and building in fiscal years 2003, 2002 and 2001, respectively.

The Company's obligations under this capital leases agreement expire in 2013. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. Effective interest rate on this lease is 7.25%. The assets are amortized on a straight-line basis over the lesser of the related lease terms. Amortization of assets under capital leases is combined with depreciation expense.

Minimum future lease payments under capital lease for the fiscal year ended October 31, 2003 are as follows (in thousands):

Minimum future lease payments under operating lease for the fiscal year ended October 31, 2003 are as follows: (in thousands)

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 the Company on December 1, 2013. Rent expense recognized under the operating lease was $682,000 for the fiscal years ended October 31, 2003, 2002 and 2001, respectively.

The Company identified that it had not been accounting for its lease expenses, starting on January 1999, on a straight-line basis in accordance with Financial Accounting Standards Board ("FASB") Technical Bulletin ("FTB") 85-3. As a result, the Company adjusted its lease expense and the related deferred lease liability. The deferred rent adjustment increased the net loss by $148,000 for fiscal years 2002 and 2001, respectively, and increased the accumulated deficit at November 1, 2000 by $296,000.

In December 2000, the Company subleased a part of its headquarters space. The leasing agreement was for a period of three years, beginning January 2001 with a monthly rent amount of $81,250. The Company recorded rental income in amount of approximately $1.0 million in each of the three years of the contract. The lease agreement expired on January 10, 2004 and was not renewed.

The Company has 3,000,000 authorized shares of preferred stock. No preferred stock has been issued to date.

The Company has one stock option plan, the 1991 ISO Plan ("1991 ISO Plan") that provides for the granting of incentive options to employees, including officers, for up to 4,000,000 shares. 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 SFAS 123, the Company's net income (loss) and net income (loss) per share would have been different than that reported on the consolidated statements of operations. The Company did not maintain adequate accounting records needed to provide stock options financial statements disclosure required under accounting principles generally accepted in the United Stat es of America, including SFAS 123 and 148 and therefore these required disclosures have not been included in these consolidated financial statements. See Item 9A Controls and Procedures for more information regarding stock options disclosure.

Note 10. Income Taxes

At October 31, 2003, the Company had net operating loss carryforwards of approximately $95.8 million for federal income tax and approximately $17.6 million for state income tax reporting purposes. The federal net operating loss carryforwards expire through fiscal 2023 and the state net operating loss carryforwards expire through fiscal 2008. 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.

For federal and state tax purposes, at October 31, 2003 and 2002, the Company had net deferred tax assets of approximately $32,677,000 and $31,702,000, respectively, which were fully offset by valuation allowances. These net deferred tax assets principally arise due to our net operating loss carryforwards.

The following is a reconciliation of expected tax expense (benefit) to actual for each of the years ended October 31 (in thousands):

TeleVideo had export sales (primarily to Europe, Asia and Latin America) of approximately $1.1 million in fiscal 2003 (representing 13% of total net sales), $1.2 million in fiscal 2002 (15% of total sales) and $1.5 million in fiscal 2001 (21% of total net sales). The Company also appointed in fiscal 2003 an agent in the United Kingdom.

For the fiscal year ended October 31, 2003, one customer represented 11% of total net revenue. For the fiscal years 2002 and 2001, no single customer accounted for 10% or more of total net sales.

The Company's sales are represented in principal by two main products, thin clients and terminals. Below is the structure of sales of these products for each of the three years ended October 31, (in thousands):

On November 26, 2002, the Company announced that it has signed a definitive agreement for the merger of Homebound Acquisition, Inc., a Delaware corporation controlled by Dr. K. Philip Hwang, Registrant's Chief Executive Officer, Chairman of the Board of Directors and majority shareholder, with and into the Company, resulting in a going private transaction. Under the terms of the merger, Homebound Acquisition, Inc. would pay approximately $280,000 for all the outstanding shares of the Company's common stock (other than those shares beneficially owned by Dr. K. Philip Hwang and treasury shares). Each such share will receive approximately $0.0675 in cash, without interest. Following the merger, TeleVideo would no longer be publicly traded and would continue operations as a privately held corporation. The merger and the merger agreement have been approved by a special independent committee and the full Board of Directors of the Company and were subject to the approval of the stockhol ders and other closing conditions. An 8-K form regarding this transaction was filed with the SEC on November 26, 2002.

On August 29, 2003, the Company filed with the SEC an 8-K form announcing that its board of directors terminated the merger agreement, dated as of November 26, 2002 by and between Homebound Acquisition, Inc., a Delaware corporation, and TeleVideo, Inc.

TeleMann Sublease

Starting in 1999 Global Telemann Systems, Inc. ("GTS"), a privately held start up company, sub-leased a portion of the building located at 2345 Harris Way from TeleVideo. From January 2001, TeleMann was unable to pay the monthly rental obligations under the lease agreement. The Company's CEO, Dr. K. Philip Hwang, is a 5% shareholder of TeleMann, Inc., a subsidiary of GTS.

Additionally, the Company has entered into a line of credit agreement with a related party. See Note 7 for more information regarding this transaction.

The Company has been named as a defendant in a lawsuit filed in the normal course of its business.  In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from this matter will not have a material effect on the financial statements of the Company. In November 2004, the lawsuit was settled in the Company's favor.

The Company has restated its consolidated financial statements for the fiscal years ended October 31, 2001 and 2002 and for the quarters ended January 31, 2001 through July 31, 2003. The details of the restatement are outlined in Note 2 - Restatement of the Financial Statements and Basis of Presentation.