Commission File Number: 000-11552

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number: 000-11552

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

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  [ ]        No[ X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [   ]

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

The approximate aggregate market value of registrant's common stock held by non-affiliates on February 25, 2005 (based upon the closing sales price of such stock as reported in the over the counter market as of such date) was $1,357,200.

This Annual Report on Form 10-K for the fiscal year ended October 31, 2004 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 expressio ns. However, these words are not the exclusive means of identifying such statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below, general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond control of the Company. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

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.

TABLE OF CONTENTS

Introductory Statement

References in this Form 10-K to "TeleVideo," the "Registrant," "We," or the "Company" refer to TeleVideo, Inc. and its subsidiaries unless the context indicates otherwise. This report contains registered and unregistered trademarks of other companies.

PART I

ITEM 1. BUSINESS

The net effect of the restatement adjustments applicable to periods reported in this Form 10-K is to decrease our net loss by approximately $0.1 million, or $0.007 per share, for the fiscal year ended October 31, 2002. Our consolidated statement of cash flow has been restated to reflect changes in assets and liabilities resulting from restatement adjustments during the period as discussed above. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Restatement of Financial Statements" and Note 2 of the notes to consolidated financial statements included in Item 8 for additional information regarding the restatement.

The Company

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").

The Company first became a leader in the video display terminal industry by introducing a new generation of "smart" terminals based on the Intel microprocessor at a time when "dumb" terminals were the industry standard. TeleVideo holds a number of proprietary terminal emulations, including the TV910 and TV9425, which have been an industry standard for more than 15 years and are currently used in millions of terminals worldwide. TeleVideo has been using its experience in server-based network computing to forge new ground in delivering thin-client solutions. Thin-clients are a category of terminals that do not have local storage devices, and all the programs and data are saved on the server.

Products

TeleCLIENT Family
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
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.

Video Display Terminals
The 990 is a general-purpose terminal with ASCII, ANSI, and PC TERM operating modes. For maximum versatility and flexibility, the terminal is compatible with a wide variety of keyboard styles and allows users to interface to a bar code scanner, wand reader, credit card reader, electronic scale, or other specialized keyboards for point-of-sale or point-of-transaction processing.

The TeleVideo 995-65 14-inch monochrome terminal allows the user 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.

Product Development

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-inch flat-panel displays. In addition, the Company is continuing the development of a wireless thin-client product using the 802.11b protocol. During fiscal 2004, TeleVideo spent approximately $0.6 million on Company-sponsored research and development. Company-sponsored research and development expenses for fiscal 2003 and 2002 were approximately $0.7 million and $0.6 million, respectively. The Company did not engage in any customer-sponsored research and development program during such years.

Due to 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, we 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 TeleCLIENT family of products, that can respond to the rapid changes in the marketplace.

Sales, Marketing, and Customers

North American sales are handled from TeleVideo sales offices located in San Jose, California, Lake Forest, California and Hoffman Estates, Illinois. Products are sold through distributors, mass merchants, retail stores, VARs, systems integrators, and OEMs.

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.

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 0.4% ($38,000), 1% ($0.1 million), and 1% ($0.1 million) of its net revenues on advertising in fiscal 2004, 2003, and 2002, 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, 2004, one customer represented 14% of total net revenue, while for the fiscal year ended October 31, 2003, one customer represented 11% of total net revenue. In fiscal year 2002, no customer represented 10% or more of total net revenue. TeleVideo sales terms are typically net 30 days.

International Sales

TeleVideo had export sales (primarily to Europe, Asia and Latin America) of approximately $0.6 million in fiscal 2004 (representing 6% of total net sales), $1.1 million in fiscal 2003 (13% of total sales) and $1.2 million in fiscal 2002 (15% of total net sales). In fiscal 2003, we appointed an agent in the United Kingdom to manage the sales on the European market.

TeleVideo's international sales are subject to certain risks common to non-United States operations, including governmental regulations, import restrictions and export control regulations, changes in demand resulting from fluctuations in exchange rates, and tariff regulations. TeleVideo's international sales are generally U.S. dollar-denominated and, therefore, are not directly tied to international currency fluctuations. The strength of the dollar in relation to certain international currencies may, however, adversely affect the Company's sales to international customers.

Equity Method and Cost Method Investments

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 financi al information 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.

K&T Telecom, Inc.
In July 2000, TeleVideo purchased an aggregate of 9,608 shares of common stock, or a 49% ownership interest, in K&T Telecom, Inc. for $600,000 in cash. K&T Telecom, Inc., a privately held Korean corporation, is a manufacturer of telecommunication and electronics devices, including a hands-free accessory and collision sensors. 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.

Ningbo China
In October 2000, TeleVideo acquired a 10% ownership interest in Televideo (China) Co., Ltd. ("Ningbo"), a manufacturer of computer terminals and monitors, through a $1.0 million investment. In December 2000, TeleVideo acquired an additional 20% ownership interest in Ningbo for $2.0 million. In that same month, TeleVideo changed its method of accounting for this investment from the cost method to the equity method. 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 the second quarter of 2003, Ningbo definitively stopped all its operations and closed all of its facilities. After all further attempts to recover the money from this investment failed, the balance amount of this investment of approximately $0.4 million was written off as of July 31, 2003.

mySimon, Inc.
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 ("SFAS") 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 st ock of $10.1 million and $0.3 million, respectively. In January 2004, the Company sold all of its remaining shares of CNET common stock and the proceeds of approximately $0.3 million were used for regular business activities.

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 is a startup company, with its principal offices located in Seoul, Korea, engaged in developing an herbal product to help lower cholesterol levels in humans. Its existing technology was developed by and obtained from the Korea Research Institute of Bioscience and Biotechnology. The Company's investment in Biomax represents a 15% interest in this privately held corporation. The 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 when the Company sells at least 70% of the shares it acquired under the agreement.

The financial statements received from Biomax report sales of approximately $0.3 million and a net loss of approximately $0.1 million for the first six months of 2004. The accumulated deficit from the start of the business is approximately $1.4 million at June 30, 2004. Total assets were approximately $1.0 million, and total liabilities were approximately $0.8 million at June 30, 2004, resulting in total stockholders' equity of approximately $0.3 million. Considering that TeleVideo's interest in this company is 15%, the fair market value of this investment was estimated at approximately $0.1 million as of October 31, 2004. 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 a ccordance 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 n ot 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 contemplated entering into a separate sales and marketing agreement to more fully document the terms and conditions of the strategic relationship.

At the end of year 2004, Xeline recorded a large stockholders deficit and the Company considered that it was a permanent impairment in the value of this investment. Consequently, the investment balance of approximately $0.2 million was written off as of October 31, 2004.

MultiMedia SOC, Inc. (formerly referred to as Synertek, Inc.)
In June 2000, the Company purchased for $1,000,000 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.
During the fiscal year ended in 2003, MultiMedia SOC has signed a termsheet for a substantial investment by a third party. The amount of the investment, the terms, and the implied valuation of MMSOC were confidential. Because the investment was not consummated, MMSOC was dissolved, and, consequently, the entire balance of approximately $0.2 million was written off as of July 31, 2003.

Competition

TeleVideo believes that brand recognition, product quality, availability, extensive standard product features, service, and price are significant competitive factors in the Company's markets. In addition to the factors listed above, the principal considerations for distributors and resellers in determining which products to offer include profit margins, immediate delivery, product support, and credit terms. TeleVideo has continued and in the future will likely continue to face significant competition, with respect to these factors, particularly from the large international manufacturers. Most of these companies have significantly greater financial, marketing, and technological resources than the Company and may be able to command better terms with their suppliers because of volume discounts. The Company's three dominant competitors have approximately 37%, 20% and 17% of the worldwide market, compared to less than 1% for the Company. Therefore, there is no assurance that the Company will be able to successfully compete in the future.

Production

The Company subcontracts substantially all of the manufacturing of its products to manufacturers in Taiwan, the People's Republic of China and South Korea. The testing, inspection, and some minor assembly work are done at our California headquarters. We believe our current facilities in California will continue to be adequate for our purposes in the foreseeable future.

The Company's largest supplier accounted for approximately 28% (approximately $2.1 million) of net purchases in fiscal 2004. Loss of this supplier might have an adverse effect on the product supply of the Company. The Company believes, however, that in most cases, alternative sources of supply could be arranged as and when needed by the Company. To date, TeleVideo has not experienced any significant difficulties or delays in production of its products.

Proprietary Rights

The Company regards certain aspects of its products as proprietary and relies upon a combination of trademark and copyright laws, trade secrets, confidentiality procedures, and contractual provisions to protect its proprietary rights. The 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 als o can be no assurance that third parties will not independently develop products similar to or duplicative of products of the Company. The Company believes that due to the rapid pace of technological change in its industry, the Company's success is likely to depend more upon continued innovation, technical expertise, marketing skill and customer support than on legal protection of the Company's proprietary rights.

Government Regulations

Most of the Company's products are subject to regulations adopted by the Federal Communications Commission ("FCC"), which establishes radio frequency emanation standards for computing equipment. TeleVideo believes that all of the Company's products that are subject to such regulations comply with these regulations. Although there can be no assurance, the Company has no reason to believe that new products will not also be approved. Failure to comply with the FCC specifications could preclude the Company from selling non-complying systems in the United States until appropriate modifications are made. To date, the Company has not encountered any FCC compliance issues.

Employees

As of April 1, 2005, the Company's full-time employees totaled 19, as compared to 30 employees reported at the end of fiscal year 2003. Of the total number of employees, 7 are engaged in product research, engineering, development and manufacturing, 7 in marketing and sales and 5 in general management and administration. We believe that our future success will depend, in part, on our ability to attract and retain skilled technical, marketing, and management personnel. None of the Company's employees is subject to a collective bargaining agreement or represented by a union, and the Company has never experienced a work stoppage. We believe that our employee relations are good.

ITEM 2. PROPERTIES

The Company's headquarters, research and development and administrative operations are housed in a 69,630 square foot building located on 2.5 acres in San Jose, California. On December 28, 1998, the Company sold the building and leased it back. On August 9, 2004, the Company purchased all the membership interests in TVCA, LLC ("TVCA") from affiliates of its landlord. TVCA is the entity that owns the property at which the Company's headquarters are located. As consideration for the membership interests in TVCA, the Company paid an amount of $10.00. In addition to the property at 2345 Harris Way, TVCA is also obligated under a certain non-recourse promissory note with a balance of approximately $8.8 million for which the property serves as security. See Note 8 of notes to consolidated financial statements for more information regarding this transaction.

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 3. LEGAL AND OTHER PROCEEDINGS

The Company has been named as a defendant in a lawsuit filed in the normal course of its business.  In the opinion of management and 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.

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended October 31, 2004.

PART II

The Company's common stock is traded in the over-the-counter market and quoted on the electronic bulletin board under the symbol "TELV.PK". The following table sets forth for the periods indicated the high and low last sales prices for the common stock. The prices quoted below reflect inter-dealer prices, without retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.

On April 1, 2005, 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 $0.14 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, 2000 through 2004. 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.

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, 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 results 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.

We have restated our 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 Form 10-K gives effect to these restatements. Accordingly, the financial statements for those periods described above that have been included in our previous filings with the Securities and Exchange Commission ("SEC") in 2003 or earlier or included in previous announcements in 2003 or earlier should not be relied upon. Our Form 10-K for the fiscal year ended October 31, 2003, filed with the SEC on December 20, 2004, contains restated information for all of the above-mentioned periods. The restatement is discussed in the Form 10-K, Item 6, "Selected Financial Data," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -Restatement of Financial Statements," Notes 2 and 15 o f the notes to consolidated financial statements included in Item 8, and Item 9A, "Controls and Procedures." The information contained in this Form 10-K should be read in conjunction with the relevant information contained in that Form 10-K.

The net effect of the restatement adjustments is to decrease the Company's net loss by $0.1 million or $0.007 per share, in fiscal year 2002. The Company's consolidated statement of cash flow has 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 for the fiscal year 2002 is as follows (in thousands, except per share amounts):

Sales and Cost Of Sales
The Company discovered that certain shipments of evaluation and replacement units, where a right of return existed, were recognized as revenue (sales), rather than temporary transfers of inventory. Consequently, the amount of the net revenue and the timing of the revenue originally recorded required adjustment. These adjustments caused the pre-tax loss to increase by $176,000 in fiscal year 2002. The effect of the revenue adjustments on pre-tax loss was partially offset by the adjustments of cost of goods sold for these shipments. These adjustments caused the pre-tax loss to decrease by $61,000 in fiscal 2002.

Expenses
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:

Overview

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.

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.

Results of Operations

Fiscal 2004 Compared to Fiscal 2003

Cost of Sales
Cost of sales for fiscal year 2004 was approximately $7.5 million, compared to $7.6 million in fiscal 2003, a decrease of $0.1 million, or 1%. The decrease is due principally to scrapped inventory, mainly mobile electronics products, in the amount of approximately $0.4 million in fiscal year 2003, compared to approximately $10,000 in fiscal year 2004, and to the decrease of production costs, partially offset by the increase in net sales.

Sales and Marketing
Sales and marketing expenses for fiscal year 2004 were approximately $1.3 million, compared to $1.6 million in fiscal 2003. As a percentage of net sales, sales and marketing expenses decreased to 14% for the fiscal 2004, from 19% for the fiscal year 2003. The decrease is due principally to the reduction of sales and marketing personnel during fiscal year 2004.

Research and Development
Research and development expenses were approximately $0.6 million in fiscal 2004, compared to $0.7 million in fiscal 2003. As a percentage of net sales, research and development expenses were 6% in fiscal 2004, compared to 9% in fiscal 2003. The decrease is primarily due to the decrease of expenses for molding tools at our manufacturing location.

General and Administrative
General and administrative expenses were approximately $1.7 million in fiscal 2004, compared to $1.6 million in fiscal 2003, an increase of $0.1 million or 5%. The increase is due primarily to expenses related to the termination of our sale-leaseback transaction in fourth quarter of fiscal 2004. As a percentage of net sales, general and administrative expenses were 17% and 18% in fiscal years 2004 and 2003, respectively.

Loss from Operations
We recorded loss from operations of approximately $4.9 million in fiscal 2004, compared to approximately $2.9 million in fiscal year 2003, an increase of $2.1 million or 72%.

Other Income, net
Other income, net of other expenses, was of approximately $4.4 million for the fiscal year 2004, compared to a net other income of approximately $0.1 million in fiscal 2003. The increase of other income is due principally to the gain from the termination of our sale-leaseback transaction, partially offset by an increase of interest expense.

Income Tax
No income tax was recorded for 2004 or 2003. The Company has approximately $98.4 million in federal net operating loss and credit carryovers and approximately $20.6 million in state net operating loss carryovers available to offset future federal and state corporate income tax liabilities. No net deferred tax assets have been recognized by the Company for any future tax benefit to be provided from the loss and credit carry forwards since the realization of any such benefit is not assured.

Net Loss
The net loss for fiscal 2004 was approximately $0.5 million, compared to a net loss of $2.8 million in fiscal 2003, a decrease of $2.3 million, or 83%. The decrease is principally due to the gain from the termination of our sale-leaseback transaction, an increase in total net sales and improved gross margin and due to the decrease of operating expenses, partially offset by an increase in interest expense.

Net Sales
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
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 principally 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
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 principally 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
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
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 to the reduction in administrative headcount.

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

Net Loss
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 principally 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
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.

Liquidity and Capital Resources

For the fiscal year ended October 31, 2004, net cash used in operating activities of $0.6 million was primarily attributable to a net loss from operations, a decrease in accounts payable and an increase in prepayments, partially offset by a decrease in inventories and an increase in accrued liabilities. The decrease in accounts payable was due principally to payments for inventory acquired at the end of fiscal year 2003 related to the replacement of our old VIA motherboard for thin clients with a new TRANSMETA motherboard, while the decrease in inventory was due to an increase in net sales. Prepayments were also made during the period to our suppliers in connection with purchase orders issued. The increase in accrued liabilities is primarily due to unpaid interest for the loan from Gemma Hwang.

For the fiscal year ended October 31, 2003, net cash used in operating activities of $0.7 million was primarily attributable to a net loss from operations and an increase in inventory, partially offset by an increase in accounts payable and a decrease in accounts receivable and prepaids. The increase in inventory during fiscal 2003 was related to the replacement of our old VIA motherboard for thin clients with a new TRANSMETA motherboard. The decrease in accounts receivable was due to payments received for sales made at the end of fiscal year 2002.

For the fiscal year ended October 31, 2004, net cash provided by investing activities of approximately $42,000 was represented by proceeds from sale of CNET stock, offset by loans to a related party. For the fiscal year ended October 31, 2003, net cash provided by investing activities of approximately $0.1 million was represented by payments received on notes receivable.

For the fiscal year ended October 31, 2004, net cash provided by financing activities of approximately $0.7 million was represented by amounts borrowed from Gemma Hwang under the line of credit, partially offset payments under the lease and loan agreements. For the fiscal year ended October 31, 2003, net cash provided by financing activities of approximately $0.3 million was represented by amounts borrowed from Gemma Hwang for the line of credit, partially offset by payments for the lease agreement.

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 approximately $11.0 million. During fiscal 2001, the Company sold approximately 8,000 shares of CNET stock for approximately $0.3 million. In January 2004, the Company sold all its shares of CNET common stock and proceeds of approximately $0.3 million were used for regular business activities.

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 $2.8 million promissory note. The note beared 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. As mentioned in Note 8, this note receivable was written off during fiscal year 2004 in connection with the purchase of TVCA, LLC.

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 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 $6.3 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, was 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, was 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 February 2004, the Company entered into an agreement that resulted in the termination of our sale-leaseback tra nsaction.

On August 9, 2004, the Company purchased all the membership interests in TVCA, LLC ("TVCA") from affiliates of its landlord. TVCA is the entity that owns the property at which the Company's headquarters are located. As consideration for the membership interests in TVCA, the Company paid an amount of $10.00. In addition to owning the property at 2345 Harris Way, TVCA is also obligated under a certain non-recourse promissory note with a principal balance of approximately $8.8 million for which the property serves as security. See Note 8 of notes to financial statements for more information about this transaction.

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.

At the end of fiscal 2004, the Company had a working capital deficit of approximately $2.0 million, compared to a $1.6 million recorded at the end of fiscal 2003, an increase of $0.4 million, or 25%.

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. 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:

During fiscal years 2003 and 2004, Xeline, Synertech and Ningbo China were written off from the Company's books due to impairments in their fair market value, and, consequently, the value of the assets granted as security interest for this note was reduced.

The Company's CEO, Dr. K. Philip Hwang ("Dr. Hwang"), is a 5% shareholder of TeleMann, Inc., a subsidiary of Global Telemann Systems, Inc. ("GTS"), a privately held company. In fiscal year 2004, the Company agreed to loan GTS up to $0.3 million, with an annual interest rate of 6%, and GTS borrowed a total of $0.3 million. Up to $0.2 million from this loan was personally guaranteed by Dr. Hwang. As of October 31, 2004, the balance of the loan was approximately $0.3 million and after Telemann failed to meet the loan agreement conditions, the Company reserved approximately $0.1 million against the loan. The Company has filed a lawsuit against Telemann and is waiting for the results of this action before requesting the payment of $0.2 million guaranteed by Dr. Hwang.

During fiscal year 2004, the Company had serious financial difficulties, due to the continuous loss from operations, to the ending of the sublease agreement with its tenant and to the decision of Gemma Hwang to stop financing the Company. As a result, the Company was unable to meet its obligation under the lease agreement for the headquarters property, and the Company entered into an agreement to cancel the lease agreement and to purchase TVCA, LLC ("TVCA"), the legal entity which owned the headquarters property. In exchange, the Company assumed the loan obligations collateralized by the property. After acquiring the property in August 2004, total monthly obligations were reduced from approximately $120,000 per the lease agreement to approximately $82,000 for loan and escrow payments. At the same time, the Company continued to record loses from operations and its financial condition was deteriorating. After an analysis of a revenue forecast for fiscal year 2005, it was determined that the anticipated sales would not generate enough cash flow to continue operations through the end of the year. Consequently, if there is not a significant improvement in our operations' activities, a substantial increase in sales or a significant reduction of operational expenses, and we are unable to find additional sources of income or financing resources, including the rental of our available space at the headquarters property, we may be unable to sustain our operations through the end of fiscal 2005.

In January 2005, the Company entered into a definitive agreement with Neoware, Inc. ("Neoware"), one of its competitors, under which Neoware will acquire the Company's thin client business, including all thin client assets, certain contract obligations, a trademark license, product brands, customer lists, customer contracts and non-competition agreements for $5 million in cash plus a potential earn-out based upon performance. In addition, as of January 12, 2005, TeleVideo retained Neoware as its exclusive distributor and sales agent and all TeleVideo thin client products are available directly from Neoware. The transaction is subject to regulatory approval and the acquisition was originally expected to close in March 2005, subsequently changed to June 2005.

We have not entered into any off-balance sheet financing arrangements and we have not established any variable interest entities. We do not have any unconditional purchase obligations or 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.

Factors that May Affect Future Results (Risk Factors)

Competitive Markets

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.

Product Development

The computer market is characterized by rapid technological change and product obsolescence, often resulting in short product life cycles and rapid price declines. The Company's operations will continue to depend primarily on its ability to continue reducing 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.

Single-sourced Products

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.

Reliance on Forecasts

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.

Factors that Could Affect Stock Price

The market price of TeleVideo's common stock could be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, and market conditions in the computer technology industry, as well as general economic conditions and other factors external to the Company. In fiscal 2004, the highest price for TeleVideo shares of stock was $0.75, and the lowest price was $0.13.

Foreign Currency and Political Risk

The Company markets its products worldwide. In addition, a large portion of the Company's part and component manufacturing, along with key suppliers, are located outside the United States. Accordingly, the Company's future results could be adversely affected by a variety of factors, including fluctuation in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, unexpected changes in regulatory requirements, and natural disasters.

Investments in Affiliates

Investments in affiliates represent approximately 1% of the Company's total assets at October 31, 2004. 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 2004, the Company decreased the carrying value of its affiliate investments by approximately $0.2 million.

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 SFAS 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 impairmen t losses of investment in affiliates as reflected within the consolidated statements of operations for the years ended October 31, 2004, 2003 and 2002.

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4". The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS 123R, "Share-Based Payment." SFAS 123R will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123R replaces SFAS 123, "Accounting for Stock-Based Compensation", and supersedes Accounting Principles Board Opinion 25 ("Opinion 25"), "Accounting for Stock Issued to Employees." SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transac tions with employees. However, SFAS 123 permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed proforma net income using fair-value-based methods. Public will be required to apply SFAS 123R as of the first interim or annual reporting period that begins after June 15, 2005. The Company has not yet determined which transition method will be adopted for the recognition of the stock based compensatory expense.

Revenue Recognition
In accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements," we recognize 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) our price to the buyer is fixed or determinable; and (iv) collectibility is reasonably assured. We perform periodic evaluations of customers' financial condition, maintain a reserve for potential credit losses, and adjust 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.

Warranty
We generally offer a one-year to three-year warranty on all of our products. We record a liability based on estimates of the costs that may be incurred under our warranty obligations and charge to cost of product revenues the amount of such costs at the time revenues are recognized. While we engage in product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, our warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Our estimates of anticipated rates of warranty claims and costs per claim are primarily based on historical information and future forecasts. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. If actual warranty claims are significantly higher than forecast, or if the actual costs incurred to provide the warranty is greater than the forecast, our gross m argins could be adversely affected.

Allowance for Doubtful Accounts
We make 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, we 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 incurred. We also consider the historical level of credit losses. Our reserves historically have been adequate to cover actual credit losses.

Deferred Taxes
We account 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 assets and liabilities 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
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. Lower of cost or market is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors.

Goodwill
Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Based on the impairment tests performed, there was impairment of goodwill in fiscal 2004. See Note 8 for additional information regarding goodwill impairment.

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, 2004, the Company had approximately $0.7 million classified as cash and cash equivalents.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Board of Directors and Stockholders of TeleVideo, Inc.

We have audited the accompanying consolidated balance sheets of TeleVideo, Inc. as of October 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended October 31, 2004. 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 10 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, 2004 and 2003 consolidated balance sheets or the related consolidated statements of operations, stockholders' deficit or cash flows for each of the three years in the period ended October 31, 2004.

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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has sustained consecutive periods of significant losses and is operating with a significant accumulated deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

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

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

TELEVIDEO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Three Years Ended October 31, 2004
(in thousands)

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Note 1.  Summary of Significant Accounting Policies

The Company
Founded in 1975, TeleVideo, Inc. ("Televideo" or "the Company") provides innovative high performance terminal and network computer products to the business and consumer markets. The Company markets its products worldwide primarily through distributors, value-added resellers ("VARs"), systems integrators, and original equipment manufacturers ("OEMs").

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, after elimination of intercompany accounts and transactions.

Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less or money market funds from substantial financial institutions are considered to be cash equivalents. Substantially all of the cash and cash equivalents are placed in interest bearing demand deposit accounts with two financial institutions.

Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of risk, consist principally of trade and other receivables. In the ordinary course of business, trade receivables are with a large number of customers, dispersed across a wide North American geographic base. The Company extends credit to its customers in the ordinary course of business and periodically reviews the credit levels extended to customers, estimates the collectibility and creates an allowance for doubtful accounts, as needed. The Company does not require cash collateral or other security to support customer receivables. Provision is made for estimated losses on uncollectible accounts.

Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard cost basis (which approximates average cost) for both finished goods and work-in-process and includes material, labor and manufacturing overhead costs.

Inventory balances stated here are shown net of necessary reserves of $0.3 million and $0.2 million at October 31, 2004 and 2003, respectively.

Marketable Securities
Investments in marketable equity and debt securities are classified as available-for-sale in accordance with Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities." Available-for-sale securities are securities not classified as either trading or held-to-maturity. Securities available-for-sale are reported at fair value with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) in stockholders' equity. Premiums and discounts are included in interest income over the period to maturity using the interest method. Gains and losses on sales are determined using the specific identification method.

Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method. Leasehold improvements and property under capital lease are amortized over the shorter of the lease term or economic life of the asset. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from the accounts and any related gain or loss is reflected in the statement of operations. Repairs and maintenance are expensed as incurred. The lives of the Company's assets are as follows:

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

Depreciation and amortization expense was $362,000, $470,000 and $473,000 for the years ended October 31, 2004, 2003 and 2002, respectively.

Property and equipment includes $6,270,000 of land and building under capital lease at October 31, 2003. Accumulated amortization of assets under capital lease totaled $2,020,000 at October 31, 2003. There are no assets under capital lease at October 31, 2004.

Investments in Affiliates
Investments in affiliated companies in 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 in 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.

Revenue Recognition
In accordance with Staff Accounting Bulletin 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 price to the buyer is fixed or determinable; and (iv) collectibility is reasonably assured. The Company performs periodic evaluations of customers' financial condition, maintains a reserve for potential credit losses, and adjusts the reserve periodically to reflect both actual and potential credit losses. Product warranties are based on the ongoing assessment of actual warranty expenses incurred.

Allowance for Doubtful Accounts
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 makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously incurred. The historical level of credit losses is also considered. Reserves historically have been adequate to cover actual credit losses.

Goodwill
SFAS 142, "Goodwill and Other Intangible Assets", requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Based on the impairment tests performed, there was impairment of goodwill in fiscal year 2004. See Note 8 for additional information regarding goodwill impairment.

Advertising Costs
Advertising costs are expensed as incurred. Advertising expense totaled approximately $38,000 in fiscal 2004 and approximately $0.1 million 2003 and 2002, respectively.

Research and Development Costs
Costs incurred for the development and enhancement of new products and services are charged to expense as incurred.

Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with SFAS 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.

Stock-Based Compensation
The Company has elected to use the intrinsic value method under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25"), as permitted by SFAS 123, "Accounting for Stock-Based Compensation," 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. 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 States of America, including SFAS 123 and 148. See Note 10 for more information regarding stock options.

Segment Reporting
The Company's business is conducted in a single operating segment. The Company's Chief Executive Officer reviews a single set of financial data that encompasses the Company's entire operations for purposes of making operating decisions and assessing performance.

Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share should reflect potential dilution from outstanding stock options using the treasury stock method. However, as stated in Note 10, the Company did not maintain accounting records needed to provide such information.

Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Based upon borrowing rates currently available to the Company for loans and capital leases with similar terms, the carrying value of its debt and capital lease obligations approximate fair value.

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

Liquidity
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, 2004, 2003 and 2002 and had an accumulated deficit of $101.2 million and $100.7 million as of October 31, 2004 and 2003, respectively. As of October 31, 2004, the Company had a working capital deficit of approximately $2.0 million and a stockholders' deficit of approximately $5.0 million. During 2004 and 2003, the Company has also relied on financial support from a 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. As mentioned in Note 16, the Company is negotiating for the sale of its thin client business and expects this may be a source of working capital during fiscal year 2005.

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.

Warranty
The warranty periods for the Company's products are generally between one and three years from date of shipment. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure.

Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.

Changes in the Company's product warranty liability during the years ended October 31, 2004 and 2003 are as follows (in thousands):

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 SFAS 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 impairmen t losses of investment in affiliates as reflected within the consolidated statements of operations for the years ended October 31, 2004, 2003 and 2002.

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4". The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS 123R, "Share-Based Payment." SFAS 123R will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123R replaces SFAS 123, "Accounting for Stock-Based Compensation", and supersedes Accounting Principles Board Opinion 25 ("Opinion 25"), "Accounting for Stock Issued to Employees." SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transac tions with employees. However, SFAS 123 permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed proforma net income using fair-value-based methods. Public entities will be required to apply SFAS 123R as of the first annual reporting period that begins after June 15, 2005. The Company has not yet determined which transition method will be adopted for the recognition of the stock based compensatory expense and the Company believes that expensing of stock options will not have a material impact on its financial statements going forward due to its limited utilization of stock options.

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 for fiscal years 2002 and 2003 contained in this Form 10-K gives effect to these restatements. Accordingly, the financial statements for those periods described above that have been included in the Company's previous filings with the Securities and Exchange Commission ("SEC") prior to fiscal year ended Octobet 31, 2003 or included in previous announcements in 2003 or earlier should not be relied upon. The Company's Form 10-K for the fiscal year ended October 31, 2003, filed with the SEC on December 20, 2004, contains restated information for all of the above mentioned periods. The restatement is discussed in the Form 10-K, Item 6, "Selected Financial Data," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -Restatement of Financial Statements," Notes 2 and 15 of the notes to consolidated financial statements included in Item 8, and Item 9A, "Controls and Procedures."

The net effect of all of the restatement adjustments is to decrease the Company's net loss by approximately $0.1 million, or $0.007 per share 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):

Sales and Cost Of Sales
The Company discovered that certain shipments of evaluation and replacement units, where a right of return existed, were recognized as revenue (sales), rather than temporary transfers of inventory. Consequently, the amount of the net revenue and the timing of the revenue originally recorded required adjustment. These adjustments caused the pre-tax loss to increase by $176,000 in fiscal year 2002.

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.

Expenses
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:

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 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 year 2002.

After introducing the new TeleClient line of products in 1998, on the sales agreements signed with some of the 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.

Note 3. Marketable Securities

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

No sales of these securities were made during fiscal years 2002 or 2003. In January 2004, the Company sold all of its shares of CNET common stock and proceeds of approximately $0.3 million were used for regular business activities.

Note 4. Investments in Affiliates

K&T Telecom, Inc.
In July 2000, TeleVideo purchased an aggregate of 9,608 shares of common stock, or a 49% ownership interest, in K&T Telecom, Inc. for $600,000 in cash. K&T Telecom, Inc., a privately held Korean corporation, is a manufacturer of telecommunication and electronics devices, including a hands-free accessory and collision sensors. 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.

Ningbo China
In October 2000, the Company acquired a 10% ownership interest in Televideo (China) Co., Ltd. ("Ningbo"), a manufacturer of computer terminals and monitors, through a $1.0 million investment. In

December 2000, TeleVideo acquired an additional 20% ownership interest in Ningbo for $2.0 million. In that same month, the Company changed its method of accounting for this investment from the cost method to the equity method. 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.

mySimon, Inc.
In September 1998, the Company invested $1.0 million in the online comparison shopping Internet company, mySimon, Inc., receiving convertible preferred stock. In February 2000, CNET Networks, Inc. (formerly, CNET, Inc.) completed the acquisition of mySimon, Inc. As a result of this acquisition, the Company received 375,108 shares of common stock of CNET Networks, Inc. ("CNET") in exchange for 100% of its interest in mySimon, Inc. In connection with this transaction, the Company adjusted its balance sheet to reflect the conversion to a marketable security. In January 2004, the Company sold all of its remaining shares of CNET common stock and the proceeds of approximately $0.3 million were used for regular business activities.

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 is a startup company, with its principal offices located in Seoul, Korea, engaged in developing an herbal product to help lower cholesterol levels in humans. Its existing technology was developed by and obtained from the Korea Research Institute of Bioscience and Biotechnology. The Company's investment in Biomax represents a 15% interest in this privately held corporation. The fair market value of this investment was estimated at approximately $0.1 million as of October 31, 2004 and 2003.

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. At the end of fiscal year 2004, Xeline financial performance continued to decline and the Company considered that it was a permanent impairment in the value of this investment. Consequently, the investment balance of approximately $0.2 million was written off as of October 31, 2004. As of October 31, 2003, the fair market value of this investment was of approximately $0.2 million.

MultiMedia SOC, Inc. (formerly referred to as Synertek, Inc.)
In June 2000, the Company purchased for $1,000,000 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.
During the fiscal year ended in 2003, MultiMedia SOC has signed a termsheet for a substantial investment by a third party. The amount of the investment, the terms, and the implied valuation of MMSOC were confidential. Because the investment was not consummated, MMSOC 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 as follows (in thousands):

Note 5. Valuation and Qualifying Accounts

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

Note 6. Accrued Liabilities

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:

During fiscal years 2003 and 2004, Xeline, Synertech and Ningbo China were written off from the Company's books due to impairments in their fair market value, and, consequently, the value of the assets granted as security interest for this note was reduced.

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. In November 2003, Gemma Hwang agreed to increase the maximum credit amount for the note payable from $3.5 million to $4.0 million, all other conditions remaining the same. Under the new agreement, the Company borrowed $0.3 million in November 2003 and $0.5 million in December 2003. As of October 31, 2004 and 2003, the outstand ing principal balance of this note was $4.0 million and $3.2 million, respectively. The accrued interest as of October 31, 2004 and 2003 was $0.3 million and $0.1 million, respectively. The interest rate was 6.25% as of October 31, 2004 and 5% as of October 31, 2003.

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 had been recorded as an operating lease. The building component had been accounted for as a capital lease, and was recorded at the fair value of approximately $6.3 million. As a result of the sale and leaseback, a deferred gain of approximately $8.0 million was recorded. The deferred gain attributable to the land element, which approximates $3.5 million, has been 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, has been amortized over the leased building asset life or over the 15-year lease term, on the straight-line method.

As of October 31, 2003, the total deferred gain on the land and building was $5.5 million.

On August 9, 2004, the Company agreed on consent to transfer 99.9% interest in TVCA, LLC and on the assignment of a 100% interest in TVCA, Inc. TVCA, LLC is the legal entity that owns the land and the building where the Company's headquarters is located. As consideration for the transfer of membership interests in TVCA, LLC and assignment of ownership of TVCA, Inc., the Company assumed the non-recourse mortgage loan payable in the principal balance of $8.8 million for which the property serves as security and cancelled the $2.4 million note receivable issued by Televideo under the 1998 sale-leaseback agreement. Additionally, the Company's CEO, Dr. K. P. Hwang, personally contributed $0.1 million, reducing the Company's cost for this transaction, with no additional obligation to the Company.

The fair market value of the property was appraised by an independent certified appraiser at $4.85 million and the Company received mortgage loan escrow deposits of approximately $0.7 million. The total amount of the mortgage loan assumed by the Company, for which the property served as security, was of approximately $8.8 million, and the resulting difference between the assets received and debt assumed of $3.4 million was recorded as goodwill. In accordance with SFAS 142, "Goodwill and Other Intangible Assets", the statement requires a test for impairment to be performed annually, or immediately if conditions indicate that such an impairment could exist. The conditions that indicate a goodwill impairment exist is that the primary assets of TVCA, LLC, land and a building, is essentially vacant without any prospects of being leased in the near future. As of October 31, 2004, the Company recognized an impairment charge of $3.4 million for the book value of the good will.

Due to the termination of the lease during fiscal year 2004, the Company recognized the remaining balance of the deferred gain and reversed other remaining related balance sheet accounts, such as the capital lease obligations and deferred rent expenses, from the original sale of the property in 1998, triggering a gain from termination of the sale-leaseback transaction of $4.9 million.

The balance of the secured loan mortgage for the headquarters property was $8.8 million at October 31, 2004, with an interest rate of 8% per annum. Scheduled monthly payments are $68,000, including principal and interest, and the maturity date for this loan is January 1, 2009, when all remaining outstanding principal and interest must be paid.

Minimum payments under the secured mortgage loan payable for the next 5 years are as follows (in thousands):

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

Stock Option Plans
The Company has one stock option plan, the 1991 Incentive Stock Option 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 11. Income Taxes

At October 31, 2004, the Company had net operating loss carryforwards of approximately $98.4 million for federal income tax and approximately $20.6 million for state income tax reporting purposes. The federal net operating loss carryforwards expire through fiscal 2024 and the state net operating loss carryforwards expire through fiscal 2009. 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, 2004 and 2003, the Company had net deferred tax assets of approximately $36.4 million and $32.7, respectively, which were fully offset by valuation allowances. The net change in the total valuation allowance for the years ended October 31, 2004 and 2003 was an increase of $3.7 million and $1.0 million, respectively. These net deferred tax assets principally arise from to 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):

The Company operates in two operating segments. One segment designs, produces, and markets high performance thin client network devices and terminals designed for office and home automation both domestically and internationally and the other segment owns and operates an office building in San Jose, California as the result of the Company's acquisition of TVCA, LLC during fiscal year 2004. The Company maintains all of its long lived assets in the United States of America.

TeleVideo had export sales (primarily to Europe, Asia and Latin America) of approximately $0.6 million in fiscal 2004 (representing 6% of total net sales), $1.1 million in fiscal 2003 (13% of total sales) and $1.2 million in fiscal 2002 (15% of total net sales).

For the fiscal year ended October 31, 2004, one customer represented 14% of total net revenue and for the fiscal year ended October 31, 2003, one customer represented 11% of total net revenue. For the fiscal year 2001, no single customer accounted for 10% or more of total net sales.

The Company's sales are represented principally by two main products, thin clients and terminals. Sales by product line for each of the three years ended October 31, is as follows (in thousands):