-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UWfw2kIGGLvFCDt+y5Alf8h371m4i9N2sP4AKlxjZdZC1SaQb9MhIke31nXy6fpR DzIfcAoiET3xTtPPo2oWnw== 0000950005-97-000503.txt : 19970513 0000950005-97-000503.hdr.sgml : 19970513 ACCESSION NUMBER: 0000950005-97-000503 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970328 FILED AS OF DATE: 19970512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PINNACLE SYSTEMS INC CENTRAL INDEX KEY: 0000774695 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 943003809 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24784 FILM NUMBER: 97600511 BUSINESS ADDRESS: STREET 1: 280 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4155261600 MAIL ADDRESS: STREET 1: 280 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 0-24784 PINNACLE SYSTEMS, INC. ---------------------- (Exact name of Registrant as specified in its charter) California 94-3003809 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 280 N. Bernardo Ave. Mountain View, California 94043 - ---------------------------------------- ----------- (Address of principal executive offices) (Zip Code) (415) 526-1600 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of common stock outstanding as of March 28, 1997 was 7,234,819. PINNACLE SYSTEMS, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION ITEM 1 - Condensed consolidated financial statements Condensed consolidated balance sheets - March 31, 1997 and June 30, 1996 3 Condensed consolidated statements of operations - three months and nine months ended March 31, 1997 and 1996 4 Condensed consolidated statements of cash flows - nine months ended March 31, 1997 and 1996 5 Notes to condensed consolidated financial statements 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K 12 Signatures 13 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements PINNACLE SYSTEMS, INC. AND SUBSIDIIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 31, June 30, 1997 1996 ------- ------- Assets Current assets: Cash and cash equivalents $36,299 $27,846 Marketable securities 19,286 29,315 Accounts receivable, less allowance for doubtful accounts and returns of $1,526 and $840 as of March 31, 1997 and June 30, 1996, respectively 6,212 7,526 Inventories 4,503 9,611 Deferred taxes -- 2,091 Prepaid expenses 359 311 ------- ------- Total current assets 66,659 76,700 Property and equipment, net 4,388 2,204 Marketable securities -- 3,973 Deferred taxes -- 1,154 Other assets 617 530 ------- ------- $71,664 $84,561 ======= ======= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $1,978 $ 1,495 Accrued expenses 2,462 2,621 Deferred revenue 250 247 ------- ------- Total current liabilities 4,690 4,363 ------- ------- Commitments Shareholders' equity: Common stock; authorized 15,000 shares; 7,235 and 7,468 issued and outstanding as of March 31, 1997, and June 30, 1996, respectively 74,715 77,902 Deferred compensation, net (19) (34) Retained earnings (deficit) (7,722) 2,330 ------- -------- Total shareholders' equity 66,974 80,198 ------- -------- $71,664 $ 84,561 ======= ======== See accompanying notes to condensed consolidated financial statements. 3 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three Nine Months Ended Months Ended March 31, 1997 March 31, 1997 ------------------- -------------------- 1997 1996 1997 1996 ------- ------- -------- ------- Net sales $ 8,265 $12,766 $ 25,052 $33,932 Cost of sales 4,709 6,574 18,033 17,524 ------- ------- -------- ------- Gross profit 3,556 6,192 7,019 16,408 ------- ------- -------- ------- Operating expenses: Engineering and product development 1,894 1,396 5,739 3,607 Sales and marketing 3,077 2,369 8,285 6,424 General and administrative 623 607 2,813 1,657 ------- ------- -------- ------- Total operating expenses 5,594 4,372 16,837 11,688 ------- ------- -------- ------- Operating income (loss) (2,038) 1,820 (9,818) 4,720 Interest income, net 719 879 2,211 2,487 ------- ------- -------- ------- Income (loss) before income taxes (1,319) 2,699 (7,607) 7,207 Income tax expense -- 877 2,445 2,390 -------- ------- -------- ------- Net income (loss) $(1,319) $ 1,822 $(10,052) $ 4,817 ======= ======= ======== ======= Net income (loss) per share $ (.18) $ .23 $ (1.35) $ .62 ======= ======= ======== ======= Shares used to compute net income (loss) per share 7,353 7,894 7,444 7,725 ======= ======= ======== ======= See accompanying notes to condensed sonsolidated financial statements.
4 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended March 31, --------------------------- 1997 1996 ---- ---- Cash flows from operating activities: Net income (loss) $(10,052) $ 4,817 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,080 474 Increase of valuation allowance on deferred tax assets 3,245 -- Tax benefit from exercise of common stock options -- 2,041 Loss on disposal of property and equipment 448 -- Changes in operating assets and liabilities: Accounts receivable 1,314 (2,182) Inventories 5,108 (5,383) Accounts payable 483 1,411 Accrued expenses (159) 865 Other (267) (344) -------- -------- Net cash provided by operating activities 1,200 1,699 -------- -------- Cash flows investing activities: Purchases of property and equipment (3,562) (1,322) Purchase of marketable securities (14,906) (33,360) Proceeds from maturity of marketable securities 28,908 7,000 -------- -------- Net cash provided by (used in) investing activities 10,440 (27,682) -------- -------- Cash flow from financing activities: Purchase of common stock (3,627) -- Proceeds from issuance of common stock 440 44,443 -------- -------- Net cash provided by (used in) financing activities (3,187) 44,443 -------- -------- Net increase in cash and cash equivalents 8,453 18,460 Cash and cash equivalents at beginning of period 27,846 12,626 -------- -------- Cash and cash equivalents at end of period $ 36,299 $ 31,086 ======== ======== Supplemental disclosures of cash paid during the period for: Interest $ 10 $ 8 ======== ======== Income taxes $ 445 $ 87 ======== ======== See accompanying notes to condensed sonsolidated financial statements.
5 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands) 1. General The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in this report reflects all adjustments which, in the opinion of management, are necessary for a fair statement of the consolidated financial position, results of operations and cash flows as of and for the interim periods. Such adjustments consist of items of a normal recurring nature. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto, which include information as to significant accounting policies, for the fiscal year ended June 30, 1996 included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 17, 1996. Results of operations for interim periods are not necessarily indicative of results for the full year. 2. Significant Accounting Policies Fiscal Year Pinnacle Systems, Inc. and its subsidiaries (the Company) reports on a fiscal year which ends on June 30. The Company's first three fiscal quarters end on the last Friday in September, December, and March. For financial statement presentation, the Company has indicated its fiscal quarters as ending on the month-end. Net Income Per Share Net income per share is computed using the weighted average number of common shares and dilutive common stock equivalents outstanding using the treasury stock method. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings per share ("EPS") and, for companies with complex capital structures (or potentially dilutive securities, such as convertible debt, options and warrants), diluted EPS. SFAS No. 128 is effective for annual and interim periods ending after December 31, 1997. The Company has not yet determined the impact of adopting SFAS No. 128. 3. Financial Instruments Debt securities that the Company has both the positive intent and ability to hold to maturity are carried at amortized cost. Presently, the Company classifies all debt securities as held-to-maturity and carries them at amortized cost. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to "Interest income." The fair value of marketable securities is substantially equal to their carrying value as of March 31, 1997. All investments at March 31, 1997 were classified as held-to-maturity. Such investments mature through December 1997. 4. Inventories A summary of inventories follows: March 31, June 30, 1997 1996 ------- -------- Raw materials $2,966 $ 7,695 Work in process 912 405 Finished goods 625 1,511 ------ ------- $4,503 $ 9,611 ====== ======= Raw materials inventory represents purchased materials, components and assemblies, including fully assembled circuit boards purchased from outside vendors. 6 5. Customers and Credit Concentrations During the three and nine months ended March 31, 1997, Avid Technology Inc. accounted for approximately 30.5% and 26.6%, respectively, of net sales, compared to 46.4% and 42.8% for the comparable periods ending March 31, 1996. No other customer accounted for more than 10% of sales. Avid Technology Inc. accounted for approximately 35.1% and 36.7% of accounts receivable at March 31, 1997 and June 30, 1996, respectively. 6. Related Parties The Company and Bell Microproducts Inc. ("Bell") are parties to an agreement ("the Agreement") under which value-added turnkey services are performed by Bell on behalf of the Company. Pursuant to the Agreement, Bell builds certain products in accordance with the Company's specifications. A director of the Company is also a director of Bell. During the three months ended March 31, 1997 and 1996, the Company purchased materials totaling $392 and $5,643, respectively, from Bell pursuant to the Agreement. During the nine months ended March 31, 1997 and 1996, the Company purchased materials totaling $3,313 and $13,627, respectively from Bell pursuant to the Agreement. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain Forward-Looking Information Certain statements in this Management's Discussions and Analysis are forward-looking statements based on current expectations, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties are set forth below under "Overview" and "Significant Fluctuations in Future Operating Results." These forward-looking statements include the last sentences of the paragraphs below relating to "Engineering and Product Development," "Sales and Marketing" and "Income Tax Expense," and the statements below in the last sentence in the second paragraph, the last sentence in the third paragraph, the last sentence in the sixth paragraph, the fifth sentence in the seventh paragraph, the fifth and last sentences in the eighth paragraph, the sixth and seventh sentences in the ninth paragraph, and all of the eleventh paragraph under "Overview," among others. Overview The Company designs, manufactures, markets and supports video post-production tools for high quality real time video processing. The Company's products are used to perform a variety of video manipulation functions, including the addition of special effects, graphics and titles to multiple streams of live or previously recorded video material. From the Company's inception in 1986 until 1994, substantially all of the Company's revenues were derived from the sale of products into the traditional video market. With the introduction of Alladin in June 1994, the Company began sales into the desktop video market. The Alladin product family provides real time digital video manipulation capabilities for the desktop video market. Since the introduction of Alladin, the Company's sales have been largely dependent on the success of the Alladin. Alladin sales represented approximately 45.7% and 74.2% of net sales for the three month periods ended March 31, 1997 and 1996, respectively. Alladin sales represented approximately 46.6% and 72.1% of net sales for the nine month periods ended March 31, 1997 and 1996, respectively. Since the introduction of Alladin, the company has expanded the desktop product line to include other desktop products, and expanded the company's traditional and consumer product lines. As a result of new products introductions, and the transition of Original Equipment Manufacturers (OEMs) from Alladin to newer desktop products, sales of Alladin are expected to decline as a percentage of total company sales. In June 1996, the Company commenced shipment of Genie, the second desktop video family product. The Company is highly dependent upon the successful market acceptance, distribution and sale of Genie to increase revenue and profitability in the future. Sales of Genie products represented approximately 11.0% and 17.6% of net sales for the three and nine months ended March 31, 1997, respectively. Sales of Genie will be dependent on the successful integration of Genie by various OEMs into their non-linear editing products. The timing and success in which Genie is integrated into non-linear OEM systems could adversely affect the Company's business, operating results and financial condition, particularly on a quarterly basis. In particular, the integration of Genie into several OEMs has been slower than anticipated and has led to a sales and profitability level below expectations. The Company believes that sales of Genie to OEMs will increase beginning in the quarter ending June 30, 1997. In June 1996, the Company acquired the Video Director product line from Gold Disk, Inc. VideoDirector is low-cost video software package sold primarily to home video enthusiasts. Pinnacle intends to develop a new family of consumer products that combine a subset of its video manipulation technology with VideoDirector technology to enable home video enthusiasts to create professional-looking video content. The Company commenced shipment of the first such follow-on product, VideoDirector Studio 200, in February 1997. The Company is highly dependent upon the successful market acceptance, distribution and sale of this product to increase revenue and profitability in the future. Sales of VideoDirector family products represented approximately 19.2% and 11.7% of net sales for the three and nine months ended March 31, 1997. As is typical with any new product introduction, quality and reliability problems may arise and any such problems could result in reduced bookings, manufacturing rework costs, delays in collecting accounts receivable, additional service warranty costs and a limitation on market acceptance of the product. Any delay in the Company's ability to manufacture and ship VideoDirector Studio 200 and the failure of VideoDirector Studio 200 to gain market acceptance could adversely affect the Company's business, operating results and financial condition, particularly on a quarterly basis. The sources of competition for home video market products are not yet well defined. The Company expects that existing computer software manufacturers and new market entrants will develop new products that may compete directly with the Video Director derivative products. Increased competition could result in lower prices, margins and market share than are currently anticipated in designing and developing these products. In addition, the Company expects to expend 8 considerable resources to introduce and promote products in this home video market category. There can be no assurance that the Company will be able to compete successfully against current and future competitors in the home video markets, and to the extent the Company is not successful with the development, introduction and sale of products in this market segment, the Company's business, operating results and financial condition could be adversely affected. The Company has been highly dependent on sales of Alladin and Genie products through OEM's, in particular Avid Technology, Inc. ("Avid") and Media 100, Inc. ("Media 100"). Sales to Avid declined significantly from the year ago period, and accounted for approximately 30.5% and 46.4% of net sales during the three months ended March 31, 1997 and 1996, respectively. Though sales to Media 100 were nominal this quarter, the company has signed an OEM agreement with Media 100 and expects that sales to Media 100 will be an important source of revenues in future quarters. This concentration of net sales to a few OEM's subjects the Company to a number of risks, in particular the risk that its operating results will vary on a quarter to quarter basis as a result of variations in the ordering patterns of the OEM customers. Variations in the timing of revenues can cause significant fluctuations in quarterly results of operations. The Company's results of operations have in the past and could in the future be materially adversely affected by the failure of anticipated orders to materialize and by deferrals or cancellations of orders as a result of changes in Avid and Media 100 requirements. For example, although sales to Avid have increased sequentially for the quarter ended March 31, 1997, sales to Avid decreased sequentially for the quarters ended June 30, September 30, and December 31, 1996 contributing to the overall decline in net sales for the Company during those same periods. Although there can be no assurance, the Company currently believes that sales to Avid in the quarter ending June 30, 1997 will increase as compared to sales to Avid in the quarter ended March 31, 1997. However, if the Company were to lose Avid or Media 100 as a customer, or if orders from these customers were to decrease, the Company's business, operating results and financial condition would be materially adversely affected. See "Results of Operations-Net Sales." In April 1997, the Company announced DVExtreme and Lightning, two new Windows NT based products designed to serve the traditional video market. DVEtreme is a Windows-NT based real time 3D digital video effects system, which will allow users to produce unique real time video effects using Pinnacle's new ParticalFX and Painterly FX effects technology. It uses three video manipulation channels, each with full linear key, and ten-bit digital video processing. Lightning is a Windows-NT based image management system for broadcast and post-production applications, with built-in, real-time 3D digital effects. The Company currently expects to initiate production shipment of both products during the quarter ending June 30, 1997. The same market acceptance, distribution and sales risks as described for the VideoDirector family also apply to the introduction of DVExtreme and Lightning. The Company currently has two products designed to serve the same market: Prizm and FlashFile. The introduction of the DVExtreme and Ligntning is expected to slow or replace sales of Prizm and FlashFile. In April 1997, the Company purchased the Deko product line and technology, including the TypeDeko product from Digital Graphix. TypeDeko is a Windows NT-based character generator used for on-air broadcast and post-production applications. TypeDeko, in conjunction with DVExtreme and Lightning furthers Pinnacle's strategy of offering an interconnected family of Windows NT-based video production systems. In addition, the Company hired 27 employees from Digital Graphix to help support the ongoing development, marketing and sales of the Deko product line. The Company paid $5,170,000 in cash and assumed liabilities of approximately $1,000,000 to consummate the purchase. The Company expects that between $4,000,000 and $5,000,000 of the purchase price will be recorded as in-process research and development charge during the quarter ending June 30, 1997. The Company also expects to incur expense of between $300,000 and $400,000 related to the integration of the Deko product line. Such charges and expenses will adversely impact the Company's results of operations during the quarter. The Company distributes and sells its products to end users through the combination of independent domestic and international dealers, retail distributors, OEMs and, to a lesser extent, a direct sales force. Sales to dealers, distributors and OEMs are generally at a discount to the published list prices. Generally, products sold to OEMs are integrated into systems sold by the OEMs to their customers. The amount of discount, and consequently the Company's gross profit, varies depending on the product and the channel of distribution through which it is sold, the volume of product purchased and other factors. In the United States, the Company supports the sale of desktop products with independent sales representatives that earn commissions based on sales into their region. The Company anticipates that an increase in OEM Genie sales, the addition of Deko sales, initial sales of DVEtreme and Lightning, and an increase in Video Director sales, partially offset by a decrease in older product lines, will lead to an overall increase in net sales for the quarter ending June 30, 1997 as compared to the quarter which ended March 31, 1997. The Company also anticipates that operating expenses in the quarter ending June 30, 1997 will increase over the prior quarter due to the addition of Deko related engineering, marketing and sales expenses, as well as increased marketing and sales costs associated with the introduction of DVEtreme and Lightning. The Company incurred an operating loss during the 9 quarter ended March 31, 1997 which was significantly less than the loss incurred in the quarter ended December 31, 1996. Though the Company considers this to be a favorable trend, the Company considers it likely that excluding the in-process research and development charge an operating loss will also be incurred in the quarter ending June 30, 1997. Results of Operations Net Sales. The Company's net sales decreased by 35.3% to $8,265,000 in the three months March 31, 1997 from $12,766,000 during the comparable three months in the prior year. Net sales decreased by 26.2% to $25,052,000 in the nine months ended March 31, 1997 from $33,932,000 in the nine months ended March 31, 1996. The decrease in both periods was attributable to a decline in sales across all traditional video and desktop products, the most significant of which was a decline in sales of desktop products to OEMs, in particular Avid. This decrease was partially offset by sales of the Company's consumer products which were approximately $1,600,000 and $2,900,000 during the three and nine months ended March 31, 1997. There were no consumer product sales during the three or nine months ended March 31, 1996. Sales outside of North America were approximately 32.8% and 40.0% of net sales in the three months ended March 31, 1997 and 1996, respectively and 37.2% and 37.9% in the nine months ended March 31, 1997 and 1996, respectively. Cost of Sales. Cost of sales consists primarily of costs related to the acquisition of components and subassemblies, labor and overhead associated with procurement, assembly and testing of finished products, warehousing, shipping and warranty costs. Gross profit as a percentage of net sales was 43.0% and 48.5% in the three months ended March 31, 1997 and 1996, respectively, and 28.0% and 48.4 % in the nine months ended March 31, 1997 and 1996, respectively. The decrease in gross profit percentage for the three month comparable periods is primarily the result of decreased manufacturing overhead absorption due to lower production volume and higher manufacturing overhead costs related to the new facility in Mountain View, California. The decrease in gross profit percentage for the nine month comparable periods is due primarily to an a significant charge to cost of sales totaling $4,021,000 relating primarily to inventory write downs in connection with the decline in sales during the quarter ended December 31, 1996. Engineering and Product Development. Engineering and product development expenses increased 35.7% to $1,894,000 in the three months ended March 31, 1997 from $1,396,000 during the comparable three months in the prior year. The Company's engineering and product development expenses increased 59.1% to $5,739,000 in the nine months ended March 31, 1997 from $3,607,000 during the comparable nine months in the prior year. The increases in each period were primarily attributable to increased expenditures in connection with the continued expansion of the Company's engineering design teams and product development costs for DVExtreme, Lightning and VideoDirector Studio 200. Engineering and product development expenses as a percentage of net sales were 22.9% and 10.9% during the three months ended March 31, 1997 and 1996, and 22.9% and 10.6% during the nine months ended March 31, 1997 and 1996, respectively. The Company expects to continue to allocate significant resources to engineering and product development efforts, including the Deko engineering team located in Paramus, New Jersey. Sales and Marketing. Sales and marketing expenses include compensation and benefits for sales and marketing personnel, commissions paid to independent sales representatives, trade show and advertising expenses and professional fees for marketing services. Sales and marketing expenses increased by 29.9% to $3,077,000 in the three months ended March 31, 1997 from $2,369,000 during the comparable three months in the prior year. The Company's sales and marketing expenses increased 29.1% to $8,285,000 in the nine months ended March 31, 1997 from $6,424,000 during the comparable nine months in the prior year. Sales and marketing as a percentage of net sales were 37.2% and 18.6% for the three month periods ending March 31, 1997 and 1996, and 33.1% and 18.9% for the nine month periods ending March 31, 1997 and 1996, respectively. The increase in sales and marketing expenses was primarily attributable to promotional costs for the introduction of several new professional and consumer video products. The Company expects to continue to allocate significant resources to sales and marketing, particularly during the quarter ending June 30, 1997 for two significant international trade shows and the costs associated with the newly acquired Deko product line. General and Administrative. General and administrative expenses increased a 2.6% to $623,000 in the three months ended March 31, 1997 from $607,000 during the comparable three months in the prior year. General and administrative expenditures increased 69.8% to $2,813,000 in the nine months ended March 31, 1997 from $1,657,000 during the comparable nine months in the prior year. As a percentage of net sales, general and administrative expenses were 7.5% and 4.8% during the three months ended March 31, 1997 and 1996 and 11.2% and 4.9% during the nine months ended March 31, 1997 and 1996, respectively. Included in general and administrative expenses for the nine months ended March 31, 1997 is approximately $500,000 relating to the disposal of leasehold improvements and other capital equipment, moving costs and rent overlap incurred as a result of the move to the Company's new facility in Mountain View, California. Interest Income, Net. Interest income was $719,000 and $879,000 for the three months ended March 31, 1997 and 1996, respectively. Interest income was $2,211,000 and $2,487,000 for the nine months ended March 31, 1997 and 1996, respectively. The decrease was due to a decline in cash and marketable securities as well as a decline in investment yields. All of the Company's cash and marketable securities have maturities of less than one year. Changes in the market interest rates will have an effect on interest income in future periods, as well as the decrease in cash resulting from the Deko purchase. Income Tax Expense. The Company recorded no provision for income taxes for the three months ended March 31, 1997 compared to income tax expense of $877,000 during the same period in 1996. Income tax expense was $2,445,000 and $2,390,000 for the nine months ended March 31, 1997 and 1996, 10 respectively. Included in income tax expense for the nine months ended March 31, 1997 is a charge of $3,245,000 resulting from the establishment of a valuation allowance against the Company's deferred tax asset. The Company does not anticipate any tax benefit or expense for the quarter ending June 30, 1997. Significant Fluctuations in Quarterly Operating Results The Company's quarterly operating results have in the past varied, and are expected to vary significantly in the future as a result of a number of factors, including the timing of significant orders from and shipments to customers, in particular Avid and Media 100, the timing and market acceptance of new products or technological advances by the Company and its competitors, the mix of distribution channels through which the Company's products are sold, changes in pricing policies by the Company and its competitors, the accuracy of resellers' forecasts of end user demand, the ability of the Company to obtain sufficient supplies of the major subassemblies used in its products from its subcontractors, the ability of the Company and its subcontractors to obtain sufficient supplies of sole or limited source components for the Company's products, and general economic conditions both domestically and internationally. The Company's expense levels are based, in part, on its expectations as to future revenue and, as a result, net income would be disproportionately affected by a reduction in net sales. The Company experiences significant fluctuations in orders and sales, due mainly to reduced customer purchasing activity during the summer months and the timing of major trade shows, in particular, the convention of the National Association of Broadcasters (NAB) in April 1997. The Company expects that its operating results will fluctuate in the future as a result of these and other factors, including changes in the rate of sales to OEM customers, in particular Avid and Media 100, and the Company's success in developing, introducing and shipping new products, in particular DVExtreme, Lightning, Deko and Video Director Studio 200. In April 1997 the Company purchased assets and technology related to the Deko product line and expects to record an in-process research and development charge of between $4,000,000 and $5,000,000 during the quarter ending June 30, 1997. Due to these factors and the potential quarterly fluctuations in operating results, the Company believes that quarter-to-quarter comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. Liquidity and Capital Resources The Company completed its initial and follow-on public offerings in November 1994 and July 1995 raising approximately $65.5 million, net of offering expenses. The Company's operating activities generated cash of $1,200,000 in the nine months ended March 31, 1997, compared to $1,699,000 for the same period in 1996. The cash generated by operating activities during the nine months ended March 31, 1997 was the result of net decreases in the components of working capital, primarily accounts receivable and inventory, partially offset by the net loss of $10,052,000 as adjusted by an increase in the valuation allowance on deferred tax assets of $3,245,000, depreciation and amortization of $1,080,000, and a loss on disposal of property and equipment of $448,000. The Company expects operations to consume a modest amount of cash during the three months ending June 30, 1997 as a result of an anticipated increase in working capital and costs associated with the Deko product line acquisition. See "Overview". During the nine months ended March 31, 1997, $3,562,000 was invested in property and equipment, compared to $1,322,000 in the nine months ended March 31, 1996. The increase over the prior year is primarily related to leasehold improvements, furniture and equipment for the new Mountain View facility. The Company expects to continue to purchase property and equipment, however at a reduced rate following the completion of improvements to the Mountain View facility. Such investing will be financed from working capital. In January 1997, the Company's board of directors authorized a stock repurchase program pursuant to which the Company may purchase up to 750,000 shares of its common stock on the open market. Through March 31, 1997, the Company had repurchased and retired approximately 317,000 shares of its common stock in the open market at an average purchase price of $11.43 during the quarter for a total cost of $3,627,000. 11 In April 1997, the Company purchased the Deko product line and technology, including the TypeDeko product from Digital Graphix. The Company paid $5,170,000 in cash and assumed liabilities of approximately $1,000,000 to consummate the transaction. See "Overview." As of March 31, 1997, the Company had working capital of approximately $62.0 million, including $36.3 million in cash and cash equivalents and $19.3 million in marketable securities. The Company believes that the existing cash and cash equivalent balances as well as marketable securities and anticipated cash flow from operations will be sufficient to support the Company's working capital requirements for the foreseeable future. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On April 10, 1997, the Company held a Special Meeting of Shareholders for which it solicited votes by proxy. The following is a brief description of the matters voted upon at the meeting and a statement of the number of votes cast for and against, and the number of abstentions. There were no broker non-votes with respect to this matter. 1. To approve an amendment to the 1994 Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 250,000 shares. FOR: 5,515,863 AGAINST: 936,779 ABSTAIN: 6,095 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11.1 Statement of Computation of Net Income (Loss) Per Share 27.1 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1997. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. PINNACLE SYSTEMS, INC. Date: May 12, 1997 By: /s/Mark L. Sanders ------------------------------------------------ Mark L. Sanders President, Chief Executive Officer and Director Date: May 12, 1997 By: /s/Arthur D. Chadwick ------------------------------------------------ Arthur D. Chadwick Vice President, Finance and Administration and Chief Financial Officer 13 EX-11.1 2 EXHIBIT 11.1 PINNACLE SYSTEMS, INC. AND SUBSIDIARY Exhibit 11.1 - Statement of Computation of Net Income (Loss) Per Share (In thousands, except per share data)
Three Nine Months Ended Months Ended March 31, March 31, ----------------- ------------------ 1997 1996 1997 1996 Weighted average shares of common stock outstanding 7,353 7,313 7,444 7,070 Weighted average common stock equivalent shares -- 581 -- 655 ------- ------ -------- ------ Shares used to compute net income (loss) per share 7,353 7,894 7,444 7,725 ======= ====== ======== ====== Net income (loss) used in per share calculation $(1,319) $1,822 $(10,052) $4,817 ======= ====== ======== ====== Net income (loss) per share $ (0.18) $ 0.23 $ (1.35) $ 0.62 ======= ====== ======== ======
EX-27 3 FINANCIAL DATASCHEDULE
5 3-MOS JUN-30-1997 DEC-28-1996 MAR-28-1997 36,299,000 19,286,000 6,212,000 1,526,000 4,503,000 66,659,000 6,024,000 1,636,000 71,664,000 4,690,000 0 74,715,000 0 0 (7,741,000) 71,664,000 8,265,000 8,265,000 4,709,000 4,709,000 5,594,000 0 719,000 (1,319,000) 0 (1,319,000) 0 0 0 (1,319,000) (0.18) (0.18)
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