-----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, TFhfdjxXeOxRUD14EseJH1+j0WaNAJztNSIep9tP0pz7Q40mOMbLecC7u5pdWgxv Rqz8EPyxYJ4Oz4+BUehtag== 0001012870-01-502820.txt : 20020410 0001012870-01-502820.hdr.sgml : 20020410 ACCESSION NUMBER: 0001012870-01-502820 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1787959 BUSINESS ADDRESS: STREET 1: 280 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6502371600 MAIL ADDRESS: STREET 1: 280 N BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 d10q.txt QUARTERLY REPORT PERIOD ENDED SEPTEMBER 30, 2001 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 September 30, 2001 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 Identification No.) incorporation or organization) 280 N. Bernardo Ave. Mountain View, CA 94043 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (650) 237-1600 ---------------------------------------------------- (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 November 8, 2001 was approximately 56,549,132. 1 INDEX PART I - FINANCIAL INFORMATION ITEM 1 - Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - September 30, 2001 and June 30, 2001 3 Condensed Consolidated Statements of Operations - Three Months Ended September 30, 2001 and 2000 4 Condensed Consolidated Statements of Comprehensive Loss Three Months Ended September 30, 2001 and 2000 5 Condensed Consolidated Statements of Cash Flows - Three Months Ended September 30, 2001 and 2000 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk 28 PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K 29 Signatures 30 Exhibit Index 31
2 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements PINNACLE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands; unaudited)
September 30, June 30, 2001 2001 ------ ------ ASSETS - ------ Current assets: Cash and cash equivalents $ 53,723 $ 47,751 Accounts receivable, less allowance for doubtful accounts and returns of $4,134 and $5,413 as of September 30, 2001, and $3,781 and $3,727 as of June 30, 2001, respectively 40,187 50,414 Inventories 43,417 43,149 Deferred income taxes 7,103 7,103 Prepaid expenses and other assets 7,913 5,497 --------- --------- Total current assets 152,343 153,914 Property and equipment, net 13,515 14,516 Goodwill and other intangibles 89,035 97,880 Other assets 651 647 --------- --------- $ 255,544 $ 266,957 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 11,502 $ 14,088 Accrued expenses 20,191 21,998 Deferred revenue 8,245 3,406 --------- --------- Total current liabilities 39,938 39,492 --------- --------- Deferred income taxes 7,103 7,103 --------- --------- Total liabilities 47,041 46,595 Shareholders' equity: Preferred stock, no par value; authorized 5,000 shares; none issued and outstanding - - Common stock, no par value; authorized 120,000 shares; 54,914 and 54,878 issued and outstanding as of September 30 and June 30, 2001, respectively 292,419 292,321 Treasury shares at cost; 793 shares at September 30 and June 30, 2001 (6,508) (6,508) Accumulated deficit (68,842) (53,350) Accumulated other comprehensive loss (8,566) (12,101) --------- --------- Total shareholders' equity 208,503 220,362 --------- --------- $ 255,544 $ 266,957 ========= =========
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; unaudited)
Three Months Ended September 30, -------------------------- 2001 2000 -------- -------- Net sales $ 47,514 $ 62,515 Cost of sales 26,526 36,098 -------- -------- Gross profit 20,988 26,417 -------- -------- Operating expenses: Engineering and product development 7,323 8,356 Sales and marketing 16,086 15,589 General and administrative 4,372 3,755 Amortization of goodwill and other intangibles 8,727 7,852 Acquisition settlement - 13,250 -------- -------- Total operating expenses 36,508 48,802 -------- -------- Operating loss (15,520) (22,385) Interest and other income, net 203 514 -------- -------- Loss before income taxes and cumulative effect of change in accounting principle (15,317) (21,871) Income tax expense 175 - -------- -------- Net loss before cumulative effect of change in accounting principle (15,492) (21,871) Cumulative effect of change in accounting principle - (356) -------- -------- Net loss $(15,492) $(22,227) ======== ======== Net loss per share before cumulative effect of change in accounting principle: Basic and diluted $ (0.28) $ (0.43) ======== ======== Cumulative effect per share of change in accounting principle: Basic and diluted $ - $ (0.01) ======== ======== Net loss per share: Basic and diluted $ (0.28) $ (0.44) ======== ======== Shares used to compute net loss per share: Basic and diluted 54,892 50,962 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands; unaudited) Three Months Ended September 30, ------------------------ 2001 2000 -------- -------- Net loss $(15,492) $(22,227) Foreign currency translation adjustment 3,535 (5,139) -------- -------- Comprehensive loss $(11,957) $(27,366) ======== ======== See accompanying notes to condensed consolidated financial statements. 5 PINNACLE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands; unaudited)
Three Months Ended September 30 -------------------------- 2001 2000 -------- -------- Cash flows from operating activities: Net loss $(15,492) $(22,227) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Acquisition settlement - 10,877 Depreciation and amortization 10,373 9,076 Provision for doubtful accounts 640 183 Changes in operating assets and liabilities: Accounts receivable 10,699 594 Inventories 614 (3,600) Accounts payable (3,471) (5,967) Accrued expenses (2,384) (1,212) Accrued income taxes (273) (1,619) Deferred revenue 5,688 (734) Prepaid expenses and other assets (1,247) (835) -------- -------- Net cash provided by (used in) operating activities 5,147 (15,464) -------- -------- Cash flows from investing activities: Purchases of property and equipment (492) (1,147) Net cash paid on acquisitions - (3,309) Proceeds from maturity of marketable securities - 11,033 Proceeds from sales of marketable securities - 4,768 Purchases of marketable securities - (3,134) Payments for equity investments - (300) -------- -------- Net cash provided by (used in) investing activities (492) 7,911 -------- -------- Cash flows from financing activities: Purchase of treasury stock - (5,102) Proceeds from issuance of common stock 98 67 -------- -------- Net cash provided by (used in) financing activities 98 (5,035) -------- -------- Effects of exchange rate changes on cash 1,219 (685) -------- -------- Net increase (decrease) in cash and cash equivalents 5,972 (13,273) Cash and cash equivalents at beginning of period 47,751 58,433 -------- -------- Cash and cash equivalents at end of period $ 53,723 $ 45,160 ======== ======== Supplemental disclosures of cash paid during the period for: Interest $ 176 $ 1 ======== ======== Income taxes $ 612 $ 674 ======== ========
See accompanying notes to condensed consolidated financial statements. 6 Notes To Condensed Consolidated Financial Statements (unaudited) 1. General The accompanying unaudited condensed consolidated financial statements include the accounts of Pinnacle Systems, Inc. and its wholly owned subsidiaries ("Pinnacle" or the "Company"). Intercompany transactions and related balances have been eliminated in consolidation. These financial statements have been prepared in conformity with generally accepted accounting principles for interim financial information and in accordance with the instructions of Form 10-Q and Rule 10 of Regulation S-X. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates included in these financial statements include accounts receivable and sales allowances, inventory valuation and the income tax valuation allowance. Actual results could differ from those estimates. These condensed consolidated financial statements reflect all adjustments that, 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. Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto, which include information as to significant accounting policies, for the fiscal year ended June 30, 2001 included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 26, 2001. Results of operations for interim periods are not necessarily indicative of results for a full year. Currency Translation The Company considers the functional currency of its foreign subsidiaries to be the local currency. These functional currencies are translated into U.S. Dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for the results of operations. Adjustments resulting from the translation of foreign subsidiary financial statements are reported within accumulated other comprehensive losses, which is reflected as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in results of operations. Comprehensive Income (Loss) The Company's comprehensive income (loss) includes net loss and foreign currency translation adjustments. Revenue Recognition During the fourth quarter of 2001, the Company adopted SEC Staff Accounting Bulleting No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition. The Company adopted SAB No. 101 effective as of the beginning of fiscal year ended June 30, 2001. Prior to the adoption of SAB 101, the Company recognized revenue related to the hardware component upon shipment for all systems sales. Upon adoption, the company began deferring revenue recognition for hardware sales on systems with complex installation processes that are performed only by the Company. As a result of the adoption of SAB 101, the Company reported a change in accounting principle in accordance with APB Opinion No. 20, "Accounting Changes," by a cumulative effect adjustment. The cumulative effect of the change in accounting principle for the quarter ended September 30, 2000 resulted in an 7 increase in net loss of approximately $356,000, and a decrease in earnings per share of $0.01. Recent Accounting Pronouncements In April 2001, the EITF reached a consensus on Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products." Issue No. 00-25 addresses whether consideration from a vendor to a reseller of the vendor's products is (a) an adjustment of the selling prices of the vendor's products and, therefore, should be deducted from revenue when recognized in the vendor's income statement or (b) a cost incurred by the vendor for assets or services received from the reseller and, therefore, should be included as a cost or an expense when recognized in the vendor's income statement. Issue No. 00-25 is required to be implemented no later than in annual or interim financial statements for periods beginning after December 15, 2001, which for the Company will be the third quarter of fiscal 2002. The Company does not expect the adoption of Issue No. 00-25 to have a material impact on its financial statements. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting; therefore, the pooling-of-interests method of accounting is prohibited. SFAS No. 141 also requires that an intangible asset acquired in a business combination be recognized apart from goodwill if: (i) the intangible asset arises from contractual or other legal rights or (ii) the acquired intangible asset is capable of being separated from the acquired enterprise, as defined in SFAS No. 141. SFAS No. 141 is effective for all business combinations completed after June 30, 2001 and accounted for as a purchase and for all business combinations "initiated" after June 30, 2001, as defined by Accounting Principles Board Opinion No. 16 "Business Combinations." SFAS No. 142 requires that goodwill not be amortized but be tested for impairment at the "reporting unit level" ("Reporting Unit") at least annually and more frequently upon the occurrence of certain events, as defined by SFAS No. 142. A Reporting Unit is the same level as or one level below an "operating segment," as defined by SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information." Identifiable intangible assets with an indefinite life, as defined in SFAS No. 142, will not be amortized until their life is determined to be finite. All other identifiable intangible assets are required to be amortized over their useful life and reviewed for impairment in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Goodwill is not tested for impairment under SFAS No. 121, but instead is tested for impairment as prescribed in SFAS No. 142. For goodwill and intangible assets acquired in business combinations completed prior to July 1, 2001, SFAS No. 142 is effective beginning on July 1, 2002, the date the Company is required to adopt SFAS No. 142. Goodwill and intangible assets acquired in a business combination completed after June 30, 2001 are required to be accounted for in accordance with the "amortization and nonamortization" provisions of SFAS No. 142. The Company is currently evaluating the impact the adoption of SFAS No. 141 and SFAS No. 142 may have on its financial position and results of operations; however, due to the Company's expectations that the FASB will issue further guidance with respect to adoption of both SFAS Nos. 141 and 142, the Company is currently unable to determine the impact the adoption of these pronouncements may have on its financial position or results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, which for the Company will be fiscal 2003. The Company is currently evaluating the impact the adoption of SFAS No. 143 may have on its financial position and results of operations. 8 In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS 144 supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and Assets to be Disposed of" and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of SFAS 144 will be effective for fiscal years beginning after December 15, 2001, which for the Company will be fiscal 2003. The most significant changes made by SFAS 144 are that it: (1) removes goodwill from its scope and, therefore, eliminates the requirements of SFAS 121 to allocate goodwill to long-lived assets to be tested for impairment, and (2) describes a probability-weighted cash flow estimation approach to deal with situations in which alternative course of action to recover the carrying amount of a long-lived assets are under consideration or a range is estimated for the amount of possible future cash flows. The Company is currently evaluating the impact the adoption of SFAS No. 144 may have on its financial position and results of operations. 2. Acquisitions (a) Minerva Networks, Inc. - DVD authoring technology On December 29, 2000, the Company acquired DVD authoring technology from Minerva Networks, Inc., or Minerva, a provider of professional and consumer video networking solutions that enable the convergence of television and the Internet. The technology acquired from Minerva includes the Impression family of DVD application software, DVD formatting software and associated intellectual property. The Company paid $2.3 million in cash in December 2000, and an additional $0.4 million in March 2001, pursuant to a purchase agreement amendment in January 2001. The amendment was entered into as a result of both parties agreeing that an error had been make in the original calculation of the value of the acquired technology. Pinnacle also incurred approximately $0.1 million in transaction costs. The technology is being amortized using the straight-line method over a three-year period. (b) Other Acquisitions During fiscal year ended June 30, 2001, the Company acquired three companies, which were not material individually or in the aggregate. The Company paid a total of $1.2 million in cash for these acquisitions. Pinnacle also incurred approximately $0.2 million in transaction costs. The acquisitions were accounted for under the purchase method of accounting. The Company allocated $0.5 million to goodwill and allocated $0.9 million to identifiable intangibles. Goodwill and identifiable intangibles are being amortized using the straight-line method over five-year and three-year periods, respectively. The results of the acquired companies' operations have been included in the consolidated financial statements since their respective acquisition dates. (c) Pro-forma results of operations related to the acquisitions that occurred in fiscal 2001 have not been presented, as they would not be materially different from the consolidated financial statements. 3. Net Loss Per Share Basic net loss per share is computed using the weighted-average number of common shares outstanding. Diluted net loss per share is computed using the weighted-average number of common shares outstanding and potential dilutive common shares from the assumed exercise of options outstanding during the period, if any, using the treasury stock method. The following table sets forth the computation of basic and diluted net loss per common share: 9 Three Months Ended September 30, ------------------------ 2001 2000 ---------- -------- (In thousands) Numerator: Net loss .............................. $ (15,492) $(22,227) ========== ======== Denominator: Basic and diluted: Weighted-average shares outstanding ....... 54,892 50,962 ========== ======== Basic and diluted net loss per share ............. $ (0.28) $ (0.44) ========== ======== The Company excludes potentially dilutive securities from its diluted net loss per share computation when the exercise price of the securities exceeds the average fair value of the Company's common stock because the effect would be anti-dilutive. For the quarters ended September 30, 2001 and September 30, 2000, the Company excluded options to purchase 13,722,979 and 9,835,234 shares of common stock, respectively, from the diluted net loss per share computation as their inclusion would have been anti-dilutive. 4. Segment Information For the period July 1, 2000 through June 30, 2001, the Company's organizational structure was based on three distinct divisions: Broadcast Solutions, Professional Media and Personal Web Video. Beginning on July 1, 2001, the Company reorganized and merged the operations of the Broadcast Solutions and Professional Media divisions into one division named the Broadcast and Professional Solutions division. The new divisions equate to two reportable segments: Broadcast and Professional Solutions, and Personal Web Video. The Company's chief operating decision maker evaluates the performance of these divisions based on revenues, gross profit, and operating income (loss) before income taxes, interest income, interest expenses, and other income, excluding the effects of nonrecurring charges including amortization of goodwill and other intangibles related to the Company's acquisitions and the acquisition settlement. Operating results also include allocations of certain corporate expenses. The following is a summary of the Company's operations by operating segment for the quarters ended September 30, 2001 and 2000. Segment information for the quarter ended September 30, 2000 has been restated to correspond with the Company's reorganization of segments described above. September 30, ---------------------- 2001 2000 -------- --------- (In thousands) Broadcast and Professional Solutions: Revenues $ 26,076 $ 37,127 Gross profit 10,308 17,437 Operating loss before amortization of goodwill and other intangibles (7,362) (2,357) Amortization of goodwill and other intangibles 8,116 7,470 Operating loss after amortization of goodwill and other intangibles $(15,478) $ (9,827) Personal Web Video: Revenues $ 21,438 $ 25,388 10 Gross profit 10,680 8,980 Operating income before amortization of goodwill and other intangibles 570 1,074 Amortization of goodwill and other intangibles 611 382 Operating income (loss) after amortization of goodwill and other intangibles $ (42) $ 692 Consolidated: Revenues $ 47,514 $ 62,515 Gross profit 20,988 26,417 Operating loss before amortization of goodwill and other intangibles and acquisition settlement (6,792) (1,283) Amortization of goodwill and other intangibles 8,727 7,852 Operating loss after amortization of goodwill and other intangibles and before acquisition settlement $(15,520) $ (9,135) The following table reconciles operating loss to total consolidated amounts for the quarter ended September 30, 2000 (in thousands): Total operating loss for reportable segments $ (9,135) Unallocated amount: Acquisition settlement (13,250) ---------- Consolidated operating loss $ (22,385) ========== 5. Commitments and Contingencies On July 18, 2000, a lawsuit entitled Jiminez v. Pinnacle Systems, Inc. et al., No. 00-CV-2596 was filed in the United States District Court for the Northern District of California against the Company and certain officer and director defendants. The action is a putative class action and alleges that defendants violated the federal securities laws by making false and misleading statements concerning the Company's business prospects during an alleged class period of April 18, 2000 through July 10, 2000. The complaint does not specify damages. The Company is defending the case vigorously, and recently moved to dismiss the complaint. In a written order dated May 7, 2001, the court dismissed the complaint and allowed the plaintiffs to file an amended complaint. The plaintiffs filed a second consolidated amended complaint on June 22, 2001. The Company's motion to dismiss this complaint is scheduled to be heard on November 30, 2001. On August 29, 2000, a lawsuit entitled Athle-Tech Computer Systems, Incorporated v. Montage Group, Ltd. and Digital Editing Services, Inc. (DES), wholly owned subsidiaries, No. 00-005956-C1-021 was filed in the Sixth Judicial Circuit Court for Pinellas County, Florida, or the Athle-Tech Claim. The Athle-Tech Claim alleges that Montage breached a purported software development agreement between Athle-Tech Computer Systems, Incorporated, or Athle-Tech, and Montage. The Athle-Tech Claim also alleges that DES intentionally interfered with Athle-Tech's claimed rights with respect to the purported Athle-Tech Agreement and was unjustly enriched as a result. Finally, the Athle-Tech Claim requests that the court impose a constructive trust on at least 50% of the proceeds of the purported Athle-Tech Agreement and render a declaratory judgment in favor of Athle-Tech. The Company is vigorously defending the Athle-Tech Claim. In March 2000, the Company acquired DES. Pursuant to the Agreement and Plan of Merger dated as of March 29, 2000 between DES, 1117 Acquisition Corporation, the former DES shareholders and the Company, the former DES shareholders were entitled to an earnout payable in shares of the Company's common stock if the DES operating profits exceeded at least 10% of the DES revenues during the period from March 30, 2000 until March 30, 2001. In October 2000, the Company entered into an amendment to the DES Agreement and Plan of Merger to provide for an earnout based on the combined revenues, expenses and operating profits of DES and Avid Sports, Inc. due to the combination of the DES and Avid Sports, Inc. divisions in July 2000. The Company is 11 currently engaged in arbitration with the former DES shareholders regarding the earnout payment, as provided for pursuant to the DES Agreement and Plan of Merger. The Company is engaged in certain additional legal actions arising in the ordinary course of business. The Company believes it has adequate legal defenses and that the ultimate outcome of these actions will not have a material effect on the Company's consolidated financial position or results of operations or liquidity, although there can be no assurance as to the outcome of such litigation. 6. Subsequent Events In October 2001, the Company acquired intellectual property, software rights, products, other tangible assets, and certain liabilities of FAST Multimedia, or FAST, a developer of innovative video editing solutions, headquartered in Munich, Germany. The purchase price is approximately $15 million, of which approximately $2.3 million will be paid in cash and approximately $12.7 million will be paid in the Company's common stock. The cash portion of the purchase price was paid in October 2001. The common stock portion will be paid in two installments. The first installment of 1.2 million shares was paid in October 2001. The second installment will be paid in February 2002. The exact number of shares that will be issued in the second installment will be dependent on Pinnacle Systems stock price and the U.S. dollar versus Euro exchange rate in February of 2002. The maximum number of shares that will be issued in that second installment will not exceed approximately 1.5 million shares. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain Forward-Looking Information Certain statements in this Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), including the last sentence in the second paragraph under "Results of Operations" relating to International sales, the last sentence in the fourth paragraph under "Results of Operations" relating to engineering and product development resources and the last sentence in the first paragraph under "Liquidity and Capital Resources" relating to Capital Resources. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: our ability to manage growth; the risks associated with successfully integrating acquired businesses; impairment of our goodwill and other intangible assets; the risks associated with dependence on resellers, contract manufacturers and other third-party relationships; the uncertainty of continued market acceptance of professional video products; significant fluctuations in our quarterly and annual operating results; the risks associated with negative cash flows; the risks associated with our reliance on sales of large broadcast systems to a limited number of customers for a large portion of our Broadcast and Professional Solutions division revenues; the risks associated with quarterly and annual net losses; our highly competitive industry and rapid technological change within our industry; the risks associated with development and introduction of new products; the need to manage product transitions; the risks associated with product defects and reliability problems; the risks associated with single source suppliers; the risks associated with quarter-end discounting and any resulting delayed sales; the uncertainty of patent and proprietary technology protection and reliance on technology licensed from third parties; the risks of third party claims of infringement; our dependence on retention and attraction of key employees; our ability to develop and install our Vortex News systems; the risks associated with future acquisitions; the volatility of our stock; the risks associated with excess or obsolete inventory; the risks associated with international licensing and operations; general economic and business conditions; and other factors referenced in this Report. Overview We are a supplier of video authoring, storage, distribution and Internet streaming solutions for broadcasters, professionals, and consumers. Our products are used to create, store, and distribute video content for television programs, television commercials, pay-per-view, sports videos, corporate communications and personal home movies. In addition, our products are increasingly being used to 12 stream video over the Internet. The dramatic increase in distribution channels including cable television, direct satellite broadcast, video-on-demand, digital video disks, or DVD, and the Internet have led to a rapid increase in demand for video content. This is driving a market need for affordable, easy-to-use video creation, storage, distribution and streaming tools. Our products use real time video processing and editing technologies to apply a variety of video post-production and on-air functions to multiple streams of live or recorded video material. These editing applications include the addition of special effects, graphics and titles. To address the broadcast market, we offer high performance, specialized computer-based solutions for high-end, production, post-production, team sports analysis, broadcast on-air and Internet streaming applications. For the professional market, we provide computer-based content creation solutions, and solutions used to stream live and recorded video over the Internet. To address the consumer market, we offer low cost, easy-to-use video editing and viewing solutions that allow consumers to view TV on their computer and to edit their home videos using a personal computer, camcorder and VCR, outputting their productions to tape, CD, DVD or the Internet. Beginning on July 1, 2001, we reorganized and merged the operations of the Broadcast Solutions and Professional Media divisions into one division named the Broadcast and Professional Solutions division. The new divisions equate to two reportable segments: Broadcast and Professional Solutions, and Personal Web Video. The reorganization was performed to provide a structure that would allow better focus on our business and reduction of costs. Broadcast and Professional Solutions Products For the broadcast market, we currently offer products that provide systems solutions to broadcasters. This includes products that provide real time digital effects, still image management and storage, and real time video character generation. We also sell digital video servers for on-air video content distribution. These products generally include proprietary hardware and software and specialized control surfaces for rapid execution, especially for on-air applications. The primary broadcast products sold during fiscal 2001 and during the first quarter of fiscal 2002 were the DVExtreme, Lightning, Deko, Thunder, Media Stream, and Sports family of products. In addition, we sell BroadNet solutions, which is a network technology that enables our broadcast products to be networked together for easy interoperability, and to facilitate the exchange of information through the Internet. The MediaStream server family complements our Thunder family, to provide a more complete line of broadcast quality video-server solutions. Our sports products supply sports editing software used by professional and school teams around the world. Combined, these businesses give us a leading position in this important video market. We continue to develop Vortex News products and have initiated some customer installations. We have not recognized any Vortex News revenue to date under Staff Accounting Bulleting No. 101, "Revenue Recognition in Financial Statements." Our professional products are designed to provide video professionals with the tools to create high quality digital video productions and to distribute those products in the form of videotape, CD, DVD, or over the Internet. We have two general classes of professional products: content creation and Internet streaming products. The content creation products allow users to create professional video productions and include hardware-based products such as the TARGA family of digital video boards and software products such as Commotion. The Internet streaming products allow users to send or "stream" live or previously recorded rich media, including video, over the Internet. The streaming products include StreamGenie, which is used to produce and broadcast live events over the Internet, and StreamFactory, which encodes video and audio sources in real time for streaming over the Internet. We sell our professional video products to end-users over the Internet, through direct sales activities and through specialized dealers and resellers. OEM sales are handled through a dedicated direct sales force. 13 Personal Web Video Products Our personal web video products are aimed at the consumer and professional desktop markets, and allow users to edit video and to create professional looking home movies, corporate presentations, wedding video and other productions using a standard personal computer and camcorder. Our personal web video products consist of stand-alone software or video capture hardware bundled with software. Our professional desktop products, some of which include Adobe's Premiere video editing software, include DV200, DV500plus, and Pro-ONE. Our consumer products allow home users to edit their home video to create professional looking "home movies" using a personal computer and camcorder. We have developed an easy-to-use software interface called the Studio application, which serves as the primary interface for all of our Studio consumer video editing products. Our consumer products include Studio Version 7, Studio DV, Studio DVplus, and Studio DC10plus. Results of Operations Net Sales. Net sales decreased 24.0% to $47.5 million in the quarter ended September 30, 2001, from $62.5 million in the quarter ended September 30, 2000. The global economic downturn contributed significantly to our overall sales decline. In the quarter ended September 30, 2001, the Broadcast and Professional Solutions division represented 54.9% of our total sales, while the Personal Web Video division represented 45.1% of our total sales in the same period. Net sales decreased in the quarter ended September 30, 2001 in both the Broadcast and Professional Solutions and the Personal Web Video divisions. Broadcast and Professional Solutions sales decreased 29.8% to $26.1 million in the quarter ended September 30, 2001, from $37.1 million in the quarter ended September 30, 2000. Broadcast and Professional Solutions sales decreased because of significantly lower OEM sales, decreases in sales of non-linear editing products, decreases in sales of solutions used by broadcasters in live to air applications, including our Deko and DVExtreme products, and a decline in revenues from team sports systems. Personal Web Video sales decreased 15.6% to $21.4 million in the quarter ended September 30, 2001 from $25.4 million in the quarter ended September 30, 2000. Personal Web Video sales decreased due to a decrease in sales of our DV500 and DC30plus products. This sales decrease was partially offset by the introduction and sale of new products. Our Pro-ONE product, which was introduced to the market in August 2001, generated significant revenue during the quarter ended September 30, 2001. In addition, we added new software products, such as the Studio version 7 software, which started to ship in June 2001, plus the Pinnacle Express software, which was introduced to the market in September 2001. The following is a summary of revenues by division:
Increase Quarter ended September 30: 2001 % 2000 % (Decrease) (In thousands) -------- ----- -------- ----- ---------- Division - -------- Broadcast and Professional Solutions $26,076 54.9% $ 37,127 59.4% (29.8)% Personal Web Video 21,438 45.1% 25,388 40.6% (15.6)% -------- ----- -------- ----- ---- $ 47,514 100.0% $ 62,515 100.0% (24.0)% ======== ====== ======== ====== =====
International sales (sales outside of North America) decreased 39.2% to $20.7 million in the quarter ended September 30, 2001 from $34.1 million in the quarter ended September 30, 2000. International sales decreased primarily due to decreased sales in Europe and the Asia Pacific region resulting from the economic downturn. North America sales decreased 5.8% to $26.8 million in the quarter ended 14 September 30, 2001 from $28.4 million in the quarter ended September 30, 2000. North America sales decreased primarily due to the economic downturn. For the quarters ended September 30, 2001 and September 30, 2000, international sales represented 43.6% and 54.5% of our net sales, respectively. For the quarters ended September 30, 2001 and September 30, 2000, North America sales represented 56.4% and 45.5% of our net sales, respectively. We expect that international sales will continue to represent a significant portion of our total net sales. The following is a summary of revenues by region:
Increase Quarter ended September 30: 2001 % 2000 % (Decrease) (In thousands) -------- ----- -------- ----- ---------- Region - ------ North America $ 26,809 56.4% $ 28,452 45.5% (5.8)% International 20,705 43.6% 34,063 54.5% (39.2)% -------- ----- -------- ----- ---- $ 47,514 100.0% $ 62,515 100.0% (24.0)% ======== ====== ======== ====== =====
Gross Profit. We distribute and sell our products to end users through the combination of independent domestic and international dealers and VARs, retail distributors, OEMs and, to a lesser extent, a direct sales force. Sales to dealers, VARs, distributors and OEMs are generally at a discount to the published list prices. The amount of discount, and consequently, our gross profit, varies depending on the product, the channel of distribution, the volume of product purchased, and other factors. Cost of sales consists primarily of costs related to the procurement of components and subassemblies, labor and overhead associated with procurement, assembly and testing of finished products, inventory management, warehousing, shipping, warranty costs, royalties, and provisions for obsolescence and shrinkage. In the quarter ended September 30, 2001, our total gross profit margins increased to 44.2% from 42.3% in the quarter ended September 30, 2000. Included in the cost of sales for the quarter ended September 30, 2001 is a $2.3 million inventory charge related to our Vortex News systems, a product included in our Broadcast and Professional Solutions division. Excluding the $2.3 million inventory charge, gross margins would have been 49.0% in the quarter ended September 30, 2001. Included in the cost of sales for the quarter ended September 30, 2000 is a $2.5 million inventory charge for discontinued products and accessories, which related to the Broadcast and Professional Solutions division. Excluding the $2.5 million inventory charge, gross margins would have been 46.3% in the quarter ended September 30, 2000. The increase in our overall gross margins (excluding the aggregate inventory charge of $4.8 million) was due to increased gross margins in the Personal Web Video division. Personal Web Video gross margins increased to 49.8% from 35.4% in the quarters ended September 30, 2001 and September 30, 2000, respectively. The increase in Personal Web Video gross margins during the quarter ended September 30, 2001 was primarily due to a significant increase in software sales, the introduction of our Pro-ONE product, and a more favorable mix of higher margin product sales. Broadcast and Professional Solutions gross margins decreased to 39.5% from 47.0% in the quarters ended September 30, 2001 and September 30, 2000, respectively. Excluding the $2.3 million inventory devaluation, Broadcast and Professional Solutions gross margins would have been 48.4% in the quarter ended September 30, 2001. Excluding the $2.5 million inventory charge, Broadcast and Professional Solutions gross margins would have been 53.7% in the quarter ended September 30, 2000. The decrease in Broadcast and Professional Solutions gross margins was primarily due to an overall lower sales volume without a corresponding decrease in non-material manufacturing costs. Engineering and Product Development. Engineering and product development expenses include costs associated with the development of new products and enhancements of existing products, and consist primarily of employee salaries and benefits, prototype and development expenses, depreciation and facility costs. Engineering and product development expenses decreased 12.4% to $7.3 million in the quarter ended September 30, 2001 from $8.4 million in the quarter ended September 30, 2000. The decrease was primarily due to our efforts to reduce engineering expenses to be in line with our lower revenue for the quarter. As a percentage of sales, engineering and product development expenses were 15.4% in the quarter September 30, 2001, versus 13.4% in the quarter ended September 30, 2000. 15 Engineering and product development expenses increased, as a percentage of sales, because we believe that investment in research and development is crucial to our future growth and position in the industry and expect to continue to allocate significant resources to all of our engineering and product development locations throughout the world. Sales and Marketing. Sales and marketing expenses include compensation and benefits for sales and marketing personnel, commissions, travel, advertising and promotional expenses including channel marketing funds and trade shows, and professional fees for marketing services. Sales and marketing expenses increased 3.2% to $16.1 million in the quarter ended September 30, 2001, from $15.6 million in the quarter ended September 30, 2000. As a percentage of net sales, sales and marketing expenses increased to 33.9% in the quarter ended September 30, 2001, from 24.9% in the quarter ended September 30, 2000. The increase was primarily due to the broader sales organization that we established in our Personal Web Video division in an effort to better serve the various local markets. General and Administrative. General and administrative expenses consist primarily of salaries and benefits for administrative, executive, finance and management information systems personnel, legal and accounting costs, IT infrastructure costs, bad debt expense, and other corporate administrative expenses. General and administrative expenses increased 16.4% to $4.4 million in the quarter ended September 30, 2001, from $3.8 million in the quarter ended September 30, 2000. As a percentage of total sales, general and administrative expenses were 9.2% and 6.0% in each of the quarters ended September 30, 2001 and 2000, respectively. The increase in general and administrative expenses was primarily due to a reorganization charge, relating to severance and associated costs, of approximately $0.7 million during the quarter ended September 30, 2001 compared to $0.4 million during the quarter ended September 30, 2000. We also incurred higher legal costs and bad debt expense during the quarter ended September 30, 2001, compared to the quarter ended September 30, 2000. Amortization of Acquisition - Related Intangible Assets. Acquisition-related intangible assets result from our acquisitions of businesses accounted for under the purchase method and consist of the values of identifiable intangible assets including completed technology, work force and trade name as well as goodwill. Goodwill is the amount by which the cost of acquired net assets exceeded the fair values of those net assets on the date of purchase. As of September 30, 2001, our goodwill and other intangible assets were $89.0 million. Amortization of acquisition related intangibles consists of amortization of goodwill and identifiable intangibles including, among other assets, core/developed technology, customer base, trademarks, favorable contracts and assembled workforce. These assets are being amortized using the straight-line method over periods ranging from three to nine years. The amortization increased 11.1% to $8.7 million in the quarter ended September 30, 2001 from $7.9 million in the quarter ended September 30, 2000. The increase is primarily related to the amortization of approximately $16.5 million of additional goodwill, which we recorded in April 2001 in connection with our buyout of the earnout payments otherwise payable to the former Montage shareholders. We review our long-lived assets, including goodwill and identifiable intangible assets, for impairment whenever 16 events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Because of the recent general economic decline, we are periodically evaluating whether an impairment of our goodwill, other intangible assets and other long-lived assets has occurred. This evaluation includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets over their estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over their estimated useful lives, we will record an impairment charge in the amount by which the carrying value of the assets exceeds their fair value. Fair value is determined generally based on discounted cash flows. If, as a result of our continual analysis, we determine that our intangible assets have been impaired, we will recognize the impairment in asset impairment charges in the quarter in which the impairment is determined. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations if and when the impairment charge is recorded. If an impairment charge is recognized, the amortization related to goodwill and other intangible assets would decrease during the remainder of fiscal 2002. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which we intend to adopt on July 1, 2002. Upon adoption, goodwill and identifiable intangible assets with indefinite lives will no longer be amortized. This statement will require that we evaluate our goodwill and identifiable intangible assets with indefinite useful lives for impairment. We are currently evaluating the provisions of SFAS 142. See "Recent Accounting Pronouncements." Acquisition Settlement. On September 30, 2000, we agreed to compensate the former shareholders and option holders of Avid Sports, Inc. because of the drop in the market price of our common stock immediately after the acquisition. If the closing price of our common stock did not equal or exceed $23 per share for four consecutive trading days prior to May 31, 2001, the value of the compensation to be paid was to equal to the number of shares issued and options assumed in the acquisition (944,213 and 138,158, respectively) multiplied by the difference between our average closing stock price during the month of May, 2001 and $23 per share. The former shareholders of Avid Sports, Inc. were to be compensated in shares of our common stock while the former option holders were to be compensated in cash. On September 30, 2000, we recorded a charge of $13.3 million, which represented the fair value of the arrangement on September 30, 2000, including $0.1 million in transaction fees. This charge included a liability of $1.7 million which represented the estimated cash payout to the option holders with the remaining $11.5 million, determined by an independent appraiser using the Black-Scholes method, recorded as an increase in common stock. Our share price did not reach the target level and therefore, in June 2001, we issued 1,441,660 additional shares of our common stock to the former shareholders of Avid Sports, Inc., and paid an aggregate of $1.3 million in cash to the former option holders of Avid Sports, Inc. The difference between the estimated cash payout to the former option holders of Avid Sports, Inc. at September 30, 2000 of $1.7 million and the actual payment in June 2001 was recorded in June 2001 as a reduction to lower the initial charge to the final expense of $12.9 million. Interest and Other Income, net. Interest and other income, net consists primarily of interest income generated from our investments in money market funds, government securities and high-grade commercial paper. During the quarter ended September 30, 2001, interest income decreased approximately 60.5% to $0.2 million from $0.5 million in the quarter ended September 30, 2000. This decrease was primarily due to a one-time interest payment that we made to a certain customer in connection with a sales contract. In addition, positive cash flows generated from our operations for the quarter ended September 30, 2001 obtained lower interest yields than investments made during the same quarter last year. Income Tax Expense. Income taxes are comprised of federal, state and foreign income taxes. We recorded a provision for income taxes of $0.2 million for the quarter ended September 30, 2001, resulting from international income from one of our subsidiaries. We did not record a provision for income taxes for the quarter 17 ended September 30, 2000. We have provided a valuation allowance for its net deferred tax assets, as it is presently unable to conclude that all of the deferred tax assets are more likely than not to be realized. The total valuation allowance was $32.5 million and $9.3 million as of June 30, 2001 and 2000, respectively. As of June 30, 2001, we had federal and state net operating loss carryforwards of approximately $43.8 million and $19.7 million, respectively. Our federal net operating loss carryforwards expire in the years 2013 through 2021, if not utilized. Our state net operating loss expires in the years 2003 through 2011, if not utilized. In addition, we had federal research and experimentation credit carryforwards of $3.1 million, which expire in the years 2002 through 2021, and state research and experimentation credit carryforwards of $1.9 million, which have no expiration provision. Liquidity and Capital Resources During the quarter ended September 30, 2001, cash and cash equivalents increased $6.0 million, compared to a decrease of $13.3 million during the quarter ended September 30, 2000. Cash and cash equivalents were $53.7 million as of September 30, 2001, compared to $45.2 million as of September 30, 2000. We have funded our operations to date through sales of equity securities as well as through cash flows from operations. We believe that existing cash and cash equivalent balances as well as anticipated cash flow from operations will be sufficient to support our current operations and growth for the foreseeable future. Our operating activities generated cash of $5.1 million during the quarter ended September 30, 2001, compared to consuming cash of $15.5 million during the quarter ended September 30, 2000. Cash generated from operations during the quarter ended September 30, 2001 was attributable to a significant decrease in accounts receivable and an increase in deferred revenues, which was partially offset by the net loss after adjusting for depreciation and amortization. In addition, a decrease in our accounts payable and accrued expenses contributed to our increased cash flow. Cash consumed from operations during the quarter ended September 30, 2000 resulted from the net loss we incurred, after adjusting for depreciation, amortization, and the acquisition settlement, in addition to an increase in inventory and a decrease of accounts payable and accrued expenses. Our investing activities consumed cash of $0.5 million during the quarter ended September 30, 2001, compared to generating cash of $7.9 million during the quarter ended September 30, 2000. Cash consumed from investing activities during the quarter ended September 30, 2001 was due to the purchase of property and equipment. Cash generated from investing activities during the quarter ended September 30, 2000 was primarily due to the maturity and sale of our investments in marketable securities, which was partially offset by a $3.4 million payment for the acquisition of Propel Ahead, Inc. and the purchase of property and equipment. Our financing activities generated cash of $0.1 million during the quarter ended September 30, 2001, compared to consuming cash of $5.0 million during the quarter ended September 30, 2000. Cash generated from financing activities during the quarter ended September 30, 2001 was due to the proceeds generated by the exercise of employee stock options. Cash consumed from financing activities during the quarter ended September 30, 2000 was primarily due to the repurchase of our stock on the open market, which was only partially offset by proceeds generated by the exercise of employee stock options. Recent Accounting Pronouncements In April 2001, the EITF reached a consensus on Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products." Issue No. 00-25 addresses whether consideration from a vendor to a reseller of the vendor's products is (a) an adjustment of the selling prices of the vendor's products and, therefore, should be deducted from revenue when recognized in the vendor's income statement or (b) a cost incurred by the vendor for assets or services received from the reseller and, therefore, should be included as a cost or an expense when recognized in the vendor's income statement. Issue No. 00 18 25 is required to be implemented no later than in annual or interim financial statements for periods beginning after December 15, 2001, which for us will be the third quarter of fiscal 2002. We are currently evaluating the impact the adoption of Issue No. 00-25 may have on our financial position and results of operations. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting; therefore, the pooling-of-interests method of accounting is prohibited. SFAS No. 141 also requires that an intangible asset acquired in a business combination be recognized apart from goodwill if: (i) the intangible asset arises from contractual or other legal rights or (ii) the acquired intangible asset is capable of being separated from the acquired enterprise, as defined in SFAS No. 141. SFAS No. 141 is effective for all business combinations completed after June 30, 2001 and accounted for as a purchase and for all business combinations "initiated" after June 30, 2001, as defined by Accounting Principles Board Opinion No. 16 "Business Combinations." SFAS No. 142 requires that goodwill not be amortized but be tested for impairment at the "reporting unit level" ("Reporting Unit") at least annually and more frequently upon the occurrence of certain events, as defined by SFAS No. 142. A Reporting Unit is the same level as or one level below an "operating segment," as defined by SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information." Identifiable intangible assets with an indefinite life, as defined in SFAS No. 142, will not be amortized until their life is determined to be finite. All other identifiable intangible assets are required to be amortized over their useful life and reviewed for impairment in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Goodwill is not tested for impairment under SFAS No. 121, but instead is tested for impairment as prescribed in SFAS No. 142. For goodwill and intangible assets acquired in business combinations completed prior to July 1, 2001, SFAS No. 142 is effective beginning on July 1, 2002, the date the Company is required to adopt SFAS No. 142. Goodwill and intangible assets acquired in a business combination completed after June 30, 2001 are required to be accounted for in accordance with the "amortization and nonamortization" provisions of SFAS No. 142. We are currently evaluating the impact the adoption of SFAS No. 141 and SFAS No. 142 may have on our financial position and results of operations; however, due to our expectations that the FASB will issue further guidance with respect to adoption of both SFAS Nos. 141 and 142, we are currently unable to determine the impact the adoption of these pronouncements may have on our financial position or results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, which for the Company will be fiscal 2003. We are currently evaluating the impact the adoption of SFAS No. 143 may have on our financial position and results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS 144 supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and Assets to be Disposed of" and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of SFAS 144 will be effective for fiscal years beginning after December 15, 2001, which for the Company will be fiscal 2003. The most significant changes made by SFAS 144 are that it: (1) removes goodwill from its scope and, therefore, eliminates the requirements of SFAS 121 to allocate goodwill to long-lived assets to be tested for impairment, and (2) describes a 19 probability-weighted cash flow estimation approach to deal with situations in which alternative course of action to recover the carrying amount of a long-lived assets are under consideration or a range is estimated for the amount of possible future cash flows. We are currently evaluating the impact the adoption of SFAS No. 144 may have on our financial position and results of operations. FACTORS AFFECTING OPERATING RESULTS [X] There are various factors which may cause our net revenues and operating results to fluctuate. Our quarterly and annual operating results have varied significantly in the past and may continue to fluctuate because of a number of factors, many of which are outside our control. These factors include: . Increased competition and pricing pressure . Timing of significant orders from and shipments to major customers, including OEM's and our large broadcast accounts . Timing and market acceptance of new products . Success in developing, introducing and shipping new products . Dependence on distribution channels through which our products are sold . Accuracy of our and our resellers' forecasts of end-user demand . Accuracy of inventory forecasts . Ability to obtain sufficient supplies from our subcontractors . Timing and level of consumer product returns . Foreign currency fluctuations . Costs of integrating acquired operations . General domestic and international economic conditions We also experience significant fluctuations in orders and sales due to seasonal fluctuations, the timing of major trade shows and the sale of consumer products in anticipation of the holiday season. Sales usually slow down during the summer months of July and August, especially in Europe. Also, we attend a number of annual trade shows, which can influence the order pattern of products, including CEBIT in March, the NAB convention in April and the IBC convention in September. Our operating expense levels are based, in part, on our expectations of future revenue and, as a result, net income would be disproportionately affected by a shortfall in net sales. Due to these factors, we believe that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. [X] Deteriorating market conditions and continued economic uncertainty could materially adversely impact our revenues and growth rate. As a result of recent unfavorable economic conditions and reduced capital spending, individuals and companies have delayed or reduced expenditures, as we experienced during the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002. The revenue growth and profitability of our business depends primarily on the overall demand for our products. Softening demand for these products resulting from ongoing economic uncertainty may result in decreased revenues or earnings levels or growth rates. If the economic conditions in the United States worsen or if a wider global economic slowdown occurs, demand for our products may weaken, and our business, operating results, financial condition and stock price may be materially adversely affected as a result. 20 [X] We incurred negative cash flow in fiscal 2001 and expect to continue to incur negative cash flow in fiscal 2002, and our financial condition and results of operations may be adversely affected as a result. In fiscal 2001, we had negative cash flow from operations of approximately $22.0 million. In the first quarter of fiscal 2002, we had positive cash flow from operations of approximately $5.1 million. In light of the recent economic downturn, our losses in the fourth quarter of fiscal 2001 and the first quarter of fiscal 2002, and our projected losses for fiscal 2002, we believe that we will incur negative cash flow in fiscal 2002, even though cash flow was positive in the first quarter of fiscal 2002. If we continue to incur negative cash flow, we may be at a competitive disadvantage due to several factors, including: . Insufficient working capital; . Insufficient capital for acquisitions; and . Limited access to additional capital. If we are competitively disadvantaged due to these or other factors, our revenues may decrease, intensifying our cash flow deficiency, and our financial condition and results of operations may be adversely affected as a result. [X] Our revenues, particularly in the Broadcast and Professional Solutions Division, are increasingly becoming dependent on large broadcast system sales to a few significant customers. Our business and financial condition may be materially adversely affected if sales are delayed or not completed within a given quarter or if any of our significant customers terminate their relationship, or contracts, with us, modify their requirements which may delay installation and revenue recognition, or significantly reduce the amount of business they do with us. We expect sales of large broadcast systems to a few significant customers to continue to constitute a material portion of our net revenues. Our quarterly and annual revenues could fluctuate significantly if: . Sales to one or more of our significant customers are delayed or are not completed within a given quarter. . The contract terms preclude us from recognizing revenue during that quarter. . We are unable to provide any of our major customers with products in a timely manner and on competitive pricing terms. . Any of our major customers experience competitive, operational or financial difficulties. . Any of our major customers terminate their relationship with us or significantly reduce the amount of business they do with us. . Any of our major customers reduce their capital investments in our products in response to slowing economic growth. If we are unable to complete anticipated transactions within a given quarter, our revenues may fall below the expectations of market analysts, and our stock price could drop. [X] We incurred losses in fiscal 2001 and the first quarter of fiscal 2002, and expect to continue to incur losses in fiscal 2002. In fiscal 2001, we recorded net losses of approximately $60.5 million. In the first quarter of fiscal 2002, we recorded a net loss of $15.5 million. In light of the current economic downturn, we expect revenues in fiscal 2002 to be lower than revenues in fiscal 2001 and, as a result, we expect to incur net losses in fiscal 2002. 21 [X] Our goodwill and other intangible assets may become impaired, rendering their carrying amounts unrecoverable, and, as a result, we may be required to record a substantial impairment charge that will adversely affect our financial position. As of September 30, 2001, we had approximately $89.0 million of goodwill and other intangible assets. Since the time that we acquired many of these assets, our stock price has declined significantly and, as of September 30, 2001, our net book value exceeded our market capitalization. We periodically evaluate whether our goodwill, other intangible assets and other long-lived assets have been impaired. This evaluation includes an analysis of the estimated future undiscounted net cash flows that we expect to generate by the assets over their estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over their estimated useful lives, we will record an impairment charge equal to the amount by which the carrying value of the assets exceeds their fair market value. The recent general economic slowdown has adversely affected demand for our products, increasing the likelihood that our goodwill and other intangible assets will become impaired. If we determine that our goodwill and other intangible assets have been impaired in any particular quarter, we will recognize asset impairment charges for that quarter. Asset impairment charges of this nature could be significant and could have a material adverse effect on our financial position and results of operations. [X] Quarter-end discounting, resulting from customers delaying negotiations until quarter-end in an effort to improve their ability to obtain more favorable pricing terms, may delay sales transactions. We recognize a substantial portion of our revenues in the last month or weeks of a given quarter, and our revenues in a given quarter depend substantially on orders booked during the last month or weeks of a quarter. Due to the prevalence of end-of-month sales activity, if certain sales cannot be closed during those last weeks, sales may be deferred until the following quarter. This may cause our quarterly revenues to fall below analysts' expectations. [X] We are dependent on contract manufacturers and single or limited source suppliers for our components. If these manufacturers and suppliers do not meet our demand either in volume or quality, our business and financial condition could be materially harmed. We rely on subcontractors to manufacture our professional and consumer products and the major subassemblies of our broadcast products. We and our manufacturing subcontractors are dependent upon single or limited source suppliers for a number of components and parts used in our products, including certain key integrated circuits. Our strategy to rely on subcontractors and single or limited source suppliers involves a number of significant risks, including: . Loss of control over the manufacturing process . Potential absence of adequate capacity . Potential delays in lead times . Unavailability of certain process technologies . Reduced control over delivery schedules, manufacturing yields, quality and cost . Unexpected increases in component costs If any significant subcontractor or single or limited source supplier becomes unable or unwilling to continue to manufacture these subassemblies or provide critical components in required volumes, we will have to identify and qualify acceptable replacements or redesign our products with different components. Additional sources may not be available and product redesign may not be feasible on a timely basis. This could materially harm our business. Any extended interruption in the supply of or increase in the cost of the products, subassemblies or components manufactured by third party subcontractors or suppliers could materially harm our business. 22 [X] We must retain key employees to remain competitive. If certain of our key employees leave or are no longer able to perform services for us, this could materially and adversely affect our business. We may not be able to attract and retain a sufficient number of managerial personnel and technical employees to compete successfully. We believe that the efforts and abilities of our senior management and key technical personnel are very important to our continued success. As a result, our success is dependent upon our ability to attract and retain qualified technical and managerial personnel. We may not be able to retain our key technical and managerial employees or attract, assimilate and retain such other highly qualified technical and managerial personnel as are required in the future. Also, employees may leave our employ and subsequently compete against us, or contractors may perform services for competitors of ours. If we are unable to retain key personnel, our business could be materially harmed. [X] If we experience difficulty in developing and installing our Vortex News systems, our financial position and results of operations could be harmed. In March 2000, we acquired all of the outstanding stock of Montage. The Montage product line includes Vortex News, a networked news solution for broadcasters. Since the Montage acquisition, we have invested significant resources and capital to further develop the Vortex News products, and to integrate those products into our existing products. We have received a limited number of significant orders for our Vortex News products from a few important customers, and have experienced delays in the installation of some of those systems. To date, we have not completed the installation nor assured the proper functioning of any large Vortex News installations. If we continue to experience delays and difficulty in installing our Vortex News systems or in adapting these systems to our customers' needs, or if our customers are dissatisfied with the functionality or performance of our Vortex News systems once they are installed, these systems may not obtain broad market acceptance or contribute meaningfully to our revenues or profitability. In addition, if we do not successfully install, market and sell these systems, we will consume significant resources without obtaining commensurate revenue, and our financial position and results of operations will be harmed. [X] Any failure to successfully integrate the businesses we have acquired could negatively impact us. In October 2001, we acquired the business and substantially all of the assets, and assumed certain liabilities, of FAST Multimedia Holdings Inc. and FAST Multimedia AG, based in Munich, Germany. In December 2000, we acquired DVD authoring technology from Minerva. In June 2000, we acquired Avid Sports, Inc. and Propel. In April 2000, we acquired Montage. In March 2000, we acquired DES and Puffin. In August 1999, we acquired the Video Communications Division of HP, and Truevision, Inc. We may in the near or long-term pursue additional acquisitions of complementary businesses, products or technologies. Integrating acquired operations is a complex, time-consuming and potentially expensive process. All acquisitions involve risks that could materially and adversely affect our business and operating results. These risks include: . Distracting management from the day-to-day operations of our business . Costs, delays and inefficiencies associated with integrating acquired operations, products and personnel . Potentially dilutive issuances of our equity securities . Incurring debt and amortization expenses related to goodwill and other intangible assets [X] Our stock price may be volatile. The trading price of our common stock has in the past, and could in the future, fluctuate significantly. These fluctuations have been, or could be, in response to numerous factors, including: . Quarterly variations in results of operations 23 . Announcements of technological innovations or new products by us, our customers or competitors . Changes in securities analysts' recommendations . Announcements of acquisitions . Changes in earnings estimates made by independent analysts . General fluctuations in the stock market Our revenues and results of operations may be below the expectations of public market securities analysts or investors. This could result in a sharp decline in the market price of our common stock. In July 2000, we announced that financial results for the fourth quarter of fiscal 2000, which ended June 30, 2000, would be lower than the then current analyst consensus estimates regarding our quarterly results. In the day following this announcement, our share price lost more than 59% of its value. Our shares continue to trade in a price range significantly lower than the range held by our shares before this announcement. With the advent of the Internet, new avenues have been created for the dissemination of information. We do not have control over the information that is distributed and discussed on electronic bulletin boards and investment chat rooms. The motives of the people or organizations that distribute such information may not be in our best interest or in the interest of our shareholders. This, in addition to other forms of investment information, including newsletters and research publications, could result in a sharp decline in the market price of our common stock. In addition, stock markets have from time to time experienced extreme price and volume fluctuations. The market prices for high technology companies have been particularly affected by these market fluctuations and such effects have often been unrelated to the operating performance of such companies. These broad market fluctuations may cause a decline in the market price of our common stock. In the past, following periods of volatility in the market price of a company's stock, securities class action litigation has been brought against the issuing company. On July 18, 2000, a lawsuit entitled Jiminez v. Pinnacle Systems, Inc., et al., No. 00-CV-2596 was filed in the United States District Court for the Northern District of California against us and certain of our officers and directors. We are defending the case vigorously, and recently moved to dismiss the complaint. In a written order dated May 7, 2001, the court dismissed the complaint and allowed the plaintiffs to file an amended complaint. The plaintiffs filed a second consolidated amended complaint on June 22, 2001. Our motion to dismiss this complaint is scheduled to be heard on November 30, 2001. It is possible that additional similar litigation could be brought against us in the future. The securities class action lawsuit described above and any similar litigation which may be brought against us could result in substantial costs and will likely divert management's attention and resources. Any adverse determination in such litigation could also subject us to significant liabilities. [X] If our products do not keep pace with the technological developments in the rapidly changing video post-production equipment industry, our business may be materially adversely affected. The video post-production equipment industry is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable. Delays in the introduction or shipment of new or enhanced products, our inability to timely develop and introduce such new products, the failure of such products to gain significant market acceptance or problems associated with new product transitions could materially harm our business, particularly on a quarterly basis. 24 We are critically dependent on the successful introduction, market acceptance, manufacture and sale of new products that offer our customers additional features and enhanced performance at competitive prices. Once a new product is developed, we must rapidly commence volume production. This process requires accurate forecasting of customer requirements and attainment of acceptable manufacturing costs. The introduction of new or enhanced products also requires us to manage the transition from older, displaced products to minimize disruption in customer ordering patterns, avoid excessive levels of older product inventories and ensure that adequate supplies of new products can be delivered to meet customer demand. In addition, as is typical with any new product introduction, quality and reliability problems may arise. 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. [X] If we do not compete effectively, our business will be harmed. The market for our products is highly competitive. We compete in the broadcast, professional and consumer video production markets. We anticipate increased competition in each of the broadcast, professional and consumer video production markets, particularly since the industry is undergoing a period of rapid technological change and consolidation. Competition for our broadcast, professional, and consumer video products is generally based on: . Product performance . Breadth of product line . Quality of service and support . Market presence . Price . Ability of competitors to develop new, higher performance, lower cost consumer video products Certain competitors in the broadcast, professional and consumer video markets have larger financial, technical, marketing, sales and customer support resources, greater name recognition and larger installed customer bases than we do. In addition, some competitors have established relationships with current and potential customers of ours and offer a wide variety of video equipment that can be bundled in certain large system sales. Our principal competitors in the broadcast market include: Accom, Inc. Avid Technology Chyron Corporation Grass Valley Group Leitch Technology Corporation Matsushita Electric Industrial Co. Ltd. Quantel Ltd. (a division of Carlton Communications Plc) SeaChange Corporation Sony Corporation Our principal competitors in the professional and consumer markets are: Adobe Systems, Inc. Apple Computer Avid Technology, Inc. Dazzle Multimedia (a division of SCM Microsystems, Inc.) Hauppauge Digital, Inc. Matrox Electronics Systems, Ltd. Media 100, Inc. Sony Corporation These lists are not all-inclusive. 25 The consumer market in which certain of our products compete is highly competitive. There are several established video companies that currently offer products or solutions that compete directly or indirectly with our consumer products by providing some or all of the same features and video editing capabilities. In addition, we expect that existing manufacturers and new market entrants will develop new, higher performance, lower cost consumer video products that may compete directly with our consumer products. We expect that potential competition in this market is likely to come from existing video editing companies, software application companies or new entrants into the market, many of which have the financial resources, marketing and technical ability to develop products for the consumer video market. Increased competition in any of these markets could result in price reductions, reduced margins and loss of market share. Any of these effects could materially harm our business. [X] We rely heavily on dealers and OEMs to market, sell and distribute our products. In turn, we depend heavily on the success of these resellers. If these resellers do not succeed in effectively distributing our products, our financial performance will be negatively affected. These resellers may not effectively promote or market our products or may experience financial difficulties and even close operations. Our dealers and retailers are not contractually obligated to sell our products. Therefore, they may, at any time: . Refuse to promote or pay for our products . Discontinue our products in favor of a competitor's product Also, with these distribution channels standing between us and the actual market, we may not be able to accurately gauge current demand for products and anticipate demand for newly introduced products. For example, dealers may place large initial orders for a new product just to keep their stores stocked with the newest products, not because there is a significant demand for them. With respect to consumer products offerings, we have expanded our distribution network to include several consumer channels, including large distributors of products to computer software and hardware retailers, which in turn sell products to end users. We also sell our consumer products directly to certain retailers. Rapid change and financial difficulties of distributors have characterized distribution channels for consumer retail products. These arrangements have exposed us to the following risks, some of which are out of our control: . We are obligated to provide price protection to such retailers and distributors and, while the agreements limit the conditions under which product can be returned to us, we may be faced with product returns or price protection obligations . The distributors or retailers may not continue to stock and sell our consumer products . Retailers and retail distributors often carry competing products [X] Excess or obsolete inventory, and overdue or uncollectible accounts receivables, could weaken our cash flow, harm our financial condition and results of operations and cause our stock price to fall. The recent downturn in the global economy has contributed to a reduced demand for some of our products. As a result, we may experience increased exposure to excess and obsolete inventories and higher overdue and uncollectible accounts receivables. If we fail to properly manage these inventory and accounts receivables risks, our cash flow may be weakened, and our financial position and results of operations could be harmed as a result. This, in turn, may cause our stock price to fall. If the global economic or market conditions continue, our financial position may be further weakened. 26 [X] We may be adversely affected if we are sued by a third party or if we decide to sue a third party regarding intellectual property rights. There has been substantial litigation regarding patent, trademark and other intellectual property rights involving technology companies. In the future, litigation may be necessary to enforce any patents issued to us, to protect our trade secrets, trademarks and other intellectual property rights owned by us, or to defend us against claimed infringement. We are also exposed to litigation arising from disputes in the ordinary course of business. This litigation may: . Divert management's attention away from the operation of our business . Result in the loss of our proprietary rights . Subject us to significant liabilities . Force us to seek licenses from third parties . Prevent us from manufacturing or selling products Any of these results could materially harm our business. In the course of business, we have in the past received communications asserting that our products infringe patents or other intellectual property rights of third parties. We investigated the factual basis of such communications and negotiated licenses where appropriate. It is likely that, in the course of our business, we will receive similar communications in the future. While it may be necessary or desirable in the future to obtain licenses relating to one or more of our products, or relating to current or future technologies, we may not be able to do so on commercially reasonable terms, or at all. These disputes may not be settled on commercially reasonable terms and may result in long and costly litigation. [X] We may be unable to protect our proprietary information and procedures effectively. We must protect our proprietary technology and operate without infringing the intellectual property rights of others. We rely on a combination of patent, copyright, trademark and trade secret laws and other intellectual property protection methods to protect our proprietary technology. In addition, we generally enter into confidentiality and nondisclosure agreements with our employees and OEM customers and limit access to, and distribution of, our proprietary technology. These steps may not adequately protect our proprietary information nor give us any competitive advantage. Others may independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property, or disclose such intellectual property or trade secrets. If we are unable to protect our intellectual property, our business could be materially harmed. [X] Because we sell products internationally, we are subject to additional risks. Sales of our products outside of North America represented approximately 44% of net sales in the quarter ended September 30, 2001 and 55% of net sales in the quarter ended September 30, 2000. We expect that international sales will continue to represent a significant portion of our net sales. We make foreign currency denominated sales in many, primarily European, countries. This exposes us to risks associated with currency exchange fluctuations. In fiscal 2002 and beyond, we expect that a majority of our European sales will continue to be denominated in local foreign currency, including the Euro. We have developed natural hedges for some of this risk since most of the European operating expenses are also denominated in local currency. However, where we sell our products in local currencies, we may be competitively unable to change our prices to reflect exchange rate fluctuations. For example, in recent periods, our revenues have been adversely affected by the decline in value of the Yen and Euro and our component currencies relative to the U.S. dollar. In addition to foreign currency risks, international sales and operations may also be subject to the following risks: 27 . Unexpected changes in regulatory requirements . Export license requirements . Restrictions on the export of critical technology . Political instability . Trade restrictions . Changes in tariffs . Difficulties in staffing and managing international operations . Potential insolvency of international dealers and difficulty in collecting accounts We are also subject to the risks of generally poor economic conditions in certain areas of the world, most notably Asia. These risks may harm our future international sales and, consequently, our business. [X] We rely on a continuous power supply to conduct our operations, and California's current energy crisis could disrupt our operations and increase our expenses. California is in an energy crisis that could disrupt our operations and increase our expenses. In the event of an acute power shortage, that is, when power reserves for the State of California fall below 1.5%, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently do not have backup generators or alternate sources of power in the event of a blackout, and our current insurance does not provide coverage for and any damages we or our customers may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at our facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currencies We transact business in various foreign currencies, primarily the Euro and those of the U.K. and Japan. Accordingly, we are subject to exposure from adverse fluctuations in foreign currency exchange rates. We currently do not use financial instruments to hedge local currency activity at any of our foreign locations. Instead, we believe that a natural hedge exists, since local currency revenues substantially offset the local currency denominated operating expenses. We continually assess the need to use financial instruments to hedge foreign currency exposure. Fixed Income Investments Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio of marketable securities. We do not use derivative financial instruments for speculative or trading purposes. We invest primarily in United States Treasury Notes and high-grade commercial paper and generally hold them to maturity. Consequently, we do not expect any material loss with respect to our investment portfolio. We do not use derivative financial instruments in our investment portfolio to manage interest rate risk. We do, however, limit our exposure to interest rate and credit risk by establishing and strictly monitoring clear policies and guidelines for our fixed income portfolios. At the present time, the maximum 28 duration of all portfolios is two years. Our guidelines also establish credit quality standards, limits on exposure to any one issue as well as the type of instruments. Due to the limited duration and credit risk criteria established in our guidelines, we do not expect that our exposure to market and credit risk will be material. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 2.1/(1)/ Asset Purchase and Transfer Agreement dated September 13, 2001 by and among FAST Multimedia Holdings Inc., FAST Multimedia AG, PS Miro Holdings Inc. & Co. KG, Pinnacle Systems GmbH, Pinnacle Systems, Inc. and certain other parties. 10.1/(2)/ Registration Rights Agreement dated October 2, 2001 by and among FAST Multimedia Holdings, Inc., FAST Multimedia AG and Pinnacle Systems, Inc. (1) Incorporated by reference to Exhibit 4.1 to Pinnacle Systems, Inc.'s Registration Statement on Form S-3 (No. 333-72298), filed with the Securities and Exchange Commission on October 26, 2001. (2) Incorporated by reference to Exhibit 4.2 to Pinnacle Systems, Inc.'s Registration Statement on Form S-3 (No. 333-72298), filed with the Securities and Exchange Commission on October 26, 2001. (b) Reports on Form 8-K None 29 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: November 14, 2001 By: /s/Mark L. Sanders --------------------------------- Mark L. Sanders President, Chief Executive Officer and Director Date: November 14, 2001 By: /s/Arthur D. Chadwick --------------------------------- Arthur D. Chadwick Vice President, Finance and Administration and Chief Financial Officer 30 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1/(1)/ Asset Purchase and Transfer Agreement dated September 13, 2001 by and among FAST Multimedia Holdings Inc., FAST Multimedia AG, PS Miro Holdings Inc. & Co. KG, Pinnacle Systems GmbH, Pinnacle Systems, Inc. and certain other parties. 10.1/(2)/ Registration Rights Agreement dated October 2, 2001 by and among FAST Multimedia Holdings, Inc., FAST Multimedia AG and Pinnacle Systems, Inc. (1) Incorporated by reference to Exhibit 4.1 to Pinnacle Systems, Inc.'s Registration Statement on Form S-3 (No. 333-72298), filed with the Securities and Exchange Commission on October 26, 2001. (2) Incorporated by reference to Exhibit 4.2 to Pinnacle Systems, Inc.'s Registration Statement on Form S-3 (No. 333-72298), filed with the Securities and Exchange Commission on October 26, 2001. 31 -----END PRIVACY-ENHANCED MESSAGE-----