UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NUMBER 1 TO THE
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1999
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 Number 0-29048
ACCENT COLOR SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1380314
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Connecticut Boulevard, East Hartford, Connecticut 06108
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (860) 610-4000
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 outstanding of the registrant's common stock
as of July 31, 1999 was 17,765,865.
ACCENT COLOR SCIENCES, INC.
FORM 10-Q/A
For The Quarterly Period Ended June 30, 1999
INDEX
Part I. Financial Information
Item 1. Financial Statements 3
Signatures 9
ACCENT COLOR SCIENCES, INC.
CONDENSED BALANCE SHEETS
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 436,878 $ 1,048,425
Accounts receivable 948,910 1,321,782
Inventories (Note 3) 1,967,646 2,269,016
Prepaid expenses and other
assets 151,638 216,564
------------ -----------
Total current assets 3,505,072 4,855,787
Fixed assets, net 1,546,585 1,933,043
Other assets, net 71,181 71,575
------------ -----------
Total assets $ 5,122,838 $ 6,860,405
============ ===========
Liabilities and Shareholders'
Equity (Deficit)
Current liabilities:
Obligations under capital
leases $ 52,043 $ 64,014
Accounts payable 1,197,034 961,626
Accrued expenses 1,008,757 588,966
Customer advances and deposits 355,000 -
Deferred revenue 714,000 595,000
----------- ----------
Total current liabilities 3,326,834 2,209,606
Obligation under capital leases - 23,116
Long-term debt, net of discount
(Note 6) 2,301,695 2,235,593
Other long-term liabilities 534,822 601,759
----------- ----------
Total non-current
liabilities 2,836,517 2,860,468
----------- ----------
Total liabilities 6,163,351 5,070,074
----------- ----------
Mandatorily redeemable convertible
preferred stock, no par value,
500,000 shares authorized,
2,028 and 0 issued and
outstanding (Note 5) 2,943,230 -
----------- ----------
Shareholders' equity (deficit):
Preferred stock, no par value,
500,000 shares authorized,
0 and 3,500 issued and
outstanding (Note 4) - 3,049,691
Common stock, no par value,
35,000,000 shares authorized,
17,385,832 and 12,841,881
shares issued and outstanding 46,477,065 46,355,604
Accumulated deficit (50,460,808) (47,614,964)
----------- ----------
Total shareholders'
equity (deficit) (3,983,743) 1,790,331
----------- ----------
Total liabilities and
shareholders'
equity (deficit) $ 5,122,838 $ 6,860,405
=========== ===========
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
------ ------ ------ ------
Revenue (Note 2) $ 2,604,408 $ 421,517 $ 4,853,905 $ 1,338,250
Costs and expenses:
Costs of production 2,361,626 1,149,207 4,505,932 2,777,255
Research and
development 661,741 1,049,155 1,613,571 2,528,102
Marketing, general and
administrative 670,080 1,210,130 1,393,321 2,119,472
---------- ---------- ---------- ----------
3,693,447 3,408,492 7,512,824 7,424,829
---------- ---------- ---------- ----------
Other (income) expense:
Interest expense 96,969 7,310 194,783 15,093
Interest income (2,595) (39,681) (7,858) (71,696)
---------- ---------- ---------- ----------
94,374 (32,371) 186,925 (56,603)
---------- ---------- ---------- ----------
Net loss (1,183,413) (2,954,604) (2,845,844) (6,029,976)
Imputed dividend on
preferred stock (Note 4) - - - (920,000)
Accretion to redemption
value on mandatorily
redeemable convertible
preferred stock (Note 5) (1,176,154) - (1,176,154) -
---------- ---------- ---------- ----------
Net loss applicable to
common stock $(2,359,567)$(2,954,604) $(4,021,998) $(6,949,976)
========== ========== ========== ==========
Net loss (basic & diluted)
per common share $ (.15)$ (.24) $ (.28) $ (.57)
========== ========== ========== ==========
Weighted average common
shares outstanding 15,264,934 12,198,836 14,516,187 12,096,580
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30,
1999 1998
Cash flows from operating --------- ---------
activities:
Net loss before accretion to redemption
value on mandatorily redeemable
convertible preferred stock and
imputed dividend $(2,845,844) $(6,029,976)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 584,839 578,690
Loss on disposal of fixed assets 90,893 13,453
Changes in assets and
liabilities:
Accounts receivable 372,872 (238,589)
Inventories 301,370 (1,305,134)
Prepaid expenses and other assets 64,926 130,090
Accounts payable and accrued expenses 655,199 (285,219)
Customer advances and deposits 355,000 (85,600)
Deferred revenue 119,000 784,600
Other long-term liabilities (66,937) 73,375
---------- ----------
Net cash used in operating activities (368,682) (6,364,310)
Cash flows from investing activities:
Proceeds from sale of fixed assets 48,163 -
Purchases of fixed assets (270,941) (126,592)
Cost of patents - (17,825)
---------- ----------
Net cash used in investing activities (222,778) (144,417)
Cash flows from financing activities:
Payment of capital lease obligations (35,087) (32,012)
Proceeds from exercise of options & warrants - 44,625
Deferred offering costs 15,000 -
Net proceeds from issuance of preferred
stock through offerings and conversion
of debt - 3,921,038
---------- ----------
Net cash provided by (used in)
financing activities (20,087) 3,933,651
---------- ----------
Net decrease in cash
and cash equivalents (611,547) (2,575,076)
Cash and cash equivalents at
beginning of period 1,048,425 4,005,563
---------- ----------
Cash and cash equivalents at
end of period $ 436,878 $ 1,430,487
========== ==========
The accompanying notes are an integral part of these financial statements
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Accumulated
Shares Amount Deficit Total
---------- ---------- ---------- ----------
December 31, 1997 11,989,855 $45,114,633 $(37,845,111) $7,269,522
Proceeds from
sale of warrants - 810,000 - 810,000
Imputed dividend on
mandatorily redeemable
convertible preferred
stock - (920,000) - (920,000)
Exercise of
options 37,500 44,625 - 44,625
Conversion of
mandatorily redeemable
convertible preferred
Stock 814,526 933,669 - 933,669
Warrants issued
with debt - 325,000 - 325,000
Net loss - - (9,769,853) (9,769,853)
---------- ---------- ----------- ----------
December 31, 1998 12,841,881 46,307,927 (47,614,964) 1,307,037
Conversion of
mandatorily redeemable
convertible preferred
Stock 4,483,951 1,330,292 - 1,330,292
Accretion to
redemption
amount (Note 5) - (1,176,154) - (1,176,154)
Common stock
issued to
service provider 60,000 15,000 - 15,000
Net loss - - (2,845,844) (2,845,844)
---------- ---------- ----------- ----------
June 30, 1999
(unaudited) 17,385,832 $46,477,065 $(50,460,808) $ (3,983,743)
========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
1. Interim Condensed Financial Statements
In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly its financial position as of June 30, 1999 and the
results of operations and cash flows for the six months ended
June 30, 1999 and 1998. The December 31, 1998 balance sheet has
been derived from the Company's audited financial statements at
that date. These interim condensed financial statements should be
read in conjunction with Management's Discussion and Analysis and
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
The results of operations for the six months ended June 30, 1999
are not necessarily indicative of the results to be expected for
the full year.
2. Summary of Significant Accounting Policies
Significant accounting policies followed in the preparation of
these financial statements are as follows:
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is generally recognized upon product shipment. The
Company has established warranty policies that, under specific
conditions, enable customers to return products. The Company
provides reserves for potential returns and allowances and
warranty costs at the time of revenue recognition. Prior to
October 1, 1998, the Company did not have adequate information
and experience to estimate potential returns, allowances and
warranty costs, and accordingly, revenue resulting from Truecolor
Systems was deferred until the end of the warranty period.
During the fourth quarter of 1998, the Company concluded that it
had adequate warranty information and experience to begin
recognizing revenue upon the shipment of systems to its primary
OEM customer. The Company will continue to defer revenue on
shipments to its second OEM customer until systems are in
production and are past the warranty period or until the Company
has adequate warranty history with that product.
3. Inventories
Inventories consist of the following:
June 30, December 31,
1999 1998
Raw materials and components $ 686,894 $1,185,529
Work-in-process 397,207 299,271
Finished goods 883,545 784,216
---------- ----------
$1,967,646 $2,269,016
========== ==========
4. Shareholders' Equity
In December 1997, the Company's Board of Directors designated a
series of 4,500 shares of the Company's previously authorized
preferred stock, no par value per share, to be designated as the
Series B Convertible Preferred Stock ("Series B Stock"). On
January 13, 1998 the Company completed a private equity financing
providing net proceeds to the Company of $3.9 million. In
connection with the financing, the Company issued 4,500 shares of
Series B Stock at a price of $1,000 per share and warrants to
purchase the Company's common stock. The warrants issued are
exercisable into 300,000 shares of common stock with an exercise
price of $2.75 and an expiration date of January 9, 2003.
Additionally, warrants exercisable into 115,385 shares of common
stock with an exercise price of $2.50 and an expiration date of
January 9, 2003 were issued to the placement agent for services
provided. The deemed fair market value of these warrants has been
reflected as an increase to common shareholders' equity and a
reduction of mandatorily redeemable convertible preferred stock.
In connection with the sale of the units, the Company
agreed to register the common stock issuable upon the conversion
of the Series B Stock and the exercise of the warrants.
The Series B Stock, no par value per share, is convertible into
such number of shares of common stock as is determined by
dividing the stated value ($1,000) of each share of Series B
Stock (as such value is increased by an annual premium of 6%) by
the then current conversion price of the Series B Stock (which is
determined, generally, by reference to 85% of the average of the
closing market price of the common stock during the five
consecutive trading days immediately preceding the date of
determination) subject to certain restrictions and adjustments.
The Series B Stock has voting rights as defined in the Company's
Certificate of Incorporation, bears no dividends and ranks senior
to the Company's common stock. In the event of any voluntary or
involuntary liquidation of the Company, the Series B holders
shall be entitled to a liquidation preference equal to the stated
value of the stock plus the accrued premium through the date of
final distribution. Upon occurrence of specific events, as
defined in the agreement, the holder may redeem the Series B
Stock for cash. The Company, however, has the unilateral right
to pre-empt the right of holders of the Series B Stock from
demanding cash redemption of their shares by paying to them
within five days of the specific event, as liquidated damages,
25% of the face amount of the Series B Stock then outstanding.
Such liquidated damages can be paid in cash or shares at the
Company's election. The Company also has optional redemption
rights.
The Company initially reserved 6,300,000 shares of common stock
for issuance pursuant to the conversion of the Series B Stock.
This number of shares represented an estimate based on 200% of
the number of common shares that would have been issuable upon
conversion with an exercise price of $1.875 per share (4,800,000)
plus 1,500,000 shares issuable under the terms of the Certificate
of Designation in the event of certain failures by the Company to
comply with various provisions thereof, including maintaining its
common stock listing on the NASDAQ Stock Market. In addition,
415,385 shares of common stock, subject to adjustments in
accordance with the terms of each warrant, were reserved for
issuance pursuant to the exercise of the warrants described
above.
On August 10, 1998 and March 22, 1999, pursuant to the terms of
the Certificate of Designation and approval by the Board of
Directors, the Company increased the number of reserved shares of
common stock for issuance upon the conversion of the Series B
Stock by 2,567,652 and 3,833,699 shares, respectively. This was
done because the reserved amount had fallen below 135% of the
number of shares of common stock issuable upon conversion of the
then outstanding shares of Series B Stock. The actual number of
shares issuable upon conversion could be materially less or more
than this number depending on factors that cannot be predicted by
the Company. The number of shares issuable upon conversion is
dependent on the market price of the common stock at the time of
the conversion. As of June 30, 1999, 2,472 shares of Series B
Stock had been converted into 5,298,477 shares of common stock at
an average conversion price of $0.58 per share.
The Company's common stock was delisted from the NASDAQ Stock
Market effective March 17, 1999 as the Company was not in
compliance with NASDAQ's minimum bid price and net tangible asset
level. Consequently, each holder of the Company's Series B Stock
had the right to require the Company to redeem such holder's
shares of Series B Stock at a redemption price specified in the
Company's Certificate of Incorporation.
The Company elected in April, following discussions with the
holders of the Series B Stock, not to pay the liquidated damages
and let their right to pre-empt redemption expire. As a result
of the expiration of the Company's right to prevent demand
redemption during the second quarter of 1999, the Company was
required to reclassify the outstanding shares of the Series B
Stock into Mandatorily Redeemable Convertible Preferred Stock
("Redeemable Preferred Stock") as of June 30, 1999 (See Note 5).
As of the date of this report no holder of Series B Stock has
redeemed its stock for cash.
5. Mandatorily Redeemable Convertible Preferred Stock
On April 6, 1999, the Company elected to forgo its right to
prevent demand redemption on its outstanding shares of Series B
Preferred Stock (see Note 4 above), which resulted in the
reclassification of 2,028 shares of the Series B Stock at a
carrying value of $1,767,076 into Mandatorily Redeemable
Convertible Preferred Stock. An additional $1,176,154 was
accreted to Redeemable Preferred Stock to reflect the increase in
redemption value from April 6, 1999 to June 30, 1999 in
accordance with the redemption price specified in the Company's
Certificate of Incorporation. Such accretion was charged against
common stock and also increased the net loss applicable to common
shareholders. As of June 30, 1999, there were 7,402,874 shares
of common stock reserved for issuance pursuant to the
conversion of the remaining 2,028 shares of Redeemable
Preferred Stock issued and outstanding. The features
and rights of the Redeemable Preferred Stock remain the same as
those explained in Note 4 above, with the exception that the
remaining holders may demand redemption of their outstanding
shares at any point in time.
6. Modification of Debt Terms
On August 2, 1999, the Company and IBM Corporation entered into
an agreement to defer the interest payments owed by ACS to IBM
arising out of the original Loan Agreement between the two
companies dated July 21, 1998. This modification provides that
the interest payments of approximately $63,000 due on the first
day of each quarter during 1999 be deferred until December 31,
2000. Beginning with the interest payment due on January 1,
2000, the Company, however, is to make interest payments on the
first day of each quarter during 2000 as required by the original
Loan Agreement.
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.
ACCENT COLOR SCIENCES, INC.
Dated September 17, 1999 By /s/ Charles E. Buchheit
------------------------
Charles E. Buchheit
President and Chief Executive Officer
By /s/ Tracy L. Hubert
------------------------
Tracy L. Hubert
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)