SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1996 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: 0-24784
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 Number)
incorporation or organization)
870 Maude Avenue, Sunnyvale, CA 94086
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (408) 720-9669
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on
August 30, 1996 as reported on the Nasdaq National Market System, was
approximately $62,798,790. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of August 30, 1996, registrant had outstanding 7,478,191 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference into Part III of this Form
10-K portions of its Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held October 24, 1996. Portions of the Registrant's Annual
Report to Shareholders for the fiscal year ended June 30, 1996 are incorporated
by reference into Parts II and IV of this Form 10-K.
PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, 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: the dependence on Alladin product; the
uncertainty as to the continued development of the market for desktop video
systems; the uncertainty of continued market acceptance of professional video
products; significant fluctuations in the Company's operating results; the
historical absence of backlog; the history of losses and accumulated deficit;
the Company's highly competitive industry and rapid technological change within
the Company's industry; the risks associated with dependence on resellers,
contract manufacturers and other third-party relationships; the absence of a
direct sales force; 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 uncertainty of patent and proprietary technology
protection and reliance on technology licensed from third parties; the risks of
third party claims of infringement; the Company's dependence on retention and
attraction of key employees; the need to manage growth; the risks associated
with future acquisitions; the risks associated with international licensing and
operations; general economic and business conditions; and other factors
referenced in this Report.
Pinnacle Systems is a registered trademark of Pinnacle Systems, Inc.,
and Pinnacle Systems, Inc. believes that all of its product names, other than
Alladin, are trademarks of Pinnacle Systems, Inc. This Report also includes
trademarks of companies other than Pinnacle Systems, Inc.
ITEM 1. BUSINESS
Pinnacle Systems, Inc. ("Pinnacle" or the "Company") designs,
manufactures, markets and supports video post-production tools for high quality
real time video processing. The Company's products are used to perform a variety
of video manipulation functions, including the addition of special effects,
graphics and titles to multiple streams of live or previously recorded video
material. The Company has historically offered video products for the
traditional video production market and since 1987 has shipped over 3,700
traditional video systems to customers in more than 60 countries. In 1994 the
Company introduced Alladin, a PC-based desktop video product that offers
performance comparable to traditional video products but at a substantially
lower price. Targeted at both the traditional video market and the emerging
desktop video market, over 6,600 units of Alladin have been sold since June
1994. In June 1996, the Company began shipping GeniePlus, the first of a new
family of desktop video products. The Genie family offers a wide array of
professional-quality video editing tools on a single PCI board at a lower price
level than other Pinnacle products.
Industry Background
The video production industry has historically created program material
for commercial broadcast and television advertising. Producers of commercial
program material and advertising have traditionally used video editing suites
equipped with expensive, dedicated video production equipment to produce high
quality video programming. A large and established market exists for video
equipment used in traditional
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video editing suites. Expanding channels of distribution, including cable
television, direct satellite broadcast, CD-ROMs and video-on demand, have led to
a rapid increase in demand for video content for existing and new applications.
New applications for video content include multimedia entertainment, video
games, music videos, special event videos, education and training and corporate
communications. These new applications cannot, in general, support the high cost
and complexity of video production associated with traditional editing suites.
Desktop video products, which combine personal computers with video processing
hardware and software, have recently been introduced to provide quality video
output comparable to that of video editing suites at significantly lower cost.
In addition to addressing the traditional video production market, desktop video
products address the emerging and more diverse market for new video production
applications.
Video Production Process
The development of a video program involves three distinct processes,
which together comprise video production. The first phase, pre-production,
involves planning and preparation for the recording, or "shooting," of the video
program and includes scripting, storyboarding (the artist's rendering of planned
video segments) and developing the production budget. The second phase,
production, involves the actual shooting of video material either on location or
in a studio. This process follows the pre-production script, recording actual
video segments outlined by the storyboard sketches. Production also includes the
creation of still-images and computer animated images to be included in the
program.
The final phase, post-production, involves the organization of raw
video segments acquired in the production phase into a cohesive and appealing
program. During the post-production phase, the producer utilizes sophisticated
equipment to incorporate essential elements such as titles, graphics and
transitions between video segments and to composite multiple layers of video and
graphics. The overall quality and impact of a video production is, in many
cases, judged by the quality of the video processing performed in the
post-production phase. Viewers expect the same level of video program quality
that they see daily with broadcast television programming, where high quality
graphics, smooth transitions and compositing of multiple layers of graphics and
video are commonplace.
Video Editing Suites
To implement high quality post-production video effects, producers of
commercial broadcast and television advertising have traditionally used multiple
pieces of dedicated equipment, linked together with a complex interconnection,
routing and control system to form a video "editing suite." Typical editing
suites incorporate switchers, digital video effects systems, still stores,
character generators, electronic paint and compositing systems and 3D modeling
and animation tools, typically provided by multiple manufacturers and used to
implement a single effect or group of related effects. Traditional editing
suites allow video professionals to produce a high quality finished product in
real time, whereby the operator can touch a button or move a joystick or mouse
and see the desired effect instantaneously. Real time interactivity, which
allows the video producer spontaneously and interactively to try many different
video manipulations and fine tune the resulting video content, is a critical
requirement in the video post-production process.
Because of the complexity and large number of components required,
video editing suites are expensive, ranging in cost from $100,000 to several
million dollars for a fully equipped suite. Furthermore, each component within
the suite has its own user interface and therefore its own user training
equipment. A video professional therefore requires significant training to
become proficient in the operation of a traditional editing suite. Because
editing suites are expensive and complex, they are usually operated as
time-shared
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resources. Producers typically rent a video editing suite together with highly
trained operators for a cost ranging from $100 to $1,000 per hour. The high cost
of traditional editing suites makes them unsuitable for many new video
applications where high development costs cannot be supported.
Desktop Video
Desktop video post-production is a rapidly developing alternative to
traditional video editing. Desktop video post-production tools are based on a
combination of personal computers, graphical user interfaces and video
input/output and processing hardware and software. Desktop video tools are
designed to be lower cost, easier to use and dedicated to an individual user
rather than time-shared between multiple projects.
Desktop video post-production tools are well-suited for many new video
applications, including multi-media entertainment, video games, music videos,
special event videos, education and training and corporate communications. The
low-cost of desktop video tools allows these new types of video programs to be
developed inexpensively. The lower cost and increased ease of use of desktop
video tools makes it easy for a large number of creative individuals, previously
untrained in video production, to produce professional video programming.
Historically, the inability of desktop video post-production tools to
implement, in real time, the same sophisticated high quality video effects as
are available in traditional editing suites has limited their use. To produce
special effects and compositing, desktop tools have relied upon software to
render the desired effect. The initial creation and each subsequent alteration
of complex video manipulations can require many hours of software rendering
time. While computer processing times have dramatically improved in recent
years, improvements in video rendering time are generally limited not by the
actual processing of data but by the large amounts of data that must be moved
into and out of the computer. Compression of video data does not improve
processing time because video manipulation must, in general, be performed on
uncompressed data. In addition, there are few interfaces for connecting desktop
tools to equipment found in traditional editing suites.
The lack of high quality real time interactivity of traditional desktop
video solutions has increased development time and costs and limited programmer
flexibility and creativity. The lack of sufficient interface standards has
increased the cost and complexity of using desktop solutions in conjunction with
traditional video editing suites. The Company believes desktop video products
overcome many of these limitations and address the needs of the traditional
professional video market as well as the emerging market for new applications.
The Pinnacle Approach
Pinnacle offers products for both traditional video editing suites and
desktop video production. The Company's proprietary architecture and video
manipulation hardware and software technology allow it to develop products
designed to offer both markets significant price/performance and quality
advantages over competing approaches. The Company's products offer the following
benefits:
o Sophisticated video manipulation. Pinnacle's products provide
advanced video manipulation capabilities. Video professionals
constantly seek effects to give their productions a new look
and to allow them to differentiate and enhance the value of
their end product.
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o Real-time interactivity. Pinnacle's products allow producers
to select an effect and instantly see the result. This real
time interactivity gives producers the flexibility to try many
different effects and fine-tune the resulting content.
o Open systems. Pinnacle's products conform to generally
accepted industry standards for video input/output and
control, allowing interoperability with a wide variety of
video processing and storage equipment. Furthermore, Pinnacle
has developed and published, and is encouraging others to
adopt, open interface specifications for video input/output,
manipulation and control for desktop video post-production.
o Upgradeability. Pinnacle's products are designed to allow
users to upgrade to expanded capabilities. The Company
provides product upgrades through either software only or
combined software and hardware modules.
o Ease of use. Pinnacle's products include a menu driven
interface for selecting and controlling the various video
manipulation functions. This reduces the technical obstacles
to the operation of the system, permitting the user to focus
on the artistic aspects of the post-production process.
Pinnacle offers two families of video products for use in traditional
editing suites. The Prizm product family integrates 3D video effects, montage
creation, still storage and the DVEator module for mapping live video onto
animated 3D objects. Prizm products are used primarily by post-production
companies, broadcasters and high-end corporate and industrial users. The
FlashFile product family integrates sophisticated still image capture and
storage, video mixing and compositing functions. FlashFile products are used
primarily by broadcasters, especially for news and sports programs.
The Alladin product, first shipped in June 1994, works with industry
standard Windows-based or Macintosh personal computers and addresses the need
for high quality real time video manipulation for desktop video editing systems.
The Alladin allows desktop editing systems to provide high quality real time
manipulation functions historically available only in high end video editing
suites. In addition to distributing Alladin through a dealer distribution
channel, the Company has developed specially configured Alladin units under OEM
agreements with Avid Technology, Inc. ("Avid") and Matrox Corporation
("Matrox"), each a leading supplier of desktop video editing systems.
The Genie family of products, the first of which shipped in June 1996,
are based on a single PCI card designed to work with industry standard Windows
95 or Macintosh personal computers. The Genie card combines a sophisticated 3-D
DVE, switcher, character generator and paint system for affordable real-time
post-production. The Company intends on distributing the Genie family of
products through dealer and master dealer distribution channels, and through
system integrators and OEM's.
In June 1996, the Company acquired the VideoDirector product line from
Gold Disk, Inc. VideoDirector is a low-cost video software package sold
primarily to home video enthusiasts. VideoDirector enables the user to edit
their home videotapes.
Pinnacle Strategy
Pinnacle's strategy is to leverage its position as a technological
leader in the traditional video market to become the industry standard solution
for high quality real time video processing for the emerging desktop
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video market. To achieve these objectives, the Company is pursuing a strategy
that includes the following key elements:
o Expand Product Line. The Company is expanding its product line
to serve the needs of a growing spectrum of video content
producers. In June 1994, the Company shipped Alladin for
Windows, its first product to serve the video manipulation
needs of desktop video users. In June 1996 the Company
introduced the Genie family of products, designed to meet the
needs of desktop video users at a much lower price point. Also
in June 1996, the Company purchased from Gold Disk, Inc. the
VideoDirector product line, designed for the home video
market. The Company intends to extend the family of products
at different price points with different functionalities to
further its competitive position in the desktop video market.
o Maintain Technology Leadership. The Company intends to
maintain its technology leadership position by leveraging its
core technological strengths in real time digital video
processing, real time software algorithms, video input/output
and advanced user interfaces to provide solutions for both the
traditional and desktop markets.
o Provide Upgrades. The Company has a significant and growing
installed base of products that can be upgraded to provide new
capabilities. The Company's strategy is to actively develop
and sell product upgrades.
o Support and Set Industry Standards. The Company intends to
continue to support recognized video industry interface
standards where they exist and to establish standards for the
desktop market segment. The Company's goal is to have its
video manipulation interface standards widely adopted by
manufacturers of desktop video post-production tools.
o Utilize Balanced Distribution Channels. To reach a diverse
target market of video professionals, the Company distributes
its products primarily through a combination of independent
dealers and selected OEMs. The Company has established a
worldwide network of independent dealers, which as of June 30,
1996, included over 170 dealers. The Company attempts to
identify and align itself with OEMs that are market share and
technology leaders in the Company's target market segments.
o Leverage Established Reputation. The Company intends to take
advantage of its established reputation in the traditional
video industry in marketing its products to the emerging
desktop market.
Products
The Company's Prizm and FlashFile products are targeted at traditional
video users and include a host computer embedded within the video processing
system. The Company's Alladin and Genie products are targeted at both the
traditional video market and the desktop video market and are used in
conjunction with a standalone personal computer generally provided by the end
user. The Video Director product, targeted at the home video market, is
generally used to edit camcorder programs by trimming unwanted footage and
arranging the sequence of segments of video. The following table summarizes the
Company's current products.
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Date of First Suggested U.S.
Product Shipment Retail Price(1) Primary Functions
- --------------------------------------------------------------------------------------------
PRIZM FAMILY2
- --------------------------------------------------------------------------------------------
Prizm 11/90 $ 26,990 High quality real time video manipulation
for broadcast and post-production facilities.
Key Options:
- -----------
3D Montage 11/90 $ 6,990 Compositing and recursive effects.
Key Channel 12/90 $ 3,990 Key processing (deposit and overlay).
StillStore 2/91 $ 1,990 Still capture and storage.
DVEator 9/91 $ 15,990 Real time mapping of live video onto
animated 3D objects.
- --------------------------------------------------------------------------------------------
FLASHFILE FAMILY(2)
- --------------------------------------------------------------------------------------------
Flash File 8/92 $ 21,990 Broadcast video stillstore manipulation
system.
FlashGrafix Composer 8/93 $ 26,990 Broadcast video stillstore creation and
manipulation system.
Key Options:
Second Channel 8/92 $ 4,990 Preview capability.
Shotbox 3/93 $ 2,490 Dedicated control for on-air applications.
FlashBrowse 7/93 $ 3,990 PC software to browse image databases.
Third Channel 6/95 $ 8,990 Enhanced preview capability.
- --------------------------------------------------------------------------------------------
ALLADIN FAMILY
- --------------------------------------------------------------------------------------------
Alladin
NTSC 6/94 $ 9,990 High quality real time video manipulations
PAL 9/94 $ 11,990 for NTSC and PAL-based desktop video
producers.
Key Options:
Component I/O 11/94 $ 2,990 High quality video input/output.
Digital I/O 6/96 $ 6,490 Industry standard CCIR 601 digital
input/output.
StudioPak 1/96 $ 990 Software enhancement.
- --------------------------------------------------------------------------------------------
GENIE FAMILY
- --------------------------------------------------------------------------------------------
GeniePlus
NTSC 6/96 $ 5,990 High quality real time video manipulations
PAL 6/96 $ 6,990 on PCI card.
- --------------------------------------------------------------------------------------------
VIDEO DIRECTOR FAMILY(2)
- --------------------------------------------------------------------------------------------
VideoDirector
Home 6/96(3) $ 99 Home video editing software.
Studio 6/96(3) $ 199 Advanced home video editing software.
- --------------------------------------------------------------------------------------------
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1 Prices as of June 30, 1996. Actual end user prices may vary due to customer
selected options and package pricing discounts.
2 Prizm, FlashFile and VideoDirector products support multiple international
standards, including National Television Standards Committee ("NTSC"), the
principal video standard in North America, Phase Alternating Line ("PAL"),
a principal international video standard, and component standards.
3 Product line acquired from Gold Disk, Inc. in June 1996.
Prizm Family
The Company's Prizm family of products is designed to provide
sophisticated 3D digital video effects for the traditional post-production
editing suite. The basic Prizm video workstation provides real time 3D
positioning, sizing, rotation with perspective and clipping of live video
images. Prizm products support industry standard video manipulation and control
protocols and, as a result, work with other video processing equipment which
allows users to integrate Prizm products into existing editing suites. A variety
of Prizm options are available for compositing, key processing, still image
capture and storage and other effects. One such option, DVEator, combines the
flexibility of 3D modeling techniques with aspects of digital effects systems to
map live video in real time onto animated 3D shapes created by the user. DVEator
permits the creation of special effects that include realistic highlights and
shadows and simultaneous animation of graphics and live video-mapped images. The
Company was awarded an EMMY in 1994 for technical achievement related to the
development of the technology incorporated in DVEator.
FlashFile Family
The FlashFile family of products provides broadcast quality, open
architecture, cost effective video still image creation and storage for
broadcast television markets. The FlashFile stillstore offers a broad set of
features for video still image acquisition, storage and on-air playback,
including transitions, file import and export and library management.
FlashGrafix Composer, an enhanced version of FlashFile, includes paint and 3D
animation functionality in addition to the basic FlashFile capability. Both
products offer a computer-based graphical user interface and may also be
controlled using a dedicated hardware control panel for fast, on-air
applications. The Company offers a networked version of FlashFile, FlashNet,
that is targeted toward broadcast applications requiring online storage of up to
several hundred thousand still images with distributed access using standard
Ethernet networking. Using the FlashBrowse PC software package, a standard
personal computer may be connected to the FlashNet network enabling viewing and
cataloging of video still images stored on a network server. The FlashFile
product family utilizes industry standard personal computer technology for local
control, industry standard Ethernet networking for network access to graphics
libraries, and industry standard database servers for storing and cataloging
online still images.
In December 1993, the Company entered into an agreement with Capital
Cities/ABC, Inc. ("ABC") to provide FlashFile products for use with ABC's
Graphics Library System. The Company implemented significant enhancements to the
FlashFile product to meet ABC's requirements. The Company shipped the first
enhanced FlashFile products to ABC in June 1995. This Graphics Library System
provides ABC newscasters access to an extensive on-line library of video still
images. The Company intends to market the enhanced FlashFile products to ABC
affiliates in the United States. In November 1994, the Company entered into an
agreement with Capital Cities/ESPN, Inc. ("ESPN") to provide similarly enhanced
FlashFile products. The Company shipped the first enhanced FlashFile products to
ESPN in June 1996.
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Alladin Family
The Alladin product family, which commenced shipment in June 1994, is
designed to bring high quality real time video manipulation tools to desktop
video post-production, and is offered at significantly lower cost than systems
having comparable capabilities. Alladin's capabilities and low price provide
independent video producers the ability to develop high quality video material
for a variety of applications. Alladin allows the user to process up to four
simultaneous streams of live video supplied either from tape or computer disk.
Alladin provides a variety of high quality real time video effects including
dissolves, compositing of live video with text or graphics, transparency,
clipping of a live image, sizing, rotation with perspective, 3D positioning and
warping (e.g., page turns and water ripples). The Alladin product connects to
and is controlled by a standard Microsoft Windows-based personal computer. The
user selects and controls video manipulation functions through a graphical user
interface.
Alladin products support NTSC and PAL video formats as well as certain
industry standard video control protocols common in traditional editing suites.
Furthermore, the Company has developed and published as open standards video
input/output specifications for control of desktop video editing systems.
Several manufacturers of desktop video editing systems, including Avid, Fast
Electronic GmbH ("Fast Electronic"), Japan Victor Company ("JVC"), Sundance
Digital, Inc., Technical Aesthetics Operations, Inc., United Media, Inc. and
VideoMedia, Inc. have either modified or are currently developing interface
specifications which conform to these standards. The Company's goal is to make
these interface specifications an industry standard for desktop video editing
systems. In addition, the Company has OEM agreements with Avid and Matrox, who
sell specially configured versions of Alladin with their products.
The Company is dependent on the continued market acceptance of Alladin
to increase revenues and profitability. There can be no assurance that Alladin
will continue to achieve market acceptance by the desktop video market and a
decline in demand or the failure of Alladin to maintain such market acceptance,
as a result of competition, technological change or other factors, will have a
material adverse effect on the Company's business, operating results and
financial condition.
Genie Family
Building on the success of the Alladin family products, the Company
commenced shipments of the Genie product family in June 1996. The Genie offers a
complete set of professional quality, real-time 3D digital effects, switching,
character generation, paint and still storage on a single PCI board. GeniePlus
integrates into linear desktop editing environments and includes an input/output
piggyback card and software allowing the user to process up to two simultaneous
streams of live video supplied from tape sources.
GenieFusion, which is expected to commence shipment in late 1996 or
early 1997, will work in non-linear editing environments. The Company intends on
selling GenieFusion to OEM vendors to integrate this product into their
non-linear editing products. The successful introduction of GenieFusion will be
dependent on the demand of OEMs to integrate GenieFusion into their products.
There can be no assurance that GenieFusion will achieve market acceptance by
OEMs, and the failure of GenieFusion to achieve market acceptance as a result of
competition, technological change or other factors will have a material adverse
effect on the Company's business, operating results and financial condition.
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VideoDirector
The VideoDirector product line was acquired from Gold Disk, Inc. in
June 1996. VideoDirector is a low-cost video software package sold through
traditional software distribution channels to home video enthusiasts. Compatible
with most camcorders and VCRs, VideoDirector uses a PC to control the editing
process. Available in both Windows and Macintosh versions, over 100,000 units of
VideoDirector have been shipped since the product was introduced. The Company
anticipates developing a new family of products that combine a subset of its
video manipulation technology with VideoDirector technology to create a new
category of products enabling home video enthusiasts to create
professional-looking video content.
Technology
The Company is a technological leader in video manipulation technology.
The National Academy of Television Arts and Sciences' Outstanding Technical
Achievement EMMY award that has been awarded to the Company on two occasions. In
1990, the Company received an EMMY for pioneering the concept of the video
workstation, and in 1994 the Company received an EMMY for developing technology
incorporated in DVEator which allows real time mapping of live video onto
animated 3D surfaces created by the user.
Video Manipulation Architecture
All of the Company's products share a common internal architecture.
This design approach allows the Company to maximize the return on its research
and development expenditures by utilizing similar hardware and software modules
in multiple products. The Company's video manipulation architecture is
fundamental to the performance and capabilities of its products.
o Industry Standard Microprocessor Control. All of the Company's
products use or work with an industry standard Intel x86 or
Pentium microprocessor running the Microsoft DOS/Windows or
Apple Macintosh operating systems for control of video
manipulation functions. In the Prizm and FlashFile product
families the control microprocessor is embedded within the
product. The Alladin product family relies on an external user
supplied Windows or Macintosh personal computer for control.
Using industry standard microprocessors for control offers
three main advantages: lower software development costs due to
the availability of powerful off-the-shelf software
development tools; lower product manufacturing costs due to
the low costs of standard microprocessors; and the ability to
easily integrate third party software such as networking
software or 3D rendering software to provide additional user
functionality.
o Digital Video Bus. Essentially all real-time video
manipulation must be performed on uncompressed video data.
Since uncompressed digital video rates are too high to be
processed by a microprocessor in real-time, video signals are
internally distributed over a separate high-speed (27
megabytes per second) digital video bus ("DVB") and processed
using the Company's proprietary real time video manipulation
hardware. The video data on the DVB is processed in the
standard digital component format, which fully complies with
the highest digital component video standards of the
International Radio Consultation Committee ("CCIR"), an
organization which develops and publishes standards for
international telecommunication systems. The DVB supports a
digital key channel that defines the edges of an irregularly
shaped image for proper manipulation. The wide
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bandwidth and industry standard format of the DVB helps to
ensure that performing video manipulations will not result in
degraded image quality.
o Modular Software Architecture. The software in all of the
Company's video manipulation products is divided into two
layers: the user interface layer and the video manipulation
algorithm layer. The user interface layer is different and has
been optimized for each product family. The video manipulation
algorithm layer is, for the most part, common to all Pinnacle
products and incorporates all the proprietary low level
routines which allow Pinnacle products to perform high quality
real-time video manipulations. This software architecture has
three main advantages: real-time video manipulation algorithms
that are complex and difficult to develop can be used in
multiple products; the user interface can be tailored to meet
specific user requirement; and the user interface can
independently be ported to alternative computer platforms.
Core Technologies
The Company's core technical expertise is in real-time digital video
processing, real-time software algorithms, video input/output, advanced user
interfaces and, in the case of Video Director, software control of commercially
available camcorders and VCRs.
o Real-Time Digital Video Processing. The Company has devoted
significant resources to the development of proprietary
technology for real time video processing, including high
speed digital filters, image transformation buffers, plane and
perspective addressing, and nonlinear image manipulation. The
DVEator module uses the Company's patented technology to
perform real-time mapping of live video onto multiple,
complex, animated 3D shapes and surfaces. This technology
includes a proprietary data compression algorithm that
compresses the address information and allows inexpensive
decompression of this data in real time.
o Real-Time Software Algorithms. The digital video manipulation
functions of the Company's products use common core software
that performs complex computations in real-time (at video
rates) under user control. The Company has developed several
techniques that allow high speed computation of multiple
complex equations which are required for real-time video
effects. The Company has expended significant resources on the
development of these real time video manipulation software
algorithms on standard platforms.
o Video Input/Output. The Company has developed technology for
video input and output of both analog and digital video data
streams. All of the Company's products work with NTSC and PAL
video standards as well as composite and component video
digital and analog input/output standards. In addition, the
Company has developed interfaces to support input/output of
video streams stored on computer disks.
o User Interface Design. The Company has extensive experience in
design of computer-based user interfaces for video
manipulation. The Company uses interactive menu driven user
interfaces to control video manipulation functions. The
Company's FlashFile, Alladin, Genie and VideoDirector products
each utilize graphical user interface technology to facilitate
ease of use.
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o Camcorder and VCR Control. Upon the acquisition of the
VideoDirector product line in June 1996, the Company obtained
software code enabling a computer to control most commercially
available camcorders and VCRs. This capability provides the
user a simple tool to organize and edit home movies.
The Company has historically devoted a significant portion of its
resources to engineering and product development programs and expects to
continue to allocate significant resources to these efforts. The Company's
engineering and product development efforts are focused on the design of new
desktop products, support of the incorporation of Genie into the products
offered by the Company's OEM customers, improvement and enhancement of existing
product performance and features and cost reductions and improvements in the
manufacturability of existing products, particularly Genie. The Company's future
operating results will depend to a considerable extent on its ability to
continually develop, introduce and deliver new hardware and software products
that offer its customers additional features and enhanced performance at
competitive prices. Delays in the introduction or shipment of new or enhanced
products, the inability of the Company to timely develop and introduce such new
products, the failure of such products to gain market acceptance or problems
associated with new product transitions could adversely affect the Company's
business, operating results and financial condition, particularly on a quarterly
basis.
As of June 30, 1996, the Company had 41 people engaged in engineering
and product development. The Company's engineering and product development
expenses (excluding purchased in process research and development) in fiscal
1996, 1995 and 1994 were $5.1 million, $2.4 million and $1.8 million,
respectively, and represented 11.1%, 10.8% and 17.7%, respectively, of net
sales.
Customers, Marketing and Sales
Customers
Since the introduction of its first video workstation in 1987, the
Company has shipped over 10,300 systems to customers in more than 60 countries.
End users of the Company's products, none of whom accounted for a material
amount of the Company's net sales during any period, range from individual users
to major corporate/government, video production and broadcast facilities
worldwide. There can be no assurance that any of the end users of the Company's
products will purchase the Company's products in the future. The Company's
customers and their locations include:
Broadcast Corporate/Government
- --------- --------------------
The Walt Disney Co./ABC-New York ABC Home Health Services, Inc. - Georgia
ESPN-Singapore and USA Essex Corp. - New Mexico
Providence Journal Broadcast
Corp.-Rhode Island Federal Reserve Bank - San Francisco
MCOT-Thailand Hyundai Corporate Culture Office - Korea
Australis-Australia National Cattlemens' Assn. - Colorado
Swiss Television-Switzerland Nissan Motors - Tennessee
RTBF-Belgium Primerica - Georgia
Gameshow Network-California PSE&G Training Center - New Jersey
Trane Corporation - Tennessee
-11-
Post-Production Independent Videographers
- --------------- -------------------------
Armour Productions - California Christie Entertainment - Illinois
Cable Video Entertainment - Colin Campbell Communications -
New Jersey North Carolina
China Motion Picture Co. - Taiwan Eric Blum Productions - California
Helical Post - Colorado Innovision - Pennsylvania
Studio Hamburg - Germany Northwest Video - Washington
Terra Firma Productions - California Spot Productions - California
The Video Company - Louisiana Video Vision - Maryland
Video Imagen Communications Ltd. - Brazil Video Productions - Florida
Marketing
The Company's marketing efforts are targeted at users of traditional
video editing suites and desktop video post-production tools. In order to
increase awareness of its products, the Company attends major video tradeshows
such as the convention of the National Association of Broadcasters (NAB) in the
United States and the International Broadcasters Convention (IBC) in Europe. The
Company uses targeted direct mail campaigns and advertisements in trade and
computer publications. The Company also participates in joint marketing
activities with its OEM partners and with other desktop video companies. The
Company plans to expand its desktop video joint marketing activities.
Sales
The Company sells its products to end users through an established
domestic and international network of independent dealers and through OEMs. The
Company also maintains a sales management organization consisting of five US
regional sales managers and five international regional sales managers primarily
responsible for supporting independent dealers and making direct sales in
geographic regions without dealer coverage or to customers that prefer to
transact directly with the Company.
The Company's products are sold to end users through independent
dealers who specialize in selling video production equipment. As of June
30,1996, the Company had over 170 dealers covering more than 40 countries. These
independent entities are selected for their ability to provide effective field
sales and technical support to the Company's customers. Dealers generally carry
the Company's products as demonstration units, advise customers on system
configuration and installation and perform ongoing post-sales customer support.
The Company believes that many end users depend on the technical support offered
by independent dealers in making product purchase decisions. In North America,
the Company manages its independent dealers with five regional sales managers
and 15 independent sales representatives. In Europe, the Company manages its
independent dealers with two regional sales managers located in the United
Kingdom. Independent dealers in the Far East are managed by two regional sales
managers located in Japan and Singapore. Central and South America are managed
by the Company's sales staff at its Sunnyvale headquarters. No single dealer
individually accounted for more than 10% of the Company's net sales in fiscal
1996, 1995 and 1994.
The Company sells and distributes its products through OEMs that
incorporate the Company's products with their own complementary video editing
products and resell these products to end users and other resellers. OEM
partners generally purchase the Company's products and are responsible for
conducting
-12-
their own marketing, sales and support activities. The Company attempts to
identify and align itself with OEMs that are market share and technology leaders
in the Company's target market segments.
In particular, the Company is highly dependent on sales of Alladin to
Avid. Avid is a leading supplier of digital, nonlinear video and audio editing
systems for the professional video and film editing market. Sales to Avid
accounted for approximately 43.3% of net sales in fiscal 1996. No customer
accounted for more than 10% of the Company's net sales during fiscal 1995, while
one customer accounted for approximately 19.8% of net sales in fiscal 1994. This
concentration of the Company's net sales to a single OEM customer subjects the
Company to a number of risks, in particular the risk that its operating results
will vary on a quarter to quarter basis as a result of variations in the
ordering patterns of the OEM customer. Variations in the timing of revenues can
cause significant fluctuations in quarterly results of operations. The Company's
results of operations could be materially adversely affected by the failure of
anticipated orders to materialize and by deferrals or cancellations of orders as
a result of changes in Avid's requirements. As a result, if the Company were to
lose Avid as a customer, or if orders from Avid were to otherwise decrease, the
Company's business, operating results and financial condition would be
materially adversely affected.
With the introduction of the Genie product line, the Company adopted a
similar OEM distribution strategy. The Company expects that a substantial
portion of sales of the Genie product line will be to OEMs who could also
develop and offer products which compete with Genie. The Company is dependent
upon these resellers to assist it in promoting market acceptance of the
professional video products and desktop video systems and creating demand for
the Company's products. There can be no assurance that these dealers and OEMs
will devote the resources necessary to provide effective sales and marketing
support to the Company. In addition, there is a risk that these dealers may give
higher priority to products of other supplies, thus reducing their efforts to
sell the Company's products. If a significant number of its dealers were to
experience financial difficulties, or otherwise become unable or unwilling to
promote, sell or pay for the Company's products, the Company's results of
operations would be adversely affected.
With the acquisition of the VideoDirector product line, the Company
adopted a new distribution strategy. VideoDirector products are sold primarily
through large computer software distributors such as Merisel America, Inc. and
Ingram Micro Inc. These distributors sell VideoDirector product to large
computer software and hardware retailers such as CompUSA, ComputerCity and
Egghead Software who in turn sell the products to end-users. In addition,
VideoDirector products are sold via direct telemarketing and mail order
catalogs. The computer software market is characterized by longer payment terms
and higher sales returns than the Company's traditional video editing markets.
There can be no assurance that computer retailers will continue to stock and
sell VideoDirector products. If a significant number of computer retailers were
to discontinue selling VideoDirector products, the Company's results of
operations would be adversely affected.
Sales outside of North America represented approximately 38.7%, 46.5%
and 47.6% of the Company's net sales for fiscal 1996, 1995 and 1994,
respectively. All of the Company's international sales through fiscal 1994 were
denominated in U.S. dollars. In fiscal 1995, the Company began foreign currency
denominated sales in the United Kingdom. The Company may engage in foreign
currency denominated sales in other countries in the future. International sales
and operations may be subject to risks such as the imposition of governmental
controls, export license requirements, restrictions on the export of critical
technology, currency exchange fluctuations, generally longer receivable
collection periods, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations,
potential insolvency of international dealers and difficulty in collecting
accounts receivable. There can be no
-13-
assurance that these factors will not have an adverse effect on the Company's
future international sales and, consequently, on the Company's business,
operating results and financial condition.
Service and Support
The Company believes that its ability to provide customer service and
support is an important element in the marketing of its products. The customer
service and support operation also provides the Company with a means of
understanding customer requirements for future product enhancements. The Company
maintains an in-house repair facility and also provides telephone access to its
technical support staff. The Company's technical support engineers not only
provide assistance in diagnosing problems, but work closely with customers to
address system integration issues and to assist customers in increasing the
efficiency and productivity of their systems. The Company supports its customers
in Europe and Asia primarily through its international dealers. The Company
typically warrants its products against defects in materials and workmanship for
one year after shipment to the dealer. The Company believes its warranties are
similar to those offered by other video production equipment suppliers. To date,
the Company has not encountered any significant product maintenance problems.
Competition
The video production equipment market is highly competitive and is
characterized by rapid technological change, new product development and
obsolescence, evolving industry standards and significant price erosion over the
life of a product. Competition is fragmented with several hundred manufacturers
supplying a variety of products to this market. The Company anticipates
increased competition in the video post-production equipment market from both
existing manufacturers and new market entrants.
Competition for equipment sold into traditional video editing suites is
based on product performance, breadth and modularity of product line, service
and support, market presence and price. The Company believes that it competes
favorably for sales of video production equipment to be used in traditional
editing suites in situations where price/performance is a primary factor in
equipment selection. The Company's principal competitors in this market include
Scitex Video (a division of Scitex Corporation Ltd.)("Scitex"), The Grass Valley
Group, Inc. (a subsidiary of Tektronix, Inc.) ("Grass Valley Group"), Matsushita
Electric Industrial Co. Ltd. ("Matsushita"), Quantel Ltd. (a division of Carlton
Communications Plc) ("Quantel") and Sony Corporation ("Sony"), each of which has
substantially greater financial, technical, marketing, sales and customer
support resources, greater name recognition and larger installed customer bases
than the Company. In addition, these companies have established relationships
with current and potential customers of the Company. Some of the Company's
competitors also offer a wide variety of video equipment, including professional
video tape recorders, video cameras and other related equipment. In some cases,
these competitors may have a competitive advantage based upon their ability to
bundle their equipment in certain large system sales.
The desktop video market in which Alladin and Genie compete is an
emerging market and the sources of competition are not yet well defined. There
are several established video companies that are currently offering products or
solutions that compete indirectly with Alladin and Genie by providing many of
the same features and video manipulation capabilities. In addition, the Company
expects that existing manufacturers and new market entrants will develop new,
higher performance, lower cost real time desktop video products that will
compete directly with Alladin and Genie. The Company expects that competition
will intensify significantly as the market for desktop video systems develops.
The Company expects that
-14-
potential competition in the desktop market is likely to come from one or more
of four general classes of video companies. Suppliers of traditional video
equipment such as Grass Valley Group, Matsushita, Quantel, Scitex and Sony have
the financial resources and technical know-how to develop high quality real time
video manipulation products for the desktop video market. Suppliers of desktop
video systems such as Avid, Data Translation, Fast Electronic, Matrox, Newtek,
Inc., Truevision, Inc. and Scitex, which have established desktop video
distribution channels, experience in marketing low price products and
significant financial resources, may acquire or develop high quality real time
video manipulation products for the desktop video market. Suppliers of video
manipulation software such as Adobe Systems Incorporated will also compete with
the Company in the desktop video market. The software products supplied by these
companies are, and will continue to be, significantly less expensive than the
systems marketed by the Company. Finally, larger well established software
companies, such as Microsoft Corporation which purchased SOFTIMAGE Inc., a
developer of software products that enable designers and animators to create
high quality 3D imagery, have the resources and technical ability to develop
competitive products for the desktop market. Increased competition could result
in price reductions, reduced margins and loss of market share, all of which
would materially and adversely affect the Company's business, operating results
and financial condition. There can be no assurance that the Company will be able
to compete successfully against current and future competitors.
Manufacturing and Suppliers
The Company's manufacturing operations, located at its Sunnyvale,
California facility, consist primarily of testing printed circuit assemblies,
final product assembly, configuration and testing, quality assurance and
shipping. Each of the Company's products undergoes quality inspection and
testing at the board level and final assembly stage. The Company manages its
materials with a software system that integrates purchasing, inventory control
and cost accounting.
The Company relies on independent subcontractors who manufacture to the
Company's specifications major subassemblies used in the Company's products.
This approach allows the Company to concentrate its manufacturing resources on
areas where it believes it can add the most value, such as product testing and
final assembly, and reduces the high cost of owning and operating a full scale
manufacturing facility. The Company has manufacturing agreements with Wyle
Laboratories and with Bell Microproducts Inc. for the manufacture of major
subassemblies used in its products. The Company's reliance on subcontractors to
manufacture major subassemblies used in its products involves a number of
significant risks including the loss of control over the manufacturing process,
the potential absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
delivery schedules, manufacturing yields, quality and costs. In the event that
any significant subcontractor were to become unable or unwilling to continue to
manufacture these subassemblies in required volumes, the Company's business,
operating results and financial condition would be materially adversely
affected.
To the extent possible, the Company and its manufacturing
subcontractors use standard parts and components available from multiple
vendors. However, the Company and its subcontractors are dependent upon single
or limited source suppliers for a number of key components and parts used in all
of its products, including a proprietary application specific integrated circuit
manufactured only by LSI Logic Corp., several video processing integrated
circuits manufactured only by Raytheon Corporation, a field programmable gate
array manufactured only by Altera Corporation and serial RAM memory modules
manufactured only by Hitachi, Ltd. The Company's manufacturing subcontractors
generally purchase these single or limited source components pursuant to
purchase orders placed from time to time in the ordinary course of business, do
not carry significant inventories of these components and have no guaranteed
supply arrangements with such
-15-
suppliers. In addition, the availability of many of these components to the
Company's manufacturing subcontractors is dependent in part on the Company's
ability to provide its manufacturers, and their ability to provide suppliers,
with accurate forecast of its future requirements. The Company and its
manufacturing subcontractors endeavor to maintain ongoing communication with its
suppliers to guard against interruptions in supply. Any extended future
interruption or limitation of any of the components currently obtained from
single or limited source suppliers could result in delays or reductions in
product shipments which would have a material adverse effect on the Company's
results of operations. Also, because of the reliance on these single or limited
source components, the Company may be subject to increases in component costs
which could have an adverse effect on the Company's results of operations. The
Company has experienced interruptions in the supply of certain key integrated
circuits from suppliers which accordingly delayed product shipments, and any
extended interruption or reduction in the future supply of any key components
currently obtained from a single or limited source could have a significant
adverse effect on the Company's business, operating results and financial
condition in any given period.
In the traditional video market segment, the Company's customers
generally order on an as-needed basis. The Company typically ships its products
within 30 to 60 days of receipt of an order, depending on customer requirements,
although certain customers, including OEMs, may place substantial orders with
the expectation that shipments will be staged over several months. A substantial
majority of product shipments in a period relate to orders received in that
period, and accordingly, the Company generally operates with a limited backlog
of orders. The absence of a significant historical backlog means that quarterly
results are difficult to predict and delays in product delivery and in the
closing of sales near the end of a quarter can cause quarterly revenues to fall
below anticipated levels. In addition, customers may cancel or reschedule orders
without significant penalty and the prices of products may be adjusted between
the time the purchase order is booked into backlog and the time the product is
shipped to the customer. As a result of these factors, the Company believes that
the backlog of orders as of any particular date is not necessarily indicative of
the Company's actual sales for any future period.
The Company's VideoDirector products are manufactured, assembled and
shipped by a specialized software manufacturer located in Ontario, Canada. The
Company maintains an ample supply of the component raw materials for the
VideoDirector product, and is expected to respond promptly to the demands of the
computer software distributors.
Proprietary Rights and Licenses
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company
relies on a combination of patent, copyright, trademark and trade secret laws
and other intellectual property protection methods to protect its proprietary
technology. In addition, the Company generally enters into confidentiality and
nondisclosure agreements with its employees and OEM customers and limits access
to and distribution of its proprietary technology. The Company currently holds
one United States patent and two foreign patents, each covering certain aspects
of the technologies utilized by DVEator. Although the Company intends to pursue
a policy of obtaining patents for appropriate inventions, the Company believes
that the success of its business will depend primarily on the innovative skills,
technical expertise and marketing abilities of its personnel, rather than upon
the ownership of patents.
Certain technology used in the Company's products is licensed from
third parties on a royalty-bearing basis. Such royalties to date have not been,
and are not expected to be, material. Generally, such agreements grant to the
Company nonexclusive, worldwide rights with respect to the subject technology
-16-
and terminate only upon a material breach by the Company.
The Company has in the past received communications suggesting that its
products may utilize concepts covered by patent rights of third parties and, in
the future, may receive communications asserting that the Company's products
infringe patents or other intellectual property rights of third parties. There
can be no assurance that there will not be any future such communications. The
Company's policy is to investigate the factual basis of such communications and
to negotiate licenses where appropriate. While it may be necessary or desirable
in the future to obtain licenses relating to one or more of its products, or
relating to current or future technologies, there can be no assurance that the
Company will be able to do so on commercially reasonable terms or at all. There
can be no assurance that these or other future communications can be settled on
commercially reasonable terms or that they will not result in protracted and
costly litigation.
There has been substantial industry 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 the
Company to protect trade secrets, trademarks and other intellectual property
rights owned by the Company to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of others. Any such litigation could be costly and a
diversion of management's attention, which could have material adverse effect on
the Company's business, operating results and financial condition. Adverse
determinations in such litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties or prevent the Company from
manufacturing or selling its products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Employees
As of June 30, 1996, the Company had 130 full-time employees, including
41 engaged in engineering and product development activities, 34 in
manufacturing, 44 in marketing and sales and 11 in administration and finance.
The Company believes that its future success will depend, in part, on its
continuing ability to attract, retain and motivate qualified technical,
marketing and managerial personnel. None of the Company's employees is
represented by a collective bargaining agreement, nor has the Company
experienced work stoppages. The Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing, manufacturing and
product development facility is located in Sunnyvale, California. This facility
occupies approximately 30,000 square feet pursuant to a lease which will
terminate November 15, 1996. In June 1996, the Company entered into an operating
lease agreement for another facility in Mountain View, California which
commences on August 15, 1996 and terminates on December 31, 2003. This facility
occupies approximately 106,500 square feet, of which approximately 41,500 square
feet has been sublet to a third party until August 31, 1997. The Company expects
to move into the new facility, located approximately one mile from the current
facility, in October 1996.
In addition, the Company occupies sales and customer support facilities
in Uxbridge, United Kingdom; Singapore; and Tokyo, Japan consisting of 6,000
square feet, 850 square feet, and 350 square feet, respectively. The Company
also has a product development facility in Gainesville, Florida, consisting of
1,000 square feet.
-17-
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of August 31,
1996 are as follows:
Name Age Position
---- --- --------
Mark L. Sanders............ 53 President, Chief Executive Officer and
Director
Ajay Chopra................ 39 Chairman of the Board and Chief Technology
Officer
Arthur D. Chadwick......... 39 Vice President, Finance and Administration
and Chief Financial Officer
Brian R. Conner............ 50 Vice President, Sales, Europe, Africa &
Middle East
Tavy A. Hughes............. 41 Vice President, Manufacturing
William Loesch............. 42 Vice President, New Business Development
Amir Majidimehr............ 36 Vice President, Engineering
Kevin B. McDonald.......... 38 Vice President, Marketing and Domestic Sales
Walter E. Werdmuller....... 49 Vice President, Sales
Mr. Sanders has served as President, Chief Executive Officer and a
director of the Company since January 1990. From 1988 to 1990, Mr. Sanders was
an independent business consultant. Prior to that time, Mr. Sanders served in a
variety of management positions, most recently as Vice President and General
Manager of the Recording Systems Division, of Ampex Incorporated, a manufacturer
of video broadcast equipment.
Mr. Chopra, a founder of the Company, has served as Chairman of the
Board of Directors since January 1990, and has served as a director of the
Company since its inception in May 1986. Mr. Chopra has served as Chief
Technology Officer since June 1996, Vice President of Engineering from January
1990 to June 1996, and President and Chief Executive Officer of the Company from
its inception to January 1990. From 1983 to 1986, Mr. Chopra served as
Engineering Supervisor for Mindset Corporation, a computer graphics
manufacturer.
-18-
Mr. Chadwick has served as Vice President, Finance and Administration
and Chief Financial Officer of the Company since January 1989. From 1979 to
January 1989, Mr. Chadwick served in a variety of financial and management
positions, most recently as plant manager of Philippines operations, at Gould
Semiconductor, a semiconductor company.
Mr. Conner has served as Vice President, Sales of the Company and
General Manager of Pinnacle Systems Ltd., the Company's sales subsidiary
covering Europe, Africa and the Middle East, since February 1995. From January
1993 to February 1995, Mr. Conner was a founder and served as President of BCA
Inc., an independent European sales representative company. From January 1991 to
January 1993, Mr. Conner served as General Manager of European, African and
Middle East Sales of Videomedia, Inc., a manufacturer of video editing systems.
Prior to that, Mr. Conner was Managing Director of Videomedia Europe Ltd., a
European sales representative.
Ms. Hughes has served as Vice President, Manufacturing of the Company
since January 1995, Director of Manufacturing from April 1994 to January 1995
and a Manager from September 1993 until April 1994. From July 1991 to September
1993, Ms. Hughes served as an independent business consultant. From 1985 to June
1991, Ms. Hughes served as Manufacturing Manager of Alta Group, Inc., a
manufacturer of digital video post-production equipment.
Mr. Loesch has served as Vice President, New Business Development since
joining the Company in May 1994. From July 1993 to May 1994, Mr. Loesch served
as an independent business consultant. From June 1990 to November 1992, Mr.
Loesch co-founded and served as President of SHOgraphics Inc., a 3D graphics
systems company, and from November 1992 until July 1993 served as its Executive
Vice President and Chief Technical Officer. From 1989 to June 1990, Mr. Loesch
was an independent business consultant. Prior to that time, Mr. Loesch
co-founded and served as Chief Executive Officer and President of IKOS Systems,
Inc., a computer aided engineering company.
Mr. Majidimehr has served as Vice President, Engineering since June
1996, and Vice President, Product Engineering since joining the Company in
November 1995 until June 1996. From April 1994 to November 1995, Mr. Majidimehr
served as Vice President of Engineering of Abekas Video Systems, a manufacturer
of video editing systems. From September 1989 to April 1994, Mr. Majidimehr
served as an Engineering Director at Sony Microsystems.
Mr. McDonald has served as Vice President, Marketing and Domestic Sales
of the Company since June 1996, and Vice President, Marketing from March 1995 to
June 1996. From 1986 to February 1995, Mr. McDonald served in a variety of
marketing positions, most recently as Brand Manager for the Macintosh Performa,
at Apple Computer, Inc., a computer company.
Mr. Werdmuller has served as Vice President, Sales of the Company since
January 1990. Mr Werdmuller also served as the Company's Director of Sales from
June 1989 to December 1989 and as International Sales and Marketing Manager from
March 1987 to May 1989. Mr. Werdmuller has announced his intentions to resign
from the Company effective in September 1996.
-19-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to
inside the back cover page of the Company's 1996 Annual Report to Shareholders
for the fiscal year ended June 30, 1996, filed as Exhibit 13.1 hereto (the
"Annual Report to Shareholders").
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
page 10 of the Company's Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to
pages 11-15 of the Company's Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
pages 16-26 of the Company's Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's
directors is incorporated by reference from the section captioned "Election of
Directors" contained in the Company's Proxy Statement related to the Annual
Meeting of Shareholders to be held October 24, 1996, to be filed by the Company
with the Securities and Exchange Commission within 120 days of the end of the
Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the
"Proxy Statement"). The information required by this item concerning executive
officers is set forth in Part I of this Report. The information required by this
item concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section captioned "Compliance with Section
16(a) of the Exchange Act" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section captioned "Executive Compensation and Other Matters" contained in
the Proxy Statement.
-20-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section captioned "Record Date and Principal Share Ownership" contained in
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the sections captioned "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions With Management" contained in the Proxy
Statement.
-21-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements
The financial statements are incorporated by reference in Item 8 of
this Report:
Independent Auditors' Report
Balance Sheets, June 30, 1996 and 1995
Statements of Operations for years ended June 30, 1996, 1995 and 1994
Statement of Shareholders' Equity for the years ended June 30, 1996, 1995
and 1994
Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994
Notes to Financial Statements
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
3.1(1) Restated Articles of Incorporation of the
Registrant.
3.2(1) Bylaws of the Registrant, as amended to date.
10.1(1) Registration Rights Agreement, dated December 21,
1990, as amended on September 9, 1993.
10.2(1) Series G Preferred Stock Purchase Agreement, dated
September 9, 1993.
10.3(1) 1987 Stock Option Plan, as amended, and form of
agreements thereto.
10.4(1) 1994 Employee Stock Purchase Plan, and form of
agreement thereto.
10.5(1) 1994 Director Stock Option Plan, and form of
agreement thereto.
10.6(1) Form of Indemnification Agreement between the
Registrant and its officers and directors.
10.7(1) Business Loan Agreement and ancillary documents
thereto between Registrant and Imperial Bank,
dated January 3, 1994.
10.8(1) Amendment to Business Loan Agreement between
Registrant and Imperial Bank, dated October 12,
1994.
10.9(1) Software Development and License Agreement,
effective as of November 23, 1987, between
Registrant and CrystalGraphics, Inc.
10.10*(1) Systems Marketing Agreement, dated December 7,
1990, as amended, between Registrant and BTS
Broadcast Television Systems.
10.11*(1) Development and Original Equipment Manufacturing
and Supply Agreement, dated March 16, 1994,
between Registrant and Avid Technology, Inc.
10.12*(1) Value-added Reseller Agreement, dated July 15,
1994, between Registrant and Matrox Corporation.
-22-
10.13*(1) Letter Agreement, dated December 17, 1993, between
Registrant and Capital Cities/ABC, Inc.
10.14(1) Master Agreement, dated March 4, 1994, between
Registrant and Bell Microproducts, Inc.
10.15*(1) Contract Services Agreement, dated May 31, 1994,
between Registrant and Liberty Contract Services,
a division of Wyle Laboratories.
10.16.1(1) Industrial Lease Agreement, dated July 20, 1992,
as amended, between Registrant and Aetna Life
Insurance Company.
10.16.2(2) Amendment to Industrial Lease Agreement, dated
June 8, 1995 between Registrant and Aetna Life
Insurance Company.
10.17(1) Agreement, dated September 8, 1994, between
Registrant and Mark L. Sanders.
10.18.1 Agreement Concerning Assignment of Leases, dated
June 5, 1996, between Registrant and Network
Computing Devices, Inc.
10.18.2 Assignment and Modification of Leases, dated
August 16, 1996, between Registrant, Network
Computing Devices, Inc. and D.R. Stephens &
Company.
11.1 Statement of Computation of Net Income (Loss) Per
Share.
13.1 Annual Report to Shareholders for the fiscal year
ended June 30, 1996.
22.1 List of subsidiaries of the Registrant.
23.1 Consent of Independent Auditors and Report on
Schedule.
24.1 Power of Attorney (See Page 24).
27.1 Financial Data Schedule.
- ------------------
* Confidential treatment has been granted with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
1 Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form S- 1 (Reg. No. 33-83812) as declared
effective by the Commission on November 8, 1994.
2 Incorporated by reference to exhibits filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the last quarter of the fiscal year ended June
30, 1996.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedule. See Item 14(a)(2) above.
-23-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PINNACLE SYSTEMS, INC.
By: /s/ MARK L. SANDERS
-------------------------------------
Mark L. Sanders
President, Chief Executive Officer and
Director
Date: September 17, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mark L. Sanders and Arthur D. Chadwick,
and each of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Signature Title Date
- ----------------------------------- ----------------------------------------------------- -------------------------
/s/ MARK L. SANDERS President, Chief Executive Officer and Director September 17, 1996
- ----------------------------------- (Principal Executive Officer)
Mark L. Sanders
/s/ ARTHUR D. CHADWICK Vice President, Financial and Administration and September 17, 1996
- ----------------------------------- Chief Financial Officer (Principal Financial and
Arthur D. Chadwick Accounting Officer)
/s/ AJAY CHOPRA Chairman of the Board and Chief Technology Officer September 17, 1996
- -----------------------------------
Ajay Chopra
-24-
/s/ JOHN LEWIS Director September 17, 1996
- -----------------------------------
John Lewis
/s/ CHARLES J. VAUGHAN Director September 17, 1996
- -----------------------------------
Charles J. Vaughan
/s/ NYAL D. McMULLIN Director September 17, 1996
- -----------------------------------
Nyal D. McMullin
/s/ GLENN E. PENISTEN Director September 17, 1996
- -----------------------------------
Glenn E. Penisten
-25-
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Provision Balance
beginning charged to Account at end
of period expense charge-off of period
---------- ---------- ---------- ---------
Year ended June 30, 1994, allowance for doubtful
accounts and returns............................. $101 $89 $17 $173
==== === === ====
Year ended June 30, 1995, allowance for doubtful
accounts and returns............................. $173 $204 $16 $361
==== ==== === ====
Year ended June 30, 1996, allowance for doubtful
accounts and returns............................. $361 $522 $43 $840
==== ==== === ====