UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-24784
PINNACLE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
California 94-3003809
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
280 N. Bernardo Ave.
Mountain View, California 94043
(Address of principal executive offices) (Zip Code)
(650) 237-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of the Registrant's Common Stock outstanding as of
October 24, 1997 was 7,592,596.
<PAGE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page Number
-----------
ITEM 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets--September 30,
1997 and June 30, 1997.......................................... 3
Condensed Consolidated Statements of Operations -- Three
Months Ended September 30, 1997 and 1996........................ 4
Condensed Consolidated Statements of Cash Flows -- Three
Months Ended September 30, 1997 and 1996........................ 5
Notes to Condensed Consolidated Financial Statements............ 6
Unaudited Pro Forma Combined Condensed Statement of
Operations -- Three Months Ended September 30, 1997............. 8
Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations......................................... 9
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K................................. 20
Signatures................................................................... 21
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<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
<CAPTION>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................................... $ 28,635 $ 32,788
Marketable securities ............................................................... 19,248 15,024
Accounts receivable, less allowance for doubtful accounts
and returns of $2,463 and $1,754 as of September 30 and
June 30, 1997, respectively .................................................... 15,858 10,646
Inventories ......................................................................... 6,692 5,497
Prepaid expenses and other assets ................................................... 671 528
-------- --------
Total current assets ...................................................... 71,104 64,483
Property and equipment, net ......................................................... 4,809 4,395
Other assets ........................................................................ 4,804 1,129
-------- --------
$ 80,717 $ 70,007
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable .................................................................... $ 5,375 $ 3,955
Accrued expenses and other .......................................................... 7,634 2,584
Note payable for acquisition ........................................................ 15,150 --
Deferred revenue .................................................................... 637 282
-------- --------
Total current liabilities ................................................. 28,796 6,821
-------- --------
Long-term obligations .................................................................. 475 475
Commitments
Shareholders' equity:
Preferred stock; 5,000 shares authorized,
none isssued and outstanding ................................................... -- --
Common stock; authorized 15,000 shares; 7,580 per share and
7,303 issued and outstanding as of September 30 and
June 30, 1997, respectively .................................................... 80,342 75,316
Foreign currency translation ........................................................ 56 --
Accumulated deficit ................................................................. (28,952) (12,605)
-------- --------
Total shareholders' equity ................................................ 51,446 62,711
-------- --------
$ 80,717 $ 70,007
======== ========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
September 30,
---------------------
1997 1996
-------- --------
Net sales ............................................ $ 16,514 $ 11,443
Cost of sales ........................................ 7,736 5,996
-------- --------
Gross profit ......................................... 8,778 5,447
-------- --------
Operating expenses:
Engineering and product development ............... 2,072 1,782
Sales and marketing ............................... 5,221 2,694
General and administrative ........................ 1,271 764
In process research and development ............... 16,960 --
-------- --------
Total operating expenses ................ 25,524 5,240
-------- --------
Operating income (loss) .............................. (16,746) 207
Interest income, net ................................. 552 763
-------- --------
Income (loss) before income taxes ..................... (16,194) 970
Income tax expense ................................... (153) (358)
-------- --------
Net income (loss) ..................................... $(16,347) $ 612
======== ========
Net income (loss) per share .......................... $ (2.21) $ 0.08
======== ========
Shares used to compute net income (loss) per share ... 7,402 7,823
======== ========
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Three Months Ended September 30,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................................... $(16,347) $ 612
Adjustments to reconcile net income (loss) to net by used in
operating activities:
Acquired research and development .................................................. 16,960 --
Depreciation and amortization ...................................................... 648 254
Changes in operating assets and liabilities:
Accounts receivable ........................................................... (4,871) (1,680)
Inventories ................................................................... 572 373
Accounts payable .............................................................. 1,284 (64)
Accrued expenses .............................................................. 1,376 144
Deferred revenue .............................................................. 355 (58)
Other ......................................................................... (63) (171)
-------- --------
Net cash used in operating activities ..................................... (86) (590)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ..................................................... (517) (1,659)
Purchases of marketable securities ...................................................... (4,224) (3,955)
Proceeds from maturity of marketable securities ......................................... -- 18,000
-------- --------
Net cash provided by (used in) investing activities ....................... (4,741) 12,386
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .................................................. 674 60
-------- --------
Net cash provided by financing activities ................................. 674 60
-------- --------
Net increase (decrease) in cash and cash equivalents ....................................... (4,153) 11,856
Cash and cash equivalents at beginning of period ........................................... 32,788 27,846
-------- --------
Cash and cash equivalents at end of period ................................................. $ 28,635 $ 39,702
======== ========
Supplemental disclosures of cash paid during the period:
Interest ................................................................................ $ 1 $ 2
======== ========
Income taxes ............................................................................ $ (280) $ 285
======== ========
Non-cash transactions:
Note payable to Miro for acquisition .................................................... $ 15,150 $ --
======== ========
Liabilities associated with the acquisition of certain net assets ....................... $ 3,810 --
======== ========
Common Stock issued for Miro acquisition ................................................ $ 4,352 $ --
======== ========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in this report reflects all adjustments
which, in the opinion of management, are necessary for a fair statement of the
consolidated financial position, results of operations and cash flows as of and
for the interim periods. Such adjustments consist of items of a normal recurring
nature. The condensed consolidated financial statements included herein should
be read in conjunction with the consolidated financial statements and notes
thereto, which include information as to significant accounting policies, for
the fiscal year ended June 30, 1997 included in the Company's Annual Report on
Form 10-K as filed with the Securities and Exchange Commission on August 29,
1997. Results of operations for interim periods are not necessarily indicative
of results for the full year.
2. Significant Accounting Policies
Fiscal Year
Pinnacle Systems, Inc. and its subsidiaries (the "Company") reports on a
fiscal year which ends on June 30. The Company's first three fiscal quarters end
on the last Friday in September, December, and March. For financial statement
presentation, the Company has indicated its fiscal quarters as ending on the
month-end.
Net Income Per Share
Net income per share is computed using the weighted average number of
common shares and dilutive common stock equivalents outstanding using the
treasury stock method.
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings
per share ("EPS") and, for companies with complex capital structures (or
potentially dilutive securities, such as convertible debt, options and
warrants), diluted EPS. SFAS No. 128 is effective for annual and interim periods
ending after December 15, 1997. The Company has not yet determined the impact of
adopting SFAS No. 128.
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 requires the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for annual and interim periods
beginning after December 15, 1997. The Company has not yet determined the impact
of adopting SFAS No. 130.
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. This Statement is effective
for financial statements for periods beginning after December 31, 1997. The
Company has not yet determined whether it has any separately reportable business
segments.
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<PAGE>
3. Financial Instruments
Debt securities for which the Company has both the positive intent and
ability to hold to maturity are carried at amortized cost. Presently, the
Company classifies all debt securities as held-to-maturity and carries them at
amortized cost. Interest income is recorded using an effective interest rate,
with the associated premium or discount amortized to "Interest income."
The fair value of marketable securities is substantially equal to their
carrying value as of September 30, 1997. All investments at September 30, 1997
were classified as held-to-maturity. Such investments mature through December
1997.
4. Inventories
A summary of inventories follows (in thousands):
September 30, June 30,
1997 1997
-------------- --------------
Raw materials $4,514 $3,554
Work in process 967 771
Finished goods 1,211 1,172
------ ------
$6,692 $5,497
====== ======
Raw materials inventory represents purchased materials, components and
assemblies, including fully assembled circuit boards purchased from outside
vendors.
5. Customers and Credit Concentrations
Avid Technology Inc. accounted for approximately 17.9% and 27.2% of net
sales during the three months ended September 30, 1997 and 1996, respectively.
Another customer accounted for approximately 12.8% of net sales during the three
months ended September 30, 1996. No other customer accounted for more than 10%
of sales.
Avid Technology Inc. accounted for approximately 13.4% and 20.0% of
accounts receivable at September 30, 1997 and June 30, 1997, respectively.
6. Related Parties
The Company and Bell Microproducts Inc. ("Bell") are parties to an
agreement ("the Agreement") under which value-added turnkey services are
performed by Bell on behalf of the Company. Pursuant to the Agreement, Bell
builds certain products in accordance with the Company's specifications. A
director of the Company is also a director of Bell. During the three months
ended September 30, 1997 and 1996, the Company purchased materials totaling
$999,000 and $2,087,000, respectively, from Bell pursuant to the Agreement.
7. Acquisitions
In August 1997, the Company acquired the miro Digital Video Products from
miro Computer Products AG. In the acquisition, the Company acquired the assets
of the miro Digital Video Products group, including the miroVIDEO product line,
certain technology and other assets. The Company paid $15.2 million in cash in
October 1997, issued 203,565 shares of common stock, valued at $4.4 million,
assumed liabilities of $2.7 and incurred transaction costs of $1.1 million. The
fair value of assets acquired included tangible assets, primarily inventories,
of $2.4 million, goodwill and other intangibles of $3.9 million, and the Company
expensed $17.0 million of in-process research and development. In addition, the
Company incurred $465,000 of other nonrecurring costs in the quarter ended
September 30, 1997 and anticipates that it will incur additonal costs in
connection with integrating the businesses. The terms of the acquisition also
included an earnout provision in which miro Computer Products AG will receive
additional consideration equal to 50% of sales generated in excess of $37
million during the first twelve full months following the acquisition as long as
operating profits related to such sales exceed 3% of sales, increasing to 85% of
sales for those sales which exceed $59 million during the same twelve month
period. Any earnout payments will be paid in common stock of the Company.
The following table presents unaudited pro forma financial information
which gives effect to the acquisition of certain assets and assumption of
certain liabilities of the Digital Video Group from Miro Computer Products AG as
if the transaction occurred at the beginning of each of the periods presented.
The table includes the impact of certain adjustments, including elimination of
the nonrecurring charge for acquired in process research and development, and
additional depreciation and amortization relating to property, equipment and
intangible assets acquired.
Three months ended Year ended
September 30, 1997 June 30, 1997
(In thousands, except per share data) ------------------- -------------
Net sales ........................... $22,991 $ 74,255
Net income (loss) ..................... $ 487 $(14,353)
Net income (loss) per share ......... $ 0.06 $ (1.89)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from the
combined operations.
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<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Three months ended September 30, 1997
(in thousands, except per share data)
<CAPTION>
Historical Historical Pro Forma
Pinnacle Miro Adjustments Pro Forma
-------------- ------------------------------------------------
<S> <C> <C> <C>
Net sales 16,514 6,477 22,991
Cost of sales 7,736 2,960 10,696
----------- --------- -------
Gross profit 8,778 3,517 12,295
Operating expenses:
Engineering and product development 2,072 518 2,590
Sales and marketing 5,221 1,686 105 7,012
General and administrative 1,271 1,239 19 2,529
In-process research and development 16,960 -- (16,960) --
----------- --------- -------
Total operating expenses 25,524 3,443 12,131
----------- --------- -------
Operating income (loss) (16,746) 74 164
----------- --------- -------
Interest income (expense), net 552 (76) 476
----------- --------- -------
Income (loss) before taxes (16,194) (2) 640
Income tax expense 153 -- 153
----------- --------- -------
Net income (loss) (16,347) (2) 487
============ ========= ========
Net income (loss) per share $ (2.21) $ 0.06
======== ========
Shares used to compute net income (loss) per share 7,402 8,624
======== ========
</TABLE>
See notes to unaudited pro forma combined condensed statement of operations
-8-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
Note 1. Basis of Presentation
On August 31, 1997, Pinnacle completed the purchase of certain assets and
the assumption of certain liabilities of Miro, pursuant to an Asset Purchase
Agreement dated August 29, 1997 (the Agreement). Under the terms of the
Agreement, the Company paid $15.2 million in cash and issued 203,565 shares of
common stock valued at $4.4 million, accrued liabilities of $2.7 million and
incurred transaction costs of $1.1 million. The Agreement also includes an
"earnout" in which Miro will receive additional consideration if the acquired
operating group achieves certain sales and profit levels during the earnout
period, which is the first twelve full months following the acquisition.
Specifically, the earnout consideration will equal 50% of sales generated in
excess of $37 million during the earnout period, as long as operating profit
exceeds 3% of sales, increasing to 85% of sales for those sales which exceed $59
million during the earnout period, as long as operating profit exceeds 3% of
sales. In the event such amounts are earned, such earnout payments will be paid
in common stock of the Company, and additional goodwill will be recorded. The
Pinnacle statement of operations for the three-month period ended September 30,
1997, which includes the results of Miro from the date of acquisition, has been
combined with the Miro statement of operations for the two-month period ended
August 31, 1997, giving effect to the business combination as if it had occurred
on July 1, 1997.
The Company recorded a charge of $16,960,000 for the fair value of acquired
in process research and development related to the net assets acquired. This
nonrecurring charge is directly associated with the transaction and has
therefore been reflected as a pro forma adjustment in the unaudited pro forma
combined condensed statement of operations. The pro forma adjustments applied to
the historical statement of operations to arrive at the pro forma combined
condensed statement of operations also reflects amortization expense of $105,000
related to goodwill and other intangibles. The pro forma adjustments also
reflect incremental depreciation expense of $19,000 associated with the
adjustment in basis of fixed assets acquired from Miro.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in this Management's Discussions and Analysis are
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties are set forth below under "Factors Affecting Operating Results."
These forward-looking statements include the first paragraph of "Overview," and
the last sentences of the paragraphs below relating to "Engineering and Product
Development," and "Sales and Marketing," and the statements regarding additional
costs and the earnout provisions of the Miro Acquisition in the second paragraph
under "Overview--Expanding Product Line."
Overview
Pinnacle Systems, Inc. designs, manufactures, markets and supports
computer-based video post-production products to serve the broadcast, desktop
and consumer markets. The Company's products incorporate specialized real time
video processing technologies to perform a variety of video post-production
functions such as the addition of special effects, graphics and titles to
multiple streams of live or recorded video material. The Company's strategy is
to leverage its existing market and technological position to continue to
provide innovative, real time, computer-based solutions to the broadcast,
desktop and consumer video post-production markets.
Broadcast Market
The broadcast market generally requires very high technical performance
such as real time 10-bit processing, control of multiple channels of live video
and specialized filtering and interpolation. From the Company's inception in
1986 until 1994, substantially all of the Company's revenues were derived from
the sale of products into the broadcast market. The primary broadcast products
sold during fiscal 1997 were the Prizm and Flashfile family of products. In June
1997, the Company commenced shipment of DVExtreme and Lightning, two new Windows
NT-based products designed to serve the broadcast market. The introduction of
DVExtreme and Lightning has resulted in a significant decline in sales of Prizm
and Flashfile. The broadcast market accounted for approximately 31.0% and 18.8%
of net sales in the three month periods ended September 30, 1997 and 1996,
respectively.
Desktop Market
The Company's desktop products are designed to provide high quality real
time video manipulation capabilities for computer-based video post-production
systems at significantly lower price points than broadcast products. The
Company's first desktop product, Alladin, commenced shipment in June 1994. The
Company further expanded the desktop product line with the introduction of Genie
in June 1996. The desktop market accounted for approximately 34.0% and 73.2% of
net sales in the three month periods ended September 30, 1997 and 1996,
respectively.
Consumer Market
The Company's consumer products provide video editing solutions which allow
consumers to edit their home videos using a personal computer, camcorder and
VCR. The Company's consumer products are sold at significantly lower price
points than the Company's desktop products and are sold as software packages or
as computer add-on products. The Company entered the consumer video editing
market by acquiring the VideoDirector product line from Gold Disk, Inc. in June
1996, and commenced shipment of its first internally developed consumer editing
product, the VideoDirector Studio 200, in March 1997. Additionally, in August
1997 the Company completed the Miro Acquisition and began selling the miroVideo
product line. The consumer market accounted for approximately 35.0% and 8.0% of
net sales in the three month periods ended September 30, 1997 and 1996,
respectively.
-10-
<PAGE>
Expanding Product Line
In April 1997, the Company purchased the Deko titling systems product line
and technology from Digital GraphiX Inc. Deko, in conjunction with DVExtreme and
Lightning, furthers the Company's strategy of offering an interconnected family
of Windows NT-based video production systems for the broadcast market. The
Company paid approximately $5.3 million in cash and assumed liabilities of
approximately $978,000 for the purchase of the Deko products, technology and
assets. The Company recorded an in process research and development charge of
approximately $4.9 million and incurred approximately $315,000 in expenses
related to the integration of the Deko product line into the Company.
To further the Company's strategy of providing an expanded line of easy to
use computer-based video production products, in August 1997 the Company
acquired the Digital Video Group (the "Miro Acquisition") from Miro Computer
Products AG. The Company paid approximately $15.2 million in cash, issued
203,565 shares of Common Stock valued at $4.4 million, assumed liabilities of
approximately $2.7 million and incurred transaction costs of $1.1 million. The
Company anticipates that it will incur additional costs in connection with the
integration of the Digital Video Group. In addition, as a result of the Miro
Acquisition the Company will incur increased fixed operating expenses. The
Company charged approximately $17.0 million of the purchase price as in process
research and development and $465,000 as other non-recurring costs in the
quarter ended September 30, 1997. The terms of the acquisition also include an
earnout provision in which Miro will receive additional consideration equal to
50.0% of sales generated in excess of $37.0 million during the first twelve full
months following the acquisition as long as operating profits related to such
sales exceed 3% of sales, increasing to 85.0% of sales for those sales which
exceed $59.0 million during the same twelve month period. Any earnout payments
will be paid in Common Stock of the Company.
The Company distributes and sells its products to end users through the
combination of independent domestic and international dealers, retail
distributors, OEMs, retailers and, to a lesser extent, a direct sales force.
Sales to dealers, distributors and OEMs are at a discount to the published list
prices. Generally, products sold to OEMs are integrated into systems sold by
the OEMs to their customers. The amount of discount, and consequently the
Company's gross profit, varies depending on the product and the channel of
distribution through which it is sold, the volume of product purchased and
other factors.
Results of Operations
Net Sales. The Company's net sales increased by 44.3% to $16.5 million in
the three month period ended September 30, 1997 from $11.4 million in the three
month period ended September 30, 1996. The increase was attributable to an
increase in sales of both consumer and broadcast products partially offset by a
decrease in sales of desktop products. The increase in consumer sales resulted
from sales in the last month of the quarter of products acquired in the Miro
Acquisition and sales of the VideoDirector Studio 200, which commenced shipment
in March 1997. In addition, broadcast sales increased as a result of increasing
sales of DVExtreme and Lightning, which were first shipped in June 1997, and
Deko, which was acquired in April 1997. These increases were partially offset by
a decrease in sales of desktop products to OEMs, in particular to Media100, Inc.
("Media100"). Sales to Avid Technology, Inc. ("Avid") were approximately 17.9%
and 27.2% of the Company's net sales for the three month periods ended September
30, 1997 and 1996, respectively. Sales to Media100 were 1.4% and 12.8% of sales
in the three month periods ended September 30, 1997, and 1996, respectively.
Sales outside of North America were approximately 47.6% and 36.2% of the
Company's net sales in the three month periods ended September 30, 1997 and
1996, respectively.
-11-
<PAGE>
Cost of Sales. Cost of sales consists primarily of costs related to the
acquisition of components and subassemblies, labor and overhead associated with
procurement, assembly and testing of finished products, warehousing, shipping
and warranty costs. Gross profit as a percentage of net sales was 53.2% and
47.6% in the three month periods ended September 30, 1997 and 1996,
respectively. The increase in the three month period ended September 30, 1997
was due primarily to an increase in sales of higher margin broadcast products,
partially offset by sales of VideoDirector and VideoDirector Studio 200, lines
which generally yield lower margins.
Engineering and Product Development. Engineering and product development
expenses increased by 16.3% to $2.1 million in the three month period ended
September 30, 1997 from $1.8 million in the three month period ended September
30, 1996. The increase was primarily attributable to increased expenditures in
connection with the continued expansion of the Company's engineering design
teams, in particular the engineering design group based in Braunschweig, Germany
acquired in connection with the Miro Acquisition. Engineering and product
development expenses as a percentage of net sales were 12.6% and 15.6% in the
three month periods ended September 30, 1997 and 1996, respectively. The Company
expects to continue to allocate significant resources to engineering and product
development efforts, including the Deko engineering team located in Paramus, New
Jersey and the Miro engineering team located in Braunschweig, Germany.
Sales and Marketing. Sales and marketing expenses include compensation and
benefits for sales and marketing personnel, commissions paid to independent
sales representatives, trade show and advertising expenses and professional
fees for marketing services. Sales and marketing expenses increased by 93.8% to
$5.2 million in the three month period ended September 30, 1997 from $2.7
million in the three month period ended September 30, 1996. The increase in
sales and marketing expenses was primarily attributable to promotional costs
for the introduction of several new broadcast and consumer products, as well as
the hiring of sales and marketing personnel in connection with the Miro
Acquisition. Sales and marketing expenses as a percentage of net sales were
31.6% and 23.5% in the three month period ended September 30, 1997 and 1996,
respectively. The Company expects to continue to allocate significant resources
to sales and marketing.
General and Administrative. General and administrative expenses increased
by 66.4% to $1.3 million in the three month period ended September 30, 1997
compared to $764,000 in the three month period ended September 30, 1996.
General and administrative expenses as a percentage of net sales were 7.7% and
6.7%, respectively. The increase resulted from the inclusion in general and
administrative expenses in the three month period ended September 30, 1997 of
$465,000 of nonrecurring costs associated with the Miro Acquisition. In
addition, general and administrative expenses in the three month period ended
September 30, 1996 included approximately $122,000 related to the Company's
relocation to new facilities in Mountain View, California.
In Process Research and Development. During the three month period ended
September 30, 1997, the Company recorded an in process research and development
charge of approximately $17.0 million relating to the Miro Acquisition.
Interest Income, Net. Net interest income decreased 27.7% to $552,000 in
the three month period ended September 30, 1997 from $763,000 in the three
month period ended September 30, 1996. The decrease was due to a decline in
cash and marketable securities as well as a decline in investment yields.
-12-
<PAGE>
Income Tax Benefit (Expense). The Company recorded provisions for income
taxes of $153,000 and $358,000 for the three month periods ended September 30,
1997 and 1996, respectively. As of June 30, 1997, the Company has federal and
state net operating loss carryforwards of $3.1 million and $1.3 million,
respectively, which expire from 2002 to 2012. The Company also has federal
research and experimentation and alternative minimum tax credit carryforwards
of $886,000 which expire between 2006 and 2012, and state research and
experimentation credit carryforwards of $339,000 which have no expiration
provision.
Liquidity and Capital Resources
The Company completed its initial and follow-on public offerings in
November 1994 and July 1995, raising approximately $65.5 million in cash, net of
offering expenses.
The Company's operating activities used $86,000 during the three months
ended September 30, 1997. The cash used by operating activities was the result
of the net loss of $16.4 million as adjusted by the acquired research and
development charge of $17.0 million, depreciation and amortization of $648,000,
and partially offset by net increases in the components of working capital,
primarily accounts receivable.
During the three months ended September 30, 1997, $517,000 was invested in
property and equipment, compared to $1.7 million in the three months ended
September 30, 1996. The decrease from the prior year is primarily related to
leasehold improvements, furniture and equipment for the Company's new Mountain
View facility purchased a year ago. The Company expects to continue to purchase
property and equipment at a reduced rate from prior year levels. Such capital
expenditures will be financed from working capital.
In January 1997, the Company's Board of Directors authorized a stock
repurchase program pursuant to which the Company was authorized purchase up to
750,000 shares of its Common Stock on the open market. Through September 30,
1997, the Company had repurchased and retired approximately 317,000 shares of
its Common Stock in the open market at an average purchase price of $11.43 for a
total cost of $3,627,000. No shares were repurchased during the three months
ended September 30, 1997. The stock repurchase program was rescinded in October
1997.
In August 1997, the Company acquired the Digital Video Group from Miro. In
the purchase, the Company paid approximately $15.2 million in cash, issued
203,565 shares of Common Stock, valued at $4.4 million, and assumed liabilities
of approximately $2.7 million. The Company will also pay additional
consideration in the form of additional shares of Common Stock if certain
revenue and profitability objectives are achieved during the first twelve months
following the Miro Acquisition.
As of September 30, 1997, the Company had working capital of approximately
$42.3 million, including $28.6 million in cash and cash equivalents and $19.3
million in marketable securities. In October 1997, the Company paid
approximately $15.2 million in cash to Miro in accordance with the Miro
Acquisition. The Company believes that the existing cash and cash equivalent
balances as well as marketable securities and anticipated cash flow from
operations will be sufficient to support the Company's working capital
requirements for the foreseeable future.
-13-
<PAGE>
Factors Affecting Operating Results
Significant Fluctuations in Operating Results. The Company's quarterly and
annual operating results have in the past varied significantly and are expected
to vary significantly in the future as a result of a number of factors,
including the timing of significant orders from and shipments to major OEM
customers, in particular Avid, the timing and market acceptance of new products
or technological advances by the Company and its competitors, the Company's
success in developing, introducing and shipping new products, such as the
recently announced ReelTime product, the mix of distribution channels through
which the Company's products are sold, changes in pricing policies by the
Company and its competitors, the accuracy of the Company's and resellers'
forecasts of end user demand, the timing and amount of any inventory write
downs, the ability of the Company to obtain sufficient supplies of the major
subassemblies used in its products from its subcontractors, the ability of the
Company and its subcontractors to obtain sufficient supplies of sole or limited
source components for the Company's products, the timing and level of product
returns, particularly from the consumer distribution channels, foreign currency
fluctuations, costs associated with the acquisition of other companies,
businesses or products, the ability of the Company to integrate acquired
companies, businesses or products, such as the product line acquired from Miro,
and general economic conditions, both domestically and internationally. The
Company's operating expense levels are based, in part, on its expectations of
future revenue and, as a result, net income would be disproportionately affected
by a shortfall in net sales. For example, in the quarter ended December 31,
1996, the Company's net sales decreased significantly from the prior quarter as
a result of a decline in sales across all product lines, the most significant of
which was a decline in sales of desktop products to OEMs, in particular Avid. As
a result of the decrease in net sales, the Company incurred a significant loss
during that quarter.
The Company also experiences significant fluctuations in orders and sales
due to seasonal fluctuations, the timing of major trade shows and the sale of
consumer products in anticipation of the holiday season. Sales usually slow down
during the summer months, especially in Europe. The Company attends a number of
annual trade shows which can influence the order pattern of products, including
the National Association of Broadcasters convention held in April, the
International Broadcasters Convention held in September and the COMDEX
exhibition held in November. Due to these factors and the potential quarterly
fluctuations in operating results, the Company believes that quarter-to-quarter
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indicators of future performance.
Risks Associated with Recent Acquisitions. Potential Future Acquisitions.
In August 1997, the Company completed the Miro Acquisition. In addition, the
Company purchased the Deko product line and technology from Digital GraphiX,
Inc. in April 1997 and the VideoDirector product line from Gold Disk, Inc. in
June 1996. The integration of acquired groups and product lines is typically
difficult, time consuming and subject to a number of inherent risks. The
integration of product lines requires the coordination of the research and
development, manufacturing, sales, marketing and service efforts between the
acquired groups and the Company. Such combinations require substantial attention
from management. The diversion of the attention of management and any
difficulties encountered in the transition process could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the process of assimilating and managing acquisitions could cause
the interruption of, or a loss of momentum in, the existing activities of the
Company's business, which could have a material adverse effect on the Company.
There can be no assurance that the Company will realize the anticipated benefits
of any of its acquisitions.
-14-
<PAGE>
In the case of the Miro Acquisition, the difficulties of assimilation may
be increased by the need to coordinate geographically separate organizations,
integrate personnel with disparate business backgrounds and languages and
combine two different corporate cultures. Because the Miro Acquisition occurred
so recently, the Company has had limited experience managing the Digital Video
Group. The Miro Acquisition could cause existing and potential customers of the
Company to delay or cancel orders for products due to concerns and uncertainty
over product integration and support. Such a delay or cancellation of orders
could have a material adverse effect on the Company's business, financial
condition and results of operations, particularly because of the increased fixed
operating expense levels to be incurred as a result of the Miro Acquisition. In
addition to the $17.4 million in acquisition related costs incurred in the
quarter ended September 30, 1997, the Company expects to incur additional
expenses associated with the integration of the Miro Acquisition. As a result of
the foregoing, there can be no assurance that the Miro Acquisition will not have
a material adverse effect on the Company's business, financial condition or
results of operations.
Future acquisitions by the Company may result in the diversion of
management's attention from the day-to-day operations of the Company's business
and may include numerous other risks, including difficulties in the integration
of the operations, products and personnel of the acquired companies. Future
acquisitions by the Company have the potential to result in dilutive issuances
of equity securities, the incurrence of debt and amortization expenses related
to goodwill and other intangible assets. While there are currently no such
acquisitions planned or being negotiated, Company management frequently
evaluates the strategic opportunities available to it and may in the near- or
long-term pursue acquisitions of complementary businesses, products or
technologies.
Risks Associated with the Consumer Market. The Company entered the consumer
market with the purchase of the VideoDirector product line in June 1996 and
began shipping the Company's first internally developed consumer product, the
VideoDirector Studio 200, in March 1997. In addition, in August 1997 the Company
acquired certain of Miro's consumer products, as well Miro's European sales
organization. The Company anticipates expending considerable resources to
develop, market and sell products into the consumer market. The Company has
limited experience marketing and selling products through the consumer
distribution channels. To be successful in this market, the Company must
establish and maintain effective consumer distribution channels including
distributors, electronic retail stores and telephone and Internet orders.
Because the VideoDirector Studio 200 must be used with a personal computer, a
camcorder and a VCR, none of which is supplied by the Company, consumer
acceptance will be adversely affected to the extent end users experience
difficulties installing and using the VideoDirector Studio 200 with these other
electronic components. In addition, the Company faces additional or increased
risks associated with inventory obsolescence and inventory returns as products
sold into the consumer channel typically provide stock rotation and price
protection rights to the reseller. There can be no assurance that the consumer
video market will continue to develop, or that the Company can successfully
compete against current and future competitors in this market. The failure of
the Company to successfully develop, introduce and sell products in this market
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Dependence on Resellers; Absence of
Direct Sales Force; Expansion of Distribution Channels."
Concentration of Sales to OEMs. The Company has been highly dependent on
sales of its Alladin and Genie products to OEMs, in particular Avid. This
concentration of sales 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 OEM customers. The Company's
results of operations have in the past and could in the future be materially
adversely affected by the failure of anticipated orders to materialize, by
deferrals or cancellations of orders, or if overall OEM demand were to decline.
For example, since sales to Avid began in fiscal 1996, quarterly sales to Avid
have fluctuated substantially from a high of $5.6 million to a low of $1.0
million, and the Company anticipates that such fluctuations may continue. If
sales to OEM customers, in particular Avid, were to decrease, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
-15-
<PAGE>
Technological Change and Obsolescence; Risks Associated with Development
and Introduction of New Products. The video post-production equipment industry
is characterized by rapidly changing technology, evolving industry standards
and frequent new product introductions. The introduction of products embodying
new technologies or the emergence of new industry standards can render existing
products obsolete or unmarketable. The development of new, technologically
advanced products incorporating proprietary hardware and software is a complex
and uncertain process requiring high levels of innovation, as well as accurate
anticipation of technological and market trends. The Company is critically
dependent on the successful introduction, market acceptance, manufacture and
sale of new products that offer its customers additional features and enhanced
performance at competitive prices. These products include those that the
Company has recently introduced, such as the VideoDirector Studio 200 which
began shipping in March 1997, and DVExtreme and Lightning, each of which began
shipping in June 1997, as well as products that have not yet been commercially
launched, such as ReelTime, and the products that the Company has recently
acquired, such as the Miro products. Once a new product is developed, the
Company must rapidly commence volume production, a process that requires
accurate forecasting of customer requirements and the attainment of acceptable
manufacturing costs. The introduction of new or enhanced products also requires
the Company to manage the transition from older, displaced products in order to
minimize disruption in customer ordering patterns, avoid excessive levels of
older product inventories and ensure that adequate supplies of new products can
be delivered to meet customer demand. For example, the introduction of
DVExtreme and Lightning has resulted in a significant decline in sales of Prizm
and Flashfile and a write down of inventory. The Company has experienced delays
in the shipment of new products in the past, and these delays adversely
affected sales of existing products and results of operations. 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 significant market acceptance or problems associated with new
product transitions could adversely affect the Company's business, financial
condition and results of operations, particularly on a quarterly basis. In
addition, as is typical with any new product introduction, quality and
reliability problems may arise and any such problems could result in reduced
bookings, manufacturing rework costs, delays in collecting accounts receivable,
additional service warranty costs and a limitation on market acceptance of the
product.
Competition. The market for the Company's products is highly competitive.
The Company anticipates increased competition in each of the broadcast, desktop
and consumer video production markets, particularly since the industry is
undergoing a period of consolidation. Competition for the Company's broadcast
products is generally based on product performance, breadth of product line,
service and support, market presence and price. The Company's competitors in the
broadcast market include companies with substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company. In addition,
these competitors have established relationships with current and potential
customers of the Company and some offer a wide variety of video equipment which
can be bundled in certain large system sales. In the desktop market, the Company
faces competition from traditional video suppliers, providers of desktop editing
solutions, video software applications, and others. In addition, suppliers of
video manipulation software may develop products which compete directly with
those of the Company. The consumer market in which VideoDirector Studio 200 and
the miroVideo products 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
directly or indirectly with the Company's consumer products by providing some or
all of the same features and video editing capabilities. In addition, the
Company expects that existing manufacturers and new market entrants will develop
new, higher performance, lower cost consumer video products that may compete
directly with the Company's consumer products. The Company expects that
potential competition in this market is likely to come from existing video
editing companies, software application companies, or new entrants into the
market, many of which have the financial resources, marketing and technical
ability to develop products for the consumer video market. Increased competition
in any of these markets could result in price reductions, reduced margins and
loss of market share, any of which could materially and adversely affect the
Company's business, financial condition and results of operations.
-16-
<PAGE>
Dependence on Contract Manufacturers and Single or Limited Source
Suppliers. The Company relies on subcontractors to manufacture its consumer
products and the major subassemblies of its broadcast and desktop products. The
Company and its manufacturing subcontractors are dependent upon single or
limited source suppliers for a number of components and parts used in the
Company's products, including certain key integrated circuits. The Company's
strategy to rely on subcontractors and single or limited source suppliers
involves a number of significant risks, including the loss of control over the
manufacturing process, the potential absence of adequate capacity, potential
delays in lead times, the unavailability of certain process technologies and
reduced control over delivery schedules, manufacturing yields, quality and
costs. The Company and its subcontractors have in the past experienced delays in
receiving adequate supplies of sole source components. In the event that any
significant subcontractor or single or limited source suppliers were to become
unable or unwilling to continue to manufacture these subassemblies or provide
critical components in required volumes, the Company would have to identify and
qualify acceptable replacements or redesign its products with different
components. No assurance can be given that any additional sources would be
available to the Company or that product redesign would be feasible on a timely
basis. 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 business financial condition and
results of operations. Any extended interruption in the supply of or increase in
the cost of the products, subassemblies or components manufactured by third
party subcontractors or suppliers could materially and adversely affect the
Company's business, financial condition and results of operations.
Dependence on Resellers; Absence of Direct Sales Force; Expansion of
Distribution Channels. The Company distributes its products primarily through a
network of dealers, OEMs, retailers and other resellers. Accordingly, the
Company is dependent upon these resellers to assist in promoting market
acceptance of its products. There can be no assurance that these dealers, OEMs
and retailers will devote the resources necessary to provide effective sales
and marketing support to the Company. The Company's dealers and retailers are
generally not contractually committed to make future purchases of the Company's
products and therefore could discontinue carrying the Company's products in
favor of a competitor's product or for any other reason. Because the Company
sells a significant portion of its products through dealers and retailers, it
is difficult to ascertain current demand for existing products and anticipated
demand for newly introduced products such as DVExtreme, Lightning,
VideoDirector Studio 200 and ReelTime regardless of the level of dealer
inventory for the Company's products. Moreover, initial orders for a new
product may be caused by the interest of dealers in having the latest product
on hand for potential future sale to end users. As a result, initial stocking
orders for a new product, such as DVExtreme, Lightning, VideoDirector Studio
200 and ReelTime, may not be indicative of long-term end user demand. In
addition, the Company is dependent upon the continued viability and financial
stability of these dealers and retailers, some of which are small organizations
with limited capital. The Company believes that its future growth and success
will continue to depend in large part upon its dealer and retail channels.
Accordingly, if a significant number of its dealers and/or retailers 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 could be adversely affected.
Recently, as the Company has increased its consumer products offerings, the
Company has expanded its distribution network to include several consumer
channels, including large distributors of products to computer software and
hardware retailers, which in turn sell products to end users. The Company also
sells its consumer products directly to some retailers. The Company's agreements
with retailers and distributors generally obligate the Company to provide price
protection to such retailers and distributors and, while the agreements limit
the conditions under which product can be returned to the Company, there can be
no assurance that the Company will not be faced with significant product returns
or price protection obligations. In the event the Company experiences
significant product returns or price protection obligations, the Company's
business, financial condition and results of operations could be materially
adversely affected. There can be no assurance that the distributors or retailers
will continue to stock and sell the Company's consumer products. Moreover,
distribution channels for consumer retail products have been characterized by
rapid change and financial difficulties of distributors. The termination of one
or more of the Company's relationships with retailers or retail distributors
could have a material
-17-
<PAGE>
adverse effect on the Company's business, financial condition and results of
operations. To the extent that the Company successfully establishes and expands
its retail distribution channels, its agreements or arrangements are unlikely
to be exclusive and retailers and retail distributors are likely to carry
competing products. In connection with the Miro Acquisition, the Company
acquired Miro's European sales organization. There can be no assurance that the
Company will successfully integrate its existing sales organization with that
acquired in the Miro Acquisition or that the Company will be able to utilize
and manage the Miro sales organization effectively. In addition, there can be
no assurance that the dealers, OEMs, distributors and retailers who comprise
the Miro distribution network will continue their relationship with the
Company. Any of the foregoing events could have a material adverse effect on
the Company's business, financial condition and results of operations.
Dependence on Key Personnel. The Company's success depends in part upon the
continued service of its senior management and key technical personnel. None of
the Company's senior management or key technical personnel is bound by an
employment agreement or is the subject of key man life insurance. The Company's
success is also dependent upon its ability to attract and retain qualified
technical and managerial personnel. Significant competition exists for such
personnel and there can be no assurance that the Company can retain its key
technical and managerial employees or that it will be able to attract,
assimilate and retain such other highly-qualified technical and managerial
personnel as may be required in the future. There can be no assurance that
employees will not leave the Company and subsequently compete against the
Company, or that contractors will not perform services for competitors of the
Company. If the Company is unable to retain key personnel, its business,
financial condition and results of operations could be adversely affected.
Dependence on Proprietary Technology. 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 two United States patents
covering certain aspects of its technologies for digital video effects and has
an application pending for a third patent. There can be no assurance that the
Company's pending patent application or any future patent applications will be
allowed or that issued patents will provide the Company with a competitive
advantage. In addition, there can be no assurance that others will not
independently develop substantially equivalent intellectual property or
otherwise gain access to the Company's trade secrets or intellectual property,
or disclose such intellectual property or trade secrets, or that the Company can
meaningfully protect its intellectual property. A failure by the Company to
meaningfully protect its intellectual property could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risks of Third-Party Claims of Infringement. There has been substantial
litigation regarding patent, trademark and other intellectual property rights
involving technology companies. In the future, litigation may be necessary to
enforce any patents issued to the Company, to protect its trade secrets,
trademarks and other intellectual property rights owned by the Company, or to
defend the Company against claimed infringement. Any such litigation could be
costly and may result in a diversion of management's attention, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determination 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,
financial condition and results of operations. In the course of its business,
the Company has in the past and may in the future receive communications
asserting that the Company's products infringe patents or other intellectual
property rights of third parties. The Company's policy is to investigate the
factual basis of such communications and to negotiate
-18-
<PAGE>
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 such communications can be settled on commercially reasonable
terms or that they will not result in protracted and costly litigation.
International Sales Risks. Sales of the Company's products outside of North
America represented approximately 46.5%, 38.7% and 39.7% of the Company's net
sales in fiscal 1995, 1996 and 1997, respectively and 47.6% for the three months
ended September 30, 1997. The Company expects that international sales will
continue to represent a significant portion of its net sales, particularly in
light of the Miro Acquisition. The Company makes foreign currency denominated
sales in many countries, exposing itself to risks associated with currency
exchange fluctuations. Although the dollar amount of such foreign currency
denominated sales was nominal during fiscal 1997, the Company will increase the
amount of sales denominated in foreign currency during fiscal 1998, especially
for sales of consumer products into Europe. International sales and operations
may also be subject to risks such as the imposition of governmental controls,
export license requirements, restrictions on the export of critical technology,
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 assurance that
these factors will not have an adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition and results of operations.
No Assurance that Company Can Manage Growth. The Company has in the past
experienced rapid growth and may grow at a rapid pace in the future. Such
growth could cause significant strain on management and other resources. The
Company's ability to manage its growth effectively will require it to continue
to improve and expand its management, operational and financial systems and
controls. As a result of recent acquisitions, the Company has increased the
number of its employees substantially, which increases the difficulty in
managing the Company, particularly as employees are now geographically
dispersed in North America and Europe. If the Company's management is unable to
manage growth effectively, the Company's ability to retain key personnel and
its business, financial condition and results of operations could be adversely
affected.
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 Statement of Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K. On September 12, 1997, the Registrant filed a
Current Report on Form 8-K relating to the Registrant's acquisition of certain
assets and the assumption of certain liabilities of Miro Computer Products AG,
which Form 8-K was amended on October 28, 1997 for the purpose of including the
financial statements of the business acquired and pro forma financial
information.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PINNACLE SYSTEMS, INC.
Date: October 28, 1997 By: /s/ Mark L. Sanders
-------------------------------
Mark L. Sanders, President, and
Chief Executive Officer
Date: October 28, 1997 By: /s/ Arthur D. Chadwick
-------------------------------
Arthur D. Chadwick, Vice
President, Finance and
Administration and Chief
Financial Officer
-21-
EXHIBIT 11.1
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 11.1 - Statement of Computation of Net Income (Loss) Per Share
(In thousands, except per share data)
Three
Months Ended
September 30,
---------------------
1997 1996
-------- --------
Weighted average shares of common stock outstanding 7,402 7,473
Weighted average common stock equivalent shares -- 350
-------- --------
Shares used to compute net income (loss) per share 7,402 7,823
======== ========
Net income (loss) $(16,347) $ 612
======== ========
Net income (loss) per share $ (2.21) $ 0.08
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 28,635,000
<SECURITIES> 19,248,000
<RECEIVABLES> 15,858,000
<ALLOWANCES> 2,463,000
<INVENTORY> 6,692,000
<CURRENT-ASSETS> 71,104,000
<PP&E> 7,238,000
<DEPRECIATION> 2,429,000
<TOTAL-ASSETS> 80,717,000
<CURRENT-LIABILITIES> 28,796,000
<BONDS> 0
0
0
<COMMON> 80,342,000
<OTHER-SE> (28,896,000)
<TOTAL-LIABILITY-AND-EQUITY> 80,717,000
<SALES> 16,514,000
<TOTAL-REVENUES> 16,514,000
<CGS> 7,736,000
<TOTAL-COSTS> 7,736,000
<OTHER-EXPENSES> 25,524,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (552,000)
<INCOME-PRETAX> (16,194,000)
<INCOME-TAX> 153,000
<INCOME-CONTINUING> (16,347,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (16,347,000)
<EPS-PRIMARY> (2.21)
<EPS-DILUTED> (2.21)
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