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 June 30, 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 Number 0-29048
ACCENT COLOR SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1380314
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Connecticut Boulevard, East Hartford, Connecticut 06108
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (860)610-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/Yes No
The number of shares outstanding of the registrant's common stock
as of August 10, 1997 was 10,141,025.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
June 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,854,465 $20,288,535
Accounts receivable 215,769 29,471
Inventories (Note 3) 4,106,275 3,362,252
Prepaid expenses and other assets 519,554 511,633
Total current assets 14,696,063 24,191,891
Fixed assets, net 3,293,588 2,727,220
Other assets, net 51,632 32,354
Total assets $18,041,283 $26,951,465
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt 2,297,759 1,000,000
Obligations under capital leases 58,353 47,555
Accounts payable 1,416,693 1,935,108
Accrued expenses 507,528 683,198
Customer advances and deposits 1,010,760 1,387,400
Deferred revenue 1,408,000 950,000
Total current liabilities 6,699,093 6,003,261
Obligation under capital leases 125,578 123,621
Long-term debt, net of discount - 1,271,638
Other long-term liabilities 497,685 208,002
Total non-current liabilities 623,263 1,603,261
Shareholders' equity:
Common stock, no par value, 25,000,000
shares authorized, 10,139,775
shares issued and outstanding 38,499,490 38,499,490
Deficit accumulated during the development stage(27,780,563) (19,154,547)
Total shareholders' equity 10,718,927 19,344,943
Total liabilities and shareholders' equity $18,041,283 $26,951,465
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company) For the
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) period from
inception
Three months ended June Six months ended June 30, (May 21,
30, 1993) through
1997 1996 1997 1996 June 30, 1997
<S> <C> <C> <C> <C> <C>
Sales $ 546,407 $ - $ 546,407 $ - $ 546,407
Costs and expenses:
Costs of production 1,594,218 - 2,528,436 - 3,800,793
Research and development 2,237,589 2,066,568 4,366,039 3,472,592 15,172,947
Marketing, general and
administrative 1,332,448 933,434 2,490,217 1,491,329 8,354,492
5,164,255 3,000,002 9,384,692 4,963,921 27,328,232
Other (income) expense:
Interest expense 72,001 116,886 141,699 198,680 892,529
Interest income (159,858) (21,613) (353,968) (21,613) (467,094)
(87,857) 95,273 (212,269) 177,067 425,435
Net loss before extraordinary item (4,529,991) (3,095,275) (8,626,016) (5,140,988) (27,207,260)
Extraordinary item:
Loss on early extinguishment of
debt, net of income taxes of nil - - - - (573,303)
Net loss $(4,529,991) $(3,095,275) $(8,626,016) $(5,140,988) $(27,780,563)
Net loss per common share (Note 2) $ (.45) $ (.85)
Weighted average common shares
outstanding (Note 2) 10,139,775 10,139,775
Unaudited pro forma net loss per
common share (Note 2) $ (.45) $ (.75)
Unaudited pro forma weighted average
common shares outstanding (Note 2) 6,670,625 6,670,625
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the period
from inception
Six months ended June 30, (May 21, 1993)
through
1997 1996 June 30,1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,626,016) $ (5,140,988) $ (27,780,563)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 510,560 292,685 1,599,059
Write-off of deferred offering costs - - 47,264
Options granted for services - - 18,400
Debenture issued for services - - 50,000
Loss on disposal of fixed assets 11,460 72,566 103,529
Conversion of accrued interest to common - - 231,147
stock
Extraordinary loss on extinguishment of debt - - 573,303
Changes in assets and liabilities:
Accounts receivable (186,298) (391,671) (215,769)
Inventories (744,023) (867,335) (4,106,275)
Prepaid expenses and other assets (7,921) (355,732) (519,554)
Accounts payable and accrued expenses (694,085) (255,059) 1,746,700
Due to officers - (20,711) -
Customer advances and deposits (376,640) 1,028,800 1,010,760
Deferred revenue 458,000 - 1,408,000
Other long-term liabilities 289,683 79,427 497,685
Net cash used in operating activities $ (9,365,280) $ (5,558,018) $ (25,336,314)
Cash flows from investing activities:
Proceeds from sale of fixed assets - 5,524 5,524
Purchases of fixed assets (1,010,724) (1,543,314) (4,176,728)
Cost of patent (19,553) - (52,653)
Net cash used in investing activities (1,030,277) (1,537,790) (4,223,857)
Cash flows from financing activities:
Payment of capital lease obligations (38,513) (48,802) (110,466)
Net proceeds from issuance of debentures - 393,218 4,839,101
Proceeds from issuance of warrants - 138,032 318,113
Net proceeds from issuance of common stock - 9,585,044 33,920,808
Proceeds from exercise of warrants - - 694,960
Net proceeds from issuance of preferred
stock through offerings and conversion of debt - - 1,430,634
Increase in long term debt - 2,173,750 2,223,750
Repayment of debentures - - (3,855,000)
Deferred offering costs
- - (47,264)
Net cash provided by (used in) financing
activities (38,513) 12,241,242 39,414,636
Net increase (decrease) in cash and cash
equivalents (10,434,070) 5,145,434 9,854,465
Cash and cash equivalents at beginning of
period 20,288,535 967 -
Cash and cash equivalents at end of
period $ 9,854,465 $ 5,146,401 $ 9,854,465
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(a development stage company)
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Deficit
Accumulated
During the
Common Stock Preferred Stock Development
Shares Amount Shares Amount Stage Total
<S> <C> <C> <C> <C> <C>
Proceeds from sale 3,900 $ 21,800 - $ - $ - $ 21,800
Net loss - - - - (45,398) (45,398)
December 31, 1993 3,900 21,800 - - (45,398) (23,598)
Stock split 1,751,100 - - - - -
Conversion of debentures - - 74,360 371,804 - 371,804
Proceeds from sale - - 160,000 643,770 - 643,770
Conversion of promissory
notes 42,000 50,000 - - - 50,000
Reclassification - (20,500) - - - (20,500)
Shares issued for services - - 15,000 75,000 - 75,000
Net loss - - - - (1,153,533) (1,153,533)
December 31, 1994 1,797,000 51,300 249,360 1,090,574 (1,198,931) (57,057)
Proceeds from sale - - 75,000 340,060 - 340,060
Exercise of warrants 297,840 694,960 - - - 694,960
Options granted to service
provider - 18,400 - - - 18,400
Warrants issued with debt - 56,631 - - - 56,631
Net loss - - - - (4,216,955) (4,216,955)
December 31, 1995 2,094,840 821,291 324,360 1,430,634 (5,415,886) (3,163,961)
Warrants issued with debt - 138,032 - - - 138,032
Proceeds from sale 2,625,000 9,460,044 - - - 9,460,044
Warrants issued with debt - 123,450 - - - 123,450
Proceeds from initial
public offering 3,450,000 24,409,464 - - - 24,409,464
Conversion of Series III
debentures 607,626 2,116,575 - - - 2,116,575
Conversion of Preferred
stock 1,362,309 1,430,634 (324,360) (1,430,634) - -
Net loss - - - - (13,738,661) (13,738,661)
December 31, 1996 10,139,775 38,499,490 - - (19,154,547) 19,344,943
Net loss (unaudited) - - - - (8,626,016) (8,626,016)
June 30, 1997 (unaudited) 10,139,775 $38,499,490 - $ - $(27,780,563) $10,718,927
</TABLE>
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Condensed Financial Statements
In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly its financial position as of June 30, 1997 and the
results of operations and cash flows for the three months and six
months ended June 30, 1997 and 1996 and the period from inception
(May 21, 1993) through June 30, 1997. The December 31, 1996
balance sheet has been derived from the Company's audited
financial statements at that date. These interim condensed
financial statements should be read in conjunction with
Management's Discussion and Analysis and financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
The results of operations for the three months and six months
ended June 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
2. Summary Of Significant Accounting Policies
Significant accounting policies followed in the preparation of
these financial statements are as follows:
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Net Loss Per Common Share
Net loss per common share is determined based on the weighted
average number of shares outstanding during the period. In
determining weighted average common shares outstanding, common
share equivalents are excluded from the computation as their
effect is anti-dilutive.
Unaudited Pro Forma Financial Data
The Company's outstanding 8.00% convertible subordinated
debentures, including accrued interest, converted to Common Stock
upon the closing of the initial public offering of Common Stock
in December 1996. In addition, the Series A Convertible Voting
Preferred Stock converted to Common Stock upon the effectiveness
of the initial public offering of Common Stock. The unaudited
pro forma net loss per common share data included in the
condensed statements of operations for the three and six months
ended June 30, 1996 gives effect to these conversions as if the
shares were outstanding at the beginning of the period, and as if
the interest, amortization of discount and amortization of
deferred financing expenses associated with the debentures were
not incurred.
In determining pro forma weighted average common shares
outstanding, common share equivalents are excluded from the
computation as their effect is anti-dilutive, except that,
pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, Common Stock options and warrants issued and
Common Stock, convertible debt and convertible preferred stock
sold in the twelve months preceding the initial filing date of
the public offering and through the effective date have been
included in the calculation as if outstanding for the period
using the treasury stock method and at the initial public
offering price of $8.00 per share.
3. Inventories
Inventories consist of the following:
June 30, December 31,
1997 1996
(unaudited)
Raw materials and components $ 1,832,885 $ 2,242,756
Work-in-process 1,376,240 607,245
Finished goods 897,150 512,251
$ 4,106,275 $ 3,362,252
4. Commitments
On January 8, 1996, the Company signed a seven-year agreement
with a vendor for the supply of inks and printheads. The
agreement provides the Company with worldwide rights, as defined.
The Company must pay the vendor royalties and license fees upon
achieving certain volume purchase levels. The agreement also
includes certain exclusivity features which benefit the Company.
To maintain the exclusivity rights, quarterly payments of
$250,000 are required beginning January 1, 1996 and ending on
October 1, 1997, and the Company must purchase all ink and
printhead requirements from the vendor and purchase specified
minimum amounts each year. The Company has the option to
terminate the exclusive rights leaving all other aspects of the
agreement unchanged. Currently, it is the Company's intent to
maintain the rights.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Accent Color Sciences, Inc.("Accent Color" or the "Company") is a
development stage company that designs, manufactures and sells
innovative, high-speed, spot color printing systems ("Truecolor
Systems"). The Company was formed in 1993 initially to develop a
high-speed, color printer to attach to a Xerox 4135 or Xerox 4635
cut sheet, high-speed, black-on-white production printer.
Development and testing of a prototype began in January 1994 and
was first announced at the On-Demand Trade Show (a major printing
industry trade show) in May 1994. In November 1994, a "proof-of-
concept" Truecolor System was shown at the Xplor International
Global Electronic Document Systems Conference ("Xplor") (the
primary production printing industry trade show). After Xplor in
November 1994, International Business Machines Corporation
("IBM") approached the Company and requested that the Company
develop a version of its Truecolor System to work in conjunction
with the IBM 3900 continuous form production printing system.
During 1995, the Company began negotiations with Xerox
Corporation ("Xerox"), IBM and Siemens Nixdorf Printing Systems
USA, Inc. (which was acquired by an affiliate of Oce Printing
Systems USA, Inc. ("Oce") in 1996) to enter into formal
development relationships. During the same period, the Company
accelerated its engineering and development activities as its
efforts were focused on designing and building the next
generation prototypes which were demonstrated at Xplor in
November 1995 in the Xerox, IBM and Accent Color exhibits and in
the Xerox DocuTech Print Center. In November 1995, the Company
signed a memorandum of understanding with Oce, which the Company
expects to result in an agreement in 1997.
During 1996, the Company was focused on refining the Truecolor
System design and preparing for the commencement of commercial
production in the first half of 1997. In February 1996, a Product
Development and Distribution Agreement was signed with Xerox, and
in April 1996, the Company entered into a Product Purchase
Agreement with IBM. At Xplor in October 1996, the Company
demonstrated its Truecolor Systems, as well as certain
enhancements planned for production in 1997.
In March 1997, Xerox informed the Company that it had decided not
to distribute Accent Color's cut-sheet version of the Truecolor
System designed for integration with Xerox's high-speed, black-on-
white printers ("Truecolor 135") as a Xerox product under the
terms of the Xerox agreement. The Company now intends to market
and distribute the Truecolor 135 directly to Xerox end users
through an alternate distribution method. The Company is
currently reviewing various distribution alternatives, but there
can be no assurance that the Company will be able to establish an
effective direct marketing, sales and distribution program for
the Truecolor 135 system.
On May 6, 1997, IBM announced availability of the Company's
continuous form version of the Truecolor System designed for
integration with IBM's 3900 continuous form production printing
system ("Truecolor 390"), which IBM will market as its InfoPrint
Hi-Lite Color post processor. The product is currently in the
limited availability stage, and is planned to be generally
available in the fall of 1997.
Accent Color also sells related consumables and spare parts.
Currently, the only consumables sold by the Company are wax-based
inks, which it acquires from a vendor. The sale of consumables is
expected to generate recurring revenue which the Company believes
will continue to increase as the installed base and usage of
Truecolor Systems increase.
Accent Color expenses all research and development costs as they
are incurred, including costs associated with the manufacture of
prototypes. Accent Color produced the proof-of-concept and
prototype Truecolor Systems principally during 1994, 1995 and the
first six months of 1996, which resulted in significant research
and development expenses for those periods. In July 1996, the
Company began manufacturing pre-production Truecolor Systems for
delivery to customers. As a result, it began to allocate to costs
of production the manufacturing and other expenses associated
with the manufacture of pre-production Truecolor Systems.
Accent Color's marketing, general and administrative expenses
have increased to support the Company's anticipated revenue
growth and manufacturing activities. In 1996, in anticipation of
the production and sale of Truecolor Systems, the Company
expanded its accounting and other administrative functions to
support its manufacturing activities. The Company's strategy is
to distribute its products predominantly through its original
equipment manufacturer's ("OEM's"). Accordingly, marketing
expense is attributable primarily to the development and support
of the OEM customer relationships. The Company also incurs marketing
expenses in connection with product promotional activities and
certain indirect marketing activities in conjunction with its OEM
customers. As the Company moves toward distributing it's
Truecolor 135 product directly to end users, it anticipates that
marketing, sales, general and administrative expenses will
continue to increase.
Results of Operations
Quarter Ended June 30, 1997 compared to Quarter Ended June 30,
1996. The Company recognized $546,000 in sales for the quarter
ended June 30, 1997 as compared to none for the quarter ended
June 30, 1996. These sales represent shipments of consumables and
spare parts related to the Truecolor Systems to fill the channels
of an OEM customer. During the first quarter of 1997 and all of
1996, the Company's efforts were primarily directed at designing,
developing, testing and manufacturing prototype and pre-
production systems. In the second quarter of 1997, the Company's
efforts were primarily directed toward the commercial
introduction of its Truecolor Systems. One pre-production system
and two production systems were shipped during the second
quarter, which were recorded as deferred revenue.
Costs of production of $1,594,000 incurred during the quarter
ended June 30, 1997 consist of the start-up manufacturing
expenses related to the Company's preparation for commercial
production of its Truecolor Systems and costs of goods sold
related to the sale of consumables and spare parts.
Research and development expenses primarily consist of the cost
of personnel, equipment and materials needed to conduct the
Company's research and development efforts, including
manufacturing prototype systems. Research and development
expenses for the quarter ended June 30, 1997 increased by
$171,000, or 8%, to $2,238,000 from $2,067,000 for the quarter
ended June 30, 1996. This increase in research and development
expenses was primarily attributable to costs associated with
future product enhancements, specifically the design and
development of wider ink jet printheads to increase color
coverage on a page. The Company intends to continue to dedicate
substantial resources to research and development activities.
Accordingly, the Company expects to continue to incur additional
expenses associated with the development, manufacturing and
testing of new prototype systems.
Marketing, general and administrative expenses primarily consist
of (i) the marketing cost in connection with product promotional
activities and certain indirect marketing activities in
conjunction with the Company's OEM customers and (ii) general and
administrative costs related to the salaries of the Company's
executive, administrative and financial personnel and associated
costs. Marketing, general and administrative expenses for the
quarter ended June 30, 1997 increased by $399,000, or 43%, to
$1,332,000 from $933,000 for the quarter ended June 30, 1996.
This increase in marketing, general and administrative expenses
was primarily attributable to the hiring of additional marketing
and administrative personnel, costs associated with promotional
activities and professional service costs to support the
Company's anticipated revenue growth and manufacturing
activities. The Company anticipates that marketing and selling
costs will increase as it moves toward distributing its Truecolor
135 product directly to end users.
Interest expense for the quarter ended June 30, 1997 decreased by
$45,000, or 39%, to $72,000 from $117,000 for the quarter ended
June 30, 1996. This decrease in interest expense for the quarter
ended June 30, 1997 was attributable to the elimination of
related interest expense on extinguished debentures originally
issued in October 1995 and February 1996. Interest income for
the quarter ended June 30, 1997 increased by $138,000, or 627%,
to $160,000 from $22,000 for the quarter ended June 30, 1996.
This increase in interest income was attributable to earnings on
short-term investments of proceeds received from the Company's
initial public offering in December 1996 not currently needed for
its operations.
Six Months Ended June 30, 1997 compared to Six Months Ended June
30, 1996. The Company recognized $546,000 of sales for the six
months ended June 30, 1997 as compared to none for the six months
ended June 30, 1996. During the first half of 1997 and all of
1996, the Company's efforts were primarily directed at designing,
developing, testing and manufacturing prototype and pre-
production systems. In the second quarter of 1997, the Company
began to ship consumables related to the Truecolor Systems to
fill the channels of an OEM customer. The Company also shipped
two pre-production and two production Truecolor Systems, that
were recorded as deferred revenue.
Costs of production of $2,528,000 incurred during the six months
ended June 30, 1997 consist of the start-up manufacturing
expenses related to the Company's preparation for commercial
production of its Truecolor Systems and costs of goods sold
related to the sale of consumables.
Research and development expenses for the six months ended June
30, 1997 increased by approximately $893,000, or 26%, to
$4,366,000 from $3,473,000 for the six months ended June 30,
1996. This increase in research and development expenses was
primarily due to expenses associated with the design and
development of wider ink jet printheads.
Marketing, general and administrative expenses for the six months
ended June 30, 1997 increased by $999,000 to $2,490,000 from
$1,491,000 for the six months ended June 30, 1996. This increase
in marketing, general and administrative expenses was primarily
attributable to the hiring of additional, marketing and
administrative personnel and associated costs to support the
Company's anticipated revenue growth and manufacturing
activities. The Company anticipates that marketing and selling
costs will increase as it moves toward distributing its Truecolor
135 product directly to end users.
Interest expense for the six months ended June 30, 1997 decreased
by $57,000 to $142,000 from $199,000 for the six months ended
June 30, 1996. This decrease in interest expense for the six
months ended June 30, 1997 was attributable to the elimination of
related interest expense of extinguished debentures originally
issued in October 1995 and February 1996. Interest income for
the six months ended June 30, 1997 increased by $332,000 to
$354,000 from $22,000 for the six months ended June 30, 1997. The
increase in interest income is attributable to earnings on short-
term investments of proceeds received in the Company's initial
public offering in December 1996 not currently needed for its
operations.
Liquidity and Capital Resources
The Company's need for funding has increased from period to
period as it has continued its research and development
surrounding Truecolor Systems, continued its research and
development activities for enhancement of Truecolor Systems,
increased its capital expenditures on equipment and commenced
production of Truecolor Systems. To date, the Company has
financed its operations through customer payments, borrowings and
sale of equity securities.
Through June 30, 1997, the Company has received $2.9 million from
the delivery of seven prototype, nine pre-production systems and
two production systems to customers; net proceeds of $7.9 million
from borrowings and the sale of debt securities, and net proceeds
of $35.9 million from the sale of equity securities. Of the net
equity proceeds, $24.4 million was raised in the Company's
initial public offering in December 1996 and the balance of $11.5
million was raised through the private placement of equity
securities.
At June 30, 1997, the Company's primary source of liquidity was
cash and cash equivalents totaling $9.85 million.
Operating activities consumed $9.4 million in cash during the six
months ended June 30, 1997 compared to $5.6 million during the
six months ended June 30, 1996. This increase was primarily
attributable to an increase in the net loss of the Company, a
decrease in customer deposits and advances as the Company began
to ship Truecolor Systems, and a decrease in accounts payable as
the Company reduced its outstanding liabilities. This was
partially offset by an increase in deferred revenue and other
long-term liabilities and a decrease in accounts receivable,
prepaids and other assets.
Capital expenditures decreased $500,000, or 50%, from $1.5
million for the six months ended June 30, 1996 to $1.0 million
for the six months ended June 30, 1997. For the six months ended
June 30, 1996, the Company incurred approximately $1.3 million in
capital expenditures associated with the Company's move to its
new facility in May 1996. For the six months ended June 30,
1997, capital expenditures were primarily attributable to
equipment acquisitions related to the Company's expansion to
support anticipated revenue growth and manufacturing activities
and continued engineering and development efforts. The Company
has currently budgeted approximately $2.4 million for capital
expenditures for the year ending December 31, 1997. The Company's
currently planned capital expenditures are primarily for the
continued expansion of the Company's development and
manufacturing capabilities.
Under a vendor Agreement, the Company is obligated to pay
$250,000 per calendar quarter through 1997 in order to maintain
certain exclusive rights. In addition, the Company has a
development arrangement with the vendor that would require the
Company to make additional payments to support developing a wider
printhead manufacturing capability. The Company estimates that
these payments will total approximately $2.6 million in
development costs and $675,000 in capital equipment expenditures
for the full year 1997. The Company has incurred $847,000 in
development costs and $267,000 in capital expenditures for the
six months ending June 30, 1997 related to development of wider
ink jet printheads and expects to incur the remainder of these
costs during 1997.
Based on the Company's current operating plan, the Company's
primary requirements for cash through 1997 will be for the
repayment of indebtedness, the expansion of its manufacturing,
development, engineering and customer support capabilities, the
commercial production of additional Truecolor Systems and the
further development and enhancement of the Company's products. As
part of its expansion during 1997, the Company currently expects
(i) to hire approximately 5 additional manufacturing,
development, engineering and customer support employees for the
remainder of 1997, (ii) to acquire inventories of modules,
components and wax-based inks for Truecolor Systems and (iii) to
invest in additional printhead manufacturing capacity. The
Company's currently planned research and development activities
are focused on developing (i) wider ink jet printheads for
greater color coverage per page, (ii) advanced paper handling
functionality particularly duplex printing (the ability to print
on both sides of the page) and (iii) higher resolution ink jet
printheads. The Company believes that its existing cash resources
will be sufficient for the financing of its operations, repayment
of indebtedness and capital expenditures through at least the
third quarter of 1997. The Company is reviewing various
financing strategies, both debt and equity, that would allow it
to continue to fund operations and research and development
activities through 1997 into 1998. The Company is a development
stage company and it is expected that quarterly net losses will
continue through at least the fourth quarter 1997.
Forward-Looking Statements
The foregoing statements and analysis contain forward-looking
statements and information including information with respect to
the Company's plans and strategy for its business. Such forward-
looking statements are made pursuant to the "safe harbor"
provisions of Section 21E of the Securities Exchange Act of 1934,
as amended, which were enacted as part of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements
contained in the foregoing analysis include marketing, revenue
and expenditure expectations, and other strategies and
anticipated events. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause actual
events or the Company's actual results to differ materially from
those indicated by such forward-looking statements. These
factors include, without limitation, (i) the ability of the
Company to develop and maintain sales and distribution agreements
with OEM customers; (ii) the ability of the Company to develop a
market; (iii) the dependence of the Company on third party
marketing, distribution and support, including the control of the
Company's OEM customers over the timing of the introduction of
its products and the need for the Company to complete and satisfy
extensive testing requirements of its products on a timely basis;
(iv) the dependence of the Company on third party manufacturers
and suppliers; (v)the ability of the Company to raise sufficient
capital on reasonable terms; (vi) the level of customer acceptance of the
Company's products; and (vii) potential fluctuations in the
company's quarterly results of operations. Further information
on factors that could cause actual results to differ from those
anticipated is detailed in the Company's Annual Report on Form 10-
K for 1996 as filed with the Securities and Exchange Commission.
Any forward-looking information contained herein should be
considered in light of these factors.
Part II. Other Information
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 9, 1997, the Company held its annual meeting of
shareholders. At the meeting Robert H. Steele and Peter Teufel
were reelected to continue their service as class 1 directors of the
Company. The votes cast for each director were 7,070,231 votes
for reelection and 5,850 votes withheld. In addition, 7,070,231
votes were cast for the ratification of the selection by the Company
of Price Waterhouse LLP as its independent accountants and 5,850 votes
were withheld.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of per share earnings
Exhibit 27 - Financial data schedule
(b) Reports filed on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 30, 1997
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACCENT COLOR SCIENCES, INC.
Date: August 13, 1997 By/s/Norman L. Milliard
Norman L. Milliard
President and Chief
Executive Officer
By/s/Patrick J. Pedonti
Patrick J. Pedonti
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT RE COMPUTATION OF LOSS PER COMMON SHARE
For the three months ended For the six months ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(Pro Forma) (Pro Forma)
<S> <C> <C> <C> <C>
Net loss ......................... $(4,529,991) $(3,013,070)(1) $(8,626,016) $(4,977,000)(1)
Calculation of weighted average
common shares
outstanding (2):
Common Stock ................. 10,139,775 2,808,144 10,139,775 2,808,144
Cheap Stock(3)................ - 1,913,609 - 1,913,609
Conversion of Series A
Preferred Stock .................. - 1,362,309 - 1,362,309
Conversion of Series III
Debentures, including accrued
interest (4) - 586,563 - 586,563
Total .................. 10,139,775 6,670,625 10,139,775 6,670,625
Net loss per common share ....... $ (.45) $ (.45) $ (.85) $ (.75)
</TABLE>
(1) Adjusted to give effect to the conversion of Series III Debentures at
the beginning of the period, as if the interest, amortization of the
discount and amortization of other financing expenses were not incurred.
(2) Common share equivalents (stock options and warrants) are excluded
from the computation as their effect is anti-dilutive, except that,
pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock options and warrants issued and common stock,
convertible debt and convertible preferred stock sold in the twelve
months preceding the initial filing date of the offering's registration
statement have been included in the calculation as if outstanding for
the period January 1, 1996 through June 30, 1996 using the treasury stock
method and the initial public offering price of $8.00 per share.
(3) See attached calculation.
(4) Included as if the conversion of the Series III Debentures occurred
at the beginning of the period, including shares issued for settlement
of accrued interest.
<TABLE>
<CAPTION>
ACCENT COLOR SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CALCULATION OF CHEAP STOCK
Shares Price Total
<S> <C> <C> <C>
For the three months ended June 30, 1996
Common Stock purchased - private placement ...... 1,911,696 $ 4.00 $ 7,646,784
Options issued ..................... 605,250 3.67 2,219,250
Options issued ..................... 647,850 4.00 2,591,400
Warrants issued (net of exercised) ............. 287,985 3.67 1,055,945
Warrants issued ................... 45,000 8.00 360,000
Placement agent warrants issued ............. 300,000 4.00 1,200,000
Total ...................... 3,797,781 $ 15,073,379
Initial public offering price ............... $ 8
Shares assumed repurchased .............. 1,887,172
Less: shares assumed issued .............. 3,797,781
Cheap stock ...................... 1,913,609
For the six months ended June 30, 1996
Common Stock purchased - private placement ...... 1,911,696 $ 4.00 $ 7,646,784
Options issued ..................... 605,250 3.67 2,219,250
Options issued ..................... 647,850 4.00 2,591,400
Warrants issued (net of exercised) ............. 287,985 3.67 1,055,945
Warrants issued ................... 45,000 8.00 360,000
Placement agent warrants issued ............. 300,000 4.00 1,200,000
Total ...................... 3,797,781 $ 15,073,379
Initial public offering price ............... $ 8
Shares assumed repurchased .............. 1,887,172
Less: shares assumed issued .............. 3,797,781
Cheap stock ...................... 1,913,609
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 9,854,465
<SECURITIES> 0
<RECEIVABLES> 215,769
<ALLOWANCES> 0
<INVENTORY> 4,106,275
<CURRENT-ASSETS> 14,696,063
<PP&E> 4,329,782
<DEPRECIATION> 1,036,195
<TOTAL-ASSETS> 18,041,283
<CURRENT-LIABILITIES> 6,699,093
<BONDS> 0
0
0
<COMMON> 38,499,490
<OTHER-SE> (27,780,563)
<TOTAL-LIABILITY-AND-EQUITY> 18,041,283
<SALES> 546,407
<TOTAL-REVENUES> 546,407
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,528,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,699
<INCOME-PRETAX> (8,626,016)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,626,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,626,016)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
</TABLE>
