UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NUMBER 1 TO THE
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to ______
Commission File Number 0-29048
ACCENT COLOR SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1380314
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Connecticut Boulevard, East Hartford, Connecticut 06108
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (860) 610- 4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No
The number of shares outstanding of the registrant's common stock
as of April 30, 1999 was 14,693,434.
The Registrant is amending its quarterly report on Form 10-Q for the
quarter ended March 31, 1999 to include amendments to Item 1.
ACCENT COLOR SCIENCES, INC.
FORM 10-Q/A
For The Quarterly Period Ended March 31, 1999
INDEX
Part I. Financial Information
Item 1. Financial Statements 3
Signatures 14
ACCENT COLOR SCIENCES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 918,369 $ 1,048,425
Accounts receivable 849,328 1,321,782
Inventories (Note 3) 2,660,489 2,269,016
Prepaid expenses and other
assets 209,677 216,564
--------- ---------
Total current assets 4,637,863 4,855,787
Fixed assets, net 1,852,161 1,933,043
Other assets, net 71,378 71,575
--------- ---------
Total assets $ 6,561,402 $ 6,860,405
========= =========
Liabilities, Mandatorily
Redeemable Convertible Preferred
Stock and Shareholders' Equity (Deficit)
Current liabilities:
Obligations under capital
leases $ 64,231 $ 64,014
Accounts payable 1,856,391 961,626
Accrued expenses 792,572 588,966
Customer advances and deposits 260,000 -
Deferred revenue 595,000 595,000
--------- ---------
Total current liabilities 3,568,194 2,209,606
Obligation under capital leases 5,737 23,116
Long-term debt, net of discount 2,268,644 2,235,593
(Note 5)
Other long-term liabilities 590,927 601,759
--------- ---------
Total non-current
liabilities 2,865,308 2,860,468
--------- ---------
Total liabilities 6,433,502 5,070,074
--------- ---------
Mandatorily redeemable convertible
preferred stock, no par value,
500,000 shares authorized,
2,735 and 3,500 issued and
outstanding (Note 4) 2,383,116 3,097,368
--------- ---------
Shareholders' equity:
Common stock, no par value,
35,000,000 shares authorized,
14,614,314 and 12,841,881
shares issued and outstanding 47,022,179 46,307,927
Accumulated deficit (49,277,395) (47,614,964)
---------- ----------
Total shareholders'equity(deficit)( 2,255,216) (1,307,037)
---------- ----------
Total liabilities,
mandatorily
redeemable convertible
preferred stock and
shareholders' equity $ 6,561,402 $ 6,860,405
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
<S> <C> <C>
Revenue (Note 2) $ 2,249,498 $ 916,733
Costs and expenses:
Costs of production 2,144,306 1,628,047
Research and development 951,830 1,478,947
Marketing, general and
administrative 723,241 909,342
3,819,377 4,016,336
Other (income) expense:
Interest expense 97,814 7,783
Interest income (5,262) (32,014)
92,552 (24,231)
Net loss (1,662,431) (3,075,372)
Imputed dividend on mandatorily
redeemable convertible preferred
stock (Note 4) - (920,000)
Net loss applicable to common
stock $(1,662,431) $(3,995,372)
Net loss (basic & diluted) per
common share $ (.12) $ (.33)
Weighted average common shares
Outstanding 13,759,120 11,993,188
</TABLE>
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
<S>
Cash flows from operating
activities:
Net loss before imputed <C> <C>
dividend $(1,662,431) $(3,075,372)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Depreciation and
amortization 305,963 288,321
(Gain) loss on disposal
of fixed assets (300) 13,453
Changes in assets and
liabilities:
Accounts receivable 472,454 (183,218)
Inventories (391,473) (572,976)
Prepaid expenses and
other assets 6,887 47,512
Accounts payable and
accrued expenses 1,098,371 167,122
Customer advances and
deposits 260,000 (47,280)
Deferred revenue - 102,800
Other long-term
liabilities (10,832) 49,357
Net cash provided by
(used in) operating
activities 78,639 (3,210,281)
Cash flows from investing
activities:
Purchases of fixed assets (191,533) (9,982)
Net cash used in
investing activities (191,533) (9,982)
Cash flows from financing
activities:
Payment of capital lease
obligations (17,162) (15,747)
Proceeds from exercise of
options & warrants - 44,625
Net proceeds from issuance
of preferred
stock through offerings
and conversion of debt - 3,921,038
Net cash provided by
(used in) financing
activities (17,162) 3,949,916
Net increase
(decrease) in cash and cash
equivalents (130,056) 729,653
Cash and cash
equivalents at beginning of
period 1,048,425 4,005,563
Cash and cash
equivalents at end of period $ 918,369 $ 4,753,216
</TABLE>
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit Total
<S> <C> <C> <C> <C>
December 31, 1997 11,989,855 $45,114,633 $(37,845,111) $ 7,269,522
Proceeds from
sale of warrants - 810,000 - 810,000
Exercise of
options 37,500 44,625 - 44,625
Imputed dividend on
mandatorily redeemable
convertible preferred
stock - (920,000) - (920,000)
Conversion of
Series B
Preferred
Stock 814,526 933,669 - 933,669
Warrants issued
with debt - 325,000 - 325,000
Net loss before
imputed dividend - - (9,769,853) (9,769,853)
December 31, 1998 12,841,881 46,307,927 (47,614,964) (1,307,037)
Conversion of
Series B
Preferred Stock 1,772,433 714,252 - 714,252
Net loss - - (1,662,431) (1,662,431)
March 31, 1999 14,614,314 $47,022,179 $(49,277,395) $(2,255,216)
(unaudited)
</TABLE>
The accompanying notes are an integral part of these financial statements.
ACCENT COLOR SCIENCES, INC.
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 March 31, 1999 and
the results of operations and cash flows for the three months
ended March 31, 1999 and 1998. The December 31, 1998 balance
sheet has been derived from the Company's audited financial
statements at that date. These interim condensed financial
statements should be read in conjunction with Management's
Discussion and Analysis and financial statements included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1998.
The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected
for the full year.
2. Summary of Significant Accounting Policies
Significant accounting policies followed in the preparation of
these financial statements are as follows:
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is generally recognized upon product shipment. The
Company has established warranty policies that, under specific
conditions, enable customers to return products. The Company
provides reserves for potential returns and allowances and
warranty costs at the time of revenue recognition. Prior to
October 1, 1998, the Company did not have adequate information
and experience to estimate potential returns, allowances and
warranty costs, and accordingly, revenue resulting from Truecolor
Systems was deferred until the end of the warranty period.
During the fourth quarter of 1998, the Company concluded that it
had adequate warranty information and experience to begin
recognizing revenue upon the shipment of systems to its primary
OEM customer. The Company will continue to defer revenue on
shipments to its second OEM customer until systems are in
production and are past the warranty period or until the Company
has adequate warranty history with that product.
3. Inventories
Inventories consist of the following:
March 31, December 31,
1999 1998
Raw materials and components $ 1,541,274 $ 1,185,529
Work-in-process 329,980 299,271
Finished goods 789,235 784,216
$ 2,660,489 $ 2,269,016
4. Mandatorily Redeemable Convertible Preferred Stock
In December 1997, the Company's Board of Directors designated a
series of 4,500 shares of the Company's previously authorized
preferred stock, no par value per share, to be designated as the
Series B Convertible Preferred Stock ("Series B Stock"). On
January 13, 1998 the Company completed a private equity financing
providing net proceeds to the Company of $3.9 million. In
connection with the financing, the Company issued 4,500 shares of
Series B Stock at a price of $1,000 per share and warrants to
purchase the Company's common stock. The warrants issued are
exercisable into 300,000 shares of common stock with an exercise
price of $2.75 and an expiration date of January 9, 2003.
Additionally, warrants exercisable into 115,385 shares of common
stock with an exercise price of $2.50 and an expiration date of
January 9, 2003 were issued to the placement agent for services
provided. The deemed fair market value of these warrants has been
reflected as an increase to common shareholders' equity and a
reduction of mandatorily redeemable convertible preferred stock.
In connection with the sale of the units, the Company agreed
to register the common stock issuable upon the conversion
of the Series B Stock and the execution of the warrants.
The Series B Stock, no par value per share, is convertible into
such number of shares of common stock as is determined by
dividing the stated value ($1,000) of each share of Series B
Stock (as such value is increased by an annual premium of 6%) by
the then current conversion price of the Series B Stock (which is
determined, generally, by reference to 85% of the average of the
closing market price of the common stock during the five
consecutive trading days immediately preceding the date of
determination) subject to certain restrictions and adjustments.
The Series B Stock has voting rights as defined in the Company's
Certificate of Incorporation, bears no dividends and ranks senior
to the Company's common stock and Series A Preferred Stock. In
the event of any voluntary or involuntary liquidation of the
Company, the Series B holders shall be entitled to a liquidation
preference equal to the stated value of the stock plus the
accrued premium through the date of final distribution. Upon
occurrence of specific events, as defined in the agreement, the
holder may redeem the Series B Stock for cash. In certain, but
not all, redemption events, the Company has the unilateral right
to pre-empt the right of holders of the Series B Stock from
demanding cash redemption of their shares by paying to them
within five days of the specific event, as liquidated damages,
25% of the face amount of the Series B Stock then outstanding.
Such liquidated damages can be paid in cash or shares at the
Company's election. Management does not consider any of the
events that would trigger mandatory redemption to be probable
events, has determined a reasonable estimate of when the
circumstances that would result in the shares becoming
mandatorily redeemable cannot be made, and therefore at March 31,
1999 does not accrue for accretion.
The Company initially reserved 6,300,000 shares of common stock
for issuance pursuant to the conversion of the Series B Stock.
This number of shares represented an estimate based on 200% of
the number of common shares that would have been issuable upon
conversion with an exercise price of $1.875 per share (4,800,000)
plus 1,500,000 shares issuable under the terms of the Certificate
of Designation in the event of certain failures by the Company to
comply with various provisions thereof, including maintaining its
common stock listing on the NASDAQ Stock Market. In addition,
415,385 shares of common stock, subject to adjustments in
accordance with the terms of each warrant, were reserved for
issuance pursuant to the exercise of the warrants described
above.
On August 10, 1998 and March 22, 1999, pursuant to the terms of
the Certificate of Designation and approval by the Board of
Directors, the Company increased the number of reserved shares of
common stock for issuance upon the conversion of the Series B
Stock by 2,567,652 and 3,833,699 shares, respectively. This was
done because the reserved amount had fallen below 135% of the
number of shares of common stock issuable upon conversion of the
then outstanding shares of Series B Stock. As of March 31, 1999,
there were 10,114,392 shares of common stock reserved for
issuance pursuant to the conversion of the remaining 2,735 shares
of Series B Stock issued and outstanding. The actual number of
shares issuable upon conversion could be materially less or more
than this number depending on factors that cannot be predicted by
the Company. The number of shares issuable upon conversion is
dependent on the market price of the common stock at the time of
the conversion. As of March 31, 1999, 1,765 shares of Series B
Stock had been converted into 2,586,959 shares of common stock at
an average conversion price of $.79 per share.
The Company's common stock was delisted from the NASDAQ Stock
Market effective March 17, 1999 as the Company was not in
compliance with NASDAQ's minimum bid price and net tangible asset
level. Consequently, each holder of the Company's Series B
Convertible Preferred Stock has the right, beginning March 31,
1999, to require the Company to redeem such holder's shares of
Series B Preferred Stock, in cash or, at the Company's option, in
common stock, at a redemption price specified in the Company's
Certificate of Incorporation. The Company is not aware that any
such holder intends to require such redemption, but cannot
predict what each holder may elect to require. In the event a
holder of Series B Preferred Stock were to demand redemption at a
time when the Company's resources are insufficient to redeem such
holder's shares, the rights of such holder would include the
right to receive interest at the annual rate of 24% on the
defaulted payment amount.
In the course of a review of a Securities Act filing, the staff
of the Securities and Exchange Commission ("the Commission")
raised an issue regarding the classification of the Company's
mandatorily redeemable convertible preferred stock. Due to
certain of mandatory redemption features, the carrying value of
the preferred shares, which were previously presented as a
component of shareholders' equity (deficit), has been
reclassified as temporary equity, outside of shareholders'
equity (deficit) at March 31,1999. The reclassification of the
preferred shares for thematter described above had no effect on
the Company's net loss,total assets or total liabilities. The
Company's redeemable equity and total shareholders' equity (deficit)
at March 31,1999, as previously reported and reclassified, are as follows:
March 31, 1999
Redeemable equity - previously reported $ -
Adjustment related to the presentation of the mandatorily
redeemable convertible preferred shares as redeemable 2,383,116
----------
As restated $ 2,383,116
==========
Shareholders' equity (deficit) - previously reported $ 127,900
Adjustment related to the presentation of the mandatorily
redeemable convertible preferred shares as redeemable (2,383,116)
----------
As restated $(2,255,216)
==========
5. Subsequent Event
On April 30, 1999, in an effort to retain key personnel, the
Board of Directors approved an increase in the number of shares
of common stock available under the Company's 1995 Stock
Incentive Plan from 2,000,000 shares to 4,000,000 shares and the
issuance of 1,942,500 options under the Plan to active employees
and directors of Accent Color Sciences at an exercise price of
$.22 per share, the fair market value as of that date. This
amendment is, and indirectly substantially all of such options
are, subject to shareholder approval in accordance with the terms
of the Plan.
4. Mandatorily Redeemable Convertible Preferred Stock
In December 1997, the Company's Board of Directors designated a
series of 4,500 shares of the Company's previously authorized
preferred stock, no par value per share, to be designated as the
Series B Convertible Preferred Stock ("Series B Stock"). On
January 13, 1998 the Company completed a private equity financing
providing net proceeds to the Company of $3.9 million. In
connection with the financing, the Company issued 4,500 shares of
Series B Stock at a price of $1,000 per share and warrants to
purchase the Company's common stock. The warrants issued are
exercisable into 300,000 shares of common stock with an exercise
price of $2.75 and an expiration date of January 9, 2003.
Additionally, warrants exercisable into 115,385 shares of common
stock with an exercise price of $2.50 and an expiration date of
January 9, 2003 were issued to the placement agent for services
provided. In connection with the sale of the units, the Company
agreed to register the common stock issuable upon the conversion
of the Series B Stock and the execution of the warrants.
The Series B Stock, no par value per share, is convertible into
such number of shares of common stock as is determined by
dividing the stated value ($1,000) of each share of Series B
Stock (as such value is increased by an annual premium of 6%) by
the then current conversion price of the Series B Stock (which is
determined, generally, by reference to 85% of the average of the
closing market price of the common stock during the five
consecutive trading days immediately preceding the date of
determination) subject to certain restrictions and adjustments.
The Series B Stock has voting rights as defined in the Company's
Certificate of Incorporation, bears no dividends and ranks senior
to the Company's common stock and Series A Preferred Stock. In
the event of any voluntary or involuntary liquidation of the
Company, the Series B holders shall be entitled to a liquidation
preference equal to the stated value of the stock plus the
accrued premium through the date of final distribution. Upon
occurrence of specific events, as defined in the agreement, the
holder may redeem the Series B Stock for cash or shares at the
option of the Company. The Company also has optional redemption
rights.
The Company initially reserved 6,300,000 shares of common stock
for issuance pursuant to the conversion of the Series B Stock.
This number of shares represented an estimate based on 200% of
the number of common shares that would have been issuable upon
conversion with an exercise price of $1.875 per share (4,800,000)
plus 1,500,000 shares issuable under the terms of the Certificate
of Designation in the event of certain failures by the Company to
comply with various provisions thereof, including maintaining its
common stock listing on the NASDAQ Stock Market. In addition,
415,385 shares of common stock, subject to adjustments in
accordance with the terms of each warrant, were reserved for
issuance pursuant to the exercise of the warrants described
above.
On August 10, 1998 and March 22, 1999, pursuant to the terms of
the Certificate of Designation and approval by the Board of
Directors, the Company increased the number of reserved shares of
common stock for issuance upon the conversion of the Series B
Stock by 2,567,652 and 3,833,699 shares, respectively. This was
done because the reserved amount had fallen below 135% of the
number of shares of common stock issuable upon conversion of the
then outstanding shares of Series B Stock. As of March 31, 1999,
there were 10,114,392 shares of common stock reserved for
issuance pursuant to the conversion of the remaining 2,735 shares
of Series B Stock issued and outstanding. The actual number of
shares issuable upon conversion could be materially less or more
than this number depending on factors that cannot be predicted by
the Company. The number of shares issuable upon conversion is
dependent on the market price of the common stock at the time of
the conversion. As of March 31, 1999, 1,765 shares of Series B
Stock had been converted into 2,586,959 shares of common stock at
an average conversion price of $.79 per share.
The Company's common stock was delisted from the NASDAQ Stock
Market effective March 17, 1999 as the Company was not in
compliance with NASDAQ's minimum bid price and net tangible asset
level. Consequently, each holder of the Company's Series B
Convertible Preferred Stock has the right, beginning March 31,
1999, to require the Company to redeem such holder's shares of
Series B Preferred Stock, in cash or, at the Company's
option, in common stock, at a redemption price specified in
the Company's Certificate of Incorporation. The Company is not
aware that any such holder intends to require such redemption, but
cannot predict what eachholder may elect to require. In the event a
holder of Series B Preferred Stock were to demand redemption at a
time when the Company's resources are insufficient to redeem such holder's
shares, the rights of such holder would include the right to
receive interest at the annual rate of 24% on the defaulted
payment amount.
5. Subsequent Event
On April 30, 1999, in an effort to retain key personnel, the
Board of Directors approved an increase in the number of shares
of common stock available under the Company's 1995 Stock
Incentive Plan from 2,000,000 shares to 4,000,000 shares and the
issuance of options respecting 1,942,500 shares under the Plan to
active employees and directors of Accent Color Sciences at an
exercise price of $.22 per share, the fair market value as of
that date. This amendment is, and indirectly substantially all
of such options are, subject to shareholder approval in
accordance with the terms of the Plan.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACCENT COLOR SCIENCES, INC.
Dated September 17, 1999 By /s/ Charles E. Buchheit
Charles E. Buchheit
President and Chief Executive Officer
By /s/ Tracy L. Hubert
Tracy L. Hubert
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 918,369
<SECURITIES> 0
<RECEIVABLES> 849,328
<ALLOWANCES> 0
<INVENTORY> 2,660,489
<CURRENT-ASSETS> 4,637,863
<PP&E> 4,805,399
<DEPRECIATION> 2,953,238
<TOTAL-ASSETS> 6,561,402
<CURRENT-LIABILITIES> 3,568,184
<BONDS> 2,274,381
2,383,116
0
<COMMON> 47,022,179
<OTHER-SE> (49,277,395)
<TOTAL-LIABILITY-AND-EQUITY> 6,561,402
<SALES> 2,249,498
<TOTAL-REVENUES> 2,249,498
<CGS> 2,144,306
<TOTAL-COSTS> 2,144,306
<OTHER-EXPENSES> 951,830
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,814
<INCOME-PRETAX> (1,662,431)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,662,431)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,662,431)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
