<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________ to
___________
Commission file number: 0-26394
ACCENT SOFTWARE INTERNATIONAL LTD.
- - - ---------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Israel N/A
- - - -------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
28 Pierre Koenig Street, Jerusalem 91530 Israel
011-972-2-793-723
- - - ---------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
N/A
- - - ---------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 [_]
On May 13, 1996, the registrant had outstanding 6,470,615 Ordinary Shares
which is the registrant's only class of common stock.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCENT SOFTWARE INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS AND SHARES IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 9,633 5,210
Trade receivables, net of allowance
of $767 in 1996 and $997 in 1995 2,661 3,803
Other receivables 696 843
Prepaid expenses 656 774
Inventories 1,659 2,027
------ ------
Total current assets 15,305 12,657
------ ------
Equipment
Cost 1,456 1,844
Less - accumulated depreciation 339 416
------ ------
Equipment net 1,117 1,428
------ ------
Capitalized software production
costs, net of accumulated
amortization of $524 in 1996 and
$380 in 1995 1,228 1,129
------ ------
Total assets 17,650 15,214
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term loans 27 126
Accounts payable and accrued expenses 4,949 5,792
------ ------
Total current liabilities 4,976 5,918
------ ------
Long-term bank loans 2,331 2,231
------ ------
Accrued severance pay 210 223
------ ------
Shareholders' equity
Share capital - Ordinary shares of NIS
0.01 parvalue, Authorized 10,000 shares;
issued and outstanding 6,449 in 1996
and 6,321 in 1995 21 22
Share premium 22,325 22,965
Accumulated deficit (12,213) (16,145)
------ ------
Total shareholders' equity 10,133 6,842
------ ------
Total liabilities and shareholders' equity 17,650 15,214
====== ======
</TABLE>
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
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ACCENT SOFTWARE INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. DOLLARS AND SHARES IN THOUSANDS (EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Net sales 633 2,843
------ ------
Operating costs and expenses
Cost of sales 560 1,367
Product development costs, net 235 648
Marketing expenses 1,247 3,273
General and administrative expenses 280 1,480
------ ------
Total operating costs and expenses 2,322 6,768
------ ------
Operating loss (1,689) (3,925)
Financing expenses, net 116 7
------ ------
Net loss (1,805) (3,932)
====== ======
Loss per share (0.52) (0.62)
====== ======
Weighted average number of shares 3,473 6,380
====== ======
</TABLE>
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
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<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
U.S. DOLLARS AND SHARES IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF
ORDINARY SHARE SHARE ACCUMULATED
SHARES CAPITAL PREMIUM DEFICIT TOTAL
-------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1995 3,050 11 3,290 (4,365) (1,064)
Net loss for the period - - - (1,805) (1,805)
------ ------- ------ ------ ------
Balance as of March 31, 1995 3,050 11 3,290 (6,170) (2,869)
====== ======= ====== ====== ======
Balance as of January 1, 1996 6,321 21 22,325 (12,213) 10,133
Warrants exercised 128 1 640 - 641
Net loss for the period - - - (3,932) (3,932)
Balance as of March 31, 1996 6,449 22 22,965 (16,145) 6,842
====== ====== ====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
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<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1995 1996
------ ------
<S> <C> <C>
Cash flows from operating activities
Net loss for the period (1,805) (3,932)
Adjustments to reconcile net loss to net
cash used in operating activities 196 (697)
------ ------
Net cash used in operating activities (1,609) (4,629)
------ ------
Cash flows from investing activities
Acquisition of equipment (52) (388)
Capitalized software development costs (150) (46)
------ ------
Net cash used in investing activities (202) (434)
------ ------
Cash flows from financing activities
Increase in short-term bank borrowings 699 -
Long-term loan from bank 1,035 -
Warrants exercised - 641
Repayment of long-term loans - (1)
------ ------
Net cash provided by financing activities 1,734 640
------ ------
Decrease in cash and cash equivalents (77) (4,423)
Cash and cash equivalents at beginning of period 78 9,633
------ ------
Cash and cash equivalents at end of period 1 5,210
====== ======
Adjustments to reconcile net loss to
net cash used in operating activities
Items not involving cash flows:
Depreciation and amortization 58 222
Increase in severance pay 1 13
Provision for doubtful accounts and sales returns 37 491
Changes in operating assets and liabilities:
Increase in trade receivables (125) (1,633)
Increase in other receivables - (147)
Increase in prepaid expenses (56) (118)
Increase in inventories (55) (368)
Increase in accounts payable and accrued expenses 336 843
------ ------
196 (697)
====== ======
</TABLE>
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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ACCENT SOFTWARE INTERNATIONAL LTD.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1996. Although the Company believes that
the disclosure presented herein is adequate to make the
information presented not misleading, it is suggested that
these condensed consolidated financial statements be read in
conjunction with the audited financial statements and
footnotes included in the Company's 1995 Annual Report on
Form 10-K for the year ended December 31, 1995.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Materials 372 537
Finished goods 1,287 1,490
----- -----
1,659 2,027
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</TABLE>
NOTE 3 - SALES
Sales to two customers exceeded 10% of the Company's total
first quarter net sales. Sales to Customer A and Customer B
amounted to approximately $1,000 and $600, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITIONS.
RESULTS OF OPERATIONS
The Company achieved a record level of sales during the three
month period ended March 31, 1996 of $2,843,000, an approximate 350%
increase over the comparable quarter of 1995 and a 68% increase over
the previous quarter (three months ended December 31, 1995). The
Company incurred an operating loss of $3,932,000 in the first three
months of 1996 compared to an operating loss of $1,689,000 in the 1995
comparable period, and $3,536,000 in the previous quarter, primarily
as a result of marketing efforts and the continued expansion of
operating activities.
The following table sets forth for the periods indicated the
percentage of revenues represented by certain expense items reflected
in the Company's statement of operations.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Three months ended March 31,
---------------------------
1996 1995
<S> ---- ----
<C> <C>
Net sales 100.0% 100.0%
Operating costs and expenses
Cost of sales 48.0 88.5
Product development costs, net 22.8 37.1
Marketing expenses 115.1 197.0
General and administrative expenses 52.1 44.2
----- -----
Total operating costs and expenses 238.0 366.8
Operating loss (138.0)% (266.8)%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995.
Net Sales. Net sales increased approximately 350% to $2,843,000 in
the three month period ended March 31, 1996 from $633,000 in the three
month period ended March 31, 1995. This increase was due to sales of
Internet with an Accent, the Company's multilingual internet product
released late in the fourth quarter of 1995 and Accent Duo, the
Company translation product introduced in the fourth quarter of 1995.
Additionally, sales in the three month period ended March 31, 1996
increased due to two OEM license agreements of the Company's Internet
with an Accent product which represent firm revenue commitments as
well as potentially providing additional revenue opportunities based
upon end customer utilization. Sales to two customers exceeded 10% of
the Company's total first quarter net sales. Sales to Customer A and
Customer B amounted to approximately $1,000,000 and $600,000,
respectively.
Cost of Sales. Cost of sales increased approximately 144% to
$1,367,000 in the three month period ended March 31, 1996 from
$560,000 in the three month period ended March 31, 1995. This
increase is attributable in part to the approximate 350% increase in
sales during the comparable periods. As a percentage of net sales,
cost of sales decreased to 48.0% in the three month period ended March
31, 1996 from 88.5% in the three month period ended March 31, 1995 to
due to the greater percentage of mix of OEM sales to package software
sales and the reduction in per unit manufacturing cost due to the
higher volume production. Included in cost of sales are increased
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royalty expenses associated with Internet with an Accent and
significantly increased amortization of software development costs
compared to prior years.
Product Development Costs, Net. Product development costs, net
increased approximately 176% to $648,000 in the three month period
ended March 31, 1996 from $235,000 in the three month period ended
March 31, 1995. This increase is due primarily to an increase in the
number of employees, and the related expenses, in the engineering
department to 49 at March 31, 1996 from 36 at March 31, 1995.
Approximately 10% of such related salary costs in 1996 were
capitalized as compared to 55% in 1995.
Marketing Expenses. Marketing expenses increased approximately 162%
to $3,273,000 in the three month period ended March 31, 1996 from
$1,247,000 in the three month period ended March 31, 1995. Included
in these expenses are advertising and public relations expenditures
which increased to approximately $1,700,000 in
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<PAGE>
the 1996 period from approximately $369,000 in the 1995 period. The
significant increase in advertising and public relations expenditures
reflects the Company's efforts to increase awareness of Accent's
products in the international marketplace. The Company utilizes
outside professionals for a significant portion of its advertising and
public relation related expenses. In addition, the Company
significantly increased the number of employees in marketing and sales
to 51 at March 31, 1996 from 31 at March 31, 1995. A significant
portion of the increase in marketing expenses resulted from the
opening of a sales subsidiary in California. Finally, travel and
related costs have increased due to the expanded sales and marketing
efforts.
General and Administrative Expenses. General and administrative
expenses increased approximately 429% to $1,480,000 in the three month
period ended March 31, 1996 from $280,000 in the three month period
ended March 31, 1995. As a percentage of net sales, general and
administrative expenses increased to 58% in the three month period
ended March 31, 1996 from 44% in the three month period ended March
31, 1995. This increase was primarily due to an increase in the
number of general and administrative employees, as well as an increase
in compensation for certain higher level personnel. General and
administrative personnel includes senior executives, finance, legal,
human resources and office administration. In addition, the Company
continued to experience delays in the collection of certain customer
accounts and accrued a provision for doubtful accounts of
approximately $490,000 for the three month period ended March 31,
1996.
Financing Expenses, Net. Financing expenses, net (consisting of net
interest expense and interest income) decreased to $7,000 in the three
month period ended March 31, 1996 from $116,000 in the three month
period ended March 31, 1995. During the 1995 period the Company's
outstanding borrowings approximated $3,400,000 compared to $2,400,000
during 1996. In the 1996 period, the Company had cash and cash
equivalents averaging $7,000,000.
Net Loss. As a result of the foregoing, the Company's net loss
increased to $3,932,000 in the three month period ended March 31, 1996
from $1,805,000 in the three month period ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's capital requirements in connection with
its development and marketing activities have been and will continue
to be significant. The Company has been dependent upon the proceeds
of sales of its securities to private and public investors (including
a May 1995 bridge financing and a July 1995 initial public offering),
as well as certain private loans and various government guaranteed
long-term loans under the Approved Enterprise Program which is
administered by the Israel Investment Center to fund its initial
development and marketing activities.
Future sales of the Company's products and proposed products will
depend principally on customer demand for multilingual software
programs. The computer industry has historically been volatile and,
as is typically the case with newly-introduced products, the ultimate
level of demand for the Company's products is subject to a high degree
of uncertainty. Developing market acceptance, particularly worldwide,
for the Company's existing and proposed products has and will continue
to require substantial marketing efforts and the expenditure of a
significant amount of funds to inform customers of the perceived
benefits and cost advantages of its products. The Company expects
that its principal use of cash during the next year, apart from
general operating expenses for product development and operations,
will continue to be concentrated on significant marketing activities
worldwide.
Consistent with industry practices, the Company may accept
product returns or provide other credits in the event that a
distributor or retailer holds excess inventory of the Company's
<PAGE>
products. The Company's sales are made on credit terms which vary
significantly depending on the nature of the sale and size of the
customer. In addition, the Company does not hold collateral to secure
payment from its distributors and retailers. Therefore, a default in
payment by one or more of the Company's distributors or retailers has
adversely affected, and in the future could adversely affect, the
Company's business, results of operations and financial condition.
The Company believes it has established sufficient reserves to
accurately reflect the amount or likelihood of product returns or
credits and uncollectible receivables. However, there can be no
assurance that
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<PAGE>
actual returns or uncollected accounts receivable beyond the reserves
established would not have a material adverse effect on the Company's
business, results of operations and financial condition.
In addition, and also consistent with industry practice for
packaged software companies which are establishing their distribution
channel, the Company will, when appropriate, be transferring product
through the distribution channel on a consignment basis. In three
month period ended March 31, 1996, significant shipments were made on
that basis, resulting in higher inventory balances and working capital
requirements. There can be no assurance that such inventory
consignment will result in additional sales for the Company and that
it will not result in excess inventory or continued increased working
capital requirements for the Company.
Long term bank loans received as part of the Approved Enterprise
Program totaled $2,357,000 as of March 31, 1996, which was comparable
to the amount at December 31, 1995. The Law for the Encouragement of
Capital Investments, 1959 provides that capital investments in certain
production facilities (or other eligible assets) may, upon application
to the Israel Investment Center which administers the program, be
designated as an "Approved Enterprise". Each certificate of approval
for an Approved Enterprise relates to a specific investment program in
the Approved Enterprise, delineated both by the financial scope of the
investment and by the physical characteristics of the facility or
other asset. The Company is eligible to receive guaranteed loans of
approximately $4,400,000 under the Approved Enterprise Program. Of
this amount, the Company has been approved to borrow $2,650,000. In
order for the Company to be eligible to receive the remainder of these
guaranteed loans, the Company must continue to comply with the various
conditions of each respective approved program, including compliance
with minimum investment levels and achieving certain levels of sales.
The Company has recently formally applied for additional funds
available to it under the program. Although the Company believes it
is in compliance with and will continue to comply with these
conditions, there can be no assurance that this will continue to occur
or that the Company will receive any additional loans under the
Approved Enterprise program.
Significant increases in sales are essential to the Company's
future. The Company is not generating sufficient revenues from its
operations to fund its activities. Working capital decreased from a
surplus of $10,330,000 on December 31, 1995 to a surplus of $6,739,000
on March 31, 1996 due to the Company's significant continuing
operating losses, working capital needs and capital spending. Sales
activities at the retail customer level and subsequent cash
collections from the Company's customers are significantly slower than
original anticipated. In addition, due to the nature of sales terms
with several large distributors, shipments to certain customers
represent consignment sales. Accordingly, as of March 31, 1996 the
Company has large investments in receivables and inventory as it
continues to establish its position in the marketplace. The Company
is dependent on remaining cash and cash equivalents, the timely
collection of receivables and additional borrowings under the Approved
Enterprise program in order to fund its current obligations and
continue the development of its technology and marketing of its
products. The Company is in the process of evaluating certain
additional financing alternatives which will allow the business to
continue to expand in the marketplace at its present rate. There can
be no assurance, however, that additional financing will be available
to the Company on commercially reasonable terms, or at all. In the
event that additional sources of financing prove to be insufficient to
fund operations or are not available, the Company will be required to
revise its marketing spending levels and various other aspects of its
operations in order to enable existing sources of funds to finance the
Company's operations in an effective manner.
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PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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 SOFTWARE INTERNATIONAL LTD.
(REGISTRANT)
Date: May 15, 1996 By: /s/ Michael Sondhelm
------------------------
Michael Sondhelm
Controller
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit No. Description
- - - ----------- -----------
27 Financial Data Schedule
NYFS06...:\45\11045\0004\1680\FRM5096L.51B
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 5,210
<SECURITIES> 0
<RECEIVABLES> 4,570
<ALLOWANCES> 767
<INVENTORY> 2,027
<CURRENT-ASSETS> 12,657
<PP&E> 1,844
<DEPRECIATION> 416
<TOTAL-ASSETS> 15,214
<CURRENT-LIABILITIES> 5,918
<BONDS> 2,231
0
0
<COMMON> 22
<OTHER-SE> 6,820
<TOTAL-LIABILITY-AND-EQUITY> 15,214
<SALES> 2,843
<TOTAL-REVENUES> 2,843
<CGS> 1,367
<TOTAL-COSTS> 1,367
<OTHER-EXPENSES> 648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,932)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
