<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 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: 0-26394
ACCENT SOFTWARE INTERNATIONAL LTD.
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(Exact Name of Registrant in its Charter)
ISRAEL N/A
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
28 PIERRE KOENIG STREET, JERUSALEM 91530 ISRAEL
011-972-2-679-3723
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(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 November 3, 1997, the registrant had outstanding 13,154,982 Ordinary Shares
(including 1,800,000 Ordinary Shares included in the registrant's outstanding
Units).
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars and shares in thousands
DECEMBER 31, SEPTEMBER 30,
1996 1997
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ASSETS (Audited) (Unaudited)
Current Assets
Cash and cash equivalents $ 8,723 $ 76
Trade receivables, net of allowance of
$2,245 in 1996 and $1,691 in 1997 984 1,414
Other receivables 172 229
Prepaid expenses 595 1,206
Deferred debt issuance cost - 436
Inventories 1,021 439
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Total current assets $ 11,495 $ 3,800
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Equipment
Cost $ 2,462 $ 2,606
Less - Accumulated depreciation 723 1,088
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Equipment, net $ 1,739 $ 1,518
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Capitalized software development costs, net of
accumulated amortization of $1,098 in 1996
and $1,431 in 1997 555 222
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Total assets $ 13,789 $ 5,540
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 1,443 $ 1,604
Accounts payable and accrued expenses 6,424 2,758
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Total current liabilities $ 7,867 $ 4,362
Long-term bank loans $ 2,619 $ 1,384
6% Convertible Debentures - 1,734
Accrued severance liability 329 320
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Total liabilities $ 10,815 $ 7,800
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Shareholders' Equity (Deficit)
Share capital $ 28 $ 30
Ordinary shares of NIS 0.01 par value.
Authorized 30,000 shares; issued and
outstanding 11,670 at December 31, 1996
and 12,308 at September 30, 1997
Share premium 36,193 38,642
Accumulated deficit (33,247) (40,932)
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Total shareholders' equity (deficit) $ 2,974 $ (2,260)
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Total liabilities and shareholders'
equity (deficit) $ 13,789 $ 5,540
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
2
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
U.S. dollars and shares in thousands (except per share amounts)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
1996 1997 1996 1997
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Net sales $ 603 $ 1,104 $ 4,731 $ 2,553
Operating costs and expenses
Cost of sales 1,705 878 4,845 2,085
Product development costs 979 1,136 2,448 3,575
Marketing expenses (NOTE 3) 1,838 580 8,109 1,900
General and administrative
expenses (NOTE 3) 1,792 718 5,007 1,917
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Total operating costs and expenses 6,314 3,312 20,409 9,477
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Operating loss (5,711) (2,208) (15,678) (6,924)
Financing expenses, net (NOTES 4,5) 15 726 71 761
Net loss $(5,726) $(2,934) $(15,749) $(7,685)
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Net loss per share $ (0.59) $ (0.25) $ (1.62) $ (0.65)
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Weighted average number of shares
outstanding 9,787 11,876 9,698 11,754
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
U.S. dollars in thousands
(Unaudited)
<TABLE>
FOR THE NINE MONTHS ENDED SEPT. 30,
1996 1997
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<S> <C> <C>
Operating activities
Net loss $(15,749) $(7,685)
Adjustments to reconcile net loss to net cash
used in operating activities
Accretion of debt for attached warrants - 24
Accretion of debt for guaranteed return - 667
Amortization of deferred debt issuance costs - 40
Shares issued in payment of interest - 20
Depreciation and amortization 695 698
Change in allowance for doubtful accounts 179 (554)
Changes in assets and liabilities
Decrease in trade receivables 596 435
(Increase) decrease in other receivables 524 (57)
(Increase) in prepaid expenses (78) 478
(Increase) decrease in inventories (179) 271
Increase (decrease) in accounts payable & accruals 3,001 (3,666)
Increase (decrease) in severance liability 104 (9)
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Net cash (used in) operating activities (10,907) (9,338)
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Investing activities
Acquisition of equipment (970) (144)
Capitalized software development costs (46) -
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Net cash used in investing activities (1,016) (144)
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Financing activities
Increase in long-term bank loans 1,550 -
Repayment of long-term bank loans (41) (1,074)
Increase in short-term loans from shareholders 415 -
Proceeds from issuance of debentures and warrants - 2,000
Payment of Debt issuance costs (246) (150)
Proceeds received on exercise of options & warrants, net 1,019 59
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Net cash provided by financing activities 2,697 835
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Increase (decrease) in cash and cash equivalents (9,226) (8,647)
Cash and cash equivalents, beginning of period 9,633 8,723
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Cash and cash equivalents, end of period $ 407 $ 76
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Supplemental Schedule of Non-Cash Investing and
Financing Activities
Debt issuance costs paid by issuance of warrants (NOTE 4) $ - $ 326
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Prepaid assets received in exchange for shares (NOTE 3) $ - $ 1,089
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Accent Software International Ltd., and its subsidiaries ("Accent"
or "the Company") have been prepared in accordance with United
States generally accepted accounting principles for interim financial
information. The significant accounting policies, certain financial
information and footnote disclosures which are normally included in
financial statements prepared in accordance with generally accepted
accounting principles, but which are not required for interim reporting
purposes, have been condensed or omitted. In the opinion of management,
all adjustments (consisting of adjustments of a normal, recurring
nature) necessary for a fair presentation of these financial statements
have been reflected in the interim periods presented. Operating
results for the three month and nine month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. Although the Company believes
that the disclosures presented herein are 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 1996 Annual Report on Form 10-K for the year ended December
31, 1996.
NOTE 2 - INVENTORIES
DEC. 31, SEP.30,
1996 1997
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Material and Components $ 230 $ 180
Finished Goods 791 259
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Total $ 1,021 $ 439
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NOTE 3 - SHARE CAPITAL
On June 6, 1996, the Company effected a three-for-two stock split.
All share and per share data have been retroactively restated in the
accompanying financial statements to give effect to this stock split.
During the most recent quarter, the Company retained the services of a
marketing and public relations firm. Under the terms of the agreement
which runs for twelve months, the firm received 612,000 Ordinary
Shares of the Company of which 312,000 are registered and freely
tradable and the balance will be registered within one year of the
agreement. The 612,000 Ordinary Shares have been valued at $995
5
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
(Unaudited)
and are reflected on the balance sheet as an increase in share capital
and as a prepaid expense which will be amortized over the twelve month
period of performance.
Also during the most recent quarter, the Company retained the services
of a sales consultant for assistance in its selling efforts. In
return for services over a one year period, the consultant received
warrants to purchase 100,000 Ordinary Shares of the Company at an
exercise price of $2.00 per share. The warrants are exercisable for
three years and their total value of $94 (valued through a commonly
accepted valuation model) is also reflected on the balance sheet as an
increase in share capital and as a prepaid expense which will be
amortized over the twelve month period of performance. The agreement
with the sales consultant specifies that he will receive an additional
100,000 warrants if his efforts contribute at least $1,000 in
additional revenue for the Company. No value has been assigned to the
additional warrants.
See discussion in Note 8, below, for subsequent events affecting share
capital.
NOTE 4 - LIQUIDITY
As of December 31, 1996 and September 30, 1997, the Company had
accumulated deficits of $33,247 and $40,932, respectively, and
anticipates that it will continue to incur losses for some time.
Working capital decreased from $3,628 at December 31, 1996 to a
deficit of $562 at September 30, 1997 due primarily to the Company's
continuing operating losses and working capital needs.
The Company initiated a restructuring and refocusing effort during the
fourth quarter of 1996, which included a substantial reduction in the
number of employees, major reductions in sales and marketing
activities and the elimination or reduction of various other expenses.
These efforts have reduced operating expenses and the level of funding
required to operate the Company.
Additional financing will be required for the Company to meet its
operating objectives during the balance of 1997 and the Company has
prepared plans to obtain additional financing. There can be no
assurance, however, that the Company will be successful in carrying
out its plans. Any failure to obtain additional financing when needed
will have a material adverse impact on the Company, including possibly
requiring the Company to curtail or cease operations.
The consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
continues to generate significant operating losses and operating cash
flow deficits and management's plans in regard to these matters are
discussed within this Form 10-Q. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amounts and classification of liabilities that may result should the
Company be unable to continue as a going concern.
NOTE 5 - CONVERTIBLE DEBENTURE
The Company completed a financing arrangement during the most recent
quarter in which it received $2,000 in cash before expenses
(approximately $1,850 net of expenses) in exchange for an unsecured
debenture carrying six percent (6%) annual
6
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
(Unaudited)
interest and convertible into the Company's Ordinary Shares at the
lesser of 135% of the average closing bid price of its Ordinary Shares
for the five day period preceding the closing date or 75% of the
average closing bid price of its Ordinary Shares for the five day
period preceding the date of conversion. The debenture automatically
converts into Ordinary Shares on August 5, 1999 (two years), and may
be converted anytime after the earlier of November 2, 1997 or the date
on which the registration statement for the underlying Ordinary Shares
is ruled effective by the Securities and Exchange Commission (which
occurred on September 29, 1997). The Company, at its option, may
require the investor to convert the debenture into Preferred Shares of
the Company at any time prior to November 3, 1997. Terms of the
Preferred Shares will be identical to the debentures. Conversion of
the debenture (or Preferred Shares) will result in dilution to the
Company's current shareholders. Assuming the Company's share price
remains at $1.64 (the level it was at on the closing date, August 5,
1997), the percentage dilution will approximate 12%. If the share
price increases, the amount of dilution will decrease and, conversely,
if the share price decreases, the amount of dilution will increase.
See discussion in Note 8, below, for subsequent events concerning the
convertible debenture.
The investor was also granted warrants to purchase 250,000 Ordinary
Shares of the Company at an exercise price of $2.80 and additional
warrants to purchase 50,000 Ordinary Shares at an exercise price of
$3.20. The placement agents for the transaction were granted warrants
to purchase 300,000 Ordinary Shares at an exercise price of $1.90.
The warrants are exercisable for five years. Exercise of all 600,000
warrants granted to the investor and to the placement agents would
result in dilution to existing shareholders of approximately 5%. The
investor warrants have been valued at $290 using a commonly accepted
valuation model and have been recorded as a reduction of the face
value of the debt, with a resulting increase in shareholders' equity.
The reduction in debt will be accreted over the life of the debt. The
placement agents warrants have been valued at $326, also using a
commonly accepted valuation model, and have been capitalized as debt
issuance costs, with a resulting increase in shareholders' equity.
The placement agents' warrants are being amortized over the life of
the debt.
The interest expense on the debt may be paid in either cash or
Ordinary Shares of the Company, at the option of the Company. During
the third quarter, the Company recorded $20 of interest expense
related to the debt and a related increase in shareholders' equity as
the interest expense was subsequently paid in stock.
7
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
(Unaudited)
Note 6 - CONVERTIBLE DEBENTURE ACCOUNTING
The terms of the convertible debenture described in the preceding Note
5 provide a "lesser of" conversion pricing mechanism (the lesser of
135% of the average closing bid price of the Company's Ordinary Shares
for the five trading days preceding closing or 75% of the average
closing bid price of the Company's Ordinary Shares for the five
trading days preceding conversion). This conversion feature results
in a "guaranteed return" of 33%, $667, which has been accounted for on
the day of the transaction as a reduction in the carrying amount of
the debenture and a corresponding increase in share capital. The
"guaranteed return" is accrued as additional interest expense from the
date of the transaction to the first date on which the debentures may
be converted into Ordinary Shares of the Company (September 29, 1997).
The amortization is reflected through a charge to "Interest Expense"
on the Company's Statement of Operations and is offset by an increase
in the carrying value of the debenture on the Company's Balance Sheet
during the third quarter.
Note 7 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share". This statement establishes standards for computing and
presenting earnings per share (EPS), replacing the presentation of
currently required Primary EPS with a presentation of Basic EPS. For
entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS. Under the new
standard, Basic EPS is computed based on the weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects
potential dilution for the exercise or conversion of securities into
common stock or from other contracts to issue common stock and is
similar to the currently required fully diluted EPS. SFAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997 and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all
prior periods. The Company does not expect that the adoption of this
statement will have a material effect on previously reported EPS
amounts.
Note 8 - SUBSEQUENT EVENTS
Notes 3 and 5, above, provide a discussion of the convertible
debenture which the Company issued during the third quarter. On
October 16, 1997, the investor elected to convert $1,000 of the
debenture, plus accrued interest of $11, into Ordinary Shares of the
Company. The conversion price was approximately $1.88, resulting in
the issuance of 538,300 Ordinary Shares to the holder and dilution to
current shareholders of approximately 4.4%. On October 31, 1997, the
investor elected to convert $500,000 of the remaining debenture, plus
accrued interest of $7, into Ordinary Shares of the Company. The
conversion price was approximately $1.65,
8
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
(Unaudited)
resulting in the issuance of 308,240 Ordinary Shares to the holder and
dilution to current shareholders of approximately 2.4%. Also on
October 31, the Company exercised its option to convert the balance of
the debenture into Preferred Shares.
On November 6, 1997 the Company completed a financing arrangement with
a group of investors. The Company received $4,000 in cash before
expenses and a commitment that upon the occurrence of certain
conditions, including effective registration of the underlying
Ordinary Shares, the Company would receive an additional $1,750 in
cash before expenses. In return, the Company issued the investors
debentures in the amount of $4,000, carrying six percent (6%) annual
interest (payable in cash or Ordinary Shares, at the Company's option)
and convertible into the Company's Ordinary Shares at a conversion
rate equal to the lesser of (a) $2.45; or (b) or 80% of the average
closing bid price of the Ordinary Shares for the five trading day
period preceding the date of conversion (the "First Closing
Debentures"). Upon the closing of the additional $1,750 investment,
the Company shall issue the investors 1,750 Series B Preferred Shares
which will be convertible into Ordinary Shares upon the same terms and
conditions as obtain in the First Closing Debentures (the "Second
Closing Preferred Shares"). (The First Closing Debentures and Second
Closing Preferred Shares are collectively referred to as the "November
Convertible Securities."). The November Convertible Securities
automatically convert into Ordinary Shares on November 6, 1999, two
years after the date of the closing, and may be converted at the
investors' option anytime after the earlier of November 11, 1997, or
the date on which the resale of the Ordinary Shares issuable upon
conversion of the November Convertible Securities is registered with
the SEC, provided that no more than 50% of the principal amount of
such securities may be converted prior to December 15, 1997. At any
time prior to November 10, 1997, the Company may convert all or part of
the First Closing Debentures into up to 4,000 newly authorized
Preferred Shares designated Series B for purposes of such conversion.
The Series B Preferred Shares will have a liquidation preference of
$1,000 per share plus a premium of 6% per annum. The Series B
Preferred shares will not be entitled to any dividends nor will it have
any voting rights except as provided by Israeli law with respect to
extraordinary corporate transactions. The Series B Preferred shares
will be convertible into Ordinary Shares on the same terms as the
November Convertible Securities as described above. The terms of the
Series B Preferred Shares will also prohibit the issuance of Preferred
Shares with terms superior or equal to the terms of the Series B
Preferred Shares for some period of time, without the investors'
consent. In addition, the Company has the right to redeem the November
Convertible Securities on or after November 6, 1998, as long as no
event of default has occurred thereunder, at a redemption price of not
less than 125% of the principal amount thereof and any accrued and
unpaid interest or other payment thereon. Conversion of the November
Convertible Securities will result in dilution to the Company's current
shareholders. Assuming the Company's share price remains at
9
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ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
(Unaudited)
its current level of approximately $2.50 per share, the November
Convertible Securities will be convertible into approximately
2,875,000 Ordinary Shares and the percentage dilution will approximate
22%. If the share price increases prior to conversion, the conversion
price will increase (up to a maximum of 110% of the average closing
bid price of the Ordinary Shares for the five trading day period
preceding the closing date) and there would be a corresponding
decrease in the number of shares into which the debentures would be
converted and in the amount of dilution which would be experienced by
the shareholders. Likewise, if the share price decreases prior to
conversion, the conversion price will decrease and there would be a
corresponding increase in the number of shares into which the
debentures would be converted and in the amount of dilution which
would be experienced by the shareholders. The November Convertible
Securities provide a guaranteed return to the investors of 25%,
$1,438.
The investors were also granted warrants to purchase 1,150,000
Ordinary Shares of the Company at an exercise price of $2.45. For
facilitating completion of this investment, the placement agent was
granted warrants to purchase 787,500 Ordinary Shares at the same
exercise price as the investors. The warrants expire on November 6,
2002, if not exercised earlier. Exercise of all of the investor and
placement agent warrants will result in a percentage dilution to
existing shareholders of approximately 15%.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS. (U.S. dollars in thousands, except per share
data.)
OVERVIEW
This Form 10-Q for Accent Software International Ltd., and its subsidiaries
("Accent" or "the Company") contains historical information and forward-looking
statements. Statements looking forward in time are included in this Form 10-Q
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. Such statements involve known and unknown risks and
uncertainties including, but not limited to, the timely availability of new
products, market acceptance of the Company's existing products and products
under development, the impact of competing products and pricing, the
availability of sufficient resources including short- and long-term financing to
carry out the Company's product development and marketing plans, and quarterly
fluctuations in operating results. The Company's actual results in future
periods may be materially different from any future performance suggested
herein. Further, the Company operates in an industry sector where securities'
values may be volatile and may be influenced by economic and other factors
beyond the Company's control. In the context of the forward-looking information
provided in this Form 10-Q, please refer to the Company's most recent Form 10-K
and the Company's other filings with the Securities and Exchange Commission.
Accent is a language solutions company which designs, develops, markets and
supports multilingual software development tools and multilingual Internet and
text-processing software applications for the language information technology
market. Language information technology consists of products and modules that
allow software and text to be viewed and edited in different natural languages.
Through its majority-owned subsidiary, AgentSoft, the Company also develops and
markets intelligent agent-based software tools and products for Internet process
automation. Since it first began to develop multilingual software in 1988,
Accent has invested substantial funds on research and development, established a
sales and marketing force, introduced new products and established the customer
support services and administrative infrastructure necessary to conduct its
operations. As a result of the start-up nature of its business efforts during
this period, Accent has incurred net losses each year since 1992, including net
losses of $21,034 during the fiscal year ended December 31, 1996, and $7,685
during the first nine months of 1997.
In October 1996, the Company initiated a restructuring and refocusing
effort including a substantial reduction in the number of employees, large
reductions in sales and marketing expenses and the elimination or reduction of
various other costs. A new Chief Executive Officer and a new Chief Financial
Officer joined the Company during the first quarter of 1997 and a new Senior
Vice President for Product Development joined the Company during the fourth
quarter of 1996. In addition to furthering the restructuring efforts begun in
October, 1996, the new management has shifted the Company's product mix and
customer orientation away from the retail market and in the direction of
original equipment manufacturers (OEMs) and business-to-business transactions.
The Company also established a new office in Colorado Springs, Colorado during
the first quarter of 1997. The U.S. location will become the focal point of the
Company's future sales, marketing and customer support efforts as well as
certain general and administrative functions.
Revenue during the quarter ended September 30, 1997 was $1,104, including
important new contracts with Kodak, Iomega and Chromatics. Third quarter
revenue increased 53% from the $722 reported in the second quarter and 83% from
the year earlier period. The Company's total operating expenses during the most
recent quarter were $3,312, a 2% decrease from the $3,393 reported in the
11
<PAGE>
second quarter and resulted in an operating loss of $2,208, a 17% decrease
from the $2,671 reported in the second quarter, 1997. Interest expense
increased significantly between the second and third quarter, 1997, as a
result of interest expense related to the financing transaction discussed in
the preceding Notes to the Consolidated Financial Statements. As a result of
the increase in financing expenses, the Company's net loss increased from
$2,725 during the second quarter to $2,934 during the most recent quarter.
The Company's ability to generate increased revenue and to fund planned
expenditures is dependent on a number of factors, many of which are outside its
control. Revenue growth and profitability, if any, will depend on the ability
of the Company to develop and market new products and product enhancements,
demand for the Company's products, the level of product and price competition,
the success of the Company in attracting and retaining motivated and qualified
personnel, the ability of the Company to control its costs and general economic
conditions. There can be no assurance that the Company will meet such
challenges successfully. Any of these or other factors could have a material
adverse effect on the Company's business, operating results and financial
condition. During the third quarter, the Company's liquidity was essentially
exhausted and the Company was required to raise funds through the issuance of
convertible debentures. The Company's current level of revenue does not
provide adequate funds for its operations and the Company will be required to
raise additional funds, as it has done with the $4,000 of convertible
debentures it issued subsequent to the end of the quarter (reference Note 8
to the Consolidated Financial Statements and Item 5, "Other Events"). There
can be no assurance that the Company will return to levels of revenue that
will end its current reliance on financing to continue operations.
The Company's Ordinary Shares and Units are quoted on the Nasdaq SmallCap
Market. The Company must meet certain requirements in order to maintain its
listing on the SmallCap Market and as of June 30, 1997, the Company was not
in compliance with all of the listing requirements in that its total capital
and surplus was less than the required level. Specifically, on June 30, 1997,
the Company's total capital and surplus (deficit) of $(1,716) was below the
minimum Nasdaq requirement of $1,000. On August 15, 1997, the Company was
notified by The Nasdaq Stock Market, Inc. that it was no longer in compliance
with all of the Nasdaq SmallCap Market listing requirements. The Company
responded to Nasdaq on August 28, 1997 with a plan for restoring its capital
and surplus to the required level. On September 15, 1997, the Company was
advised that its plan was not acceptable and the the Company's Ordinary
Shares would be delisted. The delisting of the Compnay's Ordinary Shares was
deferred pending a hearing on October 9, 1997 before a Nasdaq review panel.
As a result of the hearing, on October 21, 1997, the Company's request for
continued listing on the Nasdaq SmallCap Market was granted pursuant to a
temporary exception to the capital and surplus requirements until November
10, 1997, by which time the Company must file this Form 10-Q and a report on
Form 8-K showing that it has at least $2,650 in total capital and surplus on
a pro forma basis. The Company believes that completion of the November 6,
1997, financing discussed above brings it into compliance with the SmallCap
listing requirements. There can be no assurance, however, that the Company
will continue to meet the Nasdaq listing requirements in the future and,
therefore, the Company's shares may be delisted from the Nasdaq SmallCap
Market.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
sales represented by certain expense items reflected in the Company's
Consolidated Statement of Operations.
<TABLE>
PERCENTAGE OF SALES
For the three months For the nine months
ended September 30, ended September 30,
1996 1997 1996 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 282.8 % 79.6 % 102.4 % 81.7 %
Product development costs 162.4 % 102.9 % 51.7 % 140.0 %
Marketing expenses 304.8 % 52.5 % 171.4 % 74.4 %
General & administrative costs 297.2 % 65.0 % 105.8 % 75.1 %
-----------------------------------------------
Total operating costs and expenses 1047.2 % 300.0 % 431.3 % 371.2 %
-----------------------------------------------
Operating loss (947.2)% (200.0)% (331.3)% (271.2)%
-----------------------------------------------
-----------------------------------------------
</TABLE>
NET SALES. Net sales increased to $1,104 in the three months ended
September 30, 1997 from $603 in the three months ended September 30, 1996.
Revenue in the year earlier period was generated almost entirely in the
retail market. The Company has shifted the focus of its sales and marketing
efforts away from the retail market and has sharply curtailed its retail
advertising and marketing efforts while it develops new sales and marketing
strategies aimed at the OEM and business-to-business market. The Company's
new sales and marketing plans began generating positive results during the
most recent quarter as the Company recognized the initial sales of its Global
Development Kit (GDK). GDK is a tool which helps in the translation of
software and is marketed to corporate customers including other software
developers. The most recent quarter also reflects the initial sales of
"WordPoint," a new language translation tool released during the quarter.
"WordPoint" provides a
12
<PAGE>
"point and click" translation aid which is marketed primarily to the OEM
market but is also sold over the World Wide Web. Also during the most recent
quarter, the Company began to recognize revenues from its expanded emphasis
on providing machine-aided human translation services. Finally, the
Company's majority-owned subsidiary, AgentSoft, recognized its first sales
during the third quarter, 1997.
For the nine month period ended September 30, 1997, Accent recognized
revenue of $2,553 compared with $4,731 for the year earlier period. Revenue
during the first nine months of 1996 was generated predominately in the retail
market and included a single non-recurring sale of approximately $1,000.
Revenue during the first nine months of 1997 reflects the Company's transition
away from the retail marketplace and the introduction of several new products
and services as mentioned in the preceding paragraph.
COST OF SALES. Cost of sales was $878 during the three months ended
September 30, 1997; a decrease of 49% from $1,705 during the three months
ended September 30, 1996. Manufacturing, production, warehousing and shipping
expenses have all been reduced from the year earlier period. Cost of sales
during the year earlier period also reflected a write-down in the value of
the inventory for excess and obsolete product. The Company's cost of sales
as a percentage of revenue, which decreased to 80% during the most recent
quarter from 88% during the second quarter and 283% from the year earlier
quarter, continues to be adversely impacted by fixed royalty expenses and the
amortization of capitalized software costs, although both of these costs were
reduced from the year earlier period and the capitalized software costs will
be fully amortized not later than the first quarter of 1998.
Cost of sales during the most recent nine months was $2,085; compared with
$4,845 during the year earlier period. The 57% reduction in the cost of sales
is relatively consistent with the 46% reduction in the overall level of sales
and the related reductions in production, royalty, storage and shipping costs.
PRODUCT DEVELOPMENT COSTS. Product development costs increased to $1,136
during the three months ended September 30, 1997 from $979 during the year
earlier period; an increase of approximately 16%. The Company has accelerated
its product development cycle and is currently expensing its software
development costs. The Company is placing increased emphasis on the development
of new products aimed at the OEM and business-to-business market and has
continued to expand the agent-related development efforts at its majority-owned
subsidiary, AgentSoft. The number of employees in product development decreased
to 66 at September 30, 1997 from 70 at September 30, 1996, including 16
employees at AgentSoft at the end of the most recent quarter, compared with 15
at the end of the year earlier quarter.
For the nine months ended September 30, 1997 product development costs were
$3,575; approximately $1,127, or 46%, greater than the $2,448 incurred during
the first nine months of 1996. 1996 expenses were lower due to the
capitalization of software development costs during the first quarter of 1996.
Furthermore, AgentSoft was established during the first half of 1996 and total
costs related to this segment of the business were relatively small during the
early months of the year.
MARKETING EXPENSES. The Company's marketing expenses were $580 in the
three months ended September 30, 1997; a reduction of approximately 68% from
$1,838 in the three months ended September 30, 1996. Staffing in the sales and
marketing areas was 10 at the end of the latest quarter, compared with 31 during
the year earlier quarter. The Company's shift away from the retail market
allows it to function with fewer sales and marketing personnel and has also led
to significant reductions in non-personnel expenses such as participation in
trade shows, advertising and public
13
<PAGE>
relations costs. As the Company completes development of products for the OEM
and business-to-business markets, it may need to add additional sales and
marketing staff; however, the staffing and expense levels are expected to
remain significantly below their 1996 levels.
Marketing expenses were $1,900 during the first nine months of 1997; an
almost 800% reduction from the $8,109 incurred during the first nine months of
1996. The first quarter of 1996 was characterized by a strong sales and
marketing effort in the retail sector with related large expenses for
advertising, marketing and participation in trade shows and other promotional
activity. These expenses have been largely curtailed during the current year.
To reduce overhead in the marketing function, the Company closed its U.S.
sales office in Newport Beach, California, during the first quarter of 1997, and
during October of 1997, concluded that it would close its London-based European
subsidiary by the end of the current year. The Company has retained its sales
representatives in the U.S., Canada and Europe.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
during the most recent quarter were approximately $718, a 60% reduction from
their level of $1,792 during the three months ended September 30, 1996. The
reduction in general and administrative expenses resulted from a reduction in
the total number of employees in the various general and administrative
functions to 21 at September 30, 1997 from 27 a year earlier. General and
administrative expenses include the costs incurred by the Company's executive
management, legal, finance, human resources, MIS and office administration
departments.
During the most recent quarter, the Company retained the services of a
marketing and public relations firm. Under the terms of the one year agreement,
the firm received 612,000 Ordinary Shares of the Company. The Ordinary Shares
have been valued at the closing price of the Company's Ordinary Shares on the
day the agreement with the firm was consummated and the total value of $995 is
being expensed at the rate of approximately $84 per month.
General and administrative expenses for the first three quarters of
1997 have been reduced 62% from their total during the comparable period of
1996; specifically $1,917 versus $5,007 for the nine months ended September 30,
1997 and 1996, respectively. The higher costs in the year earlier period
reflect significantly higher staffing levels in virtually all of the general and
administrative functions.
FINANCE EXPENSE, NET. The Company incurred $726 in net finance expense
during the three months ended September 30, 1997 compared with $15 during the
three months ended September 30, 1996. Other expense consists primarily of
interest and other expenses of $751 related to the Company's long-term debt.
As explained in the Notes to the Consolidated Financial Statements,
during the most recent quarter, the Company completed a financing transaction
in which it received $2,000 in exchange for a 6% convertible debenture. In
addition to the 6% interest expense on the debenture, the Company incurred
significant expenses in the form of debt issuance costs (which will be
expensed over the two year life of the debenture), warrants issued to the
investor and a "guaranteed return" to the investor which amounted to $667 and
which was entirely expensed during the third quarter. The Company paid $150
in cash payments to the underwriter and for legal services associated with
the financing transaction. The remainder of the expenses related to the
financing, including interest, other debt issuance costs and the "guaranteed
return," were non-cash transactions, or were paid in Ordinary Shares of the
Company and did not require any cash disbursements.
14
<PAGE>
For the nine month period ended September 30, 1997, net other expense was
$761, including a $147 gain on foreign currency translations and the costs
related to the issuance of debentures discussed in the preceding paragraph.
Other expense during the first nine months of 1996 totaled $71.
NET LOSS. The net loss during the three months ended September 30, 1997
was $2,934 or $0.25 per share, a reduction of approximately 49% compared with a
net loss of $5,726 or $0.59 per share during the three months ended September
30, 1996.
Accent incurred a net loss of $7,685 ($0.65 per share) for the first nine
months of 1997 versus a net loss of $15,749 ($1.62 per share) for the year
earlier period. Although revenue was greater during the year earlier period and
the Company has increased its expenditures on product development during the
current year, cost of sales, marketing expenses, and general and administrative
expenses have all been significantly reduced during the first three quarters of
1997.
LIQUIDITY AND CAPITAL RESOURCES
Future sales of the Company's current and proposed products and services
will depend principally on customer demand for multilingual software programs
and services, multilingual Internet products and services, and products and
services utilizing intelligent agent technology. The technology 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. As discussed earlier, the Company has narrowed the
focus of its marketing efforts primarily to OEM and business-to-business
customers because the Company believes this approach will result in both
increased sales and more efficient utilization of its marketing resources.
Although Accent has refocused its sales and marketing efforts towards OEM
and business-to-business sales, it will continue to place product in the retail
channel where appropriate. It therefore expects that certain consequences of
participation in the retail channel, such as unexpected product returns or
excess inventory and increased working capital requirements necessitated by
transfers of products to distributors on consignment, may occur.
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 customers.
Therefore, defaults on payment by several of the Company's customers have
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 likelihood of product returns or credits and uncollectible
receivables. There can be no assurance, however, that 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.
The Company's operating activities used cash of $9,338 and $10,907 during
the nine months ended September 30, 1997 and 1996, respectively. Of the cash
used during the first nine months of 1997, approximately $3,500 was used to
bring certain creditors current in the amounts owed them resulting in a
corresponding reduction in the amount of accounts payable on the Company's
balance sheet at September 30, 1997. The Company reduced its investing
activities, which consist primarily of the purchase of hardware and software for
the product development organization, to $144 in the first
15
<PAGE>
three quarters of 1997 from $970 in the comparable period of 1996. The
Company's financing activities generated cash of $835 during the nine month
period ended September 30, 1997, primarily through the sale of a $2,000
convertible debenture to an outside investor, as discussed in the following
paragraphs. The Company also used cash of $1,074 to reduce other long-term
debt during the first three quarters of 1997. Financing activities provided
cash of $2,697 during the nine month period ended September 30, 1996,
primarily related to the sale of equity.
Accent had negative working capital of $562 at September 30, 1997 compared
to positive working capital of $3,628 at December 31, 1996. The change in
working capital primarily reflects the Company's continuing operating losses and
efforts to bring its creditors current with respect to amounts owed them. The
development of the Company's software language solutions products and services
and the expansion of the United States sales and marketing group will continue
to require working capital. To meet its working capital requirements, the new
management has significantly reduced the Company's operating losses through
reductions in sales and marketing expenses and general and administrative
expenses, has raised capital through the sale of convertible debentures as noted
in the preceding paragraphs, and is taking steps to raise additional capital.
Failure to obtain adequate capital will have a material adverse impact on the
Company, including possibly requiring the Company to curtail or cease
operations. During the third quarter, the Company's liquidity was essentially
exhausted and the Company was required to raise funds through the issuance of
convertible debentures. The Company's current level of revenue does not
provide adequate funds for its operations and the Company will be required to
raise additional funds, as it has done with the $4,000 of convertible
debentures it issued subsequent to the end of the quarter (reference Note 8
to the Consolidated Financial Statements and Item 5, "Other Events"). There
can be no assurance that the Company will return to levels of revenue that
will end its current reliance on financing to continue operations.
The Company has historically financed its operating requirements through
the sale of equity and bank loans. Long-term bank loans received as part of the
Israel Approved Enterprise Program totaled $4,100,000 as of December 31, 1996.
Repayment of the loans began in March 1997, and is expected to continue at a
rate of approximately $120 per month (at current exchange rates) until the loans
are repaid. The balance of the loans at September 30, 1997 was $2,988,
including $1,604 due to be paid within one year. The Company believes it is in
compliance with, and will continue to comply with, all loan covenants and other
requirements of the Israel Approved Enterprise Program; however, there can be no
assurance of such continued compliance.
On August 5, 1997 the Company completed a financing arrangement pursuant
to Rule 505 of Regulation D under the Securities Act of 1933. Rule 505 was
available because the issuance involved fewer than 35 unaccredited investors.
The Company received $2,000 in cash before expenses (approximately $1,850 net
of expenses) and, in return, issued the investor an unsecured debenture
carrying six percent (6%) annual interest and convertible into the Company's
Ordinary Shares at the lesser of 135% of the average closing bid price for
the five trading days preceding the date of closing or 75% of the average
closing bid price of the Ordinary Shares for the five day period preceding
the date of conversion. The debenture automatically converts into Ordinary
Shares on August 5, 1999, and may be converted anytime after the earlier of
November 2, 1997 or the effective date of the registration statement for the
underlying Ordinary Shares becomes (which occurred on September 29, 1997).
On October 16, 1997 the investor converted $1,000 of the debenture, plus
accrued interest of approximately $11 into Ordinary Shares of the Company.
The conversion price was approximately $1.88 per share and the Company issued
to the investor a total of 538,300 Ordinary Shares, resulting in dilution to
the current shareholders of approximately 4.4%. The Company, at its option,
may require the investor to convert the balance of the debenture into
Preferred Shares of the Company at any time prior to November 3, 1997 and, on
October 17, 1997, the Company notified the investor of its intent to convert
the balance of the debenture into Preferred Shares. Terms of the Preferred
Shares are similar to those of the debenture. Conversion of the remaining
debenture (or Preferred Shares) into Ordinary Shares will result in
additional dilution to the Company's current shareholders. Assuming it is
also converted at $1.88 per share, the balance of the debenture will also be
converted into approximately 532,000 Ordinary Shares (not including accrued
interest which may be paid in stock) and the percentage dilution will
approximate an additional 4.1%.
16
<PAGE>
The investor was also granted warrants to purchase 250,000 Ordinary Shares
of the Company at an exercise price of $2.80 and additional warrants to purchase
50,000 Ordinary Shares at an exercise price of $3.20. The placement agents for
the transaction were granted warrants to purchase 300,000 Ordinary Shares at an
exercise price of $2.90 per share. The warrants are exercisable for five years.
Exercise of all 600,000 warrants granted to the investor and to the placement
agents would result in a percentage dilution to existing shareholders of
approximately 5%. The investor warrants have been valued at $290 and have been
recorded as a reduction in the face value of the debt, with a resulting increase
in shareholders' equity. The reduction in debt will be accreted over the life
of the debt. The placement agents warrants have been valued at $326 and have
been capitalized as debt issuance cost, with a resulting increase in
shareholders' equity. The debt issuance costs are being amortized over the life
of the debt.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Subsequent to the end of the most recent quarter, on October 17,
1997, the Company held an Extraordinary Meeting of Shareholders at its offices
in Jerusalem, Israel. The purpose of the meeting was:
(1) To amend the Company's Articles of Association to increase
the capitalization of the Company by 10,000,000 new
Preferred Shares, each with a nominal value of New Israeli
Shekel (NIS) 0.01;
(2) To amend the Company's Articles of Association to increase
the capitalization of the Company by authorizing 15,000,000
new Ordinary Shares, each with a nominal value of NIS 0.01;
and,
(3) To transact such other business as may properly come before
the Meeting or any adjournments thereof.
The Shareholders' Meeting had originally been scheduled for
October 10, 1997 but was adjourned for lack of a quorum. The meeting was
rescheduled for October 17, 1997 at which time a quorum was obtained and both
motions were approved by the shareholders.
No other business came before the meeting and no other matters
were submitted to a vote of shareholders during the quarter ended September 30,
1997.
ITEM 5. OTHER EVENTS
On November 6, 1997 the Company completed a financing arrangement
with a group of investors. The Company received $4,000 in cash before expenses
and a commitment that upon the occurrence of certain conditions, including
effective registration of the underlying Ordinary Shares, the Company would
receive an additional $1,750 in cash before expenses. In return, the Company
issued the investors debentures in the amount of $4,000, carrying six percent
(6%) annual interest (payable in cash or Ordinary Shares, at the Company's
option) and convertible into the Company's Ordinary Shares at a conversion rate
equal to the lesser of (a) $2.45
17
<PAGE>
or (b) or 80% of the average closing bid price of the Ordinary Shares for the
five trading day period preceding the date of conversion (the "First Closing
Debentures"). Upon the closing of the additional $1,750 investment, the
Company shall issue the investors 1,750 Series B Preferred Shares which will
be convertible into Ordinary Shares upon the same terms and conditions as
obtain in the First Closing Debentures (the "Second Closing Preferred
Shares"). (The First Closing Debentures and Second Closing Preferred Shares
are collectively referred to as the "November Convertible Securities."). The
November Convertible Securities automatically convert into Ordinary Shares on
November 6, 1999, two years after the date of the closing, and may be
converted at the investors' option anytime after the earlier of November 11,
1997, or the date on which the resale of the Ordinary Shares issuable upon
conversion of the November Convertible Securities is registered with the SEC,
provided that no more than 50% of the principal amount of such securities may
be converted prior to December 15, 1997. At any time prior to November 10,
1997, the Company may convert all or part of the First Closing Debentures
into up to 4,000 newly authorized Preferred Shares designated Series B for
purposes of such conversion. The Series B Preferred Shares will have a
liquidation preference of $1,000 per share plus a premium of 6% per annum.
The Series B Preferred shares will not be entitled to any dividends nor will
it have any voting rights except as provided by Israeli law with respect to
extraordinary corporate transactions. The Series B Preferred shares will be
convertible into Ordinary Shares on the same terms as the November
Convertible Securities as described above. The terms of the Series B
Preferred Shares will also prohibit the issuance of Preferred Shares with
terms superior or equal to the terms of the Series B Preferred Shares for
some period of time, without the investors' consent. In addition, the
Company has the right to redeem the November Convertible Securities on or
after November 6, 1998, as long as no event of default has occurred
thereunder, at a redemption price of not less than 125% of the principal
amount thereof and any accrued and unpaid interest or other payment thereon.
Conversion of the November Convertible Securities will result in dilution to
the Company's current shareholders. Assuming the Company's share price
remains at its current level of approximately $2.50 per share, the November
Convertible Securities will be convertible into approximately 2,875,000
Ordinary Shares and the percentage dilution will approximate 22%. If the
share price increases prior to conversion, the conversion price will increase
(up to a maximum of 110% of the average closing bid price of the Ordinary
Shares for the five trading day period preceding the closing date) and there
would be a corresponding decrease in the number of shares into which the
debentures would be converted and in the amount of dilution which would be
experienced by the shareholders. Likewise, if the share price decreases
prior to conversion, the conversion price will decrease and there would be a
corresponding increase in the number of shares into which the debentures
would be converted and in the amount of dilution which would be experienced
by the shareholders. The November Convertible Securities provide a guaranteed
return to the investors of 25%, $1,438.
The investors were also granted warrants to purchase 1,150,000
Ordinary Shares of the Company at an exercise price of $2.45. For
facilitating completion of this investment, the placement agent was granted
warrants to purchase 787,500 Ordinary Shares at the same exercise price as
the investors. The warrants expire on November 6, 2002, if not exercised
earlier. Exercise of all of the investor and placement agent warrants will
result in a percentage dilution to existing shareholders of approximately 15%.
Accounting for the convertible debentures, investor and placement
agent warrants will be similar to that discussed for the August 5 financing in
Note 5 to the Consolidated Financial Statements.
18
<PAGE>
The Company's Ordinary Shares and Units are quoted on the Nasdaq
SmallCap Market. The Company must meet certain requirements in order to
maintain its listing on the SmallCap Market and as of June 30, 1997, the
Company was not in compliance with all of the listing requirements in that
its total capital and surplus was less than the required level.
Specifically, on June 30, 1997, the Company's total capital and surplus of
$(1,716) was below the minimum Nasdaq requirement of $1,000. On August 15,
1997, the Company was notified by The Nasdaq Stock Market, Inc. that it was
no longer in compliance with all of the Nasdaq Small Cap Market listing
requirements. The Company responded to Nasdaq with a plan for restoring its
capital and surplus to the required level but on September 15, 1997, the
Company was advised that its plan was not acceptable and that the Company's
Ordinary Shares would be delisted. The delisting was deferred pending a
hearing before a Nasdaq review panel. Following the hearing, the delisting
was further deferred until November 10, 1997, by which time the Company must
file its quarterly report on Form 10-Q and a report on Form 8-K showing that
it had at least $2,650 in total capital and surplus on a pro forma basis.
The Company believes that completion of the November 3, 1997, financing
discussed above brings it into compliance with the SmallCap listing
requirements. There can be no assurance, however, that the Company will
continue to meet the Nasdaq listing requirements in the future and,
therefore, the Company's shares may be delisted from the Nasdaq SmallCap
Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (those marked with an "*" are incorporated by reference)
3.1(a) - Memorandum of Association of Registrant (filed as Exhibit
3.1(a) to the Company's Registration Statement No. 33-92754).*
3.1(b) - Certificate of Name Change dated October 23, 1994 (filed
as Exhibit 3.1(b) to the Company's Registration Statement No.
33-92754).*
3.1(c) - Certificate of Name Change dated April 23, 1995 (filed as
Exhibit 3.1(c) to the Company's Registration Statement No. 33-92754).*
3.2 - Articles of Association of Registrant (filed as Exhibit 3.2
to the Company's Registration Statement No. 33-92754).*
4.1 - Form of Ordinary Share Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement No. 33-92754).*
4.2 - Form of Underwriter's Warrant Agreement (filed as
Exhibit 4.4 to the Company's Registration Statement No. 33-92754).*
4.3 - Form of Bridge Financing Warrant dated as of May 22, 1995
between the Company and each of the Holders (filed as Exhibit 4.5 to
the Company's Registration Statement No. 33-92754).*
4.4 - Form of Representative's Warrant Agreement, between the
Company and Sands Brothers & Co, Ltd., as representative of the
several underwriters (filed as Exhibit 4.4 to the Company's
Registration Statement No. 333-7637).*
19
<PAGE>
4.5 - Form of IMR Warrant dated as of November 22, 1996 between
the Company and IMR Fund, L.P. (filed as Exhibit 4.5 to the Company's
Registration Statement No. 333-7637).*
4.6 - Form of Redeemable Warrant Agreement dated as of
November 22, 1996 between the Company, Sands Brothers & Co., Ltd., as
respresentative of the several underwriters, and American Stock
Transfer & Trust Company (filed as Exhibit 4.6 to the Company's
Registration Statement No. 333-7637).*
4.7 - Form of Redeemable Warrant Certificate (filed as Exhibit 4.6
to the Company's Registration Statement No. 333-7637).*
4.8 - Form of Unit Certificate (filed as Exhibit 4.6 to the
Company's Registration Statement No. 333-7637).*
4.9 - Securities Purchase Agreement dated August 5, 1997, between
CC Investments LDC and Accent Software International Ltd., which
includes the Convertible Debenture, two Warrant Agreements and the
Registration Rights Agreement as exhibits thereto (filed as
Exhibit 4.1 to the Company's Registration Statement No. 333-34455).*
10.1 - Stock Purchase Agreement between IMR Investments V.O.F. and
Kivun Computers Company (1988), Ltd., Robert Rosenschein, Jeffrey
Rosenschein, Accent Software Partners, Pal-Ron Marketing, Ltd., and KZ
Overseas Holding Corp., dated as of May 11, 1994, as amended July 20,
1995 (filed as Exhibit 10.1 to the Company's Form 10-K on April 1,
1996).*
10.2 - Shareholders' Agreement by and among Kivun Computers Company
(1988) Ltd., Robert Rosenschein, Dr. Jeffrey Rosenschein, Pal-Ron
Marketing, Ltd., Accent Software Partners, KZ Overseas Holding Corp.
and IMR Investments V.O.F., dated May 11, 1994, as amended July 20,
1995 (filed as Exhibit 10.2 to the Company's Form 10-K on April 1,
1996).*
10.3(a) - Option Agreement dated March 23, 1993 between the Company
and Robert S. Rosenschein (filed as Exhibit 10.3(a) to the Company's
Registration Statement No. 33-92754).*
10.3(b) - Schedule of other option agreements substantially
identical in all material respects to the option agreement filed as
Exhibit 10.3(a) (filed as Exhibit 10.3(b) to the Company's
Registration Statement No. 33-92754).*
10.4(a) - Warrant Acquisition Agreement dated January 1, 1995
between the Registrant and Robert S. Rosenschein (filed as Exhibit
10.4(a) to the Company's Registration Statement No. 33-92754).*
10.4(b) - Schedule of other warrant acquisition agreements
substantially identical in all material respects to the warrant
agreement (filed as Exhibit 10.4(b) to the Company's Registration
Statement No. 33-92754).*
20
<PAGE>
10.5 - Form of Registration Rights Agreements dated as of May 22,
1995 between the Company and each of the Holders (filed as Exhibit
10.5 to the Company's Registration Statement No. 33-92754).*
10.6(a) - Employee Share Option Plan (1995) (filed as Exhibit
10.7(a) to the Company's Registration Statement No. 33-92754).*
10.6(b) - Amended and Restated Employee Share Option Plan (1995)
(filed as Exhibit 4.2 to the Company's Registration Statement
No. 333-04285).*
10.6(c) - Non-Employee Director Share Option Plan (1995) (filed as
Exhibit 10.7(b) to the Company's Registration Statement No.
33-92754).*
10.6(d) - Amended and Restated Non-Employee Share Option Plan
(1995) (filed as Exhibit 4.2 to the Company's Registration Statement
No. 333-07965).*
10.7(a) - Employment Agreement between the Company and Robert S.
Rosenschein, dated July 26, 1995 (filed as Exhibit 10-7(a) to the
Company's Form 10-K on April 1, 1996).*
10.7(b) - Employment Agreement between the Company and Moshe Kranc,
dated September 12, 1996.
10.7(c) - Employment Agreement between the Company and Herbert
Zlotogorski, dated July 26, 1995 (filed as Exhibit 10-7(c) to the
Company's Form 10-K on April 1, 1996).*
10.7(d) - Employment Agreement between the Company and Jeffrey
Rosenschein, dated July 26, 1995 (filed as Exhibit 10-7(d) to the
Company's Form 10-K on April 1, 1996).*
10.8 - Shareholders Agreement by and between Accent Software
International Limited and Gilad Zlotkin, dated February 21, 1996
(filed as Exhibit 10.10 to the Company's Form 10-K on April 1, 1996).*
10.9 - Debenture between the Company and Bank Leumi (filed as
Exhibit 10.11 to the Company's Registration Statement No. 333-7637).*
23 - Consent of Luboshitz, Kasierer & Co., a Member Firm of
Andersen Worldwide, SC.
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on August 20, 1997, to report
the completion of the financing transaction which is also reported in the Notes
to the Consolidated Financial Statements beginning on page 5 of this Form 10-Q.
The Company filed a report on Form 8-K on November 6, 1997, to
report the completion of the November financing transaction which is also
reported in the Other Events section beginning on page 17 of this Form 10-Q.
21
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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: November 6, 1997 by: /s/ Robert J. Behr
------------------------------------
Robert J. Behr
Chief Financial Officer
(Principal Financial and Accounting
Officer)
22
<TABLE> <S> <C>
<PAGE>
<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-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 76
<SECURITIES> 0
<RECEIVABLES> 3,105
<ALLOWANCES> 1,691
<INVENTORY> 439
<CURRENT-ASSETS> 3,800
<PP&E> 2,606
<DEPRECIATION> 1,088
<TOTAL-ASSETS> 5,540
<CURRENT-LIABILITIES> 4,362
<BONDS> 3,118
0
0
<COMMON> 30
<OTHER-SE> (2,290)
<TOTAL-LIABILITY-AND-EQUITY> 5,540
<SALES> 1,104
<TOTAL-REVENUES> 1,104
<CGS> 878
<TOTAL-COSTS> 2,434
<OTHER-EXPENSES> 682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> (2,934)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,934)
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>