<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
_________________
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended March 31, 1998.
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 in its Charter)
ISRAEL N/A
_______________________________ ____________________________________
(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
________________________________________________________________________________
(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 11, 1998, the registrant had outstanding 27,323,911 Ordinary Shares
(including 1,800,000 Ordinary Shares included in the registrant's outstanding
Units).
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars and shares in thousands
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 590 $ 2,499
Trade receivables, net of allowance of
$103 in 1998 and $63 in 1997 899 755
Other receivables 193 117
Prepaid expenses 555 906
Inventories 70 85
----------- ----------
Total current assets $ 2,307 $ 4,362
----------- ----------
EQUIPMENT
Cost $ 2,634 $ 2,630
Less - Accumulated depreciation 1,410 1,220
----------- ----------
Equipment, net $ 1,224 $ 1,410
----------- ----------
OTHER LONG TERM ASSETS 666 666
----------- ----------
Total assets $ 4,197 $ 6,438
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,885 $ 1,886
Accounts payable and accrued expenses 2,497 2,367
----------- ----------
Total current liabilities $ 4,382 $ 4,253
----------- ----------
LONG-TERM BANK LOANS $ 345 $ 844
ACCRUED SEVERANCE LIABILITY 348 318
----------- ----------
Total liabilities $ 5,075 $ 5,415
----------- ----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Shares, par value NIS 0.01, authorized
10,000 share, issued and outstanding 4 at
December 31, 1998 and March 31, 1997 $ - $ -
Ordinary shares, par value NIS 0.01, authorized
45,000 share, issued and outstanding 17,140 at
December 31, 1998 and 27,323 at March 31, 1997 43 43
Share premium 47,640 47,701
Accumulated deficit (48,561) (46,721)
----------- ----------
Total shareholders' equity (deficit) $ (878) $ 1,023
----------- ----------
Total liabilities and shareholders' equity (deficit) $ 4,197 $ 6,438
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
2
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars and shares in thousands (except per share figures)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 705 $ 727
OPERATING COSTS AND EXPENSES
Cost of sales 206 575
Product development costs 1,125 1,118
Marketing expenses 458 567
General and administrative expenses 712 512
----------- ---------
Total operating costs and expenses 2,501 2,772
----------- ---------
OPERATING LOSS (1,796) (2,045)
Other Income (Expense) (45) 18
----------- ---------
NET LOSS $ (1,841) $ (2,027)
----------- ---------
----------- ---------
NET LOSS PER SHARE $ (0.08) $ (0.17)
----------- ---------
----------- ---------
Weighted average number of shares outstanding 22,792 11,686
----------- ---------
----------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
3
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,841) $ (2,027)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 190 228
Change in allowance for doubtful accounts 40 (176)
Changes in assets and liabilities
(Increase) decrease in trade receivables (184) 165
(Increase) decrease in other receivables (76) 100
(Increase) decrease in prepaid expenses 351 48
(Increase) decrease in inventories 15 221
Increase (decrease) in payables and accruals 130 (2,795)
Increase (decrease) in severance liability 30 (23)
----------- ---------
Net cash (used in) operating activities (1,345) (4,259)
----------- ---------
INVESTMENT ACTIVITIES
Acquisition of equipment (4) (31)
----------- ---------
Net cash used in investing activities (4) (31)
----------- ---------
FINANCING ACTIVITIES
Repayment of bank loans (499) (143)
Cancellation of shares issued in payment for services (61) -
Net proceeds received on exercise of options - 62
----------- ---------
Net cash provided by financing activities (560) (81)
----------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,909) (4,371)
Cash and cash equivalents, beginning of period 2,499 8,723
----------- ---------
Cash and cash equivalents, end of period $ 590 $ 4,352
----------- ---------
----------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Prepaid assets received in exchange for shares $ (61) $ -
----------- ---------
----------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED 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 figures
(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 period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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
1997 Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - SHARE CAPITAL
Accent previously reported completion of a financing arrangement
during the fourth quarter of 1997 in which it received approximately
$5,255 in cash net of expenses. In return for the aggregate purchase
price of $5,750, the Company issued the investors debentures in the
amount of $4,000 and Series B Preferred Shares in the amount of
$1,750. Conversion of both the debentures and the Series B Preferred
Shares into a total of 12,496,160 Ordinary Shares was completed during
the first quarter of 1998.
Also during the first quarter of 1998, Accent renegotiated its
agreement with a marketing and public relations firm under which the
Company had originally provided the firm with 612,000 Ordinary Shares.
312,000 of the Ordinary Shares were registered and freely tradable and
the remaining 300,000 were to be registered within one year of the
agreement. The 612,000 Ordinary Shares were valued at $995 and were
5
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share figures
(Unaudited)
being expensed ratably over the term of the agreement. The revised
agreement cancels the 300,000 shares that were not registered and
replaces them with 850,000 Ordinary Shares valued at $425. All 850,000
registered shares.
NOTE 3 - LIQUIDITY
As of March 31, 1998 and December 31, 1997, the Company had
accumulated deficits of $48,561 and $46,721, respectively, and
anticipates that it will continue to incur losses through the second
quarter of 1998 and possibly beyond. Working capital decreased from
$109 at December 31, 1997 to a deficit of $2,075 at March 31, 1998,
due primarily to the Company's continuing operating losses and working
capital needs.
Accent's liquidity was essentially exhausted during both the third and
fourth quarters of 1997 and the Company was required to raise funds
through the issuance of $7,750 in convertible securities. Those funds
are also now essentially exhausted and the company is dependent on new
sources of revenue, further cost reduction initiatives, an infusion of
additional external capital or some combination of these actions, if
it is to continue to have adequate working capital to meet its
operating requirements. There can be no assurance that the Company
will be successful in either sufficiently reducing its working capital
requirements or generating additional working capital and any failure
on the part of the Company to do so will have a material adverse
impact on the Company and may cause the Company to cease operations.
NOTE 4 - GOING CONCERN
The consolidated financial statements have been prepared assuming that
Accent will continue as a going concern. The Company continues to
generate significant operating losses and operating cash flow
deficits and must generate additional working capital
if it is to have adequate resources to fund its
continuing operations. 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS. (U.S. dollars in thousands, except per share
data.)
INTRODUCTION
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.
RISKS
Accent cautions investors that the following significant factors, among
others, in some cases have affected and in the future could affect the Company's
financial and operating results and the return that may be achieved on
investments in the Company.
GOING CONCERN. Accent has accumulated deficits in excess of $48 million
since its inception through March 31, 1998, and expects that it will continue to
incur deficits through the second quarter of 1998 and possibly beyond. Accent's
liquidity has also essentially been exhausted and the Company must generate
additional working capital if it is to meet its near-term requirements. These
factors create a substantial doubt about the Company's ability to continue as a
going concern and there can be no assurance that the Company will be able to
continue as a going concern.
REVENUE. Although the Company's products are receiving a favorable
reception in the marketplace, revenue has fallen short of management
expectations, the Company believes, due primarily to significant concerns of
potential customers as to Accent's ability to continue to support and expand its
product offerings. The Company is continuing to work on significant new sales
opportunities, but there can be no assurance that the concerns of potential
customers can be alleviated and that future revenue will meet management's
expectations. If future revenue does not increase from its recent level, this
will have a material adverse impact on the Company and may cause the Company to
cease operations.
LIQUIDITY/WORKING CAPITAL. External financing which the Company secured
during the third and fourth quarters of 1997 has been used to meet the
continuing needs of the Company. The Company is, therefore, dependent on
additional external financing new sources of revenue, further cost reduction
initiatives, additional external financing, or some combination of these
actions, if it is to continue to have adequate working capital to meet its
operating requirements. There can be no assurance that the Company will be
successful in either generating additional working capital or in sufficiently
reducing its working capital requirements and any failure on the part of the
Company to do so will have a material adverse impact on the Company and may
cause the Company to cease operations.
7
<PAGE>
LONG-TERM DEBT AND OTHER LIABILITIES. The Company has entered into
negotiations with its major lender and other creditors to restructure its
long-term debt and other liabilities, possibly by issuing equity in exchange
for all or a portion of the liabilities, obtaining discounts, deferring or
stretching payment terms, or some combination of these alternatives. Pending
the outcome of these negotiations, Accent is seriously past due in respect to
several of its creditors. There can be no assurance that the Company will be
successful in its efforts to restructure its outstanding debts and any
failure on the part of the Company to do so will have a material adverse
impact on the Company and may cause the Company to cease operations.
CONTINUED DOWNSIZING AND RESTRUCTURING. During April, 1998, the Company
implemented additional downsizing including significant personnel reductions,
the consolidation of facilities and a freeze on capital spending. The
restructuring has reduced the Company's monthly cash expenses by more than 50%
but also triggered a requirement to pay various obligations to former employees
which the Company is currently unable to pay. There can be no assurance that
former employees will defer potential legal remedies while the Company completes
its restructuring efforts, collects amounts due from customers and pursues new
sales opportunities and new sources of capital. If former employees seek and are
granted legal remedies against the Company, this will have a material adverse
impact on the Company and may cause the Company to cease operations.
CONTINUED LISTING ON THE NASDAQ SMALLCAP MARKET. Accent's Ordinary
Shares and Units are listed on the Nasdaq SmallCap Market and the Company
must meet certain requirements in order to maintain this listing. The Company
has been notified that it no longer meets the listing requirements in that
its net tangible assets are below the threshold of $2,000. The Company has
provided Nasdaq with details of its plan to increase its net tangible assets
and has been granted an oral hearing before a Nasdaq review panel to discuss
its plan. Action to delist the Company's Ordinary Shares and Units has been
deferred pending the outcome of the hearing. There can be no assurance that
the Company will be provided sufficient time to implement its plan or that,
if granted sufficient time, the Company will be successful in implementing
its plan. Accordingly, there can be no assurance that the Company's shares
will continue to be listed on the Nasdaq SmallCap Market. In the event that
the Company's shares are delisted from the Nasdaq SmallCap Market, they could
continue to trade on the Nasdaq "Bulletin Board."
STRATEGIC ALTERNATIVES, INCLUDING DIVESTITURES AND POSSIBLE SALE OR JOINT
VENTURE. The Company's Board of Directors has been pursuing a variety of
alternatives to stabilize and, if possible, enhance the Company's financial
position and continuing viability. In February 1998, the Company retained a
mergers, acquisitions and strategic planning firm specializing in the software
industry to seek a potential buyer for the Company's majority-owned subsidiary,
AgentSoft. Divestiture of AgentSoft could provide working capital for the
Company's continuing operations. Management has also had, and is continuing to
have, discussions with potential strategic partners and investors and other
groups who are possible sources of financing or who may offer business
development opportunities. There can be no assurance that the Company will be
successful in its efforts to stabilize and enhance the Company's financial
position through divestitures, sale, joint venture or other strategic
alternatives and any failure on the part of the Company to do so will have a
material adverse impact on the Company and may cause the Company to cease
operations.
OVERVIEW
Accent is a language solutions company, founded in Jerusalem, Israel in
1988. The Company designs, develops, markets and supports software products and
services for the rapidly emerging Language Information Technology ("LIT")
industry. Accent's products address the growing need for
8
<PAGE>
software publishers, corporations and content providers to produce software
applications, associated documentation, and application-specific content in
any natural language. Through its majority-owned subsidiary, AgentSoft, the
Company also develops intelligent agent-based software tools and products for
process automation over the Internet.
Accent has incurred net losses each year since 1992, including a net loss
of $1,841 during the first quarter of 1998 and net losses of $13 million and $21
million during 1997 and 1996, respectively.
Management has shifted the Company's product mix and customer
orientation away from the retail market where the most significant losses
were incurred and in the direction of original equipment manufacturers (OEMs)
and business-to-business transactions. Over the course of the past fifteen
months, product development, sales and marketing efforts have been refocused
and restructured consistent with the needs of these new markets. Staffing
within Accent (exclusive of the Company's majority-owned subsidiary,
AgentSoft) has been reduced from a peak of approximately 150 employees in the
latter months of 1996 to 68 at December 31, 1997. Additional restructuring in
the first four months of 1998 further reduced staffing to 36 employees.
Staffing at AgentSoft has remained relatively constant over this period at
approximately 20 employees.
Revenue during the first quarter of 1998 was $705, an increase of 23%
from the fourth quarter of 1997. The Company recognized initial sales on its
newest product, Loc@le, during the first quarter and also saw an increase in
sales of WordPoint and translation services. The Company's total operating
expenses during the first quarter were $2,501, a decrease of 33% from the
fourth quarter. Cost of sales declined significantly from the earlier quarter
due primarily to large decreases in both royalty expense and capitalized
software expense. General and administrative expenses also declined
significantly during the most recent quarter due primarily to the absence of
the large financing-related costs the the Company incurred during the fourth
quarter of 1997.
Accent's operating loss during the first quarter of 1998 was $1,796
compared to a loss of $3,172 during the fourth quarter of 1997 and a loss of
$2,045 during the year earlier first quarter.
The Company's current level of revenue does not provide adequate funds to
finance its working capital requirements. The Company's ability to generate
increased revenue 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, market acceptance and demand for the Company's products, the level
of product and price competition, the Company's ability to attract and retain
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 nor that the Company will achieve
levels of revenue that will end its current reliance on external financing to
meet its working capital requirements. Any failure on the part of the Company to
do so will have a material adverse impact on the Company and may cause the
Company to cease operations.
RESULTS OF OPERATIONS
The table at the top of the next page sets forth for the periods indicated
the percentage of sales represented by certain expense items reflected in the
Company's Consolidated Statement of Operations.
9
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
FOR THE THREE MONTHS ENDED MARCH 31,
1998 1997
---------- -----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 29.2% 79.1%
Product development costs 159.6% 153.8%
Marketing expenses 65.0% 78.0%
General & administrative costs 101.0% 70.4%
---------- -----------
Total operating costs and expenses 354.8% 381.3%
---------- -----------
Operating loss (254.8%) (281.3%)
---------- -----------
---------- -----------
</TABLE>
NET SALES. Net sales of $705 in the three months ended March 31, 1998 were
down slightly from the year earlier figure of $727 but up 23% from the fourth
quarter figure of $572. Also, whereas sales during the first quarter of 1997
were derived primarily from the retail market, recent sales reflect a broader
mix of OEM sales, translation services, the Company's newer products including
WordPoint and Loc@le, and the Company's legacy products which continue to
generate sales, particularly in Israel.
COST OF SALES. Cost of sales declined to $206 during the first quarter
of 1998 from $575 during the first quarter of 1997. Manufacturing,
production, warehousing and shipping expenses have all been reduced from the
year earlier period consistent with the Company's shift away from the retail
market and toward the OEM and business-to-business market where manufacturing
and support costs are significantly lower. The year earlier period includes
significant costs associated with various royalty agreements which the
Company had entered into in anticipation of achieving substantially greater
retail sales. Finally, the year earlier period also included a charge to
amortize software development costs which the Company had earlier
capitalized. The Company has accelerated its product development cycle and is
currently expensing its software development costs as part of its product
development costs.
PRODUCT DEVELOPMENT COSTS. Product development costs during the first
quarter of 1998 of $1,125 were similar to the year earlier level of $1,118.
Costs within product development consist almost entirely of salaries,
benefits and other personnel-related expenses. Staffing within the product
development departments had remained relatively constant as the Company
focused its development efforts on new products for the Language Information
Technology industry. Certain development efforts have recently been completed
and staffing levels in product development were reduced to 20 people as part
of the restructuring implemented on April 9, 1998. Staffing levels at
AgentSoft, which peaked at 22 employees during the first quarter of 1997, has
remained relatively constant and currently numbers 20 employees.
MARKETING EXPENSES. The Company's marketing expenses were $458 in the
three months ended March 31, 1998; a reduction of almost 20% from $567 in the
three months ended March 31, 1997. Staffing in the sales and marketing areas
was reduced to 6 by the restructuring implemented on April 9, 1998. 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 relations costs. As the Company completes
10
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development of products for the OEM and business-to-business markets, it may
need to add additional sales and marketing staff.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
during the most recent quarter were $712, an increase of $200 from the first
quarter of 1997 but $540 less than the total general and administrative expense
incurred during the fourth quarter of 1997. The increase from the year earlier
quarter is attributable to consulting and public relations efforts which the
Company has authorized and which are being paid for through the issuance of
equity in the Company. The reduction from the fourth quarter reflects the
absence of significant financing costs related to various fourth quarter
transactions. Staffing within the various general and administrative functions
declined from 19 at March 31, 1997 to 12 at December 31, 1997 and declined
further to 6 employees as of April 9, 1998. General and administrative expenses
include the costs incurred by the Company's executive management, legal,
finance, human resources, MIS and office administration functions. Several of
these functions were disbanded as part of the recent restructuring.
OTHER INCOME (EXPENSE). The Company incurred $45 in interest expense on its
long-term bank loans during the three months ended March 31, 1998, compared with
income of $18 during the three months ended March 31, 1997. Other expense
consists primarily of interest expenses related to the Company's long-term debt.
NET LOSS. The net loss during the three months ended March 31, 1998 was
$1,841, or $0.08 per share, a reduction of approximately 9% compared with the
net loss of $2,027, or $0.17 per share, during the three months ended March
31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $1,345 and $4,259 during
the three months ended March 31, 1998 and 1997, respectively. The Company
reduced its investing activities, which consist primarily of purchases of
hardware and software for the product development organization, to $4 in the
first quarter of 1998, compared to $31 in the comparable period of 1997.
Financing activities, consisting primarily of payments on the Company's
long-term bank loans, used cash of $560 during the most recent quarter.
Financing activities used cash of $81 during the first quarter of 1997.
Accent had negative working capital of $2,075 at March 31, 1998 compared
to positive working capital of $109 at December 31, 1997. The change in
working capital reflects the Company's continuing operating losses and
working capital requirements. The Company's liquidity is essentially
exhausted and the Company's current level of revenue does not provide
adequate funds for its operations. Management has reduced the Company's
operating losses and working capital requirements through reductions in all
areas of the business, has raised capital through the sale of convertible
securities, and is taking steps to raise additional capital. Failure to raise
additional capital will have a material adverse impact on the Company and may
cause the Company to cease operations.
The outstanding balance on the Company's bank loans, received as part of
the Israel Approved Enterprise Program, was $2,231 at March 31, 1998 compared
to $2,730 at the end of 1997. Monthly payments of principal and interest on
the loans began in March 1997, and are scheduled to continue until the loans
are fully repaid. The Company has entered into negotiations with the
government of Israel to restructure its long-term debt possibly by issuing
equity in exchange for all or a portion of the debt, obtaining discounts,
deferring or stretching payment terms, or some combination of these
alternatives.
11
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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.
PART II - OTHER INFORMATION
ITEM 5. OTHER EVENTS
The Company implemented a major restructuring effort on April 9,
1998 in which it reduced its overall staffing by approximately 40% from its
December 31, 1997 level. The purpose of the restructuring was to reduce the
Company's expenses to a level that is consistent with its anticipated
near-term revenue.
Accent'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, on April 1, 1998, the
Company was notified by Nasdaq that its net tangible assets, which totaled
$1,023 at December 31, 1997, were below the minimum of $2,000 required for
continued listing. (Nasdaq requires companies that are listed on the SmallCap
market to have either: (a) $2,000 in net tangible assets; (b) total market
capitalization of $35,000; or (c) net profit of $500 in two of the preceding
three fiscal years.) Subsequently, the Company provided Nasdaq details of its
plan to increase its net tangible assets to a compliant level has been
granted an oral hearing before a Nasdaq review panel to discuss its plan.
Any action to delist the Company's securities from the SmallCap Market has
been deferred pending the outcome of the hearing. There can be no assurance
that the Company will be provided sufficient time to implement its plan to
increase its net tangible assets or that, if granted sufficient time, the
Company will be successful in implementing its plan. Accordingly, there can
be no assurance that the Company's securities will continue to be listed on
the Nasdaq SmallCap Market. In the event that the Company's shares are
delisted from the Nasdaq SmallCap Market, they could continue to trade on the
Nasdaq "Bulletin Board."
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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). *
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
representative 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).*
- ----------
*Incorporated by reference.
13
<PAGE>
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 filed on August 27, 1997, Reg. No. 333-34455).*
4.10 - Warrant Agreement with The Shemano Group, Inc. (filed as
Exhibit 4.6 to the Company's Registration Statement filed on
October 16, 1997, Reg. No. 333-380043).*
4.11 - Warrant Agreement with Equity Management Partners LLP (filed
as Exhibit 4.7 to the Company's Registration Statement filed
on October 16, 1997, Reg. No. 333-38043).*
4.12 - Warrant Agreement with Brad Gillingham (filed as Exhibit 4.8
to the Company's Registration Statement filed on October 16,
1997, Reg. No. 333-38043).*
4.13 - Form of Warrant Agreement covering warrant agreements with
Robert J. Laikin, Michael Mosher and Manufacturers
Indemnity and Insurance Company of America (filed as Exhibit
4.9 to the Company's Registration Statement filed on October
16, 1997, Reg. No. 333-38043).*
4.14 - Form of Securities Purchase Agreement dated November 6,
1997, between Accent Software International Ltd., and CC
Investments LDC, Nelson Partners, Olympus Securities, Ltd.,
Marshall Companies, Profinsa Investments, which includes the
Convertible Debenture, the Warrant Agreement, Registration
Rights Agreement and Certificate of Designation as exhibits
thereto. (filed as Exhibit 4.1 to the Company's Registration
Statement filed on November 6, 1997, Reg. No. 333-39697).*
4.15 - Warrant Agreement with The Shemano Group, Inc. (filed as
Exhibit 4.1 to the Company's Form S-3 filed on November 6,
1997, Reg. No. 333-39697).*
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).*
- ----------
*Incorporated by reference.
14
<PAGE>
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).*
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).*
10.6(e) - Amended and Restated Non-Employee Share Option Plan (1995)
(filed as Exhibit 10-6(e) to the Company's Form 10-K on
March 31, 1998).*
10.6(f) - CEO Share Option Plan (1997) (filed as Exhibit 10.6(f) to
the Company's Form 10-K on March 31, 1998).*
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 Todd A. Oseth,
dated February 3, 1997 (filed as exhibit 10.7(b) to the
Company's Form 10-K on March 31, 1998).*
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).*
- ----------
*Incorporated by reference.
15
<PAGE>
10.8 - Consulting Agreement, dated August 4, 1997, between the
Company and Investor Resource Services, Inc. (filed as
Exhibit 4.1 to the Company's Registration Statement filed on
October 16,1 997, Reg. No. 333-38043).*
10.9 - Amendment to the Consulting Agreement, dated January 30,
1998, between Company and Investor Resource Services, Inc.
(filed as Exhibit 10-9 to the Company's Form 10-K on March
31, 1998).*
10.10 - 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).*
10.11 - Debenture between the Company and Bank Leumi (filed as
Exhibit 10.11 to the Company's Registration Statement No.
333-7637).*
21 - Subsidiaries of Registrant (filed as Exhibit 21 to the
Company's Form 10-K filed on April 2, 1996).*
27 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
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 14, 1998 by: /s/ Robert J. Behr
------------ -------------------
Robert J. Behr
Chief Financial Officer
(Principal Financial and Accounting
Officer)
- ----------
*Incorporated by reference.
16
<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-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 590
<SECURITIES> 0
<RECEIVABLES> 1,154
<ALLOWANCES> 103
<INVENTORY> 70
<CURRENT-ASSETS> 2,307
<PP&E> 2,634
<DEPRECIATION> 1,410
<TOTAL-ASSETS> 4,197
<CURRENT-LIABILITIES> 4,382
<BONDS> 345
0
0
<COMMON> 43
<OTHER-SE> (921)
<TOTAL-LIABILITY-AND-EQUITY> 4,197
<SALES> 705
<TOTAL-REVENUES> 705
<CGS> 206
<TOTAL-COSTS> 2,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (1,841)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,841)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
