UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended June 30, 1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _____.
Commission file number: 0-26620
ACCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1490 O'Brien Drive
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 328-3818
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 at least the past 90 days.
Yes X No
----- -----
As of August 7, 1996, 6,493,734 shares of the Registrant's common stock
$0.001 par value, were outstanding.
<PAGE>
<TABLE>
ACCOM, INC.
FORM 10-Q For the Quarter Ended June 30, 1996
INDEX
<CAPTION>
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Condensed consolidated balance sheets at June 30, 1996 and September 30, 1995 3
b) Condensed consolidated statements of operations for the three months ended
June 30, 1996 and June 30, 1995 and for the nine months ended 4
June 30, 1996 and June 30, 1995
c) Condensed consolidated statements of cash flows for the nine months ended June 30, 5
1996 and June 30, 1995
d) Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Part II. Other Information 15
Signature 16
Exhibit 11.1 17
Statement re computation of net loss per share
Exhibit 27
Financial Data Schedule 19
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, September 30,
1996 1995
---------------------------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,514 $ 8,769
Short-term investments 3,004 --
Accounts receivable, net 5,676 3,754
Inventories 5,433 4,736
Deferred tax assets 508 508
Prepaid expenses and other current assets 1,069 295
---------------------------------
Total Current Assets 17,204 18,062
Property and equipment, net 1,546 1,596
Other assets 142 54
---------------------------------
$ 18,892 $ 19,712
=================================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 58 $ 58
Accounts payable 2,494 1,719
Accrued liabilities 2,522 3,729
Deferred revenue 802 336
---------------------------------
Total Current Liabilities 5,876 5,842
Note payable - noncurrent 39 83
Deferred tax liabilities 108 108
Commitments
Stockholders' Equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.001 par value; 20,233,497 shares authorized;
6,459,267 and 6,404,197 shares issued and outstanding on June 30, 1996
and September 30, 1995, respectively 6 6
Additional paid-in capital 21,239 21,128
Retained earnings (accumulated deficit) (8,376) (7,455)
---------------------------------
Total Stockholders' Equity 12,869 13,679
---------------------------------
$ 18,892 $ 19,712
=================================
<FN>
Note: The balance sheet at September 30, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
</FN>
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<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Unaudited
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1996 1995 1996 1995
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,824 $ 5,657 $ 15,557 $ 15,483
Cost of sales 2,334 2,653 7,398 7,359
------------------------ -------------------------
Gross margin 2,490 3,004 8,159 8,124
Operating expenses:
Research and development 1,065 972 3,080 2,826
Marketing and sales 2,436 1,691 5,601 4,458
General and administrative 382 300 1,052 936
Charge for acquired in-process technology -- -- -- 1,742
------------------------ -------------------------
Total operating expenses 3,883 2,963 9,733 9,962
------------------------ -------------------------
Operating income (loss) (1,393) 41 (1,574) (1,838)
Interest income 59 -- 194 6
Interest expense (3) (32) (8) (74)
Other expense (10) (8) (29) (68)
------------------------ -------------------------
Income (loss) before income taxes (1,347) 1 (1,417) (1,974)
Benefit for income taxes (471) -- (496) (139)
------------------------ -------------------------
Net income (loss) $ (876) $ 1 ($ 921) $ (1,835)
======================== ==========================
Net income (loss) per share $ (0.14) $ 0.00 $ (0.14) $ (0.62)
Shares used in computation of net income (loss) per share 6,453 4,666 6,431 2,956
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
<CAPTION>
Nine months ended
June 30,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (921) $ (1,835)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 554 359
Changes in operating assets and liabilities
Accounts receivable (1,922) (495)
Inventories (697) (421)
Deferred tax assets, net -- 63
Prepaid expenses and other current assets (774) (227)
Accounts payable 775 751
Accrued compensation 87 147
Other accrued liabilities (417) 370
Income taxes payable -- (128)
Customer deposits (57) (254)
Deferred revenue 466 (90)
-----------------------------
Net cash (used in) operating activities (2,906) (1,760)
-----------------------------
Cash flows from investing activities:
Expenditures for property and equipment (504) (886)
Purchase of short-term investments (33,553) (1,000)
Sale of short-term investments 30,549 1,000
Increase (decrease) in other assets (88) 0
-----------------------------
Net cash provided by (used in) investing activities (3,596) (886)
-----------------------------
Cash flows from financing activities:
Borrowings on line of credit -- 1,850
Payments on line of credit -- (1,375)
Acquisition of notes payable -- 170
Repayments on notes payable (44) (14)
Issuance of preferred stock -- 2,232
Issuance costs on preferred stock financing -- (14)
Issuance of common stock 111 13
Payment of accrued initial public offering costs (819) --
-----------------------------
Net cash provided by (used in) financing activities (752) 2,862
-----------------------------
Net increase (decrease) in cash and cash equivalents (7,254) 216
Cash and cash equivalents at beginning of period 8,768 196
-----------------------------
Cash and cash equivalents at end of period $ 1,514 $ 412
=============================
Supplemental disclosure of cash flow information
Interest paid $ 8 $ 78
=============================
Income taxes paid $ 1 $ 118
=============================
Supplemental disclosure of noncash investing and financing activities
Accrued acquisition costs $ 91 --
=============================
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1. Summary of Significant Accounting Policies
Basis of Preparation
The condensed consolidated balance sheet as of June 30, 1996, and the
condensed consolidated statements of income and cash flows for the three and
nine month periods ended June 30, 1996 and 1995 have been prepared by the
Company, and have not been audited. In the opinion of management, all
adjustments (consisting of normal accruals) necessary to present fairly the
financial position, results of operations, and cash flows at June 30, 1996, and
for all periods presented, have been made. The financial data should be reviewed
in conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1995. The results of operations for the three and nine month periods ended
June 30, 1996 are not necessarily indicative of the operating results for the
full 1996 fiscal year.
Note 2. Short-Term Investments
The Company accounts for short-term investments in accordance with
Statement of Financial Accounting Standards No. 115 (FAS 115), "Accounting for
Certain Investments in Debt and Equity Securities."
All of the Company's short-term investments are designated as
available-for-sale and are carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders' equity. Realized gains
and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in interest income. Interest and
dividends on all securities are included in interest income.
The following is a summary of available-for-sales securities at June
30, 1996 (In thousands):
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Loss Fair Value
--------------------------------------------------
Commercial Paper* $1,399 $-- $-- $1,399
Municipal Notes 1,605 -- -- 1,605
--------------------------------------------------
$3,004 $-- $-- $3,004
==================================================
*Maturities are all within one year.
Note 3. Inventories
Inventories consist of the following (In thousands):
June 30, September 30,
1996 1995
-------------------------------
Purchased parts and materials $ 957 $1,075
Work-in-progress 1,923 985
Finished goods 532 611
Demonstration inventory 2,021 2,065
-------------------------------
$5,433 $4,736
===============================
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto included in Part
I--Item 1 of this Quarterly Report. In addition, in order to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company hereby notifies readers that the factors set forth in
"Additional Factors That May Affect Future Results," as well as other factors,
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future quarters to differ
materially from those expressed in any forward looking statements made by or on
behalf of the Company, including those made in the following discussion.
Overview
Accom designs, manufactures, markets and supports digital video systems
for the high-end production, post-production and broadcast markets. The Company
was incorporated in December 1987 and began shipments of its digital signal
processing products in fiscal 1988. In November 1991, the Company merged with
Axial Systems Corporation ("Axial"), a developer of digital on-line editing
systems. The first shipments of the Company's Axial(R) 2020 Visual On-Line
Editing System ("Axial 2020") and RTD 4224 digital video disk recorder (the
"RTD") occurred in fiscal 1992. The first shipments of the Company's
Brontostore(TM) news graphics and clip server (the "Brontostore", renamed
"Axess" in April 1996) and the Company's lower cost Axial 2010 On-Line Editing
System ("Axial 2010") and WSD(R) Work Station Disk Recorder (the "WSD") occurred
in fiscal 1994. In January 1995, the Company began shipping the WSD(R)/XL Work
Station Disk Recorder ("WSD/XL") and in June 1996 began shipping the WSD(R)/XLS.
In September 1995, the Company increased its ownership interest in
ELSET Electronic-Set GmbH, a German limited liability company ("ELSET GmbH"), to
100% for approximately $7.6 million in cash, funded with a portion of the
proceeds of the Company's initial public offering (the "ELSET Acquisition"). At
the April 1995 National Association of Broadcasters ("NAB") convention, the
Company introduced a prototype of the ELSET(TM) virtual set system (the "ELSET
Virtual Set"), which operates on a Silicon Graphics, Inc. ("SGI") Onyx(TM)
Reality Engine2 or OnyxTM Infinite Reality workstation (an "Onyx"). The Company
shipped its first ELSET Virtual Set in the second quarter of fiscal 1996. See
"Additional Factors That May Affect Future Results" below.
The Company's gross margin has historically fluctuated from quarter to
quarter and declined on an annual basis. As the Company begins to resell the
Onyx as part of the ELSET Virtual Set, gross margins may decline. In the future,
gross margins will be dependent on the mix of higher and lower-priced products
and the percentage of sales made through direct and indirect distribution
channels.
The Company's revenues are currently derived primarily from product
sales. The Company generally recognizes revenue upon product shipment. If
significant obligations exist at the time of shipment, revenue recognition is
deferred until obligations are met. Beginning in the second quarter of fiscal
1996 the Company's revenues included revenues from licensing of ELSET software.
In connection with sales of the ELSET Virtual Set, revenues in the future may
also include revenues from the resale of the Onyx and revenues from maintenance
and other services.
Software development costs are recorded in accordance with Statement of
Financial Accounting Standards No. 86. To date, the Company has expensed all of
its software development costs.
-7-
<PAGE>
Results of Operations
Quarters ended June 30, 1996 and June 30, 1995
Net Sales. The Company's net sales declined by 14.7% to $4.8 million in
the third quarter of fiscal 1996 from $5.7 million for the third quarter of
fiscal 1995. The decrease in fiscal 1996 was due to decreased shipments of
signal processing, WSD, RTD, and Axess products partially offset by increased
shipments of the Axial 2010 and Axial 2020. International sales represented
approximately 36.9% and 54.4% of the Company's sales during the third quarter of
fiscal 1996 and 1995, respectively. The decrease in international sales came
from both European and Asian markets.
Cost of Sales. Gross margin was 51.6% and 53.1% in the third quarter of
fiscal 1996 and 1995, respectively. Gross margin declined in the third quarter
of fiscal 1996 due to lower shipments as manufacturing overhead is primarily a
fixed cost not related to volume, as well as lower WSD margins due to higher
product costs relative to the third quarter of fiscal 1995.
Research and Development. Research and development expenses increased
by 9.6% to $1.1 million in the third quarter of fiscal 1996 from $1.0 million in
the third quarter of fiscal 1995. The increase in fiscal 1996 was primarily due
to an increase in project expenses related to development of the ELSET Virtual
Set partially offset by declines in spending for other development projects.
Research and development expenses as a percentage of net sales were 22.1% and
17.2% in the third quarter of fiscal 1996 and 1995, respectively. The increase
in this percentage is due to the decline in revenues in the third quarter of
fiscal 1996 relative to revenues in the third quarter of fiscal 1995.
Marketing and Sales. Marketing and sales expenses increased by 44.1% to
$2.4 million in the third quarter of fiscal 1996 from $1.7 million in the third
quarter of fiscal 1995. Marketing and sales expenses as a percentage of net
sales were 50.5% and 29.9% in the third quarter of fiscal 1996 and 1995,
respectively. The increase in fiscal 1996 was attributable to a charge of
$594,000 related to write-downs of demonstration inventory used for marketing
purposes and staff reductions as a result of implementing a plan to refocus and
streamline operations and as a result of an increase in ELSET marketing
activities and an increase in salary expenses for sales personnel.
General and Administrative. General and administrative expenses
increased by 27.3% to $382,000 in the third quarter of fiscal 1996 from $300,000
in the third quarter of fiscal 1995. General and administrative expenses as a
percentage of net sales was 7.9% in the third quarter of fiscal 1996 and 5.3% in
the third quarter of fiscal 1995. The increase in fiscal 1996 was primarily due
to an increase in insurance expenses.
Interest Income, Interest Expense and Other (Expense). Interest income
increased significantly to $59,000 in the third quarter of fiscal 1996 from
nothing in the third quarter of fiscal 1995. This increase was attributable to
an increase in income earned on short-term investments, which primarily consist
of proceeds from the Company's initial public offering in September 1995.
Interest expense decreased by $29,000 in the third quarter of fiscal 1996 from
fiscal 1995 as a result of the Company paying down its outstanding bank
borrowings. Cash and cash equivalents increased and bank borrowings decreased as
a result of the Company completing its initial public offering during the fourth
quarter of fiscal 1995.
Provision (Benefit) for Income Taxes. The Company's effective tax rate
for 1996 is estimated to be 35%, which is less than the applicable statutory
rates primarily due to benefits derived from the Company's foreign sales
subsidiary.
-8-
<PAGE>
Nine Months ended June 30, 1996 and June 30, 1995
Net Sales. The Company's net sales were up slightly to $15.6 million in
the nine months ended June 30,1996 from $15.5 million for the same period in
fiscal 1995. The increase in fiscal 1996 was due to increased shipments of the
Axial 2010 and Axial 2020, Axess and the first shipment of the ELSET software
partially offset by lower signal processing, WSD and RTD shipments.
International sales represented approximately 41.5% and 51.4% of the Company's
sales during the first nine months of fiscal 1996 and 1995, respectively.
Cost of Sales. Gross margin was 52.4% and 52.5% in the first nine
months of fiscal 1996 and 1995, respectively. Gross margins decreased in the
first nine months of fiscal 1996 due to higher product costs on the WSD
partially offset by shipment of relatively higher margin Axial products and
lower shipments to international distributors relative to the first nine months
of fiscal 1995.
Research and Development. Research and development expenses increased
by 9.0% to $3.1 million in the first nine months of fiscal 1996 from $2.8
million in the first nine months of fiscal 1995. The increase in fiscal 1996 was
primarily due to an increase in project expenses related to development of the
ELSET Virtual Set partially offset by declines in spending for other development
projects. Research and development expenses as a percentage of net sales were
19.8% and 18.3% in the first nine months of fiscal 1996 and 1995, respectively.
Marketing and Sales. Marketing and sales expenses increased by 25.6% to
$5.6 million in the first nine months of fiscal 1996 from $4.5 million in the
first nine months of fiscal 1995. Marketing and sales expenses as a percentage
of net sales were 36.0% and 28.8% in the first nine months of fiscal 1996 and
1995, respectively. The increase in fiscal 1996 was attributable to the charge
related to write-downs of demonstration inventory used for marketing purposes
and staff reductions as a result of implementing a plan to refocus and
streamline operations as well as the result of an increase in ELSET marketing
activities and an increase in salary expenses for sales personnel.
General and Administrative. General and administrative expenses
increased by 12.4% to $1.1 million in the first nine months of fiscal 1996 from
$0.9 million in the first nine months of fiscal 1995. The increase in fiscal
1996 was primarily due to an increase in insurance expenses. General and
administrative expenses as a percentage of net sales was 6.8% in the first nine
months of fiscal 1996 and 6.1% in the first nine months of fiscal 1995.
Interest Income, Interest Expense and Other (Expense). Interest income
increased significantly to $194,000 in the first nine months of fiscal 1996 from
$6,000 in the first nine months of fiscal 1995. This increase was attributable
to an increase in income earned on short-term investments. Interest expense
decreased by $66,000 in the first nine months of fiscal 1996 from fiscal 1995 as
a result of the Company paying down its outstanding bank borrowings. Cash and
cash equivalents increased and bank borrowings decreased as a result of the
Company completing its initial public offering during the fourth quarter of
fiscal 1995.
Provision (Benefit) for Income Taxes. The Company's effective tax rate
for 1996 is estimated to be 35%, which is less than the applicable statutory
rates primarily due to benefits derived from the Company's foreign sales
subsidiary.
-9-
<PAGE>
Liquidity and Capital Resources
As of June 30, 1996, the Company had $4.5 million of cash, cash
equivalents and short-term investments.
Operating activities used $2.9 million in net cash during the first
nine months of fiscal 1996. In addition to the net loss, net cash used in the
first nine months of fiscal 1996 consisted primarily of increases in accounts
receivable, inventories, prepaid expenses, and a decrease in other accrued
liabilities, partially offset by increases in accounts payable and deferred
revenue.
During the first six months of 1996 the Company had a revolving line of
credit with Comerica Bank that allowed for borrowings of up to $2.5 million,
subject to the level of qualifying accounts receivable. As of March 31, 1996,
the Company had no borrowings outstanding under the line of credit and the line
of credit was terminated. The Company is currently negotiating with Comerica for
a new line of credit in the amount of $4 million, which may be secured by
substantially all of the Company's assets and may restrict the Company's ability
to pay dividends.
The Company believes that its existing cash, cash equivalents and
short-term investments will be sufficient to meet its cash requirements for at
least the next twelve months. To the extent the Company incurs losses or grows
in the future, its operating and investing activities may use cash and,
consequently, such losses or growth may require the Company to obtain additional
sources of financing. There can be no assurance that any necessary additional
financing will be available to the Company on commercially reasonable terms, or
at all.
Additional Factors That May Affect Future Results
The company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Specifically, the
Company wishes to alert readers that the following important factors, as well as
other factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future
quarters to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company.
Uncertainty as to Development and Market Acceptance of ELSET Virtual
Set. The Company's ability to achieve revenue growth and profitability in fiscal
1996 and subsequent years is dependent to a significant degree upon the
successful development and market acceptance of its ELSET Virtual Set, a
prototype of which was introduced at the April 1995 NAB convention and the first
commercial shipments of which were made in March 1996. The ELSET Virtual Set is
still being further developed with respect to certain key features, including a
user interface, the movement of cameras in the set and actor interaction with
three-dimensional virtual objects. There can be no assurance that the Company
will be able to successfully complete these developments of the ELSET Virtual
Set in a timely manner. The failure to complete the development of the ELSET
Virtual Set successfully and in a timely manner would have a material adverse
impact on the Company's business, financial condition and results of operations.
In addition, the ELSET Virtual Set represents a new approach to studio set
creation, and its commercial success will depend on the rate at which potential
end users transition from the use of traditional physical sets to virtual sets
and whether this transition occurs at all. A potential end user's decision to
purchase an ELSET Virtual Set will depend on many factors that are difficult to
predict. For example, the ELSET Virtual Set is based to a significant extent on
new technology, including continuing enhancements to the Onyx. Therefore,
potential end users such as broadcasters may be reluctant to purchase the ELSET
Virtual Set, especially for mission-critical functions, until the ELSET Virtual
Set's reliability in real time use has been demonstrated. In addition, a
potential end user's decision to purchase the ELSET Virtual Set may be subject
to SGI's timing of shipments of the Onyx and SGI's announcement
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of enhancements to the Onyx. The current U.S. list price for the ELSET Virtual
Set, including the Onyx, ranges from approximately $650,000 to over $1.2
million, depending on the desired functionality. Potential end users may
therefore be unwilling to incur the significant cost of converting from physical
sets to the ELSET Virtual Set. Although the Company currently anticipates that
broadcasters and post-production facilities will be the primary end users of
virtual set systems, the Company has not conducted any formal market surveys to
determine the potential market for and acceptance of the ELSET Virtual Set. The
Company expects that sales of the ELSET Virtual Set will entail a longer sales
cycle than with the Company's other products. Although the Company made its
first commercial shipments of the ELSET Virtual Set in March 1996, there can be
no assurance that a significant market for virtual set systems will develop or
that the Company will be able to successfully market the ELSET Virtual Set over
time. If this market development does not occur or occurs over an extended
period, or if the ELSET Virtual Set does not achieve market acceptance, the
Company's business, financial condition and results of operations will be
materially and adversely affected.
Potential Fluctuations in Operating Results. The Company incurred a net
loss of approximately $876,000 in the third quarter of fiscal 1996 and had a net
loss of $921,000 for the first nine months of fiscal 1996. The Company also
incurred a net loss of $1.8 million in the first nine months of fiscal 1995,
primarily as a result of a charge of approximately $1.7 million for acquired
in-process technology. There can be no assurance that the Company will be
profitable on a quarterly or annual basis in the future. The Company's quarterly
operating results have in the past fluctuated and may fluctuate significantly in
the future depending on such factors as the timing and shipment of significant
orders, new product introductions and changes in pricing policies by the Company
and its competitors, the timing and market acceptance of the Company's new
products and product enhancements, particularly the ELSET Virtual Set, the
Company's product mix, the mix of distribution channels through which the
Company's products are sold and the Company's inability to obtain sufficient
supplies of sole or limited source components for its products. In response to
competitive pressures or new product introductions, the Company may take certain
pricing or other actions that could materially and adversely affect the
Company's operating results. In addition, new product introductions by the
Company could contribute to quarterly fluctuations in operating results as
orders for new products commence and orders for existing products decline. The
Company believes that its net sales generally will decrease in the second
quarter of each fiscal year as compared to the prior quarter (as occurred in the
second quarter of fiscal 1996) due to decreased expenditures in the
post-production market during that period and delayed customer purchasing
decisions in anticipation of new product introductions by the Company and others
at the annual NAB convention.
The Company currently anticipates that a number of factors will cause
its gross margins to decline in future periods from current levels. The Company
believes that the market for on-line video editors and digital video disk
recorders will continue to mature and, therefore, that the gross margins the
Company derives from sales of these products will decline in future periods. The
Company intends to increase its sales of lower-margin on-line video editor and
digital video disk recorder products in the future as it pursues the strategy of
broadening its lower-priced product lines. Furthermore, as the Company expands
its indirect sales channels, its gross margins will be negatively impacted
because of discounts associated with sales through these channels. In addition,
the Company currently anticipates that revenues from sales of the ELSET Virtual
Set will positively impact the Company's net sales but negatively impact its
gross margins because a significant portion of ELSET Virtual Set sales are
expected to be the resale of the Onyx, which generates lower gross margins than
sales of the Company's products.
The Company's expense levels are based, in part, on its expectations of
future revenues. In particular, the Company expects to incur significant
expenses in connection with the development and marketing of the ELSET Virtual
Set. The Company may therefore be required to incur significant expenses to
support continuing development and marketing of the ELSET Virtual Set. Many of
the Company's expenses are relatively fixed and cannot be changed in short
periods of time. Because a substantial portion of the Company's revenue in each
quarter frequently results from orders booked and shipped in the final month of
that quarter, revenue levels are extremely difficult to predict. If revenue
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levels are below expectations, net income will be disproportionately affected
because only a small portion of the Company's expenses varies with its revenue
during any particular quarter. In addition, the Company typically does not have
material backlog as of any particular date.
As a result of the foregoing factors and potential fluctuations in
operating results, the Company believes that its results of operations in any
particular quarter should not be relied upon as an indicator of future
performance. In addition, in some future quarter the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially and
adversely affected.
Dependence on Silicon Graphics, Inc. The ELSET Virtual Set currently
operates only on the Onyx. Under its agreement with the Company (the "SGI
Agreement"), SGI has agreed to supply the Onyx and certain enhancements to the
Company for one year, after which the parties may mutually agree to extend this
agreement for subsequent one-year terms. Under the SGI Agreement, the Company is
required to make a minimum dollar level of Onyx purchases and to use its best
efforts to market the Onyx at or above an annual volume level. The Company
believes that it will be able to satisfy its purchase and marketing commitments
under the SGI Agreement. However, there can be no assurance that the SGI
Agreement will be extended or that the Company will be able to obtain sufficient
quantities of the Onyx or any successor platform to the Onyx. Financial, market
or other developments adversely affecting SGI could have an adverse effect on
its ability to supply the Company with the Onyx or enhancements or upgrades to
the Onyx and, consequently, upon the Company's business, financial condition and
results of operations. If the Company were unable to obtain sufficient
quantities of the Onyx or successor platforms, or certain key enhancements or
upgrades, on a timely basis or on commercially reasonable terms, or experienced
defects or performance, compatibility or reliability problems with the Onyx or
successor platforms, sales of the ELSET Virtual Set and, therefore, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
Rapid Technological Change; Product Development. The market for the
Company's products is characterized by rapidly changing technology, evolving
industry standards and frequent new product introductions. The Company's success
will depend in part upon its ability to enhance its existing products and to
develop and introduce new products and features to incorporate new technologies
and meet changing customer requirements and emerging industry standards in a
timely and cost-effective manner. In April 1995, the Company introduced the
ELSET Virtual Set, which is still under development, and is currently developing
new products and product enhancements for its on-line video editor and digital
video disk recorder product lines. There can be no assurance that the Company
will be successful in developing, manufacturing and marketing these or other new
products and product enhancements, that the Company will not experience
difficulties that delay or prevent the successful development and introduction
of these products and enhancements or that the Company's new products and
product enhancements will achieve market acceptance. The Company's business,
financial condition and results of operations would be materially and adversely
affected if the Company were to experience delays in developing new products or
product enhancements or if these products or enhancements did not gain market
acceptance. In addition, the introduction of products embodying new technologies
or the emergence of new industry standards can render existing products
unmarketable. There can be no assurance that products or technologies developed
by others will not render the Company's products non-competitive or obsolete. In
such case, the Company's business, financial condition and results of operations
would be materially and adversely affected.
The introduction of new products or product enhancements with
reliability, quality or compatibility problems can result in reduced or delayed
sales, delays in collecting accounts receivable or additional service and
warranty costs. In the past, the Company has delivered certain new products to
customers prematurely, and, as a result, such products have contained
performance deficiencies. For example, in the first half of fiscal 1995, the
Company first delivered its Axess (formerly known as Brontostore) to certain
customers. To date, the Company has experienced technical problems with the
-12-
<PAGE>
Axess, including delays in delivering additional functionality when originally
requested by these customers. Although the Company is working to address these
problems, there can be no assurance that the Company will successfully resolve
them. Similarly, the software component of the Company's products, particularly
the ELSET Virtual Set, may contain errors that may be detected at any point in
the product's life cycle, including after product introduction. For example, the
Company has from time to time needed to update the software for its products to
address performance problems. The Company expects the software content of its
products to increase in the future. There can be no assurance that the Company
will not experience delays and software or hardware related technical problems
in its current and future efforts to develop products and product enhancements.
Any such delays or problems could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Key Personnel. The Company's success depends in large
part on the continued service of its key technical and senior management
personnel and on its ability to attract, motivate and retain highly qualified
employees. None of the Company's key technical and senior management personnel
is bound by an employment agreement or an agreement not to compete with the
Company following termination of employment. Competition for highly qualified
employees is intense, and the process of identifying and successfully recruiting
personnel with the combination of skills and attributes required to execute the
Company's strategies is often lengthy. Accordingly, the loss of the services of
key personnel could have a material adverse effect upon the Company's research
and development efforts and on its business, financial condition and results of
operations. There can be no assurance that the Company will be successful in
retaining its key technical and management personnel and in attracting and
retaining the personnel it requires for continued growth. The Company has key
person life insurance covering certain of its management personnel.
Management of Growth. The Company's success will depend in part on its
ability to manage growth, both domestically and internationally. In addition,
the Company will be required to enhance its operational, management information
and financial control systems. Pursuant to the ELSET Acquisition, the Company
will have to manage the integration of ELSET GmbH's operations with the
Company's existing operations. There can be no assurance that the Company will
be able to effectively manage this integration. The Company may be required at
some point to recruit a substantial number of qualified employees to continue
the development and marketing of the ELSET Virtual Set. To support continued
growth, the Company will be required to increase the personnel in its sales,
marketing and customer support departments. If the Company is unable to hire a
sufficient number of employees with the appropriate levels of experience to
increase the capacity of these departments in a timely manner, or if the Company
is unable to effectively manage its growth or the integration of ELSET GmbH's
operations with those of the Company, the Company's business, financial
condition and results of operations could be materially and adversely affected.
International Operations. In the third quarters of fiscal 1996 and
1995, international sales accounted for 36.9% and 51.4%, respectively, of the
Company's total net sales. The Company expects that international sales will
continue to represent a significant portion of its net sales in the future. The
Company's results of operations may be adversely affected by fluctuations in
exchange rates, difficulties in collecting accounts receivable, tariffs and
difficulties in obtaining export licenses. Although the Company's sales are
currently denominated in U.S. dollars, future international sales of the ELSET
Virtual Set may result in foreign currency denominated sales. In addition,
certain expenses incurred by ELSET GmbH are denominated in German marks. Gains
and losses on the conversion to U.S. dollars of receivables and payables arising
from international operations may contribute to fluctuations in the Company's
results of operations. In addition, international sales are primarily made
through distributors and result in lower gross margins than direct sales.
Moreover, the Company's international sales may be adversely affected by lower
sales levels that typically occur during the summer months in Europe and other
parts of the world. International sales and operations are also subject to risks
such as the imposition of governmental controls, political instability, trade
restrictions and changes in regulatory requirements, difficulties in staffing
and managing international operations, generally longer payment
-13-
<PAGE>
cycles and potential insolvency of international dealers. There can be no
assurance that these factors will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations.
Dependence on Distributors. The Company derives a majority of its
revenues from sales through distributors. The Company depends on distributors
for substantially all of its international sales. The loss of certain of these
distributors could have a material adverse effect on the Company. Certain of the
Company's distributors also act as distributors for competitors of the Company
and could devote greater effort and resources to marketing competitive products.
Because the Company's products are sold to high-end video professionals,
effective distributors must possess sufficient technical, marketing and sales
resources and must devote these resources to a lengthy sales cycle and
subsequent customer support. There can be no assurance that the Company's
current distributors will be able to continue to market and support the
Company's existing products effectively or that economic conditions or industry
demand will not adversely affect such distributors. The markets for new products
such as the ELSET Virtual Set and digital video disk based servers require a
different marketing, sales, distribution and support strategy than markets for
the Company's other products. In addition, the Company currently intends to
expand its existing indirect sales channels to implement its strategy of
broadening its lower-priced on-line video editor and digital video disk recorder
product lines. There can be no assurance that the Company's distributors will
choose or be able to effectively market and support these new products or to
continue to market the Company's existing products. A failure of the Company's
distributors to successfully market and support the Company's products would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Control by Existing Stockholders; Effect of Certain Anti-Takeover
Provisions. As of June 30, 1996, the Company's executive officers and directors,
and their affiliates, beneficially own approximately 52% of the Company's
outstanding Common Stock. As a result, the Company's executive officers and
directors and their affiliates will be able to control the Company and direct
its business and affairs. Acting together, these stockholders will be able to
continue to elect the Company's directors and to determine the outcome of
corporate actions requiring stockholder approval, regardless of how other
stockholders of the Company may vote. Furthermore, acting together, such
stockholders will be able to block any change in control of the Company and
could effect a change in control of the Company. In addition, the Board of
Directors has the authority to issue up to 2,000,000 shares of undesignated
Preferred Stock and to determine the rights, preferences, privileges and
restrictions of such shares without further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely effected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock could have the
effect of making it more difficult for third parties to acquire a majority of
the outstanding voting stock of the Company. Further, certain provisions of the
Company's Amended and Restated Certificate of Incorporation and Bylaws and of
Delaware law could delay or make difficult a merger, tender offer or proxy
contest involving the Company.
Possible Volatility of Stock Price. The Company's stock price may be
subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts or
others could have an immediate and significant adverse effect on the trading
price of the Company's common stock in any given period. Additionally, the
Company may not learn of, or be able to confirm, revenue or earnings shortfalls
until late in the fiscal quarter or following the end of the quarter, which
could result in an even more immediate and adverse effect on the trading of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which may result in significant volatility of the Company's common
stock price.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 Computation of net loss per share.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
-15-
<PAGE>
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.
ACCOM, INC.
By: /s/ ROBERT L. WILSON
-----------------------------------------------
Robert L. Wilson
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Duly Authorized and Principal Financial and
Accounting Officer)
Date: August 12, 1996
-16-
<TABLE>
EXHIBIT 11.1
ACCOM, INC.
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
(In thousands, except share data)
Three months ended Nine months ended
--------------------------- ---------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary and fully diluted:
Net income (loss) $ (876) $ 1 $ (921) $(1,835)
======= ======= ======= =======
Shares used in Computation of Net Loss
Per Share (1)
Weighted average shares of common stock
outstanding 6,453 2,364 6,431 2,353
Shares related to Staff Accounting
Bulletins Nos. 55, 64, and 83
Preferred stock -- 2,082 -- 603
Stock options -- 220 -- --
------- ------- ------- -------
Shares used in net loss per share
computation 6,453 4,666 6,431 2,956
======= ======= ======= =======
Net income (loss) per share $ (0.14) $ 0.00 $ (0.14) $ (0.62)
======= ======= ======= =======
<FN>
(1) Conversion equivalent shares from stock options and convertible
preferred stock are excluded from the computations as their effect is
anti-dilutive.
</FN>
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,518,000
<SECURITIES> 0
<RECEIVABLES> 5,908,000
<ALLOWANCES> (232,000)
<INVENTORY> 5,433,000
<CURRENT-ASSETS> 17,204,000
<PP&E> 3,609,000
<DEPRECIATION> (2,063,000)
<TOTAL-ASSETS> 18,892,000
<CURRENT-LIABILITIES> 5,876,000
<BONDS> 0
<COMMON> 6,000
0
0
<OTHER-SE> 12,863,000
<TOTAL-LIABILITY-AND-EQUITY> 18,892,000
<SALES> 4,824,000
<TOTAL-REVENUES> 4,824,000
<CGS> 2,334,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,883,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,000
<INCOME-PRETAX> (1,347,000)
<INCOME-TAX> (471,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (876,000)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
