<PAGE>
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 MARCH 31, 1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-26620
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 May 6, 1996, 6,451,766 shares of the Registrant's common stock
$0.001 par value, were outstanding.
<PAGE>
ACCOM, INC.
FORM 10-Q For the Quarter Ended March 31, 1996
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Condensed consolidated balance sheets
at March 31, 1996 and September 30, 1995 3
b) Condensed consolidated statements of
operations for the three months ended
March 31, 1996 and March 31, 1995 and for
the six months ended March 31, 1996 and
March 31, 1995 4
c) Condensed consolidated statements of cash
flows for the six-months ended March 31,
1996 and March 31, 1995 5
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 16
Signature 17
Exhibit 11.1
Statement re computation of net loss per share 18
Exhibit 27
Financial Data Schedule 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
---------------------------
UNAUDITED
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,235 $ 8,769
Short-term investments 5,107 --
Accounts receivable, net 4,769 3,754
Inventories 5,145 4,736
Deferred tax assets 508 508
Prepaid expenses and other current assets 326 295
---------------------------
Total Current Assets 17,090 18,062
Property and equipment, net 1,581 1,596
Other assets 142 54
---------------------------
$18,813 $19,712
---------------------------
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 58 $ 58
Accounts payable 2,234 1,719
Accrued liabilities 2,383 3,729
Deferred revenue 240 336
---------------------------
Total Current Liabilities 4,915 5,842
Note payable - noncurrent 53 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; 6,429,477 and
6,404,197 shares issued and outstanding
on March 31, 1996 and September 30, 1995,
respectively 6 6
Additional paid-in capital 21,232 21,128
Retained earnings (accumulated deficit) (7,501) (7,455)
---------------------------
Total Stockholders' Equity 13,737 13,679
---------------------------
$18,813 $19,712
---------------------------
---------------------------
</TABLE>
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.
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ACCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net sales $ 5,191 $ 4,832 $ 10,734 $ 9,826
Cost of sales 2,453 2,324 5,064 4,706
------------------------ ------------------------
Gross margin 2,738 2,508 5,670 5,120
Operating expenses:
Research and development 1,072 1,021 2,015 1,854
Marketing and sales 1,623 1,554 3,165 2,767
General and administrative 382 330 671 636
Charge for acquired
in-process technology ----- 1,742 ----- 1,742
------------------------ ------------------------
Total operating expense 3,077 4,647 5,851 6,999
------------------------ ------------------------
Operating loss (339) (2,139) (181) (1,879)
Interest income 59 2 135 6
Interest expense (3) (12) (6) (42)
Other expense (6) (49) (19) (60)
------------------------ ------------------------
Loss before income taxes (289) (2,198) (71) (1,975)
Benefit for income taxes (102) (155) (25) (139)
------------------------ ------------------------
Net loss $(187) $(2,043) $(46) $(1,836)
------------------------ ------------------------
------------------------ ------------------------
Net loss per share $(0.03) $(0.69) $(0.01) $(0.62)
Shares used in computation
of net loss per share 6,419 2,956 6,412 2,950
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ACCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
MARCH 31,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (46) $ (1,836)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 354 226
Changes in operating assets and
liabilities
Accounts receivable (1,015) 604
Inventories (409) 15
Prepaid expenses and other
current assets (31) (106)
Accounts payable 515 452
Accrued compensation (2) 12
Other accrued liabilities (504) 486
Income taxes payable (25) (160)
Customer deposits 7 (228)
Deferred revenue (96) (1)
-------------------------
Net cash (used in) operating activities (1,252) (536)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (339) (369)
Purchase short-term investments (27,853) (1,000)
Sale of short-term investments 22,745 1,000
Increase (decrease) in other assets (88) 0
-------------------------
Net cash provided by (used in) investing activities (5,535) (369)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit ----- 350
Payments on line of credit ----- (1,375)
Acquisition of notes payable ----- 170
Repayments on notes payable (30) -----
Issuance of preferred stock ----- 2,231
Issuance costs on preferred stock financing ----- (1)
Issuance of common stock 104 12
Payment of accrued initial public offering costs (821) -----
-------------------------
Net cash provided by (used in) financing
activities (747) 1,387
-------------------------
Net increase (decrease) in cash and cash equivalents (7,534) 482
Cash and cash equivalents at beginning of period 8,769 196
-------------------------
Cash and cash equivalents at end of period $ 1,235 $ 678
-------------------------
-------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 6 $ 51
-------------------------
-------------------------
Income taxes paid $ 1 $ 118
-------------------------
-------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Accrued acquisition costs $ 66 -----
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
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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 March 31, 1996, and the
condensed consolidated statements of income and cash flows for the three and
six month periods ended March 31, 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 March 31, 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
six month periods ended March 31, 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 March
31, 1996 (In thousands):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSS FAIR VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper* $ 1,698 $ -- $ -- $ 1,698
Municipal Notes 3,409 -- -- 3,409
------------------------------------------------------
$ 5,107 $ -- $ -- $ 5,107
------------------------------------------------------
------------------------------------------------------
</TABLE>
*Maturities are all within one year.
NOTE 3. INVENTORIES
Inventories consist of the following (In thousands):
March 31, September 30,
1996 1995
------------------------------
Purchased parts and materials $ 919 $ 1,075
Work-in-progress 1,533 985
Finished goods 616 611
Demonstration inventory 2,077 2,065
------------------------------
$ 5,145 $ 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-Registered Trademark- 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") and the Company's lower cost Axial 2010 On-Line
Editing System ("Axial 2010") and WSD-Registered Trademark- Work Station Disk
Recorder (the "WSD") occurred in fiscal 1994. In January 1995, the Company
began shipping the WSD-Registered Trademark-/XL Work Station Disk Recorder
("WSD/XL").
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 Engine(2) workstation (an "Onyx"). The Company began its
first commercial shipments of the 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.
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<PAGE>
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1995
NET SALES. The Company's net sales increased by 7.4% to $5.19 million
in the second quarter of fiscal 1996 from $4.83 million for the second
quarter of fiscal 1995. The increase in fiscal 1996 was due to increased
shipments of the Axial 2010 and Axial 2020, and the first sale of the ELSET
software partially offset by lower signal processing, WSD and RTD shipments.
International sales represented approximately 40.4% and 54.1% of the
Company's sales during the second quarter of fiscal 1996 and 1995,
respectively.
COST OF SALES. Gross margin was 52.7% and 51.9% in the second quarter
of fiscal 1996 and 1995, respectively. Gross margin increased in the second
quarter of fiscal 1996 due to shipment of relatively higher margin ELSET
software and reduced shipments to international distributors relative to the
second quarter of fiscal 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
by 5.0% to $1.07 million in the second quarter of fiscal 1996 from $1.02
million in the second 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 20.7% and 21.1% in the second quarter of fiscal 1996 and 1995,
respectively. The decline in this percentage is due to the commencement of
ELSET revenues in the second quarter of fiscal 1996.
MARKETING AND SALES. Marketing and sales expenses increased by 4.4% to
$1.62 million in the second quarter of fiscal 1996 from $1.55 million in the
second quarter of fiscal 1995. The increase in fiscal 1996 was attributable
to ELSET marketing activities and an increase in salary expenses for sales
personnel. Marketing and sales expenses as a percentage of net sales were
31.3% and 32.2% in the second quarter of fiscal 1996 and 1995, respectively.
The decline in this percentage was due to the commencement of ELSET revenues
in the second quarter of fiscal 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by 15.8% to $382,000 in the second quarter of fiscal 1996 from
$330,000 in the second quarter of fiscal 1995. General and administrative
expenses as a percentage of net sales was 7.4% in the second quarter of
fiscal 1996 and 6.8% in the second quarter of fiscal 1995. The increase in
fiscal 1996 was primarily due to an increase in provisions for bad debts.
CHARGE FOR ACQUIRED IN-PROCESS TECHNOLOGY. The Company incurred a
charge of approximately $1.7 million for acquired in-process technology in
the second quarter of fiscal 1995 in connection with the investment in ELSET.
INTEREST INCOME, INTEREST EXPENSE AND OTHER (EXPENSE). Interest income
increased significantly to $59,000 in the second quarter of fiscal 1996 from
$2,000 in the second quarter of fiscal 1995. This increase was attributable
to an increase in income earned on short-term investments. Interest expense
decreased by $9,000 in the second 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. Other expense decreased by $43,000 as there were no
significant fixed asset write-offs in 1996.
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<PAGE>
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. The effective tax rate for 1995 was 7%, as a result of the
utilization of tax credits.
SIX MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
NET SALES. The Company's net sales increased by 9.2% to $10.73 million
in the six months ended March 31,1996 from $9.83 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, WSD, Brontostore and the first shipment of
the ELSET software partially offset by lower signal processing, and RTD
shipments. International sales represented approximately 43.5% and 49.9% of
the Company's sales during the first six months of fiscal 1996 and 1995,
respectively.
COST OF SALES. Gross margin was 52.8% and 52.1% in the first six months
of fiscal 1996 and 1995, respectively. Gross margin increased in the first
six months of fiscal 1996 due to shipment of relatively higher margin ELSET
and lower shipments to international distributors relative to the first six
months of fiscal 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
by 8.7% to $2.0 million in the first six months of fiscal 1996 from $1.85
million in the first six 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 18.8% and 18.9% in the first six months of fiscal 1996 and
1995, respectively.
MARKETING AND SALES. Marketing and sales expenses increased by 14.4% to
$3.17 million in the first six months of fiscal 1996 from $2.77 million in
the first six months of fiscal 1995. The increase in fiscal 1996 was
attributable to ELSET marketing activities and an increase in salary expenses
for sales personnel. Marketing and sales expenses as a percentage of net
sales were 29.5% and 28.2% in the first six months of fiscal 1996 and 1995,
respectively. The increase in this percentage is due to the increase in
ELSET marketing and sales spending which was not fully matched by a
corresponding increase in ELSET revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by 5.5% to $671,000 in the first six months of fiscal 1996 from
$636,000 in the first six months of fiscal 1995. The increase in fiscal 1996
was primarily due to an increase in provisions for bad debts and insurance
expenses. General and administrative expenses as a percentage of net sales
was 6.3% in the second quarter of fiscal 1996 and 6.5% in the first six
months of fiscal 1995.
INTEREST INCOME, INTEREST EXPENSE AND OTHER (EXPENSE). Interest income
increased significantly to $135,000 in the first six months of fiscal 1996
from $6,000 in the first six months of fiscal 1995. This increase was
attributable to an increase in income earned on short-term investments.
Interest expense decreased by $36,000 in the first six 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
-9-
<PAGE>
fiscal 1995. Other expense decreased by $41,000 as there were no significant
fixed asset write-offs in 1996.
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. The effective tax rate for 1995 was 7%, as a result of the
utilization of tax credits.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had $6.34 million of cash, cash
equivalents and short-term investments.
Operating activities used $1.25 million in net cash during the first six
months of fiscal 1996 and used $536,000 during the first six months of fiscal
1995. Net cash used in the first six months of fiscal 1996 consisted
primarily of increases in accounts receivable, inventories, and a decrease in
other accrued liabilities partially offset by increases in accounts payable.
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, 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. Although operating activities may provide
cash in certain periods, to the extent the Company grows in the future, its
operating and investing activities may use cash and, consequently, such
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.
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<PAGE>
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 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 theresfore 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's net sales
declined in both the first and second quarters of fiscal 1995. The Company
incurred a net loss of approximately $2.0 million in the second quarter of
fiscal 1995, primarily as a result of a charge of approximately $1.7 million
for acquired in-process technology. The Company operated essentially at
break-even during the third quarter of fiscal 1995 and incurred a charge of
$9.02 million for acquired in-process technology during the fourth quarter of
fiscal 1995 in connection with the ELSET Acquisition. The Company earned net
income of $141,000 in the first quarter of 1996 and had a net loss of
$187,000 in the second quarter of fiscal 1996. There can be no assurance
that the Company's revenue growth will be sustained or 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.
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<PAGE>
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 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
-12-
<PAGE>
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 Brontostore to certain customers. To
date, the Company has experienced technical problems with the Brontostore,
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
-13-
<PAGE>
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 second quarters of fiscal 1996 and
1995, international sales accounted for 40.4% and 54.1%, 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 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 March 31, 1996, the Company's officers and directors, and
their affiliates, beneficially own approximately 52% of
-14-
<PAGE>
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.
-15-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 20, 1996, the Company held its annual meeting of
stockholders. At such meeting, the Company's stockholders approved the
following items by the following votes:
1. The Election of the following directors of the Company:
NOMINEE FOR WITHHELD
------- --- --------
Junaid Sheikh 5,618,566 1,400
Robert L. Wilson 5,618,566 1,400
Lionel M. Allan 5,618,566 1,400
Gary W. Kalbach 5,618,566 1,400
Nyal D. McMullin 5,618,566 1,400
2. The ratification of the appointment of Ernst & Young LLP
as the Company's independent auditors for the fiscal year
ending September 30, 1996.
For 5,618,566 Against 0 Abstain 1,400
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.1 Computation of loss per share.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
-16-
<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: May 10, 1996
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<PAGE>
EXHIBIT 11.1
ACCOM, INC.
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- ----------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary and fully diluted:
Net loss $(187) $(2,043) $(46) $(1,836)
---------- --------- --------- ---------
---------- --------- --------- ---------
SHARES USED IN COMPUTATION
OF NET LOSS PER SHARE (1)
Weighted average shares
of common stock outstanding 6,419 2,353 6,412 2,347
Shares related to Staff Accounting
Bulletins Nos. 55, 64, and 83
Preferred stock ---- 417 ---- 417
Stock options ---- 186 ---- 186
---------- --------- --------- ---------
Shares used in net loss per share
computation 6,419 2,956 6,412 2,950
---------- --------- --------- ---------
---------- --------- --------- ---------
Net loss per share $(0.03) $(0.69) $(0.01) $(0.62)
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
(1) Conversion equivalent shares from stock options and convertible preferred
stock are excluded from the computations as their effect is anti-dilutive.
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOM, INC
FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 1996 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> SEP-30-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,235
<SECURITIES> 5,107
<RECEIVABLES> 4,769
<ALLOWANCES> 0
<INVENTORY> 5,145
<CURRENT-ASSETS> 17,090
<PP&E> 1,581
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,813
<CURRENT-LIABILITIES> 4,915
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 13,731
<TOTAL-LIABILITY-AND-EQUITY> 18,813
<SALES> 5,191
<TOTAL-REVENUES> 5,191
<CGS> 2,453
<TOTAL-COSTS> 5,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (289)
<INCOME-TAX> (102)
<INCOME-CONTINUING> (187)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
