UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____to _________.
Commission file number: 0-26620
ACCOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1490 O'Brien Drive
Menlo Park, CA 94025
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 328-3818
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
----------------------------------
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 than the
Registrant was required to file such reports). and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $4,320,295 as of December 17, 1997, based
upon the closing sale price on the Nasdaq Stock Market reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% of more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
There were 6,632,358 shares of Registrant's Common Stock issued and
outstanding as of December 17, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
proxy statement for the Annual Meeting of Shareholders to be held on February
17, 1998.
"Accom," "Axial," and "WSD" are some of the registered trademarks of
the Company, and all of the Company's other product names are trademarks of the
Company. "Onyx(TM)" is a trademark of Silicon Graphics, Inc. This Report also
includes trademarks of companies other than Accom, Inc. and Silicon Graphics.
Unless the context indicates otherwise, reference in this Report to the
"Company" and "Accom" refers to Accom, Inc. and its consolidated subsidiaries.
<PAGE>
PART I
Item 1. Business
General
Accom(R), Inc. ("Accom" or the "Company") designs, manufactures, sells,
and supports a complete line of digital video signal processing, editing, and
disk recording tools, and its ELSET(TM) virtual set systems, primarily for the
professional worldwide video production, post production and live broadcasting,
and computer video production and post-production, marketplaces. The Company's
systems are designed to be used by video professionals to create, edit and
broadcast high quality video content such as television shows, commercials,
news, music videos and video games.
The proliferation of distribution channels for video content, including
cable, satellite and direct view systems such as videos and CD ROMs, is
increasing the demand for broadcast content while diminishing the potential
viewing audience and revenue per channel. To compete more effectively,
broadcasters and other professional content creators require systems that reduce
the cost of developing and delivering video content and more flexibly distribute
the same or repurposed content over multiple channels. These systems must be
capable of performing mission-critical tasks reliably and in real time without
detracting from the final video quality. As video professionals transition from
traditional stand-alone analog systems to integrated digital systems, they also
require systems that can be easily integrated with existing equipment to
leverage their significant capital investments.
The Company provides innovative products that cost-effectively meet the
needs of professional content creators and broadcasters in real time video
production, post-production and distribution. The Company's current products
include the ELSET(TM) virtual set system used in the production process by
replacing traditional physical studio sets with three-dimensional ("3D") virtual
sets, on-line video editing systems and digital video disk recorders used during
the content creation production and post production processes, and networked
still image and video clip storage systems used by broadcasters in the
distribution process.
<TABLE>
The following table summarizes the Company's key products:
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Product Primary Applications
----------------------------------------------------------------------------------------------------------------
<S> <C>
Virtual Set Production Tools
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ELSET(TM) Virtual Set Virtual sets for high-end video content creation
production in real time
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Computer Graphics and Animation Digital Disk Recorders
----------------------------------------------------------------------------------------------------------------
WSD(R)/2Xtreme Desktop computer graphics and animation production
----------------------------------------------------------------------------------------------------------------
Digital Signal Processors
----------------------------------------------------------------------------------------------------------------
Signal Processor Bridges between various signal formats for
Product Family film-to-tape transfers and color correction process
2
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Digital On-Line Editors
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Axial(R) 2020 On-line post production editing for commercials and
Axial(R) 2010 long form television programs
Axial(R) 3000
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Video Digital Disk Recorders
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RTD(TM)4224 On-line post production editing and effects creation
for commercials and long form television programs
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Digital News Graphics and Clip Servers
----------------------------------------------------------------------------------------------------------------
Axess(TM) Creation and broadcast distribution of news graphics
and short video segments
----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's strategy is to maintain its leadership position in the
professional segment of the video post-production market by enhancing its
existing product lines and developing new products that establish higher
standards of performance in video editing and digital recording. The Company
also plans to build upon its established reputation in the post-production
segment to market the ELSET(TM) Virtual Set and its Axess(TM) news graphics and
clip server to the production and distribution markets, respectively.
Additionally, the Company continues to pursue its strategy of first developing
and marketing full-featured systems to prove technological feasibility and
market acceptance and then designing lower-priced products with reduced feature
sets to appeal to a broader base of customers.
The Company sells its products through a combination of its direct
sales force and indirect distribution channels.
Industry Overview
The creation and broadcast of video content consists of four distinct
stages: pre-production, production, post-production and distribution.
o Pre-production involves creation of the script and storyboard.
o Production (content creation) involves shooting video or film, as well as
creation of computer-generated graphics and sound recording.
o Post-production consists of editing and manipulating diverse images and
audio elements into a final program, including off-line and on-line
editing.
o Distribution is the delivery of the finished video content to the viewer
through traditional channels such as broadcast, satellite and cable
channels or through direct distribution of video rentals, CD ROMs and video
games.
The market for systems used in the video content creation, editing and
broadcast process ranges from high-end professional users such as television
networks, cable television companies and independent production and
post-production houses, to professionals and non-professionals that create video
content for less demanding applications such as corporate communications.
High-end professional users typically drive the performance standards for
innovation, quality, speed and features for the video production and broadcast
markets.
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The channels available for distribution of video content are
proliferating as new cable, satellite and direct view alternatives supplement
traditional delivery systems. This proliferation is increasing the demand for
broadcast content. Concurrently, the viewing audience per channel and,
therefore, the potential revenue per channel is being reduced. To more
effectively compete in this environment, broadcasters and other video
professionals must reduce the cost of developing and delivering content and find
more flexible means to distribute the same or repurposed content over multiple
channels. These requirements span the production, post-production, and
distribution segments of marketplace.
Production
A large portion of the cost of creating content is attributable to the
actual shooting of video, which is performed on location or on studio stages. A
typical video studio consists of a soundproofed stage, a specially designed set,
high-intensity lighting, sophisticated video equipment and, often, a
fully-equipped control room. Studios are often dedicated to a single type of
production due to the time and cost necessary to change, or strike, sets. Actual
set costs vary widely depending on the nature of the content being shot on the
set and production budget constraints. Physical sets are inflexible and require
significant manual effort to assemble and disassemble. With the proliferation of
distribution channels, producers of video content need flexible production
techniques that will enable them to quickly and efficiently create content for
distribution through multiple channels. Content creators are therefore searching
for innovative solutions to lower set costs, increase flexibility in the
production of video and create more interesting content.
Post-Production
Video editing is critical to the post-production process and is often
completed in two steps: off-line, to reduce raw material to a smaller, more
manageable group of elements; and on-line, to assemble video, audio and graphic
elements into a final program. The on-line video editing process typically
occurs in a video "editing suite" comprised of sophisticated, interconnected
equipment such as video recorders and switchers, digital video effects systems,
storage devices for still images and computer-based graphics systems. Video
editing suites can cost up to several million dollars due to the cost and
variety of equipment required, and professional post-production services can
cost in excess of $1,000 per hour.
Over the past several years, a number of personal computer-based
off-line editing systems have been introduced to enable more efficient and
cost-effective editing. However, these off-line systems rely upon compression
algorithms to convert raw video content to signals capable of being manipulated
on personal computers. This use of highly compressed video compromises video
fidelity. Currently, video effects and compositing, as well as two-dimensional
("2D") and 3D graphic elements, must be created in an uncompressed format. An
editor using a compression-based off-line system must decompress the video, add
effects and graphics and then recompress the video. This adds complexity to the
editing process and often further compromises the video fidelity of the final
content. Moreover, these off-line systems typically provide the user with a
single video stream, which does not allow the simultaneous manipulation of
multiple streams of video elements in real time.
To improve productivity and creative flexibility, high-end
professionals increasingly require on-line editing systems with simultaneous
random access to multiple video streams and
4
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video of D1 quality, a standard digital video format that represents one of the
highest levels of video quality commercially available today. Unlike traditional
taped-based analog systems, an on-line editing system based on digital video
disk recorders enables the user to instantly and randomly access any part of the
stored video, audio or other material, rearrange the material and play back
edited material without repeatedly winding and rewinding tape to locate desired
sequences. In contrast to off-line systems, on-line digital-based systems do not
require high levels of compression and, therefore, do not detract from the
fidelity of the final video content. As post-production professionals transition
their on-line edit rooms to digital technologies, they often create hybrid
environments that integrate traditional analog video processing equipment with
digital systems. Therefore, these professionals need on-line editing systems
that easily interface with equipment made by different manufacturers.
Distribution
Most distributors of video content such as television networks and
cable broadcasters currently rely on standalone still image disk storage devices
and analog tape-based systems when broadcasting graphics and video clips during
news, sports or entertainment presentations. These are typically single-user
devices that cannot be easily networked to serve multiple users. With the
proliferation of distribution channels, distributors of video content
increasingly require more flexible means of accessing and distributing content
over multiple channels. Quick access by multiple users to content such as
computer-generated graphics and short segment video clips is critical to
effective and economical news, sports and entertainment broadcasting. Networked
digital video disk recorders enable distributors of video content to make
material more readily available to multiple users and for broadcast through
multiple channels. Distributors of video content are beginning to transition to
digitally-based networks that increase the speed at which information is shared,
reduce the time necessary to complete production tasks and more efficiently
utilize the content they create and distribute.
The Accom Approach
The Company believes that traditional video systems do not adequately
meet the emerging production, post-production and distribution needs of high-end
content creators and broadcasters. Professionals in this market segment require
flexible, cost-effective systems that perform mission-critical tasks reliably
and in real time without detracting from the final video quality. These new
systems must also be capable of accommodating high-end video professionals as
they transition from traditional stand-alone analog systems to integrated
digital systems. In addition, high-end professionals require systems that can be
easily integrated with existing video content creation and distribution
equipment to leverage their significant equipment investments.
Accom provides innovative products that cost-effectively meet the needs
of high-end content creators and broadcasters in real time video production,
post-production and distribution. Relying on its core technologies and its
knowledge of the high-end video market, the Company develops sophisticated
digital systems comprised of both standard and proprietary hardware and
software. Accom believes that this approach results in flexible solutions,
offering price and performance advantages over competitive systems while
facilitating the transition to hybrid and digital environments.
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<PAGE>
Accom's systems offer the following benefits:
Open Systems. The Company designs products for ease of integration with
other manufacturers' products, such as video switchers, digital video effects
devices and video recorders. This capability allows users to leverage their
existing equipment investments and customize their systems to meet current and
future requirements.
Real Time Performance. Accom systems operate in real time and execute
processing and control functions 50 or 60 times per second. This enables content
producers to instantly view video content in full-quality video resolution
during production and post-production.
High Video Fidelity. Accom systems operate in fully uncompressed video
formats. This capability provides video content creators with D1 quality video,
enabling them to deliver the same content for high-end distribution channels or
distribution channels requiring lower resolution.
Ease Of Use. The Company's systems are designed to improve the
productivity of users and to reduce training time. For example, certain of the
Company's products utilize video images and graphical user interfaces that
eliminate the need for complicated menu structures and time codes.
Leveraged Solutions. Accom combines certain of its individual products
to create integrated solutions that offer performance benefits beyond those
available when such products are used individually. For example, the Company
integrates its on-line editor products with its digital video disk recorders to
provide on-line, random access editing capability.
6
<PAGE>
The Company offers a range of products to the high-end segment of the
video production, post-production and distribution markets. The Company's
current key products are:
o The ELSET(TM) Virtual Set, which is designed to enable content producers to
cost-effectively create programs with virtual production sets instead of
traditional sets;
o Digital disk recorders to produce computer graphics and animation;
o On-line video editing systems used by post production professionals;
o Digital video disk recorders used during the on-line post production
editing process; and
o Networked still image and video clip storage systems used by broadcast
distributors of video content.
Accom Strategy
Accom's goal is to be a leading supplier of production, post-production
and distribution systems to the high-end video content creation, editing and
broadcast markets. To achieve this goal, Accom is executing a strategy that
includes the following key elements:
Maintain Leadership Position in Current High-End Market. The Company
has established a reputation for meeting the exacting needs of the high-end
segment of the video post-production market. The Company plans to maintain its
leadership position in the high-end segment of the video post-production
developing new products that establish higher standards of performance in video
editing and digital recording.
Expand into New High-End Markets. The Company plans to leverage its
existing reputation in the high-end post-production segment to market the
ELSET(TM) Virtual Set and the Axess(TM) to the production and distribution
markets, respectively.
Broaden Lower-Priced Product Line. The Company has introduced products,
such as the Axial(R) 3000 on-line editor, the WSD(R) digital video disk
recorders, and the APR(TM) digital video disk recorders that provide high-end
users with reduced feature sets at lower prices. In the past the Company first
developed and marketed full-featured systems to prove technological feasibility
and market acceptance, then designed lower-priced products with reduced feature
sets to appeal to a broader base of customers. Beginning with the WSD(R)/2Xtreme
and APR(TM) (Accom Professional Recorder) line of products, the Company has
shifted to introducing products with significant price advantages over their
competitors that still manage to offer high value, but at lower prices.
Invest in Innovative Technologies. The Company has developed
significant expertise in core technologies relating to editing, real time
control, and digital video disk recording. The Company intends to continue to
internally develop and acquire new technologies as necessary to design products
that satisfy customer requirements for quality, speed, cost and functionality.
For example, by acquiring the company that developed ELSET(TM), the Company
obtained access to virtual set technology.
7
<PAGE>
Enhance Distribution Channels. The Company plans to expand its direct
marketing and sales efforts to more effectively penetrate the high-end market.
In addition, the Company intends to expand its indirect distribution channels,
including dealers, value-added resellers and third-party software solutions
vendors, to increase sales of lower-priced products.
Products
The Company currently offers six product lines that address the needs
of the video and computer graphics production, post-production and distribution
markets. The ELSET(TM) Virtual Set is designed to be used in the production of
video content. The Company's video digital on-line editing systems, disk
recorders and signal processing equipment are used primarily in post-production.
Digital news graphics and clip servers address the needs of video distribution.
The Company's digital disk recorders are also used in the production of computer
graphics and animation.
<TABLE>
The following table summarizes the Company's key markets and products:
<CAPTION>
----------------------------------------------------------------------------------------------------------------
MARKETS / Product Primary Applications
----------------------------------------------------------------------------------------------------------------
<S> <C>
PRODUCTION:
----------------------------------------------------------------------------------------------------------------
Virtual Set Production Tools
----------------------------------------------------------------------------------------------------------------
ELSET(TM) Virtual Set Virtual sets for high-end video content creation
production in real time
----------------------------------------------------------------------------------------------------------------
Computer Graphics and Animation Digital Disk Recorders
----------------------------------------------------------------------------------------------------------------
WSD(R)/2Xtreme Desktop computer graphics and animation production
----------------------------------------------------------------------------------------------------------------
POST PRODUCTION:
----------------------------------------------------------------------------------------------------------------
Digital Signal Processors
----------------------------------------------------------------------------------------------------------------
Signal Processor Bridges between various signal formats for
Product Family film-to-tape transfers and color correction process
----------------------------------------------------------------------------------------------------------------
Digital On-Line Editors
----------------------------------------------------------------------------------------------------------------
Axial(R) 2020 On-line post production editing for commercials and
Axial(R) 2010 long form television programs
Axial(R) 3000
----------------------------------------------------------------------------------------------------------------
Video Digital Disk Recorders
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RTD(TM)4224 On-line post production editing and effects creation
for commercials and long form television programs
----------------------------------------------------------------------------------------------------------------
DISTRIBUTION:
----------------------------------------------------------------------------------------------------------------
Digital News Graphics and Clip Servers
----------------------------------------------------------------------------------------------------------------
Axess(TM) Creation and broadcast distribution of news graphics
and short video segments
----------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the Company's fiscal 1997 net sales by market:
1997
----
Market Amount Percent
------ ------ -------
Production $ 8,259 46.9%
Post Production 6,534 37.1%
Broadcasting 2,408 13.7%
Other 426 2.4%
---------------------
$17,627 100.0%
=====================
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Video Virtual Set Production Tools
The ELSET(TM) Virtual Set is designed to enable content creators to
create virtual sets utilizing standard 2D and 3D painting, modeling and
animation tools and to combine these virtual sets with live actors in real time.
The ELSET(TM) Virtual Set combines the virtual world and the real world to
create the illusion that the actors are a part of the virtual set. Thus, content
creators are able to achieve greater artistic control over the environments in
which content is developed. Traditional physical sets can be replaced or
augmented by virtual sets to achieve the desired look of large studios while
using a small physical studio. Virtual sets can be readily altered.
The Company believes that ELSET(TM) Virtual Set will enable content
producers and the organizations that service such producers to leverage their
investment in existing studio infrastructures. Content producers can utilize the
same virtual set in different studios and quickly load new sets to alter the
appearance of the set. The Company believes that by implementing the ELSET(TM)
Virtual Set, these professionals will be able to greatly increase the amount of
content that can be produced in their existing studios and substantially reduce
the labor and storage costs associated with traditional physical sets. The
company anticipates that the ELSET(TM) Virtual Set will be used primarily in the
production of news and sports broadcasts, children's programs, news magazines,
music videos, video games and talk shows.
To broadcast a virtual set or to produce a program using virtual sets,
standard production equipment such as lights, cameras, camera control heads,
video keyers, switchers is required. The Company does not supply this equipment
but it is readily available from a variety of sources. Similarly, 2D and 3D
painting, modeling tools are required for creating the virtual sets, which the
Company does not supply but are readily available from various sources.
The Company currently offers four ELSET(TM) Virtual Set products:
ELSET(TM) LIVE software operates on the Silicon Graphics ("SGI") Onyx 2
computers and is used for real time productions. The Company primarily offers
the ELSET(TM) LIVE software; however from time to time will also resell the SGI
hardware for the convenience of the customers. The United States list price for
ELSET(TM) LIVE software ranges from $145,000 to $300,000 depending on features
and functionality.
ELSET(TM)POST software operates on the SGI O2 computer and is used for
non-real time productions. ELSET(TM)POST offers a lower cost alternative to
ELSET(TM)LIVE by allowing users to trade off production time against cost.
ELSET(TM)POST utilizes Alias 3D software to create the set and to preview scenes
in lower quality during production. During production, camera moves in addition
to animation triggers are recorded on the O2 while the actors are recorded in
full quality on a video recorder. After the production is complete, the virtual
scenes are rendered in full quality using the SGI computer and recorded on the
Accom WSD(R) digital disk recorder. The final program is composited using the
recording of the actors and the rendered sets from the Accom WSD(R) digital disk
recorder. By rendering virtual sets off-line, complex scenes may be produced
that are not possible in real time virtual set productions. The United States
list price of the ELSET(TM)POST ranges from $40,000 to $50,000.
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ELSET(TM) LIVE-NT system is a real time virtual set system offering a
lower cost alternative to the ELSET(TM)LIVE running on the SGI Onyx2 platform.
ELSET(TM) LIVE-NT runs on a Windows NT platform and a Real 3D graphics engine
from Lockheed Martin. The virtual sets are designed by using 3D Studio Max from
Kinetex. The Accom proprietary software is a "plug in" for the 3D Studio Max
software. The United States list price of the ELSET(TM) LIVE-NT software and the
Real 3D graphics engine ranges from $99,000 to $170,000.
ELSET(TM) POST-NT is the non-real time and lower cost counterpart to
ELSET(TM) LIVE-NT system. ELSET(TM) POST-NT utilizes 3D Studio Max running on a
Windows NT platform to create and preview sets in non-real time and lower
quality during production. The Accom proprietary software is a "plug in" for the
3D Studio Max software. After the production is complete, the virtual scenes are
rendered in full quality using a single or multiple PCs and recorded on the
Accom WSD(R) digital disk recorder. The final program is composited using the
recording of the actors and the rendered sets from the Accom WSD(R) digital disk
recorder. By rendering virtual sets off-line, complex scenes may be produced
that are not possible in real time virtual set productions. The United States
list price of the ELSET(TM)POST-NT ranges from $25,000 to $30,000.
Computer Graphics and Animation Digital Disk Recorder
The Company's Workstation Disk ("WSD(R)") digital disk recorder is
primarily used in the production and post production of computer graphics and
animation. The WSD(R)/2Xtreme, the fourth generation WSD(R) product, is a D1
quality digital video disk recorder and video subsystem that enables users to
record and play back digital video images in real time and rapidly transfer
digital video images to and from computer workstations. The WSD(R)/2Xtreme
enables more efficient creation of 2D and 3D graphics and animation by providing
a bridge between the computer workstation and video tape recorders and other
video devices. The WSD(R)/2Xtreme's digital random access recording and playback
features improve the quality of desktop graphics production by eliminating the
speed and maintenance problems associated with analog video tape recorders. With
the WSD(R)/2Xtreme, frames can be played back in real time so the user can see
the end result in full motion on a video monitor. An SGI graphic interface
option enables users to preview frames on the workstation display at full
resolution or display real time video from the WSD(R)/Xtreme disk or input
source. The Company has worked closely with a number of third-party software
developers to integrate the WSD(R)/2Xtreme with their applications. The
WSD(R)/Xtreme also provides both Ethernet and SCSI interfaces, thereby enabling
connection to other computer platforms. Accom has interfaces for the
WSD(R)/Xtreme to enable Windows(TM) personal computer and Apple Macintosh users
to integrate the WSD(R)/Xtreme into their systems.
The WSD(R)/2Xtreme offers all of the features of its predecessors, but
at a price that's almost half of the Xtreme model it replaced. The United States
list price of the WSD(R)/2Xtreme ranges from $10,900 to $20,900, depending on
features.
Digital Signal Processing Equipment
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The Company offers three digital video signal processing products that can be
utilized in film-to-tape transfer and the color correction process and to
provide bridges between various signal formats. These components are also
sometimes sold as part of the Company's larger systems such as Axial(R) editors
and the Axess(TM). In October 1990 and September 1991, the Company won EMMY
Awards from the National Academy of Television Arts and Sciences for Outstanding
Technical Achievement and, in September 1989 and July 1993, the Company received
two ITS Monitor Awards for Special Achievement in Engineering Excellence for its
digital video signal processing equipment. The United States list price of the
Company's digital video signal processing equipment ranges from $4,000 to
$30,000, depending on model and selected features.
On-Line Video Editors
The Company's Axial(R) line of digital, non-linear, on-line video
editing systems consists of various models of the new Axial(R) 3000. (The
Axial(R) 3000 replaces the Axial(R) 2010, and with options offers most of the
features of the top-end Axial(R) 2020.) The Key upgrade option for the Axial(R)
3000 is Live Video, and key options for both the Axial(R) 3000 and the Axial(R)
2020 are the Random Access Visual Editing System ("RAVE") and the Axial(R) Cache
Editor. A primary benefit of the Axial(R) line of products is their ability to
import edit decision lists from off-line editing systems for quick assembly of
full-quality video content. The Axial(R) 2020 and Axial(R) 3000 are used to
perform editing and compositing for the high-end segment of the post-production
market.
The Axial(R) 3000 with Live Video Option and the Axial(R) 2020 offer an
enhanced visual interface that enables the video editor to edit information by
working with pictures and video clips instead of only timecode numbers. Both
Axial(R) models utilize a text file approach for interfacing with external
equipment that minimizes the need to write new software device drivers, thereby
facilitating the integration of external equipment with the editing system.
Axial(R) is based on a multi-process architecture that enables it to
simultaneously control up to 47 independent devices. In August 1994, the Company
received an International Teleproduction Society ("ITS") Monitor Award for
Special Achievement in Engineering Excellence for the Axial(R) 2020. The United
States list price of the Axial(R) 2020 ranges from $70,000 to $124,000,
depending on features, including the RAVE option.
The basic Axial(R) 3000 is a lower-priced, on-line editing system
designed to address the needs of a broader group of professional users. The
Axial(R) 3000 is used in post-production suites producing content such as long
form programs and corporate videos under lower production budgets. In contrast
to the Axial(R) 2020, the basic Axial(R) 3000 employs a graphical representation
of the video time line in the user interface rather than live video images. The
United States list price of the Axial(R) 3000 ranges from $30,000 to $50,000,
depending on features.
RAVE and the Axial(R) Cache are options that enable users to integrate
the Company's on-line video editing and digital video disk recording
technologies. RAVE combines the Axial(R) and the RTD(TM), Accom's high-end
uncompressed digital video disk recorder, or either of several versions of
Accom's WSD(R) or APR(TM) digital disk recorders (DDRs). These DDRs provide
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immediate random access to stored images and the flexibility of non-linear
operation. RAVE was one of the first editing systems to feature non-linear, D1
quality video for on-line editing. The Axial(R) Cache combines the recording
capability of the Company's low-cost WSD(R)/2Xtreme with the Axial(R) editor to
accelerate the on-line editing process by reducing the time necessary to access
sequences of video and enabling the automatic assembly of edit decision lists
created by off-line systems. The Company intends to continue to pursue other
innovative uses of its editor and disk technologies to continue to maintain its
leadership position in on-line random access editing.
Post Production Digital Video Disk Recorder -- RTD(TM)
The Company's first digital video disk recorder is the Real Time Disk
("RTD(TM)"), which is used in on-line video post production editing. The RTD(TM)
is based on older hard drive technology.
The RTD(TM) enables the digital recording and playback of D1 quality
video onto a real time, random access disk. Applications of the RTD(TM) include
random access video editing and the editing of 2D and 3D graphics and animation
for production and post-production. Unlike a video tape recorder, the RTD(TM)
can instantly access stored images and play back the images at speeds ranging
from 1/100th to 100 times normal play speed. The RTD(TM) can also provide from
one to seven minutes of video recording time. The Company's RTD(TM) digital
recorders feature the Smooth Motion(TM) option, which eliminates the picture
content stuttering and jerking that normally occurs during off-speed videotape
and disk playback. This functionality is derived from the Company's expertise in
digital signal processing. The RTD(TM) offers a single channel option as well as
a dual channel option that can be operated simultaneously by two users. The
United States list price of the RTD(TM) ranges from $22,000 to $117,500,
depending on features.
Post Production Digital Video Disk Recorder -- APR(TM)
The Company's newest family of digital video disk recorders is the
Accom Professional Recorder ("APR(TM)"), which again is used in on-line video
post production editing. APR(TM)s will be based on newer hard drive technology.
APR(TM)/Attache is the first product from this family and the seventh
DDR product from Accom. Attache was announced and first shown in September 1997,
and full production shipments are expected early in the first quarter of
calendar 1998. The APR(TM) enables the digital recording and playback of D1
quality video onto a real time, random access RAID. Applications of the APR(TM)
include random access video editing and the editing of 2D and 3D graphics and
animation for production and post-production. Unlike a video tape recorder, the
APR(TM) can instantly access stored images and play back the images at speeds
ranging from 1/100th to 100 times normal play speed. The APR(TM) provides 32.5
minutes of video recording time. The APR(TM) offers a "half-bandwidth" channel
option called KeyTrack(TM). KeyTrack allows a synchronous key/matte signal to be
recorded in sync with the video. Two complete videotape recorders or DDRs are
normally required for this capability.
APR(TM)/Attache is the first digital disk recorder to offer "PreRead"
and "PostRead" functions. "PreRead" (write-after-read) allows material to be
played off the disk, processed externally, and re-recorded back on the same disk
in real time. This allows one Attache to
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function as both a playback device and a record device, effectively replacing
two devices in the post production suite. "PostRead" (read-after-write) allows
material to be played out. Limited versions of PreRead and PostRead have been
available on videotape recorders for several years and have become standard
features of videotape recorders.
The United States list price of the APR(TM) ranges from $29,900 to
$41,900, depending on features.
Digital News Graphics and Clip Servers
The Axess(TM) is designed to be used by broadcast professionals for the
preparation and on-air presentation of computer-generated graphics, still images
and video clips. The Axess(TM) enables broadcasters to digitally store,
categorize, search and obtain quick access to a library of previously recorded
still images, computer-generated graphics and video clips for use during on-air
presentations of news, sports or entertainment events. The Axess(TM) is a
networked system of individual nodes, each having its own storage modules.
Storage is configured to meet the needs of each user, but every node on the
network has access to the information stored in other nodes. An option designed
with redundant arrays of individual disks ("RAID") provides real-time video
storage. The storage options enable a user to record and play back a mixture of
still and moving images. Depending on the selected storage options, a single
node can be configured to store from 1,000 up to 70,000 still images or from 17
minutes up to 2+ hours of uncompressed video. Each Axess(TM) system is a
user-designed configuration based on just a few standard hardware components.
The price of the Axess(TM) varies widely depending on the number of nodes and
the amount of storage per node. The United States list price of the Axess(TM)
ranges from $27,000 for a single node to more than $1.0 million for a complex,
multi-node networked system.
Customers and Applications
The primary end users of the Company's products are production,
post-production, broadcast and cable companies and studios. One customer, AIM, a
distributor, accounted for 13% of the Company's total revenues in fiscal 1997.
No customer accounted for more than 10% of the Company's total revenues during
fiscal 1996 or 1995.
Marketing, Sales and Service
The Company markets its products through a combination of its direct
sales force and indirect distribution channels. The Company exhibits its
products at major trade shows for the video and computer graphics industries.
The Company also initiates special direct mail and advertising campaigns prior
to certain trade shows and advertises in industry trade journals.
In the United States, the Company markets its products at trade shows
such as those held by the National Association of Broadcasters ("NAB") and ACM
SIGGRAPH. The Company conducts domestic direct sales through employees based in
New Jersey, Chicago and Los Angeles, and uses independent representatives to
market its products in geographic areas that are not served by its direct sales
organization. The Company utilizes an additional sales channel of distributors
for its WSD(R)/2Xtreme product line to more effectively reach the independent
dealers and VARs that integrate workstations, software and peripheral devices.
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Outside the United States, the Company markets its products at trade
shows such as those held by the International Broadcast Conference in Europe and
the InterBee in Japan. The Company sells its products through a network of
distributors that cover a myriad of countries, and approximately one-fourth of
those international distibutors distribute only the WSD(R)/2Xtreme product line.
During fiscal 1997, 1996, and 1995 the Company generated 42.4%, 38.2%, and
51.1%, respectively, of its net sales from customers in markets outside of the
United States. The Company maintains an office in Reading, England to manage and
support the Company's distributors in Europe, Africa and Middle East. The
Company manages and supports its international distributors in the Americas, the
Pacific and Asia through its corporate headquarters in Menlo Park, California.
The Company provides technical support and training to its customers
directly and through its distributors and maintains a technical support group in
its Menlo Park facility.
The Company generally ships its products within 30 days after
acceptance of a customer purchase order. The Company does not believe that its
backlog at any particular point in time is material or indicative of future
revenue levels.
Research and Development
The Company's research and development efforts currently are focused on
the development of product enhancements and new products for its digital video
on-line editor, video and computer graphics digital disk recorders and virtual
set product lines. The Company's engineering staff consists of software and
hardware engineers and other support personnel. As of September 30, 1997, the
Company employed 25 people in its research and development organization, of
which approximately 17 professionals are focused on software development. During
fiscal 1997, 1996 and 1995, the Company's research and development expenses were
approximately $3.3 million, $3.9 million, and $3.8 million, respectively.
Expenses in fiscal 1995 do not include amounts related to virtual set system
research and development, which was being conducted through ELSET(TM) GmbH, and
was acquired only shortly before the end of fiscal 1995; however, the Company
incurred a charge of approximately $10.8 million for acquired in-process
technology in fiscal 1995. The Company believes that its 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 on a timely and
cost-effective basis.
Manufacturing and Suppliers
The Company manufactures its systems at its facility in Menlo Park,
California. The Company's manufacturing operation consists primarily of the
testing of subassemblies and components purchased from third parties, the
duplication of software and the configuration, assembly and testing of complete
systems. The Company relies on independent contractors to manufacture certain
systems, components and subassemblies in accordance with the Company's
specifications. Each of the Company's products undergoes testing and quality
inspection during the final assembly stage.
The Company is dependent on sole source suppliers for certain key
components and parts used in its products. The Company purchases sole source
components in some product lines
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pursuant to purchase orders placed from time to time, does not carry significant
inventories of these components and has no long-term supply arrangements.
Financial, market or other developments adversely affecting sole source
suppliers could have an adverse effect on its ability to supply the Company with
components and, consequently, upon the Company's business, financial condition
and results of operations. In addition, the Company and certain of its suppliers
subcontract the manufacture of certain systems, components and subassemblies to
third parties. While the timeliness and quality of deliveries to date from the
Company's suppliers and assemblers have been acceptable, there can be no
assurance that supply or assembly problems will not occur in the future. While
the Company believes that alternative sources for these components or services
could be arranged, the process of qualifying new suppliers or assemblers could
be lengthy, and there can be no assurance that any additional sources would be
available to the Company on a timely basis or at a cost acceptable to the
Company. Any disruption or reduction in the future supply of any key components
currently obtained from a single or limited source could have a material adverse
effect on the Company's business, financial condition and results of operations.
Competition
The video production, post-production and distribution equipment
markets are highly competitive and are characterized by rapid technological
change, frequent new product introductions, short product lives, evolving
industry standards and significant price erosion over the life of a product. The
Company anticipates increased competition in these markets from both existing
vendors and new market entrants. The Company believes that the primary
competitive factors in the high-end market are feature availability, quality,
price, ease of use, compatibility with other manufacturers' products, ability to
provide complete systems, continued introduction of new products and product
enhancements, customer service and support and distribution. The Company
believes that it competes favorably in the high-end segment of the video
production, post-production and distribution market with respect to most of
these factors.
In the digital on-line video editor and digital video disk recorder
market, the Company has to date encountered competition primarily from a limited
number of comparably-sized companies as well as larger vendors such as Sony
Corporation ("Sony"), The Grass Valley Group (a subsidiary of Tektronix, Inc.)
("Grass Valley"), and Avid Technology, Inc. ("Avid"). Each of these larger
companies has substantially greater financial, technical, marketing, sales and
customer support resources, greater name recognition and larger installed
customer bases than the Company. As the Company continues to broaden its
lower-priced on-line video editor and digital video disk recorder product lines,
the Company anticipates that it will encounter increased competition, including
from these larger vendors.
The digital news graphics and clip server market is an emerging market.
The Company currently is encountering competition from established video
companies such as Quantel Ltd. (a subsidiary of Carlton Communications plc)
("Quantel"), Leitch Technology Corporation ("Leitch") and Pinnacle Systems, Inc.
("Pinnacle"). In addition, certain established computer and electronics
companies are currently offering or have announced their intentions to offer
products or solutions that compete with the Axess(TM). These companies include
Hewlett-Packard Co. ("Hewlett-Packard") and Sony, through a collaboration with
Oracle Corporation ("Oracle"). In addition, the Company expects that existing
vendors and new market entrants will develop products that will compete directly
with the Axess(TM) and that competition will increase
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significantly as the market for digital news graphics and clip servers develops.
Many of the Company's current and potential competitors have substantially
greater financial, technical, marketing, sales and customer support resources,
greater name recognition and larger installed customer bases than the Company.
The virtual set system market is also an emerging market. The Company
competes with Discreet Logic, Inc. ("Discreet Logic"), RT-SET Ltd. (a subsidiary
of BVR Technologies Ltd., an Israeli corporation), ORAD (an Israeli corporation)
and privately-held companies such as Brainstorm (a Spanish company). The Company
expects that competition will increase significantly as the market for virtual
set systems develops. In addition, certain established software and computer
companies such as SGI, which have substantially greater financial, technical,
marketing, sales and customer support resources than the Company, may acquire or
develop virtual set technology and compete with the Company.
Increased competition in any of the Company's markets could result in
price reductions, reduced margins and loss of market share, all which would
materially and adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current or future competitors.
Proprietary Rights and Licenses
Proprietary Rights
The Company's success and ability to compete is dependent in part upon
its proprietary technology. The Company relies on a combination of patent, trade
secret, copyright and trademark law, nondisclosure agreements and other
intellectual property methods to protect its technology. The Company's products
are generally sold pursuant to purchase and license agreements that contain
terms and conditions restricting unauthorized disclosure or reverse-compiling of
the proprietary software embodied in the products. The Company has been issued
seven United States patents, six foreign patents and has applications pending
for two additional patents in the United States. The Company is also pursuing
patent applications in certain foreign countries. There can be no assurance that
any of the Company's currently pending patent applications or future
applications will be granted in full or in part or that claims allowed will be
sufficiently broad to protect the Company's technology. The Company also owns
eight registered trademarks in the United States and has several pending foreign
trademark application. Although the Company relies to a great extent on trade
secret protection for much of its technology, and has obtained written
confidentiality agreements from all of its key employees, consultants and
vendors, there can be no assurance that third parties will not either
independently develop the same or similar technology, obtain unauthorized access
to the Company's proprietary technology or misuse the technology to which the
Company has granted access.
There has been substantial industry litigation regarding patent,
trademark and other intellectual property rights involving technology companies.
In the future, litigation may be necessary to enforce any patents issued to the
Company, to protect trade secrets, trademarks and other intellectual property
rights owned by the Company, to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of others. The Company is not aware of any stated claims
against it regarding intellectual property rights. Any litigation arising out of
such claims could result in substantial cost and
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diversion of resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. Adverse determinations
in such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from manufacturing or selling
its products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes that, due to the rapid proliferation of new
technology in the industry, legal protection through means such as the patent
and copyright laws will be less influential on the Company's ability to compete
than such factors as the creativity of its development staff and its ability to
develop new products and markets and to service its customers.
The laws of certain foreign countries treat the protection of
proprietary rights differently from those in the United States, and in many
cases the protection afforded by such foreign laws is weaker than in the United
States.
ELSET(TM) Acquisition
Development of the ELSET(TM) Virtual Set was initiated by Video Art
Production GmbH ("VAP"), and all title and rights to the ELSET(TM) Virtual Set
were contributed to ELSET GmbH when ELSET GmbH was formed as a joint venture by
the Company and VAP in December 1994. Through its wholly-owned subsidiary, Accom
Virtual Studio, Inc. ("AVS"), the Company owns 100% of the outstanding shares of
ELSET GmbH. In connection with the completion of the acquisition of 100% of the
outstanding shares of ELSET GmbH in September 1995 (the "ELSET Acquisition"),
the Company incurred a charge of approximately $10.8 million for acquired
in-process technology in fiscal 1995.
Although all title and rights to the ELSET(TM) Virtual Set were
contributed to ELSET GmbH when it was formed as a joint venture by the Company
and VAP, VAP has certain obligations under a December 1991 contract with the
Commission of the European Communities entitled "Mona Lisa -- Modeling Natural
Images of Synthesis and Animation" (the "Mona Lisa Contract"). In particular,
materials developed pursuant to the Mona Lisa Contract must be shared with all
members of the consortium of companies that contribute to the Mona Lisa project
(the "Mona Lisa Consortium") for such members' research and development
purposes. However, pursuant to the Mona Lisa Contract, the materials need not be
shared with other members of the Mona Lisa Consortium if such sharing opposes
the major business interests of the developer or the products covered by such
materials are about to become commercially available. It is possible that the
ELSET(TM) Virtual Set in the form in which it was contributed to ELSET GmbH by
VAP could be deemed to have been developed pursuant to the Mona Lisa Contract.
Even if this is found to be the case, the Company believes that since the
ELSET(TM) Virtual Set has become commercially available, the earlier version
need not be shared with other members of the Mona Lisa Consortium. However,
there can be no assurance that the Mona Lisa Contract would not be interpreted
to require VAP to share the earlier version. Although the Company believes that
the development work that has been undertaken since the contribution of the
ELSET(TM) Virtual Set to ELSET GmbH would make it difficult for a member of the
Mona Lisa Consortium to duplicate the ELSET(TM) Virtual Set, if such sharing is
required, there can be no assurance that members of the Mona Lisa Consortium,
acting alone or in concert, would not be able to use the
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shared technology to develop, market and sell a competitive virtual set system.
In such event, the Company's business, financial condition and results of
operations would be materially adversely affected. It is also possible that VAP
has granted to the other members of the Mona Lisa Consortium the right to use
the trademark " ELSET(TM)." Therefore, there can be no assurance that the ELSET
GmbH will be able to claim the exclusive right to use this trademark, which
could have a material adverse effect on the value of such trademark to the
Company.
Employees
On September 30, 1997, the Company had 64 full-time employees,
including 25 in research and development, 20 in marketing, sales and support, 13
in manufacturing and 6 in administration and finance. The Company's success will
depend in large part on its ability to attract and retain qualified personnel,
who are in great demand throughout the industry. None of the Company's employees
is represented by a labor union. The Company believes that its employee
relations are good.
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 years
or quarters to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company, including without limitation
those contained in this 10-K report.
Potential Fluctuations in Operating Results. The Company incurred a net
loss of $4.5 million in fiscal 1997. The Company also incurred a net loss of
$916,000 for fiscal 1996, and a net loss of $10.8 million in fiscal 1995,
primarily as a result of a charge of approximately $10.8 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, including the ELSET(TM) Virtual Set, the
Company's product mix, the mix of distribution channels through which the
Company's products are sold, the Company's inability to obtain sufficient
supplies of sole or limited source components for its products and charges
related to refocusing and streamlining operations. In response to competitive
pressures or new product introductions, the Company may make certain pricing
changes or other actions, such as restructuring the product lines, 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 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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The Company currently anticipates that a number of factors may 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 may 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, if the Company expands
its indirect sales channels, its gross margins may 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(TM)
Virtual Set will positively impact the Company's net sales but may negatively
impact its gross margins if a significant portion of ELSET(TM) Virtual Set sales
include 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 continued development and marketing of the
ELSET(TM) Virtual Set. The Company may therefore be required to incur
significant expenses to support continuing development and marketing of the
ELSET(TM) 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.
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. The Company is currently developing new
products and product enhancements for its product lines. There can be no
assurance that the Company will be successful in developing, manufacturing and
marketing 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
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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(TM) to certain customers. The Company
experienced technical problems with the introduction of Axess(TM), including
delays in delivering additional functionality when originally requested by these
customers. Similarly, the software component of the Company's products,
particularly the ELSET(TM) 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.
Uncertainty as to Development and Market Acceptance of ELSET(TM)
Virtual Set. The Company's ability to achieve revenue growth and profitability
in fiscal 1998 and subsequent years is dependent to a significant degree upon
the successful development and market acceptance of its ELSET(TM) 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(TM) Virtual Set
is still being further developed with respect to certain key features. There can
be no assurance that the Company will be able to successfully complete these
developments of the ELSET(TM) Virtual Set in a timely manner. The failure to
complete the development of the ELSET(TM) 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(TM)
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(TM) Virtual
Set will depend on many factors that are difficult to predict. For example, the
ELSET(TM) 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(TM) Virtual Set,
especially for mission-critical functions, until the ELSET(TM) Virtual Set's
reliability in real time use has been demonstrated. In addition, a potential end
user's decision to purchase the ELSET(TM) Virtual Set may be subject to SGI's
timing of shipments of its computer platforms and SGI's announcement of
enhancements to its computer platforms. Potential end users may be unwilling to
incur the significant cost of converting from physical sets to the ELSET(TM)
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
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determine the potential market for and acceptance of the ELSET(TM) Virtual Set.
The Company expects that sales of the ELSET(TM) 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(TM) 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(TM)
Virtual Set over time. If this market development does not occur or occurs over
an extended period, or if the ELSET(TM) Virtual Set does not achieve market
acceptance, the Company's business, financial condition and results of
operations will be materially and adversely affected.
Dependence on Silicon Graphics, Inc. Some of the ELSET(TM) Virtual Set
products operate only on Silicon Graphics, Inc. ("SGI") computer platforms.
Financial, market or other developments adversely affecting SGI could have an
adverse effect on its ability to supply the Company with computer platforms or
enhancements or upgrades, and, consequently, upon the Company's business,
financial condition and results of operations. If the Company were unable to
obtain sufficient quantities of the SGI 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 SGI platforms, sales of the ELSET(TM) Virtual Set and, therefore, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
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. Although the Company streamlined its operations
during fiscal 1997, the Company's long-term 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. 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(TM) Virtual Set. To support 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, the Company's business, financial condition and results of
operations could be materially and adversely affected.
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International Operations. In the fiscal 1997, 1996 and 1995,
international sales accounted for 42%, 38% and 51%, 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 may result in
foreign currency denominated sales. 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(TM) 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 may expand its
existing indirect sales channels to implement its strategy of broadening its
lower-priced products. There can be no assurance that the Company's distributors
will choose or be able to effectively market and support these lower priced
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.
Problems Associated with the Year 2000. The Company is actively taking
steps to ensure that all software used in the Company's products and in the
Company's internal systems will manage data involving the transition of dates
from 1999 to 2000 without functional or data abnormality and without inaccurate
results. In particular, the Company believes that its internal accounting
software, purchased from a third party vendor, will be unable to transition from
1999 to 2000 without causing errors; therefore, the Company will need to
purchase either an upgrade or a new accounting software that is able to
transition from 1999 to 2000 without error. In addition, one of the Company's
products runs on the Windows NT operating system, and while the Company has been
notified that the Windows NT manufacturer does not believe that
22
<PAGE>
Windows NT contains a Year 2000 problem that will affect the Company's product,
the vendor has been unable to give complete assurances to the Company. Any
failure on the part of the Company or its vendors to ensure that any software
complies with Year 2000 requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.
23
<PAGE>
Management of Growth. Although the Company streamlined its operations
during fiscal 1997, the Company's long-term success will depend in part on its
ability to manage growth, both domestically and internationally. In addition, if
the Company grows, the Company will be required to enhance its operational,
management information and financial control systems. 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(TM) Virtual Set. To support
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, the Company's business, financial
condition and results of operations could be materially and adversely affected.
Substantial Control by Existing Stockholders; Effect of Certain
Anti-Takeover Provisions. As of December 17, 1997, the Company's executive
officers and directors, and their affiliates, beneficially own approximately 15%
of the Company's outstanding Common Stock. As a result, the Company's executive
officers and directors and their affiliates will be able to exercise significant
influence over the Company and its business and affairs as well as over the
election of directors, regardless of how other stockholders of the Company may
vote. Furthermore, acting together, such stockholders may be able to block any
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. In September 1996, the Company's Board of Directors
adopted a stockholder rights plan, which entitles existing stockholders of the
Company to certain rights (including the right to purchase shares of Preferred
Stock) in the event of the acquisition of 15% or more of the Company's
outstanding common stock, or an unsolicited tender offer for such shares. The
existence of the rights plan could delay, prevent, or make more difficult a
merger, tender offer or proxy contest involving 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.
24
<PAGE>
Item 2. Properties
The Company's principal offices are located in Menlo Park, California
and consist of approximately 30,000 square feet under a lease that expires in
February, 2000. The Company occupies a sales office in Reading, England under a
tenancy agreement that is renewable every 90 days. The Company believes that its
existing facilities are adequate to meet its requirements for the near term and
that additional space will be available on commercially reasonable terms if
needed.
Item 3. Legal Proceedings
There is no material legal proceeding to which the Company is a party
or to which any of its properties are subject. No material legal proceedings
were terminated in the year ended September 30, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
None.
25
<PAGE>
Executive Officers of the Company
The executive officers of the Company, and their ages as of December
31, 1997, are as follows:
Name Age Position(s)
- ---- --- -----------
Junaid Sheikh.................... 44 Chairman of the Board, President
and Chief Executive Officer
Cal R. Hoagland.................. 41 Vice President, Finance and Chief
Financial Officer
Ian Craven....................... 43 Senior Vice President, Engineering
Paul G. Hansil................... 53 Senior Vice President, Sales and
Marketing
Donald W. Petersen............... 52 Vice President, Manufacturing
Junaid Sheikh has served as the Chairman of the Company's Board of
Directors since June 1988 and as the Company's President and Chief Executive
Officer since November 1991.
Cal R. Hoagland has served as Vice President, Finance and Chief
Financial Officer since joining the Company in July 1997. From April 1995 to May
1997, Mr. Hoagland served as Global and Corporate Controllers for ADAC
Laboratories, a publicly traded company which provides nuclear medicine imaging
equipment, radiation therapy planning systems and radiology, laboratory and
cardiology information systems. From June 1992 to March 1995, he served as
Corporate Controller of Valence Technologies, Inc., a publicly traded company
engaged in research and development to produce advanced rechargeable batteries
based on lithium and polymer technologies. Prior to that, Mr. Hoagland was an
Audit Manager with the San Jose, California and National offices of Coopers and
Lybrand, a big six public accounting firm. He is a member of the Financial
Executives Institute and a Certified Public Accountant.
Ian Craven has served as Senior Vice President, Engineering since
October 1991. From October 1991 to April 1995 he also served as a director of
the Company.
Paul G. Hansil has served as Senior Vice President, Sales and Marketing
of the Company since March 1995. From January 1992 to March 1995, Mr. Hansil was
with Crawford Communications, Inc., a diversified media production and
post-production company, serving initially as Vice President of Business
Development and then as Executive Vice President.
Donald W. Petersen has served as Vice President, Manufacturing of the
Company since April 1990.
Each executive officer serves at the sole discretion of the Board of
Directors.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Company's Common Stock has been traded on the Nasdaq Stock Market
under the symbol ACMM since the effective date of the Company's initial public
offering on September 26, 1995. Prior to the initial public offering, no public
market existed for the Common Stock. The price per share reflected in the table
below represents the range of low and high closing sale
26
<PAGE>
prices for the Company's Common Stock as reported in the Nasdaq Stock Market for
the quarters indicated.
High Low
---- ---
Fiscal Year ended September 30, 1997:
First Quarter............................... $2.63 $0.91
Second Quarter.............................. $2.00 $1.00
Third Quarter............................... $2.25 $1.00
Fourth Quarter.............................. $2.88 $1.56
Fiscal Year ended September 30, 1996:
First Quarter............................... $9.75 $6.25
Second Quarter.............................. $7.75 $5.00
Third Quarter............................... $5.63 $2.38
Fourth Quarter.............................. $4.25 $1.00
The Company had approximately 89 stockholders of record as of December
17, 1997 including several holders who are nominees for an undetermined number
of beneficial owners.
The Company has never paid cash dividends on its capital stock. The
Company currently anticipates that it will retain all available funds for use in
the operation and expansion of its business, and does not anticipate paying any
cash dividends in the foreseeable future. However, the Board of Directors of the
Company will review the dividend policy periodically to determine whether the
declaration of dividends is appropriate. The Company must obtain the approval of
its bank before declaring or paying dividends.
27
<PAGE>
Item 6. Selected Consolidated Financial Data
The following table presents selected consolidated financial data of
the Company. This historical data should be read in conjunction with the
attached consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Form 10-K.
<TABLE>
Selected Consolidated Financial Data
(in thousands, except per share data)
<CAPTION>
Fiscal Year Ended September 30,
----------------------------------------------------
1993 1994 1995(1) 1996 1997
---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales........................... $12,230 $18,034 $21,312 $21,408 $17,627
Gross margin........................ 6,927 9,591 11,175 10,398 6,593
Operating income (loss)............. 1,254 1,428 (10,792) (1621) (4,657)
Net income (loss)................... 909 918 (10,840) (916) (4,490)
Net income (loss) per share(1)...... 0.21 0.20 (3.85) (0.14) (0.68)
Shares used in computing
net income (loss) per share(1)... 4,392 4,660 2,816 6,439 6,587
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital..................... $3,809 $4,522 $12,220 $11,171 $7,550
Total assets........................ 8,169 10,111 19,712 17,279 11,545
Long-term obligations............... - - 83 24 -
Total stockholders' equity.......... $4,731 $5,650 $13,679 $12,952 $8,566
<FN>
- ---------------
(1) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
</FN>
</TABLE>
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 above in Item 1 under "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 periods to differ materially from
those expressed in any forward looking statements made by or on behalf of the
Company, including without limitation those made in the discussion set forth in
Item 7 below.
28
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's Consolidated Financial Statements as of September 30, 1997 and 1996
and for the three fiscal years ended September 30, 1997, 1996 and 1995 included
herein this Report on Form 10-K for the fiscal year ended September 30, 1997.
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 above in Item 1 under "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 periods to differ materially from
those expressed in any forward looking statements made by or on behalf of the
Company, including without limitation those made in the discussion below.
Overview
Accom designs, manufactures, sells, and supports a complete line of
digital video signal processing, editing, and disk recording tools, and its
ELSET(TM) virtual set systems, primarily for the professional worldwide video
and computer graphics production, post production and distribution marketplaces.
<TABLE>
The following table summarizes the Company's products and the primary
markets they address.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Primary Markets / Products
--------------------------
<S> <C>
Production:
ELSET(TM) Virtual Set
Work Station Disk ("WSD(R)") 2Xtreme(TM) Computer Graphics Digital Disk Recorder
Post Production:
Signal Processors
Editing:
On-line Video Editors:
Axial(R) 2020 (first generation)
Axial(R) 2010 (lower cost first generation)
Axial(R) 3000 (second generation)
Digital Disk Recorders:
Real Time Disk ("RTD(TM)") 4224
Accom Professional Recorder ("APR(TM)") Attache(TM)
Distribution:
Axess(TM) Digital News Graphic and Clip Server
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In late fiscal 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 fiscal 1995 initial public offering (the "ELSET(TM)
Acquisition"). The ELSET(TM) virtual set system operates on either a Silicon
Graphics, Inc. ("SGI") workstation or a Windows NT platform.
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(TM)
software. In the fourth quarter of 1996, revenues also included the resale of
SGI workstations.
29
<PAGE>
The Company's gross margin has historically fluctuated from
quarter to quarter and declined on an annual basis. If the Company resells a SGI
workstation as part of the ELSET(TM) Virtual Set, gross margins will 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.
Software development costs are recorded in accordance with Statement of
Financial Accounting Standards No. 86. To date, the Company has expensed all of
its internal software development costs.
Results of Operations
Fiscal Years 1997 vs. 1996
<TABLE>
The following table presents the Company's fiscal 1997 and 1996
Consolidated Statements of Operations, as reported and as normalized to remove
the effects of special charges and credits incurred during each of those fiscal
years (dollar amounts in thousands, except per share data).
<CAPTION>
Increase (Decrease)
-------------------
1997 1996 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Net sales
Reported $ 17,627 $ 21,408 $ (3,781) (17.7)%
Normalized 17,627 21,408 (3,781) (17.7)%
Cost of sales
Reported 11,034 11,010 24 0.2%
Normalized 8,534 10,410 (1,876) (18.0)%
---------------------------------------------
Gross margin
Reported 6,593 10,398 (3,805) (36.6)%
Normalized 9,093 10,998 (1,905) (17.3)%
---------------------------------------------
Operating expenses:
Research and development
Reported 3,344 3,926 (582) (14.8)%
Normalized 3,344 3,926 (582) (14.8)%
Marketing and sales
Reported 5,981 7,356 (1,375) (18.7)%
Normalized 5,136 6,762 (1,626) (24.0)%
General and administrative
Reported 1,925 1,487 438 29.5%
Normalized 1,274 1,487 (213) (14.3)%
Charge (credit) for acquired in-process technology
Reported -- (750) 750 100.0%
Normalized -- -- -- --
---------------------------------------------
Total operating expenses
Reported 11,250 12,019 (769) (6.4)%
Normalized 9,754 12,175 (2,421) (19.9)%
---------------------------------------------
Operating loss
Reported (4,657) (1,621) (3,036) 187.3%
Normalized (661) (1,177) 516 43.8%
Interest and other income (expense), net
Reported 176 209 (33) (15.8)%
Normalized 176 209 (33) (15.8)%
---------------------------------------------
Loss before provision for (benefit from) income taxes
Reported (4,481) (1,412) (3,069) (217.4)%
Normalized (485) (968) 483 49.9%
Provision for (benefit from) income taxes
Reported 9 (496) 505 (101.8)%
Normalized 9 (287) 296 (103.1)%
---------------------------------------------
Net loss
Reported $ (4,490) $ (916) $ (3,574) (390.2)%
Normalized (494) (681) 187 27.5%
=============================================
Net loss per share
Reported $ (0.68) $ (0.14) $ (0.54) (390.2)%
Normalized (0.08) (0.11) 0.03 27.5%
=============================================
</TABLE>
Note: Special charges for fiscal 1997 represent $4.0 million pretax to
streamline operations and provide valuation reserves against inventories,
receivables and fixed assets. Special charges and credits for fiscal 1996
represent $1.2 million pretax charges to writedown demonstration inventory
offset by $0.8 million pretax reversal of acquired in process technology
charges.
30
<PAGE>
<TABLE>
The following table presents the Company's fiscal 1997 and 1996
Consolidated Statements of Operations as a percentage of net sales, as reported
and as normalized to remove the effects of special charges and credits incurred
during each of those fiscal years.
<CAPTION>
Increase
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Net sales
Reported 100.0% 100.0% 0.0%
Normalized 100.0% 100.0% 0.0%
Cost of sales
Reported 62.6% 51.4% 11.2%
Normalized 48.4% 48.6% (0.2)%
---------------------------------
Gross margin
Reported 37.4% 48.6% (11.2)%
Normalized 51.6% 51.4% 0.2%
---------------------------------
Operating expenses:
Research and development
Reported 19.0% 18.3% 0.6%
Normalized 19.0% 18.3% 0.6%
Marketing and sales
Reported 33.9% 34.4% (0.4)%
Normalized 29.1% 31.6% (2.4)%
General and administrative
Reported 10.9% 6.9% 4.0%
Normalized 7.2% 6.9% 0.3%
Charge (credit) for acquired in-process technology
Reported - (3.5)% (3.5)%
Normalized - - -
---------------------------------
Total operating expenses
Reported 63.8% 56.1% 7.7%
Normalized 55.3% 56.9% (1.5)%
---------------------------------
Operating loss
Reported (26.4)% (7.6)% (18.8)%
Normalized (3.7)% (5.5)% 1.7%
Interest and other income (loss), net
Reported 1.0% 1.0% -
Normalized 1.0% 1.0% -
---------------------------------
Loss before provision for (benefit from) income taxes
Reported (25.4)% (6.6)% (18.8)%
Normalized (2.8)% (4.5)% 1.7
Provision for (benefit from) income taxes
Reported 0.1% (2.3)% 2.4%
Normalized 0.1% (1.3)% 1.4%
---------------------------------
Net loss
Reported (25.5)% (4.3)% (21.2)%
Normalized (2.8)% (3.2)% 0.4%
=================================
</TABLE>
Note: Special charges for fiscal 1997 represent $4.0 million pretax to
streamline operations and provide valuation reserves against inventories,
receivables and fixed assets. Special charges and credits for fiscal 1996
represent $1.2 million pretax charges to writedown demonstration inventory
offset by $0.8 million pretax reversal of acquired in process technology
charges.
31
<PAGE>
The following fiscal 1997 vs. 1996 results of operations discussions
are based upon normalized results, without inclusion of the above noted special
charges and credits incurred during each of those fiscal years.
Net sales. The decrease in net sales during fiscal 1997 from fiscal
1996 levels was primarily due to decreased sales in the video post production
marketplace. That decrease was partially offset by increased sales in the video
broadcasting and computer graphics production and post production marketplaces.
International sales in fiscal 1997 and 1996 represented 42.4% and 38.2%
of net sales, respectively, as export sales to Europe decreased to 10% from 14%,
respectively, and export sales to the Pacific Rim increase to 27% from 19%.
The following table presents fiscal 1997 and 1996 net sales dollar
volumes by market and related percentages of total net sales (dollar amounts in
thousands).
1997 1996
---- ----
Market Amount Percent Amount Percent
------ ------ ------- ------ -------
Production $ 8,259 46.9% $ 7,806 36.5%
Post Production 6,534 37.1% 11,608 54.2%
Broadcasting 2,408 13.7% 1,681 7.9%
Other 426 2.4% 313 1.5%
-------------------- -----------------------
$17,627 100.0% $21,408 100.0%
==================== =======================
Cost of sales. Normalized gross margin percentage for fiscal 1997
increased over fiscal 1996 levels primarily due to a greater portion of higher
margin ELSET(TM) software sales included in the sales mix.
Research and development. Fiscal 1997's decrease in normalized research
and development expenses primarily was a result of decreases in headcount and
related overhead expenses after the Company's streamlining of operations.
Marketing and sales. Fiscal 1997's decrease in normalized marketing and
sales expenses was primarily due to decreases in headcount, demonstration
equipment refurbishment costs, and trade show and promotion expenses after the
Company's streamlining of operations.
General and administrative. The decrease in normalized general and
administrative expenses from fiscal 1996 levels was primarily due to reductions
in headcount after the Company's streamlining of operations.
Interest and other income, net. The decrease in interest and other
income, net during fiscal 1997 was primarily due to reduced average interest
bearing cash and cash equivalent balances.
Provision for (benefit from) income taxes. Fiscal 1996's benefit from
income taxes was due to the Company's ability to carry back federal and state
net operating losses to prior periods. In fiscal 1997, no further net operating
loss carrybacks were available and the Company is in a net operating loss
carryforward position.
Net loss. As result of the factors noted above, normalized net loss
decreased in fiscal 1997 from fiscal 1996's normalized net loss.
32
<PAGE>
Fiscal Years 1996 vs. 1995
<TABLE>
The following table presents the Company's fiscal 1996 and 1995
Consolidated Statements of Operations, as reported and as normalized to remove
the effects of special charges and credits incurred during each of those fiscal
years (dollar amounts in thousands, except per share data).
<CAPTION>
Increase (Decrease)
-------------------
1996 1995 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Net sales
Reported $ 21,408 $ 21,312 96 0.5%
Normalized 21,408 21,312 96 0.5%
Cost of sales
Reported 11,010 10,137 873 8.6%
Normalized 10,410 10,137 273 2.7%
----------------------------------------------
Gross margin
Reported 10,398 11,175 (777) (7.0)%
Normalized 10,998 11,175 (177) (1.6)%
----------------------------------------------
Operating expenses:
Research and development
Reported 3,926 3,791 135 3.6%
Normalized 3,926 3,791 135 3.6%
Marketing and sales
Reported 7,356 6,142 1,214 19.8%
Normalized 6,762 6,142 620 10.1%
General and administrative
Reported 1,487 1,268 219 17.3%
Normalized 1,487 1,268 219 17.3%
Charge (credit) for acquired in-process technology
Reported (750) 10,766 (11,516) (107.0)%
Normalized -- -- -- --
----------------------------------------------
Total operating expenses
Reported 12,019 21,967 (9,948) (45.3)%
Normalized 12,175 11,201 974 8.7%
----------------------------------------------
Operating loss
Reported (1,621) (10,792) 9,171 85.0%
Normalized (1,177) (26) (1,151) (4,426.9)%
Interest and other income (expense), net
Reported 209 (180) 389 216.1%
Normalized 209 (180) 389 216.1%
----------------------------------------------
Loss before provision for (benefit from) income taxes
Reported (1,412) (10,972) 9,560 87.1%
Normalized (968) (206) (762) (369.9)%
Provision for (benefit from) income taxes
Reported (496) (132) (364) 275.8%
Normalized (287) (132) (155) 117.4%
----------------------------------------------
Net loss
Reported $ (916) $(10,840) $ 9,924 91.5%
Normalized (681) (74) (607) (820.3)%
==============================================
Net loss per share
Reported $ (0.14) $ (3.85) $ 3.71 96.4%
Normalized (0.11) (0.03) (0.08) (820.3)%
==============================================
</TABLE>
Note: Special charges and credits for fiscal 1996 represent $1.2
million pretax charges to writedown demonstration inventory offset by $0.8
million pretax reversal of acquired in process technology charges. Special
charges for fiscal 1995 represent $10.8 million pretax for acquired in process
technology.
33
<PAGE>
<TABLE>
The following table presents the Company's fiscal 1996 and 1995
Consolidated Statements of Operations as a percentage of net sales, as reported
and as normalized to remove the effects of special charges and credits incurred
during each of those fiscal years.
<CAPTION>
Increase
1996 1995 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Net sales
Reported 100.0% 100.0 -
Normalized 100.0% 100.0 -
Cost of sales
Reported 51.4% 47.6% 3.9%
Normalized 48.6% 47.6% 1.1%
------------------------------------
Gross margin
Reported 48.6% 52.4% (3.9)%
Normalized 51.4% 52.4% (1.1)%
------------------------------------
Operating expenses:
Research and development
Reported 18.3% 17.8% 0.6%
Normalized 18.3% 17.8% 0.6%
Marketing and sales
Reported 34.4% 28.8% 5.5%
Normalized 31.6% 28.8% 2.8%
General and administrative
Reported 6.9% 5.9% 1.0%
Normalized 6.9% 5.9% 1.0%
Charge (credit) for acquired in-process technology
Reported (3.5)% 50.5% 54.0%
Normalized - - -
------------------------------------
Total operating expenses
Reported 56.1% 103.1% (46.9)%
Normalized 56.9% 52.6% 4.3%
------------------------------------
Operating loss
Reported (7.6)% (50.6)% 43.0%
Normalized (5.5)% (0.1)% (5.4)%
Interest and other income (expense), net
Reported 1.0% (0.8)% 1.8%
Normalized 1.0% (0.8)% 1.8%
------------------------------------
Loss before benefit from income taxes
Reported (6.6)% (51.5)% 44.9%
Normalized (4.5)% (1.0)% (3.6)%
Benefit from income taxes
Reported (2.3)% (0.6)% (1.7)%
Normalized (1.3)% (0.6)% (0.7)%
------------------------------------
Net loss
Reported (4.3)% (50.9)% 46.6%
Normalized (3.2)% (0.3)% (2.8)%
====================================
</TABLE>
Note: Special charges and credits for fiscal 1996 represent $1.2
million pretax charges to writedown demonstration inventory offset by $0.8
million pretax reversal of acquired in process technology charges. Special
charges for fiscal 1995 represent $10.8 million pretax for acquired in process
technology.
34
<PAGE>
The following fiscal 1996 vs. 1995 results of operations discussions
are based on normalized results, without inclusion of the above noted special
charges and credits.
Net sales. The increase in net sales during fiscal 1996 from fiscal
1995 levels was primarily due to increased sales in the video production
marketplace from introduction of the ELSET(TM) virtual set, increases sales in
the video broadcasting marketplace, and increases of Axial(R) sales in the video
broadcast marketplace, offset by decreases in signal processing and digital disk
recorder sales in the video broadcast marketplace and in the computer graphics
production and post production marketplaces.
International sales in fiscal 1996 and 1995 represented 38.2% and 51.1%
of net sales, respectively, as export sales to Europe decreased to 14% from 19%,
respectively, and export sales to the Pacific Rim decreased to 19% from 24%.
The following table presents fiscal 1996 and 1995 net sales dollar
volumes by market and related percentages of total net sales (dollar amounts in
thousands).
1996 1995
---- ----
Market Amount Percent Amount Percent
------ ------ ------- ------ -------
Production $ 7,806 36.5% $ 8,908 41.8%
Post Production 11,608 54.2% 11,853 55.6%
Broadcasting 1,681 7.9% 342 1.6%
Other 313 1.5% 209 1.0%
--------------------- -----------------------
$21,408 100.0% $21,312 100.0%
===================== =======================
Cost of sales. Normalized gross margin percentage decreased during
fiscal 1996 primarily due to increased costs of manufacturing certain disk based
products.
Research and development. Fiscal 1996's increase in research and
development expenses was primarily due to an increase in personnel costs related
to ELSET(TM) virtual set product development, offset by reduced headcount in
other product development areas and by a decrease in prototyping expenses
related to other new product development.
Marketing and sales. Fiscal 1996's increase in normalized marketing and
sales expenses resulted from a increase in ELSET(TM) marketing activities and an
increase in headcount.
General and administrative. The increase in fiscal 1996's general and
administrative expenses was due to an increase in insurance costs.
Interest and other income, net. The increase in interest and other
income in fiscal 1996 was due to investment of the Company's initial public
offering proceeds in interest bearing cash and cash equivalent accounts.
Provision for (benefit from) income taxes. Fiscal 1996 and 1995's
benefit from income taxes was due to the Company's ability to carry back federal
and state net operating losses to prior periods.
Net loss. As a result of the above noted factors, normalized net loss
increased in fiscal 1996 from the amount incurred in fiscal 1995.
35
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has financed its operations and
expenditures for property and equipment through the sale of capital stock,
borrowings under a bank line of credit and term loans. On September 29, 1995,
the Company completed its initial public offering and received approximately
$17.8 million in net proceeds. On September 29, 1995, it completed the
acquisition of the shares of ELSET GmbH it did not already own for approximately
$7.6 million. As of September 30, 1997, the Company had $5.3 million of cash and
cash equivalents.
Operating activities provided $1.5 million in net cash during fiscal
1997 and used $3.7 million in net cash during fiscal 1996. Net cash provided in
fiscal 1997 was due primarily to decreases in accounts receivable and
inventories partially offset by decreases in accounts payable and accrued
liabilities. Net cash used in 1996 was due primarily to decreases in other
accrued liabilities and increases in accounts receivable partially offset by
increases in accounts payable.
The Company has a revolving line of credit with Comerica Bank that
allows for borrowings up to $4.0 million, subject to the level of accounts
receivable. As of September 30, 1997, approximately $2.2 million of borrowings
were available under this line of credit, of which the Company had no borrowings
outstanding. Indebtedness under the line of credit accrues at Comerica's base
rate and is secured by substantially all of the Company's assets. The line of
credit may be terminated by either party upon 30 days' notice. Borrowings under
the line of credit are subject to certain financial covenants, and the Company
was in compliance with all such covenants at September 30, 1997.
The Company believes that its existing cash, cash equivalents and
credit facilities 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, if at all.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
36
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the consolidated financial statements
and supplementary financial information that are attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Certain information required by Part III is omitted from this report
because the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its annual meeting of shareholders to be held February 17, 1997 and the
information included therein is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of the Company is incorporated by
reference from the information under the caption "Election of
Directors--Nominees" in the Company's Proxy Statement.
Information as to the Company's executive officers appears at the end
of Part I of this report.
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from the
information under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement.
Item 11. Executive Compensation
Incorporated by reference from the information under the caption
"Executive Compensation and Related Information" in the Company's Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the information under the caption
"Common Stock Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the information under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement.
37
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) Financial Statements and Report of Ernst &
Young LLP, Independent Auditors
Report of Ernst & Young LLP, Independent
Auditors.
Consolidated Balance Sheet as of September 30, 1997 and 1996.
Consolidated Statements of Operations - For
the Fiscal Years ended September 30, 1997,
1996 and 1995.
Consolidated Statement of Shareholders' Equity - For the
Fiscal Years ended September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows - For
the Fiscal Years ended September 30, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying
Accounts
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
38
<PAGE>
(3) Exhibits (numbered in accordance with Item
601 of Regulation S-K)
Number Description
------ -----------
3.1(1) Bylaws of the Company.
3.2(2) Amended and Restated Certificate of Incorporation of the Company
filed with the Delaware Secretary of State upon the closing of
the Company's initial public offering.
3.3 Certificate of Designation of Rights, Preferences and Privileges
of Series A Participating Preferred Stock. Reference is made to
Exhibit 4.3
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 4.3.
4.2(1) Specimen Common Stock Certificate.
4.3(3) Preferred Shares Rights Agreement, dated as of September 13,
1996, between the Company and U.S. Stock Transfer Corporation,
including the Certificate of Designation of Rights, Preferences
and Privileges of Series A Participating Preferred Stock, the
form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively.
10.1 Lease Extension dated October 25, 1996 by and between Menlo
Business Park and Partician Associates, Inc. and the Company.
10.2(4) 1997 Non-Executive Stock Option Plan and Form of Option
Agreement.
11.1(5) Statement Regarding Computation of Net Loss Per Share.
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule (reference is made to page F-1 of this
Report)
24.1 Power of Attorney (reference is made to page 39 of this Report).
27.1 Financial Data Schedule.
- ----------------
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Registrant's Registration Statement on Form S-1 and
Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No.
33-95728), which became effective on September 26, 1995.
(2) Incorporated by reference from an exhibit filed with the Company's Annual
Report on 10-K for the fiscal year ended September 30, 1995 (File No.
0-26620).
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form 8-A (File No. 0-26620) to register Preferred
Share Purchase Rights under the Company's stockholder rights plan, adopted
by the Company's board of directors on September 3, 1996.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 333-23635), filed on March 20,
1997
(5) Incorporated by reference from an exhibit filed with the Company's Annual
Report on 10-K for the fiscal year ended September 30, 1996 (File No.
0-26620).
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended September 30,
1997.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Menlo
Park, California on this 23rd day of December 1997.
ACCOM, INC.
By: /s/ CAL R. HOAGLAND
----------------------------------
Cal R. Hoagland
Vice President Finance
and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Junaid Sheikh and Cal R. Hoagland,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JUNAID SHEIKH Chairman of the Board of Directors, December 23, 1997
----------------- President and Chief Executive Officer
(Junaid Sheikh) (Principal Executive Officer)
/s/ CAL R. HOAGLAND Vice President Finance and Chief December 23, 1997
------------------- Financial Officer (Principal Financial
(Cal R. Hoagland) and Accounting Officer)
/s/ LIONEL M. ALLAN Director December 23, 1997
-------------------
(Lionel M. Allan)
/s/ THOMAS E. FANELLA Director December 23, 1997
---------------------
(Thomas E. Fanella)
/s/ ROBERT L. WILSON Director December 23, 1997
--------------------
(Robert L. Wilson)
</TABLE>
40
<PAGE>
Accom, Inc.
Consolidated Financial Statements
As of September 30, 1997 and 1996
and
For the three fiscal years ended September 30, 1997, 1996 and
1995 with Report of Independent Auditors
<PAGE>
Accom, Inc.
Consolidated Financial Statements
As of September 30, 1997 and 1996
and
For the three fiscal years ended September 30, 1997, 1996 and
1995 with Report of Independent Auditors
Contents
Report of Ernst & Young LLP, Independent Auditors ........................ F-1
Consolidated Financial Statements:
Consolidated Balance Sheets ..................................... F-2
Consolidated Statements of Operations ........................... F-3
Consolidated Statements of Stockholders' Equity ................. F-4
Consolidated Statements of Cash Flows ........................... F-5
Notes to Consolidated Financial Statements ...................... F-7
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Accom, Inc.
We have audited the accompanying consolidated balance sheets of Accom, Inc.
as of September 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended September 30, 1997. Our audits also included the
consolidated financial statement schedule listed in the Index at Item 14(a).
These consolidated financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
and schedule presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Accom, Inc. as
of September 30, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three fiscal years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
Ernst & Young LLP
Palo Alto, California
October 29, 1997
F-1
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
<CAPTION>
As of September 30,
--------------------------
1997 1996
-------- --------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,317 $ 4,221
Accounts receivable, net of allowance for doubtful accounts of
$401 and $223 as of September 30, 1997 and 1996, respectively
3,239 4,519
Inventories 980 5,447
Income tax refunds receivable 621 195
Deferred tax assets 38 695
Prepaid expenses and other current assets 334 377
--------------------------
Total current assets 10,529 15,454
Property and equipment, net 967 1,683
Other assets 49 142
--------------------------
Total assets $ 11,545 $ 17,279
==========================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable 24 58
Accounts payable 1,476 2,242
Accrued liabilities and customer deposits 1,338 1,455
Deferred revenue 141 528
--------------------------
Total current liabilities 2,979 4,283
Long-term liabilities -- 44
--------------------------
Total liabilities 2,979 4,327
--------------------------
Stockholders' equity:
Preferred stock, $0.001 per share par value; issuable in series; 2,000 shares
authorized and no shares issued and outstanding as
of September 30, 1997 and 1996 -- --
Common stock, $0.001 per share par value; 20,233 shares authorized
as of September 30, 1997 and 1996; 6,627 and 6,494 shares issued and
outstanding as of September 30, 1997 and 1996, respectively
21,427 21,323
Accumulated deficit (12,861) (8,371)
--------------------------
Total stockholders' equity 8,566 12,952
--------------------------
Total liabilities and stockholders' equity $ 11,545 $ 17,279
==========================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
<CAPTION>
Fiscal Years Ended September 30,
------------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 17,627 $ 21,408 $ 21,312
Cost of sales 11,034 11,010 10,137
------------------------------------------------
Gross margin 6,593 10,398 11,175
------------------------------------------------
Operating expenses:
Research and development 3,344 3,926 3,791
Marketing and sales 5,981 7,356 6,142
General and administrative 1,925 1,487 1,268
Charge (credit) for acquired in-process technology
-- (750) 10,766
------------------------------------------------
Total operating expenses 11,250 12,019 21,967
------------------------------------------------
Operating loss (4,657) (1,621) (10,792)
Interest and other income (expense), net 176 209 (180)
------------------------------------------------
Loss before provision for (benefit from)
income taxes (4,481) (1,412) (10,972)
Provision for (benefit from) income taxes 9 (496) (132)
------------------------------------------------
Net loss $ (4,490) $ (916) $(10,840)
================================================
Net loss per share $ (0.68) $ (0.14) $ (3.85)
================================================
Shares used in computing net loss per share 6,587 6,439 2,816
================================================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
<CAPTION>
Convertible Preferred Stock Common Stock, Retained Total
$0.001 Per Share Par Value $0.001 Per Share Par Value Earnings Stock-
--------------------------- -------------------------- (Accumulated holders'
Shares Amount Shares Amount Deficit) Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1994 1,479 $ 1 2,339 $ 2,264 $ 3,385 $ 5,650
Issuance of Series B
preferred stock, net of
issuance costs of $83 417 2,218 -- -- -- 2,218
Issuance of common stock
upon exercise of stock
options -- -- 44 22 -- 22
Conversion of preferred
stock into common stock (1,896) (2,219) 1,896 2,219 -- --
Initial public offering of
common stock, net of
issuance costs of $2,496 -- -- 2,125 16,629 -- 16,629
Net loss -- -- -- -- (10,840) (10,840)
---------------------------------------------------------------------------------
Balances, September 30, 1995 -- -- 6,404 21,134 (7,455) 13,679
Issuance of common stock
upon exercise of stock
options -- -- 36 19 -- 19
Purchase of common stock
through Employee Stock
Purchase Plan -- -- 53 170 -- 170
Net loss -- -- -- -- (916) (916)
---------------------------------------------------------------------------------
Balances, September 30, 1996 -- -- 6,494 21,323 (8,371) 12,952
Issuance of common stock
upon exercise of stock
options -- -- 104 58 -- 58
Purchase of common stock
through Employee Stock
Purchase Plan -- -- 29 46 -- 46
Net loss -- -- -- -- (4,490) (4,490)
---------------------------------------------------------------------------------
Balances, September 30, 1997 -- -- 6,627 $ 21,427 $(12,861) $ 8,566
=================================================================================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Fiscal Years Ended September 30,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(4,490) $ (916) $(10,840)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Charge (credit) for acquired in-process technology - (750) 10,766
Depreciation and amortization 528 760 533
Establishment of reserves against accounts
receivable, inventories, and property and
equipment, and accruals for streamlining
operations 3,995 - -
Changes in operating assets and liabilities, net of effects of
acquisition and reserves to streamline operations
Accounts receivable 1,030 (815) 224
Inventories 1,967 (711) (539)
Income tax refunds receivable (426) (145) (51)
Deferred tax assets, net 637 (275) (17)
Prepaid expenses and other current assets 43 (82) (155)
Accounts payable (766) 523 503
Accrued liabilities and customer deposits (611) (1,524) 161
Income taxes payable - - (128)
Deferred revenue (387) 192 (38)
------------------------------------------
Net cash provided by (used in) operating activities 1,520 (3,743) 419
------------------------------------------
Cash Flows From Investing Activities
Acquisition of ELSET, net of cash acquired - - (9,195)
Expenditures for property and equipment (563) (847) (965)
(Increase) decrease in other assets 93 (88) (1)
------------------------------------------
Net cash used in investing activities (470) (935) (10,161)
------------------------------------------
Cash Flows from Financing Activities
Borrowings under line of credit - - 1,850
Payments on line of credit - - (2,875)
Borrowings under notes payable - - 175
Repayments on notes payable (58) (59) (534)
Issuance of convertible preferred stock - - 2,218
Issuance of common stock 104 189 17,481
------------------------------------------
Net cash provided by financing activities 46 130 18,315
------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,096 (4,548) 8,573
Cash and cash equivalents at beginning of the year 4,221 8,769 196
------------------------------------------
Cash and cash equivalents at end of the year $ 5,317 $4,221 $8,769
==========================================
<FN>
-Continued-
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Statements of Cash Flows (Concluded)
(in thousands)
<CAPTION>
Fiscal Years Ended September 30,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information
Interest paid $6 $ 11 $120
==========================================
Income taxes paid $2 $ 2 $118
==========================================
Noncash investing and financing activities:
Accrued acquisition costs - $(354) $619
==========================================
Assumption of net liabilities in acquisition - - $892
==========================================
Accrued initial public offering costs - $(819) $830
==========================================
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
F-6
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
1. Summary of Significant Accounting Policies
Nature of the Business
Accom, Inc. (the "Company") designs, manufactures, sells, and supports a
complete line of digital video signal processing, editing, and disk recording
tools, and virtual set systems, primarily for the professional worldwide video
and computer graphics production, post production and distribution marketplaces.
Reclassifications
Certain amounts in the prior years' financial statements have been reclassified
to conform with the fiscal 1997 presentation.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after elimination of significant intercompany
transactions and balances.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments having maturities of 90 days
or less at the time of acquisition that are readily convertible into cash and
have insignificant interest rate risk. As of September 30, 1997, cash
equivalents consist of money market accounts, commercial paper, treasury bills,
and municipal notes. Primarily all cash and cash investments are held by one
major national bank and two major investment brokerage companies.
Concentration of Credit Risk
The Company sells its product primarily in North America, Europe and the Pacific
Rim. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains allowances for
potential credit losses and such losses have historically been within
management's expectations.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
F-7
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost and is depreciated using the
straight-line method over the assets' estimated useful lives, which generally
ranges from three to five years.
Revenue Recognition
The Company generally recognizes revenue upon shipment of its systems. Estimated
costs for insignificant post shipment obligations are accrued for at the time of
shipment. If significant post shipment obligations exist or there are concerns
about collection at the time of shipment, revenue is deferred until obligations
are met or collection occurs.
Employee Stock-Based Compensation
Accounting guidelines allow the use of two alternative methods to account for
employee stock-based compensation. Under the first method, the recording of
compensation expense at "fair value" is encouraged, but not required.
Determination of "fair value" under this method is based on the use of valuation
models not developed for use in valuing employee stock-based compensation. Under
the second method, the recording of compensation expense is not required if the
purchase price of employee stock-based compensation equals the market price of
the underlying stock on the date of grant. The Company's employee stock-based
compensation plans meet this requirement. Therefore, the Company has elected to
follow the second method to account for employee stock-based compensation.
Although the Company is not required to record compensation expense, the
guidelines of the first method requires disclosure of pro forma effects the
theoretical expense has on reported net loss and net loss per share (see Note 8)
based on that method's determination of "fair value."
Acquired In-Process Technology
In-process technology acquired in an acquisition accounted for under the
purchase method is expensed upon acquisition.
F-8
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from common stock
options are excluded from the computation for fiscal 1997 and 1996 as their
effect is antidilutive.
In addition, for fiscal 1995, pursuant to Securities and Exchange Commission
guidelines, the computation included all dilutive and antidilutive common and
common equivalent shares issued at prices below the public offering price during
the 12-month period prior to the initial filing of the public offering as if
they were issued at the initial public offering price. For purposes of the
fiscal 1995 computation, common equivalent shares consisted of incremental
common shares issuable upon the conversion of the previously outstanding
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options (using the treasury stock method). Had the
calculation not been modified by SEC guidelines, fiscal 1995's net loss would
have been $2.47 and the number of shares used in the calculation would have been
4,394,000.
New Accounting Guidelines
In fiscal 1997, new accounting guidelines were issued addressing the computation
of net income (loss) per share, which will be effective for the Company in
fiscal 1998 Under the new guidelines, two per share disclosures are required:
the first, "basic," which is based solely on the weighted average shares issued
and outstanding during the year; and second, "diluted," which includes the
effect of dilutive common stock equivalents (which for the Company are common
stock options). Net loss per share under the new guidelines is the same as that
reported by the Company under the existing guidelines for all period presented.
Also in fiscal 1997, two additional new accounting guidelines were issued
addressing the reporting of comprehensive income and revised disclosure of
segment information, both of which will be effective for the Company in fiscal
1999.
F-9
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
2. ELSET Acquisition
During fiscal 1995 the Company and one of its wholly owned subsidiaries acquired
an aggregate 100% of ELSET Electronic-Set GmbH ("ELSET") in several
transactions. The Company accounted for the transactions using the purchase
method. The aggregate purchase price was $10,766, 000, which included $9.1
million paid for the share capital, $0.9 million of estimated assumed net
liabilities, and $0.8 million of estimated transaction and other costs. Based on
the stage of acquired technology as of the date of acquisition, it was treated
as in-process technology and the entire purchase price was expensed upon
acquisition.
At the end of fiscal 1996, the Company reevaluated its estimates of the
liabilities assumed based on information available at the time. As a result of
this reevaluation, $750,000 was reversed as a credit for acquired in-process
technology.
3. Inventories
Inventories consist of the following:
As of September 30,
-------------------
1997 1996
---- ----
(In thousands)
Purchased parts and materials $ 225 $1,105
Work-in-process 204 1,842
Finished goods 182 440
Demonstration inventory 369 2,060
-----------------------------------
$ 980 $5,447
===================================
4. Property and Equipment
Property and equipment consist of the following:
As of September 30,
-------------------
1997 1996
---- ----
(In thousands)
Machinery and equipment $ 1,768 $ 2,574
Furniture and fixtures 207 207
Computer equipment 1,070 1,171
-----------------------------------
3,045 3,952
Less accumulated depreciation (2,078) (2,269)
-----------------------------------
Net property and equipment $ 967 $ 1,683
===================================
F-10
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
5. Accrued Liabilities and Customer Deposits
Accrued liabilities and customer deposits consist of the following:
As of September 30,
-------------------
1997 1996
---- ----
(In thousands)
Accrued compensation $ 275 $ 328
Accrued acquisition liabilities 208 473
Accrued streamlining expenses 379 -
Other 476 654
-----------------------------------
$ 1,338 $ 1,455
===================================
6. Bank Borrowings
The Company has a revolving line of credit with a bank which allows for
borrowings up to $4,000,000, subject to the level of accounts receivable. As of
September 30, 1997, the Company had no borrowings outstanding. and approximately
$2.2 million was available for borrowing under the line. The line of credit
remains in effect until terminated by either party upon 30 days' notice.
Interest on the line of credit accrues at the bank's base rate (8.50% and 8.25%
as of September 30, 1997 and 1996, respectively). Borrowings under the line are
secured by all property of the Company. Borrowings on the credit arrangement are
subject to certain financial covenants. As September 30, 1997, the Company was
in compliance with these financial covenants.
In March 1995, the Company entered into a variable interest note payable with
the same bank in equal monthly principal installments of approximately $5,000
plus interest through April 1, 1998. The note's interest rate is the bank's base
rate plus 0.75% (9.25% at September 30, 1997). Borrowings under the note are
secured by certain assets of the Company.
F-11
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
7. Commitments
Leasing Arrangements
The Company leases its primary office and manufacturing facility an under
operating which expires in February, 2000 and provides for annual increases
based on the local area's consumer price index. The Company is responsible for
utilities, taxes and insurance under the lease. Rent expense for fiscal years
1995, 1996 and 1997 was approximately, $514,000, $424,000 and $ 395,000,
respectively.
Minimum future rental payments under noncancelable leases at September 30, 1997
are as follows (in thousands):
1998 $ 499
1999 488
2000 206
----------------------
Total $ 1,193
======================
The Company is sublessor for a portion of its primary office and manufacturing
facility. Sublease rental income for fiscal 1997 was approximately $84,000.
401(k) Plan
The Company has a 401(k) plan under which the employee may defer and invest a
portion of his or her annual compensation up to certain annual limitations. The
Company may, at its discretion, make certain matching contributions to the plan.
The Company made no contributions to the 401(k) plan through September 30, 1997
8. Stockholders' Equity
Stock Options
Under the Company's Restated 1990 Stock Option Plan (the "1990 Plan") up to
833,333 shares of common stock could have been issued upon exercise of incentive
stock options issued to employees or officers. Options were granted at a price
not less than 100% of the fair market value of the Company's common stock on
date of grant. Options under the 1990 Plan generally vested over a period of
five years. In Fiscal 1995, the 1990 Plan was terminated with respect to future
grants due to adoption of the 1995 Stock Option/Stock Issuance Plan (the "1995
Plan").
F-12
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
8. Stockholders' Equity (continued)
Stock Options (continued)
The 1995 Plan increased the number of shares available for grant by 1,258,036
plus automatic annual increases in 1996, 1997 and 1998. Under the 1995 Plan,
options may be granted and shares may be issued at a price not less than 85% of
the fair value of the Company's common stock on date of grant.
During Fiscal 1997, the Company adopted the 1997 Non-Executive Stock Option Plan
(the "1997 Plan"), under which options for up to 500,000 shares of common stock
are available for grant to employees other than officers and directors at a
price not less than 100% of the fair value of the Company's common stock on date
of grant.
<TABLE>
Stock option activity is summarized below:
<CAPTION>
Shares Outstanding Options Weighted
Available ------------------- Average
for Grant Number of Price Per Exercise
of Options Shares Share Price
---------- ------ ----- -----
<S> <C> <C> <C> <C>
Balances at September 30, 1994 492,658 282,969 $0.48-$4.80
Shares authorized 1,258,036 -
Options granted (507,645) 507,645 $4.80-$7.20
Options exercised (44,364) $0.48 $0.48
================
Options canceled 6,161 (6,161) $0.48-$4.80
---------------------------------------------------
Balances at September 30, 1995 1,249,210 740,089 $0.48-$7.20
Shares authorized 64,042 -
Options granted (1,530,703) 1,530,703 $1.88-$9.25
Options exercised (36,364) $0.48-$4.80 $0.51
================
Options canceled 1,066,612 (1,066,612) $0.48-$9.25
---------------------------------------------------
Balances at September 30, 1996 849,161 1,167,816 $0.48-$5.88
Shares authorized 565,689 -
Options granted (1,719,894) 1,719,894 $1.25-$1.69
Options exercised (103,613) $0.48-$1.31 $0.56
================
Options canceled 1,253,676 (1,253,676) $0.48-$5.88
---------------------------------------------------
Balances at September 30, 1997 948,772 1,530,421 $0.48-$5.88
===================================================
</TABLE>
During Fiscal 1997, the Company repriced, through cancellation and regrant,
989,494 options having original exercise prices ranging from $1.63 to $4.80 with
a new exercise price of $1.31. The repriced options have the same vesting terms
as the original options.
F-13
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
8. Stockholders' Equity (continued)
Stock Options (continued)
<TABLE>
The options outstanding as of September 30, 1997 have been segmented into
ranges:
<CAPTION>
Weighted
Average Weighted Weighted
Range of Remaining Average Options Average
Exercise Options Contractual Exercise Currently Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.48 83,238 4.76 $0.48 75,866 $0.48
$1.25 - $1.31 1,369,183 8.63 $1.28 381,738 $1.31
$1.63 - $1.69 73,000 9.80 $1.69 - -
$5.88 5,000 8.38 $5.88 5,000 $5.88
--------------------------------------------------------------------------------------
$0.48 - $5.88 1,530,421 8.47 $1.27 462,604 $1.22
======================================================================================
</TABLE>
As of September 30, 1997, the Company has reserved 2,479,193 shares of common
stock for issuance upon the exercise of stock options under all of its plans.
Employee Stock Purchase Plan
In July 1995, the Company's Employee Stock Purchase Plan (the "Purchase Plan")
was adopted which authorizes the issuance of 250,000 shares of common stock.
Shares may be purchased under the Purchase Plan at 85% of the lesser of the fair
market value of the common stock on the grant or purchase date.
Pro Forma Disclosure of Employee Stock-Based Compensation
Although the Company is not required to record compensation expense for its
employee stock-based plans (see Note 1), the guidelines of the first method of
accounting for employee stock-based compensation plans require pro forma
disclosure of the theoretical expense based on that method's determination of
"fair value."
F-14
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
8. Stockholders' Equity (continued)
Pro Forma Disclosure of Employee Stock-Based Compensation (continued)
For stock options granted subsequent to September 30, 1995, the "fair value" of
those options was estimated at the date of grant using the Black-Scholes option
pricing model. The following weighted-average assumptions were used:
Fiscal Year Ended
September 30,
-------------
1997 1996
---- ----
Risk-free interest rates 6.0% 6.0%
Dividends paid - -
Volatility factors - Company's common
stock expected market price 0.80 0.80
Expected option life 4.83 years 4.83 years
The weighted average "fair value" of stock options granted during fiscal 1997
and 1996 was $0.56 and $2.30, respectively.
For employee purchase rights under the Employee Stock Purchase Plan, the "fair
value" of those rights was estimated at the date of grant using the
Black-Scholes option pricing model. The following weighted-average assumptions
were used:
Fiscal Year Ended
September 30,
-------------
1997 1996
---- ----
Risk-free interest rates 6.0% 6.0%
Dividends paid - -
Volatility factors - Company's common
stock expected market price 0.80 0.80
Expected option life 0.50 years 0.50 years
The weighted average "fair value" of employee purchase rights issued under the
Employee Stock Purchase Plan during fiscal 1997 and 1996 was $0.85 and $4.06,
respectively.
F-15
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
8. Stockholders' Equity (continued)
Pro Forma Disclosure of Employee Stock-Based Compensation (continued)
The above assumptions and related effects of applying them under the first
method of accounting for employee stock-based compensation plans are not likely
to be representative of the assumptions and related effects on reported net
income or loss in future years. For pro forma disclosure purposes, the estimated
"fair value" of the options is amortized to pro forma net loss over the option's
vesting period.
The pro forma effect of applying the estimated "fair value" for employee
stock-based compensation plans on net loss and net loss per share is as follows:
Fiscal Year Ended
September 30,
-------------
1997 1996
---- ----
Net loss (in thousands):
Historical $(4,490) $(916)
Pro forma $(5,737) (2,155)
Net loss per share:
Historical $(0.68) $(0.14)
Pro forma $(0.87) $(0.33)
Stockholder Rights Plan
In September 1996, the Company's Board of Directors adopted a stockholder rights
plan, which entitles existing stockholders of the Company to certain rights
(including the right to purchase shares of Preferred Stock) in the event of the
acquisition of 15% or more of the Company's outstanding common stock, or an
unsolicited tender offer for such shares.
9. Major Customers and Geographic Sales
One customer accounted for 13% of net sales in fiscal 1997. No customers
accounted for 10% or more of net sales in fiscal 1996 and 1995. Export sales for
fiscal 1997, 1996, and 1995 were approximately 42%, 38%, and 51%, respectively.
Export sales to Europe and the Pacific Rim as a percentage of total sales were
10% and 27%, respectively, for fiscal 1997, 14% and 19%, respectively, for
fiscal 1996, and 19% and 24%, respectively, for fiscal 1995.
F-16
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
10. Income Taxes
As of September 30, 1997, the Company had federal net operating loss
carryforward of approximately $1,700,000. The Company also had federal research
and development tax credit carryforwards of approximately $280,000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are:
As of September 30,
1997 1996
---- ----
(In thousands)
Deferred tax assets:
Net operating losses $ 735 $ -
Capitalized R&D 2,711 -
Depreciation 144 -
Deferred revenue 93 189
Nondeductible reserves and accruals 354 256
Inventory valuation 1,055 441
Other 386 8
--------------------------------
5,478 894
Valuation allowance (5,440) (199)
--------------------------------
38 695
Deferred tax liabilities:
Depreciation - 20
--------------------------------
Net deferred tax assets $ 38 $675
================================
The net valuation allowance increased by $5,241,000 and $199,000 during the
years ended September 30, 1997 and September 30, 1996, respectively.
F-17
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 1997 and 1996 and for each of the Three
Fiscal Years Ended September 30, 1997
<TABLE>
10. Income Taxes (continued)
The provision (benefit) for income taxes consists of the following:
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Federal:
Current $ (705) $(231) $(100)
Deferred 705 (231) (23)
--------------------------------------------------
- (462) (123)
--------------------------------------------------
State:
Current - 11 (20)
Deferred - (45) 6
--------------------------------------------------
- (34) (14)
--------------------------------------------------
Foreign:
Current 9 - 5
--------------------------------------------------
Total $ 9 $(496) $(132)
==================================================
</TABLE>
<TABLE>
A reconciliation of the income tax provision (benefit) at the federal statutory
rate to the income tax provision at the effective tax rate is as follows:
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income taxes computed at the federal
statutory rate $(1,524) $(480) $(3,730)
State taxes (net of federal benefit) (370) (23) (9)
Research and development tax credit (123) (18) (62)
Technology basis step-up (2,867) (204) 3,660
Valuation allowance 5,440 199 -
Other (547) 30 9
--------------------------------------------------
Total $ 9 $(496) $ (132)
==================================================
</TABLE>
11. Other
Special charges of approximately $3,995,000 pretax were taken in the first
quarter of fiscal 1997 to streamline operations and provide valuation reserves
against inventories, accounts receivables and property and equipment. The
charges were taken to reflect historic changes in existing product support as
well as anticipated changes due to future product development.
F-18
<PAGE>
SCHEDULE II
ACCOM, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
<CAPTION>
Balance at Charges to Balance at
Beginning of Cost and End of
Period Expenses Deductions * Period
--------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Year ended September 30, 1995............... 174 80 33 221
Year ended September 30, 1996............... 221 67 65 223
Year ended September 30, 1997............... 223 256 78 401
* All deductions represent write-offs of bad debt.
</TABLE>
EXHIBIT 10.1
------------
October 25, 1996
Junaid Sheikh
Accom
1490 O'Brien Dr.
Menlo Park, CA 94025
RE: Lease Extension
1490 O'Brien Drive,
(Building 10),
Menlo Park, CA
Dear Junaid:
This letter, when executed, will serve as a formal Agreement to extend and
modify that certain lease dated January 28, 1992, for the Premises located at
1490 O'Brien Drive, Building 10, of Menlo Business Park, California (the
"Lease"). Following are the conditions of the Agreement:
1. The commencement date of this extension shall be February 27, 1997 and the
expiration shall be February 26, 2,000.
2. The term of the Lease extension shall be for a period of thirty six (36)
months or three (3) years.
3. Paragraph 5 is hereby amended with the following monthly rent schedule
Year 1 $37,680/month
Year 2 Year 1 plus CPI annual increase (min 3%, max 7%)
Year 3 Year 2 plus CPI annual increase (min 3%, max 7%)
4. Paragraph 7, Security Deposit, is hereby amended to $37,680.00. Tenant shall
deposit with Landlord an additional $6,330.24 to increase the current security
deposit to this new amount.
5. Tenant warrants that there are no outside brokers except Tarlton Properties,
Inc. acting as exclusive leasing agent for Menlo Business Park.
<PAGE>
Lease Extension
Accom, Inc. Page 2
6. Paragraph 17(c) is hereby amended as follows:
Landlord shall, at Tenants expense, obtain at competitive rates, and keep in
full force and effect, a service contract with a licensed HVAC contractor for
the maintenance of the HVAC systems in the Building which shall have the
shortest notice of termination period available.
7. Landlord hereby agrees to credit Tenant with an Improvement Allowance
(guaranteed maximum price) for 30,144 SF in the amount of Thirty Thousand One
Hundred and Forty Four Dollars ($30,144), to be used for the design and
construction of Tenant Improvements that is approved by both Landlord and Tenant
and executed by Landlord's agent and Construction Manager, Tarlton Properties,
Inc. Said construction to be performed as an open book, audited, negotiated
fixed fee guaranteed maximum price contract, with Jack & Cohen Builders as the
general contractor. As used herein, the term "Costs" shall mean and refer to all
costs expended by Landlord relative to the construction of the Tenant
Improvements including, but not limited to, 10% contingency; equipment,
materials and labor; contractor's field overhead and fee; architectural, design
and engineering fees plus working drawings ( if any); governmental agency fees;
testing and inspection costs; sales and use taxes (but not real property taxes);
permits; plan check fees; bonds; and all other costs directly related to the
construction of the Tenant Improvements, plus a design/construction management
fee in the amount of 5% of the Costs of the Tenant Improvements to be paid to
Tarlton Properties, Inc.
In the event that the Costs of the Tenant Improvements exceed the Allowances
defined above, due to Tenant requested changes, Tenant shall pay to Landlord all
actual Costs that exceed the Allowances in cash at the end of construction.
8. All other terms and conditions of said Lease shall remain in full force and
effect.
Please acknowledge your acceptance of this Agreement by signing and returning a
copy thereof.
<PAGE>
Lease Extension
Accom, Inc.
Page 3
We look forward to having Accom Inc. remain in the Park in the upcoming years.
Sincerely,
TARLTON PROPERTIES INC.
Exclusive Agents for Menlo Business Park Joint Venture
/s/ Lorrin C. Tarlton, Jr.
PATRICIAN ASSOCIATES, INC.,
a California corporation
By: /s/ Ronald B. Franklin
Vice President
By /s/ Kurt D. Schaeffer
Vice President
MENLO BUSINESS PARK,
a California general partnership
By: /s/ John O. Lewis, as general partner
By: Oltmans Investment Company, as general partner
By: /s/ J C . Oltmans II
By: /s/ Basil C. Johnson
By: Lorrin C. Tarlton, Jr., and Marilyn L. Tarlton, Trustees, As general partner
By: /s/ Lorrin C. Tarlton, Jr., Trustee
By: /s/ Marilyn Tarlton, Trustee
READ AND AGREED
ACCOM, INC.
a California corporation
By: /s/ Junaid Sheikh
Its: Chairman and CEO
EXHIBIT 11.1
------------
<TABLE>
Accom, Inc.
Statement Re Computation Of Net Loss Per Share
(in thousands, except per share data)
<CAPTION>
Fiscal Years Ended
------------------
September 30,
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Historical (reported):
Shares used in computation of net loss per share:
Weighted average common stock outstanding 6,587 6,439 2,364
Net effect of dilutive stock options assumed exercised - - -
Shares related to SAB Nos. 55, 64 and 83:
Stock Options (1) 140
Series B preferred stock, if-converted 312
------------------------------------------
6,587 6,439 2,816
==========================================
Net loss ($4,490) ($916) ($10,840)
==========================================
Historical (reported) net loss per share ($0.68) ($0.14) ($3.85)
==========================================
Pro forma:
Shares used in computation of net loss per share:
Weighted average common stock outstanding
Net effect of stock options assumed exercised 2,364
Shares related to SAB Nos. 55, 64 and 83: 1,578
Stock Options 140
Series B preferred stock, if-converted 312
--------------
4,394
==============
Net loss ($10,840)
==============
Pro forma net loss per share ($2.47)
==============
</TABLE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-97538 and 333-23635) pertaining to the Accom, Inc. 1995 Stock
Option/Stock Issuance Plan, the Accom, Inc. Employee Stock Purchase Plan, and
the Accom, Inc. 1997 Non-Executive Stock Option Plan of our reports dated
October 29, 1997, with respect to the consolidated financial statements and the
schedule included in this Annual Report (Form 10-K) of Accom, Inc.
Ernst & Young LLP
Palo Alto, California
December 23,1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 5,317,000
<SECURITIES> 0
<RECEIVABLES> 4,261,000
<ALLOWANCES> (401,000)
<INVENTORY> 980,000
<CURRENT-ASSETS> 10,529,000
<PP&E> 3,045,000
<DEPRECIATION> (2,078,000)
<TOTAL-ASSETS> 11,545,000
<CURRENT-LIABILITIES> 2,979,000
<BONDS> 0
0
0
<COMMON> 21,428,000
<OTHER-SE> (12,862,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,545,000
<SALES> 17,627,000
<TOTAL-REVENUES> 17,627,000
<CGS> 11,034,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,250,000
<LOSS-PROVISION> (4,657,000)
<INTEREST-EXPENSE> 176,000
<INCOME-PRETAX> (4,481,000)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,490,000)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> 0.00
</TABLE>
