UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Quarter Ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from _____ to_________.
Commission file number: 0-26620
ACCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1490 O'Brien Drive
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(650) 328-3818
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
----- -----
As of May 5, 1998 6,675,164 shares of the Registrant's common stock, $0.001 par
value, were outstanding.
<PAGE>
ACCOM, INC.
FORM 10-Q For the Quarter Ended March 31, 1998
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
a) Item 1. Condensed consolidated interim balance sheets at March
31, 1998 and September 30, 1997 3
b) Condensed consolidated interim statements of operations for
the three and six months ended March 31, 1998 and March 29,
1997 4
c) Condensed consolidated interim statements of cash flows for
the six months ended March 31, 1998 and March 29, 1997 5
d) Notes to condensed interim consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation 7
Part II. Other Information 15
Signature 16
Exhibit 27.1 17
Financial Data Schedule
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
As of
-------
March 31, September 30,
1998 1997
---- ----
(Unaudited) (Note)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,887 $ 5,317
Accounts receivable, net 2,716 3,239
Inventories 1,897 980
Income tax refunds receivable 243 621
Deferred tax assets 38 38
Prepaid expenses and other current assets 427 334
------------------ ------------------
Total current assets 10,208 10,529
Property and equipment, net 1,209 967
Other assets 49 49
------------------ ------------------
Total assets $11,466 $11,545
================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ - $ 24
Accounts payable 1,706 1,476
Accrued liabilities 1,489 1,338
Deferred revenue 104 141
------------------ ------------------
Total current liabilities and total liabilities 3,299 2,979
------------------ ------------------
Stockholders' equity:
Common stock, $0.001 par value; 20,233 shares authorized;
6,673 and 6,627 shares issued and outstanding on
March 31, 1998 and September 30, 1997, respectively 21,464 21,427
Accumulated deficit (13,297) (12,861)
------------------ ------------------
Total stockholders' equity 8,167 8,566
------------------ ------------------
Total liabilities and stockholders' equity $11,466 $11,545
================== ==================
<FN>
Note: The condensed consolidated balance sheet at September 30, 1997 has been derived from the audited annual
consolidated balance sheet at that date but does not include all of the information and footnotes required
by generally accepted accounting principles for a complete consolidated balance sheet.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three months ended Six months ended
------------------ ----------------
March 31, March 29, March 31, March 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $3,073 $4,234 $7,206 $8,450
Cost of sales 1,363 2,193 3,109 6,869
---------------------------------------------------------------------------
Gross margin 1,710 2,041 4,097 1,581
---------------------------------------------------------------------------
Operating expenses:
Research and development 835 839 1,619 1,637
Marketing and sales 1,180 1,175 2,394 3,441
General and administrative 306 334 605 1,330
---------------------------------------------------------------------------
Total operating expenses 2,321 2,348 4,618 6,408
---------------------------------------------------------------------------
Operating loss (611) (307) (521) (4,827)
Interest and other income, net 40 49 93 72
---------------------------------------------------------------------------
Loss before provision for income (571) (258) (428) (4,755)
taxes
Provision for income taxes 5 - 6 -
---------------------------------------------------------------------------
Net loss $ (576) $ (258) $ (434) ($4,755)
===========================================================================
Net loss per share - basic and diluted $(0.09) $(0.04) ($0.07) ($0.72)
===========================================================================
Shares used in computation of net loss
per share - basic and diluted 6,669 6,579 6,651 6,570
===========================================================================
<FN>
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
---------------------------
March 31, March 29,
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (434) $(4,755)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 263 330
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
reserves to streamline operations
Accounts receivable 523 1,127
Inventories (917) 1,296
Income tax refunds receivable 378 -
Prepaid expenses and other current assets (93) 40
Accounts payable 230 (1,165)
Accrued liabilities and customer deposits 149 (124)
Deferred revenue (37) (345)
------------------ ------------------
Net cash provided in operating activities 62 399
------------------ ------------------
Cash flows from investing activities:
Expenditures for property and equipment (505) (161)
Other assets - (7)
------------------ ------------------
Net cash used in investing activities (505) (168)
------------------ ------------------
Cash flows from financing activities:
Repayments on notes payable (24) (29)
Issuance of common stock 37 60
------------------ ------------------
Net cash provided by financing activities 13 31
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (430) 262
Cash and cash equivalents at beginning of period 5,317 4,221
------------------ ------------------
Cash and cash equivalents at end of period $ 4,887 $ 4,483
================== ==================
<FN>
The accompanying notes are an integral part of these condensed consolidated interim financial statements
</FN>
</TABLE>
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Preparation
The condensed consolidated interim balance sheet as of March 31, 1998,
and the condensed consolidated interim statements of operations and cash flows
for the three and six-month periods ended March 31, 1998 and March 29, 1997 have
been prepared by the Company and are unaudited. In the opinion of management,
all adjustments (consisting of normal accruals) necessary to present fairly the
financial position as of March 31, 1998 and the results of operations and cash
for the three and six-month periods ended March 31, 1998 and March 29, 1997, and
have been made.
These condensed consolidated interim financial statements should be
reviewed in conjunction with the audited consolidated annual financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997. The results of operations for
the three and six-month periods ended March 31, 1998, are not necessarily
indicative of the operating results for any future period.
Note 2. Inventories
Inventories consist of the following (in thousands):
March 31, September 30,
1998 1997
---- ----
Purchased parts and materials $ 231 $ 225
Work-in-process 602 204
Finished goods 205 182
Demonstration inventory 859 369
--------------------------------------------------
$1,897 $ 980
==================================================
Note 3. Bank Information
The Company has a revolving line of credit with Comerica Bank that
allows for borrowings of up to $4.0 million, subject to the level of accounts
receivable. As of March 31, 1998, the Company had availability of $2.5 million
under the line with no borrowings outstanding. Indebtedness under the line of
credit accrues interest at the bank'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.
Note 4. New Accounting Guidelines
In fiscal 1999, the Company will be required to adopt newly issued
accounting guidelines addressing the reporting of comprehensive income. The
adoption is expected to have no significant impact on the Company's net income
or shareholders' equity. The guidelines require any unrealized gains and losses
on available-for-sale securities or foreign currency translation adjustments to
be included in other comprehensive income. Prior to adoption of the new
guidelines, such items are reported as a separate component of stockholders'
equity.
Also in fiscal 1999, the Company will be required to adopt newly issued
accounting guidelines addressing disclosures about segment and related
information. As the Company operates in one segment, the adoption of the new
guidelines is not expected to have a significant impact on the Company's results
of operations, financial position, or disclosure of segment information.
-6-
<PAGE>
Item 2. 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
in its Annual Report on Form 10-K for the fiscal year ended September 30, 1997.
Additionally, the following Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the discussion following under "Additional Factors That May Affect Future
Results" and with "Item 1. Business - Additional Factors That May Affect Future
Results" included in its Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 and incorporated by reference in its entirety into this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
Accom designs, manufactures, sells, and supports a complete line of
digital video signal processing, editing, and disk recording tools, and its
ELSET virtual set systems, primarily for the professional worldwide video and
computer graphics production, post production and distribution marketplaces.
The following table summarizes the Company's products and the primary
marketplaces they address.
- --------------------------------------------------------------------------------
Primary Marketplaces / Products
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 Editor:
Axial(R) 3000
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
- --------------------------------------------------------------------------------
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.
The Company's gross margin has historically fluctuated from quarter to
quarter. If the Company resells a Silicon Graphics, Inc. ("SGI") workstation as
part of the ELSET Virtual Set, gross margins will decline. Additionally, gross
margins will be dependent on the mix of higher and lower-priced products having
various gross margin percentages 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.
-7-
<PAGE>
Results of Operations
Three Months Ended March 31, 1998 and March 29, 1997
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended March 31, 1998 and
March 29, 1997 as reported (dollar amounts in thousands, except per share data).
<CAPTION>
Three Months Ended
------------------ Increase (Decrease)
March 31, March 29, --------------------
1998 1997 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Net sales $ 3,073 $ 4,234 $ (1,161) (27.4)%
Cost of sales 1,363 2,193 (830) (37.8)%
------------- ------------ ------------- ------------
Gross margin 1,710 2,041 (331) (16.2)%
Operating expenses:
Research and development 835 839 (4) (0.5)%
Marketing and sales 1,180 1,175 5 0.4 %
General and administrative 306 334 (28) (8.4)%
------------- ------------ ------------- ------------
Total operating expenses 2,321 2,348 (27) (1.1)%
------------- ------------ ------------- ------------
Operating loss (611) (307) (304) (99.0)%
Interest and other income, net 40 49 (9) (18.4)%
------------- ------------ ------------- ------------
Loss before provision for income taxes (571) (258) (313) (121.3)%
Provision for income taxes 5 - 5 -
Net loss $ (576) $ (258) (318) (123.3)%
============= ============ ============= ============
Net loss per share - basic and diluted $(0.09) $ (0.04) $ (0.05) 125.0%
============= ============ ============= ============
</TABLE>
The following table presents the Company's fiscal Condensed
Consolidated Interim Statements of Operations for the three months ended March
31, 1998 and March 29, 1997 as a percentage of net sales, as reported.
Three Months Ended
------------------
March 31, March 29, Increase
1998 1997 (Decrease)
---- ---- ----------
Net sales 100.0 % 100.0 % 0.0 %
Cost of sales 44.4 % 51.8 % (7.4)%
---------------------------------
Gross margin 55.6 % 48.2 % 7.4 %
Operating expenses:
Research and development 27.2 % 19.8 % 7.4 %
Marketing and sales 38.4 % 27.8 % 10.6 %
General and administrative 10.0 % 7.9 % 2.1 %
---------------------------------
Total operating expenses 75.5 % 55.5 % 20.0 %
---------------------------------
Operating loss (19.9)% (7.3)% (12.6)%
Interest and other income, net 1.3 % 1.2 % 0.1 %
---------------------------------
Loss before provision for income taxes (18.6)% (6.1)% (12.5)%
Provision for income taxes 0.2 % - 0.2 %
---------------------------------
Net loss (18.7)% (6.1)% (12.6)%
=================================
The following discussion of results of operations for the three months
ended March 31, 1998 and March 29, 1997 is based upon reported results.
Net sales. The decrease in net sales during the second quarter of
fiscal 1998 from fiscal 1997 levels was primarily due to decreased sales in the
post production marketplace. International sales for the second quarter of
fiscal 1998 and 1997 represented 50.5% and 48.1% of net sales, respectively.
-8-
<PAGE>
<TABLE>
The following table presents net sales dollar volume for the three
months ended March 31, 1998 and March 29, 1997 by market and related percentages
of total net sales (dollar amounts in thousands).
<CAPTION>
Three Months Ended
--------------------------------------------------------------
March 31, 1998 March 29, 1997
-------------- --------------
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Production $1,838 59.8% $1,786 42.2%
Post Production 935 30.5% 2,017 47.6%
Broadcasting 69 2.2% 230 5.4%
Other 231 7.5% 201 4.8%
----------------------------- -----------------------------
$3,073 100.0% $4,234 100.0%
============================= =============================
</TABLE>
Cost of sales. Gross margin percentage for the second quarter of fiscal
1998 increased over levels in the second quarter of fiscal 1997 primarily due to
increased margins on disk-based products and due to a greater portion of higher
margin ELSET software sales included in the sales mix.
Research and development. Research and development expenses for the
second quarter of fiscal 1998 were essentially comparable to levels for the same
period in fiscal 1997.
Marketing and sales. Marketing and sales expenses for the second
quarter of fiscal 1998 were essentially comparable to levels for the same period
in fiscal 1997.
General and administrative. The decrease in general and administrative
expenses in the second quarter of fiscal 1998 from levels for the same period in
fiscal 1997 was primarily due to decreases in headcount.
Interest and other income, net. The decrease in net interest and other
income during the second quarter of fiscal 1998, was primarily due to a decrease
in other income partially offset by an increase in net interest resulting from
increased average interest bearing cash and cash equivalent balances.
Provision for from income taxes. In the second quarter of fiscal 1998
and 1997, the Company was in a net operating loss carryforward position.
-9-
<PAGE>
Six Months Ended March 31, 1998 and March 29, 1997
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the six months ended March 31, 1998 and
March 29, 1997 as reported and as normalized to remove the effects of special
charges incurred during the first three months of fiscal 1997 (dollar amounts in
thousands, except per share data).
<CAPTION>
Six Months Ended
---------------- Increase (Decrease)
March 31, March 29, --------------------
1998 1997 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Net sales
Reported $ 7,206 $ 8,450 $(1,244) (14.7)%
Normalized 7,206 8,450 (1,244) (14.7)%
Cost of sales
Reported 3,109 6,869 (3,760) (54.7)%
Normalized 3,109 4,369 (1,260) (28.8)%
------------- ------------ ------------- ------------
Gross margin
Reported 4,097 1,581 2,516 159.1 %
Normalized 4,097 4,081 16 0.4 %
------------- ------------ ------------- ------------
Operating expenses:
Research and development
Reported 1,619 1,637 (18) (1.1)
Normalized 1,619 1,637 (18) (1.1)
Marketing and sales
Reported 2,394 3,441 (1,047) (30.4)%
Normalized 2,394 2,596 (202) (7.8)%
General and administrative
Reported 605 1,330 (725) (54.5)%
Normalized 605 680 (75) (11.0)%
------------- ------------ ------------- ------------
Total operating expenses
Reported 4,618 6,408 (1,790) (27.9)%
Normalized 4,618 4,913 (295) (6.0)%
------------- ------------ ------------- ------------
Operating loss
Reported (521) (4,827) 4,306 89.2 %
Normalized (521) (832) 311 37.4 %
Interest and other income, net
Reported 93 72 21 29.2 %
Normalized 93 72 21 29.2 %
------------- ------------ ------------- ------------
Loss before provision for income taxes
Reported (428) (4,755) 4,327 91.0 %
Normalized (428) (760) 332 43.7 %
Provision for income taxes
Reported 6 - 6 -
Normalized 6 - 6 -
------------- ------------ ------------- ------------
Net loss
Reported $ (434) $(4,755) $ 4,321 90.9 %
Normalized (434) (760) 326 42.9 %
============= ============ ============= ============
Net loss per share
Reported:
Basic $(0.07) $ (0.72) $ 0.65 90.3 %
============= ============ ============= ============
Diluted $(0.07) $ (0.72) $ 0.65 90.3 %
============= ============ ============= ============
Normalized:
Basic $(0.07) $ (0.12) $ 0.05 41.7 %
============= ============ ============= ============
Diluted $(0.07) $ (0.12) $ 0.05 41.7 %
============= ============ ============= ============
<FN>
Note: Special charges for the first quarter of fiscal 1997 ended December 31, 1996 represent $4.0 million
pretax to streamline operations and provide valuation reserves against inventories, receivables and fixed assets.
The charges were taken to reflect historic changes in existing product support as well as anticipated changes due
to future product development.
</FN>
</TABLE>
-10-
<PAGE>
The following table presents the Company's fiscal Condensed
Consolidated Interim Statements of Operations for the first six months of fiscal
1998 and 1997 as a percentage of net sales, as reported and as normalized to
remove the effects of special charges and credits incurred during the first
quarter of fiscal 1997.
Six Months Ended
----------------
March 31, March 29, Increase
1998 1997 (Decrease)
---- ---- ----------
Net sales
Reported 100.0 % 100.0 % 0.0 %
Normalized 100.0 % 100.0 % 0.0 %
Cost of sales
Reported 43.1 % 81.3 % (38.2)%
Normalized 43.1 % 51.7 % (8.6)%
--------------------------------
Gross margin
Reported 56.9 % 18.7 % 38.2 %
Normalized 56.9 % 48.3 % 8.6 %
--------------------------------
Operating expenses:
Research and development
Reported 22.5 % 19.4 % 3.1 %
Normalized 22.5 % 19.4 % 3.1 %
Marketing and sales
Reported 33.2 % 40.7 % (7.5)%
Normalized 33.2 % 30.7 % 2.5 %
General and administrative
Reported 8.4 % 15.7 % (7.3)%
Normalized 8.4 % 8.0 % 0.4 %
--------------------------------
Total operating expenses
Reported 64.1 % 75.8 % (11.7)%
Normalized 64.1 % 58.1 % 6.0 %
--------------------------------
Operating loss
Reported (7.2)% (57.1)% 49.9 %
Normalized (7.2)% (9.9)% 2.7 %
Interest and other income, net
Reported 1.3 % 0.9 % 0.4 %
Normalized 1.3 % 0.9 % 0.4 %
--------------------------------
Loss before provision for income taxes
Reported (5.9)% (56.3)% 50.4 %
Normalized (5.9)% (9.0)% 3.1
Provision for income taxes
Reported 0.1 % - % 0.1 %
Normalized 0.1 % - % 0.1 %
--------------------------------
Net loss
Reported (6.0)% (56.3)% 50.3 %
Normalized (6.0)% (9.0)% 3.0 %
================================
Note: Special charges for the first quarter of fiscal 1997 ended
December 31, 1996 represent $4.0 million pretax to streamline operations and
provide valuation reserves against inventories, receivables and fixed assets.
The charges were taken to reflect historic changes in existing product support
as well as anticipated changes due to future product development.
-11-
<PAGE>
The following discussion of results of operations for the six months
ended March 31, 1998 and March 29, 1997 is based upon normalized results,
without inclusion of the above noted special charges and credits incurred during
the first quarter of fiscal 1997, which ended December 28, 1996.
Net sales. The decrease in net sales during the first six months of
fiscal 1998 from levels for the same period in fiscal 1997 was primarily due to
decreased sales in the video post production marketplace. That decrease was
partially offset by increased sales in the computer graphics production and post
production marketplaces. International sales for the first six months of fiscal
1998 and 1997 represented 49.4% and 46.9% of net sales, respectively.
<TABLE>
The following table presents net sales dollar volume for the six months
ended March 31, 1998 and March 29, 1997 by market and related percentages of
total net sales (dollar amounts in thousands).
<CAPTION>
Six Months Ended
--------------------------------------------------------------
March 31, 1998 March 29, 1997
-------------- --------------
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Production $4,227 58.7% $3,192 37.8%
Post Production 1,975 27.4% 4,331 51.3%
Broadcasting 699 9.7% 680 8.0%
Other 305 4.2% 247 2.9%
----------------------------- -----------------------------
$7,206 100.0% $8,450 100.0%
============================= =============================
</TABLE>
Cost of sales. Normalized gross margin percentage for the first six
months of fiscal 1998 increased over levels for the same period in fiscal 1997
primarily due to a greater portion of higher margin ELSET software sales
included in the sales mix and increased margins on disk-based products.
Research and development. The decrease in normalized research and
development expenses in the first six months of fiscal 1998 from the same period
in fiscal 1997 was primarily a result of decreases in salary expenses.
Marketing and sales. The decrease in normalized marketing and sales
expenses in the first six months of fiscal 1998 from the same period in fiscal
1997 is primarily due to decreases in headcount, demonstration equipment
refurbishment costs, and commission expenses partially offset by increased trade
show expenses and increased expenses relating to the marketing of virtual sets.
General and administrative. The decrease in normalized general and
administrative expenses in the first six months of fiscal 1998 from levels for
the same period in fiscal 1997 was primarily due to decreased headcount and
overhead costs.
Interest and other income, net. The increase in net interest and other
income during the first six months of fiscal 1998, was primarily due to
increased average interest bearing cash and cash equivalent balances.
Provision for from income taxes. In the first six months of fiscal 1998
and 1997, the Company was in a net operating loss carryforward position.
-12-
<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 As of March 31, 1998, the
Company had $4.9 million of cash and cash equivalents.
Operating activities provided $62,000 in net cash during the first six
months of fiscal 1998 and $399,000 in net cash during the first six months of
fiscal 1997. Net cash provided by operations in the first six months of fiscal
1998 was due primarily to decreases in accounts receivable and income tax
refunds receivable and increases in accounts payable and accrued liabilities,
partially offset by the net loss and an increase in inventories. This was fully
offset by net cash used in financing activities for the acquisition of property
and equipment. Net cash provided by operations in the first six months of fiscal
1997 was due primarily to decreases in accounts receivable and inventories,
partially offset the net loss and by decreases in accounts payable, accrued
liabilities, and deferred revenue. This was partially offset by net cash used in
financing activities for the acquisition of property and equipment
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 March 31, 1998, approximately $2.5 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.
Based on current revenue levels, 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.
New Accounting Guidelines
In fiscal 1999, the Company will be required to adopt newly issued
accounting guidelines addressing the reporting of comprehensive income. The
adoption is expected to have no significant impact on the Company's net income
or shareholders' equity. The guidelines require any unrealized gains and losses
on available-for-sale securities or foreign currency translation adjustments to
be included in other comprehensive income. Prior to adoption of the new
guidelines, such items are reported as a separate component of stockholders'
equity.
Also in fiscal 1999, the Company will be required to adopt newly issued
accounting guidelines addressing disclosures about segment and related
information. As the Company operates in one segment, the adoption of the new
guidelines is not expected to have a significant impact on the Company's results
of operations, financial position, or disclosure of segment information.
Additional Factors That May Affect Future Results
Accom 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 certain 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. A detailed discussion of risk factors related to Accom's
business is set forth in its Annual Report on Form 10-K for the year ended
September 30, 1997 under the heading "Additional Factors That May Affect Future
Results."
In addition to the factors discussed in the 10-K report, the following factors
may also affect future results:
Recent Reduction in Sales. In the second quarter of fiscal 1998, ended
March 31, 1998, the Company's overall revenues declined by 27% from the same
period from the 1997 fiscal year. The Company believes that this
-13-
<PAGE>
decline resulted from a decision by more than the usual number of customers in
the distribution / broadcast marketplace to delay purchases until after the
second quarter. In addition, in the Company's production marketplace, it
appeared customers took longer than anticipated to evaluate the Company's ELSET
virtual set product. There can be no assurance that these customers will
eventually purchase the Company's products or that the Company's sales in the
distribution / broadcast and production marketplaces will improve.
Effects of Economic Conditions in Asia. In the first half of fiscal
1998, the recent economic instability in certain Asian countries contributed to
lower revenue results, particularly for the Company's core (non-ELSET) products.
Due to the continuing economic conditions in Asia, the Company believes that
lower revenues from Asia are likely to continue for the foreseeable future,
which could adversely affect the Company's business, financial condition, and
operating results.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Not Applicable.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On February 17, 1998, the Company held its annual meeting of stockholders. At
such meeting, the Company's stockholders approved the following items by the
following votes:
1. The Election of the following directors of the Company:
Nominee For Withheld
------- --- --------
Junaid Sheikh 4,983,925 1,049,495
Lionel M. Allan 4,983,925 1,049,495
Thomas E. Fanella 4,983,925 1,049,495
David A. Lahar 4,983,925 1,049,495
2. The ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending September 30, 1998.
For 6,029,278 Against 4,000 Abstain 142
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCOM, INC.
By: /s/ Cal R. Hoagland
--------------------
Vice President, Finance and Chief Financial Officer
Principal Financial And Accounting Officer
Date: May 15, 1998
-16-
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