UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal Quarter Ended June 30, 2000
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 No X
--- ---
As of August 4, 2000, 10,195,673 shares of the Registrant's common stock, $0.001
par value, were outstanding.
<PAGE>
ACCOM, INC.
FORM 10-Q For the Quarter Ended June 30, 2000
<TABLE>
<CAPTION>
INDEX
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information (unaudited)
Item 1. a) Condensed consolidated interim balance sheets at June 30,
2000 and December 31, 1999 3
b) Condensed consolidated interim statements of operations
for the three and six month periods ended June 30, 2000
and June 30, 1999 4
c) Condensed consolidated interim statements of cash flows for
the six month periods ended June 30, 2000 and June 30, 1999 5
d) Notes to condensed consolidated interim financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risks 15
Part II. Other Information 16
Item 1 Legal Proceedings 16
Item 2 Changes in Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signature 18
</TABLE>
-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
--------------------
June 30, December 31,
2000 1999
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ -- $ 328
Accounts receivable, net 4,690 1,616
Inventories 3,243 5,112
Other current assets 629 580
-------- --------
Total current assets 8,562 7,636
Property and equipment, net 2,382 2,343
Intangibles, net 1,785 1,986
Restricted cash 1,584 --
Other assets 51 70
-------- --------
Total assets $ 14,364 $ 12,035
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank borrowings - line of credit $ 55 $ 559
Bank borrowings - in transit (cash overdraft) 513 --
Current portion of notes payable 708 1,315
Accounts payable 2,291 2,560
Accrued liabilities 2,488 2,037
Customer deposits 893 965
-------- --------
Total current liabilities 6,948 7,436
Long-term portion of notes payable 3,290 3,261
Stockholders' equity:
Common stock, $0.001 par value; 40,000 shares authorized; 10,196 and 10,133
shares issued and outstanding on
June 30, 2000 and December 31, 1999, respectively 24,251 24,201
Notes receivable from stockholders (500) (630)
Accumulated deficit (19,625) (22,233)
-------- --------
Total stockholders' equity 4,126 1,338
-------- --------
Total liabilities and stockholders' equity $ 14,364 $ 12,035
======== ========
<FN>
Note: The condensed consolidated balance sheet at December 31, 1999, 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
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 8,072 $ 8,348 $ 16,475 $ 17,886
Cost of sales 3,732 3,870 7,519 7,929
--------------------------------------------
Gross profit 4,340 4,478 8,956 9,957
--------------------------------------------
Operating expenses:
Research and development 1,482 1,836 3,278 3,781
Marketing and sales 2,100 2,339 4,336 4,439
General and administrative 856 840 1,509 1,647
--------------------------------------------
Total operating expenses 4,438 5,015 9,123 9,867
--------------------------------------------
Operating income (loss) (98) (537) (167) 90
Interest and other income
(expenses), net (11) (62) (52) (173)
Sale of ELSET product line -- -- 2,888 --
--------------------------------------------
Income before (provision for) benefit from
income taxes (109) (599) 2,669 (83)
(Provision for) benefit from income taxes 11 -- (43) (2)
--------------------------------------------
Net income (loss) $ (98) $ (599) $ 2,626 $ (85)
============================================
Net income (loss) per share - basic $ (0.01) $ (0.06) $ 0.26 $ (0.01)
============================================
Net income (loss) per share - diluted $ (0.01) $ (0.06) $ 0.24 $ (0.01)
============================================
Shares used in computation of net
income (loss) per share - basic 10,190 10,123 10,163 10,123
============================================
Shares used in computation of net
income (loss) per share - diluted 10,190 10,123 11,589 10,123
============================================
<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
June 30,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,626 $ (85)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 474 821
Gain on sale of ELSET product line (2,888) --
Changes in operating assets and liabilities, net of the effect of the sale
of the ELSET product line:
Accounts receivable (3,074) (562)
Inventories 1,869 1,756
Other current assets (49) (559)
Other assets 19 (3)
Accounts payable (269) 297
Accrued liabilities (262) (606)
Customer deposits (72) (388)
------- -------
Net cash provided by (used in) operating activities (1,626) 671
------- -------
Cash flows from investing activities:
Expenditures for property and equipment (127) (256)
Proceeds from disposal of property and equipment, net of the effect of the sale
of the ELSET product line 15 347
Increase in customer service inventories (305) --
------- -------
Net cash provided by (used in) investing activities (417) 91
------- -------
Cash flows from financing activities:
Borrowings and payments on line of credit, net (504) (3,916)
Bank borrowings in transit (cash overdraft) 513 --
Repayment of notes payable (607) (300)
Proceeds from long-term notes 29 3,299
Issuance of common stock 50 --
Restricted cash (1,584) 1,132
Repayment of notes receivable from stockholders 130 --
Net proceeds from sale of ELSET product line 3,688 --
------- -------
Net cash provided by financing activities 1,715 215
------- -------
Net increase (decrease) in cash and cash equivalents (328) 977
Cash and cash equivalents at beginning of period 328 --
------- -------
Cash and cash equivalents at end of period $ -- $ 977
======= =======
<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 June 30, 2000,
the condensed consolidated interim statements of operations for the three and
six month periods ended June 30, 2000 and June 30, 1999, and the condensed
consolidated interim statements of cash flows for the six month periods ended
June 30, 2000 and June 30, 1999, 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 June 30, 2000
and the results of operations and cash flows for all periods presented 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 year ended December 31, 1999. The results of operations for the
three and six month periods ended June 30, 2000, are not necessarily indicative
of the operating results for any future period.
Note 2. Revenue Recognition
Revenue from sales of products is recognized when persuasive evidence
of an arrangement exists including a fixed price to the buyer, delivery has
occurred and collectibility is reasonably assured. In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. The Company is required to adopt SAB 101 in the fourth quarter of
fiscal 2000. The Company believes that the adoption of this statement will not
have a material impact on its financial statements.
Note 3. Comprehensive Income
Comprehensive income is equal to net income for the three and six month
periods ended June 30, 2000 and 1999.
Note 4. Inventories
Inventories consist of the following (in thousands):
June 30, December 31,
2000 1999
------ ------
Purchased parts and materials $ 830 $1,656
Work-in-process 1,228 1,634
Finished goods 65 369
Demonstration inventory 1,120 1,453
------ ------
$3,243 $5,112
====== ======
Note 5. Debt
The Company has a revolving line of credit ("line") with The Provident
Bank ("Provident") that allows for borrowings subject to the level of eligible
accounts receivable. Borrowings are limited to a maximum of $1.5 million as a
result of the Company's failure to meet certain financial covenants as of April
30, 2000. On August 11, 2000, Provident and the Company agreed to amend the
original
-6-
<PAGE>
agreement which established the line of credit. The amendment provides for the
following changes to the terms of the line of credit: (a) the interest rate
charged on borrowings under the line is equal to Provident's prime rate plus 225
basis points, an increase of 100 points from the original rate; (b) the maturity
date of all borrowings under the line is changed from March 1, 2003 to June 30,
2001; and (c) certain financial covenants are amended retroactive to April 30,
2000. With the change in covenants, the Company is in compliance with the
covenants as of June 30, 2000.
As of June 30, 2000, the Company had availability of $1.4 million under
the line; the balance outstanding was $55,000. In addition, as of that same
date, the Company had increased borrowings from Provident under the terms of the
line in the amount of $513,000 to cover outstanding checks. Provident
transferred the requested funds to the Company on the first business day in
July. Borrowings under the line are secured by all the assets of the Company.
Borrowings under the line are subject to compliance with certain financial
covenants.
On March 12, 1999, the Company completed a private placement of $3.5
million in senior subordinated convertible notes with a group of investors led
by the American Bankers' Insurance Group, Inc. ("ABIG"). The notes currently
have a coupon rate of 8% per year, mature in the year 2004, and are convertible,
at any time, into shares of Accom common stock at a price of $1.30 per share.
The proceeds from these notes were used to repay the balance then outstanding on
a line of credit with LaSalle Business Credit, Inc. that was in place at the
time the proceeds were received.
The agreement between the Company and ABIG specifies that the Company
meet certain financial covenants. ABIG has the right to declare the notes
immediately due if the covenants are not met. As of June 30, 2000, the Company
was not in compliance with the covenants. On July 19, 2000, ABIG issued a waiver
for non-compliance as of June 30, 2000. In addition, on November 3, 1999, and
February 10, 2000, ABIG amended and issued certain waivers to the original
agreement and on April 18, 2000, granted a waiver for non-compliance.
In conjunction with the sale of convertible notes, the Company and the
investors entered into an Investors Rights Agreement. The Investors Right
Agreement grants the investors, among other things, certain rights with respect
to the common stock of the Company issuable upon conversion of the notes.
The Company has a subordinated promissory note of $750,000 issued to
Scitex Digital Video, Inc. ("SDV") as partial consideration for the purchase of
certain assets and liabilities and the business of SDV in December 1998. Payment
of the note was due in April 2000. Principal was to be paid together with
interest in arrears on the unpaid principal balance at a variable rate equal to
the Merrill Lynch Money Market Rate. In April 2000, the Company paid SDV $89,000
as settlement of the note. The remaining balance due, approximately $710,000,
was retained by the Company for settlement of indemnification claims relating to
the purchase of SDV which were identified in the period following the
acquisition. The remaining funds are held in a bank account controlled by the
Company. SDV is evaluating the Company's claims.
A second note in the amount of $1,315,000 was issued to Scitex Digital
Video, Inc. as partial consideration for the purchase of certain assets and
liabilities and the business of SDV in December 1998. During the quarter ended
March 31, 2000, the Company paid off this note by issuing payments to SDV of
$587,000, consisting of $565,000 in payments of principal and $21,000 in
payments of interest.
-7-
<PAGE>
Note 6. Net Income Per Share
<TABLE>
The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except for per share amounts):
<CAPTION>
For the Three Months For The Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator
Numerator for basic net income (loss) per share-net income (loss) $ (98) $ (599) $ 2,626 $ (85)
Effect of dilutive securities:
8% convertible notes -- -- 165 --
-------- -------- -------- --------
Numerator for diluted net income (loss) per share-income available to
stockholders after assumed conversions $ (98) $ (599) $ 2,791 $ (85)
Denominator
Denominator for basic net income (loss) per share-weighted average shares 10,190 10,123 10,163 10,123
Effect of dilutive securities:
Employee stock options -- -- 867 --
Warrants -- -- 91 --
8% convertible notes -- -- 468 --
-------- -------- -------- --------
Denominator for diluted net income (loss) per share-weighted average
shares and assumed conversions 10,190 10,123 11,589 10,123
Basic net income (loss) per share $ (0.01) (0.06) $ 0.26 $ (0.01)
======== ======== ======== ========
Diluted net income (loss) per share $ (0.01) $ (0.06) $ 0.24 $ (0.01)
======== ======== ======== ========
</TABLE>
Note 7. Segment Information
Management has organized the business into three market sub-segments
under one industry segment which includes activities relating to development,
manufacturing and marketing of digital video equipment. The chief operating
decision maker relies primarily on revenue to assess market segment performance.
The following table presents revenue by market (in thousands):
For the Three Months For the Six Months
Ended Ended
June 30, June 30,
Market 2000 1999 2000 1999
------- ------- ------- ------- -------
Post-Production $ 4,308 $ 5,009 $ 9,024 $11,612
Distribution 2,791 2,316 5,404 4,203
Other 973 1,023 2,047 2,071
------- ------- ------- -------
$ 8,072 $ 8,348 $16,475 $17,886
======= ======= ======= =======
Substantially all of the Company's assets are in the United States. All sales to
external customers are accepted and approved in the United States.
-8-
<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 December 31, 1999 and 1998 and
September 30, 1998 and 1997 and for the twelve months ended December 31, 1999
and 1998, the three months ended December 31, 1999 and 1998 and the fiscal years
ended September 30, 1998 and 1997 included in its Annual Report on Form 10-K for
the year ended December 31, 1999.
Additionally, the following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward-looking
statements. 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 factors set forth in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
under the sections in Item 1 entitled "Manufacturing and Suppliers,"
"Competition," "Proprietary Rights and Licenses" and "Additional Factors That
May Affect Future Results," as well as other factors, could affect future
results and have affected the Company's actual results in the past 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-Q report.
Forward-looking statements can be identified by forward-looking words such as
"may," "will," "expect," "anticipate," "believe," "estimate," and "continue" or
similar words.
Overview
Accom designs, manufactures, sells, and supports a complete line of
digital video signal processing, editing, and disk recording tools, primarily
for the worldwide professional video post- production, live broadcasting and
computer video 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.
<TABLE>
The following table summarizes the Company's products and the primary
marketplaces they address:
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
MARKETS / Product Primary Applications
-----------------------------------------------------------------------------------------------------------------
<S> <C>
POST-PRODUCTION:
-----------------------------------------------------------------------------------------------------------------
Digital Signal Processors
-----------------------------------------------------------------------------------------------------------------
8150 Digital Digital switcher for on-line post-production editing
Switcher for commercials and long form television programs
-----------------------------------------------------------------------------------------------------------------
Digital Editors
-----------------------------------------------------------------------------------------------------------------
Axial(R)3000 Edit controller for on-line post-production editing
for commercials and long form television programs
-----------------------------------------------------------------------------------------------------------------
Sphere(TM) Integrated non-linear editing workstation for long
and short form programs and commercials using
compressed video
-----------------------------------------------------------------------------------------------------------------
AFFINITY(TM) Integrated non-linear workstation for long and short
form programs and commercials using multiple streams
of uncompressed video
-----------------------------------------------------------------------------------------------------------------
Video Digital Disk Recorders
-----------------------------------------------------------------------------------------------------------------
APR(TM)/Attache On-line post-production editing and effects and
on-air playback of graphics for broadcast
-----------------------------------------------------------------------------------------------------------------
WSD(R)2Xtreme Desktop computer graphics and animation production
-----------------------------------------------------------------------------------------------------------------
DISTRIBUTION:
-----------------------------------------------------------------------------------------------------------------
Digital Signal Processors
-----------------------------------------------------------------------------------------------------------------
Dveous(TM)and Brutus Digital Video Effects systems for news and sports
-----------------------------------------------------------------------------------------------------------------
Axess(TM) Creation and broadcast distribution of news graphics
and short video segments
-----------------------------------------------------------------------------------------------------------------
Abekas(R)6000 Multi-user digital video server for broadcast
applications
-----------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
\
The Company's revenues are currently derived primarily from product
sales.
The Company's gross margin has historically fluctuated from quarter to
quarter. Gross margins are 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.
Results of Operations
Three Months Ended June 30, 2000 and June 30, 1999
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended June 30, 2000 and
1999 as reported (dollar amounts in thousands, except per share data):
<CAPTION>
Three Months Ended
-----------------
June 30, Increase (Decrease)
2000 1999 Amount Percent
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net sales $ 8,072 $ 8,348 $ (276) (3.3)%
Cost of sales 3,732 3,870 (138) (3.6)%
------- ------- ------- ------
Gross profit 4,340 4,478 (138) (3.1)%
Operating expenses:
Research and development 1,482 1,836 (354) (19.3)%
Marketing and sales 2,100 2,339 (239) (10.2)%
General and administrative 856 840 16 1.9%
------- ------- ------- ------
Total operating expenses 4,438 5,015 (577) (11.5)%
------- ------- ------- ------
Operating income (loss) (98) (537) 439 81.8%
Interest and other income (expenses), net (11) (62) 51 82.3%
------- ------- ------- ------
Income before (provision for) benefit from income taxes (109) (599) 490 81.8%
(Provision for) benefit from income taxes 11 -- 11 N/A
------- ------- ------- ------
Net income (loss) $ (98) $ (599) $ 501 83.6%
======= ======= ======= ======
</TABLE>
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended June 30, 2000 and
1999, as a percentage of net sales, as reported:
<CAPTION>
Three Months Ended
June 30, Increase
2000 1999 (Decrease)
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% --%
Cost of sales 46.2% 46.4% (0.2)%
----- ----- -----
Gross margin 53.8% 53.6% 0.2%
Operating expenses:
Research and development 18.4% 22.0% (3.6)%
Marketing and sales 26.0% 28.0% (2.0)%
General and administrative 10.6% 10.1% 0.5%
----- ----- -----
Total operating expenses 55.0% 60.1% (5.1)%
----- ----- -----
Operating income (loss) (1.2)% (6.5)% 5.3%
Interest and other income (expenses), net (0.1)% (0.7)% 0.6%
----- ----- -----
Income before (provision for) benefit from income taxes (1.3)% (7.2)% 5.9%
(Provision for) benefit from income taxes 0.1% --% 0.1%
----- ----- -----
Net income (loss) (1.2)% (7.2)% 6.0%
===== ===== =====
</TABLE>
Net sales. The decrease in net sales during the three months ended June
30, 2000, from levels for the same period in 1999 was primarily due to decreased
sales in the post-production marketplace. Sales to countries outside North
America for the three months ended June 30, 2000 and 1999, represented 40.2% and
31.9% of net sales, respectively.
-10-
<PAGE>
The following table presents net sales dollar volume for the three
months ended June 30, 2000 and 1999, by market and related percentages of total
net sales (dollar amounts in thousands):
Three Months Ended
June 30,
2000 1999
---- ----
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
Post-Production $4,308 53.4% $5,009 60.0%
Distribution 2,791 34.6% 2,316 27.7%
Other 973 12.0% 1,023 12.3%
------ ------ ------ ------
$8,072 100.0% $8,348 100.0%
====== ====== ====== ======
Cost of sales. Cost of sales, as a percentage of sales, was unchanged
for the three months ended June 30, 2000, from levels for the three months ended
June 30, 1999.
Research and development. Research and development expenses for the
three months ended June 30, 2000, decreased over levels for the same period in
1999 primarily due to the decrease in headcount which resulted from the sale of
the ELSET virtual set product line in January 2000, a decrease in consultant
expenses, and a reduction in project-related materials expenses.
Marketing and sales. Marketing and sales expenses for the three months
ended June 30, 2000, decreased over levels for the three months ended June 30,
1999, primarily due to decreases in headcount, commission expenses, and expenses
related to demonstration equipment.
General and administrative. General and administrative expenses
increased for the three months ended June 30, 2000, from levels for the same
period in 1999 primarily due to increases in legal and accounting expenses.
Interest and other income, net. Interest and other income, net, for the
three months ended June 30, 2000, increased over levels for the three months
ended June 30, 1999, due to an increase in interest income from interest-bearing
cash accounts and notes due from directors and officers and an increase in other
income.
Provision for income taxes. For the three months ended June 30, 2000,
the benefit from income taxes consists of tax expense calculated at an effective
rate lower than the statutory rate of 35% due to realization of net operating
loss carryforwards. For the three months ended June 30, 1999, the Company had an
effective rate of 0% reflecting the Company's net operating loss carryforward
position.
-11-
<PAGE>
Results of Operations
Six Months Ended June 30, 2000 and June 30, 1999
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the six months ended June 30, 2000 and 1999
as reported (dollar amounts in thousands, except per share data):
<CAPTION>
Six Months Ended
June 30, Increase (Decrease)
2000 1999 Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 16,475 $ 17,886 $ (1,411) (7.9)%
Cost of sales 7,519 7,929 (410) (5.2)%
-------- -------- -------- --------
Gross profit 8,956 9,957 (1,001) (10.1)%
Operating expenses:
Research and development 3,278 3,781 (503) (13.3)%
Marketing and sales 4,336 4,439 (103) (2.3)%
General and administrative 1,509 1,647 (138) (8.4)%
-------- -------- -------- --------
Total operating expenses 9,123 9,867 (744) (7.5)%
-------- -------- -------- --------
Operating income (loss) (167) 90 (257) (285.6)%
Interest and other income (expenses), net (52) (173) 121 69.9%
Sale of ELSET product line 2,888 -- 2,888 N/A
-------- -------- -------- ---------
Income before (provision for) benefit from income taxes 2,669 (83) 2,752 3,315.7%
(Provision for) benefit from income taxes (43) (2) (41) (2,050.0)%
-------- -------- -------- ---------
Net income (loss) $ 2,626 $ (85) $ 2,711 3,189.4%
======== ======== ======== =========
</TABLE>
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the six months ended June 30, 2000 and
1999, as a percentage of net sales, as reported:
<CAPTION>
Six Months Ended
June 30, Increase
2000 1999 (Decrease)
---- ---- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% -- %
Cost of sales 45.6% 44.3% 1.3%
------ ----- -----
Gross margin 54.4% 55.7% (1.3)%
Operating expenses:
Research and development 19.9% 21.2% (1.3)%
Marketing and sales 26.3% 24.8% 1.5%
General and administrative 9.2% 9.2% -- %
------ ----- -----
Total operating expenses 55.4% 55.2% 0.2%
------ ----- -----
Operating income (loss) (1.0)% 0.5% (1.5)%
Interest and other income (expenses), net (0.3)% (1.0)% 0.7%
Sale of ELSET product line 17.5% -- % 17.5%
------ ----- -----
Income before (provision for) benefit from income taxes 16.2% (0.5)% 16.7%
(Provision for) benefit from income taxes (0.3)% -- % (0.3)%
------ ----- -----
Net income (loss) 15.9% (0.5)% 16.4%
====== ===== =====
</TABLE>
Net sales. The decrease in net sales during the six months ended June
30, 2000, from levels for the same period in 1999 was primarily due to decreased
sales in the post-production marketplace. Sales to countries outside North
America for the six months ended June 30, 2000 and 1999, represented 35.8% and
33.2% of net sales, respectively.
-12-
<PAGE>
The following table presents net sales dollar volume for the six months
ended June 30, 2000 and 1999, by market and related percentages of total net
sales (dollar amounts in thousands):
Six Months Ended
June 30,
2000 1999
---- ----
Marketplace Amount Percent Amount Percent
Post-Production $ 9,024 54.8% $11,612 64.9%
Distribution 5,404 32.8% 4,203 23.5%
Other 2,047 12.4% 2,071 11.6%
------ ------ ------ ------
$16,475 100.0% $17,886 100.0%
====== ====== ====== ======
Cost of sales. Cost of sales, as a percentage of sales, increased for
the six months ended June 30, 2000, from levels for the six months ended June
30, 1999, as sales decreased while overall manufacturing expenses remained
unchanged.
Research and development. Research and development expenses for the six
months ended June 30, 2000, decreased over levels for the same period in 1999
primarily due to the decrease in headcount which resulted from the sale of the
ELSET virtual set product line in January 2000 and a decrease in consultant
expenses.
Marketing and sales. Marketing and sales expenses for the six months
ended June 30, 2000, decreased over levels for the six months ended June 30,
1999, primarily due to decreases in headcount and related benefits and in
expenses related to demonstration equipment.
General and administrative. General and administrative expenses for the
six months ended June 30, 2000, decreased from levels for the same period in
1999 primarily due to decreases in headcount, contract and temporary worker
expenses, amortization of intangibles and the provision for bad debt.
Interest and other income, net. Interest and other income, net, for the
six months ended June 30, 2000, increased over levels for the six months ended
June 30, 1999, due to an increase in interest income from interest-bearing cash
accounts and notes due from directors and officers and an increase in other
income.
Provision for income taxes. For the six months ended June 30, 2000, the
provision for income taxes consists of tax expense calculated at an effective
rate lower than the statutory rate of 35% due to realization of net operating
loss carryforwards. For the six months ended June 30, 1999, the Company had an
effective rate of 0% reflecting the Company's net operating loss carryforward
position.
-13-
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has financed its operations and
expenditures for property and equipment through cash generated in operations,
the sale of capital stock and convertible debt, borrowings under a bank line of
credit and term loans.
As of June 30, 2000, the Company had no cash and cash equivalents. As
of that same date, the Company had $513,000 of funds from its lender (see
discussion of Provident Bank line of credit below) which were transferred to the
Company's cash account on the first business day in July 2000.
Operating activities used $1.6 million in net cash in the six months
ended June 30, 2000 and provided $671,000 in net cash in the six months ended
June 30, 1999. Net cash used by operations in the six months ended June 30,
2000, was due primarily to an increase in accounts receivable. Additionally,
cash was provided by the sale of ELSET virtual set product line in January. Net
cash provided by operations in the six months ended June 30, 1999, was due
primarily to a decrease in inventories partially offset by an increase in
accounts receivable and other current assets and a decrease in other accrued
liabilities. Proceeds from the issue of long-term, senior subordinated
convertible notes, together with cash provided by operating activities, were
used in financing activities for the repayment of amounts borrowed previously
under a line of credit.
On February 10, 2000, the Company signed an agreement with The
Provident Bank ("Provident"), an Ohio chartered bank, for a $2.0 million
revolving line of credit ("line"). Provident issued an amendment to this
agreement on August 11, 2000. The amendment provided for a reduction in the line
to $1.5 million, an increase in the interest rate, changes in certain financial
covenants, and a change in the maturity date of the loan to June 30, 2001.
Interest accrues on outstanding borrowings at the bank's prime rate plus 225
basis points. The credit line is secured by all assets of the Company.
Availability under the line is calculated based on eligible accounts receivable.
Borrowings under the line are subject to compliance with certain financial
covenants. Under the financial covenants in the original agreement, the Company
was not in compliance as of April 30, 2000. With the adjustment in financial
covenants specified in the August 11, 2000, amendment, the Company is in
compliance with the financial covenants retroactive to April 30, 2000 and as of
June 30, 2000. According to the terms of the original agreement, borrowings were
limited to a maximum of $2.0 million. However, in May 2000, Provident reduced
the limit to $1.5 million as a result of the Company's failure to meet certain
financial covenants as of April 30, 2000. This limit was formally instituted in
the August 2000 amendment. As of June 30, 2000, $55,000 in borrowings were
outstanding under the line.
On January 21, 2000, the Company and certain of its subsidiaries sold
substantially all of their respective assets related to the ELSET virtual set
product line ("ELSET") to IMadGINE Video Systems Marketing ("IMadGINE"), a Dutch
company that is a wholly owned subsidiary of Orad Hi-Tec Systems Ltd. ("Orad"),
an Israeli corporation. IMadGINE also purchased the stock of Accom's subsidiary,
Accom Poland Sp. z o.o., a Polish corporation. The Company and its subsidiaries
also sold certain intellectual property related to the ELSET business. The
Company sold these assets in exchange for (i) $4,000,0000 in cash and (ii) a
warrant to purchase 70,423 ordinary shares of Orad.
On March 12, 1999, the Company completed a private placement of $3.5
million in senior subordinated convertible notes with a group of investors led
by the American Bankers Insurance Group, Inc. ("ABIG"). The agreement between
the Company and the holders of the convertible notes was amended and certain
waivers granted on November 3, 1999, and February 10, 2000. Additional waivers
were granted on April 18, 2000 and July 19, 2000. The notes currently have a
coupon rate of 8% per year, mature in 2004, and are convertible into shares of
Accom common stock at a price of $1.30 per
-14-
<PAGE>
share. Proceeds from the private placement were used to pay the balance on a
revolving line of credit with LaSalle Business Credit, Inc. that was outstanding
at the time the proceeds were received. The agreement between the Company and
ABIG specifies that the Company meet certain financial covenants. ABIG has the
right to declare the notes immediately due if the covenants are not met. As of
June 30, 2000, the Company was not in compliance with the covenants. On July 19,
2000, ABIG issued a waiver for this incidence of non-compliance.
As of June 30, 2000, the Company had $1.6 million in Restricted Cash.
Restricted Cash was comprised of the following elements: (1) $350,000 in cash
deposits to be "swept" into an account controlled by Provident as part of the
Company's agreement with Provident to turn over all deposits received by the
Company to Provident to pay down the line of credit; (2) $400,000 held in an
escrow account at Provident until January 2001 to be used to satisfy any
indemnification claims by IMadGINE against the Company under the purchase
agreement entered into between the Company and IMadGINE in connection with the
January 2000 sale to IMadGINE of the assets related to the ELSET virtual set
product line; and (3) $830,000 held in an account controlled by the Company as
part of an agreement between the Company and ABIG to set aside funds from the
sale of ELSET to (a) pay all debt owed to Scitex Digital Video and (b) pay all
transaction expenses related to the sale of ELSET.
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. The Company believes that its operating plans are
reasonable and can be achieved. In the event that results from operations and
cash flows generated are less than planned, the Company will reevaluate its
operating plans and believes it will have the ability to delay or reduce
expenditures so as to not breach the covenants of its credit facilities or
require additional resources to ensure that the Company continues as a going
concern at least through June 30, 2001.
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 3. Quantitative and Qualitative Disclosures About Market Risks
Accom develops its technology in the United States and sells its
products primarily in North America, Europe, and the Far East. As a result, the
Company's financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As all of the Company's sales are currently made in U.S. dollars, a
strengthening of the dollar could make the Company's products less competitive
in foreign markets. The Company's interest expense on its credit line borrowings
with The Provident Bank is sensitive to changes in the general level of interest
rates. Due to the nature of the Company's debts, the Company has concluded that
there is currently no material market risk exposure. Therefore, no quantitative
tabular disclosures have been presented.
-15-
<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 June 15, 2000, 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 two Class 1 directors to hold office until
the expiration of their respective terms and until their respective
successors are duly elected and qualified
Nominees For Against Abstain
------------------------- --------- ------- -------
Lionel M. Allan 9,162,165 0 30,919
Eugene M. Matalene, Jr. 9,162,165 0 30,919
2. Ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for 2000.
For 9,087,282
Against 56,700
Abstain 49,102
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Modification Agreement, dated August 11, 2000, between the
Company and the Provident Bank.
27.1 Financial Data Schedule (EDGAR filed version only)
(b) Reports on Form 8-K
On April 7, 2000, the Company filed Form 8-K/A to complete the reporting of
the Company's acquisition of the assets of Scitex Digital Video, Inc. and
certain of its affiliates on December 10, 1998. A Current Report on Form
8-K had been filed on
-16-
<PAGE>
December 23, 1998, to first report the acquisition. The
Company did not file the audited historical financial
statements of the acquired business and the pro forma
financial statements of the combined businesses as an
amendment to Form 8-K within 60 days of the original filing
because the audited historical financial statements of Scitex
Digital Video did not exist. The Company arranged to have the
historical financial statements of Scitex Digital Video
audited. These statements as well as the pro forma financial
statements of the combined businesses are reported in the Form
8-K/A filed on April 7, 2000.
-17-
<PAGE>
SIGNATURE
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/ JUNAID SHEIKH
---------------------
(Junaid Sheikh)
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ DONALD K. McCAULEY
---------------------------
(Donald K. McCauley)
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 11, 2000
