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 September 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 November 3, 2000, 10,198,277 shares of the Registrant's common stock,
$0.001 par value, were outstanding.
ACCOM, INC.
FORM 10-Q For the Quarter Ended September 30, 2000
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information (unaudited)
Item 1. a) Condensed consolidated interim balance sheets at September
30, 2000 and December 31,1999 3
b) Condensed consolidated interim statements of operations for
the three and nine month periods ended September 30, 2000
and September 30, 1999 4
c) Condensed consolidated interim statements of cash flows for
the nine month periods ended September 30, 2000 and September
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 10
Item 3 Quantitative and Qualitative Disclosures About Market Risks 16
Part II. Other Information 17
Item 1 Legal Proceedings 17
Item 2 Changes in Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signature 18
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(In thousands, except per share data)
As of
-----------
September 30, December 31,
2000 1999
-------- --------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 1,508 $ 328
Accounts receivable, net 3,420 1,616
Inventories 4,863 5,112
Other current assets 596 580
-------- --------
Total current assets 10,387 7,636
Property and equipment, net 1,607 2,343
Intangibles, net 1,684 1,986
Restricted cash 1,489 --
Other assets 74 70
-------- --------
Total assets $ 15,241 $ 12,035
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank borrowings - line of credit $ -- $ 559
Current portion of notes payable 708 1,315
Accounts payable 3,801 2,560
Accrued liabilities 2,477 2,037
Customer deposits 845 965
-------- --------
Total current liabilities 7,831 7,436
Long-term portion of notes payable 3,304 3,261
Stockholders' equity:
Common stock, $0.001 par value; 40,000 shares authorized;
10,196 and 10,133 shares issued and outstanding on
September 30, 2000 and December 31, 1999, respectively 24,251 24,201
Notes receivable from stockholders (500) (630)
Accumulated deficit (19,645) (22,233)
-------- --------
Total stockholders' equity 4,106 1,338
-------- --------
Total liabilities and stockholders' equity $ 15,241 $ 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>
-3-
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
---------------------- ----------------------
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $ 8,786 $ 8,768 $ 25,261 $ 26,654
Cost of sales 4,043 4,233 11,562 12,162
-------- -------- -------- --------
Gross profit 4,743 4,535 13,699 14,492
-------- -------- -------- --------
Operating expenses:
Research and development 1,673 1,959 4,951 5,740
Marketing and sales 2,343 2,465 6,679 6,904
General and administrative 691 783 2,200 2,430
-------- -------- -------- --------
Total operating expenses 4,707 5,207 13,830 15,074
-------- -------- -------- --------
Operating income (loss) 36 (672) (131) (582)
Interest and other income
(expenses), net (50) (141) (102) (314)
Sale of ELSET product line -- -- 2,888 --
-------- -------- -------- --------
Income before provision for
income taxes (14) (813) 2,655 (896)
Provision for income taxes (3) -- (46) (2)
-------- -------- -------- --------
Net income (loss) $ (17) $ (813) $ 2,609 $ (898)
======== ======== ======== ========
Net income (loss) per share - basic $ (0.00) $ (0.08) $ 0.26 $ (0.09)
======== ======== ======== ========
Net income (loss) per share - diluted $ (0.00) $ (0.08) $ 0.21 $ (0.09)
======== ======== ======== ========
Shares used in computation of net
income (loss) per share - basic 10,196 10,123 10,174 10,123
======== ======== ======== ========
Shares used in computation of net
income (loss) per share - diluted 10,196 10,123 13,575 10,123
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
</FN>
-4-
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
--------------------
September 30,
--------------------
2000 1999
------- -------
Cash flows from operating activities:
Net income (loss) $ 2,609 $ (898)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 720 1,190
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 (1,804) (28)
Inventories 780 760
Other current assets (16) (641)
Other assets (4) 7
Accounts payable 1,241 1,190
Accrued liabilities (59) (725)
Customer deposits (120) (268)
------- -------
Net cash provided by operating activities 459 587
------- -------
Cash flows from investing activities:
Expenditures for property and equipment (292) (416)
Proceeds from disposal of property and equipment, net of the effect of the sale
of the ELSET product line (29) 570
------- -------
Net cash provided by (used in) investing activities (321) 154
------- -------
Cash flows from financing activities:
Borrowings and payments on line of credit, net (559) (3,916)
Repayment of notes payable (607) (750)
Proceeds from long-term notes 43 3,310
Issuance of common stock 50 --
Restricted cash (1,489) 1,132
Repayment of notes receivable from stockholders 130 --
Net proceeds from sale of ELSET product line 3,474 --
------- -------
Net cash provided by (used in) financing activities 1,042 (224)
------- -------
Net increase in cash and cash equivalents 1,180 517
Cash and cash equivalents at beginning of period 328 --
------- -------
Cash and cash equivalents at end of period $ 1,508 $ 517
======= =======
Supplemental disclosure of cash flow information
Noncash investing activity:
Customer service inventory decrease $ 531 $ --
======= =======
<FN>
The accompanying notes are an integral part of these condensed consolidated interim financial statements
</FN>
-5-
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Preparation
The condensed consolidated interim balance sheet as of September 30,
2000, the condensed consolidated interim statements of operations for the three
and nine month periods ended September 30, 2000 and September 30, 1999, and the
condensed consolidated interim statements of cash flows for the nine month
periods ended September 30, 2000 and September 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 September 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 nine month periods ended September 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 nine
month periods ended September 30, 2000 and 1999.
Note 4. Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
2000 1999
------ ------
Purchased parts and materials $ 737 $1,656
Work-in-process 2,088 1,634
Finished goods 165 369
Demonstration inventory 1,873 1,453
------ ------
$4,863 $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-
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 basis 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 was in
compliance with the covenants as of June 30, 2000.
As of September 30, 2000, the Company had availability of $1.5 million
under the line. In addition, the Company had $1.3 million invested with
Provident in the form of deposits remitted to Provident in excess of outstanding
borrowings. There were no outstanding borrowings at September 30, 2000.
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. As of September 30, 2000, the Company was not in compliance with a
certain financial covenant. Provident issued a waiver on October 26, 2000,
remedying the violation of this covenant. This waiver related to the September
30, 2000, covenant violation and not beyond.
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 September 30, 2000, the
Company was not in compliance with the covenants. On October 25, 2000, ABIG
issued a waiver for non-compliance as of September 30, 2000. This waiver related
to the September 30, 2000, covenant violation and not beyond. 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 and July 19, 2000, granted
waivers 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 and the Company are negotiating settlement of 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. In 1999, the Company made
payments of $700,000 against the principal of this note. 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 $22,000 in
payments of interest
-7-
Note 6. Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands, except for per share amounts):
For the Three Months For The Nine Months
---------------------- ---------------------
Ended September 30, Ended September 30,
---------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
Numerator
Numerator for basic net income (loss) per share-net income (loss) $ (17) $ (813) $ 2,609 $ (898)
Effect of dilutive securities:
8% convertible notes -- -- 248 $ --
-------- -------- -------- --------
Numerator for diluted net income (loss) per share-income available to
stockholders after assumed conversions $ (17) $ (813) $ 2,857 $ (898)
Denominator
Denominator for basic net income (loss) per share-weighted average shares 10,196 10,123 10,174 10,123
Effect of dilutive securities:
Employee stock options -- -- 651 --
Warrants -- -- 58 --
8% convertible notes -- -- 2,692 --
-------- -------- -------- --------
Denominator for diluted net income (loss) per share-weighted average
shares and assumed conversions 10,196 10,123 13,575 10,123
Basic net income (loss) per share $ (0.00) $ (0.08) $ 0.26 (0.09)
======== ======== ======== ========
Diluted net income (loss) per share $ (0.00) $ (0.08) $ 0.21 $ (0.09)
======== ======== ======== ========
The net income per share on a diluted basis for the nine months ended
September 30, 2000, is based upon an adjusted calculation of the number of
shares to be issued in connection with the Company's 8% senior subordinated
convertible notes issued in March 1999. The calculation of net income per share
on a diluted basis for the three months ended March 31, 2000, and for the six
months ended June 30, 2000 has been adjusted. The following table compares the
net income per share calculation as previously reported ("Previous") for the
three months ended March 31, 2000, and for the six months ended June 30, 2000
and the net income per share calculation using the adjusted calculation of
shares as reported for the nine months ending September 30, 2000, above
("Current") (All numbers in thousands, except for per share amounts):
For the Three Months For The Six Months
-------------------- -------------------
Ended March 31, 2000 Ended June 30, 2000
-------------------- -------------------
Previous Current Previous Current
-------- ------- -------- -------
Numerator
Numerator for basic net income per share-net income $ 2,724 $ 2,724 $ 2,626 $ 2,626
Effect of dilutive securities:
8% convertible notes 83 83 165 165
------- ------- ------- -------
Numerator for diluted net income per share-income available to
stockholders after assumed conversions $ 2,807 $ 2,807 $ 2,791 $ 2,791
Denominator
Denominator for basic net income per share-weighted average shares 10,136 10,136 10,163 10,163
Effect of dilutive securities:
Employee stock options 749 749 867 867
Warrants 72 72 91 91
8% convertible notes 199 2,692 468 2,692
------- ------- ------- -------
Denominator for diluted net income per share-weighted average shares and
assumed conversions 11,156 13,649 11,589 13,813
Basic net income per share $ 0.27 $ 0.27 $ 0.26 $ 0.26
======= ======= ======= =======
Diluted net income per share $ 0.25 $ 0.21 $ 0.24 $ 0.20
======= ======= ======= =======
-8-
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 Nine Months
---------------------- ----------------------
Ended Ended
----- -----
September 30, September 30,
---------------------- ----------------------
Market 2000 1999 2000 1999
--------------- ------- ------- ------- -------
Post-Production $ 4,048 $ 4,522 $13,072 $16,135
Distribution 3,654 2,897 9,058 7,100
Other 1,084 1,349 3,131 3,419
------- ------- ------- -------
$ 8,786 $ 8,768 $25,261 $26,654
======= ======= ======= =======
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.
Note 8. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. In June 1999, FASB issued Financial
Accounting Standards No. 137 which deferred the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. The adoption of SFAS 133 is not
anticipated to have an impact on the Company's results of operations or
financial condition as the Company holds no derivative financial instruments and
does not currently engage in hedging activities.
In March 2000, the FASB issued Interpretation No. 44 ("FIN44"),
"Accounting for Certain Transactions Involving Stock Compensation-An
Interpretation of APB 25." This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The adoption of FIN 44 does not have a material impact on the
Company's financial statements.
-9-
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.
The following table summarizes the Company's products and the primary
marketplaces they address:
-----------------------------------------------------------------------------------------------------------------
MARKETS / Product Primary Applications
-----------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------
-10-
The Company's revenues are currently derived primarily from product
sales. Additional revenues are derived primarily from customer service sales.
Customer service revenues are represented herein in the "Other" market.
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 September 30, 2000 and September 30, 1999
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended September 30, 2000
and 1999 as reported (dollar amounts in thousands):
Three Months Ended
------------------
September 30, Increase (Decrease)
------------- ------------------
2000 1999 Amount Percent
----------- ---------- ---------- ------------
Net sales $ 8,786 $ 8,768 $ 18 0.2 %
Cost of sales 4,043 4,233 (190) (4.5)%
----------- ---------- ---------- ------------
Gross profit 4,743 4,535 208 4.6 %
Operating expenses:
Research and development 1,673 1,959 (286) (14.6)%
Marketing and sales 2,343 2,465 (122) (4.9)%
General and administrative 691 783 (92) (11.7)%
----------- ---------- ---------- ------------
Total operating expenses 4,707 5,207 (500) (9.6)%
----------- ---------- ---------- ------------
Operating income (loss) 36 (672) 708 105.4 %
Interest and other income (expenses), net (50) (141) 91 64.5 %
----------- ---------- ---------- ------------
Loss before provision for income taxes (14) (813) 799 98.3 %
Provision for income taxes (3) - (3) N/A
----------- ---------- ---------- ------------
Net loss $ (17) $(813) $ 796 97.9 %
=========== ========== ========== ============
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended September 30, 2000
and 1999, as a percentage of net sales, as reported:
Three Months Ended
------------------
September 30, Increase
------------- --------
2000 1999 (Decrease)
---- ---- ----------
Net sales 100.0% 100.0 % - %
Cost of sales 46.0% 48.3 % (2.3)%
------- ------ --------
Gross margin 54.0 % 51.7 % 2.3 %
Operating expenses:
Research and development 19.0 % 22.4 % (3.4)%
Marketing and sales 26.7 % 28.1 % (1.4)%
General and administrative 7.9 % 8.9 % (1.0)%
------- ------ --------
Total operating expenses 59.4 % 53.6 % (5.8)%
------- ------ --------
Operating income (loss) 0.4 % (7.7)% 8.1 %
Interest and other income (expenses), net (0.6)% (1.6)% 1.0 %
------- ------ --------
Income before provision for income taxes (0.2)% (9.3)% 9.1 %
Provision for income taxes - % - % - %
------- ------ --------
Net loss (0.2)% (9.3)% 9.1 %
======= ====== ========
Net sales. Net sales during the three months ended September 30, 2000,
were unchanged from levels for the same period in 1999. Increased sales in the
distribution marketplace were offset by
-11-
decreased sales in the post-production marketplace and decreased customer
service revenues. Sales to countries outside North America for the three months
ended September 30, 2000 and 1999, represented 31.5% and 32.5% of net sales,
respectively.
The following table presents net sales dollar volume for the three
months ended September 30, 2000 and 1999, by market and related percentages of
total net sales (dollar amounts in thousands):
Three Months Ended
------------------
September 30,
-------------
2000 1999
---- ----
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
Post-Production $ 4,048 46.1% $ 4,522 51.6%
Distribution 3,654 41.6% 2,897 33.0%
Other 1,084 12.3% 1,349 15.4%
-------------------------- ---------------------------
$ 8,786 100.0% $ 8,768 100.0%
========================== ===========================
Cost of sales. Cost of sales, as a percentage of sales, decreased for
the three months ended September 30, 2000, from levels for the three months
ended September 30, 1999, as a result primarily of improved profit margins in
the nonlinear editor product line.
Research and development. Research and development expenses for the
three months ended September 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 three months
ended September 30, 2000, decreased over levels for the three months ended
September 30, 1999, primarily due to decreases in headcount and related overhead
expenses.
General and administrative. General and administrative expenses
decreased for the three months ended September 30, 2000, from levels for the
same period in 1999 primarily due to a reduction in the provision for bad debt.
Interest and other income, net. Interest and other income, net, for the
three months ended September 30, 2000, increased over levels for the three
months ended September 30, 1999, due to an increase in interest income from
interest-bearing cash accounts and a note due from an officer and a decrease in
interest expense resulting from reduced levels of debt.
Provision for income taxes. For the three months ended September 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 losses to be carried forward. For the three months ended September 30,
1999, the Company had an effective rate of 0% reflecting the Company's net
operating losses to be carried forward.
-12-
Results of Operations
Nine Months Ended September 30, 2000 and September 30, 1999
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the nine months ended September 30, 2000
and 1999 as reported (dollar amounts in thousands):
Nine Months Ended
September 30, Increase (Decrease)
------------------------- ------------------------
2000 1999 Amount Percent
-------- -------- -------- -------
Net sales $ 25,261 $ 26,654 $ (1,393) (5.2)%
Cost of sales 11,562 12,162 (600) (4.9)%
-------- -------- -------- -------
Gross profit 13,699 14,492 (793) (5.5)%
Operating expenses:
Research and development 4,951 5,740 (789) (13.7)%
Marketing and sales 6,679 6,904 (225) (3.3)%
General and administrative 2,200 2,430 (230) (9.5)%
-------- -------- -------- -------
Total operating expenses 13,830 15,074 (1,244) (8.3)%
-------- -------- -------- -------
Operating loss (131) (582) 451 77.5 %
Interest and other income (expenses), net (102) (314) 212 67.5 %
Sale of ELSET product line 2,888 -- 2,888 N/A
-------- -------- -------- -------
Income before provision for income taxes 2,655 (896) 3,551 396.3 %
Provision for income taxes (46) (2) (44) (2,200.0)%
-------- -------- -------- -------
Net income (loss) $ 2,609 $ (898) $ 3,507 390.5 %
======== ======== ======== =======
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the nine months ended September 30, 2000
and 1999, as a percentage of net sales, as reported:
Nine Months Ended
-----------------------
September 30, Increase
----------------------- --------
2000 1999 (Decrease)
------------ --------- --------
Net sales 100.0 % 100.0 % - %
Cost of sales 45.8 % 45.6 % 0.2 %
------------ --------- --------
Gross margin 54.2 % 54.4 % (0.2)%
Operating expenses:
Research and development 19.6 % 21.6 % (2.0)%
Marketing and sales 26.4 % 25.9 % 0.5 %
General and administrative 8.7 % 9.1 % (0.4)%
------------ --------- --------
Total operating expenses 54.7 % 56.6 % (1.9)%
------------ --------- --------
Operating loss (0.5)% (2.2)% 1.7 %
Interest and other income (expenses), net (0.4)% (1.2)% 0.8 %
Sale of ELSET product line 11.4 % - % 11.4 %
------------ --------- --------
Income before provision for income taxes 10.5 % (3.4)% 13.9 %
Provision for income taxes (0.2)% - % ( 0.2)%
------------ --------- --------
Net income (loss) 10.3 % (3.4)% 13.7 %
============ ========= ========
Net sales. The decrease in net sales during the nine months ended
September 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 nine months ended September 30, 2000 and 1999, represented
34.3% and 33.0% of net sales, respectively.
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The following table presents net sales dollar volume for the nine
months ended September 30, 2000 and 1999, by market and related percentages of
total net sales (dollar amounts in thousands):
Nine Months Ended
-----------------
September 30,
-------------
2000 1999
---- ----
Marketplace Amount Percent Amount Percent
----------- ------------- ------------ ------------- ----------
Post-Production $ 13,072 51.7% $ 16,135 60.6%
Distribution 9,058 35.9% 7,100 26.6%
Other 3,131 12.4% 3,419 12.8%
----------------------------- ----------------------------
$ 25,261 100.0% $ 26,654 100.0%
============================= ============================
Cost of sales. Cost of sales, as a percentage of sales, increased for
the nine months ended September 30, 2000, from levels for the nine months ended
September 30, 1999, as sales decreased while overall manufacturing expenses
remained unchanged.
Research and development. Research and development expenses for the
nine months ended September 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 nine months
ended September 30, 2000, decreased over levels for the nine months ended
September 30, 1999, primarily due to decreases in headcount and related overhead
expenses and decreases in expenses related to demonstration equipment.
General and administrative. General and administrative expenses for the
nine months ended September 30, 2000, decreased from levels for the same period
in 1999 primarily due to decreases in 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
nine months ended September 30, 2000, increased over levels for the nine months
ended September 30, 1999, due to an increase in interest income from
interest-bearing cash accounts and notes due from directors and officers, a
decrease in interest expense resulting from reduced levels of debt, and an
increase in other income.
Provision for income taxes. For the nine months ended September 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 losses to be carried forward. For the nine months ended September 30,
1999, the Company had an effective rate of 0% reflecting the Company's net
operating losses to be carried forward.
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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 September 30, 2000, the Company had $1.5 million in cash and
cash equivalents. In addition, the Company had $320,000 in Restricted Cash (see
below) which consisted of excess deposits in transit from the Company to its
lender which were to be invested on behalf of the Company.
Operating activities provided $459,000 in net cash in the nine months
ended September 30, 2000 and provided $587,000 in net cash in the nine months
ended September 30, 1999. Net cash provided by operations in the nine months
ended September 30, 2000, was due primarily to an increase in accounts payable.
Additionally, cash was provided by the sale of ELSET virtual set product line in
January. Net cash provided by operations in the nine months ended September 30,
1999, was due primarily to a decrease in inventories and an increase in accounts
payable partially offset by an increase in 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 as well as the repayment of notes
payable incurred as part of the Scitex Digital Video acquisition in December
1999.
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. As of September 30, 2000, the Company was not in compliance with a
financial covenant. On October 26, 2000, Provident issued a waiver remedying the
violation of this covenant. This waiver related to the September 30, 2000,
covenant violation and not beyond. Additionally, 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 was 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 September
30, 2000, there were no borrowings 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
-15-
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 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 September 30, 2000,
the Company was not in compliance with the covenants. On October 25, 2000, ABIG
issued a waiver for this incidence of non-compliance. This waiver related to the
September 30, 2000, covenant violation and not beyond.
As of September 30, 2000, the Company had $1.5 million in Restricted
Cash. Restricted Cash was comprised of the following elements: (1) $320,000 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) $750,000 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 September 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.
-16-
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule (EDGAR filed version only)
(b) Reports on Form 8-K
None.
-17-
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: November 13, 2000
-18-