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, 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 August 3, 1998, 6,675,164 shares of the Registrant's common stock, $0.001
par value, were outstanding.
ACCOM, INC.
FORM 10-Q For the Quarter Ended June 30, 1998
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information (unaudited)
Item 1. a) Condensed consolidated interim balance sheets at June 30, 1998 and
September 30, 1997 3
b) Condensed consolidated interim statements of operations for the three and
nine month periods ended June 30, 1998 and June 28, 1997 4
c) Condensed consolidated interim statements of cash flows for the nine month
periods ended June 30, 1998 and June 28, 1997 5
d) Notes to condensed consolidated interim financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
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 17
Exhibit 11.1 - Statement re: computation of net income (loss) per share 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
------------
June 30, September 30,
1998 1997
-------- --------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 4,244 $ 5,317
Accounts receivable, net 2,395 3,239
Inventories 1,660 980
Income tax refunds receivable 243 621
Deferred tax assets 38 38
Prepaid expenses and other current assets 367 334
-------- --------
Total current assets 8,947 10,529
Property and equipment, net 1,133 967
Other assets 49 49
-------- --------
Total assets $ 10,129 $ 11,545
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ -- $ 24
Accounts payable 1,528 1,476
Accrued liabilities 1,305 1,338
Deferred revenue 83 141
-------- --------
Total current liabilities and total liabilities 2,916 2,979
-------- --------
Stockholders' equity:
Common stock, $0.001 par value; 20,233 shares authorized;
6,671 and 6,627 shares issued and outstanding on
June 30, 1998 and September 30, 1997, respectively 21,462 21,427
Accumulated deficit (14,249) (12,861)
-------- --------
Total stockholders' equity 7,213 8,566
-------- --------
Total liabilities and stockholders' equity $ 10,129 $ 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>
-3-
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
------------------ -----------------
June 30, June 28, June 30, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $3,028 $4,466 $10,234 $12,916
Cost of sales 1,546 2,027 4,655 8,896
-----------------------------------------------------------
Gross margin 1,482 2,439 5,579 4,020
-----------------------------------------------------------
Operating expenses:
Research and development 773 893 2,392 2,530
Marketing and sales 1,362 1,220 3,757 4,661
General and administrative 340 292 946 1,622
-----------------------------------------------------------
Total operating expenses 2,475 2,405 7,095 8,813
-----------------------------------------------------------
Operating income (loss) (993) 34 (1,516) (4,793)
Interest and other income, net 41 43 134 115
-----------------------------------------------------------
Income (loss) before provision for
income taxes (952) 77 (1,382) (4,678)
Provision for income taxes - - 6 -
-----------------------------------------------------------
Net income (loss) $(952) $77 $(1,388) ($4,678)
===========================================================
Net income (loss) per share - basic $(0.14) $0.01 ($0.21) ($0.71)
===========================================================
Net income (loss) per share - diluted $(0.14) $0.01 ($0.21) ($0.71)
===========================================================
Shares used in computation of net
income (loss) per share - basic 6,672 6,592 6,658 6,577
===========================================================
Shares used in computation of net
income (loss) per share - diluted 6,672 6,865 6,658 6,577
===========================================================
<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
-----------------
June 30, June 28,
1998 1997
---- ----
Cash flows from operating activities:
Net loss $(1,388) $(4,678)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 411 439
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 844 1,266
Inventories (680) 1,712
Income tax refunds receivable 378 --
Prepaid expenses and other current assets (33) 165
Accounts payable 52 (1,049)
Accrued liabilities and customer deposits (33) 126
Deferred revenue (58) (241)
------------------
Net cash provided (used) in operating activities (507) 1,735
------------------
Cash flows from investing activities:
Expenditures for property and equipment (577) (311)
Other assets -- (6)
------------------
Net cash used in investing activities (577) (317)
------------------
Cash flows from financing activities:
Repayments on notes payable (24) (43)
Issuance of common stock 39 71
Purchase of common stock (4) --
------------------
Net cash provided by financing activities 11 28
------------------
Net increase (decrease) in cash and cash equivalents (1,073) 1,446
Cash and cash equivalents at beginning of period 5,317 4,221
------------------
Cash and cash equivalents at end of period $ 4,244 $ 5,667
==================
<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 June 30, 1998,
and the condensed consolidated interim statements of operations and cash flows
for the three and nine-month periods ended June 30, 1998 and June 28, 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 June 30, 1998 and the results of operations and cash
for the three and nine-month periods ended June 30, 1998 and June 28, 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 nine-month periods ended June 30, 1998, are not necessarily
indicative of the operating results for any future period.
Note 2. Inventories
-----------
Inventories consist of the following (in thousands):
June 30, September 30,
1998 1997
---- ----
Purchased parts and materials $ 174 $ 225
Work-in-process 591 204
Finished goods 206 182
Demonstration inventory 689 369
------------- -------------
$1,660 $ 980
============= =============
Note 3. Bank Information
----------------
The Company has no credit facilities available as of June 30, 1998.
There are no borrowings outstanding.
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.
In October, 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2 ("SOP 97-2"), as amended by SOP 98-4 "Software
Revenue Recognition." These statements provide guidance on applying generally
accepted accounting principles in recognizing revenue on
-6-
software transactions and are effective for the Company's transactions entered
into subsequent to October 1, 1998.
The Company is in the process of assessing the implications of the
implementation. Detailed implementation guidelines for these statements have not
yet been issued. Once issued, such detailed guidance could lead to unanticipated
changes in the Company's current revenue practices and material adverse changes
in the Company's reported revenues and earnings. In the event implementation
guidance is contrary to the revenue accounting practices, the Company believes
it can change its current business practices to comply with the guidance and
avoid any material adverse effect on reported revenues and earnings. However,
there can be no assurance this will be the case.
-7-
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 contains certain forward-looking
statements and 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.
-8-
Results of Operations
Three Months Ended June 30, 1998 and June 28, 1997
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended June 30, 1998 and
June 28, 1997 as reported (dollar amounts in thousands, except per share data).
Three Months Ended
------------------ Increase (Decrease)
June 30, June 28, -------------------
1998 1997 Amount Percent
---- ---- ------ -------
Net sales $ 3,028 $ 4,466 $ (1,438) (32.2)%
Cost of sales 1,546 2,027 (481) (23.7)%
------------- ------------ ------------- ------------
Gross margin 1,482 2,439 (957) (39.2)%
Operating expenses:
Research and development 773 893 (120) (13.4)%
Marketing and sales 1,362 1,220 142 11.6%
General and administrative 340 292 48 16.4%
------------- ------------ ------------- ------------
Total operating expenses 2,475 2,405 70 2.9%
------------- ------------ ------------- ------------
Operating income (loss) (993) 34 (1,027) (3,020.6)%
Interest and other income, net 41 43 (2) (4.7)%
------------- ------------ ------------- ------------
Income (loss) before provision for income taxes (952) 77 (1,029) (1,336.4)%
Provision for income taxes - - - -
Net income (loss) $ (952) $ 77 (1,029) (1,336.4)%
============= ============ ============= ============
Net income (loss) per share - basic $(0.14) $0.01 $(0.15) (1,500.0)%
============= ============ ============= ============
Net income (loss) per share - diluted $(0.14) $0.01 $(0.15) (1,500.0)%
============= ============ ============= ============
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended June 30, 1998 and
June 28, 1997 as a percentage of net sales, as reported.
Three Months Ended
------------------
June 30, June 28, Increase
1998 1997 (Decrease)
---- ---- ----------
Net sales 100.0% 100.0% 0.0%
Cost of sales 51.1% 45.4% 5.7%
--------------------------------
Gross margin 48.9% 54.6% (5.7)%
Operating expenses:
Research and development 25.5% 20.0% 5.5%
Marketing and sales 45.0% 27.3% 17.7%
General and administrative 11.2% 6.5% 4.7%
--------------------------------
Total operating expenses 81.7% 53.8% 27.9%
--------------------------------
Operating income (loss) (32.8)% 0.8% (33.6)%
Interest and other income, net 1.4% 1.0% 0.4%
--------------------------------
Income (loss) before provision for income taxes (31.4)% 1.8% (33.2)%
Provision for income taxes - - -
================================
Net income (loss) (31.4)% 1.8% (33.2)%
================================
The following discussion of results of operations for the three months
ended June 30, 1998 and June 28, 1997 is based upon reported results.
Net sales. The decrease in net sales during the third quarter of fiscal
1998 from fiscal 1997 levels was primarily due to decreased sales in the
production and post production marketplaces. International sales for the third
quarter of fiscal 1998 and 1997 represented 39.3% and 37.2% of net sales,
respectively.
-9-
The following table presents net sales dollar volume for the three
months ended June 30, 1998 and June 28, 1997 by market and related percentages
of total net sales (dollar amounts in thousands).
Three Months Ended
--------------------------------------------------------------
June 30, 1998 June 28, 1997
------------- -------------
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
Production $1,405 46.4% $2,495 55.9%
Post Production 592 19.6% 1,090 24.4%
Broadcasting 899 29.7% 774 17.3%
Other 132 4.3% 107 2.4%
----------------------------- -----------------------------
$3,028 100.0% $4,466 100.0%
============================= =============================
Cost of sales. Gross margin percentage for the third quarter of fiscal
1998 decreased over levels in the third quarter of fiscal 1997 primarily due to
a greater proportion of sales of the lower-priced WSD model and increased impact
of manufacturing overhead.
Research and development. Research and development expenses for the
third quarter of fiscal 1998 decreased over levels in the third quarter of
fiscal 1997 primarily due to decreases in project expenses, consulting services,
bonuses, and recruiting expenses.
Marketing and sales. Marketing and sales expenses for the third quarter
of fiscal 1998 increased over levels in the third quarter of fiscal 1997
primarily due to increased advertising and ELSET marketing expenses.
General and administrative. The increase in general and administrative
expenses in the third quarter of fiscal 1998 from levels for the same period in
fiscal 1997 was primarily due to increases in headcount.
Interest and other income, net. Net interest and other income for the
third quarter of fiscal 1998 was essentially comparable to levels for the same
period in fiscal 1997.
Provision for income taxes. In the third quarter of fiscal 1998 and
1997, the Company was in a net operating loss carryforward position.
-10-
Nine Months Ended June 30, 1998 and June 28, 1997
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the nine months ended June 30, 1998 and
June 28, 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).
Nine Months Ended
----------------- Increase (Decrease)
June 30, June 28, -------------------
1998 1997 Amount Percent
---- ---- ------ -------
Net sales
Reported $ 10,234 $ 12,916 $(2,682) (20.8)%
Normalized 10,234 12,916 (2,682) (20.8)%
Cost of sales
Reported 4,655 8,896 (4,241) (47.7)%
Normalized 4,655 6,396 (1,741) (37.4)%
------------- ------------ ------------- ------------
Gross margin
Reported 5,579 4,020 1,559 38.8%
Normalized 5,579 6,520 (941) (14.4)%
------------- ------------ ------------- ------------
Operating expenses:
Research and development
Reported 2,392 2,530 (138) (5.5)%
Normalized 2,392 2,530 (138) (5.5)%
Marketing and sales
Reported 3,757 4,661 (904) (19.4)%
Normalized 3,757 3,816 (59) (1.5)%
General and administrative
Reported 946 1,622 (676) (41.7)%
Normalized 946 972 (26) (2.7)%
------------- ------------ ------------- ------------
Total operating expenses
Reported 7,095 8,813 (1,718) (19.5)%
Normalized 7,095 7,318 (223) (3.0)%
------------- ------------ ------------- ------------
Operating loss
Reported (1,516) (4,793) 3,277 68.4%
Normalized (1,516) (798) (718) (90.0)%
Interest and other income, net
Reported 134 115 19 16.5%
Normalized 134 115 19 16.5%
------------- ------------ ------------- ------------
Loss before provision for income taxes
Reported (1,382) (4,678) 3,296 70.5%
Normalized (1,382) (683) (699) (102.3)%
Provision for income taxes
Reported 6 - 6 -
Normalized 6 - 6 -
------------- ------------ ------------- ------------
Net loss
Reported $ (1,388) $ (4,678) $3,290 70.3%
Normalized (1,388) (683) (705) (103.2)%
============= ============ ============= ============
Net loss per share Reported:
Basic and diluted $(0.21) $(0.71) $0.50 70.4%
============= ============ ============= ============
Normalized:
Basic and diluted $(0.21) $(0.11) $(0.10) (90.9)%
============= ============ ============= ============
<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>
-11-
The following table presents the Company's fiscal Condensed
Consolidated Interim Statements of Operations for the first nine 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.
Nine Months Ended
-----------------
June 30, June 28, Increase
1998 1997 (Decrease)
---- ---- ----------
Net sales
Reported 100.0% 100.0% 0.0%
Normalized 100.0% 100.0% 0.0%
Cost of sales
Reported 45.5% 68.9% (23.4)%
Normalized 45.5% 49.5% (4.0)%
---------------------------------
Gross margin
Reported 54.5% 31.1% 23.4%
Normalized 54.5% 50.5% 4.0%
---------------------------------
Operating expenses:
Research and development
Reported 23.4% 19.6% 3.8%
Normalized 23.4% 19.6% 3.8%
Marketing and sales
Reported 36.7% 36.1% 0.6%
Normalized 36.7% 29.5% 7.2%
General and administrative
Reported 9.2% 12.6% (3.4)%
Normalized 9.2% 7.5% 1.7%
---------------------------------
Total operating expenses
Reported 69.3% 68.3% 1.0%
Normalized 69.3% 56.6% 12.7%
---------------------------------
Operating loss
Reported (14.8)% (37.2)% 22.4%
Normalized (14.8)% (6.1)% (8.7)%
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 (13.5)% (36.3)% 22.8%
Normalized (13.5)% (5.2)% (8.3)
Provision for income taxes
Reported 0.1 % - % 0.1 %
Normalized 0.1 % - % 0.1 %
---------------------------------
Net loss
Reported (13.6)% (36.3)% 22.8%
Normalized (13.6)% (5.2)% (8.3)%
=================================
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.
-12-
The following discussion of results of operations for the nine months
ended June 30, 1998 and June 28, 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 nine 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. International sales
for the first nine months of fiscal 1998 and 1997 represented 46.5% and 43.5% of
net sales, respectively.
The following table presents net sales dollar volume for the six months
ended June 30, 1998 and June 28, 1997 by market and related percentages of total
net sales (dollar amounts in thousands).
Nine Months Ended
--------------------------------------------------------------
June 30, 1998 June 28, 1997
------------- -------------
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
Production $5,633 55.0% $5,686 44.0%
Post Production 2,567 25.1% 5,422 42.0%
Broadcasting 1,597 15.6% 1,454 11.3%
Other 437 4.3% 354 2.7%
----------------------------- -----------------------------
$10,234 100.0% $12,916 100.0%
============================= =============================
Cost of sales. Normalized gross margin percentage for the first nine
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 partially
offset by increased manufacturing overhead variance.
Research and development. The decrease in normalized research and
development expenses in the first nine months of fiscal 1998 from the same
period in fiscal 1997 was primarily due to decreases in salary expenses,
resulting from an increased proportion of lower salaried employees, and
depreciation, resulting from an increase in fully depreciated assets.
Marketing and sales. The decrease in normalized marketing and sales
expenses in the first nine months of fiscal 1998 from the same period in fiscal
1997 is primarily due to decreases in salary expenses, demonstration equipment
refurbishment costs, and commission expenses partially offset by increased trade
show expenses, depreciation and expenses relating to the marketing of virtual
sets.
General and administrative. General and administrative expenses in the
first nine months of fiscal 1998 were essentially comparable to levels for the
same period in fiscal 1997.
Interest and other income, net. The increase in net interest and other
income during the first nine months of fiscal 1998, was primarily due to
increased average interest bearing cash and cash equivalent balances.
Provision for income taxes. In the first nine months of fiscal 1998 and
1997, the Company was in a net operating loss carryforward position.
-13-
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 June 30, 1998, the
Company had $4.2 million of cash and cash equivalents.
Operating activities used $507,000 in net cash during the first nine
months of fiscal 1998 and provided $1.7 million in net cash during the first
nine months of fiscal 1997. Net cash used by operations in the first nine months
of fiscal 1998 was due primarily to the net loss and an increase in inventories
partially offset by decreases in accounts receivable and income tax refunds
receivable. Additional net cash was used in investing activities for the
acquisition of property and equipment. The increase in cash and cash equivalents
in the first nine months of fiscal 1997 was primarily due to net cash provided
by operations, which resulted substantially from decreases in accounts
receivable and inventories, partially offset by the net loss and by a decrease
in accounts payable.
The Company has no credit facilities available as of June 30, 1998.
There are no bank borrowings outstanding.
Based on current revenue levels, the Company believes that its existing
cash and cash equivalents 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.
In October, 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2 ("SOP 97-2"), as amended by SOP 98-4 "Software
Revenue Recognition." These statements provide guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and are effective for the Company's transactions entered into subsequent to
October 1, 1998.
The Company is in the process of assessing the implications of the
implementation. Detailed implementation guidelines for these statements have not
yet been issued. Once issued, such detailed guidance could lead to unanticipated
changes in the Company's current revenue practices and material adverse changes
in the Company's reported revenues and earnings. In the event implementation
guidance is contrary to the revenue accounting practices, the Company believes
it can change its current business practices to comply with the guidance and
avoid any material adverse effect on reported revenues and earnings. However,
there can be no assurance this will be the case.
-14-
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 third quarter of fiscal 1998, ended
June 30, 1998, the Company's overall revenues declined by 32.2% from the same
period in fiscal 1997. The Company believes that this decline resulted from a
decision by more than the usual number of customers to delay purchases until
after the transition path to new Digital Television (DTV) standards is clear. In
addition, in the Company's production marketplace, it appeared customers took
longer than anticipated to evaluate the Company's ELSET virtual set product and
the WSD 2Xtreme digital disk recorder product. There can be no assurance that
these customers will eventually purchase the Company's products or that the
Company's sales in these product areas will improve.
Effects of Economic Conditions in Asia. In the first nine months 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 instability 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.
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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
On July 20, 1998, the Company's Common Stock was delisted from
the NASDAQ National Market System. The Common Stock is now
quoted on the OTC Bulletin Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 Computation of net income (loss) per share
27.1 Financial Data Schedule (EDGAR filed version only)
(b) Reports on Form 8-K.
None.
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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
---------------------
Chairman, President and Chief Executive Officer
Date: August 12, 1998
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