UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Quarter Ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _________ to _________.
Commission file number: 0-26620
ACCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1490 O'Brien Drive
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(650) 328-3818
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for at least the past 90 days.
Yes _X_ No ___
As of May 5, 1999, 10,123,247 shares of the Registrant's common stock, $0.001
par value, were outstanding.
ACCOM, INC.
FORM 10-Q For the Quarter Ended March 31, 1999
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information (unaudited)
Item 1. a) Condensed consolidated interim balance sheets at
March 31, 1999 and December 31, 1998 3
b) Condensed consolidated interim statements of
operations for the three month periods 4
ended March 31, 1999 and March 31, 1998
c) Condensed consolidated interim statements of
cash flows for the three month periods ended
March 31, 1999 and March 31, 1998 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 13
Part II. Other Information 14
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signature 16
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(In thousands, except per share data)
As of
-----
March 31, December 31,
--------- ------------
1999 1998
-------- --------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 342 $ --
Accounts receivable, net 4,476 3,578
Inventories 3,847 5,345
Other current assets 1,566 535
-------- --------
Total current assets 10,231 9,458
Property and equipment, net 2,889 3,299
Intangibles, net 3,111 3,247
Restricted cash -- 1,132
Other assets 77 77
-------- --------
Total assets $ 16,308 $ 17,213
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank borrowings - line of credit $ -- $ 3,916
Current portion of notes payable 750 900
Accounts payable 2,035 2,108
Accrued liabilities 3,441 3,823
Customer deposits 1,291 1,285
Deferred revenue 44 87
-------- --------
Total current liabilities 7,561 12,119
Long-term loans and notes payable, less current portion 4,304 1,165
Stockholders' equity:
Common stock, $0.001 par value; 20,233 shares authorized; 10,123 and 10,121
shares issued and outstanding on
March 31, 1999 and December 31, 1998, respectively 24,197 24,197
Notes receivable from stockholders (630) (630)
Accumulated deficit (19,124) (19,638)
-------- --------
Total stockholders' equity 4,443 3,929
-------- --------
Total liabilities and stockholders' equity $ 16,308 $ 17,213
======== ========
<FN>
Note: The condensed consolidated balance sheet at December 31, 1998, 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
------------------
March 31,
---------
1999 1998
-------- --------
Net sales $ 9,538 $ 3,073
Cost of sales 4,059 1,363
-------- --------
Gross profit 5,479 1,710
-------- --------
Operating expenses:
Research and development 1,945 835
Marketing and sales 2,100 1,180
General and administrative 807 306
-------- --------
Total operating expenses 4,852 2,321
-------- --------
Operating income (loss) 627 (611)
Interest and other income (expenses), net (111) 40
-------- --------
Income (loss) before provision
for income taxes 516 (571)
Provision for income taxes 2 5
-------- --------
Net income (loss) $ 514 $ (576)
======== ========
Net income (loss) per share - basic $ 0.05 $ (0.09)
======== ========
Net income (loss) per share - diluted $ 0.05 $ (0.09)
======== ========
Shares used in computation of net
Income (loss) per share - basic 10,122 6,669
======== ========
Shares used in computation of net
Income (loss) per share - diluted 10,422 6,669
======== ========
<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)
Three Months Ended
------------------
March 31,
---------
1999 1998
------- -------
Cash flows from operating activities:
Net income (loss) $ 514 $ (576)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 422 145
Changes in operating assets and liabilities:
Accounts receivable (898) 835
Inventories 1,498 (608)
Other current assets (1,031) 17
Accounts payable (73) (340)
Accrued liabilities (382) (45)
Customer deposits 6 7
Deferred revenue (43) (28)
------- -------
Net cash provided by (used in) operating activities 13 (593)
------- -------
Cash flows from investing activities:
Expenditures for property and equipment (36) (161)
Proceeds from disposal of property and equipment 160 --
------- -------
Net cash provided by (used in) investing activities 124 (161)
------- -------
Cash flows from financing activities:
Repayment of line of credit (3,916) --
Repayment of notes payable (300) (10)
Proceeds from long-term notes 3,289 --
Issuance of common stock -- 11
Restricted cash 1,132 --
------- -------
Net cash provided by financing activities 205 1
------- -------
Net increase (decrease) in cash and cash equivalents 342 (753)
Cash and cash equivalents at beginning of period -- 5,640
------- -------
Cash and cash equivalents at end of period $ 342 $ 4,887
======= =======
<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 March 31, 1999,
and the condensed consolidated interim statements of operations and cash flows
for the three month periods ended March 31, 1999 and 1998, 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 March 31, 1999 and the results of operations and cash for the three
month periods ended March 31, 1999 and 1998, 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 three months ended December 31, 1998. The results of operations for
the three month periods ended March 31, 1999, are not necessarily indicative of
the operating results for any future period.
Note 2. Comprehensive Income
Comprehensive income is equal to net income for the three month periods
ended March 31, 1999 and 1998.
Note 3. Inventories
Inventories consist of the following (in thousands):
March 31, December 31,
--------- ------------
1999 1998
------ ------
Purchased parts and materials $1,261 $2,399
Work-in-process 150 394
Finished goods 114 151
Demonstration inventory 2,322 2,401
------ ------
$3,847 $5,345
====== ======
Note 4. Debt
The Company has a revolving line of credit with LaSalle Business
Credit, Inc. ("LBC") that allows for borrowings up to $7.5 million subject to
the level of eligible accounts receivable and the levels of certain inventory
items. As of March 31, 1999, the Company had availability of $2.5 million under
the line. There were no borrowings outstanding under this line of credit.
Indebtedness under the line of credit accrues interest at LBC's prime
rate plus 125 basis points. The term of the original agreement which established
the line of credit is three years and is renewable on a yearly basis thereafter.
The revolving loans are secured by all assets of the Company.
Borrowings under the line are subject to compliance with certain
financial covenants. The Company is currently in compliance with these
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. The
notes have a coupon rate of 6% 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 LBC line of
credit.
-6-
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 two subordinated promissory notes of $750,000 and
$1,315,000 issued to Scitex as partial consideration for the purchase of certain
assets and liabilities and the business of Scitex Digital Video in December,
1998. The first note is due in April, 2000. Principal is 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. The second note consists of
$900,000 due in 1999 and $415,000 due in 2000. Payments are to be made on a
quarterly basis starting on March 31, 1999. Principal is to be paid together
with interest in arrears on the unpaid principal balance at an annual rate of
10%, increasing by 100 basis points at the beginning of every fiscal quarter,
starting July 1, 1999. During the quarter ended March 31, 1999, the Company
repaid $300,000 under the latter promissory note.
Note 5. Net Income (Loss) Per Share
The following table sets forth the computation of basis and diluted net
income (loss) per share (in thousands, except for per share amounts):
For the Three Months Ended
--------------------------
March 31,
---------
1999 1998
------- -------
Net income (loss) $ 514 $ (576)
------- -------
Shares used in computing basic net income (loss) per share 10,122 6,669
------- -------
Basic net income (loss) per share $ 0.05 $ (0.09)
------- -------
Calculation of shares outstanding for computing diluted net income (loss) per
share:
Shares used in computing basic net income (loss) per share 10,122 6,669
Shares used to reflect the effect of the assumed conversion of:
Employee stock options 300 --
------- -------
Shares used in computing fully-diluted net income (loss) per share 10,422 6,669
------- -------
Diluted net income (loss) per share $ 0.05 $ (0.09)
------- -------
Note 6. Segment Information
Management has organized the business into four 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 Ended
--------------------------
March 31,
---------
Market 1999 1998
------ ------ ------
Production $1,224 $1,838
Post Production 5,379 935
Distribution 1,887 68
Other 1,048 232
------ ------
$9,538 $3,073
====== ======
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.
-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 December 31, 1998 and
September 30, 1998 and 1997 and for the three-month periods ended December 31,
1998 and 1997 and the twelve-month periods ended September 30, 1998, 1997, and
1996, included in its Transition Report on Form 10-K for the
Transition Period from October 1, 1998 to December 31, 1998.
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 Transition Report on Form 10-K for the Transition Period from
October 1, 1998 to December 31, 1998, 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, and virtual set
tools, primarily for the worldwide, professional video production, post
production and live broadcasting, and computer video production and
post-production, marketplaces. The Company's systems are designed to be used by
video professionals to create, edit and broadcast high quality video content
such as television shows, commercials, news, music videos and video games.
The following table summarizes the Company's products and the primary
marketplaces they address:
- ----------------------------------------------------------------------------------------------------------------------------------
MARKETS / Product Primary Applications
- ----------------------------------------------------------------------------------------------------------------------------------
PRODUCTION:
- ----------------------------------------------------------------------------------------------------------------------------------
Virtual Set Production Tools
- ----------------------------------------------------------------------------------------------------------------------------------
ELSET(R) Virtual Set Virtual sets for high-end video content creation Production in real time
- ----------------------------------------------------------------------------------------------------------------------------------
Computer Graphics and Animation
Digital Disk Recorders
- ----------------------------------------------------------------------------------------------------------------------------------
WSD(R)/2Xtreme Desktop computer graphics and animation production
- ----------------------------------------------------------------------------------------------------------------------------------
POST PRODUCTION:
- ----------------------------------------------------------------------------------------------------------------------------------
Digital Signal Processors
- ----------------------------------------------------------------------------------------------------------------------------------
8150 Digital Switcher Digital switcher for on-line post production editing 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 family of products Integrated non-linear editing workstation for long and short form programs and
commercials
- ----------------------------------------------------------------------------------------------------------------------------------
Video Digital Disk Recorders
- ----------------------------------------------------------------------------------------------------------------------------------
APR(TM)/Attache On-line post production editing and effects and on-air playback of graphics for
broadcast
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION:
- ----------------------------------------------------------------------------------------------------------------------------------
Digital Signal Processors
- ----------------------------------------------------------------------------------------------------------------------------------
Dveous(TM) and Brutus Digital Video Effects systems for news and sports
- ----------------------------------------------------------------------------------------------------------------------------------
Digital News Graphics and Clip Servers
- ----------------------------------------------------------------------------------------------------------------------------------
Axess(TM) Creation and broadcast distribution of news graphics and short video segments
- ----------------------------------------------------------------------------------------------------------------------------------
-8-
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. 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 March 31, 1999 and March 31, 1998
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended March 31, 1999 and
1998 as reported (dollar amounts in thousands, except per share data):
Three Months Ended
------------------
March 31, Increase (Decrease)
--------- -------------------
1999 1998 Amount Percent
------- ------- ------- -------
Net sales $ 9,538 $ 3,073 $ 6,465 210.4%
Cost of sales 4,059 1,363 2,696 197.8%
------- ------- ------- -----
Gross profit 5,479 1,710 3,769 220.4%
Operating expenses:
Research and development 1,945 835 1,110 132.9%
Marketing and sales 2,100 1,180 920 78.0%
General and administrative 807 306 501 163.7%
------- ------- ------- -----
Total operating expenses 4,852 2,321 2,531 109.0%
------- ------- ------- -----
Operating income (loss) 627 (611) 1,238 202.6%
Interest and other income (expenses), net (111) 40 (151) (377.5%)
------- ------- ------- -----
Income (loss) before provision for income taxes 516 (571) 1,087 190.4%
Provision for income taxes 2 5 (3) (60.0%)
------- ------- ------- -----
Net income (loss) $ 514 $ (576) 1,090 189.2%
======= ======= ======= =====
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended March 31, 1999 and
1998, as a percentage of net sales, as reported:
Three Months Ended
------------------
March 31, Increase
--------- --------
1999 1998 (Decrease)
---- ---- ----------
Net sales 100.0% 100.0% 0.0%
Cost of sales 42.6% 44.3% (1.7)%
----- ----- -----
Gross margin 57.4% 55.7% 1.7%
Operating expenses:
Research and development 20.4% 27.2% (6.8)%
Marketing and sales 22.0% 38.4% (16.4)%
General and administrative 8.4% 10.0% (1.6)%
----- ----- -----
Total operating expenses 50.8% 75.6% (24.8)%
----- ----- -----
Operating income (loss) 6.6% (19.9)% 26.5%
Interest and other income (expenses), net (1.2)% 1.3% (2.5)%
----- ----- -----
Income (loss) before provision for income taxes 5.4% (18.6)% 24.0%
Provision for income taxes -- 0.1% (0.1)%
----- ----- -----
Net income (loss) 5.4% (18.7)% 24.1%
===== ===== =====
Net sales. The increase in net sales during the three months ended
March 31, 1999, from levels for the same period in 1998 was primarily due to
increased sales in the post production and distribution
-9-
marketplaces as well as increased customer service revenues. The increased sales
resulted largely from sales from product lines acquired in the Scitex Digital
Video acquisition. International sales for the three months ended March 31, 1999
and 1998, represented 34.4% and 50.5% of net sales, respectively.
The following table presents net sales dollar volume for the three
months ended March 31, 1999 and 1998, by market and related percentages of total
net sales (dollar amounts in thousands):
Three Months Ended
------------------
March 31,
---------
1999 1998
---- ----
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
Production $1,224 12.8% $1,838 59.8%
Post Production 5,379 56.4% 935 30.4%
Distribution 1,887 19.8% 68 2.2%
Other 1,048 11.0% 232 7.6%
------ ----- ------ -----
$9,538 100.0% $3,073 100.0%
====== ===== ====== =====
Cost of sales. Cost of sales, as a percentage of sales, decreased for
the three months ended March 31, 1999, from levels for the three months ended
March 31, 1998, as a result of increased overall sales and a higher proportion
of higher-margin, customer service sales.
Research and development. Research and development expenses for the
three months ended March 31, 1999, increased over levels for the same period in
1998 primarily due to increases in headcount, consultant expenses, and materials
and services related to specific project development. The increase in headcount
was primarily a result of the acquisition of the Scitex Digital Video assets and
business in December, 1998.
Marketing and sales. Marketing and sales expenses for the three months
ended March 31, 1999 increased over levels for the three months ended March 31,
1998, primarily due to increases in headcount and related overhead expenses and
sales commission expenses. The increase in headcount was primarily a result of
the acquisition of the Scitex Digital Video assets and business in December,
1998.
General and administrative. The increase in general and administrative
expenses for the three months ended March 31, 1999 from levels for the same
period in 1998 was primarily due to increases in headcount, professional fees,
and amortization of intangibles. The increase in headcount was primarily a
result of the acquisition of the Scitex Digital Video assets and business in
December, 1998.
Interest and other income, net. Interest and other income, net, for the
three months ended March 31, 1999, decreased over levels for the three months
ended March 31, 1998, due to a decrease in the levels of interest-paying
investments as well as an increase in debt taken on, in part, to fund the
acquisition of the Scitex Digital Video assets and business.
Provision for income taxes. For the three months ended March 31, 1999
and 1998, the Company was in a net operating loss carryforward position.
-10-
Liquidity and Capital Resources
Since inception, the Company has financed its operations and
expenditures for property and equipment through the sale of capital stock,
borrowings under a bank line of credit and term loans. As of March 31, 1998, the
Company had $342,000 of cash and cash equivalents.
Operating activities provided $13,000 in net cash in the three months
ended March 31, 1999, and used $593,000 in net cash in the three months ended
March 31, 1998. Net cash provided by operations in the three months ended March
31, 1999, was due primarily to net income and a decrease in inventories offset
primarily by an increase in accounts receivable and other current assets.
Proceeds from long-term loans, together with cash provided by operating
activities, were used in financing activities for the repayment of amounts
borrowed previously under a line of credit. Net cash used by operations in the
three months ended March 31, 1998 was primarily due to the net loss, an increase
in inventories, and a decrease in accounts payable partially offset by a
decrease in accounts receivable. Additional cash was used in investing
activities for the purchase of property and equipment.
On December 10, 1998, the Company signed an agreement with LaSalle
Business Credit, Inc., a member of the ABN AMRO group, for a revolving line of
credit for up to $7.5 million. The agreement was amended on March 11, 1999. The
credit line is secured by all the assets of the Company. The availability under
this line is primarily calculated based on eligible accounts receivable and
certain inventory items. Borrowings under the line are subject to certain
financial covenants and, as of March 31, 1999, the Company was in compliance
with these covenants. As of March 31, 1999, the Company had no borrowings
outstanding under the line.
On March 12, 1999, the Company completed a private placement of $3.5
million in senior subordinated convertible notes with a group of investors. The
notes have a coupon rate of 6% per year, mature in 2004, and are convertible, at
any time, into shares of Accom common stock at a price of $1.30 per share.
Proceeds from the private placement were used to partially repay the revolving
line of credit.
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.
Status of Progress in Becoming Year 2000 Compatible
The "Year 2000 Issue" is typically the result of software being written
using two digits rather than four to define the applicable year. If the
Company's software with date-sensitive functions are not Year 2000 compliant,
they may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, interruptions in manufacturing
operations, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has made a preliminary review of the most pertinent Year
2000 issues which have been identified as potentially having a material impact
on the Company's operations and financial condition. More comprehensive study in
certain areas is still to be undertaken.
The Company has identified three areas relating to Year 2000 issues
which may materially affect the Company's business: 1) Information Technology,
addressing internal software and business systems; 2) the Company's Products;
and 3) Third Party, addressing the preparedness of suppliers.
-11-
Information Technology Program: Internal applications systems such as
inventory and financial accounting software, computer network hardware and
software, and software applications programs may have Year 2000 problems. As a
result of the acquisition of Scitex Digital Video (SDV) on December 10, 1998,
the Company decided to use the Man-Man software already in use at SDV as its
main inventory and accounting software. The Man-Man software currently in use is
version 10.2 which is not Year 2000 compliant. Version 11.3, an upgrade of this
software, is Year 2000 compliant and has been procured by the Company by renewal
of its Man-Man license at a cost of $67,000. Total cost to implement this
upgrade is estimated to be less than $100,000. As of March 31, 1999, at least
$20,000 of expected costs had been identified which related to replacement of
software applications and operating systems (which currently are readily
available for licensing by the Company) which the Company anticipates will take
place in the third quarter of 1999. Related to these software upgrades, hardware
on certain computers may also need to be replaced to make them compatible with
the upgraded software. The estimated cost of replacing such hardware is $50,000.
If required modifications to existing software and hardware and conversions to
new software are not made, or are not completed in a timely way, the Year 2000
Issue could have a material impact on the operations of the Company due to the
inability to accurately and effectively track inventory and other financial
results.
Product Readiness Program: Certain products the Company sells have been
identified to have Year 2000 problems which must be corrected to permit smooth
operation by the user. The Year 2000 solution consists of software changes which
will be transmitted to customers by way of CD-ROMs and floppy diskettes. Certain
of these changes have been completed and transmitted to customers; others have
been completed but not yet transmitted to customers, but should be transmitted
in the first half of 1999. The Company believes the costs associated with these
activities will be immaterial given the relatively low cost of the media and
small amount of internal labor that will be utilized. The Company is currently
assessing its exposure to contingencies related to the Year 2000 Issue for the
products it has sold; however, it does not expect these to have a material
impact on the operations of the Company.
Third Party Program: The Company relies on numerous vendors in the
course of operating the business. If these vendors encounter Year 2000 problems
which impact their ability to deliver goods and services to the Company, the
Company's business might be materially and adversely affected. The Company has
not to date conducted a comprehensive survey of its vendors to determine their
Year 2000 readiness, but anticipates doing so in the first half of 1999. The
Company has not yet determined the extent to which the Company's operations are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. In order to protect against the acquisition of additional non-compliant
products, the Company will require that certain hardware and software suppliers
providing goods and services to the Company after June, 1999, warrant that
products sold or licensed to the Company are Year 2000 compliant. Finally, the
Company is also vulnerable to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions.
The Company anticipates addressing and remedying the critical Year 2000
issues by the third quarter of 1999, which is prior to any anticipated impact on
its operating systems and expects the Year 2000 project to continue beyond the
year 2000 with respect to resolution of non-critical issues. These dates are
contingent upon the timeliness and accuracy of software and hardware upgrades
from vendors, adequacy and quality of resources available to work on completion
of the project and any other unforeseen factors. There can be no assurance that
the Company will be successful in its efforts to resolve any Year 2000 issues
and to continue operations in the year 2000. The failure of the Company to
successfully resolve such issues could result in a shutdown of some or all of
the Company's operations, which would have a material adverse effect on the
Company.
-12-
Contingency Plans.
The Company has not yet developed a contingency plan to address
situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations but anticipates developing such a plan
during the third quarter of 1999. There can be no assurance that the Company
will be able to develop a contingency plan that will adequately address issues
that may arise in the year 2000. The failure of the Company to develop and
implement, if necessary, an appropriate contingency plan could have a material
impact on the operations of the Company.
Costs.
The total expense of the Year 2000 project is currently estimated to be
less than approximately $200,000 which is not material to the Company's business
operations or financial condition. The Company has not yet fully estimated all
the Year 2000 costs, in particular, those associated with the replacement of
software running on personal computers and the costs of modifying, testing and
distributing updates to ensure its own products are Year 2000 compliant. The
amount incurred to date was not material.
There can be no assurance that these costs will not be material to the
Company or that the Company will be able to resolve in a timely manner any
issues that may arise in these areas. The expenses of the Year 2000 project are
being funded through operating cash flows.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. There can be no assurance that these
estimates will be achieved and actual results could differ materially from those
anticipated.
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 short-term notes payable
and long-term loans and notes payable are 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.
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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
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.6* Amendment No. 4 to Preferred Shares Rights Agreement, dated as of
May 4, 1999, between the Company and U.S. Stock Transfer
Corporation
27.1 Financial Data Schedule (EDGAR filed version only)
*Incorporated by reference to an exhibit filed with the Company's
Amendment No. 3 to Registration Statement on Form 8-A/A (File No.
0-26620), filed on May 7, 1999.
(b) Reports on Form 8-K.
On December 23, 1998, the Company filed a Current Report on Form 8-K to
report the Company's acquisition of the assets of Scitex Digital Video,
Inc. ("Scitex") and certain of Scitex's affiliates as well as the
details of the financing the Company obtained related to such
acquisition, including a loan agreement and a sale of common stock. The
Company did not file the audited historical financial statements of the
acquired business and the pro forma financial statements of the combined
businesses required to be filed as an amendment to the Form 8-K within
60 days after the original filing due date because the audited financial
statements for Scitex Digital Video did not exist. The Company currently
is in the process of arranging for the preparation of the audited
financials of Scitex Digital Video and will file the financial
statements required by such Form 8-K as soon as practicable after the
audit is complete.
On March 26, 1999, the Company filed a Current Report on Form 8-K to
report the issuance of senior subordinated convertible notes in the
aggregate principal amount of $3,500,000 (the "notes") to a group of six
investors led by American Bankers Insurance Group, Inc. The notes
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mature on March 12, 2004 and bear interest at the rate of 6% per annum,
payable quarterly beginning on June 30, 1999. The Company used the
proceeds from the issuance of the notes for the repayment of
indebtedness. The notes are convertible into shares of the Company's
common stock at any time at the option of the holders. The number of
shares of the Company's common stock to be received upon conversion is
calculated by dividing the outstanding principal amount of the notes by
a conversion price of $1.30, subject to certain adjustments.
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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
----------------------------
(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: May 13, 1999
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