<PAGE>
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 QUARTERLY PERIOD ENDED JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-27772
METROWERKS INC.
(exact name of registrant as specified in its charter)
CANADA N/A
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2601 MCHALE COURT, SUITE 100, AUSTIN, TEXAS 78758
(Address of principal executive offices) (Zip Code)
(512) 873-4700
Registrant's telephone number, including area code
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 the past 90 days.
Yes [ x ] No [ ]
Number of shares of common stock outstanding as of March 23, 1998: 12,867,830
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
- -----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets (Unaudited)
as of July 31, 1997 and January 31, 1998.............................. 2
Consolidated Statements of Operations (Unaudited) for the periods
ended January 31, 1997 and 1998....................................... 3
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
for the period ended January 31, 1998................................. 4
Consolidated Statements of Cash Flows (Unaudited) for the periods
ended January 31, 1997 and 1998....................................... 5
Notes to Consolidated Financial Statements............................ 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 7
Item 3 Quantitative and Qualitative Disclosures About Market Risk............ 11
PART II: OTHER INFORMATION
- --------------------------
Item 1 Legal Proceedings..................................................... 12
Item 2 Changes in Securities and Use of proceeds............................. 12
Item 3 Defaults Upon Senior Securities....................................... 12
Item 4 Submission of Matters to a Vote of Securities Holders................. 12
Item 5 Other Information..................................................... 12
Item 6 Exhibits and Reports on Form 8-K...................................... 12
Signature.................................................................... 12
</TABLE>
<PAGE>
PART 1. FINANCIAL STATEMENTS
- ----------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(U.S. THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 31, January 31,
ASSETS 1997 1998
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,042 $12,852
Accounts receivable, net 5,027 7,712
Inventories 302 179
Income and other taxes recoverable 295 253
Prepaid expenses and other current assets 456 490
---------------- ----------------
Total current assets 11,122 21,486
Long-term receivable - 906
Property and equipment, net 3,046 2,832
---------------- ----------------
Total assets $14,168 $25,224
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,913 $ 1,379
Accrued liabilities 1,498 1,995
Deferred revenue 195 159
---------------- ----------------
Total current liabilities 3,606 3,533
Stockholders' equity:
Capital stock
Preferred stock, Class A and B, no par value,
unlimited as to number; none outstanding - -
Common stock, no par value, unlimited as to number;
shares issued and outstanding 11,537,500 and
12,862,819, respectively 17,596 29,368
Special warrants, issued, none outstanding - -
Accumulated deficit (6,984) (7,510)
Cumulative translation adjustment (50) (167)
---------------- ----------------
Total stockholders' equity 10,562 21,691
---------------- ----------------
Total liabilities and stockholders' equity $14,168 $25,224
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
1997 1998 1997 1998
---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue, net $ 4,684 $ 5,010 $ 8,450 $11,163
Cost of sales 1,449 685 2,543 1,818
Operating expenses:
Research and development 1,245 2,382 2,386 4,465
Selling, administrative and technical support 1,891 2,473 3,475 4,847
Depreciation 261 408 470 794
-------- -------- -------- ---------
Total operating expenses 3,397 5,263 6,331 10,106
Loss from operations (162) (938) (424) (761)
Other income:
Interest income and other, net 87 175 214 235
-------- -------- -------- ---------
Net loss $ (75) $ (763) $ (210) $ (526)
Net loss per common and common
equivalent share $(0.01) $(0.06) $(0.02) $(0.04)
---------------- -------------- -------------- --------------
Weighted average number of common and common
equivalent shares outstanding 11,520 11,930 11,511 11,742
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(U.S. THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative Total
Common Stock Special Warrants Accumulated Translation Stockholders'
Shares Amount Shares Amount Deficit Adjustment Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
August 1, 1997 11,537,500 $17,596 - - $ (6,984) $ (50) $10,562
Exercise of common
stock options 38,286 126 - - - - 126
Issuance of special
warrants, net of
offering costs of
$301,000 (Note 3) - - 1,500,000 11,718 - - 11,718
Foreign currency
translation adjustment - - - - - (11) (11)
Net earnings - - - - 237 - 237
- --------------------------------------------------------------------------------------------------------------------
Balance at
October 31, 1997 11,575,786 $17,722 1,500,000 $11,718 $(6,747) $ (61) $22,632
Exercise of common
stock options 34,628 53 - - - - 53
Conversion of special
warrants (Note 3) 1,475,000 13,759 (1,500,000) (11,718) - - 2,041
Purchase and retirement of
officers' shares (Note 3) (225,000) (2,166) - - - - (2,166)
Foreign currency transation
adjustment - - - - - (106) (106)
Net loss - - - - (763) - (763)
- --------------------------------------------------------------------------------------------------------------------
Balance at
January 31, 1998 12,860,413 $29,368 - $ - $(7,510) $(167) $21,691
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(U.S. THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
1997 1998 1997 1998
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (75) $ (763) $ (210) $ (526)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation of property and equipment 261 408 470 794
Amortization of software development costs 162 - 289 -
Changes in assets and liabilities:
Accounts receivable (1,491) (671) (1,802) (2,802)
Other current assets (83) (46) (341) 131
Long-term receivable - (906) - (906)
Current liabilities 373 (363) 169 (499)
Net cash used in operating activities (853) (2,341) (1,425) (3,808)
Cash flows from investing activities:
Additions to property and equipment (879) (328) (1,846) (580)
Software development costs capitalized (456) - (783) -
Net cash used in investing activities (1,335) (328) (2,629) (580)
Cash flows from financing activities:
Net proceeds from issue of special warrants - - - 12,019
Proceeds from exercise of stock options 26 53 71 179
Net cash provided by financing activities 26 53 71 12,198
Increase (decrease) in cash and cash equivalents (2,162) (2,616) (3,983) 7,810
Cash and cash equivalents at beginning of period 9,677 15,468 11,498 5,042
Cash and cash equivalents at end of period $ 7,515 $12,852 $ 7,515 $12,852
Non-cash investing and financing activities:
Accrued offering costs - 125 - 426
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METROWERKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation. Operating
results for the six months ended January 31, 1998 are not necessarily indicative
of the results that may be expected for the year ended July 31, 1998, or for any
other interim period. For further information, refer to the consolidated
financial statements and footnotes thereto included in Form 10-K for the year
ended July 31, 1997 of Metrowerks Inc. and subsidiaries (the "Company").
The consolidated financial statements include the accounts of Metrowerks Inc.
and its two wholly-owned subsidiaries, Metrowerks Corporation, a Texas
corporation, which was formed in June 1994, and Metrowerks Co. Ltd., a Japanese
corporation, which was formed in October 1996. All significant intercompany
transactions and balances have been eliminated.
Certain amounts have been reclassified in the January 31, 1997 consolidated
financial statements to conform to the current period classifications.
Note 2 - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosure of
Information About Capital Structure" which establishes disclosure requirements
for an entity's capital structure. SFAS No. 129 is effective for fiscal years
ending after December 15, 1997. Management does not believe the implementation
of SFAS No. 129 will have a material effect on its consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997.
Management does not believe the implementation of SFAS No. 130 and No. 131 will
have a material effect on its consolidated financial statements.
Note 3 - Special Warrants
On October 21, 1997, the Company entered into an Underwriting Agreement for the
purpose of issuing to certain underwriters by way of private placement in
Canada, 1,500,000 special warrants ("Special Warrants") at a price of $10.08
each ($9.62 net of underwriters' fee). Upon the exercise of the 1,500,000
Special Warrants thereby sold, 1,250,000 shares were to have been issued from
treasury by the Company and 250,000 were to have been transferred by three
officers of the Company. These arrangements were modified in that the Company
agreed to assume two of the officers' obligations to deliver an aggregate of
225,000 Common Shares upon the exercise of the Special Warrants in consideration
of the payment by those officers of the proceeds received by them in connection
with the offering of the Special Warrants. The special warrants were exercised
in January 1998. Accordingly, 1,475,000 shares were issued from treasury by the
Company and 25,000 shares were transferred by an officer of the Company. The
225,000 Common Shares owned by the other two officers of the Company were
purchased by the Company for cancellation in December 1997.
<PAGE>
Note 4 - Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which
establishes standards for computing and presenting earnings per share. SFAS No.
128 is effective for fiscal years ending after December 15, 1997.
Earnings per share calculated under SFAS No. 128 are as follows.
<TABLE>
<CAPTION>
Three Months ended
January 31,
1997 1998
--------------------------------------
<S> <C> <C>
Net income (loss) for the year $ (75) $ (763)
---------------- ----------------
Weighted average number of common shares
issued and outstanding 11,520 11,930
Common stock equivalents:
Employee stock options - -
---------------- ----------------
Average common and common stock equivalents 11,520 11,930
---------------- ----------------
Basic and diluted loss per share $ (0.01) $ (0.06)
</TABLE>
For the periods ended January 31, 1998 and 1997, stock options are excluded as
their inclusion would be anti-dilutive given the Company's loss.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the consolidated financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. Statements in this report
concerning expectations for the future constitute forward-looking statements
which are subject to a number of known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Company or industry trends to differ materially from those expressed or implied
by such forward looking statements. Relevant risks and uncertainties include,
among others, fluctuations in quarterly results, the development of new
products, technological change, the Company's entry into the embedded systems
market, the dependence on key personnel, the protection of proprietary
technology, the quality of the Company's software products, reliance on
international sales, increased competition, the Company's limited history of
profitability, the management of growth, potential litigation, the need for
additional funds, and the dependence on third-party distribution channels.
Other risk factors which should be read in conjunction with the consolidated
financial condition and results of operations are included from time to time in
the Company's other filings with the securities commissions in Canada and the
United States Securities and Exchange Commission, press releases and other
communications. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
THE COMPANY
Metrowerks designs, develops, markets and supports software programming tools.
The Company's products are used primarily by professional software programmers,
and by programmers in the academic community, to develop applications software
for a variety of platforms, including Windows 95 and Windows NT operating system
used by PCs; the MacOS operating system used by the Macintosh and Power
Macintosh computers; and for operating systems and microprocessors used in the
embedded systems market. Examples of the Company's tools used in the embedded
systems market include CodeWarrior for Sony PlayStation, CodeWarrior for
PalmPilot, CodeWarrior for PowerPC and CodeWarrior for MIPS.
<PAGE>
The Company derives substantially all of its revenue from a limited number of
products. The Company's future revenue is substantially dependent upon the
continued acceptance of its CodeWarrior products. The Company is also in the
process of developing a number of new products and believes that its future
revenue will depend upon the commercial success of these new products.
The Company also derives a significant portion of its revenue from third party
product development agreements pursuant to which the Company receives payments
from a third party for developing programming tools for a particular platform,
operating system or programming language. The amount of revenue the Company
receives from this particular source will depend upon the number of such
agreements to which the Company is a party during such quarter period. Further,
there can be no assurance that the Company will be able to continue to enter
into such development agreements in the future. The Company's product
development efforts have also entailed significant research and development
expenditures. In addition, to enhance its competitive position in the future,
it will be necessary for the Company to broaden its product offerings. This
objective may require expansion of the Company's internal product development
efforts or acquisitions of or investments in complementary businesses, products
or technologies. Furthermore, if the Company were unable to enter into new
software development agreements in the future, the Company would, at a minimum,
have to increase its research and development expenditures. These higher
expense levels combined with fluctuations in revenue could affect the Company's
quarterly and annual results and result in fluctuations in its operating
results. The Company intends to continue to invest significant amounts in
expanding its product line and accordingly may continue to experience losses and
volatility of revenue and operating results in future periods. The Company
believes that the recent growth rates reflected in results of operations for
prior periods should not be relied upon as an indication of growth rates for
future periods.
The Company is in the process of combining its two facilities in Austin, Texas
into one primary location. The Company has committed to certain expenditures
for leasehold improvements and moving costs which will be incurred over the next
two quarters. The funds to satisfy these commitments will come from cash
currently available.
RECENT EVENTS
In January 1997, the Company entered into a licensing agreement with Be, Inc. to
license the source code to the CodeWarrior Integrated Development Environment
(IDE) hosted on the Be Operating System ("BeOS") and the binary code for the
Metrowerks' compilers and linkers for the X86 and PowerPC microprocessors
targeting BeOS. This licensing arrangement will allow Metrowerks to maintain a
presence in the BeOS market while focusing its core research and development
activities on other embedded platforms.
The Company recently announced an alliance with Applied Microsystems Corp.
("Applied") whereby Applied will incorporate Metrowerks' software debugger
technology into their embedded hardware-enhanced debug and software test
products. This alliance will allow embedded systems programmers to easily
download and debug applications targeting embedded devices. As part of this
agreement, Metrowerks and Applied will work together to ensure their tools are
compatible with tools from other vendors. Applied Microsystems is based in
Redmond, Washington and is a leading provider of hardware-enhanced embedded
software design, debug and test solutions.
The Company also announced a strategic alliance with Access Co., Ltd. ("Access")
to provide development tools for the information appliance device market. The
Company will integrate Access' NetFront suite of Internet access software
modules into the CodeWarrior IDE. The NetFront suite includes a real-time
operating system, TCP/IP, and a web browser and supports various microprocessors
and operating systems. The development tools will address both pre-platform
development (development of new appliances and its pre-installed software) and
post-platform development (third-party software applications). Access Co., Ltd.
is based in Tokyo and its NetFront software has been adopted by over 20 home
appliance manufacturers worldwide.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statement of operations as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
1997 1998 1997 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue, net 100.0% 100.0% 100.0% 100.0%
Cost of sales 30.9 13.7 30.1 16.3
Product margins (1) 56.6 83.4 60.9 80.7
Operating expenses:
Research and development 26.6 47.5 28.2 40.0
Selling, administrative
and technical support 40.4 49.4 41.1 43.4
Depreciation of property
and equipment 5.6 8.1 5.6 7.1
Total operating expenses 72.6 105.0 74.9 90.5
Operating income (loss) (3.5) (18.7) (5.0) (6.8)
Other income:
Interest income and other 1.9 3.5 2.5 2.1
Net loss (1.6) (15.2) (2.5) (4.7)
</TABLE>
(1) Product margins are based on net software product revenues and cost of
software product sales only.
REVENUE
The Company recognizes revenue from the sale of its products upon the later of
shipment or the satisfaction of all significant Company obligations. All
revenue is derived from unaffiliated customers. Product returns are estimated
and provided for at the time of sale. Such return allowances as a percentage of
revenues have varied significantly over recent years and periods, reflecting the
Company's experience in product returns as its has significantly expanded the
proportion of its sales through third-party distribution channels and increased
its product portfolio. The Company expects return allowances will continue to
vary in the future. The Company's agreements with its distributors generally
provide the distributors with limited rights to return unsold inventories under
a stock balancing program. The Company monitors activities of its distributors
in an effort to minimize excessive returns and establishes its reserves based on
its estimates of expected returns. While historically the Company's returns
have been within expectations, the setting of return allowances requires
judgments regarding such factors as future competitive conditions and product
acceptance, which can be difficult to predict.
The Company also derives revenue from product development agreement fees.
Product development agreement fees related to software development are
recognized on a percentage of completion basis over the term of the contract,
and are included in revenue in the income statement.
Revenue, a substantial portion of which has been derived from sales of the
Company's CodeWarrior professional programming tools, increased 7.1% from $4.68
million in the second quarter of fiscal 1997 to $5.01 million in the second
quarter of fiscal 1998. The increase in revenues is due in large part to an
increase of $467,000 in net product sales from $3.24 million in the second
quarter of fiscal 1997 to $3.70 million in the second quarter of fiscal 1998.
Product development agreement revenues for the second quarter of fiscal 1998
decreased to $1.31 million from $1.45 million in the second quarter of fiscal
1997. Revenues increased 32.1% from $8.45 million for the six month period
ended January 31, 1997 to $11.16 million for the six month period ended January
31, 1998. The increase is due primarily to an increase in product sales of
$2.02 million for the six month period ended January 31, 1998.
<PAGE>
COST OF SALES AND PRODUCT MARGINS
Cost of sales consists primarily of the cost of product media and duplication,
the cost of packaging materials, royalties and shipping expenses. Costs
associated with product development agreement revenues are included in research
and development expenses, are not separately identified and approximate revenue.
Cost of sales decreased from $1.45 million in the second quarter of fiscal 1997
to $685,000 in the second quarter of fiscal 1998. Of these amounts, the cost of
gross software sales was $1.37 million in the second quarter of fiscal 1997 and
$599,000 in the second quarter of fiscal 1998, representing 39.5% and 13.1% of
gross software sales, respectively. Cost of sales for the six month period
ended January 31, 1997 was $2.54 million and $1.82 million for six month period
ended January 31, 1998, a decrease of 28.5%. The cost of gross software sales
was $2.40 million for the six month ended January 31, 1997 and $1.55 million for
the six month ended January 31, 1998, representing 34.7% and 16.8% of gross
software sales respectively. The Company has focused on its manufacturing,
fulfillment and distribution operations and has seen significant improvements in
its gross margin as a result. In the first quarter of fiscal 1998, cost of
gross software sales totaled $950,000 or 20.5% of gross software sales.
OPERATING EXPENSES
Research and Development. Research and development costs are expensed as
incurred. Eligible software costs incurred between the time a product achieves
technological and financial feasibility until its general release to customers
are capitalized and amortized on a straight-line basis over the economic life
of the product, which is generally three years. The Company evaluates the
realizable value of capitalized software on an ongoing basis, relying on a
number of factors, including operating results, business plans, budgets and
economic projections. In addition, the Company evaluates non-financial data
such as market trends and product development cycles. Research and development
costs are reduced by related grants and investment tax credits.
Research and development costs increased from $1.25 million in the second
quarter of fiscal 1997 to $2.38 million in the second quarter of fiscal 1998,
representing 26.6% and 47.5% of net revenues, respectively. For the six month
period ended January 31, 1997 research and development expenditures were $2.39
million compared to $4.47 million for the six month period ended January 31,
1998, representing 28.2% and 40.0% of net revenues, respectively. Research and
development expenditures consist primarily of personnel-related costs.
Increases in expenses were due primarily to the growth of the Company's research
and development team from 73 employees to 106 employees. Research and
development expenses in the first quarter of fiscal 1998 were $2.08 million or
33.9% of net revenues.
Selling, administrative and technical support. Selling, administrative and
technical support costs increased from $1.89 million in the second quarter of
fiscal 1997 to $2.47 million in the second quarter of fiscal 1998, representing
40.4% and 49.4% of net revenues, respectively. This increase in absolute costs
is due to an increase in selling, administrative and technical support headcount
from 74 employees at January 31, 1997 to 84 employees at January 31, 1998.
Selling, administrative and technical support costs increased from $3.48 million
for the six month ended January 31, 1997 to $4.85 million for the six month
ended January 31, 1998, representing 41.1% and 43.4% of net revenues,
respectively. In the first quarter of fiscal 1998, selling administrative and
technical support costs totaled $2.37 million or 38.6% of net revenues.
Depreciation expense totaled $261,000 in the second quarter of fiscal 1997,
$386,000 in the first quarter of fiscal 1998, and $408,000 in the second
quarter of fiscal 1998. For the six month period ended January 31, 1997
depreciation expense totaled $470,000 compare to $794,000 for the six month
period ended January 31, 1998. The increase in depreciation expense is due to
the Company's investment in property and equipment necessary to provide support
for the Company's personnel growth during this period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On October 21, 1997, the Company entered into an Underwriting Agreement for the
purpose of issuing to certain underwriters by way of private placement,
1,500,000 special warrants ("Special Warrants") at a price of $10.08 each ($9.62
net of underwriters' fee). Upon the exercise of the 1,500,000 Special Warrants
thereby sold, 1,250,000 shares were to have been issued from treasury by the
Company and 250,000 were to have been transferred by three officers of the
Company. These arrangements were modified in that the Company agreed to assume
two of the officers' obligations to deliver an aggregate of 225,000 Common
Shares upon the exercise of the Special Warrants in consideration of the payment
by those officers of the proceeds received by them in connection with the
offering of the Special Warrants. The special warrants were exercised in January
1998. Accordingly, 1,475,000 shares were issued from treasury by the Company
and 25,000 shares were transferred by an officer of the Company. The 225,000
Common Shares owned by the other two officers of the Company were purchased by
the Company for cancellation in December 1997. The Company received net
proceeds of $12.02 million from the offering. The proceeds are net of
underwriter's fees of $580,938 and will be further reduced by anticipated
offering costs of $301,000 which were included in accrued liabilities at October
31, 1997.
Net cash used in operating activities was $2.34 million and $853,000 for the
three-month periods ended January 31, 1998 and 1997, respectively. The decrease
in cash from operations is primarily due to the growth in accounts receivable
during the quarter. Net cash used in investing activities was $328,000 and $1.34
million for the three-month periods ended January 31, 1998 and 1997,
respectively. These expenditures were primarily for the acquisition of furniture
and equipment to support the increase in headcount. Expenditures for the three-
month period ended January 31, 1997 also included the costs related to the
investments for the office in Tokyo, Japan and to the acquisition of our
fulfillment operations. Net cash provided by financing activities was $53,000
and $26,000 for the three-month periods ended January 31, 1998 and 1997,
respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 IS NOT APPLICABLE AND HAS BEEN OMITTED.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 21, 1997, the Company entered into an Underwriting Agreement
for the purpose of issuing to certain underwriters by way of private
placement in Canada, 1,500,000 special warrants ("Special Warrants") at
a price of $10.08 each ($9.62 net of underwriters' fee). Upon the
exercise of the 1,500,000 Special Warrants thereby sold, 1,250,000
shares were to have been issued from treasury by the Company and 250,000
were to have been transferred by three officers of the Company. These
arrangements were modified in that the Company agreed to assume two of
the officers' obligations to deliver an aggregate of 225,000 Common
Shares upon the exercise of the Special Warrants in consideration of the
payment by those officers of the proceeds received by them in connection
with the offering of the Special Warrants. The special warrants were
exercised in January 1998. Accordingly, 1,475,000 shares were issued
from treasury by the Company and 25,000 shares were transferred by an
officer of the Company. The 225,000 Common Shares owned by the other two
officers of the Company were purchased by the Company for cancellation
in December 1997.
The underwriters of this private placement were RBC Dominion Securities
Inc., CIBC Wood Gundy Securities Inc., and Gordon Capital Corporation.
ITEMS 3, 4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON THE FORM 8-K
(A) EXHIBITS
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended January
31, 1998.
For further information, refer to the Form 10-K for the year ended July 31, 1997
of the company.
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.
Metrowerks Inc.
Date: March 23, 1998 By: /s/ James H. Welch
------------------
James H. Welch,
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
METROWERKS INC.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS ON PAGES 2
AND 3 OF THE COMPANY'S FORM 10Q QUARTERLY REPORT FOR THE QUARTER ENDED JANUARY
31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,962
<SECURITIES> 10,890
<RECEIVABLES> 8,818
<ALLOWANCES> (200)
<INVENTORY> 179
<CURRENT-ASSETS> 22,392
<PP&E> 5,406
<DEPRECIATION> (2,574)
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0
0
<COMMON> 29,368
<OTHER-SE> (7,677)
<TOTAL-LIABILITY-AND-EQUITY> 25,224
<SALES> 3,702
<TOTAL-REVENUES> 5,010
<CGS> 685
<TOTAL-COSTS> 685
<OTHER-EXPENSES> 5,141
<LOSS-PROVISION> 122
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (763)
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<EXTRAORDINARY> 0
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<NET-INCOME> (763)
<EPS-PRIMARY> (.06)
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