<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended: August 31, 1997
---------------
[ ] 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: 0-14779
-------
MEDIA 100 INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2532613
- ------------------------------- --------------------------------------
(State or other jurisdiction of I.R.S. Employer Identification Number)
organization or incorporation)
290 DONALD LYNCH BOULEVARD
MARLBOROUGH, MASSACHUSETTS
----------------------------------------------------
(Address of principal executive offices)
01752-4748
----------------------------------------------------
(Zip code)
(508) 460-1600
----------------------------------------------------
(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
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, par value $.01 per share 8,182,504 shares
- -------------------------------------- ---------------------------------
Class Outstanding at September 30, 1997
<PAGE> 2
MEDIA 100 INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets as of
August 31, 1997 and November 30, 1996 3
Consolidated Statements of Operations for the three
months ended August 31, 1997 and 1996, and the nine 4
months ended August 31, 1997 and 1996
Consolidated Statements of Cash Flows for the nine
months ended August 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 9
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 13
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 14
ITEM 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, November 30,
(in thousands) 1997 1996
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,411 $ 2,733
Marketable securities 29,555 27,983
Accounts receivable, net of reserves of
$423 in 1997 and $328 in 1996 7,282 11,665
Inventories 1,171 1,473
Prepaid expenses 632 567
------- -------
Total current assets 41,051 44,421
Property and equipment, net 6,876 2,467
Other assets, net 88 112
Assets of discontinued operations, net -- 12,990
------- -------
Total assets $48,015 $59,990
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,180 1,981
Accrued expenses 5,667 5,791
Deferred revenue 3,789 2,153
------- -------
Total current liabilities 10,636 9,925
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock -- --
Common stock 82 81
Capital in excess of par value 40,446 40,035
Retained (deficit) earnings (3,069) 9,826
Cumulative translation adjustment 30 123
Unrealized holding loss on
available for sale securities, net (110) --
------- -------
Total stockholders' equity 37,379 50,065
------- -------
Total liabilities and stockholders' equity $48,015 $59,990
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
(in thousands, except per share data) 1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $11,107 $13,066 $34,732 $36,677
Cost of sales 4,387 4,947 13,479 14,508
------- ------- ------- -------
Gross profit 6,720 8,119 21,253 22,169
Operating expenses:
Research and development 1,967 1,787 6,123 4,455
Selling and marketing 4,000 3,802 12,363 10,649
General and administrative 1,027 1,401 2,973 3,871
Restructuring charge 526 0 526 0
------- ------- ------- -------
Total operating expenses 7,520 6,990 21,985 18,975
------- ------- ------- -------
Income (loss) from operations (800) 1,129 (732) 3,194
Interest income 448 556 1,343 1,578
Other income (expense), net (154) 2 (479) (47)
------- ------- ------- -------
Income (loss) from continuing operations
before tax provision (506) 1,687 132 4,725
Tax provision (benefit) (101) 337 36 945
------- ------- ------- -------
Income (loss) from continuing operations (405) 1,350 96 3,780
Discontinued operations:
Loss from discontinued operations
of Data Translation, Inc. 0 (4,764) 0 (4,722)
------- ------- ------- -------
Net income (loss) $ (405) $(3,414) $ 96 $ (942)
======= ======= ======= =======
Income (loss) per common and common
equivalent share from continuing operations $ (0.05) $ 0.16 0.01 $ 0.44
Loss per common and common equivalent
share from discontinued $ 0.00 $ (0.56) $ 0.00 $ (0.55)
------- ------- ------- -------
Net income (loss) per common and common
equivalent share $ (0.05) $ (0.40) $ 0.01 $ (0.11)
======= ======= ======= =======
Weighted average number of common
and common equivalent shares outstanding 8,164 8,483 8,239 8,520
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
(in thousands) 1997 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 96 $ (942)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 1,111 720
Loss on sale of marketable securities 19 28
Changes in assets and liabilities
Accounts receivable 4,383 (4,165)
Inventories 302 190
Prepaid expenses (65) (386)
Accounts payable (801) 307
Accrued expenses (124) 2,554
Deferred revenue 1,636 660
-------- --------
Net cash provided by (used in) continuing operating activities 6,557 (1,034)
Net cash provided by discontinued operating activities -- 1,474
-------- --------
Net cash provided by operating activities $ 6,557 $ 440
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (5,519) (1,607)
Increase (decrease) in other assets 23 (66)
Purchases of marketable securities (41,008) (42,245)
Proceeds from sales of marketable securities 39,307 14,806
-------- --------
Net cash used in investing activities $ (7,197) $(29,112)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock plans 411 1,284
Net proceeds from public sale of common stock -- 3,450
-------- --------
Net cash provided by financing activities $ 411 $ 4,734
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (93) (25)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (322) $(23,963)
CASH AND CASH EQUIVALENTS, beginning of period 2,733 28,602
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,411 $ 4,639
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 90 $ 694
======== ========
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH:
Acquisition of equipment under capital lease obligations $ (221) $ --
======== ========
Decrease in value of marketable securities $ 110 $ 249
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1996 AMOUNTS)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of Media
100 Inc. ("the Company") and its wholly-owned subsidiaries. The interim
financial statements are unaudited. However, in the opinion of management, the
consolidated financial statements and disclosures reflect all adjustments
necessary for fair presentation. Interim results are not necessarily indicative
of results expected for a full year or for any other interim period. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These consolidated condensed financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest audited financial statements, which are
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1996, filed with the Securities and Exchange
Commission on February 28, 1997.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On July 30, 1996, the Company announced its intention to separate its Media
100(R) digital video business from its data acquisition and imaging, commercial
products and U.K.-based networking distribution businesses. The Company
announced that it would contribute its data acquisition and imaging and
commercial products businesses to a newly-formed subsidiary, Data Translation
II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to
the Company's stockholders. The Company further announced that it planned to
dispose of its networking distribution business within twelve months. On
November 11, 1996, the Company sold substantially all of the assets associated
with its networking distribution business in connection with the winding up of
that business. On December 2, 1996, the Company distributed all of the shares of
DTI, to which it had contributed its data acquisition and imaging and commercial
products businesses and the remaining assets and liabilities of the networking
distribution business, as a dividend to the Company's stockholders (the
"Spin-Off"), in the ratio of one share of DTI common stock for every four shares
of Company common stock. The dividend reduced retained earnings in an amount
equal to $12,990,000. In connection with the Spin-Off, the Company retained only
its Media 100 related business and changed its name to Media 100 Inc.
2. Cash Equivalents and Marketable Securities
Cash equivalents are carried at cost, which approximates market value, and have
original maturities of less than three months. Cash equivalents include money
market accounts and repurchase agreements with overnight maturities.
The Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this standard, the Company is
required to classify all investments in debt and equity securities into one or
more of the following three categories: held-to-maturity, available-for-sale or
trading. Available-for-sale securities are recorded at fair market value with
unrealized gains and losses excluded from earnings and reported to stockholders'
equity. All of the Company's marketable securities are classified as
available-for-sale.
Marketable securities held as of August 31, 1997, consist of the following (in
thousands):
<TABLE>
<CAPTION>
Investments available for sale: Maturity Market Value
-------- ------------
<S> <C> <C>
U.S. Treasury Notes less than 1 year $3,027
U.S. Treasury Notes 1 - 4 years 3,238
------
Total U.S. Treasury Notes 6,265
Municipal Bonds less than 1 year 2,014
Municipal Bonds 1 - 3 years 514
------
Total Municipal Bonds 2,528
U.S. Agency Bonds less than 1 year 2,936
U.S. Agency Bonds 1 - 2 years 1,218
------
Total U.S. Agency Bonds 4,154
Money Market Instruments 9,484
</TABLE>
6
<PAGE> 7
2. Cash Equivalents and Marketable Securities (continued)
<TABLE>
<CAPTION>
Investments available for sale: Maturity Market Value
-------- ------------
<S> <C> <C>
Corporate Obligations less than 1 year 6,619
Corporate Obligations 1 - 2 years 505
-------
Total Corporate Obligations 7,124
-------
Total investments available for sale $29,555
=======
</TABLE>
Marketable securities had a cost of $29,665 and $27,983 at August 31, 1997 and
November 30, 1996, respectively, and a market value of $29,555 and $27,983,
respectively. To decrease the carrying amount of the August 31, 1997 marketable
securities portfolio to market value, a valuation allowance has been reflected
as a separate component of stockholders' equity on August 31, 1997 pursuant to
the provisions of SFAS No. 115.
3. Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or market
and consist of the following (in thousands):
<TABLE>
<CAPTION>
August 31, November 30,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials $ 392 $ 780
Work-in-process 461 302
Finished goods 318 391
------ ------
$1,171 $1,473
====== ======
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing plan.
4. Property and equipment, net
Property and equipment, net is stated at cost, less accumulated depreciation and
amortization, and consists of the following (in thousands):
<TABLE>
<CAPTION>
August 31, November 30,
1997 1996
---------- ------------
<S> <C> <C>
Machinery and equipment $7,434 $4,265
Furniture and fixtures 1,241 480
Leasehold improvements 1,322 --
------ ------
$9,997 $4,745
Less accumulated depreciation and amortization 3,121 2,278
------ ------
$6,876 $2,467
====== ======
</TABLE>
5. Net Income (Loss) Per Common Share
Net income per common share is determined by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. Net loss per common share is determined by dividing net loss by the
weighted average number of common shares outstanding during the period. Common
equivalent shares have been calculated in accordance with the treasury stock
method and are included for all periods where their effect is dilutive. Fully
diluted net income (loss) per common and common equivalent share has not been
separately presented, as the amounts would not be materially different from net
income (loss) per common and common equivalent share for all periods presented.
7
<PAGE> 8
6. Contingencies
(i) On June 7, 1995, a lawsuit was filed against the Company by Avid Technology,
Inc. ("Avid"), in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
product. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July, 1995 the Company filed an Answer and
Counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On July 31, 1996,
the court ordered a stay of all proceedings in the lawsuit pending conclusion of
the reissue proceedings referred to above. There can be no assurance that the
Company will prevail in the lawsuit asserted by Avid or that the expense or
other effects of the lawsuit, whether or not the Company prevails, will not have
a material adverse effect on the Company's business, operating results and
financial condition.
(ii) On February 12, 1997, a lawsuit was filed in Germany against the Company's
former German subsidiary, Data Translation GmbH ("DT GmbH"), and its managing
director, by Lex Computer and Management Corporation ("Lex"). The complaint
generally alleged patent infringement by DT GmbH arising from the manufacture,
sale and use of the Company's Media 100 products in Germany. The complaint
included requests for injunctive relief, damages, costs and fees. DT GmbH is
currently a subsidiary of DTI. Under the terms of the Spin-Off the Company has
agreed to indemnify DTI and its affiliates (including DT GmbH) against
liabilities arising out of the Company's Media 100 business. Subsequent to the
filing of the lawsuit, the Company agreed to license on a worldwide basis
certain video editing-related patents owned by Lex. In connection with the
license arrangement, Lex withdrew its lawsuit against DT GmbH and its managing
director on June 19, 1997. The Company does not currently believe that the terms
of the foregoing license arrangement will have a material effect on the
Company's financial position or operating results.
(iii)From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's business, operating results
or financial condition.
7. Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Capitalization of costs commences upon establishing technological feasibility.
Capitalized costs, net of accumulated amortization, were approximately $88,000
and $104,000 as of August 31, 1997 and November 30, 1996, respectively and are
included in other assets. These costs are amortized on a straight-line basis
over two years, which approximates the economic life of the product.
Amortization expense, included in cost of sales in the accompanying consolidated
statements of operations, was approximately $65,000 and $40,000 for the nine
months ended August 31, 1997 and twelve months ended November 30, 1996,
respectively.
8. Income Taxes
Due to the net loss in the third quarter of 1997, the Company benefited from
income taxes, based on the projected taxable income from operations for fiscal
1997, using an effective tax rate of 20% for the three months ended August 31,
1997. For the full fiscal year the Company anticipates having an effective tax
rate of approximately 20%, taking into consideration research and development
tax credit carryforwards and other general business tax credits.
9. Discontinued Operations
The components of net assets of discontinued operations included in the
accompanying consolidated balance sheets at August 31, 1997 and November 30,
1996 follow (in thousands):
<TABLE>
<CAPTION>
August 31, November 30,
1997 1996
---------- ------------
<S> <C> <C>
Current assets $ -- $14,090
Equipment, net -- 2,351
Other assets, net -- 260
Current liabilities -- (2,317)
Net liabilities of networking distribution business -- (1,424)
Cumulative translation adjustment -- 30
------ -------
$ -- $12,990
====== =======
</TABLE>
8
<PAGE> 9
9. Discontinued Operations (continued)
The components of discontinued operations included in the accompanying
consolidated statements of operations for the three and nine months ended August
31, 1997 and 1996, respectively, follow (in thousands):
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss from operations of discontinued businesses -- $(2,494) -- $(2,117)
Loss on disposal of networking distribution business -- (2,270) -- (2,605)
-------- ------- -------- -------
Loss from discontinued operations $ -- $(4,764) $ -- $(4,722)
======== ======= ======== =======
</TABLE>
Income for the three and nine months ended August 31, 1996 also reflects an
allocation of $145 and $419 of interest income, respectively, relating to the
$10 million contributed to DTI by the Company.
10. New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for fiscal years
ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ended November
30, 1998. The Company believes that the adoption of SFAS No. 128 will not have a
material effect on its financial statements.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Media 100 Inc. is a technology and market leader in the market for personal
computer-based digital video systems. The Media 100 family of products are
analog and digital conversion systems that enable users to capture video and
audio into a personal computer, perform random-access ("nonlinear") video
editing and audio mixing, and directly produce a finished program with
broadcast-quality picture and compact disc-quality sound, all without the use of
traditional video tape equipment.
On July 30, 1996, the Company announced its intention to separate its Media 100
digital video business from its data acquisition and imaging, commercial
products and U.K.-based networking distribution businesses. The Company
announced that it would contribute its data acquisition and imaging and
commercial products businesses to a newly-formed subsidiary, Data Translation
II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to
the Company's stockholders. The Company further announced that it planned to
dispose of its networking distribution business within twelve months. On
November 11, 1996, the Company sold substantially all of the assets associated
with its networking distribution business in connection with the winding up of
that business. On December 2, 1996, the Company distributed all of the shares of
DTI, to which it had contributed its data acquisition and imaging and commercial
products businesses and the remaining assets and liabilities of the networking
distribution business, as a dividend to the Company's stockholders (the
"Spin-Off"), in the ratio of one share of DTI common stock for every four shares
of Company common stock. In connection with the Spin-Off, the Company retained
only its Media 100 related business and changed its name to Media 100 Inc.
Results of Operations
The following table shows certain consolidated statements of operations data as
a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross margin 60.5 62.1 61.2 60.4
Research and development expenses 17.7 13.7 17.6 12.1
Selling and marketing expenses 36.0 29.1 35.6 29.0
General and administrative expenses 9.3 10.7 8.6 10.6
Restructuring charge 4.7 0.0 1.5 0.0
----- ----- ----- -----
Operating income (loss) (7.2) 8.6 (2.1) 8.7
Interest income and other, net 2.7 4.3 2.5 4.2
Provision (benefit) for income taxes (0.9) 2.6 0.1 2.6
----- ----- ----- -----
Income (loss) from continuing operations (3.6)% 10.3% 0.3% 10.3%
===== ===== ===== =====
</TABLE>
Comparison of Third Fiscal Quarter of 1997 to Third Fiscal Quarter of 1996
Net sales from continuing operations for the fiscal quarter ended August 31,
1997 were $11,107,000, a decrease of $1,959,000, or 15.0%, from the same period
a year ago. Net sales decreased for the quarter ended August 31, 1997 primarily
due to lower average selling prices for the Company's Media 100 products and a
higher percentage of the Company's unit sales coming from its entry systems. In
August 1997 the Company began shipments of Media 100 xr and reduced the price of
two other Media 100 products, Media 100 xe by 13.3% and Media 100 xs by 31.8%,
to enhance their price/performance relative to competitive product offerings
from some of the Company's competitors. These lower prices together with price
reductions of two other Media 100 products in April 1997 will continue to
decrease the average selling price for the Company's products.
Gross margin for the fiscal quarter ended August 31, 1997 was 60.5%, compared to
62.1% in the comparable quarter a year ago. This decrease in gross margin was
primarily the result of the lower average selling prices discussed above
partially offset by reductions in the cost of key component parts used in the
manufacture of the Media 100 hardware.
10
<PAGE> 11
Comparison of Third Fiscal Quarter of 1997 to Third Fiscal Quarter of 1996
(continued)
Operating expenses for the fiscal quarter ended August 31, 1997 were $7,520,000,
an increase of $530,000, or 7.6%, from the same period a year ago. Research and
development expenses for the fiscal quarter ended August 31, 1997 were
$1,967,000, an increase of $180,000, or 10.0%, from the same period a year ago.
The increase in research and development reflects continued investment in the
Company's Media 100 product line including the Company's latest product, Media
100 xr, which began shipments in August 1997. Selling and marketing expenses for
the fiscal quarter ended August 31, 1997 were $4,000,000, an increase of
$198,000, or 5.2%, from the same period a year ago. The increase in selling and
marketing expenses reflects the Company's investment in expanding its support
for the sales channel in Europe. General and administrative expenses for the
quarter ended August 31, 1997 were $1,027,000, a decrease of $374,000, or 26.7%,
from the same period a year ago. The decrease in general and administrative
expenses represents lower legal expenses for the defense of patent infringement
litigation, as discussed in Note 6 to the Consolidated Financial Statements. The
Company incurred restructuring charges in the quarter ended August 31, 1997 of
$526,000, compared to restructuring charges of $0 in the same period a year ago.
The restructuring charges of $526,000 consisted primarily of severance and
related costs associated with a reduction of the Company's workforce.
The loss from operations for the third fiscal quarter of 1997 was $800,000
compared to income from operations of $1,129,000 for the same period a year ago.
The loss from operations for the quarter ended August 31, 1997 was due to lower
net sales, lower gross margin and higher operating expenses primarily due to the
restructuring charges discussed above.
Interest income for the fiscal quarter ended August 31, 1997 was $448,000, or
4.0% of net sales, compared to $556,000, or 4.3% of net sales, in the comparable
quarter a year ago. Other expense for the third fiscal quarter of 1997 was
$154,000, an increase of $156,000 over the same period a year ago, reflecting
increased losses on foreign currency translations arising out of the Company's
subsidiaries.
The tax benefit of $101,000 for the fiscal quarter ended August 31, 1997
compares to a $337,000 tax provision for the same period a year ago. The Company
currently estimates its effective tax rate for fiscal 1997 will be approximately
20% for its domestic operations taking into consideration research and
development tax credit carryforwards and other business tax credits available
for use against taxable income.
Loss from continuing operations for the fiscal quarter ended August 31, 1997 was
$405,000 or $0.05 per share, compared to income from operations of $1,350,000,
or $0.16 per share, for the same period a year ago. Loss from discontinued
operations for the third fiscal quarter of 1997 was $0 compared to $4,764,000,
or $.056 per share, for the same period a year ago. As discussed in the
Overview, on December 2, 1996, the Company effected the Spin-Off. The net loss
for the fiscal quarter ended August 31, 1997 was $405,000, or $.05 per share,
compared to a net loss of $3,414,000, or $.40 per share, for the same period a
year ago.
Comparison of First Nine Months of 1997 to the First Nine Months of 1996
Net sales from continuing operations for the first nine months of 1997 were
$34,732,000, a decrease of $1,945,000, or 5.3%, from the same period a year ago.
Higher units sales were offset by lower average selling prices for the Company's
Media 100 products and a higher percentage of the Company's unit sales coming
from its entry systems. In August 1997 the Company began shipments of Media 100
xr and reduced the price of two other Media 100 products, Media 100 xe by 13.3%
and Media 100 xs by 31.8%, to enhance their price/performance relative to
competitive product offerings from some of the Company's competitors. These
lower prices together with price reductions of two other Media 100 products in
April 1997 will continue to decrease the average selling price for the Company's
products.
Gross margin for the first nine months of 1997 was 61.2%, compared to 60.4% in
the comparable period a year ago. This increase in gross margin was primarily a
result of reductions in the cost of key component parts used in the manufacture
of the Media 100 hardware which more than offset the lower average selling
prices.
Operating expenses for the first nine months of 1997 were $21,985,000, an
increase of $3,010,000, or 15.9%, from the same period a year ago. Research and
development expenses for the first nine months of 1997 were $6,123,000, an
increase of $1,668,000, or 37.4%, from the same period a year ago. The increase
in research and development reflects continued investment in the Company's Media
100 product line including the Company's latest product, Media 100 xr, which
began shipments in August 1997. Selling and marketing expenses for the first
nine months of 1997 were $12,363,000, an increase of $1,714,000 or 16.1%, from
the same period a year ago. The increase in selling and marketing expenses
reflects the Company's investment in expanding its support for the sales channel
in Europe. General and administrative expenses for first nine months of 1997
were $2,973,000, a decrease of $898,000, or 23.2%, from the same period a year
ago. The decrease in general and administrative
11
<PAGE> 12
Comparison of First Nine Months of 1997 to the First Nine Months of 1996
(continued)
expenses represents lower legal expenses for the defense of patent infringement
litigation, as discussed in Note 6 to the Consolidated Financial Statements. The
Company incurred restructuring charges in the first nine months of 1997 of
$526,000, compared to restructuring charges of $0 in the same period a year ago.
The restructuring charges of $526,000 consisted primarily of severance and
related costs associated with a reduction of the Company's workforce.
The loss from operations for the first nine months of 1997 was $732,000 compared
to income from operations of $3,194,000 for the same period a year ago. The loss
from operations for the first nine months of 1997 was due to lower net sales and
higher operating expenses for research and development, selling and marketing
and the restructuring charges discussed above.
Interest income for the first nine months of 1997 was $1,343,000, or 3.9% of net
sales, compared to $1,578,000, or 4.3% of net sales, in the comparable quarter a
year ago. Other expense for the first nine months of 1997 was $479,000, an
increase of $432,000 over the same period a year ago, reflecting increased
losses on foreign currency translations arising out of the Company's
subsidiaries.
The tax provision of $36,000 for the first nine months of 1997 compares to a tax
provision of $945,000 for the same period a year ago. The Company currently
estimates its effective tax rate for fiscal 1997 will be approximately 20% for
its domestic operations taking into consideration research and development tax
credit carryforwards and other business tax credits available for use against
taxable income.
Income from continuing operations for the first nine months of 1997 was $96,000
or $0.01 per share, compared to income from operations of $3,780,000, or $0.44
per share, for the same period a year ago. Loss from discontinued operations for
the first nine months of 1997 was $0 compared to $4,722,000, or $.055 per share,
for the same period a year ago. As discussed in the Overview, on December 2,
1996, the Company effected the Spin-Off. Net income for the first nine months of
1997 was $96,000, or $.01 per share, compared to a net loss of $942,000, or $.11
per share, for the same period a year ago.
Liquidity and Capital Resources
The Company has funded its operations to date primarily from public offerings of
equity securities and cash flows from operations. As of August 31, 1997 the
Company's principal sources of liquidity included cash and cash equivalents and
marketable securities totaling approximately $31,966,000.
In the first nine months of 1997, cash provided by continuing operating
activities was approximately $6,557,000 compared to cash used in continuing
operating activities of approximately $1,034,000 for the same period a year ago.
Cash was generated during the nine months of 1997 from an increase in deferred
revenue of $1,636,000 and reductions in accounts receivable of $4,383,000 and
inventory of $302,000. This increase in cash was partially offset by reductions
in accounts payable of $801,000, accrued expenses of $124,000 and prepaid
expenses of $65,000. Net cash used in investing activities was approximately
$7,197,000 during the first nine months of 1997 compared to approximately
$29,112,000 (primarily for purchases of marketable securities) for the same
period a year ago. Cash used in investing activities during the nine month
period ended August 31, 1997 was primarily for purchases of capital equipment
and leasehold improvements associated with the Company's move to its new
facility in May 1997 of approximately $5,519,000 and net purchases of marketable
securities of approximately $1,701,000. Cash provided by financing activities
during the first nine months of 1997 was approximately $411,000 compared to
$4,734,000 for the same period a year ago. All of the cash provided by financing
activities in the first nine months of 1997 came from proceeds from the
Company's stock plans.
The Company believes its existing cash balance, including cash equivalents and
marketable securities, and cash generated from future operations will be
sufficient to meet the Company's cash requirements for the foreseeable future.
Certain Factors That May Affect Future Performance
Except for the historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q are forward-looking statements based on
current expectations, and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
expressed in such forward-looking statements. The risks and uncertainties
associated with such statements have been described under the heading "Certain
Factors That May Affect Future Results" in the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1996, and also include the
following:
12
<PAGE> 13
Certain Factors That May Affect Future Performance (continued)
The Company's quarterly operating results may vary significantly depending on
the timing of the Company's announcement or introduction of new products and
enhancements. The Company has in the past experienced delays in the development
of new products and enhancements, and such delays may occur in the future. In
particular, the Company's current efforts to develop a product operating on the
Windows NT platform and utilizing the Company's existing Vincent(TM) digital
video engine involve a collaborative effort with Macromedia, Inc., whose new
Final Cut digital video application software would be bundled with the new
product. The Company currently anticipates that Macromedia will not make Final
Cut commercially available until the third quarter of the Company's next fiscal
year. Any delay or failure by the Company in developing new products or
enhancements, or any delay or failure of such new products or enhancements to
achieve market acceptance, as a result of competition, blocking proprietary
rights of third parties or other factors, could have a material adverse effect
on the Company's business and operating results.
The Company's quarterly operating results also may vary significantly depending
on the timing of new product announcements or introductions by competitors,
changes in pricing, and the volume and timing of orders received during the
quarter, which are difficult to forecast. The future operating results of the
Company may fluctuate as a result of these and other factors, including the
Company's ability to continue to develop or acquire innovative new products, its
product and customer mix and the level of competition.
A significant portion of the Company's operating expenses is relatively fixed,
and operating expense levels are based primarily on internal expectations of
future revenue. As a consequence, quarterly operating expense levels cannot be
reduced rapidly in the event that quarterly revenue levels fail to meet internal
expectations. Therefore, if quarterly revenue levels fail to meet internal
expectations, the Company's operating results would be adversely affected and
there can be no assurance that the Company would be able to operate profitably.
Reductions in certain operating expenses, if incurred, could involve material
one-time charges associated with workforce reductions, eliminating facilities
and offices or writing off certain assets.
The market for the Company's products is highly competitive and characterized by
pressure to reduce prices, incorporate new features and accelerate the release
of new products. Many of the Company's current and potential competitors have
greater financial, technical and marketing resources than the Company. As a
result, such competitors may be able to develop products comparable to or
superior to the Company's products, adapt more quickly than the Company to new
technologies, evolving industry standards or customer requirements, or lower
their product costs and thus be able to lower prices to levels at which the
Company could not operate profitably, the occurrence of any of which could have
a material adverse effect on the Company's business and operating results. In
this regard, the Company believes that it will continue to experience
competitive pressure to reduce prices, particularly for its higher-end systems.
The Company has historically realized higher gross profit on the sale of its
higher-end systems than its entry systems, and such continued competitive
pricing pressure could result in lower sales and gross margin, which in turn
could adversely affect the Company's operating results.
The Company's products currently operate only on Apple Macintosh computers.
Apple Computer, Inc. has recently been suffering business and financial
difficulties. As a result of Apple's difficulties, there can be no assurance
that resellers and customers will not delay purchases of Apple-based products or
substitute products based on non-Macintosh operating systems, the occurrence of
any of which could have a material adverse effect on the Company's business and
operating results. As a result in part of the risks and uncertainties
surrounding the Macintosh platform, the Company believes that it will be
necessary to develop additional products that will operate under the Windows NT
operating system. As described above, the Company is currently collaborating
with Macromedia in developing a Windows NT-based product that would run on the
Company's Vincent digital video engine, and any delay or failure of Macromedia
in releasing its Final Cut application software would adversely affect the
Company's current Windows NT product development. There can be no assurance that
the Company will be successful in timely developing Windows NT-based products,
or that any such products, if developed, will achieve market acceptance, the
failure of any of which could have a material adverse effect on the Company's
business and operating results.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(i) On June 7, 1995, a lawsuit was filed against the Company by Avid Technology,
Inc. ("Avid"), in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media
100(R) product. The complaint includes requests for injunctive relief, treble
damages, interest, costs and fees. In July, 1995 the Company filed an Answer and
Counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On July 31, 1996,
the court ordered a stay of all proceedings in the lawsuit pending conclusion of
the reissue proceedings referred to above. There can be no assurance that the
Company will prevail in the lawsuit asserted by Avid or that the expense or
other effects of the lawsuit, whether or not the Company prevails, will not have
a material adverse effect on the Company's business, operating results and
financial condition.
(ii) On February 12, 1997, a lawsuit was filed in Germany against the Company's
former German subsidiary, Data Translation GmbH ("DT GmbH"), and its managing
director, by Lex Computer and Management Corporation ("Lex"). The complaint
generally alleged patent infringement by DT GmbH arising from the manufacture,
sale and use of the Company's Media 100 products in Germany. The complaint
included requests for injunctive relief, damages, costs and fees. DT GmbH is
currently a subsidiary of DTI. Under the terms of the Spin-Off the Company has
agreed to indemnify DTI and its affiliates (including DT GmbH) against
liabilities arising out of the Company's Media 100 business. Subsequent to the
filing of the lawsuit, the Company agreed to license on a worldwide basis
certain video editing-related patents owned by Lex. In connection with the
license arrangement, Lex withdrew its lawsuit against DT GmbH and its managing
director on June 19, 1997. The Company does not currently believe that the terms
of the foregoing license arrangement will have a material effect on the
Company's financial position or operating results.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibits required as part of this Quarterly Report on Form 10-Q are listed in
the exhibit index on page 16.
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
14
<PAGE> 15
SIGNATURES
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.
Media 100 Inc.
Date: October 14, 1997 By: /s/ Peter J. Rice
---------------------------------------------------
Peter J. Rice
Vice President & Chief Financial Officer, Treasurer
Date: October 14, 1997 By: /s/ Steven D. Shea
---------------------------------------------------
Steven D. Shea
Corporate Controller and Chief Accounting Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET ON THE FORM 10-Q FOR THE PERIOD ENDED AUGUST 31, 1997
AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS FILED ON FORM 10-Q FOR THE
PERIOD ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,411
<SECURITIES> 29,555
<RECEIVABLES> 7,705
<ALLOWANCES> 423
<INVENTORY> 1,171
<CURRENT-ASSETS> 41,051
<PP&E> 9,997
<DEPRECIATION> 3,121
<TOTAL-ASSETS> 48,015
<CURRENT-LIABILITIES> 10,636
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 37,297
<TOTAL-LIABILITY-AND-EQUITY> 48,015
<SALES> 34,732
<TOTAL-REVENUES> 34,732
<CGS> 13,479
<TOTAL-COSTS> 13,479
<OTHER-EXPENSES> 21,985
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 1,343
<INCOME-PRETAX> 132
<INCOME-TAX> 36
<INCOME-CONTINUING> 96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-PRIMARY> $.01
<EPS-DILUTED> $.01
</TABLE>
