<PAGE>
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, 1999
[ ] 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 organization (I.R.S. Employer Identification
or incorporation) Number)
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 8,409,248 SHARES
- -------------------------------------- ---------------------------------
Class Outstanding at September 30, 1999
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION NUMBER
------
<S> <C>
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets as of
August 31, 1999 and November 30, 1998 3
Consolidated Statements of Operations for the three and
nine months ended August 31, 1999 and August 31, 1998 4
Consolidated Statements of Cash Flows for the nine
months ended August 31, 1999 and August 31, 1998 5 - 6
Notes to Consolidated Financial Statements 7 - 11
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 19
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 20
ITEM 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in
thousands)
<TABLE>
<CAPTION>
August 31, November 30,
1999 1998
---------------- ---------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 7,643 $ 7,249
Marketable securities 19,512 25,185
Accounts receivable, net of allowance for doubtful
accounts of $378 in 1999 and $395 in 1998 5,765 5,372
Income tax refund receivable 198 280
Inventories 1,532 967
Prepaid expenses 1,056 743
---------------- ---------------
Total current assets 35,706 39,796
Equipment, net 7,084 8,363
Intangible assets, net 1,569 -
Other assets, net 396 313
---------------- ---------------
Total assets $ 44,755 $ 48,472
---------------- ---------------
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,201 $ 2,259
Accrued expenses 7,604 9,692
Deferred revenue 5,553 6,048
---------------- ---------------
Total current liabilities 15,358 17,999
Contingencies (Note 10) - -
Stockholders' equity:
Preferred stock - -
Common stock 85 83
Capital in excess of par value 41,345 40,917
Accumulated deficit (11,282) (10,598)
Treasury stock, at cost (365) (163)
Accumulated other comprehensive income (loss):
Cumulative translation adjustment (185) (37)
Unrealized holding gain (loss) on
available for sale securities (201) 271
---------------- ---------------
Total stockholders' equity 29,397 30,473
---------------- ---------------
Total liabilities and stockholders' equity $ 44,755 $ 48,472
---------------- ---------------
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
1999 1998 1999 1998
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales:
Products $ 10,895 $ 8,235 $ 31,299 $ 25,106
Services 2,221 1,889 6,493 5,176
------------- ------------ -------------- ----------------
Total net sales 13,116 10,124 37,792 30,282
Cost of sales 5,014 4,234 14,641 12,579
------------- ------------ -------------- ----------------
Gross profit 8,102 5,890 23,151 17,703
------------- ------------ -------------- ----------------
Operating expenses:
Research and development 3,190 4,413 10,326 12,178
Selling and marketing 3,401 3,445 10,689 10,354
General and administrative 1,051 898 2,919 2,968
Amortization of intangible
assets 92 - 92 -
Acquired in-process research
and development 430 - 430 -
Restructuring costs 424 - 424 -
------------- ------------ -------------- ---------------
Total operating expenses 8,588 8,756 24,880 25,500
------------- ------------ -------------- ---------------
Operating loss (486) (2,866) (1,729) (7,797)
Interest income 314 447 1,045 1,288
------------- ------------ -------------- ----------------
Loss before tax provision (172) (2,419) (684) (6,509)
Tax provision - - - 12
------------- ------------ -------------- ----------------
Net loss $ (172) $ (2,419) $ (684) $ (6,521)
------------- ------------ -------------- ----------------
------------- ------------ -------------- ----------------
Net loss per share:
Basic $ $ $ $
(.02) (.29) (.08) (.79)
------------- ------------ -------------- ----------------
------------- ------------ -------------- ----------------
Diluted $ $ (.29) $ $
(.02) (.08) (.79)
------------- ------------ -------------- ----------------
------------- ------------ -------------- ----------------
Weighted average common shares outstanding:
Basic 8,342 8,306 8,312 8,265
------------- ------------ -------------- ----------------
------------- ------------ -------------- ----------------
Diluted 8,342 8,306 8,312 8,265
------------- ------------ -------------- ----------------
------------- ------------ -------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1999 1998
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (684) $ (6,521)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 2,655 2,089
Acquired in-process research and development 430
Amortization of acquisition-related intangible assets 92 -
Gain on sale of marketable securities (21) (11)
Changes in assets and liabilities, net of effects from acquisition
Accounts receivable (215) 2,815
Income tax refund receivable 82 -
Inventories (565) (22)
Prepaid expenses (213) (76)
Accounts payable (400) (446)
Accrued expenses (2,374) 3,076
Deferred revenue (495) 1,967
--------------- ----------------
Net cash provided by (used in) operating activities $ (1,708) $ 2,871
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Terran Interactive, Inc. (1,890) -
Purchases of equipment, net (1,146) (2,585)
Other assets (54) -
Purchases of marketable securities (28,963) (77,241)
Proceeds from sales of marketable securities 34,075 75,452
--------------- ----------------
Net cash provided by (used in) investing activities $ 2,022 $ (4,374)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock plans 430 432
Purchase of treasury stock (202) -
--------------- ----------------
Net cash provided by financing activities $ 228 $ 432
--------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (148) (14)
--------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ 394 $ (1,085)
CASH AND CASH EQUIVALENTS, beginning of period 7,249 4,042
--------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 7,643 $ 2,957
--------------- ----------------
--------------- ----------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1 $ 138
--------------- ----------------
--------------- ----------------
OTHER TRANSACTIONS NOT (USING) PROVIDING CASH:
(Decrease) Increase in value of marketable securities $ (472) $ 307
--------------- ----------------
--------------- ----------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES (see note 4):
In connection with the acquisition of Terran Interactive, Inc., the following
non-cash transaction occurred:
Fair value of assets acquired $2,558 -
Liabilities assumed 668 -
--------------- ----------------
Cash paid for acquisition and acquisition costs $1,890 -
--------------- ----------------
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1998 AMOUNTS)
1. Basis of Presentation
The accompanying interim 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
interim 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 included in the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1998, filed with the Securities and
Exchange Commission.
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.
Media 100 Inc. develops, markets, sells and supports digital video systems that
enable a wide range of professional communicators in business, education, and
video post production to create complete, television-quality video productions
quickly, easily, and with great creative flexibility. With the Company's
acquisition of Terran Interactive, Inc. ("Terran") in June 1999, the Company
develops, markets, sells and supports software tools for streaming media for the
Internet. The Company markets and delivers its products to end users through a
worldwide channel of specialized value-added resellers that sell, assemble and
install turnkey systems using high performance personal computers, disk drives,
and ancillary video equipment. In addition, the Company sells products acquired
from the Terran acquisition direct to endusers using Terran's telemarketing
group and Terran's website.
2. Principles of Consolidation
The consolidated financial statements include the Company and its subsidiaries.
All material intercompany transactions and balances have been eliminated in
consolidation.
3. Reclassifications
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current period's presentation.
4. Acquisition of Terran Interactive, Inc.
On June 28, 1999, the Company acquired Terran Interactive, Inc. ("Terran") of
Los Gatos, CA, a leading supplier of software tools for high quality Internet
and DVD video. In connection with the acquisition, the Company paid $1,850,000
in cash for all outstanding shares of Terran's common stock. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the results
of Terran's operations and the fair market value of the acquired assets and
assumed liabilities have been included in the financial statements of the
Company as of the acquisition date.
The aggregate purchase price consisted of the following (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
Cash $ 1,850
Liabilities assumed 668
Acquisition costs 40
-------
Total purchase price: $ 2,558
-------
</TABLE>
7
<PAGE>
The purchase price has been allocated to the acquired assets and assumed
liabilities as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 278
Equipment and other assets 189
Developed technology 1,560
In-process research and development 430
Goodwill 101
---
$2,558
------
</TABLE>
Amounts allocated to tangible and intangible assets, including acquired
in-process research and development, were based on results of an independent
appraisal. The amount allocated to developed technology is being amortized on a
straight-line basis over an expected useful life of three years. In connection
with the acquisition of Terran Interactive, Inc., the Company allocated $430,000
of the purchase price to in-process research and development projects. These
allocations represented the estimated fair value based on risk-adjusted cash
flows related to the incomplete research and development projects. At the date
of acquisition, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
acquisition date.
5. Restructuring
In the third quarter of fiscal 1999, the Company implemented a restructuring
plan to better align its operating costs with its anticipated future revenue
stream. The major component of the restructuring charge relates to the
elimination of approximately 12 employees across the following functions:
research and development (4), selling and marketing (7) and general and
administration (1). At August 31, 1999 approximately $366,000 of the accrued
restructuring charge remained, which is entirely comprised of severance-related
costs. The total cash impact of the restructuring amounted to approximately
$424,000. The total cash paid as of August 31, 1999 was $58,000 and the
remaining amount will be paid by the end of the first quarter in fiscal 2000.
6. 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. The Company accounts for marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS No. 115). 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 as a separate component of stockholders' equity. All of the Company's
marketable securities are classified as available-for-sale.
Marketable securities held as of August 31, 1999 and November 30, 1998 consist
of the following (in thousands):
<TABLE>
<CAPTION>
Maturity 1999 1998
<S> <C> <C> <C>
Investments available for sale:
U.S. Treasury Notes less than 1 year $ - $ 1,535
U.S. Treasury Notes 1 - 5 years 4,546 5,760
--------------- ------------
Total U.S. Treasury Notes 4,546 7,295
Municipal Bonds less than 1 year 507 3,837
Municipal Bonds 1 - 5 years 1,050 1,067
--------------- ------------
Total Municipal Bonds 1,557 4,904
U.S. Agency Bonds less than 1 year 2,533 4,298
U.S. Agency Bonds 1 - 5 years 3,002 4,136
--------------- ------------
Total U.S. Agency Bonds 5,535 8,434
Money Market Instruments less than 1 year 4,514 3,395
Corporate Obligations less than 1 year 2,074 516
Corporate Obligations 1 - 5 years 5,800 6,847
--------------- ------------
Total Corporate Obligations 7,874 7,363
Total investments available for sale 24,026 31,391
Less: cash and cash equivalents (4,514) (6,206)
--------------- -------------
Total marketable securities $ 19,512 $ 25,185
--------------- ------------
--------------- ------------
</TABLE>
8
<PAGE>
6. Cash Equivalents and Marketable Securities (continued)
Marketable securities, including cash and cash equivalents of $4,514 and $6,206,
had a cost of $24,227 and $31,120, and a market value, excluding cash and cash
equivalents, of $19,512 and $25,185 at August 31, 1999 and November 30, 1998,
respectively.
7. 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,
1999 1998
-------------- ----------------
<S> <C> <C>
Raw materials $ 465 $ 230
Work-in-process 436 336
Finished goods 631 401
-------------- ----------------
$ 1,532 $ 967
-------------- ----------------
-------------- ----------------
</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.
8. Equipment, net
Equipment, net is stated at cost, less accumulated depreciation and
amortization, and consists of the following (in thousands):
<TABLE>
<CAPTION>
August 31, November 30,
28180
1999 1998
---------------- -----------------
<S> <C> <C>
Machinery and equipment $ 8,203 $ 7,174
Purchased software 3,880 3,616
Furniture and fixtures 1,253 1,240
Vehicles - 12
Leasehold improvements 1,554 1,482
--------------- -----------------
$ 14,890 $ 13,524
Less accumulated depreciation and amortization 7,806 5,161
--------------- -----------------
$ 7,084 $ 8,363
--------------- -----------------
--------------- -----------------
</TABLE>
9. Net Income (Loss) Per Common Share
Effective December 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). In accordance
with SFAS No. 128, basic net income (loss) per share is computed by using the
weighted-average number of common shares outstanding. Diluted income (loss) per
share is computed by using the weighted-average number of common shares
outstanding and potential common shares from the assumed exercise of stock
options outstanding during the period, if any, using the treasury stock method.
The following is a reconciliation of the shares used in the computation of basic
and diluted net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
Three months ended August 31, Nine months ended August 31,
1999 1998 1999 1998
----------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Basic net income (loss) - weighted average shares
of common stock outstanding 8,342 8,306 8,312 8,265
Effect of potential common shares - stock options
outstanding (unless antidilutive) - - - -
----------------- --------------- ---------------- ---------------
Diluted net income (loss) - weighted average
shares and potential common shares outstanding 8,342 8,306 8,312 8,265
----------------- --------------- ---------------- ---------------
----------------- --------------- ---------------- ---------------
Options not included in computation of diluted net
income (loss) per share due to their antidilutive 249 1,004 391 510
effect
----------------- --------------- ---------------- ---------------
----------------- --------------- ---------------- ---------------
</TABLE>
9
<PAGE>
10. 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 products. 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 January 16, 1998, the court dismissed
the lawsuit without prejudice to either party moving to restore it to the
docket upon completion of all matters pending before the U.S. Patent and
Trademark Office. 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) 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.
11. 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 $44,000
and $89,000, respectively, as of August 31, 1999 and November 30, 1998, 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 $15,000 and $45,000 for the three
and nine months ended August 31, 1999, respectively.
12. Income Taxes
The Company did not record a tax provision for the three and nine months ended
August 31, 1999 due to the net loss incurred for the nine months then ended.
13. Accrued Expenses
Accrued expenses at August 31, 1999 and November 30, 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
August 31, November 30,
1999 1998
---------------- ---------------
<S> <C> <C>
Payroll and related taxes $ 1,868 $ 1,691
Accrued warranty 463 463
Accrued product development 69 2,220
Accrued selling and marketing 633 878
Accrued legal and other 4,571 4,440
---------------- ---------------
$ 7,604 $ 9,692
---------------- ---------------
---------------- ---------------
</TABLE>
14. Comprehensive income (loss)
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130).
SFAS No. 130 establishes standards for the display of comprehensive income
(loss) and its components in a full set of financial statements. Comprehensive
income (loss) includes all changes in equity during a period except those
resulting from the issuance of shares of stock and distributions to
shareholders. SFAS No. 130 requires that an enterprise display the components of
comprehensive income (loss) for each period presented.
10
<PAGE>
14. Comprehensive income (loss) (continued)
The components of the Company's comprehensive loss were as follows:
<TABLE>
<CAPTION>
Three months ended August 31, Nine months ended August 31,
1999 1998 1999 1998
------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Net loss $ (172) $ (2,419) $ (684) $ (6,521)
Cumulative translation adjustment 37 27 (148) (14)
Unrealized holding gain (loss) on
available for sale securities (108) 181 (472) 307
------------------ ----------------- ---------------- ------------------
Total comprehensive loss $ (243) $ (2,211) $ (1,304) $ (6,228)
================== ================= ================ ==================
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
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 this Form 10-Q and the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1998.
Media 100 Inc. develops, markets, sells and supports digital video systems that
enable a wide range of professional communicators in business, education, and
video post production to create complete, television-quality video productions
quickly, easily, and with great creative flexibility. With the Company's
acquisition of Terran Interactive, Inc. ("Terran") in June 1999, the Company
develops, markets, sells and supports software tools for streaming media for the
Internet. The Company markets and delivers its products to end users through a
worldwide channel of specialized value-added resellers that sell, assemble and
install turnkey systems using high performance personal computers, disk drives,
and ancillary video equipment. In addition, the Company sells products acquired
from the Terran acquisition direct to endusers using Terran's telemarketing
group and Terran's website.
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,
1999 1998 1999 1998
---------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Net sales:
Products 83.1 % 81.3 % 82.8 % 82.9%
Services 16.9 18.7 17.2 17.1
---------------- ---------------- --------------- ------------------
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 38.2 41.8 38.7 41.5
---------------- ---------------- --------------- ------------------
Gross profit 61.8 58.2 61.3 58.5
Operating expenses:
Research and development 24.3 43.6 27.3 40.2
Selling and marketing 26.0 34.0 28.3 34.2
General and administrative 8.0 8.9 7.7 9.8
Amortization of intangible
assets .7 - .3 -
Acquired in-process research
and development 3.3 - 1.1 -
Restructuring costs 3.2 - 1.1 -
---------------- ---------------- --------------- ------------------
Total operating expenses 65.5 86.5 65.8 84.2
Operating loss (3.7) (28.3) (4.5) (25.7)
Interest income 2.4 4.4 2.7 4.2
---------------- ---------------- --------------- ------------------
Loss before tax provision (1.3) (23.9) (1.8) (21.5)
Tax provision - - - -
---------------- ---------------- --------------- ------------------
Net loss (1.3) % (23.9) % (1.8) % (21.5)%
---------------- ---------------- --------------- ------------------
---------------- ---------------- --------------- ------------------
</TABLE>
Comparison of Third Fiscal Quarter of 1999 to Third Fiscal Quarter of 1998
Net sales for the third fiscal quarter ended August 31, 1999 were $13,116,000,
an increase of $2,992,000, or 29.6%, from the same period a year ago. Net sales
from products for the third fiscal quarter ended August 31, 1999 were
$10,895,000, an increase of $2,660,000 or 32.3%, from the same period a year
ago. The increase in net sales from products is due primarily to the shipment
12
<PAGE>
Comparison of Third Fiscal Quarter of 1999 to Third Fiscal Quarter of 1998
(continued)
of Finish; the Company's new high performance Windows NT-based product line,
along with sales from the Company's wholly owned subsidiary Terran Interactive,
Inc. The Company completed the acquisition of Terran Interactive, Inc., a
leading developer of streaming media tools for preparing high-quality video for
broadcast on the Internet in the third quarter. The Finish product line
currently comprises four models: Finish V20, Finish V40, Finish V60 and Finish
V80.
Net sales from services for the third fiscal quarter ended August 31, 1999 were
$2,221,000, an increase of $332,000, or 17.6%, from the same period a year ago.
The increase in net sales from services is due to new customers purchasing and
existing customers renewing their support contracts.
Gross profit for the third quarter ended August 31, 1999 was 61.8% compared to
58.2% in the comparable quarter a year ago. In the first quarter of fiscal 1999,
the Company reclassified certain costs associated with its Platinum support
services. The Company now classifies these costs as part of cost of goods sold.
The change in presentation had the affect of increasing cost of goods sold and
reducing selling and marketing expenses by the same amount. Certain amounts in
the comparable period last year have been reclassified to conform to the current
year's presentation. The increase in gross profit as a percentage of net sales
is due to the increase in the unit sales of the Company's Platinum support
services, which generate higher gross profit than products, and an increase in
software sales due to the Terran acquisition.
Operating expenses for the third fiscal quarter ended August 31, 1999 were
$8,588,000, a decrease of $168,000, or 1.9%, from the same period a year ago.
Research and development expenses for the third fiscal quarter ended August 31,
1999 were $3,190,000, a decrease of $1,223,000, or 27.7%, from the same period a
year ago. The majority of the decrease in research and development expenses
represented lower development costs due to the completion of Finish, the
Company's new family of high-performance digital video systems for the Windows
NT platform, which shipped earlier this year. The Company currently anticipates
that research and development expenses will increase in 1999 on a quarterly
basis, in absolute dollars, due to the acquisition of Terran Interactive, Inc.
However, the Company currently plans lower research and development expenses
from year ago levels in absolute dollars, since the initial development of the
new Windows NT products was completed and these products were introduced to the
market. Selling and marketing expenses for the third fiscal quarter ended August
31, 1999 were $3,401,000, a decrease of $44,000, or 1.3%, from the same period a
year ago. The Company plans to maintain its current level of selling and
marketing expenditures for the remainder of the fiscal year to support the
rollout and promotion of the new Windows NT products and to promote new products
acquired as a result of the Terran Interactive, Inc. acquisition. General and
administrative expenses for the third fiscal quarter ended August 31, 1999 were
$1,051,000, an increase of $153,000, or 17.0%, from the same period a year ago.
The Company currently anticipates that its general and administrative expenses
will increase modestly, in absolute dollars, in fiscal 1999 compared to fiscal
1998 in support of the new Windows NT products and the additional administrative
expenses associated with the Terran Interactive, Inc. acquisition.
As part of the acquisition of Terran Interactive, Inc., the Company allocated a
portion of the purchase price to intangible assets. The amount allocated to
developed technology is being amortized on a straight-line basis over an
expected useful life of three years, which resulted in a charge of $92,000 for
the third quarter ended August 31, 1999. In connection with the acquisition of
Terran Interactive, Inc., the Company allocated $430,000 of the purchase price
to in-process research and development projects. These allocations represented
the estimated fair value based on risk-adjusted cash flows related to the
incomplete research and development projects. At the date of acquisition, the
development of these projects had not yet reached technological feasibility and
the research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
In the third quarter of 1999, the Company implemented a restructuring plan to
better align its operating costs with its anticipated future revenue stream. The
major component of the restructuring charge relates to the elimination of
approximately 12 employees across the following functions: Product Development
(4), Selling and marketing (7) and General and administration (1). At August 31,
1999 approximately $366,000 of the accrued restructuring charge remained, which
is comprised of severance-related costs. The total cash impact of the
restructuring amounted to approximately $424,000. The total cash paid as of
August 31, 1999 was $58,000 and the remaining amount will be paid in by the end
of the first quarter in fiscal 2000.
The operating loss for the third fiscal quarter ended August 31, 1999 was
$486,000, a decrease of $2,380,000, or 83.0%, from the same period a year ago.
The decrease in the operating loss for the third fiscal quarter ended August 31,
1999 was due to an increase in sales and gross profit, and reductions in
operating expenses, which offset the one-time charges for restructuring and
in-process research and development.
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Comparison of Third Fiscal Quarter of 1999 to Third Fiscal Quarter of 1998
(continued)
Interest income for the third fiscal quarter ended May 31, 1999 was $314,000, a
decrease of $133,000, or 29.8%, from the comparable quarter a year ago. The
decrease in interest income is due to lower cash and cash equivalents and
marketable securities in the third fiscal quarter of 1999, compared to the third
fiscal quarter of 1998.
The Company did not record a tax provision for the third fiscal quarter ended
August 31, 1999 due to the net loss incurred for the first nine months of the
fiscal year.
The net loss for the third fiscal quarter ended August 31, 1999 was $172,000, or
$0.02 per share, compared to a net loss of $2,419,000, or $.29 per share, for
the same period a year ago.
Comparison of First Nine Months of 1999 to First Nine Months of 1998
Net sales for the nine months ended August 31, 1999 were $37,792,000, an
increase of $7,510,000, or 24.8%, from the same period a year ago. Net sales
from products for the nine months ended August 31, 1999 were $31,299,000, an
increase of 24.7% from the same period a year ago. The increase in net sales
from products is due primarily to the shipment of Finish; the Company's new high
performance Windows NT-based product line, along with sales from the Company's
wholly owned subsidiary Terran Interactive, Inc. The Company completed the
acquisition of Terran Interactive, Inc., a leading developer of streaming media
tools for preparing high-quality video for broadcast on the Internet in the
third quarter. The Finish product line currently comprises four models: Finish
V20, Finish V40, Finish V60 and Finish V80.
Net sales from services for the nine months ended August 31, 1999 were
$6,493,000, an increase of $1,317,000, or 25.4%, from the same period a year
ago. The increase in net sales from services is due to new customers purchasing
and existing customers renewing their support contracts.
Gross profit for the nine months ended August 31, 1999 was 61.3% compared to
58.5% in the comparable quarter a year ago. In the first quarter, the Company
reclassified certain costs associated with its Platinum support services. The
Company now classifies these costs as part of cost of goods sold. The change in
presentation had the affect of increasing cost of goods sold and reducing
selling and marketing expenses by the same amount. Certain amounts in the
comparable period last year have been reclassified to conform to the current
year's presentation. The increase in gross profit as a percentage of net sales
is due to the increase in the unit sales of the Company's Platinum support
services, which generate higher gross profit than products, and an increase in
software sales due to the Terran acquisition.
Operating expenses for the nine months ended August 31, 1999 were $24,880,000, a
decrease of $620,000, or 2.4%, from the same period a year ago. Research and
development expenses for the nine months ended August 31, 1999 were $10,326,000,
a decrease of $1,852,000, or 15.2%, from the same period a year ago. The
majority of the decrease in research and development expenses represented lower
development costs due to the completion of Finish, the Company's new family of
high-performance digital video systems for the Windows NT platform, which
shipped earlier this year. The Company currently anticipates that research and
development expenses will increase in 1999 on a quarterly basis, in absolute
dollars, due to the acquisition of Terran Interactive, Inc. However, the Company
currently plans lower research and development expenses from year ago levels in
absolute dollars, since the initial development of the new Windows NT products
was completed and these products were introduced to the market. Selling and
marketing expenses for the nine months ended August 31, 1999 were $10,689,000,
an increase of $335,000, or 3.2%, from the same period a year ago. The Company
plans to maintain its current level of selling and marketing expenditures for
the remainder of the fiscal year to support the rollout and promotion of the new
Windows NT products and to promote new products acquired as a result of the
Terran Interactive, Inc. acquisition. General and administrative expenses for
the nine months ended August 31, 1999 were $2,919,000, a decrease of $49,000, or
1.7%, from the same period a year ago. The Company currently anticipates that
its general and administrative expenses will increase modestly, in absolute
dollars, in fiscal 1999 compared to fiscal 1998 in support of the new Windows NT
products and additional administrative expenses associated with the Terran
Interactive, Inc. acquisition.
As part of the acquisition of Terran Interactive, Inc., the Company allocated a
portion of the purchase price to intangible assets. The amount allocated to
developed technology is being amortized on a straight-line basis over an
expected useful life of three years, which resulted in a charge of $92,000 for
the third quarter ended August 31, 1999. In connection with the acquisition of
Terran Interactive, Inc., the Company allocated $430,000 of the purchase price
to in-process research and development projects. These allocations represented
the estimated fair value based on risk-adjusted cash flows related to the
incomplete research and development projects. At the date of acquisition, the
development of these projects had not yet reached technological feasibility and
the research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
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Comparison of First Nine Months of 1999 to First Nine Months of 1998 (continued)
In the third quarter of 1999, the Company implemented a restructuring plan to
better align its operating costs with its anticipated future revenue stream. The
major component of the restructuring charge relates to the elimination of
approximately 12 employees across the following functions: research and
development (4), selling and marketing (7) and general and administration (1).
At August 31, 1999 approximately $366,000 of the accrued restructuring charge
remained, which is comprised of severance-related costs. The total cash impact
of the restructuring amounted to approximately $424,000. The total cash paid as
of August 31, 1999 was $58,000 and the remaining amount will be paid in by the
end of the first quarter in fiscal 2000.
The operating loss for the nine months ended August 31, 1999 was $1,729,000, a
decrease of $6,068,000, or 77.8%, from the same period a year ago. The decrease
in the operating loss for the nine months ended August 31, 19999 was due to an
increase in sales and gross profit and reductions in operating expenses, which
offset the one-time charges for restructuring and in-process research and
development.
Interest income for the nine months ended August 31, 1999 was $1,045,000, a
decrease of $243,000, or 18.9%, from the comparable period a year ago. The
decrease in interest income is due to lower cash and cash equivalents and
marketable securities in the first nine months of 1999, compared to the first
nine months of 1998.
The Company did not record a tax provision for the nine months ended August 31,
1999 due to the net loss incurred in the first nine months of the fiscal year.
The net loss for the nine months ended August 31, 1999 was $684,000 or $0.08 per
share, compared to a net loss of $6,521,000, or $.79 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, 1999, the
Company's principal sources of liquidity included cash and cash equivalents and
marketable securities totaling approximately $27,155,000.
For the nine months ended August 31, 1999, cash used in operating activities was
approximately $1,708,000 compared to cash provided by operations of
approximately $2,871,000 for the same period a year ago. Cash used in operations
during the first nine months of fiscal 1999 was due to increases in accounts
receivable of $215,000, inventory of $565,000, prepaid expenses of $213,000 and
decreases in income tax refund receivable of $82,000, accounts payable of
$400,000, accrued expenses of $2,374,000 and deferred revenue of $495,000. Net
cash provided by investing activities was approximately $2,022,000 during the
first nine months of fiscal 1999, compared to cash used in investing activities
of approximately $4,374,000 for the same period a year ago. Cash provided by
investing activities during the nine months ended August 31, 1999 was primarily
from net proceeds of marketable securities of approximately $5,112,000, offset
by purchases of equipment of approximately $1,146,000, the purchase of Terran
Interactive, Inc. for $1,890,000 and the increase in other assets of
approximately $54,000. Cash provided by financing activities during the first
nine months of fiscal 1999 was approximately $228,000, compared to cash provided
by financing activities of $432,000 for the same period a year ago. Cash
provided by financing activities of $430,000 in the first nine months of fiscal
1999 came from proceeds from the Company's stock plans. The Company used
approximately $202,000 to repurchase Media 100 Inc. common stock during the nine
months ended August 31, 1999.
The Company believes its existing cash balance, cash equivalents and marketable
securities will be sufficient to meet the Company's cash requirements for at
least the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements, and are 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 include the following:
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SIGNIFICANT FLUCTUATIONS AND UNPREDICTABILITY OF OPERATING RESULTS. The
Company's quarterly operating results may vary significantly for a number of
reasons, including new product announcements and introductions by the Company or
its competitors, changes in pricing, and the volume and timing of orders
received during the quarter. Historically a significant percentage of the
Company's net sales has resulted from orders booked and shipped during the third
month of its fiscal quarter, a substantial portion of which occur in the latter
half of that month. The Company has also in the past experienced delays in the
development of new products and enhancements, and such delays may occur in the
future. These factors make the forecasting of revenue inherently uncertain.
Additionally, 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.
CONCENTRATION OF SALES ON THE MACINTOSH PLATFORM. To date, a majority of the
Company's sales relate to a single family of products running on the Macintosh
platform. A decline in demand for these systems, or a failure of such systems to
maintain market acceptance, as a result of competition, technological change or
other factors, would have a material adverse effect on the Company's business
and operating results.
Some of the Company's products operate only on Apple Macintosh computers. The
Company believes that the market of users of the Company's products increasingly
views Microsoft's Windows NT operating system as an alternative platform for new
digital video products. As a result of the foregoing, there can be no assurance
that resellers and customers will not delay purchases of Apple-based products or
purchase 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. The Company currently anticipates significant
growth in quarterly revenues of the Company will not occur until new products
based on the Windows NT platform have gained market acceptance.
RAPID TECHNOLOGICAL CHANGE. The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's future success will depend in
part upon its ability to enhance its existing products and to introduce new
products and features in a timely manner to address customer requirements,
respond to competitive offerings, adapt to new emerging industry standards and
take advantage of new enabling technologies that could render the Company's
existing products obsolete. The Company plans in fiscal 1999 to continue its
investment in research and development, in connection with the development of
new Windows NT-based hardware and software products and future development of
Terran's products. Any delay or failure of the Company in developing such
additional new products or any delay or failure of such new products 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.
RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. New product
announcements by the Company's competitors and by the Company itself could have
the effect of reducing customer demand for the Company's existing products. The
introduction of new or enhanced products by the Company also requires the
Company to manage the transitions from existing products. New product
introductions require the Company to devote time and resources to the training
of its sales channel in the features and target customers for such new products,
which efforts could result in less selling efforts being made by the sales
channel during such training period. New product announcements or introductions
could contribute to significant quarterly fluctuations in operating results as
orders for new products commence and orders for existing products decline.
DEPENDENCE ON PROPRIETY TECHNOLOGY. The Company's ability to compete
successfully and achieve future revenue growth will depend, in part, on its
ability to protect its proprietary technology and operate without infringing the
rights of others. The Company has in the past received, and may in the future
continue to receive, communications suggesting that its products may infringe
patents or other intellectual property rights of third parties. The Company's
policy is to investigate the factual basis of such communications and negotiate
licenses where appropriate. While it may be necessary or desirable in the future
to obtain licenses relating to one or more products, or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all. There can be no assurance that
these or other future communications can be settled on commercially reasonable
terms or that they will not result in protracted and costly litigation.
RISKS OF THIRD-PARTY CLAIMS OF INFRINGEMENT. There has been substantial industry
litigation regarding patent, trademark and other intellectual property rights
involving technology companies. In the future, litigation may be necessary to
enforce any patents issued to the Company or to enforce trade secrets,
trademarks and other intellectual property rights owned by the Company, to
defend the Company against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. For a
description of certain pending litigation instituted against the Company, see
Item III, Legal Proceedings and Note 6 to the Consolidated Financial Statements
in Form 10-K for the year ended November 30, 1998. Any such litigation could be
costly and a diversion of management's attention, which could adversely affect
the Company's business, operating results and financial condition. Adverse
determinations in any such litigation could result in the loss of the Company's
proprietary rights,
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subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from manufacturing or selling
its products, any of which could adversely affect the Company's business,
operating results and financial condition.
EMERGING MARKETS. The broadcast, post-production, business, and institution
digital video segments to which the Company is targeting its products are an
emerging market. Many of the current users in this market rely on analog
videotape processes. Digital editing alternatives are relatively new and
currently account for a small portion of this market of current users. The
Company also believes that this market includes a potential market of new users
who currently out-source their video production requirements. The Company's
future growth will depend, in part, on the rate at which existing users convert
to digital editing processes and the rate at which new users adopt digital video
systems as a communications resource. There can be no assurance that the use of
digital video products like the ones offered by the Company will expand among
existing users of alternative video production processes or the market for new
users, and any failure of the Company's products to achieve market acceptance in
these markets, as a result of competition, technological change or other
factors, could have a material adverse effect on the Company's business and
operating results.
COMPETITION. 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. A number of companies currently offer
products that compete directly or indirectly with the Company's products,
including Accom, Inc., Apple Computer Inc., Autodesk, Inc., Avid Technology,
Inc., FAST Electronic GmbH, Matrox Electronic Systems Ltd., Pinnacle Systems,
Inc., and Truevision, Inc. In addition, the Company expects much larger vendors,
such as Matsushita Electric Industrial Company Ltd., Microsoft Corporation, and
Sony Corporation, to develop and introduce digital editing systems that may
compete with the Company's products. Many of these 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 high data
rate systems. The Company has historically realized higher gross profit on the
sale of its high data rate systems than its entry-level 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.
DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS. The Company is dependent on
single or limited source suppliers for several key components used in its
products. The availability of many of these components is dependent on the
Company's ability to provide suppliers with accurate forecasts of its future
requirements, and certain components used by the Company have been subject to
industry-wide shortages. The Company does not carry significant inventories of
these components and has no guaranteed supply arrangements with such suppliers.
There can be no assurance that the Company's inventories would be adequate to
meet the Company's production needs during any interruption of supply. The
Company's inability to develop alternative supply sources, if required, or a
reduction or stoppage in supply, could delay product shipments until new sources
of supply become available, and any such delay could adversely affect the
Company's business and operating results in any given period.
DEPENDENCE ON RESELLERS. The Company relies primarily on its worldwide network
of independent VARs to distribute and sell its products to end-users. The
Company's resellers generally offer products of several different companies,
including in some cases products that are competitive with the Company's
products. In addition, many of these VARs are small organizations with limited
capital resources. There can be no assurance that the Company's resellers will
continue to purchase the Company's products or provide them with adequate levels
of support, or that the Company's efforts to expand its VAR network will be
successful, any significant failure of which could have a material adverse
effect on the Company's business and operating results.
RELIANCE ON INTERNATIONAL SALES. International sales and operations may be
subject to risks such as the imposition of government controls, export license
requirements, restrictions on the export of critical technology, less effective
enforcement of proprietary rights; currency exchange fluctuations, generally
longer collection periods, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations,
potential insolvency of international resellers and difficulty in collecting
accounts receivable. The Company's international sales are also subject to more
seasonal fluctuation than domestic sales. In this regard, the traditional summer
vacation period, which occurs during the Company's third fiscal quarter, may
result in a decrease in sales, particularly in Europe. There can be no assurance
that these factors will not have an adverse effect on the Company's future
international operations and consequently, on the Company's business and
operating results.
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YEAR 2000 READINESS DISCLOSURE. The year 2000 issue is the potential for system
and processing failure of date-related data and the result of
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
To address these year 2000 issues with its major information technology systems,
the Company has initiated a program that is designed to deal with the Company's
internal management information technology systems. The activities included in
this program are intended to encompass all major categories of information
technology systems used by the Company, including manufacturing, sales, order
entry, accounting and financial reporting. The Company has spent more than
$2,500,000 over the past two years upgrading its internal management information
technology systems. The Company has substantially completed an assessment of
these information technology systems and believes that its information
technology systems are year 2000 compliant. However, the Company utilizes
third-party equipment and software that may not be year 2000 compliant. Failure
of third-party equipment or software to operate properly with regard to the year
2000 and thereafter could require the Company to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may also be
vulnerable to any failures by its major suppliers, service providers and
customers to remedy their own internal information technology systems due to
year 2000 issues which could, among other things, have a material and adverse
affect on the Company's supplies and orders. The Company is unable to estimate
the nature or extent of any potential adverse impact resulting from the failure
of third parties, such as suppliers, service providers and customers, to achieve
year 2000 compliance. Moreover, such third parties, even if year 2000 compliant,
could experience difficulties resulting from year 2000 issues that may affect
their suppliers, service providers and customers. As a result, although the
Company does not currently anticipate that it will experience any material
shipment delays from their major product suppliers or any material sales delays
to its customers due to year 2000 issues, these third parties may experience
year 2000 problems. Any such problems could have a material adverse affect on
the Company's business, results of operations and financial condition.
To assist customers in evaluating their year 2000 issues as they may relate to
the Company's products, the Company has assessed the capability of its current
products and products no longer produced, to handle the year 2000 issue. As a
result of this assessment, the Company believes that all current products
shipping are year 2000 compliant, however, their can be no assurance that the
failure to ensure year 2000 capability for the Company's products will not have
a material adverse affect on the Company.
Based on information currently available to the Company, it does not believe
that the year 2000 issues discussed above related to internal information
technology systems or products sold to customers will have a material adverse
impact on the Company's business, results of operations or financial condition;
however, it is uncertain to what extent the Company may be affected by such
matters. In addition, their can be no assurance that the failure to ensure year
2000 capability by the Company, its suppliers or other third parties will not
have a material adverse affect on the Company.
EURO CONVERSION. On January 1, 1999, 11 of the 15 member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and the euro. As of January 1, 2002, the transition to the
euro will be complete. The Company has operations within the European Union and
has prepared for the euro conversion. The Company does not expect the costs
associated with the transition to be material. The overall effect of the
transition to the euro may have a material adverse affect on the Company's
business, financial condition and financial results.
DEPENDENCE ON KEY PERSONNEL. Competition for employees with the skills required
by the Company is intense in the geographic areas in which the Company's
operations are located. The Company believes that its future success will depend
on its continued ability to attract and retain qualified employees, especially
in research and development.
ACQUISITION RELATED RISKS In June 1999, the Company completed the Terran
Interactive, Inc. acquisition. The Company's business and results of operations
could be materially adversely affected in the event the Company fails to
successfully integrate the business and operations of Terran Interactive, Inc.
The Company may continue in the future to acquire existing businesses, products,
and technologies to enhance and expand its line of products. Such acquisitions
may be material in size and in scope. There can be no assurance that the Company
will be able to identify, acquire, or profitably manage additional business or
successfully integrate any acquired businesses into the Company without
substantial expenses, delays, or other operational or financial problems.
Acquisitions involve a number of special risks and factors, including increasing
competition for attractive acquisition candidates in the Company's markets, the
technological enhancement and incorporation of acquired products into existing
product lines and services, the assimilation of the operations and personnel of
the acquired companies, failure to retain key acquired personnel, adverse
short-term effects on reported operating results, the amortization of acquired
intangible assets, the assumption of undisclosed liabilities of any acquired
companies, the failure to achieve anticipated benefits such as cost savings and
synergies, as well as the diversion of management's attention during the
acquisition and integration process. Some or all of
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these special risks and factors may have a material adverse impact on the
Company's business, operating results, and financial condition.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments, Other Financial Instruments and Derivative
Commodity Instruments. The Company does not participate in derivative financial
instruments, other financial instruments for which the fair value disclosure
would be required under Statement of Financial Accounting Standards No. 107
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS AND DERIVATIVE
COMMODITY INSTRUMENTS ( SFAS No. 107). All of the Company's investments are in
short-term, investment grade commercial paper, certificates of deposit and U.S.
Government and agency securities that are carried at fair value on the Company's
books. Accordingly, the Company has no quantitative information concerning the
market risk of participating in such investments.
Primary Market Risk Exposures. The Company's primary market risk exposures are
in the area of interest rate risk and foreign currency exchange rate risk. The
Company's investment portfolio of cash equivalents is subject to interest rate
fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. The Company's business in Europe is
conducted in local currency. In Asia, business is conducted in US currency.
The Company has no foreign exchange contracts, option contracts or other foreign
hedging arrangements. However, the Company estimates that any market risk
associated with its foreign operations is not significant and is unlikely to
have a material adverse effect on the Company's business, results of operations,
or financial condition.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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
products. 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 January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office. 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.
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 22.
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
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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 15, 1999 By: /s/ Steven D. Shea
--------------------------------
Steven D. Shea
Vice President of Finance and
Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<S> <C>
27 Financial Data Schedule
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET ON FORM 10Q FOR THE PERIOD ENDED AUGUST 31, 1999 AND
THE CONSOLIDATED STATEMENT OF OPERATIONS AS FILED ON FORM 10Q FOR THE THREE AND
NINE MONTHS ENDED AUGUST 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1999
<PERIOD-START> JUN-01-1999 DEC-01-1998
<PERIOD-END> AUG-31-1999 AUG-31-1999
<CASH> 7,643 7,643
<SECURITIES> 19,512 19,512
<RECEIVABLES> 6,143 6,143
<ALLOWANCES> 378 378
<INVENTORY> 1,532 1,532
<CURRENT-ASSETS> 35,706 35,706
<PP&E> 14,890 14,890
<DEPRECIATION> 7,806 7,806
<TOTAL-ASSETS> 44,755 44,755
<CURRENT-LIABILITIES> 15,358 15,358
<BONDS> 0 0
0 0
0 0
<COMMON> 85 85
<OTHER-SE> 29,312 29,312
<TOTAL-LIABILITY-AND-EQUITY> 44,755 44,755
<SALES> 13,116 37,792
<TOTAL-REVENUES> 13,116 37,792
<CGS> 5,014 14,641
<TOTAL-COSTS> 5,014 14,641
<OTHER-EXPENSES> 8,588 24,880
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (172) (684)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (172) (684)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (172) (684)
<EPS-BASIC> (.02) (.08)
<EPS-DILUTED> (.02) (.08)
</TABLE>
