<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: FEBRUARY 29, 2000
[ ] 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
or incorporation) Identification 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 8,760,463 shares
-------------------------------------- ---------------------------------
Class Outstanding at March 31, 2000
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets as of
February 29, 2000 and November 30, 1999 3
Consolidated Statements of Operations for the three
months ended February 29, 2000 and February 28, 1999 4
Consolidated Statements of Cash Flows for the three
months ended February 29, 2000 and February 28, 1999 5
Notes to Consolidated Financial Statements 6 - 12
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 18
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 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
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 5,798 $ 10,231
Marketable securities 17,983 18,169
Accounts receivable, net of allowance for doubtful
accounts of $376 in 2000 and $402 in 1999 7,101 6,381
Income tax refund receivable 149 149
Inventories 3,497 1,478
Prepaid expenses 1,140 936
-------- --------
Total current assets 35,668 37,344
Property and equipment, net 6,078 6,509
Intangible assets, net 3,797 1,560
Other assets, net 1,522 430
-------- --------
Total assets $ 47,065 $ 45,843
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 2,217 $ 1,892
Accrued expenses 6,426 7,509
Note payable 1,412 --
Deferred revenue 5,111 5,193
-------- --------
Total current liabilities 15,166 14,594
Contingencies (Note 10) -- --
Stockholders' equity:
Preferred stock -- --
Common stock 86 85
Capital in excess of par value 42,095 41,452
Accumulated deficit (9,920) (10,028)
Accumulated other comprehensive loss:
Cumulative translation adjustment (48) (49)
Unrealized holding loss on
available for sale securities (314) (211)
-------- --------
Total stockholders' equity 31,899 31,249
-------- --------
Total liabilities and stockholders' equity $ 47,065 $ 45,843
======== ========
</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
February 29, February 28,
2000 1999
-------- --------
<S> <C> <C>
Net sales:
Products $ 12,217 $ 10,004
Services 2,265 2,135
-------- --------
Total net sales 14,482 12,139
Cost of sales 5,732 4,764
-------- --------
Gross profit 8,750 7,375
Operating expenses:
Research and development 3,058 3,994
Selling and marketing 3,693 3,529
General and administrative 1,234 933
Amortization of intangible assets 275 --
Acquired in-process research and
development 470 --
-------- --------
Total operating expenses 8,730 8,456
-------- --------
Operating income (loss) 20 (1,081)
Interest income, net 291 408
Other expense, net (173) (16)
-------- --------
Income (loss) before tax provision 138 (689)
Tax provision 30 --
-------- --------
Net income (loss) $ 108 $ (689)
======== ========
Basic net income (loss) per share $ 0.01 $ (0.08)
======== ========
Diluted net income (loss) per share $ 0.01 $ (0.08)
======== ========
Weighted average common and potential common shares outstanding:
Basic 8,592 8,294
======== ========
Diluted 9,672 8,294
======== ========
</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>
Three Months Ended
February 29, February 28,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 108 $ (689)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 774 869
Non-cash interest expense 17 --
Acquired in-process research and development 470 --
Amortization of acquisition-related intangible assets 275 --
Gain on sale of marketable securities -- (8)
Changes in assets and liabilities, excluding effects of acquisition:
Accounts receivable (670) (340)
Inventories (1,841) (1,165)
Prepaid expenses (193) (100)
Accounts payable 90 (150)
Accrued expenses (1,146) (554)
Deferred revenue (82) (618)
-------- --------
Net cash used in operating activities $ (2,198) $ (2,755)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Wired, Inc., net of cash acquired (1,487) --
Other assets (1,092) 16
Purchases of equipment (281) (695)
Purchase of intangible assets (103) --
Purchases of marketable securities (7,292) (12,257)
Proceeds from sales of marketable securities 7,375 12,479
-------- --------
Net cash used in investing activities $ (2,880) $ (457)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock pursuant to stock plans 644 209
Purchase of treasury stock -- (289)
-------- --------
Net cash provided by (used in) financing activities $ 644 $ (80)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 (76)
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (4,433) $ (3,368)
CASH AND CASH EQUIVALENTS, beginning of period 10,231 7,249
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 5,798 $ 3,881
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ -- $ 1
======== ========
OTHER TRANSACTIONS NOT USING CASH:
Change in value of marketable securities $ (103) $ (252)
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES (see note 4):
Inconnection with the acquisition of Wired, Inc., the following non- cash
transaction occurred:
Fair value of assets acquired $ 3,180 --
Note payable (1,395) --
Liabilities assumed (298) --
-------- --------
Cash paid for acquisition and acquisition costs $ 1,487 --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
1. Basis of Presentation
The accompanying interim consolidated financial statements include the accounts
of Media 100 Inc. ("the Company"), a Delaware corporation, 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 accounting
principles generally accepted in the United States 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, 1999, 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.
The Company develops, markets, sells, and supports digital video and web-based
streaming media software and systems, or tools, that enable new Internet
broadcasters and traditional broadcasters, corporate marketing professionals,
and educators to create and deliver high-quality video programs quickly, easily,
and with great creative flexibility. The Company markets and delivers its
products to end users through its web sites as well as through a worldwide
channel of specialized value-added resellers ("VARs") that sell, assemble, and
install turnkey systems using personal computers, disk drives, and ancillary
video equipment. Since the Company began first shipments of its products in
1993, it has shipped over 170,000 software applications and 25,000 systems to
users in over 50 countries.
In June 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. Through Terran, the Company now offers powerful and easy-to-use
solutions that optimize and compress dynamic media via the Web, broadband
network, CD-ROM and DVD. In December 1999, the Company acquired Wired, Inc.
("Wired"). Wired is a supplier of Moving Pictures Experts Group ("MPEG")
streaming media production tools for the Internet and digital video disk ("DVD")
authoring (See Note 4). In addition to delivering Terran's and Wired's products
to end users through the Company's worldwide channel of VARs and distributors,
the Company sells the products acquired in the Terran and Wired acquisitions
directly to end users using the Company's telemarketing groups and its website.
On December 28, 1999, the Company announced it had entered into a definitive
agreement to acquire Digital Origin, Inc. Digital Origin, Inc. is a leading
developer of digital video editing and effects software applications designed to
support the new low-cost, high-quality digital video ("DV") camcorders used for
acquiring video for Internet applications. The merger is expected to be
completed in the Company's second fiscal quarter of 2000.
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.
6
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
(Continued)
4. Acquisitions
In December 1999, the Company acquired Wired. In connection with the
acquisition, the Company will pay $3,000,000 in cash for all outstanding shares
of Wired common stock. The first payment in the amount of $1,500,000 was paid
upon completion of the acquisition and the remaining $1,500,000 will be paid on
the first anniversary of the closing. The net present value of this latter
payment has been recorded as a note payable at February 29, 2000. In connection
with the acquisition, the purchase price could increase depending on Wired's net
sales and operating income over the next two years. Any contingent payments
based on meeting the earn-out conditions will be considered additional goodwill
and amortized over the appropriate useful life. The Company has treated the
acquisition as a purchase for accounting purposes.
The aggregate purchase price consisted of the following (in thousands):
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Cash $ 1,454
Liabilities assumed 298
Note payable 1,395
Acquisition costs 33
-------
Total purchase price: $ 3,180
-------
</TABLE>
The purchase price has been allocated to the acquired assets as follows (in
thousands):
<TABLE>
<S> <C>
Current assets $ 239
Equipment and other assets 38
Developed technology 900
In-process research and development 470
Goodwill 1,533
-------
$ 3,180
-------
</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, the Company allocated $470,000 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.
On December 28, 1999, the Company announced it had entered into a definitive
agreement to acquire Digital Origin, Inc. The Company expects that the merger
will be completed as a pooling of interest for accounting purposes, and a
tax-free transaction. Under the agreement, the Company will issue 0.5347 shares
of its common stock for each share of Digital Origin, Inc. common stock. The
transaction is subject to the approval of the stockholders of the Company and
Digital Origin, Inc. and other customary closing conditions. The merger is
expected to be completed in the Company's second fiscal quarter of 2000. The
Company entered into a non-exclusive, four year OEM development and license
agreement with Digital Origin for consideration of $750,000 by which the Company
will use Digital Origin's consumer level editing and effects software with the
Company's Internet streaming media software in exchange for royalty payments. In
addition, the Company incurred approximately $300,000 of acquisition-related
charges during the first fiscal quarter. Both the acquisition-related charges
and the consideration paid related to the OEM agreement have been included in
other assets, net, in the accompanying consolidated balance sheets as of
February 29, 2000.
7
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
(Continued)
5. 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 February 29, 2000 and November 30, 1999 consist
of the following (in thousands):
<TABLE>
<CAPTION>
Investments available for sale: Maturity February 29, November 30,
2000 1999
------------ -------------
<S> <C> <C> <C>
U.S. Treasury Notes less than 1 year $ 1,006 $ --
U.S. Treasury Notes 1 - 5 years 3,473 4,538
--------- ----------
Total U.S. Treasury Notes 4,479 4,538
Municipal Bonds less than 1 year 1,794 1,797
Municipal Bonds 1 - 5 years -- --
--------- ----------
Total Municipal Bonds 1,794 1,797
U.S. Agency Bonds less than 1 year 1,009 --
U.S. Agency Bonds 1 - 5 years 2,985 3,008
--------- ----------
Total U.S. Agency Bonds 3,994 3,008
Money Market Instruments less than 1 year 1,644 3,689
Corporate Obligations less than 1 year 1,970 4,042
Corporate Obligations 1 - 5 years 5,746 4,784
--------- ----------
Total Corporate Obligations 7,716 8,826
Total investments available for sale 19,627 21,858
Less: cash and cash equivalents (1,644) (3,689)
--------- ----------
Total marketable securities $ 17,983 $ 18,169
========= ==========
</TABLE>
Marketable securities had a cost of $18,297 and $18,380, and a market value of
$17,983 and $18,169 at February 29, 2000 and November 30, 1999, respectively.
6. 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>
February 29, November 30,
2000 1999
------------ -----------
<S> <C> <C>
Raw materials $ 842 $ 556
Work-in-process 1,210 424
Finished goods 1,445 498
------------ -----------
$ 3,497 $ 1,478
============ ===========
</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
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
(Continued)
7. 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>
February 29, November 30,
2000 1999
---------- -----------
<S> <C> <C>
Machinery and equipment $ 8,532 $ 8,212
Purchased software 2,802 4,162
Furniture and fixtures 1,252 1,252
Vehicles 11 11
Leasehold improvements 1,554 1,554
---------- -----------
$ 14,151 $ 15,191
Less accumulated depreciation and amortization (8,073) (8,682)
---------- -----------
$ 6,078 $ 6,509
========== ===========
</TABLE>
8. Intangible Assets
Intangible assets consist of the following as of February 29, 2000 and
November 30, 1999 (in thousands):
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
---------- ----------
<S> <C> <C>
Patents and Trademarks $ 272 $ 169
Acquired Technology 2,460 1,560
Goodwill 1,634 101
---------- ----------
$ 4,366 $ 1,830
Less accumulated amortization (569) (270)
---------- ----------
$ 3,797 $ 1,560
========== ==========
</TABLE>
Patents and trademarks are being amortized over periods ranging from three to
five years, their estimated useful lives. The Company is amortizing goodwill and
acquired technology related to the acquisitions of Terran and Wired using the
straight-line method over three years, their estimated useful lives.
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 net 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.
9
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
(Continued)
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
February 29, February 28,
2000 1999
--------------- --------------
<S> <C> <C>
Basic net income (loss) - weighted average shares
of common stock outstanding 8,592 8,294
Effect of potential common shares - stock options
outstanding (unless antidilutive) 1,080 --
--------------- --------------
Diluted net income (loss) - weighted average shares
and potential common shares outstanding 9,672 8,294
=============== ==============
Options not included in computation of diluted net
income (loss) per share due to their antidilutive effect 39 302
=============== ==============
</TABLE>
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 $29,000,
as of February 29, 2000 and November 30, 1999, 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.
12. Income Taxes
The Company has provided for a tax provision in the first fiscal quarter of 2000
in the amount of $30,000 compared to no tax provision in 1999. The tax provision
is based on the statutory tax rate, offset by the expected utilization of net
operating loss carryforwards and tax credits available to the Company.
10
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
(Continued)
13. Accrued Expenses
Accrued expenses at February 29, 2000 and November 30, 1999 consist of the
following (in thousands):
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
----------- -----------
<S> <C> <C>
Payroll and related taxes $ 1,548 $ 2,576
Accrued warranty 463 463
Accrued product development 61 40
Accrued selling and marketing 260 296
Accrued legal and other 4,094 4,134
----------- -----------
$ 6,426 $ 7,509
=========== ===========
</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.
The components of the Company's comprehensive loss were as follows:
<TABLE>
<CAPTION>
Three months ended
February 29, February 28,
2000 1999
------------ --------------
<S> <C> <C>
Net income (loss) $ 108 $ (689)
Cumulative translation adjustment (1) (76)
Unrealized holding loss on
Available-for-sale securities (103) (252)
------------ --------------
Total comprehensive income (loss) $ 4 $ (1,017)
============ ==============
</TABLE>
15. Segment Information
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS No. 131). SFAS No. 131 establishes
standards for public companies to report operating segment information in annual
and interim financial statements filed with the SEC and shareholders effective
for fiscal years beginning after December 15, 1997. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief decision
maker, or decision making group, in deciding how to allocate resources and in
assessing performance. The Company's chief operating decision making group is
composed of the Chief Executive Officer and members of senior management. The
Company's reportable operating segments are Internet tools, digital video
systems and services.
11
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)
(Continued)
Revenues are attributed to geographic areas based on where the customer is
located. Segment information for the quarters ended February 29, 2000 and
February 28, 1999 is as follows:
<TABLE>
<CAPTION>
Digital
Internet Video
FEBRUARY 29, 2000 Tools Services Systems Corporate Total
- -----------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $ 3,957 $ 2,265 $ 8,260 $ -- $ 14,482
=========== ============== =============== ============ ===============
Gross profit 2,601 1,994 4,155 -- 8,750
=========== ============== =============== ============ ===============
Depreciation and amortization 41 18 715 -- 774
=========== ============== =============== ============ ===============
Interest income, net -- -- -- 291 291
=========== ============== =============== ============ ===============
Income taxes $ -- $ -- $ -- $ 30 $ 30
=========== ============== =============== ============ ===============
FEBRUARY 28, 1999
- -----------------
Net sales from external customers $ -- $ 2,135 $ 10,004 $ -- $ 12,139
=========== ============== =============== ============ ===============
Gross profit -- 1,833 5,542 -- 7,375
=========== ============== =============== ============ ===============
Depreciation and amortization -- 17 852 -- 869
=========== ============== =============== ============ ===============
Interest income $ -- $ -- $ -- $ 408 $ 408
=========== ============== =============== ============ ===============
</TABLE>
Interest income and income taxes are considered corporate level activities
and are, therefore, not allocated to segments. Management believes transfers
between geographic areas are accounted for on an arms length basis.
Net sales by geographic area for the quarters ended February 29, 2000 and
February 28, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
--------------- -----------------
<S> <C> <C>
United States 8,499 $ 7,304
United Kingdom, Sweden, Denmark and Norway 1,321 1,258
Germany, Austria and Switzerland 1,014 673
France, Spain and Benelux 907 816
Japan 746 624
Other foreign countries 1,995 1,464
--------------- -----------------
$ 14,482 $ 12,139
=============== =================
</TABLE>
Long-lived tangible assets by geographic area for the quarters ended
February 29, 2000 and November 30, 1999 consist of the following
(in thousands):
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
--------------- -----------------
<S> <C> <C>
United States 5,766 $ 6,151
United Kingdom 127 146
Germany 85 97
Italy 22 26
France 78 89
--------------- -----------------
$ 6,078 $ 6,509
=============== =================
</TABLE>
12
<PAGE>
ITEM 2. 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, 1999.
The Company develops, markets, sells, and supports digital video and web-based
streaming media software and systems, or tools, that enable new Internet
broadcasters and traditional broadcasters, corporate marketing professionals,
and educators to create and deliver high-quality video programs quickly, easily,
and with great creative flexibility. The Company markets and delivers its
products to end users through its web sites as well as through a worldwide
channel of specialized value-added resellers ("VARs") that sell, assemble, and
install turnkey systems using personal computers, disk drives, and ancillary
video equipment. Since the Company began first shipments of its products in
1993, it has shipped over 170,000 software applications and 25,000 systems to
users in over 50 countries.
In June 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. Through Terran, Media 100 now offers powerful and easy-to-use
solutions that optimize and compress dynamic media via the Web, broadband
network, CD-ROM and DVD. In December 1999, the Company acquired Wired, Inc.
("Wired"). Wired is a supplier of Moving Pictures Experts Group ("MPEG")
streaming media production tools for the Internet and digital video disk ("DVD")
authoring (See Note 4). In addition to delivering Terran's and Wired's products
to end users through the Company's worldwide channel of VARs and distributors,
the Company sells the products acquired in the Terran and Wired acquisitions
directly to end users using the Company's telemarketing groups and its website.
On December 28, 1999, the Company announced it had entered into a definitive
agreement to acquire Digital Origin, Inc. Digital Origin, Inc. is a leading
developer of digital video editing and effects software applications designed to
support the new low-cost, high-quality digital video ("DV") camcorders used for
acquiring video for Internet applications. The merger is expected to be
completed in the Company's second fiscal quarter of 2000.
13
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Results of Operations
The following table shows certain consolidated statements of operations data as
a percentage of net sales.
<TABLE>
<CAPTION>
Three months ended
February 29, February 28,
2000 1999
--------------- --------------
<S> <C> <C>
Net sales:
Products 84.4 % 82.4 %
Services 15.6 17.6
--------------- --------------
Total net sales 100.0 100.0
Cost of sales 39.6 39.2
--------------- --------------
Gross profit 60.4 60.8
Operating expenses:
Research and development 21.1 32.9
Selling and marketing 25.5 29.1
General and administrative 8.5 7.7
Amortization of intangible assets 1.9 -
Acquired in-process research and
development 3.3 -
--------------- --------------
Total operating expenses 60.3 69.7
Operating income (loss) 0.1 (8.9)
Interest income, net 2.0 3.4
Other expense, net (1.2) (0.2)
--------------- --------------
Income (loss) before tax provision 0.9 (5.7)
Tax provision 0.2 -
--------------- --------------
Net income (loss) 0.7 % (5.7) %
=============== ==============
</TABLE>
Comparison of First Fiscal Quarter of 2000 to First Fiscal Quarter of 1999
Net sales. The Company's total net sales for the first fiscal quarter ended
February 29, 2000 increased 19.3% to $14.5 million from $12.1 million for fiscal
1999. Net sales from products for the first fiscal quarter ended February 28,
1999 increased 22.2% to $12.2 million from $10.0 million for fiscal 1999. The
increase in net sales from products is due primarily to Internet tool sales from
the Company's wholly owned subsidiaries Terran and Wired. Internet tools sales
increased to $4.0 million in the first fiscal quarter ended February 29, 2000
from $0 in fiscal 1999. The Company acquired Wired in December 1999 and had
completed the acquisition of Terran in June 1999. The increase in Internet tool
sales was offset by a decrease of $1.7 million in digital video sales to $8.3
million in the first fiscal quarter ended February 29, 2000 from $10.0 million
in fiscal 1999. Net sales from services for the first fiscal quarter of 2000
increased 6.1% to $2.3 million from $2.1 million for fiscal 1999. The increase
in net sales from services is due to new customers purchasing and existing
customers renewing their support contracts.
Gross profit. The Company's gross profit increased 18.6% to $8.7 million
in the first fiscal quarter of 2000 from $7.4 million in fiscal 1999. Overall
gross profit as a percentage of net sales decreased slightly to 60.4% in the
first fiscal quarter of 2000 from 60.8% in fiscal 1999. Specifically, gross
profit as a percentage of net product sales decreased slightly to 55.3% in the
first fiscal quarter of 2000 from 55.4% in fiscal 1999, while gross profit as a
percentage of net sales of services increased to 88.0% in the first fiscal
quarter of 2000 from 85.9% in fiscal 1999.
Research and development. Research and development expenses decreased
23.4% to $3.1 million in the first fiscal quarter of 2000 from $4.0 million in
fiscal 1999. Research and development expenses consist primarily of salaries and
related benefits, consultants, outside services, occupancy and depreciation. The
Company currently anticipates research and development expenses will increase in
absolute dollars in fiscal 2000 versus fiscal 1999 due to the acquisitions of
Terran and Wired and the planned development of their products.
14
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Selling and marketing. Selling and marketing expenses increased 4.6% to
$3.7 million in the first fiscal quarter of 2000 from $3.5 million in fiscal
1999. Selling expenses consist primarily of salaries and related benefits,
commissions, travel, occupancy and depreciation. Marketing expenses consist
primarily of salaries and related benefits, trade shows, seminars, advertising,
sales literature and lead generation activities. The increase in selling and
marketing expenses resulted primarily from the acquisition of Terran and the
Company's promotion of the streaming media tools acquired as part of the
transaction. The Company currently anticipates that its selling and marketing
expenses will increase in absolute dollars in fiscal 2000 versus fiscal 1999 as
the Company increases its focus on the Internet and the related support of the
Company's promotion of its streaming media tools.
General and administrative. General and administrative expenses increased
32.3% to $1.2 million in the first fiscal quarter of 2000 from $0.9 million in
fiscal 1999. General and administrative expenses include the cost of human
resources, finance, information technology, legal and other administrative
functions of the Company. The increase in general and administrative expenses
resulted primarily from increased personnel costs as a result of the
acquisitions of Terran and Wired. The Company currently anticipates that its
general and administrative expenses will increase in fiscal 2000 compared to
fiscal 1999 in support of higher anticipated net sales.
Amortization of intangible assets. The Company recorded an expense for
the amortization of intangible assets of $275,000 in the first fiscal quarter of
2000 as a result of the acquisitions of Terran and Wired. There was no similar
expense recorded in the first fiscal quarter of 1999.
Acquired in-process research and development. In connection with the
acquisition of Wired, the Company allocated $470,000 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. There was no similar expense
recorded in the first fiscal quarter of 1999.
Interest income, net. Interest income decreased 28.7% to $291,000 in the
first fiscal quarter of 2000 from $408,000 in fiscal 1999. The decrease in
interest income is due primarily to lower cash and cash equivalent balances in
fiscal 2000 versus 1999. The Company currently anticipates interest income will
decline in fiscal 2000 versus 1999 due to a reduction in cash early in fiscal
year 2000 resulting from the acquisition of Wired and due to an additional cash
payment due to the shareholders of Terran.
Other expense, net. Other expense, net, increased 981.3% to $173,000 in
the first fiscal quarter of 2000 from $16,000 in fiscal 1999. The increase is
due primarily to foreign exchange losses on intercompany transactions with the
Company's foreign subsidiaries.
Tax provision. The Company has provided for a tax provision in the first
fiscal quarter of 2000 in the amount of $30,000 compared to no tax provision in
1999. The tax provision is based on the statutory tax rate, offset by the
expected utilization of net operating loss carryforwards and tax credits
available to the Company.
Net income (loss). As a result of the above factors, the Company had net
income for the first fiscal quarter of 2000 in the amount of $108,000, or $0.01
per diluted share, compared to a net loss of ($689,000), or ($0.08) per share,
in fiscal 1999.
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 February 29, 2000, the
Company's principal sources of liquidity included cash and cash equivalents and
marketable securities totaling approximately $23,781,000.
For the three months ended February 29, 2000, cash used in operating activities
was approximately $2,198,000 compared to approximately $2,755,000 for the same
period a year ago. Cash used in operations, excluding the effects of the Wired
acquisition, during the first three months of fiscal 2000 was due to increases
in accounts receivable of $670,000, inventory of $1,841,000, prepaid expenses of
$193,000, decreases in accrued expenses of $1,146,000 and deferred revenue of
$82,000, offset by an increase in accounts payable of $90,000. Net cash used in
investing activities was approximately $2,880,000 during the first three months
of fiscal 2000, compared to approximately $457,000 for the same period a year
ago. Cash used in investing activities during the three months ended February
29, 2000 was primarily for the initial payment for the purchase of Wired for
$1,487,000, increase in other assets of $1,092,000, purchases of equipment of
approximately $281,000, intangible assets of
15
<PAGE>
approximately $103,000 and marketable securities of approximately $7,292,000.
This was offset by the net proceeds from sales of marketable securities of
approximately $7,375,000. Cash provided by financing activities during the first
three months of fiscal 2000 was approximately $644,000, compared to cash used in
financing activities of $80,000 for the same period a year ago. Cash provided by
financing activities of $644,000 in the first three months of fiscal 2000 came
from proceeds from issuance of common stock pursuant to stock plans.
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:
ACQUISITION RELATED RISKS. During the fiscal year ended November 30, 1999, the
Company completed the Terran acquisition. During the first fiscal quarter of
2000, the Company completed the acquisition of Wired and has also signed a
definitive agreement to acquire Digital Origin, Inc. The transaction is subject
to the approval of the stockholders of the Company and Digital Origin, Inc. and
other customary closing conditions. The Company anticipates the merger will be
completed in the first half of calendar 2000. The Company's business and results
of operations could be materially adversely affected in the event the Company
fails to complete publicly announced acquisitions or to successfully integrate
the business and operations of these acquisitions. 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 these special risks and factors may have a material
adverse impact on the Company's business, operating results, and financial
condition.
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. 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.
EMERGING MARKETS. The Company is targeting the emerging market of new
Internet-based broadcasters that are building streaming media web sites and
businesses and institutions that are adding Internet video to their web sites.
This market and the products utilized by these users are relatively new. The
Company's success in this emerging market will depend on the rate at which the
market develops and the Company's ability to penetrate that market. In addition,
in fiscal 2000, the Company plans to begin targeting consumers who are looking
to edit video at low cost and without complication. The Company believes this
market will grow rapidly in the future as consumers increase their purchases of
DV camcorders that connect directly to personal computers. Using a DV camcorder,
a home PC and the Internet, the Company believes consumers will be able to
capture, edit and stream video simply and easily. The Company's future growth
will depend, in part, on the rate at which consumers purchase DV camcorders and
adopt editing and streaming technology. There can be no assurance that the use
of digital video editing and streaming products, like the ones offered by the
Company, will expand among existing users of video production processes or the
market for new users. 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.
16
<PAGE>
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.
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 plan in fiscal 2000 is to continue its
investment in research and development, in connection with the Company's
development strategy. Any delay or failure of the Company in developing
additional new products or features for existing products or any failure of such
new products or features to achieve market acceptance, 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. ("Apple"), Avid Technology, Inc.,
Discreet (a division of Autodesk, Inc.), FAST Electronic GmbH, Matrox Electronic
Systems Ltd., Pinnacle Systems, Inc., Real Networks Inc., and Sonic Foundry,
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 AND COMPETITION WITH APPLE COMPUTER, INC. As a competitor, Apple
could, in the future, inhibit the Company's ability to develop its products that
operate on the Macintosh platform. Additionally, new products and enhancements
to existing products from Apple such as Final Cut Pro could cause customers to
delay purchases of the Company's products or alter their purchase decision
altogether. Furthermore, as the sole supplier of Macintosh computers, any
disruption in the availability of these computers could cause customers to defer
or alter their purchase of the Company's products. The Company relies on access
to key information from Apple to continue development of its products and any
failure to continue supplying the Company's engineers with this information
could have a material adverse affect on the Company's business and financial
results.
DEPENDENCE ON MICROSOFT CORPORATION. Many of the Company's products operate in
the Windows environment and the Company's engineers depend upon access to
information in advance from Microsoft Corporation ("Microsoft"). Any failure to
continue supplying the Company's engineers with this information could have a
material adverse affect on the Company's business and financial 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 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
17
<PAGE>
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
Note 10 to the Consolidated Financial Statements included herein. 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, 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.
DEPENDENCE ON RESELLERS. The Company relies primarily on its worldwide network
of independent VARs to distribute and sell its content creation 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.
INTERNET-BASED SALES. In fiscal 1999, the Company implemented e-commerce systems
allowing customers to purchase the Company's products directly from its web
site. Although the portion of revenue derived from its e-commerce web site was
less than five percent in fiscal 1999, the Company anticipates revenue derived
from its e-commerce web site to ramp up in fiscal 2000. There can be no
assurances that the Company's customers will continue to purchase the Company's
products from its web site or that the web site will not experience technical
difficulties thereby causing customers to delay purchases. Any significant
technical difficulties could have a material adverse effect on the Company's
business and operating 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.
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. However, 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.
18
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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. In
addition, the Company sells products to its foreign subsidiaries in transaction
denoted in US currency. The Company's foreign subsidiaries are therefore exposed
to foreign exchange fluctuations on US currency-denominated intercompany
payables to the Company. The Company has no foreign exchange contracts, option
contracts or other foreign hedging arrangements.
19
<PAGE>
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
The following report on 8-K was filed during the first quarter of fiscal year
2000:
Form 8-K dated January 14, 2000 consisting of the following: Item 5.
Other Events (Press Release) and Item 7. Exhibits (Exhibit 99 - Press
Release), relating to a press release announcing the Company's
intention to acquire Digital Origin, Inc.
20
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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: April 14, 2000 By: /s/ Steven D. Shea
--------------------
Steven D. Shea
Vice President of Finance and
Treasurer
(Principal Financial Officer)
21
<PAGE>
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 10-Q FOR THE PERIOD ENDED FEBRUARY 29, 2000
AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS FILED ON FORM 10-Q FOR THE THREE
MONTHS ENDED FEBRUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 5,798
<SECURITIES> 17,983
<RECEIVABLES> 7,477
<ALLOWANCES> 376
<INVENTORY> 3,497
<CURRENT-ASSETS> 35,668
<PP&E> 14,151
<DEPRECIATION> 8,073
<TOTAL-ASSETS> 47,065
<CURRENT-LIABILITIES> 15,166
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 31,813
<TOTAL-LIABILITY-AND-EQUITY> 47,065
<SALES> 14,482
<TOTAL-REVENUES> 14,482
<CGS> 5,732
<TOTAL-COSTS> 5,732
<OTHER-EXPENSES> 8,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 138
<INCOME-TAX> 30
<INCOME-CONTINUING> 108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
