<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended June 30, 1996 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ___________ to ___________.
Commission file number 0-27168
METATOOLS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4102687
(State of incorporation) (I.R.S. Employer Identification Number)
6303 Carpinteria Ave, Carpinteria, CA 93013
(Address of principal executive offices)
(805) 566-6200
(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 reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of August 8, 1996, there were outstanding 11,827,762 shares of the
registrants Common Stock, $0.001 par value, which is the only outstanding class
of common or voting stock of the registrant.
1
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METATOOLS, INC.
FORM 10-Q/A
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).......................... 3
Balance sheets - June 30, 1996 and December 31, 1995
Statements of operations - Three and six months ended
June 30, 1996 and 1995
Statements of cash flows - Six months ended June 30, 1996
and 1995
Notes to financial statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 15
Item 6. Exhibits and Reports on Form 8-K.......................... 15
SIGNATURES............................................................ 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
METATOOLS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $14,296,000 $46,885,000
Short-term investments.......................... 31,540,000 -
Accounts receivable, net........................ 6,135,000 2,775,000
Inventories..................................... 437,000 912,000
Prepaid expenses and other current assets....... 1,334,000 890,000
------------------------
Total current assets..................... 53,742,000 51,462,000
Property and equipment, net....................... 1,791,000 1,577,000
Other assets...................................... 629,000 496,000
------------------------
Total assets............................. $56,162,000 $53,535,000
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,743,000 $ 1,795,000
Accrued expenses................................ 1,160,000 964,000
Income taxes payable............................ 421,000 -
Royalties payable............................... 352,000 588,000
------------------------
Total current liabilities................ 3,676,000 3,347,000
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000
shares authorized - no shares issued and
outstanding at June 30, 1996 and December 31,
1995, respectively............................ - -
Common stock, $.001 par value; 30,000,000 shares
authorized - 11,815,721 and 11,597,908 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively............... 12,000 12,000
Paid-in capital................................. 55,001,000 54,429,000
Accumulated deficit............................. (2,527,000) (4,253,000)
------------------------
Total stockholders' equity............... 52,486,000 50,188,000
------------------------
Total liabilities and stockholders'
equity $56,162,000 $53,535,000
========================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
3
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METATOOLS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ----------------------------
1996 1995 1996 1995
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net revenues........................... $ 6,371,000 $3,971,000 $11,874,000 $ 7,391,000
Cost of revenues....................... 1,117,000 1,322,000 2,220,000 2,677,000
-------------------------- ----------------------------
Gross profit........................... 5,254,000 2,649,000 9,654,000 4,714,000
Operating expenses:
Sales and marketing.................. 2,856,000 2,252,000 5,481,000 4,038,000
General and administrative........... 734,000 496,000 1,336,000 904,000
Research and development............. 814,000 332,000 1,552,000 641,000
-------------------------- ----------------------------
Total operating expenses............... 4,404,000 3,080,000 8,369,000 5,583,000
-------------------------- ----------------------------
Income (loss) from operations.......... 850,000 (431,000) 1,285,000 (869,000)
Other income (expense):
Interest and investment income
(expense), net ..................... 594,000 (11,000) 1,205,000 4,000
Other income (expense), net.......... (15,000) 6,000 (12,000) (1,000)
-------------------------- ----------------------------
Income (loss) before provision for
income taxes.......................... 1,429,000 (436,000) 2,478,000 (866,000)
Provision for income taxes............. 427,000 - 752,000 -
-------------------------- ----------------------------
Net income (loss)...................... $ 1,002,000 $ (436,000) $ 1,726,000 $ (866,000)
========================== ============================
Net income (loss)...................... $ 1,002,000 $ (436,000) $ 1,726,000 $ (866,000)
Amortization of costs related to the
issuance of mandatory redeemable
Series B convertible preferred stock.. - (30,000) - (60,000)
Preferred stock dividend requirement... - (42,000) - (84,000)
-------------------------- ----------------------------
Net income (loss) applicable to
common stockholders................... $ 1,002,000 $ (508,000) $ 1,726,000 $(1,010,000)
========================== ============================
Net income (loss) per common share..... $ .08 $ (.09) $ .13 $ (.18)
========================== ============================
Weighted average number of shares
outstanding........................... 13,114,000 5,643,000 13,040,000 5,624,000
========================== ============================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
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METATOOLS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 1,726,000 $ (866,000)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization............ 326,000 114,000
Provision for losses on receivables
and returns............................. 935,000 1,124,000
Provision for losses on inventory........ 39,000 593,000
Changes in operating assets and
liabilities:
Accounts receivable.................... (4,295,000) (1,489,000)
Inventories............................ 436,000 (1,075,000)
Prepaid expenses and other assets...... (559,000) (327,000)
Accounts payable and accrued expenses.. 144,000 182,000
Income taxes payable................... 674,000 -
Royalties payable...................... (236,000) 36,000
-------------------------------
Net cash used in operating activities (810,000) (1,708,000)
Cash flows from investing activities:
Purchases of short-term investments......... (31,540,000) -
Purchase of property and equipment.......... (483,000) (496,000)
Purchase of software technology and
product rights............................. (75,000) -
-------------------------------
Net cash used in investing activities (32,098,000) (496,000)
Cash flows from financing activities:
Increase in notes receivable from
stockholders............................... - (49,000)
Proceeds from issuance of note payable to
stockholder................................ - 8,000
Repayment of notes payable to stockholders.. - (8,000)
Proceeds from borrowings against notes
payable to bank............................ - 402,000
Proceeds from exercise of stock warrants
and options................................ 319,000 54,000
-------------------------------
Net cash provided by financing
activities............................ 319,000 407,000
-------------------------------
Net increase in cash and cash equivalents..... (32,589,000) (1,797,000)
Cash and cash equivalents at beginning
of period.................................... 46,885,000 3,017,000
-------------------------------
Cash and cash equivalents at end of period.... $ 14,296,000 $ 1,220,000
===============================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
5
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METATOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying balance sheets and related interim statements of
operations and cash flows include all adjustments (consisting only of normal
recurring items) considered necessary for their fair presentation. The
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, liabilities, revenues and expenses.
Actual results could differ from those estimates. The results of operations for
the period ended June 30, 1996 are not necessarily indicative of results to be
expected for the year ended December 31, 1996. The information included in this
Form 10-Q should be read in conjunction with Management's Discussion and
Analysis and the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
The Company considers its investment portfolio available for sale as defined in
Statement of Financial Accounting Standards ("SFAS") No. 115. The amortized cost
of securities are adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, realized gains and losses, interest
and dividends, and declines in value judged to be other than temporary are
included in investment income. There were no material unrealized gains or losses
nor any material differences between the estimated fair values and costs of
securities in the investment portfolio at June 30, 1996. The cost of securities
sold is based on the specific identification method.
The Company invests its cash in accordance with a policy that seeks to maximize
returns while ensuring both liquidity and minimal risk of principal loss. The
policy limits investments to certain types of instruments issued by institutions
with investment grade credit ratings, and places restrictions on maturities and
concentration by type and issuer. The majority of the Company's portfolio is
composed of fixed income investments which are subject to the risk of market
interest rate fluctuations, and all the Company's investments are subject to
risks associated with the ability of the issuers to perform their obligations
under the instruments.
6
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METATOOLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed using the weighted average number
of shares of common stock and common equivalent shares outstanding. Common
equivalent shares related to stock options, warrants and preferred stock are
excluded from the computation when their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares, issued at prices below the public offering
price during the twelve months immediately preceding the initial filing date of
the Company's initial public offering have been included in the calculation as
if they were outstanding for all periods presented, using the treasury stock
method and the initial public offering price.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------------------
<S> <C> <C>
Finished goods........................ $405,000 $488,000
Materials and supplies................ 32,000 424,000
---------------------------
$437,000 $912,000
===========================
</TABLE>
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
-------------------- ------------------
<S> <C> <C> <C> <C>
Federal............ $294,000 $ - $518,000 $ -
State.............. 133,000 - 234,000 -
-------------------- ------------------
$427,000 $ - $752,000 $ -
==================== ==================
</TABLE>
The provision for income taxes for the three and six months ended June 30, 1996
is based on the Company's estimated annualized effective tax rate for 1996 which
considers utilization of net operating loss and tax credit carryforwards. As a
result of net operating losses, the Company did not record any provision for
income taxes for the three and six months ended June 30, 1995.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
financial statements and notes thereto.
The discussion and analysis below contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The Company's
actual results could differ materially from those projected in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled
"Factors That May Affect Future Operating Results," as well as those discussed
elsewhere in the Companys SEC reports, including without limitation, its Annual
Report on Form 10-K for the year ended December 31, 1995.
OVERVIEW
The Company derives a substantial majority of its revenues from a limited number
of products. The Company's future revenues are substantially dependent upon the
continued market acceptance of Kai's Power Tools, Bryce, Convolver, Vector
Effects, KPT PowerPhotos, Final Effects, and a product released in the second
quarter of 1996, Kai's Power Goo. In this regard, revenue from the sale of Kai's
Power Tools was 28% and 26% of net revenues for the three months ended June 30,
1996 and 1995, respectively. The Company also has a number of new product
development efforts under way, and a significant portion of future revenues is
dependent upon the success of these activities.
The Company develops its products either internally or through co-development
arrangements with third parties. These co-development arrangements generally
provide the Company with certain exclusive proprietary, copyright or marketing
rights for developed products in exchange for the payment of one-time and/or
ongoing royalties. The Company expects to continue fostering arrangements with
external developers as part of its strategy of expanding its product portfolio.
The Company includes such royalty expenses in cost of revenues as such royalties
are earned. The Company believes that co-development arrangements represent an
important component of the Company's research and development investment. There
can be no assurance, however, that the Company will be able to continue to
supplement its product development efforts in the future through such
relationships on favorable terms or at all. If the Company were unable to
maintain its existing co-development arrangements or to attract new co-
development partners, the Company would, at a minimum, have to increase its
research and development expenditures, which could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company sells its products primarily to domestic and international
distributors, including mail order resellers and, to a lesser extent, retail
outlets. The Company also sells its products to OEMs for bundling with their
hardware or software products and directly to end users, generally through
telesales and direct mail campaigns. Fluctuations in distributor purchases can
cause significant volatility in the Company's revenues. Distributors generally
stock the Company's products at levels which may fluctuate significantly for a
variety of reasons, including the distributors ability to finance the purchase
of products and to devote shelf space, catalog space or attention to the
products. Distributor purchases may also be affected by the Company's
introduction of a new product or new version of a product, the Company's end
user promotions
8
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programs, anticipated product price increases, the Companys purchases
of display space at retail outlets and other factors.
Since 1992, the Company has focused on building its product portfolio and
establishing brandname awareness of its products. These activities have
resulted in significant increases in all expense categories. In particular, the
Company's shift from direct sales to end users toward expanded indirect
distribution channels has required a substantial increase in the Company's sales
and marketing activities. The Company's recent product development efforts have
also entailed significant research and development expenditures. These higher
expense levels combined with fluctuations in net revenues have contributed to
the Company's annual losses and quarterly losses through June 30, 1995, as well
as fluctuations in its operating results. The Company intends to continue to
invest significant amounts both in expanding its product portfolio and in
maintaining and enhancing brand awareness of its products, and accordingly may
continue to experience losses and volatility of net revenues and operating
results in future periods.
OPERATING RESULTS
The following table sets forth certain selected financial information expressed
as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
-------------------- ------------------
<S> <C> <C> <C> <C>
Net revenues.......................... 100.0% 100.0 % 100.0% 100.0 %
Cost of revenues...................... 17.5 33.3 18.7 36.2
------------------- ------------------
Gross margin..................... 82.5 66.7 81.3 63.8
Operating expenses:
Sales and marketing................. 44.8 56.7 46.1 54.6
General and administrative.......... 11.5 12.5 11.3 12.2
Research and development............ 12.8 8.4 13.1 8.7
------------------- ------------------
Total operating expenses......... 69.1 77.6 70.5 75.5
------------------- ------------------
Income (loss) from operations......... 13.4 (10.9) 10.8 (11.7)
Other income (expense), net........... 9.0 (0.1) 10.0 0.0
------------------- ------------------
Net income (loss) before provision for 22.4 (11.0) 20.8 (11.7)
income taxes.........................
Provision for income taxes............ 6.7 0.0 6.3 0.0
------------------- ------------------
Net income (loss)..................... 15.7% (11.0)% 14.5% (11.7)%
=================== ==================
</TABLE>
Net Revenues
The Company recognizes revenue from the sale of its products upon shipment to
the customer and satisfaction of significant Company obligations, if any. Net
revenues increased 60% from $4.0 million for the three months ended June 30,
1995 to $6.4 million for the three months ended June 30, 1996. Net revenues
increased as a result of the Company's release of new products and new versions
of its existing products along with increased expansion of sales through its
domestic and international distribution channels. In particular, since the
second quarter of 1995, the Company has released KPT PowerPhotos Series II, III
and IV, Final Effects, Final Effects
9
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AP, Kai's Power Tools 3, Bryce 2 and Kai's Power Goo. International sales
increased from 20% of net revenues for the three months ended June 30, 1995 to
28% of net revenues for the three months ended June 30, 1996.
Net revenues increased 61% from $7.4 million for the six months ended June 30,
1995 to $11.9 million for the six months ended June 30, 1996. The increase in
net revenues was the result of the development and release of new products, the
enhancement and release of new versions of the Company's existing products, and
significant increases in the Company's distribution channels and marketing
activities.
The Company offers two principal product types consisting of plug-in extensions
(including Kai's Power Tools, Convolver, Vector Effects and Final Effects) and
stand-alone applications and application platforms (principally consisting of
Bryce and KPT PowerPhotos, and a new product released in the second quarter of
1996, Kai's Power Goo). The following table reflects the net revenue
contribution by each product family for the fiscal periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1996 1995 1996 1995
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Plug-in extensions...................... $2,965,000 $2,485,000 $ 5,618,000 $4,134,000
Stand-alone applications and
application platforms.................. 3,406,000 1,486,000 6,256,000 3,257,000
-------------------------- -------------------------
Total.................................. $6,371,000 $3,971,000 $11,874,000 $7,391,000
========================== =========================
</TABLE>
The Company has migrated most of its existing products to run on Windows-based
computers as well as Macintosh, and recently it has begun bundling both Windows
and Macintosh versions on the same CD to minimize production and distribution
costs. For the second quarter of 1996, cross platform and Windows products
represented 58% of net revenues, compared with 22% for the second quarter of
1995. Cross platform and Windows products represented 50% and 23% of net
revenues for the six months ended June 30, 1996 and 1995, respectively.
The Company provides an allowance for estimated returns at the time of product
shipments and adjusts this allowance as needed based on actual returns history.
Such reserves as a percentage of net revenues have varied significantly over
recent years, reflecting the Company's experience in product returns as it has
significantly expanded the proportion of its sales through third-party
distribution channels and increased its product portfolio. The Company expects
reserves will continue to vary in the future. The Company's agreements with its
distributors generally provide the distributors with limited rights to return
unsold inventories under a stock balancing program. The Company monitors the
activities of its distributors in an effort to minimize excessive returns and
establishes its reserves based on its estimates of expected returns. While
historically the Company's returns have been within expectations, the setting of
reserves requires judgments regarding such factors as future competitive
conditions and product life cycles, which can be difficult to predict. As a
result, there can be no assurance that established reserves will be adequate to
cover actual future returns.
Cost of Revenues
Cost of revenues includes the costs of goods sold, royalties paid to external
developers, inventory management costs, freight and handling costs and reserves
for inventory obsolescence. Cost of revenues decreased from $1.3 million, or
33% of net revenues, for the three months ended June
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30, 1995 to $1.1 million, or 18% of net revenues, for the three months ended
June 30, 1996. Cost of revenues as a percentage of net revenues decreased as a
result of a changing mix of product sales toward lower royalty products,
improved management of production and inventory levels, and higher OEM licensing
sales. Royalties represented 2% and 12% of net revenues for the three months
ended June 30, 1996 and 1995, respectively.
Cost of revenues decreased from $2.7 million to $2.2 million, or from 36% to 19%
of net revenues, for the six months ended June 30, 1995 and 1996, respectively.
The decrease in cost of revenues as a percentage of net revenues resulted from
increased sales of lower royalty products, improved production and inventory
management, and increased OEM licensing sales. Royalties represented 3% and 13%
of net revenues for the six months ended June 30, 1996 and 1995, respectively.
Sales and Marketing
Sales and marketing expenses include advertising, promotional materials, mail
campaigns, tradeshows and the compensation costs of sales, marketing, customer
service and public relations personnel who promote the Company's products,
including related facilities costs. Sales and marketing expenses increased from
$2.3 million to $2.9 million, but decreased as a percentage of net revenues from
57% to 45%, for the three months ended June 30, 1995 and 1996, respectively.
Such increase was a result of the continued efforts to expand sales and
marketing activities and distribution channels. The Company intends to continue
such expansion and anticipates that sales and marketing expenses will continue
to increase significantly in future periods as the Company's product offerings
expand, although they may vary as a percentage of net revenues.
Sales and marketing expenses increased from $4.0 million to $5.5 million for the
six months ended June 30, 1996 and 1995, respectively, but decreased as a
percentage of net revenues from 55% to 46%. The increase reflected the Company's
efforts to expand its sales and marketing presence and distribution channels
through the hiring of additional personnel and increased advertising, mail
campaigns, and tradeshow expenditures.
General and Administrative
General and administrative expenses include compensation costs related to
executive management, finance and administration personnel of the Company along
with other administrative costs including legal and accounting fees, insurance,
and bad debt expenses. General and administrative expenses increased from
$496,000 to $734,000 for the three months ended June 30, 1995 and 1996,
respectively, but remained consistent as a percentage of net revenues at 12%.
The increase in general and administrative expenses resulted from additional
provisions for doubtful accounts commensurate with the increase in revenues and
accounts receivable, and to increased incentive compensation. The Company
expects that its general and administrative expenses will continue to increase
in the future as the Company expands its staffing to support expanded operations
and to comply with the responsibilities of a public company, but may vary as a
percentage of net revenues.
General and administrative expenses increased from $904,000 to $1.3 million, but
decreased as a percentage of net revenues from 12% to 11%, for the six months
ended June 30, 1995 and 1996, respectively. The increase in general and
administrative expenses reflects increased headcount and associated personnel
costs related to the expansion of the Company's executive, accounting, finance,
and administration staffing required to support the Company's growth. The
decrease in
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general and administrative expenses as a percentage of net revenues
is the result of the leverage of a larger business.
Research and Development
Research and development expenses consist primarily of personnel costs,
consultant fees the amortization of purchased technology, and required equipment
and facilities costs related to the Company's product development efforts. To
date, the Company has not capitalized any internal software development costs
since costs qualifying for such capitalization have not been significant.
Research and development expenses increased from $332,000, or 8% of net
revenues, for the three months ended June 30, 1995 to $814,000, or 13% of net
revenues, for the three months ended June 30, 1996 as a result of the Company's
focus on expanding its product portfolio, enhancing its products and migrating
its existing products to multiple operating systems, which required the hiring
of additional personnel. The Company expects research and development expenses
will continue to increase in future periods, but may vary as a percentage of net
revenues.
Research and development expenses increased from $641,000 to $1.6 million, or
from 9% to 13% of net revenues, for the six months ended June 30, 1995 and 1996,
respectively. The increase in research and development expenses results from
the development and release of new products and the enhancement and release of
new versions of the Company's existing products, which required the hiring of
additional personnel.
Provisions for Income Taxes
The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The provision for
income taxes for the three and six months ended June 30, 1996 are based on the
Company's estimated annualized effective tax rate for 1996 which considers
utilization of net operating loss and tax credit carryforwards. As a result of
net operating losses, the Company did not record any provision for income taxes
for the three and six months ended June 30, 1995.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Limited Operating History; History of Losses; Variability of Operating Results
The Company was incorporated in March 1987 and did not introduce its first
internally developed product until January 1993. The Company experienced losses
in each quarter of 1994 and the first two quarters of 1995, and the Company's
revenues and operating results have varied substantially from period to period.
There can be no assurance that the Company's future revenue and operating
results will not also vary substantially. The Company's revenues are relatively
difficult to forecast due to a number of variable factors, including the timing
of the introduction of new products by the Company and its competitors,
seasonality of customer purchases, other general economic conditions, and the
Company's ability to capture sufficient interest and commitment by distributors
to market the Company's products or product enhancements. The Company's
operating results also vary significantly depending on changes in pricing,
changes in customer budgets and the volume and timing of orders received and
shipments made during a quarter, which are difficult to forecast. Customers
generally order on
12
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an as-needed basis, and the Company's software generally is shipped as orders
are received. Consequently, the Company typically operates with little or no
backlog. The Company experiences some effect of seasonality in its business, as
demand for its products tends to increase during the fourth calendar quarter as
a result of the year-end holiday buying season. Further, as the Company has
recently released its first consumer product, Kai's Power Goo, the year-end
holiday buying season may have a larger impact on revenues in the future than in
the past. A disproportionate percentage of the Company's quarterly revenues is
typically generated in the last month of the quarter principally due to customer
buying patterns. As a result of the foregoing and other factors, the Company
anticipates that it may experience material and adverse fluctuations in future
operating results on a quarterly or annual basis. Therefore, the Company
believes that period to period comparisons of its revenues and operating results
are not necessarily meaningful and that such comparisons cannot be relied upon
as indicators of future performance.
Evolving Markets for Computer Graphic Imaging and Internet/Online Design
Tools; Rapid Technological Change
Since the markets for computer graphic imaging and Internet/online design tools
are still emerging, there can be no assurance that the markets for the Company's
existing products will grow, that digital graphic and Internet/online content
developers will adopt the Company's products, that sufficient distribution
resources will be available to market the Company's products in a timely manner
or that such products will be successful in achieving market acceptance.
Additionally, since the computer graphic imaging and Internet/online design tool
markets, and the personal computer industry in general, are characterized by
rapidly changing technology, resulting in short product life cycles and price
declines, the Company must continuously update its existing products to keep
them current with changing technology and must develop new products to take
advantage of new technologies that could render the Company's existing products
obsolete. The Company's future prospects are highly dependent on its ability to
keep pace with its competitors innovations, to adapt to new operating systems,
hardware platforms and emerging industry standards, and to provide additional
functionality to the Company's existing products.
Limited Product Lines; Risk of Product Delays
The Company's growth will be dependent upon the introduction of new products and
new versions of existing products. There can be no assurance that any such new
products or versions will achieve market acceptance. In addition, the Company
has in the past experienced delays in the development of new products and the
enhancement of existing products, and such delays may occur in the future.
13
<PAGE>
Dependence on Third Parties
Certain of the Company's products operate as plug-in extensions and enhancements
for specific print, animation, video and multimedia application platforms.
Market acceptance of the Company's plug-in products is dependent upon market
acceptance of these third-party application platforms, as well as the
willingness of the manufacturers of such platforms to permit their platforms to
be extended and enhanced by plug-in products such as those of the Company.
Distribution Risks
The Company sells its products worldwide through multiple distribution channels,
including traditional software distributors, hardware and software OEMs,
international distributors, educational distributors, VARs, hardware
superstores, retail dealers, and direct marketers. Accordingly, the Company is
dependent on the continued viability and financial stability of these third
parties, including certain of the traditional software distributors who have
recently experienced significant margin pressure.
Competition
The Company faces competition from a number of sources, including other vendors
of personal computer graphic imaging and Internet/online design application
platforms and tools, other personal computer software industry participants and
companies that offer graphic and Internet/online design solutions that are not
personal computer based. If these or other competitors develop products,
technologies or solutions that offer significant performance, price or other
advantages over those of the Company, the Company's business, operating results
and financial condition would be materially affected.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company satisfied its cash requirements principally through
the private sale of its securities, borrowings from stockholders and bank
borrowings. In December 1995, the Company raised $45.2 million, net of offering
costs, in connection with an initial public offering of its common stock.
The Company has a $3.0 million revolving line of credit with a bank which
expires during December 1996 and is collateralized by substantially all of the
assets of the Company. Borrowings under the credit facility are limited to a
percentage of eligible accounts receivable, as defined in the credit agreement.
As of June 30, 1996, the Company had no outstanding borrowings under the line of
credit.
Historically, net cash used in operating activities has been significant due to
operating losses and working capital requirements resulting from the growth of
the Company. Non-cash assets have increased significantly, particularly
accounts receivable. Net cash used in investing activities has also increased
substantially due to the purchase of $31.5 million of short-term investments
during the second quarter of 1996. The Company expects that its working capital
requirements will continue to increase to the extent the Company continues to
grow.
The Company believes that its current cash balances and any cash provided by
future operations will be sufficient to meet its cash requirements through at
least the next twelve months.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were approved at the Company's Annual Meeting of
Stockholders held on May 13, 1996:
(a) The following directors were elected:
<TABLE>
<CAPTION>
Directors Votes For Votes Withheld
--------- --------- --------------
<S> <C> <C>
John J. Wilczak 9,573,223 44,959
Kai Krause 9,573,467 44,715
Samuel H. Jones, Jr. 9,573,223 44,959
Bert Kolde 9,548,223 69,959
William H. Lane, III 9,568,023 50,159
Howard L. Morgan 9,572,823 45,359
William J. Schroeder 9,568,023 50,159
</TABLE>
(b) The stockholders ratified the appointment of Coopers & Lybrand L.L.P.
as independent accountants by the following vote:
<TABLE>
<S> <C>
For: 9,614,407
Against: 675
Abstain: 3,100
No Vote: 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit Title
- ------- -------------
2.1 Form of Agreement and Plan of Merger by and between the Registrant and
MetaTools, Inc., a California corporation (1)
3.1 Amended and Restated Articles of Incorporation of California predecessor
of Registrant (1)
3.2 Certificate of Incorporation of Registrant (1)
3.3 Amended and Restated Certificate of Incorporation of Registrant (3)
3.4 Restated Certificate of Incorporation of Registrant (3)
3.5 Bylaws of California predecessor of Registrant, as amended (1)
3.6 Bylaws of Registrant, as amended (3)
4.1 Specimen of Common Stock Certificate of Registrant (3)
10.1 Indemnification Agreement for Executive Officers and Directors (1)
10.2 Investors' Rights Agreement, as amended (1)
10.3 1992 Incentive Stock Plan (1)
10.4 1994 Incentive Stock Option, Non-Qualified Stock Option and Restricted
Stock Purchase Plan (1)
10.5 1995 Stock Plan (2)
10.6 1995 Employee Stock Purchase Plan (2)
10.7 1995 Director Option Plan (2)
10.8 Employment Agreement between the Registrant and John J. Wilczak dated
April 15, 1992, as amended (1)
10.9 Employment Agreement between the Registrant and Kai Krause dated
January 26, 1994 (1)
10.10 Employment Agreement between the Registrant and Terance A. Kinninger
dated June 27, 1995 (1)
10.11 Employment Agreement between the Registrant and James Mervis dated
April 3, 1995 (1)
10.13 Secured Promissory Note between the Registrant and Kai Krause dated
November 28, 1994 (1)
10.14 Secured Promissory Note between the Registrant and Kai Krause dated
November 28, 1994 (1)
10.15 Loan and Security Agreement between the Registrant and Silicon Valley
Bank dated September 25, 1994, as amended on December 15, 1995 (3)
10.16* Distribution Agreement between the Registrant and Ingram Micro Inc.
dated October 19, 1992, as amended (1)
10.17* Distribution Agreement between the Registrant and Merisel Distributing
(formerly, Softsel Computer Products, Inc.) dated March 12, 1990, as
amended (1)
10.18 Sublease Agreement between Digital Sound Corporation and Registrant
dated as of June 8, 1994 (1)
10.19 Form of Employee Invention, Copyright, and Secrecy Agreement (1)
10.20 Employment Agreement between the Registrant and Fred Brown dated
November 13, 1995 (1)
15
<PAGE>
10.21* Software Licensing Agreement between the Registrant and Marubeni
Corporation dated as of January 31, 1996 (3)
10.22 Turnkey/Inventory Agreement between the Registrant and Stream
International Inc. dated as of April 18, 1996
11.1 Statement Regarding Computations of Earnings per Share
27.1 Financial Data Schedule
______________
* Confidential treatment for this exhibit has been requested pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2, filed December 11, 1995, as amended (File No. 33-98628LA).
(2) Incorporated by reference to the Company's Registration Statement on
Form S-8, filed on or about April 1, 1996.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the second quarter ended June 30, 1996.
16
<PAGE>
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.
METATOOLS, INC.
(Registrant)
Date: November 27, 1996 /s/TERANCE A. KINNINGER
-----------------------
Terance A. Kinninger
Vice President and
Chief Financial Officer
17
<PAGE>
Exhibit 10.22
METATOOLS/STREAM TURNKEY/INVENTORY AGREEMENT
PARTIES:
- --------
This working agreement is made and entered into between MetaTools, Inc.
("MetaTools"), 6303 Carpinteria Ave., Carpinteria, CA 93013 and Stream
International Inc. ("Stream"), 105 Rosemont Rd., Westwood, MA 02090.
TERM:
- -----
The term of this agreement is from 3/01/96 through 3/01/97 and will be reviewed
annually.
TERMINATION:
- ------------
This agreement can be canceled by either party with 90 calendar days written
notice and agreed to disposition of inventories.
DISPUTES:
- ---------
Both parties agree to negotiate disputes in good faith and to submit to
arbitration should they fail to reach agreement.
PURPOSE:
- --------
To award MetaTools turnkey deliverable requirements to Stream in accordance with
the provisions and prices in this agreement.
COMPONENT AND RAW MATERIAL PROCUREMENT:
- ---------------------------------------
Under written authorization from MetaTools, Stream will produce or procure
components and raw material and retain ownership of these components on
MetaTools' behalf per the programs outlined below. This authorization may take
the form of, but is not limited to, purchase orders, electronic mail messages,
MetaTools-generated forecasts, or MetaTools sign-off on production planning or
MRP sheets.
PURCHASE ORDERS:
- ----------------
Stream will require a hard copy Purchase Order prior to final assembly or final
shipment of products. These purchase orders will be consistent with the price
quotation which Stream will develop from the most current specifications and
requested quantities provided by MetaTools. Purchase Orders will be delivered
in hard copy, fax, or electronic mail. At a minimum, purchase orders will
consist of purchase order number, PO line number parts, prices, and delivery
dates.
Once purchase orders and delivery schedules have been mutually accepted,
subsequent changes in quantities, specifications, or delivery schedules will be
subject to price adjustments and production schedule changes under the terms of
this Agreement. Stream will make every effort
1
<PAGE>
to maintain price consistency and reduce purchase price variance for MetaTools
in these situations. Stream may ship and invoice all completed kits 90 days
after receipt of PO.
FORECASTS:
- ----------
MetaTools' requirements typically call for shipment of product in a timeframe
that is shorter than the required components can be effectively procured or
produced. MetaTools-generated forecasts will be used for component and raw
material procurement or production authorization. MetaTools agrees to provide
Stream a 90 day rolling forecast on the first Thursday of each month. Materials
(components and raw materials) will be purchased to a forecast by Stream on
MetaTools behalf using a net MRP process. This process will include Stream
determining an economic order quantity, not to exceed either the total forecast
quantity, or a maximum of the ninety days forecast requirements. This quantity
will be procured with MetaTools signed authorization.
DELIVERY:
- ---------
MetaTools may schedule deliveries for multiple locations for any quantity from a
single purchase order. In the event that multiple "ship to" addresses are
required on the same purchase order, drop ship charges may apply. This does not
apply to distribution orders.
CANCELLATIONS:
- --------------
Should MetaTools decide to cancel purchase orders, forecasts, or deliveries,
discontinuing work, or reducing total quantities, MetaTools agrees to give
Stream written notice. This notice shall be in the form of an updated forecast,
purchase change order or electronic mail. In addition, MetaTools agrees to pay
the material and labor at the stated selling price for work completed and in
process as of the date and time Stream receives notification of cancellation.
This payment may include extraordinary costs which are incurred by Stream. This
may include extraordinary administrative expense incurred.
Stream agrees to work in good faith to limit the potential chargeable costs by
rescheduling piece part procurement, deliveries, and manufacturing and assembly
as long as is reasonably possible and cost effective. Interrupted but completed
work and non-standard material may be invoiced in normal billing cycles once
MetaTools has been informed. MetaTools agrees to provide a revised Purchase
Order for the work completed at the time of cancellation.
EXCESS MATERIAL:
- ----------------
Excess material will be defined as the quantity of any given material
(components and customer specific raw material) which has been on-hand at Stream
for longer than 90 calendar days but not over 180 days. Streams and MetaTools
joint objective will be to consume or dispose of this material prior to 180 days
from its receipt in order to avoid storage charges. The details of storage
charges are described below. Stream may invoice for all material on hand over
180 days.
SURPLUS MATERIAL:
- -----------------
Surplus material will be defined as the quantity of any given material
(components and customer specific raw material) which has been on-hand at Stream
for longer than 180 calendar days.
2
<PAGE>
Beginning on the 181st day this inventory will be assessed a carrying and
storage changes equal to 2.5% of the Stream selling price/month or $14.50/pallet
for consigned material. These costs will be invoiced on the first day of each
month. MetaTools agrees to provide a Purchase Order to cover these costs. Stream
may invoice components and customer specific raw material at the earlier of the
termination of this Agreement of the first anniversary of acquisition. MetaTools
agrees to continue paying carrying and storage charges until the material is
physically disposed of. Disposition involves:
1. The surplus material is consumed in the manufacturing process.
2. The surplus material is shipped "as is" to a destination of MetaTools
choice.
3. The surplus material is scrapped at MetaTools direction.
OBSOLETE MATERIAL:
- ------------------
Obsolete material will be defined as the quantity of any given material
(components and customer specific raw material) meeting any of the following
conditions:
1. All related top level SKU's are no longer being sold through normal
distribution channels.
2. It has been replaced by new or updated versions through a revision or
specification change process.
3. It has been eliminated from all applicable MetaTools Bills of Material.
As of the date material is identified as obsolete, it will be assessed storage
and carrying costs as described under "Surplus" above. MetaTools agrees to
dispose of or consume all obsolete material also as outlined above.
In no event will Stream charge MetaTools for materials Stream elected to produce
in excess of MetaTools authorized component levels set out in MetaTools
forecast. Stream assumes all risks of producing material in excess of these
authorized component levels. Only material which is of a quality suitable for
its original use may be classified as excess or obsolete.
INVENTORY MANAGEMENT:
- ---------------------
In order to assist MetaTools in limiting obsolescence exposure and storage
charges, Stream agrees to utilize Inventory Management procedures as below:
Stream will maintain a maximum of one month supply of finished goods in
MetaTools distribution inventory at any given time. Minimum finished levels
will be set by Stream in conjunction with MetaTools management and will be based
on assembly leadtime and forecasted demand. Stream will be responsible for
monitoring finished goods minimum levels and replenishing to preset maximums at
appropriate times.
Stream will purchase component materials in economic order quantities. In most
cases these quantities will be less than 90 days forecasted demand and in no
case will they exceed this amount.
Stream will monitor component inventory levels via our Master Scheduling MRP
system. Stream will load MetaTools rolling 90 day forecast into the MRP system
each month. The system will net on-hand quantities against projected demand.
Stream purchasing will calculate
3
<PAGE>
economic order quantities from the MRP net requirements, ensuring minimum
inventory levels and continuity of supply.
SKU specific mid-month forecasts will be required for products which are
significantly exceeding forecasted demand or for new product introductions which
were not included in previous forecasts.
PRICING:
- --------
Pricing will be based on the following:
1. Assembly
--------
Assembly pricing for March through June is based on the forecasts MetaTools
have provided to Stream. March 1996 plus the quarter beginning April 1996
prices will be based on a flat rate of $1.05. This reflects an understanding
that we were in a start-up period and is not contingent upon previous
volume.
Pricing for the quarter of July through September will remain at
$1.05 provided the volume from March through June 1996 exceeds 120,000
units. In the event that volume in this same period exceeds 240,000 units
(quarterly total), pricing for the quarter of July through September will be
reduced based on the schedule below.
Assembly Pricing Matrix:
July through September
Units produced per month:
<TABLE>
<CAPTION>
(less than) over 40,000- over 60,000- over 80,000- over 100,000- (more than)
40,000 60,000 80,000 100,000 120,000 120,000
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.25/unit $1.05/unit $1.05/unit $0.90/unit $0.80/unit $0.75/unit
</TABLE>
The above assembly matrix is based on a "standard" kit containing:
1 outer box
1 corrugated inner box
1 CD or diskette subassembly
1 serialized BRC
1 serialized manual
up to 5 miscellaneous inserts
up to 3 outside labels
shrinkwrap
"Zip" Product assemblies will be fifteen cents ($0.15) less per unit
Upon completion of the "start up" period, we will review pricing quarterly and
base each subsequent consecutive quarter, beginning October 1, 1996, on the
"Standard Assembly Pricing Matrix" listed below.
Assembly Pricing Matrix:
Standardized Matrix
4
<PAGE>
Units produced per month:
<TABLE>
<CAPTION>
(less than) over 40,000- over 60,000- over 80,000- over 100,000- (more than)
40,000 60,000 80,000 100,000 120,000 120,000
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.45/unit $1.25/unit $1.05/unit $0.90/unit $0.80/unit $0.75/unit
</TABLE>
The above assembly matrix is based on a "standard" kit containing:
1 outer box
1 corrugated inner box
1 CD or diskette subassembly
1 serialized BRC
1 serialized manual
up to 5 miscellaneous inserts
up to 3 outside labels
shrinkwrap
"Zip" Product assemblies will be fifteen cents ($0.15) less per unit.
2. Replication
-----------
Standard Replication Pricing
2 color CD* $0.67 each
CD Sleeve,
includes License Agreement Label and insertion $0.15 each
CD Jewelcase,
includes assembly $0.28 each
3.5" HD Diskettes,
(includes collation, bagging, and label) $0.47 each
Diskette bag label (includes affixing) $0.05 each
*Individual CD orders with less than 3 day lead time will be assessed a fee
of $0.06/CD.
5
<PAGE>
3. Project Management
------------------
With all kits, a project management fee of $0.30 will be assessed which
includes the following services:
Job Engineering Storage (for the first 90 days)
Interplant Freight Dedicated Resources
Inventory Management Account Management
Transaction Reporting Order Processing
4. Distribution
------------
Standard distribution turn time will be 24 hours. All orders received prior
to 5:00pm will be shipped before 5:00pm the following work day.
End User: $1.90/order
$0.15/unit
Includes order processing, pick/pack/ship, order confirmation and packing
materials (excluding shipping carton)
Retail: $0.15/unit
Includes order processing, shipping and ship confirmation.
International: $13.75/order*
Includes preparation of export documentation.
*If order is received electronically, price is then reduced to $9.75/order.
Expedite Fees (same day shipment):
Expedites received before 2:00pm: $3.00/unit expedited
Expedites received after 2:00pm: $10.00/unit expedited
Stream will allow MetaTools 10 (ten) "free" cancellations per month, after
which case a cancellation fee of $10.00 per canceled order will be charged.
Thus cancellation charges are as follows:
0 - 10 cancellations per month: $0.00 (no charge)
11+ cancellations per month: $10.00 per canceled order
All distribution charges to be invoiced on a monthly basis, based upon
activity.
5. Procured Parts (supplier Specified)
-----------------------------------
If MetaTools wishes to specify a supplier for any portion of the product
kit, Stream will purchase from that supplier and add a 15% mark-up.
6
<PAGE>
6. Re-Work Pricing
---------------
In the event MetaTools wishes to re-work current product held in inventory,
---------------------------------
the following prices may apply. These prices are based upon the two
scenarios listed below. If re-work specifications differ from the
specifications listed below, pricing will be negotiated upon complete
understanding of the nature of the re-work. Specifications are as follows:
Re-Work Label:
--------------
Product currently in inventory
Set up assembly line
Remove shrinkwrap
Affix label on top of label to be replaced, or in alternate location as
specified
Shrinkwrap product
Price: $0.35/unit
Re-Work to form Alternate Product (Based on scrapping all excess materials)
--------------------------------------------------------------------------
Product currently in inventory
Set up assembly line
Remove shrinkwrap
Remove contents in packaging (based upon contents listed in "Standard
Assembly Pricing Matrix")
Insert contents into different packaging
Shrinkwrap product
Re-work retail product to form "Zip" product: Price: $0.60/unit
Re-work "Zip" product to form retail product: Price: $0.50/unit
7. RMA's
----
Bulk Returned Material:
All returned material will be assessed a charge of $75.00 per order.
End User Returns:
All end user returns will be based upon the following:
. Confirm receipt of product
. Monthly review and sortation
. Detailed report of product status
. All returns shipped directly into the Stream Fremont, CA division
at:
44250 Osgood Road, Bldg. 3
Fremont, CA 94539
Cost: $1.25/unit
8. Physical Inventory
------------------
One (1) physical inventory will be included in the project management fees
per year at the finished good level.
7
<PAGE>
9. Other Pricing
-------------
Pricing for other services including but not limited to Telemarketing
(inbound/outbound). Registration, Technical Support, RMA service and
Software Exchange (OEM direct) is available upon request.
10. Terms of Payment
----------------
Net cash 30 days from date of invoice.
FILM, DIGITAL FILES, AND PLATES
- -------------------------------
All platemaking film made by us will be used solely for your work and becomes
your property upon payment of invoices. All film or electronic files furnished
by you will be used solely for your work and will remain your property. All
plates made by us will be used solely for your work but will remain our
property. All electronic imposition files we make from your furnished digital
files, all type fonts used for the production of your work, any storage devices,
disks, etc. we use to archive your files and any proprietary software, systems
or technology we use to process your files will remain our property.
MEDIA REPLICATION
- -----------------
For work involving diskette replication, you will furnish original and identical
master diskettes or electronic files for each diskette title to our
specifications. Diskette masters and copies made from the masters or files will
be used solely for your work. Upon your request the master will be returned to
you, and the copies destroyed. For work involving CD-ROM replication, all input
files, CD-R's or compact discs furnished by you will be used solely for your
work and remain your property. All tooling, including masters, stampers or any
other tooling made by us will be used solely for your work but will remain our
property.
TERMS OF PAYMENT, INTEREST, COLLECTION COSTS, AND BILLING DISPUTES
- ------------------------------------------------------------------
The Terms of Payment statement immediately follows the prices. Should any
invoice issued hereunder become past due, you agree to pay interest at the rate
of one and one-half percent (1 1/2%) per month, or the lawful limit if less, on
all amounts past due as well as all the costs of collection, if any, including,
but not limited to, reasonable attorney's fees. Interest will be calculated from
the invoice due date to the date payment is received. Failure to bill for
interest due will not constitute a waiver of our right to charge interest.
Should any portion of an invoice be disputed, you agree to pay the undisputed
portion according to its terms and you will notify us promptly of the dispute.
Both parties agree to use their best efforts to resolve the disputed portion of
the invoice within thirty (30) days of learning of the dispute.
EXPORT REQUIREMENTS
- -------------------
MetaTools represents to Stream that all MetaTools shipping instructions to
Stream will comply with all applicable export laws, rules, and regulations.
MetaTools agrees to indemnify Stream against any claims that MetaTools shipping
instructions violate applicable export requirements.
BANKRUPTCY
- ----------
If either party shall be adjudicated a bankrupt, institute voluntary proceedings
for bankruptcy or reorganization, make an assignment for the benefit of its
creditors, apply for or consent to the appointment of a receiver for it or its
property, or admit in writing its inability to pay its debts as
8
<PAGE>
they become due, the other party may terminate this Agreement by written
notice. Any such termination will not relieve either party from any accrued
obligations hereunder.
GUARANTEE AND LIMITATION OF LIABILITY
- -------------------------------------
We will perform the work in a good workmanlike manner and in accordance with the
specifications and production schedule. In the event the work is defective or
delayed due to our fault (including negligence), we will not be liable for
special or consequential damages, including, but not limited to, lost profits or
business.
RESPONSIBILITY FOR SUBJECT MATTER
- ---------------------------------
In furnishing us matter to reproduce, or distribute, or to have incorporated in
the completed product, you represent and warrant that none of such matter
infringes any copyright (either as furnished to us by you or as altered by us at
your direction), or patent, is libelous, or otherwise violates the rights of or
will cause damage or injury to other persons, and you agree to indemnify and
save us harmless from all losses, damages and expenses, including attorneys'
fees, which we may suffer as the result of any claim of such violation, damage,
or injury.
WORK STOPPAGES
- --------------
We will not be liable for delays or non-performance of this Agreement occasioned
by strikes, fires, accidents, or by causes beyond our control including, but not
limited to, the inability to obtain necessary materials or utilities. In the
event of a stoppage or delay resulting from any such cause, we will perform such
parts of the work as we are capable of performing, and in the event you place
any other part of the work elsewhere, we will be entitled to resume the same as
promptly as practicable.
ASSIGNMENT
- ----------
Neither party to this Agreement will assign any right(s) hereunder without the
prior written consent of the other party, except that we may assign payments due
us to any affiliated company without consent. Subject to this consent, this
Agreement will inure to the benefit of and will bind the successors and assigns
of the parties hereto.
INSURANCE
- ---------
We will carry at our expense fire, sprinkler leakage and extended coverage
insurance, subject to the usual exclusions, limitations, and conditions of such
policies on the actual cash value of all our materials, work in process, and all
production completed and not shipped, and on the actual cash value of all
positives, copy, artwork, paper and other materials furnished by you while in
our care, custody and control. If your property is damaged as a result of an
insured peril under the applicable insurance policy, then, at our option, we
will either replace your damaged property or reimburse you for the actual cash
value of the damaged property. If we elect to reimburse you for the damaged
propertys actual cash value, the amount payable to you shall be limited to the
proceeds of such policy plus any related deductible, if any, applied to the
claim for damage to your property. For positives and other media our insurance
coverage and our liability shall be limited to the cost of blank film or other
media and the cost of duplication from an original or other copy.
9
<PAGE>
PASSING OF TITLE
- ----------------
Title and possession will pass to you upon delivery or upon date of final
invoicing, whichever is earlier, f.o.b. our final plant of manufacture.
GOVERNING LAW
- -------------
The Agreement will be governed by the laws of the State of California
If this proposal meets with your approval, kindly sign below. Your signature
below means all the terms and conditions at the bottom of this page and on the
attached pages are incorporated herein and made a part of this Agreement.
Following your approval and upon confirmation by an officer of Stream
International Inc., the approved proposal will then constitute a contract
between us.
APPROVED: Respectfully submitted,
MetaTools, Inc. Stream International Inc.
By /s/Terance A. Kinninger By /s/Damon Mintzer
----------------------- --------------------
Authorized Officer Damon Mintzer,
Director Business Development
Date April 18, 1996
--------------
10
<PAGE>
METATOOLS, INC. EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -------------------------
1996 1995 1996 1995
----------------------- -------------------------
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED (1)
Weighted average shares outstanding for
the period.................................. 11,783,000 3,166,000 11,667,000 3,147,000
Common equivalent shares, including
items pursuant to Staff Accounting
Bulletin No. 83............................. 1,331,000 2,477,000 1,373,000 2,477,000
----------------------- -------------------------
Shares used in per share calculation......... 13,114,000 5,643,000 13,040,000 5,624,000
======================= =========================
Net income before dividends and
amortization................................ $ 1,002,000 $ (436,000) $ 1,726,000 $ (866,000)
Preferred stock dividend requirements
and amortization of issuance costs.......... - (72,000) - (144,000)
----------------------- -------------------------
Net income (loss) available for common
stockholders................................ $ 1,002,000 $ (508,000) $ 1,726,000 $(1,010,000)
======================= =========================
Net income (loss) per common share........... $ .08 $ (.09) $ .13 $ (.18)
======================= =========================
</TABLE>
(1) Primary and fully diluted calculations are substantially the same.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 14,296,000 14,296,000
<SECURITIES> 31,540,000 31,540,000
<RECEIVABLES> 6,135,000 6,135,000
<ALLOWANCES> 0 0
<INVENTORY> 437,000 437,000
<CURRENT-ASSETS> 53,742,000 53,742,000
<PP&E> 2,494,000 2,494,000
<DEPRECIATION> 703,000 703,000
<TOTAL-ASSETS> 56,162,000 56,162,000
<CURRENT-LIABILITIES> 3,676,000 3,676,000
<BONDS> 0 0
0 0
0 0
<COMMON> 12,000 12,000
<OTHER-SE> 52,474,000 52,474,000
<TOTAL-LIABILITY-AND-EQUITY> 56,162,000 56,162,000
<SALES> 6,371,000 11,874,000
<TOTAL-REVENUES> 6,371,000 11,874,000
<CGS> 1,117,000 2,220,000
<TOTAL-COSTS> 1,117,000 2,220,000
<OTHER-EXPENSES> 4,404,000 8,369,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,429,000 2,478,000
<INCOME-TAX> 427,000 752,000
<INCOME-CONTINUING> 1,002,000 1,726,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,002,000 1,726,000
<EPS-PRIMARY> .08 .13
<EPS-DILUTED> .08 .13
</TABLE>
