-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VsoruRKqYCth1lwNh5yZE5Alb0t16nJY0ElosP/SOCg9+iUo1lnzjrCTl+1Mg9jo 7u9eE7uJXsdwNybwx0YKpw== 0000950152-01-505875.txt : 20020410 0000950152-01-505875.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950152-01-505875 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METATEC INTERNATIONAL INC CENTRAL INDEX KEY: 0000203200 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 311647405 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09220 FILM NUMBER: 1789384 BUSINESS ADDRESS: STREET 1: 7001 METATEC BLVD CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147612000 MAIL ADDRESS: STREET 1: 7001 METATEC BLVD CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: METATEC CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SILCO INVESTORS CORP DATE OF NAME CHANGE: 19900801 10-Q 1 l90813ae10-q.txt METATEC INTERNATIONAL, INC. 10-Q/QTR END 9-30-01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File No. 0-9220 METATEC INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter) OHIO 31-1647405 (State of Incorporation) (IRS Employer Identification No.) 7001 Metatec Boulevard Dublin, Ohio 43017 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (614) 761-2000 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, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of Common Shares outstanding as of November 13, 2001: 6,136,113 Page 1 of 12 METATEC INTERNATIONAL, INC.
INDEX PAGE ----- ---- Part I : Financial Information Item 1 - Financial Statements Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000 (unaudited) 4 Consolidated Statements of Operations for the nine months ended September 30, 2001 and 2000 (unaudited) 5 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2001 (unaudited) 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (unaudited) 7 Notes to Consolidated Financial Statements (unaudited) 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 11 Part II: Other Information Items 1-6 12 Signatures 12
Page 2 of 12 PART I - FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS METATEC INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30, At December 31, 2001 2000 ------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 884,502 $ 2,086,228 Accounts receivable, net of allowance for doubtful accounts of $254,000 and $351,000 10,854,753 15,146,714 Inventory 3,053,942 2,970,219 Prepaid expenses 1,264,387 1,054,362 Deferred income taxes 588,107 588,107 ------------ ----------- Total current assets 16,645,691 21,845,630 Property, plant and equipment - net 44,115,136 50,455,317 Goodwill - net 4,053,862 4,631,036 Other long term assets 250,470 296,890 Deferred income taxes 104,000 104,000 ------------ ----------- TOTAL ASSETS $ 65,169,159 $77,332,873 ============ =========== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,326,802 $ 6,472,385 Current maturities of long-term debt and capital lease obligations 19,607,491 6,978,028 Current maturities of long-term real estate debt 147,874 170,087 Accrued expenses: Royalties 4,953,781 3,712,796 Personal property taxes 834,675 1,270,425 Payroll 610,680 1,193,054 Other 1,570,353 1,209,600 Unearned income 181,530 234,235 ------------ ----------- Total current liabilities 32,233,186 21,240,610 Long-term real estate debt 18,575,795 18,623,708 Other long-term debt and capital lease obligations, less current maturities 1,093,782 16,769,506 Other long-term liabilities 652,078 527,172 ------------ ----------- Total liabilities 52,554,841 57,160,996 ------------ ----------- Shareholders' equity: Common stock - no par value; authorized 10,000,000 shares; issued 2001 - 7,217,855, 2000 - 7,177,855 shares 35,031,138 34,991,138 Accumulated deficit (15,078,279) (7,573,362) Accumulated other comprehensive loss (1,491,004) (1,423,362) Treasury stock, at cost - 1,081,742 shares (5,822,537) (5,822,537) Unamortized restricted stock (25,000) -- ------------ ----------- Total shareholders' equity 12,614,318 20,171,877 ------------ ----------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 65,169,159 $77,332,873 ============ ===========
See notes to condensed consolidated financial statements. Page 3 of 12 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, --------------------------------- 2001 2000 ----------- ----------- NET SALES $17,478,841 $26,351,076 Cost of sales 13,837,858 19,442,686 ----------- ----------- Gross profit 3,640,983 6,908,390 Selling, general and administrative expenses 5,886,266 6,989,379 Restructuring expenses 415,577 -- ----------- ----------- OPERATING LOSS (2,660,860) (80,989) Other income (expense): Investment income 4,819 2,881 Interest expense (826,732) (1,042,518) ----------- ----------- LOSS BEFORE INCOME TAXES (3,482,773) (1,120,626) Income tax benefit 0 (234,000) ----------- ----------- NET LOSS $(3,482,773) $ (886,626) =========== =========== NET LOSS PER COMMON SHARE Basic and diluted $ (0.57) $ (0.15) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic and diluted 6,136,113 6,087,771 =========== ===========
See notes to condensed consolidated financial statements. Page 4 of 12 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended September 30, -------------------------------- 2001 2000 ----------- ----------- NET SALES $57,389,254 $80,166,339 Cost of sales 42,841,109 57,780,275 ----------- ----------- Gross profit 14,548,145 22,386,064 Selling, general and administrative expenses 18,901,782 20,024,690 Restructuring expenses 525,142 430,561 ----------- ----------- OPERATING EARNINGS (LOSS) (4,878,779) 1,930,813 Other income (expense): Investment income 45,519 24,530 Interest expense (2,671,657) (3,251,008) ----------- ----------- LOSS BEFORE INCOME TAXES (7,504,917) (1,295,665) Income tax benefit 0 (311,000) ----------- ----------- NET LOSS $(7,504,917) $ (984,665) =========== =========== NET LOSS PER COMMON SHARE Basic and diluted $ (1.22) $ (0.16) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic and diluted 6,135,965 6,081,863 ========== ===========
See notes to condensed consolidated financial statements. Page 5 of 12 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Accumulated Other Unamortized Common Accumulated Comprehensive Treasury Restricted Stock Deficit Loss Stock Stock Total ----------- ------------ ----------------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 2000 $34,991,138 $ (7,573,362) $(1,423,362) $(5,822,537) $ 0 $20,171,877 Comprehensive Loss: Net loss (7,504,917) (7,504,917) Foreign currency translation adjustments (67,642) (67,642) ----------- Comprehensive loss (7,572,559) Issuance of restricted shares 40,000 (40,000) 0 Amortization of restricted stock 15,000 15,000 ----------- ------------ ----------- ----------- -------- ----------- BALANCE AT SEPTEMBER 30, 2001 $35,031,138 $(15,078,279) $(1,491,004) $(5,822,537) $(25,000) $12,614,318 =========== ============ =========== =========== ======== ===========
See notes to consolidated financial statements. Page 6 of 12 METATEC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30, 2001 2000 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (7,504,917) $ (984,665) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,090,738 10,932,639 Net (gain) loss on sales of property, plant and equipment 3,277 (148,917) Changes in assets and liabilities: Accounts receivable 4,169,318 3,847,499 Inventory (86,781) 650,511 Prepaid expenses and other assets (207,972) 860,029 Accounts payable and accrued expenses (1,321,778) (5,010,662) Unearned income (46,879) 13,830 ------------ ------------ Net cash provided by operating activities 3,095,006 10,160,264 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,329,663) (4,456,030) Proceeds from the sales of property, plant and equipment 7,200 126,250 ------------ ------------ Net cash used in investing activities (1,322,463) (4,329,780) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase in debt 20,247,419 4,139,597 Payment of debt and capital lease obligations (23,363,806) (11,491,024) Stock options exercised 0 32,000 ------------ ------------ Net cash used in financing activities (3,116,387) (7,319,427) ------------ ------------ Effect of exchange rate on cash 142,118 108,460 Decrease in cash and cash equivalents (1,201,726) (1,380,483) Cash and cash equivalents at beginning of period 2,086,228 1,695,884 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 884,502 $ 315,401 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 2,430,566 $ 3,235,289 ============ ============ Income taxes paid/(refunds received) $ (122,267) $ 147,835 ============ ============ Assets purchased by the assumption of a liability $ 174,830 $ 403,222 ============ ============ Amortization of Restricted Stock $ 15,000 $ 0 ============ ============
See notes to condensed consolidated financial statements. Page 7 of 12 METATEC INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of presentation - The consolidated balance sheet as of September 30, 2001, the consolidated statements of operations for the three and nine months ended September 30, 2001 and 2000, the consolidated statement of shareholders' equity for the nine months ended September 30, 2001, and the consolidated statements of cash flows for the nine month ended September 30, 2001 and 2000 have been prepared by the Company, without audit. In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position, results of operations and changes in cash flows for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 2000 annual report on Form 10-K. The results of operations for the period ended September 30, 2001 are not necessarily indicative of the results for the full year. 2. Accounting Pronouncements - Derivative Instruments and Hedging Activities - The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 on January 1, 2001. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The adoption of SFAS 133 did not have a significant impact on the financial position, results of operations, or cash flows of the Company. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, "Goodwill and Other Intangibles." SFAS 142 is effective for all fiscal years beginning after December 15, 2001, and requires changes in the amortization of certain goodwill and intangible assets. These assets, which were previously being amortized, will be assessed at least annually for impairment. The Company has not yet evaluated the impact the adoption of SFAS 142 will have on its operations and financial position. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." While this statement supercedes SFAS No. 121, "Accounting for Impairment of Long-Lived Assets to Be Disposed Of" it retains the fundamental provisions of SFAS No. 121 for recognition and impairments of assets to be held and used, and assets to be disposed of by sale. This statement is effective for the first quarter in the year ended December 31, 2002. 3. Long-term Debt - The Company's credit facilities include a term note, revolving line of credit and real estate debt. On October 25, 2001, the banks declared the Company in default of the credit facilities due to the Company's failure to satisfy a financial covenant contained in the loan agreement. The Company is negotiating a standstill agreement with the banks pursuant to which the banks would agree to forebear exercising their rights and remedies under the loan agreement. However, there can be no assurance that the Company will be able to reach agreement with the banks as to such a standstill arrangement. The Company is also in default on certain equipment leases which have cross default provisions with the above mentioned credit facilities. Such leases have remaining lease payments of approximately $1,103,000. 4. Subsequent Event - During the fourth quarter of 2001, the Company announced its plans to close its Milpitas, California (Silicon Valley) operations. The Company will incur restructuring charges related to this plan during the fourth quarter of 2001. Included in these charges will be approximately $700,000 in severance and related costs. The Company may sell fixed assets with an approximate net book value of $1,500,000 or transfer a portion of those assets to its other operations. However in the current market, it is Page 8 of 12 unlikely that the Company will realize the full net book value of this equipment. In addition to the above charges, the Company will likely incur charges related to the lease obligation of its Silicon Valley facility. The remaining lease payments under this obligation are approximately $1,200,000 per year through May, 2009. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000. RESULTS OF OPERATIONS Net sales for the three months ended September 30, 2001 were $17,479,000, a decrease of $8,872,000, or 34% over the same period of the prior year. This decrease resulted primarily from CD-ROM manufacturing sales decreasing $8,389,000 to $16,054,000 for the three months ended, or 34%. This decrease was due to several factors. The pricing for CD-ROM products and services continued to decline or remained at low levels industry-wide due to excess manufacturing capacity, a trend the Company anticipates will continue for the remainder of 2001. In addition, the demand for the Company's CD-ROM products and services declined due to several factors, including a decline in general economic conditions, compounded by the events of September 11, 2001, the continued increase in customers using on-line or electronic methods to distribute information, and the continued maturation of the CD-ROM market. The company anticipates that these factors may continue to impact the demand for the Company's CD-ROM products and services for the remainder of 2001. Radio syndication sales decreased $725,000, or 64%, to $400,000 for the three months ended September 30, 2001, primarily as a result of some customers choosing to use CD-Recordable as a distribution method for smaller size orders. The company expects this trend to continue for the foreseeable future. DVD sales accounted for $535,000 during the three months ended September 30, 2001, as compared to $472,000 for the same period in the prior year. Net sales for the nine months ended September 30, 2001 were $57,389,000, a decrease of $22,777,000, or 28% over the same period of the prior year. This decrease resulted primarily from CD-ROM manufacturing sales decreasing $22,158,000 to $53,145,000 for the nine months ended, or 29%. This decrease was due to the factors noted above. Radio syndication sales decreased $1,247,000, or 49%, to $1,306,000 for this same period as a result of the factors noted above. DVD sales accounted for $1,673,000 during the nine months ended September 30, 2001, as compared to $1,417,000 for the same period in the prior year. Gross profit was 21% of net sales for the three months ended September 30, 2001 as compared to 26% of net sales for the same period of the prior year. Gross profit was 25% of net sales for the nine months ended September 30, 2001 as compared to 28% of net sales for the same period of the prior year. The reductions for the three-month and six-month periods were primarily caused by reduced utilization of the Company's manufacturing capacity and the continued decline of pricing for CD-ROM products and services. Selling, general and administrative ("SG&A") expenses were $5,886,000, or 34% of net sales, for the three months ended September 30, 2001 as compared to $6,989,000, or 27% of net sales, for same period of the prior year. SG&A expenses were $18,902,000, or 33% of net sales, for the nine months ended September 30, 2001 as compared to $20,025,000, or 25% of net sales, for same period of the prior year. The expense reductions for the three-month and six-month periods were primarily attributed to restructuring and work force reductions which occurred in the quarters ended March 31, 2001 and September 30, 2001, although the Company's decreased sales caused SG&A expenses to increase as a percentage of net sales. Page 9 of 12 Interest expense for the three months ended September 30, 2001 was $827,000 as compared to $1,043,000 for the same period of the prior year. Interest expense for the nine months ended September 30, 2001 was $2,672,000 as compared to $3,251,000 for the same period of the prior year. The decrease in interest expense was due to decreased borrowings under revolving loan and term loan facilities, as well as decreases in interest rates. No income tax benefit was realized for the nine months ended September 30, 2001, due to the uncertainty of realizing the value of such benefit. In the prior year a $311,000 income tax benefit was realized resulting in an effective tax rate of 24%. As a result of the foregoing, the net loss for the three months ended September 30, 2001 was $3,483,000, or a net loss per common share of $.57, as compared to a net loss in the same period of the prior year of $887,000, or a net loss per common share of $.15. The net loss for the nine months ended September 30, 2001 was $7,505,000, or a net loss per common share of $1.22, as compared to a net loss in the same period of the prior year of $985,000, or a net loss per common share of $.16. FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES The Company financed its business during the nine months ended September 30, 2001 through cash generated from operations, the use of debt, and the use of available cash balances. Cash flow from operating activities was $3,095,000 for the nine months ended September 30, 2001, as compared to $10,160,000 for the nine months ended September 30, 2000. The Company had cash and cash equivalents of $885,000 as of September 30, 2001. The Huntington National Bank and Bank One, NA (collectively, the "Banks") have provided a $12,958,000 term loan facility and a $13,000,000 revolving loan facility to the Company (the "Credit Facilities") pursuant to an amended and restated loan agreement dated as of March 31, 2001 (the "Loan Agreement"). As of September 30, 2001, $10,458,000 and $9,037,000 were outstanding under the term loan facility and the revolving loan facility, respectively. On October 25, 2001, the Banks declared the Company in default of the Credit Facilities due to the Company's failure to satisfy a financial covenant contained in the Loan Agreement. The Company is negotiating a standstill agreement with the Banks pursuant to which the Banks would agree to forebear exercising their rights and remedies under the Loan Agreement. However, there can be no assurance that the Company will be able to reach agreement with the Banks as to such a standstill arrangement. Under the terms of the Loan Agreement, all principal and accrued interest under the Credit Facilities, or approximately $19,680,000, is immediately due and payable to the Banks. In addition, the Banks have notified the Company that the Credit Facilities will bear interest at the default rate under the Loan Agreement, which is 3.5% in excess of the prime interest rate of the Banks. The Credit Facilities are secured by a first lien on all non-real estate business assets of the Company and a pledge of the stock of the Company's subsidiaries. In addition, the Company has an equipment lease agreement with Banc One Leasing Company ("BOLC") relating to certain equipment used in the manufacturing operations of the Company. Under the cross-default provisions contained in the equipment lease agreement, on October 31, 2001, BOLC declared the Company to be in default of the equipment lease agreement due to the Company's default under the Loan Agreement. The Company is negotiating a standstill agreement with BOLC pursuant to which BOLC would agree to forebear exercising its rights and remedies under the equipment lease. However, there can be no assurance that the Company will be able to reach agreement with BOLC as to such a standstill arrangement. BOLC has notified the Company that BOLC contemplates the exercise of its remedies against certain foreign currency exchange contracts by using the proceeds therefrom to reduce the Company's obligations under the equipment lease agreement. The Company's closure of its Milpitas, California (Silicon Valley) operations will also impact the Company's liquidity and capital resources. See "Subsequent Event." Page 10 of 12 The Company has a $19,000,000 loan facility administered by Huntington Capital Corp, which is payable in monthly principal and interest payments based upon a thirty year amortization schedule and bears interest at a fixed rate of 8.2%. This term loan facility was used to permanently finance the Company's new Dublin, Ohio distribution center and to pay down other bank debt. This loan facility is payable in monthly installments over 10 years, with a 30 year amortization period, and is secured by a first lien on all real property of the Company and letters of credit in favor of the lender, in an aggregate amount of $1,650,000. As of September 30, 2001, the Company had a working capital deficiency of approximately $15,600,000 primarily due to the $19,495,000 of term and revolving notes (under the Loan Agreement described above) being due on April 1, 2002. As described above, the Banks have declared the Company in default of the Credit Facilities, and all principal and accrued interest under the Credit Facilities, or approximately $19,680,000, is immediately due and payable to the Banks. The Company is negotiating a standstill agreement with the Banks pursuant to which the Banks would agree to forebear exercising their rights and remedies under the Loan Agreement. However, there can be no assurance that the Company will be able to reach agreement with the Banks as to such a standstill arrangement. However, the Company's liquidity and its current ability to meet its financial obligations as they become due are dependent upon the Company entering into a standstill agreement with the Banks. The Company's failure to reach agreement with the Banks as to a standstill arrangement will have a material adverse impact on the Company's financial position and continuing operations. SUBSEQUENT EVENT The Company announced publicly on October 23, 2001, that it was initiating the closing of its Milpitas, California (Silicon Valley) operations. The Silicon Valley site focused primarily on optical disc production and offered limited value-added services that characterize Metatec's sales and marketing focus today. The plant was expensive to operate and was essentially limited to offering a commodity service in an expensive market hit hard by the economic downturn. The Company is currently projecting significant cost savings by transferring business to its more efficient Dublin, Ohio facility. The Company will be incurring a restructuring charge during the fourth quarter of 2001 related to this closure. Included in these charges are approximately $700,000 in severance and related costs. The Company may sell fixed assets with an approximate net book value of $1,500,000 or transfer a portion of those assets to its other operations. However in the current market, it is unlikely that the Company will realize the full net book value of this equipment. In addition to the above charges, the Company will likely incur charges related to the lease obligation of its Silicon Valley facility. The remaining lease payments under this obligation are approximately $1,200,000 per year through May, 2009. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information, all other statements made in this report are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company's actual results to differ materially from those projected. Such risks and uncertainties that might cause such a difference include, but are not limited to, changes in general business and economic conditions, changes in demand for CD-ROM products, excess capacity levels in the CD-ROM industry, the introduction of new products by competitors, increased competition (including pricing pressures), changes in manufacturing efficiencies, changes in technology, and other risks indicated in the company's filings with the Securities and Exchange Commission, including Form 10-K for Metatec's year ended December 31, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. In addition to the disclosures contained in the Company's Form 10-K for its fiscal year ended December 31, 2000 regarding the quantitative and qualitative disclosures about the Company' market risk, refer to the above mentioned information. Page 11 of 12 PART II - OTHER INFORMATION Items 1-2. Inapplicable. Item 3. Defaults Upon Senior Securities. The Huntington National Bank and Bank One, NA (collectively, the "Banks") have provided a $12,958,000 term loan facility and a $13,000,000 revolving loan facility to the Company (the "Credit Facilities") pursuant to an amended and restated loan agreement dated as of March 31, 2001 (the "Loan Agreement"). As of September 30, 2001, $10,458,000 and $9,037,000 were outstanding under the term loan facility and the revolving loan facility, respectively. On October 25, 2001, the Banks declared the Company in default of the Credit Facilities due to the Company's failure to satisfy a financial covenant contained in the Loan Agreement. The Company is negotiating a standstill agreement with the Banks pursuant to which the Banks would agree to forebear exercising their rights and remedies under the Loan Agreement. However, there can be no assurance that the Company will be able to reach agreement with the Banks as to such a standstill arrangement. Under the terms of the Loan Agreement, all principal and accrued interest under the Credit Facilities, or approximately $19,680,000, is immediately due and payable to the Banks. In addition, the Banks have notified the Company that the Credit Facilities will bear interest at the default rate under the Loan Agreement, which is 3.5% in excess of the prime interest rate of the Banks. The Credit Facilities are secured by a first lien on all non-real estate business assets of the Company and a pledge of the stock of the Company's subsidiaries. Items 4. Submission of Matters to a Vote of Security Holders Inapplicable. Item 5. Inapplicable. Item 6. Exhibits and Reports on Form 8-K None 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. Metatec International, Inc. /s/ Julia A. Pollner BY: Julia A. Pollner Date: November 14, 2001 Senior Vice President, Finance (authorized signatory- principal financial and accounting officer) Page 12 of 12 -----END PRIVACY-ENHANCED MESSAGE-----