-----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, WVlLmOSDrionFgp+QMlEhtBKZRbgTwpVwWNtXoWs+MEcBUg/1h1kmxWnKEV3VvTn sXx2Islxn+V2biAQ75nubQ== 0000912057-00-018142.txt : 20000417 0000912057-00-018142.hdr.sgml : 20000417 ACCESSION NUMBER: 0000912057-00-018142 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIA 100 INC CENTRAL INDEX KEY: 0000713138 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042532613 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14779 FILM NUMBER: 601571 BUSINESS ADDRESS: STREET 1: 290 DONALD LYNCH BLVD CITY: MARLBOROUGH STATE: MA ZIP: 01752-4748 BUSINESS PHONE: 5084813700 MAIL ADDRESS: STREET 1: 290 DONALD LYNCH BLVD CITY: MARLBOROUGH STATE: MA ZIP: 01752 FORMER COMPANY: FORMER CONFORMED NAME: DATA TRANSLATION INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended: FEBRUARY 29, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From ______ To ______ Commission File Number: 0-14779 ------- MEDIA 100 INC. ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 04-2532613 - --------------------------------------------- --------------------------- (State or other jurisdiction of organization (I.R.S. Employer or incorporation) Identification Number) 290 DONALD LYNCH BOULEVARD MARLBOROUGH, MASSACHUSETTS ------------------------------------------------------------ (Address of principal executive offices) 01752-4748 ------------------------------------------------------------ (Zip code) (508) 460-1600 ------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $.01 per share 8,760,463 shares -------------------------------------- --------------------------------- Class Outstanding at March 31, 2000 MEDIA 100 INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
PAGE NUMBER PART I - FINANCIAL INFORMATION ITEM 1 Consolidated Financial Statements: Consolidated Balance Sheets as of February 29, 2000 and November 30, 1999 3 Consolidated Statements of Operations for the three months ended February 29, 2000 and February 28, 1999 4 Consolidated Statements of Cash Flows for the three months ended February 29, 2000 and February 28, 1999 5 Notes to Consolidated Financial Statements 6 - 12 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 18 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 19 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings 20 ITEM 6 Exhibits and Reports on Form 8-K 20 SIGNATURES 21 EXHIBIT INDEX 22
2 PART I - FINANCIAL INFORMATION ITEM I - CONSOLIDATED FINANCIAL STATEMENTS MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
February 29, November 30, 2000 1999 ------------ ----------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 5,798 $ 10,231 Marketable securities 17,983 18,169 Accounts receivable, net of allowance for doubtful accounts of $376 in 2000 and $402 in 1999 7,101 6,381 Income tax refund receivable 149 149 Inventories 3,497 1,478 Prepaid expenses 1,140 936 -------- -------- Total current assets 35,668 37,344 Property and equipment, net 6,078 6,509 Intangible assets, net 3,797 1,560 Other assets, net 1,522 430 -------- -------- Total assets $ 47,065 $ 45,843 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,217 $ 1,892 Accrued expenses 6,426 7,509 Note payable 1,412 -- Deferred revenue 5,111 5,193 -------- -------- Total current liabilities 15,166 14,594 Contingencies (Note 10) -- -- Stockholders' equity: Preferred stock -- -- Common stock 86 85 Capital in excess of par value 42,095 41,452 Accumulated deficit (9,920) (10,028) Accumulated other comprehensive loss: Cumulative translation adjustment (48) (49) Unrealized holding loss on available for sale securities (314) (211) -------- -------- Total stockholders' equity 31,899 31,249 -------- -------- Total liabilities and stockholders' equity $ 47,065 $ 45,843 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Ended February 29, February 28, 2000 1999 -------- -------- Net sales: Products $ 12,217 $ 10,004 Services 2,265 2,135 -------- -------- Total net sales 14,482 12,139 Cost of sales 5,732 4,764 -------- -------- Gross profit 8,750 7,375 Operating expenses: Research and development 3,058 3,994 Selling and marketing 3,693 3,529 General and administrative 1,234 933 Amortization of intangible assets 275 -- Acquired in-process research and development 470 -- -------- -------- Total operating expenses 8,730 8,456 -------- -------- Operating income (loss) 20 (1,081) Interest income, net 291 408 Other expense, net (173) (16) -------- -------- Income (loss) before tax provision 138 (689) Tax provision 30 -- -------- -------- Net income (loss) $ 108 $ (689) ======== ======== Basic net income (loss) per share $ 0.01 $ (0.08) ======== ======== Diluted net income (loss) per share $ 0.01 $ (0.08) ======== ======== Weighted average common and potential common shares outstanding: Basic 8,592 8,294 ======== ======== Diluted 9,672 8,294 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Three Months Ended February 29, February 28, 2000 1999 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 108 $ (689) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 774 869 Non-cash interest expense 17 -- Acquired in-process research and development 470 -- Amortization of acquisition-related intangible assets 275 -- Gain on sale of marketable securities -- (8) Changes in assets and liabilities, excluding effects of acquisition: Accounts receivable (670) (340) Inventories (1,841) (1,165) Prepaid expenses (193) (100) Accounts payable 90 (150) Accrued expenses (1,146) (554) Deferred revenue (82) (618) -------- -------- Net cash used in operating activities $ (2,198) $ (2,755) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Wired, Inc., net of cash acquired (1,487) -- Other assets (1,092) 16 Purchases of equipment (281) (695) Purchase of intangible assets (103) -- Purchases of marketable securities (7,292) (12,257) Proceeds from sales of marketable securities 7,375 12,479 -------- -------- Net cash used in investing activities $ (2,880) $ (457) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock pursuant to stock plans 644 209 Purchase of treasury stock -- (289) -------- -------- Net cash provided by (used in) financing activities $ 644 $ (80) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 (76) NET DECREASE IN CASH AND CASH EQUIVALENTS $ (4,433) $ (3,368) CASH AND CASH EQUIVALENTS, beginning of period 10,231 7,249 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 5,798 $ 3,881 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ -- $ 1 ======== ======== OTHER TRANSACTIONS NOT USING CASH: Change in value of marketable securities $ (103) $ (252) ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES (see note 4): Inconnection with the acquisition of Wired, Inc., the following non- cash transaction occurred: Fair value of assets acquired $ 3,180 -- Note payable (1,395) -- Liabilities assumed (298) -- -------- -------- Cash paid for acquisition and acquisition costs $ 1,487 -- ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) 1. Basis of Presentation The accompanying interim consolidated financial statements include the accounts of Media 100 Inc. ("the Company"), a Delaware corporation, and its wholly owned subsidiaries. The interim financial statements are unaudited. However, in the opinion of management, the interim consolidated financial statements and disclosures reflect all adjustments necessary for fair presentation. Interim results are not necessarily indicative of results expected for a full year or for any other interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest audited financial statements, which are included in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999, filed with the Securities and Exchange Commission. The Company's preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company develops, markets, sells, and supports digital video and web-based streaming media software and systems, or tools, that enable new Internet broadcasters and traditional broadcasters, corporate marketing professionals, and educators to create and deliver high-quality video programs quickly, easily, and with great creative flexibility. The Company markets and delivers its products to end users through its web sites as well as through a worldwide channel of specialized value-added resellers ("VARs") that sell, assemble, and install turnkey systems using personal computers, disk drives, and ancillary video equipment. Since the Company began first shipments of its products in 1993, it has shipped over 170,000 software applications and 25,000 systems to users in over 50 countries. In June 1999, the Company acquired Terran Interactive Inc. ("Terran") of Los Gatos, CA, a leading supplier of software tools for high quality Internet and DVD video. Through Terran, the Company now offers powerful and easy-to-use solutions that optimize and compress dynamic media via the Web, broadband network, CD-ROM and DVD. In December 1999, the Company acquired Wired, Inc. ("Wired"). Wired is a supplier of Moving Pictures Experts Group ("MPEG") streaming media production tools for the Internet and digital video disk ("DVD") authoring (See Note 4). In addition to delivering Terran's and Wired's products to end users through the Company's worldwide channel of VARs and distributors, the Company sells the products acquired in the Terran and Wired acquisitions directly to end users using the Company's telemarketing groups and its website. On December 28, 1999, the Company announced it had entered into a definitive agreement to acquire Digital Origin, Inc. Digital Origin, Inc. is a leading developer of digital video editing and effects software applications designed to support the new low-cost, high-quality digital video ("DV") camcorders used for acquiring video for Internet applications. The merger is expected to be completed in the Company's second fiscal quarter of 2000. 2. Principles of Consolidation The consolidated financial statements include the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. 3. Reclassifications Certain amounts in the prior period's financial statements have been reclassified to conform to the current period's presentation. 6 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) (Continued) 4. Acquisitions In December 1999, the Company acquired Wired. In connection with the acquisition, the Company will pay $3,000,000 in cash for all outstanding shares of Wired common stock. The first payment in the amount of $1,500,000 was paid upon completion of the acquisition and the remaining $1,500,000 will be paid on the first anniversary of the closing. The net present value of this latter payment has been recorded as a note payable at February 29, 2000. In connection with the acquisition, the purchase price could increase depending on Wired's net sales and operating income over the next two years. Any contingent payments based on meeting the earn-out conditions will be considered additional goodwill and amortized over the appropriate useful life. The Company has treated the acquisition as a purchase for accounting purposes. The aggregate purchase price consisted of the following (in thousands):
Description Amount ----------- ------ Cash $ 1,454 Liabilities assumed 298 Note payable 1,395 Acquisition costs 33 ------- Total purchase price: $ 3,180 -------
The purchase price has been allocated to the acquired assets as follows (in thousands): Current assets $ 239 Equipment and other assets 38 Developed technology 900 In-process research and development 470 Goodwill 1,533 ------- $ 3,180 -------
Amounts allocated to tangible and intangible assets, including acquired in-process research and development, were based on results of an independent appraisal. The amount allocated to developed technology is being amortized on a straight-line basis over an expected useful life of three years. In connection with the acquisition, the Company allocated $470,000 of the purchase price to in-process research and development projects. These allocations represented the estimated fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the acquisition date. On December 28, 1999, the Company announced it had entered into a definitive agreement to acquire Digital Origin, Inc. The Company expects that the merger will be completed as a pooling of interest for accounting purposes, and a tax-free transaction. Under the agreement, the Company will issue 0.5347 shares of its common stock for each share of Digital Origin, Inc. common stock. The transaction is subject to the approval of the stockholders of the Company and Digital Origin, Inc. and other customary closing conditions. The merger is expected to be completed in the Company's second fiscal quarter of 2000. The Company entered into a non-exclusive, four year OEM development and license agreement with Digital Origin for consideration of $750,000 by which the Company will use Digital Origin's consumer level editing and effects software with the Company's Internet streaming media software in exchange for royalty payments. In addition, the Company incurred approximately $300,000 of acquisition-related charges during the first fiscal quarter. Both the acquisition-related charges and the consideration paid related to the OEM agreement have been included in other assets, net, in the accompanying consolidated balance sheets as of February 29, 2000. 7 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) (Continued) 5. Cash Equivalents and Marketable Securities Cash equivalents are carried at cost, which approximates market value, and have original maturities of less than three months. Cash equivalents include money market accounts. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS No. 115). Under this standard, the Company is required to classify all investments in debt and equity securities into one or more of the following three categories: held-to-maturity, available-for-sale or trading. Available-for-sale securities are recorded at fair market value with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. All of the Company's marketable securities are classified as available-for-sale. Marketable securities held as of February 29, 2000 and November 30, 1999 consist of the following (in thousands):
Investments available for sale: Maturity February 29, November 30, 2000 1999 ------------ ------------- U.S. Treasury Notes less than 1 year $ 1,006 $ -- U.S. Treasury Notes 1 - 5 years 3,473 4,538 --------- ---------- Total U.S. Treasury Notes 4,479 4,538 Municipal Bonds less than 1 year 1,794 1,797 Municipal Bonds 1 - 5 years -- -- --------- ---------- Total Municipal Bonds 1,794 1,797 U.S. Agency Bonds less than 1 year 1,009 -- U.S. Agency Bonds 1 - 5 years 2,985 3,008 --------- ---------- Total U.S. Agency Bonds 3,994 3,008 Money Market Instruments less than 1 year 1,644 3,689 Corporate Obligations less than 1 year 1,970 4,042 Corporate Obligations 1 - 5 years 5,746 4,784 --------- ---------- Total Corporate Obligations 7,716 8,826 Total investments available for sale 19,627 21,858 Less: cash and cash equivalents (1,644) (3,689) --------- ---------- Total marketable securities $ 17,983 $ 18,169 ========= ==========
Marketable securities had a cost of $18,297 and $18,380, and a market value of $17,983 and $18,169 at February 29, 2000 and November 30, 1999, respectively. 6. Inventories Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following (in thousands):
February 29, November 30, 2000 1999 ------------ ----------- Raw materials $ 842 $ 556 Work-in-process 1,210 424 Finished goods 1,445 498 ------------ ----------- $ 3,497 $ 1,478 ============ ===========
Work-in-process and finished goods inventories include material, labor and manufacturing overhead. Management performs periodic reviews of inventory and disposes of items not required by their manufacturing plan. 8 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) (Continued) 7. Property and Equipment, net Property and equipment, net, is stated at cost, less accumulated depreciation and amortization, and consists of the following (in thousands):
February 29, November 30, 2000 1999 ---------- ----------- Machinery and equipment $ 8,532 $ 8,212 Purchased software 2,802 4,162 Furniture and fixtures 1,252 1,252 Vehicles 11 11 Leasehold improvements 1,554 1,554 ---------- ----------- $ 14,151 $ 15,191 Less accumulated depreciation and amortization (8,073) (8,682) ---------- ----------- $ 6,078 $ 6,509 ========== ===========
8. Intangible Assets Intangible assets consist of the following as of February 29, 2000 and November 30, 1999 (in thousands):
February 29, November 30, 2000 1999 ---------- ---------- Patents and Trademarks $ 272 $ 169 Acquired Technology 2,460 1,560 Goodwill 1,634 101 ---------- ---------- $ 4,366 $ 1,830 Less accumulated amortization (569) (270) ---------- ---------- $ 3,797 $ 1,560 ========== ==========
Patents and trademarks are being amortized over periods ranging from three to five years, their estimated useful lives. The Company is amortizing goodwill and acquired technology related to the acquisitions of Terran and Wired using the straight-line method over three years, their estimated useful lives. 9. Net Income (Loss) Per Common Share Effective December 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). In accordance with SFAS No. 128, basic net income (loss) per share is computed by using the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by using the weighted average number of common shares outstanding and potential common shares from the assumed exercise of stock options outstanding during the period, if any, using the treasury stock method. 9 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) (Continued) The following is a reconciliation of the shares used in the computation of basic and diluted net income (loss) per share (in thousands):
Three months ended February 29, February 28, 2000 1999 --------------- -------------- Basic net income (loss) - weighted average shares of common stock outstanding 8,592 8,294 Effect of potential common shares - stock options outstanding (unless antidilutive) 1,080 -- --------------- -------------- Diluted net income (loss) - weighted average shares and potential common shares outstanding 9,672 8,294 =============== ============== Options not included in computation of diluted net income (loss) per share due to their antidilutive effect 39 302 =============== ==============
10. Contingencies (i) On June 7, 1995, a lawsuit was filed against the Company by Avid Technology, Inc. ("Avid") in the United States District Court for the District of Massachusetts. The complaint generally alleges patent infringement by the Company arising from the manufacture, sale, and use of the Company's Media 100 products. The complaint includes requests for injunctive relief, treble damages, interest, costs and fees. In July 1995, the Company filed an answer and counterclaim denying any infringement and asserting that the Avid patent in question is invalid. The Company intends to vigorously defend the lawsuit. In addition, Avid is seeking reissue of the patent, including claims that it asserts are broader than in the existing patent, and these reissue proceedings remain pending before the U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed the lawsuit without prejudice to either party moving to restore it to the docket upon completion of all matters pending before the U.S. Patent and Trademark Office. There can be no assurance that the Company will prevail in the lawsuit asserted by Avid or that the expense or other effects of the lawsuit, whether or not the Company prevails, will not have a material adverse effect on the Company's business, operating results and financial condition. (ii) From time to time the Company is involved in other disputes and/or litigation encountered in its normal course of business. The Company does not believe that the ultimate impact of the resolution of such other outstanding matters will have a material effect on the Company's business, operating results or financial condition. 11. Capitalized Software Development Costs The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs, net of accumulated amortization, were approximately $29,000, as of February 29, 2000 and November 30, 1999, and are included in other assets. These costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. 12. Income Taxes The Company has provided for a tax provision in the first fiscal quarter of 2000 in the amount of $30,000 compared to no tax provision in 1999. The tax provision is based on the statutory tax rate, offset by the expected utilization of net operating loss carryforwards and tax credits available to the Company. 10 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) (Continued) 13. Accrued Expenses Accrued expenses at February 29, 2000 and November 30, 1999 consist of the following (in thousands):
February 29, November 30, 2000 1999 ----------- ----------- Payroll and related taxes $ 1,548 $ 2,576 Accrued warranty 463 463 Accrued product development 61 40 Accrued selling and marketing 260 296 Accrued legal and other 4,094 4,134 ----------- ----------- $ 6,426 $ 7,509 =========== ===========
14. Comprehensive income (loss) Effective December 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130). SFAS No. 130 establishes standards for the display of comprehensive income (loss) and its components in a full set of financial statements. Comprehensive income (loss) includes all changes in equity during a period except those resulting from the issuance of shares of stock and distributions to shareholders. SFAS No. 130 requires that an enterprise display the components of comprehensive income (loss) for each period presented. The components of the Company's comprehensive loss were as follows:
Three months ended February 29, February 28, 2000 1999 ------------ -------------- Net income (loss) $ 108 $ (689) Cumulative translation adjustment (1) (76) Unrealized holding loss on Available-for-sale securities (103) (252) ------------ -------------- Total comprehensive income (loss) $ 4 $ (1,017) ============ ==============
15. Segment Information In July 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS No. 131). SFAS No. 131 establishes standards for public companies to report operating segment information in annual and interim financial statements filed with the SEC and shareholders effective for fiscal years beginning after December 15, 1997. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision making group is composed of the Chief Executive Officer and members of senior management. The Company's reportable operating segments are Internet tools, digital video systems and services. 11 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS) (Continued) Revenues are attributed to geographic areas based on where the customer is located. Segment information for the quarters ended February 29, 2000 and February 28, 1999 is as follows:
Digital Internet Video FEBRUARY 29, 2000 Tools Services Systems Corporate Total - ----------------- Net sales from external customers $ 3,957 $ 2,265 $ 8,260 $ -- $ 14,482 =========== ============== =============== ============ =============== Gross profit 2,601 1,994 4,155 -- 8,750 =========== ============== =============== ============ =============== Depreciation and amortization 41 18 715 -- 774 =========== ============== =============== ============ =============== Interest income, net -- -- -- 291 291 =========== ============== =============== ============ =============== Income taxes $ -- $ -- $ -- $ 30 $ 30 =========== ============== =============== ============ =============== FEBRUARY 28, 1999 - ----------------- Net sales from external customers $ -- $ 2,135 $ 10,004 $ -- $ 12,139 =========== ============== =============== ============ =============== Gross profit -- 1,833 5,542 -- 7,375 =========== ============== =============== ============ =============== Depreciation and amortization -- 17 852 -- 869 =========== ============== =============== ============ =============== Interest income $ -- $ -- $ -- $ 408 $ 408 =========== ============== =============== ============ ===============
Interest income and income taxes are considered corporate level activities and are, therefore, not allocated to segments. Management believes transfers between geographic areas are accounted for on an arms length basis. Net sales by geographic area for the quarters ended February 29, 2000 and February 28, 1999 were as follows (in thousands):
February 29, February 28, 2000 1999 --------------- ----------------- United States 8,499 $ 7,304 United Kingdom, Sweden, Denmark and Norway 1,321 1,258 Germany, Austria and Switzerland 1,014 673 France, Spain and Benelux 907 816 Japan 746 624 Other foreign countries 1,995 1,464 --------------- ----------------- $ 14,482 $ 12,139 =============== =================
Long-lived tangible assets by geographic area for the quarters ended February 29, 2000 and November 30, 1999 consist of the following (in thousands):
February 29, November 30, 2000 1999 --------------- ----------------- United States 5,766 $ 6,151 United Kingdom 127 146 Germany 85 97 Italy 22 26 France 78 89 --------------- ----------------- $ 6,078 $ 6,509 =============== =================
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements based on current expectations, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those expressed in such forward-looking statements. The risks and uncertainties associated with such statements have been described under the heading "Certain Factors That May Affect Future Results" in this Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999. The Company develops, markets, sells, and supports digital video and web-based streaming media software and systems, or tools, that enable new Internet broadcasters and traditional broadcasters, corporate marketing professionals, and educators to create and deliver high-quality video programs quickly, easily, and with great creative flexibility. The Company markets and delivers its products to end users through its web sites as well as through a worldwide channel of specialized value-added resellers ("VARs") that sell, assemble, and install turnkey systems using personal computers, disk drives, and ancillary video equipment. Since the Company began first shipments of its products in 1993, it has shipped over 170,000 software applications and 25,000 systems to users in over 50 countries. In June 1999, the Company acquired Terran Interactive Inc. ("Terran") of Los Gatos, CA, a leading supplier of software tools for high quality Internet and DVD video. Through Terran, Media 100 now offers powerful and easy-to-use solutions that optimize and compress dynamic media via the Web, broadband network, CD-ROM and DVD. In December 1999, the Company acquired Wired, Inc. ("Wired"). Wired is a supplier of Moving Pictures Experts Group ("MPEG") streaming media production tools for the Internet and digital video disk ("DVD") authoring (See Note 4). In addition to delivering Terran's and Wired's products to end users through the Company's worldwide channel of VARs and distributors, the Company sells the products acquired in the Terran and Wired acquisitions directly to end users using the Company's telemarketing groups and its website. On December 28, 1999, the Company announced it had entered into a definitive agreement to acquire Digital Origin, Inc. Digital Origin, Inc. is a leading developer of digital video editing and effects software applications designed to support the new low-cost, high-quality digital video ("DV") camcorders used for acquiring video for Internet applications. The merger is expected to be completed in the Company's second fiscal quarter of 2000. 13 Results of Operations The following table shows certain consolidated statements of operations data as a percentage of net sales.
Three months ended February 29, February 28, 2000 1999 --------------- -------------- Net sales: Products 84.4 % 82.4 % Services 15.6 17.6 --------------- -------------- Total net sales 100.0 100.0 Cost of sales 39.6 39.2 --------------- -------------- Gross profit 60.4 60.8 Operating expenses: Research and development 21.1 32.9 Selling and marketing 25.5 29.1 General and administrative 8.5 7.7 Amortization of intangible assets 1.9 - Acquired in-process research and development 3.3 - --------------- -------------- Total operating expenses 60.3 69.7 Operating income (loss) 0.1 (8.9) Interest income, net 2.0 3.4 Other expense, net (1.2) (0.2) --------------- -------------- Income (loss) before tax provision 0.9 (5.7) Tax provision 0.2 - --------------- -------------- Net income (loss) 0.7 % (5.7) % =============== ==============
Comparison of First Fiscal Quarter of 2000 to First Fiscal Quarter of 1999 Net sales. The Company's total net sales for the first fiscal quarter ended February 29, 2000 increased 19.3% to $14.5 million from $12.1 million for fiscal 1999. Net sales from products for the first fiscal quarter ended February 28, 1999 increased 22.2% to $12.2 million from $10.0 million for fiscal 1999. The increase in net sales from products is due primarily to Internet tool sales from the Company's wholly owned subsidiaries Terran and Wired. Internet tools sales increased to $4.0 million in the first fiscal quarter ended February 29, 2000 from $0 in fiscal 1999. The Company acquired Wired in December 1999 and had completed the acquisition of Terran in June 1999. The increase in Internet tool sales was offset by a decrease of $1.7 million in digital video sales to $8.3 million in the first fiscal quarter ended February 29, 2000 from $10.0 million in fiscal 1999. Net sales from services for the first fiscal quarter of 2000 increased 6.1% to $2.3 million from $2.1 million for fiscal 1999. The increase in net sales from services is due to new customers purchasing and existing customers renewing their support contracts. Gross profit. The Company's gross profit increased 18.6% to $8.7 million in the first fiscal quarter of 2000 from $7.4 million in fiscal 1999. Overall gross profit as a percentage of net sales decreased slightly to 60.4% in the first fiscal quarter of 2000 from 60.8% in fiscal 1999. Specifically, gross profit as a percentage of net product sales decreased slightly to 55.3% in the first fiscal quarter of 2000 from 55.4% in fiscal 1999, while gross profit as a percentage of net sales of services increased to 88.0% in the first fiscal quarter of 2000 from 85.9% in fiscal 1999. Research and development. Research and development expenses decreased 23.4% to $3.1 million in the first fiscal quarter of 2000 from $4.0 million in fiscal 1999. Research and development expenses consist primarily of salaries and related benefits, consultants, outside services, occupancy and depreciation. The Company currently anticipates research and development expenses will increase in absolute dollars in fiscal 2000 versus fiscal 1999 due to the acquisitions of Terran and Wired and the planned development of their products. 14 Selling and marketing. Selling and marketing expenses increased 4.6% to $3.7 million in the first fiscal quarter of 2000 from $3.5 million in fiscal 1999. Selling expenses consist primarily of salaries and related benefits, commissions, travel, occupancy and depreciation. Marketing expenses consist primarily of salaries and related benefits, trade shows, seminars, advertising, sales literature and lead generation activities. The increase in selling and marketing expenses resulted primarily from the acquisition of Terran and the Company's promotion of the streaming media tools acquired as part of the transaction. The Company currently anticipates that its selling and marketing expenses will increase in absolute dollars in fiscal 2000 versus fiscal 1999 as the Company increases its focus on the Internet and the related support of the Company's promotion of its streaming media tools. General and administrative. General and administrative expenses increased 32.3% to $1.2 million in the first fiscal quarter of 2000 from $0.9 million in fiscal 1999. General and administrative expenses include the cost of human resources, finance, information technology, legal and other administrative functions of the Company. The increase in general and administrative expenses resulted primarily from increased personnel costs as a result of the acquisitions of Terran and Wired. The Company currently anticipates that its general and administrative expenses will increase in fiscal 2000 compared to fiscal 1999 in support of higher anticipated net sales. Amortization of intangible assets. The Company recorded an expense for the amortization of intangible assets of $275,000 in the first fiscal quarter of 2000 as a result of the acquisitions of Terran and Wired. There was no similar expense recorded in the first fiscal quarter of 1999. Acquired in-process research and development. In connection with the acquisition of Wired, the Company allocated $470,000 of the purchase price to in-process research and development projects. These allocations represented the estimated fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the acquisition date. There was no similar expense recorded in the first fiscal quarter of 1999. Interest income, net. Interest income decreased 28.7% to $291,000 in the first fiscal quarter of 2000 from $408,000 in fiscal 1999. The decrease in interest income is due primarily to lower cash and cash equivalent balances in fiscal 2000 versus 1999. The Company currently anticipates interest income will decline in fiscal 2000 versus 1999 due to a reduction in cash early in fiscal year 2000 resulting from the acquisition of Wired and due to an additional cash payment due to the shareholders of Terran. Other expense, net. Other expense, net, increased 981.3% to $173,000 in the first fiscal quarter of 2000 from $16,000 in fiscal 1999. The increase is due primarily to foreign exchange losses on intercompany transactions with the Company's foreign subsidiaries. Tax provision. The Company has provided for a tax provision in the first fiscal quarter of 2000 in the amount of $30,000 compared to no tax provision in 1999. The tax provision is based on the statutory tax rate, offset by the expected utilization of net operating loss carryforwards and tax credits available to the Company. Net income (loss). As a result of the above factors, the Company had net income for the first fiscal quarter of 2000 in the amount of $108,000, or $0.01 per diluted share, compared to a net loss of ($689,000), or ($0.08) per share, in fiscal 1999. Liquidity and Capital Resources The Company has funded its operations to date primarily from public offerings of equity securities and cash flows from operations. As of February 29, 2000, the Company's principal sources of liquidity included cash and cash equivalents and marketable securities totaling approximately $23,781,000. For the three months ended February 29, 2000, cash used in operating activities was approximately $2,198,000 compared to approximately $2,755,000 for the same period a year ago. Cash used in operations, excluding the effects of the Wired acquisition, during the first three months of fiscal 2000 was due to increases in accounts receivable of $670,000, inventory of $1,841,000, prepaid expenses of $193,000, decreases in accrued expenses of $1,146,000 and deferred revenue of $82,000, offset by an increase in accounts payable of $90,000. Net cash used in investing activities was approximately $2,880,000 during the first three months of fiscal 2000, compared to approximately $457,000 for the same period a year ago. Cash used in investing activities during the three months ended February 29, 2000 was primarily for the initial payment for the purchase of Wired for $1,487,000, increase in other assets of $1,092,000, purchases of equipment of approximately $281,000, intangible assets of 15 approximately $103,000 and marketable securities of approximately $7,292,000. This was offset by the net proceeds from sales of marketable securities of approximately $7,375,000. Cash provided by financing activities during the first three months of fiscal 2000 was approximately $644,000, compared to cash used in financing activities of $80,000 for the same period a year ago. Cash provided by financing activities of $644,000 in the first three months of fiscal 2000 came from proceeds from issuance of common stock pursuant to stock plans. The Company believes its existing cash balance, cash equivalents and marketable securities will be sufficient to meet the Company's cash requirements for at least the next twelve months. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Except for the historical information contained herein, the matters discussed in this Form 10-Q are forward-looking statements, and are based on current expectations, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those expressed in such forward-looking statements. The risks and uncertainties associated with such statements include the following: ACQUISITION RELATED RISKS. During the fiscal year ended November 30, 1999, the Company completed the Terran acquisition. During the first fiscal quarter of 2000, the Company completed the acquisition of Wired and has also signed a definitive agreement to acquire Digital Origin, Inc. The transaction is subject to the approval of the stockholders of the Company and Digital Origin, Inc. and other customary closing conditions. The Company anticipates the merger will be completed in the first half of calendar 2000. The Company's business and results of operations could be materially adversely affected in the event the Company fails to complete publicly announced acquisitions or to successfully integrate the business and operations of these acquisitions. The Company may continue in the future to acquire existing businesses, products, and technologies to enhance and expand its line of products. Such acquisitions may be material in size and in scope. There can be no assurance that the Company will be able to identify, acquire, or profitably manage additional business or successfully integrate any acquired businesses into the Company without substantial expenses, delays, or other operational or financial problems. Acquisitions involve a number of special risks and factors, including increasing competition for attractive acquisition candidates in the Company's markets, the technological enhancement and incorporation of acquired products into existing product lines and services, the assimilation of the operations and personnel of the acquired companies, failure to retain key acquired personnel, adverse short-term effects on reported operating results, the amortization of acquired intangible assets, the assumption of undisclosed liabilities of any acquired companies, the failure to achieve anticipated benefits such as cost savings and synergies, as well as the diversion of management's attention during the acquisition and integration process. Some or all of these special risks and factors may have a material adverse impact on the Company's business, operating results, and financial condition. SIGNIFICANT FLUCTUATIONS AND UNPREDICTABILITY OF OPERATING RESULTS. The Company's quarterly operating results may vary significantly for a number of reasons, including new product announcements and introductions by the Company or its competitors, changes in pricing, and the volume and timing of orders received during the quarter. The Company has also in the past experienced delays in the development of new products and enhancements, and such delays may occur in the future. These factors make the forecasting of revenue inherently uncertain. Additionally, a significant portion of the Company's operating expenses is relatively fixed, and operating expense levels are based primarily on internal expectations of future revenue. As a consequence, quarterly operating expense levels cannot be reduced rapidly in the event that quarterly revenue levels fail to meet internal expectations. Therefore, if quarterly revenue levels fail to meet internal expectations, the Company's operating results would be adversely affected. EMERGING MARKETS. The Company is targeting the emerging market of new Internet-based broadcasters that are building streaming media web sites and businesses and institutions that are adding Internet video to their web sites. This market and the products utilized by these users are relatively new. The Company's success in this emerging market will depend on the rate at which the market develops and the Company's ability to penetrate that market. In addition, in fiscal 2000, the Company plans to begin targeting consumers who are looking to edit video at low cost and without complication. The Company believes this market will grow rapidly in the future as consumers increase their purchases of DV camcorders that connect directly to personal computers. Using a DV camcorder, a home PC and the Internet, the Company believes consumers will be able to capture, edit and stream video simply and easily. The Company's future growth will depend, in part, on the rate at which consumers purchase DV camcorders and adopt editing and streaming technology. There can be no assurance that the use of digital video editing and streaming products, like the ones offered by the Company, will expand among existing users of video production processes or the market for new users. Any failure of the Company's products to achieve market acceptance in these markets, as a result of competition, technological change or other factors, could have a material adverse effect on the Company's business and operating results. 16 RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. New product announcements by the Company's competitors and by the Company itself could have the effect of reducing customer demand for the Company's existing products. The introduction of new or enhanced products by the Company also requires the Company to manage the transitions from existing products. New product introductions require the Company to devote time and resources to the training of its sales channel in the features and target customers for such new products, which efforts could result in less selling efforts being made by the sales channel during such training period. New product announcements or introductions could contribute to significant quarterly fluctuations in operating results as orders for new products commence and orders for existing products decline. RAPID TECHNOLOGICAL CHANGE. The market for the Company's products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's future success will depend in part upon its ability to enhance its existing products and to introduce new products and features in a timely manner to address customer requirements, respond to competitive offerings, adapt to new emerging industry standards and take advantage of new enabling technologies that could render the Company's existing products obsolete. The Company plan in fiscal 2000 is to continue its investment in research and development, in connection with the Company's development strategy. Any delay or failure of the Company in developing additional new products or features for existing products or any failure of such new products or features to achieve market acceptance, could have a material adverse effect on the Company's business and operating results. COMPETITION. The market for the Company's products is highly competitive and characterized by pressure to reduce prices, incorporate new features and accelerate the release of new products. A number of companies currently offer products that compete directly or indirectly with the Company's products, including Accom, Inc., Apple Computer Inc. ("Apple"), Avid Technology, Inc., Discreet (a division of Autodesk, Inc.), FAST Electronic GmbH, Matrox Electronic Systems Ltd., Pinnacle Systems, Inc., Real Networks Inc., and Sonic Foundry, Inc. In addition, the Company expects much larger vendors, such as Matsushita Electric Industrial Company Ltd., Microsoft Corporation, and Sony Corporation, to develop and introduce digital editing systems that may compete with the Company's products. Many of these current and potential competitors have greater financial, technical and marketing resources than the Company. As a result, such competitors may be able to develop products comparable to or superior to the Company's products, adapt more quickly than the Company to new technologies, evolving industry standards or customer requirements, or lower their product costs and thus be able to lower prices to levels at which the Company could not operate profitably, the occurrence of any of which could have a material adverse effect on the Company's business and operating results. In this regard, the Company believes that it will continue to experience competitive pressure to reduce prices, particularly for its high data rate systems. The Company has historically realized higher gross profit on the sale of its high data rate systems than its entry-level systems, and such continued competitive pricing pressure could result in lower sales and gross margin, which in turn could adversely affect the Company's operating results. DEPENDENCE ON AND COMPETITION WITH APPLE COMPUTER, INC. As a competitor, Apple could, in the future, inhibit the Company's ability to develop its products that operate on the Macintosh platform. Additionally, new products and enhancements to existing products from Apple such as Final Cut Pro could cause customers to delay purchases of the Company's products or alter their purchase decision altogether. Furthermore, as the sole supplier of Macintosh computers, any disruption in the availability of these computers could cause customers to defer or alter their purchase of the Company's products. The Company relies on access to key information from Apple to continue development of its products and any failure to continue supplying the Company's engineers with this information could have a material adverse affect on the Company's business and financial results. DEPENDENCE ON MICROSOFT CORPORATION. Many of the Company's products operate in the Windows environment and the Company's engineers depend upon access to information in advance from Microsoft Corporation ("Microsoft"). Any failure to continue supplying the Company's engineers with this information could have a material adverse affect on the Company's business and financial results. DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS. The Company is dependent on single or limited source suppliers for several key components used in its products. The availability of many of these components is dependent on the Company's ability to provide suppliers with accurate forecasts of its future requirements, and certain components used by the Company have been subject to industry-wide shortages. The Company does not carry significant inventories of these components and has no guaranteed supply arrangements with such suppliers. There can be no assurance that the Company's inventories would be adequate to meet the Company's production needs during any interruption of supply. The Company's inability to develop alternative supply sources, if required, or a reduction or stoppage in supply, could delay product shipments until new sources of supply become available, and any such delay could adversely affect the Company's business and operating results in any given period. DEPENDENCE ON PROPRIETY TECHNOLOGY. The Company's ability to compete successfully and achieve future revenue growth will depend, in part, on its ability to protect its proprietary technology and operate without infringing the rights of others. The 17 Company has in the past received, and may in the future continue to receive, communications suggesting that its products may infringe patents or other intellectual property rights of third parties. The Company's policy is to investigate the factual basis of such communications and negotiate licenses where appropriate. While it may be necessary or desirable in the future to obtain licenses relating to one or more products, or relating to current or future technologies, there can be no assurance that the Company will be able to do so on commercially reasonable terms or at all. There can be no assurance that these or other future communications can be settled on commercially reasonable terms or that they will not result in protracted and costly litigation. RISKS OF THIRD-PARTY CLAIMS OF INFRINGEMENT. There has been substantial industry litigation regarding patent, trademark and other intellectual property rights involving technology companies. In the future, litigation may be necessary to enforce any patents issued to the Company or to enforce trade secrets, trademarks and other intellectual property rights owned by the Company, to defend the Company against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. For a description of certain pending litigation instituted against the Company, see Note 10 to the Consolidated Financial Statements included herein. Any such litigation could be costly and a diversion of management's attention, which could adversely affect the Company's business, operating results and financial condition. Adverse determinations in any such litigation could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any of which could adversely affect the Company's business, operating results and financial condition. DEPENDENCE ON RESELLERS. The Company relies primarily on its worldwide network of independent VARs to distribute and sell its content creation products to end-users. The Company's resellers generally offer products of several different companies, including in some cases products that are competitive with the Company's products. In addition, many of these VARs are small organizations with limited capital resources. There can be no assurance that the Company's resellers will continue to purchase the Company's products or provide them with adequate levels of support, or that the Company's efforts to expand its VAR network will be successful, any significant failure of which could have a material adverse effect on the Company's business and operating results. RELIANCE ON INTERNATIONAL SALES. International sales and operations may be subject to risks such as the imposition of government controls, export license requirements, restrictions on the export of critical technology, less effective enforcement of proprietary rights; currency exchange fluctuations, generally longer collection periods, political instability, trade restrictions, changes in tariffs, difficulties in staffing and managing international operations, potential insolvency of international resellers and difficulty in collecting accounts receivable. The Company's international sales are also subject to more seasonal fluctuation than domestic sales. In this regard, the traditional summer vacation period, which occurs during the Company's third fiscal quarter, may result in a decrease in sales, particularly in Europe. There can be no assurance that these factors will not have an adverse effect on the Company's future international operations and consequently, on the Company's business and operating results. INTERNET-BASED SALES. In fiscal 1999, the Company implemented e-commerce systems allowing customers to purchase the Company's products directly from its web site. Although the portion of revenue derived from its e-commerce web site was less than five percent in fiscal 1999, the Company anticipates revenue derived from its e-commerce web site to ramp up in fiscal 2000. There can be no assurances that the Company's customers will continue to purchase the Company's products from its web site or that the web site will not experience technical difficulties thereby causing customers to delay purchases. Any significant technical difficulties could have a material adverse effect on the Company's business and operating results. DEPENDENCE ON KEY PERSONNEL. Competition for employees with the skills required by the Company is intense in the geographic areas in which the Company's operations are located. The Company believes that its future success will depend on its continued ability to attract and retain qualified employees, especially in research and development. EURO CONVERSION. On January 1, 1999, 11 of the 15 member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the Euro. As of January 1, 2002, the transition to the Euro will be complete. The Company has operations within the European Union and has prepared for the Euro conversion. The Company does not expect the costs associated with the transition to be material. However, the overall effect of the transition to the Euro may have a material adverse affect on the Company's business, financial condition and financial results. 18 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. The Company does not participate in derivative financial instruments, other financial instruments for which the fair value disclosure would be required under Statement of Financial Accounting Standards No. 107 DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS AND DERIVATIVE COMMODITY INSTRUMENTS ( SFAS No. 107). All of the Company's investments are in short-term, investment grade commercial paper, certificates of deposit and U.S. Government and agency securities that are carried at fair value on the Company's books. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments. Primary Market Risk Exposures. The Company's primary market risk exposures are in the area of interest rate risk and foreign currency exchange rate risk. The Company's investment portfolio of cash equivalents is subject to interest rate fluctuations, but the Company believes this risk is immaterial due to the short-term nature of these investments. The Company's business in Europe is conducted in local currency. In Asia, business is conducted in US currency. In addition, the Company sells products to its foreign subsidiaries in transaction denoted in US currency. The Company's foreign subsidiaries are therefore exposed to foreign exchange fluctuations on US currency-denominated intercompany payables to the Company. The Company has no foreign exchange contracts, option contracts or other foreign hedging arrangements. 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 7, 1995, a lawsuit was filed against the Company by Avid Technology, Inc. ("Avid") in the United States District Court for the District of Massachusetts. The complaint generally alleges patent infringement by the Company arising from the manufacture, sale, and use of the Company's Media 100 products. The complaint includes requests for injunctive relief, treble damages, interest, costs and fees. In July 1995, the Company filed an answer and counterclaim denying any infringement and asserting that the Avid patent in question is invalid. The Company intends to vigorously defend the lawsuit. In addition, Avid is seeking reissue of the patent, including claims that it asserts are broader than in the existing patent, and these reissue proceedings remain pending before the U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed the lawsuit without prejudice to either party moving to restore it to the docket upon completion of all matters pending before the U.S. Patent and Trademark Office. There can be no assurance that the Company will prevail in the lawsuit asserted by Avid or that the expense or other effects of the lawsuit, whether or not the Company prevails, will not have a material adverse effect on the Company's business, operating results and financial condition. Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibits required as part of this Quarterly Report on Form 10-Q are listed in the exhibit index on page 22. b) Reports on Form 8-K The following report on 8-K was filed during the first quarter of fiscal year 2000: Form 8-K dated January 14, 2000 consisting of the following: Item 5. Other Events (Press Release) and Item 7. Exhibits (Exhibit 99 - Press Release), relating to a press release announcing the Company's intention to acquire Digital Origin, Inc. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Media 100 Inc. Date: April 14, 2000 By: /s/ Steven D. Shea -------------------- Steven D. Shea Vice President of Finance and Treasurer (Principal Financial Officer) 21 EXHIBIT INDEX
NUMBER DESCRIPTION ------ ----------- 27 Financial Data Schedule
22 EX-27 2 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET ON FORM 10-Q FOR THE PERIOD ENDED FEBRUARY 29, 2000 AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS FILED ON FORM 10-Q FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS NOV-30-2000 DEC-01-1999 FEB-29-2000 5,798 17,983 7,477 376 3,497 35,668 14,151 8,073 47,065 15,166 0 0 0 86 31,813 47,065 14,482 14,482 5,732 5,732 8,730 0 0 138 30 108 0 0 0 108 0.01 0.01
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