-----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, WhTg+gUPaKxlydS2cETtMJwYrIfH8mhGB9lL7pHCtvIBvKR6Fo7OnfS5KQy7f/sc jnJNyWBkPf3AHlCG2opjKw== 0000950135-97-002996.txt : 19970716 0000950135-97-002996.hdr.sgml : 19970716 ACCESSION NUMBER: 0000950135-97-002996 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970715 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-14779 FILM NUMBER: 97640640 BUSINESS ADDRESS: STREET 1: 100 LOCKE DRIVE CITY: MARLBOROUGH STATE: MA ZIP: 01752-1192 BUSINESS PHONE: 5084813700 MAIL ADDRESS: STREET 2: 100 LOCKE DRIVE CITY: MARLBORO STATE: MA ZIP: 01752-1192 FORMER COMPANY: FORMER CONFORMED NAME: DATA TRANSLATION INC DATE OF NAME CHANGE: 19920703 10-Q 1 MEDIA 100 INC. 1 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: May 31, 1997 ------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From To ------ ------ Commission File Number: 0-14779 ------- MEDIA 100 INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 04-2532613 - -------------------------------------------- --------------------------------------- (State or other jurisdiction of organization (I.R.S. Employer Identification Number) or incorporation)
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) 100 LOCKE DRIVE MARLBOROUGH, MASSACHUSETTS 01752-1192 ------------------------------------------------------ (Former address, if changed since last report) 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 8,134,121 shares -------------------------------------- --------------------------------- Class Outstanding at June 30, 1997 2 MEDIA 100 INC. AND SUBSIDIARIES INDEX ----- PAGE PART I - FINANCIAL INFORMATION NUMBER ------ ITEM 1 Consolidated Financial Statements: Consolidated Balance Sheets as of May 31, 1997 and November 30, 1996 3 Consolidated Statements of Operations for the three months ended May 31, 1997 and 1996, and the six 4 months ended May 31, 1997 and 1996 Consolidated Statements of Cash Flows for the six months ended May 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 - 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings 14 ITEM 4 Submission of Matters to a Vote of Security Holders 14 ITEM 6 Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16 2 3 PART I - FINANCIAL INFORMATION MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
May 31, November 30, (in thousands except share amounts) 1997 1996 ------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,602 $ 2,733 Marketable securities 28,349 27,983 Accounts receivable, net of reserves of $347 in 1997 and $328 in 1996 8,248 11,665 Inventories 738 1,473 Prepaid expenses 573 567 ------- ------- Total current assets 40,510 44,421 Property and equipment, net 6,560 2,467 Other assets, net 88 112 Assets of discontinued operations, net -- 12,990 ------- ------- Total assets $47,158 $59,990 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 676 $ 1,981 Accrued expenses 5,711 5,791 Deferred revenue 3,179 2,153 ------- ------- Total current liabilities 9,566 9,925 Commitments and contingencies -- -- Stockholders' equity: Preferred stock -- -- Common stock 81 81 Capital in excess of par value 40,269 40,035 Retained (deficit) earnings (2,664) 9,826 Cumulative translation adjustment 78 123 Unrealized holding loss on available for sale securities, net (172) -- ------- ------- Total stockholders' equity 37,592 50,065 ------- ------- Total liabilities and stockholders' equity $47,158 $59,990 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 3 4 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended May 31, Six Months Ended May 31, (in thousands, except per share data) 1997 1996 1997 1996 ------- ------- ------- ------- Net sales $12,102 $12,921 $23,626 $23,611 Cost of sales 4,730 5,248 9,091 9,561 ------- ------- ------- ------- Gross profit 7,372 7,673 14,535 14,050 Operating expenses: Research and development 2,161 1,356 4,156 2,668 Selling and marketing 4,134 3,794 8,363 6,849 General and administrative 1,014 1,322 1,947 2,469 ------- ------- ------- ------- Total operating expenses 7,309 6,472 14,466 11,986 ------- ------- ------- ------- Income from operations 63 1,201 69 2,064 Interest income 432 360 894 747 Other income (expense), net (76) (47) (324) (46) ------- ------- ------- ------- Income from continuing operations before tax provision 419 1,514 639 2,765 Tax provision 83 303 138 553 ------- ------- ------- ------- Income from continuing operations 336 1,211 501 2,212 Discontinued operations: Income from discontinued operations of Data Translation, Inc. 0 111 0 260 ------- ------- ------- ------- Net income $ 336 $ 1,322 $ 501 $ 2,472 ======= ======= ======= ======= Income per common and common equivalent share from continuing operations $ 0.04 $ 0.14 $ 0.06 $ 0.26 Income per common and common equivalent share from discontinued operations $ 0.00 $ 0.01 $ 0.00 $ 0.03 ------- ------- ------- ------- Net income per common and common equivalent share $ 0.04 $ 0.15 $ 0.06 $ 0.29 ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding 8,202 8,731 8,241 8,669
The accompanying notes are an integral part of these consolidated financial statements. 4 5 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended May 31, (in thousands) 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 501 $ 2,472 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 681 364 Loss on sale of marketable securities 2 5 Changes in assets and liabilities Accounts receivable 3,417 (3,583) Inventories 735 (961) Prepaid expenses (6) (140) Accounts payable (1,305) 413 Accrued expenses (80) (289) Deferred revenue 1,026 123 -------- -------- Net cash provided by (used in) continuing operating activities 4,971 (1,596) Net cash used in discontinued operating activities -- (556) -------- -------- Net cash provided by (used in) operating activities $ 4,971 $ (2,152) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (4,774) (950) Increase (decrease) in other assets 24 (19) Purchases of marketable securities (20,583) (27,698) Proceeds from sales of marketable securities 20,043 5,758 -------- -------- Net cash used in investing activities $ (5,290) $(22,909) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock plans 233 2,645 Net proceeds from public sale of common stock -- 1,843 -------- -------- Net cash provided by financing activities $ 233 $ 4,488 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (45) 258 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS $ (131) $(20,315) CASH AND CASH EQUIVALENTS, beginning of period 2,733 28,602 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 2,602 $ 8,287 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 90 $ 485 ======== ======== OTHER TRANSACTIONS NOT PROVIDING (USING) CASH: Acquisition of equipment under capital lease obligations $ (221) $ -- -------- -------- Decrease in value of marketable securities $ 172 $ 253 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1996 AMOUNTS) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of Media 100 Inc. ("the Company") and its wholly-owned subsidiaries. The interim financial statements are unaudited. However, in the opinion of management, the consolidated financial statements and disclosures reflect all adjustments necessary for fair presentation. Interim results are not necessarily indicative of results expected for a full year or for any other interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest audited financial statements, which are incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996, filed with the Securities and Exchange Commission on February 28, 1997. 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. On July 30, 1996, the Company announced its intention to separate its Media 100(R) digital video business from its data acquisition and imaging, commercial products and U.K.-based networking distribution businesses. The Company announced that it would contribute its data acquisition and imaging and commercial products businesses to a newly-formed subsidiary, Data Translation II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to the Company's stockholders. The Company further announced that it planned to dispose of its networking distribution business within twelve months. On November 11, 1996, the Company sold substantially all of the assets associated with its networking distribution business in connection with the winding up of that business. On December 2, 1996, the Company distributed all of the shares of DTI, to which it had contributed its data acquisition and imaging and commercial products businesses and the remaining assets and liabilities of the networking distribution business, as a dividend to the Company's stockholders (the "Spin-Off"), in the ratio of one share of DTI common stock for every four shares of Company common stock. The dividend reduced retained earnings in an amount equal to $12,990,000. In connection with the Spin-Off, the Company retained only its Media 100 related business and changed its name to Media 100 Inc. 2. 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 and repurchase agreements with overnight maturities. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. 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 to stockholders' equity. All of the Company's marketable securities are classified as available-for-sale. Marketable securities held as of May 31, 1997, consist of the following (in thousands):
Investments available for sale: Maturity Market Value -------- ------------ U.S. Treasury Notes less than 1 year $5,062 U.S. Treasury Notes 1 - 4 years 2,972 ------- Total U.S. Treasury Notes 8,034 Municipal Bonds less than 1 year 4,555 Municipal Bonds 1 - 2 years 2,019 ------- Total Municipal Bonds 6,574 U.S. Agency Bonds less than 1 year 1,543 U.S. Agency Bonds 1 - 3 years 207 ------- Total U.S. Agency Bonds 1,750 Money Market Instruments 3,000
6 7 2. Cash Equivalents and Marketable Securities (continued)
Investments available for sale: Maturity Market Value -------- ------------ Corporate Obligations less than 1 year 7,153 Corporate Obligations 1 - 3 years 1,838 ------- Total Corporate Obligations 8,991 ------- Total investments available for sale $28,349 =======
Marketable securities had a cost of $28,521 and $27,983 at May 31, 1997 and November 30, 1996, respectively, and a market value of $28,349 and $27,983, respectively. To decrease the carrying amount of the May 1997 marketable securities portfolio to market value, a valuation allowance has been reflected as a separate component of stockholders' equity on May 31, 1997 pursuant to the provisions of SFAS No. 115. 3. Inventories Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following (in thousands):
May 31, November 30, 1997 1996 ---- ------ Raw materials $418 $ 780 Work-in-process 22 302 Finished goods 298 391 ---- ------ $738 $1,473 ==== ======
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. 4. Property and equipment, net Property and equipment, net is stated at cost, less accumulated depreciation and amortization, and consists of the following (in thousands):
May 31, November 30, 1997 1996 ------ ------ Machinery and equipment $7,590 $4,265 Furniture and fixtures 742 480 Leasehold improvements 1,187 -- ------ ------ $9,519 $4,745 Less accumulated depreciation and amortization 2,959 2,278 ------ ------ $6,560 $2,467 ====== ======
5. Net Income Per Common Share Net income per common share is determined by dividing net income by the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares have been calculated in accordance with the treasury stock method and are included for all periods where their effect is dilutive. Fully diluted net income per common and common equivalent share has not been separately presented, as the amounts would not be materially different from net income per common and common equivalent share for all periods presented. 7 8 6. 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 product. 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 July 31, 1996, the court ordered a stay of all proceedings in the lawsuit pending conclusion of the reissue proceedings referred to above. 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) On February 12, 1997, a lawsuit was filed in Germany against the Company's former German subsidiary, Data Translation GmbH ("DT GmbH"), and its managing director, by Lex Computer and Management Corporation ("Lex"). The complaint generally alleged patent infringement by DT GmbH arising from the manufacture, sale and use of the Company's Media 100 products in Germany. The complaint included requests for injunctive relief, damages, costs and fees. DT GmbH is currently a subsidiary of DTI. Under the terms of the Spin-Off the Company has agreed to indemnify DTI and its affiliates (including DT GmbH) against liabilities arising out of the Company's Media 100 business. Subsequent to the filing of the lawsuit, the Company agreed to license on a worldwide basis certain video editing-related patents owned by Lex. In connection with the license arrangement, Lex withdrew its lawsuit against DT GmbH and its managing director on June 19, 1997. The Company does not currently believe that the terms of the foregoing license arrangement will have a material effect on the Company's financial position or operating results. (iii) 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. 7. 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 $88,000 and $104,000 as of May 31, 1997 and November 30, 1996, respectively and are included in other assets. These costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. Amortization expense, included in cost of sales in the accompanying consolidated statements of operations, was approximately $40,000 and $40,000 for the six months ended May 31, 1997 and twelve months ended November 30, 1996, respectively. 8. Income Taxes The Company has provided for income taxes, based on the projected taxable income from operations for fiscal 1997, using an effective tax rate of approximately 20% for the three months ended May 31, 1997, taking into consideration research and development tax credit carryforwards and other general business tax credits. 9. Discontinued Operations The components of net assets of discontinued operations included in the accompanying consolidated balance sheets at May 31, 1997 and November 30, 1996 follow (in thousands):
May 31, November 30, 1997 1996 ---- ------- Current assets $ - $14,090 Equipment, net - 2,351 Other assets, net - 260 Current liabilities - (2,317) Net liabilities of networking distribution business - (1,424) Cumulative translation adjustment - 30 ---- ------- $ - $12,990 ==== =======
8 9 9. Discontinued Operations (continued) The components of discontinued operations included in the accompanying consolidated statements of operations for the three and six months ended May 31, 1997 and 1996, respectively, follow (in thousands):
Three Months Ended May 31, Six Months Ended May 31, 1997 1996 1997 1996 ---- ----- ----- ----- Income from operations of discontinued businesses -- 483 -- 594 Loss on disposal of networking distribution business -- (372) -- (334) ---- ----- ----- ----- Income from discontinued operations $ -- $ 111 -- $ 260 ==== ===== ===== =====
Income for the three and six months ended May 31, 1996 also reflects an allocation of $139 and $274 of interest income, respectively, relating to the $10 million of cash contributed to DTI by the Company. 10. New Accounting Standard In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. This statement is effective for fiscal years ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its fiscal year ended November 30, 1998. The Company believes that the adoption of SFAS No. 128 will not have a material effect on its financial statements. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Media 100 Inc. is a technology and market leader in the market for personal computer-based digital video systems. The Media 100 family of products are analog and digital conversion systems that enable users to capture video and audio into a personal computer, perform random-access ("nonlinear") video editing and audio mixing, and directly produce a finished program with broadcast-quality picture and compact disc-quality sound, all without the use of traditional video tape equipment. On July 30, 1996, the Company announced its intention to separate its Media 100 digital video business from its data acquisition and imaging, commercial products and U.K.-based networking distribution businesses. The Company announced that it would contribute its data acquisition and imaging and commercial products businesses to a newly-formed subsidiary, Data Translation II, Inc. ("DTI"), the stock of which would then be distributed as a dividend to the Company's stockholders. The Company further announced that it planned to dispose of its networking distribution business within twelve months. On November 11, 1996, the Company sold substantially all of the assets associated with its networking distribution business in connection with the winding up of that business. On December 2, 1996, the Company distributed all of the shares of DTI, to which it had contributed its data acquisition and imaging and commercial products businesses and the remaining assets and liabilities of the networking distribution business, as a dividend to the Company's stockholders (the "Spin-Off"), in the ratio of one share of DTI common stock for every four shares of Company common stock. In connection with the Spin-Off, the Company retained only its Media 100 related business and changed its name to Media 100 Inc. Results of Operations The following table shows certain consolidated statements of operations data as a percentage of net sales.
Three Months Ended May 31, Six Months Ended May 31, Continuing operations 1997 1996 1997 1996 ----- ----- ----- ----- Net sales 100.0% 100.0% 100.0% 100.0% Gross margin 60.9 59.4 61.5 59.5 Research and development expenses 17.9 10.5 17.6 11.3 Selling and marketing expenses 34.1 29.4 35.4 29.0 General and administrative expenses 8.4 10.2 8.2 10.5 ----- ----- ----- ----- Operating income 0.5 9.3 0.3 8.7 Interest income and other, net 3.0 2.4 2.4 3.0 Provision for income taxes 0.7 2.3 0.6 2.3 ----- ----- ----- ----- Income from continuing operations 2.8% 9.4% 2.1% 9.4% ===== ===== ===== =====
Comparison of Second Fiscal Quarter of 1997 to Second Fiscal Quarter of 1996 Net sales from continuing operations for the fiscal quarter ended May 31, 1997 were $12,102,000, a decrease of $819,000, or 6.3%, from the same period a year ago. Net sales decreased for the quarter ended May 31, 1997 primarily due to lower average selling prices for the Company's Media 100 products and a higher percentage of the Company's unit sales coming from its entry systems. In April 1997 the Company reduced the price of several products to enhance their price/performance relative to competitive product offerings from some of the Company's competitors. The products affected by this price reduction include the Company's Media 100 qx, Media 100 qx with component and Media 100 le products. All of these products are upgradeable to the Company's other product offerings including Media 100 lx, Media 100 xe and Media 100 xs. Gross margin for the fiscal quarter ended May 31, 1997 was 60.9%, compared to 59.4% in the comparable quarter a year ago. This increase in gross margin was primarily a result of reductions in the cost of key component parts used in the manufacture of the Media 100 hardware which more than offset the lower average selling prices. Operating income for the second fiscal quarter of 1997 was $63,000, a decrease of $1,138,000, from the same period a year ago. Operating income was lower in the quarter ended May 31, 1997 due to lower net sales and higher operating expenses. Operating 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Second Fiscal Quarter of 1997 to Second Fiscal Quarter of 1996 (continued) expenses for the second fiscal quarter of 1997 were $7,309,000, an increase of $837,000, or 12.9%, from the same period a year ago. The increase in operating expenses reflects the Company's continued investment in research and development for new and existing products and expansion of the Company's support for the sales channel, primarily in Europe where the Company opened its European headquarters located in Paris, France during the fourth fiscal quarter of 1996. The increase in operating expenses for research and development, sales and marketing were partially offset by lower general and administrative expenses. The decrease in general and administrative expenses reflects lower legal expenses for the defense of patent infringement litigation, as discussed in Note 6 to the Consolidated Financial Statements. Interest income for the fiscal quarter ended May 31, 1997 was $432,000, or 3.6% of net sales, compared to $360,000, or 2.8% of net sales, in the comparable quarter a year ago. Other expense for the second fiscal quarter of 1997 was $76,000, an increase of $29,000 over the same period a year ago, reflecting increased losses on foreign currency transactions arising out of the Company's subsidiaries. The tax provision of $83,000 for the fiscal quarter ended May 31, 1997 compares to a $303,000 tax provision for the same period a year ago. The Company currently estimates its effective tax rate for fiscal 1997 will be approximately 20% for its domestic operations taking into consideration research and development tax credit carryforwards and other business tax credits available for use against taxable income. Income from continuing operations for the fiscal quarter ended May 31, 1997 was $336,000 or $0.04 per share, compared to $1,211,000, or $0.14 per share, for the same period a year ago. Income from discontinued operations for the second fiscal quarter of 1997 was $0 compared to $111,000, or $.01 per share, for the same period a year ago. As discussed in the Overview, on December 2, 1996, the Company effected the Spin-Off. Comparison of First Six Months of 1997 to the First Six Months of 1996 Net sales from continuing operations for the first six months of 1997 were $23,626,000, an increase of $15,000, or 0.1%, from the same period a year ago. Higher units sales were offset by lower average selling prices for the Company's Media 100 products and a higher percentage of the Company's unit sales coming from its entry systems. In April 1997 the Company reduced the price of several products to enhance their price/performance relative to competitive product offerings from some of the Company's competitors. The products affected by this price reduction include the Company's Media 100 qx, Media 100 qx with component and Media 100 le products. All of these products are upgradeable to the Company's other product offerings including Media 100 lx, Media 100 xe and Media 100 xs. Gross margin for the first six months of 1997 was 61.5%, compared to 59.5% in the comparable period a year ago. This increase in gross margin was primarily a result of reductions in the cost of key component parts used in the manufacture of the Media 100 hardware which more than offset the lower average selling prices. Operating income for the first six months of 1997 was $69,000, a decrease of $1,995,000, from the same period a year ago. Operating income was lower for the six month period ended May 31, 1997 due to higher operating expenses. Operating expenses for the first six months of 1997 were $14,466,000, an increase of $2,480,000, or 20.7%, from the same period a year ago. The increase in operating expenses reflects the Company's continued investment in research and development for new and existing products and expansion of the Company's support for the sales channel, primarily in Europe where the Company opened its European headquarters located in Paris, France during the fourth fiscal quarter of 1996. The increase in operating expenses for research and development, sales and marketing were partially offset by lower general and administrative expenses. The decrease in general and administrative expenses reflects lower legal expenses for the defense of patent infringement litigation, as discussed in Note 6 to the Consolidated Financial Statements. Interest income for the first six months of 1997 was $894,000, or 3.8% of net sales, compared to $747,000, or 3.2% of net sales, in the comparable period a year ago. Other expense for the six month period ended May 31, 1997 was $324,000, an increase of $278,000 over the same period a year ago, reflecting increased losses on foreign currency transactions arising out of the Company's subsidiaries. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of First Six Months of 1997 to the First Six Months of 1996 (continued) The tax provision of $138,000 for the first six months of 1997 compares to a $553,000 tax provision for the same period a year ago. The Company currently estimates its effective tax rate for fiscal 1997 will be approximately 20% for its domestic operations taking into consideration research and development tax credit carryforwards and other business tax credits available for use against taxable income. Income from continuing operations for the six month period ended May 31, 1997 was $501,000 or $0.06 per share, compared to $2,212,000, or $0.26 per share, for the same period a year ago. Income from discontinued operations for the first six months of 1997 was $0 compared to $260,000, or $.03 per share, for the same period a year ago. As discussed in the Overview, on December 2, 1996, the Company effected the Spin-Off. 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 May 31, 1997 the Company's principal sources of liquidity included cash and cash equivalents and marketable securities totaling approximately $30,951,000. In the first six months of 1997, cash provided by continuing operating activities was approximately $4,971,000 compared to cash used in continuing operating activities of approximately $1,596,000 for the same period a year ago. Cash was generated during the six months ended May 31, 1997 from an increase in deferred revenue and reductions in accounts receivable and inventory. This increase in cash was partially offset by a reduction in accounts payable. Net cash used in investing activities was approximately $5,290,000 during the first six months of 1997 compared to approximately $22,909,000 (primarily for purchases of marketable securities) for the same period a year ago. Cash used in investing activities during the six month period ended May 31, 1997 was primarily for purchases of capital equipment and leasehold improvements associated with the Company's move to its new facility in May 1997 of approximately $4,774,000 and net purchases of marketable securities of approximately $540,000. Cash provided by financing activities during the first six months of 1997 was approximately $233,000 compared to $4,488,000 for the same period a year ago. All of the cash provided by financing activities in the first six months of 1997 came from proceeds from the Company's stock plans. The Company believes its existing cash balance, including cash equivalents and marketable securities, and cash generated from future operations will be sufficient to meet the Company's cash requirements for the foreseeable future. Certain Factors That May Affect Future Performance 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 the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996, and also include the following: The Company's quarterly operating results may vary significantly depending on the timing of the Company's announcement or introduction of new products and enhancements. The Company has in the past experienced delays in the development of new products and enhancements, and such delays may occur in the future. It is currently anticipated that the Company's new Media 100 xs with HDRfx(TM) Option will begin commercial shipments late in the quarter ending August 31, 1997. If the Company does not ship this new product as planned, the Company's operating results would be adversely affected. In addition, the Company's current efforts to develop a product operating on the Windows NT platform and utilizing the Company's existing Vincent(TM) digital video engine involve a collaborative effort with Macromedia, Inc., whose new Final Cut digital video application software would be bundled with the new product. The Company currently anticipates that Macromedia will not make Final Cut commercially available until the third quarter of the Company's next fiscal year. Any delay or failure by the Company in developing new products or enhancements, or any delay or failure of such new products or enhancements to achieve market acceptance, as a result of competition, blocking proprietary rights of third parties or other factors, could have a material adverse effect on the Company's business and operating results. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Certain Factors That May Affect Future Performance (continued) The Company's quarterly operating results also may vary significantly depending on the timing of new product announcements or introductions by competitors, changes in pricing, and the volume and timing of orders received during the quarter, which are difficult to forecast. The future operating results of the Company may fluctuate as a result of these and other factors, including the Company's ability to continue to develop or acquire innovative new products, its product and customer mix and the level of competition. The Company's operating results may also be affected by seasonal trends. In this regard, it is expected that the Company's international sales will be adversely impacted by the traditional summer vacation period, which in turn could adversely affect the Company's operating results for the quarter ending August 31, 1997. 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 and there can be no assurance that the Company would be able to operate profitably. Reductions in certain operating expenses, if incurred, could involve material one-time charges associated with workforce reductions, eliminating facilities and offices or writing off certain assets. 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. Many of the Company's 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 higher-end systems. The Company has historically realized higher gross profit on the sale of its higher-end systems than its entry 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. The Company's products currently operate only on Apple Macintosh computers. Apple Computer, Inc. has recently been suffering business and financial difficulties. As a result of Apple's difficulties, there can be no assurance that resellers and customers will not delay purchases of Apple-based products or substitute products based on non-Macintosh operating systems, the occurrence of any of which could have a material adverse effect on the Company's business and operating results. As a result in part of the risks and uncertainties surrounding the Macintosh platform, the Company believes that it will be necessary to develop additional products that will operate under the Windows NT operating system. As described above, the Company is currently collaborating with Macromedia in developing a Windows NT-based product that would run on the Company's Vincent digital video engine, and any delay or failure of Macromedia in releasing its Final Cut application software would adversely affect the Company's current Windows NT product development. There can be no assurance that the Company will be successful in timely developing Windows NT-based products, or that any such products, if developed, will achieve market acceptance, the failure of any of which could have a material adverse effect on the Company's business and operating results. 13 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings (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(R) product. 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 July 31, 1996, the court ordered a stay of all proceedings in the lawsuit pending conclusion of the reissue proceedings referred to above. 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) On February 12, 1997, a lawsuit was filed in Germany against the Company's former German subsidiary, Data Translation GmbH ("DT GmbH"), and its managing director, by Lex Computer and Management Corporation ("Lex"). The complaint generally alleged patent infringement by DT GmbH arising from the manufacture, sale and use of the Company's Media 100 products in Germany. The complaint included requests for injunctive relief, damages, costs and fees. DT GmbH is currently a subsidiary of DTI. Under the terms of the Spin-Off the Company has agreed to indemnify DTI and its affiliates (including DT GmbH) against liabilities arising out of the Company's Media 100 business. Subsequent to the filing of the lawsuit, the Company agreed to license on a worldwide basis certain video editing-related patents owned by Lex. In connection with the license arrangement, Lex withdrew its lawsuit against DT GmbH and its managing director on June 19, 1997. The Company does not currently believe that the terms of the foregoing license arrangement will have a material effect on the Company's financial position or operating results. The foregoing supplement is made to the Company's disclosure in its Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1997, Item 4. Submission of Matters to a Vote of Security Holders The Company held an annual meeting of stockholders on April 16, 1997, at which the stockholders elected to the Board of Directors all director nominees listed in the proxy material for the meeting by the following votes:
Number of Shares ---------------- Name of Director Nominees Voted For Withheld ------------------------- --------- -------- John A. Molinari 7,200,049 17,334 Alfred A. Molinari, Jr. 7,196,573 20,810 Maurice L. Castonguay 6,416,257 803,076 Bruce I. Sachs 6,414,307 803,076 Paul J. Severino 6,413,987 803,396
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 16. b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. 14 15 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: July 14, 1997 By: /s/ Peter J. Rice --------------------------------------------------- Peter J. Rice Vice President & Chief Financial Officer, Treasurer Date: July 14, 1997 By: /s/ Steven D. Shea --------------------------------------------------- Steven D. Shea Corporate Controller and Chief Accounting Officer 15 16 EXHIBIT INDEX Number Description ------ ----------- 27 Financial Data Schedule 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS NOV-30-1997 DEC-01-1997 MAY-31-1997 1 2,602 28,349 8,595 347 738 40,510 9,519 2,959 47,158 9,566 0 0 0 81 37,511 47,158 23,626 23,626 9,091 9,091 14,466 116 894 639 138 501 0 0 0 501 .06 .06
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