-----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, ClCoPu7dL87wg1vJGN+pisvabU1CWY/39BKZomHDeUxpXyclnODRz0PkXMILYClI RPS/Xkx9okG7XpfhM/fK3w== 0001047469-98-009763.txt : 19980317 0001047469-98-009763.hdr.sgml : 19980317 ACCESSION NUMBER: 0001047469-98-009763 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980313 SROS: NONE 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-K/A SEC ACT: SEC FILE NUMBER: 000-14779 FILM NUMBER: 98565113 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-K/A 1 FORM 10-K/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: November 30, 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 (I.R.S. Employer jurisdiction of Identification organization or Number) incorporation)
290 DONALD LYNCH BOULEVARD MARLBOROUGH, MASSACHUSETTS 01752-4748 (Address of principal executive offices, including zip code) (508) 460-1600 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (NONE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Parts III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of voting stock held by non-affiliates of the registrant was $27,745,151 as of February 13, 1998. The number of shares of Common Stock outstanding, $0.01 par value, as of February 13, 1998 was 8,251,095. DOCUMENTS INCORPORATED BY REFERENCE The information required in response to certain portions of Part III of Form 10-K is hereby incorporated by reference to the specified portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 15, 1998. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Media 100 Inc. (the "Company"), a Delaware corporation founded in 1973 as Data Translation, Inc., a Massachusetts corporation, changed its state of incorporation from Massachusetts to Delaware in September 1996 and adopted its present name on December 2, 1996. The Company is a technology and market leader in the market for personal computer-based digital video systems. The Media 100-Registered Trademark- family of products are digital video systems that allow users to create complete, broadcast-quality video programs 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 a ratio of one share of DTI common stock for every four shares of Company common stock. In connection with the Spin-Off, DTI changed its name to Data Translation, Inc. and the Company changed its name to Media 100 Inc. In connection with the Spin-Off and the disposal of the networking distribution business, the Company's historical financial statements and other financial information set forth herein and in the Consolidated Financial Statements on pages F-1 to F-19 of this Annual Report on Form 10-K, reflect the financial position, results of operations and cash flows of the Company as continuing operations; the related financial information of the businesses contributed to DTI and the networking distribution business has been segregated and reclassified as discontinued operations. The Company reports its operations within one principal industry segment: computer peripheral equipment. The amounts of net sales, operating profit or loss and identifiable assets attributable to each of the Company's geographic areas for the last three fiscal years are shown in Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. COMPANY OVERVIEW Media 100 products are fundamentally 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. By combining high output quality with simple user operation, the Company's products are targeted to the corporate and institutional market consisting of video program producers, including nonbroadcast users, such as advertising agencies, independent producers, businesses, law firms, universities, governments and hospitals. In addition to targeting existing users of video production equipment, the Company is targeting new users who currently out-source their video production requirements. By eliminating the need to use comparatively complex and expensive mechanical videotape equipment to make a video, the Company believes that Media 100 products empower these individuals to compose finished videos largely on their own at relatively low cost. The Company introduced its first Media 100 product in August 1993. In August 1995 the Company began shipments of version 2.5 of its Media 100 application software which incorporated hardware that is compatible with the Peripheral Component Interconnect (PCI) standard. In April 1996, the Company 2 introduced Media 100 qx, a lower cost digital video system based on the Company's hardware that enables users of Apple QuickTime to create broadcast-quality video programs using Adobe Premiere editing software. In December 1996, the Company began shipments of version 3.0 of its Media 100 application software, and introduced a Media 100 product family consisting of six models which are intended to provide full video program authoring capabilities over a broad price/performance spectrum. In August 1997, the Company began shipments of version 4.0 of its Media 100 software application, and introduced Media 100 xr, its most advanced digital video system, with the capability of processing two streams of video data each running at high data rates, enabling real-time transitions without loss of image quality. MARKET New digital video and audio technologies are changing how video and multimedia programs are created and disseminated. Much as the desktop publishing revolution changed the technology and economics of offset printing, and made it possible for individuals to create easily and affordably their own publications, new personal computer-based digital video systems are allowing an increasing number of individuals to create complete, broadcast-quality video programs themselves. The Company believes that, as the prices of digital video systems, computers and hard disk memory decrease, increasing numbers of small companies and individuals will adopt digital video technology, and digital video authoring will become a core personal computer application much as desktop publishing is today. The Company believes that there are three general types of end-users of digital media production systems, professional, corporate and institutional, and mass market users, as described below. Within this market, the Company primarily targets the corporate and institutional users. The Company believes that more customers using costly, proprietary systems will eventually migrate to open personal computer-based systems providing the same or better quality results, such as the Media 100 product family. The Company also believes that users of non-integrated digital video components, providing inferior output quality and reliability, will want to upgrade to the Company's systems. - Professional users are broadcast, television and film producers, larger professional video post-production facilities and cable television stations that create video programs for others or for broadcast. These users typically spend $50,000 or more on a fully integrated video editing system. - Corporate and institutional users include businesses, hospitals, advertising agencies, law firms, government agencies, colleges, universities and smaller independent post-production facilities. These are users who are creating videos themselves. The average cost of a fully integrated system for a corporate or institutional user ranges between $10,000 and $50,000. - Mass market users are early stage users who desire to use video for informal presentations, for consumer-type video needs or for in-house communication within corporations or institutions. They typically are using non-integrated components with an aggregate purchase price of $10,000 or less. Media 100 products are targeted primarily at the corporate and institutional market. Many of these corporate and institutional users currently rely on analog video tape editing processes. Digital editing alternatives are relatively new and currently account for a small portion of this market of current users. The Company also believes that the corporate and institutional market includes a potential market of new users who currently out-source their video production requirements. The Company's future growth will depend, in part, on the rate at which existing users convert to digital editing processes and the rate at which new users adopt digital video systems as a communications resource. For a further discussion of the risks and uncertainties associated with the emerging corporate and institutional market for digital video products, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. 3 PRODUCTS The Company's Media 100 products have been developed and marketed as open systems, which means that they adhere to open systems standards such as Apple QuickTime and the PCI bus architecture, thereby facilitating use of Media 100 products with complementary and competitive software applications, computer peripherals and video equipment. The Company's adherence to an open system strategy is intended to facilitate the sales of its products by allowing customers to select off-the-shelf peripheral equipment to suit their particular needs and to avail themselves of third party software applications in conjunction with their Media 100 system. The Company's digital video systems consist of hardware printed circuit boards and related software that, when integrated with a desktop computer and related peripherals, enable the user to capture and compress source video and audio media and store it digitally in disk storage, perform nonlinear editing and related effects on the digital media, and then play the edited material back for preview, display or final recording. The Company's family of products is intended to offer full video program authoring capabilities over a broad price/performance spectrum. Each of these digital video systems is based on the Company's Vincent-TM- digital video hardware engine, and is differentiated by the related application software, which, with the exception of the Company's most advanced product offering, enables a software-only upgrade path from the entry systems to the advanced features and functionality of the Company's high data rate systems. The Company's current product offering is summarized below. - Media 100 qx and Media 100 qx with Component enable users of Apple QuickTime to create broadcast-quality programs using Adobe Premiere editing software. Media 100 qx with Component delivers the additional functionality of processing video signals in the broadcast industry standard YUV color space, 4:2:2 digital component. - Media 100 le offers users a complete digital video system using Media 100 application software. Media 100 le features JPEG 4:1 compression (150 kb/frame NTSC video format; 180 kb/frame PAL video format), real-time preview dissolve, real-time preview motion effects and real-time color effects and an integrated character generator. - Media 100 lx offers all the features of the Media 100 le, with additional features and functionality, including processing video signals in the broadcast industry standard YUV color space, 4:2:2 digital component, batch redigitizing, real-time waveform monitor/vectorscope and a rack-mountable junction box. - Media 100 xe offers all the features of the Media 100 lx with additional features and functionality, including JPEG 3:1 compression (200 kb/frame NTSC; 240 kb/frame PAL), real-time static titling, real-time keying of graphics with alpha channel, real-time 6-track compact disc-quality audio mixing and import/export industry-standard edit decision lists. - Media 100 xs offers all the features of the Media 100 xe with additional features and functionality, including JPEG 2:1 compression (300 kb/frame NTSC; 360 kb/frame PAL), real-time preview transitions and real-time 8-track compact disc-quality audio mixing. - Media 100 xr is the Company's most advanced digital video system. Media 100 xr includes the Vincent digital video engine and an additional HDRfx-TM-card, which enables the system to perform all the features of the Media 100 xs with two streams of video data each running at the highest data rate (300 kb/frame NTSC; 360 kb/frame PAL), enabling real-time transitions without loss of image quality. - Platinum Support Services are a variety of technical support and service packages offered to Media 100 users. For an annual fee, users purchase packages with options such as toll-free telephonic technical support (either during business hours, five days a week, or 24 hours a day, seven days a 4 week), automatic, free software updates, temporary replacement hardware, extended warranty and a quarterly newsletter. In addition, the Company has from time to time offered hardware upgrades, replacement hardware and new products to Platinum subscribers at preferred prices. The Company has also introduced the Platinum One-Stop service, in which subscribers can obtain telephonic technical support relating to compatible third-party components integrated with the user's Media 100 system. The markets for the Company's products are 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. In particular, the Company is developing new products that will operate on Microsoft's Windows NT operating system. For a further discussion of the risks and uncertainties associated with new product development and product introductions and transitions, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. TECHNOLOGY AND PRODUCT FEATURES The Company has designed its products as integrated hardware and software systems which offer high performance on a personal computer. The Company believes the basic performance of its hardware and software produces broadcast-quality picture and compact disc-quality sound, with an open system design. The Company's control of the development, design and manufacturing of both the hardware and the software of its products allows it to conform one to the other, specifically and solely to support the user requirements of the target market. The Media 100 product family's core hardware includes broadcast-quality video input and output decoder/encoder subsystems, a proprietary, dynamically-variable JPEG compression subsystem, a 16-bit eight-track compact disc-quality digital audio subsystem, and two high-speed 32-bit microprocessors responsible for transferring digital audio and video data, at throughput rates of up to 30 megabytes per second, inside the host computer's central processing unit ("CPU"). The Company's Vincent digital video hardware engine is the primary technical facilitator of real-time, nonlinear performance with output which provides broadcast-quality video and compact disc-quality audio. The Company's HDRfx card, when used in conjunction with the Vincent digital video engine, enables the processing of a second stream of video of similar quality. The output video is 30 frames per second, 60 fields per second (NTSC) or 25 frames per second, 50 fields per second (PAL) and synchronized with up to eight tracks of audio. The software features a proprietary operating system which is unseen by users and is integrated with the standard Apple Mac OS operating system. This software governs base level hardware operations to ensure real-time performance, particularly by controlling the two onboard microprocessors in concert with the host CPU. Layered on top of this base level of software, Media 100 products incorporate a higher level of software called application software, through which the user controls every function of the digital video system. The Company's products currently operate only on Apple Macintosh computers, and the Company plans to continue its development efforts to enhance its existing products for the Macintosh platform. For a further discussion of the risks and uncertainties associated with the Company's current dependence on the Apple Macintosh platform, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. SALES AND DISTRIBUTION The Company sells its products primarily through a worldwide network of approximately 400 independent value added resellers ("VARs") in over 50 countries. The Company also markets and sells 5 software upgrades and its Platinum technical support services directly to end-users. In the United States, the Company sells through a network of specialized VARs who integrate and support Media 100 systems sales. For a further discussion of the risks and uncertainties associated with the Company's dependence on an indirect sales channel of independent VAR's, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. Internationally, the Company has adopted the same indirect sales channel. In the United Kingdom, France, Germany and Italy, the Company has subsidiaries which establish VAR networks or contract with distributors who in turn establish VAR networks of their own. Elsewhere, the Company sells through distributors, which act as VARs or establish VAR networks in their respective territories. Sales of Media 100 products outside of North America represented approximately 44%, 38% and 39% of the Company's net sales from continuing operations for fiscal years 1997, 1996 and 1995, respectively. For a further discussion of the risks and uncertainties associated with international operations, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. COMPETITION The digital video systems market is highly competitive with a large number of suppliers providing different types of products, both analog-based linear systems and digital, nonlinear systems such as the Company's products, to different segments of the market, and is characterized by continuous pressure to reduce prices, incorporate new features and improve functionality. The Company encounters competition primarily from Avid Technology, Inc., Discreet Logic Inc., Pinnacle Systems, Inc., Scitex Corporation Ltd. and Truevision, Inc. in both the market of professional users and the emerging market of corporate and institutional users. In the market of professional users, competition also comes from comparatively sized or smaller competitors, such as Matrox Electronic Systems Ltd. and FAST Electronic GmbH, as well as from much larger vendors, such as Matsushita Electric Industrial Company Ltd. ("Matsushita"), Sony Corporation ("Sony") and Microsoft Corporation ("Microsoft"), which have either introduced or announced plans to introduce digital, nonlinear systems. Because the market of corporate and institutional users is new and still evolving, it is difficult to predict future sources of competition; however, competitors are likely to include larger vendors, such as Matsushita, Sony and Microsoft. Many of these competitors have substantially greater financial, technical and marketing resources than the Company. For a further discussion of the risks and uncertainties associated with the competitive landscape for the Company's products, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. RESEARCH AND DEVELOPMENT The Company invests in research and development for new products and for enhancements to its existing products. The Company employed, as of February 13, 1998, 57 full-time employees whose primary duties relate to product development. Outside firms and consultants are selectively engaged to develop or assist with development of products when favorable opportunities exist. In order to compete successfully, the Company must attract and retain qualified personnel and maintain a program of improvement of existing products, as well as the development of new products. For a further discussion of the risks and uncertainties associated with new product development, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. For the fiscal years ended November 30, 1997, 1996 and 1995, the Company invested approximately $8,508,000, $6,227,000 and $4,806,000 on the development of enhancements to its Media 100 products and the development of new Media 100 products. 6 MANUFACTURING The Company's manufacturing operations consist primarily of manufacturing and testing of printed circuit assemblies, final product assembly, quality assurance and shipping, and are conducted at its facility located in Marlboro, Massachusetts. The Company believes that its control of manufacturing significantly contributes to hardware design improvements, allows for quicker development of products for shipment to market, and results in superior product quality. The Company periodically assesses its production efficiencies against the benefits of out-sourcing certain hardware production. Components used in the assembly of the Company's hardware products are generally available from several distributors and manufacturers. However, the Company is dependent on single or limited source suppliers for several key components used in its products that have no ready substitutes, including various audio and video signal processing integrated circuits manufactured in each case only by Crystal Semiconductor Corp., Raytheon Company, LSI Logic Corp., Philips Semiconductors or Zoran Corp. 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. For a further discussion of the risks and uncertainties associated with the Company's dependence on single or limited source suppliers, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. PROPRIETARY RIGHTS 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 Company relies on a combination of patent, copyright, trademark and trade secret laws and other intellectual property protection methods to protect its proprietary technology. In addition, the Company generally enters into confidentiality agreements with its employees and with third parties with whom it shares its proprietary information, and limits access to and distribution of such information. The Company owns four United States patents, expiring in 2013, and has five pending patent applications in the United States, none of which the Company believes is material. Although the Company pursues a policy of obtaining patents for appropriate inventions, the Company believes that its success depends primarily on the proprietary know-how, innovative skills, technical competence and marketing abilities of its employees, rather than upon the ownership of patents. Certain technology used in the Company's products is licensed from third parties on a royalty-bearing basis. Such royalties have not been, and are not expected to be, material. Generally, such agreements grant to the Company non-exclusive, worldwide rights to the subject technology and are either renewable on a periodic basis or provide for fully paid-up non-cancellable rights upon the receipt of certain aggregate payments. In certain cases the licensor may terminate the license for convenience, although the Company believes that the effect of any such termination would not be material. For a further discussion of the risks and uncertainties associated with proprietary rights in the Company's industry and certain pending litigation, see Item 3 and "Certain Factors That May Affect Future Results" included in Part II, Item 7 of this Annual Report on Form 10-K. BACKLOG Most customers order products on an as-needed basis relying, in the case of most products, on the Company's five-day delivery capability. As a result, the Company believes that its backlog at any point in time is not indicative of its future sales. 7 EMPLOYEES As of February 13, 1998, the Company employed approximately 180 persons worldwide. None of the employees is represented by a labor union. The Company believes it has good relations with its employees. 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. OTHER Media 100, Vincent, Gaudi, HDRfx and Platinum are trademarks of Media 100 Inc. and may be registered in certain jurisdictions. All other trademarks and registered trademarks are the property of their respective holders, and are hereby acknowledged. ITEM 2. PROPERTIES The Company's principal executive, engineering, manufacturing and sales operations occupy approximately 56,500 square feet in a leased facility located at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this facility terminates on March 31, 2002. Prior to moving into its current facility on May 2, 1997, the Company's operations occupied approximately 31,000 square feet in a facility which it shared with DTI located in Marlboro, Massachusetts. Total rental expense charged to continuing operations with respect to the Company's current Marlboro facility for fiscal year 1997 was $320,000, and with respect to its former Marlboro facility was $527,000, $546,000 and $459,000 for each of the fiscal years 1997, 1996 and 1995, respectively. Rental expense with respect to the former Marlboro facility for fiscal 1997 reflected the Company's pro rata portion of the rental charges and operating expenses associated with that facility and the use by the Company of certain manufacturing equipment belonging to DTI. The Company also occupies sales and customer support facilities in or near Paris, France; Bracknell, England; Munich, Germany; and Brescia, Italy. ITEM 3. 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. 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. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter of fiscal year 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of the Company trades on the National Market tier of The Nasdaq Stock Market under the symbol "MDEA." The following table sets forth, for the periods indicated, the high and low sales prices per share of the Company's common stock as reported on the Nasdaq National Market:
HIGH LOW --------- --------- Fiscal year ended November 30, 1996: First Quarter................................................................................... $ 21 10 3/4 Second Quarter.................................................................................. $ 28 3/4 13 1/4 Third Quarter................................................................................... $ 28 1/4 7 3/4 Fourth Quarter.................................................................................. $ 12 1/2 7 7/8 1997: First Quarter................................................................................... $ 11 5/8 7 Second Quarter.................................................................................. $ 7 5/8 5 1/8 Third Quarter................................................................................... $ 6 7/8 4 1/8 Fourth Quarter.................................................................................. $ 6 7/8 4 1/2
The last reported sale price per share of the Company's common stock as reported on the Nasdaq National Market on February 13, 1998 was $3.438. As of February 13, 1998, there were 293 stockholders of record, and the Company believes that as of such date there were approximately 2,600 beneficial owners of the Company's common stock, based upon information provided by the Company's transfer agent. The Company has never paid a cash dividend on its common stock, and the Board of Directors does not anticipate paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with, and are qualified in their entirety by, the Company's consolidated financial statements, related notes and other financial information included herein. 9 CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
FISCAL YEARS ENDED NOVEMBER 30, ----------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total net sales............................................ $ 46,660 $ 50,826 $ 30,278 $ 12,415 $ 1,118 Cost of sales.............................................. 18,238 20,046 12,711 5,127 536 --------- --------- --------- --------- --------- Gross profit............................................. 28,422 30,780 17,567 7,288 582 Operating expenses: Research and development................................. 8,508 6,227 4,806 3,780 3,227 Sales and marketing...................................... 16,061 15,066 9,088 4,657 1,832 General and administrative............................... 4,330 5,034 2,024 997 112 Restructuring expense.................................... 526 -- -- -- -- --------- --------- --------- --------- --------- Total operating expenses............................... 29,425 26,327 15,918 9,434 5,171 --------- --------- --------- --------- --------- Income (loss) from operations.......................... (1,003) 4,453 1,649 (2,146) (4,589) Interest income............................................ 1,781 1,588 771 151 228 --------- --------- --------- --------- --------- Income (loss) from continuing operations before tax provision.............................................. 778 6,041 2,420 (1,995) (4,361) Tax provision (benefit).................................... 161 1,208 75 36 (33) --------- --------- --------- --------- --------- Income (loss) from continuing operations................... 617 4,833 2,345 (2,031) (4,328) --------- --------- --------- --------- --------- Discontinued operations: Income (loss) from discontinued operations of Data Translation II, Inc.................................... 0 (6,672) 2,426 2,351 30 --------- --------- --------- --------- --------- Net income (loss)...................................... $ 617 $ (1,839) $ 4,771 $ 320 $ (4,298) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) per common and common equivalent share from continuing operations.................................... $ 0.07 $ 0.57 $ 0.35 $ (0.43) $ (1.02) Income (loss) per common and common equivalent share from discontinued operations.................................. $ 0.00 $ (0.79) $ 0.36 $ 0.49 $ 0.01 --------- --------- --------- --------- --------- Net income (loss) per common and common equivalent share... $ 0.07 $ (0.22) $ 0.71 $ 0.07 $ (1.01) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of common and common equivalent shares outstanding....................................... 8,247 8,470 6,701 4,764 4,256 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
FISCAL YEARS ENDED NOVEMBER 30, ------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Cash, cash equivalents and marketable securities................................. $ 32,934 $ 30,716 $ 35,161 Working capital.................................................................. 29,146 34,496 39,143 Total assets..................................................................... 50,759 59,990 51,123 Total stockholders' equity....................................................... 37,843 50,065 46,741
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Media 100 Inc. (the "Company") 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 a ratio of one share of DTI common stock for every four shares of Company common stock. In connection with the Spin-Off, DTI changed its name to Data Translation, Inc. and the Company changed its name to Media 100 Inc. In connection with the Spin-Off and the disposal of the networking distribution business, the Company's historical financial statements and other financial information reflect the financial position, results of operations and cash flows of the Company as continuing operations; the related financial information of the businesses contributed to DTI and the networking distribution business has been segregated and reclassified as discontinued operations. The Company believes that there are three general types of end-users of digital media production systems, professional, corporate and institutional, and mass market users. Within this market, the Company primarily targets the corporate and institutional users. Many of these corporate and institutional users currently rely on analog video tape editing processes. Digital editing alternatives are relatively new and currently account for a small portion of this market of current users. The Company also believes that the corporate and institutional market includes a potential market of new users who currently out-source their video production requirements. In December 1996, the Company began shipments of six new Media 100 products, each of which is based on the Company's Vincent digital video hardware engine, and is differentiated by the related software, which, with the exception of the Company's most advanced product offering, enables a software-only upgrade path from the entry systems to the advanced features and functionality of the Company's high data rate systems. Prior to the introduction of these new products, the Company sold its hardware and software products separately, with options for the customer to bundle them in various configurations. With the introduction of the new products, the Company now sells its hardware and software as a family of integrated systems that is intended to provide full video program authoring capabilities over a broad price/ performance spectrum. In August 1997, the Company began shipments of version 4.0 of its Media 100 software application, and introduced Media 100 xr, its most advanced digital video system. Media 100 xr includes the Company's Vincent digital video engine and an additional HDRfx card, which enables the system to process two streams of video data each running at high data rates, enabling real-time transitions without loss of image quality. The Company sells its products primarily through a worldwide network of approximately 400 independent value added resellers ("VARs") who integrate and support Media 100 systems sales. The 11 Company also markets and sells software upgrades and its Platinum technical support services directly to end-users. RESULTS OF OPERATIONS The following table sets forth for the years indicated certain consolidated statements of operations data as a percentage of net sales. FISCAL YEARS ENDED NOVEMBER 30,
1997 1996 1995 --------- --------- --------- CONTINUING OPERATIONS Net sales.......................................................................... 100.0% 100.0% 100.0% Cost of sales...................................................................... 39.1 39.4 42.0 --------- --------- --------- Gross profit..................................................................... 60.9 60.6 58.0 --------- --------- --------- Operating expenses: Research and development expenses................................................ 18.2 12.3 15.9 Selling and marketing expenses................................................... 34.4 29.6 30.0 General and administrative expenses.............................................. 9.3 9.9 6.7 Restructuring expenses........................................................... 1.1 0.0 0.0 --------- --------- --------- Total operating expenses..................................................... 63.0 51.8 52.6 Operating income (loss)............................................................ (2.1) 8.8 5.4 Interest income (expense) and other, net........................................... 3.8 3.1 2.5 --------- --------- --------- Income (loss) before income taxes.................................................. 1.7 11.9 7.9 Provision for income taxes......................................................... 0.4 2.4 0.2 --------- --------- --------- Income (loss) from continuing operations........................................... 1.3% 9.5% 7.7% --------- --------- --------- --------- --------- ---------
COMPARISON OF FISCAL 1997 TO FISCAL 1996 NET SALES. The Company's net sales for fiscal 1997 decreased 8.2% to $46.7 million from $50.8 million for fiscal 1996. The decline is due primarily to lower average selling prices for the Company's Media 100 products and a higher percentage of the Company's units sales coming from its entry-level systems. The Company derived a substantial portion of its fiscal 1997 net sales from the introduction of several new products to the market and discontinued the sales of several other of its Media 100 products, as described above under "Overview". In response to competitive pressures, the Company reduced the selling price of several of its products including Media 100 qx by $2,000 to $1,995, Media 100 qx with component by $2,000 to $3,995, Media 100 xe by $2,000 to $12,995 and Media 100 xs by $7,000 to $14,995. These pricing actions resulted in lower average selling prices for the Company's products and resulted in lower total net sales for fiscal 1997; however, the lower selling prices allowed the Company to increase the total number of systems sold over fiscal 1996. The Company currently anticipates that sequential growth in quarterly revenues of the Company will not occur until new products based on the Windows NT platform have been introduced by the Company and have gained market acceptance. The Company has announced that it plans to significantly increase research and development expenditures in fiscal 1998 over fiscal 1997 to support the development of products running on the Windows NT platform. The Company currently anticipates that the first of these products will become commercially available during the latter half of fiscal 1998; however, there can be no 12 assurance these products will ship and if they do that they will generate significant net sales for the Company. Net sales from customers outside of North America accounted for approximately 44% of net sales in fiscal 1997 compared to approximately 38% in fiscal 1996. The Company is continuing to develop its indirect distribution channels in North America, Europe and Asia and currently anticipates that customers outside North America will continue to account for a substantial portion of its net sales, and as a percentage of net sales, to remain approximately the same. No customer accounted for more than 10% of the Company's total net sales in fiscal 1997. GROSS PROFIT. The Company's gross profit decreased 7.7% to $28.4 million in fiscal 1997 from $30.8 million in fiscal 1996. The decrease is due to the lower net sales mentioned above. The gross profit as a percentage of net sales increased to 60.9% in fiscal 1997 from 60.6% in fiscal 1996. The increase in the gross profit as a percentage of total net sales is due to 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 of the Company's products. The Company currently anticipates continued pressure to reduce prices for the Company's Media 100 products which may negatively impact the gross profit as a percentage of net sales of the Company. If these price reductions are not offset with lower component costs or if the Company is unable to sell a higher percentage of its higher margin products there can be no assurance the Company will be able to maintain these gross profit levels as a percentage of net sales. RESEARCH AND DEVELOPMENT. Research and development expenses increased 36.6% to $8.5 million in fiscal 1997 from $6.2 million in fiscal 1996. Research and development expenses consist primarily of the cost of research and development personnel, depreciation on research and development capital equipment, occupancy and outside consulting services. The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs as of November 30, 1997 and 1996 were approximately $89,000 and $104,000, respectively. These costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. The remainder of the research and development expenses are expensed as incurred. Certain research and development expenditures for new products are incurred considerably in advance of anticipated net sales related to these products and in some cases do not generate any net sales. The Company has announced that it plans to significantly increase its research and development spending in fiscal 1998 over fiscal 1997 to support the development of products running on the Windows NT platform. This increase relates to additional research and development personnel, outside services, consultants and depreciation on capital equipment in support of these research and development projects. SALES AND MARKETING. Sales and marketing expenses increased 6.6% to $16.1 million in fiscal 1997 from $15.1 million in fiscal 1996. Sales expenses consist primarily of salaries and related benefits, commissions, travel, occupancy and depreciation on capital equipment. Marketing expenses consist primarily of salaries and related benefits, trade shows, seminars, advertising, sales literature and lead generation activities. The increase in sales and marketing expenses relate primarily to expansion of the Company's support for its indirect distribution channel in Europe. The Company currently anticipates that its sales and marketing expenses will remain relatively flat in fiscal 1998 compared to fiscal 1997 and are not currently planned to increase significantly until the Company begins shipping new products on the Windows NT platform. The Company will continue to attend industry trade shows to market and promote its products, however the Company has no plans to significantly increase the number or trade shows it attends or the amount of money it spends on the trade shows it will attend. GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 14.0% to $4.3 million in fiscal 1997 from $5.0 million in fiscal 1996. General and administrative expenses include the cost of human resources, finance, information technology, legal and other administrative functions of the Company. The 13 decrease in general and administrative expenses resulted primarily from lower legal expenses for the defense of patent infringement litigation, as discussed in Note 6 to the Consolidated Financial Statements. The Company currently anticipates that its general and administrative expenses will remain relatively flat in fiscal 1998 compared to fiscal 1997. RESTRUCTURING EXPENSE. The Company incurred restructuring expenses of $526,000 in its third quarter of fiscal 1997 for severance and related costs associated with a reduction of the Company's workforce. Substantially all of these expenses have been paid out as of the end of the Company's first quarter of fiscal 1998 and the Company anticipates that any further expenses associated with this reduction in its workforce will be insignificant. INTEREST INCOME. Interest income increased 12.2% to $1.8 million in fiscal 1997 from $1.6 million in fiscal 1996. The increase in interest income is due to higher cash balances in fiscal 1997 versus 1996 due to the generation of positive cash flow from operations in fiscal 1997. The Company currently anticipates interest income will decline in fiscal 1998 as a portion of its cash balance is used to fund the increase in research and development expenditures mentioned previously. TAX PROVISION. The tax provision decreased 86.7% to $0.2 million in fiscal 1997 from $1.2 million in fiscal 1996. The lower tax provision reflects utilization of research and development tax credit carryforwards and lower income from operations in fiscal 1997. The Company anticipates that its tax provision in fiscal 1998 will be minimal due to the significant planned increase in research and development expenditures and the Company's belief that fiscal 1998 sales will remain relatively flat compared to fiscal 1997. NET INCOME (LOSS). Income for fiscal 1997 was $617,000, or $0.07 per share, compared to income from continuing operations for fiscal 1996 of $4,833,000, or $0.57 per share. Income from discontinued operations for fiscal 1997 was $0, compared to a loss from discontinued operations for fiscal 1996 of $6,672,000, or $0.79 per share. Of the $6,672,000 loss from discontinued operations, expenses related to the Spin-Off accounted for $1,500,000 and the loss on disposal of the networking distribution business was approximately $2,513,000. COMPARISON OF FISCAL 1996 TO FISCAL 1995 NET SALES. The Company's net sales for fiscal 1996 increased 67.9% to $50.8 million from $30.3 million for fiscal 1995. The increase was due to higher unit sales of Media 100, the introduction of a new lower cost product, Media 100 qx, and initial shipments of Gaudi, the Company's advanced digital video effects product. Shipments of Media 100 qx began in April 1996 and Gaudi in November 1996. Net sales from customers outside of North America accounted for approximately 38% of net sales in fiscal 1996 compared to approximately 39% in fiscal 1995. No customer accounted for more than 10% of the Company's net sales in fiscal 1996. GROSS PROFIT. The Company's gross profit increased 75.2% to $30.8 million in fiscal 1996 from $17.6 million in fiscal 1995. The increase was due primarily to the higher net sales mentioned above. The gross profit as a percentage of net sales increased to 60.6% in fiscal 1996 from 58.0% in fiscal 1995. The increase in the gross profit as a percentage of net sales was due to reductions in the cost of key component parts used in the manufacture of the Media 100 hardware and a favorable mix of software sales relative to hardware sales. RESEARCH AND DEVELOPMENT. Research and development expenses increased 29.6% to $6.2 million in fiscal 1996 from $4.8 million in fiscal 1995. Research and development expenses consist primarily of the cost of research and development personnel, depreciation on research and development capital equipment, occupancy and outside consulting services. The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs as of November 30, 1996 and 1995 were approximately $104,000 and $84,000, respectively. These 14 costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. The remainder of the research and development expenses are expensed as incurred. Certain research and development expenditures for new products are incurred considerably in advance of anticipated net sales related to these products and in some cases do not generate any net sales. SALES AND MARKETING. Sales and marketing expenses increased 65.8% to $15.1 million in fiscal 1996 from $9.1 million in fiscal 1995. Sales expenses consist primarily of salaries and related benefits, commissions, travel, occupancy and depreciation on capital equipment. Marketing expenses consist primarily of salaries and related benefits, trade shows, seminars, advertising, sales literature and lead generation activities. The increase in sales and marketing expenses relate primarily to expansion of the Company's support for its indirect distribution channel and increased lead generation activities such as seminars and direct mail and increased advertising expenses. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 148.7% to $5.0 million in fiscal 1996 from $2.0 million in fiscal 1995. 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 higher legal expenses for the defense of patent infringement litigation, as discussed in Note 6 to the Consolidated Financial Statements, and increased administrative expenses to support significantly higher net sales. INTEREST INCOME. Interest income increased 106.0% to $1.6 million in fiscal 1996 from $0.8 million in fiscal 1995. The increase in interest income was due to higher cash balances in fiscal 1996 versus 1995 as a result of a public offering of the Company's common stock in November 1995 and from positive cash flow generated from operations in fiscal 1996. TAX PROVISION. The tax provision increased 1,510.7% to $1.2 million in fiscal 1996 from $0.1 million in fiscal 1995. The higher tax provision reflects a significant increase in income from operations in fiscal 1996 from fiscal 1995. The Company utilized available research and development tax credit carryforwards and other business tax credits available for use against taxable income which reduced its tax rate below the statutory rate. NET INCOME (LOSS). Income from continuing operations for fiscal 1996 was $4,833,000, or $0.57 per share, compared to $2,345,000, or $0.35 per share, for the prior fiscal year. Loss from discontinued operations for fiscal year 1996 was $6,672,000, or $0.79 per share, compared to net income of $2,426,000, or $0.36 per share, for the prior fiscal year. Of the $6,672,000 loss from discontinued operations, expenses related to the Spin-Off accounted for $1,500,000 and the loss on disposal of the networking distribution business was estimated at $2,513,000. 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 November 30, 1997 the Company's principal sources of liquidity included cash and cash equivalents and marketable securities totaling approximately $32,934,000. During fiscal 1997, cash provided by continuing operating activities was approximately $9,819,000 compared to cash provided by continuing operating activities of approximately $5,897,000 for the same period a year ago. Cash was generated during fiscal 1997 from reductions in accounts receivable of $3,976,000 and inventory of $777,000 and increases in deferred revenue of $1,852,000 and accounts payable, accrued and prepaid expenses of $964,000. In addition, net income provided $617,000 and depreciation and amortization provided $1,614,000. Net cash used in investing activities was approximately $8,742,000 in fiscal 1997 compared to approximately $23,314,000 (primarily for purchases of marketable securities) for the same period a year ago. Cash used in investing activities during 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 $7,251,000 and net purchases of marketable securities of 15 approximately $1,010,000. Cash provided by financing activities during 1997 was approximately $442,000 compared to $4,812,000 for the same period a year ago. All of the cash provided by financing activities in fiscal 1997 came from proceeds from the Company's stock plans. The Company believes its existing cash balance, including 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 Annual Report on Form 10-K 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: 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. Historically one-half or more of each quarter's revenue has resulted from orders booked and shipped during the third month, a substantial portion of which occur in the latter half of that month. 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. All of the Company's sales relate to a single family of products, Media 100 digital video systems. A decline in demand for Media 100 systems, or a failure of such systems to maintain market acceptance, as a result of competition, technological change or other factors, would have a material adverse effect on the Company's business and operating results. The Company's products currently operate only on Apple Macintosh computers. Apple Computer Inc. has suffered business and financial difficulties during the past several years. In addition, the Company believes that the market of users of the Company's products increasingly views Microsoft's Windows NT operating system as an alternative platform for new digital video products. As a result of the foregoing, there can be no assurance that resellers and customers will not delay purchases of Apple-based products or purchase 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. The Company currently anticipates sequential growth in quarterly revenues of the Company will not occur until new products based on the Windows NT platform have been introduced by the Company and have gained market acceptance. 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. In this regard, the Company is developing new products that will operate on the Windows NT platform. The Company currently anticipates that the first of these new products will become commercially available during the latter half of the Company's current fiscal year. The Company also plans in fiscal 1998 to significantly increase its investment in research and development over prior levels, 16 primarily in connection with the development of new Windows NT-based hardware and software products. As a result of this increased investment, the Company currently expects that it will generate a net loss from operations for fiscal year 1998. Any delay or failure of the Company in developing such additional new products or any delay or failure of such new products 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. 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. 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 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. 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 6 to the Consolidated Financial Statements. 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. The corporate and institutional market to which the Company is targeting its products is an emerging market. Many of the current users in this market rely on analog video tape processes. Digital editing alternatives are relatively new and currently account for a small portion of this market of current users. The Company also believes that this market includes a potential market of new users who currently out-source their video production requirements. The Company's future growth will depend, in part, on the rate at which existing users convert to digital editing processes and the rate at which new users adopt digital video systems as a communications resource. There can be no assurance that the use of digital video products like Media 100 will expand among existing users of alternative video production processes or the market for new users, and 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. 17 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 Avid Technology, Inc., Discreet Logic Inc., Pinnacle Systems, Inc., Scitex Corporation Ltd., Truevision, Inc., Matrox Electronic Systems Ltd. and FAST Electronic GmbH. In addition, the Company expects much larger vendors, such as Matsushita Electric Industrial Company Ltd., Sony Corporation and Microsoft 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. 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. The Company relies primarily on its worldwide network of independent VARs to distribute and sell its products to end users. The Company's resellers generally offer products of several different companies, including in some cases products which 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. Sales of Media 100 products outside of North America represented approximately 44% of the Company's net sales for the fiscal year ended November 30, 1997. 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. As a result of the Spin-Off, the Company currently obtains certain information systems support from DTI, and currently anticipates that it will continue to rely on DTI for such support into the latter half of fiscal 1998 while it implements new information systems of its own. Any delay in implementing the 18 Company's new information systems, or any delay or failure of DTI to provide adequate information systems support prior to the time that the Company's new systems become fully implemented, if significant, could have an adverse effect on the Company's business and operating results, particularly during any period that the transition from DTI's systems to the Company's new systems occurs. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements, together with the auditors' report thereon, appear on pages F-1 through F-19 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The Company will furnish to the Securities and Exchange Commission not later than 120 days after the close of its fiscal year ended November 30, 1997 a definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of Stockholders to be held on April 15, 1998. The information required by this Item is incorporated herein by reference to "Election of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to "Election of Directors" and "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to "Certain Relationships and Related Transactions" in the Proxy Statement. 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this report: (a) (1) Consolidated Financial Statements.
PAGE ----- MEDIA 100 INC. AND SUBSIDIARIES Report of Independent Public Accountants............................................... F-2 Consolidated Balance Sheets as of November 30, 1997 and 1996........................... F-3 Consolidated Statements of Operations for the Fiscal Years Ended November 30, 1997, 1996 and 1995..................................................... F-4 Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30, 1997, 1996 and 1995.................................................................. F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended November 30, 1997, 1996 and 1995..................................................... F-6 Notes to Consolidated Financial Statements............................................. F-7
(a) (2) Financial Statement Schedules. Not applicable. (a) (3) List of Exhibits. Exhibits required as part of this Annual Report on Form 10-K/A are listed in the exhibit index on page X-1. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Media 100 Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 12, 1998. MEDIA 100 INC. BY: /S/ JOHN A. MOLINARI ----------------------------------------- John A. Molinari PRESIDENT AND CHIEF EXECUTIVE OFFICER 21 INDEX TO FINANCIAL STATEMENTS
PAGE ----- MEDIA 100 INC. AND SUBSIDIARIES Report of Independent Public Accountants................................................................. F-2 Consolidated Balance Sheets as of November 30, 1997 and 1996............................................. F-3 Consolidated Statements of Operations for the Fiscal Years Ended November 30, 1997, 1996 and 1995........ F-4 Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30, 1997, 1996 and 1995................................................................................................... F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended November 30, 1997, 1996 and 1995........ F-6 Notes to Consolidated Financial Statements............................................................... F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Media 100 Inc.: We have audited the accompanying consolidated balance sheets of Media 100 Inc. (a Delaware corporation) and subsidiaries as of November 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended November 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Media 100 Inc. and subsidiaries as of November 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts January 15, 1998 (except with respect to the matters discussed in Note 6(b) and the last paragraph of Note 3(b), as to which the dates are January 16 and 26, 1998, respectively) F-2 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, NOVEMBER 30, 1997 1996 ------------ ------------ IN THOUSANDS, EXCEPT SHARE AMOUNTS ASSETS Current assets: Cash and cash equivalents.......................................................... $ 4,042 $ 2,733 Marketable securities.............................................................. 28,892 27,983 Accounts receivable, net of reserves of $411 in 1997 and $328 in 1996.............. 7,689 11,665 Inventories........................................................................ 696 1,473 Prepaid expenses................................................................... 743 567 ------------ ------------ Total current assets............................................................... 42,062 44,421 Equipment, net....................................................................... 8,104 2,467 Other assets, net.................................................................... 593 112 Net assets of discontinued operations (Note 12)...................................... -- 12,990 ------------ ------------ Total assets................................................................... $ 50,759 $ 59,990 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................................... $ 1,953 $ 1,981 Accrued expenses................................................................... 6,958 5,791 Deferred revenue................................................................... 4,005 2,153 ------------ ------------ Total current liabilities.......................................................... 12,916 9,925 Commitments and contingencies(Note 6) Stockholders' equity: Preferred stock, $.01 par value, Authorized--1,000,000 shares, none issued......... -- -- Common stock, $.01 par value, Authorized--25,000,000 shares, Issued and outstanding--8,192,354 in 1997 and 8,087,884 in 1996............................. 82 81 Capital in excess of par value..................................................... 40,477 40,035 Retained earnings (deficit)........................................................ (2,547) 9,826 Cumulative translation adjustment.................................................. (87) 123 Unrealized holding loss on available for sale securities........................... (82) -- ------------ ------------ Total stockholders' equity..................................................... 37,843 50,065 Total liabilities and stockholders' equity..................................... $ 50,759 $ 59,990 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL YEARS ENDED NOVEMBER 30,
1997 1996 1995 --------- --------- --------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Net sales........................................................................ $ 46,660 $ 50,826 $ 30,278 Cost of sales.................................................................... 18,238 20,046 12,711 --------- --------- --------- Gross profit................................................................... 28,422 30,780 17,567 --------- --------- --------- Operating expenses: Research and development....................................................... 8,508 6,227 4,806 Selling and marketing.......................................................... 16,061 15,066 9,088 General and administrative..................................................... 4,330 5,034 2,024 Restructuring expense.......................................................... 526 -- -- --------- --------- --------- Total operating expenses................................................... 29,425 26,327 15,918 --------- --------- --------- Operating income (loss).......................................................... (1,003) 4,453 1,649 --------- --------- --------- Interest income.................................................................. 1,781 1,588 771 --------- --------- --------- Income from continuing operations before tax provision......................... 778 6,041 2,420 Tax provision.................................................................... 161 1,208 75 --------- --------- --------- Income from continuing operations.............................................. 617 4,833 2,345 Discontinued operations: Income (loss) from discontinued operations..................................... -- (6,672) 2,426 --------- --------- --------- Net income (loss).............................................................. $ 617 $ (1,839) $ 4,771 --------- --------- --------- --------- --------- --------- Income per common and common equivalent share from continuing operations......... $ 0.07 $ 0.57 $ 0.35 Income (loss) per common and common equivalent share from discontinued operations..................................................................... $ 0.00 $ (0.79) $ 0.36 --------- --------- --------- Net income (loss) per common and common equivalent share......................... $ 0.07 $ (0.22) $ 0.71 --------- --------- --------- --------- --------- --------- Weighted average number of common and common equivalent shares outstanding....... 8,247 8,470 6,701 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-4 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNREALIZED HOLDING GAIN COMMON STOCK (LOSS) ON $.01 PAR VALUE CAPITAL IN CUMULATIVE AVAILABLE ----------------- EXCESS OF PAR RETAINED TRANSLATION TREASURY FOR SALE SHARES AMOUNT VALUE EARNINGS ADJUSTMENT STOCK SECURITIES --------- ------ ------------- -------- ------------ -------- ---------- IN THOUSANDS, EXCEPT SHARE AMOUNTS Balance, November 30, 1994.............. 6,765,472 $68 $ 8,739 $ 6,894 $ 37 $ (4,781) -$- Proceeds from issuance of common stock under stock plans........................... 325,736 3 1,166 -- -- -- -- Public sale of treasury stock, net of issuance costs of $375................ -- -- 5,864 -- -- 2,938 -- Public sale of common stock, net of issuance costs of $400................ 1,400,000 14 21,293 -- -- -- -- Translation adjustment.................. -- -- -- -- (210) -- -- Net income.............................. -- -- -- 4,771 -- -- -- Unrealized holding loss on available for sales securities...................... -- -- -- -- -- -- (55) --------- ------ ------------- -------- ----- -------- --- Balance, November 30, 1995.............. 8,491,208 $85 $37,062 $ 11,665 $(173) $ (1,843) $(55) Proceeds from issuance of common stock under stock plans........................... 242,272 3 1,359 -- -- -- -- Retirement of treasury stock............ (869,096) (9) (1,834) -- -- 1,843 -- Issuance of common stock................ 223,500 2 3,448 -- -- -- -- Translation adjustment.................. -- -- -- -- 296 -- -- Net loss................................ -- -- -- (1,839) -- -- -- Unrealized holding gain on available for sale securities....................... -- -- -- -- -- -- 55 --------- ------ ------------- -------- ----- -------- --- Balance, November 30, 1996.............. 8,087,884 $81 $40,035 $ 9,826 $ 123 $ -- -$- Proceeds from issuance of common stock under stock plans........................... 104,470 1 442 -- -- -- -- Dividend of Data Translation II, Inc. stock to stockholders................. -- -- -- (12,990) -- -- -- Translation adjustment.................. -- -- -- -- (210) -- -- Net income.............................. -- -- -- 617 -- -- -- Unrealized holding loss on available for sale securities....................... -- -- -- -- -- -- (82) --------- ------ ------------- -------- ----- -------- --- Balance, November 30, 1997.............. 8,192,354 $82 $40,477 $ (2,547) $ (87) $ -- $(82) --------- ------ ------------- -------- ----- -------- --- --------- ------ ------------- -------- ----- -------- ---
The accompanying notes are an integral part of these consolidated financial statements. F-5 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED NOVEMBER 30, IN THOUSANDS CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................................... $ 617 $ (1,839) $ 4,771 (Income) loss from discontinued operations.......................................... -- 6,672 (2,426) ---------- ---------- ---------- Income from continuing operations................................................... 617 4,833 2,345 Adjustments to reconcile income from operations to net cash provided by (used in) operating activities: Depreciation and amortization..................................................... 1,614 898 878 Deferred income taxes............................................................. -- (3) 1 Loss on sale of equipment......................................................... -- -- 2 (Gain) loss on sale of marketable securities...................................... 19 (33) 35 Changes in assets and liabilities: Accounts receivable............................................................... 3,976 (5,603) (3,035) Inventories....................................................................... 777 427 (1,248) Prepaid income taxes.............................................................. -- (61) 1 Accounts payable, accrued and prepaid expenses.................................... 964 4,296 1,383 Deferred revenue.................................................................. 1,852 1,143 785 ---------- ---------- ---------- Net cash provided by continuing operating activities................................ 9,819 5,897 1,147 Net cash (used in) provided by discontinued operating activities.................... -- (13,560) 1,274 ---------- ---------- ---------- Net cash provided by (used in) operating activities................................. $ 9,819 $ (7,663) $ 2,421 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net purchase of equipment........................................................... (7,251) (1,951) (1,425) Increase in other assets............................................................ (481) (27) (68) Purchases of marketable securities.................................................. (65,716) (78,620) (13,270) Proceeds from sales of marketable securities........................................ 64,706 57,284 9,108 ---------- ---------- ---------- Net cash used in investing activities............................................... $ (8,742) $ (23,314) $ (5,655) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock plans........................................................... 442 1,362 1,169 Net proceeds from public sale of treasury stock..................................... -- -- 8,802 Net proceeds from public sale of common stock....................................... -- 3,450 21,307 ---------- ---------- ---------- Net cash provided byfinancing activities............................................ $ 442 $ 4,812 $ 31,278 ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................. (210) 296 (220) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 1,309 (25,869) 27,824 CASH AND CASH EQUIVALENTS, beginning of period...................................... 2,733 28,602 778 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, end of period............................................ $ 4,042 $ 2,733 $ 28,602 ---------- ---------- ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes.......................................................... $ 92 $ 743 $ 46 ---------- ---------- ---------- ---------- ---------- ---------- OTHER TRANSACTIONS NOT PROVIDING (USING) CASH: Dividend of Data Translation II, Inc. stock to stockholders......................... $ (12,990) $ -- $ -- ---------- ---------- ---------- ---------- ---------- ---------- Retirement of treasury stock........................................................ $ -- $ 1,843 $ -- ---------- ---------- ---------- ---------- ---------- ---------- Change in value of marketable securities............................................ $ (82) $ (55) $ 55 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) OPERATIONS On July 30, 1996, Media 100 Inc. (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. 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) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of significant intercompany transactions and balances. These consolidated financial statements reflect the utilization of the following significant accounting policies, as described below and elsewhere in the notes to consolidated financial statements. These consolidated financial statements are prepared in accordance with generally accepted accounting principles. (A) CASH AND 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 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 included as a component of to stockholders' equity. All of the Company's marketable securities are classified as available-for-sale. F-7 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Marketable securities held as of November 30, 1997, consist of the following (in thousands):
MATURITY MARKET VALUE ------------------- ------------ Investments available for sale: U.S. Treasury Notes......................................................... less than 1 year $ 3,031 U.S. Treasury Notes......................................................... 1-5 years 4,306 ------------ Total U.S. Treasury Notes................................................. 7,337 Municipal Bonds............................................................. less than 1 year 2,021 Municipal Bonds............................................................. 1-2 years 514 ------------ Total Municipal Bonds..................................................... 2,535 U.S. Agency Bonds........................................................... less than 1 year 605 U.S. Agency Bonds........................................................... more than 1 year 2,535 ------------ Total U.S. Agency Bonds................................................... 3,140 Money Market Instruments.................................................... 9,402 Corporate Obligations....................................................... less than 1 year 3,956 Corporate Obligations....................................................... 1-2 years 2,522 ------------ Total Corporate Obligations............................................... 6,478 Total investments available for sale.......................................... $ 28,892 ------------ ------------
Marketable securities had a cost of $28,974 and $27,983 at November 30, 1997 and 1996, respectively, and a market value of $28,892 and $27,983, respectively. To reduce the carrying amount of the November 30, 1997 marketable securities portfolio to market value, an unrealized loss has been reflected as a separate component of stockholders' equity on November 30, 1997 pursuant to the provisions of SFAS No. 115. (B) INVENTORIES Inventories at November 30, 1997 and 1996 are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following (in thousands):
1997 1996 --------- --------- Raw Materials................................................................ $ 305 $ 780 Work-in-Process.............................................................. 252 302 Finished Goods............................................................... 139 391 --------- --------- $ 696 $ 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. F-8 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (C) DEPRECIATION AND AMORTIZATION The Company provides for depreciation and amortization, using the straight-line and declining balance methods by charges to operating expenses in amounts that allocate the cost of the equipment over the following estimated useful lives:
DESCRIPTION USEFUL LIVES - ------------------------------------------------------------------------------- ------------- Machinery and equipment........................................................ 3 to 7 years Furniture and fixtures......................................................... 7 years Vehicles....................................................................... 3 years
(D) PROPERTY AND EQUIPMENT, NET Equipment, net at November 30, 1997 and 1996 is stated at cost, less accumulated depreciation and amortization, and consists of the following (in thousands):
1997 1996 --------- --------- Machinery and equipment.................................................. $ 10,428 $ 4,251 Furniture and fixtures................................................... 1,288 480 Vehicles................................................................. 12 14 --------- --------- $ 11,728 $ 4,745 Less accumulated depreciation and amortization........................... 3,624 2,278 --------- --------- $ 8,104 $ 2,467 --------- --------- --------- ---------
(E) FOREIGN CURRENCY The accounts of the Company and its subsidiaries are translated in accordance with Statement of Financial Accounting Standards No. 52, FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's subsidiaries are translated from their functional currency into U.S. dollars utilizing the current rate method. Accordingly, assets and liabilities of the Company's foreign subsidiaries are translated at the rates of exchange in effect at year-end. Revenues and expenses are translated using exchange rates in effect during the year. Gains and losses from foreign currency translation are credited or charged to "Cumulative translation adjustment" included in stockholders' equity in the accompanying consolidated balance sheets. Net realized foreign currency transaction losses for the year ended November 30, 1997 were $215,000 and are classified in general and administrative expenses. For fiscal year ended November 30, 1996 the Company had net realized foreign currency transaction gains of $144,000 and for the fiscal year ended November 30, 1995 these gains and losses were not significant. (F) REVENUE RECOGNITION In accordance with Statement of Position (SOP) 91-1, the Company recognizes revenue when products are shipped or, for postcontract support agreements, ratably over the terms of the agreements. The Company's policy is to defer the revenue associated with any vendor and postcontract support obligations remaining at the time of shipment until the related obligations are satisfied. Costs of service and warranty are not significant and are charged to operations as incurred. Revenues from hardware systems with other than incidental software components and stand alone software sales are recognized upon shipment, provided that no significant vendor or postcontract support obligations remain outstanding F-9 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) and collection of the resulting receivable is deemed probable. Effective in fiscal year 1998, the Company will apply the provisions of SOP 97-2, which supercedes SOP 91-1. The Company does not expect the adoption of SOP 97-2 to have a material effect on its consolidated financial statements. (G) NET INCOME (LOSS) 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 the period. Net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the 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 (loss) per common and common equivalent share has not been separately presented, as the amounts would not be materially different from net income (loss) per common and common equivalent share for all periods presented. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). The new standard simplifies the computation of earnings per share and increased comparability to international standards. Under SFAS No. 128, primary earnings per share is replaced by "Basic" earnings per share, which excludes potentially dilutive equity instruments and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. "Diluted" earnings per share, which is computed similarly to fully diluted earnings per share, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company will be required to disclose both basic and diluted earnings per share. The Company is required to adopt the new standard in its first fiscal 1998 quarter. All prior-period earnings per share information will be restated at that time. Early adoption of this standard is not permitted. (H) 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 $89,000 and $104,000 as of November 30, 1997 and 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 $80,000 and $40,000 in 1997 and 1996, respectively. (I) RESTRUCTURING EXPENSE The Company incurred restructuring expenses of $526,000 in its third quarter of fiscal 1997 for severance and related costs associated with a reduction of the Company's workforce. Substantially all of these expenses have been paid out as of the end of the Company's first quarter of fiscal 1998 and the Company anticipates that any further expenses associated with this reduction in its workforce will be insignificant. (J) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and F-10 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. (3) STOCKHOLDERS' EQUITY (A) STOCK SPLIT On June 28, 1995, the Board of Directors approved a 2-for-1 stock split effected in the form of a dividend for all shareholders of record as of July 17, 1995. All share and per share data included in these financial statements have been retroactively restated to reflect the stock split. (B) STOCK OPTIONS Prior to April 1992, options were granted under the Company's 1982 Key Employee Inventive Plan (the "1982 Plan"). Subject to certain limitations imposed by the 1982 Plan, options were granted at a price determined by the Board. The Board resolved to issue options under the 1982 Plan at not less than 100% of fair market value. The options expire six years from the date of grant and become exercisable at the rate of 20% per year beginning one year from the date of grant. No further options may be granted under the 1982 Plan. In 1992, the Company adopted the 1992 Key Employee Incentive Plan (the "1992 Plan"), and 1,000,000 shares of common stock were reserved for issuance. At the Company's Annual Meeting on April 10, 1996, the Company's stockholders approved an increase in the number of options available for grant from 1,000,000 to 2,000,000. Options granted pursuant to the 1992 Plan may, at the discretion of the Board, be incentive stock options as defined by the Internal Revenue Code. Subject to the provisions of the 1992 Plan, options granted are at a price as specified by the Board. The Board has, to date, issued options under the 1992 Plan at not less than 100% of fair market value. The options become exercisable at a rate of 20% per year beginning one year from the date of grant unless otherwise specified by the Board. The Board will determine when the options will expire, but in no event will the option period exceed ten years. No options may be granted under the 1992 Plan on or after February 29, 2002. F-11 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) STOCKHOLDERS' EQUITY (CONTINUED) Information concerning stock options for each of the three years ended November 30, 1997 follows:
WEIGHTED AVERAGE NUMBER OF OPTION PRICE OPTIONS PRICE RANGES PER SHARE ---------- ------------- ----------------- Outstanding at November 30, 1994.................................... 1,029,976 $ 1.32-7.03 $ 4.03 Granted........................................................... 338,000 7.15-16.20 11.33 Exercised......................................................... (305,806) 1.32-7.03 3.33 Expired/canceled.................................................. (15,290) 1.43-10.48 5.50 ---------- ------------- ------ Outstanding at November 30, 1995.................................... 1,046,880 $ 1.32-16.20 $ 6.53 Granted........................................................... 595,000 7.75-16.91 13.65 Exercised......................................................... (215,310) 1.32-10.66 4.39 Expired/canceled.................................................. (210,740) 1.43-16.91 9.96 ---------- ------------- ------ Outstanding at November 30, 1996.................................... 1,215,830 $ 1.73-16.91 $ 10.20 Granted........................................................... 474,225 4.19-10.00 8.48 Exercised......................................................... (37,940) 1.73-4.72 3.72 Expired/canceled.................................................. (504,189) 1.73-16.91 9.93 ---------- ------------- ------ Outstanding at November 30, 1997.................................... 1,147,926 $ 1.73-16.91 $ 9.80 ---------- ------------- ------ ---------- ------------- ------ Exercisable at November 30, 1997.................................... 315,204 $ 1.73-16.91 $ 5.31 ---------- ------------- ------ ---------- ------------- ------ Available for grant at November 30, 1997............................ 648,924 ---------- ----------
In connection with the Spin-Off, all stock options that were outstanding at December 2, 1996 were adjusted by multiplying the exercise price thereof by .95238 (rounding up to the nearest whole cent). Information in the above table for November 30, 1996 and prior periods has been restated to reflect this adjustment. In 1994, the Company amended the 1986 Employee Stock Purchase Plan (the "Plan") pursuant to which an additional 200,000 shares of common stock were reserved for issuance for a total of 600,000 shares. Effective July 1, 1995, employees who have worked for the Company for at least one month are eligible to participate in the Plan. The Plan allows participants to purchase common stock of the Company at 85% of the fair market value as defined. Under the Plan, the Company issued 67,311, 26,962 and 22,930 shares in fiscal years 1997, 1996 and 1995, respectively. At November 30, 1997, there were 99,331 shares available for issuance under the Plan. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION (SFAS No. 123), which requires the measurement of the fair market value of stock options or warrants to be included in the statement of operations or disclosed in the notes to the financial statements. As permitted by SFAS No. 123, the Company will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and has elected the disclosure-only alternative under SFAS No. 123 for options F-12 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) STOCKHOLDERS' EQUITY (CONTINUED) granted using the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions are as follows:
1997 1996 --------------- ------------ Risk-free interest rate....................................... 6.07%-6.12% 6.3%-6.6% Expected dividend yield....................................... -- -- Expected lives................................................ 6 years 6 years Expected volatility........................................... 75.92% 77.3%
The table below presents pro forma net income (loss) and earnings per share, had compensation cost for the Company's stock-based employee compensation plans been determined using the provisions of SFAS No. 123 (in thousands, except per share amounts).
1997 1996 --------- --------- Income (loss) from continuing operations As Reported.............................................................. $ 617 $ 4,833 Pro Forma................................................................ $ (153) $ 4,600 Income (loss) per share from continuing operations As Reported.............................................................. $ 0.07 $ 0.57 Pro Forma................................................................ $ (0.02) $ 0.54
Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation may not be representative of that to be expected in future years. The following table summarizes information about options outstanding at November 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------- ------------------------------ WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE RANGE OF NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PER SHARE OUTSTANDING PER SHARE - -------------- ----------- --------------------- ----------------- ----------- ----------------- $ 1.73- 6.08 285,834 3.2 $ 4.17 127,142 $ 3.31 6.42-10.00 404,906 4.7 8.79 56,800 7.04 10.48-16.91 457,186 3.9 14.37 131,262 13.83 ----------- ----------- 1,147,926 315,204 ----------- ----------- ----------- -----------
In January 1998, the Company offered employees the opportunity to participate in an option repricing program, pursuant to which each employee could elect to replace his or her then outstanding options with new options on a one-for-one basis. The per share exercise price of the replacement options is $3.94. The replacement options are exercisable as follows: replacement options that were granted in exchange for exercisable old options become exercisable six months following the new grant date; replacement options that were granted in exchange for unexercisable old options become exercisable over four years from the new grant date, 12.5% six months following the new grant date and 6.25% quarterly thereafter; and all replacement options expire ten years after the new grant date. An aggregate of 694,810 options were cancelled and replaced in connection with this program. The option repricing program resulted in a new measurement date for all options replaced. Since the new exercise price was equal to the fair market value of the Company's common stock on the new measurement date, the Company will not record any compensation cost in connection with this program. F-13 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RETIREMENT PLAN In November 1985, the Company adopted an employee savings plan (the "Savings Plan") in compliance with Section 401(k) of the Internal Revenue Code. Effective April 1, 1995, the Savings Plan provides for annual Company contributions of up to 15% of the first 6% of total compensation per participant. Effective January 1, 1998, these contributions vest in full after a three-year period of service. The Company's contributions to the Savings Plan were $98,000, $50,000 and $16,000 in 1997, 1996 and 1995, respectively. The Company does not provide postretirement benefits to any employees as defined under Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. 5. BANK FACILITIES The Company entered into an irrevocable standby letter of credit agreement for a sum not to exceed $300,000 effective January 16, 1997 and terminating March 31, 1998. This facility was entered into in connection with the lease of Company's new office and manufacturing facility (Note 6(a)). This letter of credit is automatically extended without amendment annually from the termination date, unless written notice is provided electing not to renew for any such additional period. Notwithstanding the above, this letter of credit expires on March 31, 2002. The Company's obligation is secured by a pledge of cash in the amount of $350,000. The Company has informed the bank it intends to allow this letter of credit to automatically renew. 6. LEASE COMMITMENTS AND CONTINGENCIES (A) LEASE COMMITMENTS The Company's principal executive, engineering, manufacturing and sales operations occupy approximately 56,500 square feet in a leased facility located at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this facility terminates on March 31, 2002. Prior to moving into its current facility on May 2, 1997, the Company's operations occupied approximately 31,000 square feet in a facility which it shared with DTI located in Marlboro, Massachusetts. Total rental expense charged to continuing operations with respect to the Company's current Marlboro facility for fiscal year 1997 was $320,000, and with respect to its former Marlboro facility was $527,000, $546,000 and $459,000 for each of the fiscal years 1997, 1996 and 1995, respectively. Rental expense with respect to the former Marlboro facility for fiscal 1997 reflected the Company's pro rata portion of the rental charges and operating expenses associated with that facility and the use by the Company of certain manufacturing equipment belonging to DTI. F-14 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. LEASE COMMITMENTS AND CONTINGENCIES (CONTINUED) Future minimum lease payments, excluding operating costs, under all operating leases are as follows (in thousands):
FISCAL YEARS ENDING NOVEMBER 30, AMOUNT - ------------------------------------------------------------------------------------- --------- 1998................................................................................. $ 656 1999................................................................................. 660 2000................................................................................. 670 2001................................................................................. 592 2002................................................................................. 188 --------- Total minimum lease payments......................................................... $ 2,766
(B) CONTINGENCIES 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. 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. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. The components of the net deferred tax liability recognized in the accompanying consolidated balance sheets are as follows (in thousands):
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 - --------------------------------------------------------------------------------------------- --------- --------- Deferred tax assets.......................................................................... $ 2,304 $ 1,595 Deferred tax liabilities..................................................................... (32) (27) --------- --------- Subtotal................................................................................... 2,272 1,568 --------- --------- Valuation allowance.......................................................................... (1,768) (1,568) --------- --------- Net deferred tax assets...................................................................... $ 504 $ -- --------- --------- --------- ---------
F-15 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) Due to the uncertainty surrounding the realization of the benefits of its favorable tax attributes in future income tax returns, the Company has placed a valuation allowance against its deferred tax assets, except for previously paid taxes that the Company believes are refundable. These deferred tax assets are included as a component of other assets, net on the accompanying consolidated balance sheets. The approximate tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is summarized as follows (in thousands):
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 - ----------------------------------------------------------------------------------------------- --------- --------- Other temporary differences, principally nondeductible reserves................................ $ 1,562 $ 1,096 Research and development credits............................................................... 685 447 Alternative minimum tax credits................................................................ 25 25 --------- --------- $ 2,272 $ 1,568 --------- --------- --------- ---------
The tax credit carryforwards expire at various dates through 2009. The Tax Reform Act of 1986 contains provisions that may limit the tax credit carryforwards available to be used in any given year in the event of significant changes in ownership, as defined. The income (loss) from continuing operations before tax provision in the accompanying consolidated statements of operations consisted of the following (in thousands):
1997 1996 1995 --------- --------- --------- United States.......................................................................... $ 792 $ 6,819 $ 2,761 Foreign................................................................................ (14) (778) (341) --------- --------- --------- $ 778 $ 6,041 $ 2,420 --------- --------- --------- --------- --------- ---------
The income tax provision shown in the accompanying consolidated statements of operations consists of the following (in thousands):
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------- --------- --------- ----- Federal: Current................................................................................ $ 581 $ 1,008 $ 70 Deferred............................................................................... (504) -- -- --------- --------- --- 77 1,008 70 --------- --------- --- State: Current................................................................................ 24 100 1 Deferred............................................................................... -- -- -- --------- --------- --- 24 100 1 --------- --------- --- Foreign--Current......................................................................... 60 100 4 --------- --------- --- $ 161 $ 1,208 $ 75 --------- --------- --- --------- --------- ---
F-16 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) The effective income tax rate varies from the amount computed using the statutory U.S. income tax rate as follows:
FISCAL YEARS ENDED NOVEMBER 30, 1997 1996 1995 - ------------------------------------------------------------------------------------------ --------- --------- --------- Tax provision (benefit) at statutory rate................................................. 34.0% 34.0% 34.0% Federal benefit from loss carryforward.................................................... -- (5.6) (33.0) Utilization of research and development credits........................................... (30.5) (14.8) -- State taxes............................................................................... 3.1 1.6 -- Foreign taxes............................................................................. 7.7 1.6 0.2 Tax credits............................................................................... 1.8 3.2 1.9 Other permanent differences............................................................... 4.5 -- -- --------- --------- --------- 20.6% 20.0% 3.1% --------- --------- --------- --------- --------- ---------
8. GEOGRAPHIC INFORMATION Operations in various geographic areas for the three years ended November 30, 1997 are summarized as follows (in thousands):
UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED ------------ --------- ------------ ------------ FISCAL 1995 Sales to unaffiliated customers (1)......................... $ 26,651 $ 3,627 $ -- $ 30,278 Sales or transfers between geographic areas................. 2,507 -- (2,507) -- ------------ --------- ------------ ------------ Net sales................................................... $ 29,158 $ 3,627 $ (2,507) $ 30,278 ------------ --------- ------------ ------------ Income (loss) from continuing operations.................... $ 1,983 $ (341) $ 7 $ 1,649 Identifiable assets of continuing operations................ $ 44,892 $ 1,876 $ (1,747) $ 45,021 ------------ --------- ------------ ------------ ------------ --------- ------------ ------------ FISCAL 1996 Sales to unaffiliated customers (1)......................... $ 44,677 $ 6,149 $ -- $ 50,826 Sales or transfers between geographic areas................. 4,780 -- (4,780) -- ------------ --------- ------------ ------------ Net sales................................................... $ 49,457 $ 6,149 $ (4,780) $ 50,826 ------------ --------- ------------ ------------ Income (loss) from continuing operations.................... $ 5,314 $ (778) $ (83) $ 4,453 Identifiable assets of continuing operations................ $ 46,601 $ 3,647 $ (3,248) $ 47,000 ------------ --------- ------------ ------------ ------------ --------- ------------ ------------ FISCAL 1997 Sales to unaffiliated customers (1)......................... $ 37,398 $ 9,262 $ -- $ 46,660 Sales or transfers between geographic areas................. 4,516 -- (4,516) -- ------------ --------- ------------ ------------ Net sales................................................... $ 41,914 $ 9,262 $ (4,516) $ 46,660 ------------ --------- ------------ ------------ Income (loss) from continuing operations.................... $ 502 $ (20) $ 135 $ 617 Identifiable assets of continuing operations................ $ 49,529 $ 5,287 $ (4,057) $ 50,759 ------------ --------- ------------ ------------ ------------ --------- ------------ ------------
- ------------------------ (1) Foreign sales from the United States to unaffiliated customers for the years ended November 30, 1997, 1996 and 1995 were approximately $11,361, $13,317 and $8,243 respectively. F-17 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. ACCRUED EXPENSES Accrued expenses at November 30, 1997 and 1996 consist of the following (in thousands):
1997 1996 --------- --------- Accrued commissions............................................................................ $ 213 $ 133 Payroll and related taxes...................................................................... 1,552 1,190 Expenses relating to Spin-Off of Data Translation II, Inc...................................... -- 737 Accrued marketing, legal and other expense..................................................... 4,689 3,731 Accrued taxes.................................................................................. 504 -- --------- --------- $ 6,958 $ 5,791 --------- --------- --------- ---------
10. VALUATION AND QUALIFYING ACCOUNTS The following table sets forth activity in the Company's accounts receivable reserve account (in thousands):
BALANCE AT CHARGES TO COST BALANCE AT BEGINNING OF YEAR AND EXPENSE DEDUCTIONS END OF YEAR ------------------- ----------------- ------------- ------------- For the Year Ended November 30, 1995................... $ 123 $ 85 $ 5 $ 203 ----- ----- ----- ----- ----- ----- ----- ----- For the Year Ended November 30, 1996................... $ 203 $ 177 $ 52 $ 328 ----- ----- ----- ----- ----- ----- ----- ----- For the Year Ended November 30, 1997................... $ 328 $ 187 $ 104 $ 411 ----- ----- ----- ----- ----- ----- ----- -----
11. SELECTED QUARTERLY INFORMATION (UNAUDITED)
FISCAL 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 - ---------------------------------------------------------------- ----------- --------- ----------- ------------ Net sales....................................................... $ 11,524 $ 12,102 $ 11,107 $ 11,927 Gross profit.................................................... $ 7,163 $ 7,372 $ 6,720 $ 7,167 Income (loss)................................................... $ 165 $ 336 $ (405) $ 521 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------ Income (loss) per share......................................... $ 0.02 $ 0.04 $ (0.05) $ 0.06 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------
FISCAL 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 29 MAY 31 AUGUST 31 NOVEMBER 30 - ---------------------------------------------------------------- ----------- --------- ----------- ------------ Net sales....................................................... $ 10,690 $ 12,921 $ 13,066 $ 14,149 Gross profit.................................................... $ 6,377 $ 7,673 $ 8,119 $ 8,611 Income from continuing operations............................... $ 1,001 $ 1,211 $ 1,232 $ 1,389 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------ Income per share from continuing operations..................... $ 0.12 $ 0.13 $ 0.15 $ 0.17 ----------- --------- ----------- ------------ ----------- --------- ----------- ------------
F-18 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. DISCONTINUED OPERATIONS Pursuant to the Spin-Off described in Note 1, the Company did not retain any assets of the discontinued operations. The components of net assets of discontinued operations included in the accompanying consolidated balance sheets at November 30, 1996 follow (in thousands): Current assets..................................................................... $ 14,090 Net assets (liabilities) of networking distribution business....................... (1,424) Equipment, net..................................................................... 2,351 Other assets, net.................................................................. 260 Current liabilities................................................................ (2,317) Cumulative translation adjustment.................................................. 30 --------- --------- $ 12,990 --------- ---------
The Company's fiscal 1997 results do not include any results from discontinued operations. The components of discontinued operations included in the accompanying consolidated statements of operations for the fiscal years ended November 30, 1996 and 1995 follow (in thousands):
1996 1995 --------- --------- Net sales................................................................................... $ 21,201 $ 21,826 Income(loss) from continuing operations..................................................... (1,617) 2,402 Income (loss) from networking distribution business......................................... (3,555) 24 Spin-off transaction costs.................................................................. (1,500) -- --------- --------- Income (loss)............................................................................... $ (6,672) $ 2,426 --------- ---------
The above income (loss) from networking distribution business includes an estimated loss on disposal of approximately $2,500. The loss for the year ended November 30, 1996 also reflects an allocation of $560 of interest income relating to the $9,168 of cash contributed to DTI by the Company. F-19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- 23 Consent of Arthur Andersen LLP.
X-1 EX-23 2 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report set forth on page F-2 of this Form 10-K/A, into the Company's previously filed Registration Statements on Form S-8, File Nos. 33-00346, 33-06609, 33-50692, 33-59937 and 333-24139. ARTHUR ANDERSEN LLP Boston, Massachusetts March 12, 1998 -----END PRIVACY-ENHANCED MESSAGE-----