-----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, WzCEZPh7dmU4DcNIgM2eqrY49R4xTnYxhdND73g1dzFnYk6xHpspP5azTsVBwTyV DHGYEZA6yQH/01qX6gCjZg== 0000898430-96-005578.txt : 19961202 0000898430-96-005578.hdr.sgml : 19961202 ACCESSION NUMBER: 0000898430-96-005578 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961127 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: METATOOLS INC CENTRAL INDEX KEY: 0000919794 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954102687 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27168 FILM NUMBER: 96673606 BUSINESS ADDRESS: STREET 1: 6303 CARPINTERIA AVENUE CITY: CARPINTERIA STATE: CA ZIP: 93013 MAIL ADDRESS: STREET 1: 6303 CARPINTERIA AVE CITY: CARPINTERIA STATE: CA ZIP: 93013 10-Q/A 1 FORM 10-Q/A FOR PERIOD ENDED 6/30/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the quarterly period ended June 30, 1996 or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from ___________ to ___________. Commission file number 0-27168 METATOOLS, INC. (Exact name of registrant as specified in its charter) Delaware 95-4102687 (State of incorporation) (I.R.S. Employer Identification Number) 6303 Carpinteria Ave, Carpinteria, CA 93013 (Address of principal executive offices) (805) 566-6200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 8, 1996, there were outstanding 11,827,762 shares of the registrants Common Stock, $0.001 par value, which is the only outstanding class of common or voting stock of the registrant. 1 METATOOLS, INC. FORM 10-Q/A Table of Contents
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited).......................... 3 Balance sheets - June 30, 1996 and December 31, 1995 Statements of operations - Three and six months ended June 30, 1996 and 1995 Statements of cash flows - Six months ended June 30, 1996 and 1995 Notes to financial statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders........ 15 Item 6. Exhibits and Reports on Form 8-K.......................... 15 SIGNATURES............................................................ 17
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements METATOOLS, INC. BALANCE SHEETS (Unaudited)
June 30, December 31, 1996 1995 ------------------------- ASSETS Current assets: Cash and cash equivalents....................... $14,296,000 $46,885,000 Short-term investments.......................... 31,540,000 - Accounts receivable, net........................ 6,135,000 2,775,000 Inventories..................................... 437,000 912,000 Prepaid expenses and other current assets....... 1,334,000 890,000 ------------------------ Total current assets..................... 53,742,000 51,462,000 Property and equipment, net....................... 1,791,000 1,577,000 Other assets...................................... 629,000 496,000 ------------------------ Total assets............................. $56,162,000 $53,535,000 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................ $ 1,743,000 $ 1,795,000 Accrued expenses................................ 1,160,000 964,000 Income taxes payable............................ 421,000 - Royalties payable............................... 352,000 588,000 ------------------------ Total current liabilities................ 3,676,000 3,347,000 Stockholders' equity: Preferred stock, $.001 par value, 5,000,000 shares authorized - no shares issued and outstanding at June 30, 1996 and December 31, 1995, respectively............................ - - Common stock, $.001 par value; 30,000,000 shares authorized - 11,815,721 and 11,597,908 shares issued and outstanding at June 30, 1996 and December 31, 1995, respectively............... 12,000 12,000 Paid-in capital................................. 55,001,000 54,429,000 Accumulated deficit............................. (2,527,000) (4,253,000) ------------------------ Total stockholders' equity............... 52,486,000 50,188,000 ------------------------ Total liabilities and stockholders' equity $56,162,000 $53,535,000 ========================
The accompanying notes are an integral part of these Financial Statements. 3 METATOOLS, INC. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, -------------------------- ---------------------------- 1996 1995 1996 1995 -------------------------- ---------------------------- Net revenues........................... $ 6,371,000 $3,971,000 $11,874,000 $ 7,391,000 Cost of revenues....................... 1,117,000 1,322,000 2,220,000 2,677,000 -------------------------- ---------------------------- Gross profit........................... 5,254,000 2,649,000 9,654,000 4,714,000 Operating expenses: Sales and marketing.................. 2,856,000 2,252,000 5,481,000 4,038,000 General and administrative........... 734,000 496,000 1,336,000 904,000 Research and development............. 814,000 332,000 1,552,000 641,000 -------------------------- ---------------------------- Total operating expenses............... 4,404,000 3,080,000 8,369,000 5,583,000 -------------------------- ---------------------------- Income (loss) from operations.......... 850,000 (431,000) 1,285,000 (869,000) Other income (expense): Interest and investment income (expense), net ..................... 594,000 (11,000) 1,205,000 4,000 Other income (expense), net.......... (15,000) 6,000 (12,000) (1,000) -------------------------- ---------------------------- Income (loss) before provision for income taxes.......................... 1,429,000 (436,000) 2,478,000 (866,000) Provision for income taxes............. 427,000 - 752,000 - -------------------------- ---------------------------- Net income (loss)...................... $ 1,002,000 $ (436,000) $ 1,726,000 $ (866,000) ========================== ============================ Net income (loss)...................... $ 1,002,000 $ (436,000) $ 1,726,000 $ (866,000) Amortization of costs related to the issuance of mandatory redeemable Series B convertible preferred stock.. - (30,000) - (60,000) Preferred stock dividend requirement... - (42,000) - (84,000) -------------------------- ---------------------------- Net income (loss) applicable to common stockholders................... $ 1,002,000 $ (508,000) $ 1,726,000 $(1,010,000) ========================== ============================ Net income (loss) per common share..... $ .08 $ (.09) $ .13 $ (.18) ========================== ============================ Weighted average number of shares outstanding........................... 13,114,000 5,643,000 13,040,000 5,624,000 ========================== ============================
The accompanying notes are an integral part of these Financial Statements. 4 METATOOLS, INC. STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30, -------------------------------- 1996 1995 -------------------------------- Cash flows from operating activities: Net income (loss)........................... $ 1,726,000 $ (866,000) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization............ 326,000 114,000 Provision for losses on receivables and returns............................. 935,000 1,124,000 Provision for losses on inventory........ 39,000 593,000 Changes in operating assets and liabilities: Accounts receivable.................... (4,295,000) (1,489,000) Inventories............................ 436,000 (1,075,000) Prepaid expenses and other assets...... (559,000) (327,000) Accounts payable and accrued expenses.. 144,000 182,000 Income taxes payable................... 674,000 - Royalties payable...................... (236,000) 36,000 ------------------------------- Net cash used in operating activities (810,000) (1,708,000) Cash flows from investing activities: Purchases of short-term investments......... (31,540,000) - Purchase of property and equipment.......... (483,000) (496,000) Purchase of software technology and product rights............................. (75,000) - ------------------------------- Net cash used in investing activities (32,098,000) (496,000) Cash flows from financing activities: Increase in notes receivable from stockholders............................... - (49,000) Proceeds from issuance of note payable to stockholder................................ - 8,000 Repayment of notes payable to stockholders.. - (8,000) Proceeds from borrowings against notes payable to bank............................ - 402,000 Proceeds from exercise of stock warrants and options................................ 319,000 54,000 ------------------------------- Net cash provided by financing activities............................ 319,000 407,000 ------------------------------- Net increase in cash and cash equivalents..... (32,589,000) (1,797,000) Cash and cash equivalents at beginning of period.................................... 46,885,000 3,017,000 ------------------------------- Cash and cash equivalents at end of period.... $ 14,296,000 $ 1,220,000 ===============================
The accompanying notes are an integral part of these Financial Statements. 5 METATOOLS, INC. NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include all adjustments (consisting only of normal recurring items) considered necessary for their fair presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The results of operations for the period ended June 30, 1996 are not necessarily indicative of results to be expected for the year ended December 31, 1996. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis and the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Cash Equivalents and Short-term Investments The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company considers its investment portfolio available for sale as defined in Statement of Financial Accounting Standards ("SFAS") No. 115. The amortized cost of securities are adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, realized gains and losses, interest and dividends, and declines in value judged to be other than temporary are included in investment income. There were no material unrealized gains or losses nor any material differences between the estimated fair values and costs of securities in the investment portfolio at June 30, 1996. The cost of securities sold is based on the specific identification method. The Company invests its cash in accordance with a policy that seeks to maximize returns while ensuring both liquidity and minimal risk of principal loss. The policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings, and places restrictions on maturities and concentration by type and issuer. The majority of the Company's portfolio is composed of fixed income investments which are subject to the risk of market interest rate fluctuations, and all the Company's investments are subject to risks associated with the ability of the issuers to perform their obligations under the instruments. 6 METATOOLS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Net Income (Loss) Per Common Share Net income (loss) per common share is computed using the weighted average number of shares of common stock and common equivalent shares outstanding. Common equivalent shares related to stock options, warrants and preferred stock are excluded from the computation when their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common and common equivalent shares, issued at prices below the public offering price during the twelve months immediately preceding the initial filing date of the Company's initial public offering have been included in the calculation as if they were outstanding for all periods presented, using the treasury stock method and the initial public offering price. 2. INVENTORIES Inventories consist of the following:
June 30, December 31, 1996 1995 --------------------------- Finished goods........................ $405,000 $488,000 Materials and supplies................ 32,000 424,000 --------------------------- $437,000 $912,000 ===========================
3. INCOME TAXES The provision for income taxes consists of the following:
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------ 1996 1995 1996 1995 -------------------- ------------------ Federal............ $294,000 $ - $518,000 $ - State.............. 133,000 - 234,000 - -------------------- ------------------ $427,000 $ - $752,000 $ - ==================== ==================
The provision for income taxes for the three and six months ended June 30, 1996 is based on the Company's estimated annualized effective tax rate for 1996 which considers utilization of net operating loss and tax credit carryforwards. As a result of net operating losses, the Company did not record any provision for income taxes for the three and six months ended June 30, 1995. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the condensed financial statements and notes thereto. The discussion and analysis below contains trend analysis and other forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those projected in the forward- looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Factors That May Affect Future Operating Results," as well as those discussed elsewhere in the Companys SEC reports, including without limitation, its Annual Report on Form 10-K for the year ended December 31, 1995. OVERVIEW The Company derives a substantial majority of its revenues from a limited number of products. The Company's future revenues are substantially dependent upon the continued market acceptance of Kai's Power Tools, Bryce, Convolver, Vector Effects, KPT PowerPhotos, Final Effects, and a product released in the second quarter of 1996, Kai's Power Goo. In this regard, revenue from the sale of Kai's Power Tools was 28% and 26% of net revenues for the three months ended June 30, 1996 and 1995, respectively. The Company also has a number of new product development efforts under way, and a significant portion of future revenues is dependent upon the success of these activities. The Company develops its products either internally or through co-development arrangements with third parties. These co-development arrangements generally provide the Company with certain exclusive proprietary, copyright or marketing rights for developed products in exchange for the payment of one-time and/or ongoing royalties. The Company expects to continue fostering arrangements with external developers as part of its strategy of expanding its product portfolio. The Company includes such royalty expenses in cost of revenues as such royalties are earned. The Company believes that co-development arrangements represent an important component of the Company's research and development investment. There can be no assurance, however, that the Company will be able to continue to supplement its product development efforts in the future through such relationships on favorable terms or at all. If the Company were unable to maintain its existing co-development arrangements or to attract new co- development partners, the Company would, at a minimum, have to increase its research and development expenditures, which could have a material adverse effect on the Company's business, operating results and financial condition. The Company sells its products primarily to domestic and international distributors, including mail order resellers and, to a lesser extent, retail outlets. The Company also sells its products to OEMs for bundling with their hardware or software products and directly to end users, generally through telesales and direct mail campaigns. Fluctuations in distributor purchases can cause significant volatility in the Company's revenues. Distributors generally stock the Company's products at levels which may fluctuate significantly for a variety of reasons, including the distributors ability to finance the purchase of products and to devote shelf space, catalog space or attention to the products. Distributor purchases may also be affected by the Company's introduction of a new product or new version of a product, the Company's end user promotions 8 programs, anticipated product price increases, the Companys purchases of display space at retail outlets and other factors. Since 1992, the Company has focused on building its product portfolio and establishing brandname awareness of its products. These activities have resulted in significant increases in all expense categories. In particular, the Company's shift from direct sales to end users toward expanded indirect distribution channels has required a substantial increase in the Company's sales and marketing activities. The Company's recent product development efforts have also entailed significant research and development expenditures. These higher expense levels combined with fluctuations in net revenues have contributed to the Company's annual losses and quarterly losses through June 30, 1995, as well as fluctuations in its operating results. The Company intends to continue to invest significant amounts both in expanding its product portfolio and in maintaining and enhancing brand awareness of its products, and accordingly may continue to experience losses and volatility of net revenues and operating results in future periods. OPERATING RESULTS The following table sets forth certain selected financial information expressed as a percentage of net revenues for the periods indicated:
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------ 1996 1995 1996 1995 -------------------- ------------------ Net revenues.......................... 100.0% 100.0 % 100.0% 100.0 % Cost of revenues...................... 17.5 33.3 18.7 36.2 ------------------- ------------------ Gross margin..................... 82.5 66.7 81.3 63.8 Operating expenses: Sales and marketing................. 44.8 56.7 46.1 54.6 General and administrative.......... 11.5 12.5 11.3 12.2 Research and development............ 12.8 8.4 13.1 8.7 ------------------- ------------------ Total operating expenses......... 69.1 77.6 70.5 75.5 ------------------- ------------------ Income (loss) from operations......... 13.4 (10.9) 10.8 (11.7) Other income (expense), net........... 9.0 (0.1) 10.0 0.0 ------------------- ------------------ Net income (loss) before provision for 22.4 (11.0) 20.8 (11.7) income taxes......................... Provision for income taxes............ 6.7 0.0 6.3 0.0 ------------------- ------------------ Net income (loss)..................... 15.7% (11.0)% 14.5% (11.7)% =================== ==================
Net Revenues The Company recognizes revenue from the sale of its products upon shipment to the customer and satisfaction of significant Company obligations, if any. Net revenues increased 60% from $4.0 million for the three months ended June 30, 1995 to $6.4 million for the three months ended June 30, 1996. Net revenues increased as a result of the Company's release of new products and new versions of its existing products along with increased expansion of sales through its domestic and international distribution channels. In particular, since the second quarter of 1995, the Company has released KPT PowerPhotos Series II, III and IV, Final Effects, Final Effects 9 AP, Kai's Power Tools 3, Bryce 2 and Kai's Power Goo. International sales increased from 20% of net revenues for the three months ended June 30, 1995 to 28% of net revenues for the three months ended June 30, 1996. Net revenues increased 61% from $7.4 million for the six months ended June 30, 1995 to $11.9 million for the six months ended June 30, 1996. The increase in net revenues was the result of the development and release of new products, the enhancement and release of new versions of the Company's existing products, and significant increases in the Company's distribution channels and marketing activities. The Company offers two principal product types consisting of plug-in extensions (including Kai's Power Tools, Convolver, Vector Effects and Final Effects) and stand-alone applications and application platforms (principally consisting of Bryce and KPT PowerPhotos, and a new product released in the second quarter of 1996, Kai's Power Goo). The following table reflects the net revenue contribution by each product family for the fiscal periods presented:
Three Months Ended Six Months Ended June 30, June 30, -------------------------- ------------------------- 1996 1995 1996 1995 -------------------------- ------------------------- Plug-in extensions...................... $2,965,000 $2,485,000 $ 5,618,000 $4,134,000 Stand-alone applications and application platforms.................. 3,406,000 1,486,000 6,256,000 3,257,000 -------------------------- ------------------------- Total.................................. $6,371,000 $3,971,000 $11,874,000 $7,391,000 ========================== =========================
The Company has migrated most of its existing products to run on Windows-based computers as well as Macintosh, and recently it has begun bundling both Windows and Macintosh versions on the same CD to minimize production and distribution costs. For the second quarter of 1996, cross platform and Windows products represented 58% of net revenues, compared with 22% for the second quarter of 1995. Cross platform and Windows products represented 50% and 23% of net revenues for the six months ended June 30, 1996 and 1995, respectively. The Company provides an allowance for estimated returns at the time of product shipments and adjusts this allowance as needed based on actual returns history. Such reserves as a percentage of net revenues have varied significantly over recent years, reflecting the Company's experience in product returns as it has significantly expanded the proportion of its sales through third-party distribution channels and increased its product portfolio. The Company expects reserves will continue to vary in the future. The Company's agreements with its distributors generally provide the distributors with limited rights to return unsold inventories under a stock balancing program. The Company monitors the activities of its distributors in an effort to minimize excessive returns and establishes its reserves based on its estimates of expected returns. While historically the Company's returns have been within expectations, the setting of reserves requires judgments regarding such factors as future competitive conditions and product life cycles, which can be difficult to predict. As a result, there can be no assurance that established reserves will be adequate to cover actual future returns. Cost of Revenues Cost of revenues includes the costs of goods sold, royalties paid to external developers, inventory management costs, freight and handling costs and reserves for inventory obsolescence. Cost of revenues decreased from $1.3 million, or 33% of net revenues, for the three months ended June 10 30, 1995 to $1.1 million, or 18% of net revenues, for the three months ended June 30, 1996. Cost of revenues as a percentage of net revenues decreased as a result of a changing mix of product sales toward lower royalty products, improved management of production and inventory levels, and higher OEM licensing sales. Royalties represented 2% and 12% of net revenues for the three months ended June 30, 1996 and 1995, respectively. Cost of revenues decreased from $2.7 million to $2.2 million, or from 36% to 19% of net revenues, for the six months ended June 30, 1995 and 1996, respectively. The decrease in cost of revenues as a percentage of net revenues resulted from increased sales of lower royalty products, improved production and inventory management, and increased OEM licensing sales. Royalties represented 3% and 13% of net revenues for the six months ended June 30, 1996 and 1995, respectively. Sales and Marketing Sales and marketing expenses include advertising, promotional materials, mail campaigns, tradeshows and the compensation costs of sales, marketing, customer service and public relations personnel who promote the Company's products, including related facilities costs. Sales and marketing expenses increased from $2.3 million to $2.9 million, but decreased as a percentage of net revenues from 57% to 45%, for the three months ended June 30, 1995 and 1996, respectively. Such increase was a result of the continued efforts to expand sales and marketing activities and distribution channels. The Company intends to continue such expansion and anticipates that sales and marketing expenses will continue to increase significantly in future periods as the Company's product offerings expand, although they may vary as a percentage of net revenues. Sales and marketing expenses increased from $4.0 million to $5.5 million for the six months ended June 30, 1996 and 1995, respectively, but decreased as a percentage of net revenues from 55% to 46%. The increase reflected the Company's efforts to expand its sales and marketing presence and distribution channels through the hiring of additional personnel and increased advertising, mail campaigns, and tradeshow expenditures. General and Administrative General and administrative expenses include compensation costs related to executive management, finance and administration personnel of the Company along with other administrative costs including legal and accounting fees, insurance, and bad debt expenses. General and administrative expenses increased from $496,000 to $734,000 for the three months ended June 30, 1995 and 1996, respectively, but remained consistent as a percentage of net revenues at 12%. The increase in general and administrative expenses resulted from additional provisions for doubtful accounts commensurate with the increase in revenues and accounts receivable, and to increased incentive compensation. The Company expects that its general and administrative expenses will continue to increase in the future as the Company expands its staffing to support expanded operations and to comply with the responsibilities of a public company, but may vary as a percentage of net revenues. General and administrative expenses increased from $904,000 to $1.3 million, but decreased as a percentage of net revenues from 12% to 11%, for the six months ended June 30, 1995 and 1996, respectively. The increase in general and administrative expenses reflects increased headcount and associated personnel costs related to the expansion of the Company's executive, accounting, finance, and administration staffing required to support the Company's growth. The decrease in 11 general and administrative expenses as a percentage of net revenues is the result of the leverage of a larger business. Research and Development Research and development expenses consist primarily of personnel costs, consultant fees the amortization of purchased technology, and required equipment and facilities costs related to the Company's product development efforts. To date, the Company has not capitalized any internal software development costs since costs qualifying for such capitalization have not been significant. Research and development expenses increased from $332,000, or 8% of net revenues, for the three months ended June 30, 1995 to $814,000, or 13% of net revenues, for the three months ended June 30, 1996 as a result of the Company's focus on expanding its product portfolio, enhancing its products and migrating its existing products to multiple operating systems, which required the hiring of additional personnel. The Company expects research and development expenses will continue to increase in future periods, but may vary as a percentage of net revenues. Research and development expenses increased from $641,000 to $1.6 million, or from 9% to 13% of net revenues, for the six months ended June 30, 1995 and 1996, respectively. The increase in research and development expenses results from the development and release of new products and the enhancement and release of new versions of the Company's existing products, which required the hiring of additional personnel. Provisions for Income Taxes The Company records income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The provision for income taxes for the three and six months ended June 30, 1996 are based on the Company's estimated annualized effective tax rate for 1996 which considers utilization of net operating loss and tax credit carryforwards. As a result of net operating losses, the Company did not record any provision for income taxes for the three and six months ended June 30, 1995. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS Limited Operating History; History of Losses; Variability of Operating Results The Company was incorporated in March 1987 and did not introduce its first internally developed product until January 1993. The Company experienced losses in each quarter of 1994 and the first two quarters of 1995, and the Company's revenues and operating results have varied substantially from period to period. There can be no assurance that the Company's future revenue and operating results will not also vary substantially. The Company's revenues are relatively difficult to forecast due to a number of variable factors, including the timing of the introduction of new products by the Company and its competitors, seasonality of customer purchases, other general economic conditions, and the Company's ability to capture sufficient interest and commitment by distributors to market the Company's products or product enhancements. The Company's operating results also vary significantly depending on changes in pricing, changes in customer budgets and the volume and timing of orders received and shipments made during a quarter, which are difficult to forecast. Customers generally order on 12 an as-needed basis, and the Company's software generally is shipped as orders are received. Consequently, the Company typically operates with little or no backlog. The Company experiences some effect of seasonality in its business, as demand for its products tends to increase during the fourth calendar quarter as a result of the year-end holiday buying season. Further, as the Company has recently released its first consumer product, Kai's Power Goo, the year-end holiday buying season may have a larger impact on revenues in the future than in the past. A disproportionate percentage of the Company's quarterly revenues is typically generated in the last month of the quarter principally due to customer buying patterns. As a result of the foregoing and other factors, the Company anticipates that it may experience material and adverse fluctuations in future operating results on a quarterly or annual basis. Therefore, the Company believes that period to period comparisons of its revenues and operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. Evolving Markets for Computer Graphic Imaging and Internet/Online Design Tools; Rapid Technological Change Since the markets for computer graphic imaging and Internet/online design tools are still emerging, there can be no assurance that the markets for the Company's existing products will grow, that digital graphic and Internet/online content developers will adopt the Company's products, that sufficient distribution resources will be available to market the Company's products in a timely manner or that such products will be successful in achieving market acceptance. Additionally, since the computer graphic imaging and Internet/online design tool markets, and the personal computer industry in general, are characterized by rapidly changing technology, resulting in short product life cycles and price declines, the Company must continuously update its existing products to keep them current with changing technology and must develop new products to take advantage of new technologies that could render the Company's existing products obsolete. The Company's future prospects are highly dependent on its ability to keep pace with its competitors innovations, to adapt to new operating systems, hardware platforms and emerging industry standards, and to provide additional functionality to the Company's existing products. Limited Product Lines; Risk of Product Delays The Company's growth will be dependent upon the introduction of new products and new versions of existing products. There can be no assurance that any such new products or versions will achieve market acceptance. In addition, the Company has in the past experienced delays in the development of new products and the enhancement of existing products, and such delays may occur in the future. 13 Dependence on Third Parties Certain of the Company's products operate as plug-in extensions and enhancements for specific print, animation, video and multimedia application platforms. Market acceptance of the Company's plug-in products is dependent upon market acceptance of these third-party application platforms, as well as the willingness of the manufacturers of such platforms to permit their platforms to be extended and enhanced by plug-in products such as those of the Company. Distribution Risks The Company sells its products worldwide through multiple distribution channels, including traditional software distributors, hardware and software OEMs, international distributors, educational distributors, VARs, hardware superstores, retail dealers, and direct marketers. Accordingly, the Company is dependent on the continued viability and financial stability of these third parties, including certain of the traditional software distributors who have recently experienced significant margin pressure. Competition The Company faces competition from a number of sources, including other vendors of personal computer graphic imaging and Internet/online design application platforms and tools, other personal computer software industry participants and companies that offer graphic and Internet/online design solutions that are not personal computer based. If these or other competitors develop products, technologies or solutions that offer significant performance, price or other advantages over those of the Company, the Company's business, operating results and financial condition would be materially affected. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company satisfied its cash requirements principally through the private sale of its securities, borrowings from stockholders and bank borrowings. In December 1995, the Company raised $45.2 million, net of offering costs, in connection with an initial public offering of its common stock. The Company has a $3.0 million revolving line of credit with a bank which expires during December 1996 and is collateralized by substantially all of the assets of the Company. Borrowings under the credit facility are limited to a percentage of eligible accounts receivable, as defined in the credit agreement. As of June 30, 1996, the Company had no outstanding borrowings under the line of credit. Historically, net cash used in operating activities has been significant due to operating losses and working capital requirements resulting from the growth of the Company. Non-cash assets have increased significantly, particularly accounts receivable. Net cash used in investing activities has also increased substantially due to the purchase of $31.5 million of short-term investments during the second quarter of 1996. The Company expects that its working capital requirements will continue to increase to the extent the Company continues to grow. The Company believes that its current cash balances and any cash provided by future operations will be sufficient to meet its cash requirements through at least the next twelve months. 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The following matters were approved at the Company's Annual Meeting of Stockholders held on May 13, 1996: (a) The following directors were elected:
Directors Votes For Votes Withheld --------- --------- -------------- John J. Wilczak 9,573,223 44,959 Kai Krause 9,573,467 44,715 Samuel H. Jones, Jr. 9,573,223 44,959 Bert Kolde 9,548,223 69,959 William H. Lane, III 9,568,023 50,159 Howard L. Morgan 9,572,823 45,359 William J. Schroeder 9,568,023 50,159
(b) The stockholders ratified the appointment of Coopers & Lybrand L.L.P. as independent accountants by the following vote: For: 9,614,407 Against: 675 Abstain: 3,100 No Vote: 0
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Exhibit Title - ------- ------------- 2.1 Form of Agreement and Plan of Merger by and between the Registrant and MetaTools, Inc., a California corporation (1) 3.1 Amended and Restated Articles of Incorporation of California predecessor of Registrant (1) 3.2 Certificate of Incorporation of Registrant (1) 3.3 Amended and Restated Certificate of Incorporation of Registrant (3) 3.4 Restated Certificate of Incorporation of Registrant (3) 3.5 Bylaws of California predecessor of Registrant, as amended (1) 3.6 Bylaws of Registrant, as amended (3) 4.1 Specimen of Common Stock Certificate of Registrant (3) 10.1 Indemnification Agreement for Executive Officers and Directors (1) 10.2 Investors' Rights Agreement, as amended (1) 10.3 1992 Incentive Stock Plan (1) 10.4 1994 Incentive Stock Option, Non-Qualified Stock Option and Restricted Stock Purchase Plan (1) 10.5 1995 Stock Plan (2) 10.6 1995 Employee Stock Purchase Plan (2) 10.7 1995 Director Option Plan (2) 10.8 Employment Agreement between the Registrant and John J. Wilczak dated April 15, 1992, as amended (1) 10.9 Employment Agreement between the Registrant and Kai Krause dated January 26, 1994 (1) 10.10 Employment Agreement between the Registrant and Terance A. Kinninger dated June 27, 1995 (1) 10.11 Employment Agreement between the Registrant and James Mervis dated April 3, 1995 (1) 10.13 Secured Promissory Note between the Registrant and Kai Krause dated November 28, 1994 (1) 10.14 Secured Promissory Note between the Registrant and Kai Krause dated November 28, 1994 (1) 10.15 Loan and Security Agreement between the Registrant and Silicon Valley Bank dated September 25, 1994, as amended on December 15, 1995 (3) 10.16* Distribution Agreement between the Registrant and Ingram Micro Inc. dated October 19, 1992, as amended (1) 10.17* Distribution Agreement between the Registrant and Merisel Distributing (formerly, Softsel Computer Products, Inc.) dated March 12, 1990, as amended (1) 10.18 Sublease Agreement between Digital Sound Corporation and Registrant dated as of June 8, 1994 (1) 10.19 Form of Employee Invention, Copyright, and Secrecy Agreement (1) 10.20 Employment Agreement between the Registrant and Fred Brown dated November 13, 1995 (1) 15 10.21* Software Licensing Agreement between the Registrant and Marubeni Corporation dated as of January 31, 1996 (3) 10.22 Turnkey/Inventory Agreement between the Registrant and Stream International Inc. dated as of April 18, 1996 11.1 Statement Regarding Computations of Earnings per Share 27.1 Financial Data Schedule ______________ * Confidential treatment for this exhibit has been requested pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended (1) Incorporated by reference to the Company's Registration Statement on Form SB-2, filed December 11, 1995, as amended (File No. 33-98628LA). (2) Incorporated by reference to the Company's Registration Statement on Form S-8, filed on or about April 1, 1996. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K with the Securities and Exchange Commission during the second quarter ended June 30, 1996. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. METATOOLS, INC. (Registrant) Date: November 27, 1996 /s/TERANCE A. KINNINGER ----------------------- Terance A. Kinninger Vice President and Chief Financial Officer 17 EX-10.22 2 META TOOLS/STREAM TURNKEY/INVENTORY AGREEMENT Exhibit 10.22 METATOOLS/STREAM TURNKEY/INVENTORY AGREEMENT PARTIES: - -------- This working agreement is made and entered into between MetaTools, Inc. ("MetaTools"), 6303 Carpinteria Ave., Carpinteria, CA 93013 and Stream International Inc. ("Stream"), 105 Rosemont Rd., Westwood, MA 02090. TERM: - ----- The term of this agreement is from 3/01/96 through 3/01/97 and will be reviewed annually. TERMINATION: - ------------ This agreement can be canceled by either party with 90 calendar days written notice and agreed to disposition of inventories. DISPUTES: - --------- Both parties agree to negotiate disputes in good faith and to submit to arbitration should they fail to reach agreement. PURPOSE: - -------- To award MetaTools turnkey deliverable requirements to Stream in accordance with the provisions and prices in this agreement. COMPONENT AND RAW MATERIAL PROCUREMENT: - --------------------------------------- Under written authorization from MetaTools, Stream will produce or procure components and raw material and retain ownership of these components on MetaTools' behalf per the programs outlined below. This authorization may take the form of, but is not limited to, purchase orders, electronic mail messages, MetaTools-generated forecasts, or MetaTools sign-off on production planning or MRP sheets. PURCHASE ORDERS: - ---------------- Stream will require a hard copy Purchase Order prior to final assembly or final shipment of products. These purchase orders will be consistent with the price quotation which Stream will develop from the most current specifications and requested quantities provided by MetaTools. Purchase Orders will be delivered in hard copy, fax, or electronic mail. At a minimum, purchase orders will consist of purchase order number, PO line number parts, prices, and delivery dates. Once purchase orders and delivery schedules have been mutually accepted, subsequent changes in quantities, specifications, or delivery schedules will be subject to price adjustments and production schedule changes under the terms of this Agreement. Stream will make every effort 1 to maintain price consistency and reduce purchase price variance for MetaTools in these situations. Stream may ship and invoice all completed kits 90 days after receipt of PO. FORECASTS: - ---------- MetaTools' requirements typically call for shipment of product in a timeframe that is shorter than the required components can be effectively procured or produced. MetaTools-generated forecasts will be used for component and raw material procurement or production authorization. MetaTools agrees to provide Stream a 90 day rolling forecast on the first Thursday of each month. Materials (components and raw materials) will be purchased to a forecast by Stream on MetaTools behalf using a net MRP process. This process will include Stream determining an economic order quantity, not to exceed either the total forecast quantity, or a maximum of the ninety days forecast requirements. This quantity will be procured with MetaTools signed authorization. DELIVERY: - --------- MetaTools may schedule deliveries for multiple locations for any quantity from a single purchase order. In the event that multiple "ship to" addresses are required on the same purchase order, drop ship charges may apply. This does not apply to distribution orders. CANCELLATIONS: - -------------- Should MetaTools decide to cancel purchase orders, forecasts, or deliveries, discontinuing work, or reducing total quantities, MetaTools agrees to give Stream written notice. This notice shall be in the form of an updated forecast, purchase change order or electronic mail. In addition, MetaTools agrees to pay the material and labor at the stated selling price for work completed and in process as of the date and time Stream receives notification of cancellation. This payment may include extraordinary costs which are incurred by Stream. This may include extraordinary administrative expense incurred. Stream agrees to work in good faith to limit the potential chargeable costs by rescheduling piece part procurement, deliveries, and manufacturing and assembly as long as is reasonably possible and cost effective. Interrupted but completed work and non-standard material may be invoiced in normal billing cycles once MetaTools has been informed. MetaTools agrees to provide a revised Purchase Order for the work completed at the time of cancellation. EXCESS MATERIAL: - ---------------- Excess material will be defined as the quantity of any given material (components and customer specific raw material) which has been on-hand at Stream for longer than 90 calendar days but not over 180 days. Streams and MetaTools joint objective will be to consume or dispose of this material prior to 180 days from its receipt in order to avoid storage charges. The details of storage charges are described below. Stream may invoice for all material on hand over 180 days. SURPLUS MATERIAL: - ----------------- Surplus material will be defined as the quantity of any given material (components and customer specific raw material) which has been on-hand at Stream for longer than 180 calendar days. 2 Beginning on the 181st day this inventory will be assessed a carrying and storage changes equal to 2.5% of the Stream selling price/month or $14.50/pallet for consigned material. These costs will be invoiced on the first day of each month. MetaTools agrees to provide a Purchase Order to cover these costs. Stream may invoice components and customer specific raw material at the earlier of the termination of this Agreement of the first anniversary of acquisition. MetaTools agrees to continue paying carrying and storage charges until the material is physically disposed of. Disposition involves: 1. The surplus material is consumed in the manufacturing process. 2. The surplus material is shipped "as is" to a destination of MetaTools choice. 3. The surplus material is scrapped at MetaTools direction. OBSOLETE MATERIAL: - ------------------ Obsolete material will be defined as the quantity of any given material (components and customer specific raw material) meeting any of the following conditions: 1. All related top level SKU's are no longer being sold through normal distribution channels. 2. It has been replaced by new or updated versions through a revision or specification change process. 3. It has been eliminated from all applicable MetaTools Bills of Material. As of the date material is identified as obsolete, it will be assessed storage and carrying costs as described under "Surplus" above. MetaTools agrees to dispose of or consume all obsolete material also as outlined above. In no event will Stream charge MetaTools for materials Stream elected to produce in excess of MetaTools authorized component levels set out in MetaTools forecast. Stream assumes all risks of producing material in excess of these authorized component levels. Only material which is of a quality suitable for its original use may be classified as excess or obsolete. INVENTORY MANAGEMENT: - --------------------- In order to assist MetaTools in limiting obsolescence exposure and storage charges, Stream agrees to utilize Inventory Management procedures as below: Stream will maintain a maximum of one month supply of finished goods in MetaTools distribution inventory at any given time. Minimum finished levels will be set by Stream in conjunction with MetaTools management and will be based on assembly leadtime and forecasted demand. Stream will be responsible for monitoring finished goods minimum levels and replenishing to preset maximums at appropriate times. Stream will purchase component materials in economic order quantities. In most cases these quantities will be less than 90 days forecasted demand and in no case will they exceed this amount. Stream will monitor component inventory levels via our Master Scheduling MRP system. Stream will load MetaTools rolling 90 day forecast into the MRP system each month. The system will net on-hand quantities against projected demand. Stream purchasing will calculate 3 economic order quantities from the MRP net requirements, ensuring minimum inventory levels and continuity of supply. SKU specific mid-month forecasts will be required for products which are significantly exceeding forecasted demand or for new product introductions which were not included in previous forecasts. PRICING: - -------- Pricing will be based on the following: 1. Assembly -------- Assembly pricing for March through June is based on the forecasts MetaTools have provided to Stream. March 1996 plus the quarter beginning April 1996 prices will be based on a flat rate of $1.05. This reflects an understanding that we were in a start-up period and is not contingent upon previous volume. Pricing for the quarter of July through September will remain at $1.05 provided the volume from March through June 1996 exceeds 120,000 units. In the event that volume in this same period exceeds 240,000 units (quarterly total), pricing for the quarter of July through September will be reduced based on the schedule below. Assembly Pricing Matrix: July through September Units produced per month:
(less than) over 40,000- over 60,000- over 80,000- over 100,000- (more than) 40,000 60,000 80,000 100,000 120,000 120,000 - ----------------------------------------------------------------------------------------------------------------------------- $1.25/unit $1.05/unit $1.05/unit $0.90/unit $0.80/unit $0.75/unit
The above assembly matrix is based on a "standard" kit containing: 1 outer box 1 corrugated inner box 1 CD or diskette subassembly 1 serialized BRC 1 serialized manual up to 5 miscellaneous inserts up to 3 outside labels shrinkwrap "Zip" Product assemblies will be fifteen cents ($0.15) less per unit Upon completion of the "start up" period, we will review pricing quarterly and base each subsequent consecutive quarter, beginning October 1, 1996, on the "Standard Assembly Pricing Matrix" listed below. Assembly Pricing Matrix: Standardized Matrix 4 Units produced per month:
(less than) over 40,000- over 60,000- over 80,000- over 100,000- (more than) 40,000 60,000 80,000 100,000 120,000 120,000 - ----------------------------------------------------------------------------------------------------------------------------- $1.45/unit $1.25/unit $1.05/unit $0.90/unit $0.80/unit $0.75/unit
The above assembly matrix is based on a "standard" kit containing: 1 outer box 1 corrugated inner box 1 CD or diskette subassembly 1 serialized BRC 1 serialized manual up to 5 miscellaneous inserts up to 3 outside labels shrinkwrap "Zip" Product assemblies will be fifteen cents ($0.15) less per unit. 2. Replication ----------- Standard Replication Pricing 2 color CD* $0.67 each CD Sleeve, includes License Agreement Label and insertion $0.15 each CD Jewelcase, includes assembly $0.28 each 3.5" HD Diskettes, (includes collation, bagging, and label) $0.47 each Diskette bag label (includes affixing) $0.05 each *Individual CD orders with less than 3 day lead time will be assessed a fee of $0.06/CD. 5 3. Project Management ------------------ With all kits, a project management fee of $0.30 will be assessed which includes the following services: Job Engineering Storage (for the first 90 days) Interplant Freight Dedicated Resources Inventory Management Account Management Transaction Reporting Order Processing 4. Distribution ------------ Standard distribution turn time will be 24 hours. All orders received prior to 5:00pm will be shipped before 5:00pm the following work day. End User: $1.90/order $0.15/unit Includes order processing, pick/pack/ship, order confirmation and packing materials (excluding shipping carton) Retail: $0.15/unit Includes order processing, shipping and ship confirmation. International: $13.75/order* Includes preparation of export documentation. *If order is received electronically, price is then reduced to $9.75/order. Expedite Fees (same day shipment): Expedites received before 2:00pm: $3.00/unit expedited Expedites received after 2:00pm: $10.00/unit expedited Stream will allow MetaTools 10 (ten) "free" cancellations per month, after which case a cancellation fee of $10.00 per canceled order will be charged. Thus cancellation charges are as follows: 0 - 10 cancellations per month: $0.00 (no charge) 11+ cancellations per month: $10.00 per canceled order All distribution charges to be invoiced on a monthly basis, based upon activity. 5. Procured Parts (supplier Specified) ----------------------------------- If MetaTools wishes to specify a supplier for any portion of the product kit, Stream will purchase from that supplier and add a 15% mark-up. 6 6. Re-Work Pricing --------------- In the event MetaTools wishes to re-work current product held in inventory, --------------------------------- the following prices may apply. These prices are based upon the two scenarios listed below. If re-work specifications differ from the specifications listed below, pricing will be negotiated upon complete understanding of the nature of the re-work. Specifications are as follows: Re-Work Label: -------------- Product currently in inventory Set up assembly line Remove shrinkwrap Affix label on top of label to be replaced, or in alternate location as specified Shrinkwrap product Price: $0.35/unit Re-Work to form Alternate Product (Based on scrapping all excess materials) -------------------------------------------------------------------------- Product currently in inventory Set up assembly line Remove shrinkwrap Remove contents in packaging (based upon contents listed in "Standard Assembly Pricing Matrix") Insert contents into different packaging Shrinkwrap product Re-work retail product to form "Zip" product: Price: $0.60/unit Re-work "Zip" product to form retail product: Price: $0.50/unit 7. RMA's ---- Bulk Returned Material: All returned material will be assessed a charge of $75.00 per order. End User Returns: All end user returns will be based upon the following: . Confirm receipt of product . Monthly review and sortation . Detailed report of product status . All returns shipped directly into the Stream Fremont, CA division at: 44250 Osgood Road, Bldg. 3 Fremont, CA 94539 Cost: $1.25/unit 8. Physical Inventory ------------------ One (1) physical inventory will be included in the project management fees per year at the finished good level. 7 9. Other Pricing ------------- Pricing for other services including but not limited to Telemarketing (inbound/outbound). Registration, Technical Support, RMA service and Software Exchange (OEM direct) is available upon request. 10. Terms of Payment ---------------- Net cash 30 days from date of invoice. FILM, DIGITAL FILES, AND PLATES - ------------------------------- All platemaking film made by us will be used solely for your work and becomes your property upon payment of invoices. All film or electronic files furnished by you will be used solely for your work and will remain your property. All plates made by us will be used solely for your work but will remain our property. All electronic imposition files we make from your furnished digital files, all type fonts used for the production of your work, any storage devices, disks, etc. we use to archive your files and any proprietary software, systems or technology we use to process your files will remain our property. MEDIA REPLICATION - ----------------- For work involving diskette replication, you will furnish original and identical master diskettes or electronic files for each diskette title to our specifications. Diskette masters and copies made from the masters or files will be used solely for your work. Upon your request the master will be returned to you, and the copies destroyed. For work involving CD-ROM replication, all input files, CD-R's or compact discs furnished by you will be used solely for your work and remain your property. All tooling, including masters, stampers or any other tooling made by us will be used solely for your work but will remain our property. TERMS OF PAYMENT, INTEREST, COLLECTION COSTS, AND BILLING DISPUTES - ------------------------------------------------------------------ The Terms of Payment statement immediately follows the prices. Should any invoice issued hereunder become past due, you agree to pay interest at the rate of one and one-half percent (1 1/2%) per month, or the lawful limit if less, on all amounts past due as well as all the costs of collection, if any, including, but not limited to, reasonable attorney's fees. Interest will be calculated from the invoice due date to the date payment is received. Failure to bill for interest due will not constitute a waiver of our right to charge interest. Should any portion of an invoice be disputed, you agree to pay the undisputed portion according to its terms and you will notify us promptly of the dispute. Both parties agree to use their best efforts to resolve the disputed portion of the invoice within thirty (30) days of learning of the dispute. EXPORT REQUIREMENTS - ------------------- MetaTools represents to Stream that all MetaTools shipping instructions to Stream will comply with all applicable export laws, rules, and regulations. MetaTools agrees to indemnify Stream against any claims that MetaTools shipping instructions violate applicable export requirements. BANKRUPTCY - ---------- If either party shall be adjudicated a bankrupt, institute voluntary proceedings for bankruptcy or reorganization, make an assignment for the benefit of its creditors, apply for or consent to the appointment of a receiver for it or its property, or admit in writing its inability to pay its debts as 8 they become due, the other party may terminate this Agreement by written notice. Any such termination will not relieve either party from any accrued obligations hereunder. GUARANTEE AND LIMITATION OF LIABILITY - ------------------------------------- We will perform the work in a good workmanlike manner and in accordance with the specifications and production schedule. In the event the work is defective or delayed due to our fault (including negligence), we will not be liable for special or consequential damages, including, but not limited to, lost profits or business. RESPONSIBILITY FOR SUBJECT MATTER - --------------------------------- In furnishing us matter to reproduce, or distribute, or to have incorporated in the completed product, you represent and warrant that none of such matter infringes any copyright (either as furnished to us by you or as altered by us at your direction), or patent, is libelous, or otherwise violates the rights of or will cause damage or injury to other persons, and you agree to indemnify and save us harmless from all losses, damages and expenses, including attorneys' fees, which we may suffer as the result of any claim of such violation, damage, or injury. WORK STOPPAGES - -------------- We will not be liable for delays or non-performance of this Agreement occasioned by strikes, fires, accidents, or by causes beyond our control including, but not limited to, the inability to obtain necessary materials or utilities. In the event of a stoppage or delay resulting from any such cause, we will perform such parts of the work as we are capable of performing, and in the event you place any other part of the work elsewhere, we will be entitled to resume the same as promptly as practicable. ASSIGNMENT - ---------- Neither party to this Agreement will assign any right(s) hereunder without the prior written consent of the other party, except that we may assign payments due us to any affiliated company without consent. Subject to this consent, this Agreement will inure to the benefit of and will bind the successors and assigns of the parties hereto. INSURANCE - --------- We will carry at our expense fire, sprinkler leakage and extended coverage insurance, subject to the usual exclusions, limitations, and conditions of such policies on the actual cash value of all our materials, work in process, and all production completed and not shipped, and on the actual cash value of all positives, copy, artwork, paper and other materials furnished by you while in our care, custody and control. If your property is damaged as a result of an insured peril under the applicable insurance policy, then, at our option, we will either replace your damaged property or reimburse you for the actual cash value of the damaged property. If we elect to reimburse you for the damaged propertys actual cash value, the amount payable to you shall be limited to the proceeds of such policy plus any related deductible, if any, applied to the claim for damage to your property. For positives and other media our insurance coverage and our liability shall be limited to the cost of blank film or other media and the cost of duplication from an original or other copy. 9 PASSING OF TITLE - ---------------- Title and possession will pass to you upon delivery or upon date of final invoicing, whichever is earlier, f.o.b. our final plant of manufacture. GOVERNING LAW - ------------- The Agreement will be governed by the laws of the State of California If this proposal meets with your approval, kindly sign below. Your signature below means all the terms and conditions at the bottom of this page and on the attached pages are incorporated herein and made a part of this Agreement. Following your approval and upon confirmation by an officer of Stream International Inc., the approved proposal will then constitute a contract between us. APPROVED: Respectfully submitted, MetaTools, Inc. Stream International Inc. By /s/Terance A. Kinninger By /s/Damon Mintzer ----------------------- -------------------- Authorized Officer Damon Mintzer, Director Business Development Date April 18, 1996 -------------- 10 EX-11.1 3 COMPUTATION OF NET INCOME (LOSS) PER SHARE METATOOLS, INC. EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------- 1996 1995 1996 1995 ----------------------- ------------------------- PRIMARY AND FULLY DILUTED (1) Weighted average shares outstanding for the period.................................. 11,783,000 3,166,000 11,667,000 3,147,000 Common equivalent shares, including items pursuant to Staff Accounting Bulletin No. 83............................. 1,331,000 2,477,000 1,373,000 2,477,000 ----------------------- ------------------------- Shares used in per share calculation......... 13,114,000 5,643,000 13,040,000 5,624,000 ======================= ========================= Net income before dividends and amortization................................ $ 1,002,000 $ (436,000) $ 1,726,000 $ (866,000) Preferred stock dividend requirements and amortization of issuance costs.......... - (72,000) - (144,000) ----------------------- ------------------------- Net income (loss) available for common stockholders................................ $ 1,002,000 $ (508,000) $ 1,726,000 $(1,010,000) ======================= ========================= Net income (loss) per common share........... $ .08 $ (.09) $ .13 $ (.18) ======================= =========================
(1) Primary and fully diluted calculations are substantially the same. EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the accompanying financial statements and is qualified in its entirety by reference to such financial statements. 3-MOS 6-MOS DEC-31-1995 DEC-31-1995 APR-01-1996 JAN-01-1996 JUN-30-1996 JUN-30-1996 14,296,000 14,296,000 31,540,000 31,540,000 6,135,000 6,135,000 0 0 437,000 437,000 53,742,000 53,742,000 2,494,000 2,494,000 703,000 703,000 56,162,000 56,162,000 3,676,000 3,676,000 0 0 0 0 0 0 12,000 12,000 52,474,000 52,474,000 56,162,000 56,162,000 6,371,000 11,874,000 6,371,000 11,874,000 1,117,000 2,220,000 1,117,000 2,220,000 4,404,000 8,369,000 0 0 0 0 1,429,000 2,478,000 427,000 752,000 1,002,000 1,726,000 0 0 0 0 0 0 1,002,000 1,726,000 .08 .13 .08 .13
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