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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/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.
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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
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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 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 February 27, 1998.
MEDIA 100 INC.
BY: /S/ JOHN A. MOLINARI
-----------------------------------------
John A. Molinari
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of Media 100 Inc., a Delaware corporation (the "Company"), hereby
constitutes and appoints John A. Molinari and Steven D. Shea, and each of them,
with full power to act without the other, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities (until revoked in writing)
to sign the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1997, and any and all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, thereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief
/s/ JOHN A. MOLINARI Executive Officer and
- ------------------------------ Director (Principal February 27, 1998
John A. Molinari Executive Officer)
Corporate Controller and
/s/ STEVEN D. SHEA Chief Accounting Officer
- ------------------------------ (Principal Financial February 27, 1998
Steven D. Shea Officer and Principal
Accounting Officer)
/s/ MAURICE L. CASTONGUAY Director
- ------------------------------ February 27, 1998
Maurice L. Castonguay
/s/ ROGER W. REDMOND Director
- ------------------------------ February 27, 1998
Roger W. Redmond
/s/ BRUCE I. SACHS Director
- ------------------------------ February 27, 1998
Bruce I. Sachs
/s/ PAUL J. SEVERINO Director
- ------------------------------ February 27, 1998
Paul J. Severino
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 $ 15,814 $ (4,516) $ 46,660
------------ --------- ------------ ------------
Income (loss) from continuing operations.................... $ 502 $ (20) $ 135 $ 617
Identifiable assets of continuing operations................ $ 49,529 $ 5,287 $ (4,561) $ 50,255
------------ --------- ------------ ------------
------------ --------- ------------ ------------
- ------------------------
(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
Deferred tax assets............................................................................ 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
- --------------- -------------------------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Media 100 Inc. (filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
3.2 By-laws of Media 100 Inc. as amended through January 19, 1998; filed herewith.
10.1* Key Employee Incentive Plan (1982), as amended through November 15, 1996 (filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.2* 1986 Employee Stock Purchase Plan, as amended through November 15, 1996 (filed as Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.3* Key Employee Incentive Plan (1992), as amended through January 19, 1998; filed herewith.
10.4* Media 100 Inc. 401(k) Savings Plan; filed herewith.
10.5.1 Lease dated January 31, 1997 relating to 290 Donald Lynch Boulevard, Marlboro, MA (filed as
Exhibit 10.5.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1996).
10.5.2 License Agreement dated as of January 31, 1997 relating to 290 Donald Lynch Boulevard, Marlboro,
MA (filed as Exhibit 10.5.2 to the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1996).
10.6.1 Distribution Agreement dated as of November 19, 1996 with Data Translation II, Inc. (DTI) (filed
as Exhibit 10.8.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November
30, 1996).
10.6.2 Intellectual Property Agreement dated as of December 2, 1996 with DTI (filed as Exhibit 10.8.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.6.3 Corporate Services Agreement dated as of December 2, 1996 with DTI (filed as Exhibit 10.8.3 to
the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996).
10.6.4 Amendment to Corporate Services Agreement dated November 18, 1997; filed herewith.
21 Subsidiaries of Media 100 Inc.
23 Consent of Arthur Andersen LLP.
24 Power of Attorney (included in the signature page of this Annual Report on Form 10-K).
27 Financial Data Schedule.
- ------------------------
* Identifies a management contract or compensatory plan or arrangement in
which an executive officer or director of the Company participates.
X-1