SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended: May 31, 1998 ------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From To ---- ---- Commission File Number: 0-14779 ------- MEDIA 100 INC. ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 04-2532613 - ---------------------------------- --------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification Number) of organization or incorporation) 290 DONALD LYNCH BOULEVARD MARLBOROUGH, MASSACHUSETTS --------------------------------------------------------------------- (Address of principal executive offices) 01752-4748 --------------------------------------------------------------------- (Zip code) (508) 460-1600 --------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $.01 per share 8,274,115 shares - -------------------------------------- --------------------------------- Class Outstanding at June 30, 1998 MEDIA 100 INC. AND SUBSIDIARIES INDEX ------- PAGE PART I - FINANCIAL INFORMATION NUMBER ------ ITEM 1 Consolidated Financial Statements: Consolidated Balance Sheets as of May 31, 1998 and November 30, 1997 3 Consolidated Statements of Operations for the three and six months ended May 31, 1998 and May 31, 1997 4 Consolidated Statements of Cash Flows for the six months ended May 31, 1998 and May 31, 1997 5 Notes to Consolidated Financial Statements 6 - 8 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 11 PART II - OTHER INFORMATION ITEM 1 Legal Proceedings 12 ITEM 4 Submission of Matters to a Vote of Security Holders 12 ITEM 6 Exhibits and Reports on Form 8-K 12 SIGNATURES 13 EXHIBIT INDEX 14 2 PART I - FINANCIAL INFORMATION MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS May 31, November 30, 1998 1997 (in thousands) -------------- --------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 2,984 $ 4,042 Marketable securities 30,918 28,892 Accounts receivable, net of reserves of $397 in 1998 and $411 in 1997 5,847 7,689 Inventories 661 696 Prepaid expenses 655 743 -------------- ---------------- Total current assets 41,065 42,062 Property and equipment, net 8,694 8,104 Other assets, net 593 593 -------------- ---------------- Total assets $ 50,352 $ 50,759 -------------- ---------------- -------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,659 $ 1,953 Accrued expenses 9,334 6,958 Deferred revenue 5,265 4,005 -------------- ---------------- Total current liabilities 16,258 12,916 Commitments and contingencies (Note 6) - - Stockholders' equity: Preferred stock - - Common stock 83 82 Capital in excess of par value 40,744 40,477 Retained deficit (6,649) (2,547) Cumulative translation adjustment (128) (87) Unrealized holding gain (loss) on available for sale securities, net 44 (82) -------------- ---------------- Total stockholders' equity 34,094 37,843 -------------- ---------------- Total liabilities and stockholders' equity $ 50,352 $ 50,759 -------------- ---------------- -------------- ---------------- The accompanying notes are an integral part of these consolidated financial statements. 3 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended May 31, Six Months Ended May 31, (in thousands, except per share data) 1998 1997 1998 1997 ---------- -------------- -------------- -------------- Net sales $ 9,637 $ 12,102 $ 20,158 $ 23,626 Cost of sales 3,759 4,730 7,852 9,091 ---------- --------------- --------------- -------------- Gross profit 5,878 7,372 12,306 14,535 ---------- --------------- --------------- -------------- Operating expenses: Research and development 4,774 2,161 7,765 4,156 Selling and marketing 3,740 4,134 7,402 8,363 General and administrative 968 1,014 1,966 1,947 ---------- --------------- --------------- -------------- Total operating expenses 9,482 7,309 17,133 14,466 ---------- -------------- --------------- -------------- Income (loss) from (3,604) 63 (4,827) 69 operations Interest income 416 432 841 894 Other expense, net (162) (76) (104) (324) ---------- --------------- --------------- -------------- Income (loss) before tax provision (3,350) 419 (4,090) 639 Tax provision 0 83 12 138 ---------- --------------- --------------- -------------- Net income (loss) $ (3,350) $ 336 $ (4,102) $ 501 ---------- --------------- --------------- -------------- ---------- --------------- --------------- -------------- Earnings (loss) per share: Basic $ (.41) $ $ (.50) $ 0.06 0.04 ---------- --------------- --------------- -------------- ---------- --------------- --------------- -------------- Diluted $ (.41) $ 0.04 $ (.50) $ 0.06 ---------- --------------- --------------- -------------- ---------- --------------- --------------- -------------- Weighted average common shares outstanding Basic 8,258 8,127 8,245 8,119 ---------- --------------- --------------- -------------- ---------- --------------- --------------- -------------- Diluted 8,258 8,209 8,245 8,246 ---------- --------------- --------------- -------------- ---------- --------------- --------------- -------------- The accompanying notes are an integral part of these consolidated financial statements. 4 MEDIA 100 INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended May 31, (in thousands) 1998 1997 --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,102) $ 501 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 1,333 681 (Gain) loss on sale of marketable securities (11) 2 Changes in assets and liabilities Accounts receivable 1,842 3,417 Inventories 35 735 Prepaid expenses 88 (6) Accounts payable (294) (1,305) Accrued expenses 2,376 (80) Deferred revenue 1,260 1,026 --------------- ---------------- Net cash provided by operating activities $ 2,527 $ 4,971 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (1,923) (4,774) Increase in other assets - 24 Purchases of marketable securities (60,319) (20,583) Proceeds from sales of marketable securities 58,430 20,043 --------------- ---------------- Net cash used in investing activities $ (3,812) $ (5,290) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock plans 268 233 --------------- ---------------- Net cash provided by financing activities $ 268 $ 233 --------------- --------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (41) (45) --------------- ---------------- NET DECREASE IN CASH AND CASH EQUIVALENTS $ (1,058) $ (131) CASH AND CASH EQUIVALENTS, beginning of period 4,042 2,733 --------------- ---------------- CASH AND CASH EQUIVALENTS, end of period $ 2,984 $ 2,602 --------------- ---------------- --------------- ---------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 62 $ 90 --------------- ---------------- --------------- ---------------- OTHER TRANSACTIONS NOT PROVIDING (USING) CASH: Acquisition of equipment under capital lease obligations $ - $ (221) --------------- ---------------- --------------- ---------------- Increase in value of marketable securities $ 126 $ 172 --------------- ---------------- --------------- ---------------- The accompanying notes are an integral part of these consolidated financial statements. 5 MEDIA 100 INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1997 AMOUNTS) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of Media 100 Inc. ("the Company") and its wholly-owned subsidiaries. The interim financial statements are unaudited. However, in the opinion of management, the consolidated financial statements and disclosures reflect all adjustments necessary for fair presentation. Interim results are not necessarily indicative of results expected for a full year or for any other interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest audited financial statements, which are incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997, filed with the Securities and Exchange Commission. The Company's preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Cash Equivalents and Marketable Securities Cash equivalents are carried at cost, which approximates market value, and have original maturities of less than three months. Cash equivalents include money market accounts. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under this standard, the Company is required to classify all investments in debt and equity securities into one or more of the following three categories: held-to-maturity, available-for-sale or trading. Available-for-sale securities are recorded at fair market value with unrealized gains and losses excluded from earnings and reported to stockholders' equity. All of the Company's marketable securities are classified as available-for-sale. Marketable securities held as of May 31, 1998, consist of the following (in thousands): Investments available for sale: Maturity Market Value -------- ------------ U.S. Treasury Notes less than 1 year $ 1,013 U.S. Treasury Notes 1 - 5 years 6,624 ---------------- Total U.S. Treasury Notes 7,637 Municipal Bonds less than 1 year 3,337 Municipal Bonds 1 - 3 years 1,563 ---------------- Total Municipal Bonds 4,900 U.S. Agency Bonds less than 1 year 2,031 U.S. Agency Bonds more than 1 year 4,556 ---------------- Total U.S. Agency Bonds 6,587 Money Market Instruments none 6,543 6 2. Cash Equivalents and Marketable Securities (continued) Investments available for sale: Maturity Market Value ---------------- --------------------- Corporate Obligations less than 1 year 1,388 Corporate Obligations 1 - 3 years 3,863 ------------------ Total Corporate Obligations 5,251 ------------------ Total investments available for sale $ 30,918 ------------------ ------------------ Marketable securities had a cost of $30,874 and $28,974 at May 31, 1998 and November 30, 1997, respectively, and a market value of $30,918 and $28,892, respectively. To adjust the carrying amount of the May 31, 1998 and November 30, 1997 marketable securities portfolio to market value, a valuation allowance has been reflected as a separate component of stockholders' equity pursuant to the provisions of SFAS No. 115. 3. Inventories Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following (in thousands): May 31, November 30, 1998 1997 -------------- ---------------- Raw materials $ 364 $ 305 Work-in-process 195 252 Finished goods 102 139 -------------- ---------------- $ 661 $ 696 -------------- ---------------- -------------- ---------------- Work-in-process and finished goods inventories include material, labor and manufacturing overhead. Management performs periodic reviews of inventory and disposes of items not required by their manufacturing plan. 4. Property and equipment, net Property and equipment, net is stated at cost, less accumulated depreciation and amortization, and consists of the following (in thousands): May 31, November 30, 1998 1997 ---------------- ----------------- Machinery and equipment $ 10,994 $ 10,428 Furniture and fixtures 1,307 1,288 Vehicles 11 12 --------------- ----------------- $ 12,312 $ 11,728 Less accumulated depreciation and amortization 3,618 3,624 --------------- ----------------- $ 8,694 $ 8,104 --------------- ----------------- --------------- ----------------- 5. Net Income (Loss) Per Common Share 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 increases 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 stockholders 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. 7 6. Contingencies (i) On June 7, 1995, a lawsuit was filed against the Company by Avid Technology, Inc. ("Avid"), in the United States District Court for the District of Massachusetts. The complaint generally alleges patent infringement by the Company arising from the manufacture, sale, and use of the Company's Media 100 products. The complaint includes requests for injunctive relief, treble damages, interest, costs and fees. In July, 1995 the Company filed an Answer and Counterclaim denying any infringement and asserting that the Avid patent in question is invalid. The Company intends to vigorously defend the lawsuit. In addition, Avid is seeking reissue of the patent, including claims that it asserts are broader than in the existing patent, and these reissue proceedings remain pending before the U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed the lawsuit without prejudice to either party moving to restore it to the docket upon completion of all matters pending before the U.S. Patent and Trademark Office. There can be no assurance that the Company will prevail in the lawsuit asserted by Avid or that the expense or other effects of the lawsuit, whether or not the Company prevails, will not have a material adverse effect on the Company's business, operating results and financial condition. (ii) From time to time the Company is involved in other disputes and/or litigation encountered in its normal course of business. The Company does not believe that the ultimate impact of the resolution of such other outstanding matters will have a material effect on the Company's business, operating results or financial condition. 7. Capitalized Software Development Costs The Company capitalizes certain computer software development costs. Capitalization of costs commences upon establishing technological feasibility. Capitalized costs, net of accumulated amortization, were approximately $89,000 as of May 31, 1998 and November 30, 1997, and are included in other assets. These costs are amortized on a straight-line basis over two years, which approximates the economic life of the product. Amortization expense, included in cost of sales in the accompanying consolidated statements of operations, was approximately $30,000 and $80,000 for the six months ended May 31, 1998 and twelve months ended November 30, 1997, respectively. 8. Income Taxes Due to the net loss for the three and six months ended May 31, 1998 and the Company's current expectation that it will not be profitable for the full year ended November 30, 1998, the Company anticipates its tax liabilities for fiscal 1998 will not be significant. 9. Accrued Expenses Accrued expenses at May 31, 1998 and November 30, 1997 consist of the following (in thousands): May 31, November 30, 1998 1997 ------- ------------ Accrued commissions $ 203 $ 213 Payroll and related taxes 2,136 1,552 Accrued marketing, legal and other expense 6,491 4,689 Accrued taxes 504 504 ------- ------------ $ 9,334 $ 6,958 ------- ------------ ------- ------------ 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements based on current expectations, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those expressed in such forward-looking statements. The risks and uncertainties associated with such statements have been described under the heading "Certain Factors That May Affect Future Results" in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997. Media 100 Inc. is a technology and market leader in the market for personal computer-based digital video systems. The Media 100 family of products are analog and digital conversion systems that enable users to capture video and audio into a personal computer, perform random-access ("nonlinear") video editing and audio mixing, and directly produce a finished program with broadcast-quality picture and compact disc-quality sound, all without the use of traditional video tape equipment. Results of Operations The following table shows certain consolidated statements of operations data as a percentage of net sales. Three Months Ended May 31, Six Months Ended May 31, 1998 1997 1998 1997 -------------- ----------- ----------- ------------ Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 39.0 39.1 38.9 38.5 -------------- ----------- ----------- ------------ Gross profit 61.0 60.9 61.1 61.5 Operating expenses: Research and development 49.5 17.9 38.5 17.6 Selling and marketing 38.8 34.1 36.7 35.4 General and administrative 10.1 8.4 9.8 8.2 -------------- ----------- ----------- ------------ Total operating expenses 98.4 60.4 85.0 61.2 Income (loss) from operations (37.4) .5 (23.9) .3 Interest income and other, net 2.6 3.0 3.6 2.4 -------------- ----------- ----------- ------------ Income (loss) before tax provision (34.8) 3.5 (20.3) 2.7 Tax provision - .7 - .6 -------------- ----------- ----------- ------------ Net income (loss) (34.8) % 2.8 % (20.3) % 2.1 % -------------- ----------- ----------- ------------ -------------- ----------- ----------- ------------ Comparison of Second Fiscal Quarter of 1998 to Second Fiscal Quarter of 1997 Net sales for the fiscal quarter ended May 31, 1998 were $9,637,000, a decrease of $2,465,000, or 20.4%, from the same period a year ago. Net sales decreased for the quarter ended May 31, 1998 primarily due to a decrease in overall units sold and lower average selling prices for the Company's Media 100 products. The Company's product line includes hardware and software products priced from $1,995 to $19,995, hardware and software upgrades for these products and technical support services for all of the Company's products. The decline in net sales and lower average selling prices was partially offset by higher net sales of hardware and software upgrades and technical support services. Gross profit for the fiscal quarter ended May 31, 1998 was 61.0%, compared to 60.9% in the comparable quarter a year ago. Reductions in the cost of key component parts used in the manufacture of the Media 100 hardware offset the lower average selling prices allowing the Company's gross profit to remain consistent with the year ago level. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Second Fiscal Quarter of 1998 to Second Fiscal Quarter of 1997 (continued) The Company sustained an operating loss for the second fiscal quarter of 1998 of $3,604,000 compared to income from operations of $63,000 for the same period a year ago. Operating income was lower in the quarter ended May 31, 1998 due to lower net sales and higher operating expenses. Operating expenses for the second fiscal quarter of 1998 were $9,482,000, an increase of $2,173,000, or 29.7%, from the same period a year ago. In the first quarter of fiscal 1998, the Company announced its intentions 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. Research and development expenses for the second quarter of fiscal 1998 were $4,774,000, an increase of $ 2,613,000, or 120.9%, from the same period a year ago. Selling and marketing expenses for the second fiscal quarter of 1998 were $3,740,000, a decrease of $394,000, or 9.5%, from the same period a year ago. The Company expects that selling and marketing expenses will increase from their current levels in connection with introduction of new products based on the Windows NT platform; the Company expects to begin such shipments in the latter half of fiscal 1998. General and administrative expenses for the second fiscal quarter of 1998 were $968,000, a decrease of $46,000, or 4.5%, from the same period a year ago. Interest income for the fiscal quarter ended May 31, 1998 was $416,000, or 4.3% of net sales, compared to $432,000, or 3.6% of net sales, in the comparable quarter a year ago. Other expense, net of other income, for the second fiscal quarter of 1998 was $162,000 an increase of $86,000 over the same period a year ago, reflecting the impact of foreign currency translations arising out of the Company's subsidiaries. The Company currently estimates its tax liabilities for the full year of 1998 will not be material due to an anticipated loss for fiscal 1998 and therefore the Company has not provided for income taxes. This compares to a tax provision of $83,000 for the fiscal quarter ended May 31, 1997. The net loss for the second fiscal quarter ended May 31, 1998 was $ 3,350,000 or $0.41 per share, compared to net income of $336,000, or $0.04 per share, for the same period a year ago. Comparison of First Six Months of 1998 to the First Six Months of 1997 Net sales for the first six months of 1998 were $20,158,000, a decrease of $3,468,000, or 14.7%, from the same period a year ago. The decrease in net sales for the six months ended May 31, 1998 is primarily attributable to lower unit sales and lower average selling prices for the Company's Media 100 products. The Company's product line includes hardware and software products priced from $1,995 to $19,995, hardware and software upgrades for these products and technical support services for all of the Company's products. The decline in net sales and lower average selling prices was partially offset by higher net sales of hardware and software upgrades and technical support services. Gross margin for the first six months of 1998 was 61.1%, compared to 61.5% in the comparable period a year ago. This decrease in gross profit was primarily the result of lower average selling prices partially offset by reductions in the cost of key component parts used in the manufacture of the Media 100 hardware. The Company sustained an operating loss for the first six months of 1998 of $4,827,000 compared to income from operations of $69,000 for the same period a year ago. Operating income was lower for the six month period ended May 31, 1998 due to a decrease in sales and an expected increase in operating expenses. Operating expenses for the first six months of 1998 were $17,133,000, an increase of $2,667,000, or 18.4%, from the same period a year ago. In the first quarter of fiscal 1998, the Company announced its intentions 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. Research and development expenses for the first six months of fiscal 1998 were $7,765000, an increase of $ 3,609,000, or 86.8%, from the same period a year ago. Selling and marketing expenses for the first six months of fiscal 1998 were $7,402,000, a decrease of $961,000, or 11.5%, from the same period a year 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of First Six Months of 1998 to the First Six Months of 1997 (continued) ago. The decrease in selling and marketing expenses reflects primarily reductions in headcount and advertising expenses related to the Company's existing products. However, the Company expects that selling and marketing expenses will increase from their current levels in connection with introduction of new products based on the Windows NT platform; the Company expects to begin such shipments in the latter half of fiscal 1998. General and administrative expenses for the first six months of fiscal 1998 were $1,966,000, an increase of $19,000, or .1%, from the same period a year ago. Interest income for the first six months of 1998 was $841,000, or 4.2% of net sales, compared to $894,000, or 3.8% of net sales, in the comparable period a year ago. Other expense, net of other income, for the six month period ended May 31, 1998 was $104,000, a decrease of $220,00 over the same period a year ago, reflecting the impact of foreign currency translations arising out of the Company's subsidiaries. The Company currently estimates its tax liabilities for the full year of 1998 will not be material due to an anticipated loss for fiscal 1998 and therefore a $12,000 tax provision has been established. This compares to a tax provision of $138,000 for the first six months of fiscal 1997. The net loss for the six month period ended May 31, 1998 was $4,102,000 or $0.50 per share, compared to net income of $501,000, or $0.06 per share, for the same period a year ago. Liquidity and Capital Resources The Company has funded its operations to date primarily from public offerings of equity securities and cash flows from operations. As of May 31, 1998 the Company's principal sources of liquidity included cash and cash equivalents and marketable securities totaling approximately $33,902,000. In the first six months of 1998, cash provided by operating activities was approximately $2,527,000 compared to approximately $4,971,000 for the same period a year ago. Cash was generated during the six months ended May 31, 1998 from an increase in accrued expenses of $2,376,000 and deferred revenue of $1,260,000 and a reduction in accounts receivable of $1,842,000. This increase in cash was partially offset by a reduction in accounts payable of $294,000. Net cash used in investing activities was approximately $3,812,000 during the first six months of 1998 compared to approximately $5,290,000 for the same period a year ago. Cash used in investing activities during the six month period ended May 31, 1998 was primarily for purchases of equipment of approximately $1,923,000 and net purchases of marketable securities of approximately $1,889,000. Cash provided by financing activities during the first six months of 1998 was approximately $268,000 compared to $233,000 for the same period a year ago. All of the cash provided by financing activities in the first six months of 1998 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. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings i) On June 7, 1995, a lawsuit was filed against the Company by Avid Technology, Inc. ("Avid"), in the United States District Court for the District of Massachusetts. The complaint generally alleges patent infringement by the Company arising from the manufacture, sale, and use of the Company's Media 100 product. The complaint includes requests for injunctive relief, treble damages, interest, costs and fees. In July, 1995 the Company filed an Answer and Counterclaim denying any infringement and asserting that the Avid patent in question is invalid. The Company intends to vigorously defend the lawsuit. In addition, Avid is seeking reissue of the patent, including claims that it asserts are broader than in the existing patent, and these reissue proceedings remain pending before the U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed the lawsuit without prejudice to either party moving to restore it to the docket upon completion of all matters pending before the U.S. Patent and Trademark Office. There can be no assurance that the Company will prevail in the lawsuit asserted by Avid or that the expense or other effects of the lawsuit, whether or not the Company prevails, will not have a material adverse effect on the Company's business, operating results and financial condition. Item 4. Submission of Matters to a Vote of Security Holders The Company held an annual meeting of stockholders on April 15, 1998, at which the stockholders approved the following proposals by the number of shares of Common Stock voted as noted below: Proposal (1) Election of Directors Number of Shares ---------------- Voted For Withheld --------- -------- John A. Molinari 7,107,324 201,846 Roger Redmond 7,119,824 189,346 Maurice L. Castonguay 7,119,274 189,896 Bruce I. Sachs 7,118,774 190,396 Paul J. Severino 7,118,290 190,880 (2) Number of Shares Voted For Voted Against Abstained --------- ---------------- --------- Increase by 200,000 the number of shares of the Company's common stock, $.01 par value per share available for issuance under the 1986 Employee Stock Purchase Plan for a total of 800,000 shares available under such plan: 7,028,030 268,666 12,474 Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibits required as part of this Quarterly Report on Form 10-Q are listed in the exhibit index on page 14. b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Media 100 Inc. Date: July 14, 1998 By: /s/ Steven D. Shea -------------------------- Steven D. Shea Corporate Controller (Principal Financial Officer and Principal Accounting Officer) 13 EXHIBIT INDEX Number Description ------ ----------- 3.2 By-laws of Media 100, Inc., as amended 27 Financial Data Schedule 14