**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q/A**

**Amendment No. 1**

 

**(Mark One)**

 
| **ý**                                                                                                       |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                                                             |   |                                                                                          |
| **For The Quarterly Period Ended: August 31, 2001**                                                         |
|                                                                                                             |   |                                                                                          |
| **o**                                                                                                            |   | **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 registrantas specified in its charter)

 

| **DELAWARE**                                  |   | **04-2532613**                           |
|-----------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of organization |   | (I.R.S. Employer  Identification Number) |
| or incorporation)                             |   |                                     |

 

**290 DONALD LYNCH BOULEVARD**

**MARLBOROUGH, MASSACHUSETTS**

(Address of principalexecutive offices)

 

**01752-4748**

(Zip code)

 

**(508)460-1600**

(Registrant’s telephonenumber, including area code)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes   ý   No  o

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 

| **Common  Stock, par value $.01 per share** |   | **12,545,325  shares**             |
|---------------------------------------------|--------|------------------------------------|
| Class                                       |   | Outstanding at  September 30, 2001 |

 

 

 

 

MEDIA 100 INC.

 

 

INDEX

 

 
|                            |                                                                                                                          |   |
|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------|--------|
| PART I - FINANCIAL  INFORMATION |                                                                                                                          |
| ITEM 1                          | Consolidated Financial Statements (as restated):                                                                              |   |
|                            | Consolidated Balance Sheets  as of August 31, 2001 and November 30, 2000                                                      |   |
|                            |                                                                                                                          |   |
|                            | Consolidated  Statements of Operations for the three and nine months ended August 31, 2001  (as restated) and August 31, 2000 |   |
|                            |                                                                                                                          |   |
|                            | Consolidated  Statements of Cash Flows for the nine months ended August 31, 2001 (as  restated) and August 31, 2000           |   |
|                            |                                                                                                                          |   |
|                            | Notes to  Consolidated Financial Statements (as restated)                                                                     |   |
|                            |                                                                                                                          |   |
| ITEM 2                          | Management’s Discussion and Analysis of Financial  Condition and Results of Operations (as restated)                     |   |
|                            |                                                                                                                          |   |
| ITEM  3                         | Quantitative  and Qualitative Disclosures about Market Risk                                                                   |   |
|                            |                                                                                                                          |   |
| PART II - OTHER INFORMATION     |                                                                                                                          |
| ITEM  1                         | Legal Proceedings                                                                                                             |   |
|                            |                                                                                                                          |   |
| ITEM  5                         | Other Information                                                                                                             |   |
|                            |                                                                                                                          |   |
| ITEM 6                          | Exhibits and  Reports on Form 8-K                                                                                             |   |
|                            |                                                                                                                          |   |
| SIGNATURES                      |                                                                                                                          |
|                            |                                                                                                                          |   |
| EXHIBIT INDEX                   |                                                                                                                          |

 

 

 

EXPLANATORY NOTE

 

This amendmentNo.1 on Form 10-Q/A to the Registrant’s Quarterly Report on Form 10-Q for theperiod ended August 31, 2001 is being made to amend Items 1 and 2 of Part I,Item 5 of Part II and the Exhibit Index. No other information included in the original report on Form 10-Q isamended by this Form 10Q/A.

 

PART I - FINANCIAL INFORMATION

 

MEDIA 100 INC.

CONSOLIDATEDBALANCE SHEETS

(in thousands)

(unaudited)

 

 
|                                                                                          |   | **August 31,  2001** |   | **November 30,  2000** |   |
|-----------------------------------------------------------------------------------------------|--------|----------------------|--------|------------------------|--------|
| ASSETS                                                                                        |   |                 |   |                   |   |
| Current assets:                                                                               |   |                 |   |                   |   |
| Cash and cash equivalents                                                                     |   | $                    | 6,438  |                   | $      | 11,987 |   |
| Marketable securities                                                                         |   | 245                  |   | 5,674                  |   |
| Accounts receivable, net of allowance for doubtful accounts of  $629 in 2001 and $411 in 2000 |   | 3,775                |   | 6,321                  |   |
| Inventories                                                                                   |   | 1,649                |   | 3,789                  |   |
| Prepaid expenses and other current assets                                                     |   | 830                  |   | 1,180                  |   |
| Net assets from discontinued operations (Note 16)                                             |   | 3,888                |   | 5,582                  |   |
| Total current assets                                                                          |   | 16,825               |   | 34,533                 |   |
|                                                                                          |   |                 |   |                   |   |
| Property and equipment, net                                                                   |   | 4,433                |   | 5,616                  |   |
| Intangible assets, net                                                                        |   | 2,464                |   | 4,908                  |   |
| Other assets, net                                                                             |   | 1,131                |   | 1,245                  |   |
| Total assets                                                                                  |   | $                    | 24,853 |                   | $      | 46,302 |   |
|                                                                                          |   |                 |   |                   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                     |   |                 |   |                   |   |
| Current liabilities:                                                                          |   |                 |   |                   |   |
| Accounts payable                                                                              |   | $                    | 1,699  |                   | $      | 4,561 |   |
| Accrued expenses                                                                              |   | 6,401                |   | 7,142                  |   |
| Note payable                                                                                  |   | -                    |   | 1,492                  |   |
| Deferred revenue                                                                              |   | 4,304                |   | 5,272                  |   |
| Total current liabilities                                                                     |   | 12,404               |   | 18,467                 |   |
|                                                                                          |   |                 |   |                   |   |
| Contingencies (Note 9)                                                                        |   |                 |   |                   |   |
|                                                                                          |   |                 |   |                   |   |
| Stockholders' equity:                                                                         |   |                 |   |                   |   |
| Preferred stock                                                                               |   | -                    |   | -                      |   |
| Common stock                                                                                  |   | 128                  |   | 123                    |   |
| Capital in excess of par value                                                                |   | 217,681              |   | 217,182                |   |
| Treasury stock                                                                                |   | (78                  | )      | -                      |   |
| Accumulated deficit                                                                           |   | (205,203             | )      | (189,380               | )      |
| Accumulated other comprehensive loss                                                          |   | (79                  | )      | (90                    | )      |
|                                                                                          |   |                 |   |                   |   |
| Total stockholders' equity                                                                    |   | 12,449               |   | 27,835                 |   |
|                                                                                          |   |                 |   |                   |   |
| Total liabilities and stockholders' equity                                                    |   | $                    | 24,853 |                   | $      | 46,302 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

MEDIA 100 INC.

CONSOLIDATEDSTATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited)

 
|                                                                  |   | **Three Months Ended August 31,** |   | **Nine Months Ended August 31,** |   |
|-----------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                                  |   | **2001**                          |   | **2000**                         |   | **2001** |   | **2000** |   |
|                                                                  |   | **(as restated)**                 |   |                             |   | **(as restated)** |   |   |   |
| Net sales:                                                            |   |                              |   |                             |   |   |   |   |   |
| Products                                                              |   | $                                 | 5,730  |                             | $      | 9,839 |   | $ | 18,576 |   | $ | 28,549 |   |
| Services                                                              |   | 2,066                             |   | 2,703                            |   | 6,906 |   | 7,268 |   |
| Total net sales                                                       |   | 7,796                             |   | 12,542                           |   | 25,482 |   | 35,817 |   |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Cost of sales                                                         |   | 4,437                             |   | 5,381                            |   | 13,260 |   | 15,162 |   |
| Gross profit                                                          |   | 3,359                             |   | 7,161                            |   | 12,222 |   | 20,655 |   |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Operating expenses:                                                   |   |                              |   |                             |   |   |   |   |   |
| Research and development                                              |   | 2,690                             |   | 2,932                            |   | 8,056 |   | 8,221 |   |
| Selling and marketing                                                 |   | 2,585                             |   | 3,264                            |   | 9,818 |   | 9,823 |   |
| General and administrative                                            |   | 1,923                             |   | 1,069                            |   | 4,594 |   | 3,124 |   |
| Amortization and write-down of acquisition-related intangible  assets |   | 480                               |   | 303                              |   | 2,420 |   | 668 |   |
| Acquired in-process research and development                          |   | -                                 |   | -                                |   | - |   | 470 |   |
| Restructuring charge                                                  |   | 310                               |   | -                                |   | 878 |   | - |   |
| Total operating expenses                                              |   | 7,988                             |   | 7,568                            |   | 25,766 |   | 22,306 |   |
| Operating loss                                                        |   | (4,629                            | )      | (407                             | )      | (13,544 | ) | (1,651 | ) |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Interest income, net                                                  |   | 50                                |   | 260                              |   | 221 |   | 809 |   |
| Other income (expense), net                                           |   | 464                               |   | (328                             | )      | 200 |   | (646 | ) |
| Loss from continuing operations before tax provision                  |   | (4,115                            | )      | (475                             | )      | (13,123 | ) | (1,488 | ) |
| Tax provision                                                         |   | -                                 |   | -                                |   | - |   | 30 |   |
| Loss from continuing operations                                       |   | (4,115                            | )      | (475                             | )      | (13,123 | ) | (1,518 | ) |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Discontinued Operations (Note 16):                                    |   |                              |   |                             |   |   |   |   |   |
| Income (loss) from discontinued operations                            |   | (903                              | )      | 752                              |   | (2,700 | ) | (1,740 | ) |
| Net income (loss)                                                     |   | $                                 | (5,018 | )                                | $      | 277 |   | $ | (15,823 | ) | $ | (3,258 | ) |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Basic net income (loss) per share:                                    |   |                              |   |                             |   |   |   |   |   |
| Continuing operations                                                 |   | $                                 | (0.33  | )                                | $      | (0.04 | ) | $ | (1.06 | ) | $ | (0.13 | ) |
| Discontinued operations                                               |   | $                                 | (0.07  | )                                | $      | 0.06 |   | $ | (0.22 | ) | $ | (0.15 | ) |
| Total                                                                 |   | $                                 | (0.40  | )                                | $      | 0.02 |   | $ | (1.28 | ) | $ | (0.28 | ) |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Diluted net income (loss) per share:                                  |   |                              |   |                             |   |   |   |   |   |
| Continuing operations                                                 |   | $                                 | (0.33  | )                                | $      | (0.04 | ) | $ | (1.06 | ) | $ | (0.13 | ) |
| Discontinued operations                                               |   | $                                 | (0.07  | )                                | $      | 0.06 |   | $ | (0.22 | ) | $ | (0.15 | ) |
| Total                                                                 |   | $                                 | (0.40  | )                                | $      | 0.02 |   | $ | (1.28 | ) | $ | (0.28 | ) |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Weighted average common shares outstanding:                           |   |                              |   |                             |   |   |   |   |   |
| Basic                                                                 |   | 12,415                            |   | 12,136                           |   | 12,369 |   | 11,916 |   |
| Diluted                                                               |   | 12,415                            |   | 13,167                           |   | 12,369 |   | 11,916 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

MEDIA 100 INC.

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
|                                                                                                    |   | **Nine Months Ended August 31,** |    |
|---------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                                    |   | **2001**                         |    | **2000** |   |
|                                                                                                    |   | **(as restated)**                |    |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                   |   |                             |    |   |   |
| Net loss                                                                                                |   | $                                | (15,823 | ) | $ | (3,258 | ) |
| Loss from discontinued operations                                                                       |   | 2,700                            |    | 1,740 |   |
| Loss from continuing operations                                                                         |   | (13,123                          | )       | (1,518 | ) |
| Adjustments to reconcile net loss from continuing operations to  net cash used in operating activities: |   |                             |    |   |   |
| Depreciation and amortization                                                                           |   | 2,067                            |    | 2,189 |   |
| Non-cash interest expense                                                                               |   | -                                |    | 70 |   |
| Acquired in-process research and development                                                            |   | -                                |    | 470 |   |
| Amortization and write-down of acquisition-related intangible  assets                                   |   | 2,420                            |    | 669 |   |
| Gain on sale of marketable securities                                                                   |   | 9                                |    | 15 |   |
| Changes in assets and liabilities, excluding effects of  acquisitions:                                  |   |                             |    |   |   |
| Accounts receivable                                                                                     |   | 2,546                            |    | (1,659 | ) |
| Inventories                                                                                             |   | 2,140                            |    | (2,396 | ) |
| Prepaid expenses and other current assets                                                               |   | 350                              |    | (373 | ) |
| Accounts payable                                                                                        |   | (2,862                           | )       | (35 | ) |
| Accrued expenses                                                                                        |   | (741                             | )       | 865 |   |
| Deferred revenue                                                                                        |   | (968                             | )       | 168 |   |
| Net cash used in operating activities                                                                   |   | (8,162                           | )       | (1,535 | ) |
|                                                                                                    |   |                             |    |   |   |
| Net cash used in discontinued operations                                                                |   | (1,006                           | )       | (8,148 | ) |
|                                                                                                    |   |                             |    |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                   |   |                             |    |   |   |
| Acquisition of Wired, Inc., net of cash acquired                                                        |   | -                                |    | (1,487 | ) |
| Acquisition of 21st Century Media Inc., net of cash  acquired                                           |   | -                                |    | (481 | ) |
| Acquisition of J2 Digital Media Inc., net of cash acquired                                              |   | -                                |    | (152 | ) |
| Acquisition of certain assets of Integrated Computing Engines,  Inc.                                    |   | -                                |    | (1,797 | ) |
| Purchases of property and equipment                                                                     |   | (768                             | )       | (895 | ) |
| Other assets                                                                                            |   | 114                              |    | (1,225 | ) |
| Purchase of intangible assets                                                                           |   | (91                              | )       | (227 | ) |
| Net proceeds from sales of marketable securities                                                        |   | 5,419                            |    | 5,405 |   |
| Net cash provided by (used in) investing activities                                                     |   | 4,674                            |    | (859 | ) |
|                                                                                                    |   |                             |    |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                   |   |                             |    |   |   |
| Payment of note payable                                                                                 |   | (1,492                           | )       | - |   |
| Proceeds from issuance of common stock pursuant to stock plans                                          |   | 504                              |    | 4,472 |   |
| Purchase of treasury stock                                                                              |   | (78                              | )       | - |   |
| Net cash (used in) provided by financing activities                                                     |   | $                                | (1,066  | ) | $ | 4,472 |   |
|                                                                                                    |   |                             |    |   |   |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                 |   | 11                               |    | - |   |
|                                                                                                    |   |                             |    |   |   |
| NET DECREASE  IN CASH AND  CASH EQUIVALENTS                                                        |   | $                                | (5,549  | ) | $ | (6,070 | ) |
|                                                                                                    |   |                             |    |   |   |
| CASH AND CASH EQUIVALENTS, beginning of period                                                          |   | 11,987                           |    | 13,858 |   |
|                                                                                                    |   |                             |    |   |   |
| CASH AND CASH EQUIVALENTS, end of period                                                                |   | $                                | 6,438   |   | $ | 7,788 |   |

 

 
|                                                                                                                                      |   | **Nine Months Ended August 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                      |   | **2001**                         |   | **2000** |   |
|                                                                                                                                      |   | **(as restated)**                |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                                                         |   |                             |   |   |   |
| Cash (received) paid for income taxes                                                                                                     |   | $                                | (42    | ) | $ | 13 |   |
| OTHER TRANSACTIONS NOT USING CASH:                                                                                                        |   |                             |   |   |   |
| Change in value of marketable securities                                                                                                  |   | $                                | (44    | ) | $ | 27 |   |
|                                                                                                                                      |   |                             |   |   |   |
|                                                                                                                                      |   |                             |   |   |   |
|                                                                                                                                      |   | **Nine Months Ended August 31,** |   |
|                                                                                                                                      |   | **2001**                         |   | **2000** |   |
|                                                                                                                                      |   | **(as restated)**                |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:                                                                                 |   |                             |   |   |   |
|                                                                                                                                      |   |                             |   |   |   |
| In connection with the acquisition of Wired, Inc., the following  non-cash transaction occurred:                                          |   |                             |   |   |   |
| Fair value of assets acquired                                                                                                             |   | $                                | -      |   | $ | 3,180 |   |
| Cash paid for acquisition and acquisition costs                                                                                           |   | -                                |   | 1,487 |   |
| Note payable and liabilities assumed                                                                                                      |   | $                                | -      |   | $ | 1,693 |   |
|                                                                                                                                      |   |                             |   |   |   |
| In connection with the acquisition of 21st Century  Media, LLC, the following non-cash transaction occurred:                              |   |                             |   |   |   |
| Fair value of assets acquired                                                                                                             |   | $                                | -      |   | $ | 1,130 |   |
| Cash paid for acquisition and acquisition costs                                                                                           |   | -                                |   | 481 |   |
| Common stock issued and liabilities assumed                                                                                               |   | $                                | -      |   | $ | 649 |   |
|                                                                                                                                      |   |                             |   |   |   |
| In connection with the acquisition of J2 Digital Media , Inc.  the following non-cash transaction occurred:                               |   |                             |   |   |   |
| Fair value of assets acquired                                                                                                             |   | $                                | -      |   | $ | 280 |   |
| Cash paid for acquisition and acquisition costs                                                                                           |   | -                                |   | 152 |   |
| Common stock issued and liabilities assumed                                                                                               |   | $                                | -      |   | $ | 128 |   |
|                                                                                                                                      |   |                             |   |   |   |
| In connection with the acquisition of certain assets of  Integrated Computing Engines, Inc. the following non-cash transaction  occurred: |   |                             |   |   |   |
| Fair value of assets acquired                                                                                                             |   | $                                | -      |   | $ | 2,775 |   |
| Cash paid for acquisition and acquisition costs                                                                                           |   | -                                |   | 1,797 |   |
| Common stock issued and liabilities assumed                                                                                               |   | $                                | -      |   | $ | 978 |   |
|                                                                                                                                           |        |                                  |        |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

MEDIA 100 INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, EXCEPTFOR NOVEMBER 30, 2000 AMOUNTS)

1.  Basis of Presentation

The accompanyinginterim consolidated financial statements include the accounts of Media 100Inc. (“the Company”), a Delaware corporation, and its wholly ownedsubsidiaries.  The interim financialstatements are unaudited.  However, inthe opinion of management, the interim consolidated financial statements anddisclosures reflect all adjustments necessary for fair presentation. Interimresults are not necessarily indicative of results expected for a full year orfor any other interim period.  Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States have been condensed or omitted pursuant to the rules andregulations of the Securities and Exchange Commission. These consolidatedcondensed financial statements should be read in conjunction with theconsolidated financial statements and the notes thereto included in theCompany's latest audited financial statements, which are included in theCompany's Annual Report on Form 10-K for the fiscal year ended November 30,2000, filed with the Securities and Exchange Commission.

The Company’spreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

The Companydesigns and sells systems (comprising software and hardware) and services thatallow Internet-based (“online”) and traditional broadcasters, corporatemarketing professionals and educators to create and deliver high-quality videoprograms as either traditional media or Internet-compatible streams (“streamingmedia”). On August 29, 2001, the Company signed an agreement to sell itssoftware product line to Autodesk, Inc. for $16 million in cash.   As a result of this transaction, the assetsconsisting primarily of accounts receivable, inventory, equipment, intangibleassets, and income taxes payable of the software product line to bediscontinued, have been separately classified in the accompanying balance sheetat August 31, 2001.  The November 30,2000 balance sheet has been restated to conform to the current year’spresentation. The disposal date was October 5, 2001. The Company’s softwareproduct line consisted of products acquired in the Terran acquisition and themerger with Digital Origin.

 

The statements ofoperations for the three and nine months ended August 31, 2001 and thestatement of cash flows for the nine months ended August 31, 2001 have beenrestated.  In the Company’s previouslyfiled Form 10-Q for the quarterly period ended August 31, 2001, revenue andcosts of certain software products related to the Company’s discontinuedoperations (Note 16) were incorrectly included in the results from continuingoperations. The impact of the restatements on the Company’s previously filedForm 10-Q for the quarterly period ended August 31, 2001 is as follows:

 

 
|                                  |   | **Three months ended** |   |
|---------------------------------------|--------|------------------------|--------|
|                                  |   | **As restated**        |   | **As reported** |   |
|                                  |   |                   |   |   |   |
| Net sales                             |   | $                      | 7,796  |   | $ | 8,059 |   |
| Cost of sales                         |   | 4,437                  |   | 4,582 |   |
| Loss from  continuing operations      |   | (4,115                 | )      | (3,997 | ) |
| Loss from  discontinued operations    |   | $                      | (903   | ) | $ | (1,021 | ) |
|                                  |   |                   |   |   |   |
| Basic and  diluted net loss per share |   |                   |   |   |   |
| Continuing  operations                |   | $                      | (0.33  | ) | $ | (0.32 | ) |
| Discontinued  operations              |   | $                      | (0.07  | ) | $ | (0.08 | ) |
| Total                                 |   | $                      | (0.40  | ) | $ | (0.40 | ) |
|                                  |   |                   |   |   |   |
|                                  |   | **Nine  months ended** |   |
|                                  |   | **As restated**        |   | **As  reported** |   |
|                                  |   |                   |   |   |   |
| Net sales                             |   | $                      | 25,482 |   | $ | 25,993 |   |
| Cost of sales                         |   | 13,260                 |   | 13,304 |   |
| Loss from  continuing operations      |   | (13,123                | )      | (12,656 | ) |
| Loss from  discontinued operations    |   | $                      | (2,700 | ) | $ | (3,167 | ) |
|                                  |   |                   |   |   |   |
| Basic and  diluted net loss per share |   |                   |   |   |   |
| Continuing  operations                |   | $                      | (1.06  | ) | $ | (1.02 | ) |
| Discontinued  operations              |   | $                      | (0.22  | ) | $ | (0.26 | ) |
| Total                                 |   | $                      | (1.28  | ) | $ | (1.28 | ) |

 

Accordingly,Management’s Discussion and Analysis of Financial Condition and Results ofOperations has been revised to reflect the restatement.

2.  Principles of Consolidation

 

The accompanyingconsolidated financial statements include the accounts of the Company and itswholly owned subsidiaries after elimination of significant intercompanytransactions and balances.  Theseconsolidated financial statements reflect the use of the following significantaccounting policies, as described below and elsewhere in the notes to theconsolidated financial statements. These consolidated financial statements are prepared in accordance withaccounting principles generally accepted in the United States.

 

3.  Reclassifications

 

Certain amounts inthe prior period’s financial statements have been reclassified to conform tothe current period’s presentation.

 

4.  Cash Equivalents and Marketable Securities

 

Cash equivalentsare carried at cost, which approximates market value, and have originalmaturities of less than three months. Cash equivalents include money market accounts and repurchase agreementswith overnight maturities. Approximately $0.2 million of the cash and cashequivalents were restricted under various letters of credit at August 31, 2001.

The Company accounts for marketable securities in accordance withStatement of Financial Accounting Standards (SFAS) No. 115, *Accountingfor Certain Investments in Debt and Equity Securities*.  Under this standard, the Company is requiredto classify all investments in debt and equity securities into one or more ofthe following three categories: held-to-maturity, available-for-sale ortrading.  Available-for-sale securitiesare recorded at fair market value with unrealized gains and losses excludedfrom earnings and included as a component of stockholders’ equity.  All of the Company’s marketable securitiesare classified as available-for-sale.

Marketable securities held as of August 31, 2001 and November 30, 2000consist of the following (in thousands):

 
| Investments available for sale:       |   | **Maturity**     |   | **August  31,** |   | **November  30,** |   |
|---------------------------------------|--------|------------------|--------|-----------------|--------|-------------------|--------|
|                                  |   |             |   | **2001**        |   | **2000**          |   |
| U.S. Treasury  Notes                  |   | less than 1 year |   | $               | -      |              | $      | 509 |   |
| U.S. Treasury  Notes                  |   | 1 - 5 years      |   | -               |   | 2,030             |   |
| Total U.S.  Treasury Notes            |   |             |   | -               |   | 2,539             |   |
|                                  |   |             |   |            |   |              |   |
| U.S. Agency  Bonds                    |   | less than 1 year |   | -               |   | 507               |   |
| Total U.S.  Agency Bonds              |   |             |   | -               |   | 507               |   |
|                                  |   |             |   |            |   |              |   |
| Money Market  Instruments             |   | less than 1 year |   | -               |   | 1,044             |   |
|                                  |   |             |   |            |   |              |   |
| Corporate  Obligations                |   | less than 1 year |   | -               |   | 1,116             |   |
| Corporate  Obligations                |   | 1 - 5 years      |   | 245             |   | 1,512             |   |
| Total Corporate  Obligations          |   |             |   | 245             |   | 2,628             |   |
|                                  |   |             |   |            |   |              |   |
| Total  investments available for sale |   |             |   | 245             |   | 6,718             |   |
| Less: cash and  cash equivalents      |   |             |   | -               |   | (1,044            | )      |
| Total marketable  securities          |   |             |   | $               | 245    |              | $      | 5,674 |   |

 

Marketable securities hada cost of  $245 and $5,718, and a marketvalue of $245 and $5,674 at August 31, 2001 and November 30, 2000,respectively. To adjust the carrying amount of the November 30, 2000 marketablesecurities portfolio to market value, unrealized losses have been reflected asa component of accumulated other comprehensive loss in stockholders’ equitypursuant to the provisions of SFAS No. 115.

 

5.  Inventories

 

Inventories arestated at the lower of first-in, first-out (FIFO) cost or market and consist ofthe following (in thousands): 

 
|            |   | **August 31,** |   | **November 30,** |   |
|-----------------|--------|----------------|--------|------------------|--------|
|            |   | **2001**       |   | **2000**         |   |
| Raw materials   |   | $              | 1,202  |             | $      | 2,597 |   |
| Work-in-process |   | 232            |   | 662              |   |
| Finished goods  |   | 215            |   | 530              |   |
|            |   | $              | 1,649  |             | $      | 3,789 |   |

 

Work-in-processand finished goods inventories include material, labor and manufacturingoverhead. Management performs periodic reviews of inventory and disposes ofitems not required by their manufacturing plan.6. Property and Equipment, Net

 

Property and equipment,net, is stated at cost, less accumulated depreciation and amortization, andconsists of the following (in thousands):

 
|                                            |   | **August 31,** |   | **November 30,** |   |
|-------------------------------------------------|--------|----------------|--------|------------------|--------|
|                                            |   | **2001**       |   | **2000**         |   |
| Machinery and  equipment                        |   | $              | 13,564 |             | $      | 12,894 |   |
| Purchased  software                             |   | 6,037          |   | 6,037            |   |
| Furniture and  fixtures                         |   | 1,283          |   | 1,603            |   |
| Vehicles                                        |   | 9              |   | 9                |   |
| Leasehold  improvements                         |   | 1,730          |   | 1,559            |   |
|                                            |   | 22,623         |   | 22,102           |   |
| Less accumulated  depreciation and amortization |   | (18,190        | )      | (16,486          | )      |
|                                            |   | $              | 4,433  |             | $      | 5,616 |   |

 

7. Intangible Assets

 

Intangible assetsconsist of the following as of August 31, 2001 and November 30, 2000 (inthousands):

 
|                           |   | **August  31,** |   | **November 30,** |   |
|--------------------------------|--------|-----------------|--------|------------------|--------|
|                           |   | **2001**        |   | **2000**         |   |
| Patents and  Trademarks        |   | $               | 498    |             | $      | 407 |   |
| Acquired  Technology           |   | 1,900           |   | 1,900            |   |
| Goodwill                       |   | 2,784           |   | 3,992            |   |
|                           |   | 5,182           |   | 6,299            |   |
| Less accumulated  amortization |   | (2,718          | )      | (1,391           | )      |
|                           |   | $               | 2,464  |             | $      | 4,908 |   |

 

Patents and trademarksare being amortized over periods ranging from three to five years, their estimateduseful lives. The Company amortizes goodwill and developed acquired technologyrelated to its acquisitions using a straight-line method over periods rangingfrom 2 to 3 years, their estimated useful life.

 

The Company recordedan expense for the amortization and write-down of intangible assets of $2.0million in the first fiscal quarter of 2001 compared to $0.3 million in thefirst fiscal quarter of fiscal 2000. Included in the $2.0 million was a write-down of goodwill of $0.9million related to the acquisitions of 21st Century LLC and J2Digital Media, Inc.  These two companieswere combined to form Streamriver, which was launched in June 2000.  During the first quarter of fiscal 2001, thegoodwill from these two acquisitions was determined to be impaired due tocontinued operating losses in Streamriver and the uncertainty surrounding theCompany’s ability to recover the goodwill through future cash flows.  The Company shutdown the Streamriverdivision in the second quarter of fiscal year 2001 and wrote off the remainingassets.

 

8.  Net Income (Loss) Per Common Share

 

The Company computesearnings per share pursuant to SFAS No. 128, *Earnings per Share*.  In accordance with SFAS No. 128, basic netincome (loss) per share is computed using the weighted-average number of commonshares outstanding.  Diluted income(loss) per share is computed using the weighted-average number of common sharesoutstanding and potential common shares from the assumed exercise of stockoptions and warrants outstanding during the period, if any, using the treasurystock method.

 

The following is areconciliation of the shares used in the computation of basic and dilutedincome (loss) per share (in thousands): 

 
|                                                                                               |   | **Three months ended August 31,** |   | **Nine months ended August 31,** |   |
|----------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                                                               |   | **2001**                          |   | **2000**                         |   | **2001** |   | **2000** |   |
| Weighted average  shares of common stock Outstanding                                               |   | 12,415                            |   | 12,136                           |   | 12,369 |   | 11,916 |   |
|                                                                                               |   |                              |   |                             |   |   |   |   |   |
| Effect of  potential common shares - stock options and warrants outstanding (unless  antidilutive) |   | -                                 |   | 1,031                            |   | - |   | - |   |
|                                                                                               |   |                              |   |                             |   |   |   |   |   |
| Weighted average  shares and potential common shares outstanding                                   |   | 12,415                            |   | 13,167                           |   | 12,369 |   | 11,916 |   |

 

TheCompany excludes potentially dilutive securities from its diluted net income(loss) per share computation when either the exercise price of the securitiesexceeds the fair value of the Company’s common stock or when the Companyreports a net loss and the effect of including such securities would beantidilutive.  Weighted average optionsto purchase approximately 3,520,000 and 1,302,000 shares of common stock atAugust 31, 2001 and August 31, 2000, respectively, were not included in thecomputation of diluted net loss per share as a result of their antidilutiveeffect.

 

9.  Contingencies

 

(i) The companyprovides accruals for all direct costs associated with the estimated resolutionof known contingencies.  The accrual isestablished at the earliest date at which it is deemed probable that aliability has been incurred and the amount of such liability can be reasonablyestimated.

 

(ii) 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 patentinfringement by the Company arising from the manufacture, sale, and use of theCompany's Media 100 products.  Thecomplaint includes requests for injunctive relief, treble damages, interest,costs and fees.  In July 1995, theCompany filed an answer and counterclaim denying any infringement and assertingthat the Avid patent in question is invalid. The Company intends to vigorouslydefend the lawsuit. In addition, Avid is seeking reissue of the patent,including claims that it asserts are broader than in the existing patent, andthese reissue proceedings remain pending before the U.S. Patent and TrademarkOffice.  On January 16, 1998, the courtdismissed the lawsuit without prejudice to either party moving to restore it tothe docket upon completion of all matters pending before the U.S. Patent andTrademark Office.

 

On August 16, 2000,the U.S. Patent and Trademark Office issued an Office Action rejecting all ofthe claims made by Avid in their latest request for reexamination of the patentrelated to the aforementioned lawsuit. In addition, the Examiner at the U.S. Patent and Trademark Officedesignated the action as “final”.  OnNovember 29, 2000, Avid filed a Notice of Appeal of the Examiner’s rejectionsto the U.S. Patent and Trademark Office Board of Patent Appeals andInterferences.  There can be noassurance that the Company will prevail in the appeal by Avid or that theexpense or other effects of the appeal, whether or not the Company prevails,will not have a material adverse effect on the Company’s business, operatingresults and financial condition.

 

(iii) On January13, 1999 and January 28, 1999, Digital Origin and one of its former directors,Charles Berger, were named as defendants in two shareholder class actionlawsuits against Splash Technology Holdings, Inc. (“Splash”), various directorsand executives of Splash and certain selling shareholders of Splash.  The lawsuit alleges, among other things,that the defendants made or were responsible for material misstatements, andfailed to disclose information concerning Splash’s business, finances andfuture business prospects in order to artificially inflate the price of Splashcommon stock.  The complaint does notidentify any statements alleged to have been made by Charles Berger or DigitalOrigin.  The complaint further allegesthat Digital Origin engaged in a scheme to artificially inflate the price ofSplash common stock to reap an artificially large return on the sale of thecommon stock in order to pay off its debt. Digital Origin and the former director vigorously deny all allegationsof wrongdoing and intend to aggressively defend themselves in these matters.Defendant’s two initial motions to dismiss the action were granted with leaveto amend, and plaintiffs have againamended the complaint.  Defendants filedtheir third motion to dismiss.

 

(iv) On July 18, 1997, Intelligent Electronics, Inc.filed a claim against Digital Origin alleging a breach of contract and relatedclaims in the approximate amount of $800,000, maintaining that Digital Originfailed to comply with various return, price protection, inventory balancing andmarketing development funding undertakings. In 1997, Digital Origin filed an answer to the complaint andcross-claimed against the plaintiffs and in October 1997 additionally crossclaimed against Deutsche Financial, Inc., a factor in the account relationshipbetween the Company and the plaintiffs, seeking the recovery of existingaccounts receivable of approximately $1.8 million.  During May 2000, the trial was completed and the Court enteredtwo judgments in favor of Digital Origin, one in the amount of $314,000 plusinterest against Intelligent Electronics and one in the amount of $1,491,000plus interest against Deutsche Financial, Inc. In September 2000, Intelligent Electronics, Inc. paid $314,000 plusinterest of $139,000 and reimbursement of certain costs in the amount of$20,000 to the Company.

 

Pursuant to APB Opinion No. 20, *Accounting Changes*, theCompany revised its estimate of the allowance for doubtful accounts byreversing $314,000 of the allowance in the three months ended August 31, 2000by reducing the loss from discontinued operations.  The Company considers the balance of the recovery fromIntelligent Electronics (interest and court costs) to be a gain contingency, asthis term is defined in SFAS No. 5, *Accounting for Contingencies*.  Accordingly, the Company recorded theinterest and court costs, as a reduction of the loss from discontinuedoperations, in the fourth quarter of 2000, the period in which the gaincontingency was realized.

 

On August 15, 2001, Deutsche Financial, Inc. enteredinto a settlement agreement with Digital Origin, Inc. to pay $1,075,000 to theCompany.  Pursuant to APB Opinion No.20, *AccountingChanges*, the Company revised its estimate of the allowance fordoubtful accounts by reversing $1,171,000 of the allowance in the three monthsended August 31, 2001 by reducing the loss from discontinued operations.

 

(v) On October 12, 1999, a lawsuit was filed againstthe Company by McRoberts Software, Inc. in the United States District Court forthe Southern District of Indiana.  Thecomplaint alleges copyright infringement, breach of contract, and trade secretmisappropriation.  The complaintincludes requests for injunctive relief, treble damages, interest, costs andfees.  In November 1999, the Companyfiled an answer and counterclaim denying any infringement.  The Company intends to vigorously defend thelawsuit.

 

(vi) On May 9, 2001, a lawsuit was filed against theCompany by the former shareholders of Wired, Inc., a company acquired by theCompany in December 1999.  The complaintalleges fraud, negligent misrepresentation, breach of express andimplied-in-fact contract, breach of the implied covenant of good faith and fairdealing, breach of fiduciary duty and violation of California business andprofessional code section 17200.  Thecomplaint includes requests for compensatory and punitive damages, injunctiverelief, and fees.  The Company intendsto vigorously defend the lawsuit.

 

(vii) From time totime the Company is involved in other disputes and/or litigation encountered inits normal course of business.  TheCompany does not believe that the ultimate impact of the resolution of suchother outstanding matters will have a material effect on the Company’sbusiness, operating results or financial condition.

 

10. CapitalizedSoftware Development Costs

 

The Companycapitalizes certain computer software development costs. Capitalization ofcosts commences upon establishing technological feasibility.  There were no capitalized costs at August31, 2001.  Capitalized costs, net ofaccumulated amortization, were $29,000 as of November 30, 2000, and areincluded in other assets.  These costsare amortized on a straight-line basis over two years, which approximates theeconomic life of the product.

11.  Income Taxes

 

The Company hasnot provided for a tax provision in the first nine months of fiscal 2001 due tothe net loss incurred during the first nine months of the fiscal year and itsexpectation for no taxable income for the year.

 

12.  Accrued Expenses

 

Accrued expensesat August 31, 2001 and November 30, 2000 consist of the following (inthousands):

 
|                                     |   | **August 31,** |   | **November 30,** |   |
|------------------------------------------|--------|----------------|--------|------------------|--------|
|                                     |   | **2001**       |   | **2000**         |   |
| Payroll, payroll  taxes and other taxes  |   | $              | 1,436  |             | $      | 2,242 |   |
| Accrued warranty                         |   | 561            |   | 559              |   |
| Accrued  restructuring                   |   | 309            |   | 528              |   |
| Accrued  inventory                       |   | 867            |   | 763              |   |
| Accrued legal  and professional services |   | 712            |   | 692              |   |
| Accrued selling  and marketing           |   | 483            |   | 301              |   |
| Accrued other                            |   | 2,033          |   | 2,057            |   |
|                                     |   | $              | 6,401  |             | $      | 7,142 |   |

 

13.  Comprehensive Income (Loss)

 

The Companyrecords items of comprehensive income or loss in accordance with SFAS No.130*, ReportingComprehensive Income*, and presents such information in the statementof stockholders’ equity.  The componentsof accumulated other comprehensive (loss) income is as follows (in thousands):

 
|                                                      |   | **Three months ended August 31,** |   | **Nine months ended August 31,** |   |
|-----------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                      |   | **2001**                          |   | **2000**                         |   | **2001** |   | **2000** |   |
|                                                      |   |                              |   |                             |   |   |   |   |   |
| Net (loss)  income                                        |   | $                                 | (5,018 | )                                | $      | 277 |   | $ | (15,823 | ) | $ | (3,258 | ) |
|                                                      |   |                              |   |                             |   |   |   |   |   |
| Cumulative  translation adjustment                        |   | (22                               | )      | 2                                |   | (33 | ) | - |   |
| Unrealized holding  gain on available for sale securities |   | 44                                |   | 150                              |   | 44 |   | 27 |   |
|                                                      |   |                              |   |                             |   |   |   |   |   |
| Total  comprehensive (loss) income                        |   | $                                 | (4,996 | )                                | $      | 429 |   | $ | (15,812 | ) | $ | (3,231 | ) |

 

14.  SegmentInformation (as restated)

 

The Company applies theprovisions of SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information,* which establishes standards for publiccompanies to report operating segment information in annual and interimfinancial statements.  Operatingsegments are defined as components of an enterprise about which separatefinancial information is available that is evaluated regularly by the chiefdecision maker, or decision making group, in deciding how to allocate resourcesand in assessing performance.  The Company’schief operating decision-making group is composed of the Chief ExecutiveOfficer and members of senior management. The Company’s reportable operating segments are digital video systemsand services.

 

The accounting policiesof the segments are the same as those described in the summary of significantaccounting policies.  Revenues areattributed to geographic areas based on where the customer is located.  Segment information for the three and ninemonths ended August 31, 2001 and August 31, 2000 is as follows:

 
|                                      |   | **Digital** |   |         |   |          |   |      |   |
|-------------------------------------------|--------|-------------|--------|--------------|--------|---------------|--------|-----------|--------|
|                                      |   | **Video**   |   |         |   |          |   |      |   |
| ***Three months  ended August 31, 2001*** |   | **Systems** |   | **Services** |   | **Corporate** |   | **Total** |   |
| (as restated)                             |   |        |   |         |   |          |   |      |   |
| Net sales from  external customers        |   | $           | 5,730  |         | $      | 2,066         |   | $         | -      |   | $ | 7,796 |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Gross profit                              |   | 1,641       |   | 1,718        |   | -             |   | 3,359     |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Depreciation and  amortization            |   | 607         |   | 21           |   | -             |   | 628       |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Interest income,  net                     |   | -           |   | -            |   | 50            |   | 50        |   |
|                                      |   |        |   |         |   |          |   |      |   |
| ***Nine months ended August 31, 2001***   |   |        |   |         |   |          |   |      |   |
| (as restated)                             |   |        |   |         |   |          |   |      |   |
| Net sales from  external customers        |   | $           | 18,576 |         | $      | 6,906         |   | $         | -      |   | $ | 25,482 |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Gross profit                              |   | 6,909       |   | 5,313        |   | -             |   | 12,222    |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Depreciation and  amortization            |   | 1,907       |   | 160          |   | -             |   | 2,067     |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Interest income,  net                     |   | -           |   | -            |   | 221           |   | 221       |   |
|                                      |   |        |   |         |   |          |   |      |   |
| ***Three months ended August 31, 2000***  |   |        |   |         |   |          |   |      |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Net sales from  external customers        |   | $           | 9,839  |         | $      | 2,703         |   | $         | -      |   | $ | 12,542 |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Gross profit                              |   | 5,093       |   | 2,068        |   | -             |   | 7,161     |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Depreciation and  amortization            |   | 701         |   | 25           |   | -             |   | 726       |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Interest income,  net                     |   | -           |   | -            |   | 260           |   | 260       |   |
|                                      |   |        |   |         |   |          |   |      |   |
| ***Nine months ended August 31, 2000***   |   |        |   |         |   |          |   |      |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Net sales from  external customers        |   | $           | 28,549 |         | $      | 7,268         |   | $         | -      |   | $ | 35,817 |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Gross profit                              |   | 14,654      |   | 6,001        |   | -             |   | 20,655    |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Depreciation and  amortization            |   | 2,125       |   | 64           |   | -             |   | 2,189     |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Interest income,  net                     |   | -           |   | -            |   | 809           |   | 809       |   |
|                                      |   |        |   |         |   |          |   |      |   |
| Tax provision                             |   |        |   |         |   | 30            |   | 30        |   |

 

Interest income andincome taxes are considered corporate level activities and are, therefore, notallocated to segments.  Managementbelieves transfers between geographic areas are accounted for on an arms lengthbasis.

 

Net sales by geographicarea for the three and nine months ended August 31, 2001 and August 31, 2000were as follows (in thousands):

 
|                                        |   | **Three months ended** |   |
|---------------------------------------------|--------|------------------------|--------|
|                                        |   | **August 31,**         |   | **August 31,** |   |
|                                        |   | **2001**               |   | **2000** |   |
|                                        |   | **(as restated)**      |   |   |   |
| North America                               |   | $                      | 5,143  |   | $ | 8,803 |   |
| United Kingdom,  Sweden, Denmark and Norway |   | 767                    |   | 1,271 |   |
| Germany, Austria  and Switzerland           |   | 372                    |   | 481 |   |
| France, Spain,  Benelux and Italy           |   | 543                    |   | 864 |   |
| Asia Pacific                                |   | 971                    |   | 1,123 |   |
|                                        |   |                   |   |   |   |
|                                        |   | $                      | 7,796  |   | $ | 12,542 |   |

 
|                                        |   | **Nine months ended** |   |
|---------------------------------------------|--------|-----------------------|--------|
|                                        |   | **August 31,**        |   | **August 31,** |   |
|                                        |   | **2001**              |   | **2000** |   |
|                                        |   | **(as restated)**     |   |   |   |
| North America                               |   | $                     | 17,141 |   | $ | 22,566 |   |
| United Kingdom,  Sweden, Denmark and Norway |   | 2,581                 |   | 3,660 |   |
| Germany, Austria  and Switzerland           |   | 921                   |   | 2,022 |   |
| France, Spain,  Benelux and Italy           |   | 1,996                 |   | 2,808 |   |
| Asia Pacific                                |   | 2,843                 |   | 4,761 |   |
|                                        |   |                  |   |   |   |
|                                        |   | $                     | 25,482 |   | $ | 35,817 |   |

 

Long-lived tangibleassets by geographic area for the quarters ended August 31, 2001 and November30, 2000 consist of the following (in thousands):

 
|           |   | **August 31,** |   | **November 30,** |   |
|----------------|--------|----------------|--------|------------------|--------|
|           |   | **2001**       |   | **2000**         |   |
|           |   |           |   |             |   |
| North America  |   | $              | 4,156  |             | $      | 5,278 |   |
| United Kingdom |   | 144            |   | 194              |   |
| Germany        |   | 43             |   | 33               |   |
| Italy          |   | 9              |   | 16               |   |
| France         |   | 81             |   | 95               |   |
|           |   |           |   |             |   |
|           |   | $              | 4,433  |             | $      | 5,616 |   |

 

15.  Restructuring Expense

 

In the thirdquarter of fiscal 2001, the Company implemented a restructuring plan to betteralign its operating costs with its anticipated future revenue stream.  The restructuring charge of $310,000 relatedto the elimination of approximately 42 employees across all functions:operations (14), product development (4), selling and marketing (16), andgeneral and administrative (8).   AtAugust 31, 2001, all of the accrued restructuring charge, consisting of severance-relatedcosts, remained. The total cash impact of the restructuring is $310,000, all ofwhich will be paid by the end of the fourth quarter in fiscal 2001.

 

 

16.  Discontinued Operations (asrestated)

 

On August 29,2001, the Company signed an agreement to sell its software product line toAutodesk, Inc. for $16 million in cash. As a result of this transaction, theassets consisting primarily of accounts receivable, inventory, equipment,intangible assets, and income taxes payable of the software product line to bediscontinued, have been separately classified in the accompanying balance sheetat August 31, 2001. The November 30, 2000 balance sheet has been restated toconform to the current year’s presentation. The disposal date was October 5, 2001.The Company’s software product line consisted of products acquired in theTerran acquisition and the merger with Digital Origin.

 

The net income(loss) from these operations is included in the accompanying statements ofoperations under “discontinued operations”. Net sales of the software product line for the three and nine monthsended August 31, 2001 were $2.1 million and $10.5 million, respectively. Netsales of the software product line for the three and nine months ended August31, 2000 were $6.8 million and $22.0 million, respectively.

 

Net assets fromdiscontinued operations at August 31, 2001 and November 30, 2000 consist of thefollowing (in thousands):

 
|                         |   | **August 31,** |   | **November 30,** |   |
|------------------------------|--------|----------------|--------|------------------|--------|
|                         |   | **2001**       |   | **2000**         |   |
| Accounts  receivable         |   | $              | 1,100  |             | $      | 2,298 |   |
| Inventory                    |   | 552            |   | 525              |   |
| Property and  equipment, net |   | 418            |   | 440              |   |
| Intangible  assets, net      |   | 2,907          |   | 3,408            |   |
| Income taxes  payable        |   | (1,089         | )      | (1,089           | )      |
|                         |   |           |   |             |   |
|                         |   | $              | 3,888  |             | $      | 5,582 |   |

 

17.  New Accounting Standards

 

In July 2001, theFinancial Accounting Standards Board (FASB) issued SFAS No. 141, “BusinessCombinations”.  SFAS No. 141 supercedesAPB No 16 “Business Combinations” and FASB Statement No. 38 “Accounting forPreacquisition Contingencies of Purchased Enterprises.”  SFAS 141 requires all business combinationsinitiated after June 30, 2001 to be accounted for using the purchasemethod.  Accordingly, the Company willbe adopting the provisions of this statement upon any business combinationentered into after June 30, 2001.

 

In July 2001, theFASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”.  This statement applies to goodwill andintangible assets acquired after June 30, 2001, as well as goodwill andintangible assets previously acquired. Under this statement goodwill as well as certain other intangibleassets, determined to have an infinite life, will no longer be amortized.  These assets will be reviewed for impairmenton a periodic basis. This statement is effective for the Company in the firstquarter of fiscal year 2003.  Managementis currently evaluating the impact that this statement will have on theCompany’s financial statements.

 

Overview

 

**Media 100 Inc., a Delawarecorporation, (the “Company”) designs and sells systems (comprising software andhardware) and services that allow Internet-based (“online”) and traditionalbroadcasters, corporate marketing professionals and educators to create anddeliver high-quality video programs as either traditional media orInternet-compatible streams (“streaming media”).**

** **

**The Company recognizes revenue inaccordance with Statement of Position, “Software Revenue Recognition” (SOP97-2) as amended by SOP 98-9, “Modification of SOP 97-2, Software RevenueRecognition, with respect to Certain Transactions”.  Net sales are recognized following establishment of persuasiveevidence of an arrangement, provided that the license fee is fixed anddeterminable, delivery of product has occurred via physical shipment orelectronically, a determination has been made by management that collection isprobable and the Company has no remaining obligations. Revenues under multipleelement arrangements, which typically include products and maintenance soldtogether, are allocated to each element using the residual method in accordancewith SOP 98-9.  Sales to certain resellersand distributors are subject to agreements allowing certain rights of returnand price protection on unsold merchandise held by these resellers anddistributors.  The Company provides forestimated returns and refunds at the time of shipment.  The Company recognizes maintenance revenuefrom the sale of post-contract support services ratably over the life of thecontract.**

 

On August 29, 2001, the Company signed an agreement tosell its software product line to Autodesk, Inc. for $16 million in cash.   As a result of this transaction, the assetsof the software product line to be discontinued consisting primarily ofinventory, equipment and intangible assets and have been separately classifiedin the accompanying balance sheet at August 31, 2001.  The November 30, 2000 balance sheet has been restated to conformto the current year’s presentation. The disposal date was October 5, 2001.  The Company’s software product lineconsisted of products acquired in the Terran acquisition and the merger withDigital Origin.

 

Results of Operations

 

The statements ofoperations for the three and nine months ended August 31, 2001 and thestatement of cash flows for the nine months ended August 31, 2001 have beenrestated.  In the Company’s previouslyfiled Form 10-Q for the quarterly period ended August 31, 2001, revenue andcosts of certain software products related to the Company’s discontinuedoperations (Note 16) were incorrectly included in the results from continuingoperations. The impact of the restatements on the Company’s previously filedForm 10-Q for the quarterly period ended August 31, 2001 is as follows:

 
|                                  |   | **Three months ended** |   |
|---------------------------------------|--------|------------------------|--------|
|                                  |   | **As restated**        |   | **As reported** |   |
|                                  |   |                   |   |   |   |
| Net sales                             |   | $                      | 7,796  |   | $ | 8,059 |   |
| Cost of sales                         |   | 4,437                  |   | 4,582 |   |
| Loss from  continuing operations      |   | (4,115                 | )      | (3,997 | ) |
| Loss from  discontinued operations    |   | $                      | (903   | ) | $ | (1,021 | ) |
|                                  |   |                   |   |   |   |
| Basic and  diluted net loss per share |   |                   |   |   |   |
| Continuing  operations                |   | $                      | (0.33  | ) | $ | (0.32 | ) |
| Discontinued  operations              |   | $                      | (0.07  | ) | $ | (0.08 | ) |
| Total                                 |   | $                      | (0.40  | ) | $ | (0.40 | ) |
|                                  |   |                   |   |   |   |
|                                  |   | **Nine  months ended** |   |
|                                  |   | **As restated**        |   | **As  reported** |   |
|                                  |   |                   |   |   |   |
| Net sales                             |   | $                      | 25,482 |   | $ | 25,993 |   |
| Cost of sales                         |   | 13,260                 |   | 13,304 |   |
| Loss from  continuing operations      |   | (13,123                | )      | (12,656 | ) |
| Loss from  discontinued operations    |   | $                      | (2,700 | ) | $ | (3,167 | ) |
|                                  |   |                   |   |   |   |
| Basic and  diluted net loss per share |   |                   |   |   |   |
| Continuing  operations                |   | $                      | (1.06  | ) | $ | (1.02 | ) |
| Discontinued  operations              |   | $                      | (0.22  | ) | $ | (0.26 | ) |
| Total                                 |   | $                      | (1.28  | ) | $ | (1.28 | ) |

 

Accordingly, Management’sDiscussion and Analysis of Financial Condition and Results of Operations hasbeen revised to reflect the restatement.

The following table showscertain consolidated statements of operations data as a percentage of netsales.

 
|                                                                  |   | **Three months ended August 31,** |   | **Nine months ended August 31,** |   |
|-----------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                                  |   | **2001**                          |   | **2000**                         |   | **2001** |   | **2000** |   |
|                                                                  |   | **(as restated)**                 |   |                             |   | **(as restated)** |   |   |   |
| Net sales:                                                            |   |                              |   |                             |   |   |   |   |   |
| Products                                                              |   | 73.5                              | %      | 78.4                             | %      | 72.9 | % | 79.7 | % |
| Services                                                              |   | 26.5                              |   | 21.6                             |   | 27.1 |   | 20.3 |   |
| Total net sales                                                       |   | 100.0                             |   | 100.0                            |   | 100.0 |   | 100.0 |   |
| Cost of sales                                                         |   | 56.9                              |   | 42.9                             |   | 52.0 |   | 42.3 |   |
| Gross profit                                                          |   | 43.1                              |   | 57.1                             |   | 48.0 |   | 57.7 |   |
| Operating  expenses:                                                  |   |                              |   |                             |   |   |   |   |   |
| Research and  development                                             |   | 34.5                              |   | 23.4                             |   | 31.6 |   | 23.0 |   |
| Selling and  marketing                                                |   | 33.2                              |   | 26.0                             |   | 38.5 |   | 27.4 |   |
| General and  administrative                                           |   | 24.7                              |   | 8.5                              |   | 18.0 |   | 8.7 |   |
| Amortization and  write-down of acquisition-related intangible assets |   | 6.1                               |   | 2.4                              |   | 9.5 |   | 1.9 |   |
| Acquired  in-process research and development                         |   | -                                 |   | -                                |   | - |   | 1.3 |   |
| Restructuring  charge                                                 |   | 4.0                               |   | -                                |   | 3.5 |   | - |   |
| Total operating  expenses                                             |   | 102.5                             |   | 60.3                             |   | 101.1 |   | 62.3 |   |
| Operating loss                                                        |   | (59.4                             | )      | (3.2                             | )      | (53.1 | ) | (4.6 | ) |
| Interest income,  net                                                 |   | 0.6                               |   | 2.1                              |   | 0.9 |   | 2.3 |   |
| Other income  (expense), net                                          |   | 6.0                               |   | (2.6                             | )      | 0.8 |   | (1.8 | ) |
| Loss from  continuing operations                                      |   | (52.8                             | )      | (3.8                             | )      | (51.4 | ) | (4.2 | ) |
| Tax provision                                                         |   | -                                 |   | -                                |   | - |   | - |   |
| Net loss from  continuing operations                                  |   | (52.8                             | )      | (3.8                             | )      | (51.4 | ) | (4.2 | ) |
| Discontinued  operations                                              |   |                              |   |                             |   |   |   |   |   |
| Income (loss)  from discontinued operations                           |   | (11.6                             | )      | 6.0                              |   | (10.6 | ) | (4.9 | ) |
| Net income  (loss)                                                    |   | (64.4                             | )%     | 2.2                              | %      | (62.0 | )% | (9.1 | )% |

 

Comparison of ThirdFiscal Quarter of 2001 to Third Fiscal Quarter of 2000

 

Net sales.  Total net sales from continuing operationsfor the third fiscal quarter ended August 31, 2001 decreased 37.8% to $7.8million from $12.5 million for the third quarter of fiscal 2000.  Net sales of products from continuingoperations for the third fiscal quarter ended August 31, 2001 decreased 41.8%to $5.7 million from $9.8 million for fiscal 2000.  The decrease in net sales from products is due to a number offactors including lower unit sales on both the Macintosh and Windows operatingplatforms and lower average selling prices for our digital video systems ($3.1million) and lower sales of our MPEG-based products ($0.7 million).  We attribute the decrease in sales of ourdigital video systems to increased competition and lower demand and anticipatethis trend in lower year-over-year sales will continue for the remainder offiscal 2001.  Net sales from continuingoperations for services for the third fiscal quarter ended August 31, 2001 were$2.1 million, a decrease of 23.6% from the third quarter of fiscal 2000.   The decrease in net sales from services isthe result of lower sales of service contracts due to lower units sales of ourdigital video systems and the elimination of encoding and hosting services.

 

Gross profit.  Gross profit from continuing operationsdecreased 53.1% to $3.4 million in the third fiscal quarter of 2001 from $7.2million in the third quarter of fiscal 2000. Gross profit as a percentage of net sales from continuing operationsdecreased to 43.1% in the third fiscal quarter of 2001 from 57.1% in the thirdquarter of fiscal 2000.  Specifically,gross profit as a percentage of net product sales from continuing operationsdecreased to 28.6% in the third fiscal quarter of 2001 from 51.8% in the thirdquarter of fiscal 2000, while gross profit as a percentage of net sales ofservices from continuing operations increased to 83.2% in the third fiscalquarter of 2001 from 76.5% in the third quarter of fiscal 2000.  The percentage increase in services resultedfrom the elimination of encoding and hosting services during the second quarterof fiscal 2001.  Gross profit as apercentage of net product sales from continuing operations decreased due tolower average selling prices for our digital video systems and lower unitssales.  We currently forecast overallgross profit as a percentage of net sales will be relatively stable for theremainder of this fiscal year, however, due to uncertainty regarding the levelof sales and potential fluctuations in the mix of products sold, gross profit asa percentage of net sales may vary from one quarter to another.

 

Research and development.  Research and development expenses from continuing operationsdecreased 8.3% to $2.7 million in the third fiscal quarter of 2001 from $2.9million in the third quarter of fiscal 2000. Research and development expenses consist primarily of salaries andrelated benefits, consultants, outside services, occupancy and depreciation. Atthis time, we anticipate research and development expenses will remainrelatively stable, in dollar terms, over the next several quarters as wecontinue to develop new products and maintain existing products.

 

Selling and marketing.  Selling and marketing expenses from continuing operationsdecreased 20.8% to $2.6 million in the third fiscal quarter of 2001 from $3.3million in the third quarter of fiscal 2000. Selling expenses consist primarily of salaries and related benefits,commissions, travel, occupancy and depreciation.  Marketing expenses consist primarily of salaries and related benefits,trade shows, advertising, sales literature and lead generation activities.  The decrease in selling and marketingexpenses resulted primarily from reduced marketing expenses including salariesand related benefits, advertising and lead generation activities.  We currently anticipate that our selling andmarketing expenses will decrease in our fiscal fourth quarter due to lowersalary and other employee-related expenses as we adjust our expenses to be morein line with our forecasted lower level of sales.

General and administrative.  General and administrative expenses from continuing operationsincreased 79.9% to $1.9 million in the third fiscal quarter of 2001 from $1.1million in the third quarter of fiscal 2000. General and administrative expenses include the cost of human resources,finance, information technology, legal and other administrative functions ofthe Company.  We increased the allowancefor doubtful accounts by $150,000 due to the softening economy in the UnitedStates and our expectation that some of our customers will experiencedifficulties in meeting their financial obligations.  We also increased our legal reserve for several lawsuits (seeNote 9) that we currently anticipate may result in a settlement by the companyand we increased our bonus accrual by $200,000 for payments to employees thatmade significant contributions to the company.   We currently anticipate that our general and administrativeexpenses will decrease in the fourth quarter as we reduce expenses to be morein line with our forecasted lower level of sales.

 

Amortization andwrite-down of acquisition-related intangible assets.  We recorded an expense for the amortization and write-down ofacquisition-related intangible assets from continuing operations of $0.5 millionin the third fiscal quarter of 2001 compared to $0.3 million in the thirdquarter of fiscal 2000.  Included in the$0.5 million was amortization expense associated with the acquisitions ofWired, Inc. and certain assets of Integrated Computing Engines, Inc.

 

Restructuring charge. During the third fiscal quarter of 2001, we recorded a restructuringcharge of $310,000 in connection with a reorganization of the company thatresulted in severance payments to terminated employees.  There was no similar expense recorded in thethird fiscal quarter of 2000.

 

Interest income, net. Interest income decreased 80.8% to $0.1 million in the third fiscalquarter of 2001 from $0.3 million in the third quarter of fiscal 2000.  The decrease in interest income is due tolower cash and cash equivalent balances in fiscal 2001 versus 2000.  During fiscal 2000, we purchased severalcompanies utilizing our existing cash and cash equivalents to pay for theseacquisitions.  We currently anticipateinterest income will increase in the fourth quarter fiscal 2001 compared to thethird quarter of fiscal 2001 due to higher cash balances as a result of thesale of our streaming media software business to Autodesk, Inc.

 

Other income (expense), net.  Other income was $0.5 million in the third fiscal quarter of 2001compared to other expense of $0.3 million in the third quarter of fiscal2000.  The increase is due to foreignexchange gains on intercompany transactions with our foreign subsidiaries.

 

Tax provision. We did not provide for a tax provisionin the third fiscal quarter of 2001 due to the net loss incurred during thequarter and our expectation of no taxable income for the year.

 

Discontinued operations.  We recorded a loss from discontinued operations of ($0.9) millionor ($0.07) per share, in the third fiscal quarter of 2001 versus net income of$0.8 million, or $0.06 per share, in the third quarter of fiscal 2000.  The loss in the third quarter of fiscal 2001includes all the operations that were sold to Autodesk, Inc.

 

Net loss.  As aresult of the above factors, we had a net loss from continuing operations forthe third fiscal quarter of 2001 in the amount of ($4.1) million, or ($0.33)per share, compared to a net loss of ($0.5) million, or ($0.04) per share, inthe third quarter of fiscal 2000.  Totalnet loss, including discontinued operations, for the third quarter of fiscal2001 was ($5.0) million or ($0.40) per share, versus net income of $0.3million, or $0.02 per share, for fiscal 2000.

 

Comparison of First Nine Months of Fiscal 2001 toFirst Nine Months of Fiscal 2000

 

Net sales.  Total net sales from continuing operationsfor the first nine months ended August 31, 2001 decreased 28.9% to $25.5million from $35.8 million for the first nine months of fiscal 2000.  Net sales of products from continuingoperations for the first nine months ended August 31, 2001 decreased 34.9% to$18.6 million from $28.5 million for fiscal 2000.  The decrease in net sales of products from continuing operationsis due to a number of factors including lower unit sales on both the Macintoshand Windows operating platforms, lower average selling prices for our digitalvideo systems, and lower sales of the MPEG-based products acquired in theacquisition of Wired, Inc.  Net salesfrom products acquired from Integrated Computing Engines, Inc. in August 2000totaled $2.9 million in the first nine months of fiscal 2001 versus $0.5million for the first nine months of fiscal 2000.  We attribute the decrease in sales of our digital video systemsto increased competition and lower demand and anticipate this trend in loweryear-over-year sales will continue for the remainder of fiscal 2001.  Net sales from continuing operations forservices for first nine months ended August 31, 2001 were $6.9 million, a decreaseof $0.4 million from the first nine months of fiscal 2000.    During the second quarter of fiscal 2001,we closed our encoding and hosting services division, named Streamriver, andsold certain assets related to the business.  Prior to shutting down Streamriver, net sales were $0.3 million infiscal 2001.

 

Gross profit.  Gross profit from continuing operationsdecreased 40.8% to $12.2 million in the first nine months of 2001 from $20.7million in first nine months of fiscal 2000. Gross profit as a percentage of net sales from continuing operationsdecreased to 48.0% in the first nine months of 2001 from 57.7% in the firstnine months of fiscal 2000. Specifically, gross profit as a percentage of net product sales fromcontinuing operations decreased to 37.2% in the first nine months of 2001 from51.3% in the first nine months of fiscal 2000, while gross profit as apercentage of net sales of services from continuing operations decreased to76.9% in the first nine months of 2001 from 82.6% in the first nine months offiscal 2000.  The percentage decrease inservices resulted from increased costs related to encoding and hostingservices.  Gross profit as a percentageof net product sales from continuing operations decreased due to lower averageselling prices for our digital video systems and lower unit sales.  We currently forecast overall gross profitas a percentage of net sales will be relatively stable over the next severalquarters, however, due to uncertainty regarding the level of sales and potentialfluctuations in the mix of products sold, gross profit as a percentage of netsales may vary from one quarter to another.

 

Research and development.  Research and development expenses from continuing operationsdecreased 2.0% to $8.1 million in the first nine months of 2001 from $8.2million in the first nine months of fiscal 2000.  Research and development expenses consist primarily of salariesand related benefits, consultants, outside services, occupancy anddepreciation. At this time, we anticipate research and development expenseswill remain relatively stable, in dollar terms, over the next several quartersas we continue to develop new products and maintain existing products.

 

Selling and marketing.  Selling and marketing expenses from continuing operations were$9.8 million in the first nine months of fiscal 2001 compared to $9.8 millionin the first nine months of fiscal 2000. Selling expenses consist primarily of salaries and related benefits,commissions, travel, occupancy and depreciation.  Marketing expenses consist primarily of salaries and relatedbenefits, trade shows, advertising, sales literature and lead generationactivities.  We currently anticipate thatour selling and marketing expenses will decrease in our fiscal fourth quarter dueto lower salary and other employee-related expenses as we adjust our expensesto be more in line with our forecasted lower level of sales.

 

General and administrative.  General and administrative expenses from continuing operationsincreased 47.1% to $4.6 million in the first nine months of fiscal 2001 from$3.1 million in first nine months of fiscal 2000.  General and administrative expenses include the cost of humanresources, finance, information technology, legal and other administrativefunctions of the Company.  We increasedthe allowance for doubtful accounts by $150,000 due to the softening economy inthe United States and our expectation that some of our customers willexperience difficulties in meeting their financial obligations.  We also increased our legal reserve in thethird quarter of fiscal 2001 for several lawsuits (see Note 9) that wecurrently anticipate may result in a settlement by the company and we increasedour bonus accrual by $200,000 for payments to employees that made significantcontributions to the company.   Wecurrently anticipate that our general and administrative expenses will decreasein the fourth quarter as we reduce expenses to be more in line with ourforecasted lower level of sales.

 

Amortization andwrite-down of acquisition-related intangible assets.  We recorded an expense for the amortization and write-down ofacquisition-related intangible assets from continuing operations of $2.4million in the first nine months of fiscal 2001 compared to $0.7 million in thefirst nine months of fiscal 2000. Included in the $2.4 million was amortization expense associated withthe acquisitions of Wired, Inc. and certain assets of Integrated ComputingEngines, Inc. and a write-down of goodwill of $0.9 million related to the acquisitionsof 21st Century Media LLC and J2 Digital Media, Inc.  These two acquisitions were combined to formStreamriver, which was launched in June 2000. During the first quarter of fiscal 2001, the goodwill from these twoacquisitions was determined to be impaired due to continued operating losses inStreamriver and the uncertainty surrounding our ability to recover the goodwillthrough future cash flows.  During thesecond quarter of fiscal 2001, we closed Streamriver and sold some of theassets related to the business.

 

Restructuring charge. During the first nine months of fiscal 2001, we recorded a restructuringcharge of $878,000 in connection with a reorganization of the company thatresulted in severance payments to terminated employees and the closing ofStreamriver.  There was no similarexpense recorded in the first nine months of fiscal 2000.

 

Interest income, net. Interest income decreased 72.7% to $0.2 million in the first nine monthsof fiscal 2001 from $0.8 million in the first nine months of fiscal 2000.  The decrease in interest income is due tolower cash and cash equivalent balances in fiscal 2001 versus 2000.  During fiscal 2000, we purchased severalcompanies utilizing our existing cash and cash equivalents to pay for theseacquisitions. We currently anticipate interest income will increase in thefourth quarter fiscal 2001 compared to the third quarter of fiscal 2001 due tohigher cash balances as a result of the sale of our streaming media softwarebusiness to Autodesk, Inc.

 

Other income (expense), net.  Other income was $0.2 million in the first nine months of fiscal2001 compared to other expense of $0.6 million in the first nine months offiscal 2000.  The increase is due toforeign exchange gains on intercompany transactions with our foreignsubsidiaries.

 

Tax provision. We did not provide for a tax provisionin the first nine months of fiscal 2001 due to the net loss incurred during theperiod and our expectation of no taxable income for the year.

 

Discontinued operations.  We recorded a loss from discontinued operations of ($2.7) millionor ($0.22) per share, in the first nine months of fiscal 2001 versus a net lossof ($1.7) million or ($0.15) per share, in the first nine months of fiscal2000.  The loss in the first nine monthsof fiscal 2001 includes all the operations that were sold to Autodesk, Inc.

 

Net loss.   Asa result of the above factors, we had a net loss from continuing operations forthe first nine months of 2001 in the amount of ($13.1) million, or ($1.06) pershare, compared to a net loss of ($1.5) million, or ($0.13) per share, in thefirst nine months of fiscal 2000.  Totalnet loss, including discontinued operations, for the first nine months offiscal 2001 was ($15.8) million, or ($1.28) per share, versus a net loss of($3.3) million, or ($0.28) per share, for fiscal 2000.

 

Liquidity and Capital Resources

 

We have funded our operations to date primarily frompublic offerings of equity securities and cash flows from operations.  As of August 31, 2001, the Company’sprincipal sources of liquidity included cash and cash equivalents andmarketable securities totaling approximately $6.7 million.

 

For the nine months endedAugust 31, 2001, cash used in operating activities from continuing operationswas approximately $8,162,000 compared to approximately $1,535,000 for the sameperiod a year ago.  For the nine monthsended August 31, 2001, cash used in operating activities from discontinuedoperations was approximately $1,006,000 compared to approximately $8,148,000for the same period a year ago.  TheCompany incurred a net loss from continuing operations of $13,123,000 offset bysignificant non-cash items, including depreciation, amortization and write-downof intangible assets for continuing operations, in the amount of$4,487,000.  A significant portion ofthe cash used in operating activities is attributable to a significantreduction in accounts payable of $2,862,000. Accounts receivable provided cash in operating activities in the amountof $2,546,000 due to the amount timing of sales in the quarter and thesubsequent collection of those sales, which resulted in days sales outstandingof 43.   Inventory provided cash inoperating activities in the amount of $2,140,000 during the first nine monthsof fiscal 2001, compared with inventory utilizing cash in operating activitiesof $2,396,000 for the same period a year ago. Deferred revenue for the first nine months of fiscal 2001 utilized cashof $968,000, compared to providing cash of $168,000 for the same period a yearago.  Deferred revenue declined duringthe first nine months of fiscal 2001 due to lower unit sales of our digitalvideo systems and, therefore, lower unit sales of service contracts for thosesystems.  Accrued expenses utilized cashof $741,000, compared to providing cash of $865,000 for the same period a yearago.  Accrued expenses declined duringthe first nine months of 2001 due primarily to accrued legal and audit expensesthat were paid during the period.

 

Net cash provided byinvesting activities was approximately $4,674,000 during the nine months offiscal 2001, compared to cash used in investing activities of approximately$859,000 for the same period a year ago. Cash provided by investing activities during the first nine months offiscal 2001 consisted of net proceeds from the sale of marketable securities of$5,419,000, partially offset by the purchases of equipment for $768,000.  The proceeds from the sales of marketablesecurities were used to fund the purchases of equipment and working capitalneeds due to the net loss incurred in the first nine months of fiscal 2001.

 

Cash used in financingactivities during the first nine months of fiscal 2001 was approximately$1,066,000, compared to cash provided by financing activities of $4,472,000 forthe same period a year ago.  Cash usedin financing activities resulted from the non-recurring payment of anacquisition-related note payable in the amount of $1,492,000, offset by$504,000 from proceeds from the issuance of common stock pursuant to stock plans.  The reduction in cash provided by financingactivities that came from proceeds from the issuance of common stock pursuantto stock plans is due to a significantly lower price for the Company’s commonstock in the first nine months of fiscal 2001 versus the same period a yearago.  Given the recent reduced price ofthe Company’s common stock, we do not currently expect cash provided byproceeds from the issuance of common stock pursuant to stock plans to be a significantsource of liquidity in fiscal 2001.

 

As of August 31, 2001,our principal sources of liquidity included cash and marketablesecurities.  Additionally, on August 29,2001 we entered into an agreement to sell our streaming media software businessto Autodesk, Inc. for $16 million in cash. The transaction was completed on October 5, 2001 and, subsequent toclosure, the company received $14 million in cash with the remaining $2 milliondeposited in escrow for one year.  Webelieves our current cash, marketable securities and cash provided by futureoperations will be sufficient to meet the our working capital and anticipatedcapital expenditure requirements for at least the next twelve months.  Although operating activities may providecash in certain periods, to the extent we experience growth in the future, ouroperating and investing activities may require significant cash.  Consequently, any such future growth mayrequire us to obtain additional equity or debt financing.  In addition, we may consider the sale ofcertain assets to raise capital.

 

 

 

**Cautionary Statements**

 

This Quarterly Report onForm 10-Q contains forward-looking statements within the meaning of theSecurities Litigation Reform Act of 1995 that involve risks anduncertainties.  Our actual results coulddiffer materially from those anticipated in these forward-looking statements asa result of certain factors, including those set forth in the followingcautionary statements and elsewhere in this Quarterly Report on Form 10-Q.  If any of the following risks were to occur,our business, financial condition, or results of operations would likelysuffer.  In that event, the tradingprice of our common stock would decline.

* *

*Mergerand Acquisition Related Risks.* During fiscal year ended November 30, 2000, we completed themerger with Digital Origin and the acquisitions of Wired, 21stCentury, and J2. In addition, we completed the acquisition of certain assets ofIntegrated Computing Engines, Inc.  Ourbusiness and results of operations could be materially adversely affected inthe event we fail to complete publicly announced acquisitions or tosuccessfully integrate the business and operations of the merger or theacquisitions.  In the future, we maycontinue to acquire or merge with existing businesses, products, andtechnologies to enhance and expand our line of products.  Such mergers and acquisitions may bematerial in size and in scope.  Therecan be no assurance that we will be able to identify, acquire, or profitablymanage additional businesses or successfully integrate any acquired businessesinto our business without substantial expenses, delays, or other operational orfinancial problems.  Acquisitionsinvolve a number of special risks and factors, including increasing competitionfor attractive acquisition candidates in our markets, the technologicalenhancement and incorporation of acquired products into existing product linesand services, the assimilation of the operations and personnel of the acquiredcompanies, failure to retain key acquired personnel, adverse short-term effectson reported operating results, the amortization of acquired intangible assets,the assumption of undisclosed liabilities of any acquired companies, thefailure to achieve anticipated benefits such as cost savings and synergies, aswell as the diversion of management’s attention during the acquisition andintegration process.  We may not be ableto operate the acquired businesses properly and may not be able to successfullyrecover amounts paid for such businesses. Some or all of these special risks and factors may have a materialadverse impact on our business, operating results, and financial condition and,as a result, may negatively affect the market price of our common stock.

 

Similarly, we maydetermine to dispose of assets, either assets we have historically used in thebusiness or that we have acquired.  Ourbusiness and results of operations could materially change depending on whetheror not we are able to dispose of assets in an advantageous manner.  In addition to obtaining an advantageousprice for the assets to be disposed of, dispositions involve a number ofspecial risks and factors, including searching for appropriate acquirers;managing the effect of the disposition on existing and proposed product linesand services, the divestiture of operations and personnel of the acquiredcompanies, adverse short-term effects on reported operating results, potentialpost-divestiture indemnification or liability for liabilities of divestedoperations, as well as the diversion of management’s attention during thedisposition process.  Some or all ofthese special risks and factors may have a material adverse impact on ourbusiness, operating results, and financial condition and, as a result, maynegatively affect the market price of our common stock.

* *

*Significant Fluctuations and Unpredictability of OperatingResults.*  Ourquarterly operating results are difficult to predict, have varied significantlyin the past and are likely to vary significantly in the future for a number ofreasons, including new product announcements and introductions by ourselves orour competitors, changes in pricing, and the volume and timing of ordersreceived during the quarter. Also, in the past, we have experienced delays inthe development of new products and enhancements, and such delays may occur inthe future.  These factors make theforecasting of revenue inherently uncertain. Additionally, a significant portion of our operating expenses isrelatively fixed, and operating expense levels are based primarily on internalexpectations of future revenue.  As aconsequence, quarterly operating expense levels cannot be reduced rapidly inthe event that quarterly revenue levels fail to meet internal expectations.  For these reasons, you should not rely onperiod-to-period comparisons of our financial results to forecast our futureperformance.  It is likely that in somefuture quarter or quarters our operating results will be below the expectationsof securities analysts or investors.  If quarterly revenue or earnings levels fail to meet internal orexternal expectations, the market price of our common stock may declinesignificantly.

* *

*Emerging Markets.*  The markets in which we offer our systemsproducts and services are intensely competitive and rapidly changing.  We are targeting the emerging market ofbroadcast designers, effects artists, and creative professionals.  This market and the products utilized bythese users are relatively new.  Oursuccess in this emerging market will depend on the rate at which the market developsand our ability to penetrate that market. We will not succeed if we cannot compete effectively in this market and,as a result, our business and operating results could be materially andadversely affected.

 

*Risks Associated With Development and Introduction of NewProducts.*  If we arenot successful in developing and introducing new products to the markets weserve our business and operating results will suffer.  In addition, new product announcements by our competitors and byus could have the effect of reducing customer demand for our existingproducts.  Also, when we introduce newor enhanced products we must effectively manage the transitions from existingproducts to minimize disruption of orders from our customers.  New product introductions require us todevote time and resources to the training of our sales channel in the featuresand target customers for such new products, which efforts could result in lessselling efforts being made by the sales channel during such training period.  Our failure to effectively manage newproduct announcements or introductions could contribute to significantquarterly fluctuations in operating results as orders for new products commenceand orders for existing products decline and, as a result, our operating resultswill suffer.

* *

*Rapid Technological Change.*  The market for our products is characterizedby rapidly changing technology, evolving industry standards and frequent newproduct introductions.  Our futuresuccess will depend in part upon our ability to enhance existing products andto introduce new products and features in a timely manner to address customerrequirements, respond to competitive offerings, adapt to new emerging industrystandards and take advantage of new enabling technologies that could render ourexisting products obsolete. We plan to continue to invest in research anddevelopment, in connection with our development strategy.  Any delay or failure on our part indeveloping additional new products or features for existing products or any failureof such new products or features to achieve market acceptance, could have amaterial adverse effect on our business and operating results and our stockprice will suffer.

* *

*Competition.*  The market for our products is highly competitive and characterizedby pressure to reduce prices, incorporate new features and accelerate therelease of new products.  A number ofcompanies currently offer products that compete directly or indirectly with ourproducts, including Accom, Inc., Adobe Systems Inc., Apple Computer Inc., AvidTechnology, Inc., Discreet (a division of Autodesk, Inc.), FAST ElectronicGmbH, Leitch, Inc., Matrox Electronic Systems Ltd. and Pinnacle Systems,Inc.  In addition, we expect much largervendors, such as Matsushita Electric Industrial Company Ltd., MicrosoftCorporation, and Sony Corporation, to develop and introduce digital editingsystems that may compete with our products. Many of these current and potential competitors have greater financial,technical and marketing resources than us, including, without limitation,larger and more established selling and marketing capabilities, greater brandrecognition and a larger installed base of customers, and well-establishedrelationships with our existing and potential customers, complementarytechnology vendors and other business partners.  As a result, our competitors may be able to develop productscomparable to or superior to our own products, adapt more quickly than us tonew technologies, evolving industry standards or customer requirements, orlower their product costs and thus be able to lower prices to levels at whichwe could not operate profitably, the occurrence of any of which could have amaterial adverse effect on our business and operating results.  In this regard, we believe that we willcontinue to experience competitive pressure to reduce prices, particularly forour high data rate systems.  We havehistorically realized higher gross profit on the sale of these high data ratesystems, and such continued competitive pricing pressure could result in lowersales and gross margin, which in turn could adversely affect our business andoperating results and negatively affect the price of our common stock.

* *

*Dependenceon and competition with Apple Computer, Inc.*  As a competitor, Apple Computer, Inc.(“Apple”) could, in the future, inhibits our ability to develop our productsthat operate on the Macintosh platform. Additionally, new products and enhancements to existing products fromApple such as Final Cut Pro could cause customers to delay purchases of ourproducts or alter their purchase decision altogether.  Furthermore, as the sole supplier of Macintosh computers, anydisruption in the availability of these computers could cause customers todefer or alter their purchase of our products. We rely on access to key information from Apple to continue developmentof our products and any failure to continue supplying our engineers with thisinformation could have a material adverse affect on our business and financialresults and negatively affect the price of our common stock.

* *

*Dependenceon Microsoft Corporation.* Many of our products operate in the Windows environment and ourengineers depend upon access to information in advance from MicrosoftCorporation (“Microsoft”).  Any failureto continue supplying our engineers with this information could have a materialadverse affect on our business and financial results and negatively affect theprice of our common stock.

* *

*Dependence on Single or Limited Source Suppliers.*  The Company is dependent on single orlimited source suppliers for several key components used in its products thathave no ready substitutes, including various audio and video signal processingintegrated circuits manufactured in each case only by Crystal Semiconductor Corp.,Fairchild Semiconductor Corp., Gennum Corporation, Toshiba, Kawasaki LSI USAInc., LSI Logic Corp., Philips Semiconductors or Zoran Corp.  The availability of many of these componentsis dependent on our ability to provide suppliers with accurate forecasts of ourfuture requirements, and certain components we use to build our products havebeen subject to industry-wide shortages. We do not carry significant inventories of these components and have noguaranteed supply arrangements with such suppliers.  There can be no assurance that our inventory levels will beadequate to meet production needs during any interruption of supply.  Our inability to develop alternative supplysources, if required, or a reduction or stoppage in supply, could delay productshipments until new sources of supply become available, and any such delaycould adversely affect our business and operating results in any given periodand negatively affect the price of our common stock.

 

*Dependenceon Propriety Technology.* Our ability to compete successfully and achieve future revenue growthwill depend, in part, on our ability to protect our proprietary technology andoperate without infringing the rights of others.  Previously, we have received, and may in the future continue toreceive, communications suggesting that our products may infringe on thepatents or other intellectual property rights of third parties.  Our policy is to investigate the factualbasis of such communications and negotiate licenses where appropriate.  While it may be necessary or desirable inthe future to obtain licenses relating to one or more products, or relating tocurrent or future technologies, there can be no assurance that we will be ableto do so on commercially reasonable terms or at all.  There can be no assurance that these or other futurecommunications can be settled on commercially reasonable terms or that theywill not result in protracted and costly litigation.  Any failure to secure the necessary intellectual property rightof third parties on commercially reasonable terms may adversely affect ourbusiness and operating results and negatively affect the price of our commonstock.

* *

*Risks of Third-Party Claims of Infringement.*  There has been substantial industrylitigation regarding patent, trademark and other intellectual property rightsinvolving technology companies.  In thefuture, litigation may be necessary to enforce any patents issued to us or toenforce trade secrets, trademarks and other intellectual property rights ownedby us, to defend ourselves against claimed infringement of the rights of othersand to determine the scope and validity of the proprietary rights ofothers.  For a description of certainpending litigation instituted against the Company, see Item 1, LegalProceedings of Part II, Other Information and Note 9 to the ConsolidatedFinancial Statements included herein. Any such litigation could be costly and a diversion of management’sattention, which could adversely affect our business and operating results andour financial condition.  Adversedeterminations in any such litigation could result in the loss of ourproprietary rights, subject us to significant liabilities, require us to seeklicenses from third parties or prevent us from manufacturing or selling ourproducts, any of which could adversely affect our business and operatingresults and our financial condition.

* *

*Dependence on Distributors and Resellers.*  We rely primarily on our worldwide networkof independent distributors and value-added resellers (“VARs”) to distributeand sell our products to end-users.  Ourdistributors and resellers generally offer products from several differentcompanies, including in some cases products that are competitive with our ownproducts.  In addition, many of the VARsare small organizations with limited capital resources.  There can be no assurance that ourdistributors and resellers will continue to purchase products from us, or thatour efforts to expand our network of distributors and resellers will besuccessful.  Any significant failure onour part to maintain or expand our network or distributors and resellers couldhave a material adverse effect on our business and operating results andnegatively affect the price of our common stock.

* *

*Reliance on International Sales.*  International sales and operations may besubject to risks such as the imposition of government controls, export licenserequirements, restrictions on the export of critical technology, less effectiveenforcement of proprietary rights; currency exchange fluctuations, generallylonger collection periods, political instability, trade restrictions, changesin tariffs, difficulties in staffing and managing international operations,potential insolvency of international resellers and difficulty in collectingaccounts receivable.  Our internationalsales are also subject to more seasonal fluctuation than domestic sales.  In this regard, the traditional summervacation period, which occurs during our third fiscal quarter, may result in adecrease in sales, particularly in Europe. There can be no assurance that these factors will not have an adverseeffect on our future international operations and consequently, on our businessand operating results.  This fluctuationmay be material and negatively affect the price of our common stock.

* *

*Dependence on Key Personnel.*  Competition for employees with the skillsrequired by us is intense in the geographic areas in which we maintain physicaloperations.  We believe that our futuresuccess will depend on our continued ability to attract and retain qualifiedemployees, especially in research and development.  Any significant delay in hiring key personnel could have amaterial adverse affect on our business and operating results and negativelyaffect the price of our common stock.

* *

*History of Losses.*  We have incurred substantial operatinglosses during the current year and in each of the past five fiscal years.  We incurred an operating loss fromcontinuing operations of approximately $13.1 million for the first nine monthsof fiscal 2001 and as of August 31, 2001, we had an accumulated deficit ofapproximately $205.2 million.  Over thepast four years we have significantly increased our research and developmentexpenses as a percentage of total sales and we plan to continue to invest innew technology, and as a result, we may incur operating losses in futureperiods.  We will need to generateincreases in our current sales levels to achieve profitability and we may notbe able to do so.  If our sales growmore slowly than we anticipate or if our operating expenses increase more thanwe expect or cannot be reduced in the event of lower revenue, our business willbe significantly and adversely affected. Our failure to achieve profitability or achieve the level ofprofitability expected by investors and securities analysts may adverselyaffect the market price of our common stock.

 

*Stock Price Volatility*.  The trading price of our common stock hasbeen highly volatile and has fluctuated significantly in the past.  During fiscal 2000, our stock pricefluctuated between a low of $2.125 per share and a high of $52.75 pershare.  We believe that the price of ourcommon stock may continue to fluctuate significantly in the future in responseto a number of events and factors relating to our company, our competitors, andthe market for our products and services, many of which are beyond our control,such as, variations in our quarterly operating results; changes in financialestimates and recommendations by securities analysts; changes in marketvaluations of companies in our markets; announcements by us or our competitorsof significant products, acquisitions, or strategic partnerships; failure tocomplete significant business transactions; departures of key personnel;purchases or sales of common stock or other securities by us; or news relatingto trends in our markets.  In addition,the stock market in general, and the market for technology companies inparticular, have experienced extreme volatility over the past twelvemonths.  This volatility has often beenunrelated to the operating performance of particular companies.  These broad and industry fluctuations mayadversely affect the market price of our common stock, regardless of ouroperating performance.

* *

*Euro Conversion.*  On January 1, 1999, 11 of the 15 membercountries of the European Union established fixed conversion rates betweentheir existing sovereign currencies and the Euro.  As of January 1, 2002, the transition to the Euro will be complete.  We maintain operations within the EuropeanUnion and have prepared for the Euro conversion.  We do not expect the costs associated with the transition to bematerial.  However, the overall effectof the transition to the Euro may have a material adverse affect on ourbusiness, financial condition and financial results.

 

Item 3.                Quantitativeand Qualitative Disclosures About Market Risk

 

Derivative FinancialInstruments, Other Financial Instruments and Derivative CommodityInstruments.  The Company is not a partyto any derivative financial instruments or other financial instruments forwhich the fair value disclosure or accounting would be required under Statementof Financial Accounting Standards No. 133*Accounting for Derivative Instruments and HedgingActivities**(* SFAS No. 133).  All of the Company’s investments are in short-term, investmentgrade commercial paper, certificates of deposit and U.S. Government and agencysecurities that are carried at fair value on the Company’s books.  Accordingly, the Company believes that themarket risk of such investments is minimal.

 

Primary Market Risk Exposures.  The Company’s primary market risk exposuresare in the area of interest rate risk and foreign currency exchange raterisk.  The Company’s investmentportfolio of cash equivalents is subject to interest rate fluctuations, but theCompany believes this risk is immaterial due to the short-term nature of theseinvestments.  The Company’s business inEurope is conducted in local currency. In Asia, business is conducted in U.S. currency.  The Company has no foreign exchangecontracts, option contracts or other foreign hedging arrangements.  However, the Company estimates that anymarket risk associated with its foreign operations is not significant and isunlikely to have a material adverse effect on the Company’s business, resultsof operations, or financial condition.

 

 

PART II.  OTHERINFORMATION

 

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 patentinfringement by the Company arising from the manufacture, sale, and use of theCompany's Media 100 products.  Thecomplaint includes requests for injunctive relief, treble damages, interest,costs and fees.  In July 1995, theCompany filed an answer and counterclaim denying any infringement and assertingthat the Avid patent in question is invalid. The Company intends to vigorouslydefend the lawsuit. In addition, Avid is seeking reissue of the patent,including claims that it asserts are broader than in the existing patent, andthese reissue proceedings remain pending before the U.S. Patent and TrademarkOffice.  On January 16, 1998, the courtdismissed the lawsuit without prejudice to either party moving to restore it tothe docket upon completion of all matters pending before the U.S. Patent andTrademark Office.

 

On August 16,2000, the U.S. Patent and Trademark Office issued an Office Action rejectingall of the claims made by Avid in their latest request for reexamination of thepatent related to the aforementioned lawsuit. In addition, the Examiner at the U.S. Patent and Trademark Officedesignated the action as “final”.  OnNovember 29, 2000, Avid filed a Notice of Appeal of the Examiner’s rejectionsto the U.S. Patent and Trademark Office Board of Patent Appeals andInterferences.  There can be noassurance that the Company will prevail in the appeal by Avid or that theexpense or other effects of the appeal, whether or not the Company prevails,will not have a material adverse effect on the Company’s business, operatingresults and financial condition.

 

(ii) On January 13, 1999 and January 28, 1999, Digital Origin and oneof its former directors, Charles Berger, were named as defendants in twoshareholder class action lawsuits against Splash Technology Holdings, Inc.(“Splash”), various directors and executives of Splash and certain sellingshareholders of Splash.  The lawsuitalleges, among other things, that the defendants made or were responsible formaterial misstatements, and failed to disclose information concerning Splash’sbusiness, finances and future business prospects in order to artificiallyinflate the price of Splash common stock. The complaint does not identify any statements alleged to have been madeby Charles Berger or Digital Origin. The complaint further alleges that Digital Origin engaged in a scheme toartificially inflate the price of Splash common stock to reap an artificiallylarge return on the sale of the common stock in order to pay off its debt.  Digital Origin and the former directorvigorously deny all allegations of wrongdoing and intend to aggressively defendthemselves in these matters. Defendant’s two initial motions to dismiss theaction were granted with leave to amend,and plaintiffs have again amended the complaint.  Defendants have now filed their third motion to dismiss.

 

On July 18, 1997, Intelligent Electronics, Inc. fileda claim against Digital Origin alleging a breach of contract and related claimsin the approximate amount of $800,000, maintaining that Digital Origin failedto comply with various return, price protection, inventory balancing andmarketing development funding undertakings. In 1997, Digital Origin filed an answer to the complaint andcross-claimed against the plaintiffs and in October 1997 additionally crossclaimed against Deutsche Financial, Inc., a factor in the account relationshipbetween the Company and the plaintiffs, seeking the recovery of existing accountsreceivable of approximately $1.8 million. During May 2000, the trial was completed and the Court entered twojudgments in favor of Digital Origin, one in the amount of $314,000 plusinterest against Intelligent Electronics and one in the amount of $1,491,000plus interest against Deutsche Financial, Inc. In September 2000, Intelligent Electronics, Inc. paid $314,000 plusinterest of $139,000 and reimbursement of certain costs in the amount of$20,000 to the Company. On August 15, 2001, Deutsche Financial, Inc. enteredinto a settlement agreement with Digital Origin, Inc. to pay $1,075,000 to theCompany.

 

(iii) On October 12, 1999, a lawsuit was filed againstthe Company by McRoberts Software, Inc. in the United States District Court forthe Southern District of Indiana.  Thecomplaint alleges copyright infringement, breach of contract, and trade secretmisappropriation.  The complaintincludes requests for injunctive relief, treble damages, interest, costs andfees.  In November 1999, we filed ananswer and counterclaim denying any infringement.  We intend to vigorously defend the lawsuit.

 

(vi) On May 9, 2001, a lawsuit was filed against theCompany by Wired, a California general partnership, in the Santa Clara CountySuperior Court.  The complaint allegesfraud, negligent misrepresentation, breach of express and implied-in-factcontract, breach of the implied covenant of good faith and fair dealing, breachof fiduciary duty and violation of California business and professional codesection 17200.  The complaint includesrequests for compensatory and punitive damages, injunctive relief, andfees.  The Company intends to vigorouslydefend the lawsuit.

 

(vi)  From time to time theCompany is involved in other disputes and/or litigation encountered in its normalcourse of business.  The Company doesnot believe that the ultimate impact of the resolution of such otheroutstanding matters will have a material effect on the Company’s business,operating results or financial condition.

 

Item 5. Other Information

 

On August 29,2001, the Company signed an agreement to sell its software product line toAutodesk, Inc. for $16 million in cash.  As a result of this transaction, the assets of the software product lineto be discontinued consisting primarily of inventory, equipment and intangibleassets and have been separately classified in the accompanying balance sheet atAugust 31, 2001.  The November 30, 2000balance sheet has been restated to conform to the current year’s presentation.The disposal date was October 5, 2001. The Company’s software product line consisted of products acquired inthe Terran acquisition and the merger with Digital Origin.

 

Item 6. Exhibits and Reports on Form 8-K

 

a)  Exhibits

Exhibits requiredas part of this Quarterly Report on Form 10-Q are listed in the exhibit indexon page 30.

 

b)  Reports on Form 8-K

 

There were noreports on Form 8-K during the quarter ended August 31, 2001.

 

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|   |             | Media 100 Inc. |                    |
|--------|------------------|----------------|-------------------------|
|   |             |           |                    |
|   |             |           |                    |
|   |             |           |                    |
| Date:  | February 1, 2002 | By:       | /s/ Steven D. Shea      |   |
|   |             |           | Steven D. Shea          |   |
|   |             |           | Chief Financial Officer |   |
|   |             |           | Treasurer               |   |

 

 

 

EXHIBIT INDEX

 

 

| Number |   | Description                                                                                                                                                                                                                                                                                                 |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                        |
| 2.10   |   | Asset Purchase Agreement by and among Media 100 Inc.  and Autodesk, Inc, and with respect to Section 9.5 of Article IX only  Computershare Trust Company, Inc. dated August 29, 2001 (filed as exhibit  2.10 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter  ended August 31, 2001.) |