MetaTools announces first-quarter results in line with previously revised estimates.

CARPINTERIA, Calif.--(BUSINESS WIRE)--April 17, 1997--MetaTools Inc. (NASDAQ:MTLS) Thursday reported that revenues for the first quarter ended March 31, 1997, were $6.2 million, up from $5.5 million for the first quarter ended March 31, 1996.

MetaTools also announced that net income for the first quarter of 1997 was $81,000, or $0.01 per share, compared with net income of $724,000, or $0.06 per share, for the first quarter of 1996. These results are within the estimated range that the company had previously announced for the first quarter of 1997.

MetaTools attributes slower revenue growth in the first quarter of 1997, compared with 1996, to a delay until the second quarter of 1997 in the expected shipment of the OEM version of the company's new consumer digital photo product, "Kai's Photo Soap," combined with a general weakness in the domestic retail software market for graphics products.

Expected increased operating expenses from the acquisition of Real Time Geometry in December 1996 also contributed to higher operating expenses and lower earnings in the first quarter of 1997 compared to the first quarter of 1996. Real Time Geometry, MetaTools' advanced 3-D research lab based in Princeton, N.J., develops innovations related to the creation, rendering and display of 3-D images including dynamic scaling of image resolution.

John Wilczak, MetaTools' chief executive officer, stated: "Clearly we are disappointed with earnings for the first quarter; however, we believe our recent merger and acquisition activity is positioning the company to be a much larger participant in visual computing. We are diligently working on marketing, development and consolidation efficiency strategies."

MetaTools also reported gross profits of $5,410,000, or 87% of net revenues in the first quarter of 1997, compared with $4.4 million, or 80% of net revenues in the first quarter of 1996. Strong OEM and licensing revenues, representing 50% of net revenues in the first quarter of 1997, compared with 21% in the first quarter of 1996, substantially contributed to the increased gross profits.

Sales to distributors were 37% of net revenues in the first quarter of 1997, compared with 57% in the first quarter of 1996. Direct sales to end-users represented 13% of revenues in the first quarter of 1997, compared with 22% in the first quarter of 1996.

International Operations

As a result of growth in the number of international licensing and OEM agreements, combined with growth in channel sales in both Europe and Japan, international revenues represented 38% of net revenues in the first quarter of 1997, compared with 18% in the first quarter of 1996.

Wilczak stated: "We continue to be pleased with our efforts in expanding our international business. We are seeing the benefits of our growing international distribution channels and the expansion of our relationships with worldwide leaders in the computer industry."

Windows and Cross-Platform Sales

Revenues from Windows and cross-platform versions of MetaTools products represented 65% of net revenues for the first quarter ended March 31, 1997, compared with 40% of net revenues for the first quarter of 1996.

Wilczak commented: "The demand for Windows and cross-platform versions of the company's products continued to show strong growth in the first quarter of 1997 while sales of Macintosh versions showed declining results." Substantially all MetaTools' products operate on both the Windows and Macintosh platforms.

Merger with Fractal Design Inc.

As previously announced, the proposed merger of MetaTools and Fractal Design Corp. is expected to be submitted to a vote of their respective shareholders prior to the end of May 1997.

Completion of Specular International Acquisition

Earlier Thursday, the company announced the completion of the acquisition of Specular International on terms previously announced. Specular International is a privately held software development company based in Amherst, Mass., which develops and markets 3-D animation and graphic design tools for professionals and prosumers.

Certain statements contained herein are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Readers are directed to the company's filing with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and its quarterly reports on Forms 10-Q for a more detailed discussion of the risk factors.

MetaTools, the visual-computing software company, designs, develops, publishes, markets and supports software tools and enabling technologies for creating, editing and manipulating computer graphic images, digital art and Internet/on-line content for Windows, Macintosh and other digital computing and editing systems.

Working with distributors in North America, Europe and Asia, MetaTools' professional and consumer software is available in more than 50 countries. The company is located in Santa Barbara County at 6303 Carpinteria Ave., Carpinteria, Calif. 93013; telephone [phone]; fax [phone]. MetaTools' International Operations Center is located at Wilson House, Fenian Street, Dublin 2, Ireland. Telephone: [phone]; Fax: [phone]; World Wide Web server http://www.metatools.com .

For further investor information via facsimile at no additional cost, call 800/PRO-INFO and dial client code MTLS. -0-

                         MetaTools Inc.
         Consolidated Condensed Statements of Operations
              (In thousands, except per-share data)
                          (Unaudited)

                                          Three Months Ended
                                               March 31,
                                            1997      1996

Net revenues                             $ 6,248   $ 5,503
Cost of revenues                             838     1,103
Gross profit                               5,410     4,400

Operating expenses:
 Sales and marketing                       3,173     2,625
 General and administrative                  824       602
 Research and development                  1,850       738
Total operating expenses                   5,847     3,965

Income (loss) from operations               (437)      435
Other income                                 553       614

Income before provision for income
 taxes                                       116     1,049
Provision for income taxes                    35       325

Net income                               $    81   $   724

Net income per common share              $   .01   $   .06

Weighted average number of shares
 outstanding                              14,235    13,054


                           MetaTools Inc.
               Consolidated Condensed Balance Sheets
               (In thousands, except per-share data)
                            (Unaudited)

                                         March 31,   Dec. 31,
                                           1997        1996

Assets
Current assets:
 Cash and short-term investments         $36,992     $39,557
 Accounts receivable, net                 10,149       9,994
 Inventories                                 455         252
 Deferred income taxes                       746         746
 Prepaid expenses                          2,823       2,080
   Total current assets                   51,165      52,629

Property and equipment, net                4,107       3,123
Other assets                               1,214       1,277
   Total assets                          $56,486     $57,029

Liabilities and Stockholders' Equity
Current liabilities:
 Accounts payable and accrued expenses   $ 4,974     $ 5,796
 Royalties payable                           499         402
   Total current liabilities               5,473       6,198

Stockholders' equity                      51,013      50,831
   Total liabilities and stockholders'
    equity                               $56,486     $57,029

CONTACT: MetaTools Inc., Carpinteria

Terry Kinninger, 805/566-6200

or

The Financial Relations Board Inc.

Fiona Ross, 310/442-0599 (general info)

Moira Conlon, 310/442-0599 (analysts)

Steven Seiler, 310/442-0599 (media)