-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BM+oCocXkNMWmxBIC+xNsExB2qkY+lTIEXxBhhBuK9NNXvnajT9Aoy1jhfETdYeJ 9r3oa4N1hsaR4jhJw9SmRg== 0000912057-00-006615.txt : 20000215 0000912057-00-006615.hdr.sgml : 20000215 ACCESSION NUMBER: 0000912057-00-006615 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991201 ITEM INFORMATION: FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MACROMEDIA INC CENTRAL INDEX KEY: 0000913949 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943155026 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22688 FILM NUMBER: 542082 BUSINESS ADDRESS: STREET 1: 600 TOWNSEND ST STREET 2: STE 310 W CITY: SAN FRANCISCO STATE: CA ZIP: 94103 BUSINESS PHONE: 4152522000 MAIL ADDRESS: STREET 1: 600 TOWNSEND ST STREET 2: STE 310W CITY: SAN FRANCISCO STATE: CA ZIP: 94103 8-K/A 1 FORM 8-K/A U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 1, 1999 Commission File 000-22688 MACROMEDIA, INC. (A Delaware Corporation) I.R.S. Employer Identification No. 94-3155026 600 TOWNSEND ST., SAN FRANCISCO, CA 94103 (415) 252-2000 1 ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. On December 15, 1999, Macromedia, Inc. ("Macromedia") filed a Form 8-K to report its acquisition of Andromedia, Inc. ("Andromedia"). Pursuant to Item 7 of Form 8-K, Macromedia indicated that it would file certain financial information no later than the date required by Item 7 of Form 8-K. This Amendment No. 1 is filed to provide the required financial information. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED ANDROMEDIA, INC. INDEX TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 30, 1999
PAGE ---- Unaudited Consolidated Condensed Balance Sheet as of September 30, 1999 3 Unaudited Consolidated Condensed Statement of Operations for the nine months ended September 30, 1999 and 1998 4 Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 5 Notes to Unaudited Consolidated Condensed Financial Statements 6
2 ANDROMEDIA, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET As of September 30, 1999 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 5,343 Accounts receivable, net 2,025 Prepaid expenses and other current assets 2,270 -------------- Total current assets 9,638 Property and equipment, net 2,365 Other long-term assets 1,495 -------------- Total assets $ 13,498 -------------- -------------- LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 2,966 Deferred revenue 1,979 Current lease obligations 960 Other current liabilities 76 -------------- Total current liabilities 5,981 Long-term debt and lease obligations, less current 489 -------------- Total liabilities 6,470 -------------- Mandatorily redeemable convertible preferred stock 30,048 -------------- Commitments Stockholders' deficit: Common Preferred stock 2,070 Common stock 4,220 Deferred stock compensation (1,613) Accumulated other comprehensive loss (38) Accumulated deficit (27,659) -------------- Total stockholders' deficit (23,020) -------------- Total liabilities and shareholders' deficit $ 13,498 -------------- --------------
See accompanying notes to unaudited consolidated condensed financial statements. 3 ANDROMEDIA, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS For the Nine Months Ended September 30, 1999 and 1998 (in thousands except per share data)
1999 1998 ------------ ------------ Revenue $ 4,953 $ 1,066 Cost of revenue 3,199 435 ------------ ------------ Gross profit 1,754 631 Operating expenses: Sales and marketing 7,892 3,409 Research and development 2,834 1,715 General and administrative 2,602 1,425 Amortization of intangible assets 758 - Non-cash stock compensation 822 153 ------------ ------------ Total operating expenses 14,908 6,702 ------------ ------------ Loss from operations (13,154) (6,071) Other income, net 23 85 ------------ ------------ Net loss (13,131) (5,986) ------------ ------------ Preferred stock accretion (1,234) (52) ------------ ------------ Net loss attributable to common stockholders $ (14,365) $ (6,038) ------------ ------------ ------------ ------------ Net loss per share Basic and diluted $(2.54) $(1.63) Weighted average common shares outstanding, basic and diluted 5,648 3,696
See accompanying notes to unaudited consolidated condensed financial statements. 4 ANDROMEDIA, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1999 and 1998 (in thousands except per share data)
1999 1998 ------------ ------------ Cash flows from operating activities: Net loss $ (13,131) $ (5,986) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,285 175 Deferred stock compensation 831 153 Changes in operating assets and liabilites: Accounts receivable, net (912) (386) Prepaid expenses and other current assets (2,110) (167) Accounts payable and accrued liabilities 1,753 436 Unearned revenue 1,234 554 ------------ ------------ Net cash used in operating activities (11,050) (5,221) ------------ ------------ Cash flows from investing activities: Capital expenditures (1,504) (982) Foreign translation adjustment - - ------------ ------------ Net cash used in investing activities (1,504) (982) ------------ ------------ Cash flows from financing activities: Net proceeds from issuance of convertible redeemable preferred stock 15,216 9,937 Net proceeds from issuance of common stock 66 8 Proceeds from borrowings, net of payments 769 310 ------------ ------------ Net cash provided by financing activities 16,051 10,255 Foreign translation adjustment (35) 13 ------------ ------------ Increase in cash and cash equivalents 3,462 4,065 Cash and cash equivalents, beginning of period 1,881 696 ------------ ------------ Cash and cash equivalents, end of period $ 5,343 $ 4,761 ------------ ------------ ------------ ------------
See accompanying notes to unaudited consolidated condensed financial statements. 5 ANDROMEDIA, INC. NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 1. BASIS OF PRESENTATION The unaudited consolidated condensed financial statements included herein have been prepared by the Company in accordance with generally accepted accounting principles and reflect all adjustments, consisting only of normal recurring adjustments which in the opinion of management are necessary to fairly state the Company's financial position, results of operations, and cash flows for the periods presented. The results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ended December 31, 1999. 2. NET LOSS PER SHARE Basic and diluted net loss per share are computed using the weighted average number of common shares outstanding. The effect of outstanding preferred stock, stock options, warrants, and common stock subject to repurchase is excluded from the computation as their inclusion would be anti-dilutive. Approximately 11.2 million and 6.9 million preferred shares, as converted into common, were excluded from the diluted calculation as of September 30, 1999 and 1998, respectively. For the nine months ended September 30, 1999 and 1998, 2.7 million and 1.4 million options and .2 million and .02 million warrants were excluded from the diluted calculations. The average price of the options is $1.50 and $.27 for the nine months ended September 30, 1999 and 1998, respectively. The average price of warrants is $4.87 and $3.02 for the nine months ended September 30, 1999 and 1998, respectively. 3 SUBSEQUENT EVENT On October 6, 1999, Andromedia entered into a definitive agreement to merge with Macromedia, Inc. The agreement closed on December 1, 1999. Under the terms of the agreement, each outstanding share of Andromedia common stock and convertible preferred stock was exchanged for newly issued shares of common stock of Macromedia. This resulted in the issuance of approximately 5.2 million additional shares of Macromedia's common stock. In addition, all outstanding stock options of Andromedia were converted into the right to acquire Macromedia's common stock at the same exchange ratio, with a corresponding adjustment to the exercise price. The transaction was accounted for as a pooling of interests. 6 INDEX TO FINANCIAL STATEMENTS
ANDROMEDIA, INC. PAGE ---- Report of Independent Accountants 8 Consolidated Balance Sheets 9 Consolidated Statements of Operations 10 Consolidated Statements of Shareholders' Equity (Deficit) 11 Consolidated Statements of Cash Flows 12 Notes to Consolidated Financial Statements 13
7 REPORT OF INDEPENDENT ACCOUNTANTS In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Andromedia, Inc. at December 31, 1997 and 1998, and the consolidated results of their operations and their cash flows for the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California August 10, 1999 8 ANDROMEDIA, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
AS OF DECEMBER 31, -------------------------------- 1997 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 696 $ 1,881 Accounts receivable, net 229 1,113 Prepaid expenses and other current assets 132 160 ------------ ------------ Total current assets 1,057 3,154 Property and equipment, net 332 1,399 Intangible assets, net - 2,242 ------------ ------------ $ 1,389 $ 6,795 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 184 $ 561 Accrued liabilities 187 729 Deferred revenue 70 745 Current portion of debt and lease obligations 67 290 ------------ ------------ Total current liabilities 508 2,325 ------------ ------------ Long-term debt and lease obligations less current 84 390 ------------ ------------ Commitments (Note 5) Mandatorily Redeemable Convertible Preferred Stock: 9,365,285 shares authorized; 1,627,269 and 4,928,689 shares outstanding as of December 31, 1997 and 1998, respectively (aggregate liquidation preference of $13,580, unaudited) 3,548 13,591 ------------ ------------ SHAREHOLDERS' DEFICIT: Convertible Preferred Stock: no par value; 744,910 shares authorized, issued and outstanding (aggregate liquidation preference of $2,130) as of December 31, 1997 and 1998 2,070 2,070 Common Stock: no par value; 20,000,000 shares authorized; 4,000,000 and 5,942,125 shares issued as of December 31, 1997 and 1998, respectively 155 3,602 Deferred stock compensation - (651) Accumulated deficit (4,976) (14,532) ------------ ------------ Total shareholders' deficit (2,751) (9,511) ------------ ------------ $ 1,389 $ 6,795 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 9 ANDROMEDIA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1996 1997 1998 ------------ ------------ ------------ REVENUES: Licenses $ - $ 413 $ 1,153 Services and maintenance - 36 816 ------------ ------------ ------------ Total revenues - 449 1,969 ------------ ------------ ------------ COST OF REVENUES: Licenses - 25 69 Services and maintenance - 18 946 ------------ ------------ ------------ Total cost of revenues - 43 1,015 ------------ ------------ ------------ Gross profit - 406 954 OPERATING EXPENSES: Sales and marketing 387 1,512 5,199 Research and development 884 1,446 2,337 General and administrative 365 857 2,106 Amortization of acquired intangible assets - - 247 Non-cash stock compensation - - 287 Write off of acquired in process technology - - 455 ------------ ------------ ------------ Total operating expenses 1,636 3,815 10,631 ------------ ------------ ------------ Loss from operations (1,636) (3,409) (9,677) Interest income, net 10 59 121 ------------ ------------ ------------ Net loss (1,626) (3,350) (9,556) Preferred stock accretion - - (104) Net loss attributable to common stockholders $ (1,626) $ (3,350) $ (9,660) ------------ ------------ ------------ ------------ ------------ ------------ NET LOSS PER SHARE: Basic and diluted $ (0.49) $ (0.95) $ (2.35) ------------ ------------ ------------ ------------ ------------ ------------ Weighted average shares 3,344 3,531 4,105
The accompanying notes are an integral part of these consolidated financial statements. 10 ANDROMEDIA, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (In thousands, except share data)
CONVERTIBLE DEFERRED PREFERRED STOCK COMMON STOCK STOCK ACCUMULATED ----------------- ------------------- COMPENSATION DEFICIT TOTAL SHARES AMOUNT SHARES AMOUNT ------------ ----------- --------- -------- -------- --------- -------- Issuance of Common Stock to founders - $ - 4,000,000 $ 109 $ - $ - $ 109 Issuance of Series A Convertible Preferred Stock net of issuance costs 248,120 1,143 - - - - 1,143 Issuance of Series B Convertible Preferred Stock net of issuance costs 365,211 682 - - - - 682 Net loss - - - - (1,626) (1,626) -------- -------- --------- -------- ------------ ----------- --------- Balance at December 31, 1996 613,331 1,825 4,000,000 109 - (1,626) 308 Issuance of Series B Convertible Preferred Stock net of issuance costs 131,579 245 - - - - 245 Issuance of Common Stock Options - - - 46 - - 46 Net loss - - - - - (3,350) (3,350) -------- -------- --------- -------- ------------ ----------- --------- Balance at December 31, 1997 744,910 2,070 4,000,000 155 - (4,976) (2,751) Issuance of Common Stock upon acquisition of LikeMinds, Inc. - - 1,856,672 2,600 - - 2,600 Deferred stock compensation - - - 938 (938) - - Amortization of deferred stock compensation - - - 16 287 - 287 Exercise of stock options - - 85,453 (3) - - 16 Foreign translation adjustment - - - (104) - - (3) Preferred Stock accretion - - - - - - (104) Net loss - - - - - (9,556) (9,556) -------- -------- --------- -------- ------------ ----------- --------- Balance at December 31, 1998 744,910 $ 2,070 5,942,125 $3,602 $ (651) $(14,532) $ (9,511) -------- -------- --------- -------- ------------ ----------- --------- -------- -------- --------- -------- ------------ ----------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 11 ANDROMEDIA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1996 1997 1998 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,626) $ (3,350) $ (9,556) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 36 106 547 Acquired in-process technology - - 455 Non-cash stock compensation - - 287 Other 85 46 8 Changes in assets and liabilities, excluding effect of acquisition: Accounts receivable, net - (229) (865) Prepaid expenses and other current assets (51) (81) (28) Other assets (62) 62 - Accounts payable 200 (16) 76 Accrued liabilities 102 85 464 Deferred revenue - 70 675 ------------ ------------ ------------ Net cash used in operating activities (1,316) (3,307) (7,937) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (135) (105) (1,072) ------------ ------------ ------------ Net cash used in investing activities (135) (105) (1,072) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Mandatorily Redeemable Convertible Preferred Stock, net - 3,548 9,927 Proceeds from issuance of Convertible Preferred Stock, net 1,623 245 - Proceeds from issuance of Common Stock 18 - 16 Proceeds from borrowings 202 - 425 Principal payments on borrowings (9) (68) (174) ------------ ------------ ------------ Net cash provided by financing activities 1,834 3,725 10,194 ------------ ------------ ------------ Net increase in cash and cash equivalents 383 313 1,185 Cash and cash equivalents at beginning of period - 383 696 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 383 $ 696 $ 1,881 ------------ ------------ ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 1 $ 11 $ 43 NON-CASH FINANCING AND INVESTING TRANSACTIONS: Shares of Common Stock issued for acquisition of LikeMinds - - 2,600 Property and equipment acquired under capital leases 27 201 279 Conversion of Convertible note to Series A Convertible Preferred Stock 202 - - Convertible Preferred Stock Warrants issued - - 12
The accompanying notes are an integral part of these consolidated financial statements. 12 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Andromedia, Inc. (the "Company" or "Andromedia"), was incorporated in California on January 10, 1996. The Company provides a comprehensive e-marketing solution that combines advanced Web site monitoring, personalization and analysis capabilities. The Company's Solution monitors and analyzes Web site activity and visitor behavior data and, in real-time helps its customers improve the effectiveness of their Internet marketing and selling efforts. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation process. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION The Company's revenues are derived from licenses for its software products and related services, which include maintenance, training and consulting. Effective January 1, 1998, the Company adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition," as amended by Statement of Position 98-4, "Deferral of the Effective Date of Certain Provisions of SOP 97-2." For agreements which do not require significant installation and configuration services, license revenues are recognized upon shipment of the product if no significant vendor obligations remain and collection of the resulting receivable is probable. Maintenance revenues consist of ongoing support and unspecified product enhancements and are recognized ratably over the maintenance period, which is typically one year. Revenues from consulting and training are recognized as the services are performed. For the multiple-element agreements, the revenue is allocated to each individual element based on the vendor-specific objective evidence of its fair value. 13 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Company's software licensing agreements may include more extensive configuration, modification or customization services. Under such circumstances, the combined license and service revenues are recognized under contract accounting with labor days as the basis for determining percentage complete. When reliable estimates of costs to be incurred are available, revenue is recognized using the percentage of completion method based upon the level of effort required to complete the project. The completed contract method is used where reliable estimates to complete are not feasible. Payments received in advance of revenue recognition are recorded as deferred revenue. Revenue recognized in advance of billings is recorded as unbilled receivable Prior to the adoption of SOP 97-2, license revenue was recognized upon shipment of products to customers, if no significant vendor obligations remained and collection of the resulting receivable was probable. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 1998 and 1997, approximately $200,000 and $275,000 of certificates of deposits, the fair value of which approximate cost, are included in cash and cash equivalents, respectively. The Company deposits cash and cash equivalents with high credit quality financial institutions. CONCENTRATION OF CREDIT RISK AND CERTAIN RISKS Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located primarily in the United States. The Company performs credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. At December 31, 1997, one customer accounted for 20% of total accounts receivable. At December 31, 1998, two customers accounted for 28% and 11% of total accounts receivable. The market in which the Company competes is characterized by changing customer needs, frequent new software product introductions and rapidly evolving industry standards. Significant technological change could adversely affect the Company's operating results. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Software development costs are included in research and development and are expensed as incurred. Software development costs incurred subsequent to establishment of technological 14 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) feasibility are capitalized, if material. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model and the general availability of such software has been short, and software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 years, or the lease term, if shorter for leased assets. INTANGIBLE ASSETS Intangible assets include goodwill, patent and workforce associated with business acquisitions and are being amortized over their weighted average useful life of 2.5 years. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25, compensation expense is based on the difference, if any, between the fair value of the Company's stock and the exercise price of the option on the measurement date, which is typically the date of grant. The Company accounts for options granted to non-employees under SFAS No. 123. Under SFAS No. 123, options are recorded at their fair value on the measurement date, which is typically the date of grant. PREFERRED STOCK ACCRETION Shares of Series C, D and E Mandatorily Redeemable Convertible Preferred Stock are redeemable at the higher of original issuance price or fair market value at or any time after February 1, 2004. Accordingly, the Company is increasing the carrying amount of the instruments through periodic accretions, using the interest method, so that the carrying amount will equal the mandatory redemption amount on February 1, 2004. The Company recorded preferred stock accretion of $104,000 for the year ended December 31, 1998. 15 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NET LOSS PER SHARE Basic and diluted net loss per share are computed using the weighted average number of common shares outstanding. Options, warrants and preferred stock were not included in the computation of diluted net loss per share because the effect would be antidilutive. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
YEARS ENDED DECEMBER 31, ---------------------------------------- 1996 1997 1998 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) HISTORICAL: Numerator: Net loss $(1,626) $(3,350) $ (9,556) Accretion of Series C and D Mandatorily Redeemable Convertible Preferred Stock - - (104) ---------- ---------- ---------- Net loss attributable to common stockholders $(1,626) $(3,350) $ (9,660) ---------- ---------- ---------- Denominator: Weighted average shares 4,000 4,000 4,475 Weighted average unvested common shares subject to repurchase (656) (469) (370) ---------- ---------- ---------- Total weighted average shares 3,344 3,531 4,105 ---------- ---------- ---------- Net loss per share: Basic and diluted $ (0.49) $ (0.95) $ (2.35) ---------- ---------- ---------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components and is effective for periods beginning after December 15, 1997. The Company adopted this statement as of the first quarter of 1998. Comprehensive loss approximated net loss for all periods presented. FOREIGN CURRENCY TRANSLATION Financial statements of the Company's foreign subsidiary are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at weighted-average rates in 16 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) effect during the year. Translation adjustments for the periods presented were not significant. INCOME TAXES The Company accounts for income taxes under the liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company's assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future tax benefits of utilizing net operating losses and research and development credit carryforwards. A valuation allowance is provided against deferred tax assets if it is more likely than not that they will not be realized. ADVERTISING EXPENSE The Company expenses all advertising expenses as incurred. The Company's advertising expenses were none in 1996 and $587,000 and $991,000 for 1997 and 1998, respectively. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the Financial Accounting Standards Board deferred the effective date of SFAS 133 until the first fiscal quarter ending June 30, 2000. The Company will adopt SFAS 133 in its quarter ending June 30, 2000 and does not expect such adoption to have an impact on the Company's results of operations, financial position or cash flows. In December 1998, the AICPA, issued Statement of Position 98-9 ("SOP 98-9"), "Modification of SOP 97-2, `Software Revenue Recognition,' with respect to certain transactions." SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue for multiple element arrangements by means of the "residual method" when (1) there is vendor-specific objective evidence ("VSOE") of the fair values of all the undelivered elements that are not accounted for by means of long-term contract accounting, and (2) VSOE of fair value does not exist for one or more of the delivered elements, and (3) all revenue recognition criteria of SOP 97-2 has been met. SOP 98-9 will be effective for transactions that are entered into in fiscal years beginning after March 15, 1999. Retroactive application is prohibited. The Company does not expect SOP 98-9 to have a material effect on its financial position, results of operations or cash flows. 17 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 2. BALANCE SHEET COMPONENTS (IN THOUSANDS)
DECEMBER 31, 1997 1998 -------- -------- ACCOUNTS RECEIVABLE, NET: Accounts receivable $ 250 $1,212 Less: Allowance for doubtful accounts (21) (99) -------- -------- $ 229 $1,113 -------- -------- -------- -------- PROPERTY AND EQUIPMENT, NET: Computer equipment $ 427 $1,497 Furniture and fixtures 24 34 Leasehold improvements 23 309 -------- -------- 474 1,840 Less: Accumulated depreciation and amortization (142) (441) -------- -------- $ 332 $1,399 -------- -------- -------- -------- INTANGIBLE ASSETS, NET: Patent $ - $133 Assembled workforce - 895 Goodwill - 1,461 -------- -------- - 2,489 Less: Accumulated amortization - (247) -------- -------- $ - $2,242 -------- -------- -------- -------- ACCRUED LIABILITIES: Payroll and related expenses $ 167 $ 495 Other 20 234 -------- -------- $ 187 $ 729 -------- -------- -------- --------
Property and equipment includes $228,000 and $507,000 of computer equipment under capital leases at December 31, 1997 and 1998, respectively. Accumulated amortization of assets under capital leases totaled $45,000 and $155,000 at December 31, 1997 and 1998, respectively. 3. ACQUISITION On October 8, 1998, the Company acquired all the outstanding shares of LikeMinds, Inc. ("LikeMinds") for 1,856,672 shares of common stock. The transaction was accounted for under the purchase method. The shares of common stock issued in connection with the LikeMinds acquisition were valued at $2.00 per share based on an independent appraisal obtained by the Company. The total purchase price of approximately $2,980,000 (including $380,000 of liabilities acquired and merger related expenses) was assigned, based on the independent appraisal, to the fair value of the assets acquired including $36,000 to tangible assets acquired, $455,000 to in-process research and development, $1,028,000 to other identified intangibles and the remainder of $1,461,000 to goodwill. The in-process research and development was expensed at the acquisition date. Goodwill and other identified acquired intangibles are being amortized over their weighted average life of approximately 2.5 years. The Company's consolidated financial statement include the results of operations of 18 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LikeMinds from the date of acquisition. The value assigned to acquired in-process technology was determined by identifying research projects in areas for which technological feasibility had not been established as of the acquisition date. These include projects (primarily major version upgrades) for the LikeMinds product line. The value was determined by estimating the revenue contribution of each of these products and the amount of the revenues attributable to the core/developed technology and the in-process technology. The net cash flows were then discounted utilizing a weighted average cost of capital of 26.5%. This discount rate takes into consideration the inherent uncertainties surrounding the successful development of the in-process research and development, the expected profitability levels of such technology and the uncertainty of technological advances which could potentially impact the estimates described above. The completion level of acquired in process technology was estimated based on the time and related costs incurred in development before the close of the acquisition in relation to aggregate estimated costs of completing the project. The average percentage of completion of the projects was 59% at the date of the acquisition. Revenues are projected to be generated in 1999 for the versions in development at the acquisition date. If these projects are not successfully developed, future revenues and profitability of the Company may be adversely affected. Additionally, the value of other intangible assets acquired may become impaired. The following unaudited pro forma consolidated financial information reflects the results of operations for the years ended December 31, 1997 and 1998, as if the acquisition had occurred on January 1, 1997 and 1998 and after giving effect to purchase accounting adjustments but excluding the impact of write off of acquired in-process technology. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on January 1, 1998 and may not be indicative of future operating results (in thousands, except per share data).
YEARS ENDED DECEMBER 31, -------- -------- 1997 1998 -------- -------- (UNAUDITED) Revenues $ 697 $ 2,537 Net loss (4,980) (10,111) Net loss attributable to common stockholders (4,980) (10,215) Net loss per share (basic and diluted) $ (0.94) $ (1.87) Weighted average shares (basic and diluted) 5,270 5,468
4 BORROWINGS LINE OF CREDIT In September 1997, the Company entered into a revolving line of credit agreement with a bank which provided for borrowings of up to $500,000. In conjunction with this line of credit, the Company issued warrants for 6,667 shares of Series C Convertible Preferred Stock. The line of credit expired in December 1998. 19 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In February 1999, the Company entered into a revolving accounts receivable based line of credit agreement with a bank which provides for borrowings of up to $2,000,000. The line of credit requires compliance with certain financial tests, prohibits payment of dividends, charges interest at the bank's prime rate and expires in February 2000. Borrowings are collateralized by all of the assets of the Company. EQUIPMENT LINE OF CREDIT The Company has a term loan outstanding which requires monthly payments, is collateralized by all the assets of the Company and bears interest at the bank's prime rate plus 0.5%. As of December 31, 1998, outstanding borrowings under this loan aggregated $411,000. The loan requires the Company to meet certain financial tests and to comply with certain other covenants. The Company was in compliance with such covenants at December 31, 1998. Future principal payments under the loan as of December 31 ,1998 are as follows (in thousands):
YEAR ENDING DECEMBER 31, 1999 $170 2000 170 2001 71 ----- $411 ----- -----
In February 1999, the Company entered into an equipment financing line with a bank which provides for borrowings of up to $1,000,000. The equipment loan is repayable in monthly installments through August 2002 and February 2003 and bears interest at the bank's prime rate plus 0.5%. BRIDGE LOAN AGREEMENT In February 1999, the Company entered into a bridge loan agreement (the "1999 Bridge Loan") with a bank to borrow up to $2,400,000. The loan was due at the earlier of May 31, 1999 or the receipt of the Series E Preferred Stock financing. In February 1999, the Company borrowed $1,003,000 against the line. Approximately $550,000 of principal amount, plus accrued interest, was subsequently repaid in March 1999 and the remaining $453,000 of loan balance was rolled into the aforementioned February 1999 equipment line of credit. 20 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. COMMITMENTS LEASES The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through December 2002. Rent expense for the years ended December 31, 1996, 1997 and 1998 was $38,000, $60,000 and $230,000, respectively. In February 1998, the Company entered into a new office lease agreement for its San Francisco facility which expires in July 2003. The Company has the right to request a five year extension at the end of the original lease term. As of December 31, 1998, the Company had provided a $100,000 of letter of credit to the landlord, as security for faithful performance of the lease. The balance of the letter of credit will decline by $20,000 each year. Future minimum lease payments under noncancelable operating and capital leases as of December 31, 1998 were as follows:
YEARS ENDED CAPITAL OPERATING DECEMBER 31, LEASES LEASES ------- --------- (IN THOUSANDS) 1999 $ 137 $ 406 2000 99 330 2001 57 220 2002 - 225 2003 - 125 ------- --------- Total minimum lease payments 293 $1,306 Less: amount representing interest (24) --------- ------- --------- Present value of capital lease obligations 269 Less: Current portion (120) ------- Long-term portion of capital lease obligations $ 149 ------- -------
6. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE PREFERRED STOCK Mandatorily Redeemable Convertible Preferred Stock consists of the following (in thousands, except share data):
SHARES OUTSTANDING AMOUNT ----------- ----------- Issuance of Series C Preferred Stock 1,627,269 $ 3,548 ----------- ----------- Balance at December 31, 1997 1,627,269 3,548 Issuance of Series D Preferred Stock 3,301,420 9,927 Issuance of Series D Preferred Stock Warrants - 12 Preferred Stock accretion - 104 ----------- ----------- Balance at December 31, 1998 4,928,689 13,591 ----------- ----------- ----------- -----------
21 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Company has 248,120 shares of Series A Convertible Preferred Stock and 496,790 shares of Series B Convertible Preferred Stock authorized, issued and outstanding at December 31, 1997 and 1998. The holders of Mandatorily Redeemable Convertible Preferred Stock and Convertible Preferred Stock have various rights and preferences as follows: REDEMPTION Upon written notice of at least a majority of the holders of Series C, Series D or Series E Convertible Preferred Stock, at any time subsequent to February 1, 2004, the Company must redeem a specified percentage of Series C, D and E Convertible Preferred Stock at a price equal to the greater of (i) $2.20 (Series C), $3.029 (Series D) and $3.533 (Series E) per share, respectively, plus all declared but unpaid dividends on such shares or (ii) the per share fair market value as determined by mutual agreement between a majority of the holders of the applicable series of redeemable preferred and a majority of the Board of Directors. VOTING Each share of Series A, B, C, D and E Convertible Preferred Stock has voting rights equal to an equivalent number of shares of Common Stock into which it is convertible and votes together as one class with the Common Stock. As long as 300,000 shares of Series C Convertible Preferred Stock are outstanding, the holders of the shares of such series voting together as a separate series, are entitled to elect one member of the Board of Directors. So long as there remain outstanding 540,000 shares of Series D Convertible Preferred Stock, the holders of the Series D Convertible Preferred Stock, voting together as a separate series, shall be entitled to elect two members of the Board of Directors. So long as there remain outstanding 690,000 shares of Series E Convertible Preferred Stock, the holders of Series E Convertible Preferred Stock voting together as a separate series, shall be entitled to elect one member of Board of Directors. The remaining directors shall be elected by the holders of Common and Preferred Stock voting as a single class. The Company shall not, without first obtaining the affirmative vote or written consent of the holders of not less than (1) a majority of the outstanding shares of Series C Convertible Preferred Stock so long as there remain outstanding 300,000 shares of Series C Convertible Preferred Stock, (2) 67% of outstanding shares of the Series D Convertible Preferred Stock so long as there remain outstanding 540,000 shares of Series D Convertible Preferred Stock and (3) 67% of outstanding shares of Series E Convertible Preferred Stock so long as there remain outstanding 690,000 shares of Series E Convertible Preferred Stock: enter into any merger, consolidation, reorganization, recapitalization or sale of assets transaction or series of transactions which results in the shareholders of the Company not owning a majority of the outstanding shares of the surviving corporation; enter into or otherwise 22 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) become a party to any agreement whereby any shareholder or shareholders of the Company shall transfer capital stock of the Company to an independent third party or a group of independent third parties pursuant to which such parties acquire capital stock of the Company possessing the voting power to elect a majority of the Company's board of directors; declare any dividends or distributions on any shares of capital stock of the Company, but this restriction shall not apply to the repurchase of shares of Common Stock pursuant to repurchase agreements or prevent the Company from entering into an agreement, directly or indirectly with officers, employees, stockholders or directors of the Company, unless approved by a majority of the Company's disinterested directors on the Board of Directors; enter into any financial commitments in excess of $500,000; dismiss or hire the Company's Chief Financial Officer or other equivalent senior level financial officer; or approve the annual budget of the Company. DIVIDENDS Holders of Series A, B, C, D and E Convertible Preferred Stock are entitled to receive noncumulative dividends at the per annum rate of $0.24, $0.10, $0.11, $0.15 and $0.18 per share, respectively, when and if declared by the Board of Directors. The holders of Series A, B, C, D and E Convertible Preferred Stock will also be entitled to participate in dividends on Common Stock, when and if declared by the Board of Directors, based on the number of shares of Common Stock held on an as-if converted basis. No dividends on Convertible Preferred Stock or Common Stock have been declared by the Board from inception through December 31, 1998. LIQUIDATION In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or sale of assets where the beneficial owners of the Company's Common Stock and Convertible Preferred Stock own less than 50% of the resulting voting power of the surviving entity, the holders of Series A, B, C, D and E Convertible Preferred Stock are entitled to receive an amount of $4.78, $1.90, $2.20, $3.029 and $3.533 per share, respectively, plus any declared but unpaid dividends prior to and in preference to any distribution to the holders of Common Stock. The remaining assets, if any, shall be distributed among the holders of Series C, D and E Convertible Preferred Stock and Common Stock in the same manner as if all the shares of Series C, D and E Convertible Preferred Stock had been converted into Common Stock until the aggregate amount received by the holders of Series C, D and E Convertible Preferred Stock is an amount equal to $4.40, $4.81 and $5.73 per share, respectively; thereafter, any such of Series C, D and E Convertible Preferred Stock shall have no further right to share in any remaining assets and surplus fund of the Company. Should the Company's legally available assets be insufficient to satisfy the liquidation preferences, the funds will be distributed among the holders of Series A, B, C, D and E Convertible Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive. 23 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONVERSION Each share of Series A, B, C, D and E Convertible Preferred Stock is convertible into Common Stock, at the option of the holder. Series A Convertible Preferred Stock converts on a ratio of one share of Preferred Stock to 4 shares of Common Stock subject to adjustment for dilution. Series B, C and E Convertible Preferred Stock convert on a ratio of one share of Preferred Stock to one share of Common Stock, subject to adjustment for dilution. Each share of Series D Convertible Preferred Stock converts on a ratio of 1 to 1.16 subject to adjustment for dilution. Each share of Series A, B, C, D and E Convertible Preferred Stock automatically converts into the number of shares of Common Stock at the then effective conversion ratio upon: (i) the closing of a public offering of Common Stock at a per share price of at least $7.10 per share with gross proceeds of at least $20,000,000, or (ii) the consent of the holders of at least 67% of the shares of such series of Preferred Stock, voting as a separate class. The conversion ratio of each share of Series E Convertible Preferred Stock is subject to change in the event of failure of the Company to achieve certain predefined revenue milestones. At December 31, 1998, the Company reserved an aggregate of 6,949,222 shares of Common Stock for issuance upon the conversion of Series A, B, C and D Convertible Preferred Stock, respectively. WARRANTS FOR MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK In 1998, in connection with securing a bridge loan, the Company issued warrants to purchase 12,417 shares of Series D Convertible Preferred Stock at $3.03 per share, which expire in February 2003. The Company recorded the bridge loan at a discount of approximately $12,000 which discount was allocated to the warrants and amortized as interest expense in 1998. The fair value of the warrants was estimated on the date of grant using the Black-Scholes model. 7. COMMON STOCK The Company's articles of incorporation authorize the Company to issue 20,000,000 shares of no par value Common Stock. Upon incorporation of the Company in January 1996, the Company issued 4,000,000 shares of Common Stock to three founders. Such shares are subject to the Company's right of first refusal and a portion of which are also subject to a right of repurchase by the Company. Approximately 353,820 shares issued to employees of LikeMinds, Inc. are also subject to the Company's right of repurchase, which right lapses over an eighteen month period. At December 31, 1998, approximately 541,820 shares were subject to the Company's right to repurchase. 24 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. STOCK OPTION PLANS 1996 STOCK OPTION PLAN The 1996 Stock Plan (the "Plan") provides for the issuance of up to 500,000 shares of Common Stock in connection with incentive and non-statutory stock option awards granted to employees, directors and consultants to the Company. Stock purchase rights may also be granted under the Plan. Options must be issued at prices not less than 100 percent and 85 percent of the estimated fair value of the stock on the date of grant for incentive and non-statutory options, respectively, and are exercisable for periods not exceeding ten years from the date of grant. Options granted to shareholders who own greater than 10 percent of the outstanding stock at the time of grant are exercisable for periods not exceeding five years from the date of grant and must be issued at prices not less than 110 percent of the estimated fair value at the date of grant. Options granted under the Plan vest ratably over four years following the date of grant, although the Board of Directors may issue options that vest over shorter periods. 1997 STOCK OPTION PLAN The Company adopted the 1997 Stock Option Plan in May 1997 and amended it in April 1998. The terms under this plan are consistent with the 1996 Stock Option Plan except for the vesting period. Under the 1997 Stock Option Plan, any option granted shall be exercisable according to the terms determined by the Board of Directors, but in no case at a rate of less than 20% per year over five years from the date the option is granted. To date, options granted generally vest 25% after one year of service and monthly for the three years thereafter. The Company has reserved 3,270,000 shares of Common Stock for issuance under this Plan. The following is a summary of stock option activity under the 1996 and 1997 stock option plans:
WEIGHTED OPTIONS AVERAGE AVAILABLE OPTIONS EXERCISE FOR GRANT OUTSTANDING PRICE --------- ----------- --------- Shares authorized 500,000 - $ - Options granted (489,072) 489,072 0.11 --------- ----------- --------- Outstanding at December 31, 1996 10,928 489,072 0.11 Additional shares authorized 750,000 - - Options granted (675,822) 675,822 0.26 Options canceled 16,438 (16,438) 0.19 --------- ----------- --------- Outstanding at December 31, 1997 101,544 1,148,456 0.20 Additional shares authorized 1,320,000 - - Options granted (1,368,449) 1,368,449 0.75 Options exercised - (85,453) 0.19 Options canceled 385,050 (385,050) 0.32 --------- ----------- --------- Outstanding at December 31, 1998 438,145 2,046,402 0.54
25 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT DECEMBER 31, 1998 DECEMBER 31, 1998 ----------------------------------------- -------------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED CONTRACTUAL AVERAGE AVERAGE NUMBER LIFE EXERCISE NUMBER EXERCISE OUTSTANDING (IN YEARS ) PRICE OUTSTANDING PRICE RANGE OF EXERCISE PRICE ----------- ----------- -------- ----------- ---------- $0.04-- $0.18 271,479 7.28 $0.06 185,146 $0.06 0.27-- 0.43 633,577 8.67 0.25 259,163 0.25 0.93-- 1.43 1,141,346 9.65 0.82 33,627 0.69 --------- ------- 2,046,402 9.03 $0.54 477,936 $0.21 --------- ------- --------- -------
The Company accounts for employee and board of director stock options in accordance with the provisions of APB No. 25 and complies with the disclosure provisions of SFAS No. 123. Under APB No. 25, compensation expense is recognized based on the amount by which the fair value of the underlying common stock exceeds the exercise price of the stock options at the measurement date, which in the case of employee stock options is typically the date of grant. For financial reporting purposes, the Company has determined that the deemed fair market value on the date of grant of certain employee stock options was in excess of the exercise price of the options. This amount is recorded as deferred compensation and is classified as a reduction of stockholders' equity and is amortized as a charge to operations over the vesting period of the applicable options. The vesting period is generally four years. The fair value per share used to calculate deferred compensation was derived by reference to the preferred stock values and the Company's initial public offering price range. Consequently, the Company recorded deferred stock compensation of $938,000 during the year ended December 31, 1998. Amortization recognized for the year ended December 31, 1998 and totaled $287,000. The weighted average fair values of the options granted in 1996, 1997 and 1998 were $0.03, $0.06 and $0.81, respectively. Had compensation cost for option grants to employees been determined consistent with SFAS No. 123, the Company's net loss would have been as follows (in thousands, except per share data): 26 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1997 1998 -------- --------- --------- Pro forma net loss $ 1,633 $3,376 $ 10,200 Pro forma net loss attributable to common stockholders 1,633 3,376 10,304 Pro forma net loss per share, basic and diluted $ (0.49) $(0.96) $ (2.51)
The above proforma disclosures are not necessarily representative of the effects on reported income or loss for future years as additional grants are made each year and options vest over several years. The fair value of each option grant was estimated on the date of grant using the minimum value options pricing model with the following weighted average assumptions by year:
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1997 1998 -------- --------- --------- Risk-free interest rate 5.9% 5.4% 5.1% Expected life 5 years 5 years 5 years Dividends - - -
Because the Company does not have actively traded equity securities, volatility is not considered in determining the value of options granted to employees. 9. INCOME TAXES No domestic or foreign provision or benefit for income taxes has been recognized for any of the periods presented as the Company has incurred net operating losses and has no carryback potential. The difference between the amount of income tax benefit recorded of zero and the amount of income tax benefit calculated using the federal statutory rate of 34% is primarily due to net operating losses being fully offset by a valuation allowance. During the years ended December 31, 1996, 1997 and 1998, substantially all of the losses incurred by the Company related to its U.S. operations. 27 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Deferred tax assets and liabilities consist of the following:
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1998 -------- ------- (IN THOUSANDS) DEFERRED TAX ASSETS: Net operating loss carryforwards $ 1,500 $ 4,850 Accruals and reserves 23 73 Research tax credits 150 455 Capitalized start-up costs 250 190 -------- -------- 1,923 5,568 Valuation allowance (1,923) (5,568) -------- -------- $ - $ - -------- -------- -------- --------
Management believes that, based on a number of factors including the lack of a long history of profits and that the Company operates in a developing market that is characterized by rapidly changing technology, it is more likely than not that the deferred tax assets will not be utilized, such that a full valuation allowance has been recorded. At December 31, 1998, the Company had approximately $11,900,000 of federal operating loss carryforwards, available to offset future taxable income which expire in varying amounts through 2018. At December 31, 1998, the Company had approximately $257,000 and $198,000 of federal and state research tax credits which expire in varying amounts through 2013. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances including as a result of a cumulative ownership change of more than 50%, as defined, over a three year period. The issuance of the Company's convertible preferred securities during 1996, 1997 and 1998 may have resulted in a limitation on utilization of such net operating loss carryforwards. 10. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION The Company has adopted the Financial Accounting Standards Board's Statements of Financial Accounting Standards No. 131, or SFAS 131, "Disclosure about Segments of an Enterprise and Related Information." The Company has one reportable segment. Management uses one measurement of profitability for its business. The Company markets its products and related services to customers in many industries in the United States and Europe. Revenue by geographic region is as follows (in thousands):
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 ------ ------ ------ United States $ - $449 $1,813 Europe - - 156 ------ ------ ------ $ - $449 $1,969 ------ ------ ------ ------ ------ ------
28 ANDROMEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Two customers individually accounted for 11% and 10% of revenues in 1997. One customer accounted for 13% of revenues in 1998. 11 SUBSEQUENT EVENTS (UNAUDITED) During the quarter ended March 31, 1999, in connection with securing the 1999 Bridge Loan agreement, the Company issued warrants to purchase 18,159 shares of Series E Convertible Preferred Stock at $3.53 per share to the lending institution. These warrants will expire in the year 2009. The Company recorded the bridge loan at a discount of approximately $60,000 which discount was allocated to the warrants and amortized as interest expense during the six month period ended June 30, 1999. The fair value of the warrants was estimated on the date of grant using the Black-Scholes model with expected volatility of 70%, risk-free interest rate of 5.5% and expected life of 10 years. In March 1999, the Company issued warrants to purchase 90,000 shares of Series C Convertible Preferred Stock at $2.20 per share to a vendor for services to be rendered. These warrants will expire in March 2004. The fair value of the warrants of $300,000 was estimated based on the value of the services to be rendered by such vendor which also approximated the fair value under the Black-Scholes model, with expected volatility of 70%, risk free interest rate of 5.5% and expected life of 5 years. On August 12, 1999, the Company entered into a five year noncancelable lease agreement. Aggregate future minimum payments under this lease total to approximately $5,170,000. In connection with this agreement, the Company issued a warrant to purchase 21,000 shares of the Company's Common Stock at an exercise price of $21.43 per share. This warrant expires on August 12, 2001. Additionally, the Company is required to deposit cash or maintain a letter of credit in the amount of $1 million. 29 (b) PRO FORMA FINANCIAL INFORMATION Pro Forma Combined Condensed Financial Information (Unaudited) The following unaudited Pro Forma Combined Condensed Financial Statements assume a business combination between Macromedia and Andromedia accounted for on a pooling of interests basis. The Pro Forma Combined Condensed Financial Statements are based on the historical financial statements and the notes thereto of Macromedia included in the annual report on Form 10-K for the years ended March 31, 1999, 1998, and 1997, the quarterly report on form 10-Q for the quarter ended September 30, 1999, and the historical financial statements and the notes thereto of Andromedia included herein. Macromedia and Andromedia incurred direct transaction costs of approximately $3.8 million associated with the Merger, all of which were charged to operations during the quarter ended December 31, 1999. There can be no assurance that Macromedia will not incur additional charges in subsequent quarters to reflect costs associated with the Merger or that management will be successful in its efforts to integrate the operations of the two companies. These Pro Forma Combined Condensed Financial Statements should be read in conjunction with the historical condensed financial statements and the related notes thereto of Macromedia and the financial statements and the notes thereto of Andromedia included or incorporated by reference. 30 MACROMEDIA, INC. INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Page ---- Balance Sheet as of September 30, 1999 32 Statement of Operations for the six months ended September 30, 33 1999 Statement of Operations for the year ended March 31, 1999 34 Statement of Operations for the year ended March 31, 1998 35 Statement of Operations for the year ended March 31, 1997 36 Notes to Unaudited Pro Forma Combined Condensed Financial Statements 37
31 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET As of September 30, 1999 (in thousands)
Historical ------------------------- Pro Forma Pro Forma Macromedia Andromedia Adjustments Combined ---------- ---------- ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 35,132 $ 5,343 - $ 40,475 Short-term investments 92,558 - - 92,558 Accounts receivable, net 18,647 2,025 - 20,672 Inventory, net 1,139 - - 1,139 Prepaid expenses and other current assets 8,590 2,270 (1,040) 9,820 Deferred tax assets, short-term 6,899 - - 6,899 ---------- ---------- ----------- ---------- Total current assets 162,965 9,638 (1,040) 171,563 Land and building, net 19,302 - - 19,302 Other fixed assets, net 28,519 2,365 - 30,884 Other long-term assets 10,507 1,495 - 12,002 ---------- ---------- ----------- ---------- Total assets $ 221,293 $ 13,498 (1,040) $ 233,751 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,853 $ 426 - $ 4,279 Accrued liabilities 35,910 3,576 2,756 42,242 Unearned revenue 6,605 1,979 - 8,584 ---------- ---------- ----------- ---------- Total current liabilities 46,368 5,981 2,756 55,105 Deferred tax liabilities, long-term 222 - - 222 Other long-term liabilities - 489 - 489 ---------- ---------- ----------- ---------- Total liabilities 46,590 6,470 2,756 55,816 Mandatorily redeemable convertible preferred stock - 30,048 - 30,048 Stockholders' equity: Preferred stock - 1 (1) - Common stock 44 6 (4) 46 Treasury stock, at cost (33,649) - - (33,649) Additional paid-in-capital 212,338 6,283 5 218,626 Deferred compensation (771) (1,613) - (2,384) Accumulated other comprehensive income (loss) 447 (38) - 409 Accumulated deficit (3,706) (27,659) (3,796) (35,161) ---------- ---------- ----------- ---------- Total stockholders' equity (deficit) 174,703 (23,020) (3,796) 147,887 ---------- ---------- ----------- ---------- Total liabilities and stockholders' equity (deficit) $ 221,293 $ 13,498 (1,040) $ 233,751 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
See accompanying notes to unaudited pro forma combined condensed financial statements. 32 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS For the Six Months Ended September 30, 1999 (in thousands except per share data)
Historical ------------------------- Pro Forma Pro Forma Macromedia Andromedia Adjustments Combined ---------- ---------- ----------- ---------- Revenue $ 107,986 $ 3,875 - $ 111,861 Cost of revenues 10,620 2,379 - 12,999 ---------- ---------- ---------- Gross profit 97,366 1,496 - 98,862 ---------- ---------- ---------- Operating expenses: Sales and marketing 42,942 5,930 - 48,872 Research and development 26,253 2,074 - 28,327 General and administrative 9,367 1,724 - 11,091 Acquisition related expenses 5,260 - - 5,260 Amortization of intangible assets - 509 - 509 Non-cash stock compensation - 650 - 650 ---------- ---------- ---------- Total operating expenses 83,822 10,887 - 94,709 ---------- ---------- ---------- Operating income (loss) 13,544 (9,391) - 4,153 Other income, net 2,305 86 - 2,391 ---------- ---------- ---------- Income (loss) before taxes 15,849 (9,305) - 6,544 Provision for income taxes 4,592 - - 4,592 ---------- ---------- ---------- Net income (loss) $ 11,257 $ (9,305) - $ 1,952 Preferred stock accretion - (1,181) - (1,181) ---------- ---------- ---------- Net income (loss) attributable to common shareholders $ 11,257 $ (10,486) - $ 771 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share Basic $0.27 $(1.84) - $0.02 Diluted $0.23 $(1.84) - $0.02 Weighted average common share outstanding Basic 41,045 5,695 - 42,451 Diluted 48,012 5,695 - 49,417
See accompanying notes to unaudited pro forma combined condensed financial statements. 33 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS For the year ended March 31, 1999 (in thousands except per share data)
Historical ------------------------- Pro Forma Pro Forma Macromedia Andromedia Adjustments Combined ---------- ---------- ----------- ---------- Revenue $ 151,274 $ 1,969 - $ 153,243 Cost of revenues 14,610 1,015 - 15,625 ---------- ---------- ---------- Gross profit 136,664 954 - 137,618 ---------- ---------- ---------- Operating expenses: Sales and marketing 67,954 5,199 - 73,153 Research and development 39,214 2,337 - 41,551 General and administrative 14,634 2,106 - 16,740 Acquisition related expenses - 455 455 Amortization of intangible assets - 247 247 Non-cash stock compensation - 287 287 ---------- ---------- ---------- Total operating expenses 121,802 10,631 - 132,433 ---------- ---------- ---------- Operating income (loss) 14,862 (9,677) - 5,185 Other income, net 4,916 121 5,037 ---------- ---------- ---------- Income (loss) before taxes 19,778 (9,556) - 10,222 Provision for income taxes 7,612 - - 7,612 ---------- ---------- ---------- Net income (loss) 12,166 (9,556) - 2,610 Preferred stock accretion - (104) - (104) ---------- ---------- ---------- Net income (loss) attributable to common shareholders $ 12,166 $ (9,660) - $ 2,506 ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share Basic $0.31 $ (2.35) - $ 0.06 Diluted $0.27 $ (2.35) - $ 0.05 Weighted average common shares oustanding Basic 39,150 4,105 - 40,163 Diluted 45,801 4,105 - 46,814
See accompanying notes to unaudited pro forma combined condensed financial statements. 34 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS For the year ended March 31, 1998 (in thousands except per share data)
Historical ------------------------- Pro Forma Pro Forma Macromedia Andromedia Adjustments Combined ---------- ---------- ----------- ---------- Revenue $ 113,354 $ 449 - $ 113,803 Cost of revenues 15,064 43 - 15,107 ---------- ---------- ---------- Gross profit 98,290 406 - 98,696 ---------- ---------- ---------- Operating expenses: Sales and marketing 58,845 1,512 - 60,357 Research and development 35,407 1,446 - 36,853 General and administrative 12,336 857 - 13,193 Merger, relocation, and reorganization 7,658 - - 7,658 ---------- ---------- ---------- Total operating expenses 114,246 3,815 - 118,061 ---------- ---------- ---------- Operating loss (15,956) (3,409) - (19,365) ---------- ---------- ---------- Other income, net 4,556 59 4,615 ---------- ---------- ---------- Loss before taxes (11,400) (3,350) - (14,750) Provision for income taxes 828 - - 828 ---------- ---------- ---------- Net loss $ (12,228) $ (3,350) - $ (15,578) ---------- ---------- ---------- ---------- ---------- ---------- Net loss per share Basic $(0.32) $(0.95) - $(0.40) Diluted $(0.32) $(0.95) - $(0.40) Weighted average common shares oustanding Basic 38,122 3,531 - 38,993 Diluted 38,122 3,531 - 38,993
See accompanying notes to unaudited pro forma combined condensed financial statements. 35 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS For the year ended March 31, 1997 (in thousands except per share data)
Historical ------------------------- Pro Forma Pro Forma Macromedia Andromedia Adjustments Combined ---------- ---------- ----------- ---------- Revenue $ 108,954 $ - - $ 108,954 Cost of revenues 24,085 - - 24,085 ---------- ---------- ---------- Gross profit 84,869 - - 84,869 Operating Expenses: Sales and marketing 60,814 387 - 61,201 Research and development 32,159 884 - 33,043 General and administrative 9,114 365 - 9,479 Merger, relocation, and reorganization 350 - - 350 ---------- ---------- ---------- Total operating expenses 102,437 1,636 - 104,073 ---------- ---------- ---------- Operating loss (17,568) (1,636) - (19,204) Other income, net 5,300 10 5,310 ---------- ---------- ---------- Loss before taxes (12,268) (1,626) - (13,894) Benefit for income taxes 3,477 - - 3,477 ---------- ---------- ---------- Net loss $ (8,791) $ (1,626) - $ (10,417) ---------- ---------- ---------- ---------- ---------- ---------- Net loss per share Basic $(0.23) $(0.49) - $(0.27) Diluted $(0.23) $(0.49) - $(0.27) Weighted average common shares outstanding Basic 37,491 3,344 - 38,316 Diluted 37,491 3,344 - 38,316
See accompanying notes to unaudited pro forma combined condensed financial statements. 36 MACROMEDIA, INC. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1 PERIODS COMBINED Macromedia, Inc.'s ("Macromedia") fiscal year ends on March 31. Andromedia's year ends on December 31. The accompanying unaudited pro forma combined statement of operations information gives effect to the merger of Macromedia and Andromedia as if such merger occurred as of the beginning of the earliest year presented. The pro forma combined statement of operations for the year ended March 31, 1999 reflects the results of operations of Macromedia for the fiscal year ended March 31, 1999 combined with the results of operations of Andromedia for the year ended December 31, 1998. The pro forma combined statements of operations for the years ended March 31, 1998 and 1997 reflect the results of operations of Macromedia for the fiscal years ended March 31, 1998 and 1997 with the results of operations of Andromedia for the years ended December 31, 1997 and 1996. The pro forma combined statement of operations for the six-months ended September 30, 1999 reflect the results of operations of Macromedia combined with the results of Andromedia for the six-months ended September 30, 1999. The financial information of Macromedia has been derived from Macromedia's audited consolidated financial statements for the years ended March 31, 1999, 1998 and 1997, and Macromedia's unaudited consolidated financial statements for the six-month period ended September 30, 1999, which are included in the Company's September 30, 1999 Form 10-Q and should be read in conjunction with such consolidated financial statements and the notes thereto. The financial information for Andromedia has been derived from Andromedia's audited financial statements for the years ended December 31, 1998, 1997 and 1996, and unaudited financial statements for the six-month period ended September 30, 1999. The pro forma combined balance sheet as of September 30, 1999, combines the assets, liabilities and stockholders' equity of Macromedia with those of Andromedia as if Andromedia had been acquired on September 30, 1999. The pro forma adjustments reflect accruals for merger costs incurred and the write-off of assets previously capitalized by Andromedia in anticipation of a public offering. The pro forma information is not necessarily indicative of the operating results or financial position that would have occurred had the Merger been consummated at the beginning of the period presented, nor is it necessarily indicative of future operating results or financial position. The operating results of Andromedia for the three-months ended March 31, 1999 (revenue and net loss of $1.1 million and $3.8 million, respectively) are excluded in the unaudited pro forma statements of operations for both fiscal years 2000 and 1999. 37 2 BASIS OF PRESENTATION PRO FORMA BASIS OF PRESENTATION. The unaudited pro forma combined condensed financial statements reflect the issuance of 0.2467 of a share of Macromedia common stock in exchange for each share of Andromedia common stock. In addition, Macromedia issued options to purchase 0.2467 of a share of Macromedia common stock in exchange for each outstanding Andromedia option. The actual number of shares of Macromedia common stock and stock options to be issued in the Merger was determined at the effective time based on the exchange ratio and the number of shares of Andromedia common stock and Andromedia options then outstanding. The proforma statements also reflect Andromedia as a Delaware corporation, consistent with Macromedia. As of December 1, 1999, date of consummation of the merger, assuming conversion of the preferred shares to common shares, Andromedia had outstanding common stock of 17.6 million shares, and outstanding warrants and options to purchase 0.2 million and 3.4 million shares, respectively, of Andromedia common stock. Based on the exchange ratio as described above, as of December 1, 1999, Macromedia issued approximately 4.3 shares of Macromedia common stock in exchange for all outstanding shares of Andromedia common stock. At this time, Macromedia also issued warrants and options to purchase approximately 0.03 million and 0.8 million shares, respectively, of Macromedia common stock in exchange for all outstanding Andromedia warrants and options. MERGER TRANSACTION COSTS. In conjunction with the merger, the Company incurred direct merger-related expenses of approximately $1.5 million, including investment banker fees, legal and other professional fees, and severance. The Company also incurred costs of $2.3 million relating to Andromedia's public offering process, which was terminated upon the merger with Macromedia. A portion of these costs were capitalized by Andromedia as of September 30, 1999, and were therefore written off. These costs included investment banker fees, legal and other professional fees, and printing costs. These merger costs were charged to operations during the quarter ended December 31, 1999. Following the Merger, the Combined Company may incur additional costs associated with integrating the two companies. These costs have not been reflected on the pro forma statement of operations. 38 3 PRO FORMA LOSS PER SHARE Pro Forma Net Income per Share The following table reconciles the number of shares used in the pro forma earnings per share computations to the numbers set forth in Macromedia's historical statements of operations (in thousands, except the Exchange Ratio and per share amounts):
Six months Year Ended Year Ended Year ended ended September 30, March 31, March 31, March 31, 1999 1999 1998 1997 ------------------- ---------- --------- --------- Shares used in basic per share computation: Historical Andromedia Weighted average shares of common stock outstanding 5,695 4,105 3,531 3,344 Exchange ratio 0.2467 0.2467 0.2467 0.2467 ------------------- ---------- --------- --------- 1,405 1,013 871 825 Historical Macromedia 41,045 39,150 38,122 37,491 ------------------- ---------- --------- --------- Pro forma combined 42,451 40,163 38,993 38,316 ------------------- ---------- --------- --------- ------------------- ---------- --------- --------- Shares used in diluted per share computation: Historical Andromedia Weighted average shares of common stock outstanding 5,695 4,105 3,531 3,344 Exchange ratio 0.2467 0.2467 0.2467 0.2467 ------------------- ---------- --------- --------- 1,405 1,013 871 825 Historical Macromedia 48,012 45,801 38,122 37,491 ------------------- ---------- --------- --------- Pro forma combined 49,417 46,814 38,993 38,316 ------------------- ---------- --------- --------- ------------------- ---------- --------- ---------
39 4 CONFORMING AND PRO FORMA ADJUSTMENTS There were no adjustments required to conform the accounting policies of Macromedia and Andromedia. Certain amounts for Andromedia have been reclassified to conform with Macromedia's financial statement presentation. There have been no other significant intercompany transactions. 40 (c) EXHIBITS The following exhibits are filed herewith: 2.01 Agreement and Plan of Reorganization by and among Macromedia, Inc. and Andromedia, Inc. dated October 6, 1999 as amended November 23, 1999 (previously filed with the Form 8-K filed on October 15, 1999). 23.01 Consent of PricewaterhouseCoopers, LLP, Independent Auditors 41 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this amendment to report to be signed on its behalf by the undersigned thereunto duly authorized. MACROMEDIA, INC. DATE: February 14, 2000 By: /s/ Elizabeth Nelson ------------------------------- Elizabeth Nelson Senior Vice President and Chief Financial Officer 42 EX-23.01 2 EXHIBIT 23.01 Exhibit 23.01 INDEPENDENT AUDITOR'S CONSENT The Board of Directors Andromedia, Inc.: We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-92233, 333-89247, 333-64141, 333-39285, 333-24713, and 333-08435) of Macromedia, Inc. of our report dated August 10, 1999, relating to the consolidated financial statements of Andromedia, Inc., which appears in the Current Report on Form 8-K/A of Macromedia, Inc. dated February 14, 2000. PricewaterhouseCoopers LLP San Jose, California February 11, 2000 - ------------- 43 -----END PRIVACY-ENHANCED MESSAGE-----