-----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, LSIj+3u8zuaKzrAaZ+L+K2EKH+8/hZHmo0G/eYltzvDK/7vdfvUQjSj6RBKIrJRP ZGuB2+1qfvrw6F82+B8iVA== 0000912057-99-002254.txt : 19991027 0000912057-99-002254.hdr.sgml : 19991027 ACCESSION NUMBER: 0000912057-99-002254 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 ITEM INFORMATION: FILED AS OF DATE: 19991026 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: 99734135 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 EXHIBIT 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): SEPTEMBER 30, 1999 MACROMEDIA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 000-22688 94-3155026 (State of other jurisdiction (Commission File (I.R.S. Employer or incorporation) Number) Identification No.) 600 TOWNSEND ST., SAN FRANCISCO, CA 94103 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (415) 252-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) 1 ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. On October 15, 1999, Macromedia, Inc. ("Macromedia") filed a Form 8-K to report its acquisition of ESI Software, Inc. ("ESI"). 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 ESI SOFTWARE, INC. INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS June 30, 1999
Page ---- Unaudited Balance Sheet as of June 30, 1999 3 Unaudited Statements of Operations for the three months ended June 30, 1999 and 1998 4 Unaudited Statements of Cash Flows for the three months ended June 30, 1999 and 1998 5 Notes to Unaudited Condensed Financial Statements 6
2 ESI SOFTWARE, INC. UNAUDITED CONDENSED BALANCE SHEET As of June 30, 1999 (in thousands)
ASSETS Current assets: Cash and cash equivalents $ 202 Short-term investments 60 Accounts receivable, net 336 Inventory, net 52 Prepaid expenses and other current assets 92 ----------------- Total current assets 742 Property and equipment, net 243 Other assets 13 ----------------- Total assets $ 998 ----------------- ----------------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 978 Unearned revenue 90 ----------------- Total current liabilities 1,068 Stockholders' deficit Preferred stock 123 Common stock 7 Additional paid-in-capital 27,620 Deferred compensation (832) Accumulated deficit (26,988) ----------------- Total stockholders' equity deficit (70) ----------------- Total liabilities and stockholders' deficit $ 998 ----------------- -----------------
See accompanying notes to unaudited condensed financial statements. 3 ESI SOFTWARE, INC. UNAUDITED CONDENSED STATEMENT OF OPERATIONS For the Three Months Ended June 30, 1999 and 1998 (in thousands except per share data)
1999 1998 --------------- ------------- Revenue $ 1,341 $ 93 Cost of revenue 139 39 --------------- ------------- Gross profit 1,202 54 Operating expenses: Sales and marketing 767 947 Research and development 765 956 General and administrative 355 246 --------------- ------------- Total operating expenses 1,887 2,149 --------------- ------------- Loss from operations (685) (2,095) Interest income, net 26 13 --------------- ------------- Net loss $ (659) $(2,082) --------------- ------------- --------------- ------------- Net loss per share Basic $ (0.15) $ (1.08) Diluted $ (0.15) $ (1.08) Weighted average common shares outstanding Basic 4,438 1,932 Diluted 4,438 1,932
See accompanying notes to unaudited condensed financial statements. 4 ESI SOFTWARE, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS For the Three Months Ended June 30, 1999 and 1998 (in thousands except per share data)
1999 1998 ------------ ---------- Cash flows from operating activities: Net loss $ (659) $(2,082) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 33 28 Amortization of deferred compensation 61 -- Changes in operating assets and liabilites: Accounts receivable, net (63) (48) Inventory 4 (32) Prepaid expenses and other current assets (41) (29) Accounts payable and accrued liabilities (89) 292 Unearned revenue 20 56 Other long-term liabilities -- -- ------------ ---------- Net cash used in operating activities (734) (1,815) ------------ ---------- Cash flows from investing activities: Capital expenditures (10) (108) Other long-term assets 10 -- ------------ ---------- Net cash used in investing activities -- (108) ------------ ---------- Cash flows from financing activities: Net proceeds from issuance of preferred stock 522 3,009 Net proceeds from issuance of promissory notes subsequently converted to preferred stock -- (81) ------------ ---------- Net cash provided by financing activities 522 2,928 ------------ ---------- (Decrease)/increase in cash and cash equivalents (212) 1,005 Cash and cash equivalents, beginning of period 414 2,062 ------------ ---------- Cash and cash equivalents, end of period $ 202 $ 3,067 ------------ ---------- ------------ ----------
See accompanying notes to unaudited condensed financial statements. 5 ESI SOFTWARE, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 1. BASIS OF PRESENTATION The unaudited 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 three months ended June 30, 1999 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ended March 31, 2000. 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 stock options, warrants, and common stock subject to repurchase is excluded from the computation as their inclusion would be anti-dilutive. 6 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE INDEX TO AUDITED FINANCIAL STATEMENTS March 31, 1999
Page ------ Independent Auditors' Report 8 Balance Sheet 9 Statement of Operations 10 Statement of Stockholders' Equity 11 Statement of Cash Flows 12 Notes to Financial Statements 13
7 INDEPENDENT AUDITORS' REPORT The Board of Directors ESI Software, Inc.: We have audited the accompanying balance sheet of ESI Software, Inc. dba Elemental Software as of March 31, 1999, and the related statements of operations, stockholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ESI Software, Inc. dba Elemental Software as of March 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has suffered recurring losses from operations and negative cash flows and has a lack of available financing that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG LLP July 30, 1999 San Diego, California 8 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE BALANCE SHEET As of March 31, 1999 (In thousands)
ASSETS Current assets: Cash and cash equivalents $ 414 Cash equivalents - restricted 60 Accounts receivable, net 273 Inventory 56 Prepaid expenses and other current assets 51 ---------------- Total current assets 854 ---------------- Property and equipment, net 266 Other assets 23 ---------------- Total assets $ 1,143 ---------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,067 Unearned revenue 70 ---------------- Total current liabilities 1,137 ---------------- Commitments Stockholders' equity: Preferred stock, $.001 par value: Authorized shares - 122,860 Series D Convertible preferred stock: Authorized shares - 33,850 Issued and outstanding shares - 29,448; liquidation preference of $6,960 29 Series C Convertible preferred stock: Authorized shares - 73,173 Issued and outstanding shares - 73,173; liquidation preference of $8,647 73 Series B Convertible preferred stock: Authorized shares - 2,745 Issued and outstanding shares - 2,745; liquidation preference of $2,000 3 Series A Convertible preferred stock: Authorized shares - 13,092 Issued and outstanding shares - 13,092; liquidation preference of $800 13 Common stock, $.001 par value: Authorized shares - 220,000 Issued and outstanding shares - 6,525; unrestricted - 4,284; restricted - 2,241 7 Additional paid-in capital 27,103 Unearned compensation (893) Accumulated deficit (26,329) ---------------- Total stockholders' equity 6 ---------------- Total liabilities and stockholders' equity $ 1,143 ---------------- ----------------
See accompanying notes to financial statements. 9 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE STATEMENT OF OPERATIONS For the year ended March 31, 1999 (In thousands, except per share data)
Revenue $ 1,388 Cost of revenue 325 ---------- Gross profit 1,063 ---------- Operating expenses: Sales and marketing 3,438 Research and development 3,570 General and administrative 1,199 ---------- Total operating expenses 8,207 ---------- Loss from operations (7,144) Other expense, principally interest expense, net 474 ---------- Net loss $(7,618) ---------- ---------- Net loss per share: Basic $ (2.23) Diluted $ (2.23) Weighted average common shares outstanding: Basic 3,416 Diluted 3,416
See accompanying notes to financial statements. 10 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE STATEMENT OF STOCKHOLDERS' EQUITY Year ended March 31, 1999 (In thousands)
PREFERRED STOCK SERIES D SERIES C SERIES B SERIES A ------------------ ------------------ ---------------- ------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- -------- -------- -------- ------- -------- -------- -------- Balance at March 31, 1998 -- $ -- 45,363 $45 2,745 $3 13,092 $13 Issuance of Series C preferred stock for cash, net of issuance costs of $58 -- -- 22,420 23 -- -- -- -- Issuance of Series C preferred stock for conversion of promissory notes, net of issuance costs of $14 -- -- 5,390 5 -- -- -- -- Issuance of Series D preferred stock for cash, net of issuance costs of $38 14,991 15 -- -- -- -- -- -- Issuance of Series D preferred stock for conversion of promissory notes, net of issuance costs of $36 14,457 14 -- -- -- -- -- -- Issuance of warrants to purchase common stock in connection with issuance of promissory notes -- -- -- -- -- -- -- -- Issuance of stock options -- -- -- -- -- -- -- -- Amortization of unearned compensation -- -- -- -- -- -- -- -- Exercise of stock options -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Balance at March 31, 1999 29,448 $29 73,173 $73 2,745 $3 13,092 $13 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ADDITIONAL COMMON STOCK PAID-IN UNEARNED ACCUMULATED TOTAL ------------- CAPITAL COMPENSATION DEFICIT EQUITY SHARES AMOUNT ----------- ------------ ---------- ----------- ----------------- Balance at March 31, 1998 6,427 $ 7 19,245 -- (18,711) 602 Issuance of Series C preferred stock for cash, net of issuance costs of $58 -- -- 2,419 -- -- 2,442 Issuance of Series C preferred stock for conversion of promissory notes, net of issuance costs of $14 -- -- 562 -- -- 567 Issuance of Series D preferred stock for cash, net of issuance costs of $38 -- -- 1,719 -- -- 1,734 Issuance of Series D preferred stock for conversion of promissory notes, net of issuance costs of $36 -- -- 1,658 -- -- 1,672 Issuance of warrants to purchase common stock in connection w/ issuance of promissory notes -- -- 522 -- -- 522 Issuance of stock options -- -- 977 (977) -- -- Amortization of unearned compensation -- -- -- 84 -- 84 Exercise of stock options 98 -- 1 -- -- 1 Net loss -- -- -- -- (7,618) (7,618) -------- -------- -------- -------- -------- -------- Balance at March 31, 1999 6,525 $7 27,103 (893) (26,329) 6 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
See accompanying notes to financial statements. 11 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE STATEMENT OF CASH FLOWS For the year ended March 31, 1999 (In thousands)
Cash flows from operating activities: Net loss $(7,618) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 132 Warrants issued in connection with promissory notes 522 Compensatory charge for issuance of stock options 84 Changes in operating assets and liabilities: Accounts receivable, net (270) Inventory (57) Other assets (4) Accounts payable and accrued liabilities 411 Unearned revenue 51 ------------ Net cash used in operating activities (6,749) ------------ Cash flows from investing activities: Capital expenditures (169) Cash equivalents - restricted (60) ------------ Net cash used in investing activities (229) ------------ Cash flows from financing activities: Net proceeds from issuance of preferred stock and issuance of promissory notes subsequently converted to preferred stock 6,334 Proceeds from exercise of stock options 1 ------------ Net cash provided by financing activities 6,335 ------------ Net decrease in cash and cash equivalents (643) Cash and cash equivalents, beginning of year 1,057 ------------ Cash and cash equivalents, end of year $ 414 ------------ ------------ Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 2 ------------ ------------ Cash paid during the year for income taxes $ 1 ------------ ------------ Supplemental disclosure of noncash financing activities - conversion of promissory notes outstanding at March 31, 1998 to Series C preferred stock in fiscal 1999 $ 81 ------------ ------------
See accompanying notes to financial statements. 12 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION. ESI Software, Inc. dba Elemental Software (the Company), based in Carlsbad, California, develops and markets packaged software that enables users to build advanced, interactive web sites. The Company's products compete in the market for internet application development tools. CASH AND CASH EQUIVALENTS. The Company considers all investments with an original maturity of less than three months to be cash and cash equivalents. The Company evaluates the financial strength of institutions at which significant investments are made and believes the related credit risk is limited to an acceptable level. CASH EQUIVALENTS - RESTRICTED. Cash equivalents - restricted consists of funds which are restricted for use as a prerequisite for the Company to process credit card transactions over the internet. CONCENTRATION OF CREDIT RISK. Credit is extended based on an evaluation of a customer's financial condition and generally collateral is not required. To date, credit losses have been minimal and such losses have been within management's expectations. Sales to the Company's primary distributor represented 20% of total revenues in fiscal 1999. Trade receivables from the Company's primary distributor represented 77% of total trade receivables at March 31, 1999. As a result, the Company has significant dependence on this distributor. A change in distributors could cause a possible loss of sales and decline in gross margins, which would adversely affect operating results. INVENTORY. Inventory, which consists primarily of technical manuals and diskettes, is stated at the lower cost (determined on a first-in, first-out basis) or market. COMPUTER SOFTWARE COSTS. In accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, costs incurred in the research and development of new software products and significant enhancements to existing software products are charged against operations as incurred until the technological feasibility of the products has been established. To date, the Company's software development has been completed concurrent with the establishment of technological feasibility and, accordingly, no costs have been capitalized. 13 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 LONG-LIVED ASSETS. The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are depreciated over the shorter of the estimated useful life (generally 2 to 3 years) of the related asset or the term of the lease and consist of the following at March 31, 1999 (in thousands):
Computer equipment $ 954 Software 123 Furniture and fixtures 286 Leasehold improvements 103 ---------- 1,466 Less accumulated depreciation (1,200) ---------- $ 266 ---------- ----------
REVENUE RECOGNITION. Revenue is derived from licensing software and software maintenance services and is accounted for under the provisions of Statement of Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION. Revenue from software licenses sold to end users is recognized on product shipments or download if the software is ordered over the internet. Revenue from software licenses sold to distributors is recognized upon product shipments from the distributors to the end users. Product shipments to the distributors are recorded as deferred revenue. Maintenance service contract revenue and subscription revenue are deferred and recognized ratably over the contract period. 14 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 STOCK-BASED COMPENSATION. The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, in accounting for its fixed plan stock options. As such, compensation expense would be recorded for options granted to employees on the date of grant only if the current market price of the underlying stock exceeded the exercise price. INCOME TAXES. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. EARNINGS PER SHARE. The Company computes basic and diluted earnings per share in accordance with SFAS No. 128, Earnings per Share (EPS). Basic EPS excludes the dilutive effects of options, warrants and other convertible securities. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company. For the year ended March 31, 1999, options, warrants and convertible preferred stock representing 197,598,351 shares were excluded from the computation of diluted net loss per share as their effect was antidilutive. The Company additionally issued 4,401,776 shares of Series D Convertible preferred stock subsequent to March 31, 1999 (note 8). USE OF ESTIMATES. Management of the company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 2. LEASE COMMITMENTS The Company leases its administrative offices and certain equipment under noncancelable lease agreements. Annual minimum lease payments for all leases with initial or remaining terms of one year or more are as follows at March 31, 1999: 15 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999
Year ending March 31, (in thousands) 2000 $ 75 2001 34 2002 15 ---------- Total minimum lease payments $ 124 ---------- ----------
Total rent expense was $307,572 for the year ended March 31, 1999. 3. STOCK OPTION PLAN In October 1996, the Company's 1990 Stock Option Plan was replaced with the 1996 Equity Incentive Plan. In connection with the adoption of the 1996 Equity Incentive Plan, all outstanding options under the 1990 Stock Option Plan were canceled and 375,134 options, with exercise prices at $0.0038 per share, were issued to various employees who held options under the 1990 Stock Option Plan. Under the 1996 Equity Incentive Plan (the 1996 Plan), as amended, the Company is authorized to issue up to 43,997,143 common shares to officers, employees, directors, and certain other individuals providing services to the Company. Options granted under the 1996 Plan generally vest over four years and are exercisable for a period of up to ten years from the date of grant. Incentive stock options are granted at prices that approximate the fair value of the common shares at the date of grant as determined by the Board of Directors. The following table summarizes stock option activity: For the year ended March 31, 1999, compensation expense was recorded in the amount of $84,194 for options granted to employees for which the current market price of the underlying stock on the date of grant exceeded the exercise price, based on the options' vesting period of 4 years.
WEIGHTED- AVERAGE SHARES EXERCISE PRICE ---------------- ---------------- Balance at March 31, 1998 26,503,969 $ 0.0162 Granted 19,537,555 0.0120 Exercised (97,798) 0.0180 Canceled (3,319,525) 0.0211 ---------------- ---------------- Balance at March 31, 1999 42,624,201 $ 0.0139 ---------------- ---------------- Balance exercisable at March 31, 1999 18,333,031 $ 0.0134 ---------------- ---------------- ---------------- ----------------
The weighted-average remaining contractual life of the outstanding options at March 31, 1999 approximated 9.19 years. Exercise prices of options outstanding at March 31, 1999 ranged from $.0038 to $.09 per share. 16 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 In applying SFAS No. 123, pro forma information regarding net loss has been determined as if the Company has accounted for its employee stock options under the fair value method of that Statement. The fair value of the options was estimated at the date of grant, using the Black-Scholes option pricing model with the following weighted-average assumptions for options granted in fiscal 1999: risk-free interest rate of 4.95%; dividend yield of zero; expected volatility of zero; and expected life of options of 5.5 years. The estimated fair value of the options is amortized to expense over the options' vesting period of 4 years. The weighted-average fair value of the options granted in fiscal 1999 was $0.10. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss for the year ended March 31, 1999 would have been increased to the pro forma amounts indicated below (in thousands except per share data):
Net loss As reported $(7,618) Pro Forma $(7,621) Net loss per share As reported $ (2.23) Pro Forma $ (2.23)
4. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK. In January and February 1999, the Company issued an aggregate of 29,448,036 shares of Series D Convertible preferred stock at $0.118169 per share for cash and conversion of promissory notes. Net proceeds of $3.4 million were received from the issuance of Series D Convertible preferred stock. In connection with the issuance of Series D Convertible preferred stock, the Company amended its Articles of Incorporation to increase the authorized shares of common stock and preferred stock to 220,000,000 and 122,859,991, respectively. In April 1999, the Company issued 4,401,776 shares of Series D Convertible preferred stock at $0.118169 per share for cash. Net proceeds of $520,154 were received from the issuance of the shares of Series D Convertible preferred stock. In December 1997 and June 1998, the Company issued an aggregate of 73,173,239 shares of Series C preferred stock at $0.118169 per share for cash and conversion of promissory notes. Net proceeds of $8.5 million were received from the issuance of Series C preferred stock. Series A and Series B Convertible preferred stock were amended under the Second Amended and Restated Articles of Incorporation to be nonredeemable. In August 1996, in connection with a rights offering to raise $500,000 in the form of convertible secured promissory notes, every outstanding share of Series A and Series B preferred stock of the Company was converted into one share of common stock. In conjunction with the preferred stock conversion, the Company filed an Amended and Restated Article of Incorporation which effected a 1-for-10 reverse split of the common stock and created two new classes of preferred stock. In December 1996, investors converted $500,000 of convertible secured promissory notes into 13,092,109 Convertible shares of the newly created Series A preferred stock. 17 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 In December 1996, the Company issued 2,744,818 shares of new Series B Convertible preferred stock for net proceeds of $2,419,905 through the conversion of demand convertible promissory notes issued in September and October 1996. The holders of the Series A, B, C and D Convertible preferred stock are entitled to receive dividends at the rate of $0.003032 per share, $0.073043 per share, $0.0094535 per share, and $0.0094535 per share, per annum, respectively. Preferred stock dividends are payable if and when the dividends are declared by the Board of Directors. The right to such dividends is not cumulative. Each share of Series A, B, C and D Convertible preferred stock is convertible into 1.62, 3.38, 1 and 1 share of common stock, respectively, at the option of the holder, subject to certain antidilutive adjustments. Each share is automatically converted into common stock, at the then applicable conversion rate, upon the earlier of the effective date of a firm commitment, underwritten public offering of the Company's common stock in which the net proceeds are at least $10.0 million with the per share price not less than $0.50 per share (IPO), or the date specified by election of the holders of a majority of the then outstanding shares of Series A, B, C and D Convertible preferred stock taken together as a single class. Each holder of Series A, B, C and D Convertible preferred stock is entitled to one vote for each share of common stock into which such Convertible preferred share would convert. The holders of Series D Convertible preferred stock are entitled to receive liquidation preferences at the rate of $0.236338 per share, prior and in preference to any distribution of assets to the holders of the Series A, B and C Convertible preferred stock. The holders of Series C Convertible preferred stock are entitled to receive liquidation preferences at the rate of $0.118169 per share, prior and in preference to any distribution of assets to the holders of Series A and B Convertible preferred stock. The Series A and B Convertible preferred stock have a liquidation preference of $0.0611055 and $0.728646, respectively, with the holders of Series B Convertible preferred stockholders having preference over Series A Convertible preferred stockholders in the event of liquidation of the Company's assets. In connection with the Series B Convertible preferred stock financing, the Company issued 5,825,297 shares of restricted common stock at $0.0038 per share to common stockholders for cash. Under the restricted stock purchase agreement, in the event a holder of restricted stock ceases to be employed by or provide services to the Company, the Company has the right to purchase the restricted stock from the holder within 90 days after the holder ceases to be an employee or provide services to the Company at $0.0038 per share. The restricted 18 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 stock vests at 6.25% each quarter beginning November 20, 1996. At March 31, 1999, 2,240,531 shares were subject to restriction. WARRANTS. In fiscal 1999, in connection with the issuance of promissory notes converted to Series D Convertible preferred stock, warrants to purchase 7,228,534 shares of the Company common stock at $0.118169 per share were issued. These warrants are exercisable upon issuance and expire at the earlier of an IPO or on December 1, 2003. The fair value of the warrants of $521,932 was recorded as interest expense in 1999. The fair value of the warrants was estimated using Black-Scholes options pricing model with the following weighted-average assumptions: risk-free interest rate of 4.4%; dividend yield of zero; expected volatility of 60%, and expected life of 4.5 years. In fiscal 1998, in connection with the issuance of promissory notes converted into Series C Convertible preferred stock, warrants to purchase 9,084,963 shares of the Company's common stock at $0.09 per share were issued. These warrants are exercisable upon issuance and expire at the earlier of an IPO or November 13, 2002. In connection with the Series B Convertible preferred stock financing, the Company issued warrants to purchase 2,672,974 shares of common stock at $0.0378708 per share. The warrants are immediately exercisable and expire on October 7, 1991. In connection with certain equipment leasing agreements entered into during 1990 and 1991, warrants for approximately 500,000 shares of common stock were issued of which 425,216 are still outstanding. Each warrant entitles the holder to purchase one share of the Company's common stock at prices ranging from $0.379 to $0.50 per share. The number of warrants and purchase price are subject to adjustment in accordance with certain antidilution provisions. The warrants are exercisable for a period of ten years from the date of grant or five years from the effective date of the Company's initial public offering, but in no case longer than ten years. 19 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 SHARES RESERVED FOR FUTURE ISSUANCE. The following shares of common stock, excluding approximately 500,000 warrants for shares of common stock issued in connection with certain equipment leasing agreements during 1990 and 1991, were reserved for issuance at March 31, 1999:
Preferred stock 137,570,375 Options 43,997,143 Warrants 19,411,771 --------------- 200,979,289 --------------- ---------------
5. INCOME TAXES Significant components of the Company's deferred tax assets as of March 31, 1999 are shown below. A valuation allowance of $10,090,000, has been recognized as an offset to the deferred tax assets as it is not more likely than not that these assets will be realized.
Deferred tax assets (in thousands): Net operating loss and credit carryforwards $ 10,373 Accrued vacation 56 Deferred revenue 27 Other - net 4 --------------- Total deferred tax assets 10,460 Valuation allowance for deferred tax assets (10,460) --------------- Net deferred tax assets $ -- --------------- ---------------
As of March 31, 1999, the Company had net operating loss carryforwards for federal and California income tax purposes of approximately $25,000,000 and $10,900,000, respectively. The difference between the federal and California tax net operating loss carryforwards is primarily attributable to capitalization of research and development costs for California purposes and the fifty percent limitation on California loss carryforwards. The federal tax loss carryforwards will begin expiring in 2006, unless previously utilized. 20 ESI SOFTWARE, INC. dba ELEMENTAL SOFTWARE NOTES TO FINANCIAL STATEMENTS March 31, 1999 6. LIQUIDITY Due to the Company's recurring losses, negative cash flows and lack of available financing, significant doubt exists about whether the Company will be able to meet its current obligations and finance ongoing operations. Management has entered into an agreement with Macromedia, Inc. (Macromedia) to be acquired in the third quarter of calendar 1999 (Note 8). 7. EMPLOYEE BENEFIT PLAN The Company's 401(k) plan is for the benefit of substantially all employees. Contributions to the plan by the Company are at the discretion of the Board of Directors and are subject to certain limitations described in the plan. There were no contributions made by the Company to the plan during the year ended March 31, 1999. 8. SUBSEQUENT EVENTS ACQUISITION. On July 8, 1999, the Company entered into an Agreement and Plan of Reorganization with Macromedia whereby the Company will merge into Dynamo Acquisition Corp., a wholly owned subsidiary of Macromedia, in a stock-for-stock transaction. The actual share exchange rate is to be determined at the closing and is predicated upon the actual number of employees of the company who become employees of Macromedia. The closing of the transaction is subject to the approval of the stockholders of the Company as well as the State of California. The Company estimates that it has incurred legal costs of approximately $180,000 and accounting costs of approximately $65,000 with respect to the acquisition. The Company has agreed to pay a finders fee of $450,000 and bonuses of $425,000 to a director at the completion of the acquisition and to employees for retention bonuses, respectively. All severance, relocation and exit costs associated with the Company's employees shall be the responsibility of Macromedia. PREFERRED STOCK. In April 1999, the Company issued 4,401,776 shares of Series D Convertible preferred stock at $0.118169 per share for cash. Net proceeds of $520,154 were received from the issuance of the shares of Series D Convertible preferred stock. 21 (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 ESI 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 June 30, 1999, and the historical financial statements and the notes thereto of Elemental included herein. Macromedia and ESI will incur direct transaction costs of approximately $2.8 million associated with the Merger, approximately $2.3 million of which will be charged to operations during the quarter ended September 30, 1999, with the remainder charged in the following quarter. 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 Elemental included or incorporated by reference. 22 MACROMEDIA, INC. INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Page ---------- Balance Sheet as of June 30, 1999 24 Statement of Operations for the three months ended June 30, 1999 25 Statement of Operations for the year ended March 31, 1999 26 Statement of Operations for the year ended March 31, 1998 27 Statement of Operations for the year ended March 31, 1998 28 Notes to Financial Statements 29
23 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET As of June 30, 1999 (in thousands)
Historical Pro Forma Pro Forma ---------------------- Macromedia ESI Adjustments Combined ------------ --------- ------------- ---------- ASSETS Current assets: Cash and cash equivalents $ 31,775 $ 262 -- $ 32,037 Short-term investments 80,806 -- -- 80,806 Accounts receivable, net 12,598 336 -- 12,934 Inventory, net 715 52 -- 767 Prepaid expenses and other current assets 11,978 92 -- 12,070 Deferred tax assets, short-term 6,899 -- -- 6,899 ------------ --------- ------------- ---------- Total current assets 144,771 742 -- 145,513 Land and building, net 19,499 -- -- 19,499 Other fixed assets, net 25,942 243 -- 26,185 Other long-term assets 9,418 13 -- 9,431 ------------ --------- ------------- ---------- Total assets $ 199,630 $ 998 $ -- $ 200,628 ------------ --------- ------------- ---------- ------------ --------- ------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,974 $ 429 -- $ 4,403 Accrued liabilities 28,214 549 2,777 31,540 Unearned revenue 5,541 90 -- 5,631 ------------ --------- ------------- ---------- Total current liabilities 37,729 1,068 2,777 41,574 Deferred tax liabilities, long-term 37 -- -- 37 Other long-term liabilities 222 -- -- 222 ------------ --------- ------------- ---------- Total liabilities 37,988 1,068 2,777 41,833 Stockholders' equity: Preferred stock -- 123 (123) -- Common stock 43 7 (7) 43 Treasury stock, at cost (33,649) -- -- (33,649) Additional paid-in-capital 176,385 27,620 130 204,135 Unearned compensation -- (832) -- (832) Accumulated other comprehensive income 325 -- -- 325 Retained earnings 18,538 (26,988) (2,777) (11,227) ------------ --------- ------------- ---------- Total stockholders' equity 161,642 (70) (2,777) 158,795 ------------ --------- ------------- ---------- Total liabilities and stockholders' equity $ 199,630 $ 998 $ -- $ 200,628 ------------ --------- ------------- ---------- ------------ --------- ------------- ----------
See accompanying notes to unaudited pro forma combined condensed financial statements. 24 MACROMEDIA, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS For the Three Months Ended June 30, 1999 (in thousands, except per share data)
Historical Pro Forma Pro Forma ---------------------- Macromedia ESI Adjustments Combined ------------- ---------- Revenue $48,935 $ 1,341 -- $50,276 Cost of revenues 4,992 139 -- 5,131 --------- --------- ------------- --------- Gross profit 43,943 1,202 -- 45,145 Operating expenses: Sales and marketing 19,860 767 -- 20,627 Research and development 11,254 765 -- 12,019 General and administrative 4,379 355 -- 4,734 --------- --------- ------------- --------- Total operating expenses 35,493 1,887 -- 37,380 --------- --------- ------------- --------- Operating income (loss) 8,450 (685) -- 7,765 Interest and investment income, net 1,242 26 -- 1,268 --------- --------- ------------- --------- Income (loss) before taxes 9,692 (659) -- 9,033 Provision for income taxes 2,520 -- -- 2,520 --------- --------- ------------- --------- Net income (loss) $ 7,172 $ (659) -- $ 6,513 --------- --------- ------------- --------- --------- --------- ------------- --------- Net income (loss) per share Basic $ 0.18 $ (0.15) -- $ 0.16 Diluted $ 0.15 $ (0.15) -- $ 0.14 Weighted average common share outstanding Basic 40,696 4,438 -- 40,711 Diluted 47,380 4,438 -- 47,395
See accompanying notes to unaudited pro forma combined condensed financial statements. 25 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 ESI Adjustments Combined ---------- --------- ----------- ---------- Revenue $ 149,886 $ 1,388 - $ 151,274 Cost of revenues 14,286 325 - 14,611 ---------- --------- ----------- ---------- Gross profit 135,600 1,063 - 136,663 Operating expenses: Sales and marketing 64,515 3,438 - 67,953 Research and development 35,644 3,570 - 39,214 General and administrative 13,068 1,199 - 14,267 ---------- --------- ----------- ---------- Merger, relocation, and reorganization Total operating expenses 113,227 8,207 - 121,434 ---------- --------- ----------- ---------- Operating income (loss) 22,373 (7,144) - 15,229 Other income (expenses): Interest and investment income (expense), net 4,961 (474) - 4,487 Foreign exchange loss (306) -- - (306) Other 366 -- - 366 ---------- --------- ----------- ---------- Total other income 5,021 (474) - 4,547 ---------- --------- ----------- ---------- Income (loss) before taxes 27,394 (7,618) - 19,776 Provision for income taxes 7,610 -- - 7,610 ---------- --------- ----------- ---------- Net income (loss) $ 19,784 $ (7,618) - $ 12,166 ---------- --------- ----------- ---------- ---------- --------- ----------- ---------- Net income (loss) per share Basic $ 0.51 $ (2.23) - $ 0.31 Diluted $ 0.44 $ (2.23) - $ 0.27 Weighted average common share oustanding Basic 39,139 3,416 - 39,150 Diluted 45,360 3,416 - 45,371
See accompanying notes to unaudited pro forma combined condensed financial statements. 26 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 ESI Adjustments Combined ---------- --------- ---------- ---------- Revenue $ 113,086 $ 268 - $ 113,354 Cost of revenues 14,997 67 - 15,064 ----------- ----------- ---------- Gross profit 98,089 201 - 98,290 Operating Expenses: Sales and marketing 56,842 2,003 - 58,845 Research and development 32,231 3,176 - 35,407 General and administrative 11,452 884 - 12,336 Merger, relocation, and reorganization 7,658 0 - 7,658 ----------- ----------- ---------- Total operating expenses 108,183 6,063 - 114,246 ----------- ----------- ---------- Operating income (loss) (10,094) (5,862) - (15,956) Other income (expenses): Interest and investment income (expense), net 4,687 (180) - 4,507 Foreign exchange gain 243 -- - 243 Other (194) -- - (194) ----------- ----------- ---------- Total other income 4,736 (180) - 4,556 ----------- ----------- ---------- Loss before taxes (5,358) (6,042) - (11,400) Provision for income taxes 828 -- - 828 ----------- ----------- ---------- Net loss $ (6,186) $ (6,042) - $ (12,228) ----------- ----------- ---------- ----------- ----------- ---------- Net loss per share Basic $ (0.16) $ (2.63) - $ (0.32) Diluted $ (0.16) $ (2.63) - $ (0.32) Weighted average common share outstanding Basic 38,114 2,301 - 38,122 Diluted 38,114 2,301 - 38,122
See accompanying notes to unaudited pro forma combined condensed financial statements. 27 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 ESI Adjustments Combined ---------- --------- ----------- --------- Revenue $ 107,365 $ 1,589 -- $ 108,954 Cost of revenues 23,246 839 -- 24,085 ---------- --------- ----------- --------- Gross profit 84,119 750 -- 84,869 Operating Expenses: Sales and marketing 59,627 1,187 -- 60,814 Research and development 30,013 2,146 -- 32,159 General and administrative 8,135 979 -- 9,114 Merger, relocation, and reorganization 350 -- -- 350 ---------- --------- ----------- --------- Total operating expenses 98,125 4,312 -- 102,437 ---------- --------- ----------- --------- Operating loss (14,006) (3,562) -- (17,568) Other income (expenses): Interest and investment income (expense), net 5,353 (23) -- 5,330 Foreign exchange loss (639) -- -- (639) Other (105) 714 -- 609 ---------- --------- ----------- --------- Total other income 4,609 691 -- 5,300 ---------- --------- ----------- --------- Income (loss) before taxes (9,397) (2,871) -- 12,268 Benefit for income taxes 3,477 -- -- 3,477 ---------- --------- ----------- --------- Net loss $ (5,920) $ (2,871) -- $ (8,791) ---------- --------- ----------- --------- ---------- --------- ----------- --------- Net loss per share Basic $ (0.16) $ (3.18) -- $ (0.23) Diluted $ (0.16) $ (3.18) -- $ (0.23) Weighted average common share outstanding Basic 37,488 903 -- 37,491 Diluted 37,488 903 -- 37,491
See accompanying notes to unaudited pro forma combined condensed financial statements. 28 MACROMEDIA, INC. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. PERIODS COMBINED Macromedia, Inc.'s ("Macromedia") fiscal year ends on March 31. ESI's fiscal year ends on June 30. The accompanying unaudited pro forma combined statement of operations information gives effect to the merger of Macromedia and ESI 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 ESI for the twelve months ended March 31, 1999. The pro forma combined statements of operations for the year ended March 31, 1998 and 1997 reflects the results of operations of Macromedia for the fiscal years ended March 31, 1998 and 1997 with the results of operations of ESI for the twelve months ended June 30, 1998 and 1997. The pro forma combined statement of operations for the three-months ended June 30, 1999 reflect the results of operations of Macromedia combined with the results of ESI for the three-months ended June 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 three-month period ended June 30, 1999 which are included elsewhere herein and should be read in conjunction with such consolidated financial statements and the notes thereto. The financial information for ESI has been derived from ESI's audited financial statements for the year ended March 31, 1999 and unaudited financial statements for the three-month period ended June 30, 1999, which are included herein and should be read in conjunction with such financial statements and notes thereto, and ESI's unaudited financial statements for the twelve months ended June 30, 1998 and 1997 which are included herein. The pro forma combined balance sheet as of June 30, 1999, combines the assets, liabilities and stockholders' equity of Macromedia with those of ESI as if ESI had been acquired on June 30, 1999. 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 ESI for the three months ending June 30, 1998 (revenue and net loss of $.1 million and $2.1 million, respectively) are included in the unaudited pro forma statements of operations for both fiscal years 1999 and 1998. 2. BASIS OF PRESENTATION PRO FORMA BASIS OF PRESENTATION. The unaudited pro forma combined condensed financial statements reflect the issuance of .00335193 of a share of Macromedia common stock in exchange for each share of ESI common stock. In addition, Macromedia will issue options to 29 purchase .00335193 of a share of Macromedia common stock in exchange for each outstanding ESI 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 ESI common stock and ESI options then outstanding. As of September 30, 1999, after conversion of the preferred shares to common shares, ESI had outstanding common stock of 147.9 million shares, and outstanding warrants and options to purchase 18.9 and 22.4 million shares, respectively, of ESI common stock. Based on the exchange ratio as described above, as of September 30, 1999, Macromedia issued approximately 496,000 shares of Macromedia common stock in exchange for all outstanding shares of ESI common stock. At this time, Macromedia also issued warrants and options to purchase approximately 64,000 and 75,000 shares, respectively, of Macromedia common stock in exchange for all outstanding ESI warrants and options. MERGER TRANSACTION COSTS. Macromedia and ESI will incur direct transaction costs of approximately $2.8 million associated with the merger, including expenses for personnel severance and salaries during the transition period, recruiting expenses for ESI employees, bonuses contingent upon closing of the merger agreement, legal and other professional fees, and relocation expenses of employees. Approximately $2.3 million of these merger costs will be charged to operations during the quarter ending September 30, 1999. The charge is a preliminary estimate only and is subject to change. It is expected that following the Merger, the Combined Company will incur additional costs associated with integrating the two companies. These costs have not been reflected on the pro forma statement of operations. 30 3. PRO FORMA LOSS 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):
Three months Year Ended Year Ended Year ended ended June 30, March 31, March 31, March 31, 1999 1999 1998 1997 ------------- ---------- ---------- ------------ Shares used in basic per share computation: Historical ESI Weighted average shares of common stock outstanding 4,438 3,416 2,301 903 Exchange ratio 0.0033519 0.0033519 0.0033519 0.00335193 ------------- ---------- ---------- ----------- 15 11 8 3 Historical Macromedia 40,696 39,139 38,114 37,488 ------------- ---------- ---------- ----------- Pro forma combined 40,711 39,150 38,122 37,491 ------------- ---------- ---------- ----------- ------------- ---------- ---------- ----------- Shares used in diluted per share computation: Historical ESI Weighted average shares of common stock outstanding 4,438 3,416 2,301 903 Exchange ratio 0.0033159 0.0033519 0.0033519 0.00335193 ------------- ---------- ---------- ----------- 15 11 8 3 Historical Macromedia 47,380 45,360 38,114 37,488 ------------- ---------- ---------- ----------- Pro forma combined 47,395 45,371 38,122 37,491 ------------- ---------- ---------- ----------- ------------- ---------- ---------- -----------
4. CONFORMING AND PRO FORMA ADJUSTMENTS There were no adjustments required to conform the accounting policies of Macromedia and ESI. Certain amounts for ESI have been reclassified to conform with Macromedia's financial statement presentation. There have been no other significant intercompany transactions. 31 (c) EXHIBITS The following exhibits are filed herewith: 2.01 Agreement and Plan of Reorganization by and among Macromedia, Inc. and ESI Software, Inc. dated July 8, 1999 as amended August 30, 1999 (previously filed with the Form 8-K filed on October 15, 1999). 23.01 Consent of KPMG LLP, Independent Auditors 32 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: October 26, 1999 By: /s/ Elizabeth Nelson ----------------------------------- Elizabeth Nelson Senior Vice President and Chief Financial Officer 33 EX-23.01 2 EXHIBIT 23.01 Exhibit 23.01 INDEPENDENT AUDITOR'S CONSENT The Board of Directors ESI Software, Inc.: We consent to the incorporation by reference in the registration statements (Numbers 333-08435, 333-24713, 333-39285, and 333-64141) on Form S-8 of Macromedia, Inc. of our report dated July 30, 1999, with respect to the balance sheet of ESI Software, Inc. dba Elemental Software as of March 31, 1999, and the related statements of operations, stockholders' equity, and cash flows for the year then ended, which report appears in the Form 8-K/A of Macromedia, Inc. dated October 26, 1999. KPMG LLP San Diego, California October 26, 1999 34 -----END PRIVACY-ENHANCED MESSAGE-----