-----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, MlVC/DDCkW3Bzw2LYc5TReM40Ei9l3HCKH9+rxGc3EApibGZSyehcQ2wqEWnnNzE oYov/ZXSwA2masO0cxNMQQ== 0000950149-97-002099.txt : 19971117 0000950149-97-002099.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950149-97-002099 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-22688 FILM NUMBER: 97721439 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 10-Q 1 FORM 10-Q DATED SEPTEMBER 30, 1987 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____ to ____ COMMISSION FILE NO. 0-22688 MACROMEDIA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-3155026 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 600 TOWNSEND STREET SAN FRANCISCO, CALIFORNIA 94103 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (415) 252-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]. As of October 31, 1997, there were outstanding 38,517,940 shares of the Registrant's Common Stock, par value $0.001 per share. 2 MACROMEDIA, INC. AND SUBSIDIARIES INDEX
PART I - FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets September 30, 1997 and March 31, 1997 3 Condensed Consolidated Statements of Operations Three and Six Months Ended September 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows Six Months Ended September 30, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 12 ITEM 2. CHANGES IN SECURITIES 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURES 14
2 3 PART I - FINANCIAL INFORMATION Item I. Financial Statements MACROMEDIA, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share data) (unaudited)
September 30, March 31, 1997 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 19,846 $ 15,397 Short-term investments 66,653 87,054 Accounts receivable, net 7,709 2,315 Inventory 359 1,882 Prepaid expenses and other current assets 3,339 3,407 Deferred tax assets, short-term 7,537 7,537 --------- --------- Total current assets 105,443 117,592 Property and equipment, gross 57,121 47,489 Less accumulated depreciation (17,579) (13,339) Other long-term assets (Note 2) 8,807 4,185 Deferred tax assets, long-term 970 970 --------- --------- Total assets $ 154,762 $ 156,897 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,483 $ 14,486 Accrued liabilities 8,861 8,119 Unearned revenue 1,181 2,376 --------- --------- Total current liabilities 21,525 24,981 Long-term liabilities 164 -- --------- --------- Total liabilities 21,689 24,981 Contingencies (Note 5) Stockholders' equity: Common stock, par value $0.001 per share; 80,000,000 shares authorized; 38,205,163 and 37,742,965 shares issued and outstanding at September 30, 1997 and March 31, 1997, respectively 38 38 Treasury stock (Note 3) (90) -- Additional paid-in capital 136,003 133,962 Deferred compensation (124) (149) Unrealized gain on investments 404 297 Accumulated deficit (3,158) (2,232) --------- --------- Total stockholders' equity 133,073 131,916 --------- --------- Total liabilities and stockholders' equity $ 154,762 $ 156,897 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 MACROMEDIA, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In thousands, except per share data) (unaudited)
Three months ended Six months ended September 30, September 30, ----------------------- ----------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Revenues $ 29,166 $ 31,025 $ 56,495 $ 66,035 Cost of revenues 5,307 4,505 9,875 9,939 -------- -------- -------- -------- Gross profit 23,859 26,520 46,620 56,096 Operating expenses: Sales and marketing 13,834 12,352 28,174 24,538 Research and development 7,965 7,125 16,666 14,037 General and administrative 2,757 1,588 5,367 3,113 -------- -------- -------- -------- Total operating expenses 24,556 21,065 50,207 41,688 -------- -------- -------- -------- Operating (loss) income (697) 5,455 (3,587) 14,408 Other income, net 1,151 1,228 2,245 2,594 -------- -------- -------- -------- Income (loss) before income taxes 454 6,683 (1,342) 17,002 (Provision) benefit for income taxes (141) (2,073) 416 (5,272) -------- -------- -------- -------- Net income (loss) $ 313 $ 4,610 $ (926) $ 11,730 ======== ======== ======== ======== Net income (loss) per share $ 0.01 $ 0.12 $ (0.02) $ 0.29 ======== ======== ======== ======== Weighted average common shares outstanding 40,236 40,013 37,975 40,648 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 4 5 MACROMEDIA, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited)
Six months ended September 30, ----------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net (loss) income $ (926) $ 11,730 Adjustments to reconcile net (loss) income to net cash provided by/ (used in) operating activities: Depreciation and amortization 3,817 3,300 Deferred compensation 25 52 Changes in operating assets and liabilities: Accounts receivable, net (5,394) (367) Inventory 1,523 (318) Prepaid expenses and other current assets 68 (103) Accounts payable (3,003) (798) Accrued liabilities 742 (289) Unearned revenue (1,195) (374) Other current liabilities -- (313) Other long-term liabilities 164 (28) Other, net 501 -- -------- -------- Net cash (used in)/provided by operating activities (3,678) 12,492 -------- -------- Cash flows from investing activities: Capital expenditures (9,206) (15,186) Net sales/(purchases) of available-for-sale investments 20,508 (11,348) Other long-term assets (5,126) (1,393) -------- -------- Net cash provided by/(used in) investing activities 6,176 (27,927) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 2,041 2,506 Acquisition of treasury stock (90) -- -------- -------- Net cash provided by financing activities 1,951 2,506 -------- -------- Increase/(decrease) in cash and cash equivalents 4,449 (12,929) Cash and cash equivalents, beginning of period 15,397 28,829 -------- -------- Cash and cash equivalents, end of period $ 19,846 $ 15,900 ======== ======== Supplemental disclosure of cash flow information: Interest paid during period $ -- $ -- ======== ======== Income taxes paid $ -- $ 3,935 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 MACROMEDIA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION The condensed consolidated financial statements at September 30, 1997 and for the three and six months ended September 30, 1997 and 1996 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the Company's financial position and operating results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's annual report on Form 10-K for the fiscal year ended March 31, 1997. The results of operations for the three and six months ended September 30, 1997 are not necessarily indicative of the results for the fiscal year ending March 31, 1998 or any other future periods. Certain amounts in the March 31, 1997 condensed consolidated balance sheet have been reclassified in order to conform with the current year presentation. 2. RELATED PARTY TRANSACTIONS During the six months ended September 30, 1997, the Company made loans to various officers in conjunction with their hiring and relocation. Included in other long-term assets are full recourse loans totaling $7.5 million and interest receivable of $.05 million due from these officers, as of September 30, 1997. The notes bear interest at rates ranging from 5.53% to 6.80% per annum and are secured by the personal residences of the officers. One of the notes has a zero interest rate for the first two years of its term. The rate will revert to 6.65% at the end of this period. The principal and accrued interest are due in full on the maturity dates of the loans. The notes mature from 1999 to 2004 and are callable on demand if the officer terminates employment with the Company. For the three and six months ended September 30, 1997, interest income on the notes totaled $.04 and $.07 million, respectively. 3. TREASURY STOCK On July 15, 1997, the Board of Directors authorized the repurchase of up to 2 million shares of the Company's common stock. During the three months ended September 30, 1997, the Company purchased 10,000 shares of its stock on the open market at $9.00 per share. The Company may purchase additional stock in the future, as market conditions warrant. 4. SUBSEQUENT EVENT On October 6, 1997 the Company acquired Solis Design, Inc. in a tax-free merger accounted for by the purchase method. The Company expects a charge of approximately $7.7 million during its fiscal third quarter ending December 31, 1997 related to the write-off of in-process research and development and other costs related to the transaction. 5. CONTINGENCIES See Part II - Other Information, Item 1. Legal Proceedings. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues. The Company derives revenues primarily from software sales to domestic and international distributors, value-added resellers (VARs), original equipment manufacturers (OEMs), corporate accounts and registered users. To a lesser extent, revenues are also derived from contracts to provide maintenance to customers. The Company's principal products, from which it derives a substantial majority of its revenues, are Director, FreeHand, and Authorware. The Company's second quarter fiscal 1998 revenues of $29.2 million represented a decrease of 6% from revenues of $31.0 million for the same period in fiscal 1997. This decrease was due to several factors including: a greater proportion of lower-priced Authorware products in the product mix and increased returns of Authorware products; a reduction in the number of other standalone products sold; reduced service revenue; and increased reserves for anticipated future returns; offset by an increase in revenue from new products, principally Flash, and higher international revenues from Director arising from the difference in timing of releases year over year. For the six month period ended September 30, 1997, revenues were $56.5 million compared to $66.0 million in the six month period a year ago. The decline in revenues was due to the factors discussed above plus additional timing impact of version releases year over year. The table below summarizes revenue by geography:
Three months ended Six months ended September 30, September 30, ------------------ ------------------ (in millions) 1997 1996 1997 1996 North America $ 13.4 $ 15.2 $ 29.8 $ 34.1 % of total revenue 46% 49% 53% 52% International $ 15.8 $ 15.8 $ 26.7 $ 31.9 % of total revenue 54% 51% 47% 48% Total Revenue $ 29.2 $ 31.0 $ 56.5 $ 66.0
The table below summarizes revenue by platform:
Three months ended Six months ended September 30, September 30, ------------------ ------------------ (in millions) 1997 1996 1997 1996 Macintosh $ 12.0 $ 15.8 $ 25.7 $ 35.4 % of total revenue 41% 51% 45% 54% Windows and cross-platform $ 17.2 $ 15.2 $ 30.8 $ 30.6 % of total revenue 59% 49% 55% 46% Total Revenue $ 29.2 $ 31.0 $ 56.5 $ 66.0
7 8 Gross margin/Cost of revenues. Gross margin for the three and six months ended September 30, 1997 was 82% and 83%, respectively, compared with 85% for both the same periods in fiscal 1997. The decline in gross margin compared to the prior fiscal year was due to the write-off of capitalized localization costs relating to international product versions, reserves for inventory obsolescence and a higher percentage of lower margin international products in the sales mix. Sales and marketing. Sales and marketing expenses increased from $12.4 million in the second quarter of fiscal 1997 to $13.8 million in the second quarter of fiscal 1998, and increased as a percentage of revenues from 40% to 47%, respectively. For the six months ended September 30, 1997, sales and marketing expenses were $28.2 million, or 50% of total revenue, compared with $24.5 million, or 37% of total revenue, in the same period a year ago. These expenses increased in terms of absolute dollars in fiscal 1998 due to increased costs for facilities and information systems, and the timing of discretionary marketing expenses such as product launch and trade show costs. Expenses increased as a percentage of revenues due to lower sales levels. Research and development. Research and development expenses increased 12% to $8.0 million in the second quarter of fiscal 1998 compared with $7.1 million in the second quarter of fiscal 1997. As a percentage of revenues, research and development expenses were 27% and 23% in the respective second quarters of fiscal 1998 and 1997. For the six-month period ended September 30, 1997, research and development expenses were $16.7 million, a 19% increase over the first six months of fiscal 1997. As a percentage of total revenues, expenses for the six months ended September 30, 1997 and 1996 were 29% and 21%, respectively. These expenses increased in absolute dollars as the Company invested in new technologies, new product development, and the infrastructure to support such activities. Expenses increased as a percentage of revenues due to lower sales levels. General and administrative. General and administrative expenses increased from $1.6 million in the second quarter of fiscal 1997 to $2.8 million in the second quarter of fiscal 1998, and increased as a percentage of revenue from 5% to 9%. For the six months ended September 30, 1997 and 1996, general and administrative expenses were $5.4 million and $3.1 million, respectively. These expenses increased in absolute dollars in fiscal 1998 primarily due to increased compensation costs including costs associated with hiring new employees, increased contract employee costs, increased legal costs arising primarily from defense of the class-action lawsuits, and increased facilities costs. Other income. Other income, consisting primarily of interest income on cash, cash equivalents, and short-term investments, remained essentially unchanged at $1.2 million for the second quarter of fiscal 1998. (Provision) benefit for income taxes. The Company's provision for income taxes for the first six months of fiscal 1998 was a benefit of $0.4 million as compared with an expense of $5.3 million, after using available net operating loss carryforwards, for the first six months of fiscal 1997. The Company's effective tax rate was unchanged at 31% for the first six months of fiscal 1998. Net income (loss). Net income for the second quarter of fiscal 1998 decreased to $0.3 million, compared to $4.6 million for the same quarter a year ago. Net income per share was $0.01 for the second quarter of fiscal 1998 compared to net income per share of $0.12 for the second quarter of fiscal 1997. The Company incurred a net loss of $0.9 million for the six months ended September 30, 1997, compared to net income of $11.7 million for the same period a year ago. Earnings per share decreased from $0.29 for the first six months of fiscal 1997 to a net loss per share of $0.02 for the same period in fiscal 1998. A decline in sales levels and higher operating expenses in fiscal 1998 resulted in lower net income and net income per share. 8 9 CHANGES IN FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, the Company had cash, cash equivalents, and short-term investments of $86.5 million. For the six months ended September 30, 1997, cash used by operating activities of $3.7 million was primarily attributable to the net loss and to lower cash collections in the six months ended September 30, 1997 as compared to the six months ended September 30, 1996. Cash provided by investing activities of $6.2 million related primarily to the sale of $20.5 million in available-for-sale short-term investments, offset by $5.8 million for completion of the construction of a building in Redwood Shores, California, $3.4 million for capital equipment, and $5.1 million in other long-term assets. Cash provided by financing activities of $2.0 million was attributable primarily to proceeds received from the issuance of common stock upon exercise of stock options. This resulted in a net decrease of $16.0 million from the March 31, 1997 cash, cash equivalents, and short-term investments balances. Working capital decreased by $8.7 million from the March 31, 1997 balance of $92.6 million, to $83.9 million at September 30, 1997. In addition to cash, cash equivalents, and short-term investments, the Company has $15.0 million available under an unsecured revolving line of credit. The line of credit bears interest at the bank's prime rate and expires on July 15, 1998. As of September 30, 1997, the Company had no borrowings outstanding. The Company believes that existing cash resources, available bank borrowings, and cash generated from operations will be sufficient to meet the Company's cash and investment requirements for at least the next 12 months. FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS Except for the historical information contained herein, the matters discussed in this Form 10-Q are forward-looking statements that involve risks and uncertainties, including those related to management of growth, quarterly fluctuations of operating results, sales of Windows and Macintosh products, impact of competition, the developing multimedia, internet and online services markets, and the other risks detailed below, and, from time to time, in the Company's other reports filed with the Securities and Exchange Commission. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. The Company's quarterly operating results may vary significantly depending on the timing of new product introductions and enhancements by the Company. The Company's results for the first quarter of fiscal 1998 were significantly affected due to the shipments of new versions of Director and Authorware late in the quarter. The Company has in the past experienced delays in the development of new products and enhancements of existing products, and such delays may occur in the future. If the Company were unable, due to resource constraints or technological or other reasons, to develop and introduce such products in a timely manner, this inability could have a material adverse effect on the Company's results of operations. The Company's quarterly results of operations also may vary significantly depending on the timing of product introductions by competitors, changes in pricing, execution of technology licensing agreements, and the volume and timing of orders received during the quarter, which are difficult to forecast. The future operating results of the Company may fluctuate as a result of these and other factors, including the Company's ability to continue to develop or acquire innovative products, its product and customer mix and the level of competition. The Company's results of operations may also be affected by seasonal trends. A significant portion of the Company's operating expenses is relatively fixed, and planned expenditures are based primarily on sales forecasts. As a result, if revenues do not meet the Company's forecasts, operating results may be materially adversely affected. 9 10 A majority of the Company's revenues historically have been derived from its products for the Macintosh. Although sales of the Company's Windows and cross-platform products accounted for approximately 55% of total revenue for the first six months of fiscal 1998 and are expected to become an increasingly important component of the Company's revenues, the Company remains heavily dependent on the sale of products for the Macintosh platform. Apple Computer, Inc. continues to report declining sales of its Macintosh computers, substantial losses, and additional restructurings. A continuing leveling-off or decline in the sales rate of multimedia-capable Macintosh computers or shifts in mail-order or other distribution mechanisms for Macintosh products could have a material adverse effect on the Company's results of operations. A substantial majority of the Company's revenues is derived from the sale of its products through a variety of distribution channels, including traditional software distributors, educational distributors, VARs, OEMs, hardware and software superstores, retail dealers, mail order, and direct sales. Domestically, the Company's products are sold primarily through distributors, VARs, and OEMs. Internationally, the Company's products are sold through distributors. The Company's resellers generally offer products of several different companies, including in some cases products that are competitive with the Company's products. There can be no assurance that the Company's resellers will continue to purchase the Company's products or provide them with adequate levels of support. In addition, the Company believes that certain distributors are reducing their inventory in the channel and returning unsold products to better manage their inventories. Distributors also are increasingly seeking the right to return unsold product, particularly when such products have been superseded by a new version or upgrade of a product. If the Company's distributors were to seek to return increasing amounts of products, such returns could have a material adverse effect on the Company's revenues and results of operations. The loss of, or a significant reduction in sales volume to, a significant reseller could have a material adverse effect on the Company's results of operations. Macromedia has grown in substantial part from combinations with other companies. In January 1995, Macromedia acquired Altsys Corporation, which developed the FreeHand graphic design and illustration product, revenues of which prior to that date consisted primarily of royalties from Aldus Corporation, which had marketed FreeHand until January 1995, and revenues from Fontographer, software for creating and modifying fonts. In August 1995, the Company acquired Fauve Software, Inc., a developer of image editing software. In December 1995, the Company acquired OSC, a developer of digital audio production software. In March 1996, the Company acquired iband, Inc., a developer of internet web site development tools. In December 1996, the Company acquired FutureWave Software, a developer of Internet animation software. In October 1997, the Company acquired Solis, Inc., a developer of Computer Managed Instruction software for enterprise-wide training and skills management. Except for FreeHand, none of the acquired products has accounted for a significant portion of the Company's revenues to date. There can be no assurance that sales of the Company's existing products will either continue at historical rates or increase, or that new products introduced by the Company, whether developed internally or acquired, will achieve market acceptance. The Company's historical rates of growth should not be taken as indicative of growth rates that can be expected in the future. The markets for the Company's products are highly competitive and characterized by pressure to reduce prices, incorporate new features, and accelerate the release of new product versions. A number of companies currently offer products that compete directly or indirectly with one or more of the Company's products. These companies include Adobe Systems Incorporated ("Adobe"), Apple Computer, Inc., Asymetrix Corporation, Corel Corporation ("Corel"), MetaCreations Corporation, and Microsoft Corporation ("Microsoft"). As the Company competes with larger competitors, such as Adobe, Corel, and Microsoft, across a broader range of product lines and different platforms, the Company may face increasing competition from such companies. 10 11 The developing digital media, internet, and online services markets, and the personal computer industry in general are characterized by rapidly changing technology, resulting in short product life cycles and rapid price declines. The Company must continuously update its existing products to keep them current with changing technology and must develop new products to take advantage of new technologies that could render the Company's existing products obsolete. The Company's future prospects are highly dependent on its ability to increase functionality of existing products in a timely manner and to develop new products that address new technologies and achieve market acceptance. New products and enhancements must keep pace with competitive offerings, adapt to new platforms and emerging industry standards and provide additional functionality. There can be no assurance that the Company will be successful in these efforts. For the six months ended September 30, 1997, the Company derived approximately 47% of its total revenues from international sales. The Company expects that international sales will continue to generate a significant percentage of its total revenues. The Company relies on distributors for sales of its products in foreign countries and, accordingly, is dependent on their ability to promote and support the Company's products, and in some cases, to translate them into foreign languages. International business is subject to a number of special risks, including foreign government regulation; general geopolitical risks such as political and economic instability; hostilities with neighboring countries and changes in diplomatic and trade relationships; more prevalent software piracy; unexpected changes in, or imposition of, regulatory requirements, tariffs, import and export restrictions, and other barriers and restrictions; longer payment cycles; greater difficulty in accounts receivable collection; potentially adverse tax consequences; the burdens of complying with a variety of foreign laws; foreign currency risk; and other factors beyond the control of the Company. Revenues generated through international sales in certain European countries are denominated in the currency of the country in which the sale occurs, while expenses continue to be denominated in the local currency of the countries in which the Company has offices. As a result of the fact that sales and expenses are not entirely matched in the same currency, the Company has entered into foreign currency contracts to manage risk against unfavorable fluctuations in foreign currency exchange rates associated with anticipated sales. Because these contracts do not qualify as hedges for financial reporting purposes, these contracts are marked to market with gains and losses included in the statement of operations. These contracts are of a short-term duration and as of September 30, 1997, there were no significant gains or losses. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 11 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 31, 1997, a complaint entitled Rosen et al. v. Macromedia, Inc., et al., (Case No. 988526) was filed in the Superior Court for San Francisco, California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of California Corporations Code Sections 25400 and 25500 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company's financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Defendants have filed a demurrers to the complaint and other motions which are currently set for hearing on November 21, 1997. Similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in San Francisco Superior Court, including Davis v. Macromedia, Inc. et al. (Case No. 988744), Coates v. Macromedia, Inc. et al. (Case No. 989082), Vanderberg v. Macromedia, Inc. et al. (Case No. 989877), and Magness v. Macromedia, Inc., et al. (Case No. 990255). Discovery has been stayed pending resolution of the demurrers and other motions. Certain of the complaints have not been served, although defendants intend to accept service and the time to respond to others has not yet run. On September 25, 1997, a complaint entitled City Nominees v. Macromedia, Inc. et al., Case No. C-97-3521-SC was filed in the United States District Court for the Northern District of California. The complaint alleges that Macromedia and five of its former or current officers and directors engaged in securities fraud in violation of Sections 10 and 20(a) of the Securities and Exchange Act of 1934 by seeking to inflate the value of Macromedia stock by issuing statements that were allegedly false or misleading (or omitted material facts necessary to make any statements made not false or misleading) regarding the Company's financial results and prospects. Plaintiffs seek to represent a class of all persons who purchased Macromedia common stock from April 18, 1996 through January 9, 1997. Defendants have filed motions to dismiss the complaint which are currently set for hearing on December 5, 1997. Similar complaints by persons seeking to represent the same class of purchasers subsequently have been filed in United States District Court for the Northern District of California, including Rabinowitz v. Macromedia, Inc. et al, Case No. C-97-3546-MHP, and Poliero v. Macromedia, Inc. et al, Case No. C-97-20877-JW. Discovery has been stayed by operation of statute and local rule. Certain of the complaints have not been served, although defendants intend to accept service. Defendants have sought to have all cases related. All complaints seek damages in unspecified amounts, as well as other forms of relief. The Company believes the complaints are without merit and intends to vigorously defend the actions. ITEM 2. CHANGES IN SECURITIES On October 6, 1997, the Company entered into an Agreement and Plan of Reorganization with Solis Design, Inc. ("Solis") pursuant to which the Company issued 300,000 shares of its Common Stock and paid certain cash consideration to the ten shareholders of Solis in exchange for all of the capital stock of Solis. The issuance of shares of the Company's Common Stock to the shareholders of Solis was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Rules 505 and 506 promulgated under the Securities Act. The Common Stock was issued to a limited number of people with no general solicitation or advertising. The Solis shareholders were represented by a purchaser representative and received an information statement in connection with the issuance of the Company's Common Stock. 12 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 15, 1997, the Company held its annual meeting of stockholders. The stockholders passed the following proposals by the votes indicated.
Matter Votes For Withheld ------ --------- -------- 1. Election of Directors Robert K. Burgess 32,144,857 641,087 John C. Colligan 32,214,128 571,816 L. John Doerr 32,247,871 538,073 John (Ian) Giffen 32,163,233 622,711 C. Richard Kramlich 32,242,425 543,519 Donald L. Lucas 32,222,529 563,415 James R. Von Ehr, II 32,252,296 533,648 William B. Welty 32,222,441 563,503
Votes Votes Broker Matter Votes For Against Abstained Non Votes ------ --------- ------- --------- --------- 2. Amendment of the 1993 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 400,000 shares from 400,000 shares to 800,000 shares 31,910,709 657,475 217,760 0 3. Amendment of the 1992 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by 1,000,000 shares from 10,800,000 shares to 11,800,000 26,811,858 5,744,118 229,968 0 4. Ratify selection of KPMG Peat Marwick LLP as independent auditors for the company for the current fiscal year 32,524,463 112,987 148,494 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith: Exhibit Number Exhibit Title - ------ ------------- 10.01 Loan agreement between Macromedia, Inc. and Brian and Sharon Allum, dated July 15, 1997 11.01 Statement regarding computation of per share earnings 27.01 Financial Data Schedule (b) Reports on Form 8-K The Company did not file a report on Form 8-K during the period ended September 30, 1997. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MACROMEDIA, INC. (Registrant) Date: November 14, 1997 /s/ Robert K. Burgess ------------------------------ Robert K. Burgess President and Chief Executive Officer Date: November 14, 1997 /s/ Elizabeth A. Nelson ------------------------------ Elizabeth A. Nelson Interim Chief Financial Officer 14 EX-10.1 2 LOAN AGREEMENT 1 EXHIBIT 10.1 LOAN AGREEMENT This Loan Agreement (this "AGREEMENT") is made and entered into effective as of July 15, 1997 (the "EFFECTIVE DATE") by and among, jointly and severally, Macromedia, Inc., a Delaware corporation ("LENDER"), and Brian Allum and Sharon Allum, husband and wife (these two individuals will be collectively referred to as "BORROWER"). The term "LOAN DOCUMENTS" as used herein means, collectively, this Agreement, the Note and Deed of Trust (each as defined below) executed and delivered pursuant hereto, and any other documents executed or delivered by Borrower pursuant to this Agreement or in connection with the Loan (as defined below). WHEREAS, Lender desires to loan a certain sum to Borrower and Borrower wishes to borrow a certain sum from Lender in order that Borrower may purchase and make improvements to his primary residence, on and subject to the terms and conditions contained in this Agreement; NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, Lender and Borrower hereby agree as follows: 1. AMOUNT AND TERMS OF CREDIT. 1.1 COMMITMENT TO LEND. Subject to all the terms and conditions of this Agreement, and in reliance on the representations, warranties and covenants of Borrower set forth in this Agreement, the Lender agrees to make a loan of funds on the date of the Note to Borrower on a non-revolving basis (the "LOAN") in the principal amount of up to Two Million Four Hundred Thousand Dollars (U.S. $2,400,000.00), which represents Two Million Two Hundred Thousand Dollars (U.S. $2,200,000.00) ("FUNDS FOR PURCHASE") for the purchase of Borrower's primary residence, the Property (as defined below), and up to Two Hundred Thousand Dollars (U.S. $200,000.00) ("FUNDS FOR IMPROVEMENTS") for improvements to the Property. Lender will advance a) the Funds For Purchase on the Effective Date and b) the Funds For Improvements as requested by Borrower as Borrower incurs costs for improvements to the Property. 1.2 NOTE. Borrower's indebtedness to Lender under the Loan will be evidenced by a Promissory Note executed by Borrower in the form attached hereto as Exhibit "A" (the "NOTE"). The Note will provide that (a) no interest will accrue during the first two years after the date of the Note (the "INTEREST FREE PERIOD") and (b) annually compounded interest on unpaid principal will accrue after the Interest Free Period at a rate equal to six and sixty-five hundredths percent (6.65%) per annum. 1.3 SECURITY. Borrower's indebtedness to Lender under the Loan will be secured by a first deed of trust in the form attached hereto as Exhibit "B" (the "DEED OF TRUST"). The Deed of Trust will be executed by Borrower in favor of Lender, with North American Title Company, a California corporation (the "ESCROW AGENT"), acting as trustee, on certain real property located at 192 Hawthorn Drive, Atherton, California (the "PROPERTY"). 2 1.4 MATURITY. The unpaid principal amount of the Loan and all unpaid interest accrued thereon will be immediately due and payable to Lender in full on the date (the "MATURITY DATE") which is the earlier to occur of: (a) the seventh anniversary of the date of the Note or (b) the date on which the entire unpaid principal amount and all accrued interest on the Note becomes immediately due and payable in full under Section 6.1. 1.5 PREPAYMENT. Borrower may at any time and from time to time prepay the Loan in whole or in part in amounts of at least Ten Thousand Dollars (U.S. $10,000.00). Each prepayment will be applied as follows: (a) first, to the payment of interest accrued on the Loan, and (b) second, to the extent that the amount of such prepayment exceeds the amount of all such accrued interest, to the payment of principal on the Loan. 2. CLOSING DATE; DELIVERIES. 2.1 CLOSING DATE. The closing of the Loan (the "CLOSING") will be held at Escrow Agent's offices on the Effective Date (the "CLOSING DATE"), or at such other time and place as Borrower and Lender may mutually agree. 2.2 DELIVERY BY LENDER OF LOAN. (a) At the Closing, Lender will deliver Two Million Two Hundred Thousand Dollars (U.S. $2,200,000.00) constituting the Funds For Purchase to Escrow Agent, less any deposits Lender has already made with Escrow Agent, to be applied toward Borrower's purchase of the Property which delivery Borrower agrees shall constitute funding of the Loan to Borrower; and (b) Upon Borrower's request, as Borrower incurs costs for improvements to the Property, Lender will deliver up to Two Hundred Thousand Dollars (U.S. $200,000.00) constituting the Funds For Improvements to Borrower or appropriate vendor, in Lender's sole discretion, for improvements to the Property, which deliveries Borrower agrees shall constitute funding of the Loan to Borrower. 2.3 DELIVERY BY BORROWER OF NOTE AND DEED OF TRUST. At the Closing, Borrower will execute and deliver to Lender the Note and Deed of Trust. 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents and warrants to Lender that: 3.1 NATURE OF PURCHASE. Borrower's purchase on the Effective Date of the Property is an arm's length transaction. 3.2 TITLE TO PROPERTY. Other than the deed of trust (the "SELLER'S DEED OF TRUST") currently recorded in San Mateo County as security for the indebtedness of Donald P. 2 3 Keating and Sandra C. Keating (collectively referred to as the "SELLER"), which Seller's Deed of Trust shall be canceled at the Closing, the Property is free and clear of all mortgages, deeds of trust, liens, encumbrances and security interests except for statutory liens for the payment of current taxes that are not yet delinquent. 3.3 BALLOON PAYMENT. Borrower acknowledges that the unpaid principal amount of the Loan and all unpaid interest accrued thereon will be immediately due and payable to Lender in full as one balloon payment on the seventh anniversary of the date of the Note evidencing this Loan, if not due earlier under Section 6.1. 4. CONDITIONS PRECEDENT TO LOAN. The obligation of Lender to make the Loan is subject to the satisfaction (or written waiver by Lender) of all the following conditions precedent: 4.1 REPRESENTATIONS TRUE. All representations and warranties of Borrower contained in this Agreement and in all other Loan Documents will be true, correct and complete in all respects. 4.2 NOTE AND DEED OF TRUST. Lender will have received the Note and Deed of Trust representing the Loan, duly executed by Borrower. 4.3 CANCELLATION OF SELLER'S DEED OF TRUST. Seller's Deed of Trust shall have been fully reconveyed by the beneficiary thereunder and shall properly be marked "canceled." 5. OTHER COVENANTS OF BORROWER. Borrower hereby covenants and agrees with Lender as follows: 5.1 IMPROVEMENTS TO PROPERTY. Borrower will use all of any of the up to Two Hundred Thousand Dollars (U.S. $200,000.00), constituting the Funds For Improvements, delivered by Lender only for the purposes of making improvements to the Property. 5.2 INSURANCE COVERING COLLATERAL. Borrower shall maintain all risk property damage insurance policies covering the Property in an amount at least equal to the value of the dwelling on the Property. 5.3 SALE OF PROPERTY TO LENDER. In the event that Borrower should sell the Property to Lender, Lender shall withhold from the purchase price payable to Borrower all amounts owed to Lender under the Note. 5.4 FURTHER ASSURANCES. In addition to the obligations and documents that this Agreement expressly requires Borrower to execute, deliver and perform, Borrower will execute, deliver and perform any and all further acts or documents which Lender may reasonably require in order to carry out the purposes of this Agreement or any of the other Loan Documents. 6. DEFAULT OF BORROWER. 3 4 6.1 DEFAULT; ACCELERATION. Borrower will be deemed to be in default under the Note and the outstanding unpaid principal sum of the Note, together with all interest accrued thereon, will immediately become due and payable in full without the need for any further action on the part of Lender (a) if Brian Allum has not commenced employment as the Senior Vice President Revenue with the Company by or on October 1, 1997; provided however, that any delay in commencement of employment is not due to lack of a work permit when reasonable efforts have been made to obtain said permit; (b) one hundred eighty (180) days after the termination of the employment of Brian Allum, for any reason, with Lender; (c) upon Borrower's sale or other voluntary conveyance of the Property; (d) upon the filing by or against Borrower of any voluntary or involuntary petition in bankruptcy or any petition for relief under the federal bankruptcy code or any other state or federal law for the relief of debtors; provided however, that with respect to an involuntary petition in bankruptcy, Borrower will not be deemed to be in default of the Note unless such involuntary petition has not been dismissed within sixty (60) days after the filing of such petition; or (e) upon the execution by Borrower of an assignment for the benefit of creditors or the appointment of a receiver, custodian, trustee or similar party to take possession of Borrower's assets or property. 6.2 REMEDIES UPON DEFAULT. Upon any default of Borrower under the Note, Lender will have, in addition to its rights under the Note and the Deed of Trust, full recourse against any real, personal, tangible or intangible assets of Borrower and may pursue any legal or equitable remedies that are available to Lender. The rights and remedies of Lender herein provided will be cumulative and not exclusive of any other rights or remedies provided by law or otherwise. 7. MISCELLANEOUS. 7.1 SURVIVAL. The representations and warranties of Borrower contained in or made pursuant to this Agreement and all the other Loan Documents will survive the execution and delivery of the Loan Documents. 7.2 ENTIRE AGREEMENT. This Agreement, the Note, the Deed of Trust and the exhibits and schedules attached thereto constitute the entire agreement and understanding among the parties with respect to the subject matter thereof and supersede any prior understandings or agreements of the parties with respect to such subject matter. 7.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement will inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided however, that Borrower may not assign or delegate any of its rights or obligations hereunder or under any other Loan Document or any interest herein or therein without Lender's prior written consent. 7.4 NO THIRD PARTY BENEFICIARIES; CONSTRUCTION. Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. This Agreement and its exhibits are the result of negotiations between the parties and have been reviewed by each party hereto; accordingly, this Agreement will be 4 5 deemed to be the product of the parties hereto, and no ambiguity will be construed in favor of or against any party. 7.5 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the internal laws of the State of California as applied to agreements entered into solely between residents of, and to be performed entirely in, such State, without reference to that body of law relating to conflicts of law or choice of law. 7.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed in original, but all of which together will constitute one and the same instrument. 7.7 MODIFICATION; WAIVER. This Agreement may be modified or amended only by a writing signed by both parties hereto. No waiver or consent with respect to this Agreement will be binding unless it is set forth in writing and signed by the party against whom such waiver is asserted. No course of dealing between Borrower and Lender will operate as a waiver or modification of any party's rights under this Agreement or any other Loan Document. No delay or failure on the part of either party in exercising any right or remedy under this Agreement or any other Loan Document will operate as a waiver of such right or any other right. A waiver given on one occasion will not be construed as a bar to, or as a waiver of, any right or remedy on any future occasion. 7.8 SEVERABILITY. The invalidity or unenforceability of any term or provision of this Agreement will not affect the validity or enforceability of any other term or provision hereof. In the event of any conflict between the terms of this Agreement and the Note, the terms of the Note will control. 7.9 ATTORNEYS' FEES. If any party hereto commences or maintains any action at law or in equity (including counterclaims or cross-complaints) against the other party hereto by reason of the breach or claimed breach of any term or provision of this Agreement or any other Loan Document, then the prevailing party in said action will be entitled to recover its reasonable attorney's fees and court costs incurred therein. 5 6 IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the Effective Date. BORROWER: MACROMEDIA, INC. /s/ Brian Allum Name: Robert K. Burgess - -------------------------------- --------------------------- Brian Allum /s/ Sharon Allum By: /s/ Robert K. Burgess - -------------------------------- ----------------------------- Sharon Allum Title: President & CEO - -------------------------------- -------------------------- ATTACHMENTS: Exhibit A - Promissory Note Exhibit B - Deed of Trust [SIGNATURE PAGE TO LOAN AGREEMENT] 6 EX-11.1 3 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS 1 MACROMEDIA, INC. AND SUBSIDIARIES EXHIBIT 11.01 COMPUTATION OF NET INCOME (LOSS) PER SHARE (In thousands, except per share data)
Three Months Ended Six Months Ended September 30, September 30, ---------------------- ----------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net income (loss) $ 313 $ 4,610 $ (926) $ 11,730 ======== ======== ======== ======== Weighted average number of common shares outstanding 38,082 36,717 37,975 36,622 Number of common stock equivalents as a result of stock options outstanding 2,154 3,296 0 4,026 -------- -------- -------- -------- Total 40,236 40,013 37,975 40,648 ======== ======== ======== ======== Net income (loss) per common stock and common stock equivalent $ 0.01 $ 0.12 $ (0.02) $ 0.29 ======== ======== ======== ========
EX-27.1 4 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1998 JUL-01-1997 SEP-30-1997 19,846 66,653 8,903 1,194 359 105,443 57,121 17,579 154,762 21,525 0 0 0 38 133,035 154,762 29,166 29,166 5,307 5,307 24,556 0 0 454 141 313 0 0 0 313 0.01 0.01
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