-----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, Eonfmpw9HqufJ6/cDOms5WvXWH7urUYAauACug2XRFJDMUJp3oavIgeMZKYCxm3i xt9VPCGhfSSqYE+EXu4vpA== 0001095811-01-500717.txt : 20010329 0001095811-01-500717.hdr.sgml : 20010329 ACCESSION NUMBER: 0001095811-01-500717 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010112 ITEM INFORMATION: FILED AS OF DATE: 20010328 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: 1582813 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 f70674ae8-ka.txt AMENDMENT TO FORM 8-K 1 ================================================================================ UNITED STATES 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: JANUARY 12, 2001 COMMISSION FILE NO. 000-22688 MACROMEDIA, INC. (A DELAWARE CORPORATION) I.R.S. EMPLOYER IDENTIFICATION NO. 94-3155026 600 TOWNSEND STREET SAN FRANCISCO, CALIFORNIA 94103 (415) 252-2000 ================================================================================ 2 ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED On January 27, 2001, Macromedia, Inc. ("Macromedia") filed a Form 8-K to report its consolidated subsidiary, shockwave.com, Inc.'s, ("shockwave") acquisition of Atom Corporation. ("AtomFilms"). 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.
Report of Independent Accountants .............................. 3 Consolidated Balance Sheets .................................... 4 Consolidated Statements of Operations .......................... 5 Consolidated Statements of Changes in Shareholders' Deficit .... 6 Consolidated Statement of Cash Flows ........................... 7 Notes to Consolidated Financial Statements ..................... 8
(b) PRO FORMA FINANCIAL INFORMATION. The pro forma financial information required by Item 7(b) of Form 8-K can be found on pages 23 through 29 of this Amendment No. 1. (c) EXHIBITS. The exhibits to this report are listed in the Exhibit Index set forth below. 2.01 Agreement and Plan of Reorganization dated December 14, 2000, by and among Shockwave.com, Inc., a Delaware corporation and Atom Corporation, a Washington corporation.* 2.02 Certificate of Merger of Atom Corporation with and into Shockwave.com, Inc. dated January 12, 2001.* 2.03 Articles of Merger between Atom Corporation and Shockwave.com, Inc. dated January 12, 2001.* 23.01 Consent of Independent Accountants.
- ---------- * Previously filed. 2 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Atom Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders' deficit and of cash flows present fairly, in all material respects, the financial position of Atom Corporation and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As further described in Note 1, in January 2001 the Company was acquired by shockwave.com, Inc. and the outstanding equity securities of the Company were assumed by shockwave.com, Inc. and converted into equity securities of shockwave.com, Inc. On the effectiveness of the acquisition, the separate existence of the Company ceased and the Company was merged into shockwave.com, Inc. /S/ PricewaterhouseCoopers LLP Seattle, Washington March 13, 2001 3 4 ATOM CORPORATION CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------- DECEMBER 31, ------------------------------- 2000 1999 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 500,000 $ 17,545,000 Accounts receivable, net of allowance for doubtful accounts of $259,000 and $22,000, respectively 1,523,000 268,000 Royalty advances, current 388,000 118,000 Other current assets 565,000 105,000 ------------ ------------ Total current assets 2,976,000 18,036,000 Property and equipment, net 3,189,000 919,000 Restricted cash 499,000 250,000 Intangible assets, net of accumulated amortization of $2,895,000 and $225,000, respectively 4,784,000 6,918,000 Royalty advances 475,000 -- Other assets -- non-current 398,000 176,000 ------------ ------------ Total Assets 12,321,000 26,299,000 ============ ============ LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDER'S DEFICIT Current liabilities Accounts payable 1,581,000 758,000 Accrued liabilities 1,370,000 124,000 Unearned revenue 146,000 -- Notes payable - current 8,169,000 -- Line of credit -- 68,000 ------------ ------------ Total current liabilities 11,266,000 950,000 Long-term portion of notes payable 358,000 -- Commitments and contingencies Mandatorily redeemable preferred stock; no par value; 10,000,000 shares authorized Series A preferred stock; 800,000 shares authorized; 727,500 and 727,500 shares issued and outstanding 728,000 720,000 Series B preferred stock; 4,000,000 shares authorized; 3,789,057 and 3,789,057 shares issued and outstanding 4,850,000 4,781,000 Series C preferred stock; 5,000,000 shares authorized; 5,000,000 and 4,661,694 shares issued and outstanding 21,800,000 20,275,000 ------------ ------------ Total mandatorily redeemable preferred stock 27,378,000 25,776,000 Shareholders' deficit Common stock, no par value; 25,000,000 shares authorized; 7,549,136 and 7,266,812 shares issued and outstanding 9,001,000 6,369,000 Note receivable from shareholder (64,000) (64,000) Deferred stock-based compensation (345,000) (1,151,000) Accumulated deficit (35,273,000) (5,581,000) ------------ ------------ Total shareholders' deficit (26,681,000) (427,000) ------------ ------------ Total liabilities, mandatorily redeemable preferred stock and shareholders' deficit $ 12,321,000 $ 26,299,000 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
4 5 ATOM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, ------------------------------- 2000 1999 ------------ ------------ Revenues $ 5,614,000 $ 511,000 Cost of revenues 4,139,000 204,000 ------------ ------------ Gross profit 1,475,000 307,000 Operating expenses Research and development 38,000 161,000 Acquired in-process research and development -- 268,000 Sales and Marketing 19,926,000 2,180,000 General and administrative 5,722,000 2,183,000 Stock-based compensation 398,000 766,000 Amortization of intangible assets 2,667,000 225,000 ------------ ------------ Total operating expenses 28,751,000 5,783,000 ------------ ------------ Loss from operations (27,276,000) (5,476,000) Interest income 270,000 125,000 Interest expense (2,570,000) (21,000) Other, net 53,000 (6,000) ------------ ------------ Net loss $(29,523,000) $ (5,378,000) ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
5 6 ATOM CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------------------------------------------------- NOTE COMMON STOCK RECEIVABLE DEFERRED ---------------------------- FROM STOCK-BASED ACCUMULATED SHARES AMOUNT SHAREHOLDER COMPENSATION DEFICIT TOTAL ----------- ------------ ----------- ------------ ------------ ------------ Balances at December 31, 1998 5,030,000 $ 5,000 $ -- $ -- $ (203,000) $ (198,000) Warrants granted for services 12,000 12,000 Deferred stock-based 1,917,000 (1,917,000) -- compensation Amortization of stock-based compensation 766,000 766,000 Stock issued upon acquisition of Pixel Wave 2,000,000 4,360,000 4,360,000 Stock options exercised 229,000 72,000 (64,000) 8,000 Warrants exercised 7,812 3,000 3,000 Net Loss (5,378,000) (5,378,000) ----------- ------------ ----------- ----------- ------------ ------------ Balances at December 31, 1999 7,266,812 6,369,000 (64,000) (1,151,000) (5,581,000) (427,000) Warrants granted in connection with borrowings 2,942,000 2,942,000 Options forfeited (408,000) 408,000 -- Amortization of stock-based compensation 398,000 398,000 Stock issued upon acquisition of ForeFront 25,000 55,000 55,000 Films Stock options exercised 246,607 31,000 31,000 Warrants exercised 1,953 1,000 1,000 Stock issued for services 8,764 11,000 11,000 Accretion on preferred stock (169,000) (169,000) Net loss (29,523,000) (29,523,000) ----------- ------------ ----------- ----------- ------------ ------------ Balances at December 31, 2000 7,549,136 $ 9,001,000 $ (64,000) $ (345,000) $(35,273,000) $(26,681,000) =========== ============ =========== =========== ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
6 7 ATOM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, ------------------------------- 2000 1999 ------------ ------------ Operating activities Net loss $(29,523,000) $ (5,378,000) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 905,000 105,000 Acquired in-process technology -- 268,000 Amortization of intangible assets 2,670,000 225,000 Stock issued for services 11,000 12,000 Amortization of stock-based compensation 398,000 766,000 Noncash interest expense 2,413,000 -- Changes in Accounts receivable, net (1,255,000) (172,000) Royalties advanced (745,000) (118,000) Other current assets (682,000) (261,000) Accounts payable 823,000 707,000 Accrued liabilities 1,246,000 124,000 Unearned revenue 146,000 -- ------------ ------------ Net cash used in operating activities (23,593,000) (3,722,000) ------------ ------------ Investing activities Deposits of restricted cash (249,000) (250,000) Purchase of property and equipment (3,177,000) (922,000) Capitalized web site development costs -- (149,000) Cash paid for acquisition of Pixel Wave Corporation, net of cash acquired -- (3,029,000) Purchase of intangible assets (151,000) -- Cash paid for ForeFront Films (330,000) -- ------------ ------------ Net cash used in investing activities (3,907,000) (4,350,000) ------------ ------------ Financing activities Proceeds from issuance of borrowings 13,618,000 668,000 Payments of borrowings (4,628,000) -- Proceeds from exercise of common stock options and warrants 32,000 11,000 Proceeds from issuances of preferred stock, net 1,433,000 24,456,000 ------------ ------------ Net cash provided by financing activities 10,455,000 25,135,000 ------------ ------------ Net increase in cash and cash equivalents (17,045,000) 17,063,000 Cash and cash equivalents, beginning of period 17,545,000 482,000 ------------ ------------ Cash and cash equivalents, end of period $ 500,000 $ 17,545,000 ============ ============ Supplemental information Exercise of common stock options in exchange for a note $ -- $ 64,000 ------------ ------------ Conversion of bridge notes into preferred stock $ -- $ 600,000 ------------ ------------ Issuance of common stock for acquisitions $ 55,000 $ 4,360,000 ------------ ------------ Stock issued for services $ 11,000 $ 12,000 ------------ ------------ Warrants issued in connection with borrowings $ 2,942,000 $ -- ------------ ------------ The accompanying notes are an integral part of these financial statements.
7 8 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- 1. Nature of the business and summary of significant accounting policies Atom Corporation (the "Company") was incorporated on August 24, 1998 under the laws of the state of Washington. The Company is a distributor and marketer of short films, animations and other digital media. The Company distributes content on its Internet web site at www.atomfilms.com and other media such as television, home video and syndication. On December 14, 2000, Macromedia Inc. ("Macromedia"), through a majority owned subsidiary, shockwave.com Inc. ("shockwave"), agreed to a merger with the Company, in a stock-for-stock transaction. Under the terms of the merger, shockwave assumed 100% of the Company's outstanding equity securities and converted these securities into capital stock, options and warrants in shockwave. The transaction was completed on January 12, 2001. On completion of the acquisition the separate existence of the Company ceased and the Company was merged into shockwave. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of consolidation The Company's consolidated financial statements include the assets, liabilities and results of operations of majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash and cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of deposits in money market funds and certificates of deposit. Restricted cash Restricted cash consists of amounts placed under an irrevocable letter of credit in connection with the lease of the Company's office space. 8 9 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- Concentration of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, accounts receivable and royalty advances. The Company maintains its cash accounts with financial institutions where, at times, deposits exceed insurance limits. The Company's accounts receivable are derived primarily from customers located in the United States. The Company extends credit based upon an evaluation of the customer's financial condition and generally collateral is not required. The Company maintains an allowance for doubtful accounts based upon its historical experience and the expected collectibility of all accounts receivable. Credit losses to date have been within the Company's estimates. One customer accounted for 17% of net revenues in 2000. Two customers accounted for 22% and 11%, respectively, of net revenues in 1999. No other customers accounted for more than 10% of revenue in 2000 or 1999. No customer accounted for more than 10% of accounts receivable as of December 31, 2000. Two customers accounted for 17% and 10%, respectively, of accounts receivable at December 31, 1999. Revenue recognition The Company's revenues have been principally derived from the licensing of short films and animations ("Content") and the sale and delivery of short-term advertising on the Company's web site. The Company also derives revenues from the sale of merchandise on the Company's web site. The Company has applied the revenue recognition provisions of Staff Accounting Bulletin No. 101. "Revenue Recognition". Revenues from the license of content are recognized on delivery provided that no significant obligations for the Company remain and collection of the related receivable is probable. If the Company is required to provide ongoing content for a defined period, revenue is recognized ratably over the term of the arrangement. Web site advertising revenues are recognized in the periods of the arrangement, based on the lesser of impressions delivered over the total number of guaranteed impressions or ratably over the period of display, provided no significant Company obligations remain and collection of the related receivable is reasonably assured. Sales of merchandise on the Company's web site are generally executed by credit card and revenue is recognized on shipment. Property and equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is shorter. The useful lives of the property and equipment range from three to seven years. The costs of normal maintenance and repairs are charged to expense as 9 10 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- incurred and expenditures for major improvements are capitalized at cost. Gains and losses on the disposition of assets are reflected in the results of operations at the time of disposition. Web site development costs Web site development consists principally of payroll and related expenses for web site planning, infrastructure development, content development and operational maintenance. Costs incurred in planning and operating the web site are expensed as incurred. Costs incurred in creating web site applications, infrastructure, and certain content and graphics development are capitalized and amortized over their useful life, generally 18 months. A total of $149,000 in web site development costs was capitalized in 1999. No amounts were capitalized in 2000. Amortization of web site development costs was $80,000 and $24,000 in 2000 and 1999, respectively. Impairment of long-lived assets The Company periodically evaluates the carrying value of long-lived assets to be held and used, including but not limited to, property and equipment and other assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. No losses from impairment have been recognized in the financial statements. Intangible assets Intangible assets consist primarily of goodwill, assembled and trained workforce, and acquired film libraries and domain names. Goodwill and assembled and trained workforce are amortized over three years. Acquired film libraries and domain names are amortized over their estimated useful lives of three years. During 2000 and 1999, amortization of intangible assets totaled $2,667,000 and $225,000, respectively. Advertising costs The Company utilizes online advertising, trade shows, online promotions and television commercials to expand brand and product awareness. All advertising costs are expensed as incurred. Advertising costs for 2000 and 1999 were $6,871,000 and $938,000, respectively. 10 11 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- Comprehensive income/loss To date, the Company has not had any transactions that are required to be reported in comprehensive income/loss and comprehensive loss is the same as net loss for all periods presented. Income taxes The Company follows the liability method of accounting for income taxes pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes". This method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recorded. Stock-based compensation The Company accounts for stock-based employee compensation arrangements in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. The Company accounts for equity instruments issued to nonemployees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force ("EITF") Issue 96-18. Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" (SFAS 133), which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS No. 133 was amended by SFAS 137 and SFAS 138. SFAS 133, as amended, is effective for the Company's fiscal year 2001. The Company does not anticipate the adoption of these standards will have a material impact on its results of operations or financial position, as the Company does not hold any derivative financial instruments and does not currently engage in hedging activities. In September 2000, the FASB issued Statement of Financial Accounting Standards 140 ("FAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." FAS 140 replaces Statement of Financial Accounting Standards 125, revising the standards governing the accounting for securitizations and other transfers of financial assets and collateral. Adoption of FAS 140 is required for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. The Company does not expect that there will be a material impact on the results of operations or financial position on the adoption of FAS 140. 11 12 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- 2. PROPERTY AND EQUIPMENT A summary of property and equipment follows (in thousands):
December 31, --------------------- 2000 1999 ------- ------- Computer equipment $ 2,108 $ 655 Furniture and office equipment 914 135 Software 433 125 Leasehold improvements 746 112 ------- ------- 4,201 1,027 Less accumulated depreciation and amortization (1,012) (108) ------- ------- $ 3,189 $ 919 ======= =======
3. NOTE RECEIVABLE FROM SHAREHOLDER In October 1999, the Company advanced $64,000 under a full recourse promissory note to one of its officers for the purchase of Common Stock of the Company pursuant to the exercise of a stock option. The principal balance of this note, together with interest accrued and unpaid to date, is due and payable in October 2009. Interest accrues under the note on any unpaid principal balance at the rate of 6.71% per annum. 4. ACQUISITIONS Pixel Wave On December 3, 1999, the Company acquired Pixel Wave Corporation ("Pixel Wave"), an Internet-based, multimedia production company. The Company acquired all outstanding shares of Pixel Wave's common stock in exchange for $3,000,000 cash and 2,000,000 shares of the Company's common stock. The value of the common stock issued to the sellers of Pixel Wave of $2.18 was determined on negotiations with the sellers. The acquisition has been accounted for using the purchase method of accounting. A summary of the purchase consideration is as follows (in thousands):
Consideration Cash $ 3,000 Value of common stock 4,360 Acquisition costs 43 ------- $ 7,403 =======
12 13 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- A summary of assets acquired at the date of the acquisition, is as follows (in thousands):
Tangible assets $ 144 Assembled and trained workforce 550 Acquired in-process research and development 268 Goodwill 6,441 ------- $ 7,403 =======
The acquired in-process research and development has not yet reached technological feasibility and has no alternative future use. The acquired in-process research and development was recorded as expense at the time of the acquisition. The valuation of the acquired in-process research and development was based upon estimates by the Company and a valuation by a third-party appraiser. The valuation of the in-process research and development related to this acquisition was determined, using the percentage of completion methodology, by estimating the future net cash flows resulting from products anticipated to result from this acquisition and discounting the net cash flows to the date of acquisition using a discount rate of 19%. The discount rate used to value the acquired in-process research and development is based on the inherent risk surrounding the development of the acquired research and development. Given that the valuation of the acquired in-process research and development was an estimate, actual results may change. If the estimate of the acquired in-process technology were to decrease, the value assigned to goodwill would increase. The results of operations of Pixel Wave are included in the consolidated financial statements from the date of acquisition. FOREFRONT FILMS On January 13, 2000, the Company purchased the assets of Forefront Films, Inc. (Forefront), a multimedia production company. The Company acquired the assets of Forefront in exchange for $330,000 in cash and 25,000 shares of the Company's common stock, valued at $55,000. The acquisition has been accounted for using the purchase method of accounting. A summary of assets acquired at the date of acquisition is as follows (in thousands):
Film Library $ 215 Assembled and trained workforce 170 ----- $ 385 =====
The results of operations of ForeFront are included in the consolidated financial statements from the date of acquisition. Unaudited pro forma results have not been 13 14 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- presented, as the results of operations that would have been reported had the acquisition occurred on January 1, 1999 are not materially different. 5. NOTES PAYABLE On March 1, 2000, the Company amended its Loan and Security Agreement with a commercial bank. The amended credit agreement called for the outstanding balance of the previous line of credit, totaling $62,500, to be paid in monthly payments of $2,500, plus accrued interest of prime plus 1.5% (9.5% at December 31, 2000). The outstanding balance of the previous line of credit agreement provided for equipment advances through August 28, 2000, up to a maximum of $500,000. During 2000, the Company obtained additional equipment advances totaling $750,000. These advances are being repaid in equal monthly installments of $25,000, plus accrued interest of prime plus 1%, through February 28, 2003. Amounts outstanding under the credit agreement and equipment advance facility totaled $688,000 at December 31, 2000. In September 2000, the Company borrowed an additional $1,000,000 from the commercial bank. This amount was repaid in November 2000. In connection with these borrowings the Company issued warrants to purchase a total of 20,355 shares of common stock at exercise prices of $2.18 - $4.36. The fair value of the warrants of $22,000 was recorded as interest expense in 2000. In September 2000, the Company entered into a Loan and Security Agreement to borrow up to $3,500,000. Borrowings under the arrangement bore interest at prime rate plus 3% and were repayable by December 15, 2000 or on the closing of an equity financing with proceeds of greater than $10 million. In connection with the borrowings, the Company issued warrants to purchase 206,422 shares of Series C Preferred Stock at an exercise price of $1.72. The fair value of the warrants was determined to be $223,000. Pursuant to APB 14, Accounting for Convertible Debt issued with Stock Purchase Warrants ("APB 14"), the Company was required to allocate the proceeds to the debt instrument and the warrant for accounting purposes based on their relative fair values at the time of issuance. The fair value attributable to the warrant of $219,000 has been treated as a debt discount which was amortized over the term of the debt as interest expense. All borrowings under this arrangement were repaid in 2000. In October 2000, the Company issued convertible promissory notes totaling $3,365,000. The notes were convertible into shares of the Company's preferred stock issuable in a future financing transaction or based upon an assumed company valuation at any time after january 15, 2001. the notes bear interest at 8% per annum. The debt is repayable on demand at any time after January 15, 2001 or upon the closing of an equity financing with proceeds of greater than $10 million. In connection with the promissory notes, the Company agreed to issue a warrant to purchase 2,670,898 shares of preferred stock at an 14 15 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- initial exercise price of $1.28. The number of shares and exercise price of the warrant is subject to adjustment. The fair value of warrants issued was determined to be $2,163,000. Pursuant to APB 14, the Company is required to allocate the proceeds to the debt instrument and the warrant for accounting purposes based on their relative fair values at the time of issuance. The fair value attributable to the warrant of $1,349,000 has been treated as a debt discount, which is amortized over the term of the debt. In addition, the Company is required to attribute an amount of $1,349,000 to the beneficial conversion feature embedded in the convertible debt after the apb 14 allocation of fair value. this beneficial conversion feature was recorded as additional debt discount, over the period to which the debt became convertible. Amortization of the debt discount of $2,172,000 was recorded as interest expense in 2000. The remaining debt discount of $526,000 will be amortized in 2001. In December 2000, the Company issued a convertible promissory note to Macromedia totaling $5 million. The promissory note bears interest at 6.1% per annum and has a maturity date of December 15, 2001. Upon the closing of the merger of the Company and shockwave, the note was convertible into shares of preferred stock of the merged entity. Future minimum payments on long-term debt are as follows (in thousands):
Years ending December 31, 2001 $ 330 2002 308 2003 50 ----- $ 688 =====
6. INCOME TAXES No provision for income taxes has been recorded since August 24, 1998 (inception), as the Company has incurred net losses from the date of inception. At December 31, 2000, the Company had approximately $29.2 million of federal net operating loss carryforwards available to offset future taxable income, if any, which expire in varying amounts beginning in 2018. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% as defined, over a three-year period. 15 16 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- As of December 31, 2000, the Company had gross deferred tax assets of approximately $10.6 million, related primarily to net operating loss carryforwards, stock-based compensation and certain allowances that are not currently deductible for tax purposes. Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets and that a full valuation allowance is required. 7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK Mandatorily redeemable convertible preferred stock at December 31, 2000 consists of the following:
AMOUNT, NET OF LIQUIDATION ISSUANCE SHARES AMOUNT COSTS ------------------------- ----------- ------- SERIES DESIGNATED OUTSTANDING (IN THOUSANDS) A 800,000 727,500 $ 728 $ 720 B 4,000,000 3,789,057 4,850 4,781 C 5,000,000 5,000,000 21,800 21,708 --------- ---------- ------- ------- 9,800,000 9,516,557 $27,378 $27,209 ========= ========== ======= =======
The holders of the convertible preferred stock have various rights and preferences as follows: VOTING Each share of Series A, B and C convertible preferred stock has voting rights equal to an equivalent number of shares of common stock into which it is convertible and votes together as one class with the common stock. As long as at least 1,000,000 shares of convertible preferred stock remain outstanding, the Company must obtain approval from a majority of the holders of convertible preferred stock in order to alter the articles of incorporation as related to the rights, preferences or privileges of the convertible preferred stock. As long as any shares of convertible preferred stock remain outstanding, the Company must obtain approval from a majority of the holders of convertible preferred stock in order to change the authorized number of shares of convertible preferred stock, change the authorized number of Directors, authorize a dividend for any class or series other than convertible preferred stock, create a new class of stock or effect a merger, consolidation or sale of assets where the existing stockholders retain less than 50% of the voting stock of the surviving entity. 16 17 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- DIVIDENDS Holders of Series A, B and C convertible preferred stock are entitled to receive noncumulative dividends at the per annum rate of $0.085, $0.1024 and $0.3488 per share, respectively, when and if declared by the Board of Directors. Holders of Series C convertible preferred stock are entitled to receive payment on dividends in preference to the holders of Series A and B convertible preferred stock. Holders of the Series B preferred stock are entitled to receive payments on dividends in preference to the holders of Series A convertible preferred stock. After the dividend preference of each of the series of the preferred stock has been paid in full for a given calendar year, the preferred stock will participate pro rata with the common stock in the receipt of any additional dividends on an as-converted basis. No dividends on convertible preferred stock or common stock have been declared from inception through December 31, 2000. LIQUIDATION In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or sale of assets where the beneficial owners of the Company's common stock and convertible preferred stock own less than 50% of the resulting voting power of the surviving entity, the holders of Series A, B and C convertible preferred stock are entitled to receive an amount of $1.00, $1.28 and $4.36 per share, respectively, plus any declared but unpaid dividends, prior to and in preference to any distribution to the holders of common stock. Holders of Series C convertible preferred stock are entitled to receive payment on dividends in preference to the holders of Series A and B convertible preferred stock. Holders of the Series B preferred stock are entitled to receive payments on dividends in preference to the holders of Series A convertible preferred stock. Upon full payment of the Series C, Series B and Series A preferences, the remaining assets shall be distributed among the holders of the Series B preferred stock until the holders of the Series B preferred stock receive an aggregate of $2.56 per share. Any remaining funds and assets of the Company legally available for distribution to shareholders will be distributed pro rata among the holders of the common stock. If the Company has insufficient assets to permit payment of the preference amount in full to all preferred shareholders, then the assets of the Company will be distributed ratably to the holders of the preferred stock in proportion to the preference amount each such holder would otherwise be entitled to receive. CONVERSION Each share of Series A, B and C convertible preferred stock is convertible, at the option of the holder, according to a conversion ratio which is subject to adjustment for dilution. In addition, each share of Series A, B and C convertible preferred stock automatically converts into the number of shares of common stock into which such shares are convertible, at the then effective conversion ratio, upon: (1) the closing of a public offering of common stock at a per share price of at least $10.90 per share for a total public offering price of not less than $35,000,000 or (2) the consent of the holders of the majority of convertible preferred stock. 17 18 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- MANDATORY REDEMPTION The convertible preferred stock contains a provision which, in the event of a change in the control of the Company would give the holders of the convertible preferred stock the right to receive a cash distribution equal to the liquidation preference on the convertible preferred stock. In accordance with the rules of the Securities and Exchange Commission the convertible preferred stock has not been included in shareholders' deficit and is presented as mandatorily redeemable convertible preferred stock at December 31, 2000. As a change in control of the Company was probable at December 31, 2000, accretion of $169,000 has been recorded to adjust the carrying value of the preferred stock to the liquidation value. At December 31, 2000, the Company has reserved 727,500, 3,789,057, and 5,000,000 shares of common stock for the conversion of Series A, B and C convertible preferred stock, respectively. 8. COMMON STOCK During 1999, the Company entered into stock restriction agreements with a director. The stock restriction agreements give the Company the right to repurchase the director's common shares at the original purchase price in the event that the director's service with the Company terminates for any reason. The Company's repurchase right lapses as the director performs services over a three-year period. At December 31, 2000, there were 150,000 common shares subject to repurchase. In 2000, the Company issued 8,704 shares of common stock to certain providers of film inventory. The fair value of the shares of $11,000 was recorded as cost of revenues in 2000. 9. STOCK WARRANTS In 1999, the Company issued 43,648 warrants to purchase common stock with an exercise price of $0.32 per share. Of these warrants, 41,685 were issued in conjunction with bridge notes issued during the year. The remainder were issued in exchange for legal services rendered. Warrant values were estimated using the Black-Scholes pricing model and resulted in $11,000 and $1,000 recorded to interest and legal expense, respectively. In 2000, in connection with various services agreements, the Company issued a total of 25,855 warrants to purchase common shares at exercise prices of between $1.94 and $2.18 during 2000. The fair value of the warrants of $24,000 were expensed during the year. 18 19 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- In connection with certain borrowings in September 2000, the Company issued warrants to purchase 206,422 shares of Series C Preferred Stock at an exercise price of $1.72. The fair value of the warrants was determined to be $223,000. In connection with issuance of promissory notes in October 2000, the Company agreed to issue warrants to purchase 2,670,898 shares of preferred stock at an exercise price which is the lower of $1.28 or the price per share in the Company's next equity financing. The fair value of warrants issued was determined to be $2,168,000. The warrants issued are exercisable for a period of 5 years. Pursuant to APB 14, the Company allocated the proceeds to the debt instruments and to the warrants for accounting purposes based on their relative fair values at the time of issuance. Refer to Note 5. All warrants were not subject to vesting and were exercisable at date of issuance. The fair value of the warrants, detailed above was determined using the Black-Scholes option pricing model with the following assumptions:
Stock price $1.28-$1.72 Volatility 70% Expected life 5-7 years Risk free rate 6.09%
10. STOCK OPTIONS In 1998, the Company adopted the 1998 Stock Option Plan (the "Plan"). The Plan provides for the granting of stock options to employees, consultants and nonemployee directors of the Company. Options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options ("ISO") may be granted only to Company employees (including officers and directors who are also employees). Nonqualified stock options ("NSO") may be granted to Company employees, consultants and nonemployee directors. In 2000 the Company's board of directors approved an amendment to the Plan increasing the number of shares from 3,000,000 to 4,750,000. Options under the Plan may be granted for periods of up to 10 years. The exercise price of an ISO cannot be less than 100% of the estimated fair value of the common stock on the date of grant, and the exercise price of an ISO granted to a 10% shareholder cannot be less than 110% of the estimated fair value of the shares on the date of grant. To date, options granted generally vest over four years. 19 20 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- The following table presents activity under the Plan:
NUMBER OF WEIGHTED- SHARES SHARES AVERAGE AVAILABLE SUBJECT TO EXERCISE FOR GRANT OPTIONS PRICE ---------- --------- -------- Authorized 3,000,000 -- Granted (2,409,866) 2,409,866 $ 0.21 Exercised -- (229,000) 0.31 Cancelled 70,000 (70,000) 0.10 ---------- --------- Balances, December 31, 1999 660,134 2,110,866 $ 0.20 Additional shares authorized 1,750,000 Granted (1,020,580) 1,020,580 $ 2.18 Exercised -- (246,607) 0.14 Cancelled 573,834 (573,834) 0.62 ---------- --------- Balances, December 31, 2000 1,963,388 2,311,005 $ 0.91 ========== =========
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ --------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE -------- --------- ------------ -------- -------- -------- $ 0.10 809,375 8.23 $ 0.10 217,041 $ 0.10 $ 0.32 666,775 8.67 $ 0.32 42,566 $ 0.32 $ 2.18 834,855 9.43 $ 2.18 125,500 $ 2.18 --------- -------- 2,311,005 385,107 ========= ========
FAIR VALUE DISCLOSURES Had compensation cost for the issuance of options to employees been determined based on the fair value at the grant dates for the awards under a method prescribed by SFAS No. 123, the Company's net loss for 2000 and 1999 would have increased by approximately $89,000 and $17,000, respectively. 20 21 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- The Company calculated the fair value of each option grant using the Black-Scholes pricing model with the following assumptions:
2000 1999 ----------- ----------- Stock price $2.15-$2.18 $0.15-$2.18 Volatility 0% 0% Expected life 4 years 5 years Risk free interest rate 6.37% 5%-5.77%
DEFERRED STOCK-BASED COMPENSATION In the year ended December 31, 1999, the Company recorded deferred stock compensation expense of $612,000 related to the issuance of stock options to employees at prices subsequently determined to be below fair market value. The Company also recorded deferred stock compensation of $1,305,000 related to options granted to consultants and other service providers. Options issued to nonemployees were valued using a Black Scholes pricing model using the assumptions noted below. Deferred stock compensation is being amortized over a period of four years from the date of option issuance using the method specified in FASB Interpretation No. 28 for employees and on a straight-line basis for non-employees. Amortization of $398,000 and $766,000 has been recognized as stock-based compensation expense in the years ended December 31, 2000 and 1999, respectively.
Stock price $1.00-$2.55 Volatility 70% Expected life 5 years Risk free interest rate 5%-5.77%
11. COMMITMENTS AND CONTINGENCIES MINIMUM FUTURE RENTAL PAYMENTS The Company leases office space under noncancelable operating leases with various expiration dates through 2004. The terms of the facility lease provide for rental payments on a graduated scale. The facility lease expires in October 2004. The Company recognizes rent expense on a straight-line basis over the lease period. 21 22 ATOM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 - -------------------------------------------------------------------------------- Future minimum lease obligations as of December 31, 2000 are as follows (in thousands):
YEARS ENDING DECEMBER 31, 2001 $ 692 2002 713 2003 737 2004 648 2005 95 ------- Total minimum lease payments $ 2,885 =======
Rental expense for the years ended December 31, 2000 and 1999 was $905,000 and $79,000, respectively. Claims and litigation In the opinion of management, litigation, contingent liabilities and claims against the Company in the normal course of business are not expected to involve any judgements or settlements that would be material to the Company's consolidated financial condition or results of operations. 12. SUBSEQUENT EVENTS On January 12, 2001, the Company completed its merger with shockwave. On the effectiveness of the merger all outstanding equity securities, including options and warrants were assumed by shockwave and were converted into equity securities of shockwave. On the effectiveness of the merger, the separate existence of the Company ceased and the Company merged into shockwave. 22 23 B) PRO FORMA FINANCIAL INFORMATION. The following unaudited Pro Forma combined condensed financial information has been prepared to give effect to Shockwave's acquisition of AtomFilms (the "merger"), accounted for using the purchase method of accounting, and the resulting deconsolidation of AtomShockwave, Inc. ("AtomShockwave") from Macromedia's historical consolidated financial statements. The total purchase price of AtomFilms and the related purchase price allocation are based on managements best estimate of the underlying assets and liabilities, which, based on facts and circumstances, are subject to change. Furthermore, subsequent to the merger, Macromedia's ownership of shockwave became approximately 43%. As a result, the following unaudited Pro Forma financial information reflects a deconsolidation of the AtomShockwave financial information. The unaudited Pro Forma combined condensed balance sheet as of December 31, 2000 gives effect to the merger and the resulting deconsolidation as if they had occurred as of December 31, 2000 and combines the historical consolidated balance sheet of Macromedia as of December 31, 2000 and the historical consolidated balance sheet of AtomFilms as of December 31, 2000. As a result of the differing fiscal years of Macromedia and AtomFilms, results of operations for different periods have been combined. The unaudited Pro Forma combined condensed statements of operations combines the historical consolidated statement of operations of Macromedia for the year ended March 31, 2000 and nine months ended December 31, 2000 with AtomFilms' statements of operations for the year ended December 31, 1999 and the nine months ended September 30, 2000, respectively. The unaudited Pro Forma combined condensed financial information is based on estimates and assumptions. These estimates and assumptions have been made solely for purposes of developing this Pro Forma information. Unaudited Pro Forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations of future periods or the results that actually would have been realized had Macromedia accounted for its investment in AtomShockwave as an equity method investee during the periods presented. This unaudited Pro Forma combined financial information is based upon the respective historical consolidated financial statements of Macromedia as filed in their annual report on Form 10-K and the consolidated financial statements and related notes of AtomFilms, included herein, and should be read in conjunction with those statements and the related notes. The notes to the unaudited Pro Forma combined condensed financial statements should be read in conjunction with the unaudited Pro Forma combined condensed financial statements. 23 24 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET MACROMEDIA INC. AND SUBSIDIARIES (IN THOUSANDS)
MACROMEDIA ATOMFILMS DECEMBER 31, DECEMBER 31, PRO FORMA 2000 2000 ADJUSTMENTS DECONSOLIDATION 3 TOTAL ------------ ------------ ----------- ----------------- --------- ASSETS Current assets Cash, cash equivalents and short-term investments $ 207,940 $ 500 $ 14,508 2a $ (34,998) $ 187,950 Accounts receivable, net 50,108 1,523 -- (5,045) 46,586 Other current assets 21,761 953 -- (2,941) 19,773 Deferred tax assets, short-term 9,937 -- -- -- 9,937 --------- --------- --------- --------- --------- Total current assets 289,746 2,976 14,508 (42,984) 264,246 Land and building, net 18,322 -- -- -- 18,322 Fixed assets, net 73,725 3,189 -- (15,098) 61,816 Goodwill and other intangibles 6,568 5,259 28,313 2b (33,572) 6,568 Related party loans 14,904 -- -- -- 14,904 Restricted cash 9,111 499 -- (499) 9,111 Investment in and advances to equity affiliate -- -- -- 39,114 39,114 Other long-term assets 22,904 398 -- (10,739) 12,563 --------- --------- --------- --------- --------- Total assets 435,280 12,321 42,821 (63,778) 426,644 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion on notes payable -- 8,169 14,508 2a (22,677) -- Accounts payable 3,118 1,581 -- (1,605) 3,094 Accrued liabilities 60,863 1,370 230 2c (5,903) 56,560 Unearned revenue 10,037 146 -- (886) 9,297 --------- --------- --------- --------- --------- Total current liabilities 74,018 11,266 14,738 (31,071) 68,951 Long-term liabilities 943 358 -- (360) 941 --------- --------- --------- --------- --------- Total liabilities 74,961 11,624 14,738 (31,431) 69,892 Mandatorily redeemable convertible preferred stock -- 27,378 (27,378)2d -- -- Minority interest 11,409 -- -- (11,409) -- Stockholders' equity Common stock 62 9,001 (8,980)2e (32) 51 Treasury stock (33,649) -- -- -- (33,649) Additional paid-in-capital 407,165 -- 29,168 2f (49,087) 387,246 Notes receivable from shareholders (7,967) (64) -- 769 (7,262) Deferred compensation (27,833) (345) -- 27,412 (766) Accumulated other comprehensive income 535 -- -- -- 535 Retained earnings (deficit) 10,597 (35,273) 35,273 2e 10,597 --------- --------- --------- --------- --------- Total stockholders' equity 348,910 (26,681) 55,461 (20,938) 356,752 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 435,280 $ 12,321 $ 42,821 $ (63,778) $ 426,644 ========= ========= ========= ========= =========
24 25 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS MACROMEDIA INC. AND SUBSIDIARIES (IN THOUSANDS)
MACROMEDIA ATOMFILMS YEAR ENDED YEAR ENDED MARCH 31, DECEMBER 31, PRO FORMA 2000 1999 ADJUSTMENTS DECONSOLIDATION 5 TOTAL ---------- ------------ ----------- ----------------- --------- Revenues $ 264,159 $ 511 $ -- $ (8,732) $ 255,938 Cost of Revenues 28,829 204 -- (1,312) 27,721 ---------- -------- -------- ---------- --------- Gross profit 235,330 307 -- (7,420) 228,217 Operating Expenses Sales and marketing 113,005 2,180 -- (14,163) 101,022 Research and development 65,739 161 -- (12,360) 53,540 General and administrative 24,610 2,183 -- (3,857) 22,936 Acquisition related expenses 11,516 268 -- (268) 11,516 Non-cash compensation 11,071 766 -- (10,484) 1,353 Amortization of intangibles 1,013 225 5,663 4g (5,888) 1,013 ---------- -------- -------- ---------- --------- Total operating expenses 226,954 5,783 5,663 (47,020) 191,380 ---------- -------- -------- ---------- --------- Operating Income (Loss) 8,376 (5,476) (5,663) 39,600 36,837 Loss from equity affiliates -- -- -- (16,825) (16,825) Other income (expense) 6,187 98 -- (590) 5,695 Minority interest 6,179 -- -- (6,179) -- ---------- -------- -------- ---------- --------- Income (loss) before taxes 20,742 (5,378) (5,663) 16,006 25,707 Provision (benefit) for income taxes 11,975 -- -- -- 11,975 ---------- -------- -------- ---------- --------- Net Income (loss) $ 8,767 $ (5,378) $ (5,663) $ 16,006 $ 13,732 ========== ======== ======== ========== ========= Accretion of mandatorily redeemable convertible preferred stock (2,538) -- -- -- (2,538) Net income (loss) applicable to common stockholders $ 6,229 $ (5,378) $ (5,663) $ 16,006 $ 11,194 ========== ======== ======== ========== ========= Net income (loss) applicable to common stockholders per share Basic $ 0.14 $ 0.25 Diluted $ 0.12 $ 0.21 Weighted average shares outstanding Basic 44,601 44,601 Diluted 52,270 52,270
25 26 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS MACROMEDIA INC. AND SUBSIDIARIES (IN THOUSANDS)
MACROMEDIA ATOMFILMS NINE MONTHS NINE MONTHS DECEMBER 31, SEPTEMBER 30, PRO FORMA 2000 2000 ADJUSTMENTS DECONSOLIDATION 5 TOTAL ------------ ------------- ----------- ----------------- --------- Revenues $ 300,523 $ 3,319 $ -- $ (16,485) $ 287,357 Cost of Revenues 32,237 2,310 -- (4,028) 30,519 ---------- -------- -------- ---------- --------- Gross profit 268,286 1,009 -- (12,457) 256,838 Operating Expenses Sales and marketing 117,739 16,047 -- (27,791) 105,995 Research and development 84,223 -- -- (19,036) 65,187 General and administrative 29,430 3,231 -- (8,592) 24,069 Acquisition related expenses 4,774 -- -- -- 4,774 Non-cash compensation 5,900 360 -- (5,850) 410 Amortization of intangibles 1,558 1,943 4,247 4g (6,280) 1,468 ---------- -------- -------- ---------- --------- Total operating expenses 243,624 21,581 4,247 (67,549) 201,903 ---------- -------- -------- ---------- --------- Operating Income (Loss) 24,662 (20,572) (4,247) 55,092 54,935 Loss from equity affiliates -- -- -- (24,178) (24,178) Other 6,491 39 -- (966) 5,564 Minority interest 15,336 -- -- (15,336) -- ---------- -------- -------- ---------- --------- Income (loss) before taxes 46,489 (20,533) (4,247) 14,612 36,321 Provision (benefit) for income taxes 11,341 -- -- -- 11,341 ---------- -------- -------- ---------- --------- Net income (loss) applicable to common stockholders $ 35,148 $(20,533) $ (4,247) $ 14,612 $ 24,980 ========== ======== ======== ========== ========= Net income (loss) applicable to common stockholders per share Basic $ 0.70 $ 0.50 Diluted $ 0.62 $ 0.44 Weighted average shares outstanding Basic 50,369 50,369 Diluted 56,625 56,625
26 27 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1) On January 14, 2001, Macromedia's consolidated subsidiary, shockwave, consummated its merger with AtomFilms. Under the terms of the merger agreement, AtomFilms shareholders received shares equal to 30% of shockwave's fully diluted equity at closing. In addition, Macromedia has agreed with certain AtomShockwave Series B shareholders that it will convert certain of its AtomShockwave Series A preferred shares into common stock and transfer those shares to Series B shareholders, provided such Series B shareholders invest a specified amount in the next round of financing of AtomShockwave, such that these Series B shareholders will have a percentage ownership in AtomShockwave approximately equal to their percentage holdings in shockwave prior to the merger. This contingency is not reflected in the unaudited Pro Forma combined condensed financial statements. Subsequent to the merger, shockwave became AtomShockwave. The merger was accounted using purchase accounting and accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values on the acquisition date. The purchase price of AtomFilms and the related purchase price allocation is based on a valuation using the best information available, which, based on facts and circumstances, is subject to change. In addition, it is expected that in connection with the merger, AtomShockwave will record additional purchase price consideration related to stock options assumed, which cannot currently be estimated. At December 31, 2000, AtomFilms had approximately 2.3 million stock options outstanding with weighted average exercise prices from $0.10 to $2.18 per share. The merger reduced Macromedia's controlling interest in shockwave to a level of significant influence. Accordingly, subsequent to the above-mentioned merger, Macromedia deconsolidated the assets and liabilities of AtomShockwave and will account for AtomShockwave as an equity method investee in its consolidated financial statements. The total purchase price of $29.4 million consists of 21.1 million shares of shockwave with an estimated fair value of $1.38 per share and direct transaction costs of $230,000. The Pro Forma financial information reflects Macromedia's most recent balance sheet at December 31, 2000, results of operations for the year ended March 31, 2000, and results of operations for Macromedia's most recent interim period, the nine months ending December 31, 2000. As AtomFilms has a different year end from Macromedia, the AtomFilms results of operations were combined with the year ended December 31, 1999 and nine months ended September 30, 2000, respectively. 2) The Pro Forma combined condensed balance sheet gives effect to the merger and the resulting deconsolidation as if they occurred on December 31, 2000. The following Pro Forma adjustments have been made to the historical financial statements of Macromedia and AtomFilms based upon assumptions made by Macromedia's management for the purpose of preparing the unaudited Pro Forma combined condensed balance sheet: a) To record the issuance of a $5.0 million convertible note to a third party and a $9.5 million convertible note to Macromedia in connection with, as part of the merger agreement and consummation. 27 28 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS b) To reflect the excess of acquisition cost over the estimated fair value of the net assets acquired, which is comprised of the following (in thousands): Assembled workforce $ 1,700 Goodwill 26,613 -------- $ 28,313
The assembled workforce was derived by estimating the costs to replace the existing employees, including recruiting, hiring, and training costs for each category of employee. Goodwill was determined based on the residual difference between the estimated fair value of the consideration given to AtomFilm's shareholders and the values assigned to identified tangible and intangible assets. c) To record the direct transaction costs. d) To eliminate AtomFilms mandatorily redeemable convertible preferred stock. e) To eliminate AtomFilms shareholders' equity accounts. f) To record the shockwave common stock issued to AtomFilms shareholders upon merger consummation. 3) Immediately subsequent to shockwave's acquisition of AtomFilms and the issuance of approximately 21.1 million shares of shockwave common stock to the AtomFilms shareholders, Macromedia, Inc. held 43.13% of the outstanding voting common stock of AtomShockwave. As a result, Macromedia deconsolidated shockwave from its consolidated financial statements and began accounting for it's investment in AtomShockwave and its proportionate ownership share of AtomShockwave's results of operations, using the equity method of accounting. The Pro Forma adjustments related to the effect of the AtomShockwave deconsolidation, consist of the elimination of AtomFilms' historical financial information the elimination of Shockwave's balances from Macromedia's historical financial information and the recording of Macromedia's ownership of AtomShockwave using the equity method of accounting. The resulting investment in and advances to equity affiliate includes Macromedia's ownership of the underlying AtomShockwave net assets, $24,606 and Macromedia's advances to AtomShockwave, $14,508. 28 29 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 4) The unaudited Pro Forma combined condensed statements of operations gives effect to the merger as if it had occurred at the beginning of each period presented. The following Pro Forma adjustments have been made to the historical financial statements of Macromedia and AtomFilms based upon assumptions made by management for the purpose of preparing the unaudited Pro Forma combined condensed statement of operations. g) The amortization of intangibles is comprised of (in thousands):
Nine Months Year Ended Ended March 31, 2000 December 31, 2000 -------------- ----------------- $ 340 $ 255 Amortization of assembled workforce, calculated as $1,700, amortized over five years. $ 5,323 $ 3,992 Amortization of goodwill calculated as $26,613, amortized over five years. -------- -------- $ 5,663 $ 4,247 ======== ========
5) The Pro Forma adjustments for the unaudited Pro Forma combined condensed statements of operations give effect of AtomShockwave deconsolidation, reflect the following: o The deconsolidation of AtomShockwave's balances from Macromedia's consolidated financial statements, including the elimination of AtomFilms' historical financial statements. o Macromedia's proportionate share of AtomShockwaves' results of operations under the equity method of accounting. 29 30 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MACROMEDIA, INC. Date: March 28, 2001 By: /s/ Elizabeth A. Nelson -------------------------------- Elizabeth A. Nelson, Executive Vice President and Chief Financial Officer 30 31 EXHIBIT INDEX 2.01 Agreement and Plan of Reorganization dated December 14, 2000, by and among Shockwave.com, Inc., a Delaware corporation and Atom Corporation, a Washington corporation.* 2.02 Certificate of Merger of Atom Corporation with and into Shockwave.com, Inc. dated January 12, 2001.* 2.03 Articles of Merger between Atom Corporation and Shockwave.com, Inc. dated January 12, 2001.* 23.01 Consent of Independent Accountants.
- ---------- * Previously filed. EX-23.01 2 f70674aex23-01.txt EXHIBIT 23.01 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-32193) and Registration Statements on Form S-8 (Nos. 333-08435, 333-24713, 333-39285, 333-64141, 333-89247, 333-92233, 333-44016 and 333-57708) of Macromedia, Inc. of our report dated March 13, 2001 relating to the financial statements of Atom Corporation, which appears in the Current Report on Form 8-K of Macromedia, Inc. dated March 28, 2001. /s/ PricewaterhouseCoopers LLP Seattle, Washington March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----