<PAGE> 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.
<PAGE> 2
MACROMEDIA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C> <C>
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
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION> Six months ended
September 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 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
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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:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------ ------------------
(in millions) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
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
</TABLE>
The table below summarizes revenue by platform:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------ ------------------
(in millions) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
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
</TABLE>
7
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Matter Votes For Withheld
------ --------- --------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Votes Votes Broker
Matter Votes For Against Abstained Non Votes
------ --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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").
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 1
MACROMEDIA, INC. AND SUBSIDIARIES
EXHIBIT 11.01
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,846
<SECURITIES> 66,653
<RECEIVABLES> 8,903
<ALLOWANCES> 1,194
<INVENTORY> 359
<CURRENT-ASSETS> 105,443
<PP&E> 57,121
<DEPRECIATION> 17,579
<TOTAL-ASSETS> 154,762
<CURRENT-LIABILITIES> 21,525
<BONDS> 0
0
0
<COMMON> 38
<OTHER-SE> 133,035
<TOTAL-LIABILITY-AND-EQUITY> 154,762
<SALES> 29,166
<TOTAL-REVENUES> 29,166
<CGS> 5,307
<TOTAL-COSTS> 5,307
<OTHER-EXPENSES> 24,556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 454
<INCOME-TAX> 141
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
