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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.
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MACROMEDIA, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
September 30, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
September 30, March 31,
1997 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 19,846 $ 15,397
Short-term investments 66,653 87,054
Accounts receivable, net 7,709 2,315
Inventory 359 1,882
Prepaid expenses and other current assets 3,339 3,407
Deferred tax assets, short-term 7,537 7,537
--------- ---------
Total current assets 105,443 117,592
Property and equipment, gross 57,121 47,489
Less accumulated depreciation (17,579) (13,339)
Other long-term assets (Note 2) 8,807 4,185
Deferred tax assets, long-term 970 970
--------- ---------
Total assets $ 154,762 $ 156,897
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,483 $ 14,486
Accrued liabilities 8,861 8,119
Unearned revenue 1,181 2,376
--------- ---------
Total current liabilities 21,525 24,981
Long-term liabilities 164 --
--------- ---------
Total liabilities 21,689 24,981
Contingencies (Note 5)
Stockholders' equity:
Common stock, par value $0.001 per share; 80,000,000 shares
authorized; 38,205,163 and 37,742,965 shares issued and outstanding
at September 30, 1997 and March 31, 1997, respectively 38 38
Treasury stock (Note 3) (90) --
Additional paid-in capital 136,003 133,962
Deferred compensation (124) (149)
Unrealized gain on investments 404 297
Accumulated deficit (3,158) (2,232)
--------- ---------
Total stockholders' equity 133,073 131,916
--------- ---------
Total liabilities and stockholders' equity $ 154,762 $ 156,897
========= =========
See accompanying notes to condensed consolidated financial statements.
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MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three months ended Six months ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues $ 29,166 $ 31,025 $ 56,495 $ 66,035
Cost of revenues 5,307 4,505 9,875 9,939
-------- -------- -------- --------
Gross profit 23,859 26,520 46,620 56,096
Operating expenses:
Sales and marketing 13,834 12,352 28,174 24,538
Research and development 7,965 7,125 16,666 14,037
General and administrative 2,757 1,588 5,367 3,113
-------- -------- -------- --------
Total operating expenses 24,556 21,065 50,207 41,688
-------- -------- -------- --------
Operating (loss) income (697) 5,455 (3,587) 14,408
Other income, net 1,151 1,228 2,245 2,594
-------- -------- -------- --------
Income (loss) before income taxes 454 6,683 (1,342) 17,002
(Provision) benefit for income taxes (141) (2,073) 416 (5,272)
-------- -------- -------- --------
Net income (loss) $ 313 $ 4,610 $ (926) $ 11,730
======== ======== ======== ========
Net income (loss) per share $ 0.01 $ 0.12 $ (0.02) $ 0.29
======== ======== ======== ========
Weighted average common shares outstanding 40,236 40,013 37,975 40,648
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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MACROMEDIA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six months ended
September 30,
-----------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net (loss) income $ (926) $ 11,730
Adjustments to reconcile net (loss) income to net cash provided by/
(used in) operating activities:
Depreciation and amortization 3,817 3,300
Deferred compensation 25 52
Changes in operating assets and liabilities:
Accounts receivable, net (5,394) (367)
Inventory 1,523 (318)
Prepaid expenses and other current assets 68 (103)
Accounts payable (3,003) (798)
Accrued liabilities 742 (289)
Unearned revenue (1,195) (374)
Other current liabilities -- (313)
Other long-term liabilities 164 (28)
Other, net 501 --
-------- --------
Net cash (used in)/provided by operating activities (3,678) 12,492
-------- --------
Cash flows from investing activities:
Capital expenditures (9,206) (15,186)
Net sales/(purchases) of available-for-sale investments 20,508 (11,348)
Other long-term assets (5,126) (1,393)
-------- --------
Net cash provided by/(used in) investing activities 6,176 (27,927)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,041 2,506
Acquisition of treasury stock (90) --
-------- --------
Net cash provided by financing activities 1,951 2,506
-------- --------
Increase/(decrease) in cash and cash equivalents 4,449 (12,929)
Cash and cash equivalents, beginning of period 15,397 28,829
-------- --------
Cash and cash equivalents, end of period $ 19,846 $ 15,900
======== ========
Supplemental disclosure of cash flow information:
Interest paid during period $ -- $ --
======== ========
Income taxes paid $ -- $ 3,935
======== ========
See accompanying notes to condensed consolidated financial statements.
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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.
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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:
Three months ended Six months ended
September 30, September 30,
------------------ ------------------
(in millions) 1997 1996 1997 1996
North America $ 13.4 $ 15.2 $ 29.8 $ 34.1
% of total revenue 46% 49% 53% 52%
International $ 15.8 $ 15.8 $ 26.7 $ 31.9
% of total revenue 54% 51% 47% 48%
Total Revenue $ 29.2 $ 31.0 $ 56.5 $ 66.0
The table below summarizes revenue by platform:
Three months ended Six months ended
September 30, September 30,
------------------ ------------------
(in millions) 1997 1996 1997 1996
Macintosh $ 12.0 $ 15.8 $ 25.7 $ 35.4
% of total revenue 41% 51% 45% 54%
Windows and cross-platform $ 17.2 $ 15.2 $ 30.8 $ 30.6
% of total revenue 59% 49% 55% 46%
Total Revenue $ 29.2 $ 31.0 $ 56.5 $ 66.0
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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.
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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.
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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.
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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.
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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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 15, 1997, the Company held its annual meeting of stockholders. The
stockholders passed the following proposals by the votes indicated.
Matter Votes For Withheld
------ --------- --------
1. Election of Directors
Robert K. Burgess 32,144,857 641,087
John C. Colligan 32,214,128 571,816
L. John Doerr 32,247,871 538,073
John (Ian) Giffen 32,163,233 622,711
C. Richard Kramlich 32,242,425 543,519
Donald L. Lucas 32,222,529 563,415
James R. Von Ehr, II 32,252,296 533,648
William B. Welty 32,222,441 563,503
Votes Votes Broker
Matter Votes For Against Abstained Non Votes
------ --------- ------- --------- ---------
2. Amendment of the 1993 Employee Stock Purchase
Plan to increase the number of shares
reserved for issuance thereunder by 400,000
shares from 400,000 shares to 800,000 shares 31,910,709 657,475 217,760 0
3. Amendment of the 1992 Equity Incentive Plan
to increase the number of shares reserved for
issuance thereunder by 1,000,000 shares from
10,800,000 shares to 11,800,000 26,811,858 5,744,118 229,968 0
4. Ratify selection of KPMG Peat Marwick LLP as
independent auditors for the company for the
current fiscal year 32,524,463 112,987 148,494 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
Exhibit
Number Exhibit Title
- ------ -------------
10.01 Loan agreement between Macromedia, Inc. and Brian and Sharon
Allum, dated July 15, 1997
11.01 Statement regarding computation of per share earnings
27.01 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the period ended September
30, 1997.
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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
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