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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
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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.
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* Previously filed.
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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
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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)
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Total shareholders' deficit (26,681,000) (427,000)
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Total liabilities, mandatorily redeemable preferred stock and
shareholders' deficit $ 12,321,000 $ 26,299,000
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The accompanying notes are an integral part of these consolidated financial statements.
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ATOM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
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YEARS ENDED
DECEMBER 31,
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2000 1999
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Revenues $ 5,614,000 $ 511,000
Cost of revenues 4,139,000 204,000
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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
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Total operating expenses 28,751,000 5,783,000
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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)
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Net loss $(29,523,000) $ (5,378,000)
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The accompanying notes are an integral part of these consolidated financial statements.
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ATOM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2000 AND 1999
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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)
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The accompanying notes are an integral part of these consolidated financial statements.
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ATOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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YEARS ENDED DECEMBER 31,
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2000 1999
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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 --
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Net cash used in operating activities (23,593,000) (3,722,000)
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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) --
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Net cash used in investing activities (3,907,000) (4,350,000)
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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
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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
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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.
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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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.
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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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
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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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.
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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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.
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
December 31,
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2000 1999
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Computer equipment $ 2,108 $ 655
Furniture and office equipment 914 135
Software 433 125
Leasehold improvements 746 112
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4,201 1,027
Less accumulated depreciation and amortization (1,012) (108)
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$ 3,189 $ 919
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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
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$ 7,403
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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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
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$ 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
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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
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ATOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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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
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$ 688
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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
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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.
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* Previously filed.