<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10 - K

(X)  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the fiscal year ended March 31, 1999; 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. 000 - 22688

                                MACROMEDIA, INC.
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                      94 - 3155026
  (State or other jurisdiction of                          (IRS Employer
  incorporation or organization)                         Identification No.)

          600 TOWNSEND STREET,
       SAN FRANCISCO, CALIFORNIA                               94103
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code         (415) 252-2000

Securities registered pursuant to Section 12(b)
 of the Act:                                                    NONE

Securities registered pursuant to Section 12(g)
 of the Act:                                          COMMON STOCK, PAR VALUE
                                                         $0.001 PER SHARE
                                                         (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on May 28,
1999 ($38.34) as reported on the Nasdaq National Market, was approximately $XXX.
Shares of Common Stock held by each officer and director and by certain persons
who owned 5% or more of the Registrant's outstanding Common Stock on that date
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

As of Friday, May 28, 1999 Registrant had outstanding 42,381,388 shares of
Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Registrant's 1999 Annual Meeting of
Stockholders to be held at 1:00 PM, Wednesday, July 28, 1999 at 600 Townsend
St., Suite 310W, San Francisco, California 94103 are incorporated by
reference in Part III.


<PAGE>


                                MACROMEDIA, INC.
                                 1999 FORM 10-K

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                               PAGE
<S>        <C>                                                                 <C>
                                     PART I
Item 1.    Business                                                               1
Item 2.    Properties                                                             7
Item 3.    Legal Proceedings                                                      8
Item 4.    Submission of Matters to a Vote of Security Holders                    8
Item 4A.   Macromedia's Executive Officers                                        9

                                     PART II
Item 5.    Market for the Registrant's Common Equity and Related Stock
           Holder Matters                                                        11
Item 6.    Selected Financial Data                                               11
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                             13
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk            22
Item 8.    Financial Statements and Supplementary Data                           24
Item 9.    Changes in and Disagreements with Accountants on Accounting           45
           and Financial Disclosure

                                    PART III
Item 10.   Directors and Executive Officers of the Registrant                    46
Item 11.   Executive Compensation                                                46
Item 12.   Security Ownership of Certain Beneficial Owners and Management        46
Item 13.   Certain Relationships and Related Transactions                        46

                                     PART IV
Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K      47

Signatures                                                                       51
</TABLE>


<PAGE>

                                     PART I


In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements such as statements of the Company's
expectations, plans, objectives and beliefs. These forward-looking statements
are subject to material risks and uncertainties discussed in this Form 10-K,
including those set forth under Factors that May Affect Future Results of
Operations, contained in Item 7. As a result, the Company's actual results
could differ materially from those described in the forward-looking
statements.

ITEM 1. BUSINESS

OVERVIEW

Macromedia Incorporated ("Macromedia" or the "Company") develops, markets and
supports software products and technologies that add life to the Web.

Macromedia's Web Publishing products enable designers and developers to
create engaging, interactive Web experiences for e-commerce, entertainment,
news and information. Macromedia's Learning solutions help large enterprises
and educational institutions author, deliver and manage learning programs
over the Web and corporate intranets. The Company's new consumer business,
shockwave.com, develops and delivers products and technologies that give
consumers a next-generation Web experience, and also provides leading
entertainment experiences on the Web at WWW.SHOCKWAVE.COM.

Macromedia was incorporated in Delaware on February 25, 1992, and has acquired
several other businesses since its incorporation. The Company's principal
executive office is located at 600 Townsend Street, San Francisco, California
94103 and its telephone number is 415/252-2000. Macromedia's common stock is
listed on the Nasdaq National Market under the symbol MACR. The Company's World
Wide Web site can be accessed at WWW.MACROMEDIA.COM.

MARKET OPPORTUNITY

The Internet has experienced dramatic growth since the advent of the World
Wide Web, a graphically rich environment made accessible to millions of
consumers by the combination of advanced networking technologies,
inexpensive, multimedia-capable computers and Web browser technology. In just
a few years, the Web has become a powerful business software platform,
allowing companies to communicate with their customers, vendors and employees
using standard formats and protocols. For businesses, Web technology provides
an alternative to existing mainstream computing platforms and creates new
opportunities for commerce and information exchange. For consumers, the Web
is quickly becoming a viable medium for communication, community and
entertainment.

Multimedia technologies have been critical to the emergence of the Web.
Businesses are increasingly competing to make their Web sites more engaging
by adding rich graphics, animation, sound, video, and interactivity to their
Web presence. In particular the growth of e-commerce applications is driving
demand for interactive, personalized multimedia content that increases the
effectiveness and return-on-investment of commerce Web sites. We see a large
and growing market opportunity for software solutions that enable designers
and developers to create engaging, interactive Web content.

                                     Page 1
<PAGE>

PRODUCTS

-    WEB PUBLISHING SOLUTIONS

Publishing for the Web has become a complex production process, typically
involving large numbers of employees in different departments of a company as
well as external advertising agencies, vendors and others. Macromedia's family
of Web Publishing products work together as a complete solution to streamline
Web workflow from concept to design, development to production. Macromedia's
software products enable businesses to dramatically reduce the time it takes to
develop their Web sites. The graphic below depicts how Macromedia products are
used together to publish to the Web.


                                   [GRAPHIC]


          -    FIREWORKS-Registered Trademark-- The solution for professional
               Web graphics design and production.

          -    FLASH-TM-- The solution for producing high impact, vector
               based Web sites.

          -    FREEHAND-Registered Trademark-- The most powerful design tool
               for print and Internet graphics.

          -    DIRECTOR-Registered Trademark-- The standard for creating and
               delivering powerful multimedia.

          -    DREAMWEAVER-TM-- The solution for professional Web site design
               and production.

          -    GENERATOR-TM- - The solution for automated and personalized
               Web site graphics.

The following outline explains the elements involved in a typical Web site
production process and how developers use Macromedia's Web Publishing products
together to develop their sites:

DESIGN DOCUMENT AND SITE MAP
Before production starts, a design document is developed with the goals,
audience, functions, and content for a Web project. Printed storyboards for
navigation scenarios or animations are prepared. The site map, navigation, and
page layout grids are presented, revised, and approved.


                                     Page 2
<PAGE>

SITE AND PAGE PRODUCTION
Macromedia Dreamweaver-TM- is the hub of the Web workflow. This is where
everything created in other Macromedia products comes together. Developers
can quickly build site maps and use templates to streamline page production.
Roundtrip HTML-TM- and visual editing let new developers code like experts,
while powerful JavaScript and DHTML features work across Web browsers and
operating systems. Dreamweaver also integrates smoothly with dynamic
publishing and e-commerce solutions.

PAGE LAYOUTS, TEMPLATES, AND HTML
Once the design document is complete, designers create the template pages.
While the content on every page of a Web site is different, template pages
speed HTML production and unify a site's design. Using graphics and animation
software such as Macromedia FreeHand, Fireworks, and Flash, the artists
refine the look and feel of the site. After approval, the designs are
finalized and the final templates are produced.

ILLUSTRATION AND LAYOUT
Designers use FreeHand to quickly lay out concepts for Web pages. Any artwork or
HTML they create during this phase of a project can easily be turned into final
art for the Web or print when production starts.

IMAGES AND PAGE DESIGN With Fireworks, Web designers and developers create,
edit, and optimize great-looking Web images that download quickly. Tight
integration between Fireworks and Dreamweaver bridges the gap between design
(producing graphics) and development (producing HTML code).

FINAL PRODUCTION AND DYNAMIC MEDIA
To distinguish a site from its competition, Web designers must create frequently
updated and personalized content, immersive experiences such as games, and
compelling animated design. Every kind of site--e-commerce, news, corporate, and
entertainment--can use standard technologies like Macromedia Flash,
Shockwave-TM-, and Generator-TM- to stand out.

ANIMATED INTERACTIVE DESIGN
Flash is the Web standard for creating vector graphics and animations which
anti-alias and scale based on the viewer's screen size, guaranteeing excellent
image quality. Web designers use Flash to create striking and extremely compact
interactive navigation interfaces, graphics, and animations. Flash is quickly
becoming one of the only alternatives to HTML for building next generation Web
experiences.

MULTIMEDIA AND ENTERTAINMENT
Developers use Director Shockwave Internet Studio-TM- to produce rich,
immersive multimedia experiences on the Web. At sites like www.shockrave.com,
they can experience animated, interactive Shockwave games and music. Many
commerce sites use Flash to enrich the shopping experience for consumers.

DATA-DRIVEN GRAPHICS
Macromedia Generator instantly builds Web site graphics and interactive
interface elements like headlines, ad banners, weather maps, calendars, and
charts. Stock tickers, weather maps, and sports scoreboards are three typical
uses. Generator makes producing a dynamic Web site easy for designers and
developers by creating graphics on demand for individuals or automatically
updating graphics at preset intervals from a database.



                                     Page 3
<PAGE>

-    WEB LEARNING SOLUTIONS

A large vertical market for Macromedia's multimedia, graphics and Web
publishing technologies is the market for on-line learning. Because major
investments have been made in corporate network infrastructure in the last
few years, particularly in intranets and the Internet, and organizations are
desperate for qualified employees and a competitive edge, the market for
on-line corporate training is poised for significant growth in the next decade.
Macromedia's Learning solutions help enterprises to:

-    Develop effective training content faster
-    Author and deliver engaging Web
-    native learning content
-    Transfer existing learning content to the Web
-    Reduce training time and costs
-    Track learning results and measure return on investment (ROI) on training
     to make better business decisions

Macromedia's Attain Enterprise Learning System-TM- is an integrated
enterprise-wide solution for managing the online learning process from planning,
producing, administering, and delivering curricula, to tracking, storing, and
reporting learner progress from any browser, anywhere in the world. It includes
the following key products:

     -    AUTHORWARE ATTAIN-TM- - Produce rich-media training and learning
          applications.

     -    DREAMWEAVER ATTAIN-TM-- Construct Web sites for Internet/intranet
          instruction.

     -    PATHWARE ATTAIN-TM-- Manage and track classes, students, and
          performance.


-    SHOCKWAVE.COM

Macromedia's new consumer business, shockwave.com, was officially announced
in May 1999. This consumer business builds on Macromedia's investment in
enabling consumers to experience the best multimedia content on the Web. The
Company intends to release various products and services that form the basis
of this business over the coming months.

Macromedia's player technologies, Shockwave and Flash, are the world's most
widely used players for multimedia and entertainment on the Web. Based on
data from a King Brown & Partners survey, more than 75% of all people on the
Web can experience Flash and/or Shockwave content on the Web, a reach of over
100 million people. The Shockwave and Flash players have always been
available free of charge to consumers as part of Macromedia's strategy to
make its player technology ubiquitous to drive consumer demand for multimedia
content created with its software. Shockwave and Flash are also distributed
with Windows 95, Windows 98, Microsoft Internet Explorer, and the Apple OS.
In addition, Flash is included with every AOL client, in all Netscape
browsers, in WebTV, in RealNetworks' Real Player, and it has recently been
licensed by @Home for inclusion in its set-top boxes. In addition to these
automatic distribution programs, successful downloads of Shockwave and Flash
continued to grow strongly throughout the year, reaching a rate of over
500,000 per day by the end of the year.

shockwave.com builds on the brand equity that Macromedia has achieved with
Shockwave. Shockwave is a widely recognized brand on the Web, and is
associated with high quality interactive multimedia content, from games to
cartoons, movie trailers, interactive music, greeting cards and other forms
of entertainment.

Macromedia has been piloting entertainment on its Web site since 1998 at
www.shockrave.com. shockrave.com features a variety of games, cartoons, music
and other forms of entertainment that form the basis of the new


                                     Page 4
<PAGE>

shockwave.com Web site. shockwave.com will aggregate multimedia content from
multiple content providers, and will also link consumers to third-party
Shockwave content anywhere on the Internet. In addition to shockwave.com, two
other new components have been introduced, designed to enhance consumers'
entertainment experience on the Web. First, the Shockwave Remote is a new
user interface, which will be included with every copy of Shockwave starting
with version 7.0.2. Shockwave Remote allows users to search, send and control
Shockwave content on the Web and additionally, allows users to save up to
five pieces of content locally, enabling consumers to play the content
off-line. There are many benefits for both consumers and developers with this
new virtual device.

Second, is a premium version of a Shockwave multimedia player called
Shockmachine. To be priced at $19.95, Shockmachine offers a machine-like
entertainment console to store and organize content plus the additional
features of playing content in full screen mode, infinite storage, and access
to exclusive content.

Together, these new consumer services are designed to enable people to
enjoy a much richer entertainment experience on the Internet than ever
before. As millions of people become members, many more services will be
available to them and correspondingly, more e-business opportunities will be
available to Macromedia.

Revenue for shockwave.com is contemplated from a variety of sources and may
change substantially over time. Initially, the majority of the revenue will
be from advertising and sales of Shockmachine. Over time, sales of content,
microtransactions and other e-business opportunities may arise from the
one-to-one relationships with millions of members of shockwave.com.

PRODUCT DEVELOPMENT

Macromedia's business strategy emphasizes developing products and services
that help its customers take advantage of opportunities on the Internet.
Macromedia aims to solve the problems customers face as they create and
deliver content on a new medium with multiple "standards," multiple browsers,
and different bandwidth rates.

Since the software industry is characterized by rapid technological change, a
continuous high level of expenditure is required to enhance existing products
and develop new products. Macromedia plans to continue internal product
development efforts, and, as appropriate, to acquire additional software and
system technologies that the Company considers critical to meeting the
Internet needs of designers, developers, consumers, and the enterprise.

The Company believes that its future success depends on its ability to
enhance existing products and to develop and introduce new products on a
timely basis. It is critical that new products and enhancements keep pace
with the constantly evolving network infrastructure, Internet technology, and
competitive offerings. The Company intends to adapt its products to new
hardware and software platforms and to embrace emerging industry standards.

For fiscal 1997, 1998, and 1999, research and development expenses were $30.0
million, $32.2 million, and $35.6 million, respectively.

OPERATIONS AND MANUFACTURING

Macromedia is dependent on a sole source, Modus Media (Modus), for the
manufacture and shipment of its finished products. The manufacture of the
Company's products typically consists of pressing CD-ROMs, printing manuals, and
packaging and assembling finished products, all according to Macromedia's
specifications and forecasts. Manufacturing is currently done at three Modus
facilities worldwide: in Preston, Washington for the Americas, in Dublin,
Ireland for Europe, and in Singapore for the Asia Pacific market. Macromedia
performs quality assurance testing at its own facilities. Modus operates
multiple facilities around the world that are capable of serving Macromedia's
needs, and the Company believes alternative sources could be implemented without
significant delay. To date, the Company has not experienced any significant
difficulties or delays in the manufacture or assembly of its products or any
significant returns due to product defects.

Macromedia continues to invest in technologies and infrastructure to support
electronic software distribution and online documentation, which are becoming an
increasingly important and cost-effective way to deliver its products.

MARKETING & DISTRIBUTION

Macromedia extends its brand worldwide through creative marketing
communications. The Company generates awareness and demand for its products,
solutions, and services through its Web sites, WWW.MACROMEDIA.COM and
www.shockwave.com, public relations activities, customer seminars, advertising
both on the Web and in print, and national and regional trade shows. The Company
also uses direct mail, both e-mail and print, to introduce new products and
upgrades, to cross-sell products to current customers, and to educate and
inform. In addition,


                                     Page 5
<PAGE>

the Company distributes a variety of interactive multimedia demonstration
materials directly to prospective customers, and then follows up through
outbound telemarketing during business hours.

A substantial majority of Macromedia's revenues is derived from the sale of the
Company's products worldwide through a variety of distribution channels,
including electronic commerce on the Web, direct sales, mail order, traditional
software distributors, educational distributors, value-added resellers (VARs),
original equipment manufacturers (OEMs), hardware and software superstores, and
retail dealers. Macromedia also sells directly to large corporate and
educational institutions, with volume licensing programs under which the
customer receives a volume discount and has the right to reproduce and use
Macromedia software. One distributor, Ingram Micro, Inc., accounted for 24%,
28%, and 28% of revenues in fiscal 1997, 1998, and 1999 respectively.

Internationally, Macromedia products are sold through distributors. With
distributors in more than 50 countries around the world, international sales
accounted for 42% of total revenues during fiscal 1999. In certain cases, the
distributor has exclusive distribution rights to certain products in its
country. In spite of the recent economic difficulties in some countries in Asia
and Latin America, the Company believes that international markets for its
products presents a strategic opportunity, and expects that international sales
will continue to generate a significant percentage of the Company's total
revenues.

Macromedia's direct sales force focuses primarily on enterprise sales of the
Attain Enterprise Learning System, primarily Pathware. The sales cycle for
Pathware licenses may be lengthy and may be subject to integration and
acceptance by the customer. The Company employs an indirect sales force that
works closely with major distributors and reseller accounts to manage the flow
of orders, inventory levels, and sell-through into other channels.

Macromedia believes that electronic commerce will increasingly become an
important and cost effective form of distribution in the future and is heavily
investing in technologies and the associated infrastructure to support this form
of distribution.

CUSTOMER SUPPORT

Macromedia provides complimentary technical support to customers by phone and
fax for a period of 90 days after the first technical support contact by a
customer. After the 90-day period, the Company offers a paid technical support
plan, Priority Access-TM-, that provides the customer with access to a toll-free
support line; priority in the call queue; priority response to e-mail, mail, and
fax inquiries; and 24-hour voicemail messaging. Macromedia also offers high-end
developer support and support on a per contact basis.

Millions of customers depend on Macromedia's worldwide network of value-added
resellers, training centers, and developers. In addition, Macromedia User Groups
located in dozens of cities throughout the world, provide customers with ways to
share information, network with developers, and keep in touch with Macromedia.
Macromedia provides support through marketing collateral, guest speakers,
product giveaways, and more.

The Macromedia International User Conference is the world's largest forum for
authors, designers, and publishers of digital media.

Macromedia's beta program enlists customers to conduct real-world tests on
prerelease software, as well as provide feedback on features and software
stability. The most informative beta sites receive free software.

Macromedia's Authorized Training Program is a worldwide network of professional
trainers and educators who provide Macromedia customers with the highest-quality
training on the company's products.


                                     Page 6
<PAGE>

PROPRIETARY RIGHTS AND LICENSES

Macromedia relies on a combination of patent, copyright, trade secret, and
trademark laws, as well as employee and third-party nondisclosure agreements, to
protect its intellectual property rights and products. The Company distributes
software under a shrink-wrapped license agreement that customers accept when
they open physical or electronic copies of the Company's products. Like other
high-technology companies, the Company generally does not obtain signed license
agreements from customers. Macromedia uses a hardware lock-out device with
certain versions of the Company's software that are sold internationally, but
otherwise does not copy-protect its software. Policing unauthorized use of
products is difficult, and while the Company cannot determine the extent to
which software piracy of its products exists, it can be expected to be a
persistent problem. In addition, the laws of certain countries in which products
are or may be distributed do not protect the Company's products and intellectual
rights to the same extent as the laws of the United States.

EMPLOYEES

As of March 31, 1999, Macromedia had 553 full-time employees worldwide, with the
majority working in California, followed by Texas, the United Kingdom, Japan,
and Australia, among other international offices. There were 112 employees in
sales; 90 in marketing; 239 in product development, quality assurance, and
documentation; and 112 in finance, operations, and administration. None of
Macromedia's employees are subject to a collective bargaining agreement, and
Macromedia believes that its relations with its employees are good.


ITEM 2. PROPERTIES

The Company's primary facility consists of approximately 136,000 square feet
located in a multi-story building in San Francisco, California. This space
houses a majority of the Company's United States operations. The facility is
leased pursuant to an agreement that expires December 31, 2005. Macromedia
has two options to renew for successive five-year terms at 95 percent of the
then current fair market value of the space. The Company also holds a right
of first refusal to additional space when it becomes available. Approximately
25,000 square feet of this facility is not currently occupied by the Company
and has been sub-leased. The Company owns a four- story 100,000 square foot
facility, located on land purchased in Redwood City, California. The Company
is occupying 50,000 square feet and is leasing the remaining 50,000 square
feet. The Company entered into sub-lease agreements to cover the remaining
lease periods at the former San Mateo locations. In fiscal year 1999, the
Company relocated its Richardson, Texas office to a nearby building to allow
for future expansion, and now leases 25,000 square feet at this location. The
Company also leases space in North America for field sales offices, in
Berkshire, England, for its European operations, Victoria, Australia, for its
Asia Pacific operations and in Tokyo, Japan, for its Japanese operations. The
Company believes its facilities are adequate for current and near-term needs
and that additional space is available to provide for anticipated growth
during the life of the leases.


                                     Page 7
<PAGE>

ITEM 3. 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. Four
similar complaints by persons seeking to represent the same class of
purchasers subsequently have been filed in San Francisco Superior Court, and
consolidated for pre-trial purposes with ROSEN. Defendants filed demurrers
seeking dismissal of the complaint, as well as other motions, in late 1997.
Before the demurrers were heard, one defendant, Richard Wood, died in an
automobile accident. In March 1998, the Court sustained in part and overruled
in part the demurrers. Claims against Susan Bird were dismissed with leave to
amend and the Court overruled the demurrers as to Macromedia, John Colligan,
James Von Ehr, II, and Kevin Crowder. In May 1999, the Court granted the
plantiffs' motion for class certification.

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. Three 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. All of these cases have been
consolidated. Lead plaintiffs and lead counsel have been appointed under the
provisions of the Private Securities Litigation Reform Act by the District
Court. A consolidated complaint was filed in February, 1998. Defendants moved to
dismiss that complaint on the grounds that plaintiffs' claims were barred by the
applicable statute of limitations. In May 1998, the United States District Court
for the Northern District of California granted defendants' motion to dismiss
with prejudice, and entered judgment in favor of defendants. Plaintiffs have
appealed to the United States Court of Appeals for the Ninth Circuit, and that
appeal is pending.

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
continue to vigorously defend the actions.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


                                     Page 8
<PAGE>

ITEM 4A. MACROMEDIA'S EXECUTIVE OFFICERS

This section provides the names, ages, titles, and brief biographies of
Macromedia's executive officers as of March 31, 1999:

<TABLE>
<CAPTION>

NAME                          AGE     POSITION
<S>                           <C>     <C>
Robert K. Burgess             41      Chairman and Chief Executive Officer
Brian J. Allum                41      Senior Vice President, Worldwide Field Operations
Joseph D. Dunn                42      Senior Vice President, Products and Technology
Stephen A. Elop               35      Senior Vice President, Web
Norman K. Meyrowitz           39      President, Macromedia Products
Elizabeth A. Nelson           38      Senior Vice President and Chief Financial Officer
</TABLE>

Mr. Burgess has been Chief Executive Officer and Chairman of the Board of
Macromedia since July 1998. Mr. Burgess joined Macromedia in November 1996 as
President and Director of Macromedia. Prior to joining Macromedia, Mr.
Burgess was Senior Vice President of Silicon Graphics, Inc., responsible for
the Silicon Interactive Strategic Business Unit. Prior to this position, he
was President of Alias/Wavefront, a wholly-owned independent software
subsidiary of Silicon Graphics, created from the 1995 merger of Alias
Research, Inc. and Wavefront Technologies, Inc. From 1992 to 1995, he was
President, CEO, COO and Director of Alias Research. Prior to joining Alias
Research, Mr. Burgess held a number of senior management positions at Silicon
Graphics, including Vice President of Marketing, Applications and Business
Development (1991), Vice President of Applications (1990) and President of
Silicon Graphics Canada, Inc., (1984-90). Mr. Burgess earned a bachelors
degree in Commerce from McMaster University.

Mr. Allum has been Senior Vice President of Worldwide Field Operations since
July 1997 and is responsible for all sales, field marketing, customer
service, and support functions at Macromedia. From May 1996 until he joined
Macromedia, Mr. Allum was President of Alias/Wavefront, a wholly-owned
independent software subsidiary of Silicon Graphics, created from the 1995
merger of Alias Research, Inc. and Wavefront Technologies, Inc., and Vice
President/General Manager of Silicon Graphics. Prior to this position, he was
Vice President of Field Operations at Alias/Wavefront. From 1991 to 1995, he
was Vice President of Field Operations of Alias Research. Prior to joining
Alias Research, Mr. Allum held a variety of senior management and sales
positions at Silicon Graphics Canada (1985-1991) and Digital Equipment
Corporation (1981-1985). Mr. Allum graduated from Queens University with a
bachelors degree in Commerce.

Mr. Dunn has been Senior Vice President of Products and Technology since
February 1998. Previous to this position, Mr. Dunn was Vice President of
Corporate Development and has performed various senior roles at Macromedia since
1991, including Vice President of Engineering from 1992 to 1995 and Vice
President of Product Management from 1995 to 1996. Prior to joining Macromedia,
Mr. Dunn was the Director of Software Development at Frame Technology in Santa
Clara, CA. From 1981 to 1987, Mr. Dunn held a variety of technical and
management positions at Acorn Computers in the development of system software
for personal computers. He graduated with a B.S. degree in Computer Science from
Cambridge in 1980.

Mr. Elop has been Senior Vice President of Web since March 1998 and is
responsible for the application of Web and Internet technologies to Macromedia's
business practices, corporate systems and supporting technical infrastructure.
Prior to joining Macromedia, Mr. Elop was Senior Vice President, Systems/CIO for
Boston Chicken, Inc. from 1994 to 1998, one of the largest food retailers in the
United States. Prior to this, Mr. Elop was a Director in Lotus Development
Corporation's Consulting Services Group, with responsibility for Canada and the
U.S. mid-west from 1992 to 1994. Mr. Elop joined Lotus as part of the
acquisition of Soma, Inc., a Canadian software development and management
consultancy. Mr. Elop earned a Bachelor of Computer Engineering and Management
degree from McMaster University in 1986.


                                     Page 9
<PAGE>


Mr. Meyrowitz has been President of Macromedia Products since April 1998 and is
responsible for overall management of business units which design, develop, and
market Macromedia products. Prior to that he was Chief Technology Officer
beginning in February 1996, and Senior Vice President and General Manager of
Macromedia's Internet and Multimedia Authoring Business from January 1997. From
October 1994 to February 1996, he was Vice President of Product Development, and
from October 1993 to October 1994, he was Director of Strategic Technology. From
May 1991 to October 1993, he served as Director of System/User Software at GO
Corporation. From October 1981 to May 1991, he served in various positions at
Brown University; in his last position, he was Co-Director of the university's
Institute for Research in Information and Scholarship (IRIS) where he managed
and was the principal architect of the IRIS Intermedia system. Mr. Meyrowitz
graduated from Brown in 1981 with a B.S. degree in Computer Science. He is a
member of the ACM and the IEEE Computer Society.

Ms. Nelson has been Senior Vice President and Chief Financial Officer of
Macromedia since February 1998. Ms. Nelson joined Macromedia in July 1996 as
Vice President, Corporate Development, and was responsible for managing mergers
and acquisitions and strategic planning. From 1988 to July 1996, Ms. Nelson
worked at Hewlett-Packard, where she held positions in both Corporate
Development and Financial Reporting and Analysis. From 1982 to 1986, she was a
consultant with Robert Nathan Associates, an economic consulting firm, in
Washington, D.C. Ms. Nelson holds an M.B.A. in Finance with Distinction from the
Wharton School at the University of Pennsylvania and a B.S. degree in Foreign
Service from Georgetown University.



                                     Page 10

<PAGE>

                                     PART II


ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is traded on the Nasdaq National Market under the
symbol MACR. The following table sets forth, for the periods indicated, the high
and low closing prices for the Company's common stock as reported by Nasdaq.

<TABLE>
<CAPTION>
FISCAL 1999                     HIGH       LOW
-----------                    -----     -----
<S>                           <C>       <C>
4th Quarter                   $46.06    $26.38
3rd Quarter                    35.25     12.63
2nd Quarter                    19.31     12.31
1st Quarter                    19.31     13.75
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1998                     HIGH       LOW
-----------                    -----     -----
<S>                           <C>        <C>
4th Quarter                   $15.00     $7.90
3rd Quarter                    14.34      7.13
2nd Quarter                    13.50      7.63
1st Quarter                    10.50      6.50
</TABLE>

The Company has not paid cash dividends and has no present plans to do so. There
were 351 stockholders of record as of May 28, 1999, excluding stockholders whose
stock is held in nominee or street name by brokers.


ITEM 6. SELECTED FINANCIAL DATA

SELECTED FIVE-YEAR FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                             Years ended March 31,
                                                  -------------------------------------------------------------------------
(in thousands, except per share data)                  1999           1998            1997            1996           1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                            $ 149,886      $ 113,086       $ 107,365       $ 116,691      $  55,892
Cost of revenues                                       14,286         14,997          23,246          19,600          9,618
---------------------------------------------------------------------------------------------------------------------------
             Gross profit                             135,600         98,089          84,119          97,091         46,274
---------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
        Sales and marketing                            64,515         56,842          59,627          41,387         20,181
        Research and development                       35,644         32,231          30,013          20,033         12,360
        General and administrative                     13,068         11,452           8,135           5,466          3,491
        Merger, relocation, and reorganization              -          7,658             350           2,525          3,025
---------------------------------------------------------------------------------------------------------------------------
        Total operating expenses                      113,227        108,183          98,125          69,411         39,057
---------------------------------------------------------------------------------------------------------------------------
             Operating (loss) income                   22,373        (10,094)        (14,006)         27,680          7,217
---------------------------------------------------------------------------------------------------------------------------
             Net (loss) income                      $  19,784      $  (6,186)      $  (5,920)      $  23,002      $   6,538
                                                    ---------      ----------      ---------       ---------      ---------
                                                    ---------      ----------      ---------       ---------      ---------
Net (loss) income per share
        Basic                                       $    0.51      $   (0.16)      $   (0.16)      $    0.66      $    0.22
        Diluted                                          0.44          (0.16)          (0.16)           0.59           0.19
</TABLE>

                                     Page 11
<PAGE>

All income per share amounts reflect a two-for-one stock split which became
effective October 16, 1995 and have been restated to reflect the adoption of
SFAS 128 in December 1997.

<TABLE>
<CAPTION>
BALANCE SHEET DATA:
<S>                                                          <C>            <C>        <C>           <C>           <C>
Cash, cash equivalents, and short-term investments           $ 108,802      $86,131    $ 102,451     $ 116,662     $ 33,981
Working capital                                                104,821       81,787       93,761       119,005       33,273
Total assets                                                   194,557      154,184      156,897       155,122       52,430
Long-term liabilities                                              297          569            -             -          136
Total stockholders' equity                                     156,536      128,465      131,916       133,181       39,681
</TABLE>


                                     Page 12
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion (presented in millions, except for share data) should
be read in conjunction with the consolidated financial statements and notes
thereto.

In addition to historical information, this Annual Report contains
forward-looking statements such as statements of the Company's expectations,
plans, objectives and beliefs. These forward-looking statements are subject to
material risks and uncertainties discussed in this Annual Report, including
those set forth under Factors that May Affect Future Results of Operations. As a
result, the Company's actual results could differ materially from those
described in the forward-looking statements.

OVERVIEW

Macromedia develops, markets and supports software and services for Web
publishing and Web learning. Additionally, the Company's new consumer
business, shockwave.com, designs, develops and markets aggregated content,
products and services to provide and expand online entertainment on the Web.
The Company sells its products through a network of distributors, value-added
resellers (VARs) and its own sales force and Web site, and to original
equipment manufacturers (OEMs) in North America, Europe, Asia Pacific and
Latin America. In addition, the Company derives revenues from advertising on
its Web sites, and from software maintenance and technology licensing
agreements.

During fiscal 1999, the Company continued its focus on the Web as its engine of
growth. Dreamweaver, Fireworks and Flash, new products introduced in fiscal 1998
and 1999, provided the majority of the fiscal 1999 revenue growth. The Company
continued to invest in its Web Publishing and Learning products and
additionally, began to significantly invest in its recently announced consumer
business. As of March 31, 1999, total cash and short-term investments totaled
$108.8 million, net receivables stood at 31 days sales outstanding, and the
Company remained debt free. At March 31, 1999 the Company employed 553 full-time
regular staff.

Additional information about Macromedia, its products, sales and marketing, and
investor information, can be found on the Web at www.macromedia.com. Financial
information included on the Company's Web site shall not be deemed to be a part
of this filing.

                                     Page 13
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of
revenues for the years ended March 31, 1999, 1998, and 1997.

<TABLE>
<CAPTION>
                                             1999       1998        1997
------------------------------------------------------------------------
<S>                                       <C>        <C>         <C>
Revenues                                     100%       100%        100%
Cost of revenues                              10         13          22
------------------------------------------------------------------------
         Gross margin                         90         87          78

Operating expenses:
Sales and marketing                           43         50          55
Research and development                      24         28          28
General and administrative                     8         10           8
Merger                                         -          7           -
------------------------------------------------------------------------
              Total operating expenses        75         95          91
------------------------------------------------------------------------
Operating margin                              15         (8)        (13)

Other income, net                              3          4           4
Provision (benefit) for income taxes           5          1          (3)
------------------------------------------------------------------------
              Net margin                      13%        (5%)        (6%)
                                            -----       -----       -----
                                            -----       -----       -----
</TABLE>

REVENUES

Revenues were $149.9 million in fiscal 1999, an increase of 33% over fiscal
1998 revenues of $113.1 million. The Web Publishing business segment grew by
27% in fiscal 1999 to $123.8 million, compared to $97.6 million in fiscal
1998. The increase was primarily due to sales of Dreamweaver, Fireworks and
Flash. This was partially offset by a decline in sales of Director, primarily
related to product lifecycle timing. The Learning segment grew by 3% in
fiscal 1999 to $15.9 million compared to $15.4 million in fiscal 1998, as
sales growth in the new Pathware management system more than offset a decline
in Authorware. Additional growth was achieved through Web advertising and
miscellaneous corporate revenues.

International revenues represented 42% of revenues in fiscal 1999 compared to
48% of revenues in fiscal 1998 and 51% of revenues in fiscal 1997. During the
fourth quarter of fiscal 1998, the Company experienced a significant decline
in revenue from the Asia Pacific region, particularly the Japanese market, as
a function of both macroeconomic and industry specific trends. This decline
continued in fiscal 1999. The Company's revenue from Japan declined from 21%
of total revenue in fiscal 1997 to 15% in fiscal 1998, and to just 8% of
total revenue in fiscal 1999. The Company remains cautious about the economic
conditions in the Asia Pacific region. See Factors That May Affect Future
Results of Operations - Risks of International Operations for additional
information.

Windows and cross-platform product revenues increased 29%, while Macintosh-based
revenues increased 16%. Windows and cross-platform product revenues represented
58% of revenues for fiscal 1999 compared to 56% for fiscal 1998 and 44% for
fiscal 1997.

                                     Page 14
<PAGE>

Revenues in fiscal 1998 were $113.1 million, up 5% from revenues of $107.4
million in fiscal 1997 due to sales of new products and an increase in Director
sales, partially offset by a decline in revenues from discontinued products, and
a decline in service revenues.

COST OF REVENUES

Cost of revenues includes cost of materials and manufacturing, royalties paid
to third parties for licensed technology, amortization costs related to
localization and acquired technology, cost of commissions for Web advertising
revenue, reserves for excess and obsolete finished goods and raw materials
inventories, and costs associated with order fulfillment. Cost of revenues
was $14.3 million in fiscal 1999, down from $15.0 million in fiscal 1998 and
$23.2 million in fiscal 1997. This reduction resulted in a 3 percentage point
increase in gross margin to 90% of revenues for fiscal 1999 from fiscal 1998.
The decrease in costs in fiscal 1999, both in absolute dollars and as a
percentage of revenues, was due primarily to the continued effectiveness of
cost control programs and improved inventory review procedures resulting in
lower product cost and less scrap and inventory discrepancies. The Company
believes these business process changes will result in ongoing sustained
margin performance, however, gross margins may be adversely affected from
time to time by the mix of distribution channels used by the Company, the mix
of products sold, and the mix of international versus domestic revenues.
Going forward, shockwave.com will incur costs for producing and distributing
certain entertainment content, in addition to the cost of commissions for Web
advertising revenue.

The reduction in cost of revenues from fiscal 1997 to 1998 was due primarily
to the effectiveness of cost control programs implemented during fiscal 1998,
the move to just in time manufacturing and improved inventory review
procedures.

OPERATING EXPENSES

Sales and marketing expenses consist primarily of compensation and benefits,
advertising, mail order costs, trade show expenses, and other public
relations and marketing costs. Sales and marketing expenses increased 13% in
fiscal 1999 to $64.5 million from $56.8 million in the prior year due to
increased advertising and promotional costs and the costs associated with
additional sales headcount to support increased revenue levels. As a percent
of revenue, sales and marketing expenses decreased from 50% in fiscal 1998 to
43% in fiscal 1999. Sales and marketing expenses in fiscal 1998 decreased 5%
over fiscal 1997 expenses of $59.6 million due to lower overall spending on
various sales and marketing programs as a result of the Company's efforts to
reduce expenses, offset by planned increases in headcount. The Company
expects sales and marketing expenses to increase in absolute dollars in
fiscal 2000 as the Company continues to invest in various sales and marketing
infrastructure programs, in particular in support of shockwave.com and future
revenue growth in the Web Publishing and Learning businesses.

Research and development expenses consist primarily of compensation and
benefits, overhead, and professional service fees to support product
development. Research and development expenses were $35.6 million in fiscal
1999, up from $32.2 million in fiscal 1998 and $30.0 million in fiscal 1997,
reflecting the Company's continued investment in product development and the
infrastructure to support it. The Company expects research and development
expenses in fiscal 2000 to increase in absolute dollars as the Company
continues to invest in its Web Publishing and Learning businesses as well as
shockwave.com.

General and administrative expenses consist mainly of compensation and
benefits, fees for professional services, and overhead. General and
administrative expenses increased from $11.5 million in fiscal 1998 and $8.1
million in fiscal 1997 to $13.1 million in fiscal 1999 due primarily to
increases in staffing and infrastructure. The Company expects general and
administrative expenses in fiscal 2000 to be higher than fiscal 1999 levels
in absolute dollars.

                                     Page 15
<PAGE>

The Company incurred one-time merger costs of $7.7 million in the third
quarter of fiscal 1998 for the acquisition of Solis Design Inc., which
included charges for acquired in-process research and development as well as
transaction fees for financial and legal advisers. In fiscal 1997, the
Company recorded one-time merger costs of $0.4 million associated with the
acquisition of FutureWave Software, Inc., which included transaction fees for
financial and legal advisers and relocation expenses.

OTHER INCOME

Other income consists primarily of earnings on the Company's cash and
short-term investments and foreign exchange gains and losses, net of fees.
Other income was $5.0 million in fiscal 1999 compared to $4.7 million in
fiscal 1998 and $4.6 million in fiscal 1997. The increase was due primarily
to miscellaneous income and greater investment and interest income, partially
offset by foreign exchange losses from hedging activities.

PROVISION (BENEFIT) FOR INCOME TAXES

The Company recorded a tax provision of $7.6 million, or 28%, in fiscal 1999
compared to a tax provision of $0.8 million, or 36%, in fiscal 1998. The
decrease in the effective tax rate in 1999 as compared to 1998 reflects the
utilization of research and experimentation tax credits and foreign operating
results, which were taxed at rates other than the U.S. statutory rate. The
tax benefit in fiscal 1997 was $3.5 million. An analysis of the differences
between the statutory and effective income tax rates is presented in Note 7
of Notes to Consolidated Financial Statements.

NET INCOME/LOSS

Net income was $19.8 million for fiscal 1999, compared to a net loss of $6.2
million for fiscal 1998. The net loss for fiscal 1998 was due primarily to
one-time charges associated with the acquisition of Solis in the third
quarter. Excluding one-time acquisition charges, net income in fiscal 1998
would have been $1.5 million.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1999, the Company had cash, cash equivalents and short-term
investments of $108.8 million. For fiscal 1999, operating activities provided
$31.7 million in net cash, compared with $5.3 million for fiscal 1998. Cash
used in investing activities of $18.5 million was used primarily to purchase
and develop management information systems and engineering equipment and
software, to invest in certain long-term assets and facilities required to
support growth. Cash provided by financing activities of $3.9 million was the
result of purchases of $20.3 million of common stock under the Company's
stock buyback program, offset by $24.1 million in proceeds from the exercise
of common stock options. The Company anticipates spending approximately $20.0
million on capital purchases during fiscal 2000 in support of growth in the
Web Publishing and Learning businesses as well as shockwave.com.

In fiscal 1999, the Company made investments in property and equipment
totaling $11.2 million. This amount includes $5.8 million related to
development of a new web infrastructure for sales and marketing, customer
support, on-line product distribution, and technical support. The costs
capitalized under the project are comprised primarily of consulting fees for
software development and related hardware. Amortization of the project over a
three year period is expected to begin in the first quarter of fiscal 2000.
Additionally, in fiscal 2000, the Company expects to invest a significant
amount on information technology infrastructure, and content licensing fees,
for the new consumer business.

From time to time, cash will be used to repurchase common stock under the
Company's stock buyback program. The buyback program approved by the Board of
Directors in July 1997 provided for purchases of up to 2,000,000

                                     Page 16
<PAGE>

shares. The Board of Directors approved an additional 2,000,000 share
repurchase in October 1998, bringing the total approved for repurchase to
4,000,000 shares. During fiscal 1999 the Company repurchased 1,110,000 common
shares for $20.3 million, compared to 510,000 common shares for $5.1 million
for the period of July 1997 through March 31, 1998.

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, 1999. The Company anticipates that this line of credit
will be renewed. As of and during the fiscal year ended March 31, 1999, the
Company had no borrowings outstanding.

Management believes that existing cash and investments, together with cash
generated from operations, will be sufficient to meet the Company's operating
requirements through at least fiscal 2000.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

Except for the historical information contained in this Annual Report, the
matters discussed herein are forward-looking statements that involve risks
and uncertainties, including those 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.

INTENSE COMPETITION. 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 and enhanced
services. A number of companies currently offer products and services that
compete directly or indirectly with one or more of the Company's products.
These companies include Adobe Systems Inc. (Adobe), Apple Computer, Inc.,
Asymetrix Corporation, Corel Corporation (Corel), Microsoft Corporation
(Microsoft) and Real Networks, Inc. As the Company competes with larger
competitors such as Adobe and Microsoft across a broader range of product
lines and different platforms, the Company may face increasing competition
from such companies. In addition, the Company's consumer business competes
and partners with a number of other Internet community, gaming and
entertainment sites. Many of these businesses are much larger than the
Company's consumer business, and they have more resources devoted to these
business efforts. It is anticipated that the Company's consumer business will
face competition from these other sites both for consumers and for
advertising and other future revenue sources on which the future success of
the consumer business is dependent.

RAPIDLY CHANGING TECHNOLOGY. The developing digital media, Internet and
online services markets, and the personal computer industry are characterized
by rapidly changing technology, resulting in short product life cycles and
rapid price declines. The Company must continuously update its existing
products, services and content to keep them current with changing technology
and consumer tastes and must develop new products, services and content to
take advantage of new technologies and consumer preferences 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.

FLUCTUATIONS OF OPERATING RESULTS; PRODUCT INTRODUCTION DELAYS. The Company's
quarterly operating results may vary significantly depending on the timing of
new product introductions and enhancements by the Company. A substantial
portion of the Company's revenues is derived from its Web Publishing
products. The Company has in the past experienced delays in the development
of new products and enhancement of existing products, and such delays may
occur in the future. If the Company was 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

                                     Page 17
<PAGE>

effect on the Company's results of operations. If the Company does not ship
new versions of its products as planned, sales of existing versions decline,
or new products do not receive market acceptance, the Company's results of
operations in a given quarter could be materially adversely affected as they
were during the fourth quarter of fiscal 1997 when the Company delayed
shipment of a new version of Director to the following quarter.

The Company's quarterly results of operations also may vary significantly
depending on the impact of any of the following: the timing of product
introductions by competitors, changes in pricing, execution and volume of
technology licensing agreements, the volume and timing of orders received
during the quarter, which are difficult to forecast, and finally, any
acquisitions of other companies or technologies. 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. 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.

UNPROVEN BUSINESS MODEL. The Company's consumer business model depends upon
its ability to leverage its existing and future Web traffic and consumer
audience to grow revenues and in the future generate multiple revenue
streams. The potential profitability of this business model is unproven, and
to be successful, the Company must, among other things, develop and market
content that achieves broad market acceptance by its user community, Internet
advertisers and commerce vendors. There can be no assurance that the consumer
business will be able to effectively implement this business model, and even
if the implementation is successful, there can be no assurance that the
business model will prove to be able to sustain revenue growth or generate
significant profits, if any. Furthermore, for the foreseeable future, the
Company anticipates that the consumer business will require significant
expenditures, particularly related to sales and marketing and brand
promotion, and that such expenditures may or may not result in revenue
growth. Given the Company's limited operating experience related to the
consumer business, the prediction of future revenue growth or operating
performance for the consumer business is difficult at best. The Company
expects the consumer business to generate net losses for the foreseeable
future. In addition to the foregoing the consumer business will depend in
part on success in building strategic alliances with other Internet companies
and media companies in order to be able to grow the user base and to provide
compelling content to attract and maintain the user base. There can be no
assurances that such alliances can be created or maintained over an extended
period of time.

DEPENDENCE ON DISTRIBUTORS. 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, mail order,
educational distributors, VARs, original equipment manufacturers (OEMs),
hardware and software superstores, retail dealers, and direct sales.
Domestically, the Company's products are sold primarily through distributors,
VARs, and OEMs. In particular, one distributor, Ingram Micro, Inc., accounted
for 28%, 28% and 24% of revenues in fiscal 1999, 1998 and 1997, respectively.
In addition, the next three distributors combined, two of which are
international distributors, accounted for 21% of revenues in fiscal 1999.
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 are increasingly
seeking to return unsold product, particularly when a new version or upgrade
of a product has superseded such products. 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

                                     Page 18
<PAGE>

reduction in sales volume to, a significant reseller could have a material
adverse effect on the Company's results of operations.

DEPENDENCE ON TECHNOLOGY PLATFORMS. In the past, a majority of the Company's
revenues was derived from its products for the Macintosh computing platform.
Macintosh revenues accounted for 42% of product revenues for fiscal 1999,
compared to 44% of revenues for fiscal 1998. Although the relative percentage
of Macintosh platform revenues will vary from quarter to quarter based on
product release schedules, the Company remains heavily dependent on the sale
of products for the Macintosh platform.

The success of the Company's product and consumer businesses is dependent
upon the existence and future growth of the Internet as a business,
entertainment and communications platform. A change in the Internet or the
technology used for operation of the Internet or a decline in the growth of
the Internet could have a material adverse effect on the Company's results of
operations.

RISKS OF INTERNATIONAL OPERATIONS. For fiscal 1999, the Company derived
approximately 42% of its revenues from international sales. The Company
expects that international sales will continue to generate a significant
percentage of its 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.

In addition, the Company's results may be adversely affected by worldwide
economic events beyond the control of the Company, such as the prolonged
economic downturn occurring in Japan. There can be no assurances that Japan's
economy will recover in the near term or that the Company's results or growth
rates in this geographic region will return to previous levels even if the
recovery occurs. The Company's revenue from Japan declined from 21% of total
revenue in fiscal 1997 to 15% in fiscal 1998, and to just 8% of total revenue
in fiscal 1999.

The Company enters into foreign exchange forward contracts to reduce economic
exposure associated with sales and asset balances denominated in various
European currencies and Japanese Yen. As of March 31, 1999, notional
principal of forward contracts outstanding amounted to $10.2 million. There
can be no assurance that such contracts will adequately hedge the Company's
exposure to currency fluctuations.

EURO DOLLAR. On January 1, 1999, eleven of the fifteen member countries of
the European Union adopted the Euro as the common legal currency and
established fixed rates of conversion between their existing sovereign
currencies and the Euro. The Euro will trade on currency exchanges and be
available for non-cash transactions. A three-year transition period is
expected during which transactions can be made in the old currencies. The
conversion to the Euro will eliminate currency exchange risk between the
member counties.

The Company does not anticipate any material impact from the Euro conversion
as its financial information system can accommodate multiple currencies. In
addition, the company has confirmed with its international financial
institutions that they have the ability to process transactions in either
Euros or sovereign currency. However, there can be no assurance that all
issues related to the Euro conversion have been identified, and the Company
may be at risk if any of its principal suppliers are unable to deal with the
impact of the Euro conversion. To date, none of the Company's international
suppliers have expressed an intention to invoice in Euros.

                                     Page 19
<PAGE>

RISKS ASSOCIATED WITH ACQUISITIONS. Macromedia has grown in part because of
combinations with other companies. In October 1997, the Company acquired
Solis Design, Inc., a developer of computer managed instruction software for
enterprise-wide, Web-based learning solutions. The acquisition was structured
as a tax-free merger and was accounted for under the purchase method. The
appraisal of the acquired research and development was based upon the present
value of the operating cash flows generated by the current technology after
taking into account the cost to realize the revenue, the relative risk of the
products and an appropriate discount rate to reflect the time value of
invested capital. As a result of the acquisition, the Company wrote off $7.7
million of purchased in-process research and development and other costs
related to the transaction. The purchased in-process research and development
expense related to completion of Solis' corporate training software. At the
time of the acquisition, Solis had a preliminary technology. There were
significant uncertainties as to the viability of the technology to provide a
complete corporate solution and improvement of the stability of the
technology. The Company also concluded that the acquired technology had no
alternative future use. In January 1998, the Company released a first Java
implementation of the technology, with a more complete Internet solution
shipping in March 1999. Additionally, there are integration risks associated
with merging two companies including financial, administrative and cultural
concerns.

VOLATILITY OF STOCK. The Company's future earnings and stock price may be
subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price
of the Company's common stock in any given period. Additionally, the Company
may not learn of such shortfalls until late in the fiscal quarter, which
could result in an even more immediate and adverse effect on the trading
price of the Company's common stock. Finally, the Company participates in a
highly dynamic industry. In addition to factors specific to the Company,
changes in analysts' earnings estimates for the Company or its industry and
factors affecting the corporate environment or the securities markets in
general will often result in significant volatility of the Company's common
stock price.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. The Company prepares its financial
statements in conformity with generally accepted accounting principles
("GAAP"). GAAP are subject to interpretation by the American Institute of
Certified Public Accountants (the "AICPA"), the Securities and Exchange
Commission (the "SEC"), and various bodies formed to interpret and create
appropriate accounting policies. A change in these policies can have a
significant effect on the Company's reported results, and may even affect the
reporting of transactions completed prior to the announcement of a change.

YEAR 2000 COMPLIANCE

The Company is aware of the issues associated with the programming code and
embedded technology in existing systems as the year 2000 approaches. The
"Year 2000 Issue" arises from the potential for computers to fail or operate
incorrectly because their programs incorrectly interpret the two digit date
fields "00" as 1900 or some other year, rather than the year 2000. The year
2000 issue creates risk for the Company from unforeseen problems in its own
computer systems and from third parties, including customers, vendors and
manufacturers, with whom the Company deals worldwide. Failures of the
Company's and/or third parties' computer systems could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity, and financial condition, though the Company
is unable to assess that potential impact at this time.

To mitigate this risk, the Company has established a formal year 2000 program
to oversee and coordinate the assessment, remediation, testing and reporting
activities related to this issue. The Company believes that provided it is
able to complete the project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.

                                     Page 20
<PAGE>

As previously reported, the Company completed the assessment phase of its
year 2000 program. As part of this assessment, the Company's application
systems (e.g., financial systems, various custom-developed business
applications), technology infrastructure (e.g., networks, servers, desktop
equipment), facilities (e.g., security systems, fire alarm systems), vendors,
partners and products were reviewed to determine their state of year 2000
compliance. This review included the collection of documentation from
software and hardware manufacturers, the detailed review of programming code
for custom applications, the physical testing of desktop equipment using
software designed to test for year 2000 compliance, the examination of key
vendors'/partners' year 2000 programs and the ongoing testing of the
Company's products as part of normal quality assurance activities. This
assessment revealed no significant issues with the Company's application
systems, technology infrastructure, facilities or products.

With the completion of the Company's assessment phase, and with very little
remedial action necessary, the Company embarked into its testing phase. At
this time, all important systems (both computer systems and systems dependent
on embedded technology) have been individually tested and validated for year
2000 compliance, with no significant issues identified. The Company is
targeting June 30, 1999 for the completion of all other testing.

All current versions of the Company's products have been tested for year 2000
compliance. In general, the products are believed to be compliant, assuming
that the operating systems upon which they run have been updated to comply.
Both Microsoft and Apple have stated that their operating systems will
continue to operate properly into the twenty-first century. Details about
older, non-shipping versions of the Company's products can be found on the
Company's Web site.

A year 2000 issue was identified with Shockwave V6.0.1. The corrective action
for this issue is for customers to upgrade to version 7.0.0 or later, or to
downgrade to version 6.0.0. The Company currently offers Shockwave at no cost
as a downloadable run-time technology on their Web site. Both of these
upgrades are available at no charge from the Company's Web site. The Company
also sells distribution rights to Shockwave which include maintenance. These
customers will receive the upgrade in accordance with their maintenance
agreements. The Company intends to assess the proper response to any future
noted product issues as and when any such issues arise.

Several of the Company's distribution, manufacturing and support partners
themselves have significant year 2000 programs underway, some of which
involve the upgrade and/or replacement of systems which are important to the
day-to-day operations of the partners' business. For each of these partners,
the Company has established contingency plans that contemplate the failure of
the partners to complete their year 2000 programs. It should also be noted
that the Company cannot complete its final testing until the partners' year
2000 programs have been completed, due to the electronic communication that
takes place between the Company's and the partners' systems.

The Company believes that the costs associated with completing its year 2000
program will be approximately $0.8 million. The Company reached this
assessment with the assistance of outside consultants to whom the Company
paid $0.2 million. However, there can be no assurance that the Company will
not experience serious unanticipated negative consequences and/or additional
material costs caused by undetected errors or defects in its own products,
the technology used in its internal systems, or by failures of its
vendors/partners to address their year 2000 issues in a timely and effective
manner.

As of the end of fiscal year 1999, approximately 50% of the total estimated
year 2000 program costs have been incurred. Of the expenditures remaining for
the program, it is estimated that 25% of this represents costs associated
with human resources performing testing, and 75% represents miscellaneous
hardware and software upgrades required for the completion of the year 2000
program. The funding for the year 2000 program is being provided as a normal
operating expense (except in the case of any new capital hardware, which is
being funded from standard capital budgets).

                                     Page 21
<PAGE>

While the Company's programs are intended to minimize the possibility of such
effects, should miscalculations or other operational errors occur as a result
of the Year 2000 issue, the Company or the parties on which it depends may be
unable to produce reliable information or to process routine transactions.
Furthermore, in the worst case, the Company or the parties on which it
depends may, for an extended period of time, be incapable of conducting
critical business activities which include, but are not limited to, providing
services, manufacturing and shipping products, invoicing customers and paying
vendors.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
places its investments with high credit quality issuers. As stated in its
policy, the Company is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default and market risks. The
Company mitigates default risk by investing in only the safest and highest
credit quality securities. The portfolio includes only marketable securities
with active secondary or resale markets to ensure portfolio liquidity. All
investments have a fixed interest rate and are carried at market value, which
approximates cost.

The table below represents principal (or notional) amounts and related
weighted average interest rates by year of maturity for the Company's
investment portfolio. All investments mature, by policy, in three years or
less.

<TABLE>
<CAPTION>
(in thousands)                         2000        2001         2002       2003        2004    Thereafter        Total
------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>          <C>          <C>         <C>     <C>            <C>
Cash equivalents                     $ 5,247           -            -        -          -          -          $    5,247
    Average interest rate               4.85%          -            -        -          -          -                4.85%
Short-term investments               $61,750     $17,723      $ 2,225        -          -          -          $   81,698
    Average interest rate               5.13%       5.35%        7.65%       -          -          -               5.25%
                                     -----------------------------------------------------------------------------------
Total investment securities          $66,997     $17,723      $ 2,225        -          -          -          $   86,945
                                     -----------------------------------------------------------------------------------
                                     -----------------------------------------------------------------------------------
</TABLE>

The Company's functional currency is the US dollar. The Company transacts
business in various foreign currencies, primarily in Japan and certain
European countries. The Company has established a foreign currency hedging
program using foreign currency exchange contracts to hedge
foreign-currency-denominated financial assets, and probable anticipated, but
not firmly committed, transactions. The goal of this hedging program is to
economically guarantee or lock in the exchange rates on the Company's foreign
currency exposures that principally arise from the transactions denominated
in Japanese Yen and various European currencies. Under this program,
increases or decreases in the Company's foreign currency denominated
financial assets are partially offset by gains or losses of the hedging
instruments. The forward contracts are marked-to-market and unrealized gains
and losses are included in current period net income. The Company does not
use foreign currency forward exchange contracts for trading purposes.

The table below provides information about the Company's outstanding forward
contracts as of March 31, 1999. The information is provided in US dollar
equivalents, as presented in the Company's financial statements. The table
presents the fair value (at the contract exchange rates) and the weighted
average contractual foreign currency exchange rates. All instruments mature
June 30, 1999. As of March 31, 1999, the notional amount of the contracts
approximate fair value.

                                     Page 22
<PAGE>

<TABLE>
<CAPTION>
(In thousands, except                                  Fair Value            Average
average contract rate)                                   Amount            Contract Rate
----------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>
Foreign currency to be sold under
forward contracts:
                  British Pounds                       $  5,339                 0.62
                  Deutsche Marks                          1,717                 1.82
                  Japanese Yen                            1,318               119.00
                  French Franks                             648                 6.09
                  Italian Lira                              595              1796.00
                  Swedish Kronas                            351                 8.25
                  Spanish Peseta                            194               154.55
                                                       --------
                                                       $ 10,162
                                                       --------
                                                       --------
</TABLE>

As the tables above incorporate only those exposures that exist as of March 31,
1999, they do not consider those exposures or positions that could arise after
that date. Exposures to the Company include changes in short-term US prime
interest rates and changes in foreign currency rates. Also, because the foreign
currency risk table above does not present the foreign currency denominated
financial assets and probable anticipated transactions underlying the forward
contracts, the information presented has limited predictive value. The Company's
ultimate realized gain or loss with respect to foreign currency fluctuations
will depend on the exposures that arise during the period, the Company's hedging
strategies at the time, and foreign currency rates.

The Company also has loans outstanding from related parties totaling $9.7
million as of March 31, 1999. The stated loan amounts approximate fair value as
of March 31 1999.


                                     Page 23
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS                                                    March 31,         March 31,
(in thousands, except per share data)                                             1999              1998
----------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>
ASSETS
     Current assets
         Cash , cash equivalents, and short-term investments                  $ 108,802        $  86,131
         Accounts receivable, less allowance for returns and doubtful
         accounts of $9,497 and $7,606, respectively                             12,585            7,696
         Inventory                                                                  559              743
         Prepaid expenses and other current assets                               13,700            3,819
         Deferred tax assets, short-term                                          6,899            8,548
----------------------------------------------------------------------------------------------------------
                  Total current assets                                          142,545          106,937

     Land and building, net                                                      19,679           20,372
     Other fixed assets, net                                                     21,469           18,528
     Related party loans                                                         10,099            7,440
     Other long-term assets                                                         765              907
----------------------------------------------------------------------------------------------------------
                  Total assets                                                $ 194,557        $ 154,184
                                                                              ----------------------------
                                                                              ----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
         Accounts payable                                                     $   4,936        $   4,091
         Accrued liabilities                                                     26,113           19,132
         Unearned revenue                                                         6,675            1,927
----------------------------------------------------------------------------------------------------------
                  Total current liabilities                                      37,724           25,150
         Other long-term liabilities                                                 75              263
         Deferred tax liabilities, long-term                                        222              306
----------------------------------------------------------------------------------------------------------
                  Total liabilities                                              38,021           25,719

    Stockholders' equity
         Common stock, par value $0.001 per share:
                   80,000,000 shares authorized, 42,101,144 and
                38,807,968 shares issued and outstanding as of 1999 and
                1998, respectively                                                   42               39
         Treasury stock, at cost; 1,620,000 and 510,000 shares as of
                1999 and 1998, respectively                                     (25,445)          (5,139)
         Additional paid-in capital                                             170,532          142,023
         Deferred compensation                                                        -              (87)
         Accumulated other comprehensive income                                      41               47
         Retained earnings (accumulated deficit)                                 11,366           (8,418)
----------------------------------------------------------------------------------------------------------
                  Total stockholders' equity                                    156,536          128,465
----------------------------------------------------------------------------------------------------------
                  Total liabilities and stockholders' equity                  $ 194,557        $ 154,184
                                                                              ----------------------------
                                                                              ----------------------------
</TABLE>

See accompanying notes to consolidated financial statements

                                     Page 24
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENT OF OPERATIONS                                   YEARS ENDED MARCH 31,
(in thousands, except per share data)                 1999             1998             1997
----------------------------------------------------------------------------------------------
<S>                                                <C>              <C>              <C>
Revenues                                           $ 149,886        $ 113,086        $ 107,365
Cost of revenues                                      14,286           14,997           23,246
----------------------------------------------------------------------------------------------
                  Gross profit                       135,600           98,089           84,119
----------------------------------------------------------------------------------------------

Operating Expenses:
     Sales and marketing                              64,515           56,842           59,627
     Research and development                         35,644           32,231           30,013
     General and administrative                       13,068           11,452            8,135
     Merger, relocation, & reorganization                  -            7,658              350
----------------------------------------------------------------------------------------------
                  Total operating expenses           113,227          108,183           98,125
----------------------------------------------------------------------------------------------
                  Operating income (loss)             22,373          (10,094)         (14,006)
----------------------------------------------------------------------------------------------

Other income (expense):
     Interest and investment income, net               4,961            4,687            5,353
     Foreign exchange (loss) gain                       (306)             243             (639)
     Other                                               366             (194)            (105)
----------------------------------------------------------------------------------------------
                  Total other income                   5,021            4,736            4,609
----------------------------------------------------------------------------------------------
                  Income (loss) before taxes          27,394           (5,358)          (9,397)
Provision (benefit) for income taxes                   7,610              828           (3,477)
----------------------------------------------------------------------------------------------
                  Net income (loss)                $  19,784        $  (6,186)       $  (5,920)

Net income (loss) per share
    Basic                                          $    0.51        $   (0.16)       $   (0.16)
    Diluted                                        $    0.44        $   (0.16)       $   (0.16)

Weighted average common share outstanding
    Basic                                             39,139           38,114           37,488
    Diluted                                           45,360           38,114           37,488
</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 25
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS                                  YEARS ENDED MARCH 31,
(in thousands, except share data)                                    1999             1998             1997
------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                               $  19,784        $  (6,186)       $  (5,920)
   Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Depreciation and amortization                                  8,144            7,728            7,766
     Deferred income taxes                                          1,565              265           (3,832)
     Tax benefit from employee stock plans                          4,439              240                -
     Deferred compensation                                              -               49              104
     Write-off of merger costs                                          -            7,658                -
     Changes in operating assets and liabilities, net
      of effect of mergers:
        Accounts receivable, net                                   (4,889)          (5,365)          12,330
        Inventory                                                     184            1,139             (279)
        Prepaid expenses and other current assets                  (9,881)             258              868
        Accounts payable                                              845           (2,040)           3,106
        Accrued liabilities                                         6,981            1,669           (1,821)
        Unearned revenue                                            4,748             (562)           1,723
        Other, net                                                   (188)             464                -
                                                               ---------------------------------------------
     Net cash provided by operating activities                     31,732            5,317           14,045

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments                               (133,540)        (444,574)        (922,987)
Maturities and sales of short-term investments                    127,948          455,267          924,063
Acquisition of property and equipment                             (11,226)         (12,376)         (27,289)
Proceeds from sale of fixed assets                                    961                -                -
Other long-term assets                                             (2,644)          (5,233)          (2,484)
Investment in Solis                                                     -           (2,500)               -
Acquisition of intangible assets                                        -                -           (2,788)
                                                               ---------------------------------------------
     Net cash used in investing activities                        (18,501)          (9,416)         (31,485)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock                             24,160            3,860            4,008
Acquisition of treasury stock                                     (20,306)          (5,139)               -
                                                               ---------------------------------------------
     Net cash provided by (used in) financing activities            3,854           (1,279)           4,008

Net increase (decrease) in cash and cash equivalents               17,085           (5,378)         (13,432)
Cash and cash equivalents, beginning of year                       10,019           15,397           28,829
                                                               ---------------------------------------------
Cash and cash equivalents, end of year                          $  27,104        $  10,019        $  15,397
                                                               ---------------------------------------------
                                                               ---------------------------------------------
Supplemental disclosure of cash flow information:
  Interest paid                                                 $       -        $       5        $       -
  Income taxes paid (recovered)                                 $    (892)       $  (2,331)       $   3,935

Noncash investing activities:
  Common stock issued in exchange for Solis                     $       -        $   3,975        $       -
  Common stock issued in exchange for FutureWave                $       -        $       -        $     526
</TABLE>

See accompanying notes to consolidated financial statements.

                                     Page 26

<PAGE>

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                           Common stock       Treasury stock          Additional   Deferred    Accumulated other
                                           ------------       --------------           paid-in     compen-       comprehensive
(in thousands, except share data)        Shares     Amount   Shares     Amount         capital     sation         income (loss)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>      <C>       <C>            <C>         <C>          <C>

Balances as of March 31, 1996          36,413,211    $ 36     $ -       $ -           $ 129,591     $(415)           $  -
Comprehensive loss:
        Net loss                            -          -        -         -               -             -               -
        Unrealized gain on available-
        for-sale securities                 -          -        -         -               -             -               297

   Total comprehensive loss                 -          -        -         -               -             -               -

Exercise of stock options                 595,063       1       -         -               2,492         -               -
Common stock issued under Employee
   Stock Purchase Plan (ESPP)             134,691      -        -         -               1,515         -               -
Adjustment for effect of poolings on
   prior periods                          600,000       1       -         -                 526         -               -
Deferred compensation - iband                -         -        -         -                (162)      266               -
--------------------------------------------------------------------------------------------------------------------------------
Balances as of March 31, 1997          37,742,965    $ 38       -         -           $ 133,962     $(149)         $    297
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
      Net loss                               -         -        -         -               -             -               -
      Unrealized loss on available-
      for-sale securities                    -         -        -         -               -             -              (250)

   Total comprehensive loss                  -         -        -         -               -             -               -
Exercise of stock options                 570,217       1       -         -               2,390         -               -
Common stock issued under ESPP            194,786      -        -         -               1,469         -               -
Tax benefit from employee stock plans        -         -        -         -                 240         -               -
Common stock issued under purchase of
   Solis                                  300,000      -        -         -               3,975         -               -
Purchase of treasury stock                   -         -       (510,000)   (5,139)        -             -               -
Deferred compensation - iband                -         -        -         -                 (13)       62              -
--------------------------------------------------------------------------------------------------------------------------------
Balances as of March 31, 1998          38,807,968    $ 39      (510,000) $ (5,139)    $ 142,023     $ (87)          $    47
Comprehensive income:
      Net income                             -         -        -         -               -             -               -
      Unrealized loss on available-
      for-sale securities                    -         -        -         -               -             -                (6)

   Total comprehensive income                -         -        -         -               -             -               -
Exercise of stock options               3,147,351       3       -         -              22,539         -               -
Common stock issued under ESPP            145,825      -        -         -               1,618         -               -
Tax benefit from employee stock plans        -         -        -         -               4,439         -               -
Purchase of treasury stock                   -         -     (1,110,000)  (20,306)        -             -               -
Deferred compensation - iband                -         -        -         -                 (87)       87               -
--------------------------------------------------------------------------------------------------------------------------------
Balances as of March 31, 1999          42,101,144   $ 42     (1,620,000) $(25,445)    $ 170,532     $   -           $    41
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.



                                         Compre-            Retained
                                         hensive            earnings              Total
                                         income           (accumulated         stockholders'
(in thousands, except share data)        (loss)             deficit)              equity
--------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>                   <C>

Balances as of March 31, 1996                              $  3,969              $ 133,181
Comprehensive loss:
        Net loss                         $ (5,920)           (5,920)                (5,920)
        Unrealized gain on available-
        for-sale securities                   297               -                      297
                                         ---------
   Total comprehensive loss              $ (5,623)              -                      -
                                         ---------
                                         ---------
Exercise of stock options                                       -                    2,493
Common stock issued under Employee
   Stock Purchase Plan (ESPP)                                   -                    1,515
Adjustment for effect of poolings on
   prior periods                                              (281)                    246
Deferred compensation - iband                                   -                      104
--------------------------------------------------------------------------------------------------------------------------------
Balances as of March 31, 1997                              $(2,232)              $ 131,916
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
      Net loss                           $ (6,186)          (6,186)                 (6,186)
      Unrealized loss on available-
      for-sale securities                    (250)              -                     (250)
                                         ---------
   Total comprehensive loss              $ (6,436)              -                       -
                                         ---------
                                         ---------
Exercise of stock options                                       -                    2,391
Common stock issued under ESPP                                  -                    1,469
Tax benefit from employee stock plans                           -                      240
Common stock issued under purchase of
   Solis                                                        -                    3,975
Purchase of treasury stock                                      -                   (5,139)
Deferred compensation - iband                                   -                       49
--------------------------------------------------------------------------------------------------------------------------------
Balances as of March 31, 1998                             $ (8,418)              $ 128,465
Comprehensive income:
      Net income                        $ 19,784            19,784                  19,784
      Unrealized loss on available-
      for-sale securities                     (6)               -                       (6)
                                        ---------
   Total comprehensive income           $ 19,778                -                       -
                                        ---------
                                        ---------
Exercise of stock options                                       -                   22,542
Common stock issued under ESPP                                  -                    1,618
Tax benefit from employee stock plans                           -                    4,439
Purchase of treasury stock                                      -                  (20,306)
Deferred compensation - iband                                   -                       -
--------------------------------------------------------------------------------------------------------------------------------
Balances as of March 31, 1999                            $  11,366              $  156,536
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

</TABLE>
                                              Page 27

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MACROMEDIA, INC. AND SUBSIDIARIES

1. Summary of Significant Accounting Policies

NATURE OF OPERATIONS. Macromedia develops, markets and supports software and
services for Web publishing and Web learning. Additionally, the Company's new
consumer business designs, develops and markets aggregated content, products and
services to provide and expand online entertainment on the Web. The Company
sells its products through a network of distributors, value-added resellers
(VARs) and its own sales force and Web site, and to original equipment
manufacturers (OEMs) in North America, Europe, Asia Pacific and Latin America.
In addition, the Company derives revenues from advertising on its Web sites, and
from software maintenance and technology licensing agreements.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after eliminations.

FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's foreign
subsidiaries is the U.S. dollar. Assets and liabilities denominated in foreign
currencies are translated using the exchange rates at the balance sheet date.
Revenues and expenses are translated using average exchange rates during the
year. Translation adjustments are recorded in the consolidated statements of
operations.

USE OF ESTIMATES. The preparation of consolidated 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 consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially
from those estimates.

CONCENTRATIONS OF CREDIT RISK. Distributors comprise a significant portion of
the Company's revenue and trade receivables. The Company controls credit risk
through credit approvals, credit limits and monitoring procedures. The Company
performs in-depth credit evaluations of all new customers and requires letters
of credit or bank guarantees, if deemed necessary, but generally requires no
collateral. For the years ended March 31, 1999, 1998, and 1997, sales to one
distributor, Ingram Micro, accounted for 28%, 28%, and 24% respectively, of
consolidated revenue. Accounts receivable relating to this customer were $8.0
million and $4.7 million as of March 31, 1999 and 1998, respectively. Three
distributors accounted for an additional 21% of revenues for the year ended
March 31, 1999.

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, short-term investments, trade
receivables and forward contracts used in hedging activities.

The Company places its cash equivalents, short-term investments, and forward
contracts with major financial institutions of high credit standing. The Company
does not believe there is significant risk of non-performance by these
institutions because the Company monitors their credit ratings and limits the
financial exposure to any one commercial issuer and any one type of investment.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents consist of highly
liquid investments with a stated effective maturity of 90 days or less at the
time of purchase. Short-term investments consist of readily marketable
securities with a maturity of more than 90 days from time of purchase. Where the
maturity is more than one year, the securities are classified as short-term as
the company's intention is to convert them into cash for operations as needed.



                                     Page 28
<PAGE>

Cash equivalents and all of the Company's short-term investments are classified
as "available-for-sale" under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities.

The amortized cost of available-for-sale securities is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in net investment income. As required by SFAS No. 115,
available-for-sale securities are recorded at fair value. Unrealized gains and
losses are reported as a separate component of accumulated other comprehensive
income in stockholders' equity. Realized gains and losses, and declines in value
judged to be other than temporary on available-for-sale securities, are included
in net investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest and investment income, net.

The Company's cash equivalents and short-term investments in marketable equity
securities are carried at fair value, based on quoted market prices for these or
similar investments.

INVENTORY. Inventory consists primarily of software media, hardware product
components, manuals, and related packaging materials. Inventory is recorded at
the lower of cost or market value, determined on a first-in, first-out basis.

PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Buildings
are depreciated over thirty years, and tenant improvements over ten years, using
the straight-line method. Depreciation of equipment, furniture, and fixtures is
provided over estimated useful lives ranging from three to five years using the
straight-line method. Leasehold improvements are amortized over the lesser of
the lease term or the estimated useful life of the related assets, ranging from
three to ten years.

Effective January 1, 1997, the Company reduced the estimated useful life of
computer equipment from five to three years for future asset purchases.

SOFTWARE COSTS. SFAS No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed, governs accounting for software development
costs. This statement provides for capitalization of certain software
development costs once technological feasibility is established. The Company
believes that software development costs incurred subsequent to technological
feasibility have not been material, other than the costs paid to third parties
to develop localized versions of its software, which are capitalized and
amortized to cost of sales on a straight-line basis over the lesser of estimated
product life or 12 months.

Software costs also include amounts paid for purchased software to be sold
and outside development on products which have reached technological
feasibility. Purchased software costs are amortized on a straight-line method
over the lesser of the estimated economic life of the product or one year.
Purchased software approximated $0.2 million as of March 31, 1999.
Amortization of software costs will commence in fiscal year 2000.

SOFTWARE FOR INTERNAL USE. The Company capitalizes costs of software, consulting
services, hardware and payroll related costs incurred to purchase or develop
internal-use software in accordance with Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The Company expenses costs incurred during preliminary project assessment,
research and development, re-engineering, training and application maintenance.

LONG-LIVED ASSETS. The Company evaluates long-lived assets and identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property and equipment exceeds its


                                     Page 29
<PAGE>

fair market value. Property and equipment to be disposed of are reported as the
lower of the carrying amount or fair value less costs to sell.

STOCK BASED COMPENSATION. As permitted under SFAS No. 123, Accounting for
Stock-Based Compensation, the Company has elected to follow Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees,
in accounting for stock-based awards to employees (see Note 8).

REVENUE RECOGNITION. The Company recognizes revenue from product sales at
shipment based on the fair value of the element provided that collection of the
resulting receivable is deemed probable, in accordance with SOP 97-2, Software
Revenue Recognition. Revenue from multiple element software arrangements are
allocated to each element of the arrangement based on the relative fair values
of the elements, such as software products, upgrades, enhancements, post
contract customer support, installation, or training. The determination of fair
value is based on objective evidence which is specific to the Company. If such
evidence of fair value for each element of the arrangement does not exist, all
revenue from the arrangement is deferred until such time that evidence of fair
value does exist or until all elements of the arrangement are delivered. Revenue
from software maintenance contracts is recognized on a straight-line basis over
the term of the contract, generally one year. Revenue from consulting, training,
and other services is generally recognized as the services are performed.

The Company has entered into agreements whereby it licenses products to OEMs or
provides customers the right to multiple copies. These agreements generally
provide for nonrefundable fixed fees which are recognized at delivery of the
product master or the first copy. If post-contract customer support (PCS) is not
included, per copy royalties in excess of the fixed minimum amounts and
refundable license fees are recognized as earned. If PCS is included in the
contract, it is unbundled from the license fee using the Company's objective
evidence of the fair value of the maintenance and/or services represented by the
Company's customary pricing for such maintenance and/or services. If objective
evidence of the fair value of the maintenance is not available, the revenues are
recognized ratably over the maintenance term.

The Company maintains an allowance for potential credit losses and an allowance
for anticipated returns on products sold to distributors and direct customers.
The allowance for sales returns is estimated based on a calculation of forecast
sales to the end user by distributors in relation to estimated current channel
inventory levels.

In February 1998, the Accounting Standards Executive Committee ("AcSEC") of the
AICPA issued SOP 98-4, Deferral of the Effective Date of SOP 97-2. The SOP
defers the effective date for applying the provisions regarding vendor-specific
objective evidence ("VSOE") of fair value until the AcSEC can reconsider what
constitutes such VSOE. There was no material change to the Company's accounting
for revenues as a result of the adoption of SOP 98-4.

In December 1998, AcSEC issued SOP 98-9 Software Revenue Recognition, with
Respect to Certain Arrangements, which requires recognition of revenue using the
"residual method" in a multiple element arrangement when fair value does not
exist for one or more of the delivered elements in the arrangement. Under the
"residual method", total fair value of the undelivered elements is deferred and
subsequently recognized in accordance with SOP 97-2. The Company does not expect
a material change to its accounting for revenues as a result of the provisions
of SOP 98-9.

MARKETING PROGRAMS. The Company reimburses certain qualified customers for a
portion of the costs related to their promotion of the Company's products. The
Company's liability for reimbursement is accrued at the time revenue is
recognized as a percentage of the qualified customer's net revenue derived from
the Company's products. The Company also subsidizes other marketing activities
through cooperative arrangements with its customers, and accrues the expense as
the advertising occurs.


                                     Page 30
<PAGE>

ADVERTISING COSTS. Advertising expenditures are charged to operations as
incurred. Advertising expense for the year ended March 31, 1999, 1998, and 1997
was $6.0 million, $3.7 million, and $6.6 million, respectively.

FOREIGN EXCHANGE FORWARD CONTRACTS. The Company uses foreign exchange forward
contracts to hedge its net monetary asset positions in foreign currencies. The
Company's forward contracts do not qualify as accounting hedges. The Company
marks-to-market the forward contracts and includes unrealized gains and losses
in current period net income or loss as a component of other income (expense).
The Company may from time to time adjust its foreign exchange position by
entering into additional contracts or by terminating or offsetting existing
foreign currency forward contracts. Gains and losses on terminated or offset
contracts are recognized in income in the period of contract termination or
offset. Premium and discounts are amortized over the life of the contract and
included in operations.

INCOME TAXES. The Company utilizes SFAS No. 109, Accounting for Income Taxes.
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under this method, deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.

NET INCOME (LOSS) PER SHARE. "Basic" earnings per share is calculated by
dividing net income or loss by the weighted average common shares outstanding
during the period. "Diluted" earnings per share reflects the net incremental
shares that would be issued if outstanding stock options were exercised and the
funds from the exercises as well as the funds collected for the employee stock
purchase plan were used to purchase treasury shares.

In the case of a net loss, it is assumed that no incremental shares would be
issued because they would be antidilutive. In addition, certain options are
considered antidilutive because the options' exercise prices were above the
average market price during the period. Antidilutive shares are not included in
the computation of diluted earnings per share, in accordance with SFAS No. 128,
Earnings Per Share.

<TABLE>
<CAPTION>
                                                              Years ended March 31,
(In thousands, except per share data)                   1999           1998            1997
----------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>             <C>
BASIC NET INCOME (LOSS) PER SHARE COMPUTATION
Numerator:
   Net income (loss)                                  $ 19,784       $ (6,186)       $ (5,920)
                                                     ----------     -----------     ----------
Denominator:
   Weighted average number of common shares
   outstanding during the period                        39,139         38,114          37,488

Basic net income (loss) per share                     $   0.51       $  (0.16)       $  (0.16)
                                                     ----------     -----------     ----------
                                                     ----------     -----------     ----------
DILUTED NET INCOME (LOSS) PER SHARE COMPUTATION

Numerator:
   Net Income (loss)                                  $ 19,784       $ (6,186)       $ (5,920)
                                                     ----------     -----------     ----------
Denominator:

                                     Page 31
<PAGE>

   Weighted average number of common shares
   outstanding during the period                        39,139         38,114          37,488

Effect of dilutive securities                            6,221              -               -
                                                     ----------     -----------     ----------
Total                                                   45,360         38,114          37,488
                                                     ----------     -----------     ----------
Diluted net income (loss) per share                   $   0.44       $  (0.16)       $  (0.16)
                                                     ----------     -----------     ----------
                                                     ----------     -----------     ----------
</TABLE>

Incremental common shares attributable to the exercise of outstanding options
that were not included in the diluted per share computations because the
effect would have been antidilutive totaled 195,402, 1,770,000, and 738,000
in 1999, 1998, and 1997, respectively. The weighted average exercise price of
these antidilutive options approximated $32.97, $14.55, and $26.98 as of
March 31, 1999, 1998, and 1997, respectively.

COMPREHENSIVE INCOME (LOSS). In 1999, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. SFAS 130 establishes standards of reporting and
displaying comprehensive income and its components of net income and "other
comprehensive income" in a full set of general-purpose financial statements.
"Other comprehensive income" refers to revenues, expenses, gains and losses that
are not included in net income but rather are recorded directly in stockholders'
equity. The adoption of this Statement had no impact on the Company's net income
or loss or stockholders' equity. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130. The only component of
other comprehensive income for the years ended March 31, 1999, 1998 and 1997 was
unrealized gains or losses from the Company's available-for-sale securities. The
tax effect of other comprehensive income or loss is immaterial for the years
ended March 31, 1999, 1998, and 1997

FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for all quarters of
fiscal years beginning after June 15, 1999. The Company has not completed an
assessment of the impact of SFAS 133 on the consolidated results of operations
and financial position. SFAS 133 requires the recognition of all derivatives on
the balance sheet at fair value. The Company is required to adopt the new
standard in the first quarter of fiscal year 2002.

RECLASSIFICATION. Certain amounts in the accompanying 1998 and 1997
consolidated financial statements have been reclassified in order to conform
with the presentation of the 1999 consolidated financial statements.

2. BUSINESS COMBINATIONS

1998 PURCHASE. On October 6, 1997, the Company acquired Solis Design, Inc.
(Solis), a software development company, for 300,000 shares of common stock,
valued at $13.25 per share, and $2.5 million of cash. The acquisition was
structured as a tax-free merger and was accounted for under the purchase method.
The excess of the consideration paid over the estimated fair value of net assets
acquired of approximately $0.2 million was recorded as goodwill and was
amortized on a straight-line basis over 12 months. The operating results of
Solis, which were not material in relation to those of the Company, have been
included in the consolidated statement of income beginning October 6, 1997.

As a result of the acquisition, the Company wrote off $7.7 million of
purchased in-process research and development and other costs related to the
transaction. The appraisal of the acquired research and development was based
upon the present value of the operating cash flows to be generated by the
current technology after taking into account the cost to realize the revenue,
the relative risk of the products and an appropriate discount rate to reflect
the time value of invested capital. The purchased in-process research and
development expense related to

                                     Page 32
<PAGE>

completion of Solis' corporate training software. At the time of the
acquisition, Solis had a preliminary technology. There were significant
uncertainties as to the stability of the technology and the viability of the
technology to provide a complete corporate solution. In January 1998, the
Company released a first Java implementation of the technology, with a more
complete Internet solution shipping in March 1999.

1997 POOLING OF INTERESTS. In December 1996, the Company issued 600,000 shares
of its common stock in exchange for all of the common stock of FutureWave
Software, Inc., a developer of Internet graphics and animation software. The
1997 merger expenses of $0.4 million associated with this acquisition consisted
principally of transaction fees for financial and legal advisers. The
transaction was accounted for as a pooling of interests. The impact of the
pooling on all periods prior to fiscal 1997 is immaterial; therefore, the
results for those periods have not been restated. The accounts and operations of
the acquired company are included in the Company's consolidated financial
statements subsequent to its acquisition.

3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The following is a summary of cash, cash-equivalents and short-term investments
at March 31, 1999 and 1998:

<TABLE>
<CAPTION>

(in thousands)                                                        1999           1998
---------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
Cash and cash equivalents:
           Cash                                                     $ 21,857       $ 10,019
           Money market funds                                            215              -
           Commercial paper                                            5,032              -
                                                                   ---------------------------
                 Total cash and cash equivalents                      27,104         10,019
                                                                   ---------------------------
Short-term investments:
         Market auction preferred stock                                3,020          1,000

         Corporate notes                                                 501          2,009
         Corporate bonds                                                   -          6,999
         Commercial paper                                             35,349         27,850
         U. S. government debt securities                             42,828         27,069
         Money market funds                                                -          1,000
         Certificates of deposit                                           -          7,132
         Foreign securities                                                -          3,053
                                                                   ---------------------------
                 Total short-term investments                         81,698         76,112
                                                                   ---------------------------
Total cash, cash equivalents, and short-term investments            $108,802       $ 86,131
                                                                   ---------------------------
                                                                   ---------------------------
</TABLE>


Short-term investments consisted of the following, by contractual maturity as of
March 31, 1999:

<TABLE>
<CAPTION>

(in thousands)                                                        1999           1998
---------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
Due in one year or less                                             $ 61,750       $ 72,922
Due in one to three years                                           $ 19,948          3,190
---------------------------------------------------------------------------------------------
                                                                    $ 81,698       $ 76,112
</TABLE>

The Company's available-for-sale securities are carried at market value. Net
unrealized gains were $41,000 and $47,000 at March 31, 1999 and 1998,
respectively, principally on U.S. government debt securities.


                                     Page 33
<PAGE>


4. PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 1999 and 1998, consisted of the
following:

<TABLE>
<CAPTION>

(in thousands)                                              1999               1998
------------------------------------------------------------------------------------
<S>                                                     <C>                <C>
Land and building                                       $ 21,131           $ 21,021
Computer equipment                                        24,087             21,638
Computer software                                          8,940              3,206
Office equipment and furniture                             9,980              9,380
Leasehold improvements                                     5,140              4,893
------------------------------------------------------------------------------------
                                                          69,278             60,138
Less accumulated depreciation and amortization           (28,130)           (21,238)
------------------------------------------------------------------------------------
                                                        $ 41,148           $ 38,900
                                                        --------           --------
                                                        --------           --------
</TABLE>

Depreciation and amortization expense for the years ended March 31, 1999, and
1998, was $8.0 million, and $7.7 million, respectively.

Included in computer software is approximately $5.8 million related to
development of a new information technology infrastructure for sales and
marketing, customer support, on-line product distribution, and technical
support. The costs capitalized under the project are comprised primarily of
hardware and consulting fees for software development. Amortization of the
project is expected to begin in the first quarter of fiscal 2000.

5. ACCRUED LIABILITIES

Accrued liabilities as of March 31, 1999 and 1998, consisted of the following:

<TABLE>
<CAPTION>
(in thousands)                           1999             1998
---------------------------------------------------------------
<S>                                    <C>              <C>
Accrued compensation                   $ 1,526          $ 1,647
Accrued marketing development            2,078            1,764
Accrued fringe benefits                  2,331            2,001
Accrued payroll taxes                    2,921              137
Accrued income taxes                     4,139            2,082
Other accrued expenses                  13,118           11,501
---------------------------------------------------------------
     Total                             $26,113          $19,132
                                       -------          -------
                                       -------          -------
</TABLE>

6. LINE OF CREDIT

In fiscal year 1999, the Company renewed its $15.0 million unsecured line of
credit with interest at the lender's prime rate (7.75% at March 31, 1999), which
expires on July 15, 1999. Certain financial covenants under the agreement become
effective when borrowings commence. As of March 31, 1999, no borrowings were
outstanding on this line of credit.


                                     Page 34
<PAGE>

7. INCOME TAXES

The components of the provision for income taxes (benefit) for the years ended
March 31, 1999, 1998, and 1997, are as follows:

<TABLE>
<CAPTION>

(in thousands)                                                             1999              1998              1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>               <C>
Current:
      Federal                                                             $     -           $     -           $    -
      State                                                                     -                 -               13
      Foreign                                                               2,329               323              342
--------------------------------------------------------------------------------------------------------------------
            Total current                                                   2,329               323              355
--------------------------------------------------------------------------------------------------------------------
Deferred:
      Federal                                                                 949               829           (3,091)
      State                                                                  (107)             (564)            (741)
--------------------------------------------------------------------------------------------------------------------
            Total deferred                                                    842               265           (3,832)
--------------------------------------------------------------------------------------------------------------------
Add charge in lieu of taxes attributable to employee stock plans            4,439               240                -
--------------------------------------------------------------------------------------------------------------------
                 Total                                                    $ 7,610           $   828          $(3,477)
                                                                          -------           -------          --------
                                                                          -------           -------          --------
</TABLE>

The provision for income taxes differs from the expected tax expense amount
computed by applying the statutory federal income tax rate of 35% to income
before income taxes for the year ended March 31, 1999 and 1997, and 34% for the
year ended March 31, 1998, as a result of the following:

<TABLE>
<CAPTION>

(in thousands)                                                                  1999              1998              1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>
Computed tax at statutory rate                                               $ 9,588           $(1,822)          $(3,289)
State taxes                                                                      387               151              (473)
Nondeductible acquisition costs and goodwill amortization                         32             2,412                 -
Foreign benefits provided for at rates other than US statutory rate             (725)                -                 -
Research and other tax credits                                                (1,543)                -                 -
Other, net                                                                      (129)               87               285
--------------------------------------------------------------------------------------------------------------------
            Total                                                            $ 7,610           $   828           $(3,477)
                                                                             -------           -------           --------
                                                                             -------           -------           --------
</TABLE>

The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets (liabilities) as of March 31, 1999 and 1998, is
presented as follows:

<TABLE>
<CAPTION>

(in thousands)                                               1999               1998
-------------------------------------------------------------------------------------
<S>                                                      <C>                <C>
Deferred tax assets:
     Reserves, accruals, and other                       $  6,899           $  5,444
     Net operating loss carryforward (federal)             25,197             13,650
     Net operating loss carryforward (state)                2,983                620
     Credit for research activities                        13,207              8,073
     Other credits                                            588                399
-------------------------------------------------------------------------------------
                 Total deferred tax assets                 48,874             28,186
     Less valuation allowance                             (41,975)           (19,638)
-------------------------------------------------------------------------------------
                 Net deferred tax assets                    6,899              8,548
-------------------------------------------------------------------------------------
Deferred tax liabilities:
     Depreciation                                            (222)              (306)
-------------------------------------------------------------------------------------
                 Total deferred tax liabilities              (222)              (306)
-------------------------------------------------------------------------------------
Net deferred taxes                                       $  6,677           $  8,242
                                                         --------           ---------
                                                         --------           ---------
</TABLE>

                                     Page 35
<PAGE>

As of March 31, 1999, the Company has available federal and state net operating
loss carryforwards of approximately $72.0 million and $31.5 million,
respectively. The Company also has unused research credit carryforwards of
approximately $7.8 million and $5.4 million for federal and California purposes,
respectively. If not utilized, net operating loss and federal research credit
carryforwards will expire generally in fiscal years 2002 through 2019. The
California research credits may be carried forward indefinitely.

Approximately $36.9 million of the valuation allowance for deferred tax assets
is attributable to employee stock option deductions, the benefit from which will
be allocated to paid-in capital rather than current earnings when subsequently
recognized and approximately $5.0 million relates to research and
experimentation credits, the utilization of which is limited by current tax
regulations. These research and experimentation credits will be utilized in
future periods if sufficient income is generated. The Company's ability to
utilize certain loss carryforwards and certain research credit carryforwards are
subject to limitations pursuant to the ownership change rules of Internal
Revenue Code, Section 382.

8. STOCKHOLDERS' EQUITY

PREFERRED STOCK. The Company is authorized to issue 5,000,000 shares of
convertible preferred stock with a par value of $0.001 per share. No preferred
stock has been issued or is outstanding.

TREASURY STOCK. In July, 1997, the Board of Directors authorized the
repurchase of up to 2,000,000 shares of the Company's common stock. In
October 1998, the Board of Directors authorized the repurchase of an
additional 2,000,000 shares of the Company's stock. During the fiscal year
ended March 31, 1999 and 1998, the Company purchased 1,110,000 and 510,000
shares respectively of its stock on the open market at an average price of
$18.29 and $10.08 per share respectively. The shares are recorded at cost and
are shown as a reduction of stockholders' equity. The Company may purchase
additional stock in the future, as market conditions warrant.

STOCK OPTION PLANS. As of March 31, 1999, there are stock options outstanding in
connection with the following stock option plans:

      (i) MacroMind 1989 Incentive and Nonstatutory Stock Option Plans

     (ii) Authorware 1988 Stock Option Plan

    (iii) 1992 Equity Incentive Plan (EIP)

     (iv) 1993 Employee Stock Purchase Plan (ESPP)

      (v) 1993 Directors Stock Option Plan

The options outstanding under the plans indicated at (i) and (ii) (Prior Plans)
above were assumed as a result of the Company being the successor company
resulting from merger activities.

The EIP provides for the grant of incentive and nonqualified stock options,
restricted stock, and stock bonuses. The total number of shares reserved
pursuant to the EIP as of March 31, 1999, was 13,300,000 shares. Any shares
issuable upon exercise of options granted pursuant to the Prior Plans that
expire or become unexercisable for any reason without having been exercised in
full shall no longer be available for distribution under the Prior Plans, but
shall be available for distribution under the EIP.

The 1993 Employee Stock Purchase Plan and the 1993 Directors Stock Option Plan
have reserved 800,000 and 700,000 shares of common stock, respectively, for
issuance under those plans. Under the ESPP and subject to certain limitations,
employees may purchase, through payroll deductions of 2% to 10% of compensation,
shares of common stock at a price per share that is the lesser of 85% of the
fair market value as of the beginning of the offering period or the end of the
purchase period. During the years ended March 31, 1999, 1998, and 1997, the
Company issued 145,826, 194,786, and 134,691, shares under the plan at average
prices of $11.10, $7.54, and $11.25, per share, respectively.


                                     Page 36
<PAGE>

In connection with the Solis acquisition, all of the outstanding options to
purchase Solis common stock were converted into options to purchase the
Company's common stock.

Stock options are granted at a price equal to fair market value at the time of
the grant and normally vest over four years from the date of grant. The options
expire 10 years from the date of grant and are normally canceled three months
after an employee's termination.

The following summarizes stock option activity for the years ended March 31,
1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                                           Number of         Weighted
                                                                              shares           average
                                                                                        exercise price
------------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>
     Options outstanding as of March 31, 1996                              6,363,026             13.27
           Granted                                                         5,291,715             15.58
           Exercised                                                        (595,063)             4.19
           Canceled                                                       (2,600,123)            25.53
------------------------------------------------------------------------------------------------------
     Options outstanding as of March 31, 1997                              8,459,555             12.20
           Granted                                                         9,374,853              8.17
           Exercised                                                        (570,217)             9.98
           Canceled                                                       (6,525,891)            13.58
------------------------------------------------------------------------------------------------------
     Options outstanding as of March 31, 1998                             10,738,300              7.96
           Granted                                                         3,192,027             17.92
           Exercised                                                      (3,147,351)             7.16
           Canceled                                                       (1,241,605)             9.72
------------------------------------------------------------------------------------------------------
      Options outstanding as of March 31, 1999                             9,541,371             11.32
</TABLE>


As of March 31, 1999, 1998, and 1997 options to purchase 3,426,321, 3,932,773,
and 3,067,496 shares of common stock, respectively, were exercisable under the
plans.

The weighted-average fair value of options granted during the years ended March
31, 1999, 1998, and 1997 was $10.11, $4.70, and $9.05 respectively. The weighted
average fair value of purchase rights granted under the ESPP during the years
ended March 31, 1999, 1998, and 1997, was $7.53, $3.74, and $4.81 respectively.

The Company recorded deferred compensation of $415,000 for the difference
between the grant price and the deemed fair value of the common stock underlying
the options issued in connection with the iband acquisition in March 1996. This
amount is being amortized over the vesting period of the individual options,
generally four years. The remaining balance as of March 31, 1998, of $87,000 was
fully amortized in fiscal year 1999.

Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company
is required to disclose the pro forma effects on net income (loss) and net
income (loss) per share as if the Company had elected to use the fair value
approach to account for all of its employee stock-based compensation plans. Had
compensation cost for the Company's plans been determined consistently with the
fair value approach enumerated in SFAS No. 123, the Company's pro forma net
income (loss) and pro forma net income (loss) per share for the years ended
March 31, 1999, 1998 and 1997, would have been changed as indicated below:


                                     Page 37
<PAGE>

<TABLE>
<CAPTION>

(in thousands, except per share data)                   1999             1998              1997
-----------------------------------------------------------------------------------------------
<S>                                               <C>              <C>               <C>
     Pro forma net (loss) income
        As reported                               $   19,784       $   (6,186)       $   (5,920)
        Adjusted pro forma                            15,870          (18,370)          (13,838)
     Pro forma net (loss) income per share:
        As reported - Basic                       $     0.51       $    (0.16)       $    (0.16)
        Adjusted pro forma - Basic                      0.41            (0.48)            (0.37)
        As reported - Diluted                     $     0.44       $    (0.16)       $    (0.16)
        Adjusted pro forma - Diluted                    0.35            (0.48)            (0.37)
</TABLE>

The fair value of options and purchase rights granted was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                    Stock Option Plan                       Employee Stock Purchase Plan
                                                    -----------------                       ----------------------------
                                            1999           1998           1997           1999           1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>            <C>            <C>           <C>
Weighted average risk free rate             5.11%          6.28%          6.27%          5.08%          5.35%          5.21%
Expected life (Years)                       3.50           3.28           3.00           0.50           0.50           0.50
Volatility                                    73%            80%            83%            73%            80%            83%
Dividend yield                                 -              -              -                             -              -
</TABLE>


The following table summarizes information about fixed stock options outstanding
as of March 31, 1999:

<TABLE>
<CAPTION>
                                          Options outstanding                               Options exercisable
                                  --------------------------------------------------  ----------------------------------
                                     Number of        Weighted           Weighted      Number of        Weighted average
                                      options          average            average       options          exercise price
     Range of exercise prices                         remaining       exercise price
                                                  contractual life
-------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>                <C>              <C>               <C>
     From $0.20 to $0.96              102,907             3.41       $     0.687        102,907          $     0.687
     From $1.44 to $3.00              139,184             4.21             2.761        139,184                2.761
     From $3.50 to $5.25              310,832             5.17             4.823        310,832                4.823
     From $6.00 to $9.00            4,783,011             8.22             7.774      2,069,773                7.713
     From $9.31 to $13.00           2,059,432             8.81            11.721        495,612               10.957
     From $14.69 to $22.00          1,483,943             9.10            15.333        247,681               15.246
     From $22.38 to $32.75            201,762             9.05            29.594         40,424               32.277
     From $34.00 to $44.50            460,300             9.71            34.865         19,908               36.456
                                    -------------------------------------------------------------------------------------
     From $0.20 to $44.50           9,541,371             8.37       $    11.324      3,426,321          $     8.509
                                    -------------------------------------------------------------------------------------
                                    -------------------------------------------------------------------------------------
</TABLE>

On May 6, 1997, the Company's Board of Directors approved a repricing of
approximately 4,900,000 outstanding stock options held by existing employees to
the current fair market value of the Company's stock.

During fiscal 1997, the Company granted non-plan options to its President at the
time of hire, to acquire 1,000,000 shares of common stock at an exercise price
of $15.00 per share, representing the fair market value of the stock at the time
of grant. The shares were subsequently repriced to $7.781 per share on July 15,
1997.

9. COMMITMENTS AND CONTINGENCIES

ROYALTIES. The Company has entered into agreements with third parties that
provide for royalty payments based on a per unit wholesale price of certain
products or other agreed-upon terms.

                                     Page 38
<PAGE>

LEASES. The Company leases office space and certain equipment under operating
leases, certain of which contain renewal and purchase options. In addition, the
Company subleases certain office space that is not occupied currently.

Future minimum payments under operating leases with an initial term of more than
one year and future minimum sublease income are summarized as follows:

<TABLE>
<CAPTION>

Year ended March 31,
(in thousands)                                          Payments                     Income
-------------------------------------------------------------------------------------------
<S>                                                     <C>                          <C>
2000                                                    $  4,768                     $2,957
2001                                                       4,270                        879
2002                                                       4,055                          -
2003                                                       3,903                          -
2004                                                       3,899                          -
Thereafter                                                 8,741                          -
-------------------------------------------------------------------------------------------
Total minimum lease payments                            $ 29,636                     $3,836
                                                        --------                     ------
                                                        --------                     ------
</TABLE>

Rent expense was $4.5 million, $4.4 million, and $3.0 million for the years
ended March 31, 1999, 1998, and 1997, respectively. For the year ended March 31,
1999 and 1998, sublease income was $2.9 million and $1.2 million, respectively.
The Company received no sublease income in 1997.

LITIGATION. 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. Four similar complaints by persons seeking to represent the
same class of purchasers subsequently have been filed in San Francisco
Superior Court, and consolidated for pre-trial purposes with ROSEN.
Defendants filed demurrers seeking dismissal of the complaint, as well as
other motions, in late 1997. Before the demurrers were heard, one defendant,
Richard Wood, died in an automobile accident. In March 1998, the Court
sustained in part and overruled in part the demurrers. Claims against Susan
Bird were dismissed with leave to amend and the Court overruled the demurrers
as to Macromedia, John Colligan, James Von Ehr, II, and Kevin Crowder.
Defendants answered the complaint. In May 1999, the Court granted the
plaintiff's motion for class certification.

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. Three 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. All of these cases have been
consolidated. Lead plaintiffs and lead counsel have been appointed under the
provisions of the Private Securities Litigation Reform Act by the District
Court. A consolidated complaint was filed in February, 1998. Defendants moved to
dismiss that complaint on the grounds that plaintiffs' claims were barred by the
applicable statute of limitations. In May 1998, the United States District Court
for the Northern District of California granted defendants' motion to dismiss
with prejudice, and entered judgment in favor of defendants. Plaintiffs have
appealed to the United States Court of Appeals for the Ninth Circuit, and that
appeal is pending.


                                     Page 39
<PAGE>

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
continue to vigorously defend the actions.

10. FOREIGN CURRENCY FORWARD CONTRACTS

The Company enters into forward contracts to reduce its exposure to foreign
currency fluctuations involving probable anticipated, but not firmly committed,
transactions and transactions with firm foreign currency commitments occurring
within a 90-day period. The Company does not enter into derivative financial
instruments for trading purposes.

As a result of this activity, the Company had outstanding forward contracts in
various European currencies and Japanese Yen outstanding as of March 31, 1999.
The forward contracts are accounted for on a mark-to-market basis, with realized
gains or losses recognized in the consolidated statement of operations. As of
March 31, 1999 and 1998, the fair value and contract amount of the forward
contracts amounted to $10.2 million and $5.7 million, respectively. The future
value of these contracts is subject to market risk resulting from foreign
exchange rate volatility. Current market rates at the consolidated balance sheet
date were used to estimate the fair value of foreign currency forward contracts.
All contracts mature on June 30, 1999.

The table below provides information about the Company's outstanding forward
contracts as of March 31, 1999. The information is provided in US dollar
equivalents, as presented in the Company's financial statements. The table
presents the fair value (at the contract exchange rates) and the weighted
average contractual foreign currency exchange rates. All instruments mature
June 30, 1999. As of March 31, 1999, the gross unrealized gains and losses on
the forward contracts were not significant.

<TABLE>
<CAPTION>
(In thousands, except                                   Notional               Average
average contract rate)                                   Amount             Contract Rate
------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>
Foreign currency to be sold under
forward contracts:
                  British Pounds                        $ 5,339                 0.62
                  Deutsche Marks                          1,717                 1.82
                  Japanese Yen                            1,318               119.00
                  French Franks                             648                 6.09
                  Italian Lira                              595              1796.00
                  Swedish Kronas                            351                 8.25
                  Spanish Peseta                            194               154.55
                                                        -------
                                                        $10,162
                                                        -------
                                                        -------
</TABLE>

The Company is exposed to credit loss in the event of nonperformance by
counterparties but the Company does not anticipate nonperformance by these
counterparties. The Company does not enter into derivative financial instruments
for trading purposes.

11. EMPLOYEE BENEFITS

The Company maintains a profit sharing salary deferral 401(k) defined
contribution benefit plan that covers all employees who have attained 18 years
of age and completed at least 1,000 hours of service. This plan allows employees
to defer up to 15% of their pretax salary in certain investments at the
discretion of the employee. Employer contributions are made at the discretion of
the Company's Board of Directors. Employer contributions made to the plan during
the years ended March 31, 1999, 1998, and 1997, were $465,000, $359,000, and
$447,000, respectively.


                                     Page 40
<PAGE>

12. RELATED PARTY TRANSACTIONS

During fiscal year 1999, the Company made loans totaling $2.5 million to two
officers in conjunction with their hiring and relocation. The notes bear
interest at 5.56% and 5.51% per annum and mature in 2001.

During fiscal year 1998 and 1997, the Company made loans to officers totaling
$8.0 million, also in conjunction with their hiring and relocation. These loans
bear interest at rates ranging from 5.53% to 6.8% per annum and mature from 1999
to 2004. 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.

All loans outstanding are full recourse and are included in other long term
receivables. The loans are secured by the personal residences of the officers
and due after termination of the officer if before maturity date of the loan.
The principal and accrued interest are due in full on the maturity dates of
the loans. Interest receivable of $0.4 million was due to the Company as of
March 31, 1999. The total loan amount outstanding as of March 31, 1999
approximated $9.7 million, which reflects payments from certain officers. As
of March 31, 1999, the stated loan amounts approximate fair value.

When the Company acquired Altsys Corporation (Altsys) in January 1995, the
Company assumed a lease from Altsys entered into with Renner Plaza Properties,
Inc. (RPP) with respect to its use of the office space occupied by it located in
Richardson, Texas. RPP is wholly owned by Mr. Von Ehr, a Director of the
Company, and his wife Gayla J. Von Ehr. Due to space limitations, the Company
terminated the lease in September 1998 and relocated to another office in Texas.
For the fiscal year ended March 31, 1999, the Company paid $110,000 in lease
payments to RPP.

13. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.

Macromedia has two reportable segments which offer different product lines: Web
Publishing and Learning. The Web Publishing division develops software that
creates Web site layout, graphics and rich media content for Internet users. The
Learning division develops software and online Internet solutions that create,
distribute and manage enterprise-wide training programs for organizations. The
Company evaluates operating segment performance based on net revenues and direct
operating expenses of the segment. The accounting policies of the operating
segments are the same as those described in the summary of accounting policies.
No segments have been aggregated. The Company does not allocate assets to its
individual operating segments. For the year ended March 31, 1997, the Company
did not provide to its Chief Operating Decision Maker operating results by
segment. Segment information is not available for fiscal year 1997.

Information about reported segment income or loss is as follows:


                                     Page 41
<PAGE>

<TABLE>
<CAPTION>
                                                      WEB
(in thousands)                                     PUBLISHING     LEARNING        OTHER            TOTAL
---------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>            <C>             <C>
1999
Revenue                                            $123,772       $ 15,884       $ 10,230        $149,886
COGS                                                 10,809          1,158          2,319          14,286
                                                   ------------------------------------------------------
Gross Margin                                       $112,963       $ 14,726       $  7,911        $135,600

Direct operating expenses, less
     depreciation                                  $ 47,616       $ 13,844       $  3,691        $ 65,151
Depreciation                                          1,242            249            125           1,616
                                                   ------------------------------------------------------
Total direct operating expenses                    $ 48,858       $ 14,093       $  3,816        $ 66,767
                                                   ------------------------------------------------------
Contribution margin                                $ 64,105       $    633       $  4,095        $ 68,833


1998
Revenue                                            $ 97,640       $ 15,446       $      -        $113,086
COGS                                                 13,554          1,443              -          14,997
                                                   ------------------------------------------------------
Gross Margin                                       $ 84,086       $ 14,003       $      -        $ 98,089

Direct operating expenses, less
     depreciation                                  $ 31,137       $  8,896       $  5,753        $ 45,786
Depreciation                                          2,049            426            446           2,921
                                                   ------------------------------------------------------
Total, direct operating expenses                   $ 33,186       $  9,322       $  6,199        $ 48,707
                                                   ------------------------------------------------------
Contribution margin                                $ 50,900       $  4,681       $ (6,199)       $ 49,382

</TABLE>

For the year ended March 31, 1999 and 1998, the "Other" category consists of
various corporate revenues and expenses which do not qualify as a segment under
FAS 131.

A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the years
ended March 31, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
(in thousands)                                                                   1999                1998
---------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>
Total contribution margin from operating segments above                       $68,833           $  49,382
Indirect operating expenses                                                    46,460              51,818
Merger expenses                                                                     -               7,658
                                                                              -------           ---------
Total operating income (loss)                                                 $22,373           $(10,094)
Other income                                                                    5,021               4,736
                                                                              -------           ---------
Income (loss) before taxes                                                    $27,394           $ (5,358)
                                                                              -------           ---------
                                                                              -------           ---------
</TABLE>


14. GEOGRAPHIC INFORMATION

The Company's operations outside the United States consist of sales offices in
Japan, the United Kingdom, the Netherlands, the Republic of Ireland, and Canada
that are wholly owned subsidiaries and a branch in Australia. Domestic
operations are responsible for the design and development of all products, as
well as shipping to meet worldwide customer commitments. The foreign sales
offices receive a commission on sales within the territory. Accordingly, for
financial statement purposes, it is not meaningful to segregate operating profit
(loss) for the foreign sales offices. Revenues are attributed to region based on
the location of the customer. In 1998 and 1997,


                                     Page 42
<PAGE>

revenue in Japan accounted for a significant portion of the Company's total
revenues. No other individual country contributed more than 10% of total
revenues for the years ended March 31, 1999, 1998, and 1997. No individual
country's assets comprised more than 10% of total assets as of March 31,
1999, 1998, and 1997.

The distribution of net revenues and identifiable assets by geographic areas for
the years ended March 31, 1999, 1998, 1997 are as follows:

<TABLE>
<CAPTION>

(in thousands)                                    1999             1998             1997
Net Revenues:
----------------------------------------------------------------------------------------
<S>                                          <C>              <C>              <C>
     North America                           $  86,300        $  58,793        $  52,514
     Europe                                     43,087           29,300           24,719
     Japan                                      11,824           17,177           22,626
     All Other                                   8,675            7,816            7,506
                                             -------------------------------------------
                       Total Revenues:       $ 149,886        $ 113,086        $ 107,365
                                             -------------------------------------------
                                             -------------------------------------------

Identifiable Assets:
----------------------------------------------------------------------------------------
     North America                           $ 180,953        $ 124,213        $ 153,615
     Europe                                     31,127           28,958            1,629
     All Other                                   1,622            1,185            1,825
     Eliminations                              (19,145)            (172)            (172)
                                             -------------------------------------------
                                             $ 194,557        $ 154,184        $ 156,897
                                             -------------------------------------------
                                             -------------------------------------------
</TABLE>



                   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
                        Macromedia, Inc. and Subsidiaries

Summarized quarterly financial information for fiscal years 1999 and 1998 is as
follows:

<TABLE>
<CAPTION>
                                                                Quarter ended
                                          ----------------------------------------------------------
Fiscal year
(in thousands, except per share data)        June 30       September 30    December 31      March 31
----------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>             <C>             <C>
1999
      Total revenues                        $ 32,335        $ 35,226        $ 38,228        $ 44,097
      Gross profit                            29,216          31,997          34,520          39,867
      Operating income                         3,007           4,761           5,946           8,659
      Net income                               2,959           4,172           5,310           7,343
      Net income per share - basic          $   0.08        $   0.11        $   0.14        $   0.18
      Net income per share - diluted        $   0.07        $   0.10        $   0.12        $   0.16
----------------------------------------------------------------------------------------------------

1998
      Total revenues                        $ 27,329        $ 29,166        $ 26,579        $ 30,012
      Gross profit                            22,761          23,859          23,816          27,653
      Operating income (loss)                 (2,890)           (697)         (8,159)          1,652
      Net income (loss)                       (1,239)            313          (7,251)          1,991
      Net income (loss) per share - basic   $  (0.03)       $   0.01        $  (0.19)       $   0.05
      Net income (loss) per share - diluted $  (0.03)       $   0.01        $  (0.19)       $   0.05
</TABLE>

See Note 1 of notes to consolidated financial statements for an explanation of
the determination of the number of shares used in computing net income (loss)
per share.

                                     Page 43

<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Macromedia, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Macromedia, Inc.
and subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1999. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying Index in Item 14
herein. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Macromedia, Inc. and
subsidiaries as of March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1999, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.



                                              KPMG LLP


San Francisco, California
April 30, 1999

                                     Page 44
<PAGE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

Not applicable.


                                     Page 45
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

The information concerning the Company's directors required by this Item is
incorporated by reference to the section in the Company's Proxy Statement
entitled "Proposal No. 1 - Election of Directors."

The information concerning the Company's executive officers required by this
Item is incorporated by reference to Part I, Item 4A, entitled "Executive
Officers of the Registrant" on page 9 of this report.

The information concerning compliance with Section 16 of the Securities Exchange
Act of 1934 is incorporated by reference to the section in the Company's proxy
statement entitled "Section 16 (a) Beneficial Ownership Reporting Compliance."


ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
sections in the Company's Proxy Statement entitled "Executive Compensation,"
"Compensation of Directors," "Employment Agreements," and "Compensation
Committee Interlocks and Insider Participation."


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information concerning the Company's directors required by this Item is
incorporated by reference to the section in the Company's Proxy Statement
entitled "Security Ownership of Certain Beneficial Owners and Management."


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
section in the Company's Proxy Statement entitled "Certain Transactions."

                                     Page 46
<PAGE>

                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this Report:

1.   Financial Statements. The following Consolidated Financial Statements of
     Macromedia, Inc. and Subsidiaries are incorporated by reference from Part
     II, Item 8 of this Form 10-K:

                Consolidated Balance Sheets - March 31, 1999 and 1998
                Consolidated Statements of Operations - Years Ended March 31,
                  1999, 1998, and 1997
                Consolidated Statements of Cash Flows - Years Ended March 31,
                1999, 1998, and 1997 Consolidated Statements of Stockholders'
                Equity - Years Ended March 31, 1999, 1998 and 1997 Notes to
                Consolidated Financial Statements Independent Auditors' Report

2.   Financial Statement Schedule. The following financial statement schedule of
     Macromedia, Inc. and Subsidiaries for the fiscal years ended March 31,
     1999, 1998 and 1997 is filed as part of this Report and should be read in
     conjunction with the Consolidated Financial Statements of Macromedia, Inc.

                SCHEDULE
                II Valuation and Qualifying Accounts


Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.


3.   Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                      EXHIBIT TITLE
        ------                  ------------------------
<S>               <C>
         2.01     Agreement and Plan of Reorganization by and among the
                  Registrant, Authorware, Inc. and MacroMind/Paracomp, Inc.,
                  dated as of February 28, 1992, and certain exhibits thereto.
                  (Incorporated herein by reference to exhibit 2.01 to the
                  Registrant's registration statement on Form S-1 (File number
                  33-70624) declared effective by the Commission on December 10,
                  1993 (The "Form S-1")).

         2.02     Agreement and Plan of Reorganization among MacroMind, Inc.,
                  Paracomp, Inc. and Certain Shareholders of Paracomp, Inc.
                  dated August 21, 1991, as amended October 11, 1991 and certain
                  exhibits thereto. (Incorporated herein by reference to exhibit
                  2.02 to the Form S-1).

         2.03     Agreement and Plan of Reorganization dated October 26, 1994
                  between the Registrant and Altsys Corporation. (Incorporated
                  herein by reference to exhibit 2.03 to the Registrant's
                  registration statement on Form S-4 (File number 33-87264)
                  declared effective by the Commission on December 14, 1994 (The
                  "Altsys S-4")).

         2.04     Agreement of Merger and Articles of Merger dated January 20,
                  1995 entered into by the Registrant and Altsys Corporation.
                  (Incorporated herein by reference to exhibit 2.04 to the
                  Registrant's Quarterly Report on Form 10-Q for the quarter
                  ended December 31, 1994 (the "December 31, 1994 10-Q")).

         2.05     Agreement and Plan of Reorganization dated as of August 30,
                  1995, by and between Macromedia and Fauve and related
                  documents. (Incorporated herein by reference to exhibit 2.01
                  to the Registrant's Current Report on Form 8-K dated August
                  31, 1995 (the "Fauve 8-K")).

         2.06     Agreement of Merger dated as of August 30, 1995, by and
                  between Macromedia and Fauve. (Incorporated herein by
                  reference to exhibit 2.02 to the Fauve 8-K.)

         3.01     Registrant's Certificate of Incorporation, as amended.
                  (Incorporated herein by reference to exhibit 4.01

                                     Page 47
<PAGE>

                  to the Registrant's registration statement on Form S-8
                  (File number 33-89092) declared effective by the Commission
                  on February 3, 1995 (The "February 1995 S-8")).


        EXHIBIT
        NUMBER                      EXHIBIT TITLE
        ------                  ------------------------
<S>               <C>

         3.02     Certificate of Amendment of Registrant's Amended and Restated
                  Certificate of Incorporation. (Incorporated herein by
                  reference to exhibit 3.02 to the Registrant's Amendment No. 1
                  to registration statement on Form 8-A filed on October 5, 1995
                  (the "First 8-A Amendment")).

         3.03     Registrant's Bylaws. (Incorporated herein by reference to
                  exhibit 3.02 to the Form S-1).

         3.04     Amendment to Registrant's Bylaws effective October 15, 1993.
                  (Incorporated herein by reference to exhibit 3.03 to the Form
                  S-1).

         10.01*   1989 Paracomp Stock Option Plan. (Incorporated herein by
                  reference to exhibit 10.01 to the Form S-1).

         10.02*   1989 MacroMind Incentive Stock Option Plan and 1989
                  Nonstatutory Stock Option Plan as amended March 1992.
                  (Incorporated herein by reference to exhibit 10.02 to the Form
                  S-1).

         10.03*   1988 Authorware Stock Option Plan as amended and restated
                  February 1992. (Incorporated herein by reference to exhibit
                  10.03 to the Form S-1).

         10.04*   1992 Equity Incentive Plan and related documents, as amended
                  to date. (Incorporated herein by reference to exhibit 4.05 to
                  the Form S-8 filed September 24, 1998 (File No.333-64141)(The
                  1998 Form S-8))

         10.05*   1993 Directors Stock Option Plan and related documents, as
                  amended to date. (Incorporated herein by reference to exhibit
                  4.06 to the 1998 Form S-8).

         10.06*   1993 Employee Stock Purchase Plan. (Incorporated herein by
                  reference to exhibit 4.06 to the Form S-8 filed October 31,
                  1997 (File No. 333-39285)).

         10.07*   Form of Indemnification Agreement entered into by Registrant
                  with each of its directors and executive officers.
                  (Incorporated herein by reference to exhibit 10.08 to the Form
                  S-1).

                                     Page 48
<PAGE>

        EXHIBIT
        NUMBER                      EXHIBIT TITLE
        ------                  ------------------------
<S>               <C>

         10.08    Employment and Noncompetition Agreement with James R. Von Ehr
                  II. (Incorporated herein by reference to exhibit 10.13 to the
                  December 31, 1994 10-Q).

         10.09    Lease Agreement by and between Registrant and Toda
                  Development, Inc. dated June 27, 1991 as amended.
                  (Incorporated herein by reference to exhibit 10.07 to the Form
                  S-1).

         10.10    Third amendment to Lease Agreement by and between Registrant
                  and Toda Development, Inc. dated November 7, 1994 and fourth
                  amendment to Lease Agreement by and between Registrant and
                  Toda Development, Inc. dated April 6, 1995. (Incorporated
                  herein by reference to exhibit 10.14 to the March 31, 1995
                  10-K).

         10.11    Fifth Amendment to Lease Agreement by and between Registrant
                  and Toda Development, Inc. dated August 31, 1995 and sixth
                  amendment to Lease Agreement by and between Registrant and
                  Toda Development, Inc. dated October 31, 1995. (Incorporated
                  herein by reference to exhibit 10.18 to the Registrant's
                  Quarterly Report on Form 10-Q for the quarter ended December
                  31, 1995).

         10.12    Seventh Amendment to Lease Agreement by and between Registrant
                  and Toda Development, Inc. dated December 15, 1995 and Eighth
                  Amendment to Lease Agreement by and between Registrant and
                  Toda Development, Inc. dated January 25, 1996 and Ninth
                  Amendment to Lease Agreement by and between Registrant and
                  Toda Development, Inc. dated February 21, 1996 and Tenth
                  Amendment to Lease Agreement by and between Registrant and
                  Toda Development, Inc. dated April 30, 1996 and Eleventh
                  Amendment to Lease Agreement by and between Registrant and
                  Toda Development, Inc. dated June 13, 1996. (Incorporated
                  herein by reference to exhibit 10.15 to the March 31, 1996
                  10-K).

         10.13    Twelfth Amendment to Lease Agreement by and between Registrant
                  and Toda Development, Inc. dated November 26, 1996 and
                  Thirteenth Amendment to Lease Agreement by and between
                  Registrant and Toda Development, Inc. dated February 25, 1997
                  and Fourteenth Amendment to Lease Agreement by and between
                  Registrant and Toda Development, Inc. dated February 25, 1997.
                  (Incorporated herein by reference to exhibit 10.15 to the
                  March 31, 1997 Form 10-K.)

         10.14    Termination and License Agreement by and between Altsys
                  Corporation and Aldus Corporation, dated October 24, 1994
                  (Incorporated herein by reference to exhibit 10.11 to the
                  Altsys S-4).

         10.15    Line of Credit Agreement by and between Registrant and
                  Imperial Bank dated August 2, 1995. (Incorporated herein by
                  reference to exhibit 10.17 to the Registrant's Quarterly
                  Report on Form 10-Q for the quarter ended September 30, 1995).

         10.16    Employment Agreement between the Registrant and Robert K.
                  Burgess dated August 25, 1996. (Incorporated herein by
                  reference to exhibit 10.20 to the Registrant's Quarterly
                  Report on Form 10-Q for the quarter ended September 30, 1996).

         10.17    Employment Agreement between the Registrant and James White
                  dated January 1, 1997. (Incorporated herein by reference to
                  exhibit 10.21 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended March 31, 1997 (the "March 31, 1997
                  10-K").

         10.18    Loan Agreement between Macromedia, Inc. and Brian and Sharon
                  Allum, dated July 15, 1997. (Incorporated herein by reference
                  to exhibit 10.01 to the Registrant's Quarterly Report on Form
                  10Q for the quarter ended September 30, 1997).

                                     Page 49
<PAGE>

        EXHIBIT
        NUMBER                      EXHIBIT TITLE
        ------                  ------------------------
<S>               <C>
         10.19    Solis Design, Inc. 1997 Equity Incentive Plan and Form
                  Agreements (Incorporated herein by reference to exhibit 4.07
                  of the 1997 Form S-8).

         10.20    Solis Design, Inc. Non Plan Form Agreements (Incorporated
                  herein by reference to exhibit 4.08 of the 1997 Form S-8).

         21.01    List of Registrant's subsidiaries.

         23.01    Consent of KPMG Peat Marwick LLP, Independent Auditors.

         24.01    Power of Attorney (see page 44 of this Form 10-K).

         27.01    Financial Data Schedule.
</TABLE>

  *  Represents a management contract or compensatory plan or arrangement
**   Confidential treatment has been granted with respect to certain portions of
     this agreement. Such portions have been redacted and marked with a double
     asterisk. The non-redacted version of this agreement was sent to the
     Securities and Exchange Commission pursuant to an application for
     confidential treatment.
(b)  Reports on Form 8-K: No reports on Form 8-K were required to be filed for
     the quarter ended March 31, 1998. With the exception of the information
     incorporated by reference to the Proxy Statement in Items 10, 11, 12 and 13
     of Part III, the Proxy Statement is not deemed to be filed as part of this
     Report.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.

                                     Page 50
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                        By:     /s/Robert K. Burgess
                           ----------------------------------------------------
                                Robert K. Burgess
                                Chief Executive Officer, President and Director


                        Dated: June 15, 1999


                                     Page 51
<PAGE>

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert K. Burgess and Elizabeth A. Nelson,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.

<TABLE>
<CAPTION>
       SIGNATURE                                  TITLE                                  DATE
       ---------                                  -----                                  ----
<S>                                 <C>                                               <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/Robert K. Burgess                President, Chief Executive Officer, and           June 15, 1999
------------------------------      Chairman of the Board of Directors
Robert K. Burgess

PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:

/s/Elizabeth A. Nelson              Senior Vice President, Chief Financial Officer,   June 15, 1999
------------------------------      and Secretary
Elizabeth A. Nelson

ADDITIONAL DIRECTORS:

/s/ Stewart Alsop                   Director                                          June 15, 1999
------------------------------
Stewart Alsop

/s/ John (Ian) Giffen               Director                                          June 15, 1999
------------------------------
John (Ian) Giffen

/s/ Mark Kvamme                     Director                                          June 15, 1999
------------------------------
Mark Kvamme

/s/ Donald L. Lucas                 Director                                          June 15, 1999
------------------------------
Donald L. Lucas

/s/ Roger Siboni                    Director                                          June 15, 1999
------------------------------
Roger Siboni

/s/ James R. Von Ehr II             Director                                          June 15, 1999
------------------------------
James R. Von Ehr II

/s/ William B. Welty                Director                                          June 15, 1999
------------------------------
William B. Welty

</TABLE>

                                     Page 52
<PAGE>

                        MACROMEDIA, INC. AND SUBSIDIARIES
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                    YEARS ENDED MARCH 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                          BALANCE AT       CHARGED TO                         BALANCE
                                          BEGINNING        COSTS AND                          AT END
         DESCRIPTION                      OF PERIOD        EXPENSES          DEDUCTION        OF PERIOD
         -----------                      ----------       ---------         ---------        ---------
<S>                                       <C>              <C>              <C>              <C>
Allowance for Doubtful Accounts
    Year ended March 31, 1999             $ 1,075          $    23          $    78          $ 1,020
    Year ended March 31, 1998                 972            1,363            1,260            1,075
    Year ended March 31, 1997                 935            1,385            1,348              972

Allowance for Returns
    Year ended March 31, 1999             $ 6,531          $11,958          $10,012          $ 8,477
    Year ended March 31, 1998               6,814            6,983            7,266            6,531
    Year ended March 31, 1997               3,442           16,009           12,637            6,814

Allowance for Obsolete Inventory
    Year ended March 31, 1999             $ 1,143          $   573          $   774          $   942
    Year ended March 31, 1998               3,909            1,398            4,164            1,143
    Year ended March 31, 1997                 754            3,830              675            3,909
</TABLE>