UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
Form 10-Q/A
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2001 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 Number: 72870
SONIC SOLUTIONS
(Exact name of registrant as specified in its charter)
California 93-0925818
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
101 Rowland Way, Suite 110 Novato, CA 94945
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 893-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
(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 _____
-----
The number of outstanding shares of the registrant's Common Stock on July 18,
2001, was 13,740,246.
SONIC SOLUTIONS
FORM 10-Q
For the quarterly period ended June 30, 2001
Table of Contents
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Balance Sheets as of March 31, 2001
and June 30, 2001........................................... 1
Condensed Statements of Operations for the
quarter ended June 30, 2000 and 2001........................ 2
Condensed Statements of Cash Flows for the
quarter ended June 30, 2000 and 2001........................ 3
Notes to Condensed Financial Statements..................... 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 8
ITEM 3. Quantitative and Qualitative disclosures about
Market Risk................................................. 11
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................ 13
Signatures.................................................. 14
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Sonic Solutions
Condensed Balance Sheets
(in thousands, except share amounts)
2001
--------------------------
ASSETS March 31 June 30
------ -------- -------
(unaudited)
Current Assets:
Cash and cash equivalents................................................................. $ 1,616 2,003
Accounts receivable, net of allowance for returns and doubtful
accounts of $1,005 and $979 at March 31, 2001 and June 30,
2001, respectively...................................................................... 4,185 3,948
Inventory................................................................................. 492 490
Prepaid expenses and other current assets................................................. 448 331
-------- -------
Total current assets...................................................................... 6,741 6,772
Fixed assets, net.............................................................................. 1,333 1,165
Purchased and internally developed software costs, net......................................... 3,094 2,850
Other assets................................................................................... 570 582
-------- -------
Total assets.............................................................................. $ 11,738 11,369
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities.................................................. $ 4,621 4,584
Deferred revenue and deposits............................................................. 1,595 2,289
Subordinated debt......................................................................... 57 0
Current portion of obligations under capital leases....................................... 10 2
-------- -------
Total current liabilities................................................................. 6,283 6,875
-------- -------
Commitments and contingencies
Shareholders' Equity:
Convertible preferred stock, no par value, 10,000,000 shares authorized; 700,000 and
709,514 shares issued and outstanding at March 31, 2001 and June 30, 2001,
respectively................................................................................. 1,750 1,774
Common stock, no par value, 30,000,000 shares authorized; 13,056,646
and 13,740,246 shares issued and outstanding at March 31, 2001
and June 30, 2001, respectively.............................................................. 28,399 29,081
Accumulated deficit............................................................................ (24,694) (26,361)
-------- -------
Total shareholders' equity................................................................ 5,455 4,494
-------- -------
Total liabilities and shareholders' equity................................................ $ 11,738 11,369
======== =======
See accompanying notes to condensed financial statements.
1
Sonic Solutions
Condensed Statements of Operations
(in thousands, except per share amounts -- unaudited)
Quarter Ended June 30,
-----------------------
2000 2001
------- ------
Net revenue....................................................................... 5,001 4,204
Cost of revenue................................................................... 1,734 1,389
------- ------
Gross profit................................................................. 3,267 2,815
------- ------
Operating expenses:
Marketing and sales.......................................................... 2,347 2,176
Research and development..................................................... 1,351 1,448
General and administrative................................................... 773 450
Business integration......................................................... 0 383
------- ------
Total operating expenses..................................................... 4,471 4,457
------- ------
Operating loss.............................................................. (1,204) (1,642)
Other expense, net................................................................ (42) (1)
------- ------
Loss before income taxes..................................................... (1,246) (1,643)
Provision (benefit) for income taxes.............................................. 0 0
------- ------
Net loss..................................................................... (1,246) (1,643)
Dividends paid to preferred shareholder........................................... 8 12
------- ------
Net loss applicable to common shareholders................................... $(1,254) (1,655)
======= ======
Basic and diluted loss per share applicable to common shareholders........... $(0.10) (0.12)
======= ======
Weighted average shares used in computing per share amounts.................. 12,201 13,399
======= ======
2
Sonic Solutions
Condensed Statements of Cash Flows
(in thousands -- unaudited)
Quarter Ended June 30,
----------------------
2000 2001
---- ----
Cash flows from operating activities:
Net loss............................................................................. $(1,246) (1,643)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................ 610 647
Provision for returns and doubtful accounts, net of write-offs....................... 133 (26)
Interest expense amortization........................................................ 50 2
Changes in operating assets and liabilities:
Accounts receivable.......................................................... (1,155) 263
Inventory.................................................................... (63) 2
Prepaid expenses and other current assets.................................... 94 117
Other assets................................................................. (18) (12)
Accounts payable and accrued liabilities..................................... 520 (37)
Deferred revenue and deposits................................................ 21 694
------- ------
Net cash generated by (used in) operating activities..................... (1,054) 7
------- ------
Cash flows from investing activities:
Purchase of fixed assets........................................................ (120) (107)
Additions to purchased and internally developed software........................ (177) (128)
------- ------
Net cash used in investing activities.................................... (297) (235)
------- ------
Cash flows from financing activities:
Proceeds from exercise of common stock options.................................. 82 0
Proceeds from equity line financing............................................. (56) 682
Payment of dividends............................................................ (8) 0
Repayments of subordinated debt................................................. (165) (59)
Principal payments on capital leases............................................ (24) (8)
------- ------
Net cash generated by (used in) financing activities..................... (171) 615
------- ------
Net increase (decrease) in cash and cash equivalents................................. (1,522) 387
Cash and cash equivalents, beginning of period....................................... 5,179 1,616
------- ------
Cash and cash equivalents, end of period............................................. $ 3,657 2,003
======= ======
Supplemental disclosure of cash flow information:
Interest paid during period..................................................... $ 15 2
------- ------
Income taxes paid during period................................................. $ 2 0
------- ------
Noncash financing and investing activities:
Issuance of preferred stock dividend......................................... $ 0 24
------- ------
Conversion of preferred stock to common stock................................ $ 506 0
------- ------
See accompanying notes to condensed financial statements.
3
Sonic Solutions
Notes to Condensed Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, the condensed
financial statements include all adjustments (consisting of only normal,
recurring adjustments) necessary for their fair presentation. The interim
results are not necessarily indicative of results expected for a full year.
These unaudited condensed financial statements should be read in conjunction
with the financial statements and related notes included in the Company's Form
10-K for the year ended March 31, 2001, filed with the Securities and Exchange
Commission (SEC).
(2) Basic and diluted loss per share
The following table sets forth the computations of shares and net loss
per share, applicable to common shareholders used in the calculation of basic
and diluted net loss per share for the first quarters ended June 30, 2000 and
2001 (in thousands, except per share data, unaudited):
Quarter ended June 30,
----------------------
2000 2001
---- ----
Net loss........................................................... $(1,246) (1,643)
Dividends paid to preferred shareholder............................ 8 12
------- ------
Net loss applicable to common shareholders......................... $(1,254) (1,655)
======= ======
Weighted average number of common shares outstanding............... 12,201 13,399
======= ======
Basic and diluted net loss per share applicable to
common shareholders.............................................. $ (0.10) (0.12)
======= ======
As of June 30, 2000 and 2001, potentially dilutive shares totaling 845,010
and 721,791, respectively, for convertible preferred stock and options with
exercise prices less than the average market price that could dilute earnings
per share in the future, were not included in loss per share as their effect was
anti-dilutive for those periods.
4
(3) Inventory
The components of inventory consist of (in thousands, unaudited):
March 31, June 30,
--------- --------
2001 2001
---- ----
Finished goods.......................................................... $ 182 194
Work-in-process......................................................... 48 46
Raw materials........................................................... 262 250
----- -----
$ 492 $ 490
===== =====
(4) Credit Facility
On May 4, 2000, we entered into a new Private Equity Line Agreement with
Kingsbridge Capital. Under this Agreement, we may receive ("draw") cash from
Kingsbridge in exchange for our common stock. The total of all draws under this
Agreement may not exceed $20,000,000 in cash nor involve issuance of more than
19.9% of our outstanding common stock. Pricing of each draw is based on the
market price of our common stock, at the approximate time of a draw, discounted
by an amount ranging from 8% to 12% of market price. Our ability to utilize
this equity line is subject to the effectiveness of a Registration Statement on
Form S-1 registering any shares received by Kingsbridge from us for resale to
the public. On July 19, 2000, we filed a registration statement on Form S-1 to
register for resale the shares we may issue to Kingsbridge under the Agreement
and on November 13, 2000 the Registration Statement became effective.
Utilization of the equity line by us is subject to a number of restrictions and
conditions that are described more fully in the Registration Statement. As of
March 31, 2001, we had drawn down $200,000 from the equity line for which we
issued 211,416 shares of common stock. During the first quarter ended June 30,
2001, we drew down $700,000 from the equity line for which we issued 683,600
shares of common stock.
(5) Significant Customer Information and Segment Reporting
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information," requires companies to
report financial and descriptive information about its reportable operating
segments, including segment profit or loss, certain specific revenue and expense
items and segment assets, as well as information about the revenues derived from
our products and services, the countries in which we earn revenue and hold
assets, and major customers. The method for determining what information to
report is based on the way that management organized the operating segments
within our company for making operating decisions and assessing financial
performance.
Our chief operating decision maker is considered to be our Chief Executive
Officer ("CEO"). The CEO reviews financial information presented on a
consolidated basis accompanied by desegregated information about revenue by
product line and revenue by geographic region for purposes of making operating
decisions and assessing financial performance. The consolidated financial
information reviewed by the CEO is identical to the information presented in the
accompanying statement of operations. Therefore, we operate in, and measure our
results in a single operating segment. As such, we are required to disclose the
following revenue by product line, revenue by geographic and significant
customer information:
5
Revenues by Product Line:
Quarter Ended June 30,
----------------------
2000 2001
-------- --------
Revenues
Consumer DVD $ 534 1,166
Pro Audio/Video 4,467 3,038
------ -----
Total net revenue $5,001 4,204
====== =====
Our accounting system does not capture meaningful gross margin and
operating income (loss) information by product line, nor is such information
used by the CEO for purposes of making operating decisions. Accordingly, such
information has not been disclosed.
Revenues by Geographic Location:
Quarter Ended June 30,
----------------------
2000 2001
-------- --------
North America $2,663 1,952
Export:
Europe 1,335 1,088
Pacific Rim 977 1,146
Other international 26 18
------ -----
Total net revenue $5,001 4,204
====== =====
We sell our products to customers categorized geographically by each
customer's country of domicile. We do not have any material investment in long
lived assets located in foreign countries for any of the years presented.
Significant customer information:
Percent of Total Percent of Total
Accounts Accounts
Receivable Receivable
Quarter Ended June 30, June 30, June 30,
---------------------- ---------------- ----------------
2000 2001 2000 2001
-------- --------- ---------------- ----------------
Customer A 11% 6% 9% 4%
Customer B 12% 13% 11% 9%
(6) Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that all business combinations be accounted for
under the purchase method for business combinations initiated after June 30,
2001 and for which the date of acquisition is July 1, 2001 or later. Use of the
pooling-of-interest method is no longer permitted. SFAS No. 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. SFAS No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 must be adopted starting with fiscal years beginning after December
15, 2001. The impact of adopting SFAS No. 141 and SFAS No. 142 to the Company
has not been determined.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, "Accounting for Derivative instruments
and hedging
6
activities". We adopted SFAS No. 133 in the first quarter of fiscal year 2002.
SFAS No. 133 did not have a material impact on our financial statements.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of federal
securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "intend," "potential" or "continue" or the
negative of these terms or other comparable terminology. Risks and
uncertainties and the occurrence of other events could cause actual results to
differ materially from these predictions. Factors that could cause or
contribute to such differences include those discussed below as well as those
discussed in our Annual Report on Form 10-K for the year ended March 31, 2001
and our other filings with the Securities and Exchange Commission.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this report or to conform these statements to
actual results.
OVERVIEW; CERTAIN FACTORS THAT MAKE FUTURE RESULTS DIFFICULT TO PREDICT; CERTAIN
ITEMS TO REMEMBER WHEN READING OUR FINANCIAL STATEMENTS
Our quarterly operating results vary significantly depending on the timing
of new product introductions and enhancements by ourselves and by our
competitors. Our results also depend on the volume and timing of orders which
are difficult to forecast. Because our customers generally order on an as-
needed basis, and we normally ship products within one week after receipt of an
order, we don't have an order backlog which can assist us in forecasting
results. For all these reasons, our results of operations for any quarter are a
poor indicator of the results to be expected in any future quarter.
A large portion of our quarterly revenue is usually generated in the last
few weeks of the quarter. Since our ongoing operating expenses are relatively
fixed, and we plan our expenditures based primarily on sales forecasts, if
revenue generated in the last few weeks of a quarter do not meet our forecast,
operating results can be very negatively affected.
We capitalize a portion of our software development costs in accordance
with Statement of Financial Accounting Standard No. 86. Such capitalized costs
are amortized to cost of revenue over the estimated economic life of the
product, which is generally three years.
8
Results of Operations
The following table sets forth certain items from the Company's statements of
operations as a percentage of net revenue for the first quarter ended June 30,
2000 and 2001:
Quarter Ended June 30
--------------------------
2000 2001
------ -----
Net revenue..................... 100.0% 100.0%
Cost of revenue................. 34.7 33.0
------ -----
Gross profit.................... 65.3 67.0
Operating expenses:
Marketing and sales......... 46.9 51.8
Research and development.... 27.0 34.4
General and administrative.. 15.5 10.7
Business integration........ 0 9.1
------ -----
Total operating expenses........ 89.4 106.0
------ -----
Operating loss.................. (24.1) (39.0)
Other expense................... (0.8) 0
Provision (benefit) for income 0 0
taxes.......................... ------ -----
Net loss........................ (24.9)% (39.0)
====== =====
Comparison of First Quarters Ended June 30, 2000 and 2001
NET REVENUE. Our net revenue decreased from $5,001,000 for the first quarter
ended June 30, 2000 to $4,204,000 for the first quarter ended June 30, 2001,
representing a decrease of 16%. The decrease in revenue is primarily due to
decreases in sales of our professional audio and DVD systems which were
partially offset by increases in sales of our consumer DVD products, including
DVDit!. Our professional audio and DVD sales decreased from $4,467,000 for the
first quarter ended June 30, 2000 to $3,038,000 for the first quarter ended June
30, 2001, representing a decrease of 32%. Decreases in sales of our professional
audio and DVD products were partially offset in the first quarter ended June 30,
2001 by sales of Daikin related products which we acquired in February, 2001.
Sales of our consumer DVD products increased from $534,000 for the first quarter
ended June 30, 2000 to $1,166,000 for the first quarter ended June 30, 2001,
representing an increase of 118%. We anticipate that we could continue to
experience declines in sales of our professional audio and DVD systems in the
future, however, we anticipate significant growth in sales of our consumer DVD
products.
International sales accounted for 46.8% and 53.6% of our net revenue for the
first quarter ended June 30, 2000 and 2001, respectively. See Note 5 of Notes
to Condensed Financial Statements. International sales have historically
represented around 50% of our total sales, and we expect that they will continue
to represent a significant percentage of future revenue.
COST OF REVENUE. Our cost of revenue, as a percentage of net revenue
decreased from 34.7% for the first quarter ended June 30, 2000 to 33.0% for the
quarter ended June 30, 2001. The decrease in cost of revenue is primarily due
to a shift in sales product mix towards higher margin consumer DVD systems and
to the reduction of hardware as a percentage of revenue in our professional DVD
systems. Additionally, the Daikin products we acquired in February 2001 carry a
higher margin as they are primarily software products. We anticipate that in
future periods we will continue to experience reductions in our cost of
revenue, as a percentage of net revenue, as our product mix continues to shift
to sales of the higher margin software-only products.
9
MARKETING AND SALES. Our marketing and sales expenses decreased from
$2,347,000 for the first quarter ended June 30, 2000 to $2,176,000 for the first
quarter ended June 30, 2001. Marketing and sales represented 46.9% and 51.8% of
net revenue for the first quarter ended June 30, 2000 and 2001, respectively.
Our marketing and sales expenses decreased primarily due to decreases in
advertising and marketing costs related to our DVD product lines and due to a
decrease in dealer and employee commissions. Our marketing and sales headcount
increased from forty-two at June 30, 2000 to forty-four at June 30, 2001.
Dealer and employee commission expenses, as a percentage of net revenue remained
constant at 4.0% for the first quarter ended June 30, 2000 and June 30, 2001 but
decreased 15% in dollar terms from $183,000 to $155,000.
RESEARCH AND DEVELOPMENT. Our research and development expenses increased
from $1,351,000 for the first quarter ended June 30, 2000 to $1,448,000 for the
first quarter ended June 30, 2001. Our research and development expenses
represented 27.0% and 34.4% of net revenue for the first quarter ended June 30,
2000 and 2001, respectively. We capitalize a portion of our software
development costs in accordance with Statement of Financial Accounting Standards
No. 86. (This means that a portion of the costs we incur for software
development are not recorded as an expense in the period in which they are
actually incurred. Instead they are recorded as an asset on our balance sheet.
The amount recorded on our balance sheet is then amortized over the estimated
life of the products in which the software is included.) Our research and
development expenses increased primarily due to higher salary expense associated
with an increase in headcount from thirty-four at June 30, 2000 to thirty-six at
June 30, 2001 and to increases in consulting expenses relating to our consumer
DVD products.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses decreased
from $773,000 for the first quarter ended June 30, 2000 to $450,000 for the
first quarter ended June 30, 2001. Our general and administrative expenses
represented 15.5% and 10.7% of net revenue for the first quarter ended June 30,
2000 and 2001, respectively. Included in general and administrative expenses
for the first quarter ended June 30, 2000 is a charge to bad debt expense of
$170,000, which represented an additional reserve for sales to audio
professionals and distributors who were experiencing liquidity difficulties due
to a decline in their business. We anticipate that general and administrative
expenses (exclusive of the bad debt expense) will increase in the future as
costs increase and our operations expand.
BUSINESS INTEGRATION EXPENSE. In conjunction with the Daikin acquisition
completed in February 2001, we incurred expenses to transition the business to
our management. We anticipate that the integration expenses will decrease and
ultimately be eliminated over the next few quarters. Business integration
expenses primarily consisted of engineering consulting expenses per the Daikin
Consulting Agreement dated February 27, 2001.
OTHER INCOME AND EXPENSE. Other income on our statement of operations includes
the interest we earned on cash balances and short term investments. Other
expense includes primarily the interest and other financing charges related to
financing agreements we had with entities associated with Hambrecht & Quist.
PROVISION FOR INCOME TAXES. In accordance with Statement of Financial
Accounting Standards No. 109, no provision was made for income taxes for the
first quarters ended June 30, 2000 and 2001. During the 2001 fiscal year, we
exhausted our ability to carryforward some of our tax losses resulting from
operations in the fiscal year ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES. On May 4, 2000, we secured a new equity-
based line of credit by entering into a new stock purchase agreement with
Kingsbridge Capital. Under the new agreeement, we may draw up to $20,000,000
worth of our common stock, but not to exceed that number of shares of common
stock which equals 19.9% of our outstanding shares. When we sell
10
shares to Kingsbridge the price per share is set by a formula at a discount from
the market price of our common stock around the time of the sale to Kingsbridge.
That discount ranges from 8% to 12%. Our ability to sell stock to Kingsbridge is
contingent upon a number of terms and conditions, including for example,
continued listing on NASDAQ, effectiveness of a registration statement,
continued accuracy of representations and warranties made to Kingsbridge and
lack of material adverse changes to our business. The quantity and timing of
sales that we are able to make under the equity line agreement are also limited
by the market price and trading volume of our stock. Because of these
limitations, at the time we need cash in the future, the equity line arrangement
with Kingsbridge may be unavailable or insufficient to meet our cash needs. On
July 19, 2000 we filed a Registration Statement on Form S-1 to register for
resale the shares we may issue to Kingsbridge under this credit line and on
November 13, 2000 the Statement became effective. During the fiscal year ended
March 31, 2001, we drew $200,000 from the credit line for which we issued
211,416 shares of common stock. During the first quarter ended June 30, 2001, we
drew $700,000 from the credit line for which we issued 683,600 shares of common
stock. Sale of the maximum number of shares under the equity line agreement
would result in a dilution to our shareholders of approximately 8.4%. We cannot
estimate the impact, if any, on the trading price of our common stock in the
event that we sell shares in the future under the equity lines. Future sales may
depress our stock price since stock is sold under the equity lines at
approximately an 8% to 12% discount from the market price.
Our operating activities used cash of $1,054,000 for the first quarter
ended June 30, 2000 and generated cash of $7,000 for the first quarter ended
June 30, 2001. During the quarter ended June 30, 2000, cash used in operations
included a net loss of $1,246,000 including depreciation and amortization of
$610,000 and interest expense amortization of $50,000. Cash used in operations
was affected by changes in assets and liabilities including increases in
accounts receivables of $1,155,000, inventories of $63,000 and other assets of
$18,000, offset by increases in accounts payable and accrued liabilities of
$520,000 and deferred revenue and deposits of $21,000. Accounts receivable
increased for the first quarter ended June 30, 2000 primarily due to the aging
of the receivables associated with sales to audio professionals. During the
quarter ended June 30, 2000, we recorded a charge to bad debt expense of
$170,000 which represented a reserve for sales to the audio professionals and
distributors who were experiencing liquidity difficulties due to a decline in
their business.
During the quarter ended June 30, 2001, cash generated from operations
included a net loss of $1,643,000 including depreciation and amortization of
$647,000. Cash generated from operations was primarily generated by the
increase in deferred revenue and increased collection on accounts receivables
offset in part by the operating loss. During the first quarter ended June 30,
2000 and 2001, our current ratio has decreased primarily due to the increase in
our deferred revenue and deposits. In addition to our operations, we utilized
cash during both quarters to purchase new fixed assets, pay down debt
obligations and to develop and purchase software that was added to capitalized
software.
We believe that existing cash, cash equivalents and short term investments,
cash generated from operations, plus cash available through the equity based
line of credit with Kingsbridge will be sufficient to meet our cash requirements
at least through the middle of fiscal year 2003.
As of June 30, 2001, we had cash and cash equivalents of $2,003,000 and
negative working capital of $103,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited. All of our international sales are
denominated in US dollars with the exception of the payments made to us by
Daikin pursuant to the Distribution Agreement entered into on February 27, 2001
and payments made to Daikin by us pursuant to the Consulting Agreement entered
into on February 27, 2001. To date we have not engaged in any hedging
activities.
11
We do not use deriviatives or equity investments for cash investment
purposes. Cash equivalents consist of short-term, highly-liquid investments with
original maturities of three months or less and are stated at cost which
approximates market value. Cash equivalents consist of money market funds.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's lawsuit against Spruce Technologies, Inc., and Kirk E.
Paulsen was settled.
On August 10, 2001, the Company learned that it, its officers and
directors, and others, were named as defendants in a complaint filed in the
Central District of California by the plaintiff, Jose G. Salcedo. The complaint
alleges personal damages and losses and seeks monetary compensation in an
unspecified amount related to the plaintiff's ownership of the Company's stock.
The complaint alleges, among other things, that the defendants misled the
plaintiff and failed to disclose information. The Company believes that the
complaint is frivolous and without merit and it will be defended vigorously. The
Company believes that this complaint will have no material impact on the
Company's operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No disclosure is required or applicable pursuant to Item 102 of Regulation
S-K
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on May 14, 2001 and any amendments thereto; Item 7 - Amended
Financial Statements, Pro Forma Financial Information and Exhibits related to
the acquisition of the Daikin DVD Software Development Business on February 27,
2001.
Current Report on Form 8K filed with the Securities and Exchange Commission
on June 20, 2001; Item 5 - Other Events. The Company's lawsuit against Spruce
Technologies, Inc., and Kirk E. Paulsen was settled.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Sonic Solutions, has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Novato,
State of California, on the 31st day of August, 2001.
SONIC SOLUTIONS
Signature Date
--------- ----
/s/ Robert J. Doris August 31, 2001
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Robert J. Doris
President and Director
(Principal Executive Officer)
/s/ A. Clay Leighton August 31, 2001
--------------------
A. Clay Leighton
Senior Vice President of Worldwide
Operations and Finance and Chief
Financial Officer (Principal Financial
Accounting Officer)
14