UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1997 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
---------- --------
Commission File 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 30,
1997, was 7,598,397.
SONIC SOLUTIONS
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Balance Sheets as of March 31, 1997
and June 30, 1997..................................... 3
Condensed Statements of Operations for the
quarter ended June 30, 1996 and 1997................. 4
Condensed Statements of Cash Flows for the
quarter ended June 30, 1996 and 1997................. 5
Notes to Condensed Financial Statements.............. 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..................... 15
Signatures........................................... 16
Index to Exhibits.................................... 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Sonic Solutions
Condensed Balance Sheets
(in thousands, except share amounts)
1997
------------------------------
ASSETS March 31 June 30
------ ---------------- ------------
(unaudited)
Current Assets:
Cash and cash equivalents............................................................ $ 4,806 $ 1,979
Short-term investments............................................................... - 2,513
Accounts receivable, net of allowances for returns and doubtful accounts
of $588 and $629 at March 31, 1997 and June 30,
1997, respectively................................................................ 3,105 3,656
Inventory........................................................................... 1,275 1,602
Prepaid expenses and other current assets........................................... 719 565
Refundable income taxes............................................................. 450 441
------ ------
Total current assets................................................. 10,355 10,756
Fixed assets, net...................................................................... 3,154 3,212
Purchased and internally developed software costs, net................................. 1,954 2,222
Other assets........................................................................... 426 287
------- -------
Total assets......................................................... $15,889 $16,477
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities...................................... $ 2,971 $ 3,863
Deferred revenue and deposits................................................. 705 748
Subordinated debt, current portion............................................ 347 2,965
Current portion of obligations under capital leases........................... 69 92
------- -------
Total current liabilities............................................ 4,092 7,668
------- -------
Subordinated debt, net of current portion.............................................. 3,195 577
Obligations under capital leases, net of current portion............................... 172 204
------- -------
Total liabilities.................................................... 7,459 8,449
------- -------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value, 30,000,000 shares authorized; 7,595,897 and
7,596,029 shares issued and outstanding at March 31, 1997
and June 30, 1997, respectively................................................... 13,840 13,843
Accumulated deficit.................................................................... (5,410) (5,815)
------- -------
Total shareholders' equity........................................... 8,430 8,028
------- -------
Total liabilities and shareholders' equity.................................... $15,889 $16,477
======= =======
See accompanying Notes to Condensed Financial Statements.
3
Sonic Solutions
Condensed Statements of Operations
(in thousands, except per share amounts -- unaudited)
Quarter Ended June 30,
----------------------
1996 1997
---- ----
Net revenue............................................................ $2,458 5,924
Cost of revenue........................................................ 1,666 2,385
----- -----
Gross profit.................................................. 792 3,539
----- -----
Operating expenses:
Marketing and sales........................................... 1,576 1,952
Research and development...................................... 1,057 1,498
General and administrative.................................... 533 373
----- -----
Total operating expenses...................................... 3,166 3,823
----- -----
Operating loss................................................ (2,374) (284)
Other income (expense)................................................. 25 (121)
----- -----
Loss before income taxes...................................... (2,349) (405)
Provision for income taxes............................................. - -
----- -----
Net loss...................................................... ($2,349) $(405)
====== ======
Net loss per share............................................ ($0.31) ($0.05)
====== ======
Shares used in computing per share amounts.................... 7,503 7,596
===== =====
See accompanying Notes to Condensed Financial Statements.
4
Sonic Solutions
Condensed Statements of Cash Flows
(in thousands -- unaudited)
Quarter Ended June 30,
----------------------
1996 1997
---- ----
Cash flows from operating activities:
Net loss ($2,349) (405)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................................ 210 491
Provision for returns and doubtful accounts.............................. - 41
Changes in operating assets and liabilities:
Accounts receivable................................................. 861 (592)
Inventory........................................................... (416) (327)
Refundable income taxes............................................. - 9
Prepaid expenses and other current assets........................... (196) 154
Other assets........................................................ 22 139
Accounts payable and accrued liabilities............................ 1,128 892
Deferred revenue and deposits....................................... 693 43
----- -----
Net cash provided by (used in) operating activities............. (47) 445
----- -----
Cash flows from investing activities:
Purchase of fixed assets..................................................... (452) (419)
Additions to purchased and internally developed software..................... (208) (398)
Purchase of short-term investments........................................... - (2,513)
Redemption/maturities of short-term investments.............................. 1,308 -
----- -----
Net cash provided by (used in) investing activities...................... 648 (3,330)
----- -----
Cash flows from financing activities:
Proceeds from exercise of common stock options............................... 46 3
Principal payments on capital leases......................................... - 55
----- -----
Net cash provided by financing activities................................ 46 58
----- -----
Net increase (decrease) in cash and cash equivalents............................. 647 (2,827)
Cash and cash equivalents, beginning of period.................................... 1,086 4,806
----- -----
Cash and cash equivalents, end of period.......................................... $1,733 1,979
====== =====
Supplemental disclosure of cash flow information:
Interest paid during period.................................................. - 59
----- -----
Income taxes paid during period.............................................. - 1
----- -----
Noncash financing and investing activities:
Assets acquired through capital lease...................................... - 71
----- -----
See accompanying Notes to Condensed Financial Statements.
5
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, 1997, filed with the Securities and Exchange
Commission.
(2) SHORT-TERM INVESTMENTS
Short-term investments consist almost exclusively of commerical paper.
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and has classified its investments in certain debt and equity
securities as "available for sale". Such investments are recorded at fair value,
with unrealized gains and losses reported as a separate component of
shareholders' equity. The cost of securities sold is based upon the specific
identification method.
(3) NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. The computation assumes no common equivalent
shares from stock options outstanding, as the effect would be anti dilutive.
The Financial Accounting Standards Board (FASB) recently issued SFAS
No. 128, "Earnings Per Share." SFAS no. 128 requires the presentaton of basic
earnings per share (EPS) and, for companies with complex capital structures,
diluted EPS. SFAS No. 128 is effective for annual and interim periods ending
after December 15, 1997. The Company expects that for profitable periods basic
EPS will be higher than earnings per share as the Company has historically
presented. Computations for loss periods should not change significantly.
(4) INVENTORY
The components of inventory consist of (in thousands):
March 31, June 30,
1997 1997
Raw materials.................................. $700 981
Work-in-process................................ 500 415
Original equipment manufacturers goods......... 75 206
------ -------
$1,275 1,602
====== =======
6
(5) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method of accounting. Under the asset and liability method, deferred tax assets
and liabilities are recognized based on the future tax consequences attributable
to differences between the financial statement carrying amount of existing
assets and liabilities and their respective tax bases.
(6) INDUSTRY AND GEOGRAPHIC INFORMATION
The Company markets its products in the United States and in foreign
countries through its sales personnel, dealers, and distributors. Export sales
account for a significant portion of the Company's net revenue and are
summarized by geographic area as follows (in thousands):
June 30,
1996 1997
---- ----
North America (substantially all United States)... $1,242 2,458
Export:
Europe................................... 528 1,391
Pacific Rim.............................. 452 1,633
Other international...................... 236 442
--- ------
Total net revenue $2,458 5,924
====== =====
Foreign based assets were insignificant as of March 31, 1997 and June
30, 1997.
(7) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that fianancial statement. The Company is in the process of
determining its preferred format. This Statement is effective for fiscal years
beginning after December 15, 1997.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an enterprise and Related Information." The Statement establishes
standards for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. This Statement is effective for
financial statements for periods beginning after December 15, 1997, and is not
expected to have a significant impact on the Company's reporting of segment
information.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW, FORWARD LOOKING STATEMENTS AND CERTAIN FACTORS THAT MAY IMPACT
FUTURE RESULTS
The Company commenced shipments of its Digital Audio Workstation, the
SonicStudio, in the first calendar quarter of 1989. Sales of the SonicStudio
product line including Sonic developed software and Sonic manufactured hardware,
third party developed software and hardware peripheral devices and associated
maintenance fees, together with sales of Sonic MediaNet accounted for virtually
all of the Company's net revenue during the six fiscal years ended March 31,
1996, and approximately half of the Company's net revenue during the fiscal year
ended March 31, 1997. The Company's future success will depend in part on sales
of the SonicStudio to audio professionals. The Company believes there is little
growth in the overall market for professional audio equipment. Sales of products
by Sonic have depended upon the substitution of digital audio workstations for
other existing technologies, and Sonic's ability to increase sales will continue
to depend in large part on the continued substitution of digital audio
workstations for other technologies. In June, 1996, the Company began shipments
of its DVD Creator system. The Company's future success will also depend in
large part on sales of the DVD Creator system which accounted for approximately
half of the Company's net revenue in the fiscal year ended March 31, 1997 and
for approximately 52% of the Company's net revenue in the quarter ended June 30,
1997.
SonicStudio is an integrated assembly of software, signal processing
cards and other Sonic manufactured hardware. SonicStudio is integrated with a
Macintosh computer and peripheral devices such as disk drives and CD printers
which are now not typically provided by the Company.
In February of 1994, the Company began shipments of Sonic MediaNet, a
high performance, fully distributed networking system designed specifically to
handle digital audio, digital video, high resolution graphics and other
multimedia data types, for use with applications other than SonicStudio. In the
fiscal year ended March 31, 1997, and the first quarter ended June 30, 1997,
Sonic MediaNet revenues constituted approximately 9% and 6% of Company revenues.
Of total Sonic MediaNet sales during fiscal 1997, and the first quarter ended
June 30, 1997, approximately 65% and 63% were for use with applications other
than SonicStudio.
Sonic MediaNet allows users to share digital audio and other
"multimedia" data types efficiently among multiple workers in a facility. Sonic
MediaNet consists of specialized network adapter plug in cards installed in the
NuBus or PCI bus of an Apple Macintosh computer. Sonic MediaNet combines FDDI or
CDDI (fiber-based or copper-based) technology with a special file system running
on SCSI disks attached directly to the network cards. This file system, called
the Media Optimized File System, addresses the needs of multimedia applications.
In addition to its use in digital audio applications, Sonic MediaNet has uses in
other areas of the computer industry whenever work groups wish to collaborate on
applications which require high, sustained rates of data transfer, a high degree
of compatibility with conventional computing systems and some degree of
guaranteed bandwidth.
8
It is the Company's intention to introduce in fiscal 1998 a second
generation Sonic MediaNet product line, incorporating newer networking
technologies and supporting increased performance levels. There can be no
assurance that the Company will be successful in developing such a product line,
or that, if successfully developed, such a second generation product line will
be attractive to customers when compared to other network product offerings.
Further, transition between the first generation and second generation product
lines may present a number of difficulties for the Company including slow sales
or returns of dealer stocks of the first generation product. Such difficulties
could have an adverse affect on revenues in future periods.
During June, 1996, the Company began shipping the first installation
phase of the DVD Creator system for DVD encoding and premastering including the
audio and authoring subsystems. During the quarter ended September 30, 1996, the
Company began shipping the video subsystem of the DVD Creator system. For the
fiscal year ended March 31, 1997, and the first quarter ended June 30, 1997, DVD
Creator Systems constituted approximately 46% and 52% of the Company's net
revenue. During the three months ended June 30, 1996, the gross margins were
negatively impacted as a result of the costs associated with the DVD Creator
systems shipped for which revenue was not fully recognized.
DVD Creator incorporates solutions for the major steps involved in
preparing a title for DVD and permits customers to integrate these individual
solutions into a complete DVD workgroup via the Company's MediaNet networking
system. DVD Creator is sold both as a complete package and as separable
elements. The main separate elements in a DVD Creator system include (1) a video
encoding station which incorporates specialized circuit cards designed by the
Company, based on an IBM chip set, and which compresses professional format
digital video into either the MPEG-1 or MPEG-2 format required by the DVD-Video
specification; (2) an audio prep and encoding station which incorporates the
Company's USP audio processing cards, and permits assembly of audio tracks into
either the PCM, Dolby Digital, or MPEG-2 formats supported by the DVD-Video
specification, and (3) an authoring system called Scenarist developed by Daikin
Industries of Japan. The elements and operation of the Company's DVD Creator
system are described in more detail in the Company's Annual Report for the
fiscal year ending March 31, 1997, on Form 10-K on file with the Securities and
Exchange Commission.
The DVD-Video format offers content publishers a wide range of features
and options. Video is presented in the MPEG-1 or MPEG-2 compressed digital video
format. A number of video streams may be presented in parallel so that,
responding to user commands, the player may seamlessly jump from stream to
stream. Audio is available in both compressed digital stereo and "surround"
formats, as well as uncompressed "PCM" digital audio. Up to eight audio streams
may be presented simultaneously (and may also be selected for playback based on
real-time user decisions) -- to support different language dialog tracks, or to
allow stereo and surround versions of the same audio program. Chapter marks may
be specified for random access into the video program. Subpictures (images
overlayed on background video or still images) may be included and can be used
in a number of ways, for example, to create animated "buttons" to facilitate
user interaction, or to display language subtitles. Still pictures may be
presented with audio and with subpictures. Extensive navigation capabilities are
available to permit users to select from various program branches, to return to
previous branch points or menus, etc.
The Company provides the Scenarist authoring system as well as
emulation software and some other software tools (the "Daikin Software")
pursuant to the terms of certain agreements with Daikin Industries of Japan and
its subsidiaries (the "Daikin Agreements"). Under the Daikin Agreements, the
Company enjoys certain exclusive distribution rights with respect to certain of
the Daikin software packages, in particular with respect to the main DVD-Video
authoring package called Scenarist -2. Under the terms of the Daikin Agreements,
the Company's exclusivity will lapse in the fall of 1997, though the Company may
continue to distribute the Daikin Software after that time on a non-exclusive
basis. Since it is the Company's belief that customers for DVD-Video
premastering systems wish to purchase complete solutions, it is possible that
availability of the Daikin Software through other channels will negatively
impact the Company's market position. The Company is continually evaluating
alternative software tools for DVD production, both those produced by third
parties and those produced by the Company's engineers. It is possible that the
Company will commence distribution of such
9
software tools in the near future. However, introduction of new software tools,
particularly in a technically complex area such as DVD-Video premastering, is a
process which involves a number of risks, among them the chance of technical
difficulties with such new tools, and the possibility that the user interface,
or working procedures associated with such a tool will be rejected in the
marketplace. If the Company undertakes distribution of such other DVD-Video
authoring tools, and it encounters such difficulties, then the Company's results
of operations would be adversely affected.
Since the market for DVD premastering is still quite new and the target
market is somewhat specialized, the Company currently offers a limited DVD
Creator product line. The Company anticipates that in the future it will
introduce additions to the DVD Creator product line, some with reduced
functionality priced more economically to address the needs of budget conscious
customers, and some which will carry higher prices to reflect additional value
added functionality. There can be no assurance that the Company will be
successful in developing such additions to the product line, or that, if
successfully developed, such additions to the product line will be attractive to
customers.
The Company's quarterly operating results vary significantly depending
on the timing of new product introductions and enhancements by the Company and
its competitors and on the volume and timing of orders, which are difficult to
forecast. Customers generally order on an as-needed basis, and the Company
normally ships products within one week after receipt of an order. The results
of operations for any quarter are not necessarily indicative of the results to
be expected for any future period. A disproportionate percentage of the
Company's quarterly net revenue is typically generated in the last few weeks of
the quarter. 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 revenue generated in the last few weeks of a quarter
do not meet with the Company's forecast, operating results may be materially
adversely affected.
10
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, 1996 and 1997:
Quarter Ended June 30
1996 1997
---- ----
Net revenue..................... 100.0% 100.0%
Cost of revenue................. 67.8 40.3
------ ------
Gross profit.................... 32.2 59.7
Operating expenses:
Marketing and sales........... 64.1 33.0
Research and development...... 43.0 25.2
General and
administrative............... 21.7 6.3
------ ------
Total operating expenses........ 128.8 64.5
------ ------
Operating loss.................. (96.6) (4.8)
Other income (expense).......... 1.0 (2.0)
Provision for income taxes...... .0 .0
------ ------
Net loss........................ (95.6)% (6.8)%
======= ======
COMPARISON OF FIRST QUARTERS ENDED JUNE 30
NET REVENUE. Net revenue increased from $2,458,000 for the first
quarter ended June 30, 1996 to $5,924,000 for the first quarter ended June 30,
1997, representing an increase of 141.0%. The increase in net revenue is
primarily due to sales of DVD Creator systems. The Company began shipping its
DVD Creator systems during the quarter ended June 30, 1996.
International sales accounted for 49.5% and 58.5% of net revenue for
the first quarter ended June 30, 1996 and 1997, respectively. See Note 6 of
Notes to Condensed Financial Statements. International sales as a percentage of
net revenue increased primarily due the increase in sales in the Pacific Rim and
European markets. The Company expects that international sales will continue to
represent a significant percentage of future revenue.
COST OF REVENUE. Cost of revenue, as a percentage of net revenue,
decreased from 67.8% for the first quarter ended June 30, 1996 to 40.3% for the
first quarter ended June 30, 1997. Cost of revenue for the first quarter ended
June 30, 1997, improved primarily due sales product mix and the higher margins
realized on DVD sales, and the overall increase in sales volume.
MARKETING AND SALES. Marketing and sales expenses increased from
$1,576,000 for the first quarter ended June 30, 1996 to $1,952,000 for the first
quarter ended June 30, 1997. Marketing and sales represented 64.1% and 33.0% of
net revenue for the first quarter ended June 30, 1996 and 1997, respectively.
The Company's marketing and sales headcount increased from thirty at June 30,
1996 to thirty-four at June 30, 1997. Marketing and sales expenses increased due
to increased participation at major trade shows, primarily the NAB tradeshow
held in April, 1997, and enhanced advertising and marketing related to the DVD
Creator system product line. Included in the marketing and sales expense is
dealer and employee commission expense, which as a percentage of net revenue
increased from 4.9% for the first quarter ended June 30, 1996 to 5.6% for the
first quarter ended June 30, 1997. The increase in the dealer and employee
commission expense, as a percentage of net revenue, is primarily due to the
commissions associated with the DVD Creator system sales.
11
RESEARCH AND DEVELOPMENT. Research and development expenses increased
from $1,057,000 for the first quarter ended June 30, 1996 to $1,498,000 for the
first quarter ended June 30, 1997. Research and development expenses represented
43.0% and 25.2% of net revenue for the first quarter ended June 30, 1996 and
1997, respectively. The Company capitalizes a portion of its software
development costs in accordance with Statement of Financial Accounting Standard
No. 86. Research and development expenses increased in dollar amount primarily
due to increase in headcount and increase of consulting and prototype expenses.
Headcount for research and development increased from thirty-two at June 30,
1996 to thirty-seven at June 30, 1997. Consulting and prototype expenses were
incurred in association with the development of the DVD Creator system. These
consulting and prototype expenses can fluctuate significantly from period to
period depending upon the status of hardware development projects. Research and
development expenses, as a percentage of net revenue, decreased significantly
due to the significant increase in revenue primarily related to sales of the DVD
Creator system.
GENERAL AND ADMINISTRATIVE. General and administrative expense
decreased from $533,000 for the first quarter ended June 30, 1996 to $373,000
for the first quarter ended June 30, 1997. General and administrative expenses
represented 21.7% and 6.3% of net revenue for the first quarter ended June 30,
1996 and 1997, respectively. The Company anticipates that general and
administrative expenses will increase in the future as the Company's operations
expand.
OTHER INCOME (EXPENSE). Other income for the first quarter ended
June 30, 1996 was primarily due to interest income received on investments which
were purchased with cash not immediately needed for operations. Other expense
for the first quarter ended June 30, 1997 was primarily due to the interest
expense associated with the debt financing agreements with entities associated
with Hambrecht & Quist, which is partially offset by the interest income
received on investments.
PROVISION FOR INCOME TAXES. The Company has presented a provision for
income taxes, computed at the combined federal and state effective corporate
rate in accordance with Statement of Financial Accounting Standards No. 109. No
provision was made for incomes taxes for the first quarter ended June 30, 1996
and 1997, respectively. During the fiscal year ended March 31, 1996, the Company
exhausted it's loss carryback capabilities, therefore, no benefit was recorded.
The Company accrues quarterly for income taxes based upon its
projection of its full year tax liability. This may result in significant
adjustments based on the actual full year results.
LIQUIDITY AND CAPITAL RESOURCES. In December, 1996, the Company entered
into a Loan and Security Agreement with Silicon Valley Bank. The Agreement
provides for up to $2,500,000 in available borrowings based upon the Company's
eligible accounts receivable balances, and expires in May, 1998. This Agreement
provides for a variety of covenants, including among other things, that the
Company maintain certain financial ratios and is collateralized by a security
interest in substantially all of the Company's assets. Interest on borrowings
under this agreement is payable monthly at a rate of three-quarters percent in
excess of the prime rate. On June 30, 1997 no borrowings were outstanding.
In December, 1996, the Company also obtained a $5,100,000 financing
facility with entities associated with Hambrecht & Quist. The facility includes
subordinated debt and equipment financing. In December, 1996, the Company
received $3,000,000 from Hambrecht & Quist Transition Capital, LLC and
$1,100,000 from Hambrecht & Quist Guaranty Finance, LLC, pursuant to the above
facility. The remaining $1,000,000 is a master lease line for financing of
future capital asset purchases. The facility with the Hambrecht & Quist entities
is secured by an interest in the Company's fixed assets and substantially all of
the assets of the Company subordinate to the Silicon Valley Bank Agreement. In
connection with the financing facility, the Company issued warrants to purchases
260,200 common shares
12
to entities associated with Hambrecht & Quist. The Hambrecht & Quist entities
may exercise 130,100 shares at an exercise price of $10.00 at any time on or
before December 24, 2003, and 130,100 shares at an exercise price of $7.00 at
any time on or after December 24, 1997 and before December 24, 2004. The Company
recorded $549,000 of deferred interest, which will be amortized to interest
expense over the term of the financing facility, attributable to the value of
the warrants.
The Company's operating activities have used cash of $47,000 in the
first quarter ended June 30, 1996 and generated cash of $445,000 in the first
quarter ended June 30, 1997. Cash was used for the purchase of inventory and
capital assets in the first quarter ended June 30, 1996. Cash was generated in
the first quarter ended June 30, 1997 primarily due to increase in trade
payables. The management of the Company believes that existing cash, cash
equivalents and short term investments, and cash generated from operations will
be sufficient to meet the Company's cash and investment requirements at least
through the first quarter of fiscal 1999.
As of June 30, 1997, the Company had cash, cash equivalents and short
term investments of $4,492,000 and working capital of $3,088,000.
This Management's discussion and analysis should be read in conjunction
with the Management's discussion and analysis that accompanies the Company's
report on Form 10-K for the fiscal year ended March 31, 1997.
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11.1 Statement re: Computation of Per Share Amounts
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
14
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 10th day of August, 1997.
SONIC SOLUTIONS
Signature Date
/s/ Robert J. Doris August 10, 1997
---------------------------
Robert J. Doris
President and Director (Principal Executive
Officer)
/s/ A. Clay Leighton August 10, 1997
-----------------------------
A. Clay Leighton
Vice President of Finance and Chief Financial
Officer (Principal Financial Accounting
Officer)
15