Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements are
presented to give effect to the acquisition of MGI Software Corp. ("MGI") by
Roxio, Inc. ("Roxio" or the "Company"). On December 3, 2001, Roxio executed a
combination agreement (the "Combination Agreement") for the acquisition of MGI.
Under the terms of the Combination Agreement, Roxio, through an indirect
wholly owned subsidiary, acquired all of the outstanding shares of capital stock
of MGI (the "MGI Shares") in exchange for 2,203,451 shares of Roxio's common
stock (the "Roxio Shares"). The transaction was consummated on January 31, 2002
(the "Effective Date"). The transaction is to be accounted for under the
purchase method of accounting.
The total value of the Roxio Shares is based on an average price of U.S. $14.26
per Roxio Share. Such per share price is based on the average of the closing
prices of Roxio's common stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for the five trading days immediately
preceding the execution of the Combination Agreement. The purchase price has
been calculated based on an estimate of the acquisition costs. The allocation of
the purchase price may ultimately differ based on the final valuation of the
intangible assets and the finalization of the closing balance sheet.
Allocation of Purchase Price (in Thousands U.S.$):
- ------------------------------------------------
Value of stock consideration ........................ $31,421
Acquisition costs ................................... 2,617
-------
Total costs .................................... $34,038
=======
Allocation of purchase price:
In process research and development ............ $ 1,126
Fair market value of liabilities assumed less
assets acquired ............................... (4,194)
Value of identifiable intangible assets:
Developed Technologies .................... 7,071
Trade Name ................................ 501
Residual goodwill ......................... 29,534
-------
Total .......................................... $34,038
=======
We will amortize identified intangibles over a period of 3 years. In accordance
with the provisions of the Financial Accounting Standards Board's (FASB)
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangibles", Goodwill will not be amortized. We will annually evaluate the need
for an impairment of the goodwill. A portion of the purchase price Roxio paid
for MGI has been allocated to developed technology and in process research and
development ("IPRD"). We identified four ongoing projects and valued the
developed technology and IPRD by conducting extensive interviews, analyzing data
provided by MGI concerning developmental products, considering the stage of
development of such products and the time and resources needed to complete them,
and assessing the expected income generating ability, target markets and
associated risks. The income approach, which includes an analysis of the
markets, cash flows and risks associated with achieving such cash flows, was the
primary technique utilized in valuing the developed technology and IPRD. Based
on our analysis of these variables, we will record a one time purchased IPRD
charge of U.S. $1,126,000 upon our acquisition of MGI as technological
feasibility had not been established and no future alternative uses existed.
The following Unaudited Pro Forma Condensed Combined Financial Statements give
effect to the acquisition to be accounted for using the purchase method of
accounting, whereby the total cost of the acquisition will be allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values at the Effective Date, with any excess of the total cost
over the net of the amounts assigned to assets acquired and liabilities assumed
being recognized as goodwill. Amounts assigned to assets to be used in
particular research and development projects that have no alternative future use
are charged to expense at the Effective Date. MGI's balance sheet and income
statement included in the Unaudited Pro Forma Condensed Combined Financial
Statements have been prepared in U.S. dollars in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") and Roxio's financial statement
presentation. The Unaudited Pro Forma Condensed Combined Financial Statements
have been prepared in accordance with rules and regulations of the Securities
and Exchange Commission ("SEC") and on the basis of assumptions described in the
notes thereto, including assumptions related to the calculation of the purchase
cost and the allocation of the total purchase cost to the assets and liabilities
of MGI based upon preliminary estimates of fair value. The actual allocation
may differ from those assumptions after valuations and other procedures are
completed.
The Unaudited Pro Forma Condensed Combined Statements of Operations were
prepared as if the acquisition occurred as of April 1, 2000 (the beginning of
Roxio's 2001 fiscal year). The Unaudited Pro Forma Condensed Combined Balance
Sheet was prepared as if the acquisition occurred as of
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December 31, 2001. These statements are not necessarily indicative of what the
actual operating results or financial position would have been had the
acquisition occurred on the dates and for the periods indicated and do not
purport to indicate future results of operations. In addition, they do not
reflect any additional costs, or cost savings or other synergies resulting from
the acquisition.
The Unaudited Pro Forma Condensed Combined Financial Statements should be read
in conjunction with the historical consolidated financial statements of Roxio
filed on Form 10-K and 10-Q and of MGI included elsewhere in this 8-K/A.
MGI AND ROXIO
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2001
Roxio MGI Combined
------------ ----------- Pro Forma
December 31, October 31, Pro Forma December 31,
(All Amounts in Thousands U.S.$) Footnotes 2001 2001 Adjustments 2001
--------- ------------ ----------- ----------- ------------
Assets
Current Assets
Cash and cash equivalents ..................... 5 $ 60,593 $ 291 $ (193) $ 60,691
Short term investments ........................ 1,582 1,582
Accounts receivable, net ...................... 5,6 19,201 4,663 (851) 23,013
Inventories ................................... 1,5 191 1,556 154 1,901
Prepaid expenses and other current assets ..... 5 3,503 1,162 (45) 4,620
Deferred income taxes ......................... 3,482 - 3,482
-------- -------- -------- --------
Total current assets ....................... 86,970 9,254 (935) 95,289
-------- -------- -------- --------
Property and equipment, net ..................... 5 3,175 2,704 (55) 5,824
Goodwill ........................................ 2 16,255 - 29,534 45,789
Other intangibles, net .......................... 3 5,758 1,370 6,202 13,330
Other assets .................................... 533 533
-------- -------- -------- --------
Total assets ............................... $112,691 $ 13,328 $ 34,746 $160,765
======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable ................................. 5 $ 1,088 $ (1,063) $ 25
Accounts payable .............................. 5 $ 12,566 3,518 (106) 15,978
Income taxes payable .......................... 1,654 - 1,654
Accrued liabilities ........................... 4 11,372 4,719 9,216 25,307
Current portion of capital lease obligations .. 443 24 467
Deferred revenue .............................. 189 189
-------- -------- -------- --------
Total current liabilities .................. 26,035 9,538 8,047 43,620
-------- -------- -------- --------
Accrued liabilities ............................. 194 194
Long term capital lease obligations ............. 891 891
Deferred income taxes ........................... 1,407 1,407
Total liabilities .......................... 28,333 9,732 8,047 46,112
-------- -------- -------- --------
Stockholders' equity
Common stock .................................. 7 17 73,851 (73,849) 19
Additional paid in capital .................... 8 93,875 2,499 28,920 125,294
Deferred stock based compensation ............. (8,462) (8,462)
Accumulated other comprehensive income ........ (1) (1)
Deficit ....................................... 9 (1,071) (72,754) 71,628 (2,197)
-------- -------- -------- --------
Total stockholders' equity ................. 84,358 3,596 26,699 114,653
-------- -------- -------- --------
Total liabilities and stockholders' equity . $112,691 $ 13,328 $ 34,746 $160,765
======== ======== ======== ========
The balance sheet figures for MGI as at October 31, 2001 have been translated
into U.S. dollars based on the October 31, 2001 exchange rate of U.S. $0.6303 to
each Canadian dollar and certain reclassifications to reflect the presentation
used by Roxio have been made as follows:
(a) Other accounts receivable of $570 for MGI were reclassified from Other
accounts receivable to Prepaid expenses and other current assets in the
Condensed Combined Balance sheet.
(b) Trademarks and Patents of $546 classified as Capital assets in MGI were
reclassified from Capital assets to Other intangibles, net in the Condensed
Combined Balance Sheet.
(c) Acquired technology of $824 for MGI was reclassified from acquired
technology to Other intangibles, net in the Condensed Combined Balance
Sheet.
(d) In the MGI Balance Sheet as of October 31, 2001, $1,873 was classified as
Cash and short-term investments. In the Condensed Combined Balance Sheet
$291 of this was classified as Cash and $1,582 was classified as short term
investments.
(e) Bank loan of subsidiary of $1,063 for MGI was reclassified from bank loan
of subsidiary to Notes payable in the Condensed Combined Balance Sheet.
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(f) In the MGI Balance sheet as of October 31, 2001, $8,237 was classified as
Accounts payable and accrued liabilities. In the Condensed Combined Balance
Sheet $3,518 of this was classified as accounts payable and $4,719 was
reclassified as accrued liabilities.
The pro forma adjustments related to the acquisition reflect adjustments to
allocate the purchase price as follows:
1. To adjust finished goods at MGI by $308 to estimated fair value calculated
as expected selling price less estimated selling expenses.
2. To adjust for the recording of goodwill based on the preliminary purchase
price allocation.
3. To adjust Other intangibles, net in MGI to the preliminary estimated fair
value of $7,572 identified in the preliminary purchase price allocation.
4. To adjust accrued liabilities to reflect the following:
o $1,457 in investment bankers' fees, insurance expenses, and accounting
and legal expenses incurred by MGI subsequent to October 31, 2001
related to the acquisition
o $49 related to redemption of outstanding Warrants in MGI common stock
as set forth by the agreement between Roxio and MGI
o $1,078 related primarily to severance cost implemented by MGI as a
result of the transaction
o $2,617 in Roxio's estimated acquisition costs
o $3,815 in aggregate contingent obligations relating to historical
product shipments based on Roxio's assessment of the likely exposure
5. As part of its restructuring plans at the close, Roxio will eliminate MGI's
holding in the joint venture Live Picture Japan ("LPJ"). Roxio has accrued
$200 as an adjustment to reflect the discontinuance of its ownership in LPJ
as well as removing LPJ from the consolidation, as adjusted in the
following individual balances:
Cash ............................ $ (193)
Accounts receivable ............. $ (97)
Inventories ..................... $ (154)
Prepaid and other assets ........ $ (45)
Property and equipment .......... $ (55)
Note payable .................... $1,063
Accounts Payable ................ $ 106
6. To accrue for product returns as a result of re-branding of $754.
7. To adjust common stock to reflect the par value of the 2,203,451 Roxio
Shares issued as part of the acquisition and to eliminate the common stock
of MGI in the amount of $73,851.
8. To adjust Additional paid in capital for the fair value of the Roxio Shares
issued to Shareholders in excess of par value in the amount of $31,419 and
to eliminate the Additional paid-in capital of MGI in the amount of $2,499.
9. To adjust deficit to reflect the write off of $1,126 of
In-Process Research and Development and the removal of deficit
of MGI in the amount of $72,754.
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MGI AND ROXIO
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2001
Year Ended
----------------------------------------------------------
Roxio MGI Combined
March 31, January 31, Pro Forma
Footnotes 2001 2001 Adjustments March 31, 2001
--------- --------- ----------- ----------- --------------
(U.S.$ in thousands, except share and per share amounts)
Net Revenues ......................................... 2 $121,908 $ 31,575 $ (974) $152,509
Cost of revenues
(excludes stock based compensation charges in
Roxio of $45) ....................................... 2 24,627 6,992 (974) 30,645
-------- -------- ------- --------
Gross profit ......................................... 97,281 24,583 - 121,864
-------- -------- ------- --------
Operating Expenses:
Research and development
(excludes stock based compensation charges in
Roxio of $3,080) .................................. 17,532 14,735 32,267
Sales and marketing
(excludes stock based compensation charges in
Roxio of $570)..................................... 34,560 20,414 54,974
General and administrative
(excludes stock based compensation charges in
Roxio of $1,170) .................................. 15,392 4,696 20,088
Amortization of intangible assets .................. 1 15,441 4,577 2,524 22,542
Stock based compensation charges ................... 4,865 - 4,865
Abandoned public offering cost ..................... - 1,297 1,297
Write down goodwill ................................ - 625 625
Restructuring ...................................... - 676 676
Total operating expenses ........................ 87,790 47,020 2,524 137,334
-------- -------- ------- --------
Income from operations ............................... 9,491 (22,437) (2,524) (15,470)
Other income, net .................................... - 1,034 1,034
Income (loss) from operations before provision for
income taxes ........................................ 9,491 (21,403) (2,524) (14,436)
-------- -------- ------- --------
Provision for income taxes ........................... (5,921) (413) (6,334)
-------- -------- ------- --------
Net income (loss) .................................... 3,4 $ 3,570 $(21,816) $(2,524) $(20,770)
======== ======== ======= ========
Basic and diluted net income (loss) per share ........ $ 0.22 $ (1.11)
======== ========
Weighted average shares used in computing basic and
diluted net income (loss) per share ................. 5 16,500 2,203 18,703
======== ======== ========
Notes:
- -----
The statement of operations for MGI for the year ended January 31, 2001 has
been translated into U.S. dollars based on the average exchange rate for the
year ended January 31, 2001 of U.S. $0.6711. Certain reclassifications to
reflect the presentation used by Roxio have been made as follows:
(a) Amortization of capital assets for MGI of $1,242 was reclassified from
amortization of capital assets to research and development expense in the
statement of operations.
(b) Foreign exchange gains of $523 for MGI have been reclassified from foreign
exchange gain to other income in the statement of operations.
(c) Restructuring charges in MGI for January 31, 2001 are: (i) facility
rationalization/severance - $194; and (ii) other realignment - $482.
The pro forma adjustments, which include only recurring type adjustments, are as
follows:
(1) To record an Amortization of the estimated $7,572 of identifiable
intangible assets based on a three year useful life.
(2) To record elimination of technology royalties paid by Roxio to MGI. In
addition, the pro forma statement of operations does not reflect the impact
of the stepped up value of inventory; had the stepped up value been
reflected, cost of sales would have increased by $308.
(3) Write down of the acquired In Process research and development ("IPR&D"),
as required by U.S. GAAP in situations where the IPR&D has not reached
technological feasibility and there are no alternative uses, are not
reflected in the pro forma statement of operations as it is a material
non recurring charge directly attributable to the acquisition. Had a write
down of IPR&D been reflected in the statement of operations, net loss would
have increased by $0.06 to $1.17.
(4) Roxio implemented the Statement of Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets" effective April 1, 2001. As a
result, Roxio ceased amortization of goodwill from April 1, 2001. Since
the acquisition will occur after July 1, 2001 and after Roxio implemented
SFAS 142, the pro forma statement of operations does not include any
amortization of goodwill. Identifiable intangible assets are still
amortized over their estimated useful lives.
(5) For the year ended March 31, 2001 the number of Roxio weighted averages
shares used in computing both basic and diluted net income per share was
16,500. MGI's weighted average shares reflect the shares issued to MGI
shareholders as part of the transaction.
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MGI AND ROXIO
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED DECEMBER 31, 2001
Nine Months Ended
----------------------------------------------------------
Combined
Roxio MGI Pro Forma
December 31, October 31, December 31,
Footnotes 2001 2001 Adjustments 2001
--------- ------------ ----------- ----------- ------------
(U.S.$ in thousands, except share and per share amounts)
Net Revenues ......................................... $103,627 $ 13,390 $117,017
Cost of revenues
(excludes stock based compensation charges in
Roxio of $89) ....................................... 21,070 5,176 26,246
-------- -------- ------- --------
Gross profit ......................................... 82,557 8,214 90,771
-------- -------- ------- --------
Operating Expenses:
Research and development
(excludes stock based compensation charges in
Roxio of $1,307) .................................. 15,958 8,598 24,556
Sales and marketing
(excludes stock based compensation charges in
Roxio of $2,964) .................................. 35,149 12,746 47,895
General and administrative
(excludes stock based compensation charges in
Roxio of $2,024) .................................. 13,149 5,282 18,431
Amortization of intangible assets .................. 1 4,297 2,539 $ 1,893 8,729
Stock based compensation charges ................... 6,384 - 6,384
Restructuring....................................... - 2,420 2,420
-------- -------- ------- --------
Total operating expenses ........................ 74,937 31,585 1,893 108,415
-------- -------- ------- --------
Income from operations ............................... 7,620 (23,371) (1,893) (17,644)
Other income, net .................................... 993 571 1,564
Write down of investment ............................. - (1,545) (1,545)
-------- -------- ------- --------
Income from operations before provision for
income taxes ........................................ 8,613 (24,345) (1,893) (17,625)
Provision for income taxes ........................... (6,604) (694) (7,298)
-------- -------- ------- --------
Net income (loss) .................................... 2,3 $ 2,009 $(25,039) $(1,893) $(24,923)
======== ======== ======= ========
Basic and diluted net income per share ............... $ 0.12 $ (1.31)
======== ========
Weighted average shares used in computing basic and
diluted net income per share ........................ 4 16,767 2,203 18,970
======== ======== ========
Notes:
- ------
The statement of operations for MGI for the nine months ended October 31, 2001
have been translated into U.S. dollars based on the average exchange rate of
U.S. $0.6466 for the three months ended April 30, 2001, U.S. $0.6528 for the
three months ended July 31, 2001 and U.S. $0.6417 for the three months ended
October 31, 2001. Certain reclassifications to reflect the presentation used by
Roxio have been made as follows:
(a) Amortization of capital assets for MGI was reclassified from amortization
of capital assets to research and development expense in the statement of
operations.
(b) Foreign exchange gains of $373 for MGI was reclassified from foreign
exchange gain to other income in the statement of operations.
The pro forma adjustments, which include only recurring type adjustments, are as
follows:
(1) To record amortization of the estimated $7,572 of identifiable intangible
assets based on a three year useful life.
(2) Write down of the acquired In Process research and development ("IPR&D"),
as required by U.S. GAAP in situations where the IPR&D have not reached
technological feasibility and there are no alternative uses, are not
reflected in the pro forma statement of operations as it is a material
non recurring charge directly attributable to the acquisition. Had a write
down of IPR&D been reflected in the statement of operations, net loss would
have increased by $0.06 to $1.37.
(3) Roxio implemented the Statement of Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets" effective April 1, 2001. As a
result, Roxio ceased amortization of goodwill from April 1, 2001. Since
the acquisition will occur after July 1, 2001 and after Roxio implemented
SFAS 142, the pro forma statement of operations does not include any
amortization of goodwill. Identified limited life intangibles are still
amortized over their estimated useful lives.
(4) For the nine months ended December 31, 2001 the number of Roxio weighted
average shares used in computing basic and diluted net income per share was
16,767. MGI's weighted average shares reflect shares issued to MGI
shareholders as part of the acquisition.
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