SONIC SOLUTIONS/CA/ - 10-Q Quarterly Report

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 December 31, 2002 or

o	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 incorporation or organization)		(I.R.S.Employer 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 o

The number of outstanding shares of the registrant’s Common Stock on February 10, 2003, was 16,934,692.

SONIC SOLUTIONS

FORM 10-Q

For the quarterly period ended December 31, 2002

Table of Contents

		Page


PART I.	FINANCIAL INFORMATION

ITEM 1.	Condensed Balance Sheets as of March 31, 2002 and December 31, 2002	1

	Condensed Statements of Operations for the quarter and nine months ended December 31, 2001 and 2002	2

	Condensed Statements of Cash Flows for the nine months ended December 31, 2001 and 2002	3

	Notes to Condensed Financial Statements	4

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	25

ITEM 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	26

ITEM 2.	Changes in Securities and Use of Proceeds	26

ITEM 6.	Exhibits and Reports on Form 8-K	26

	Signatures	27

	Certifications	28

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

Sonic Solutions
Condensed Balance Sheets
(in thousands, except share amounts)

					2002

					March 31			December 31

								(unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents				$	11,114			8,230
	Accounts receivable, net of allowance for returns and doubtful accounts of $383 and $453 at March 31, 2002 and December 31, 2002, respectively					3,143			5,739
	Unbilled receivables					0			1,394
	Inventory					390			742
	Prepaid expenses and other current assets					616			667

	Total current assets					15,263			16,772
Fixed assets, net						1,123			1,662
Purchased and internally developed software costs, net						719			709
Acquired intangibles						769			1,602
Goodwill						0			6,961
Other assets						604			995

				Total assets	$	18,478			28,701

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
			Accounts payable and accrued liabilities		$	4,756			7,410
			Deferred revenue and deposits			8,526			2,045

			Total current liabilities			13,282			9,455

Commitments and contingencies
Shareholders’ Equity:
Convertible preferred stock, no par value, 10,000,000 shares authorized; 982,691 and 1,290,948 shares issued and outstanding at March 31, 2002 and December 31, 2002, respectively						2,832			8,471
Common stock, no par value, 30,000,000 shares authorized; 14,963,939 and 16,910,397 shares issued and outstanding at March 31, 2002 and December 31, 2002, respectively						31,240			37,259
Accumulated deficit						(28,876	)		(26,484	)

		Total shareholders’ equity				5,196			19,246

		Total liabilities and shareholders’ equity			$	18,478			28,701

See accompanying notes to condensed financial statements.

Sonic Solutions
Condensed Statements of Operations
(in thousands, except share amounts - unaudited)

				Quarter Ended December 31,						Nine Months Ended December 31,

				2001			2002			2001			2002

Net revenue				$	4,120			8,379			12,298			23,251
Cost of revenue					1,335			1,777			4,092			5,472

		Gross profit			2,785			6,602			8,206			17,779

Operating expenses:
		Marketing and sales			2,030			2,067			6,416			6,214
		Research and development			1,480			2,658			4,355			6,800
		General and administrative			543			730			1,505			2,309
		Business integration			75			0			705			0

		Total operating expenses			4,128			5,455			12,981			15,323

		Operating income (loss)			(1,343	)		1,147			(4,775	)		2,456
Other income (expense), net					(122	)		(39	)		(117	)		23

		Income (loss) before income taxes			(1,465	)		1,108			(4,892	)		2,479
Provision for income taxes					0			29			0			87

		Net income (loss)		$	(1,465	)		1,079			(4,892	)		2,392
Dividends paid to preferred shareholders					40			19			70			92

		Net income (loss) applicable to common shareholders		$	(1,505	)		1,060			(4,962	)		2,300

	Net income (loss) per share applicable to common shareholders
			Basic	$	(0.10	)		0.06			(0.36	)		0.14

			Diluted	$	(0.10	)		0.06			(0.36	)		0.13

	Shares used in computing per share net income (loss) per share
			Basic		14,437			16,680			13,968			16,000

			Diluted		14,437			19,131			13,968			18,327

See accompanying notes to condensed financial statements.

Sonic Solutions
Condensed Statements of Cash Flows
(in thousands — unaudited)

		Nine Months Ended December 31,

		2001			2002

Cash flows from operating activities:
Net income (loss)		$	(4,892	)		2,392
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			1,910			1,873
Provision for returns and doubtful accounts, net of write-offs			(160	)		70
Interest expense amortization			2			0
Changes in operating assets and liabilities:
	Accounts receivable		1,669			(1,566	)
	Inventory		(27	)		(352	)
	Prepaid expenses and other current assets		47			(3	)
	Other assets		105			(391	)
	Accounts payable and accrued liabilities		(123	)		2,006
	Deferred revenue and deposits		9,062			(6,481	)