Attached files
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EX-32.1 - SONIC SOLUTIONS/CA/ | v173390_ex32-1.htm |
EX-31.1 - SONIC SOLUTIONS/CA/ | v173390_ex31-1.htm |
EX-31.2 - SONIC SOLUTIONS/CA/ | v173390_ex31-2.htm |
EX-32.2 - SONIC SOLUTIONS/CA/ | v173390_ex32-2.htm |
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, 2009
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: 000-23190
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
Number)
|
7250
Redwood Blvd., Suite 300 Novato, CA
|
94945
|
(Address
of principal executive offices)
|
(Zip
code)
|
(415)
893-8000
(Registrant’s
telephone number, including area code)
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
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files). Yes o No
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated
filer o
|
Accelerated
filer
x
|
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No x
Indicate
the number of shares outstanding of each of the Issuer’s classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
February 4, 2010
|
|
Common
stock, no par value per share
|
30,499,396
|
SONIC
SOLUTIONS
FORM
10-Q
Table
of Contents
Part
I.
|
Financial
Information
|
Page
#
|
||||
Item
1.
|
Financial
Statements:
|
|||||
Unaudited
Condensed Consolidated Balance Sheets as of December 31, 2009 and March
31, 2009
|
3
|
|||||
Unaudited
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended December 31, 2009 and 2008
|
4
|
|||||
Unaudited
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2009 and 2008
|
5
|
|||||
Notes
to Condensed Consolidated Financial Statements
|
6
|
|||||
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
||||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
||||
Item
4.
|
Controls
and Procedures
|
26
|
||||
Part
II.
|
Other
Information
|
27
|
||||
Item
1.
|
Legal
Proceedings
|
27
|
||||
Item
1A.
|
Risk
Factors
|
27
|
||||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
||||
Item
6.
|
Exhibits
|
29
|
||||
Signatures
|
30
|
2
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Sonic
Solutions
Condensed
Consolidated Balance Sheets
(in
thousands, except share data)
(Unaudited)
2009
|
||||||||
December
31
|
March
31
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 56,511 | $ | 19,408 | ||||
Restricted
cash and cash equivalents
|
- | 456 | ||||||
Accounts
receivable, net of allowances of $3,342 and $2,072 at December 31, 2009
and March 31, 2009, respectively
|
11,436 | 14,874 | ||||||
Inventory
|
1,736 | 1,086 | ||||||
Prepaid
expenses and other current assets
|
3,657 | 4,504 | ||||||
Deferred
tax benefits
|
41 | 41 | ||||||
Total
current assets
|
73,381 | 40,369 | ||||||
Fixed
assets, net
|
1,993 | 2,851 | ||||||
Purchased
and internally developed software costs, net
|
242 | 448 | ||||||
Goodwill
|
4,628 | 4,628 | ||||||
Acquired
intangibles, net
|
16,264 | 16,556 | ||||||
Deferred
tax benefits, net of current portion
|
30 | 21 | ||||||
Other
assets
|
1,395 | 1,864 | ||||||
Total
assets
|
$ | 97,933 | $ | 66,737 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 5,180 | $ | 5,104 | ||||
Accrued
expenses and other current liabilities
|
25,305 | 26,964 | ||||||
Deferred
revenue, current portion
|
6,709 | 6,875 | ||||||
Capital
leases, current portion
|
124 | 130 | ||||||
Total
current liabilities
|
37,318 | 39,073 | ||||||
Other
long term liabilities, net of current portion
|
834 | 724 | ||||||
Deferred
revenue, net of current portion
|
128 | 135 | ||||||
Capital
leases, net of current portion
|
69 | 161 | ||||||
Total
liabilities
|
38,349 | 40,093 | ||||||
Commitments
and contingencies (Note 7)
|
||||||||
Shareholders'
equity:
|
||||||||
Convertible
preferred stock, no par value, 10,000,000 shares authorized; 0 shares
issued and outstanding at December 31, 2009 and March 31, 2009,
respectively
|
- | - | ||||||
Common
stock, no par value, 100,000,000 shares
authorized; 30,496,146 and 26,593,647
shares issued and outstanding at December 31, 2009 and March 31, 2009,
respectively
|
198,498 | 163,121 | ||||||
Accumulated
deficit
|
(137,460 | ) | (135,076 | ) | ||||
Accumulated
other comprehensive loss
|
(1,454 | ) | (1,401 | ) | ||||
Total
shareholders' equity
|
59,584 | 26,644 | ||||||
Total
liabilities and shareholders' equity
|
$ | 97,933 | $ | 66,737 |
See
accompanying Notes to Condensed Consolidated Financial
Statements.
3
Sonic
Solutions
Condensed
Consolidated Statements of Operations
(in
thousands, except per share data)
(Unaudited)
Three
Months Ended
December
31
|
Nine
Months Ended
December
31
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
revenue
|
$ | 26,392 | $ | 26,525 | $ | 77,975 | $ | 87,714 | ||||||||
Cost
of revenue
|
8,044 | 7,224 | 24,005 | 24,279 | ||||||||||||
Impairment
of intangibles
|
- | 19,579 | - | 19,579 | ||||||||||||
Gross
profit (loss)
|
18,348 | (278 | ) | 53,970 | 43,856 | |||||||||||
Operating
expenses:
|
||||||||||||||||
Marketing
and sales
|
8,489 | 8,650 | 22,245 | 28,095 | ||||||||||||
Research
and development
|
5,784 | 8,861 | 19,024 | 31,116 | ||||||||||||
General
and administrative
|
4,673 | 6,672 | 13,689 | 18,571 | ||||||||||||
Restructuring
|
(58 | ) | 1,110 | 508 | 2,651 | |||||||||||
Impairment
of goodwill
|
- | 56,174 | - | 56,174 | ||||||||||||
Total
operating expenses
|
18,888 | 81,467 | 55,466 | 136,607 | ||||||||||||
Operating
loss
|
(540 | ) | (81,745 | ) | (1,496 | ) | (92,751 | ) | ||||||||
Interest
income
|
12 | 119 | 65 | 652 | ||||||||||||
Interest
expense
|
(105 | ) | (13 | ) | (122 | ) | (737 | ) | ||||||||
Other
income (expense), net
|
177 | (161 | ) | (209 | ) | (579 | ) | |||||||||
Loss
before income taxes
|
(456 | ) | (81,800 | ) | (1,762 | ) | (93,415 | ) | ||||||||
Provision
for (benefit of) income taxes
|
(112 | ) | 29,316 | 619 | 25,035 | |||||||||||
Net
loss
|
$ | (344 | ) | $ | (111,116 | ) | $ | (2,381 | ) | $ | (118,450 | ) | ||||
Net
loss per share:
|
||||||||||||||||
Basic
and diluted
|
$ | (0.01 | ) | $ | (4.27 | ) | $ | (0.09 | ) | $ | (4.47 | ) | ||||
Shares
used in computing net loss per share:
|
||||||||||||||||
Basic
and diluted
|
27,317 | 25,997 | 26,871 | 26,517 |
See
accompanying Notes to Condensed Consolidated Financial
Statements.
4
Sonic
Solutions
Condensed
Consolidated Statements of Cash Flows
(in
thousands)
(Unaudited)
Nine
Months Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (2,381 | ) | $ | (118,450 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
1,782 | 5,165 | ||||||
Impairment
of intangibles
|
585 | 19,579 | ||||||
Deferred
taxes
|
- | 23,762 | ||||||
Impairment
of goodwill
|
56,173 | |||||||
Provision
for returns and doubtful accounts, net of write-offs and
recoveries
|
29 | - | ||||||
Loss
on disposition of assets
|
22 | 33 | ||||||
Operating
changes in restricted cash
|
456 | (2 | ) | |||||
Share-based
compensation
|
1,761 | 1,615 | ||||||
Fair
value of vested warrant shares issued for strategic
relationship
|
1,149 | - | ||||||
Changes
in operating assets and liabilities
|
||||||||
Accounts
receivable
|
3,409 | 5,919 | ||||||
Inventory
|
(650 | ) | 39 | |||||
Prepaid
expenses and other current assets
|
847 | 1,136 | ||||||
Other
assets
|
(116 | ) | (471 | ) | ||||
Accounts
payable
|
76 | (463 | ) | |||||
Accrued
liabilities
|
61 | (3,615 | ) | |||||
Deferred
revenue
|
(173 | ) | (360 | ) | ||||
Net
cash provided by (used in) operating activities
|
6,857 | (9,940 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Purchase
of fixed assets
|
(497 | ) | (1,546 | ) | ||||
Additions
to purchased and internally developed software
|
(37 | ) | (111 | ) | ||||
Acquisition
of Simple Star, Inc. net
|
(1,000 | ) | (5,046 | ) | ||||
Acquisition
of CinemaNow, Inc. net
|
(500 | ) | (2,050 | ) | ||||
Redemption
of short term instruments
|
- | 150 | ||||||
Redemption
of long term instruments
|
- | 900 | ||||||
Net
cash used in investing activities
|
(2,034 | ) | (7,703 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from exercise of common stock options
|
1,026 | 312 | ||||||
Payments
on bank credit facility
|
- | (20,000 | ) | |||||
Principal
payments on capital leases
|
(98 | ) | (60 | ) | ||||
Proceeds
from stock offering, net
|
31,435 | - | ||||||
Net
cash provided by (used in) financing activities
|
32,363 | (19,748 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(83 | ) | 581 | |||||
Net
increase (decrease) in cash and cash equivalents
|
37,103 | (36,810 | ) | |||||
Cash
and cash equivalents, beginning of period
|
19,408 | 61,955 | ||||||
Cash
and cash equivalents, end of period
|
$ | 56,511 | $ | 25,145 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Interest
paid
|
$ | 122 | $ | 618 | ||||
Income
taxes paid
|
$ | 283 | $ | 443 | ||||
Supplemental
disclosure of non-cash transactions:
|
||||||||
Cash
holdback related to Simple Star, Inc. acquistion
|
$ | - | $ | 1,000 | ||||
Cash
holdback related to CinemaNow, Inc. acquistion
|
$ | - | $ | 1,187 | ||||
Borrowings
on capital leases
|
$ | - | $ | 370 | ||||
Original
cost of fully depreciated fixed asset written off
|
$ | 420 | $ | - |
See accompanying Notes to Condensed
Consolidated Financial Statements.
5
Sonic Solutions
Notes
to Condensed Consolidated Financial Statements
(in
thousands, except per share data)
(Unaudited)
NOTE
1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying interim financial information is unaudited and includes all
adjustments (consisting of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of the financial
position of Sonic Solutions (the “Company”) at December 31, 2009 and the results
of operations and cash flows for the three and nine months ended December 31,
2009 and 2008 in conformity with accounting principles generally accepted in the
United States of America (“GAAP”). The year-end condensed balance
sheet data as of March 31, 2009 were derived from the audited consolidated
financial statements at that date, but, in accordance with the rules and
regulations of the United States Securities and Exchange Commission (“SEC”), do
not include all disclosures required by GAAP for complete financial statements.
Operating results for the three and nine months ended December 31, 2009
are not necessarily indicative of results that may be expected for the entire
fiscal year. The financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended March 31, 2009,
which was filed with the SEC on June 1, 2009 (the “Fiscal 2009 Form
10-K”).
Certain
amounts in prior periods have been reclassified to conform to the current period
presentation. The reclassifications had no impact on the Company’s net
income or shareholders’ equity as previously reported. Unless otherwise
indicated, all dollar amounts are in thousands except share and per share
data. References to “fiscal year” refer to the Company’s fiscal year ending
on March 31 of the designated year. For example, “fiscal year 2009” refers
to the fiscal year ended March 31, 2009. Other references to “years” mean
calendar years.
In June
2009, the Financial Accounting Standards Board (“FASB”) approved the FASB
Accounting Standards Codification (“ASC”) as the single source of authoritative
nongovernmental GAAP. ASC does not change current GAAP, but
simplifies user access to all authoritative GAAP by providing all the
authoritative literature related to a particular topic in one place. All
existing accounting standards documents will be superseded and all other
accounting literature not included in the ASC will be considered
non-authoritative. ASC is effective for interim and annual periods ending
after September 15, 2009. The Company adopted the ASC in June 2009 and
discloses the ASC prescribed topic numbering references on a primary
basis.
Significant
Accounting Policies
There
have been no material changes in the Company’s significant accounting polices
during the three and nine months ended December 31, 2009 compared to the
significant accounting policies described in the Fiscal 2009 Form
10-K.
Use
of estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Management’s judgments are based on what effect
certain estimates, assumptions of future trends or events may have on the
financial condition and results of operations reported in its financial
statements. Actual results could differ materially from these estimates,
assumptions, projections and judgments.
On an
ongoing basis, the Company evaluates estimates used. The following
accounting policies require management to make estimates, judgments and
assumptions and are critical in fully understanding and evaluating the Company’s
reported financial results:
|
·
|
Revenue
recognition
|
|
·
|
Allowances
for sales returns and doubtful
accounts
|
|
·
|
Share-based
compensation
|
|
·
|
Valuation
of acquired businesses, assets and
liabilities
|
|
·
|
Goodwill,
intangible assets and other long-lived
assets
|
|
·
|
Accrued
liabilities
|
6
|
·
|
Contingencies
|
|
·
|
Income
tax and deferred tax asset
valuation
|
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
The
following represents a summary of recent authoritative pronouncements that could
impact or have impacted the Company’s accounting, reporting, and/or disclosure
of financial information.
In April
2009, the FASB issued FASB Staff Positions intended to provide additional
application guidance and enhance disclosures regarding fair value measurements
and impairments of securities: (i) ASC Topic 820, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions that Are Not Orderly, provides
guidelines for making fair value measurements more consistent with the
principles presented in ASC Topic 820, Fair Value Measurements and Disclosures;
(ii) ASC Topic 825, Interim Disclosures about Fair Value
of Financial Instruments, enhances consistency in financial reporting by
increasing the frequency of fair value disclosures; and (iii) ASC Topic
320, Recognition and
Presentation of Other-Than-Temporary Impairments, provides additional
guidance designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities. ASC Topics 820, 825,
and 320 are effective for interim and annual periods ending after June 15,
2009. All three ASC Topics must be adopted in conjunction with each
other. The Company adopted all three ASC Topics for the period ended June
30, 2009. The adoption of these ASC Topics had no material impact on the
Company’s consolidated financial position, results of operations or cash
flows.
In April
2009, the FASB issued guidance now codified as ASC Topic 805, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise From Contingencies. ASC
Topic 805 addresses issues raised by preparers, auditors and members of the
legal profession regarding initial recognition and measurement, subsequent
measurement, accounting and disclosure of assets and liabilities arising from
contingencies in business combinations. ASC Topic 805 is effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The impact of ASC
Topic 805 on the Company’s consolidated financial position, results of
operations and cash flows will be dependent upon the nature, term and the size
of any acquired contingencies.
In May
2009, the FASB issued guidance now codified as ASC Topic 855, Subsequent
Events. ASC Topic 855 establishes standards for the disclosure
of events that occur after the balance sheet date, but before financial
statements are issued or are available to be issued. ASC Topic 855
introduces the concept of financial statements being “available to be
issued.” It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date. The disclosure
should alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. The Company adopted ASC Topic 855 for the period ended June 30,
2009. The adoption of ASC Topic 855 had no material impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In
September 2009, the Emerging Issues Task Force (“EITF”) issued its final
consensus for Accounting Standards Update (“ASU”) 2009-13 (formerly “EITF
08-1”), Revenue Arrangements
with Multiple Deliverables, which will supersede the guidance in ASC
605-25 (previous authoritative guidance: EITF 00-21, Revenue Arrangements with Multiple
Deliverables). ASU 2009-13 retains the criteria from ASC 605-5
for when delivered items in a multiple-deliverable arrangement should be
considered separate units of accounting, but removes the previous separation
criterion under ASC 605-25 that objective and reliable evidence of fair value of
any undelivered items must exist for the delivered items to be considered a
separate unit or separate units of accounting. ASU 2009-13 introduces
a selling price hierarchy for multiple deliverable arrangements and allows for
management selling price estimates in cases where no vendor specific objective
evidence or third party evidence is available. Additionally, this
guidance eliminates the residual method of allocation. ASU 2009-13 is
effective for fiscal years beginning on or after June 15, 2010. The
Company is currently evaluating ASU 2009-13 and the impact, if any, that it may
have on its results of operations or financial position.
In
September 2009, the EITF issued its final consensus for ASU 2009-14 (formerly
“EITF 09-3”), Applicability of
SOP 97-2 to Certain Arrangements that Include Software Elements, which
amends the prior guidance to exclude tangible products that contain software and
non-software components that function together to deliver the products’
“essential functionality” from the guidance on software revenue
recognition. The guidance is effective for fiscal years beginning
after June 15, 2010; however, early adoption is permitted as of the beginning of
an entity’s fiscal year. Entities are required to adopt ASU 2009-13
and ASU 2009-14 concurrently. The Company is in the process of
determining the effect of the adoption of ASU 2009-14 and the impact, if any,
that it may have on its results of operations or financial
position.
7
NOTE
3 - FAIR VALUE MEASUREMENTS
The
Company’s money market funds are considered a Level 1 financial asset where the
fair value is based on unadjusted quoted market prices and the account balance
approximates its fair value due to its short term nature. The primary
objective of the Company’s investment in money market funds is to preserve
capital for the purpose of funding operations and is not for trading or
speculative purposes. The following table presents the Company’s assets
measured at fair value on a recurring basis at December 31, 2009 (in
thousands):
Fair
Value Measurements at Reporting Date Using
|
||||||||
Fair
Value as of
December
31, 2009
|
Quoted
Prices in Active
Markets
for Identical Assets
|
|||||||
(Level 1)
|
||||||||
Assets
|
||||||||
Money
market account (1)
|
$ | 48,398 | $ | 48,398 | ||||
Total
|
$ | 48,398 | $ | 48,398 |
(1)
Included in "Cash and cash equivalents" in the Condensed Consolidated
Balance Sheet.
The
Company has direct investments in privately held companies as of December
31, 2009 with a carrying value of $0.1 million included in Other
Assets. These direct investments are accounted for under the cost method,
and are periodically assessed for other-than-temporary impairment. If the
Company determines that an other-than-temporary impairment has occurred, it
writes down the investment to its fair value. The Company estimates fair
value of its cost method investments considering available information such as
current cash positions, earnings and cash flow forecasts, recent operational
performance and other readily available market data.
During
the quarter ended September 30, 2009, the Company fully wrote-off one of its
investments of $0.6 million in a privately held company. The
impairment was due to a decrease in revenue levels and projected operating
performance. There were no other impairments for the three and
nine months ended December 31, 2009 relating to direct investments in privately
held companies.
NOTE
4 – INVENTORY
Inventory
is valued at the lower of cost, determined on a first-in, first-out basis, or
market. Reductions for excess and obsolete inventory are recorded
based on an analysis of products on hand and sales trends. The
Company had finished goods of $1.7 million and $1.1 million at December 31, 2009
and March 31, 2009, respectively. Finished goods inventory included
inventory on consignment of $1.6 million and $1.0 million at December 31, 2009
and March 31, 2009, respectively.
NOTE
5 – PURCHASED, INTERNALLY DEVELOPED SOFTWARE COSTS, GOODWILL AND ACQUIRED
INTANGIBLES
The
following table presents the components of the Company’s capitalized software,
intangible assets and goodwill (in thousands):
December
31, 2009
|
March
31, 2009
|
||||||||||||||||||||||||||
Useful
Life
in
Years
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||||||||||||||
Goodwill
|
Indefinite
|
$ | 4,628 | - | $ | 4,628 | $ | 4,628 | $ | - | $ | 4,628 | |||||||||||||||
Purchased
software
|
3
|
3,580 | (3,338 | ) | 242 | 3,456 | (3,008 | ) | 448 | ||||||||||||||||||
Internally
developed software
|
3
|
- | - | - | 33 | (33 | ) | - | |||||||||||||||||||
Acquired
technology
|
3-6
|
14,520 | (14,266 | ) | 254 | 14,520 | (14,210 | ) | 310 | ||||||||||||||||||
Customer
lists
|
2-15
|
16,870 | (14,962 | ) | 1,908 | 16,870 | (14,729 | ) | 2,141 | ||||||||||||||||||
Trademarks
|
3
|
250 | (248 | ) | 2 | 250 | (247 | ) | 3 | ||||||||||||||||||
Trademark/brand
name
|
Indefinite
|
14,100 | - | 14,100 | 14,100 | - | 14,100 | ||||||||||||||||||||
$ | 53,948 | $ | (32,814 | ) | $ | 21,134 | $ | 53,857 | $ | (32,227 | ) | $ | 21,630 |
The
following table presents the activity of goodwill and other intangibles during
the period from March 31, 2009 to December 31, 2009 (in
thousands):
8
March
31, 2009
|
December
31, 2009
|
|||||||||||||||||||
Intangible
asset
|
Net
Carrying
Amount
|
Additions
|
Adjustment
|
Amortization
|
Net
Carrying
Amount
|
|||||||||||||||
Goodwill
|
$ | 4,628 | $ | - | $ | - | $ | - | $ | 4,628 | ||||||||||
Purchased
software
|
448 | 37 | (7 | ) | (236 | ) | 242 | |||||||||||||
Acquired
technology
|
310 | - | 1 | (57 | ) | 254 | ||||||||||||||
Customer
lists
|
2,141 | - | 1 | (234 | ) | 1,908 | ||||||||||||||
Trademarks
|
3 | - | - | (1 | ) | 2 | ||||||||||||||
Trademark/brand
name
|
14,100 | - | - | - | 14,100 | |||||||||||||||
$ | 21,630 | $ | 37 | $ | (5 | ) | $ | (528 | ) | $ | 21,134 |
Acquired
intangibles and purchased or internally developed software are amortized using
accelerated and straight-line methods over their estimated useful
lives. Amortization expense for intangibles was $0.1 million and $0.5
million for the three and nine months ended December 31, 2009,
respectively. Comparatively, amortization of intangibles was $0.9
million and $3.7 million for the three and nine months ended December 31, 2008,
respectively.
Based on
a combination of factors occurring during fiscal 2009, including the existing
economic environment, market conditions and a decline in the Company’s stock
value, the Company determined that indicators for impairment of goodwill and
intangible assets existed. The Company performed a preliminary impairment
analysis and recorded an estimate for impairment of its intangible of $19.6
million and $56.2 million for goodwill during the three months ended December
31, 2008 related to the Company’s Roxio Consumer Products reporting
segment.
The
future annual amortization expense of definitive-lived intangibles is expected
to be as follows (in thousands):
Years
Ending March 31,
|
Amortization
Expense
|
|||
2010
(remaining three months)
|
$ | 136 | ||
2011
|
532 | |||
2012
|
375 | |||
2013
|
215 | |||
Thereafter
|
1,148 | |||
$ | 2,406 |
NOTE
6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of (in thousands):
2009
|
||||||||
December
31
|
March
31
|
|||||||
Commissions
payable
|
$ | 543 | $ | 461 | ||||
Accrued
compensation and benefits
|
3,256 | 3,353 | ||||||
Accrued
professional services
|
1,184 | 1,901 | ||||||
Accrued
marketing costs
|
845 | 686 | ||||||
Accrued
sales returns and discounts
|
2,496 | 2,382 | ||||||
Accrued
royalties
|
3,785 | 3,137 | ||||||
Accrued
restructuring costs
|
452 | 910 | ||||||
Income
tax liabilities
|
3,322 | 2,686 | ||||||
Other
tax liabilities
|
8,242 | 8,410 | ||||||
Other
accrued expense
|
1,180 | 3,038 | ||||||
Total
accrued expenses and other current liabilities
|
$ | 25,305 | $ | 26,964 |
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company leases certain facilities and equipment under non-cancelable operating
and capital leases. Operating leases include leased facilities and capital
leases include leased equipment. Rent expense under operating leases,
recognized on a straight-line basis, was approximately $1.0 million and $3.4
million for the three and nine months ended December 31, 2009,
respectively. Comparatively, rent expense under operating leases was
approximately $1.3 million and $3.7 million for the three and nine months ended
December 31, 2008, respectively.
9
Future
payments under various operating and capital leases that have initial remaining
non-cancelable lease terms in excess of one year are as follows (in
thousands):
Years
Ending March 31,
|
Operating
Leases
|
Capital
Leases
|
Total
Lease
Obligations
|
|||||||||
2010
(remaining three months)
|
$ | 1,421 | $ | 35 | $ | 1,456 | ||||||
2011
|
4,835 | 123 | 4,958 | |||||||||
2012
|
1,646 | 31 | 1,677 | |||||||||
2013
|
385 | 2 | 387 | |||||||||
2014
|
55 | 2 | 57 | |||||||||
$ | 8,342 | $ | 193 | $ | 8,535 |
Contingencies
From time to time the Company is
subject to various legal proceedings and claims, the outcomes of which are
subject to significant uncertainty. ASC 450-20 Accounting for Contingencies,
requires that an estimated loss from a loss contingency should be accrued
by a charge to income if it is probable and the amount of the loss can be
reasonably estimated. The Company recorded loss contingency reserves in the
third quarter of fiscal 2010 of $0.3 million and $1.0 million during the third
quarter of fiscal 2009, which have been included in general and administrative
expenses.
Litigation
Matters
On
October 4, 2007, a putative shareholder class action was filed in the United
States District Court for the Northern District of California against the
Company and various of its executive officers and directors, premised on
allegations concerning the granting of stock options by the Company and the
alleged filing of false and misleading financial statements. On March
21, 2008, plaintiffs filed a consolidated amended complaint on behalf of a
proposed class of plaintiffs comprised of persons that purchased the Company’s
shares between October 23, 2002 and May 17, 2007. On May 27, 2008,
plaintiffs filed a “corrected” consolidated amended complaint which alleges
various violations of the Securities Exchange Act of 1934 and the rules
thereunder. The Company filed a motion to dismiss on November 25,
2008 and on April 6, 2009, the judge issued an order granting in part and
denying in part the Company’s motion to dismiss, with leave to
amend. On May 8, 2009, plaintiffs filed a first amended class action
complaint, alleging violations of §§ 10(b), 14(a), 20(a), and 20A of the
Securities Exchange Act. In July 2009, the parties reached an
agreement in principle to settle this action. On October 15, 2009,
the parties executed a stipulation of settlement providing for the creation of a
settlement fund of $5 million to satisfy claims submitted by class members and
to pay any attorneys fees awarded by the Court. As part of the
settlement, the Company’s Directors and Officers (“D&O”) liability insurers
agreed to fund the settlement amount. On December 2, 2009, the court
preliminarily approved the settlement and set a final approval hearing date of
April 8, 2010.
The
Company’s D&O liability insurance, has covered, the legal fees and costs
associated with the above legal action. D&O insurance has paid
legal fees of $0.7 million during fiscal 2010.
Indemnification
Obligations
In the
normal course of business, the Company provides indemnifications of varying
scopes, including limited product warranties and indemnification of customers
against claims of intellectual property infringement made by third parties
arising from the use of its products or services. The Company accrues
for known indemnification issues if a loss is probable and can be reasonably
estimated. Historically, costs related to these indemnifications have
not been significant, but because potential future costs are highly variable,
the Company is unable to estimate the maximum potential impact of these
indemnifications on its future results of operations.
The
Company, as permitted under California law and in accordance with its Bylaws and
certain other commitments and agreements, indemnifies its officers, directors
and members of its senior management against certain claims and liabilities,
subject to certain limits, while they serve at its request in such
capacity. In this regard, the Company has received requests for
indemnification by certain current and former officers and directors in
connection with its class action litigation described herein. The maximum
amount of potential indemnification is unknown and potentially unlimited;
however, the Company has D&O liability insurance that enables it to recover
a portion of future indemnification claims paid, subject to retentions,
conditions and limitations of those policies.
10
Other
During
the quarter ended June 30, 2009, the Company paid approximately $1.0 million
related to the Simple Star acquisition holdback, and extinguished its obligation
to pay the $0.5 million related to the CinemaNow acquisition holdback during the
quarter ended December 31, 2009. For additional information related
to acquisition holdbacks, see Note 7 – “Acquisitions” to the Company’s Fiscal
2009 Form 10-K.
In the
normal course of business, the Company enters into various purchase commitments
for goods and services. Total non-cancellable purchase commitments as
of December 31, 2009 were approximately $1.4 million. The purchase
commitments are related to contracts with royalty fees related to the Company’s
Roxio Consumer products and CinemaNow business.
NOTE
8 – SHARE-BASED COMPENSATION
The
Company recognizes share-based compensation expense ratably over the vesting
terms of the underlying share-based awards. Share-based compensation
expense for the three and nine months ended December 31, 2009 and 2008 was as
follows (in thousands):
Three
Months Ended December 31, 30,
|
Nine
Months Ended December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Marketing and
sales
|
$ | 225 | $ | 64 | $ | 561 | $ | 668 | ||||||||
Research
and development
|
36 | 97 | 202 | 216 | ||||||||||||
General
and administrative
|
398 | 227 | 998 | 731 | ||||||||||||
$ | 659 | $ | 388 | $ | 1,761 | $ | 1,615 |
NOTE
9 – COMPREHENSIVE LOSS
The
components of comprehensive loss, net of tax, for the three and nine months
ended December 31, 2009 and 2008 were as follows (in thousands):
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
loss
|
$ | (344 | ) | $ | (111,116 | ) | $ | (2,381 | ) | $ | (118,450 | ) | ||||
Other
comprehensive loss:
|
||||||||||||||||
Unrealized
loss
|
- | 104 | - | - | ||||||||||||
Foreign
currency translation gains (losses)
|
(20 | ) | 307 | (56 | ) | 522 | ||||||||||
Comprehensive
loss
|
$ | (364 | ) | $ | (110,705 | ) | $ | (2,437 | ) | $ | (117,928 | ) |
NOTE
10 – EARNINGS LOSS PER SHARE
Basic net
loss per share is computed using the weighted average number of shares of common
stock outstanding for the period. The diluted weighted average shares of common
stock outstanding for the period using the treasury stock method includes the
effect of dilutive potential common shares of unvested stock options, restricted
stock units and warrants. The following table sets forth the computation of
basic and diluted net loss per share (in thousands except per share
data):
11
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
loss applicable to common shareholders
|
$ | (344 | ) | $ | (111,116 | ) | $ | (2,381 | ) | $ | (118,450 | ) | ||||
Denominator:
|
||||||||||||||||
Weighted
average number of common shares outstanding (1)
|
27,317 | 25,997 | 26,871 | 26,517 | ||||||||||||
Effect
of dilutive securities
(2)
|
- | - | - | - | ||||||||||||
Diluted
weighted average number of common shares outstanding
|
27,317 | 25,997 | 26,871 | 26,517 | ||||||||||||
Basic
and diluted net loss per share
|
$ | (0.01 | ) | $ | (4.27 | ) | $ | (0.09 | ) | $ | (4.47 | ) | ||||
Potentially
dilutive securities (2)
|
865 | 5,823 | 2,433 | 5,770 |
|
(1)
|
Weighted
average number of common shares outstanding excludes unvested stock
options, restricted stock units, and
warrants.
|
|
(2)
|
The
potentially dilutive securities are excluded from the computation of
diluted net loss per share for the three and nine months ended December
31, 2009 and 2008 because their effect would have been
anti-dilutive.
|
NOTE
11 – INCOME TAXES
The
Company accounts for income taxes in accordance with ASC Topic 740, Accounting for Income
Taxes. The provision for income taxes is calculated using 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. Deferred tax assets and liabilities are measured using the tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. When the Company does
not believe realization of a deferred tax asset is more likely than not, it
records a valuation allowance.
The
projected annual effective tax rate is calculated based on the tax on profitable
foreign entities in accordance with ASC Topic 740-270-05 et. seq., Accounting for Income Taxes in
Interim Periods. The Company calculated its projected annual
effective tax rate for the fiscal year ending March 31, 2010 to be 42.3%
compared to (27.1%) for the fiscal year ended March 31, 2009. This
projected fiscal year 2010 annual effective tax rate differs from the statutory
federal rate of 35% primarily due to the tax rate differential on earnings in
foreign jurisdictions.
During
the three and nine months ended December 31, 2009, the Company recorded an
income tax provision (benefit) of $(0.1) million and $0.6 million,
respectively. After considering discrete items, the effective tax
rate for the nine months ended December 31, 2009 is (35.14%). The
Company does not provide for U.S. income taxes on undistributed earnings of its
foreign operations that are intended to be invested indefinitely outside the
U.S.
There
have been no material changes to the balance of unrecognized tax benefits
reported at March 31, 2009. The Company recognizes interest and
penalties related to uncertain tax positions in income tax
expense. The amount of interest and penalties accrued during the nine
months ended December 31, 2009 was not material. The Company
estimates that there will be no material changes in its uncertain tax positions
in next twelve months.
The
Company files its income tax returns in the U.S. federal jurisdiction, various
U.S. states and foreign jurisdictions. The Company is no longer
subject to U.S. federal and state income tax examination by tax authorities for
years prior to 2003. Foreign income tax matters for significant
foreign jurisdictions have been concluded for years through 2002.
NOTE
12 – SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING
Significant
Customer Information
The
following table shows the Company’s significant customers for the three and nine
months ended December 31, 2009 and 2008 (in percentages):
12
Percent of Total Net
Revenue
|
||||||||||||||||
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
|
|||||||||||||||
Customers
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Digital
River
|
25 | % | 23 | % | 23 | % | 22 | % | ||||||||
Navarre
|
20 | % | 17 | % | 21 | % | 17 | % | ||||||||
Dell
|
11 | % | 14 | % | 13 | % | 14 | % | ||||||||
Hewlett-Packard
|
11 | % | 13 | % | 12 | % | 11 | % | ||||||||
Ingram
|
10 | % | 6 | % | 8 | % | 6 | % |
Net
Revenues by Segment
The
Company differentiates between digital media content that is created by
consumers (sometimes referred to herein as “personal” content) and digital
content that is professionally created for mass consumption (sometimes referred
to herein as “premium” content). Accordingly, the Company organizes its
business into two reportable operating segments targeted at these different
forms of content: the “Roxio Consumer Products” segment, which offers
products and services related to personal content, and the “Premium Content”
segment, which offers products and services related to premium
content. These segments reflect the Company’s internal organizational
structure, as well as the processes by which management makes operating
decisions, allocates resources and assesses performance. During the three
and nine months ended December 31, 2009, the Company’s Roxio Consumer Products
accounted for approximately 84% and 87%, respectively, of net revenue compared
to 88% and 87%, respectively, for the three and nine months ended December 31,
2008. During the three and nine months ended December 31, 2009 the
Company’s Premium Content segment accounted for approximately 16% and 13%,
respectively, of net revenue compared to 12% and 13%, respectively, for the
three and nine months ended December 31, 2008.
The
following tables show the net revenue attributable to the Company’s two
reportable segments, operating results by segment, and revenue by geographic
location (in thousands):
Three Months Ended December
31,
|
Nine Months Ended December
31,
|
|||||||||||||||
Net revenues
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Roxio
Consumer Products (1)
|
$ | 22,298 | $ | 23,469 | $ | 67,964 | $ | 75,959 | ||||||||
Premium
Content (1)
|
4,094 | 3,056 | 10,011 | 11,755 | ||||||||||||
Total
net revenues
|
$ | 26,392 | $ | 26,525 | $ | 77,975 | $ | 87,714 |
|
(1)
|
The
Company has reclassified certain revenue segment information in prior
period financial tables to conform to the reorganization of the Company’s
reportable business segments. The revenue reclassifications had no
effect on the Company’s consolidated balance sheets, consolidated
statements of operations, consolidated statements of shareholders’ equity
and comprehensive income (loss) and consolidated statements of cash flows
for the prior periods presented.
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Operating
income (loss)
|
||||||||||||||||
Roxio
Consumer Products
|
$ | 7,008 | $ | (71,004 | ) | $ | 21,109 | $ | (64,932 | ) | ||||||
Premium
Content
|
(2,947 | ) | (2,879 | ) | (8,469 | ) | (6,559 | ) | ||||||||
Unallocated
operating expenses
|
(4,601 | ) | (7,862 | ) | (14,136 | ) | (21,260 | ) | ||||||||
Total
operating loss
|
$ | (540 | ) | $ | (81,745 | ) | $ | (1,496 | ) | $ | (92,751 | ) |
13
Net
Revenue by Geographic Location (in thousands):
Three Months Ended December
31,
|
Nine Months Ended December
31,
|
|||||||||||||||
Net Revenues
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
United
States
|
$ | 20,405 | $ | 20,261 | $ | 60,965 | $ | 63,672 | ||||||||
Export
|
||||||||||||||||
Canada
|
253 | 272 | 672 | 1,302 | ||||||||||||
France
|
65 | 418 | 479 | 1,144 | ||||||||||||
Germany
|
794 | 922 | 2,069 | 3,580 | ||||||||||||
United
Kingdom
|
1,020 | 1,007 | 2,445 | 2,502 | ||||||||||||
Other
European
|
496 | 475 | 1,734 | 2,060 | ||||||||||||
Japan
|
1,411 | 1,936 | 5,358 | 9,672 | ||||||||||||
Singapore
|
1,048 | 1,057 | 2,375 | 2,785 | ||||||||||||
Taiwan
|
377 | 70 | 653 | 191 | ||||||||||||
Other
Pacific Rim
|
375 | 97 | 817 | 577 | ||||||||||||
Other
International
|
148 | 10 | 408 | 229 | ||||||||||||
Total
net revenue
|
$ | 26,392 | $ | 26,525 | $ | 77,975 | $ | 87,714 |
The
Company sells its products and services to customers categorized geographically
by each customer’s country of domicile. Domestic net revenue was
$20.4 million and $20.3 million, and international net revenue was
$6.0 million and $6.3 million for the three months ended December 31, 2009
and 2008, respectively. Domestic net revenue was $61.0 million and
$63.7 million, and international net revenue was $17.0 million and $24.0 million
for the nine months ended December 31, 2009 and 2008, respectively.
NOTE
13 – RESTRUCTURING
Each
reporting period, the Company evaluates its accruals for vacated facilities,
exit costs and employee separation costs to ensure the accruals are still
appropriate. The associated accruals may be adjusted upward or downward
upon the occurrence of future triggering events. Triggering events may
include, but are not be limited to, changes in estimated time to sublease,
sublease terms, rates, and income. Due to extended contractual obligations
of certain leases and the volatility of commercial real estate markets, the
Company could make future adjustments to these accruals. The following
table summarizes certain restructuring expenses incurred by the Company (in
thousands):
June 2009
|
January 2009
|
October 2008
|
June 2008
|
|||||||||||||||||||||||||||||||||
Restructuring
|
Restructuring
|
Restructuring
|
Restructuring
|
|||||||||||||||||||||||||||||||||
Severance
& Related
Costs
|
Facilities
|
Severance
& Related
Costs
|
Facilities
|
Severance
& Related
Costs
|
Facilities
|
Severance
& Related
Costs
|
Facilities
|
Total
|
||||||||||||||||||||||||||||
Balances,
March 31, 2009
|
$ | - | $ | - | $ | 177 | $ | 650 | $ | 8 | $ | 56 | $ | 22 | $ | (3 | ) | $ | 910 | |||||||||||||||||
Restructure
accrual
|
272 | - | - | - | - | - | - | - | 272 | |||||||||||||||||||||||||||
Payments
|
- | - | (201 | ) | (175 | ) | (10 | ) | (19 | ) | - | - | (405 | ) | ||||||||||||||||||||||
Impact
of exchange rate
|
- | - | 24 | 8 | 2 | (8 | ) | 4 | 3 | 33 | ||||||||||||||||||||||||||
Adjustments
|
- | - | - | 303 | - | - | (26 | ) | - | 277 | ||||||||||||||||||||||||||
Balances,
June 30, 2009
|
272 | - | - | 786 | - | 29 | - | - | 1,087 | |||||||||||||||||||||||||||
Restructure
accrual
|
58 | - | - | - | - | - | - | - | 58 | |||||||||||||||||||||||||||
Payments
|
(230 | ) | - | - | (237 | ) | - | (17 | ) | - | - | (484 | ) | |||||||||||||||||||||||
Impact
of exchange rate
|
- | - | - | (1 | ) | - | - | - | - | (1 | ) | |||||||||||||||||||||||||
Adjustments
|
- | - | - | (22 | ) | - | - | - | - | (22 | ) | |||||||||||||||||||||||||
Balances,
September 30, 2009
|
$ | 100 | $ | - | $ | - | $ | 526 | $ | - | $ | 12 | $ | - | $ | - | $ | 638 | ||||||||||||||||||
Restructure
accrual
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Payments
|
(28 | ) | - | - | (86 | ) | - | (12 | ) | - | - | (126 | ) | |||||||||||||||||||||||
Impact
of exchange rate
|
(2 | ) | - | - | - | - | - | - | - | (2 | ) | |||||||||||||||||||||||||
Adjustments
|
(58 | ) | - | - | - | - | - | - | - | (58 | ) | |||||||||||||||||||||||||
Balances,
December 31, 2009
|
$ | 12 | $ | - | $ | - | $ | 440 | $ | - | $ | - | $ | - | $ | - | $ | 452 |
During
the first quarter of fiscal 2009, the Company initiated a restructuring plan to
reorganize its operations, optimize its engineering and development efforts, and
reduce its workforce by the end of the 2008 calendar year. Additional
initiatives included establishing certain operations closer in location to the
Company’s global customers and reducing the Company’s overhead costs, resulting
in a restructuring charge of $1.5 million related to severance, the closing of
the Company’s office in Germany and related costs.
14
During
the third quarter of fiscal 2009, the Company initiated a restructuring plan to
further reorganize and improve its operations, and reduce its
workforce. This plan resulted in a restructuring charge of $1.1 million
related to one-time termination benefits, other associated costs and costs
related to building and office consolidations.
During
the fourth quarter of fiscal 2009, the Company initiated a restructuring of the
Company’s workforce and closure of certain leased facilities. The workforce
restructuring reduced worldwide headcount by approximately 75 positions and
resulted in a restructuring charge of approximately $1.1 million related to
building and office consolidations and associated charges. During the first
quarter of fiscal 2010, the Company adjusted its accrual by $0.3 million due to
changes in its estimates regarding applicable office subleasing
markets.
During
the first quarter of fiscal 2010, the Company initiated a restructuring plan to
reduce its workforce and resulted in a restructuring charge of approximately
$0.3 million related to one-time termination benefits. During the
second and third quarters of fiscal 2010, the Company made minor changes to its
estimates related to one-time termination benefits on its June 2009
restructuring accrual.
NOTE
14 – EQUITY ISSUANCE
On
October 29, 2009, the Company issued a warrant to purchase 668,711 shares of its
common stock to a third party in connection with the entry of the Company and
the third party into a strategic relationship agreement. Under the terms
of the warrant, which vests over a two year period, the holder is entitled to
purchase shares of the Company’s common stock at $4.98 per share (the closing
price of the Company’s common stock on the date of the warrant issuance).
The Company valued the warrant at $2.1 million using the Black Scholes
valuation model at the time of the signing of the agreement. The
Black-Scholes valuation assumptions included: expected term of five years,
volatility of 80.20%, and a risk free rate of 2.44%. During the three
months ended December 31, 2009, the Company recorded half of the value,
representing the initial 50% vesting of the warrant, to equity and a promotional
expense within Marketing and Sales operating expense. At the time of
signing, no revenue had been earned from the contract. The remaining 50%
vesting of the warrant will be recognized ratably over the vesting period of the
warrant with the related expense recorded as contra revenue. The warrant
was issued pursuant to an exemption under Section 4(2) of the Securities Act of
1933, as amended.
On
December 17, 2009, the Company issued 3,450,000 shares of common stock in an
underwritten offering at a per-share public offering price of
$9.70. The Company received approximately $31.4 million in net cash
proceeds after underwriting discounts and commissions and expenses, which will
be used for working capital and general corporate purposes. Approximately $0.2
million has been estimated as offering expenses.
NOTE
15 – SUBSEQUENT EVENTS
The
Company evaluated all events or transactions that occurred after December 31,
2009 up through February 5, 2009, the date the Company issued these financial
statements.
15
Forward-Looking
Statements
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Quarterly Report on Form 10-Q contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements include, but
are not limited to, statements regarding: the markets for the
Company’s products and services; macroeconomic conditions; consumer and business
spending; leisure and entertainment related activities and related technologies;
proliferation of Internet-connected devices; the Company’s competitive position;
continued popularity of the DVD format; popularity of the Blu-ray Disc (“BD”)
format; market for digital distribution of premium content; impact of
restructuring plans; liquidity and capital needs; gross margins; operating
expenses; significant customers, major distributors and key suppliers; content
licensing; impacts of the Company’s pricing strategies; acquisitions and
integration of related assets, business, personnel and systems; international
operations; litigation or patent prosecution; intellectual property claims; and
changes in effective tax rates. These forward-looking statements are
subject to risks and uncertainties that could cause actual results and events to
differ. Risks that may affect the Company’s operating results
include, but are not limited to, those discussed in “Item 1.A Risk Factors” of
this Quarterly Report on Form 10-Q and the “Risk Factors” section of the Fiscal
2009 Form 10-K. Readers should carefully review the risk factors
described in these filings and in other documents that the Company files from
time to time with the SEC.
Overview
of Business
The
Company is a leading developer of products and services that enable the
creation, management, and enjoyment of digital media content across a wide
variety of technology platforms. The Company’s products and services offer
innovative technologies to consumers, original equipment manufacturers (“OEMs”),
enterprises, high-end professional DVD authoring experts and
developers. The Company distributes its products and services through
retailers and distributors, personal computer (“PC”) and consumer electronics
(“CE”) OEMs, Internet websites including www.roxio.com, and other
channels. The Company also licenses core technology and intellectual
property to other software companies and technology manufacturers for
integration into their own products and services. Sonic software is
intended for use with Microsoft Windows and Apple Mac operating systems, as well
as some Linux environments and proprietary platforms.
Sonic
products and services are used to accomplish a wide variety of tasks, including
creating and distributing digital audio and video content in a variety of
formats; renting, purchasing and enjoying Hollywood movies and other premium
content; producing digital media photo and video shows for sharing online and
via television, PCs and CE devices; recording and playback of digital content on
DVD, BD, other storage media and portable devices; managing digital media on PCs
and CE devices; and backing up and preserving digital information, both to local
storage devices and on the Internet.
The
Company differentiates between digital media content that is created by
consumers (sometimes referred to herein as “personal” content) and digital
content that is professionally created for mass consumption (sometimes referred
to herein as “premium” content). Accordingly, the Company organizes its
business into two reportable operating segments targeted at these different
forms of content: the “Roxio Consumer Products” segment, which offers
products and services related to personal content, and the “Premium Content”
segment, which offers products and services related to premium
content. These segments reflect the Company’s internal organizational
structure, as well as the processes by which management makes operating
decisions, allocates resources and assesses performance.
Roxio
Consumer Products Segment
The
Company’s Roxio Consumer Products segment creates software and services that
enable consumers to easily create, manage, and share personal digital media
content on and across a broad range of connected devices. A wide array of
leading technology companies and developers rely on Roxio products, services and
technologies to bring innovative digital media functionality to PCs and
next-generation CE devices and platforms. The Roxio Consumer Products
segment offers products and services under a variety of names, including
BackonTrack, Backup MyPC, CinePlayer, Crunch, Easy VHS to DVD, Easy LP to MP3,
Just!Burn, MyDVD, MyTV To Go, PhotoShow, PhotoSuite, Popcorn, RecordNow, Roxio
Burn, Roxio Copy & Convert, Roxio Creator, Toast, VideoWave, WinOnCD, and
others. These products are sold in a number of different versions and
languages. The Company distributes these products through various
channels, including “bundling” arrangements with OEMs, volume licensing
programs, its web store, and third party web-based and “bricks and mortar”
retail stores. The Company also markets the same “under the hood”
technology that powers Roxio products to other companies who wish to build their
own PC software products.
16
Premium
Content Segment
The
Company’s Premium Content segment offers a range of products and services
related to the creation, distribution and enjoyment of premium
content. Within this segment, the Professional Products Group offers
software under the Scenarist, CineVision, and DVDit product names as well as
under the Sonic and Roxio Professional brands to major motion picture studios,
high-end authoring houses and other professional customers. CinemaNow, also
a part of this segment, sells, rents and distributes premium entertainment
content to consumers over the Internet. The Company also develops software
components that it licenses to CE companies to enable their devices to offer
premium content to consumers, and licenses intellectual property, including
patents.
Recent
Trends & Events
Due to
the proliferation of computer technology, broadband Internet connectivity and
personal electronic devices of all kinds, digital media content is now
everywhere. The Company’s products and services enable people to create,
manage, enjoy and distribute premium and personal digital content, allowing them
to organize and share their digital lives and memories in new and innovative
ways. The Company’s strategy is to utilize its technology, expertise and
competitive positioning to deliver exciting products and services to enhance the
value of digital media in people’s lives, as it faces evolving trends in the
technology industry, including:
|
·
|
Optical Disc Playback
Evolution – Optical disc technologies have enjoyed tremendous
growth and extremely widespread consumer adoption, but they tend to
evolve, mature and change rapidly. For example, multiple DVD
playback units (including set-top players, game consoles and PCs) are
present in most households, but DVD sales are now falling as consumers
have begun to embrace online alternatives, as well as new formats such as
BD. Sales of BD units and players have been growing at a rate
comparable to that of standard definition DVD during the equivalent time
periods in its life cycle, implying that BD is positioned to grow
dramatically over the next several years, but the growth of the BD format
has not yet fully compensated for the recent drop in DVD
sales. Other technological trends and events can also impact
the demand for the Company’s digital media products and
services. For example, as new operating systems, such as
Windows 7, are introduced, consumers are offered new tools for editing,
formatting and burning digital media, and there are opportunities for
software vendors such as the Company to provide products that are
complementary to the new operating
systems.
|
|
·
|
Growth of Digital Distribution
of Premium Content – Content owners, such as Hollywood studios, are
increasingly offering sell-through and rental of premium content through
digital distribution. Simultaneously, a growing number of
consumers are enjoying and taking advantage of the benefits of digital
distribution of premium content. As more Internet-enabled
electronic devices offer delivery of premium content, the rate of adoption
and number of title offerings should continue to
increase.
|
|
·
|
Digital Phone, Portable and
Gaming Devices – Consumer usage of mobile phones, gaming consoles
and portable CE devices, particularly those with high-end digital media
capabilities, continues to increase worldwide. The growing
popularity of portable devices leads to greater demand for software
products and services, such as those offered by the Company, that provide
digital media management and
functionality.
|
|
·
|
Growth of Online Social
Networks – Online social networks, such as Facebook and MySpace,
increasingly feature personal digital photo, video and audio content, and
these networks function as distribution platforms for sharing and enjoying
digital media content. The rising popularity of these networks
and their platforms creates an increased demand for products and services
that can capture, create, edit and manage digital
media.
|
During
fiscal 2009, the Company acquired the assets of Simple Star, Inc., a software
and online service provider, and the assets of CinemaNow, Inc., a privately held
online entertainment provider. The Company has utilized the Simple
Star assets to further its initiative to embrace web services as an important
part of its consumer business, while the addition of the CinemaNow assets has
assisted the Company in expanding its premium content product and service
offerings.
Strategic
Objectives
Enable Consumers to Buy and Play
Premium Content Anywhere and at Anytime. The Company believes
that digital distribution of premium content will grow dramatically over the
next few years, and that ultimately industry revenue from the digital
distribution of premium content may surpass revenue from the sale and rental of
premium content on optical media such as DVD and BD. The Company has
put substantial effort into its premium content initiatives, as it believes that
this area may offer a strong opportunity for counterbalancing the recent decline
in DVD sales and the adverse impact of that trend on the Company’s operating
results. As the digital content ecosystem continues to expand and
evolve, the Company aims to make its products and services available through an
increasing range of platforms, devices and partners, with the goal that the
Company’s technology will represent a symbol of compatibility and a common point
of interaction for consumers who want to enjoy Hollywood movies and other
premium digital content anywhere and at anytime.
17
Develop and strengthen Roxio-branded
products and services. The Company seeks to build on the brand
strength of its Roxio products and services by strengthening its relationships
with OEMs and retail partners, while deepening its relationship with consumers
by adding new products and services. The Company continues to utilize
its knowledge and expertise to develop and introduce products and services
relating to new formats such as BD, and believes that these efforts will assist
it in offsetting price pressure and declining sales associated with the DVD
format. Additionally, the Company plans to continue to enhance its
Web-based offerings, add innovative solutions to its consumer product portfolio
and extend the reach of the Roxio brand to a new audience of online
users.
Outlook
While the
recent global economic downturn and the maturation of the DVD format have
adversely impacted the Company’s business and financial results during recent
periods, the Company believes that the digital distribution of premium content
is poised to enjoy commercial success, and that its Roxio CinemaNow and related
initiatives provide it with a strategic opportunity to grow its business rapidly
in this area. The Company further believes that it is well positioned
to capitalize on its strong brand name, consumer market position, and OEM
relationships as digital media formats such as BD continue to
evolve. The Company has made significant strategic and financial
progress during fiscal 2010 to bring costs in line with revenues while
positioning the Company for revenue growth and margin improvement.
International
Locations and Revenue
The
Company is headquartered in Novato, California, and has sales and marketing
offices in North America, Europe, Japan, China, Taiwan, Singapore and remote
offices in a number of locations around the world. In the three
months ended December 31, 2009 and 2008, approximately 77% and 76% of net
revenue was attributable to domestic sales while 23% and 24% of net revenue was
attributable to international sales, respectively. In the nine months
ended December 31, 2009 and 2008, approximately 78% and 73% of net revenue was
attributable to domestic sales while 22% and 27% of net revenue was attributable
to international sales, respectively. In the future, the Company may
expand its operations, professional services and direct sales force abroad,
thereby incurring additional operating expenses and capital
expenditures.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
There
have been no material changes in the Company’s critical accounting policies and
estimates during the three months and nine months ended December 31, 2009
compared to those described in the Fiscal 2009 Form 10-K.
The
following table sets forth certain items from the Company’s statements of
operations as a percentage of net revenue for the three and nine months ended
December 31, 2009 and 2008, respectively (in percentages):
Three Months Ended December
31,
|
Nine Months Ended December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
revenue
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost
of revenue
|
30 | % | 27 | % | 31 | % | 28 | % | ||||||||
Impairment
of intangibles
|
0 | % | 74 | % | 0 | % | 22 | % | ||||||||
Gross
profit (loss)
|
70 | % | (1 | )% | 69 | % | 50 | % | ||||||||
Operating
expenses:
|
||||||||||||||||
Marketing
and sales
|
32 | % | 33 | % | 29 | % | 32 | % | ||||||||
Research
and development
|
22 | % | 33 | % | 24 | % | 36 | % | ||||||||
General
and administrative
|
18 | % | 25 | % | 18 | % | 21 | % | ||||||||
Restructuring
|
(0 | )% | 4 | % | 1 | % | 3 | % | ||||||||
Impairment
of goodwill
|
0 | % | 212 | % | 0 | % | 64 | % | ||||||||
Total
operating expenses
|
72 | % | 307 | % | 72 | % | 156 | % | ||||||||
Operating
loss
|
(2 | )% | (308 | )% | (3 | )% | (106 | )% | ||||||||
Other
income
|
1 | % | 0 | % | (0 | )% | (1 | )% | ||||||||
Loss
before income taxes
|
(1 | )% | (308 | )% | (3 | )% | (107 | )% | ||||||||
Provision
for (benefit of) income taxes
|
(0 | )% | 111 | % | 1 | % | 29 | % | ||||||||
Net
loss
|
(1 | )% | (419 | )% | (4 | )% | (136 | )% |
18
Net
Revenue Comparison for the Three and Nine Months Ended December 31, 2009 and
2008
The
following table provides a comparison of net revenue by segment (in thousands
other than percentages):
Three Months Ended December 31,
|
||||||||||||||||
Net Revenues
|
2009
|
2008
|
Increase
(Decrease)
|
%
|
||||||||||||
Roxio
Consumer Products (1)
|
$ | 22,298 | $ | 23,469 | $ | (1,171 | ) | (5 | )% | |||||||
Premium
Content (1)
|
4,094 | 3,056 | 1,038 | 34 | % | |||||||||||
Net
revenues
|
$ | 26,392 | $ | 26,525 | $ | (133 | ) | (1 | )% |
|
(1)
|
The
Company has reclassified certain revenue segment information in prior
period financial tables to conform to the reorganization of the Company’s
reportable business segments. The revenue reclassifications had no
effect on the Company’s consolidated balance sheets, consolidated
statements of operations, consolidated statements of shareholders’ equity
and comprehensive income (loss) and consolidated statements of cash flows
for the prior periods presented.
|
Net
revenue decreased to $26.4 million for the three months ended December 31, 2009,
from $26.5 million for the three months ended December 31, 2008. The
decrease in net revenue for the three months ended December 31, 2009 included a
decrease of $1.2 million or 5% in Roxio Consumer Products, which was offset by
an increase of $1.0 million or 34% in Premium Content net
revenue. OEM bundling revenue within the Roxio Consumer Products
segment decreased by $2.0 million due to changes in product mixes, per-unit
pricing pressure, and lower unit volumes. This decrease was partially
offset by an increase in web store revenue of $0.6 million generated through the
introduction of a new product and increases in certain unit average selling
prices.
Services
related to the Roxio CinemaNow initiative contributed $1.1 million to the
increase in Premium Content revenue. Additionally, technology
licensing revenue from CE manufacturers in connection with contracts signed
during the quarter contributed $0.6 million to the Premium Content revenue
increase, but this was offset by a decrease in professional product revenue of
$0.7 million due to the continued global economic weakness affecting consumer
demand and corporate spending.
Nine Months Ended December 31,
|
||||||||||||||||
Net Revenues
|
2009
|
2008
|
Increase
(Decrease)
|
%
|
||||||||||||
Roxio
Consumer Products (1)
|
$ | 67,964 | $ | 75,959 | $ | (7,995 | ) | (11 | )% | |||||||
Premium
Content (1)
|
10,011 | 11,755 | (1,744 | ) | (15 | )% | ||||||||||
Net
revenues
|
$ | 77,975 | $ | 87,714 | $ | (9,739 | ) | (11 | )% |
|
(1)
|
The
Company has reclassified certain revenue segment information in prior
period financial tables to conform to the reorganization of the Company’s
reportable business segments. The revenue reclassifications had no
effect on the Company’s consolidated balance sheets, consolidated
statements of operations, consolidated statements of shareholders’ equity
and comprehensive income (loss) and consolidated statements of cash flows
for the prior periods presented.
|
Net
revenue decreased to $78.0 million for the nine months ended December 31, 2009,
from $87.7 million for the nine months ended December 31, 2008. The
decrease in net revenue for the nine months ended December 31, 2009 included a
decrease of $8.0 million or 11% in Roxio Consumer Products, and a decrease of
$1.7 million or 15% in Premium Content net revenue. OEM bundling
revenue within the Roxio Consumer Products segment decreased by $4.2 million due
to changes in product mixes, per-unit pricing pressure, and lower unit
volumes. Sales through the Company’s web store and retail channels
decreased by $2.0 million as a result of global economic weakness affecting
consumer demand and corporate spending.
Premium
Content net revenue decreased due to a $3.6 million reduction in professional
products revenue caused by a $2.7 million development contract recorded during
the nine months ended December 31, 2008, for which there was no corresponding
amount during the nine months ended December 31, 2009, along with the continued
global economic weakness affecting consumer demand and corporate
spending. Also contributing to the decrease in Premium Content
revenue was a $1.1 million reduction in technology licensing revenue from CE
manufacturers caused by fewer development contracts and license renewals during
fiscal year 2010. The decrease in Premium Content net revenue was
partially offset by $2.3 million generated through Roxio CinemaNow
services and an increase of $0.6 million in content revenue related to the
timing of the CinemaNow asset acquisition.
19
The following tables set forth a
comparison of net revenues geographically for the fiscal periods ended December
31, 2009 and 2008, respectively (in thousands other than
percentages):
Three Months Ended December 31,
|
||||||||||||||||
Net Revenues
|
2009
|
2008
|
Increase
(Decrease)
|
%
|
||||||||||||
United
States
|
$ | 20,405 | $ | 20,261 | $ | 144 | 1 | % | ||||||||
Export
|
||||||||||||||||
Canada
|
253 | 272 | (19 | ) | (7 | )% | ||||||||||
France
|
65 | 418 | (353 | ) | (84 | )% | ||||||||||
Germany
|
794 | 922 | (128 | ) | (14 | )% | ||||||||||
United
Kingdom
|
1,020 | 1,007 | 13 | 1 | % | |||||||||||
Other
European
|
496 | 475 | 21 | 4 | % | |||||||||||
Japan
|
1,411 | 1,936 | (525 | ) | (27 | )% | ||||||||||
Singapore
|
1,048 | 1,057 | (9 | ) | (1 | )% | ||||||||||
Taiwan
|
377 | 70 | 307 | 439 | % | |||||||||||
Other
Pacific Rim
|
375 | 97 | 278 | 287 | % | |||||||||||
Other
international
|
148 | 10 | 138 | 1,380 | % | |||||||||||
Net
revenues
|
$ | 26,392 | $ | 26,525 | $ | (133 | ) | (1 | )% |
Domestic
net revenue accounted for $20.4 million and $20.3 million, or 77% and 76% of
total net revenue for the three months ended December 31, 2009 and 2008,
respectively. Domestic net revenue remained consistent period over
period. International net revenue accounted for $6.0 million and $6.3
million, or 23% and 24% of total net revenue for the three months ended December
31, 2009 and 2008, respectively. The decrease in international net
revenue includes $0.4 million in lower professional product sales in Japan
caused by the global economic weakness, along with a $0.3 million decrease in
OEM bundling sales within France. These decreases were offset by a new
$0.2 million technology licensing agreement in Taiwan, and a $0.1million
increase in retail sales for Australia.
Nine Months Ended December 31,
|
||||||||||||||||
Net Revenues
|
2009
|
2008
|
Increase
(Decrease)
|
%
|
||||||||||||
United
States
|
$ | 60,965 | $ | 63,672 | $ | (2,707 | ) | (4 | )% | |||||||
Export
|
||||||||||||||||
Canada
|
672 | 1,302 | (630 | ) | (48 | )% | ||||||||||
France
|
479 | 1,144 | (665 | ) | (58 | )% | ||||||||||
Germany
|
2,069 | 3,580 | (1,511 | ) | (42 | )% | ||||||||||
United
Kingdom
|
2,445 | 2,502 | (57 | ) | (2 | )% | ||||||||||
Other
European
|
1,734 | 2,060 | (326 | ) | (16 | )% | ||||||||||
Japan
|
5,358 | 9,672 | (4,314 | ) | (45 | )% | ||||||||||
Singapore
|
2,375 | 2,785 | (410 | ) | (15 | )% | ||||||||||
Taiwan
|
653 | 191 | 462 | 242 | % | |||||||||||
Other
Pacific Rim
|
817 | 577 | 240 | 42 | % | |||||||||||
Other
international
|
408 | 229 | 179 | 78 | % | |||||||||||
Net
revenues
|
$ | 77,975 | $ | 87,714 | $ | (9,739 | ) | (11 | )% |
Domestic
net revenue accounted for $61.0 million and $63.7 million, or 78% and 73% of
total net revenue for the nine months ended December 31, 2009 and 2008,
respectively. The decrease in domestic sales included a reduction in
OEM bundling revenue of $2.9 million due to changes in product mixes, per-unit
pricing pressure, and lower unit volumes, and sales through the Company’s web
store, retail channels, and professional group decreased by $2.6 million as a
result of global economic weakness. This decrease was partially offset by $2.3
million generated through Roxio CinemaNow services and an increase of $0.6
million in content revenue related to the timing of the CinemaNow asset
acquisition. International net revenue accounted for
$17.0 million and $24.0 million, or 22% and 27% of total net revenue for
the nine months ended December 31, 2009 and 2008, respectively. The
decrease in international net revenue included $2.7 million in 2008 revenue from
a Japan professional development arrangement for which there was no
corresponding amount during the nine months ended December 31,
2009. Also contributing to the decrease was a $0.8 million reduction
in web service sales from a German-based web store reseller upon the launch of
the Company’s own online services offering.
20
Significant
Customers
The
following table reflects sales to significant customers as a percentage of total
net revenue and the related accounts receivable as a percentage of total
receivables for the three and nine months ended December 31, 2009 and 2008,
respectively (in percentages):
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||||||||||||||||||
% of Total Net
Revenues
|
% of Total Accounts
Receivable
|
% of Total Net
Revenues
|
% of Total Accounts
Receivable
|
|||||||||||||||||||||||||||||
Customer
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||||||||||
Digital
River
|
25 | % | 23 | % | 15 | % | 16 | % | 23 | % | 22 | % | 15 | % | 16 | % | ||||||||||||||||
Navarre
|
20 | % | 17 | % | 26 | % | 29 | % | 21 | % | 17 | % | 26 | % | 29 | % | ||||||||||||||||
Dell
|
11 | % | 14 | % | 5 | % | 5 | % | 13 | % | 14 | % | 5 | % | 5 | % | ||||||||||||||||
Hewlett-Packard
|
11 | % | 13 | % | 12 | % | 3 | % | 12 | % | 11 | % | 12 | % | 3 | % | ||||||||||||||||
Ingram
|
10 | % | 6 | % | 8 | % | 11 | % | 8 | % | 6 | % | 8 | % | 11 | % |
During
the three months ending December 31, 2009, Dell and Hewlett-Packard accounted
for 11% and 11% of the Company’s net revenue compared to 14% and 13%,
respectively, for the three months ending December 31, 2008. During
the nine months ending December 31, 2009, Dell and Hewlett-Packard accounted for
13% and 12% of the Company’s net revenue compared to 14% and 11%, respectively,
for the nine months ended December 31, 2008. The Company sells
products to Dell and Hewlett-Packard pursuant to individual supplements,
exhibits or other attachments that are appended to the standard terms and
conditions we have negotiated with each of these customers. These
standard terms and conditions include provisions relating to the delivery of the
Company’s products, the customer’s distribution of these products,
representations by the Company with respect to the quality of the products and
the Company’s ownership of the products, obligations by the Company to comply
with law, confidentiality obligations, and indemnification by the Company for
breach of its representations or obligations. The underlying
agreements generally renew for one year periods, subject to annual termination
by either party or termination for breach. Under each agreement, the
OEM has the sole discretion to decide whether to purchase any of the Company’s
products. The agreements are non-exclusive and do not contain any
minimum purchase obligations or similar commitments. The loss of
Dell, Hewlett-Packard, or any other major customer, would have a material
adverse effect on the Company if we were unable to replace that
customer.
Revenue
recognized from Digital River was pursuant to a reseller arrangement, and
revenue recognized from Navarre was pursuant to distribution
arrangement. The Digital River agreement covers the electronic
delivery of Company software and the creation and maintenance of the shopping
cart process for the Company’s online stores; the Navarre agreement provides for
both physical and electronic delivery, and under both consignment and direct
sale models. The Company provides products to Digital River and
Navarre pursuant to agreements with standard terms and conditions including
provisions relating to the delivery of the Company’s products, distribution of
these products, representations by the Company with respect to the quality of
the products and the Company’s ownership of the products, obligations by the
Company to comply with law, confidentiality obligations, and indemnification by
the Company for breach of its representations or obligations. The
agreements generally renew for one-year periods, subject to annual termination
by either party as well as other termination provisions, such as termination for
breach. The agreements are non-exclusive and do not contain any
minimum purchase obligations or similar commitments.
Cost
of Revenue
Cost of
revenue consists mainly of third party licensing expenses, employee salaries and
benefits for personnel directly involved in the production and support of
revenue-generating products and services, packaging and distribution costs, if
applicable, and amortization of acquired and internally-developed software and
intangible assets. In the case of consumer software distributed in retail
channels, cost of revenue also includes the cost of packaging, if any, and
certain distribution costs. The following table reflects cost of revenue as
a percentage of net revenue (in thousands other than
percentages):
21
Three Months Ended December 31,
|
2009 to 2008
|
|||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
% Change
|
|||||||||||||
Roxio
Consumer Products
|
$ | 5,926 | $ | 5,825 | $ | 101 | 2 | % | ||||||||
Premium
Content
|
2,118 | 1,399 | 719 | 51 | % | |||||||||||
Cost
of revenue
|
$ | 8,044 | $ | 7,224 | $ | 820 | 11 | % |
The
Company’s overall cost of revenue as a percentage of net revenue increased 3% to
30% of net revenue for the three months ended December 31, 2009 from 27% for the
three months ended December 31, 2008. Roxio Consumer Products cost of
revenue as a percentage of Roxio Consumer Products net revenue increased 2% to
27% for the three months ended December 31, 2009 compared to 25% for the three
months ended December 31, 2008. The higher cost of revenue percentages
were driven by a 4% increase in costs of revenue resulting from higher product
costs, which included certain increased fixed third party licensing expense and
changes in retail packaging, along with bundling certain promotional items with
the Company’s products. This was partly offset by a 3% decrease in
costs of revenue caused by lower purchased technology amortization as a result
of the $19.6 million impairment of intangibles recorded in the third quarter of
fiscal 2009.
Premium
Content cost of revenue as a percentage of Premium Content net revenue increased
6% to 52% for the three months ended December 31, 2009 compared to 46% for the
three months ended December 31, 2008. The increase was due to $1.1 million
in additional operational, royalty, and content costs associated with the
acquired CinemaNow business. This increase was partially offset by
lower development contracts costs, along with a reduction in direct product
costs related to a hardware product sold through the Professional Product Group
during the three months ended December 31, 2008 for which there was no
corresponding amount during the three months ended December 31,
2009.
Nine Months Ended December 31,
|
2009 to 2008
|
|||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
% Change
|
|||||||||||||
Roxio
Consumer Products
|
$ | 18,154 | $ | 21,547 | $ | (3,393 | ) | (16 | )% | |||||||
Premium
Content
|
5,851 | 2,732 | 3,119 | 114 | % | |||||||||||
Cost
of revenue
|
$ | 24,005 | $ | 24,279 | (274 | ) | (1 | )% |
The
Company’s overall cost of revenue as a percentage of net revenue increased 3% to
31% of net revenue for the nine months ended December 31, 2009 from 28% for the
nine months ended December 31, 2008. Roxio Consumer Products cost of
revenue as a percentage of Roxio Consumer Products net revenue decreased 1% to
27% for the nine months ended December 31, 2009 compared to 28% for the nine
months ended December 31, 2008. The lower cost of revenue percentages were
driven by a 4% decrease in costs of revenue caused by lower purchased technology
amortization as a result of the $19.6 million impairment of intangibles recorded
in the third quarter of fiscal 2009. This was partly offset by a 2%
increase in costs of revenue resulting from higher product costs, which included
changes in retail packaging, along with bundling certain promotional items with
the Company’s products.
Premium
Content cost of revenue as a percentage of Premium Content net revenue increased
35% to 58% for the nine months ended December 31, 2009 compared to 23% for the
nine months ended December 31, 2008. The increase was due to $3.8 million
additional operational, royalty, and content costs associated with the acquired
CinemaNow business. This increase was partially offset by lower
development costs due to fewer development contracts, along with lower
warehousing fees based on the using a just-in-time production model in Japan for
retail.
Marketing
and Sales
Marketing
and sales expenses include salaries, benefits, sales commissions and share-based
compensation expense for marketing and sales employees, promotions and incentive
programs aimed to generate revenue such as advertising, and trade shows, travel
related costs, and facility costs related to marketing and sales personnel. The
following table reflects the marketing and sales operating expenses for the
fiscal periods ended December 31, 2009 and 2008, respectively (in thousands
other than percentages):
22
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||||||||
Marketing
and sales expenses
|
$ | 8,489 | $ | 8,650 | $ | (161 | ) | $ | 22,245 | $ | 28,095 | $ | (5,850 | ) | ||||||||||
Percentage
of net revenue
|
32 | % | 33 | % | (1 | )% | 29 | % | 32 | % | (3 | )% |
Marketing
and sales expenses decreased by 2% or $0.2 million for the three months ended
December 31, 2009 compared to the same period in the prior year, and 21% or $5.9
million for the nine months ended December 31, 2009 compared to the same period
in the prior year. As a percentage of net revenue, marketing and
sales expenses decreased 1% and 3% for the three and nine months ended December
31, 2009, from 33% and 32% for the same respective periods in the prior
year. The decrease for the three and nine month period ended December 31,
2009, as compared to the same periods in the prior year is due to the
restructuring activities implemented during fiscal 2009 and 2010, related to
headcount reductions, as well as the ongoing cost containment
efforts.
The
decrease during the three months ended December 31, 2009 of $0.2 million
compared to the same period in the prior year is due to a reduction of overall
advertising and promotional expenses of $0.7 million, and a decrease in
personnel related expenses of $0.6 million, which were offset by a $1.1 million
non-recurring increase in promotional expense as a result of the issuance of a
warrant during the fiscal quarter ending December 31, 2009.
On
October 29, 2009, the Company issued a warrant to purchase 668,711 shares of its
common stock to a third party in connection with the entry of the Company and
the third party into a strategic relationship agreement. Under the terms
of the warrant, which vests over a two year period, the holder is entitled to
purchase shares of the Company’s common stock at $4.98 per share (the closing
price of the Company’s common stock on the date of the warrant issuance).
The Company valued the warrant at $2.1 million using the Black Scholes
valuation model at the time of the signing of the agreement. The
Black-Scholes valuation assumptions included: expected term of five years,
volatility of 80.20%, and a risk free rate of 2.44%. During the three
months ended December 31, 2009, the Company recorded half of the value,
representing the initial 50% vesting of the warrant, to equity and a promotional
expense within Marketing and Sales operating expense. At the time of
signing, no revenue had been earned from the contract. The remaining 50%
vesting of the warrant will be recognized ratably over the vesting period of the
warrant with the related expense recorded as contra revenue. The warrant
was issued pursuant to an exemption under Section 4(2) of the Securities Act of
1933, as amended.
The
decrease in marketing and sales expense for the nine month period ended December
31, 2009, as compared to the same period in the prior year of $5.9 million
reflects a decrease in advertising and promotions of $3.7 million, and a
decrease in personnel and outside services of $3.3 million. These
decreases were offset by an increase in promotional expense of $1.1 million
attributed to the stock warrant, as described above.
The
Company expects to continue to invest in marketing and sales of its products and
services to develop market opportunities and promote its offerings while
continuing to monitor its needs to reduce operating expenses to align with the
Company’s financial condition.
Research
and Development
Research
and development expenses include salaries, benefits, share-based compensation
expenses for engineers, contracted development efforts, facility costs related
to engineering personnel, and expenses associated with equipment used for
development. The following table reflects the research and
development operating expenses for the fiscal periods ended December 31, 2009
and 2008, respectively (in thousands other than percentages):
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||||||||
Research
and development expenses
|
$ | 5,784 | $ | 8,861 | $ | (3,077 | ) | $ | 19,024 | $ | 31,116 | $ | (12,092 | ) | ||||||||||
Percentage
of net revenue
|
22 | % | 33 | % | (11 | )% | 24 | % | 35 | % | (11 | )% |
Research
and development expenses decreased by 35% or $3.1 million for the three months
ended December 31, 2009 compared to the same period in the prior year, and 39%
or $12.1 million for the nine months ended December 31, 2009 compared to the
same period in the prior year. As a percentage of net revenue, research
and development expenses decreased 11% for both the three and nine months ended
December 31, 2009, from 33% and 35% for the same respective periods in the prior
year. The decrease for the three and nine month period ended December 31,
2009, as compared to the same period in the prior year, reflects the results of
the Company’s cost containment efforts, including the restructuring activities
implemented during fiscal 2009 and fiscal 2010.
23
The $3.1
million decrease for the three month period ended December 31, 2009, as compared
to the same period in the prior year, includes a decrease in personnel related
expenses of $2.2 million and a decrease in associated research and development
expenses of $0.9 million. The $12.1 million decrease for the nine
month period ended December 31, 2009, as compared to the same period in the
prior year, includes a decrease in personnel expenses of $9.6 million, a
decrease in facility costs of $1.0 million, and a decrease in associated
research and development costs of $1.5 million.
The
Company expects research and development costs to remain consistent as a
percentage of net revenue during the remainder of fiscal 2010.
General
and Administrative
General
and administrative expenses include salaries, benefits, share-based
compensation, outside consulting services, travel expenses, legal costs
including loss contingency reserves, facility costs for finance, facilities,
human resources, legal, information services and executive
personnel. The following table reflects the general and
administrative operating expenses for the fiscal periods ended December 31, 2009
and 2008, respectively (in thousands other than percentages):
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||||||||||
2009
|
2008
|
Increase
(Decrease)
|
2009
|
2008
|
Increase
(Decrease)
|
|||||||||||||||||||
General
and administrative expenses
|
$ | 4,673 | $ | 6,672 | $ | (1,999 | ) | $ | 13,689 | $ | 18,571 | $ | (4,882 | ) | ||||||||||
Percentage
of net revenue
|
18 | % | 25 | % | (7 | )% | 18 | % | 21 | % | (3 | )% |
General
and administrative expenses decreased by 30% or $2.0 million for the three
months ended December 31, 2009 compared to the same period in the prior year,
and 26% or $4.9 million for the nine months ended December 31, 2009 compared to
the same period in the prior year. As a percentage of net revenue, general
and administrative expenses decreased 7% and 3% for the three and nine months
ended December 31, 2009, from 25% and 21% for the same respective periods in the
prior year. The decrease for the three and nine month period ended December
31, 2009, as compared to the same periods in the prior year, reflects the
results of the Company’s cost containment efforts, including the restructuring
activities implemented during fiscal 2009 and fiscal 2010.
The $2.0
million decrease in general and administrative expense for the three month
period ended December 31, 2009, as compared to the same period in the prior
year, includes a decrease in outside consulting services of $0.4 million, a
decrease in personnel expenses of $0.6 million, and a $1.0 million decrease in
loss contingency reserves. The $4.9 million decrease for the nine month
period ended December 31, 2009, as compared to the same period in the prior
year, includes a decrease in personnel expenses of $2.4 million, a $1.4 million
decrease in loss contingency reserves, a decrease of $0.5 million in stock
option review expenses, and a decrease of $0.6 million in general administrative
expenses, such as travel, office supplies, and depreciation.
The
Company anticipates that general and administrative expenses will remain
consistent as a percentage of net revenue during the remainder of fiscal
2010.
Restructuring
Charges
Restructuring
expenses consist primarily of one-time termination benefits such as severance
and other employee related costs, contract termination costs related to facility
expenses, and other associated costs.
Restructuring
expense decreased 105% to negative $58 thousand for the three months ended
December 31, 2009 from $1.1 million for the three months ended December 31,
2008. During the nine months ended December 31, 2009, restructuring
expense decreased 81% to $0.5 million from $2.7 million for the nine months
ended December 31, 2008. The decrease in restructuring expenses for
fiscal 2010 is due to the fact that the Company has completed the several
restructuring programs that it had implemented during fiscal 2009. At
each reporting period, the Company evaluates its accruals for vacated
facilities, exit costs and employee separation costs to ensure the accruals are
still appropriate. During the first quarter of fiscal 2010, the
Company adjusted its accrual by $0.3 million due to changes in its estimates
regarding applicable office subleasing markets. The Company made a
minor adjustment during the second and third quarter of fiscal 2010 to its
estimates related to one-time termination benefits, resulting in a non-material
decrease in overall restructuring expenses.
24
Provision
(Benefit) for Income Taxes
The
provision (benefit) for income taxes for the nine months ended December 31, 2009
and 2008, respectively, was a tax expense of $0.6 million compared to a tax
expense of $25.0 million in the prior period. The reason for the
difference is due to the effects of approximately $24.3 million in full
valuation allowance recorded during the three months ended December 31, 2008 on
deferred tax assets recorded in prior years. The Company calculated
its projected annual effective tax rate for fiscal 2010 to be 42.3% compared to
(27.1)% for fiscal 2009. This projected annual effective tax rate
differs from the statutory federal rate of 35% due to the tax rate differential
on earnings in foreign jurisdictions.
Goodwill
and Intangibles Impairment
Based on
a combination of factors occurring during fiscal 2009, including the existing
economic environment, market conditions and a decline in the Company’s stock
value, the Company determined that indicators for impairment of goodwill and
intangible assets existed. The Company performed a preliminary impairment
analysis and recorded an estimate for impairment of its intangible of $19.6
million and $56.2 million for goodwill during the three months ended December
31, 2008 related to the Company’s Roxio Consumer Products reporting
segment.
Non-Operating
Income for the Three and Nine Months Ended December 31, 2009 and
2008
Interest
Income and Interest Expense, Net
Interest
income includes interest earned on cash balances and long-term
investments. Interest income was $12 thousand and $65 thousand for
the three and nine months ended December 31, 2009 as compared to $0.1 million
and $0.7 million for the corresponding periods of fiscal 2009. The
decline in interest income is related to a decrease in cash and cash equivalents
held prior to the receipt of net cash proceeds from the issuance of common stock
on December 16, 2009.
Interest
expense relates to the finalization of a California sales tax audit in the three
months ended December 31, 2009 and to the UBOC credit facility paid off on
September 29, 2008 according to its terms, for the nine months ended December
31, 2008. Interest expense was $0.1 million for the three and nine
months ended December 31, 2009 as compared to $13 thousand and $0.7 million for
the corresponding periods of fiscal 2009.
Liquidity
and Capital Resources
Cash
and Cash Equivalents (in thousands other than percentages):
December 31,
|
March 31,
|
|||||||||||||||
2009
|
2009
|
Inc (Dec)
|
Inc (Dec) %
|
|||||||||||||
Cash
and cash equivalents
|
$ | 56,511 | $ | 19,864 | $ | 36,647 | 184 | % | ||||||||
Working
capital
|
$ | 36,063 | $ | 1,296 | $ | 34,767 | 2683 | % |
As of
December 31, 2009, the principal sources of liquidity include cash and cash
equivalents of $56.5 million and net trade accounts receivable of $11.4
million. As of December 31, 2009, the Company had working capital of $36.1
million compared with working capital of $1.3 million at March 31,
2009. On December 16, 2009, the Company issued 3,450,000 shares of
common stock in an underwritten public offering at a per-share public offering
price of $9.70. The Company received approximately $31.4 million in
net cash proceeds after underwriting discounts, commissions and offering
expenses. The increase in working capital includes an increase in
cash from this offering.
The
Company believes that existing cash and cash equivalents and cash generated from
operations will be sufficient to meet its cash requirements for at least the
next twelve months. The Company’s liquidity is affected by various risks
and uncertainties, including, but not limited to, the risks detailed in “Item
1.A Risk Factors” of this Quarterly Report on Form 10-Q and the “Risk Factors”
section of the Fiscal 2009 Form 10-K.
25
Statement
of Cash Flows Discussion
December
31,
|
December
31,
|
|||||||||||||||
(in
thousands other than percentages)
|
2009
|
2008
|
Inc
(Dec)
|
Inc
(Dec) %
|
||||||||||||
Net
cash provided by (used in) operating activities
|
$ | 6,857 | $ | (9,940 | ) | $ | 16,797 | 169 | % | |||||||
Net
cash used in investing activities
|
$ | (2,034 | ) | $ | (7,703 | ) | $ | 5,669 | 74 | % | ||||||
Net
cash provided by (used in) financing activities
|
$ | 32,363 | $ | (19,748 | ) | $ | 52,111 | 264 | % |
Net cash
provided by operating activities was $6.9 million for the nine months ended
December 31, 2009 compared to net cash used in operating activities of $9.9
million for the nine months ended December 31, 2008. The significant
increase in net cash flows from operating activities during fiscal year 2010
compared to the same period in fiscal year 2009 is due to the improvement from
$17.0 million operating loss, excluding non-cash impairments of intangible
assets of $19.6 million and $56.2 million for goodwill for the nine months ended
December 31, 2008 to a $1.5 million operating loss for the nine months ended
December 31, 2009. The overall improvement in operating income is largely due to
the Company’s efforts to reduce operating expenses to align with its financial
condition.
Net cash
used in investing activities was $2.2 million for the nine months ended December
31, 2009 compared to net cash used in investing activities of $7.7 million for
the nine months ended December 31, 2008. Net cash used during the
nine month period during fiscal 2009 was higher due to the Company’s
acquisitions of Simple Star’s assets and CinemaNow assets during that period; no
comparable acquisitions occurred during fiscal 2010.
Net cash
provided by financing activities was $32.4 million for the nine months ended
December 31, 2009 compared to net cash used in financing activities of $19.7
million for the nine months ended December 31, 2008. During the
second quarter of fiscal year 2009, the Company permanently repaid the revolving
credit facility of $20 million. During the third quarter of fiscal
2010, the Company sold 3,450,000 shares of stock for net proceeds (after
deducting the underwriting discounts, commissions and offering expenses) of
$31.4 million. The shares of common stock were offered and sold
pursuant to a base prospectus and related prospectus supplement, which have been
filed with the SEC.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements, as such term is
defined by applicable SEC rules, that have or are reasonably likely to have a
current or future effect on the Company’s financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to
investors.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company has global operations and thus makes investments and enters into
transactions in various foreign currencies. The value of the Company’s
consolidated assets and liabilities located outside the United States
(translated at period end exchange rates) and income and expenses (translated
using average rates prevailing during the period), are affected by the
translation into the Company’s reporting currency (the U.S. Dollar). Such
translation adjustments are reported as a separate component of shareholders’
equity. In future periods, foreign exchange rate fluctuations could have
an increased impact on the Company’s reported results of
operations.
The
Company’s market risk sensitive instruments were all entered into for
non-trading purposes. The Company does not engage in any hedging
activities and does not use derivatives or equity instruments for cash
investment purposes.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer (“CEO”) and its Chief Financial Officer (“CFO”), the
Company conducted an evaluation of its disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act,
as of the end of the period covered by this Quarterly Report on
Form 10-Q. Based upon that evaluation, the CEO and the CFO have
concluded that the design and operation of the Company’s disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act
(i) is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms and (ii) is accumulated and communicated
to its management, including its CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure.
26
Changes
to Internal Control over Financial Reporting
There
were no changes to the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.
See “Note
7 – Contingencies and Commitments” to the Unaudited Condensed Consolidated
Financial Statements included in this Quarterly Report.
Except as
indicated below, there have been no material changes in information to the Risk
Factors previously described in Part I, Item 1A of the Fiscal 2009 Form
10-K.
Because
a large portion of the Company’s revenue is from OEM customers, sales of its
products are tied to OEM product sales.
A
substantial portion of the Company’s revenue is derived from sales through OEM
customers who bundle copies of our software with their products. Temporary
fluctuations in the pricing and availability of the OEM customers’ products
could negatively impact sales of Company products, which could in turn harm its
business, financial condition and results of operations. Moreover, sales
of Company OEM products depend in large part on consumer acceptance and purchase
of DVD players, BD players, DVD recorders, television sets and other digital
media devices marketed by the Company’s OEM customers in PCs, CE devices, or on
a stand-alone basis. Consumer acceptance of these digital media devices
depends significantly on the price and ease of use of these devices, among other
factors. If the demand for these devices is impaired, the Company’s OEM
sales will suffer a corresponding decline.
The
Company sells its products to OEMs pursuant to individual supplements or other
attachments to standard terms and conditions the Company has negotiated with
each of these customers. These terms and conditions include provisions
relating to the delivery of Company products, the customer’s distribution of
these products, representations by the Company with respect to the quality of
the products and its ownership of the products, its obligations to comply with
law, confidentiality obligations, and indemnifications by the Company if it
breaches its representations or obligations. The agreements are
non-exclusive and do not contain any minimum purchase obligations or similar
commitments. The underlying agreements generally renew for one year
periods, subject to annual termination by either party or termination for breach
and, in certain cases, the ability to terminate without cause with no or short
notice. Under each agreement, the customer has the sole discretion to
decide whether to purchase any of the Company products. Although the
Company has maintained relationships with many of its OEMs for many years, if an
OEM agreement with a major customer were terminated and the Company was unable
to replace such relationship, its business and results of operations would
suffer.
In
addition, the Company relies on reports prepared by OEM customers to determine
the results of our sales of products through these OEM customers. If the
OEM customers prepare inaccurate or substandard sales reports, we may be
required to take corrective actions, including auditing current and prior
reports. Such corrective actions may result in a negative impact on our business
or our reported results.
The
Company’s reliance on a limited number of suppliers for its manufacturing makes
it vulnerable to supplier operational problems.
The
Company outsources the manufacturing of its consumer software products to two
primary suppliers, who provide services such as parts procurement, parts
warehousing, product assembly and supply chain services. Any
disruption in the operations of these suppliers, or any product shortages or
quality assurance problems could increase the costs of manufacturing and
distributing the Company’s products and could adversely impact its operating
results. Moreover, although the Company believes there is significant
competition in the manufacture of consumer software products, if these suppliers
cease to perform or fail to perform as the Company expects, the Company could
face potentially significant delays in engaging substitute suppliers and
negotiating terms and conditions acceptable to the Company.
27
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
Company’s Annual Meeting of Shareholders was held at the Company’s headquarters
at 7250 Redwood Blvd., Suite 300, Novato, California on October 28,
2009. Out of 26,743,539 shares of Common Stock (as of the record date of
September 20, 2009) entitled to vote at the meeting, 24,515,698 shares were
present in person or by proxy. The following proposals were
considered:
Proposal
I
At the
meeting the following directors were elected by the number of affirmative votes
set opposite their respective names:
Name
|
Number of
Shares For
|
Number of Shares
Withheld
|
||
Robert
J. Doris
|
17,231,614
|
7,284,084
|
||
Robert
M. Greber
|
15,691,551
|
8,824,147
|
||
R.
Warren Langley
|
15,972,307
|
8,543,391
|
||
Peter
J. Marguglio
|
16,014,985
|
8,500,713
|
||
Mary
C. Sauer
|
16,944,954
|
7,570,744
|
Proposal
II
The
proposal to approve the amendment and restatement of the Company’s 2004 Equity
Compensation Plan was not approved, with the following votes cast:
Votes For
|
Votes Against
|
Votes Abstained
|
Non-Votes
|
|||
4,946,842
|
14,384,989
|
26,573
|
5,157,294
|
28
ITEM
6. EXHIBITS
31.1
|
Certification
of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Novato, State of California, on the 5th day of
February, 2010.
SONIC
SOLUTIONS
|
||
/s/
David C. Habiger
|
February
5, 2010
|
|
David
C. Habiger
President
and Chief Executive Officer
(Principal
Executive Officer)
|
||
/s/
Paul F. Norris
|
February
5, 2010
|
|
Paul
F. Norris
Executive
Vice President,
Chief
Financial Officer and General Counsel
(Principal
Financial/Accounting Officer)
|
30