-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VH2+c7oqMpMMmly7lFoQJQ2HdmlvWRSorVGPcAd+rXEF9zeVD5qsfjiK88SDVY95 daE2o8H6u9kCzapIdcgGFg== 0001021408-01-506662.txt : 20010917 0001021408-01-506662.hdr.sgml : 20010917 ACCESSION NUMBER: 0001021408-01-506662 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010227 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC SOLUTIONS/CA/ CENTRAL INDEX KEY: 0000916235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930925818 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23190 FILM NUMBER: 1736798 BUSINESS ADDRESS: STREET 1: 101 ROWLAND WAY STREET 2: STE 110 CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4158938000 MAIL ADDRESS: STREET 1: 101 ROWLAND WAY STREET 2: STE 110 CITY: NOVATO STATE: CA ZIP: 94945 8-K/A 1 d8ka.txt AMENDMENT NO. 2 TO FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 8-K/A AMENDMENT NO. 2 TO CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report: March 14, 2001 Date of earliest event reported: February 27, 2001 SONIC SOLUTIONS (Exact name of registrant as specified in its charter) California 72870 93-0925818 (State or other jurisdiction of (Commission File (I.R.S. Employer incorporation or organization) Number) Identification No.) 101 Rowland Way, Suite 110, Novato, CA 94945 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 893-8000 Exhibit Index on Page 5. 1 INFORMATION INCLUDED IN THIS REPORT This Amendment No. 2 hereby amends Item 7 of the Current Report on Form 8-K filed on March 14, 2001 by Sonic Solutions ("Sonic") relating to the acquisition of the Daikin Industries, Ltd. ("Daikin") DVD Software Development Business. The following financial statements required by Item 7 are filed as part of this report: ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Daikin Industries, Ltd. Financial Statements:
Page ---- . Independent Auditors' Report 6 . Balance Sheets as of December 31, 2000 and March 31, 2000 7 . Statements of Operations for the nine month period ended December 31, 2000 and the fiscal years ended March 31, 2000 and 1999 8 . Statements of Changes in Invested Capital for the nine month period ended December 31, 2000 and the fiscal years ended March 31, 2000 and 1999 9 . Statements of Cash Flows for the nine month period ended December 31, 2000 and the fiscal years ended March 31, 2000 and 1999 10 . Notes to the Financial Statements 11
(b) Pro Forma Financial Information:
Page ---- . Pro forma financial information 16 . Unaudited Pro Forma Combined Balance Sheet as of December 31, 2000 17 . Unaudited Pro Forma Combined Statement of Operations for the nine month period ended December 31, 2000 18 . Unaudited Pro Forma Combined Statement of Operations for the fiscal year ended March 31, 2000 19 . Notes to Unaudited Pro Forma Combined Financial Statements 20
2 (c) EXHIBITS: The following documents are filed as exhibits to this report:
Exhibit Description ------- ------------------------------------------------------------------------------------ 2.1* Asset Purchase Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 3.1* Certificate of Determination of Series D Preferred Stock of Sonic Solutions 10.1* Shareholder Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.2* Registration Rights Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.3* Consulting Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.4* Distribution Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 23.1 Consent of Deloitte & Touche LLP 99.1* Press Release dated February 28, 2001
* Incorporated by reference to exhibits to Current Report on Form 8-K filed on March 14, 2001. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Sonic Solutions, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Novato, State of California, on the 31st day of August, 2001. SONIC SOLUTIONS Signature Date --------- ---- /s/ Robert J. Doris August 31, 2001 - ---------------------------------------------------------- Robert J. Doris President and Director (Principal Executive Officer) /s/ A. Clay Leighton August 31, 2001 - ---------------------------------------------------------- A. Clay Leighton Senior Vice President of Worldwide Operations and Finance and Chief Financial Officer (Principal Financial Accounting Officer) 4 EXHIBIT INDEX
Exhibit Description ------- ------------------------------------------------------------------------------------ 2.1* Asset Purchase Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 3.1* Certificate of Determination of Series D Preferred Stock of Sonic Solutions 10.1* Shareholder Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.2* Registration Rights Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.3* Consulting Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 10.4* Distribution Agreement between Registrant and Daikin Industries, Ltd., dated as of February 27, 2001 23.1 Consent of Deloitte & Touche LLP 99.1* Press Release dated February 28, 2001
* Incorporated by reference to exhibits to Current Report on Form 8-K filed on March 14, 2001. 5 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Daikin Industries, Ltd. We have audited the accompanying combined balance sheets of The DVD Software Development Business of Daikin Industries, Ltd. as of March 31, 1999 and 2000, and the related combined statements of operations, changes in invested capital of Daikin Industries, Ltd. and cash flows for the years then ended. these financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the combined financial position of The DVD Software Development Business of Daikin Industries, Ltd. as of March 31, 1999 and 2000, and the combined results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's recurring losses from operations and dependence upon Daikin Industries, Ltd. for funding raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The accompanying combined financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Deloitte & Touche LLP New York, New York July 24, 2000 6 The DVD Software Development Business of Daikin Industries, Ltd. Combined Balance Sheets
March 31, ------------------------------ December 31, 1999 2000 2000 ---------- ---------- ----------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 698,285 $1,087,831 $ 102,481 Accounts receivable, net of allowances of $90,000, $110,000 and $110,000 1,584,804 2,142,656 1,934,735 Accounts receivable - Parent and affiliates (Note 4) 213,136 209,714 289,994 Inventories, net 40,649 16,888 11,583 Prepaid expenses and other current assets 582,201 298,675 30,701 ---------- ---------- ----------- Total current assets 3,119,075 3,755,764 2,369,494 CAPITALIZED SOFTWARE COSTS - Net 3,755,600 2,138,622 1,992,029 PROPERTY, PLANT AND EQUIPMENT - Net 1,662,921 1,197,205 912,106 ---------- ---------- ----------- TOTAL $8,537,596 $7,091,591 $ 5,273,629 ========== ========== =========== LIABILITIES AND INVESTED CAPITAL OF DAIKIN INDUSTRIES, LTD. CURRENT LIABILITIES: Accounts payable - trade $ 23,578 $ 139,953 $ 26,007 Current portion of capital lease obligations 430,854 7,311 --- Deferred revenue 122,007 178,997 108,302 ---------- ---------- ----------- Total current liabilities 576,439 326,261 134,309 CAPITAL LEASE OBLIGATIONS - Less current portion 95,364 --- --- INVESTED CAPITAL OF DAIKIN INDUSTRIES, LTD. 7,865,793 6,765,330 5,139,320 ---------- ---------- ----------- TOTAL $8,537,596 $7,091,591 $ 5,273,629 ========== ========== ===========
See notes to combined financial statements. 7 The DVD Software Development Business of Daikin Industries, Ltd. Combined Statements of Operations
Years Ended Nine Months March 31, Ended -------------------------- December 31, 1999 2000 2000 ----------- ----------- ----------- (Unaudited) SALES - Net (includes $271,305, $351,125 and $58,463 of sales to related parties - see Note 4) $ 2,738,754 $ 4,319,924 $ 2,893,665 ----------- ----------- ----------- OPERATING EXPENSES: Cost of Sales 48,888 187,186 126,636 Amortization of capitalized software 2,102,717 2,352,637 1,208,085 Research and development expenses 2,837,852 1,746,706 386,086 Sales and marketing expenses 4,041,408 3,422,258 2,013,730 General and administrative expenses 1,228,515 1,434,867 1,113,899 ----------- ----------- ----------- Total operating expenses 10,259,380 9,143,654 4,848,436 ----------- ----------- ----------- OPERATING LOSS (7,520,626) (4,823,730) (1,954,771) ----------- ----------- ----------- OTHER (EXPENSES) INCOME - Net: Interest income 24,942 10,984 12,265 Interest expense (26,612) (26,666) (117) Other - net (65,825) (17,005) 500 ----------- ----------- ----------- Other (expenses) income - net (67,495) (32,687) 12,648 ----------- ----------- ----------- LOSS BEFORE PROVISION FOR INCOME TAXES (7,588,121) (4,856,417) (1,942,123) INCOME TAX PROVISION --- --- --- ----------- ----------- ----------- NET LOSS $(7,588,121) $(4,856,417) $(1,942,123) =========== =========== ===========
See notes to combined financial statements. 8 The DVD Software Development Business of Daikin Industries, Ltd. Combined Statements of Changes in Invested Capital of Daikin Industries, Ltd.
Years Ended Nine Months March 31, Ended --------------------------------- December 31, 1999 2000 2000 ----------- ----------- ----------- (unaudited) BALANCE, BEGINNING OF PERIOD $ 4,498,007 $ 7,865,793 $ 6,765,330 Net Loss (7,588,121) (4,856,417) (1,942,123) Net remittance from Daikin Industries, Ltd. 10,955,907 3,755,954 316,113 ----------- ----------- ----------- BALANCE, END OF PERIOD $ 7,865,793 $ 6,765,330 $ 5,139,320 =========== =========== ===========
See notes to combined financial statements. 9 The DVD Software Development Business of Daikin Industries, Ltd. Combined Statements of Cash Flows
Nine Months Years Ended Ended March 31, December 31, 1999 2000 2000 ----------- ----------- ----------- (unaudited) OPERATING ACTIVITIES: Net loss $(7,588,121) $(4,856,417) $(1,942,123) Adjustments to reconcile net loss to net cash used in by operating activities: Depreciation and amortization 2,493,431 2,919,559 1,518,117 Provision for returns and doubtful accounts, net of write-offs (80,000) 20,000 --- Changes in operating assets and liabilities: Accounts receivable (1,714,888) (574,430) 127,641 Inventories (40,649) 23,761 5,305 Prepaid expenses and other current assets (387,112) 283,526 267,974 Capitalized software costs - net (2,345,804) (735,659) (1,061,492) Accounts payable - trade (99,966) 116,375 (113,946) Accounts payable - affiliates (110,979) --- --- Accrued expenses and other current liabilities 70,827 56,990 (78,006) ----------- ----------- ----------- Net cash used in operating activities (9,803,261) (2,746,295) (1,276,530) ----------- ----------- ----------- INVESTING ACTIVITIES: Acquisition of property and equipment (163,448) (101,206) (24,933) ----------- ----------- ----------- FINANCING ACTIVITIES: Decrease in capital lease obligations (543,584) (518,907) --- Net remittance from Daikin Industries, Ltd. 10,955,907 3,755,954 316,113 ----------- ----------- ----------- Net cash provided by financing activities 10,412,323 3,237,047 316,113 ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 445,614 389,546 (985,350) CASH AND CASH EQUIVALENTS, BEGINNING OFYEAR 252,671 698,285 1,087,831 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 698,285 $ 1,087,831 $ 102,481 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 26,612 $ 26,666 $ --- =========== =========== ===========
See notes to combined financial statements. 10 The DVD Software Development Business of Daikin Industries, Ltd. Notes to Combined Financial Statements 1. Basis of Presentation and Description of the Business The accompanying combined financial statements present the accounts of Daikin Industries, Ltd. ("DIL" or "Parent") and certain of its affiliates relating to the development and distribution of software used to author digital video disks ("DVDs"). DIL's software business (the "Company") commenced operations in May 1996. Since the Company's inception, DIL has provided the Company with funding for working capital. Remittances for the sales of the Company's products are generally received by DIL. The caption "Invested Capital of Daikin Industries, Ltd." in the accompanying balance sheets include the cumulative amount of the net funding received from DIL since inception, as well as the cumulative losses sustained by the Company since inception. For all periods presented, certain expenses reflected in the financial statements include allocations of expenses incurred by DIL and certain of its affiliates. These allocations take into consideration personnel, business volume and other appropriate factors and generally include costs related to marketing, administrative, general management and other services provided to the Company by DIL and certain of its affiliates. These allocated expenses totaled $200,000 and $212,000 for the years ended March 31, 1999 and 2000, respectively, and $150,000 for the nine months ended December 31, 2000. Allocations of expenses are estimates based on management's best assessment of actual expenses incurred on behalf of the Company. It is management's opinion that the expenses charged to the Company are reasonable. The financial statements have been prepared as if the Company operated as a stand-alone entity since inception. The financial information included herein may not necessarily reflect the financial position, results of operations or cash flows of the Company in the future or what the balance sheets, results of operations or cash flows of the Company would have been if it had been a separate, stand-alone entity. The Company's products are used for commercial applications by motion picture production facilities and DVD replication houses. During the year ended March 31, 2000, the Company introduced products that are directed toward the consumer market for DVD authoring. The Company uses distributors for its products in most markets. The distributors purchase the software from the Company and resell it. The Company's products are sold to distributors in eight countries, and most of the Company's sales are denominated in U.S. dollars. A distributor of the Company's products in Singapore is an affiliate of DIL. Sales to that distributor were 8% and 10%, respectively, of the Company's sales for the years ended March 31, 1999 and 2000, and 2% for the nine months ended December 31, 2000. 2. Recurring Losses and Funding Received from DIL The Company has sustained losses each year since inception and is dependent upon DIL for funding. DIL has not determined whether it will continue to fund the Company's cash requirements for the year ending March 31, 2001. Should DIL cease funding the Company's losses, the Company would not be able to meet its obligations as they come due. DIL is currently assessing several options relating to the future of the Company, including the potential sale of the Company. No decision regarding the future of the Company has been made at this time. 3. Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 11 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents - In the accompanying balance sheets, all short-term interest-bearing investments with a maturity of three months or less are considered to be cash equivalents. Inventories - Inventories are stated at the lower of average cost or market. Software Development Costs and Research and Development Costs - In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," purchased software and software product development costs are capitalized when a product's technological feasibility has been established and then is amortized over a future period. Amortization begins when a product is available for general release to customers. Amortization of capitalized software costs, for both internally developed and purchased software products is computed on straight-line basis over the estimated economic life of the product, which is generally three years. All other research and development expenditures are expensed in the period incurred. Property, Plant and Equipment - Property, plant and equipment consist of leasehold improvements, computer equipment and vehicle, and are recorded at cost. Equipment under capital leases is stated at the present value of minimum lease payments at the inception of the leases. Depreciation is computed by the straight-line method over the estimated useful lives of the various classes of the related assets. Leasehold improvements are amortized over the terms of the related leases or the estimated lives of improvements, if less than the lease term. Equipment held under capital leases is amortized over the shorter of the lease term or the estimated useful life of the asset. The principal service lives used in computing provisions for depreciation are as follows:
Years Leasehold improvements 5 Computer equipment 5 Vehicle 5
Revenue Recognition - The Company has adopted Statement of Position ("SOP") 97-2, "Software Revenue Recognition", as amended by SOP 98-9, "Software Revenue Recognition, with Respect to Certain Arrangements." The Company's revenue is derived from the sale of the Company's software products and from the sale of maintenance contracts. The Company's software products generally are sold to its distributors, and resold by those parties to the end users. The software is ready to use when sold and generally does not require any efforts by the Company or the distributor to be installed and implemented by the end user. Revenue from the sales is recognized at the time the software is delivered to the distributor and the distributor is obligated to pay for it. Revenue from sales to distributors may be subject to agreements allowing limited rights of return and exchange. Accordingly, the Company provides reserves for estimated future returns and exchanges at the time of the sales as reduction of revenue. Revenue from the sale of maintenance contracts is deferred and recognized ratably over the period of the contract. In instances where maintenance contracts are sold with software products in a multiple element arrangement, vendor specific objective evidence is established for the maintenance contract and the software product based on separate sales of each element. The relative value of each element is used to allocate the multiple element sales price, and revenue recognition for each element is accounted for separately as set forth above. Cost of revenue includes hardware product costs, third party hardware costs and third party software royalties. Income Taxes - The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying applicable statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company accounts for income taxes on a stand-alone basis, in which no consideration is given to the ability of DIL or its affiliates to utilize the tax deductions generated by the Company. The valuation of deferred tax assets is based upon the likelihood of realization by the Company of a tax benefit in future years. At March 31, 1999 and 2000, and at December 31, 2000, valuation allowances equal to the amount of the net deferred tax assets were established due to the uncertainty regarding the realization of the deferred tax assets. 12 Comprehensive Income - In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income is defined in Concepts Statement No. 6 as "the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners." As there are no changes in equity from nonowner sources other than from net income, there is no difference between net income for the year ended March 31, 1999 and 2000 reported on the statements of operations. Reclassifications - Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current period. 4. Related Party Transactions The Company had the following transactions and balances with the Parent and affiliates:
Years Ended Nine Months March 31, Ended ------------------------------ December 31, 1999 2000 2000 ----------- ----------- ----------- (unaudited) Sales to affiliate $271,305 $351,125 $ 58,463 Due from parent and affiliate 213,136 209,714 289,994
5. Software Development Costs
Years Ended Nine Months March 31, Ended ------------------------------ December 31, 1999 2000 2000 ----------- ----------- ----------- (unaudited) Net amount capitalized, beginning of the period $ 3,512,513 $ 3,755,600 $ 2,138,622 Amounts capitalized during the period 2,345,804 735,659 1,061,492 Amortization expense (2,102,717) (2,352,637) (1,208,085) ----------- ----------- ----------- Net amount capitalized, end of the period $ 3,755,600 $ 2,138,622 $ 1,992,029 =========== =========== ===========
13 6. Property, Plant and Equipment Property, plant, and equipment consist of the following:
Years Ended Nine Months March 31, Ended ------------------------------- December 31, 1999 2000 2000 ----------- ----------- ----------- (unaudited) Leasehold improvements $ 62,116 $ 62,116 $ 62,116 Computer equipment 2,918,902 3,012,011 3,036,944 Vehicle --- 8,096 8,096 ----------- ----------- ----------- 2,981,018 3,082,223 3,107,156 Less accumulated depreciation and amortization (1,318,097) (1,885,018) (2,195,050) ----------- ----------- ----------- Property, plant and equipment - net $ 1,662,921 $ 1,197,205 $ 912,106 =========== =========== ===========
7. Income Taxes There was no tax benefit recognized for the losses incurred during the years ended March 31, 1999 and 2000, and the nine months ended December 31, 2000, as valuation allowances were provided for in amounts equal to the deferred income tax benefits due to uncertainty recognizing the realization of the related deferred tax assets. The effective tax benefit on pretax losses differed from the US federal statutory rate for the following reasons: Years Ended Nine Months March 31, Ended --------------- December 31, 1999 2000 2000 ---- ---- ------------ (Unaudited) US federal statutory rate 35% 35% 35% State and local income taxes, net of federal tax benefit 8% 8% 8% Valuation allowance (43%) (43%) (43%) ----- ----- ----- --- --- --- ===== ===== ===== The components of the Company's deferred income taxes and corresponding valuation allowances are as follows:
Years Ended Nine Months March 31, Ended -------------------------------- December 31, 1999 2000 2000 ----------- ----------- ----------- (unaudited) Accounts receivable reserves $ 75,200 $ 132,000 $ 132,000 Computer software amortization (1,502,240) (855,449) (796,812) Net operating loss carryforwards 8,267,685 9,497,582 10,208,986 ----------- ----------- ----------- 6,840,645 8,774,133 9,544,174 Less valuation allowance: (6,840,645) (8,774,133) (9,544,174) ----------- ----------- ----------- Deferred income taxes - net $ --- $ --- $ --- =========== =========== ===========
14 8. Capital Lease Obligations The Company leases certain equipment and office premises under capital and noncancellable operating leases. At March 31, 2000, the minimum rental commitments under these leases were as follows:
Year Ending Capital Operating March 31, Lease Lease - ----------- ----------------- ---------------- 2001 $7,424 $176,858 Less portion representing interest 113 --- ----------------- ---------------- Obligations under capital lease $7,311 $176,858 ================= ================
Rent expense amounted to $185,281 and $183,750 for the years ended March 31, 1999 and 2000, respectively. 9. Retirement Plan Certain employees of the business participate in a 401(k) savings plan as defined under the applicable provisions of the Internal Revenue Code that is maintained by an affiliate of DIL. Employee contribution range from 1% to 15%, and the matching contribution is 50% of the employee's contribution to a maximum of 6%. Contribution to the plan was $39,487 for the year ended March 31, 2000. 10. Segment Reporting In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which was adopted by the Company in 1999. SFAS NO. 131 requires companies to report financial and descriptive information about its reportable operating segments, including segment profit or loss, certain specific revenue and expense items and segment assets, as well as information about the revenues derived from the Company products and services, the countries in which the Company earns revenue and holds assets, and major customers. The Company is a supplier of a complete range of authoring and premastering tools for DVD Video and DVD-ROM software production. Sales, gross profit, and operating losses are not allocated or specific to individual departments within the organization. Accordingly, the Company has a single reportable segment. As such, the Company is required to disclose the following geographic sales information:
Years Ended Nine Months March 31, Ended ----------------------------- December 31, 1999 2000 2000 ---------- ---------- ---------- (Unaudited) North America and others $2,154,234 $2,489,855 $ 801,942 Japan 584,520 1,830,069 2,091,723 ---------- ---------- ---------- Total net sales $2,738,754 $4,319,924 $2,893,665 ========== ========== ==========
11. Subsequent Event (Unaudited) On February 27, 2001 DIL signed an agreement with Sonic Solutions ("Sonic") in which Sonic will purchase certain assets of the Company from DIL in return for 395,000 shares of Sonic's Common Stock and 700,000 shares of Sonic's Preferred Stock, convertible to shares of Sonic's Common Stock under certain circumstances. 15 SONIC SOLUTIONS UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS On February 27, 2001, Sonic Solutions, a California corporation ("Sonic") entered into an Asset Purchase Agreement with Daikin Industries, Ltd., a Japanese corporation ("Daikin") whereby on that date Sonic acquired The DVD Software Development Business of Daikin Industries, Ltd. ("Daikin DVD"). In return for the assets purchased, Sonic issued 395,000 shares of Common Stock valued at approximately $593,000 and 700,000 shares of Preferred Stock to Daikin valued at approximately $1,750,000. The acquisition was recorded using the purchase method of accounting. The unaudited pro forma combined financial statements are based on the respective historical audited and unaudited financial statements and related notes of Sonic and Daikin DVD. The unaudited pro forma combined balance sheet as of December 31, 2000 presents the financial position of Sonic assuming the acquisition had occurred on December 31, 2000. All material adjustments to reflect the acquisition are set forth in the column "Pro Forma Adjustments." The unaudited pro forma combined statements of operations for the nine months ended December 31, 2000 and the year ended March 31, 2000 present the results of operations of Sonic Solutions assuming the acquisition had occurred on April 1, 1999 and include all material pro forma adjustments necessary for this purpose. The pro forma adjustments are preliminary and based on management's estimates of the value of the tangible and intangible assets acquired. The actual adjustments will differ materially from those presented in these pro forma financial statements. The following unaudited pro forma combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the results of operations or financial position that actually would have been realized had Sonic and Daikin DVD been a combined company during the specified periods. The unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements of Sonic, including the notes thereto. 16 SONIC SOLUTIONS PRO FORMA COMBINED BALANCE SHEET December 31, 2000 (in thousands) (UNAUDITED)
Sonic Daikin Pro Forma Solutions DVD Adjustments Pro Forma --------- ------ ----------- --------- Assets Current assets: Cash and cash equivalents $ 2,336 $ 102 $ (102) (b) $ 2,336 Accounts receivable, net 3,553 2,225 (290) (b) 5,488 Inventory, net 663 12 --- 675 Prepaid expenses and other current assets 316 31 --- 347 -------- ------ ------- -------- Total current assets 6,868 2,370 (392) 8,846 Fixed assets, net 1,428 912 (582) (a) 1,758 Purchased and internally developed software costs 1,001 1,992 (1,334) (a) 1,659 Other assets 460 --- --- 460 -------- ------ ------- -------- Total assets $ 9,757 $5,274 $(2,308) $ 12,723 ======== ====== ======= ======== Liabilities And Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 4,451 $ 27 $ 338 (a),(b) $ 4,816 Deferred revenue and deposits 1,054 108 --- 1,162 Subordinated debt, current portion 215 --- --- 215 Current portion of obligations under capital leases 27 --- --- 27 -------- ------ ------- -------- Total current liabilities 5,747 135 338 6,220 Commitments and contingencies Shareholders' Equity Convertible preferred stock --- --- 1,750 (a) 1,750 Common stock 27,539 --- 743 (a) 28,282 Invested capital of affiliate --- 5,139 (5,139) (a) --- Accumulated deficit (23,529) --- --- (23,529) -------- ------ ------- -------- Total shareholders' equity $ 4,010 $5,139 $(2,646) $ 6,503 -------- ------ ------- -------- Total liabilities and shareholders' equity $ 9,757 $5,274 $(2,308) $ 12,723 ======== ====== ======= ========
See accompanying notes to unaudited pro forma combined financial statements. 17 SONIC SOLUTIONS PRO FORMA COMBINED STATEMENT OF OPERATIONS Nine Months Ended December 31, 2000 (in thousands, except share and per share amounts) (UNAUDITED)
Sonic Daikin Pro Forma Pro Solutions DVD Adjustments Forma --------- ------- ----------- ------- Net revenue $ 12,468 $ 2,894 $ --- $15,362 Cost of revenue 4,580 --- 373 (c),(d) 4,953 -------- ------- ------- ------- Gross profit 7,888 2,894 (373) 10,409 -------- ------- ------- ------- Operating expenses: Cost of sales --- 126 (126) (c) --- Amortization of capitalized software --- 1,208 (1,208) (c) --- Marketing and sales 6,667 2,014 --- 8,681 Research and development 3,960 386 --- 4,346 General and administrative 1,850 1,114 --- 2,964 -------- ------- ------- ------- Total operating expenses 12,477 4,848 (1,334) 15,991 -------- ------- ------- ------- Operating loss (4,589) (1,954) 961 (5,582) -------- ------- ------- ------- Other income (expense), net (101) 12 --- (89) -------- ------- ------- ------- Loss before income taxes (4,690) (1,942) 961 (5,671) -------- ------- ------- ------- Provision (benefit) for income taxes --- --- --- --- -------- ------- ------- ------- Net loss $(4,690) $(1,942) $ 961 $(5,671) Beneficial conversion feature given to preferred shareholders --- --- --- --- Dividends paid to preferred shareholders 8 --- 105 (e) 113 -------- ------- ------- ------- Net loss applicable to common shareholders $(4,698) $(1,942) $ 856 $(5,784) ======== ======= ======= ======= Basic and diluted loss per share applicable to common shareholders $(0.38) $ (0.45) ======== ======= Weighted average shares used in computing per share amounts 12,301 495 (f) 12,796 ======== ======= =======
See accompanying notes to unaudited pro forma combined financial statements. 18 SONIC SOLUTIONS PRO FORMA COMBINED STATEMENT OF OPERATIONS Year Ended March 31, 2000 (in thousands, except share and per share amounts) (UNAUDITED)
Sonic Daikin Pro Forma Solutions DVD Adjustments Pro Forma --------- ------ ----------- --------- Net revenue $20,827 $ 4,320 $ --- $25,147 Cost of revenue 8,992 --- 516 (c),(d) 9,508 ------- ------- ------- ------- Gross profit 11,835 4,320 (516) 15,639 ------- ------- ------- ------- Operating expenses: Cost of sales --- 187 (187) (c) --- Amortization of capitalized software --- 2,353 (2,353) (c) --- Marketing and sales 8,938 3,422 --- 12,360 Research and development 6,155 1,747 --- 7,902 General and administrative 2,284 1,435 --- 3,719 ------- ------- ------- ------- Total operating expenses 17,377 9,144 (2,540) 23,981 ------- ------- ------- ------- Operating loss (5,542) (4,824) 2,024 (8,342) ------- ------- ------- ------- Other income (expense), net (249) (32) --- (281) ------- ------- ------- ------- Loss before income taxes (5,791) (4,856) 2,024 (8,623) ------- ------- ------- ------- Provision (benefit) for income taxes (97) --- --- (97) ------- ------- ------- ------- Net loss $(5,694) $(4,856) $ 2,024 $(8,526) Beneficial conversion feature given to preferred shareholders 110 --- --- 110 Dividends paid to preferred shareholders 49 --- 140 (e) 189 ------- ------- ------- ------- Net loss applicable to common shareholders $(5,853) $(4,856) $ 1,884 $(8,825) ======= ======= ======= ======= Basic and diluted loss per share applicable to common shareholders $ (0.56) $ (0.81) ======= ======= Weighted average shares used in computing per share amounts 10,460 495 (f) 10,955 ======= ======= =======
See accompanying notes to unaudited pro forma combined financial statements. 19 SONIC SOLUTIONS NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION On February 27, 2001, Sonic completed the acquisition of The DVD Software Development Business of Daikin Industries. Pursuant to the Asset Purchase Agreement and related agreements (the "Agreements"), Sonic issued to Daikin 395,000 shares of Common Stock valued at $593,000 and 700,000 shares of Preferred Stock valued at $1,750,000. An additional 100,000 shares of Common Stock valued at $150,000 were issued as a finder's fee. Sonic estimates transaction costs will be $365,000 for a total purchase price of approximately $2,858,000. The transaction will be accounted for as a purchase. Also, in connection with the Asset Purchase Agreement, Sonic and Daikin entered into a Distribution Agreement whereby Daikin was appointed as Sonic's exclusive distributor in Japan. Additionally, Daikin committed to placing minimum purchase orders of 260,000,000 yen of the DVD products over the next twelve (12) months. NOTE 2. UNAUDITED PRO FORMA COMBINED BALANCE SHEET The unaudited pro forma combined balance sheet as of December 31, 2000 give effect to the acquisition as if it had occurred on December 31, 2000. The following adjustments have been reflected in the unaudited pro forma combined balance sheet: (a) To record common stock and preferred stock issued by Sonic and record applicable purchase accounting entries. Under purchase accounting, the purchase price will be allocated to assets and liabilities assumed based on their relative fair values. We estimated fair value of the individual net tangible and intangible assets acquired exceeded the purchase price. As a result, the carrying values of the fixed assets and purchased software costs acquired were reduced by this excess. The amount and components of the purchase price along with the allocation of the purchase price are as follows (in thousands): Common stock issued $ 743 Preferred stock issued 1,750 Estimated transaction costs 365 ------ Total purchase price $2,858 ====== Accounts receivable $1,935 Prepaid expenses 31 Inventory 12 Fixed assets 330 Purchased software costs 658 Deferred revenue (108) ------ Net assets acquired $2,858 ======
The actual allocation of the purchase price will depend on the composition of Daikin DVD's net assets on the closing date. Consequently, the actual allocation of the purchase price will differ from that presented above. 20 (b) To exclude assets and liabilities that were not acquired pursuant to the Agreements. NOTE 3. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS The unaudited pro forma combined statements of operations give effect to the acquisition as if it had occurred on April 1, 1999. The following adjustments have been reflected in the unaudited pro forma combined statements of operations: (c) To reflect certain expenses within cost of revenue and amortization to conform with Sonic's presentation. (d) Adjustment to record a decrease in amortization of capitalized software expense due to the reduction in the historical carrying value of acquired software development costs. These costs are being amortized on a straight-line basis over two (2) years. (e) To reflect dividends on preferred stock of $0.20 per share per annum on the 700,000 outstanding preferred shares. (f) Adjustment to reflect the issuance of 495,000 shares of Sonic's Common Stock in connection with the Acquisition. 21 EX-23.1 3 dex231.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-66187 of Sonic Solutions on Form S-8 of our report dated July 24, 2000 relating to the March 31, 1999 and 2000 financial statements of the DVD Software Development Business of Daikin Industries, Ltd. (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the Company's ability to continue as a going concern). /s/ Deloitte & Touche LLP New York, New York August 31, 2001 -----END PRIVACY-ENHANCED MESSAGE-----