Roxio Reports First Quarter Results

The Digital Media Company Confirms Launch Plans for Napster

Santa Clara, California - (July 31, 2003) - Roxio, Inc. (Nasdaq: ROXI), The Digital Media Company , provider of the best selling digital media software in the world, today reported financial results for its fiscal first quarter ended June 30, 2003. Net revenue for the first quarter of fiscal 2004 was $24.2 million compared to $32.3 million in the first quarter of the prior fiscal year. Roxio's reported net loss for the first quarter was $370,000, or $0.02 per basic and diluted share, as compared to a net loss of $1.2 million, or $0.06 per basic and diluted share, in the first quarter of the prior fiscal year. Shares used for computing basic and fully diluted earnings per share were approximately 21.9 million for the first fiscal quarter ended June 30, 2003 and 19.5 million shares for the first quarter of the prior fiscal year.

"First quarter sales results for our software division are in line with our estimates. Easy CD & DVD Creator 6.0 continues to outsell its nearest retail competitors by a substantial margin and maintain its leadership in CD and DVD recording," said Chris Gorog, Roxio's Chairman and CEO.

"The development of Napster 2.0 is on track, allowing us to launch the service in time for Christmas. We believe that the new, legal version of Napster will be the richest, most complete music experience available on the Internet and that it will offer consumers, for the first time, a choice between a la carte downloads and a monthly subscription program," concluded Mr. Gorog.

For the quarter, Roxio's digital media software division recorded revenues of $23.4 million and pretax income of $6.4 million. Pretax income includes a gain on the sale of the GoBack product line of approximately $10.6 million. Revenues for the company's online music division totaled approximately $780,000 and pretax loss was $4.0 million. Combined pretax income for the two divisions was approximately $2.4 million before a tax provision of approximately $2.7 million.

Elliot Carpenter, Roxio's chief financial officer, commented, "Our results of operations and balance sheet reflect significant transactions during the quarter including our recent equity financing, the purchase of Pressplay and gains from the sale of our GoBack product line to Symantec. We exited the quarter with approximately $63 million in cash and short-term investments, a more focused consumer software product line and an expanded growth opportunity through Napster. Near-term, our focus is on managing our software business for profitability and launching our online music business. The combination of our earlier launch date for Napster and softness in retail software sales lead us to fiscal second quarter guidance of $21.4 million in revenue and a net loss per fully diluted share of $0.56, assuming approximately 27.4 million shares outstanding."

Recent Corporate Highlights

  • Roxio completed the operational integration of Pressplay and will launch Napster 2.0 by the upcoming holiday season.
  • Roxio added Larry Kenswil, current president of Universal Music Group's eLabs new media and technologies division, to its board of directors.
  • Memorex began offering Roxio's complete line of digital media software products with the new Memorex Dual Format DVD Recorder. Roxio's Easy CD & DVD Creator™ 6 Basic - DVD Edition, PhotoSuite(R) 5 SE, VideoWave Movie Creator™, and DVDMax™ Player software are bundled with the Memorex Dual-X drive, which is available now for a suggested retail price of $329.99.
  • I/OMagic Corporation signed on to include Easy CD & DVD™ Creator 6 Basic and Roxio DVDMax™ software in the new I/OMagic "MediaStation Combo" drive.
  • Pacific Digital Corporation began bundling Roxio's Easy CD & DVD™ Creator 6 Basic with its new DVD burners, starting with the Pacific Digital 4x DVD+R/+RW Burner for PCs.
  • In June, Roxio completed a private placement of 4,000,000 shares of its Common Stock at $5.50 per share with gross proceeds of $22 million. The offering expands Roxio's stockholder base and adds to Roxio's working capital as it continues to expand its activities in the digital media sector.
  • Roxio's digital media suite was recently honored by PC World with two 2003 World Class Awards for Best CD Mastering Software and Best DVD Mastering Software.

Earnings Call Information

The Roxio first quarter teleconference and webcast is scheduled to begin at 1:30 p.m., Pacific Time, on Thursday, July 31, 2003. To participate on the live call, analysts and investors should dial 800-216-6962 at least ten minutes prior to the call and reference conference ID: 1622569. Roxio will also offer a live and archived webcast of the conference call, accessible from the "Investor Relations" section of the company's Web site at http://investor.roxio.com. A telephonic replay of the conference call will also be available for 48 hours by dialing 800-642-1687 and entering the passcode: 1622569.

Safe Harbor Statement

Except for historical information, the matters discussed in this press release, in particular matters related to Roxio's future revenue, net income (loss), cash flow, the re-launch of Napster, OEM relationships, relationships with content providers, and product development, are forward-looking statements that are subject to certain risks and uncertainties such as decreased demand for our products, increased competition, failure to develop new products or improvements to existing products, general economic conditions and third party claims, that could cause actual results to differ materially from those projected. Additional information on these and other factors are contained in Roxio's reports filed with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 10-K as filed with the SEC on June 30, 2003, copies of which are available at the website maintained by the SEC at http://www.sec.gov. Roxio assumes no obligation to update the forward-looking statements included in this press release.



                                  ROXIO INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share data)

                                                     June 30,      March 31,
                                                       2003           2003

                                  ASSETS
    Current assets:
     Cash and cash equivalents                       $46,596        $36,820
     Short-term investments                           16,694         16,677
     Accounts receivable, net of allowance
      for doubtful accounts of
      $945 at June 30, 2003 and $850 at
      March 31, 2003                                   9,504         12,637
     Inventories                                         196            460
     Prepaid expenses and other current assets         7,623          3,366
     Deferred income taxes                             2,337          4,709
      Total current assets                            82,950         74,669

    Long-term investment                               3,000          3,059
    Property and equipment, net                       13,561          9,058
    Goodwill, net                                     89,006         55,247
    Other intangibles assets, net                      9,353         10,314
    Other assets                                       2,425            589

      Total assets                                  $200,295       $152,936

         LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
     Accounts payable                                 $8,023        $11,952
     Income taxes payable                                226          1,353
     Accrued liabilities                              22,485         16,153
     Deferred revenues                                 1,829             --
     Current portion of long-term debt                   620            606
      Total current liabilities                       33,183         30,064

    Long term liabilities:
     Long term debt                                    5,326          5,490
     Deferred income taxes                             1,014          1,190
     Other liabilities                                   295             --

      Total liabilities                               39,818         36,744

    Stockholders' equity:
     Preferred stock, $0.001 par value;
      Authorized: 10,000 shares;
      Issued and outstanding: none at
      June 30, 2003 and at March 31, 2003                 --             --
    Common stock, $0.001 par value;
     Authorized: 100,000 shares;
     Issued and outstanding: 27,488
     shares at June 30, 2003 and
     19,574 shares at March 31, 2003                      27             20
    Additional paid-in capital                       171,492        127,804
    Deferred stock-based compensation                (2,367)        (2,886)
    Accumulated deficit                             (11,045)       (10,675)
    Accumulated other comprehensive income             2,370          1,929
      Total stockholders' equity                     160,477        116,192

      Total liabilities and stockholders' equity    $200,295       $152,936


                                  ROXIO INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)

                                                          Three Months
                                                          Ended June 30,
                                                       2003          2002

    Net revenues                                     $24,176        $32,303
     Cost of revenues (excluding stock-based
      compensation charges of $10 and $13
      respectively)                                    7,874          8,450
       Gross profit                                   16,302         23,853

    Operating expenses:
     Research and development (excluding
      stock-based compensation charges of
      $151 and $191 respectively)                      7,318          5,464
     Sales and marketing (excluding
      stock-based compensation charges of
      $135 and $(358) respectively)                    9,850         11,934
     General and administrative
      (excluding stock-based compensation
      charges of $223 and $283 respectively)           5,356          5,665
     Amortization of intangible assets                 1,204          2,064
     Stock-based compensation charges                    519            129
      Total operating expenses                        24,247         25,256

    Loss from operations                             (7,945)        (1,403)
    Other income, net                                 10,297            127

    Income (loss) before provision
     for income taxes                                  2,352        (1,276)
    Provision (benefit) for income taxes               2,722           (56)

    Net loss                                           (370)        (1,220)
    Other comprehensive gain, net of tax:
     Foreign currency translation adjustment             487          1,257
     Unrealized gain (loss) on short-term
      investments                                       (46)             23
    Comprehensive income                                 $71            $60

    Earnings per share:
     Basic                                           $(0.02)        $(0.06)
     Diluted                                         $(0.02)        $(0.06)

    Weighted average shares used in
     computing basic and diluted
     net loss per share
     Basic                                            21,864         19,506
     Diluted                                          21,864         19,506


                                 ROXIO, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (unaudited)

                                                       Three Months Ended
                                                             June 30,
                                                        2003          2002
    Cash flows from operating activities:
     Net loss                                         $(370)        (1,220)
     Adjustments to reconcile net loss to
      net cash used in operating activities:
      Depreciation and amortization                    2,347          2,721
      Stock-based compensation charges                   519            129
      Provision for doubtful accounts                     38            208
      Loss on retirement of property and equipment       320             --
      Gain on sale of GoBack assets                 (10,592)             --
      Deferred income taxes                            2,372          (267)
    Change in operating assets and liabilities:
      Accounts receivable                              2,820          5,210
      Inventories                                        200            126
      Prepaid expenses and other current assets          343          (366)
      Other long term assets                           (228)             --
      Accounts payable                               (4,583)        (1,599)
      Income taxes payable                           (1,052)          (755)
      Accrued liabilities                              (486)        (4,732)
      Deferred revenues                                1,827             --
      Other liabilities                                  295             --
       Net cash used in operating activities         (6,230)          (545)

    Cash flows from investing activities:
     Purchases of property and equipment             (1,114)        (2,598)
     Proceeds from sale of property and
      equipment                                            1             --
     Proceeds from sale of GoBack assets              10,250             --
     Purchases of other intangible assets               (63)             --
     Purchases of short-term investments             (2,792)       (21,201)
     Proceeds from sale of short-term
      investments                                        350             --
     Maturities of short-term investments              2,390            295
     Acquisition of Pressplay, net of
      cash acquired                                 (13,473)             --
      Net cash used in investing activities          (4,451)       (23,504)

    Cash flows from financing activities:
     Principal payment of capital lease
      obligation                                       (154)          (129)
     Issuance of common stock under employee
      stock plan                                          --            555
     Issuance of common stock from private
      equity financing                                20,613             --
      Net cash provided by financing activities       20,459            426

    Effect of exchange rates on cash                     (2)            480

    Change in cash and cash equivalents                9,776       (23,143)
    Cash and cash equivalents at
     beginning of period                              36,820         47,280
    Cash and cash equivalents at
     end of period                                   $46,596        $24,137

    Supplemental cash flow information:
     Cash paid for interest                              $61            $31
     Cash paid for income taxes                       $1,313         $1,320

About Roxio

Roxio, a division of Sonic Solutions, develops and markets the best-selling digital media software in the world. Roxio offers award-winning software products for CD/DVD burning, photo editing and video editing and has an installed base of over 150 million users. Roxio distributes its products globally through strategic partnerships with major hardware manufacturers, through leading retailers, through Internet partnerships and through direct sales at www.roxio.com. Roxio's parent company, Sonic Solutions (NASDAQ: SNIC; http://www.sonic.com) is the leader in digital media software and provides a broad range of software tools and applications for creative professionals, business and home users and technology partners. Sonic's products range from professional DVD authoring systems and interactive content delivery technologies that are used to produce the majority of Hollywood movies released on DVD, to the award-winning Roxio- and Sonic-branded CD and DVD creation, playback and backup applications that have become the premiere solutions for consumers and business users worldwide. Sonic's AuthorScript® is the de facto standard for CD and DVD burning and formatting and has been licensed by major software and hardware manufacturers, including Adobe, Broadcom, Microsoft, Scientific-Atlanta, Sony, and many others. Sonic Solutions is headquartered in Marin County, California.

Sonic, the Sonic logo, Sonic Solutions, Roxio, MyDVD, CineMagic, Plug & Burn, LiveShare, Roxio Easy Media Creator, and AuthorScript are trademarks or registered trademarks of Sonic Solutions or its subsidiaries in the United States and/or other countries. Dolby is a trademark of Dolby Laboratories. All other company or product names are trademarks of their respective owners and, in some cases, are used by Sonic Solutions under license. Specifications, pricing and delivery schedules are subject to change without notice.