Information on the Company
MAGIX AG (or “Company”) was founded by Jürgen Jaron, Dieter Rein and Erhard Rein in 1993 under the name of “Magix Technology GmbH, Munich”. The Company is registered in the commercial register of Berlin district court under the number HRB 92600. The Company’s registered office is at Friedrichstrasse 200 in 10117 Berlin, Germany.
Together with its subsidiaries (MAGIX Group), MAGIX AG is an international provider of software, online services and digital content for the use of multimedia products and services in the field of personal communication. MAGIX offers private and professional users a technologically sophisticated and user-friendly range of software, online services and digital content for designing, processing, presenting and archiving digital photos, videos and music. MAGIX’s products are mainly aimed at private users. MAGIX also sells licenses for professional software to industrial users such as music producers and TV and radio stations. Sales with retail partners are recorded via the Company’s own sales companies or distributors in all major countries.
The balance sheet date is September 30, 2007. The fiscal year 2006/2007 covers the period from October 1, 2006 to September 30, 2007.
MAGIX AG has been listed on the Frankfurt Stock Exchange (Prime Standard) since April 6, 2006.
On January 4, 2008 the management board released the consolidated financial statements as of September 30, 2007 to the Supervisory Board.
Basis of Preparation
The consolidated financial statements have been prepared on a historical basis. The consolidated financial statements are prepared in euro. Unless indicated otherwise, all amounts are stated in thousands of euro (kEUR).
The consolidated financial statements of MAGIX AG and its subsidiaries were prepared in accordance with International Financial Reporting Standards (IFRS) as applicable in the EU and the provisions of German commercial law to be applied additionally pursuant to Sec. 315a (1) HGB [“Handelsgesetzbuch”: German Commercial Code].
The consolidated financial statements include the financial statements of MAGIX AG and its subsidiaries as of September 30 of each fiscal year. The financial statements of the subsidiaries are prepared as of the same balance sheet date as the parent, using consistent accounting policies. All intercompany balances, transactions, income and expenses and profits and losses from intercompany transactions that are included in the carrying amount of assets are eliminated in full. Subsidiaries are consolidated in full on the date of acquisition, i.e. the date on which control is transferred to the Group. Subsidiaries are deconsolidated as soon as the parent loses control over the subsidiary.
The following entitles belong to the MAGIX Group and were included in the consolidated financial statements:
As far as the newly acquired/founded subsidiaries Xara Group Ltd. and Catooh Corp. are concerned, we refer to our comments in 3. Business Acquisitions.
On July 26, 2007, MAGIX AG acquired 34% of the shares in its subsidiary m2any GmbH, which had been held by founders of the company up until that date. The purchase price for the shares was paid by issue of 139,000 shares in MAGIX AG and a cash contribution of kEUR 803. The issue of treasury shares was treated as a non-cash transaction in the consolidated cash flow statement, and the cash contribution as cash paid for the acquisition and stepping up of shares in subsidiaries.
As MAGIX AG already had control of the economic activities of m2any GmbH prior to purchasing the 34% minority interests and there was no contractual relationship between the original acquisition of the company and the acquisition of the minority interests, the provisions for business acquisitions were not applied when accounting for the transaction. To the extent that the cost of purchasing the minority interests exceeded the minority interests (after allocation of the result) in the consolidated financial statements, the difference was offset against capital reserves.
Change in Accounting Policy
The accounting policies used generally correspond to the policies applied in the prior year. In addition the Group has applied the new and revised standards that are binding for fiscal years beginning on or after January 1, 2006.
The changes in accounting policies relates to the application of the following new or revised IFRS standards and IFRIC interpretations already adopted by the European Union:
- IFRS 6 Exploration for and Evaluation of Mineral Resources
- IAS 19 Employee Benefits (amended 2004/2005)
- IAS 21 The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation (amended 2005)
- IAS 39 Financial Instruments: Recognition and Measurement (amended 2005)
- IFRIC 4 Determining whether an Arrangement contains a Lease
- IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
- IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment
The first-time adoption or amendment of the aforementioned IFRS standards and IFRIC interpretations does not affect the consolidated financial statements of MAXIG AG.
IFRS standards and IFRIC interpretations that have already been adopted by the European Union but are not yet mandatory were not taken into account. These include the following provisions:
- IFRS 7 Financial Instruments: Disclosures
- IAS 1 Presentation of Financial Statements
- IFRIC 7 Applying the Restatement Approach under IAS 29
- IFRIC 8 Scope of IFRS 2
- IFRIC 9 Reassessment of Embedded Derivatives
- IFRIC 10 Interim Financial Reporting and Impairment
- IFRIC 11 IFRS 2 Group and Treasury Share Transactions
IFRS 7 replaces the requirements of IAS 30 applicable to banks and similar financial institutions, and assumes and revises the section of IAS 32 relating to disclosure requirements. The extended disclosure requirements must be applied across all industries in future. In connection with the publication of IFRS 7, disclosure requirements on capital management were also added to IAS 1.
IFRS 7 requires disclosures that enable users of financial statements to evaluate the significance of the Group’s financial instruments for the financial position and performance of the Group and the nature and extent of risks arising from those financial instruments. The new disclosures resulting from this requirement relate in particular to financial risks.
The amendment of IAS 1 requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital.
Pursuant to IFRS 7.43, IFRS 7 and the amendments to IAS 1 are only mandatory for fiscal years commencing on or after January 1, 2007. The Company does not make use of the option to early adopt and expects that first-time application of the standards will result in material extensions to reporting in the notes to the consolidated financial statements.
The IFRIC 7 to IFRIC 11 interpretations are not relevant for the consolidated financial statements of the MAGIX Group. The effects resulting from application of IFRS 7 and IAS 1 are explained below.
Key Judgments
When applying the accounting policies, management made the following decisions involving judgment which had a material effect on the amounts reported in the financial statements. This does not consider those decisions that are based on estimates:
Intangible assets: The MAGIX Group recorded intangible assets in connection with the acquisition of m2any GmbH and Xara Group Limited that are linked to patents acquired and related software, the customer base acquired and development costs. These intangible assets are measured on the basis of the planned liquidity returns from both companies. The carrying amount of the corresponding assets totals kEUR 3,109 as of September 30, 2007 at m2any GmbH (prior year: kEUR 3,331) and kEUR 2,299 at Xara Group Limited (prior year: kEUR 0). The Company tests the capitalized intangible assets for impairment by comparing the planned liquidity returns at the time of acquiring the company with the actual liquidity returns. Based on this comparison, there was no need to record an impairment for the periods ending on September 30, 2006 and September 30, 2007.
Software development costs: The MAGIX Group capitalizes software development costs provided that the criteria for recognition as an intangible asset have been met, and writes down the capitalized software development costs systematically over the useful life of the software. The capitalized software development costs are tested for impairment on the basis of the future sales revenue for the software. The carrying amount of the capitalized software development costs comes to kEUR 5,106 as of September 30, 2007 (prior year: kEUR 4,419).
Provisions for licenses: The MAGIX Group uses license products from third parties in its own production. Obligations from license payments to third parties are calculated regularly at the end of the quarter. The provisions for license fees to third parties are calculated on the basis of the sales revenue recognized by the MAGIX Group. As of September 30, 2007 these provisions have a carrying amount of kEUR 3,573 (prior year: kEUR 3,990).
The key future-oriented assumptions and other material sources of uncertainty as of the balance sheet date concerning estimates which have given rise to a considerable risk that material adjustments of carrying amounts of assets and liabilities may be required in the next fiscal year are shown in the notes on non-current assets and liabilities.