-----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, Fguh2xDCjO7jQcLDckX9JxTj8jgRVuF3yoOC7fEn8hPoPi1KzKHoGDBRYnPFkvJJ q8kCIEzJl9C0EiSARa01UQ== 0000949459-96-000232.txt : 19961118 0000949459-96-000232.hdr.sgml : 19961118 ACCESSION NUMBER: 0000949459-96-000232 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DCC COMPACT CLASSICS INC CENTRAL INDEX KEY: 0000809932 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 841046186 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21114 FILM NUMBER: 96665777 BUSINESS ADDRESS: STREET 1: 9301 JORDON AVE STREET 2: STE 105 CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189938822 MAIL ADDRESS: STREET 1: 200 E LAS OLAS BLVD STREET 2: C/O ATLAS PEARLMAN TROP & BORKSON CITY: FT LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: DUNHILL COMPACT CLASSICS INC DATE OF NAME CHANGE: 19900522 FORMER COMPANY: FORMER CONFORMED NAME: TOTAL CAPITAL CORP DATE OF NAME CHANGE: 19871103 10QSB 1 DCC COMPACT CLASSICS, INC FORM 10-QSB 9/30/96 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1996 COMMISSION FILE NUMBER 0-21114 DCC COMPACT CLASSICS, INC. ----------------------------------------------------------------- (exact name of registrant as specified in its charter) COLORADO 84-1046186 - ------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer Identification incorporation of organization) Number) 9301 Jordan Avenue, Suite 105, Chatsworth, California 91311 ----------------------------------------------------------------- (Address or principal executive offices) (818) 993-8822 ----------------------------------------------------------------- (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 -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of business of November 11, 1996. Common Stock - $.005 par value 6,696,725 - ----------------------------- -------------------------------- CLASS Outstanding at November 11, 1996 PART I FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- DCC COMPACT CLASSICS, INC. CONSOLIDATED BALANCE SHEET September 30, 1996 and December 31, 1995 September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 488,033 $ 531,826 Accounts receivable - net 1,176,819 1,424,481 Note receivable from officer 66,277 - Notes receivable 125,000 140,975 Inventories 1,403,626 952,801 Advanced royalties 611,143 426,973 ---------- ---------- Total current assets 3,870,898 3,477,056 ---------- --------- FIXED ASSETS, Net of accumulated depreciation of 77,025 and 61,426 740,207 36,782 ---------- ---------- OTHER ASSETS Patent 73,326 - Deferred taxes 33,100 33,100 Mastering costs, net 790,505 569,566 Receivable from affiliate 32,576 31,577 Other 19,289 51,521 ---------- ---------- Total assets $5,559,901 $4,199,602 ========== ========== The accompanying notes are an integral part of these financial statements. 2 DCC COMPACT CLASSICS, INC. CONSOLIDATED BALANCE SHEET September 30, 1996 and December 31, 1995 September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ 266,709 $ 318,174 Current portion of long-term debt 50,000 - Accounts payable 882,171 430,914 Royalties payable 1,941,263 2,220,627 Accrued income tax payable 161,774 96,001 Other accrued expenses 66,636 35,359 ---------- ----------- Total current liabilities 3,368,553 3,101,075 ---------- ----------- NONCURRENT LIABILITIES: Long term debt 100,000 - Deferred royalties payable 151,920 - Deferred revenue 375,000 - Other noncurrent liabilities 2,495 - STOCKHOLDERS' EQUITY Common stock, par value $.005 per share; authorized 10,000,000 shares, issued and outstanding 6,696,725 shares and 4,960,596, respectively 33,484 24,803 Additional paid-in capital 951,630 623,397 Retained earnings 599,369 472,877 Less treasury stock, at cost (22,550) (22,550) ----------- ----------- Total stockholders' equity 1,561,933 1,098,527 ----------- ----------- Total liabilities and stockholders' equity $ 5,559,901 $ 4,199,602 =========== =========== The accompanying notes are an integral part of these financial statements. 3 DCC COMPACT CLASSICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---------------------- ---------------------- Sales $1,351,724 $ 939,942 $3,749,592 $3,540,475 Cost of sales 962,724 314,344 2,075,780 1,328,937 ---------- ---------- ---------- ---------- Gross profit 389,000 625,598 1,673,812 2,211,538 Selling, adminis- trative and other operating expenses 339,252 538,865 1,443,172 1,714,459 ---------- --------- ---------- ---------- Operating income (loss) 49,748 86,733 230,640 497,079 Other: Interest expense, net 2,320 (9,249) 9,149 3,028 ---------- --------- ---------- ---------- Income (loss) before income taxes 47,428 95,982 221,491 494,051 Provision for income taxes 25,000 36,410 95,000 196,125 ---------- --------- ---------- ---------- Net income (loss) $ 22,428 $ 59,572 $ 126,491 $ 297,926 ========== ========= ========== ========== Earnings (loss) per share $ .00 $ .01 $ .02 $ .06 ========== ========= ========== ========== Average weighted number of shares outstanding 6,696,725 4,960,506 6,120,127 4,950,506 ========== ========= ========== ========== The accompanying notes are an integral part of these financial statements. 4 DCC COMPACT CLASSICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1996 1995 --------- --------- Cash flows from operating activities: Net income (loss) $ 126,491 $ 297,926 --------- --------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Non-cash items included in net loss: Depreciation and amortization 22,000 2,480 Changes in: Receivable 182,360 (689,121) Inventories (1,021,280) (6,897) Mastering costs 343,116 (56,609) Royalty advances (169,170) (11,501) Other 31,234 7,284 Accounts payable and accrued expenses 485,030 (117,585) Royalties payable (127,444) 262,303 Deferred revenue 375,000 - Income taxes 65,773 148,365 --------- --------- Total adjustments 186,619 (461,281) Net cash used in operating activities 313,110 (163,355) --------- --------- Cash flows from investing activities: Capital expenditures $ (800,625) $ (17,211) Intangibles (73,326) - Common stock issued in purchase 8,681 - Additional Paid-in capital on stock 409,832 - --------- --------- Net cash used in investing activities $ (455,438) $ (17,211) --------- --------- The accompanying notes are an integral part of these financial tatements. 5 DCC COMPACT CLASSICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1996 1995 --------- --------- Cash flows from financing activities: Additional borrowing 150,000 - Payments on note payable (51,465) (8,196) --------- --------- Net cash provided by (used in) financing activities 98,535 (8,196) --------- --------- Net increase (decrease) in cash and cash equivalents (43,793) (188,762) Cash and cash equivalents at beginning of period 531,826 800,952 --------- --------- Cash and cash equivalents at end of period $ 488,033 $ 612,190 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid (refunded) $ 29,227 $ - ========= ========= Interest paid $ 13,954 $ 12,277 ========= ========= Non-Cash Transactions Issuance of stock for fixed assets $ 326,400 $ - ========= ========= Stock issued in exchange for services $ 50,000 $ - ========= ========= The accompanying notes are an integral part of these financial statements. 6 DCC COMPACT CLASSICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 1. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly its financial position and the results of its operations and cash flows of the Company for the periods shown. Certain prior period amounts have been reclassified to conform to the current period's presentation. The results of operations for the nine month period are not necessarily indicative of the results to be expected for a full year of operations. Use of estimates - The Company's management uses estimates and assumptions in preparing the financial statements. Actual results could vary from these estimates. Key estimates include the collectibility of the accounts receivable, the returns of merchandise shipped, inventory valuations and marketability. In addition, the Company records its liability for license and royalty fees based upon contractual obligations. These calculations are subject to review by independent agencies. Should the results of a review produce amounts greater than those recorded by the Company, there may be a negative impact on the Company's financial statements. 2. INVENTORY --------- Inventory consists of the following: September 30, Dec. 31, 1996 1995 (unaudited) (audited) ---------- ---------- Raw materials $ 461,919 $ 235,642 Finished goods and components 941,707 717,159 --------- ---------- Total $1,403,626 $ 952,801 ========== ========== 7 DCC COMPACT CLASSICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 3. CAPITAL STOCK ------------- In June 1996, the Company issued 300,000 shares of restricted common stock as partial payment related to the purchase of Photo Dimensions, Inc., a manufacturer and distributor of single use, specialty camera equipment used to produce captioned photographs. The shares were valued at $1.08, the estimated discounted market price at the time of the transaction. 4. MAJOR CUSTOMER -------------- The company distributes its product through traditional record distributors as well as through nontraditional distribution channels such as a network of twenty-two non-exclusive international distributors. During the quarter ended June 30, 1996, the Company changed its main distributor from Navarre to Passport Music. Navarre had previously represented approximately 60% of sales. Passport Music represents less than 50% of sales. Passport Music paid an advance fee of $750,000 to serve as a new distributor of certain of the Company's products. The company recognizes income when goods sold can no longer be returned. At September 30, 1996, the unearned revenue was $375,000. 5. LONG-TERM DEBT -------------- The Company issued notes for $150,000 as partial payment for a certain acquisition. The notes bear interest at 8%. Principal of $25,000 plus the accrued interest is due semi annually commencing December 31, 1996. The maturity of the debt is as follows: Due in year ended: December 31, 1996 $ 25,000 December 31, 1997 50,000 December 31, 1998 50,000 December 31, 1999 25,000 ------- $ 150,000 ======= 8 DCC COMPACT CLASSICS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Results of Operations - --------------------- Nine Months Ended September 30, 1996 as Compared to - --------------------------------------------------- Nine Months Ended September 30, 1995 - ------------------------------------ Sales for the nine months ended September 30, 1996 were up approximately 6% from the same period of the prior year mainly due to new releases. The Company also changed its primary distributor during the second quarter without a significant adverse effect in revenue. The Company's overall gross profit margins decreased from 63% to 45% for the nine month period ended September 30, 1996 compared to the same period in the prior year. Management attributes the decline to a change in the product mix and some increase in direct costs related to the returns from the former distributor. General, administrative and selling expenses decreased by 16% (approximately $280,000) compared to the nine month period ended September 30, 1995. The decline was due primarily to a management's continued focus on cost reductions. Three Months Ended September 30, 1996 as Compared to - ---------------------------------------------------- Three Months Ended September 30, 1995 - ------------------------------------- The Company enjoyed a significant sales rebound during the quarter ended September 30, 1996 of 44% over the same quarter in the prior year, largely due to small price increases and a change in product mix. During the quarter ended September 30, 1996, gross margins declined to approximately 29%, due to the additional product returns caused by changing distributors in the second quarter and the change in product mix. For the quarter ended September 30, 1996, general, administrative and selling expenses decreased by 40% (approximately $200,000) from the prior year. This was caused by a reduction in royalties due based on the returns from the distributor and cost reduction efforts. 9 DCC COMPACT CLASSICS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Liquidity - --------- During the nine months ended September 30, 1996, cash and cash equivalents decreased $43,793. Working capital increased during the nine months ended September 30, 1996 to $502,000 compared to $370,000 at December 31, 1995. The increase of $126,000 was due primarily to increases in inventory,and advanced royalties, offset by decreases in certain receivables and accrued liabilities. Management believes it has sufficient liquidity to meet the short-term goals of the Company. Management is seeking expanded capital sources to develop strategic long-term opportunities in the captioned photo business. Management expects no significant revenue from its captioned photo efforts until the first quarter of the 1997 fiscal year. 10 DCC COMPACT CLASSICS INC. PART II OTHER INFORMATION Item 2. Shareholders Stock Information - --------------------------------------- Through November 11, 1996, DCC Compact Classics, Inc.'s stock is traded on NASDAQ bulletin board or "Pink Sheets". Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended September 30, 1996. 11 DCC COMPACT CLASSICS. INC. 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. DCC COMPACT CLASSICS, INC. (Registrant) BY: /s/Marshall Blonstein -------------------------- Marshall Blonstein Chairman of the Board, Chief Executive Officer, President Date: 11/12/96 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF DDC COMPACT CLASSICS, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 488 0 1,176 0 1,403 3,870 817 77 5,560 3,369 0 0 0 33 1,528 5,560 3,750 3,750 2,076 2,076 1,443 0 9 221 95 126 0 0 0 126 .02 .02
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