-----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, DDo8g5duMCdchK0SY3OgReqBMbJyS83XrZRdew5E2Hb4Vw5d8iakhAauZjiklDbj S4WfPHLB6lTIp+UgHqwE8w== 0000949459-97-000549.txt : 19971127 0000949459-97-000549.hdr.sgml : 19971127 ACCESSION NUMBER: 0000949459-97-000549 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971126 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: SEC FILE NUMBER: 000-21114 FILM NUMBER: 97729051 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 9/30/97 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, 1997 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 7, 1997. Common Stock - $.005 par value 9,407,725 - ------------------------------ -------------------------------- CLASS Outstanding at November 7, 1997 1 PART I FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1997 and December 31, 1996 (UNAUDITED)
September 30, December 31, 1997 1996 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 50,894 $ 155,222 Accounts receivable, net of bad debt and return allowances of $98,299 and $233,061, respectively 1,480,162 915,215 Notes receivable 147,500 125,000 Inventories 1,420,809 1,063,563 Advanced royalties 348,563 218,663 Prepaid expenses 21,591 -- Income tax receivable 80,000 80,000 ---------- ---------- Total current assets 3,549,519 2,557,663 ---------- ---------- FIXED ASSETS, net 650,788 589,357 ---------- ---------- OTHER ASSETS Deferred taxes 46,864 46,864 Mastering costs, net 649,632 650,761 Receivables from affiliate 63,109 62,031 Intangibles 291,589 270,151 Other 65,474 52,762 ---------- ---------- Total assets $5,316,975 $4,229,589 ========== ==========
The accompanying notes are an integral part of these financial statements. 2 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1997 and December 31, 1996 (UNAUDITED)
September 30, December 31, 1997 1996 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Line of credit $ 479,715 $ 710,025 Accounts payable 906,163 472,087 Royalties payable 1,725,531 1,731,134 Other accrued expenses 10,163 3,358 Deferred revenue -- 78,485 Current portion of long-term debt 125,000 75,000 ----------- ----------- Total current liabilities 3,246,572 3,070,089 ----------- ----------- LONG-TERM DEBT 200,000 75,000 STOCKHOLDERS' EQUITY Common stock, par value $.005 per share; authorized 10,000,000 shares, issued and outstanding 8,862,725 shares and 6,746,725 shares, respectively 44,314 33,734 Additional paid-in capital 2,042,942 1,094,322 Accumulated deficit (216,853) (43,556) ----------- ----------- Total stockholders' equity 1,870,403 1,084,500 ----------- ----------- Total liabilities and stockholders' equity $ 5,316,975 $ 4,229,589 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 -------------------------- -------------------------- Sales $ 1,406,665 $ 1,351,724 $ 3,783,675 $ 3,749,592 Cost of sales 790,769 884,591 2,239,497 2,075,780 ----------- ----------- ----------- ----------- Gross profit 615,896 467,133 1,544,178 1,673,812 Selling, adminis- trative and other operating expense 619,372 417,385 1,689,650 1,443,172 ----------- ----------- ----------- ----------- Operating income (loss) (3,476) 49,748 (145,472) 230,640 Other: Interest expense, net (29,116) 2,320 (82,825) 9,149 Other income -- -- 70,000 -- ----------- ----------- ----------- ----------- Income (loss) before income taxes (32,592) 47,428 (158,297) 221,491 Provision for income taxes -- 25,000 15,000 95,000 ----------- ----------- ----------- ----------- Net income (loss) $ (32,592) $ 22,428 $ (173,297) $ 126,491 =========== =========== =========== =========== Earnings (loss) per share $ (.00) $ .00 $ (.02) $ .02 =========== =========== =========== =========== Average weighted number of shares outstanding 8,768,842 6,696,725 7,813,740 6,120,127 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1997 1996 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (173,297) $ 126,491 ----------- ----------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Non-cash items included in net loss: Depreciation and amortization 106,534 22,000 Deferred revenue (78,485) 375,000 Changes in: Receivables (564,947) 182,360 Employee receivable (22,500) -- Inventories (357,246) (1,021,280) Mastering costs 1,129 343,116 Royalty advances (129,900) (169,170) Prepaid expenses (21,591) -- Other (13,790) 31,234 Accounts payable and accrued expenses 440,881 485,030 Royalties payable (5,603) (127,444) Income taxes -- 65,773 ----------- ----------- Total adjustments (645,518) 186,619 Net cash (used in)/provided by operating activities (818,815) 313,110 ----------- ----------- Cash flows from investing activities: Capital expenditures $ (189,403) $ (800,625) ----------- ----------- Net cash used in investing activities $ (189,403) $ (800,625) ----------- -----------
The accompanying notes are an integral part of these financial statements. 5 DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1997 1996 --------- --------- Cash flows from financing activities: Payments on line of credit $(948,310) $ -- Payments of long term debt (25,000) (51,465) Additional borrowing 918,000 150,000 Common stock issued 959,200 345,187 --------- --------- Net cash provided by (used in) financing activities 903,890 443,732 --------- --------- Net increase/(decrease) in cash and cash equivalents (104,328) (43,793) Cash and cash equivalents at beginning of period 155,222 531,826 --------- --------- Cash and cash equivalents at end of period $ 50,894 $ 488,033 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid $ -- $ 29,227 ========== ======== Interest paid $ 43,950 $ 13,954 ========== ======== 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, 1997 1. SIGNIFICANT ACCOUNTING POLICIES In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company's financial position and the results of its operations and cash flows for the periods shown. Certain prior period amounts have been reclassified to conform to the current period's presentation. The results of operations for both the three and nine month periods 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 is stated at the lower of cost (on a first-in first-out basis) or market and consists of the following: September 30, December 31, 1997 1996 ------------ ------------ Raw materials $ 271,119 $ 206,353 Finished goods and components 1,149,690 857,210 ------------ ------------ Total $ 1,420,809 $ 1,063,563 ============ ============ 7 DCC COMPACT CLASSICS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 3. CAPITAL STOCK The Company issued 470,000 shares of stock at $0.50 per share during the quarter ended September 30, 1997, 776,000 shares at $0.50 per share during the quarter ended June 30, 1997, and 870,000 shares at $0.50 per share during the quarter ended March 31, 1997. Related commission costs of $98,800 were paid. 4. MAJOR CUSTOMER DNA Music represents approximately 21% of sales and is the Company's largest customer. Previously, Passport Music was the Company's largest customer and exclusive distributor and represented approximately 70% of Company sales for the first six months of 1997. In the third quarter of 1997, Passport Music filed for bankruptcy under Chapter 11. As a result, the Company reduced net accounts receivable by $400,000 ($600,000 in aggregate less $200,000 previously reserved), wrote down $200,000 in related royalties, and recorded $150,000 in inventory returns. The Company has limited future financial exposure by electing not to appoint an exclusive distributor, but instead diversify distribution. 5. LONG-TERM DEBT The Company issued notes for $225,000 in exchange for certain assets. The notes bear interest at 8%. Principal plus the accrued interest is due semi-annually. The Company also has a term note bearing interest at a bank reference rate plus 2.9%. The maturity of the debt is as follows: Due in year ended: September 30, 1998 $125,000 September 30, 1999 100,000 September 30, 2000 50,000 September 30, 2001 50,000 September 30, 2002 - -------- 325,000 Less current portion 125,000 -------- Long-term debt $200,000 ======== 8 DCC COMPACT CLASSICS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 6. OTHER INCOME During the nine months ended September 30, 1997, a subsidiary of the Company received a legal settlement of $70,000 relating to a discontinued distribution agreement. 7. BASIS OF PRESENTATION The Company has increased sales of the Photo Dimensions camera by $219,642 during the quarter ended September 30, 1997. The increased working capital needed to prepare the film and load the film into cameras, and to carry the accounts receivable related to this increased sales volume, has utilized most of the Company's liquidity. As a result, the Company plans to obtain additional outside financing to meet its obligations, to expand production capabilities, and to increase marketing activities. No adjustments have been made to the carrying value of the assets should the additional financing not be obtained. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Overview - -------- DCC Compact Classics, Inc. is a specialty entertainment company that seeks to identify and exploit niches within the entertainment industry. This strategy has been demonstrated by the Company in the manner in which it identified a niche with the high-end audio market. It has since fulfilled this niche through the compilation and distribution of the Company's 24K Gold CD's. The Company has identified new niches within the entertainment industry and is currently developing the necessary marketing and production facilities to properly exploit their potential. The Company continues to exploit its patent on a captioned camera within the Photo Dimensions division. Sales of the captioned camera product have increased by 110% in the third quarter as the marketplace accepts this new product. The Company's core business of high quality compact discs remains relatively steady despite the loss of a major distributor. Management expects the next quarter to reflect the first operating profit for the captioned camera segment of the business if the shipping volume can catch up with the current sales backlog. A new assembly agreement with an offshore company should speed up the delivery process and reduce the cost of sales per unit now that the volume warrants such a strategic alliance. Results of Operations - --------------------- Nine months ended September 30, 1997 and September 30, 1996 - ----------------------------------------------------------- The nine months ended September 30, 1997 reflects a loss from operation of $173,000 compared to income of $126,000 from the prior year reflecting the loss of volume and write off of receivables from Passport Music, the Company's largest distributor. Management was able to diminish the loss by recovering some inventory and reducing related royalties. Sales for the nine months ended September 30, 1997 was up 1% from the same period in 1996 because the increased Caption Camera sales were mostly offset by the reduced disc sales caused by the loss of the distributor. Operating income was down approximately $376,000 due to the high costs of producing the first production runs of the captioned camera, the losses incurred on the uncollectible receivables and the period expenses of the captioned camera operation incurred without significant related revenues. 10 The following sets forth for the periods indicated the percentage of total revenues represented by each subsidiary of the Company's statements of operations:
Three months ended Nine months ended Sept. 30, Sept. 30, 1997 % 1997 % DCC Compact Classics $1,168,187 83% $3,314,934 88% Romance Alive Audio 12,567 1% 34,441 1% PDI 225,911 16% 434,300 11% --------- ---- ---------- ---- Total revenues $1,405,665 100% $3,783,675 100% DCC Compact Classics $ 92,281 (283%) $ 75,801 (44%) Romance Alive Audio (13,651) 42% (3,594) 2% PDI (111,222) 341% (245,504) 142% ---------- ---- ---------- ---- Total net income $ (32,592) 100% $ (173,297) 100% ========== ==== ========== ====
Three months ended September 30, 1997 and September 30, 1996 - ------------------------------------------------------------ The three months ended September 30, 1997 had an increase in sales of almost $55,000. This 4% increase in attributable to the increased captioned camera sales. The gross profit was up almost $149,000 as the captioned camera costs become more in line with projections as the initial production startup costs are absorbed and the Company moves forward on the learning curve. Selling, general and administrative expense were higher due to the bad debt loss on the distributor and the expenses incurred by the Photo Dimensions segment of the Company. Liquidity and capital resources - ------------------------------- The Company has working capital of approximately $300,000 at September 30, 1997. Management believes that the growth of the captioned camera business will require additional working capital to exploit this technology and, accordingly, is pursuing additional outside financing. During the nine months ended September 30, 1997, the Company raised $939,000 from the sale of common stock and has used those funds to support the growth of captioned camera market penetration and production capability and the related increase in working capital requirements. 11 DCC COMPACT CLASSICS INC. PART II OTHER INFORMATION Item 1. Legal Proceedings - ------------------------- There have been no material developments in the legal proceedings which the Company is involved as reported in the Company's Form 10-KSB for the period ended December 31, 1996. Item 2. Shareholders Stock Information - --------------------------------------- Through November 7, 1997, DCC Compact Classics, Inc.'s stock is traded on NASDAQ bulletin board of "Pink Sheets". Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- None Item 5. Other Information - -------------------------- None. Item 6. Exhibits and Reports - ------------------------------ (a) There were no reports on Form 8-K filed during this period. 12 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: November 25, 1997 ------------------ 13 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, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 51 0 1,578 98 1,421 3,550 853 202 5,317 3,247 0 0 0 44 1,826 5,317 3,784 3,784 2,239 2,239 1,690 0 83 (158) 15 (173) 0 0 0 (173) (.02) (.02)
-----END PRIVACY-ENHANCED MESSAGE-----