-----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, My/8UASF4n5txDWvx9r/8fBERxfOEM4vXegXZ6Nu1Fw2SBxDdMHgAfjlgCcV4aJy 6JqcRIE1M/g+FQYpMh3PMA== 0000949459-96-000048.txt : 19960606 0000949459-96-000048.hdr.sgml : 19960606 ACCESSION NUMBER: 0000949459-96-000048 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960605 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: 96577112 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 QUARTERLY REPORT FOR 03/31/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10 - QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 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 (IRS Employer Identification incorporation or organization) Number) 9301 Jordan Ave Suite 105 Chatsworth, California 91311 - --------------------------------------- --------------------------- (Address of principle executive offices) (Zip Code) Registrant's telephone number : (818) 993-8822 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 ----- ----- The registrant had 5,328,446 shares of its $.005 par value common stock issued and outstanding as of April 30, 1996. Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned there unto duly authorized. DCC COMPACT CLASSICS, INC. (Registrant) By:/s/ Marshall Blonstein Date: May 29, 1996 ----------------------------- --------------------- Marshall Blonstein President 2 DCC COMPACT CLASSICS, INC. INDEX PART I FINANCIAL INFORMATION PAGE - -------- --------------------- ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets- March 31,1996 and Dec 31,1995 4 Consolidated Statements of Operation - For the Three Months Ended March 31, 1996 and 1995 and the Year ended December 31, 1995 5 Statements of Cash Flow- For the Three Months Ended March 31, 1996 and the Year ended December 31, 1995 6 Notes to unaudited Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION - --------- ----------------- Not Applicable 3 DCC COMPACT CLASSICS INC Balance Sheet Unaudited ASSETS March 31 December 31 1996 1995 (Unaudited) (Audited) Current Assets Cash and cash equivalents 160,621 131,826 Receivables, net 1,579,936 1,424,481 Notes receivable 140,325 140,975 Trading Securities 400,000 400,000 Inventory 869,460 952,801 Advanced Royalties 524,194 426,973 ---------- ---------- Total Current Assets 3,674,536 3,477,056 Fixed assets net of depreciation of 64,425 and 61,426 33,783 36,782 Other Assets Deferred Tax Asset 33,100 33,100 Mastering Costs net of amortization of 587,899 569,566 Receivable from Affiliate 32,666 31,577 Other 51,521 51,521 ========== ========== Total Assets 4,413,505 4,199,602 ========== ========== LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities Line of credit 318,125 318,174 Accounts payable and accrued expenses 385,612 430,914 Royalties payable 2,291,535 2,220,627 Accrued Expense officer 35,359 35,359 Taxes payable 171,164 96,001 ---------- ---------- Total Current Liabilities 3,201,795 3,101,075 Stockholders Equity Common Stock $.005 par value authorized 10,000,000 shares; issued and outstanding 4,960,506 shares 24,803 24,803 Paid-in Capital 623,397 623,397 Retained earnings 586,060 472,877 Less Treasury Stock, at cost (22,550) (22,550) ---------- ---------- Total Shareholders Equity 1,211,710 1,098,527 ---------- ---------- Total Liabilities and Shareholders equity 4,413,505 4,199,602 ========== ========== See Notes to Financial Statements 4 DCC COMPACT CLASSICS, INC Statement of Operations
Three Monthes Ended: Year Ended: March 31, 1996 March 31, 1995 Dec 31, 1995 (Unaudited) (Unaudited) (Audited) Sales, net of returns and allowances 1,175,501 1,517,482 4,200,596 ---------- ---------- ---------- Net Sales 1,175,501 1,517,482 4,200,596 Cost of Sales 431,219 692,579 1,730,639 ---------- ---------- ---------- Gross profit 744,282 824,903 2,469,957 Operating Expenses 553,816 524,116 2,327,628 ---------- ---------- ---------- Operating Income 190,466 300,787 142,329 Other Income and Expense: Interest Income 3,384 1,676 41,316 Interest, expense (6,588) (13,641) (34,488) ---------- ---------- ---------- Income before Income Tax 187,262 288,822 149,157 Provision for Income Tax 75,163 118,806 49,900 ---------- ---------- ---------- Net Income 112,099 170,016 99,257 ========== ========== ========== Per share data: net income 0.02 0.03 0.02 ========== ========== ========== Weighted average outstanding shares 5,328,446 5,326,446 5,328,446 ========== ========== ==========
See Notes to Financial Statements 5 DCC COMPACT CLASSICS INC Statements of Cash Flow for the Three Months ended March 31, 1996 and for the Year ended December 31,1995
Three Months Twelve Months March 31, 1996 December 31,1995 unaudited audited CASH FLOWS FROM OPERATING ACTIVITIES Net Income 112,099 99,257 Adj to reconcile net income to net cash provided by operating activities Depreciation and amortization 63,804 217,585 Changes in assets and liabilities (Increase) decrease in: Trade accounts receivable (155,455) (360,360) Notes receivable 650 77,540 Inventories 83,341 101,134 Advance royalties (97,221) 133,573 Due from affiliate (1,089) Other Assets 1,084 (28,273) (Decrease) increase in: Trade accounts payable (45,302) (483,276) Royalties payable 70,908 198,868 Due to officers 35,359 Income tax net of refund 75,163 49,900 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 107,982 41,307 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Acquistion of Marketable Securities (400,000) Purchase of fixed assets (17,211) Increase in Mastering (79,138) (294,496) -------- -------- NET CASH PROVIDED BY INVESTING ACTIVITIES (79,138) (711,707) CASH FLOW FROM FINANCING ACTIVITIES Borrowing under line of credit (49) 1,274 -------- -------- Net Cash provided by Financing (49) 1,274 -------- -------- NET INCREASE (DECREASE) IN CASH 28,795 (669,126) CASH AT BEGINNING OF PERIOD 131,826 800,952 -------- -------- CASH AT END OF PERIOD 160,621 131,826 ======== ========
See Notes to Financial Statements 6 DCC COMPACT CLASSICS, INC. NOTES TO FINANCIAL STATEMENTS" For the Period Ended March 31, 1996 Note 1 Summary of Significant Accounting Policies - ------------------------------------------------- A. Organization and Operations DCC Compact Classics, Inc. (the Company), formerly Dunhill Compact Classics, Inc., was incorporated in February 1986 in the State of Colorado. The Company is engaged primarily in the wholesale marketing of compact discs. B. Basis of Consolidation The Consolidated financial statements include the accounts of the Company and its 70% owned partnership, Romance Alive Audio ("the partnership"), a California General Partnership. All material intercompany accounts and transactions have been eliminated in consolidation (see note 3). C. Inventories Inventories are stated at the lower of cost or market using the first in, first out method. Inventory consists of the following at March 31, 1996: Raw Materials $ 79,149 Finished Goods 790,311 -------- $869,460 -------- D. Property and Equipment Property and Equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of five years. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. Depreciation charged to operations was $2,999 and $1,498 for the quarters ended March 31, 1996 and 1995 and $9,613 for the year ended December 31, 1995. E. Mastering Costs Costs incurred for mastering, including recording and artwork costs, are capitalized and charged to expense over the estimated period of benefit, generally four years. 7 DCC COMPACT CLASSICS, INC. NOTES TO FINANCIAL STATEMENTS" For the Period Ended March 31, 1996 F. Advanced Royalties Advanced Royalties paid to artists are capitalized and charged to expense at the time the royalties are earned. G. Revenue Recognition The Company recognizes revenue on the sales of its product upon shipment. H. Cash Cash and cash equivalents, consist of deposits and highly liquid debt instruments with original maturities of less than 90 days. I. Per Share Data Per share data is based upon the weighted average number of common shares outstanding for the period. J. Use of Estimates The preparation of the Company's financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Management estimates the amount of possible returns of merchandise shipped and the allowance for uncollectable receivables based upon its past experience. Should amounts of merchandise be returned that exceed these estimates it could have a material negative impact on the Company's financial statements. In addition, the Company records the amounts of license and royalty fees due based upon contractual obligations. These computations are subject to audit by independent agencies. Should the results of these independent audits produce license and royalty fees due which are in excess of the amounts computed by the Company, it could have a negative impact on the Company's financial statements. Note 2 - Notes Payable - ---------------------- Notes payable - credit line consists of outstanding indebtedness pursuant to the Company's $500,000 line of credit expiring in February, 1997 with an outstanding balance of $318,125 and unused balance of $181,875 at March 31, 1996 and $318,174 and $181,826 at December 31, 1995. The credit line bears interest at Prime plus.7% per annum and is secured by substantially all of the Company's assets. 8 DCC COMPACT CLASSICS, INC. NOTES TO FINANCIAL STATEMENTS" For the Period Ended March 31, 1996 Note 3. Related Party Transactions - ---------------------------------- During 1993 the Company formed a California General Partnership with Romance Alive Audio, Inc. ("RAAI") a California Corporation that is 100% owned by the spouse of the Company's president. Under the terms of the partnership agreement, the Company and RAAI share profits and losses 70% to the Company and 30% to RAAI. Through March 31, 1996 the Company made capital contributions to the partnership aggregating $345,641. RAAI is acting as the managing partner, providing time and expertise required to handle the day to day operations of the partnership. Beginning in 1995 RAAI is entitled to compensation of 6% of gross revenues for these services. Note 4 Description of Leasing Arrangements - ------------------------------------------ The Company leases its office and warehouse space pursuant to an operating lease expiring in April 2000 which calls for base rent payments of $5,521 per month. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of March 31, 1996 are as follows: Year ended December 31, 1996 $66,252 1997 66,252 1998 66,252 1999 66,252 2000 22,084 ------ $287,092 -------- Rent was $66,252 for the year ended December 31, 1995. Note 5 Income Taxes - ------------------- Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different tax periods. Deferred taxes are classified as current or non-current, depending on the classifications of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current 9 DCC COMPACT CLASSICS, INC. NOTES TO FINANCIAL STATEMENTS" For the Period Ended March 31, 1996 depending on the periods in which the temporary differences are expected to reverse. Temporary differences giving rise to the deferred tax asset consist of accrued salary due to an officer of the Company. The amount of the deferred tax asset is $33,100. Note 6. Commitments and Contingencies - ------------------------------------- The Company entered into a three year employment contract with its President on January 1, 1993. The agreement provides for a salary of $150,000 during 1993, $160,000 during 1994 and $170,000 during 1995. In February 1996 the contract was extended for an additional three years at $170,000 per year. 10 INTRODUCTION DCC Compact Classics, Inc (the Company) was incorporated as a Colorado corporation on February 20, 1986, and on October 19, 1987, completed the acquisition of Dunhill Compact Classics, Inc., a privately-held California Corporation. The focus of the Company's operations following such acquisition was to establish a specialized niche in the then emerging market for compact discs ("Cds"). The emergence of compact disc technology in the early 1980's led to segments of the consuming public replacing their collections of vinyl and audio cassettes with the superior quality and convenience of compact discs. Classical music listeners were the first segment to accept compact disc technology and the initial discs made available were comprised of classical albums. Since that time there has been substantial acceptance of compact discs for all types of music, including classical, jazz, rock and oldies. Sales of compact discs are growing rapidly and by the end of 1994 represented in excess of 70% of all music sales in the $12 billion record industry. A predominant portion of the Company's manufacturing process utilizes a coating of 24K gold and a proprietary vintage vacuum tube system which are considered by various audiophiles to have a superior phonic quality compared with standard CD's, and thereby can be sold at a premium in excess of the incremental manufacturing costs. The Company is presently one of the industry leaders in the sale of 24K gold Cds and has license rights to the exclusive exportation of 24K gold CD albums by such artists as Frank Sinatra, Ray Charles, Bob Dylan, The Doors, The Eagles, Paul McCartney, Cream, Miles Davis, Creedence Clearwater Revival, Joni Mitchell, The Steve Miller Band, and Bob Seger. The Company has successfully exploited the consumer demand for reissues and compilations of music originally issued on vinyl and audio cassettes. This has been achieved through the purchase, exploitation and sale of catalogs of music masters and by licensing rights from others to music masters for exploitation. The Company's basic concept has been to provide the listening public a compact disc line that specializes in contemporary music which includes jazz, classical, and oldies and the 24K gold limited edition series. In addition, the Company has developed "Collection" series which feature the best of certain performance era or type of music. Since formation of the Company in February 1986, the Company has entered into licensing agreements with major record labels throughout the industry, including Sony, MCA, Warner, Electra, Atlantic, Arista, Capitol and Polygram among others. Typically, licensing agreements range from three to five years in term with possible renewal options. Royalties are paid to the licensor at between $.55 to $6.00 per unit sold for the term of the agreement. The Licensing agreements 11 grant the Company the exclusive or non-exclusive right to make master recordings of many top artists for the purpose of enhancing the sound quality through digital sound recording process and then to market under the Company's trade label the individual recordings or compilations in the form of a compact disc. At the present time, most of the major music recording companies are not seeking to develop this specialized niche on a proprietary basis and rely on specialty operations such as the Company for the development of the reissue market. The Company follows the normal practice for independent record labels, which entails subcontracting manufacturing, field sales, physical distribution, billing and collections to specialized entities providing the services. Commencing in 1994, the Company formed a strategic alliance with Romance Alive Audio, Inc. to enter into the emerging market for audio books with a focus on romantic novels. Romance Alive Audio operates out of the same facilities as the Company, specializes in publishing romance novels on audio cassettes and markets such audio cassettes through chain stores, supermarkets and traditional book outlets. The Company has completed signings with numerous well-known authors in this field and has the potential to become a recognized publisher of womens romance novels on audio cassettes in the United States. The Company's officers are located at 9301 Jordan Avenue, Suite 105, Chatsworth, California 91311, the telephone number of the Company is (818) 993-8822. BACKGROUND The Company was incorporated as Total Capital Corporation under the laws of the State of Colorado on December 5, 1986, for the purpose of seeking potential business ventures. The Company successfully completed its initial public offering in June 1987, with the sale of 25,000,000 Units, at $.02 per Unit, each Unit consisting of one share of common stock, one Class A Warrant, one Class B Warrant and one Class C Warrant. On October 19, 1987, the shareholders of the Company approved an Agreement and Plan of Merger (the "Agreement") between the Company and Dunhill Compact Classics, Inc., a privately held California Corporation ("Dunhill"). Pursuant to the Agreement, Dunhill was merged with and into the Company and the shareholders of Dunhill received a total of 143,000,000 shares of the Company's common stock. Pursuant to the merger, the Company changed its name to Dunhill Compact Classics, Inc. effective October 20, 1987. On August 8, 1989 the shareholders of the Company approved a name change to "DCC Compact Classics, Inc." herein referred to as the Company or DCC. DCC is continuing the business of Dunhill. 12 The Company was incorporated on February 20, 1986, with the initial mission to exploit the then-emerging market for Compact Discs. Since that time, the Company has extended its mission to enter new niche markets in the entertainment business as they open. The niche markets that are presently being exploited are reissues of catalogs of music masters, 24K gold CD's and more recently a joint venture in the emerging market for Audio Books. The Company is currently preparing to launch a line of mid-priced CD-ROM's. RESULTS OF OPERATIONS Comparison of quarter ended March 31,1996 to the quarter ended March 31, 1995 Net sales decreased 22.6% to $1.18 million in the quarter ended March 31, 1996 from $1.52 million in the quarter ended March 31, 1995. The decrease was due to less releases of new product compared to the similar period of the prior year. The Company's gross margin for the quarter ended March 31, 1996 decreased to $.74 million from $.82 million for the quarter ended March 31, 1995. As a percentage of net sales, the gross margin increased to 63.4% in the quarter ended March 31, 1996 from 54.4% in the quarter ended March 31, 1995. The increase in gross margin percentage can be attributed to the product mix whereby less acquisition cost included the artist royalties in the manufacturing cost. Operating expenses increased 5.7% to $.55 million for the quarter ended March 31, 1996 from $.5.2 million for the quarter ended March 31, 1995. As a percentage of net sales, operating expenses increased to 47.2% of net sales in the quarter ended March 31, 1996 from 34.6% in the quarter ended March 31, 1995. This significant increase was primarily due to a higher artist royalty rate on the VRG product. Significant changes occurred in the following areas. Wages increased to 14.7% of sales for the quarter ended March 31, 1996 from 9.5% in the quarter ended March 31, 1995. This decrease was due primarily to the smaller sales base. Accounting and Legal increased to 5.8% of net sales in the quarter ended March 31, 1996 from 2.9% for the quarter ended March 31, 1995. This decrease was due primarily to the reduced sales base. In 1995, the company reached a settlement in a lawsuit whereby the receipt of the procedes in the quarter ended March, 1995 helped to lower the operating costs by 5.8%. There was no similar amount in the quarter ended March 31, 1996. This was the single greatest change in overall operating costs. 13 LIQUIDITY AND CAPITAL RESOURCES As the Company grows and expands into new market niches, DCC must add to its working capital in order to develop and market new product. During 1994, the Company's operations were funded through a combination of profits and the sale of the Shelter catalog master tapes. During the first quarter of 1995, the Company's working capital was increased solely through the profits of the Company. Cash on hand at March 31, 1996 amounted to $.16 million and the line of credit remained unchanged during the quarter. 14 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 THREE MONTHS ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 161 400 1,840 120 869 3,675 98 64 4,414 3,202 0 25 0 0 1,187 4,414 1,176 1,176 431 431 554 0 7 187 75 0 0 0 0 112 .02 .02
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