-----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, DNNx0r3xw6ycA9CyS6RUXnTppY0RwuSr7YVGP1z60lDssbvps4hKRArONToYHSBP ma+GatFYJjQPTv0nS2z3tg== 0000949459-97-000266.txt : 19970521 0000949459-97-000266.hdr.sgml : 19970521 ACCESSION NUMBER: 0000949459-97-000266 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970520 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: 97612177 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 3/31/97 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 March 31, 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 May 14, 1997. Common Stock - $.005 par value 7,051,725 - ------------------------------ -------------------------------- CLASS Outstanding at May 14, 1997 1 DCC COMPACT CLASSICS, INC. CONSOLIDATED BALANCE SHEET March 31, 1997 and December 31, 1996 (Unaudited) March 31, Dec. 31, 1997 1996 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 312,461 $ 155,222 Accounts receivable, net of bad debt and return allowances of $318,061 and $233,061, respectively 1,212,838 915,215 Notes receivable 125,000 125,000 Inventories 1,004,888 1,063,563 Advanced royalties 255,679 218,663 Income tax receivable 80,000 80,000 ---------- ---------- Total current assets 2,990,866 2,557,663 ---------- ---------- FIXED ASSETS, Net 660,662 589,357 ---------- ---------- OTHER ASSETS Deferred taxes 46,864 46,864 Mastering costs, net 615,174 650,761 Receivables from affiliate 49,194 62,031 Intangibles 263,042 270,151 Other 53,639 52,762 ---------- ---------- Total assets $4,679,441 $4,229,589 ========== ========== The accompanying notes are an integral part of these financial statements. 2 DCC COMPACT CLASSICS, INC. CONSOLIDATED BALANCE SHEET March 31, 1997 and December 31, 1996 (Unaudited) March 31, Dec. 31, 1997 1996 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Line of credit $ 589,801 $ 710,025 Accounts payable 627,291 472,087 Royalties payable 1,769,354 1,731,134 Other accrued expenses 2,632 3,358 Deferred revenue -- 78,485 Current portion of long-term debt 50,000 75,000 ----------- ----------- Total current liabilities 3,080,078 3,070,089 ----------- ----------- LONG-TERM DEBT 235,470 75,000 STOCKHOLDERS' EQUITY Common stock, par value $.005 per share; authorized 10,000,000 shares, issued and outstanding 7,181,725 shares and 6,746,725 shares, respectively 35,909 33,734 Additional paid-in capital 1,479,647 1,094,322 Accumulated deficit (153,663) (43,556) ----------- ----------- Total stockholders' equity 1,361,893 1,084,500 ----------- ----------- Total liabilities and stockholders' equity $ 4,679,441 $ 4,229,589 =========== =========== The accompanying notes are an integral part of these financial statements. 3 DCC COMPACT CLASSICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended March 31, 1997 1996 ----------- ----------- Sales $ 957,216 $ 1,175,501 Cost of sales 489,982 431,219 ----------- ----------- Gross profit 467,234 744,282 Selling, adminis- trative and other operating expenses 610,336 553,816 ----------- ----------- Operating income (loss) (143,102) 190,466 Other: Interest expense, net (24,005) (3,204) Other income 70,000 -- ----------- ----------- Income (loss) before income taxes (97,107) 187,262 Provision for income taxes 13,000 75,163 ----------- ----------- Net income (loss) $ (110,107) $ 112,099 =========== =========== Earnings (loss) per share $ (.02) $ .02 =========== =========== Average weighted number of shares outstanding 6,825,791 5,328,446 =========== =========== The accompanying notes are an integral part of these financial statements. 4 DCC COMPACT CLASSICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 1997 1996 --------- --------- Cash flows from operating activities: Net income (loss) $(110,107) $ 112,099 --------- --------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Non-cash items included in net loss: Depreciation and amortization 31,452 63,804 Changes in: Receivables (297,624) (154,805) Inventories 58,675 83,341 Mastering costs 35,587 (79,138) Royalty advances (37,016) (97,221) Other 11,960 (5) Accounts payable and accrued expenses 145,235 (45,302) Royalties payable 38,220 70,908 Deferred revenue (78,485) -- Income taxes -- 75,163 --------- --------- Total adjustments (91,996) (83,255) Net cash used in operating activities (202,103) 28,844 --------- --------- Cash flows from investing activities: Capital expenditures $ (95,647) $ -- --------- --------- The accompanying notes are an integral part of these financial statements. 5 DCC COMPACT CLASSICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 1997 1996 --------- --------- Cash flows from financing activities: Payments on line of credit $(385,511) (49) Payments on long-term debt (25,000) -- Additional borrowing 478,000 -- Common stock issued 387,500 -- --------- --------- Net cash provided by (used in) financing activities 454,989 (49) --------- --------- Net increase (decrease) in cash and cash equivalents 157,239 28,795 Cash and cash equivalents at beginning of period 155,222 131,826 --------- --------- Cash and cash equivalents at end of period $ 312,461 $ 160,621 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid $ 13,000 $ -- ========= ========= Interest paid $ 24,138 $ -- ========= ========= The accompanying notes are an integral part of these financial statements. 6 DCC COMPACT CLASSICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 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 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 three 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 is stated at the lower of cost, on a first-in first-out basis, or market and consists of the following: March 31, Dec. 31, 1997 1996 (unaudited) (audited) ---------- ---------- Raw materials $ 240,238 $ 206,353 Finished goods and components 764,652 857,210 --------- ---------- Total $1,004,888 $1,063,563 ========== ========== 7 DCC COMPACT CLASSICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 3. CAPITAL STOCK The Company issued 435,000 shares of stock at $1 per share during the quarter ended March 31, 1997, and paid related commission costs of $47,500. 4. MAJOR CUSTOMER The Company has an agreement with Passport Music to be the exclusive distributor for the Company. Passport represents approximately 70% of sales. The previous distributor, Navarre, represented approximately 60% of sales. 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 prime plus 2.9%. The maturity of the debt is as follows: Due in year ended: March 31, 1998 $ 91,000 March 31, 1999 90,000 March 31, 2000 65,000 March 31, 2001 40,000 March 31, 2002 42,470 -------- $328,470 ======== 6. OTHER INCOME During the quarter ended March 31, 1997, a subsidiary of the Company received a legal settlement of $70,000 relating to a discontinued distribution agreement. 8 Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Results of Operations - --------------------- Overall sales for the three months ended March 31, 1997 were down approximately 19% from the same period of the prior year. The decrease in sales is attributable to management seeking fewer new releases of compact discs. The efforts of management to market and sell its new product, the Single-Use Caption Camera, impinged on the availability of time to seek new releases. Caption Camera sales were $126,086 for the quarter ended March 31, 1997. Music sales for the quarter ended March 31, 1997 were down approximately $345,000, or 29% from the quarter ended March 31, 1996. The decrease in sales together with the increase in cost of sales, for the three months ended March 31, 1997, by approximately 14%, from the same period of the prior year, decreased gross profits for the quarter ended March 31, 1997 by approximately 37% from the quarter ended March 31, 1996. The decrease in gross profits relates to management's efforts to exploit the potential of its new product, and that the sales of Single-Use Caption Cameras for the quarter ended March 31, 1997 were negligible while start-up costs were relatively high. For the three months ended March 31, 1997, general, administrative and selling expenses increased by approximately 10% from the same period of the prior year. The increase is due primarily to the additional overhead incurred by the Company as the result of operations of Photo Dimensions, Inc. ("PDI"). PDI is the Company's North Carolina subsidiary which owns the patent on the Single-Use Caption Camera. During the quarter ended March 31, 1997, the Company consolidated certain administrative functions of PDI'S North Carolina operations with the Company's California headquarters. The consolidation should have the effect of minimizing any additional overhead costs to maintain PDI's operations in North Carolina. The operating loss of $143,102 for the three months ended March 31, 1997 compared with operating income of $190,466 for the same period of the prior year. Net interest expenses were $24,005 for the three months ended March 31, 1997 versus $3,204 for the same period of the prior year. The increase was due to the increase in the outstanding balance of the Company line of credit to $793,271 as of March 31, 1997 versus $318,125 as of March 31, 1996. Other income of $70,000, received during the quarter from the Company's ownership interest in Romance Alive Audio based on the settlement of a lawsuit, reduced the Company's loss before taxes to $97,107 as compared with income before taxes of $187,262 the quarter ended March 31, 1996. 9 Liquidity and Capital Resources The Company's working capital position as of March 31, 1997 improved as compared to December 31, 1996, a negative $89,212, versus a negative $512,426, respectively. Total current assets increased to $2,990,866, as of March 31, 1997, from $2,557,663 as of December 31, 1996, representing an increase of approximately 17%. The increase in total current assets is primarily due to the Company receiving $435,000 from the sales of common stock during the quarter. Total current liabilities of $3,080,078, as of March 31, 1997, were basically unchanged compared to $3,070,089 as of December 31, 1996. The Company's long-term debt increased to $237,470, as of March 31, 1997, from $75,000 as of December 31, 1996, and represents the balance owed on a $250,000 face amount installment note obtained from the Company's primary lender. The $75,000 balance as of December 31, 1996, was reduced by $25,000 during the quarter. During February 1997, the Company received a commitment for the private placement of up to 1,000,000 shares of the Company's common stock at a price of $1 per share. The Company has received a total of $520,000 under the commitment as of April 8, 1997. Management believes the Company will receive the $480,000 balance under the commitment. This is an important source of capital for the Company. The capital is being used as follows: to purchase additional equipment related to the laser technology which burns the caption image onto the film used in the Single-Use Caption Camera; to market and advertise the Single-Use Caption Camera; establish a reserve related to trade financing for purchase orders of the Single-Use Caption Camera; and for working capital including the acquisition of new licensing agreements for new releases of compact discs by the Company. If the Company fails to receive substantially all of the $480,000 balance under the commitment, then a source to replace the funds will be needed. Further, the Company will need to obtain additional sources of capital to acquire and exploit new licensing agreements for compact discs, and to meet forecasted demand for the Single-Use Caption Camera in an efficient and timely manner. Management has been active in pursuing additional financing. There can be no assurances that additional financing will be available in sufficient and timely amounts. Other Financial Information The Company is in negotiations with a distributor of cameras who is interested in initially purchasing 3,000,000 rolls of film from the Company, and purchasing an additional 4,500,000 rolls of film. The film will contain the Company's laser technology of burning caption images at the bottom of the film. Management anticipates that negotiations with the distributor should be completed within the next thirty days. Production on the initial 3,000,000 unit order would start 10 immediately after the completion of the negotiations. Management anticipates that the initial 3,000,000 unit order, and the additional 4,500,000 unit order, could result in a gross profit margin to the Company of approximately 77% based on an anticipated sale price of $0.45 per unit and cost of production of $0.10 per unit. There are, however, no assurances that the negotiations will lead to an agreement, or if an agreement is reached, that the terms will be the same as the terms presently being negotiated. 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 May 14, 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 - -------------------------- The Company, and its joint venture partner, Romance Alive Audio, Inc., made a strategic decision to find a buyer for Romance Alive Audio, a California general partnership ("Romance Alive"). Romance Alive specializes in the publishing of romance novels on audio-cassettes. Romance Alive has entered into preliminary discussions with a party who is interested in purchasing Romance Alive. Item 6. Exhibits and Reports - ------------------------------ (a) The Company filed Form 8-K/A dated February 17, 1997 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: May 20, 1997 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 THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 312 0 1,600 318 1,004 2,991 814 148 4,679 3,080 0 0 0 36 1,480 4,679 957 957 490 490 610 0 24 (97) 13 (110) 0 0 0 (110) (.02) (.02)
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