-----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, FMbqxdx8am52SmOu9p4X4gbskb4EpRKa7xM/JhtvQk/ytAo6xlEP7ZI/1aDx8KjX KEDhiOnCdet95oOnGQrYgQ== 0001042910-99-000138.txt : 19990218 0001042910-99-000138.hdr.sgml : 19990218 ACCESSION NUMBER: 0001042910-99-000138 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990217 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: 99544197 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 UNITED STATES 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, 1998 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 - - - - - - - - - - Common Stock - $.005 par value 8, 927,725 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - CLASS Outstanding at September 30, 1998 1 PART I FINANCIAL INFORMATION Item 1, Financial Statements - - - - - - - - - - - - - - - - - - DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
ASSETS CURRENT ASSETS: Sept. 30, Dec. 31, '1998 '1997 ----------- ----------- Cash and cash equivalents $ 68,740 $ 98,320 Accounts receivable, net of bad debt and return allowances of $305,000 and $380,670 December 31, 1997, respectively 831,823 1,254,343 Notes receivable 115,871 125,000 Officer receivable - 15,000 Inventories 1,523,178 1,342,253 Advanced royalties 486,488 258,453 Prepaid expenses 10,000 53,435 Income taxes receivable - 51,363 ----------- ----------- Total current assets $ 3,036,100 $ 3,198,167 PROMISSORY NOTES RECEIVABLE, net 200,000 - FIXED ASSETS, net 582,638 628,039 OTHER ASSETS Deferred taxes 46,864 46,864 Mastering costs, net 598,150 686,259 Intangibles, net 220,385 241,713 Other 16,943 51,521 ----------- ----------- Total assets $ 4,701,080 $ 4,852,563 =========== =========== (table continued) LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Line of credit $ 925,000 $ 770,202 Accounts payable 908,627 1,082,205 Royalties payable 1,148,608 2,110,475 Other accrued expenses 52,439 37,661 Deferred revenue 80,000 Convertible debenture payable 630,000 Note Payable - Officer 240,000 Income taxes payable Current Portion long term Debt 165,000 150,000 ----------- ----------- Total current liabilities $ 4,149,674 $ 4,150,543 LONG-TERM DEBT 40,000 191,250 PROMISSORY NOTES PAYABLE - DEFERRED COMPENSATION PAYABLE 240,000 - COMMITMENTS AND CONTINGENCIES - STOCKHOLDERS' EQUITY Common stock, par value $.005 per share; authorized 20,000,000 shares, issued and outstanding 8,927,725 shares respectively 44,639 44,639 Additional paid-in capital 2,105,617 2,105,617 Accumulated (deficit) (1,878,850) (1,639,486) ----------- ----------- Total stockholders' (deficit) equity 271,406 510,770 ----------- ----------- Total liabilities and stockholders' (deficit) equity $ 4,701,080 $ 4,852,563 =========== ===========
The accompanying notes are an integral part of these financial statements. DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 -------------------------- --------------------------- Sales $ 871,381 $1,406,665 $ 2,777,963 $ 3,783,675 Cost of sales 655,127 790,769 2,008,359 2,239,494 ----------- ----------- ----------- ----------- Gross profit 213,254 615,896 769,604 1,544,181 ----------- ----------- ----------- ----------- Selling, administrative And other operating Expenses 712,941 619,372 1,762,056 1,742,548 ----------- ----------- ----------- ----------- Operating (loss) (499,687) (3,476) (992,452) (198,367) Other income(expenses): Interest expense, net (40,063) (29,116) (112,269) (83,296) Other income 1,095,568 1,111,865 123,369 ----------- ----------- ----------- ----------- Loss before income taxes 555,818 (32,592) 7,144 (158,294) Provision for income taxes 1600 15,000 Net profit (loss) $ 555,818 $ (32,592) $ 5,544 $ (173,294) ----------- ----------- ----------- ----------- Loss per share - basic $ 0.06 ($ 0.00) $ 0.00 ($ 0.02) Weighted-average number of Shares outstanding 8,927,725 8,768,842 8,927,725 7,813,740
The accompanying notes are an integral part of these financial statements. DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1998 1997 Cash flows from operating Activities: Net profit (loss) $ 5,544 ($173,297) --------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Non-cash items included In net loss: Depreciation and Amortization 87,988 106,534 Deferred Revenue 40,000 (78,485) Compensations Changes in: Receivables 422,520 (564,947) Employee Receivables 15,000 (22,500) Notes Receivables 9,129 Inventories (180,925) (357,246) Mastering costs 88,109 1,129 Royalty advances (228,035) (129,900) Prepaid expenses 43,435 (21,591) Other 34,578 (13,790) Accounts payable and accrued expenses (185,878) 440,881 Royalties payable (961,867) (5,603) Deferred revenue 80,000 Income taxes 51,363 --------- --------- Total adjustments (684,583) (645,518) Net cash used in Operating activities (679,039) (818,815) Cash flows from investing Activities: Capital expenditures 19,863 ($189,403) --------- --------- Net cash used in investing Activities $ 21,259 $(189,403) (table continued) Cash flows from financing activities: Payment of line of credit $ 154,798 $(948,310) Payments of long term debt (136,250) (25,000) Promissory notes issued Additional borrowing 657,028 918,000 Common stock issued 959,200 Net cash provided by (used in) financing activities 675,576 903,890 Net increase/(decrease) in Cash and cash equivalents 17,796 (104,328) Cash and cash equivalents at beginning of period 50,894 155,222 Cash and cash equivalents at end of period $ 68,690 $ 50,894 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid -- Interest paid $ 53,900 $ 43,950 The accompanying notes are an integral part of these financial statements
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, Dec. 31, 1998 1997 ------------------- ----------------------- Raw Materials $685,430 $632,069 Finished goods and components 837,748 710,184 Reserve for obsolescence Total $1,523,178 $1,342,253 =================== =======================
3. Major Customers DNA Music represented approximately 38% of sales during the nine months ended September 30, 1998, and is the Company's largest customer. Cisco Music accounted for approximately 13% of sales during the same period. Previously, Passport music was the Company's largest customer and exclusive distributor, and represented approximately 70 % of Company sales for the first nine months of 1997. In the third quarter of 1997, Passport Music filed for bankruptcy under Chapter 11. As a result, the Company received approximately $470,000 in returned merchandise from Passport, subsequently shipped out approximately $300,000 of the returned product to other distributors, and recorded approximately $70,000 in net returns. 4. Promissory Notes Payable The Board of Directors of the Company had authorized the offering (the "offering") of preferred stock, convertible into common stock on a 1 to 1 ratio, to all shareholders of the Company who were shareholders of record on or about April 9, 1998. The convertible preferred stock was to be offered on a 1,000,000 share minimum and a 2,500,000 share maximum basis. Each convertible preferred stock was to pay an 8% per annum dividend on a quarterly basis. The dividend was to be paid in cash and was to be cumulative. The offering price was to be $.40 per share. Each holder of one share of convertible preferred stock was to have the right to convert each such share into 1 share of the Company's common stock, on a fully-paid, non-assessable basis, up to and including September 1, 2001, unless extended by the Company's Board of Directors to September 1, 2003. In late June of 1998, management suspended the offering of the preferred stock due to the market conditions of the Company's stock price. Certain members of the Board of Directors of the Company, and one other accredited individual (the "Standby Parties"), had committed to purchase $630,000 (1,575,000 shares) of the convertible preferred stock, no par value, offering which would not otherwise have been purchased by the shareholders of the Company pursuant to a prospectus. The Standby Parties loaned the Company the full amount of their respective commitments. The loans were evidenced by promissory notes bearing interest at 8% per annum until the maturity date of May 15, 1998. During the quarter ended March 31, 1998, $330,000 in promissory notes had been issued to the Standby Parties. Approximately $27,028 in accrued interest on the promissory notes was recorded through September 30, 1998. The remaining $300,000 commitment was received by the Company in April 1998. The May 8, 1998 maturity dates of the $630,000 convertible debentures have not been formally extended. During January 1999, Photo Dimensions, Inc. ("PDI"), the Company's wholly owned camera subsidiary, entered into an agreement with Foto Technology LLC, a Nevada Limited Liability Company ("FTLLC"). The Standby Parties are the members of FTLLC. Under the agreement, FTLLC is purchasing all of the assets of PDI and assuming most of the liabilities of PDI. The purchase price to be paid by FTLLC to PDI for the purchase of the assets, together with the assumption of certain liabilities, is $630,000. The $630,000 is to be paid at the closing by the Standby Parties assigning their respective promissory notes to FTLLC, and the FTLLC will terminate the $630,000 of debt, plus accrued interest, owed by the Company. 5. Long-Term Debt Long-Term Debt consists of four quarterly $10,000 installments to a former vendor. Due year ended September 30, 1999 $40,000 Adjustments have been made much to DCC's long-term debt to reflect a settlement agreement entered into with Re-Pac and the Company, and certain other parties. Under the Re-Pac settlement agreement $150,000 debt owed to Re-Pac and Robert Craig by the Company shall be deemed "paid and satisfied in full" in consideration of the Company issuing 300,000 shares of its common stock to Robert Craig. (see the discussion under Overview, below) 6. STOCK COMPENSATION AGREEMENT In accordance with the stock compensation agreements entered into with the Company, each of the six directors have been granted rights to purchase up to 100,000 shares of the Company's common stock at $.40 per share over the next four years. The consideration for the shares for each director who has served as a director continuously for the 12 months preceding each of the four anniversary dates will be the services performed. A deferred compensation liability for $230,000 (corresponding to six directors at $40,000 each) has been recorded at the March 31, 1998 balance sheet date. 7. Basis of Presentation The Company increased sales of the Photo Dimensions camera by approximately $218,000 during the nine month period ended September 30, 1998 from the comparable period of the previous year. The increased working capital needed to prepare the film and load the film into the single use caption cameras, and to carry the accounts receivable related to this increased sales volume, has been a severe strain on the Company's liquidity. As a result, the Company seeks to obtain additional outside financing to meet its obligations. No adjustments have been made to the carrying value of the assets should the additional outside not be obtained. 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 CDs. Sales of the captioned camera product by Photo Dimensions, Inc. ("PDI"), the Company's wholly Owned camera subsidiary increased by 61% for the first nine months of the year over year-ago Levels. The company's core business of high quality compact discs' gross revenues were off by 35% compared with the nine months ended September 30, 1997. This decline is primarily decline is primarily due to management's attention to the caption camera business. due to the management's attention to the caption camera business. Although captioned camera sales for the first nine months increased by more than 61 percent compared to that of the prior year, management anticipates continued Losses through the fiscal year ended 1998. The development of the caption camera on a mass production basis has exerted a severe strain on the Company's financial and managerial resources. The recognition by management of the severity of the strain led to the decision by management to sell PDI. During January, 1999 PDI entered into an agreement with Foto Technology LLC ("FTLLC") to sell all of the assets of PDI to FTLLC. The assets include the patents for the captioned camera held by PDI. Certain of the liabilities of PDI , and of the Company's, are to be assumed by FTLLC. (see the discussion under Promissory notes Payable, above.) The cash advances made by the Company to PDI during the last two and one-half years, of approximately $1,500,000, are to be written off. The effective date of the agreement is January 14, 1999. The closing is to occur once California's bulk sales law has been satisfied. The Company has been talking with a third party about the purchase of substantially all of the assets of a transaction is necessary to maintain the Company as a viable entity by, hopefully, infusing some much-needed cash into the Company. In essence, the Company is seeking a "fresh-start" without resorting to a bankruptcy. If a transaction is consummated, management would then seek an investment partner so that the Company would be in the position to refocus on its core music business. Result of Operations 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 September 30 September 30 1998 1998 Revenues: DCC Compact Classics $ 678,911 78% $ 2,162,245 78% Romance Alive Audio 6,583 1% 9,329 0% Photo Dimensions 182,886 21% 606,389 22% ----------- ----------- ----------- ----------- Total revenues $ 868,380 100% $ 2,777,963 100% Net Income (Loss): DCC Compact Classics $ 784,918 141% $ 666,742 12027% Romance Alive Audio (22,497) -4% (22,322) -403% Photo Dimensions (206,626 -37% (638,876) -11524% ----------- ----------- Total Net Income $ 555,795 100% $ 5,544 100% Nine months ended September 30, 1998 and September 30, 1997 - ---------------------------------------------------------------------------- Sales for the nine months ended September 30, 1998 were $2,777,963 compared to $3,783,675, a decline of $1,005,712 or 26 percent. This primarily is attributable to the devotion of Management in an attempt to establish PDI, the Company's wholly owned camera subsidiary, thereby Resulting in less focus on the core music business. Cost of goods sold for the nine months ended September 30, 1998 were $2,008,359 compared to $2,239,494 for the same period in 1997, or a decrease of $231,135, or 10%. As a percentage of sales, cost of goods sold for the nine months ended September 30, 1998 were 72% compared to 59 percent for the nine months ended June 30, 1997. This increase can be attributed primarily to extraordinary expenses related to PDI in the arduous process of developing better cost effective techniques in production and quality control of the caption camera. Selling, administrative and other operating expenses were up $19,508, to $1,762,056 for the nine months ended September 30, 1998 compared to $1,742,548 for the nine months ended September 30, 1997. This increase is primarily due to the increased effort to develop the business of PDI. Results of operations was a net loss of $5,544 or $.00 per share for the nine months Ended September 30, 1998 compared to a loss of $173,294 or $.02 per share for the same period in 1997. Management attributes this loss primarily to the decline in gross revenues in the music division and continued expenses of establishing the PDI brand name and production facilities. However, the writedown of royalties payable by $1,095,568, booked as "other income" during the quarter ended September 30, 1998, reduced the company's net loss to $5,544 for the nine month period ended September 30, 1998. Three months ended September 30, 1998 and September 30, 1997 - ---------------------------------------------------------------------------- In the third quarter of 1998, the Company reported a net profit of $555,818 compared to a loss of $(32,592) for the same period in 1997. However, the net profit was attributable to the writedown of royalties payable by $1,095,568 during the third quarter. The adjustment was booked as "other income" and was a non-cash item. Without the adjustment, there Would have been a net loss of $539,750 for the third quarter of 1998. Revenues decreased $535,284 to $871,381 for the third quarter ending September 30, 1998 compared to $1,406,665 for the same period in 1997. The decline in sales reflects sales returns for the quarter of $102,278 and a decline in new releases in the music division. Selling and administrative costs increased 15% to $712,941 for the three months ended September 30, 1998 compared to $619,372 for the same period in 1997. Liquidity and capital resources - -------------------------------------- The Company had a working capital deficit of approximately $1,114,000 at September 30, 1998, as opposed to a working capital deficit of approximately $952,000 at December 31, 1997. The decline in working capital is primarily due to the operating loss for the nine months ended September 30, 1998. In July 1998, the Company was notified by Merrill Lynch Financial Services, Inc. that its line of credit in the amount of $750,000 would not be renewed. The line of credit is a revolving line which matured on June 30, 1998. The Company has been in discussions with Merrill Lynch to work out a payment arrangement. The Company is experiencing severe short-term liquidity problems. The Company does not have the ability to generate the operating income needed to meet its short-term cash requirements. The Company must find external sources to meet its cash requirements. The Company has entered into an agreement to sell the assets, and the assumptions of certain liabilities, of Photo Dimensions, Inc., the Company's wholly owned caption camera company. The sale will eliminate a major drain on the Company's liquidity sources. Also, the Company is in talks to sell its assets involving the assumption of certain liabilities of the Company. If the talks result in a binding agreement, the Company anticipates receiving some cash. Otherwise, the Company may have no alternative but to file for protection under the Federal bankruptcy laws. Item 1. Legal Proceedings - --------------------------- In September 1998, The Company settled the lawsuit filed against VRG Records and the cross-complaint against the Company. The settlement provides for the Company to pay VRG $80,000. $25,000 has been paid in September, with the balance to be paid $10,000 quarterly. In addition VRG must purchase all of the inventory Navarre Corporation has returned to the Company at $2.50 per CD and $2.00 per cassette up to 15,000 units each. During December 1998, the Company entered into a settlement agreement with Re-Pac Corporation ("Re-Pac") and Robert Craig ("Craig"). Photo Dimensions, Inc. ("PDI") was a part of the settlement. Craig is the inventor of the caption camera and Re-Pac was the company which sold 100% of the common stock of PDI to the Company. Under the settlement, all parties have released each other from all claims. The Company is to transfer 300,000 shares of DCC's common stock to Craig. The $150,000 debt owed to Re-Pac by the Company, which represents part of the purchase price of PDI, shall be deemed "paid and satisfied in full". The Company anticipates entering into a confession of judgment as part of a settlement of a lawsuit brought by Navarre Corporation ("Navarre"). In the lawsuit Navarre claims that the Company and Sandstone Music, a label division of the Company, owed Navarre $106,000 under a wholesale distribution agreement. In settlement of Navarre's claim, the Company would pay Navarre $80,000. $15,000 is to be paid within ten days of the execution of the settlement agreement. The $65,000 balance, together with interest at 9.00% per annum, is to be paid in monthly installments of principal and interest over a two year period. Item 2. Shareholders Stock Information - --------------------------------------------------------- Through January 18, 1999, 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. 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:____________________________ Marshall Blonstein Chief Executive Officer, President EX-27 2 FDS --
5 3-mos DEC-31-1998 SEP-30-1998 68,740 0 947,694 305,000 1,523,178 3,036,100 874,915 275 4,701,080 4,149,694 0 0 0 44,639 226,767 4,701,080 871,381 1,966,949 655,127 655,127 712,941 0 40,063 555,818 0 555,818 0 0 0 555,818 0.06 0.06
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