-----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, P4fq9k4OhbSbmZi69u5VWVNlP8r1bCyoaj1UHQpWkXjOcInyCmt4ERxTEQqOjAY1 oR011CcUX9bq94RX63mapw== 0001042910-98-001001.txt : 19981023 0001042910-98-001001.hdr.sgml : 19981023 ACCESSION NUMBER: 0001042910-98-001001 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981022 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: 98729407 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 June 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 PART I FINANCIAL INFORMATION Item 1, Financial Statements - - - - - - - - - - - - - - - - - - DCC COMPACT CLASSICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
ASSETS CURRENT ASSETS: June 30, Dec. 31, '1998 '1997 --------------------------- Cash and cash equivalents $ 260,713 $ 98,320 Accounts receivable, net of bad debt and return allowances of $380,670 and $380,670 December 31, 1997, respectively 1,012,296 1,254,343 Notes receivable 117,694 125,000 Officer receivable 11,250 15,000 Inventories 1,423,420 1,342,253 Advanced royalties 361,424 258,453 Prepaid expenses 10,000 53,435 Income taxes receivable 51,363 ----------- ----------- Total current assets 3,196,797 3,198,167 PROMISSORY NOTES RECEIVABLE, net 215,000 -- FIXED ASSETS, net 593,189 628,039 OTHER ASSETS Deferred taxes 46,864 46,864 Mastering costs, net 613,993 686,259 Intangibles, net 227,494 241,713 Other 51,521 51,521 ----------- ----------- Total assets $ 4,944,858 $ 4,852,563 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Line of $ 750,000 $ 770,202 credit Accounts payable 662,527 1,082,205 Royalties payable 2,253,575 2,110,475 Other accrued expenses 49,966 37,661 Deferred revenue 80,000 Convertible debenture payable 630,000 Income taxes payable 1,600 Current portion of long-term debt 150,000 150,000 ----------- ----------- Total current liabilities 4,577,668 4,150,543 LONG-TERM DEBT 166,667 191,250 PROMISSORY NOTES PAYABLE -- DEFERRED COMPENSATION PAYABLE 240,000 -- COMMITMENTS AND CONTINGENCIES -- STOCKHOLDERS' EQUITY Common stock, par value $.005 per share; authorized 10,000,000 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 (2,189,733) (1,639,486) ----------- ----------- Total stockholders' (deficit) equity (39,477) 510,770 ----------- ----------- Total liabilities and stockholders' (deficit) equity 4,944,858 $ 4,852,563 =========== ===========
The accompanying notes are an integral part of these financial statements. DCC COMPACT CLASSICS, INC. CONSENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 -------------------------- --------------------------- Sales $ 884,626 $ 1,419,794 $ 1,909,582 $ 2,377,010 Cost of sales 585,160 958,746 1,353,232 1,448,728 ----------- ----------- ----------- ----------- Gross profit 299,466 461,048 556,350 928,282 Selling, administrative and other operating expenses 567,138 462,505 1,049,115 1,070,278 ----------- ----------- ----------- ----------- Operating (loss) (267,672) (1,457) (492,765) (141,996) Other income (expenses): Interest expense, net (42,772) (29,705) (72,206) (53,710) Other income 15,014 -- 16,297 70,000 ----------- ----------- ----------- ----------- Loss before income taxes (295,430) (31,162) (548,674) (125,706) Provision for income taxes 2,000 1,600 15,000 Net loss $ (295,430) $ (33,162) $ (550,274) $ (140,706) ----------- ----------- ----------- ----------- Loss per share - basic $ (0.03) $ (0.00) $ (0.06) $ (0.02) ----------- ----------- ----------- ----------- Weighted-average number of Shares outstanding 8,927,725 7,292,384 8,927,725 7,059,088 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. DCC COMPACT CLASSICS, INC. CONSENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1998 1997 Cash flows from operating Activities: Net loss $(550,274) $(140,706) Adjustments to reconcile net loss to net cash used in operating Activities: Non-cash items included In net loss: Depreciation and amortization 61,820 70,059 Deferred revenue 25,000 (78,485) Changes in: Receivables 242,047 (645,473) Inventories (81,167) (52,771) Mastering costs 72,266 (14,281) Royalty advances (102,971) (56,501) Prepaid expenses 43,435 Other 62,446 (54,711) Accounts payable and accrued expenses (407,373) 334,475 Royalties payable 143,100 107,569 Deferred revenue 80,000 -- Income taxes 1,600 -- ---------------------- Total adjustments 140,203 (390,119) Net cash used in operating activities (410,071) (530,825) Cash flows from investing activities: Capital expenditures (12,751) (116,970) Net cash used in investing activities (12,751) (116,970) Cash flows from financing activities: Payment of line of credit (20,202) (785,111) Payments of long term debt (25,000) Promissory notes issued (24,583) Additional borrowing 630,000 628,000 Common stock issued 733,700 Net cash provided by (used in) financing activities 585,215 551,589 Net increase/ (decrease) in cash and cash equivalents 162,393 (96,206) Cash and cash equivalents at beginning of period 98,320 155,222 Cash and cash equivalents at end of period $ 260,713 $ 59,016 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid -- $ 15,000 Interest paid $ 53,900 $ 51,667
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 six 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 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:
June 30, Dec. 31, 1998 1997 -------------- ---------------- Raw Materials $654,773 $632,069 Finished goods and components 798,647 740,184 Reserve for obsolescence (30,000) (30,000) -------------- ---------------- Total $1,423,420 $1,342,253 ============== ================
3 Major Customers DNA Music represented approximately 47% of sales during the six months June 30, 1998 and is the Company's largest customer. Cisco Music accounted for approximately 18% 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 six 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 DCC has authorized the offering (the "offering") of preferred stock, convertible into common stock on a 1 to 1 ratio, to all shareholders of DCC 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 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 DCC 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 due to the market conditions of DCC's stock price. In satisfaction of the $400,000 (1,000,000 shares) minimum offering, certain members of the Board of Directors of DCC, and one other accredited individual (the "Standby Parties"), irrevocably committed to purchase $630,000 (1,575,000 shares) of the convertible preferred stock, no par value, offering which was not otherwise purchased by the shareholders of DCC pursuant to a prospectus. These Standby Parties have loaned DCC the full amount of their respective commitments, 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 above individuals, with approximately $5,804 in accrued interest recorded for the first quarter and $12,502.56 accrued for the second quarter ended June 30, 1998. The remaining $300,000 commitment was received by DCC in April 1998. Maturity of the $630,000 convertible debentures have not been formally extended. Additionally, the Company's president has irrevocably committed to exercising Stock options equaling $30,000 in contributed capital. 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 year ended: June 30, 1999 $150,000 June 30, 2000 75,000 June 30, 2001 50,000 June 30, 2002 41,667 ---------------- 316,667 Less: current portion 150,000 ---------------- Long-term Debt $ 166,667 ================
6 STOCK COMPENSATION AGREEMENT In accordance with stock compensation agreements the six directors of the Company have each 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 six month period ended June 30, 1998 from the comparable period of the previous year. 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 seeks 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 outside financing 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 CD's. The Company's strategies continues to 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 106% in the first half of the year over year-ago levels as the marketplace accepts this new product. The company's core business of high quality compact discs gross revenues were off by 31% compared with the six months ended June 20, 1997. This decline is primarily due to management's attention to the caption camera business. Although captioned camera sales for the first six months increased by more then 100 percent compared to that of the prior year, management anticipates continued losses through the end of the year and anticipates that Photo Dimensions will achieve profitability in the first quarter of 1999. Management is re-focusing on the music business and anticipates that the compact discs business will get back to the gross levels of 1997 in the fourth quarter of this year with improvement for the year 1999. 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 Six Months ended March 31 June 30 1998 1998 Revenues: DCC Compact Classics $811,325 79% $1,483,334 78% Romance Alive Audio (307) 0% 3,053 0% Photo Dimensions 213,938 21% 423,502 22% ---------- ---- ---------- ---- Total revenues $1,024,956 100% $1,909,889 100% Net Income (Loss): DCC Compact Classics ($11,494) 5% ($118,177) 21% Romance Alive Audio (16,734) 7% 177 0% Photo Dimensions (226,616) 89% (432,274) 79% Total Net Income ($254,844) 100% ($550,274) 100%
Six months ended June 30, 1998 and June 30, 1997 - ------------------------------------------------ Sales for the six months ended June 30, 1997 were $1,909,889 compared to $2,377,010, a decline of $467,121 or 19.65 percent. This in part can attributed to the current focus of management on the establishment and enhancement of the PDI subsidiary, thereby resulting in less focus on the core music business. While management continues to dedicate time to the enhancement of the PDI subsidiary, it is now devoted to its core music business and expects this part of the business to get back to growth and profitability. Cost of goods sold for the six months ended June 30, 1998 were $1,353,232 compared to $1,448,738 for the same period in 1997, or a decrease of $95,506, or 7%. As a percentage of sales, cost of goods sold for the six months ended June 30, 1998 were 71% compared to 61 percent for the six months ended June 30, 1997. This increase can be attributed primarily to extraordinary expenses related to PDI in the continuing process in developing better techniques in production and quality control. Selling, administrative and other operating expenses were down $46,163, to $1,024,115 for the six months ended June 30, 1998 compared to $1,070,278 for the six months ended June 30, 1997. These savings are operating efficiencies being recognized and continued cost cutting measures being implemented by management. Results of operations was a net loss of $525,274 or $.06 per share for the six months ended June 30, 1998 compared to a loss of $140,706 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. It is anticipated by management that operating results in both the music and caption camera divisions should improve through the remainder of 1998. Three months ended June 30, 1998 and June 30, 1997 - -------------------------------------------------- In the second quarter of 1998, the Company reported a loss of $295,430 compared to a loss of $33,162 for the same period in 1997. Revenues decreased $534,861 to $884,933 for the second quarter ending June 30, 1998 compared to $1,419,794 for the same period in 1997. The decline in sales reflects a sales return for the quarter of $275,694 and a decline in new releases in the music division. Selling and administrative costs increased 4% to $481,977 for the three months ended June 30, 1998 compared to $462,505 for the same period in 1997. Liquidity and Capital Resources - ------------------------------- The Company has a working capital deficit of approximately $1,380,871 at June 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 six months ended June 30, 1998. In July 1998, the Company was notified 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 intends to meet with the holder of the note in the near future and to work out a payment arrangement. $150,000 of long-term debt is maturing during the calendar year ending December 31, 1998. Contribution to the capital deficit mentioned above is $2,253,575 in estimated royalties payable. Management for some time has felt that estimates made for the royalty liability were too high and as a result, retained a royalties expert to examine the royalty accrual for the period July 1, 1994 thru June 30, 1998. The examination should be completed during the month of October 1998, however, preliminary results indicate that a material adjustment should be made to this liability. It appears that the Company has materially over estimated its liability. Accordingly, any such adjustment will be made in the third quarter on 1998. Management continues to pursue additional outside financing to support the growth of its captioned camera and music business. 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 $125,000. $25,000 has been paid in September, with the balance to be paid $10,000 quarterly. In addition VRG must purchase all inventory the Company has from Navarre of their product at $2.50 per CD and $2.00 per cassette up to 15,000 units each. There have been no other material development in the legal proceeding which the Company is involved as reported in the Company's Form 10-KSB for the period ended December 31, 1997. Item 2. Shareholders Stock Information - --------------------------------------- Through October 2, 1998, 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. 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 Chief Executive Officer, President Date: October 15, 1998 EX-27 2 FDS --
5 3-MOS DEC-31-1998 APR-1-1998 JUN-30-1998 260,713 0 1,893,334 (380,670) 1,423,420 3,196,797 866,407 (273,218) 4,944,858 4,577,668 0 0 0 44,639 (84,116) 4,944,858 884,626 899,640 585,160 585,160 567,138 0 42,772 (295,430) 0 (295,430) 0 0 0 (295,430) (0.03) (0.03)
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