-----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, KgnrruPo+9fzjj2Rolx2KMnt4mqVSRxbTMFb0B8lXjZwZLxMFFMDX+TXyxFaIZGB DY8q9+/ltx2zp1ibmJlG7w== 0000912057-96-025500.txt : 19961113 0000912057-96-025500.hdr.sgml : 19961113 ACCESSION NUMBER: 0000912057-96-025500 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SOUNDWORKS INC CENTRAL INDEX KEY: 0000919234 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042998824 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23456 FILM NUMBER: 96658340 BUSINESS ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 BUSINESS PHONE: 6173325936 MAIL ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-Q (MARK ONE) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 29, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________ COMMISSION FILE NO. 0-23456 CAMBRIDGE SOUNDWORKS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2998824 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR IDENTIFICATION NO.) ORGANIZATION) 311 NEEDHAM STREET NEWTON, MASSACHUSETTS 02164 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (617) 332-5936 (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 [ ] As of November 8, 1996, there were issued and outstanding 2,889,399 shares of the Company's Common Stock. CAMBRIDGE SOUNDWORKS, INC. INDEX Page Part I. Financial Information Item 1. Financial Statements (Unaudited) Balance Sheets June 30, 1996 and September 29, 1996 3 Statements of Operations Three Months Ended October 1, 1995 and September 29, 1996 4 Statements of Cash Flows Three Months Ended October 1, 1995 and September 29, 1996 5 Notes to Unaudited Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 6 Exhibits and Reports on Form 8-K 10 Signatures 11 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CAMBRIDGE SOUNDWORKS, INC. BALANCE SHEETS (Unaudited) ASSETS June 30, September 29, 1996 1996 ------------- ------------- CURRENT ASSETS: Cash $ 87,421 $ 212,993 Accounts receivable, net 2,431,670 3,789,591 Inventories 11,405,352 12,128,577 Prepaid expenses 757,247 858,858 ------------- ------------- Total Current Assets 14,681,690 16,990,019 ------------- ------------- PROPERTY AND EQUIPMENT, AT COST: Production equipment and tooling 407,925 427,175 Office equipment and furniture 1,148,610 1,215,522 Leasehold improvements 2,544,495 3,816,868 Motor vehicles 180,290 180,290 ------------- ------------- 4,281,320 5,639,855 Less-Accumulated depreciation and amortization 1,135,478 1,440,686 ------------- ------------- 3,145,842 4,199,169 ------------- ------------- OTHER ASSETS 302,880 394,310 ------------- ------------- Total Assets $ 18,130,412 $ 21,583,498 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings under line of credit $ 3,395,557 $ 3,614,959 Accounts payable 2,123,773 4,585,918 Accrued expenses 979,689 924,725 Customer prepayments and other current liabilities 270,707 1,065,143 ------------- ------------- Total Current Liabilities 6,769,726 10,190,745 ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized--2,000,000 shares - - Common stock, no par value: Authorized--10,000,000 shares Issued and outstanding - 2,889,399 at June 30, 1996 and September 29, 1996 10,346,710 10,346,710 Retained earnings 1,013,976 1,046,043 ------------- ------------- Total Stockholders' Equity 11,360,686 11,392,753 ------------- ------------- Total Liabilities and Stockholders' Equity $ 18,130,412 $ 21,583,498 ============= ============= -3- CAMBRIDGE SOUNDWORKS, INC. STATEMENT OF OPERATIONS (Unaudited) Three Months Ended October 1, September 29, 1995 1996 ------------- ------------- NET SALES $ 7,355,487 $ 11,130,289 COST OF GOODS SOLD 4,268,578 6,493,392 ------------- ------------- Gross profit 3,086,909 4,636,897 ------------- ------------- SALES AND MARKETING EXPENSES 2,898,920 3,740,516 GENERAL AND ADMINISTRATIVE EXPENSES 450,200 565,754 ENGINEERING AND DEVELOPMENT EXPENSES 152,708 199,868 ------------- ------------- Total expenses 3,501,828 4,506,138 ------------- ------------- Income (loss) from operations (414,919) 130,759 INTEREST INCOME (EXPENSE), net (55,561) (76,692) ------------- ------------- Income (loss) before provision (benefit) for income taxes (470,480) 54,067 PROVISION (BENEFIT) FOR INCOME TAXES (188,000) 22,000 ------------- ------------- Net income (loss) $ (282,480) $ 32,067 ============= ============= NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ (.10) $ .01 ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 2,888,824 2,892,523 ============= ============= -4- CAMBRIDGE SOUNDWORKS, INC. STATEMENT OF CASH FLOWS (Unaudited) Three Months Ended October 1, September 29, 1995 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (282,480) $ 32,067 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 126,428 305,208 Changes in current assets and liabilities: Accounts receivable (1,133,243) (1,357,921) Inventories (3,570,663) (723,225) Prepaid expenses (69,902) (101,611) Preopening expenses 82,605 - Accounts payable 1,904,039 2,462,145 Accrued expenses (268,200) (54,964) Customer prepayments and other current liabilities (10,662) 794,436 ------------- ------------- Net cash (used in) provided by operating activities (3,222,078) 1,356,135 CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of property and equipment, net (529,989) (1,358,535) Increase in other assets (9,830) (91,430) ------------- ------------- Net cash used in investing activities (539,819) (1,449,965) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit - bank, net 4,010,283 219,402 Payments on long-term debt 18,292 - ------------- ------------- Net cash provided by financing activities 4,028,575 219,402 ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 266,678 125,572 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 16,885 87,421 ------------- ------------- CASH AND EQUIVALENTS, END OF YEAR $ 283,563 $ 212,993 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ - $ 195,000 ============= ============= Interest $ 24,799 $ 78,089 ============= ============= -5- CAMBRIDGE SOUNDWORKS, INC. Notes to Unaudited Financial Statements (1) BASIS OF PRESENTATION The unaudited financial statements included herein have been prepared by Cambridge SoundWorks, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the three months ended September 29, 1996 are not necessarily indicative of results to be expected for the full fiscal year. (2) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: June 30, 1996 September 29, 1996 ----------- ----------- Raw materials and work-in-process $3,823,302 $4,558,250 Finished goods 7,582,050 7,570,327 ----------- ----------- $11,405,352 $12,128,577 =========== =========== Inventories consists of materials, labor and manufacturing overhead. (3) LINE OF CREDIT On October 4, 1996, an amendment to the Company's demand discretionary line of credit increased the borrowing under the line of credit to $8,000,000 based upon certain percentages of eligible accounts receivable and inventory, as defined. The line of credit is secured by all assets of the Company, with interest payable at the bank's base rate (8.25% at September 29, 1996), plus 3/4%. The amounts outstanding at June 30, 1996 and September 29, 1996 were $3,395,000 and $3,615,000, respectively. (4) SIGNIFICANT CUSTOMER During the three months ended September 29, 1996, the Company had one customer that accounted for approximately 27% of net sales. Sales to this customer during the three months ended October 1, 1995 accounted for 31% of net sales. (5) STOCK OPTIONS On October 22, 1996, the Company amended the 1993 Stock Option Plan (the Plan) to increase the number of shares of Common Stock authorized for insurance under the Plan by 150,000 to 620,000. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the results of operations for the three month periods ended October 1, 1995 and September 29,1996 expressed as percentages of net sales. Three Months Ended October 1, September 29, 1995 1996 ----- ----- NET SALES 100.0% 100.0% COST OF GOODS SOLD 58.0 58.3 ----- ----- Gross profit 42.0 41.7 ----- ----- SALES AND MARKETING EXPENSES 39.4 33.6 GENERAL AND ADMINISTRATIVE EXPENSES 6.1 5.1 ENGINEERING AND DEVELOPMENT EXPENSES 2.1 1.8 ----- ----- Total expenses 47.6 40.5 ----- ----- Income (loss) from operations (5.6) 1.2 INTEREST INCOME (EXPENSE), net (0.8) (0.7) ----- ----- Income (loss) before provision (benefit) for income taxes (6.4) 0.5 PROVISION (BENEFIT) FOR INCOME TAXES (2.6) 0.2 ----- ----- Net income (loss) (3.8)% 0.3% ===== ===== -7- Net Sales Net sales increased from approximately $7.4 million for the three months ended October 1, 1995, to $11.1 million for the three months ended September 29, 1996. The increase in net sales was primarily attributable to retail and wholesale sales. The Company had twenty-eight retail stores open during the three months ended September 29, 1996, compared to twenty-one retail stores during the three months ended October 1, 1995. Several of the Company's factory direct retail stores were relocated to high traffic mall locations during the three months ended September 29, 1996. The Company had one wholesale customer that accounted for 27% and 31% of net sales for the three months ended September 29, 1996 and October 1, 1995, respectively. Catalog sales for the three months ended September 29, 1996 decreased due, in part, to shifts in sales to the Company's new retail stores and through the Company's wholesale expansion. Gross Profit Gross profit as a percentage of net sales decreased from 42.0% during the three months ended October 1, 1995 to 41.7% during the three months ended September 29, 1996. The decrease in gross margin for the three month period was due primarily to the continued increase in retail store sales and wholesale sales which have lower overall margins than the Company's catalog sales. Expenses Sales and marketing expenses increased from $2.9 million during the three months ended October 1, 1995 to $3.7 million for the three months ended September 29, 1996. The hiring of additional retail store personnel, and store operating costs associated with new store openings accounted for a substantial portion of the increase. Sales and marketing expenses as a percentage of net sales decreased from 39.4% to 33.6%, due largely to the 51% increase in net sales. General and administrative expenses increased from $450,000 (6.1%) during the three months ended October 1, 1995 to $566,000 (5.1%) for the three months ended September 29, 1996, due to increased overhead expenses associated with the Company's expansion. Interest Expense/Interest Income Interest expense of $77,000 for the three months ended September 29, 1996 and $56,000 for the three months ended October 1,1995 results from the Company's use of its line of credit. Provision for Income Taxes The Company's effective income tax rate was 40.7% during the three months ended September 29, 1996 compared to 40% for the three months ended October 1, 1995. -8- LIQUIDITY AND CAPITAL RESOURCES As of September 29, 1996, the Company's working capital was approximately $6,799,000 compared to $7,912,000 as of June 30, 1996. Cash and cash equivalents amounted to $213,000 as of September 29, 1996 compared to $87,000 as of June 30, 1996. On October 4, 1996, an amendment to the Company's demand discretionary line of credit from a bank increased the Company's borrowing base from $7,400,000 to $8,000,000 based upon certain percentages of eligible accounts receivable and inventory, as defined. The line of credit is secured by all assets of the Company, with interest payable at the bank's base rate (8.25% at September 29, 1996), plus 3/4%. The Company has approximately $3,284,000 in excess availability on the line of credit at September 29, 1996. The Company believes that its resources are adequate to fund its operations through the end of fiscal 1997. -9- PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a.) Exhibits 10.1 Letter Agreement, dated October 4, 1996, between the First National Bank of Boston and the Company. 27 Financial Data Schedule b.) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended September 29, 1996. -10- 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 as both Vice President - Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of the Registrant. Cambridge SoundWorks, Inc. -------------------------- (Registrant) Date: November 8, 1996 By: /s/ Wayne P. Garrett ---------------------- Wayne P. Garrett Vice President-Finance and Chief Financial Officer (Principal Accounting Officer) -11- EX-27 2 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY REPORT FOR THE THREE MONTHS ENDED SEPTEMBER 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-29-1997 JUL-01-1996 SEP-29-1996 213 0 3,790 0 12,128 16,990 5,640 1,441 21,583 10,191 0 0 0 10,347 0 21,583 11,130 0 6,493 4,506 0 0 77 54 22 32 0 0 0 32 .01 .01
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