-----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, TAL3dnNLin7eadfOtqkbDQT9+pyXI+PmT7sjg1X40Y7G42205RB7cqoYGvS7dZcx 918aF18kyyXd09BcquZL+Q== 0000912057-96-009139.txt : 19960514 0000912057-96-009139.hdr.sgml : 19960514 ACCESSION NUMBER: 0000912057-96-009139 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 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: 96561084 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 March 31, 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 ORGANIZATION) IDENTIFICATION NO.) 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 May 12, 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 July 2, 1995 and March 31, 1996 3 Statements of Operations Three and Nine Months Ended April 2, 1995 and March 31, 1996 4 Statements of Cash Flows Nine Months Ended April 2, 1995 and March 31, 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 I. FINANCIAL STATEMENTS (UNAUDITED) CAMBRIDGE SOUNDWORKS, INC. BALANCE SHEETS (Unaudited)
ASSETS July 2, 1995 March 31, 1996 ------------ -------------- CURRENT ASSETS: Cash and cash equivalents $ 16,885 $ 159,288 Accounts receivable 803,047 1,700,319 Income tax refund receivable 380,928 - Inventories 10,523,627 12,215,982 Prepaid expenses 403,209 493,431 Preopening costs 157,605 - ------------- ------------- Total current assets 12,285,301 14,569,020 ------------- ------------- PROPERTY AND EQUIPMENT, AT COST: Production equipment and tooling 451,791 461,572 Office equipment and furniture 955,818 1,089,232 Leasehold improvements 1,952,226 2,803,797 Motor vehicles 140,737 180,290 ------------- ------------- 3,500,572 4,534,891 Less-Accumulated depreciation and amortization 835,370 1,347,234 ------------- ------------- 2,665,202 3,187,657 ------------- ------------- OTHER ASSETS 78,957 112,465 ------------- ------------- $ 15,029,460 $ 17,869,142 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ - $ 2,995,604 Current portion of debt - 15,184 Accounts payable 3,329,328 2,235,412 Accrued expenses 483,176 964,238 Customer prepayments and other current liabilities 109,118 284,503 ------------- ------------- Total current liabilities 3,921,622 6,494,941 ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized--2,000,000 shares - - Common stock, no par value: Authorized--10,000,000 shares Issued--2,888,824 at July 2, 1995 and 2,889,399 at March 31, 1996 10,344,697 10,346,710 Retained earnings 763,141 1,027,491 ------------- ------------- Total stockholders' equity 11,107,838 11,374,201 ------------- $ 15,029,460 $ 17,869,142 ------------- ------------- ------------- -------------
The accompanying notes are an intregal part of these financial statements. 3 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended ------------------ ----------------- April 2, March 31, April 2, March 31, -------- --------- -------- --------- 1995 1996 1995 1996 ---- ---- ---- ---- NET SALES $ 8,428,153 $ 10,939,693 $ 20,341,015 $ 33,303,958 COST OF GOODS SOLD 4,656,437 6,579,081 11,002,781 19,600,745 ------------- ------------- ------------- ------------ Gross profit 3,771,716 4,360,612 9,338,234 13,703,213 ------------- ------------- ------------- ------------ SALES AND MARKETING EXPENSES 2,843,820 3,583,358 7,420,331 11,060,312 GENERAL AND ADMINISTRATIVE EXPENSES 512,881 491,252 1,527,259 1,472,097 ENGINEERING AND DEVELOPMENT EXPENSES 214,175 186,573 570,992 500,062 ------------- ------------- ------------- ------------ Total expenses 3,570,876 4,261,183 9,518,582 13,032,471 ------------- ------------- ------------- ------------ Income (loss) from operations 200,840 99,429 (180,348) 670,742 INTEREST INCOME (EXPENSE), net 18,333 (72,962) 157,972 (230,892) ------------- ------------- ------------- ------------ Income (loss) before provision (benefit) for income taxes 219,173 26,467 (22,376) 439,850 PROVISION (BENEFIT) FOR INCOME TAXES 88,000 10,500 (35,000) 175,500 ------------- ------------- ------------- ------------ Net income $ 131,173 $ 15,967 $ 12,624 $ 264,350 ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------ NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ .05 $ .01 $ .00 $ .09 ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 2,907,747 2,913,322 2,927,106 2,932,790 ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------
The acompanying notes are an intregal part of these financial statements. 4 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended ------------------ April 2, 1995 March 31, 1996 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,624 $ 264,350 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 342,765 511,864 Changes in current assets and liabilities: Accounts receivable (1,743,830) (897,272) Income tax refund receivable (206,375) 380,928 Inventories (5,717,060) (1,692,355) Prepaid expenses 271,233 (90,222) Preopening costs (414,456) 157,605 Accounts payable 1,607,027 (1,093,916) Accrued expenses 479,268 481,062 Customer prepayments and other current liabilities 50,118 175,385 ------------ ------------ Net cash used in operating activities (5,318,686) (1,802,571) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,261,586) (1,034,319) Increase in other assets (83,744) (33,508) ------------ ------------ Net cash used in investing activities (2,345,330) (1,067,827) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from line of credit, net - 2,995,604 Proceeds from issuance of debt, net - 15,184 Exercise of stock options 16,800 2,013 Repayment of capital lease obligation (42,345) - ------------ ------------ Net cash (used in) provided by financing activities (25,545) 3,012,801 ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,689,561) 142,403 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,634,656 16,885 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 945,095 $ 159,288 ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 80,000 $ 4,000 ------------ ------------ ------------ ------------ Interest $ 1,165 $ 204,821 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. 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 and nine months ended and March 31, 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:
July 2, 1995 March 31, 1996 ------------ -------------- Raw materials and work- in-process $ 3,906,025 $ 3,998,253 Finished goods 6,617,602 8,217,729 ------------- -------------- $ 10,523,627 $ 12,215,982 ------------- -------------- ------------- --------------
Inventories consists of materials, labor and manufacturing overhead. (3) CHANGE IN FISCAL YEAR On March 14, 1995 the Company's Board of Directors approved a change in the Company's fiscal year. The Company changed its fiscal year to end on the Sunday nearest the end of June and previously reported results for the six month period ended July 2, 1995. The third quarter for fiscal 1996 comprises the period from January 1,1996 through March 31, 1996. (4) LINE OF CREDIT On October 18, 1995, an amendment to the Company's demand discretionary line of credit increased the borrowing base to $5,800,000. The line of credit is secured by all of the current assets of the Company, with interest payable at the bank's base rate (8.25% at March 31, 1996), plus 1/4%. The amounts outstanding at July 2, 1995 and March 31, 1996 were $0 and $2,995,604, respectively. (5) SIGNIFICANT CUSTOMER During the three and nine months ended March 31, 1996, the Company had one customer that accounted for approximately 16% and 21% of net sales, respectively. Sales to this customer during the three and nine months ended April 2, 1995 accounted for 18% and 7% of net sales, respectively. 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 and nine month periods ended April 2, 1995 and March 31, 1996 expressed as a percentage of net sales.
Three Months Ended Nine Months Ended April 2, March 31, April 2, March 31, -------- --------- -------- --------- 1995 1996 1995 1996 -------- --------- -------- --------- (Unaudited) (Unaudited) NET SALES 100.0 % 100.0 % 100.0 % 100.0 % COST OF GOODS SOLD 55.2 60.1 54.1 58.9 ------ ------ ------ ----- Gross profit 44.8 39.9 45.9 41.1 ------ ------ ------ ----- SALES AND MARKETING EXPENSES 33.8 32.8 36.5 33.2 GENERAL AND ADMINISTRATIVE EXPENSES 6.1 4.5 7.5 4.4 ENGINEERING AND DEVELOPMENT EXPENSES 2.5 1.7 2.8 1.5 ------ ------ ------ ----- Total expenses 42.4 39.0 46.8 39.1 ------ ------ ------ ----- Income (loss) from operations 2.4 0.9 (0.9) 2.0 INTEREST INCOME (EXPENSE), net 0.2 (0.7) 0.8 (0.7) ------ ------ ------ ----- Income (loss) before provision (benefit) for income taxes 2.6 0.2 (0.1) 1.3 PROVISION (BENEFIT) FOR INCOME TAXES 1.0 0.1 (0.2) 0.5 ------ ------ ------ ----- Net income 1.6 % 0.1 % 0.1 % 0.8 % ------ ------ ------ ----- ------ ------ ------ -----
7 Net Sales Net sales for the third quarter increased from approximately $8.4 million for the quarter ended April 2, 1995, to $11.0 million for the quarter ended March 31, 1996. Net sales for the nine months ended March 31, 1996 increased to approximately $33.3 million compared to approximately $20.3 million during the comparable prior period. Increased retail and wholesale sales accounted for the majority of the sales increase for both the three and nine month periods. The Company had twenty-three retail stores open during the quarter ended March 31, 1996, compared to fifteen retail stores during the quarter ended April 2, 1995. Catalog sales for both the three and nine month periods ended March 31, 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 44.8% during the three months ended April 2, 1995, to 39.9% during the three months ended March 31, 1996. Gross profit for the nine month period ended March 31, 1996 was 41.1% compared to 45.9% for the nine month period ended April 2, 1995. The decrease in gross margin for both the three and nine month period was due primarily to increases in retail store sales and wholesale sales which have lower overall margins than the Company's catalog sales. Expenses Sales and marketing expenses increased in dollars from $2.8 million for the three months ended April 2, 1995 to $3.6 million for the three months ended March 31, 1996, but decreased as a percentage of net sales from 33.8% in 1995 to 32.8% of net sales in 1996. Sales and marketing expenses increased in dollars from $7.4 million for the nine months ended April 2, 1995 to $11.0 million for the nine months ended March 31, 1996, but decreased as a percentage of net sales from 36.5% in 1995 to 33.2% in 1996. The Company's retail expansion has accounted for a substantial portion of the increases in expenses in dollars while decreasing as a percentage of net sales. General and administrative expenses decreased in dollars from $513,000 (6.1% of net sales) for the three months ended April 2, 1995 to $491,000 (4.5% of net sales) for the three months ended March 31, 1996. General and administrative expenses decreased in dollars from approximately $1,527,000 (7.5% of net sales) for the nine months ended April 2, 1995 to $1,472,000 (4.4% of net sales) during the nine months ended March 31, 1996. General and administrative expenses have remained relatively consistent in dollars during both the three and nine month periods due to the Company's ability to increase sales with a minimal increase to expenses. Interest Expense/Interest Income Interest expense of approximately $73,000 and $231,000 for the three and nine month periods ended March 31, 1996 results from the Company's use of its line of credit. Interest income of approximately $18,000 and $158,000 for the three and nine month periods ended April 2, 1995, respectively resulted primarily from investments in United States Treasury Securities purchased with the remaining net proceeds from the Company's initial public offering in 1994. 8 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1996, the Company's working capital was approximately $8,074,000 compared to $8,364,000 as of July 2, 1995. Cash and cash equivalents amounted to $159,000 as of March 31, 1996 compared to $17,000 as of July 2, 1995. On October 18, 1995 an amendment to the Company's demand discretionary line of credit from a bank increased the borrowing base up to $5,800,000 based upon certain levels of accounts receivable and inventory. The line of credit is secured by all of the current assets of the Company, with interest payable at the bank's base rate (8.25% at March 31, 1996), plus 1/4%. The Company has approximately $1,575,000 in excess availability on the line of credit at March 31, 1996. The Company believes that its resources are adequate to fund its operations through the end of calendar 1996. 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a.) Exhibits 27 Financial Data Schedule b.) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 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: May 12, 1996 By: /s/ Wayne P. Garrett ---------------------------- Wayne P. Garrett Vice President-Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 11 EX-27 2 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS JUN-30-1996 JAN-01-1996 MAR-31-1996 1.0 159 0 1,700 0 12,216 14,569 4,535 1,347 17,869 6,495 0 0 0 10,347 1,027 17,869 10,939 10,939 6,579 4,261 0 0 73 26 10 16 0 0 0 16 .01 .01
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