-----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, GqTXNq/HygyZ4AdCDXDyOIWNxRF3zzUkThgSp+exK3I+IoGFzeoIV8LEyYYzbIse OelhyjdqiCKy9HiYaWJNig== 0001005477-97-000256.txt : 19970222 0001005477-97-000256.hdr.sgml : 19970222 ACCESSION NUMBER: 0001005477-97-000256 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970212 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: 97526456 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 FORM 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 December 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 February 10, 1997, 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 December 29, 1996 3 Statements of Operations Three and Six Months Ended December 31, 1995 and December 29, 1996 4 Statements of Cash Flows Six Months Ended December 31, 1995 and December 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 4 Submission of matters to a Vote of Security Holders 10 Item 5 Other Information 11 Item 6 Exhibits and Reports on Form 8-K 11 Signatures 12 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CAMBRIDGE SOUNDWORKS, INC. BALANCE SHEETS (Unaudited) ASSETS June 30, 1996 December 29, 1996 ------------- ----------------- CURRENT ASSETS: Cash $ 87,421 $ 1,460,703 Accounts receivable, net 2,431,670 2,595,379 Inventories 11,405,352 13,286,833 Prepaid expenses 757,247 786,272 ----------- ----------- Total Current Assets 14,681,690 18,129,187 ----------- ----------- PROPERTY AND EQUIPMENT, AT COST: Production equipment and tooling 407,925 517,843 Office equipment and furniture 1,148,610 1,264,860 Leasehold improvements 2,544,495 4,100,381 Motor vehicles 180,290 180,290 ----------- ----------- 4,281,320 6,063,374 Less-Accumulated depreciation and amortization 1,135,478 1,707,298 ----------- ----------- 3,145,842 4,356,076 ----------- ----------- OTHER ASSETS 302,880 197,461 ----------- ----------- Total Assets $18,130,412 $22,682,724 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings under line of credit $ 3,395,557 $ 1,995,676 Accounts payable 2,123,773 6,186,004 Accrued expenses 979,689 2,049,851 Customer prepayments and other current liabilities 270,707 649,789 ----------- ----------- Total Current Liabilities 6,769,726 10,881,320 ----------- ----------- 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 December 29, 1996 10,346,710 10,346,710 Retained earnings 1,013,976 1,454,694 ----------- ----------- Total Stockholders' Equity 11,360,686 11,801,404 ----------- ----------- Total Liabilities and Stockholders' Equity $18,130,412 $22,682,724 =========== =========== The accompanying notes are an integral part of these financial statements. 3 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended ------------------ ---------------- December 31, December 29, December 31, December 29, ------------ ------------ ------------ ------------ 1995 1996 1995 1996 ---- ---- ---- ---- NET SALES $ 15,008,778 $ 18,074,654 $ 22,364,265 $ 29,204,943 COST OF GOODS SOLD 8,753,086 10,843,968 13,021,664 17,337,360 ------------ ------------ ------------ ------------ Gross profit 6,255,692 7,230,686 9,342,601 11,867,583 ------------ ------------ ------------ ------------ SALES AND MARKETING EXPENSES 4,578,034 5,744,707 7,476,954 9,485,222 GENERAL AND ADMINISTRATIVE EXPENSES 530,645 577,429 980,845 1,143,183 ENGINEERING AND DEVELOPMENT EXPENSES 160,781 138,452 313,489 338,320 ------------ ------------ ------------ ------------ Total expenses 5,269,460 6,460,588 8,771,288 10,966,725 ------------ ------------ ------------ ------------ Income from operations 986,232 770,098 571,313 900,858 INTEREST EXPENSE, net (102,369) (89,447) (157,930) (166,140) ------------ ------------ ------------ ------------ Income before provision for income taxes 883,863 680,651 413,383 734,718 PROVISION FOR INCOME TAXES 353,000 272,000 165,000 294,000 ------------ ------------ ------------ ------------ Net income $ 530,863 $ 408,651 $ 248,383 $ 440,718 ============ ============ ============ ============ NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ .18 $ .14 $ .08 $ .15 ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 2,939,410 2,939,855 2,947,430 2,909,453 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 4 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended ---------------- December 31, 1995 December 29, 1996 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 248,383 $ 440,718 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 318,095 571,820 Changes in current assets and liabilities: Accounts receivable (1,821,837) (163,709) Income tax refund receivable 293,578 -- Inventories (2,708,784) (1,881,481) Prepaid expenses 10,420 (29,025) Preopening expenses 157,605 -- Accounts payable 216,644 4,062,231 Accrued expenses 855,328 1,070,162 Customer prepayments and other current liabilities 335,398 379,082 ----------- ----------- Net cash (used in) provided by operating activities (2,095,170) 4,449,798 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (944,444) (1,782,054) Increase in other assets (62,182) 105,419 ----------- ----------- Net cash used in investing activities (1,006,626) (1,676,635) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit - bank, net 3,648,694 (1,399,881) Proceeds from issuance of debt, net 16,540 -- ----------- ----------- Net cash provided by (used in) financing activities 3,665,234 (1,399,881) ----------- ----------- NET INCREASE IN CASH 563,438 1,373,282 CASH, BEGINNING OF PERIOD 16,885 87,421 ----------- ----------- CASH, END OF PERIOD $ 580,323 $ 1,460,703 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 4,000 $ 195,000 =========== =========== Interest $ 122,886 $ 162,030 =========== ===========
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 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 six months ended December 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 December 29, 1996 ------------- ----------------- Raw materials and work-in-process $ 3,823,302 $ 4,591,941 Finished goods 7,582,050 8,694,892 ------------ ------------ $ 11,405,352 $ 13,286,833 ============ ============ 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 December 29, 1996), plus 3/4%. The amounts outstanding at June 30, 1996 and December 29, 1996 were $3,396,000 and $1,996,000, respectively. (4) Significant Customer During the three and six months ended December 29, 1996, the Company had one customer that accounted for approximately 8% and 15% of net sales, respectively. Sales to this customer during the three and six months ended December 31, 1995 accounted for 21% and 24% of net sales, respectively. (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 issuance under the Plan by 150,000 to 620,000. On January 14, 1997, the Company granted incentive stock options, under the Company's 1993 Stock Option Plan, to certain employees to purchase 164,720 shares of common stock at an exercise price of $3.75 per share. These options vest over a period of two years. 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 six month periods ended December 31, 1995 and December 29,1996 expressed as percentages of net sales.
Three Months Ended Six Months Ended ------------------ ---------------- December 31, December 29, December 31, December 29, ------------ ------------ ------------ ------------ 1995 1996 1995 1996 ------ ------ ------ ------ NET SALES 100.0% 100.0% 100.0% 100.0% COST OF GOODS SOLD 58.3 60.0 58.2 59.4 ------ ------ ------ ------ Gross profit 41.7 40.0 41.8 40.6 ------ ------ ------ ------ SALES AND MARKETING EXPENSES 30.5 31.8 33.4 32.5 GENERAL AND ADMINISTRATIVE EXPENSES 3.5 3.2 4.4 3.9 ENGINEERING AND DEVELOPMENT EXPENSES 1.1 0.8 1.4 1.1 ------ ------ ------ ------ Total expenses 35.1 35.8 39.2 37.5 ------ ------ ------ ------ Income from operations 6.6 4.2 2.6 3.1 INTEREST EXPENSE, net (0.7) (0.5) (0.8) (0.6) ------ ------ ------ ------ Income before provision for income taxes 5.9 3.7 1.8 2.5 PROVISION FOR INCOME TAXES 2.4 1.5 0.7 1.0 ------ ------ ------ ------ Net income 3.5% 2.2% 1.1% 1.5% ====== ====== ====== ======
7 Net Sales Net sales for the second quarter of 1995 increased from approximately $15.0 million for the three months ended December 31, 1995, to $18.1 million for the three months ended December 31, 1996. Net sales for the six months ended December 31, 1996 increased to approximately $29.2 million compared to $22.4 million during the same period in 1995. The increase in net sales was primarily attributable to the 45% increase in retail sales over the same period in 1995. Same store sales increased 14% over last year's second quarter. The Company had twenty seven retail stores open during the three months ended December 29, 1996 compared to twenty three during the three months ended December 31, 1995. Wholesale sales decreased 26%, due largely to a decrease in shipments to the Company's largest customer. The Company expects continued decreases in sales to its largest wholesale customer. Catalog sales for both the three and six month periods ended December 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 41.7% during the three months ended December 31, 1995 to 40.0% during the three months ended December 29, 1996. Gross profit for the six month period ended December 31, 1995 was 41.8% compared to 40.6% in for the same six month period in 1996. The decrease in gross margin for both the three and six 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 for the three months ended December 31, 1995 increased from $4.6 million (30.5% of net sales) to $5.7 million (31.8% of net sales) for the three months ended December 29, 1996. Sales and marketing expenses for the six months ended December 31, 1995 increased from $7.5 million (33.4% of net sales) to $9.5 million (32.5% of net sales) for the six months ended December 29, 1996. The hiring of retail store personnel, increased advertising expense, and retail store operating costs accounted for a substantial portion of the increase in sales and marketing expense. General and administrative expenses for the three months ended December 31, 1995 increased from $531,000 (3.5% of net sales) to $577,000 (3.2% of net sales) for the three months ended December 29, 1996. General and administrative expenses for the six months ended December 31, 1995 increase from $981,000 (4.4% of net sales) to $1,143,000 (3.9% of net sales) during the six months ended December 29, 1996. General and administrative expenses have remained relatively consistent in absolute dollars during both the three and six month periods due to the Company's ability to increase sales with a minimal increase to expenses. Interest Expense, net Interest expense of $102,000 and $89,000 for the three months ended in 1995 and 1996 respectively, and $158,000 and $166,000 for the six months ended 1995 and 1996 respectively, results from the Company's use of its line of credit. 8 Provision for Income Taxes The Company's effective income tax rate for the three and six months ended was December 31, 1995 and December 29, 1996 was 40%. LIQUIDITY AND CAPITAL RESOURCES As of December 29, 1996, the Company's working capital was approximately $7,248,000 compared to $7,912,000 as of June 30, 1996. Cash amounted to $1,461,000 as of December 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 December 29, 1996), plus 3/4%. The Company has approximately $3,782,000 in excess availability on the line of credit at December 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 4. Submission of Matters to a Vote of Security Holders (a) On October 22, 1996, the Annual Meeting of the Stockholders of the Company was held at the principal executive offices of the Company. (b) Not applicable Pursuant to Instruction 3 of Item 4 of Part II (c) At the Annual Meeting, the stockholders voted on the following matters: 1. Proposal No. 1 - To elect directors for the ensuing year. The number of directors of the Company was fixed at four (4) and Thomas J. DeVesto, Thomas E. Brew Jr., Leo Kahn and Peter B. Seamans were nominated and elected as directors for the Company to serve until the next annual meeting of stockholders and thereafter until successors are elected and qualified. The following votes were tabulated for each nominee: Name For Against ---- --- ------- Thomas J. DeVesto 2,042,554 9,610 Thomas E. Brew, Jr. 2,040,654 11,510 Leo Kahn 2,044,854 7,310 Peter B. Seamans 2,043,554 8,610 There were no abstentions or broker non-votes for Proposal No. 1. 2. Proposal No. 2 - To ratify the adoption by the Board of Directors of an amendment to the Company's 1993 Stock Option Plan (the "1993 Stock Option Plan") to increase by 150,000 the number of shares of Common Stock authorized for issuance under the 1993 Stock Option Plan. The following votes were tabulated for Proposal No. 2: BROKER FOR AGAINST ABSTAIN NON-VOTE --- ------- ------- -------- 1,114,414 31,224 7,581 898,945 3. Proposal No. 3 - To ratify the action of the Directors in appointing Arthur Andersen LLP as auditors for the Company. The following votes were tabulated for Proposal No. 3: BROKER FOR AGAINST ABSTAIN NON-VOTE --- ------- ------- -------- 2,046,844 3,760 1,560 0 (d) Not applicable 10 Item 5 Other Information At the Annual Meeting of the Board of Directors of the Company held immediately after the Annual Meeting of the Stockholders of the Company on October 22, 1996, the Board of Directors voted to increase the number of directors of the Company to five (5) and Franklin S. Browning, Jr. was nominated and elected as a director of the Company to serve until the next annual meeting of stockholders and thereafter until his successor is elected and qualified. 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 three months ended December 29, 1996. 11 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: February 10, 1997 By: /s/ Wayne P. Garrett --------------------- Wayne P. Garrett Vice President-Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY REPORT FOR THE THREE MONTHS ENDED DECEMBER 29, 1996 3-MOS JUN-29-1997 SEP-30-1996 DEC-29-1996 1,441 0 2,595 0 13,287 18,129 6,063 1,707 22,683 10,881 0 0 0 10,347 0 22,683 18,075 18,075 10,844 6,401 0 0 89 681 372 409 0 0 0 407 .14 .14
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