SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 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 NUMBER 0-15194
SOUND ADVICE, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1520531
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1901 TIGERTAIL BOULEVARD, DANIA, FLORIDA 33004
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(Address of principal executive offices) (Zip Code)
(954) 922-4434
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
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 ___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
COMMON STOCK, PAR VALUE $.01 PER SHARE - 3,728,894 SHARES OUTSTANDING AS OF
NOVEMBER 8, 1996.
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets (Unaudited)
September 30, 1996 and June 30, 1996 3-4
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1996 AND JUNE 30, 1996
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
ASSETS
Current Assets:
Cash $ 164,195 $ 1,007,231
Receivables:
Vendors 3,735,360 3,259,226
Trade 859,172 623,840
Employees 255,165 217,742
----------- ---------
4,849,697 4,100,808
Less allowance for doubtful accounts (644,000) (572,000)
----------- ---------
4,205,697 3,528,808
Inventories 30,822,085 27,587,101
Prepaid and other current assets 574,858 638,113
Deferred tax asset 712,930 712,930
Income taxes receivable 1,170,571 1,170,571
----------- ---------
Total current assets 37,650,336 34,644,754
----------- ----------
Property and equipment, net 14,192,921 13,947,974
Deferred tax asset, net 96,098 96,098
Other assets 196,186 196,035
Goodwill, net 164,779 170,891
------------ ------------
$ 52,300,320 $ 49,055,752
============ ============
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1996 AND JUNE 30, 1996
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Borrowings under revolving credit facility $11,606,826 $ 9,100,115
Accounts payable 10,308,362 11,605,540
Cash overdraft 607,765 --
Accrued liabilities 6,635,569 5,152,353
Current installments of long-term debt 163,805 161,406
---------- ----------
Total current liabilities 29,322,327 26,019,414
Long-term debt, excluding current installments 702,529 745,564
Capital lease obligation 814,700 815,940
Other liabilities and deferred credits 4,287,740 4,305,995
---------- ----------
35,127,296 31,886,913
---------- ----------
Shareholders' equity:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,728,894 shares at September 30, 1996
and June 30, 1996 37,289 37,289
Additional paid-in capital 11,058,655 11,058,655
Retained earnings 6,077,080 6,072,895
---------- ----------
Total shareholders' equity 17,173,024 17,168,839
Commitments and contingencies ---------- ----------
$52,300,320 $49,055,752
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
---- ----
Net sales $40,350,764 $ 44,165,168
Cost of goods sold 28,051,670 31,525,050
---------- -----------
Gross profit 12,299,094 12,640,118
Selling, general and administrative
expenses 11,962,366 13,365,113
---------- -----------
Income (loss) from operations 336,728 (724,995)
Other income (expense):
Interest expense (335,367) (320,572)
Other, net 2,824 2,054
---------- ------------
Income (loss) before income taxes (benefit) 4,185 (1,043,513)
Provision (benefit) for income taxes -- (286,100)
---------- ------------
Net income (loss) $ 4,185 $ (757,413)
========== ===========
COMMON AND COMMON EQUIVALENT
- ----------------------------
PER SHARE AMOUNTS:
------------------
NET EARNINGS (LOSS) PER SHARE $ 0.00 $ (0.20)
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,729,801 3,728,894
========== ==========
See accompanying notes to consolidated financial statements.
Page 5
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<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
---- ----
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------
Net income (loss) $ 4,185 $ (757,413)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 751,911 863,200
Loss on disposition of assets 876 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables (676,889) (1,642,441)
Inventories (3,234,984) (1,589,251)
Prepaid and other current assets 63,255 215,700
Income taxes receivable -- (286,100)
Other assets (9,151) 81,287
(Decrease) increase in:
Accounts payable (1,297,178) 1,380,089
Accrued liabilities 1,483,216 193,443
Other liabilities (18,255) 2,253
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,933,014) (1,539,233)
----------- -----------
INVESTING ACTIVITIES:
- ---------------------
Capital expenditures (982,622) (289,566)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (982,622) (289,566)
----------- -----------
FINANCING ACTIVITIES:
- ---------------------
Net borrowings under revolving credit facility 2,506,711 4,081,430
Repayments of long-term debt (40,636) (1,021,474)
Increase (decrease) in cash overdraft 607,765 (1,234,066)
Reduction in capital lease obligation (1,240) (1,025)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,072,600 1,824,865
----------- -----------
Decrease in cash (843,036) (3,934)
Cash, beginning of period 1,007,231 46,950
----------- -----------
CASH, END OF PERIOD $ 164,195 $ 43,016
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 298,294 $ 348,466
=========== ===========
Income taxes paid, net of refunds $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in conformity with instructions to Form 10-Q and, therefore, do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Certain items included
in these statements are based on management estimates. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting of normal, recurring accruals, necessary to present fairly the
financial position of the Company at September 30, 1996 and June 30, 1996 and
the statements of operations and cash flows for the three month periods ended
September 30, 1996 and 1995. The results of operations for the three months
ended September 30, 1996 are not necessarily indicative of the operating results
expected for the fiscal year ending June 30, 1997. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1996.
2.) EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share has been determined
by dividing net income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding during the respective period
unless their effect was antidilutive.
3.) SEASONALITY
Historically, the Company's net sales are greater during the holiday season
than during other periods of the year. Net sales by fiscal quarters and their
related percentages for the trailing four quarters ended September 30, 1996 and
1995 are as follows:
TRAILING FOUR QUARTERS ENDED SEPTEMBER 30,
------------------------------------------
(DOLLARS IN THOUSANDS)
QUARTERLY SALES
- ---------------
1996 1995
---- ----
AMOUNT % AMOUNT %
------ ----- -------- -----
First Quarter $ 40,351 24.4% $ 44,165 23.5%
(July-September)
Fourth Quarter 32,481 19.7 39,148 20.8
(April-June)
Third Quarter 39,079 23.7 43,781 23.3
(January-March)
Second Quarter 53,260 32.2 60,854 32.4
(October-December) -------- ---- ------- ----
SALES FOR TRAILING TWELVE $ 165,171 100% $ 187,948 100%
MONTHS ENDED SEPTEMBER 30, ========= ==== ========= ====
1996 AND 1995, RESPECTIVELY
Page 7
<PAGE>
4.) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
Land $ 521,465 $ 521,465
Building 1,119,605 1,119,605
Furniture and equipment 8,903,751 8,545,945
Leasehold improvements 14,860,419 14,494,852
Display fixtures 5,145,084 5,049,940
Vehicles 842,336 949,168
------------ ----------
Total 31,392,660 30,680,975
Less accumulated depreciation (17,199,739) (16,733,001)
------------ ----------
Property and equipment, net $ 14,192,921 $ 13,947,974
============ ==========
5.) PROVISION (BENEFIT) FOR INCOME TAXES
During the fiscal year ended June 30, 1996, the Company recognized the
maximum available tax benefit associated with their net operating loss
carryback. Any losses in excess of the amount carried back will be carried
forward. The tax benefit of the net operating loss carryforward will be
recognized as the Company generates taxable income or determines that it is more
likely than not that taxable income will be generated during the loss
carryforward period.
6.) STOCK OPTIONS
During the first quarter ended September 30, 1996 incentive stock options
covering an aggregate of 11,000 shares of common stock having an exercise price
of $7.27 per share expired.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's net sales for the quarter ended September 30,1996,
decreased to $40,351,000 compared to $44,165,000 in the prior year resulting in
a decrease of $3,814,000 or 8.6% over the first quarter of fiscal 1996. The
decrease is primarily attributable to the Company's decision to eliminate
personal computers and other non-performing low margin products from the product
mix. In the first quarter of fiscal 1996, sales were impacted by the weather
related effects of Hurricane Erin. Comparable store net sales decreased 9.3% in
the quarter ended September 30, 1996 over the corresponding quarter in the prior
year. The Company's operations, in common with other retailers in general, are
subject to seasonal influences. Historically, the Company has realized more of
its net sales and operating income in the second quarter ending in December.
Gross profit decreased by $341,000 or 2.7% in the quarter ended
September 30, 1996 compared to the corresponding period in the prior year. The
reduction in gross profit is primarily related to the reduction in net sales,
net of the increase in gross profit percentage. The gross profit percentage was
30.5% in the quarter ended September 30, 1996 as compared to 28.6% in the
quarter ended September 30, 1995. This increase in gross profit percentage is
directly related to the Company's renewed specialty retailing focus on value
added selling in the core categories of high end audio, video and mobile
electronics.
Selling, general and administrative expenses (SG&A) decreased by
$1,403,000 or 10.5% in the quarter ended September 30, 1996 over the same
quarter in the prior year. The overall decrease is primarily attributable to
cost reduction programs initiated by the Company primarily in the areas of
advertising and personnel expense. SG&A as a percentage of net sales decreased
to 29.6% from 30.3% in the same three months of the prior fiscal year.
Interest expense nominally increased by $15,000 for the quarter ended
September 30, 1996 over the same quarter in the prior year. The increase was
primarily reflective of a higher effective interest rate under the Company's
revolving credit facility during the first quarter of 1997 on a decreased level
of borrowing as compared to the first quarter of fiscal year 1996.
The Company did not record a tax provision for the quarter ended
September 30, 1996 due to an offsetting net operating loss carryforward. The
remaining tax benefit of the net operating loss carryforward will be recognized
as the Company generates taxable income or determines that it is more likely
than not that future taxable income will be generated during the remaining loss
carryforward period. The tax provision for the first quarter of fiscal 1996
reflects an effective income tax benefit of 27.2% associated with the Company's
net operating loss carryback to the extent recoverable from federal income taxes
paid during the carryback period.
Page 9
<PAGE>
Net income for the quarter ended September 30, 1996 was $4,000 or $.00
per share compared to net loss of $757,000 or $.20 per share for the same
quarter in the previous year. The net income in the first quarter of the 1997
fiscal year was primarily attributable to the reduction in SG&A expenses in
excess of the overall lower gross profit dollars.
FINANCIAL CONDITION
Net cash used in operating activities was approximately $2,933,000 for
the three months ended September 30, 1996. The Company had working capital of
approximately $8,328,000 at September 30, 1996, as compared to the $8,625,000 in
working capital at June 30, 1996 for an overall decrease of $297,000. The
increase in current assets of $3,006,000 during the three month period was
primarily related to the $3,235,000 increase in inventory, as well as a $677,000
increase in accounts receivable, which was partially offset by a decrease in
cash of $843,000. The increase in current assets of $3,006,000 was offset by a
net increase of $3,303,000 in current liabilities primarily resulting from an
increase of $2,507,000 in borrowings under the revolving credit facility, with
the increase in accrued liabilities of $1,483,000 largely offset by the decrease
in trade payables of $1,297,000. The increase in inventory results from the
initial purchases of product for the holiday season and is the primary reason
for the increase in the revolving credit facility.
The Company currently believes that funds from the Company's operations
combined with borrowings available under its revolving credit facility and
vendor credit programs will be sufficient to satisfy its currently projected
operating cash requirement for fiscal 1997, including capital expenditures
required in connection with the relocation of one of its stores which is
scheduled for opening in the second fiscal quarter. The Company's operating
performance has improved as a result of the elimination of personal computers
and other non-performing products from its product mix together with a return to
it's traditional speciality retailing focus on value added selling in the core
categories of high end audio, video and mobile electronics.
Page 10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report:
EXHIBIT NO. DESCRIPTION
27. Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended September 30, 1996.
Page 11
<PAGE>
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.
SOUND ADVICE, INC.
------------------
(Registrant)
Date NOVEMBER 12, 1996 /s/ PETER BESHOURI
----------------- -----------------------
Peter Beshouri, Chairman of the
Board, President and Chief
Executive Officer
Date NOVEMBER 12, 1996 /s/ KENNETH L. DANIELSON
----------------- -----------------------------
Kenneth L. Danielson, Chief
Financial and Accounting Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 164,195
<SECURITIES> 0
<RECEIVABLES> 4,849,697
<ALLOWANCES> 644,000
<INVENTORY> 30,822,085
<CURRENT-ASSETS> 37,650,336
<PP&E> 31,392,660
<DEPRECIATION> 17,199,739
<TOTAL-ASSETS> 52,300,320
<CURRENT-LIABILITIES> 29,322,327
<BONDS> 1,517,229
0
0
<COMMON> 37,289
<OTHER-SE> 17,135,735
<TOTAL-LIABILITY-AND-EQUITY> 52,300,320
<SALES> 40,350,764
<TOTAL-REVENUES> 40,350,764
<CGS> 28,051,670
<TOTAL-COSTS> 28,051,670
<OTHER-EXPENSES> 11,962,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335,367
<INCOME-PRETAX> 4,185
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,185
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
