SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1996 or
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[ ] 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
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(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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 922-4434
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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TITLE OF CLASS
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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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (17CFR 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on September 19, 1996, based upon the closing
market price of the registrant's voting stock on the NASDAQ National Market on
September 19, 1996, as reported in THE WALL STREET JOURNAL, was approximately
$5,372,000.
The registrant had 3,728,894 shares of common stock, $.01 par value,
outstanding as of September 19, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific sections incorporated are identified under applicable items herein)
Certain portions of the registrant's Proxy Statement to be filed in
connection with its 1996 annual meeting of shareholders are incorporated by
reference in Part III of this report.
Exhibit Index begins on page 52.
Page 1 of 75
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TABLE OF CONTENTS
Page No.
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PART I
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ITEM 1. BUSINESS.............................................. 1
General...................................... 1
Products..................................... 2
Marketing Strategy........................... 3
Advertising.................................. 4
Operations................................... 6
Expansion.................................... 9
Seasonality.................................. 9
Servicemarks.................................10
Competition..................................10
Employees....................................10
ITEM 2. PROPERTIES............................................11
ITEM 3. LEGAL PROCEEDINGS.....................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS......................................13
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT..................13
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......................15
ITEM 6. SELECTED FINANCIAL DATA...............................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........18
Results of Operations........................18
Liquidity and Capital Resources..............22
Impact of Inflation and Foreign
Currency Fluctuations......................24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...............24
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT.....................................24
ITEM 11. EXECUTIVE COMPENSATION................................24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........25
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K...............................25
SIGNATURES 26
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PART I
ITEM 1. BUSINESS.
GENERAL
Sound Advice, Inc. (the "Registrant"), incorporated in Florida on March
12, 1974, is a full service specialty retailer of a broad range of high-quality,
upscale entertainment and consumer electronic products. As of June 30, 1996, the
Registrant operated 21 stores in Florida which sell home and car audio systems,
large screen televisions, video products, cellular telephones and other personal
electronics, such as home telephones, answering machines and hand held audio
systems, car security systems, home entertainment furniture and related
customized services and accessories. In contrast to mass merchandisers and
discounters of consumer electronic products, the Registrant targets customers
seeking informed advice concerning product selection and system integration as
well as a broad selection of products incorporating the latest technology.
The Registrant's marketing strategy is to build customer satisfaction
and loyalty through its customer support program which includes a technically
proficient sales force and custom design, installation and repair services. The
Registrant's showrooms provide comfortable surroundings and contain audition
rooms and demonstration areas in its stores where customers are encouraged to
test and compare the products. In its stores, the Registrant emphasizes a broad
selection of upscale and specialty brand consumer electronic products.
The Registrant's operating strategy is to cluster its stores in larger
markets and maximize selling space per store in order to achieve economies of
scale, as well as provide convenient locations for its customers. The
Registrant's stores are currently clustered in four areas in Florida, including
the Miami/Ft. Lauderdale/West Palm Beach area (the "East Coast Stores"), the
Tampa/St. Petersburg/Clearwater/Sarasota/Fort Myers area (the "West Coast
Stores"), the Orlando area (the "Central Florida Stores") and Jacksonville (the
"Jacksonville Stores"). In fiscal year 1996 the Registrant did not add, relocate
or close any of its stores. As of this date, the Registrant operates 21 stores,
which, except for 2 smaller stores, on average contain approximately 15,000 to
17,000 gross square feet. It currently plans to relocate during fiscal year 1997
one of its remaining smaller East Coast Stores to a larger facility containing
approximately 15,000 gross square feet. See "Expansion" in this ITEM 1.
In fiscal year 1996 the Registrant's net sales were approximately $169
million which was a decrease from its net sales of approximately $191 million in
fiscal year 1995. This was primarily due to the elimination from its product mix
in January 1996 of personal computers, peripherals and multimedia products,
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which had been added in the fall of 1994, and the reduction or elimination
during fiscal year 1996 from its product mix of certain nonperforming low margin
products, as well as generally increased competition on widely available lower
end electronic products. The products were eliminated or reduced as a result of
the increased competition and, in the case of the personal computers and related
products, their rapid obsolescence. In addition, this action was part of the
Registrant's renewed specialty retailing focus on value added selling in its
core categories of high end audio, video (including home theater and large
screen televisions) and mobile electronics and on custom design and installation
and repair services. See "Results of Operations-Fiscal 1996 Compared to Fiscal
1995" in ITEM 7.
On April 12, 1996, the Registrant's then existing $16,000,000 senior
credit facility was replaced with a $25,000,000 revolving credit facility from a
new lender. See "Liquidity and Capital Resources" in ITEM 7. The Registrant also
commenced in the third quarter of fiscal year 1996 an expense reduction program.
This program included a reduction in the Registrant's employees, primarily in
the areas of on-site technicians known as "quicktechs" and store cashiers,
associated with the elimination of personal computers and other low margin
products and a reduction in store support personnel by having showroom managers
directly supervise store salespersons and conduct product training at the store
level. See "Results of Operations Fiscal 1996 Compared to Fiscal 1995" in ITEM
7.
PRODUCTS
The Registrant offers its customers an extensive selection of
high-quality, brand-name entertainment and consumer electronic products,
including products incorporating the latest technology and not generally carried
by most of its competitors. In a typical store a customer can choose from more
than 2,100 products from approximately 150 manufacturers.
For the 1996 fiscal year the Registrant's products and services may be
grouped into home and car audio, television and video, service, installation and
product warranty, personal computer and miscellaneous products.
The home and car audio product group includes receivers, speakers,
audio compact disc players, cassette decks, turntables, tuners, equalizers,
signal processors, mini and normal sized pre-packaged audio systems, amplifiers,
car AM-FM radios, car antennas, security systems and radar detectors and audio
accessories.
The television and video product group includes stereo televisions,
large screen televisions, standard televisions, video recorders, video
camcorders, laser disc players, video enhancement
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devices, home theater systems, direct broadcast satellite dishes and video
accessories.
The service, installation and product warranty group includes car
stereo installation, custom home installation, repair services, delivery,
installation and extended warranty contracts offered by the Registrant on behalf
of a third party provider for most of its audio, video, car stereo and personal
electronics merchandise.
The personal computer product group included personal computers,
peripherals and multi-media products.
The miscellaneous product group includes personal and portable stereos,
answering machines, home telephones, hand held audio systems, equipment and
activation fees for cellular telephone service and home entertainment furniture.
The table below shows the approximate percentage of the Registrant's
sales for the fiscal years ended June 30, 1996, 1995 and 1994 attributable to
each of the foregoing product groups. The personal computer product group, which
was added in fiscal year 1995, was discontinued in January 1996.
YEARS ENDED JUNE 30,
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PRODUCT GROUP 1996 1995 1994
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Home and Car Audio . . . . . . 44% 39% 43%
Television and Video . . . . 35 33 36
Service, Installation and
Product Warranty . . . . . . 11 10 11
Miscellaneous Products . . . . 5 12 10
Personal Computer . . . . . . 5 6 -
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Total . . . . . . . . . . . . 100% 100% 100%
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The percentage of sales by each product group is affected by
promotional activities, consumer trends, store displays, the development of new
products and elimination or reduction of existing products and, thus, the
current mix may not be indicative of the mix in future years. See "Expansion"
hereinbelow.
MARKETING STRATEGY
The Registrant views itself as being in a service business and
emphasizes to its sales personnel the need to provide personal attention and
assistance to each customer. The Registrant trains its sales personnel to assist
customers in their purchases by demonstrating products and providing information
with respect to features, price, quality and system integration. At each store,
audition rooms and segregated demonstration areas and displays of systems and
products promote sales by enabling sales personnel to demonstrate the use of
systems and products and by permitting customers to compare and test the
performance and features of
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similar products and systems (particularly higher quality systems and products
incorporating the latest technology and fully-integrated audio/video systems).
Consistent with this approach to marketing, the Registrant during fiscal year
1996 has incorporated audio, video and furniture combinations to demonstrate the
technology of home entertainment systems including home theater in a realistic
setting. The Registrant also has a full-service personal and mobile electronics
center in most of its stores.
The Registrant has pursued a strategy of building customer satisfaction
and loyalty by having (i) a broad range of top-quality products including
products incorporating the latest technology and not generally sold by most of
its competitors; (ii) technically proficient sales personnel providing extensive
customer service; (iii) customer oriented showrooms where products can be
demonstrated to and tested by customers; and (iv) a support program including
custom design and installation and repair services.
The Registrant builds customer satisfaction by offering a comprehensive
customer support program. This program seeks to assure that each customer has
the product or system best suited for that individual. Any merchandise sold by
the Registrant may be auditioned on the customer's premises and, if a customer
is not satisfied, may be returned within 30 days for a refund or exchanged for
credit toward the purchase of another product or system. Customers are
encouraged to upgrade speakers originally purchased from the Registrant by
trading in such speakers within the first year for credit at the original
purchase price toward the purchase of new speakers. Car audio products (if
installed by the Registrant) carry a one year "defective replacement guaranty"
and, once the Registrant installs car stereo equipment, a customer will not be
charged for reinstallation into another car, for installing component upgrades
or reinstalling after repair service. The Registrant's custom department will
visit a customer's home to design and install audio and video products and
systems. The Registrant believes that the costs of its customer support program
is warranted in light of the additional sales and customer satisfaction created
by such ongoing program.
ADVERTISING
To support its marketing strategy the Registrant promotes its
merchandise through an advertising program which emphasizes the print media
(consisting of newspaper advertising, catalogs and other customer mailings) and,
to a lesser extent, television and radio advertising. Such advertising program
consists of name recognition advertising emphasizing the Sound Advice name and
its competitive prices, its broad and high-quality name brand product selection,
available financing arrangements, its technically proficient sales force, its
support program, its customer oriented showrooms and its customer service and
repair program. In addition, newspaper and catalog advertisements and customer
mailings are directed towards specific products and their prices
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and specific financing plans in connection with specific sales events and
promotions. The Registrant has an extensive customer database which is used for
targeting its mailings of catalogs and other promotional advertisements and
materials.
The table below shows the Registrant's net advertising expense as a
percentage of net sales for the fiscal years ended June 30, 1996, 1995 and 1994.
Net advertising expense represents gross advertising expense less market
development funds, cooperative advertising and other promotional amounts
received from vendors for incentive and promotional programs.
YEARS ENDED JUNE 30,
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1996 1995 1994
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(DOLLARS IN THOUSANDS)
Net advertising expense . . . . . $6,476 $4,745 $4,832
Percentage of net sales . . . . . 3.8% 2.5% 2.8%
In fiscal year 1996, net advertising expense substantially increased as
compared to fiscal 1995 primarily as a result of a decrease in market
development funds and other promotional amounts received from vendors and
increased advertising expense incurred primarily during the first half of fiscal
year 1996 in connection with increased competition for customers. The increase
in net advertising expense as a percentage of net sales between fiscal years
1996 and 1995 was the result of the increase in total net advertising expense in
fiscal year 1996 for the reasons discussed above combined with the decrease in
net sales in fiscal year 1996. In fiscal 1995, net advertising expense remained
substantially constant as compared to fiscal 1994 primarily as a result of an
increase as compared to the prior fiscal year in market development funds and
other promotional amounts received by the Registrant from vendors which offset
increased advertising expense and the vendors' marketing support in connection
with the Registrant's opening of an additional West Coast Store and the
introduction of personal computers as part of its product line. In addition, the
increase in net sales was generated, in part, by successful financing promotions
in lieu of increasing advertising expenditures. Net advertising expense as a
percentage of net sales decreased in fiscal 1995 from the prior fiscal year as a
result of the increase in net sales in fiscal year 1995.
The Registrant handles all of its advertising through its in-house
advertising staff. The Registrant's use of an in-house staff allows it to be
more flexible in decisions regarding advertising, to make changes to advertising
copy on short notice to publicize special product promotions and to take
advantage of new products and unexpected market developments on a timely basis.
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OPERATIONS
Suppliers, Purchasing and Distribution:
The Registrant has no long-term merchandise purchase contracts or
commitments. The Registrant acquires its products from approximately 150
manufacturers, five of which manufacturers account for a majority of total
product purchases. Management believes that competitive sources of supply would
be available for most of the Registrant's products in the event that one or more
of its sources were no longer available. However, a loss of a primary source of
supply could have an adverse impact on the Registrant and, to the extent that
the unavailable source was for a product line for which the Registrant was the
primary distributor in its markets, the Registrant most likely would only be
able to replace these products with products that were widely available in its
markets.
The Registrant's policy is to take advantage of cash or payment
discounts offered by manufacturers. The Registrant has also been able to obtain
substantial levels of manufacturers' rebates based on volume buying levels and
on occasion has been able to negotiate favorable terms on very large volume
purchases. Since March 1986, the Registrant has been a member of Progressive
Retailers Organization, Inc., a buying group comprised of approximately 14
retailers of home entertainment and consumer electronic products located
throughout the country ("Progressive Retailers Organization").
Substantially all inventory purchased by the Registrant is shipped
directly to its central distribution facility located in Deerfield Beach,
Florida. Such facility is currently the central distribution facility for its
stores. Inventory is also shipped to and distributed from the Registrant's
support warehouses located in Tampa and Orlando (Winter Park), Florida, which
service the West Coast Stores and Central Florida Stores, respectively. Each
store receives shipments of inventory from the central distribution and/or
support warehouse facilities, at least three times a week, and sometimes on a
daily basis, thereby increasing availability to customers by enabling each store
to maintain reasonable inventories of all products and promptly to replenish
inventories of fast moving products. The Registrant believes that its
distribution system allows it to support a broad selection of merchandise within
the stores, while minimizing store level inventory requirements. Inventory turn
was approximately 4.3, 4.2, and 4.0 times during the fiscal years ended June 30,
1996, 1995 and 1994, respectively.
The Registrant's management information system tracks current levels of
sales, inventory, purchasing and other key information and provides management
with information which facilitates merchandising, pricing, sales management and
the management of warehouse and store inventories. This system enables
management to review and analyze the performance of each of its stores and sales
personnel on a periodic basis. The central purchasing department of the
Registrant monitors current sales and inventory at the
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stores on a daily basis. In addition, the Registrant currently completes a
physical inventory approximately 4 times a year and in between such physical
inventories it periodically conducts a cycle count on selected types of
inventory. The purchasing department also establishes the level of inventory
required at each store and handles the replenishment of store inventory based on
the current delivery or replenishment schedule. In the spring of 1994, the
Registrant acquired certain communications equipment at an aggregate cost of
approximately $700,000 at the same time it attempted to upgrade its existing
computer system by installing a new retail management information system (the
"Returned MIS System"). The installation of the Returned MIS System could not be
successfully completed and it was returned to the vendor thereof as part of a
settlement reached with such vendor. The communications equipment was installed
and is currently in operation in conjunction with the Registrant's existing
management information system. See "Liquidity and Capital Resources" in ITEM 7.
and note (3)(b) of Notes to Consolidated Financial Statements. The Registrant is
in the process of upgrading the computer hardware for its management information
system, which includes some additional communications equipment, at an aggregate
cost of approximately $750,000.
Sales and Store Operations:
Sales to customers are primarily made on a cash and bank credit card
basis. In addition, customers who qualify can obtain longer term financing by
obtaining a Sound Advice credit card, which the Registrant makes available to
its customers, without an annual fee, through a private label credit card
arrangement with an unrelated finance company without recourse to the
Registrant. The Registrant also periodically, as part of its promotional
activities, makes special financing programs available to its customers, some of
which programs utilize a vendor issued credit card. A part of the cost of such
special financing programs is at times borne by the Registrant. In addition,
certain of the Registrant's vendors periodically participate with and support
the Registrant in financing promotions.
Each store has its own management structure consisting of a full time
general showroom manager having overall responsibility at each location and a
full time sales or operations manager under such general showroom manager.
Certain of the Registrant's stores also have an individual in charge of the
mobile electronics department. Each general showroom manager's and
sales/operations manager's compensation is dependent in part on the store's
gross profit. As of September 5, 1996, approximately 329 sales personnel working
at the stores were compensated on a commission basis. Commission payment plans
vary depending upon the type, price and/or gross margin of the product.
As part of a restructuring during fiscal year 1996 of its sales
management group to improve decision-making and communication throughout its
corporate structure, the Registrant now has two regional sales vice presidents,
each overseeing approximately one-
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half of the stores and who report to the Chief Executive Officer. The Registrant
also utilizes, as part of its management team, a company-wide mobile sales
director, a company-wide custom director and three in-store merchandisers. The
Registrant has historically generally experienced employee stability with many
sales persons moving up to positions of greater responsibility, although the
Registrant does experience some turn-over of employees particularly during their
initial six month period of employment. See "Employees" in this ITEM 1.
Merchandise sold at a store is generally delivered to the customer at
the store at the time of sale, with the exception of certain large screen
televisions, home entertainment furniture and integrated systems for which the
Registrant offers home delivery and installation service. In addition, the
Registrant offers custom home audio and video installation service. The
Registrant also installs car stereo systems, cellular telephones and car
security systems at all but one of its stores.
Service and Repair:
The Registrant has its repair facility at its corporate headquarters in
South Florida. The Registrant is an authorized manufacturer's service
representative for substantially all of its products and is reimbursed by the
manufacturer for the service or repair it performs on products still covered by
a manufacturer's warranty. Products brought to the stores by customers for
service or repair are shipped to the Registrant's repair facility.
The Registrant offers, through an unrelated insurance company on a
nonrecourse basis, an extended warranty contract for most of the audio, video
and other merchandise it sells, whereby a customer is provided coverage beyond
the warranty period covered by the manufacturer. The Registrant collects the
retail sales price of the extended warranty contract from the customer and
remits the customer information and the Registrant's cost for the contract to
the insurance company. The warranty obligation is solely the responsibility of
the insurance company, since the contract is between the customer and the
insurance company. As an authorized service center for the insurance company,
the Registrant may also perform the services required under the extended
warranty contracts for which it is separately paid by the insurer. Gross margins
from the sale of extended warranty contracts are higher than gross margins from
the sale of the Registrant's other products. Revenues from the sale of extended
warranty contracts have historically averaged 5% to 6% of sales. See note (1)(j)
of Notes to Consolidated Financial Statements.
In connection with the promotion of the sale of extended warranty
contracts, the Registrant had offered prior to March 1, 1993, and has commenced
as of July 1994 to once again offer, the purchasers of such contracts the right
to apply the amount of the sales price for an extended warranty contract, which
has expired and has not been used for any repair or maintenance procedure,
toward the purchase of merchandise, subject to such purchaser
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providing appropriate documentation verifying the purchase of such contract.
Contracts issued on and after July 1, 1994, which are unused must be redeemed
within a certain time period from the date of contract expiration. The
Registrant records a liability at the time of sale for the estimated amount of
redemptions under this incentive program. See the Consolidated Financial
Statements and related notes appearing elsewhere in this report (in particular,
note (1)(j) thereto).
EXPANSION
During fiscal year 1996, the Registrant did not add, relocate or close
any of its stores. Accordingly, during the past fiscal year and as of the date
of this report, it operates 21 stores.
During fiscal year 1997, the Registrant plans to relocate one of its
remaining smaller East Coast Stores in order to increase the size of the
showroom to its current format. The new facility will contain approximately
15,000 gross square feet. However, although the Registrant continues to explore
the opening of new stores in geographic areas within its existing Florida
distribution network and/or advertising radius in order to realize efficiencies
and cost benefits as a result of the Registrant's clustering of stores, it
currently has no plans to open any additional stores in fiscal year 1997.
Management estimates that as of this time the cost (other than initial
inventory) of opening an additional store or relocating a store built to suit
for the Registrant by an owner or landlord is approximately $700,000 to
$900,000. Management also currently estimates that, if the Registrant acquires
an existing store location, it will cost between $900,000 and $1,100,000 to
retrofit such property. Management estimates initial inventory cost for a new
store to be approximately $1,000,000.
The extent of any future expansion within or outside Florida is
dependent on future general economic and business conditions, the Registrant's
operating performance and the availability of sufficient financing. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. - Liquidity and Capital Resources".
SEASONALITY
Historically, due to the holiday season, the Registrant has realized
greater sales and profits during its second fiscal quarter. The Registrant's
marketing strategy and, in particular, its year round use of newspaper,
television and radio advertising, catalogs and promotions (including, without
limitation, vendor specific promotional sales in selected months), attempts to
minimize the seasonality of the Registrant's business.
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<TABLE>
<CAPTION>
The following table sets forth the Registrant's quarterly net sales in
dollars and as a percentage of annual net sales for the three fiscal years ended
June 30, 1996:
NET SALES
-----------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
YEAR ENDED (JULY- (OCTOBER- (JANUARY- (APRIL- FOR
JUNE 30, SEPTEMBER) DECEMBER) MARCH) JUNE) YEAR
-------- ---------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996 ................... $ 44,165 $ 53,260 $ 39,079 $ 32,481 $168,985
................. 26.1% 31.5% 23.1% 19.3% 100%
1995 ................... $ 46,721 $ 60,854 $ 43,781 $ 39,148 $190,504
................. 24.5% 31.9% 23.0% 20.6% 100%
1994 ................... $ 41,657 $ 54,883 $ 40,779 $ 37,442 $174,761
................. 23.9% 31.4% 23.3% 21.4% 100%
</TABLE>
SERVICEMARKS
The Registrant has registered the "Sound Advice" name in Florida. It
has not registered the "Sound Advice" name with the United States Patent and
Trademark Office. The Registrant is not aware of any adverse claims concerning
the Registrant's use of the "Sound Advice" name.
COMPETITION
The brand-name home entertainment and consumer electronics business is,
and can be expected to remain, highly competitive, with price, customer service
and financing plans or programs being the main competitive factors. The
Registrant believes that it competes effectively on the basis of such factors
and its product mix has been selected to include higher-end audio and video
products not generally offered by many of its competitors. During fiscal year
1996 the Registrant reduced its offering of certain widely available low margin
products in order to focus on more fully-featured products in those categories
where the Registrant believes there is less competition. The Registrant's
principal competitors include other retailers specializing in similar products,
department stores, discount stores, mass merchandisers, catalog showrooms and
specialty stores. Many of the Registrant's competitors are national in scope and
have greater financial resources than the Registrant.
EMPLOYEES
As of September 5, 1996, the Registrant employed approximately 697
persons, of whom approximately 501 were commissioned persons, including
approximately 79 car stereo and mobile installers, 33
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service department technicians and 60 delivery and custom installers.
Substantially all of the Registrant's employees are full-time. The Registrant's
employees are not unionized and it has never experienced a strike or work
stoppage. Management believes that its employee relations are good.
ITEM 2. PROPERTIES.
The Registrant's 21 stores are located in four geographic areas on the
east and west coasts of Florida, in north central Florida and in Jacksonville,
Florida. Most of the Registrant's stores are between 15,000 and 17,000 gross
square feet. Retail selling area represents the substantial square footage of
each store, with the balance used for merchandise storage and, in all but one
store, car audio and accessory installation. The stores are generally located
either in free standing buildings or in multi-store shopping centers. The stores
are generally close to regional malls or in shopping districts. The following
map displays the locations of the Registrant's 21 stores.
STORE LOCATIONS
A map of Florida indicates the general location of the Registrant's 21 stores in
the four geographic areas.
JACKSONVILLE STORES EAST COAST STORES
Jacksonville (Regency) West Palm Beach
Jacksonville (Orange Park) Boca Raton
Plantation
CENTRAL FLORIDA STORES Ft. Lauderdale
Orlando (East Colonial) Hollywood
Orlando (Sandlake) North Miami Beach
Altamonte Springs Hialeah
Coral Gables
WEST COAST STORES West Kendall
Tampa (2) South Kendall
Clearwater
St. Petersburg
Sarasota
Fort Myers
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All of the Registrant's 21 stores are currently leased or subleased,
one of which is accounted for as a capital lease. Leases expire on various dates
between 1997 and 2014, without giving effect to renewal options. The average
unexpired lease term of the Registrant's stores is approximately 17 years if the
renewal options are included.
Generally, the store leases provide for a base rental with annual cost
of living adjustments or stipulated annual percentage increases (or a
combination thereof) and do not provide for a percentage of sales in addition to
the fixed rent. In addition, the leases generally require the Registrant to pay
all or a portion of the real estate taxes and assessments, utilities, insurance
and/or common area and interior maintenance and repairs. See notes (8) and (9)
of Notes to Consolidated Financial Statements.
The Registrant's headquarters are located in a 53,850 square foot
facility which contains its executive offices, accounting, data processing,
purchasing and advertising operations, service and repair center. The lease
expires in March 1999 (exclusive of one ten-year renewal option). The
Registrant's 56,320 square foot central warehouse and distribution facility is
located in Deerfield Beach, Florida, approximately 15 miles north of its
corporate headquarters. The lease for such facility expires in May 1998
(exclusive of two five-year renewal options). A sales training center for the
East Coast Stores and the Registrant's custom sales department were relocated
during fiscal year 1995 from its corporate headquarters to its Hollywood store.
The Registrant occupies an approximate 12,500 square foot leased
facility in Tampa, Florida area which is used as a warehouse and support
facility for the West Coast Stores. The lease for such facility expires in
January 1998 (exclusive of one 3-year renewal option). The Registrant also
occupies an approximate 10,000 square foot leased facility in Orlando (Winter
Park), Florida which is used as a warehouse and support facility for the Central
Florida Stores. The lease for such facility expires in May 2000.
A portion of the Registrant's former Ft. Lauderdale store is currently
being used for car installations, with the balance of such building having been
leased to a nonaffiliated company for a term of five years (exclusive of one
five-year renewal option).
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is from time to time involved in litigation relating to
claims arising out of its operations in the normal course of business. Such
claims against the Registrant are generally covered by insurance. The Registrant
believes that none of these claims will have a material adverse impact on its
financial conditions or results of operations.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) of Form 10-K, the information
regarding executive officers of the Registrant called for by Item 401 of
Regulation S-K is hereby included in Part I of this report.
The following table sets forth the name, age (as of September 15,
1996) and position(s) held by each executive officer of the Registrant:
NAME AGE POSITION(S) WITH
- ---- --- REGISTRANT
----------
Peter Beshouri 42 Director, Chairman of the
Board, President and
Chief Executive Officer
Michael Blumberg 48 Director, Senior Vice
President and Secretary
Christopher O'Neil 43 Executive Vice President,
Chief Operating Officer
and Assistant Secretary
Kenneth L. Danielson 46 Chief Financial and
Accounting Officer and
Treasurer
The Registrant's officers are elected annually by the Board of
Directors and hold office at the pleasure of the Board.
PETER BESHOURI, who has been an employee of the Registrant since 1974,
has served as Chairman of the Board and Chief Executive Officer of the
Registrant since August 1982. Prior thereto he was the general sales manager of
the Registrant, as well as having served as a showroom manager and district
manager. He was elected President of the Registrant in May 1985. Mr. Beshouri
currently serves as a director of Progressive Retailers Organization. In August
1995, Mr. Beshouri, together with the Registrant and a former chief financial
officer of the Registrant, voluntarily agreed with the Securities and Exchange
Commission ("SEC"), without admitting or denying any wrongdoing, to the entry of
a cease and desist order by the SEC concerning the Registrant's Form 10-K for
fiscal year 1991 and Forms 10-Q for the quarters ended September 30 and December
31, 1991, which the SEC found in such order had been materially misstated. The
cease and desist order with respect to Mr. Beshouri related to his supervisory
responsibility in connection with the Registrant violating certain provisions of
the
13
<PAGE>
securities laws that require public companies to keep accurate books and
records, to maintain appropriate internal accounting controls and to file
accurate annual and quarterly reports. No censure, fine or penalty was imposed
by the SEC on Mr. Beshouri.
MICHAEL BLUMBERG, a founder and a director of the Registrant, was
elected a Vice President in August 1982, Vice President Purchasing and Finance
in May 1986, Vice President-Purchasing and Marketing in December 1987, and
Senior Vice President in May 1989. From the Registrant's inception until
February 1995, Mr. Blumberg served as Treasurer of the Registrant and, since
October 13, 1989, he has also been serving as Secretary of the Registrant. His
responsibilities include overall supervision of all purchasing and selecting new
product categories and lines for the Registrant, as well as consulting with
certain of the Registrant's manufacturers in connection with product design.
CHRISTOPHER O'NEIL joined the Registrant in 1979 as a car audio buyer.
He was elected Vice President-Purchasing of the Registrant in May 1986, Vice
President-Car Audio Purchasing in May 1989 and his title was changed to Vice
President/Purchasing in May 1990. Effective February 1992, Mr. O'Neil was
elected Executive Vice President and Chief Operating Officer of the Registrant.
In his current position, his principal responsibilities are the supervision of
service, warehouse, distribution security and product support functions for the
Registrant's stores. Since December 1990, Mr. O'Neil has also served as an
Assistant Secretary of the Registrant.
KENNETH L. DANIELSON joined the Registrant in September 1993 and
effective October 1993 assumed the responsibilities of and became Chief
Financial Officer of the Registrant. In February 1995, he was also elected
Treasurer. Prior to joining the Registrant, Mr. Danielson was employed by Storer
Communications, Inc. ("Storer"), a large television broadcasting and cable
company based in Miami, Florida, for approximately 15 years. During his
employment with Storer, Mr. Danielson held various positions, including Director
of Accounting, Assistant Treasurer, Vice President, Treasurer and Chief
Financial Officer, with his positions as Vice President, Treasurer and Chief
Financial Officer being held concurrently from November 1988 through August
1993. Prior to Mr. Danielson's employment by Storer, he was employed by Coopers
& Lybrand from 1971 to 1978. Mr. Danielson is a certified public accountant.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Registrant's Common Stock, par value $.01 per share ("Common
Stock"), is traded under the symbol "SUND" in the over-the-counter market of the
NASDAQ and is quoted on the NASDAQ Stock Market (NASDAQ National Market).
The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices for the Registrant's Common Stock on the NASDAQ Stock
Market. NASDAQ Stock Market quotations are based on actual transactions and not
bid prices.
PRICES
--------------------
High Low
---- ---
1995
First Quarter (7/1/94 to 9/30/94) $7-3/8 $5-1/2
Second Quarter (10/1/94 to 12/31/94) 6-3/4 5-1/8
Third Quarter (1/1/95 to 3/31/95) 6-1/8 3-7/8
Fourth Quarter (4/1/95 to 6/30/95) 4-1/8 2-3/8
1996
First Quarter (7/1/95 to 9/30/95) $3-1/2 $2-3/8
Second Quarter (10/1/95 to 12/31/95) 2-5/8 1-1/8
Third Quarter (1/1/96 to 3/31/96) 2-1/4 1-3/8
Fourth Quarter (4/1/96 to 6/30/96) 2-7/8 1-1/2
As of September 15, 1996, there were approximately 225 holders of
record of the Common Stock, and, based upon information previously provided to
the Registrant by depositories and brokers, the Registrant believes it has in
excess of 500 beneficial owners.
The Registrant has never paid cash dividends on its Common Stock and
does not plan to pay cash dividends in the foreseeable future. The Registrant
has been and continues to be prohibited under its revolving credit facility from
paying cash dividends. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION. - Liquidity and Capital
Resources."
15
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for fiscal years 1996, 1995, 1994, 1993
and 1992 should be read in conjunction with the Consolidated Financial
Statements and related notes and independent auditors report appearing elsewhere
in this report and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------ ---------- ---------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net Sales................................... $ 168,985 $ 190,504 $ 174,761 $ 158,089 $ 137,670
Cost of Goods Sold ......................... 119,775 134,800 119,373 107,726 97,810
----------- ------------ ----------- ---------- ---------
Gross Profit ............................... 49,210 55,704 55,388 50,363 39,860
Selling, General, and
Administrative Expense................... 52,393 54,502 50,891 49,150 43,251
Loss Due to Impairment
of Asset (1) ............................ - 400 - - -
(Loss) Income From ----------- ------------ ----------- ---------- ---------
Operations............................... (3,183) 802 4,497 1,213 (3,391)
Other Income (Expense):
Interest Expense........................ (1,526) (1,425) (503) (584) (1,037)
Provision for Shareholder
Settlement(2)......................... - 56 (1,252) - -
Other, Net ............................. (4) (66) (7) 1,060 26
(Loss) Income Before ------------ ------------ ------------ ---------- ---------
Income Taxes (Benefit) .................. (4,713) (633) 2,735 1,689 (4,402)
Income Taxes (Benefit)...................... (486) (152) 1,008 561 (1,473)
Net (Loss) Income Before ------------ ------------ ------------ ----------- ---------
Cumulative Effect of
Change in Accounting
Principle................................. (4,227) (481) 1,727 1,128 (2,929)
Cumulative Effect of Change
in Accounting Principle(3)................ - - - - 442
------------ ------------ ------------ ---------- --------
Net (Loss) Income ........................ $ (4,227) $ (481) $ 1,727(2) $ 1,128 $ (2,487)
=========== =========== =========== ========== =========
(Loss) Income per Common and
Common Equivalent Share:
Net (Loss) Income Before
Cumulative Effect of
Change in Accounting
Principle(3)........................... $ (1.13) $ (.13) $ .46(2) $ .30 $ (.79)
Cumulative Effect of
Change in Accounting
Principle (3) ......................... - - - - .12
------------ ------------ ------------ ---------- ----------
Net (Loss) Income ........................ $ (1.13) $ (.13) $ .46(2) $ .30 $ (.67)
=========== =========== =========== ========== ==========
Pro Forma Amounts Assuming
Change in Accounting
Principle is Applied
Retroactively (3):
Net (Loss) Income....................... $ (2,929)
=========
Net (Loss) Income Per
Share................................. $ (.79)
=========
Weighted Average Number of
Shares Outstanding..................... 3,729 3,729 3,743 3,722 3,716
=========== =========== =========== ========== =========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets .................. $34,645 $39,191 $41,642 $31,574 $36,368
Current Liabilities ............. 26,019 29,107 27,997 19,858 29,974
Working Capital ................. 8,625 10,084 13,645 11,717 6,394
Total Assets .................... 49,056 56,702 57,537 46,384 51,861
Borrowings Under Revolving
Credit Facility ............... 9,100 8,677 9,730 4,810 18,743
Current Installments of Long-Term
Debt (included in Current
Liabilities) .................. 161 2,674 1,238 682 21
Long-Term Debt (excluding
current installments) ........ 746 908 3,575 3,273 534
Shareholders' Equity ............ 17,169 21,396 21,933 19,181 18,044
STORE DATA:
Number of Stores Open
at End of Period .............. 21 21 20 20 20(4)
Weighted Average Net
Sales Per Store(5)(6) ......... $ 8,047 $ 9,261 $ 8,738 $ 8,038 $ 7,578
<FN>
- ---------------
(1) The Loss Due to Asset Impairment in the amount of $400,000 in fiscal year
1995 relates to the return of the Returned MIS System to, and settlement
with, the vendor thereof as a result of the unsuccessful installation and
implementation of such system. See "ITEM 1. BUSINESS - Operations" and
note (7) of Notes to Consolidated Financial Statements.
(2) The Provision for Shareholder Settlement relates to the global settlement
in fiscal 1994 of the consolidated class action against the Registrant.
In such settlement the Registrant (i) paid a cash amount totaling
approximately $141,000 and (ii) issued 306,335 warrants to purchase its
common stock, which warrants were valued at $3.00 per warrant, as its
portion of the total maximum settlement amount of approximately
$2,765,000. See note (10) of Notes to Consolidated Financial Statements.
Excluding the Provision for Shareholder Settlement, which was equivalent
to approximately $788,000 or $.21 per share after taxes, Net Income would
have been $2,515,000 or $.67 per share for fiscal year 1994. Based on the
actual aggregate amount of claims made, the Registrant only issued
306,335 warrants to purchase its common stock out of a maximum number of
325,000 warrants available as part of the shareholder settlement.
Accordingly, the Provision for Shareholder Settlement was adjusted in
fiscal 1995 by a credit to income of $56,000.
(3) Effective July 1, 1991, the Registrant changed its accounting policy to
include in inventory certain indirect costs associated with purchasing,
handling and storage of
17
<PAGE>
inventories. Previously, the Registrant had expensed such costs as
incurred. The pro forma amounts shown have been presented to reflect the
accounting change as if the new method was applied retroactively to all
years shown.
(4) Includes the Registrant's store located in Winter Park which was an
outlet only for car audio and personal electronics products and which was
closed in August 1992, but does not include the Registrant's new store
opened in August 1992 in West Kendall, Florida.
(5) Weighted average net sales per store represents net sales for the period
divided by the number of stores open during the period, weighted to
account for stores open for only a portion of the period.
(6) Excludes Winter Park store.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
The following tables set forth for fiscal years ended June 30, 1996,
1995 and 1994 (i) certain items in the Registrant's statements of operations
expressed as a percentage of net sales and (ii) the percentage change in dollar
amounts of such items as compared to the indicated prior fiscal year.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
ITEMS AS A PERCENTAGE PERCENTAGE INCREASE
OF NET SALES / (DECREASE)
-------------------------------------- -------------------------
YEARS ENDED YEARS ENDED
JUNE 30, JUNE 30,
-------------------------------------- -------------------------
1996 1995 1994 1995-96 1994-95
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales........................... 100.0% 100.0% 100.0% ( 11.3)% 9.0%
Cost of Goods Sold.................. 70.9 70.8 68.3 ( 11.1) 12.9
----- ----- ----
Gross Profit........................ 29.1 29.2 31.7 ( 11.7) 0.6
Selling, General and Admini-
strative Expense.................. 31.0 28.6 29.1 ( 3.9) 7.1
Loss Due to Impairment of
Asset.............................. - 0.2 - ** **
----- ----- -----
(Loss) Income from
Operations........................ (1.9) 0.4 2.6 (497.2) (82.2)
Other Income (Expense):
Interest Expense.................. (0.9) (0.7) (0.3) 7.1 183.4
Other Expense, Net................ * * (0.7) ( 62.5) (99.2)
----- ------ -----
(Loss) Income Before Income
Taxes (Benefit)................... (2.8) (0.3) 1.6 645.0 **
===== ===== =====
Net (Loss) Income................... (2.5)% (0.3)% 1.0% 779.1% ** %
===== ===== =====
<FN>
- ----------------
* Negligible
** Not meaningful
</FN>
</TABLE>
18
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the fiscal year ended June 30, 1996, were approximately
$168,985,000, a decrease of approximately $21,519,000 or 11.3% over the prior
fiscal year. The decrease in net sales overall is primarily attributable to the
Registrant's decision to eliminate personal computers and other nonperforming
low margin products from the product mix and increased competition on widely
available lower end electronic products. In addition, net sales declined during
the first three months of fiscal year 1996 primarily as a result of weather
related effects of Hurricane Erin during the Registrant's annual August scratch
and dent sale. The Registrant believes that part of the reduction is also
attributable to consumer concerns over the general economy and increased levels
of consumer debt. Comparable store net sales decreased 14% in fiscal year 1996
compared to fiscal year 1995. The comparable store net sales were adjusted to
exclude the new store opened in November 1994 and another relocated to a larger
showroom in December 1994. The Registrant's operations, in common with other
retailers in general, are subject to seasonal influences. Historically, the
Registrant has realized more of its net sales and operating income in the second
quarter ending in December.
Gross profit for fiscal year 1996 was approximately $49,210,000, a
decrease of approximately $6,494,000 or 11.7% over the prior fiscal year. Gross
profit as a percentage of net sales decreased slightly to 29.1% for the fiscal
year ended June 30, 1996, as compared to 29.2% for the prior fiscal year. The
overall reduction in gross profit is related to the reduction in net sales and
includes a $1,500,000 provision in the second quarter of fiscal 1996 for loss on
personal computer inventory and related accessories in connection with such
product category's elimination from the Registrant's product mix through
subsequent sale and disposal. See note (7) of Notes to Consolidated Financial
Statements. Exclusive of this loss provision, the gross profit percentage was
30.0% in fiscal year 1996. This increase from the prior fiscal year is directly
related to the Company's renewed specialty retailing focus on value added
selling in the core product categories of high end audio, video and mobile
electronics during the second half of fiscal year 1996.
Selling, general and administrative expense ("SG&A") for the fiscal
year ended June 30, 1996, was approximately $52,393,000, a decrease of
approximately $2,109,000 or 3.9% over the prior fiscal year. The overall
decrease is primarily attributable to cost reduction programs initiated by the
Registrant during the second half of the fiscal year which were partially offset
by increased selling expenses during the first half of the fiscal year. See
"ITEM 1. BUSINESS - General." The increased selling expenses reflected the net
effect of increased advertising expenditures over reduced salesmen's commissions
on lower sales volume. In addition, in fiscal year 1995 the Registrant's
operations were impacted by a $400,000 provision for asset impairment. See
"Fiscal 1995 Compared
19
<PAGE>
to Fiscal 1994" hereinbelow. SG&A as a percentage of net sales increased to
31.0% from 28.8% (inclusive of the provision for asset impairment) in the prior
fiscal year. The percentage increase is directly attributable to the reduction
in net sales from the previous fiscal year.
Interest expense for the fiscal year ended June 30, 1996, was
$1,526,000, an increase of $102,000 from the prior fiscal year. The increase was
primarily reflective of interest rate increases and fees paid under the
Registrant's prior and new revolving credit facilities during fiscal year 1996.
For the fiscal year ended June 30, 1996, the effective income tax
benefit was 10.3% and for fiscal year 1995 the effective income tax benefit was
24.0%. The recorded tax benefit in fiscal year 1996 excludes the recognition of
temporary differences which cannot be recovered from federal income taxes paid
during the loss carryback period. See note (4) of Notes to Consolidated
Financial Statements.
Net loss for the fiscal year ended June 30, 1996, was approximately
$4,227,000, or $1.13 per share, compared to net loss of approximately $481,000,
or $.13 per share, for the prior fiscal year. The net loss in fiscal year 1996
was primarily attributable to the reduction in net sales and the corresponding
reduction in gross profit (of which $1,500,000 is attributable to the provision
for loss on personal computers). The overall reduction in gross profit was only
partially offset by the net reduction in SG&A.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for the fiscal year ended June 30, 1995, were approximately
$190,504,000, an increase of approximately $15,743,000 or 9.0% over the prior
fiscal year. The increase is primarily attributable to the introduction of
personal computers to the product mix, the opening of the new Fort Myers store
and the relocation and expansion of the Hollywood store. Comparable store net
sales increased 5.9% in fiscal year 1995 compared to fiscal year 1994. The
comparable store sales were adjusted to exclude the new store opened in November
1994 and another relocated to a larger showroom in December 1994.
Gross profit for fiscal year 1995 was approximately $55,703,000, an
increase of approximately $315,000 or 0.6% over the prior fiscal year. Gross
profit as a percentage of net sales decreased by 2.5% to 29.2% for the fiscal
year ended June 30, 1995, as compared to the prior fiscal year. The decrease in
gross profit percentage when compared to the prior fiscal year is attributable
to competitive marketing strategies, reduced availability in certain audio and
video products in the third and fourth quarters of fiscal 1995 and the
introduction of personal computers to the product mix.
20
<PAGE>
SG&A for the fiscal year ended June 30, 1995, was approximately
$54,502,000, an increase of approximately $3,611,000 or 7.1% over the prior
fiscal year. The overall increase includes a $197,000 write-off of expenses
associated with the postponed entry into the Washington, D.C./Baltimore
metropolitan area, but does not include a $400,000 provision for asset
impairment relating to the return of the Returned MIS System to, and settlement
with, the vendor thereof (see note (7) of Notes to Consolidated Financial
Statements). The remaining increase is attributable to commissions on increased
sales, expenses associated with the Registrant's entry into the personal
computer business, changes in certain store level compensation programs,
increased payroll related costs, increased depreciation and amortization
expenses and costs associated with the unsuccessful implementation of the
Returned MIS System. Even with the inclusion of the provision for asset
impairment and the write-off of expenses associated with the postponed entry
into the Washington, D.C./Baltimore market, SG&A as a percentage of net sales
decreased to 28.8% from 29.1% in the prior fiscal year.
During fiscal year 1994, the Registrant recorded a provision for
shareholder settlement of $1,252,000 in connection with a global settlement of
class actions filed in May 1992 against the Registrant and others. The provision
for shareholder settlement reflected the value of its common stock purchase
warrants contemplated to be issued in connection with such settlement, the
Registrant's portion of the cash settlement and other expenses associated with
the settlement. In 1995, this amount was reduced by $56,000 based upon the
actual number of warrants issued. See note (10) of Notes to Consolidated
Financial Statements.
Interest expense for the fiscal year ended June 30, 1995, was
$1,425,000, an increase of $922,000 from the prior fiscal year. The increase was
primarily reflective of the increased borrowing under the Registrant's then
existing revolving credit facility, additional outstanding term loans and higher
interest rates during fiscal 1995.
For the fiscal year ended June 30, 1995, the effective income tax
benefit was 24% and for fiscal year 1994 the effective income tax rate was 37%.
Net loss for the fiscal year ended June 30, 1995, was approximately
$481,000, or $.13 per share, compared to net income of approximately $1,727,000,
or $.46 per share, for the prior fiscal year. The reduction in net income was
primarily attributable to reduced gross profit margin on increased sales,
increased depreciation and interest expenses, a provision for asset impairment
and a write-off of expenses related to the postponement of expansion into
Washington, D.C./Baltimore metropolitan area. Net income for the 1994 fiscal
year was reduced by approximately $788,000, or $.21 per share, as a result of
the aftertax effect of the shareholder settlement.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On April 12, 1996, the Registrant replaced its then existing
$16,000,000 revolving credit and term loan facility with a new $25,000,000
revolving credit facility from a new lender, Foothill Capital Corporation
("Foothill"). Under the new revolving credit facility, the Registrant is able to
borrow, repay and reborrow based upon a borrowing base equal to the lesser of
65% of eligible inventory (as defined) at cost or 50% of eligible inventory at
retail selling price. The availability is reduced by outstanding letters of
credit which are limited to $3,000,000. The revolving credit facility matures on
July 31, 1998, and bears interest on the outstanding balance at prime plus 1%.
The Registrant paid a .625% commitment fee in connection with the closing of
such financing and is obligated to pay additional commitment fees of .5%
annually on the total facility and a monthly fee on the unused portion of the
commitment of .375% per annum. The new loan and security agreement contains
various affirmative and negative covenants including those requiring the
Registrant to (i) maintain a quarterly ratio of current assets to current
liabilities of not less than 1.05 to 1.0, (ii) maintain a quarterly ratio of
total liabilities to tangible net worth of not more than 2.75 to 1.0, (iii)
maintain tangible net worth at the end of each quarter of at least $14,000,000
and (iv) maintain working capital at the end of each quarter of at least
$3,500,000. In addition, cumulative net losses from and after April 1, 1996, may
not exceed $4,000,000. The loan and security agreement also limits the
incurrence of additional debt, liens, capital expenditures, acquisitions and
investments and prohibits cash dividends and the repurchase of capital stock.
Borrowings under the new revolving credit facility are collateralized by all of
the Registrant's assets including depository accounts, receivables, inventory,
property and equipment and intangible assets. See note (3) of Notes to
Consolidated Financial Statements for a further discussion of the Registrant's
new revolving credit facility.
On May 4, 1994, the Registrant had obtained a five year term loan of
approximately $1,608,000 from General Electric Capital Corporation ("GECC") for
the purpose of financing the majority of the Returned MIS System and certain
communications equipment. The interest rate under the GECC financing is based
upon a short term commercial paper rate plus 259 basis points. The Registrant
has the option to convert to a fixed interest rate loan based on certain
Treasury Note rates tied to the then remaining term of the loan plus 310 basis
points. The repayment of such financing was originally collateralized by the
Returned MIS System and certain communications equipment. As part of the return
of the Returned MIS System to and the settlement reached with the vendor
thereof, the outstanding principal amount of the GECC financing was reduced to
approximately $575,000 in July 1995 and, as a result, is now repayable in
consecutive monthly installments of principal and interest in the approximate
amount of $13,800 each and a final installment of unpaid principal and interest
due on May 1, 1999. The remaining unpaid balance of such financing remains
22
<PAGE>
collateralized by certain computer equipment. See "ITEM 1. BUSINESS -
Operations" and note 3(b) of Notes to Consolidated Financial Statements.
The Registrant had working capital of approximately $8,625,000 as of
June 30, 1996, a decrease of approximately $1,459,000 from June 30, 1995. The
decrease in working capital between fiscal years was a result, in part, of the
net loss of the Registrant and the decrease by approximately $4,172,000 in
inventory and $1,525,000 in receivables, which was offset, in part, by increases
in cash of approximately $960,000 and income taxes receivable of approximately
$619,000 and the reduction by approximately $2,512,000 in current installments
of long-term debt and $1,234,000 in cash overdrafts. The decrease in the
Registrant's inventory by $4,172,000 as of June 30, 1996, as compared to June
30, 1995, is primarily attributable to the Registrant's eliminating personal
computers and related products from its product mix and implementing an
inventory reduction program commencing in the third quarter of fiscal 1995 in
order to reduce the level of inventory required to support the Registrant's
sales volume and to improve inventory turns.
Interest rates under Registrant's revolving credit facilities
fluctuated between 8.25% and 9.25% during fiscal year 1996. As of June 30, 1996,
the outstanding borrowings under the Registrant's new revolving credit facility
were $9,100,000. Over the past several years, trade creditors have reduced the
period by which payment must be made in order to be eligible for cash or payment
discounts. Accordingly, the Registrant has used its revolving credit facilities
in part to take advantage of such discounts.
The Registrant's ownership of its former Ft. Lauderdale store is
encumbered by a first mortgage loan from a bank in the amount of $640,000, with
a balance of approximately $470,000 at June 30, 1996. See "ITEM 2. PROPERTIES."
Such loan bears interest at the rate of 1/2 of 1% above the prime rate of such
lender (such lender's prime rate was 8.75% at June 30, 1996) and is payable in
one hundred ninety consecutive monthly installments of principal in the amount
of $1,779 each, together with accrued interest, and in one balloon principal
payment of approximately $428,300, together with any accrued and unpaid
interest, due on July 12, 1998.
The Registrant currently believes that funds from the Registrant's
operations combined with borrowings available under its new revolving credit
facility with Foothill and vendor credit programs will be sufficient to satisfy
its currently projected operating cash requirements during fiscal year 1997,
including those capital expenditures required in connection with the relocation
of one of its East Coast Stores and certain upgrades in its management
information system and communications equipment. See "Operations - Suppliers,
Purchasing and Distribution" and "Expansion" in ITEM 1. However, the Registrant
would need to seek additional sources of financing (debt and/or equity or a
23
<PAGE>
combination thereof) in order to proceed with any material expansion program
beyond fiscal year 1997.
IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
The Registrant does not believe that either inflation or foreign
currency fluctuations has had a material impact upon its operating results
because technological advances in the products sold by the Registrant and
changes in the components of products, together with increased competition among
the Registrant's vendors, have kept the product prices stable. Where the prices
of products have increased, the Registrant has generally been able to pass on
such increases to its customers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements and notes thereto and the
Consolidated Financial Statement Schedule and the report of the independent
auditors thereon set forth on pages F-1 to F-20 and S-1 herein are filed as part
of this report and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from the Registrant's 1996 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K,
except that the information regarding the Registrant's executive officers called
for by Item 401 of Regulation S-K has been included in Item 4.1 in PART I of
this report.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Registrant's 1996 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
24
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Registrant's 1996 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the Registrant's 1996 definitive proxy
statement to be filed, pursuant to General Instruction G(3) to the Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2. The financial statements and the required
financial statement schedule listed in the accompanying Table
of Contents to Consolidated Financial Statements and Financial
Statement Schedule at page F-1 herein are filed as part of
this report.
(a) 3. The exhibits listed in the Exhibit Index to the Exhibit
Volume accompanying this report are filed with or incorporated by
reference as part of this report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the last quarter of fiscal year 1996.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of
September, 1996.
Sound Advice, Inc.
By: \s\ PETER BESHOURI
-------------------------------------
Peter Beshouri, Chairman of
the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board,
\s\ PETER BESHOURI President and Chief Executive Officer
- -------------------------- (Principal Executive Officer) September 27, 1996
Peter Beshouri
Director,
Senior Vice President
\s\ MICHAEL BLUMBERG and
- -------------------------- Secretary September 27, 1996
Michael Blumberg
\s\ G. KAY GRIFFITH
- --------------------------
G. Kay Griffith Director September 27, 1996
\s\ HERBERT A. LEEDS
- --------------------------
Herbert A. Leeds Director September 27, 1996
\s\ RICHARD W. MCEWEN
- --------------------------
Richard W. McEwen Director September 27, 1996
\s\ JOSEPH PICCIRILLI
- --------------------------
Joseph Piccirilli Director September 27, 1996
\s\ GREGORY STURGIS
- --------------------------
Gregory Sturgis Director September 27, 1996
Chief Financial Officer
and Treasurer
\s\ KENNETH L. DANIELSON (Principal Financial and
- -------------------------- Accounting Officer) September 27, 1996
Kenneth L. Danielson
</TABLE>
26
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3 to F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in
Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-20
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sound Advice, Inc.:
We have audited the accompanying consolidated balance sheets of Sound Advice,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1996. In connection with our
audits of the consolidated financial statements, we also have audited the
accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sound Advice, Inc.
and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
September 18, 1996
F-2
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS 1996 1995
------------ ------------
Current assets: $ 1,007,231 46,950
Cash
Receivables:
Vendors 3,259,226 4,232,746
Trade 623,840 1,010,135
Employees 217,742 280,755
------------ ------------
4,100,808 5,523,636
Less allowance for doubtful
accounts (572,000) (470,000)
------------ ------------
3,528,808 5,053,636
Inventories, net 27,587,101 31,758,744
Prepaid and other current assets 638,113 1,242,569
Deferred tax assets 712,930 537,308
Income taxes receivable 1,170,571 551,683
------------ ------------
Total current assets 34,644,754 39,190,890
Property and equipment, net 13,947,974 15,858,913
Deferred tax asset, net 96,098 1,003,157
Other assets 196,035 453,698
Goodwill, net 170,891 195,341
------------ ------------
$ 49,055,752 56,701,999
============ ============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
----------- -----------
Current liabilities:
Borrowings under revolving credit facility $ 9,100,115 8,677,413
Accounts payable 11,605,540 11,091,255
Cash overdraft -- 1,234,066
Accrued liabilities 5,152,353 5,430,521
Current installments of long-term debt 161,406 2,673,570
----------- -----------
Total current liabilities 26,019,414 29,106,825
Long-term debt, excluding current installments 745,564 907,913
Capital lease obligation 815,940 821,277
Other liabilities and deferred credits 4,305,995 4,469,969
----------- -----------
31,886,913 35,305,984
----------- -----------
Shareholders' equity:
Common stock; $.01 par value. Authorized
10,000,000 shares; issued and
outstanding 3,728,894 shares in
1996 and 1995 37,289 37,289
Additional paid-in capital 11,058,655 11,058,655
Retained earnings 6,072,895 10,300,071
----------- -----------
Total shareholders' equity 17,168,839 21,396,015
Commitments and contingencies
----------- -----------
$49,055,752 56,701,999
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED JUNE 30, 1996
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 168,984,777 190,503,745 174,760,907
Cost of goods sold 119,774,833 134,800,287 119,372,566
------------- ------------- -------------
Gross profit 49,209,944 55,703,458 55,388,341
Selling, general and
administrative expense 52,393,352 54,501,903 50,891,343
Loss due to impairment of asset -- 400,000 --
------------- ------------- -------------
(Loss) income from
operations (3,183,408) 801,555 4,496,998
Other income (expense):
Interest expense (1,526,199) (1,424,693) (502,730)
Provision for shareholder
settlement -- 56,000 (1,252,000)
Other income (expense) (3,569) (65,529) (6,774)
------------- ------------- -------------
(Loss) income before
income taxes (benefit) (4,713,176) (632,667) 2,735,494
Income taxes (benefit) (486,000) (151,840) 1,008,350
------------- ------------- -------------
Net (loss) income $ (4,227,176) (480,827) 1,727,144
============= ============= =============
Common and common equivalent
per share amounts:
Net (loss) income
per share $ (1.13) $ (.13) .46
============= ============= =============
Weighted average number of
shares outstanding 3,728,894 3,728,894 3,742,861
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED JUNE 30, 1996
COMMON COMMON ADDITIONAL RETAINED
STOCK SHARES STOCK PAID-IN CAPITAL EARNINGS (LOSS) TOTAL
------------ ------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 3,718,894 $37,189 10,089,755 9,053,754 19,180,698
Net income -- -- -- 1,727,144 1,727,144
Issuance of common
stock 10,000 100 49,900 -- 50,000
Common stock
warrant valuation -- -- 975,000 -- 975,000
--------- ------- ----------- ----------- -----------
Balance, June 30, 1994 3,728,894 37,289 11,114,655 10,780,898 21,932,842
Net loss -- -- -- (480,827) (480,827)
Adjustment to common
stock warrant
valuation -- -- (56,000) -- (56,000)
--------- ------- ----------- ----------- -----------
Balance, June 30, 1995 3,728,894 37,289 11,058,655 10,300,071 21,396,015
Net loss -- -- -- (4,227,176) (4,227,176)
--------- ------- ----------- ----------- -----------
Balance, June 30, 1996 3,728,894 $37,289 11,058,655 6,072,895 17,168,839
========= ======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED JUNE 30, 1996
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(4,227,176) (480,827) 1,727,144
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,273,013 3,322,041 2,788,200
Provision for asset impairment -- 400,000 --
Deferred income taxes 731,437 (285,157) (211,905)
Loss on sale of assets 11,386 65,529 19,669
Common stock warrant valuation -- (56,000) 975,000
Changes in operating assets
and liabilities:
Decrease (increase) in:
Receivables 1,524,828 (608,326) (222,390)
Inventories 4,171,643 3,370,921 (9,857,960)
Prepaid and other
current assets 604,456 684,391 (755,257)
Income taxes receivable (618,888) (183,683) 1,205,055
Other assets 72,961 15,096 (262,978)
Increase (decrease) in:
Accounts payable 514,285 1,282,108 3,115,900
Accrued liabilities (278,168) 28,824 1,371,467
Other liabilities (163,974) 437,672 (40,289)
----------- ----------- -----------
Net cash provided by
(used in) operating
activities 5,615,803 7,992,589 (148,344)
----------- ----------- -----------
Investing activities:
Capital expenditures (1,164,308) (5,115,790) (3,861,758)
----------- ----------- -----------
Net cash used in
investing activities (1,164,308) (5,115,790) (3,861,758)
----------- ----------- -----------
Financing activities:
Net borrowings (repayments) under
revolving credit facility 422,702 (1,052,272) 4,919,287
Repayments of long-term debt (2,674,513) (1,231,170) (749,483)
Decrease in cash overdraft (1,234,066) (589,190) (1,823,256)
Reduction in capital lease
obligation (5,337) (2,209) --
Proceeds from issuance of
long-term debt -- -- 1,607,661
Proceeds from issuance of
common stock -- -- 50,000
----------- ----------- -----------
Net cash (used in)
provided by financing
activities $(3,491,214) (2,874,841) 4,004,209
=========== =========== ===========
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash $ 960,281 1,958 (5,893)
Cash, beginning of year 46,950 44,992 50,885
----------- ----------- -----------
Cash, end of year $ 1,007,231 46,950 44,992
=========== =========== ===========
Supplemental disclosures of cash
flow information:
Interest paid $ 1,371,736 1,281,687 496,608
=========== =========== ===========
Income taxes paid, net
of refunds $ (598,549) 317,000 98,496
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 and 1994
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Sound Advice, Inc. and subsidiaries (the "Company") operate in a
single business segment, the retailing and servicing of home and
car audio systems, video products, cellular telephones, personal
electronics, home entertainment furniture and related customized
services and accessories. Its operations are conducted in Florida
through 21 stores and three support centers.
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c) RECEIVABLES
Receivables from vendors consist of cooperative advertising and
other amounts earned based on annual promotional and market
development agreements under various incentive programs. The funds
received under these programs are determined based upon the
Company's level of purchases and/or the inclusion of the vendors'
products in the Company's advertising and promotional programs.
Once earned, the funds are applied against product cost or
recorded as a reduction of advertising expense. Also, included in
receivables from vendors are amounts due for warranty repairs.
Trade receivables consist primarily of amounts due from cellular
activation providers, credit card and finance companies resulting
from customer purchases.
(d) INVENTORIES
Merchandise and service parts inventories are stated at the lower
of cost or market. Cost is determined using a moving average which
approximates the first-in, first-out method and is recorded net of
volume and purchase discounts and rebates.
The Company allocates to inventory certain costs associated with
purchasing, transporting and warehousing of inventories. For the
years ended June 30, 1996 and 1995, allocated purchasing,
transporting and warehousing costs were $3,487,000 and $3,975,000,
respectively, with $882,000 and $988,000 remaining in inventory at
June 30, 1996 and 1995, respectively.
F-9 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are provided over the following estimated useful
lives using the straight-line method.
DESCRIPTION YEARS
----------- -----
Building 30
Furniture and equipment 5 to 7
Leasehold improvements 15 or term of lease, if shorter
Display fixtures 7
Vehicles 5
(f) GOODWILL
Goodwill is amortized on a straight-line basis over 15 years.
Goodwill is presented net of accumulated amortization of $195,859
and $171,409 at June 30, 1996 and 1995, respectively.
(g) PREOPENING COSTS
Costs incurred in the opening of new stores are capitalized and
amortized over a one-year period following the opening of each new
store. At June 30, 1996 and 1995, capitalized preopening costs,
net, totaled $-0- and $161,200, respectively. Amortization of
preopening costs was approximately $161,200, $94,500, and $24,000
for the years ended June 30, 1996, 1995 and 1994, respectively.
(h) NET (LOSS) INCOME PER SHARE
Net (loss) income per share is computed by dividing net (loss)
income by the weighted average number of shares of common stock
and common stock equivalents outstanding during each year. Common
stock equivalents in 1994 represent the dilutive effect of the
assumed exercise of certain outstanding stock options and
warrants. Common stock equivalents are not included in net (loss)
income per share in 1996 and 1995 because their effect would be
anti-dilutive.
(i) INCOME TAXES
The Company accounts for income taxes under the provisions of
Financial Accounting Standards ("SFAS") No. 109, which generally
requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of
assets and liabilities, and are measured by applying enacted tax
rates and laws for the taxable years in which those differences
are expected to reverse. In addition, SFAS No. 109 requires
adjustment of previously deferred income taxes for changes in tax
rates under the liability method.
F-10 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(j) EXTENDED WARRANTY SERVICE CONTRACTS AND SALES INCENTIVE PROGRAM
The company offers extended warranty service contracts on most of
its products, on behalf of an unrelated third party, which are on
a nonrecourse basis to the Company. The Company includes revenues
from the sale of extended warranty contracts in net sales and
records as cost of goods sold the amounts due to the third party
for the cost for such contracts at the time of sale as the
earnings process has been completed. Revenues from the sale of
such contracts represented approximately 5 to 6 percent of
consolidated net sales in 1994 through 1996. Gross margins from
the sale of extended warranty contracts are higher than gross
margins from the sale of the Company's other products.
From 1986 through February 1993 and from July 1994 through June
30, 1996, the Company, subject to certain conditions, offered the
purchasers of extended warranty service contracts the right to
apply the sales price of the contract towards future purchases of
merchandise if the purchaser did not utilize the contract during
its term. The total amount of extended warranty contracts sold
from July 1990 through February 1993 and July 1994 through June
1996 was approximately $21 million and $19 million, respectively.
The Company records a liability at the time of sale for the
estimated amount of future redemptions under this program. Such
liability is based on estimates and, while management believes
that such amounts are adequate, there can be no assurance that
changes to management's estimates may not occur due to limitations
inherent in the estimation process. Changes in the estimates are
charged or credited to income in the period determined. Amounts
estimated to be paid within one year have been classified as
accrued liabilities with the remainder included in other
liabilities and deferred credits. At June 30, 1996 and 1995, the
liability for estimated redemptions was approximately $1,892,000
and $1,830,000, respectively.
(k) SELF-INSURANCE ACCRUALS
The Company is self-insured, up to certain limits, for workers'
compensation benefits and, accordingly, accrues for unpaid claims
and associated expenses including incurred but not reported
losses.
(l) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(m) FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
The carrying amount of cash and cash equivalents, receivables,
revolving credit facility and trade accounts payable approximates
fair value because of the short maturity of these instruments.
The fair value of the Company's long-term debt is estimated by
discounting the future cash flows for each instrument at rates
currently offered to the Company for similar debt instruments of
comparable maturities, which approximates the carrying value.
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of vendor
receivables. Although credit risk is affected by conditions and
occurrences in the industry, the Company reviews the credit risk
of specific vendors, historical trends and other information. Two
vendors
F-11 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounted for 34 percent and 13 percent, respectively of
the Company's vendor receivables at June 30, 1996.
The Company is a specialty retailer with a focus on upscale
electronics and a primary distributor in its markets for certain
products. Although competitive sources of supply are available
for most of its products, the loss of a source for which the
Company is a primary distributor could have an adverse impact on
the Company. The Company would most likely be able to replace
these products, but such replacement products may be widely
available in its markets.
(n) RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements
have been reclassified to conform to the 1996 presentation.
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
1996 1995
----------- -----------
Land $ 521,465 521,465
Building 1,119,605 1,119,605
Furniture and equipment 8,545,945 7,957,845
Leasehold improvements 14,494,852 14,236,432
Display fixtures 5,049,940 4,799,236
Vehicles 949,168 964,323
----------- -----------
30,680,975 29,598,906
Less accumulated depreciation (16,733,001) (13,739,993)
----------- -----------
Property and equipment, net $13,947,974 15,858,913
=========== ===========
Depreciation and amortization expense approximated $3,064,000,
$3,161,000, and $2,735,000 for the years ended June 30, 1996,
1995 and 1994, respectively.
(3) DEBT
(A) REVOLVING CREDIT FACILITY
On April 12, 1996, the Company replaced its then existing revolving
credit and term loan facility with a $25,000,000 revolving credit
facility from a new lender. Under the new revolving credit
facility, the Company is able to borrow, repay and reborrow based
on a borrowing base equal to the lesser of 65% of eligible
inventory at cost or 50% of eligible inventory at retail selling
price. The availability is reduced by outstanding letters of credit
which are limited to $3,000,000. The revolving credit facility
matures on July 31, 1998, and bears interest on the outstanding
balance at prime plus 1%. Borrowings under the new revolving credit
facility are collateralized by all of the Company's assets
including depository accounts, receivables, inventory, property and
equipment and intangible assets. In connection with the financing,
the Company paid a .625% commitment fee and is obligated to pay
additional commitment fees of .5% annually on the total facility
and a monthly fee on the unused portion of the commitment of .375%
per annum.
F-12 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The loan and security agreement contains various affirmative and
negative covenants requiring the Company to quarterly (i) maintain
a ratio of current assets to current liabilities of not less than
1.05 to 1.0, (ii) maintain a ratio of total liabilities to tangible
net worth of not more than 2.75 to 1.0, (iii) maintain tangible net
worth of at least $14,000,000 and (iv) maintain working capital of
at least $3,500,000. In addition, cumulative net losses from and
after April 1, 1996 may not exceed $4,000,000. The loan and
security agreement also limits the incurrance of additional debt,
liens, capital expenditures, acquisitions and investments and
prohibits cash dividends and the repurchase of capital stock.
The effective interest rate on the outstanding loan balance under
the financing arrangement in effect at June 30, 1996, 1995 and 1994
was 12.6 percent, 9 percent, and 6.8 percent, respectively.
(B) LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
-------- ---------
Term loan $ - 1,800,000
Promissory note 436,539 1,289,704
Mortgage note 470,431 491,779
------- ---------
Total 906,970 3,581,483
Less current installments 161,406 2,673,570
------- ---------
Long-term debt, excluding current
installments $ 745,564 907,913
======= =========
The term loan was repaid on April 12, 1996 with proceeds from the
revolving credit facility. The interest rate was prime plus 1.5% at
the time of repayment.
On May 4, 1994, the Company entered into a five year promissory
note to finance its new retail management information system. The
promissory note is repayable in equal monthly installments based
upon a short-term commercial paper rate plus 2.6 percent. The
Company has the option to convert to a fixed interest rate loan
based on certain Treasury note rates tied to the then-remaining
term of the loan plus 3.1 percent. Borrowings under the promissory
note are collateralized by certain computer equipment. In July
1995, in connection with the return of the new management
information system (see note 7), the outstanding obligation under
this loan was reduced to approximately $575,000. The related
monthly payment amounts were reduced to amortize the loan balance
over the remainder of the five-year period in equal monthly
installments. Other terms remained unchanged.
The mortgage note is repayable in monthly installments of $1,779,
including interest at the lender's prime rate plus .5 percent with
a balloon payment due July 12, 1998. The loan is secured by land,
building and improvements with a net book value of approximately
$848,000 at June 30, 1996.
F-13 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate maturities of long-term debt for each of the years
subsequent to June 30, 1996 are as follows:
YEARS ENDED AMOUNT
----------- ------
1997 $ 161,406
1998 171,214
1999 574,350
-------
Total $ 906,970
=======
(C) LETTERS OF CREDIT
The Company has standby letters of credit, in the aggregate of
approximately $982,000, maturing at various dates through April,
1997, primarily supporting self-insurance reserves that were not
drawn upon as of June 30, 1996.
(4) INCOME TAXES
The components of the provision for income taxes (benefit) are as
follows:
YEARS ENDED JUNE 30,
--------------------------------
1996 1995 1994
----------- -------- ---------
Current:
Federal $ (1,217,437) 89,702 1,130,218
State - 43,615 90,037
----------- -------- ---------
(1,217,437) 133,317 1,220,255
Deferred 731,437 (285,157) (211,905)
----------- -------- ---------
Total $ (486,000) (151,840) 1,008,350
=========== ======== =========
The provision for deferred income taxes (benefit) consists of the
following:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Accrued rent expense $ 54,733 (106,449) (117,406)
Provision for redemption rights (20,902) 26,049 104,904
Provision for doubtful accounts (33,546) (5,682) (20,785)
Preopening expenses (54,814) 60,667 13,666
Deferred tax valuation allowance 1,080,426 20,000 --
Inventory adjustments (101,424) (47,414) --
Accelerated depreciation (222,001) (246,477) (191,537)
Prepaid expenses 44,373 (196,849) 55,972
Other (15,408) 210,998 (56,719)
-------- ------- -------
Total $ 731,437 (285,157) (211,905)
======== ======= =======
</TABLE>
F-14 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of the Federal statutory rate and the Company's
effective tax rate is as follows:
YEARS ENDED JUNE 30,
-----------------------
1996 1995 1994
---- ---- ----
Statutory income tax rate (34.0)% (34.0)% 34.0%
Effect of state taxes - (.2) 1.3
Nondeductible expenses .8 8.8 1.0
Provision for valuation allowance 22.9 1.4 -
Other - - .6
---- ---- ----
Effective income tax rate (10.3)% (24.0)% 36.9%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at June
30, 1996 and 1995 are as follows:
1996 1995
--------- -------
Accrued insurance $ 81,593 80,159
Accelerated depreciation 93,845 (213,347)
Allowance for warranty redemptions 709,671 718,910
Accrued rent expense 816,934 906,470
Allowance for doubtful accounts 212,261 190,138
Inventory adjustments 77,052 122,937
Preopening expenses -- (81,818)
Prepaid advertising (48,003) (107,708)
Legal settlement expense 29,755 49,151
Deferred tax valuation allowance (1,287,706) (207,280)
Prepaid insurance (34,972) (26,817)
Deferred gain on sale 51,790 54,321
Other 106,808 55,349
--------- ---------
Total $ 809,028 1,540,465
========= =========
The valuation allowance for deferred tax assets as of June 30, 1996 and
1995 was $1,287,706 and $207,280, respectively. The net change in the
total valuation allowance for the years ended June 30, 1996 and 1995
was an increase of $1,080,426 and $20,000, respectively.
SFAS No. 109 requires that the tax benefit of deductible temporary
differences be recorded as an asset to the extent that management
assesses the utilization of such temporary differences to be "more
likely than not." The Company has sufficient taxable income in the
three year carryback period to support the recognition of its deferred
tax assets. A valuation allowance has been established to the extent
future deductible amounts cannot be recovered through federal income
taxes paid within the statutory carryback period.
(5) SHAREHOLDERS' EQUITY
The Company has a stock option plan which provides for the issuance of
either incentive stock options or non-qualified stock options. Under
the Plan, as amended, the Company has reserved up to 750,000 shares of
common stock for future issuance. The exercise price of
F-15 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
incentive stock options shall not be less than the fair market value per
share on the date of grant. The exercise price of any non-qualified stock
option shall not be less than 85 percent of the fair market value per share
on the date of grant. For each of the years ended June 30, 1996, 1995 and
1994, the option price represents the fair market value of each underlying
share of common stock at the date of grant established by the Company's
board of directors. The option term may not be longer than ten years. No
options may be granted under the stock option plan after November 10, 2001.
Changes in stock options outstanding are as follows:
NUMBER OF
SHARES PRICE
---------- -----
Outstanding, June 30, 1993 111,000 $ 4.20-10.48
Granted 51,000 6.29
Exercised --
Canceled (7,000) 5.45-5.98
-------
Outstanding, June 30, 1994 155,000 4.20-10.48
Granted 45,000 5.96
Exercised --
Canceled (58,500) 4.20-10.48
-------
Outstanding, June 30, 1995 141,500 5.45-9.27
Granted 147,500 1.70-6.29
Exercised --
Canceled (69,000) 5.45-9.27
-------
Outstanding, June 30, 1996 220,000 1.70-7.27
=======
Exercisable 220,000
=======
Available for future grants 469,000
=======
At June 30, 1996, the Company had outstanding a warrant to acquire 10,000
shares of its common stock at an exercise price of $8.78 and another
warrant to acquire 10,000 shares of common stock at an exercise price of
$3.99, both with a former director of the Company. These warrants expire
in October 1996 and June 1997, respectively. During 1994, the former
director exercised a warrant to purchase 10,000 shares of common stock for
an aggregate exercise price of $50,000.
(6) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Effective as of July 1, 1989, the Company established and adopted an
Employee Stock Ownership Plan and Trust (the "ESOP") for all of its
employees. Contributions to the ESOP are made at the discretion of the
board of directors. Although no contributions were made in 1996 and 1995,
contributions totaling $50,000 were made during 1994.
F-16 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) PROVISIONS FOR DISPOSAL OF INVENTORY AND ASSET IMPAIRMENT
During 1996, the Company eliminated personal computers and related
accessories from its product line. In December 1995, the Company
recorded a $1,500,000 provision to writedown its remaining personal
computer and accessories inventory to estimated net realizable value
and to recognize expenses associated with the sale and disposal. The
provision for loss is included in cost of goods sold.
During fiscal 1995, the Company was unable to successfully complete the
implementation of a new management information system. In March 1995, a
provision of $400,000 for loss on impairment of these assets was
recorded.
(8) LEASES
The Company is obligated under a number of operating leases for retail
store space, distribution and installation centers, and certain
property and equipment, which expire at various dates through 2007. The
retail store leases generally contain provisions for increases based on
the Consumer Price Index, and contain options, for periods of up to 15
years, to renew at the then fair rental value.
In June 1994, the Company entered into a limited partnership agreement
with a development company in connection with the acquisition and
development of a parcel of land in Fort Myers, Florida. The Company was
a 40 percent limited partner and made capital contributions of
approximately $250,000. The Company agreed to lease this building for a
period of 20 years and has recorded a portion of the Fort Myers lease
as a capital lease. In April 1995, the land and building were sold by
the limited partnership. The Company's portion of the gain on sale is
being amortized over the life of the lease.
Property under capital lease includes the following amounts in the
accompanying financial statements:
1996 1995
------- -------
Building $ 685,000 685,000
Furniture and equipment 142,900 142,900
------- -------
827,900 827,900
Less accumulated depreciation (87,590) (32,270)
------- -------
$ 740,310 795,630
======= =======
F-17 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum annual rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year (including
option periods) as of June 30, 1996 and the capital lease payments are as
follows:
CAPITAL OPERATING
YEAR ENDED LEASE LEASES
---------- ------- ---------
1997 $ 162,396 5,653,685
1998 162,396 5,679,836
1999 162,396 4,838,869
2000 162,396 4,283,888
2001 162,396 4,054,969
Thereafter 2,178,813 19,232,214
----------- -----------
Total minimum lease
payments 2,990,793 $43,743,461
===========
Less amount representing interest
(at an effective interest rate
of approximately 19%) (2,169,516)
-----------
Present value of net minimum
capital lease payments 821,277
Less current installments of
obligations under capital lease (5,337)
-----------
Obligations under capital lease,
excluding current installments $ 815,940
===========
Total rental expense under the noncancelable operating leases was approximately
$6,058,000, $6,123,000, and $5,971,000 for the years ended June 30, 1996, 1995
and 1994, respectively.
(9) ACCRUED LIABILITIES
Certain store lease agreements provide for scheduled base rental increases over
the lease term or provide free rent periods. The Company recognizes the
aggregate rent expense on a straight-line basis over the lease term, and the
difference between rent expense on a straight-line basis and the base rental is
accrued and included in other liabilities and deferred credits in the
consolidated balance sheet. At June 30, 1996 and 1995, the recorded liability
for accrued rent was approximately $2,148,000 and $2,317,000, respectively.
Included in accrued liabilities at June 30, 1996 and 1995 are approximately
$2,637,000 and $2,168,000, respectively, of customer deposits on future sales
orders.
F-18 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) SHAREHOLDERS' SETTLEMENT
During 1994, the Company recorded a provision for shareholder settlement of
$1,252,000 in connection with a global settlement of class actions filed in
May 1992 against the Company and others. The provision for shareholder
settlement reflected the value of its common stock purchase warrants
contemplated to be issued in connection with such settlement, the Company's
portion of the cash settlement and other expenses associated with the
settlement. In 1995, this amount was reduced by $56,000 based upon the
actual number of warrants issued.
(11) ACCOUNTING PRINCIPLES
During fiscal 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF." The statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS
121 is effective for fiscal years beginning after December 15, 1995. The
Company will adopt SFAS 121 in fiscal 1997, the adoption of which is not
expected to have a material affect on the Company's financial condition or
results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, ACCOUNTING AND DISCLOSURE OF STOCK-BASED COMPENSATION. SFAS No.
123 is applicable to fiscal years beginning after December 15, 1995 and
gives the option to either follow fair value accounting or to follow
Accounting Principles Board Opinion No. 25 ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB No. 25") and related interpretations. The Company has
determined that it will elect to continue to follow APB No. 25 and related
interpretations in accounting for its employee stock options.
(12) COMMITMENT AND CONTINGENCIES
(A) BONUS PLAN
During 1995, the Company implemented a bonus plan for certain
managerial positions based upon the annual operating performance of the
Company. Under the terms of the bonus plan, bonuses ranging between 10
percent and 25 percent of annual compensation may be earned for
achievement of various levels of targeted operating performance as
approved by the Board of Directors. During 1996 and 1995, no bonus
amounts were earned under the plan.
F-19 (Continued)
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) EMPLOYMENT AGREEMENTS
Two of the Company's officers had employment agreements, which
provided for aggregate annual base salaries of $611,050 for each of
the fiscal years ending June 30, 1996, 1995 and 1994 which expired on
June 30, 1996. These agreements have been extended through June 30,
1997. In 1994, bonuses totaling $71,000 were paid to the two officers.
(C) OTHER
The Company is a party to various legal actions arising in the normal
course of business. It is the opinion of management that the ultimate
disposition of these matters will not have a material adverse effect
on the Company's financial position or results of operations.
F-20
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO COSTS OTHER CHANGES BALANCE AT END
DESCRIPTION BEGINNING OF YEAR AND EXPENSES ADD (DEDUCT) OF YEAR
----------- ----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
June 30, 1996 $ 470,000 722,000 (620,000) 572,000
=========== ======= ======= ========
June 30, 1995 $ 460,000 380,474 (370,474) 470,000
=========== ======= ======= =========
June 30, 1994 $ 403,000 416,688 (359,688) 460,000
=========== ======= ======= =========
Allowance for redemption of extended
service warranty contracts:
June 30, 1996 $ 1,830,445 61,475(A) - 1,891,920
=========== ======= ======= =========
June 30, 1995 $ 1,761,222 69,223(A) - 1,830,445
=========== ======= ======= =========
June 30, 1994 $ 2,040,000 - (278,778)(A) 1,761,222
=========== ======= ======= =========
Allowance for inventory
obsolescence:
June 30, 1996 $ 600,000 230,000 - 830,000
=========== ======= ======= =========
June 30, 1995 $ 273,000 327,000 - 600,000
=========== ======= ======= =========
June 30, 1994 $ 273,000 - - 273,000
=========== ======= ======= =========
</TABLE>
(A) Amounts represent net change between beginning of period and end of period
balances.
S-1
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
JUNE 30, 1996 0-15194
----------------------------------
SOUND ADVICE, INC.
-----------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
================================================================================
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
3.1 Articles of Incorporation, as
amended, of the Registrant
(incorporated by reference from
Registration Statement No. 33-5942,
Exhibit 3.1, filed May 23, 1986)
3.2 By-laws of the Registrant
(incorporated by reference from
Registration Statement No. 33-5942,
Exhibit 3.2, filed May 23, 1986)
9. Right of First Refusal and Voting
Trust Agreement, dated June 30,
1986, among Peter Beshouri, Gregory
Sturgis, Michael Blumberg and
Joseph Piccirilli (incorporated by
reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1986,
Exhibit 9, File No. 33-5942)
10.1 Amended and Restated Credit
Agreement, dated as of February 4,
1993, among the Registrant, SAI
Distributors, Inc. and NationsBank,
N.A. (South), successor to
NationsBank of Florida, N.A.
("NationsBank"), (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended December 31,
1992, Exhibit 10.1, File No. 0-
15194), First Amendment to Credit
Agreement, dated as of February 26,
1993, among the Registrant, SAI
Distributors, Inc. and NationsBank
(incorporated by reference from the
Registrant's Quarterly Report on
Form 10-Q for the quarter ended
March 31, 1993, Exhibit 10.1, File
No. 0-15194), Second Amendment to
Credit Agreement, dated as of
December 28, 1993, among the
Registrant, SAI Distributors, Inc.
and NationsBank, (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended December 31,
i
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
1993, Exhibit 10.2, File No. 0-15194),
Third Amendment to Credit Agreement,
dated March 29, 1995, among the Registrant,
SAI Distributors, Inc. and NationsBank
(incorporated by reference from the
Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31,
1995, Exhibit 10.1, File No. 0-15194),
and Fourth Amendment to Credit Agreement,
dated September 29, 1995, among the
Registrant, SAI Distributors, Inc. and
NationsBank (incorporated by reference
from the Registrant's Annual Report on
Form 10-K for the fiscal year ended June
30, 1995, Exhibit 10.1, File No. 0-15194)
10.2 Amended and Restated Credit
Agreement (without exhibits), dated
as of October 10, 1995, among the
Registrant, the Registrant's
wholly-owned subsidiaries and
NationsBank, together with Amended
and Restated Security Agreement
(without schedule), dated as of
October 10, 1995, between the
Registrant and NationsBank
(incorporated by reference from the
Registrant's Annual Report on Form
10-K for the fiscal year ended June
30, 1995, Exhibit 10.2, File No. 0-
15194)
10.3 Amended and Restated Credit
Agreement (without exhibits) dated
as of February 15, 1996, among the
Registrant and the Registrant's
wholly-owned subsidiaries and
NationsBank, together with Amended
and Restated Renewal Revolving
Credit Promissory Note, dated as of
February 15, 1996, from the
Registrant payable to NationsBank
(incorporated by reference from the
Registrant's Quarterly Report on
Form 10-Q for the quarter ended
ii
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
March 31, 1996, Exhibit 10.1, File
No. 0-15194)
10.4 Loan and Security Agreement
(without schedules), dated as of
April 11, 1996, between the
Registrant and Foothill Capital
Corporation (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996,
Exhibit 10.2, File No. 0-15194)
10.5 Mortgage Note, dated July 12, 1988,
from the Registrant payable to Bank
Atlantic in the principal amount of
$640,000, together with Mortgage
and Security Agreement, dated July
12, 1988, between the Registrant
and BankAtlantic and Assignment of
Leases, Rents and Profits, dated
July 12, 1988, between the
Registrant and BankAtlantic
(incorporated by reference from the
Registrant's Annual Report on Form
10-K for the fiscal year ended June
30, 1988, Exhibit 10.42, File No.
0-15194)
10.6* Second Amended and Restated Sound
Advice, Inc. 1986 Stock Option Plan
(incorporated by reference from the
Registrant's Quarterly Report on
Form 10-Q for the quarter ended
December 31, 1991, Exhibit 10.2,
File No. 0-15194), as amended by
Amendments to Second Amended and
Restated Sound Advice, Inc. 1986
Stock Option Plan (incorporated by
reference from the Registrant's
Definitive Proxy Statement dated
December 30, 1994, Exhibit "A,"
File No. 0-15194)
- --------
* Management contract or compensation plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
iii
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
10.7* Sound Advice, Inc. Employee Stock
Ownership Plan and Trust, made
January 15, 1990, between the
Registrant and Peter Beshouri,
Michael Blumberg, Gregory Sturgis,
Joseph Piccirilli and Jacob E.
Farkas, the trustees (incorporated
by reference from the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended March 31, 1990,
Exhibit 10.2, File No. 0-15194),
First Amendment to the Sound
Advice, Inc. Employee Stock
Ownership Plan and Trust, dated as
of December 23, 1992 (incorporated
by reference from the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended December 31,
1992, Exhibit 10.2, File No. 0-
15194), Second Amendment to the
Sound Advice, Inc. Employee Stock
Ownership Plan and Trust, dated as
of July 9, 1993 (incorporated by
reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1993,
Exhibit 10.15, File No. 0-15194)
and Third Amendment to the Sound
Advice, Inc. Employee Stock
Ownership Plan and Trust, dated as
of December 30, 1994 (incorporated
by reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1995,
Exhibit 10.9, File No. 0-15194)
- --------
* Management contract or compensation plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
iv
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
10.8* Employment Agreements, dated June
30, 1986, between Registrant and
each of Peter Beshouri and Michael
Blumberg (incorporated by reference
from the Registrant's Annual Report
on Form 10-K for the fiscal year
ended June 30, 1986, Exhibit 10.26,
File No. 33-5942), First Amendments
to Employment Agreements, both
dated as of May 20, 1989, between
the Registrant and each of Peter
Beshouri and Michael Blumberg
(incorporated by reference from
Registration Statement No. 33-
28745, Exhibit 10.20, filed May 16,
1989), Second Amendments to
Employment Agreements, both dated
as of October 27, 1989, between the
Registrant and each of Peter
Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Quarterly Report on
Form 10-Q for the quarter ended
December 31, 1989, Exhibit 10.2,
File No. 0-15194), Third Amendments
to Employment Agreements, both
dated as of July 1, 1992, between
the Registrant and each of Peter
Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Annual Report on Form
10-K for the fiscal year ended June
30, 1992, Exhibit 10.15, File No.
0-15194), Fourth Amendments to
Employment Agreements, both dated
as of July 1, 1993, between the
Registrant and each of Peter
Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Annual Report on Form
10-K for the fiscal year ended June
30, 1993, Exhibit 10.16, File No.
0-15194), Fifth Amendments to
- --------
* Management contract or compensation plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
v
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
Employment Agreements, both
effective as of July 1, 1994,
between the Registrant and each of
Peter Beshouri and Michael Blumberg
(incorporated by reference from the
Registrant's Quarterly Report
on Form 10-Q for the quarter ended
December 31, 1994, Exhibit 10.2, File
No. 0-15194), Sixth Amendments to
Employment Agreements, both effective
as of July 1, 1995, between the
Registrant and each of Peter Beshouri
and Michael Blumberg (incorporated by
reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter
ended September 30, 1995, Exhibit
10.1, File No. 0-15194, and Seventh
Amendments to Employment Agreements,
both effective as of July 1, 1996,
between the Registrant and each of
Peter Beshouri and Michael Blumberg
(filed herewith) 61
10.9 Associate Agreement, dated March 1,
1986 between the Registrant and
Progressive Retailers Organization,
Inc. ("PRO"), together with PRO
Policy and Procedure Manual
(incorporated by reference from
Amendment No. 1 to Registration
Statement No. 33-5942, Exhibit
10.28, filed June 24, 1986)
10.10 Lease, dated September 23, 1987,
between Designer's Place at Dania,
a Florida general partnership
consisting of Marvin Mandel, Philip
Mandel and G&E Investment Company,
and the Registrant (incorporated by
reference from the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1987, Exhibit 10.1, File No.
0-15194)
vi
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
10.11 Amended and Restated Lease, dated
as of December 1, 1991, between
Chase, Gunsaullus, Scherer and the
Registrant (incorporated by
reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1992,
Exhibit 10.19, File No. 0-15194)
10.12 Dealer Agreement, dated January 1,
1995, between McCaw Communications
of Florida, Inc. d/b/a Cellular One
("McCaw") and the Registrant, as
amended by that certain Amendment
to Dealer Agreement, dated January
1, 1995, between McCaw and the
Registrant (incorporated by
reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1995,
Exhibit 10.14, File No. 0-15194)
10.13* Form of Warrant to Purchase 10,000
Shares of Common Stock of Sound
Advice, Inc. attached as Exhibit
"A" to Consulting Agreement
effective as of July 1, 1991,
between the Registrant and J.E.
Farkas, Ltd., pursuant to which a
warrant to purchase 10,000 shares
of Common Stock of the Registrant
has been issued to Jacob E. Farkas,
a former director of the
Registrant, on each of November 1,
1991 and July 1, 1992 at an
exercise price per share of $8.78
and $3.99, respectively, which is
exercisable, in whole or in part,
for five (5) years from date of its
issuance (incorporated by reference
from the Registrant's Annual Report
on Form 10-K for the fiscal year
- --------
*Management contract or compensation plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
vii
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
ended June 30, 1991, Exhibit 10.23,
File No. 0-15194)
10.14 Credit Card Program Agreement,
dated August 12, 1992, between
Monogram Credit Card Bank of
Georgia ("Monogram") and the
Registrant (incorporated by
reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1992,
Exhibit 10.29, File No. 0-15194),
together with Amendment thereto,
dated June 14, 1996, between
Monogram and Registrant (filed
herewith) 65
10.15 Sales Agreement, dated August 10,
1989, between Progressive Casualty
Insurance Company and the
Registrant (incorporated by
reference from the Registrant's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1992,
Exhibit 10.32, File No. 0-15194)
10.16 Letter Agreement, dated January 4,
1993, from the Registrant to and
accepted by Gregory Sturgis
(incorporated by reference from the
Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter
ended March 31, 1993, Exhibit 10.2,
File No. 0-15194)
10.17 Lease, dated as of May 22, 1993,
between L&T Limited Partnership, as
landlord, and the Registrant, as
tenant (incorporated by reference
from the Registrant's Annual Report
on Form 10-K for the fiscal year
ended June 30, 1993, Exhibit 10.34,
File No. 0-15194)
10.18 Promissory Note, dated May 4, 1994,
from the Registrant payable to
General Electric Capital
Corporation ("GECC") in the
viii
<PAGE>
EXHIBIT SEQUENTIAL
NO. PAGE NO.
- ------- ----------
original principal amount of
$1,607,661.17, as amended, together
with Master Security Agreement,
dated as of May 4, 1994, between
the Registrant and GECC
(incorporated by reference from the
Registrant's Annual Report on Form
10-K for the fiscal year ended
June 30, 1994, Exhibit 10.28, File No.
0-15194)
10.19 Stipulation of Settlement, dated as
of January 26, 1994, regarding IN
RE: SOUND ADVICE, INC. SECURITIES
LITIGATION, which has annexed as
one of the exhibits thereto, among
other documents, the form of
Warrant Agreement between the
Registrant and American Stock
Transfer & Trust Company, as
warrant agent, covering the 306,335
warrants issued in connection with
the settlement of the class action
(incorporated by reference from the
Registrant's current report on Form
8-K, dated January 31, 1994,
reporting an event on January 28,
1994, Exhibit 2, File No. 0-15194)
21 Subsidiaries of the Registrant
(incorporated by reference from the
Registrant's Annual Report on Form
10-K for the fiscal year ended June
30, 1995, Exhibit 21, File No. 0-
15194)
23 Consent of Independent Public
Accountants of KPMG Peat Marwick
LLP (filed herewith)
27 Financial Data Schedule (filed
herewith)
ix
EXHIBIT 10.8
SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT
SEVENTH AMENDMENT, made and entered into effective as of the 1st
day of July, 1996, to the Employment Agreement, dated as of June 30, 1986, by
and between SOUND ADVICE, INC., a Florida corporation (the "Employer"), and
PETER BESHOURI (the "Employee"), as previously amended by that First Amendment
to Employment Agreement, dated as of May 15, 1989, that Second Amendment to
Employment Agreement, dated as of October 27, 1989, that Third Amendment to
Employment Agreement, dated as of July 1, 1992, that Fourth Amendment to
Employment Agreement, dated as of July 1, 1993, that Fifth Amendment to
Employment Agreement, dated as of July 1, 1994, and that Sixth Amendment to
Employment Agreement, dated as of July 1, 1995 (collectively, the "Agreement").
W I T N E S S E T H :
WHEREAS, the Employee and the Employer mutually desire and each of
them is willing, in accordance with the terms and conditions specifically set
forth below, to amend the Agreement, it being understood by the Employee and the
Employer that all terms and conditions of the Agreement not otherwise modified
by this Seventh Amendment thereto shall remain effective and continue operating
in full force throughout the entire term of the Agreement, as amended.
<PAGE>
NOW, THEREFORE, for and in consideration of the covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. TERM. Section 2 of the Agreement is hereby amended to
provide that the term of the Agreement is hereby extended for another
year or until June 30, 1997.
2. EFFECT. Except as otherwise modified by this Seventh
Amendment, all terms, conditions and provisions of the Agreement shall
remain effective and continue operating in full force throughout the
entire term of the Agreement, as amended.
3. CAPTIONS. Paragraph titles or captions contained in this
Seventh Amendment are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of
this Seventh Amendment or the intent of any provision hereof.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and the
Employer has caused this Amendment to be executed by its duly authorized officer
effective as of the day and year first above written.
SOUND ADVICE, INC.
By:/S/ MICHAEL BLUMBERG
__________________________
MICHAEL BLUMBERG, Senior
Vice President
EMPLOYEE:
/S/ PETER BESHOURI
___________________________
PETER BESHOURI
2
<PAGE>
SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT
SEVENTH AMENDMENT, made and entered into effective as of the 1st day of
July, 1996, to the Employment Agreement, dated as of June 30, 1986, by and
between SOUND ADVICE, INC., a Florida corporation (the "Employer"), and MICHAEL
BLUMBERG (the "Employee"), as previously amended by that First Amendment to
Employment Agreement, dated as of May 15, 1989, that Second Amendment to
Employment Agreement, dated as of October 27, 1989, that Third Amendment to
Employment Agreement, dated as of July 1, 1992, that Fourth Amendment to
Employment Agreement, dated as of July 1, 1993, that Fifth Amendment to
Employment Agreement, dated as of July 1, 1994, and that Sixth Amendment to
Employment Agreement, dated as of July 1, 1995 (collectively, the "Agreement").
W I T N E S S E T H :
WHEREAS, the Employee and the Employer mutually desire and each of them
is willing, in accordance with the terms and conditions specifically set forth
below, to amend the Agreement, it being understood by the Employee and the
Employer that all terms and conditions of the Agreement not otherwise modified
by this Seventh Amendment thereto shall remain effective and continue operating
in full force throughout the entire term of the Agreement, as amended.
<PAGE>
NOW, THEREFORE, for and in consideration of the covenants and
conditions hereinafter set forth, the parties hereto mutually agree as
follows:
1. TERM. Section 2 of the Agreement is hereby amended to
provide that the term of the Agreement is hereby extended for another
year or until June 30, 1997.
2. EFFECT. Except as otherwise modified by this Seventh
Amendment, all terms, conditions and provisions of the Agreement shall
remain effective and continue operating in full force throughout the
entire term of the Agreement, as amended.
3. CAPTIONS. Paragraph titles or captions contained in this
Seventh Amendment are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of
this Seventh Amendment or the intent of any provision hereof.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and the
Employer has caused this Amendment to be executed by its duly authorized officer
effective as of the day and year first above written.
SOUND ADVICE, INC.
By:/S/ PETER BESHOURI
____________________________
PETER BESHOURI, President
and Chief Executive Officer
EMPLOYEE:
/S/ MICHAEL BLUMBERG
____________________________
MICHAEL BLUMBERG
2
EXHIBIT 10.14
AMENDMENT
Amendment dated as of June 14, 1996 to the Credit Card Program
Agreement by and between Sound Advice, Inc. ("Merchant") and Monogram Credit
Card Bank of Georgia (the "Bank") dated as of August 12, 1992, as amended from
time to time (the "Agreement").
The Agreement is hereby amended as follows:
1. Section 1.01 is hereby amended by adding a definition of "Commercial Paper
Rate" as follows and by deleting the definition of "Maximum Investment" and
replacing it in its entirety as follows:
""COMMERCIAL PAPER RATE" shall mean the rate for so-called ninety (90)
day high-grade unsecured notes sold through dealers by major corporations in
multiples of one thousand dollars ($1,000) as published by THE WALL STREET
JOURNAL in its "Money Rates" section under the heading "Commercial Paper" (or if
such publication is discontinued, such other publication of similar type
designated by the Bank), on any Business Day that such rate is published,
whether or not such rate is actually charged or paid by an entity.
"MAXIMUM INVESTMENT" shall mean the maximum amount of credit which Bank
is at any one time willing to extend to Cardholders under the Program and shall
mean Fifty-Five Million Dollars ($55,000,000) or such other amount as Bank, in
its sole discretion, may at any time or from time to time specify to Merchant,
subject to the limitation in Section 9.02(c)."
2. Section 3.04 shall be renamed "Service Fees" and such section is hereby
deleted in its entirety and replaced with the following:
"3.04 SERVICE FEES. Bank shall charge to Merchant a service fee for
purchases made under the Program charged to Accounts. The service fees Bank
shall charge to Merchant with respect to purchases are set forth on the matrix
attached hereto as Schedule 3.04, where the Commercial Paper Rate referenced on
the vertical axis thereof shall refer to the Commercial Paper Rate in effect on
the first day of the calendar quarter preceding such sale and the reference on
the horizontal axis thereof shall refer to the terms of such purchase. Bank
shall have the right to review the service fee schedule quarterly during the
Initial Term and any Renewal Term and may change such schedule in whole or in
part in its sole discretion upon at least fifteen (15) days prior written notice
to Merchant; provided that Bank shall not change the service fee applicable to
any Purchase made pursuant to a
<PAGE>
specified sales promotion initiated during one calendar quarter provided such
sales promotion terminates within thirty (30) days of the beginning of the
following calendar quarter. Bank will provide Merchant in advance with any
changed service fee schedule concurrently with the aforesaid fifteen (15) days
prior written notice. Bank hereby agrees that any changes made to the service
fee schedule shall be made in good faith and shall be commercially reasonable
based on comparable Bank credit card programs in the appliance and electronic
industry and the sales and portfolio performance under the Program. Bank shall
review with Merchant the basis for any such increase and provide Merchant with
backup documentation to support any such increase. Any service fees imposed
hereunder will be deducted daily by Bank from amounts paid to Merchant under
Section 7.01 hereof."
3. A new Section 5.05 is added to the Agreement to read as follows:
"SECTION 5.05. GENERAL COVENANTS OF MERCHANT.
(a) MERCHANT'S SALES OF EXTENDED WARRANTIES. Merchant is permitted to
sell extended warranties and to finance those warranties on the Credit Card with
the prior approval of Bank. Bank has given approval for Merchant to sell for
financing on the Credit Card extended warranties (including the "future
discount" feature) issued by National Electronics Warranty Corporation and its
affiliates (collectively, "NEW"). It is understood that Bank has negotiated an
arrangement with NEW under which NEW has agreed to fulfill the terms of all NEW
warranties sold by Merchant on NEW's behalf. Merchant represents that NEW
warranties are the only extended warranty contracts it currently sells and
covenants that it will not sell and charge to the Credit Card any extended
warranty contracts except NEW warranties without Bank's specific prior written
approval. Merchant will promptly advise Bank if any warranties now in effect
other than NEW warranties and other than the "future discount" feature offered
prior to July 1994 were financed under the Program, and if so, will provide Bank
with information Bank reasonably requests in order to gauge any exposure to
Bank. Such information is expected to include numbers of such warranties sold,
purchase years and prices, terms and utilization experience, as well as
information about arrangements in place to service such warranties. If for any
reason, Bank determines that the exposures associated with warranties sold by
Merchant have not been satisfactorily addressed, Bank may, upon notice to
Merchant, create and maintain reserves on Bank's books and fund such reserves by
deducting from payments it makes to Merchant under Section 7.01 hereof,
sufficient funds to ameliorate such exposures (or, in Bank's sole discretion,
permit Merchant to provide an alternative form of collateral to ameliorate such
exposure).
<PAGE>
(b) SALES INCENTIVE PROGRAMS. Merchant represents that the the only
products or services financed under the Program which require Merchant or a
third party to fulfill an obligation in the future (such as the sale of
merchandise permitting a later trade-up) are listed on Exhibit 5.05(b) hereto
and covenants that it will not, without Bank's specific prior written approval,
offer any other product or service requiring future performance. Additionally,
Merchant will provide Bank with information Bank reasonably requests to gauge
any exposure to Bank. This information is expected to include descriptions of
each such program and redemption history. Merchant shall promptly address to
Bank's satisfaction any issues identified by Bank associated with the exposure
surrounding any such sales incentive program(s). If for any reason, Bank
determines that the exposure associated with Merchant's sales incentive programs
has not been fully addressed, Bank may, upon at least ten (10) days prior
written notice to Merchant, create and maintain reasonable reserves on Bank's
books and fund such reserves by deducting from payments it makes to Merchant
under Section 7.01 hereof, sufficient funds to ameliorate such exposures (or in
Bank's sole discretion, permit Merchant to provide an alternative form of
collateral to ameliorate such exposure)."
4. The word "offset" is changed to "recoup or offset" in Sections 6.03 and 12.01
and in the 37th line of Section 7.01; the word "offset" is changed to "recouped
or offset" in the 10th line of Section 7.01 and the word "offset" is changed to
"recoupment or offset" in the 39th and 40th lines of Section 7.01.
5. Section 8.03(c) is hereby deleted and replaced with the following:
"(c) MATERIAL ADVERSE CHANGE. Merchant shall sell all, or substantially
all, of its assets; or be dissolved as a corporation; or be the subject of any
takeover, reorganization, recapitalization, merger or consolidation; or cease to
be able to obtain credit for its ongoing operations; or, otherwise, there shall
occur any change in the operations, assets, condition (financial or otherwise),
business or ownership of Merchant, or any change in its status or relationship
with other creditors (including without limitation, inability to obtain ongoing
long term financing from other creditors as existing facilities expire), which
Bank, in the reasonable exercise of Bank's sole judgment, determines materially
and adversely affects, or is reasonably likely to affect materially and
adversely, Merchant's ability to perform its obligations hereunder or under the
Program."
<PAGE>
6. Section 9.01 shall be amended by changing the word "five (5)" in the second
line thereof to the word "seven (7)."
7. Section 9.02(b) shall be deleted in its entirety (and shall be deemed a
section "Intentionally Omitted)."
8. Section 9.02(c) is hereby deleted and replaced with the following:
"(c) MAXIMUM INVESTMENT. Bank shall be under no obligation to accept
new Credit Card Applications or extend further credit under the Program if
further extensions of credit would cause the amount of funds invested by Bank in
the Program at any time to exceed the Maximum Investment. If at any time the
amount of funds invested by Bank in the Program reaches an amount equal to or
greater than the Maximum Investment, Bank will have the right to terminate this
Agreement or to continue extending credit and establishing Accounts. If Bank
elects to extend credit in excess of the Maximum Investment, it may cease to do
so at any time and any extension of credit in excess of the Maximum Investment
in any amount shall not obligate Bank to continue to extend credit in excess of
the Maximum Investment. Merchant expressly acknowledges Bank's right to
establish the Maximum Investment and, in this regard, hereby releases Bank from,
and indemnifies Bank against, any and all Losses incurred as a result of Bank
refusing to advance credit to Cardholders in accordance with Section 2.01 as a
result of reaching the Maximum Investment, or to increase the Maximum
Investment, including any lender liability claim. Bank will advise Merchant when
the amount of funds invested by Bank in the Program reaches 95% of the Maximum
Investment and the parties will then discuss and cooperate on next steps. If the
amount of funds invested by Bank in the Program reaches or exceeds the Maximum
Investment and Bank does not extend further credit under the Program, then
either party shall have the right to terminate this Agreement immediately upon
notice to the other party. Additionally, Bank may lower the Maximum Investment
only if the resulting Maximum Investment is sufficient to meet reasonably
anticipated utilization for the remaining term of the Agreement, based on
Merchant's sales forecasts.
9. Section 9.03 through the end of subsection (b) thereof is hereby amended in
its entirety as follows:
"SECTION 9.03. RIGHTS AND DUTIES UPON TERMINATION
(a) PURCHASE OF ACCOUNTS. In the event of any termination of this
Agreement except pursuant to Section 9.02(f), Merchant shall have the option to
purchase, or to arrange for a third party to purchase, all outstanding Accounts,
excluding, however,
<PAGE>
any Accounts (or portions thereof) which, as of the date of purchase, have been
written off by the Bank, or even if not then written off, are eight payments or
more due (the net amount of Accounts which would be required to be purchased by
Merchant if the foregoing option is exercised herein called the "NET ACCOUNTS")
at a price equal to the sum of (a) one hundred percent (100%) of the aggregate
unpaid principal balance of all such Net Accounts, plus all finance charges and
other charges accrued, but unpaid (including, without limitation, any such
charges which are then unbilled and all finance charges relating to unexpired
promotional offerings) on such Net Accounts PLUS, (B) the sum of all
out-of-pocket expenses then paid or incurred by Bank in the collection or
attempted collection of all such Net Accounts, including, without limitation,
attorneys' fees, for which the Cardholder is liable by contract and/or
applicable law, which are then billed, or thereafter can be billed in the next
Billing Cycle, to the Cardholder PLUS (C) all fees and charges then owing by
Merchant to Bank under this Agreement. If Merchant exercises the option granted
by this subsection (a), Bank shall retain all Accounts other than the Net
Accounts purchased by Merchant. The right of the Merchant to exercise the option
granted by this subsection (a) shall terminate on the EARLIER of (i) the
effective date of the expiration or any termination of this Agreement or (ii)
sixty (60) days from the date on which either Merchant or Bank delivers written
notice of termination to the other pursuant to Section 9.02. If Merchant
exercises its option to purchase (or arrange for the purchase of) all Net
Accounts, Bank shall provide to any acceptable purchaser of Net Accounts a
master file computer tape listing all Net Accounts upon receiving full payment
of the purchase price from such purchaser; and, prior thereto, the Bank shall
provide such performance data and other non-proprietary data which the Bank has
derived internally concerning Net Accounts to be purchased as the Merchant may
reasonably request be furnished to it or any third party acceptable to the Bank,
SUBJECT, HOWEVER, to any legal limitations thereon to which the Bank is or may
be subject and to such contractual limitations as the Bank may impose in regard
to the confidentiality thereof; and Bank otherwise will cooperate in all
reasonable respects with Merchant and such purchaser in an orderly and timely
manner to facilitate such purchase. Any such purchase by or arranged through
Merchant must be for all Net Accounts, must be completed on or before the date
of expiration or termination of this Agreement and must be funded and serviced,
in its entirety, by Merchant, its designated purchaser or a financial
institution other than Bank or any Bank affiliate. Any such sale of Net Accounts
shall be made without recourse, representation or warranty by Bank, except as to
the accuracy, in all material respects, of the information relative to the Net
Accounts in the master file computer file and other data concerning the Net
Accounts supplied by Bank to Merchant in
<PAGE>
connection with such purchase and sale, and, once made, shall vest in the
purchaser all of the Bank's right, title and interest therein and in the Account
Documentation pertaining thereto. If Merchant does not have the right to or does
not elect to purchase or have a third party purchase the Net Accounts as
provided in subsection (a), then Bank shall liquidate the Accounts as provided
in subsection (b) below, and Merchant shall pay to Bank the liquidation fees
prescribed in subsection (c) below.
(b) LIQUIDATION. If Merchant does not exercise its option to purchase
the Net Accounts pursuant to Section 9.03(a) hereof, or is unable or unwilling
to purchase, or arrange for the purchase of, the Net Accounts, or if this
Agreement is terminated in a manner which does not give rise to Merchant's right
to purchase the Accounts, as provided in Section 9.03(a), Bank shall have the
right, in addition to and retaining all other rights it may have under the terms
of this Agreement or Applicable Law, to liquidate the Accounts in any lawful
manner, including, without limitation, by the sale (or authorization to another
Person to sell) in whole or in part, of the Accounts, the Account Documentation,
the names and addresses of any Credit Card Applicants or Cardholders, or any
other lists or information of or relating to Cardholders, to cause the Credit
Cards to be accepted at locations other than Stores at Bank's discretion, to
issue a replacement or substitute credit card (or to authorize or arrange with a
third party to do so), or by any combination of actions or remedies Bank deems
advisable (individually, a "Liquidation Strategy" and collectively "Liquidation
Strategies"). Merchant hereby authorizes the use of Merchant's name in
communicating with Cardholders in connection with liquidating existing Accounts
as of the time of termination and until all such Accounts are liquidated or 36
months, whichever occurs first, without further authorization or consent of
Merchant; provided that if a Liquidation Strategy is pursued under which the
Credit Card is or will be accepted only at locations other than the Stores, the
Bank's right to use Merchant's name in connection with charges on existing
Accounts generated at such retail outlets other than Stores shall expire six
months after the later of (i)the last day the Credit Card is accepted at any
Store, or (ii) the effective termination date of this Agreement. Merchant hereby
acknowledges that it has no right in and to the Accounts, Account Documentation,
Credit Cards or any other documents used in connection with the Program, except
to the extent purchased in a purchase transaction pursuant to Section 9.03(a)
hereof, and Merchant expressly agrees to cooperate with Bank, and take any
action to effectuate any Liquidation Strategy elected by Bank, in an orderly
manner, including, but not limited to, accepting the Credit Card or any
replacement or substitute card for up to 36 months following the effective date
of termination, as determined by Bank."
<PAGE>
10. Section 9.03(c) shall remain in full force and effect.
11. Section 11.15 is hereby amended in its entirety to read as follows:
"Until the date on which this Agreement terminates, Merchant will not,
unless Bank shall otherwise consent in writing, sponsor, make available, or
enter into the provision of, any program for providing goods or services on
credit to customers of Merchant, including, without limitation, any credit card
program, other than (v) credit provided in connection with the Program
hereunder; (w) credit provided by generally accepted non co-branded multipurpose
credit or charge cards such as American Express, MasterCard, VISA and Discover;
(x) open account (net 30 day) credit extended directly by Merchant to selected
customers which remains on Merchant's books and is not sold or assigned to any
third party; (y) credit provided in connection with the program currently in
effect between Merchant and Mitsubishi; and (z) credit provided in connection
with any application submitted for consumer credit at any Store which is
declined by Bank; provided that Bank shall have the first right of refusal to
offer or arrange for any such "second sourcing" program for declined
applications."
12. Article XIII shall be deleted in its entirety.
13. Except as otherwise provided herein, the Agreement remains in full force
and effect.
14. Capitalized terms used herein without further definition shall have the
meanings ascribed to them in the Agreement.
15. This Amendment shall become effective between the parties on the date
hereof.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date set forth above.
SOUND ADVICE, INC. MONOGRAM CREDIT CARD BANK OF GEORGIA
By: /s/ PETER C. BESHOURI By: /s/ WILLIAM E. JOHNSON
Name: Peter C. Beshouri Name: William E. Johnson
Title: President Title: Vice President
<PAGE>
Schedule 3.04
[Not Included]
<PAGE>
Exhibit 5.05(b)
Mobile Reinstall Program
Any car stereo purchased from and installed by Sound Advice can be reinstalled
in the customer's new car at no charge to the customer. Limited to only one
reinstall per customer. Does not include alarm systems and custom installations.
One-Year Speaker Trade-Up Policy
Sound Advice will give the full value of the purchase price of any home or car
stereo speaker purchased from Sound Advice towards the purchase of upgraded,
higher priced, non-sale priced speakers for one year from date of original
purchase. Trade-in speakers must be retruned undamaged with original packing and
owners manuals included.
EXHIBIT 23
The Board of Directors
Sound Advice, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Sound Advice, Inc. of our report dated September 18, 1996, relating to
the consolidated balance sheets of Sound Advice, Inc. and subsidiaries (the
"Company") as of June 30, 1996 and 1995, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the years in the
three-year period ended June 30, 1996, and related schedule, which report
appears in the June 30, 1996 annual report on Form 10-K of Sound Advice, Inc.
/s/ KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
September 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,007,231
<SECURITIES> 0
<RECEIVABLES> 4,100,808
<ALLOWANCES> 572,000
<INVENTORY> 27,587,101
<CURRENT-ASSETS> 34,644,754
<PP&E> 30,680,975
<DEPRECIATION> 16,733,001
<TOTAL-ASSETS> 49,055,752
<CURRENT-LIABILITIES> 26,019,414
<BONDS> 0
0
0
<COMMON> 37,289
<OTHER-SE> 17,131,550
<TOTAL-LIABILITY-AND-EQUITY> 49,055,752
<SALES> 168,984,777
<TOTAL-REVENUES> 168,984,777
<CGS> 119,774,833
<TOTAL-COSTS> 119,774,833
<OTHER-EXPENSES> 52,393,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,526,199
<INCOME-PRETAX> (4,713,176)
<INCOME-TAX> (486,000)
<INCOME-CONTINUING> (4,227,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,227,176)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
