SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________.
Commission file number 0-15194
SOUND ADVICE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-1520531
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1901 TIGERTAIL BOULEVARD, DANIA, FLORIDA 33004
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(Address of principal executive offices) (Zip Code)
(954) 922-4434
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] [ ] NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
COMMON STOCK, PAR VALUE $.01 PER SHARE - 3,728,894 SHARES OUTSTANDING AS OF
NOVEMBER 7, 1997.
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets (Unaudited)
September 30, 1997 and June 30, 1997 3-4
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Page 2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1997 AND JUNE 30, 1997
SEPTEMBER 30, JUNE 30,
1997 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 50,576 $ 81,280
Receivables:
Vendors 3,775,610 2,864,121
Trade 952,899 674,848
Employees 238,948 300,586
------------ ------------
4,967,457 3,839,555
Less allowance for doubtful accounts (410,000) (286,400)
------------ ------------
4,557,457 3,553,155
Inventories, net 25,958,642 27,789,250
Prepaid and other current assets 491,050 670,818
Deferred tax assets 92,930 92,930
Income taxes receivable 328,000 328,000
------------ ------------
Total current assets 31,478,655 32,515,433
Property and equipment, net 13,182,379 13,667,085
Deferred tax assets, net 96,098 96,098
Other assets 118,872 125,069
Goodwill, net 140,329 146,441
------------ ------------
$ 45,016,333 $ 46,550,126
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1997 AND JUNE 30, 1997
SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under revolving credit facility $ 8,531,278 $11,874,533
Accounts payable 7,306,076 7,627,791
Cash overdraft 1,606,862 --
Accrued liabilities 6,585,165 5,050,445
Current maturities of long-term debt 596,545 171,478
----------- -----------
Total current liabilities 24,625,926 24,724,247
Long-term debt, excluding current maturities 106,686 574,524
Capital lease obligation 807,986 809,486
Other liabilities and deferred credits 3,951,723 4,144,028
----------- -----------
29,492,321 30,252,285
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,728,894 shares at September 30, 1997
and June 30, 1997 37,289 37,289
Additional paid-in capital 11,058,655 11,058,655
Retained earnings 4,428,068 5,201,897
----------- -----------
Total shareholders' equity 15,524,012 16,297,841
Commitments and contingencies
----------- -----------
$45,016,333 $46,550,126
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
------------ ------------
Net sales $ 36,471,487 $ 40,350,764
Cost of goods sold 25,114,454 28,051,670
------------ ------------
Gross profit 11,357,033 12,299,094
Selling, general and administrative
expenses 11,623,127 11,962,366
------------ ------------
(Loss) income from operations (266,094) 336,728
Other income (expense):
Interest expense (366,591) (335,367)
Other, net 18,856 2,824
------------ ------------
(Loss) income before income taxes (613,829) 4,185
Income taxes 160,000 --
------------ ------------
Net (loss) income $ (773,829) $ 4,185
============ ============
COMMON AND COMMON EQUIVALENT
PER SHARE AMOUNTS:
NET (LOSS) EARNINGS PER SHARE $ (0.21) $ 0.00
============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,728,894 3,729,801
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (773,829) $ 4,185
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 768,442 751,911
Loss on sale of assets -- 876
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables (1,004,302) (676,889)
Inventories 1,830,608 (3,234,984)
Prepaid and other current assets 179,768 63,255
Other assets (1,303) (9,151)
Increase (decrease) in:
Accounts payable (321,715) (1,297,178)
Accrued liabilities 1,534,720 1,483,216
Other liabilities and deferred credits (192,305) (18,255)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,020,084 (2,933,014)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (270,124) (982,622)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (270,124) (982,622)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility 36,925,957 44,683,628
Repayments on revolving credit facility (40,269,212) (42,176,917)
Net repayments of long-term debt (42,771) (40,636)
Increase in cash overdraft 1,606,862 607,765
Reductions in capital lease obligation (1,500) (1,240)
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,780,664) 3,072,600
------------ ------------
Decrease in cash (30,704) (843,036)
Cash, beginning of period 81,280 1,007,231
------------ ------------
CASH, END OF PERIOD $ 50,576 $ 164,195
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 336,750 $ 298,294
============ ============
Income taxes paid, net of refunds $ -- $ --
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in conformity with instructions to Form 10-Q and, therefore, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Certain items included
in these statements are based on management estimates. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting of normal, recurring accruals, necessary to present fairly the
financial position of the Company at September 30, 1997 and June 30, 1997 and
the statements of operations for the three month periods ended September 30,
1997 and 1996 and statements of cash flows for the three month periods ended
September 30, 1997 and 1996. The results of operations for the three months
ended September 30, 1997 are not necessarily indicative of the operating results
expected for the fiscal year ending June 30, 1998. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1997.
2.) NET (LOSS) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Net (loss) earnings per common and common equivalent share has been
determined by dividing net (loss) income by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
respective period unless their effect was antidilutive.
3.) SEASONALITY
Historically, the Company's net sales are greater during the holiday
season than during other periods of the year. Net sales by fiscal quarters and
their related percentages for the trailing four quarters ended September 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
TRAILING FOUR QUARTERS ENDED SEPTEMBER 30,
-------------------------------------------------------
(dollars in thousands)
QUARTERLY SALES
- --------------- 1997 1996
------------------------ --------------------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
First Quarter $36,471 24.0% $40,351 24.4%
(July - September)
Fourth Quarter 32,117 21.2 32,481 19.7
(April - June)
Third Quarter 35,431 23.3 39,079 23.7
(January - March)
Second Quarter 47,724 31.5 53,260 32.2
(October - December)
SALES FOR TRAILING TWELVE $151,743 100% $165,171 100%
MONTHS ENDED SEPTEMBER 30, ======== ==== ======== ====
1997 AND 1996, RESPECTIVELY
</TABLE>
Page 7
<PAGE>
4.) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
SEPTEMBER 30, 1997 JUNE 30, 1997
------------------ -------------
Land $ 521,465 $ 521,465
Building 1,119,605 1,119,605
Furniture and equipment 8,352,499 8,222,690
Leasehold improvements 15,431,333 15,363,402
Display fixtures 5,429,115 5,358,234
Vehicles 922,088 920,585
------------ ------------
Total 31,776,105 31,505,981
Less accumulated depreciation (18,593,726) (17,838,896)
------------ ------------
Property and equipment, net $ 13,182,379 $ 13,667,085
============ ============
5.) PROVISION (BENEFIT) FOR INCOME TAXES
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.
The Internal Revenue Service is in the process of completing its
examination of the Company's income tax returns for the years 1993 through 1996.
The Company has received a notice of proposed adjustments for the 1993 through
1996 years. The Company believes that the accruals provided in connection with
this matter are adequate and that the resolution of this matter will not have a
material adverse effect on the Company's financial condition or results of
operations.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's net sales for the quarter ended September 30,1997,
decreased $3,880,000 or 9.6% to $36,471,000 compared to $40,351,000 in the prior
fiscal year. The decrease is primarily attributable to reduced video sales
primarily in the categories of projection and direct view televisions. In
addition, sales of extended warranty contracts have decreased as a result of the
decrease in video sales. Comparable store net sales decreased 10.0% in the
quarter ended September 30, 1997 over the corresponding quarter in the prior
year. The comparable store sales were adjusted to exclude the store relocated to
a larger showroom in November 1996. The Company's operations, in common with
other retailers in general, are subject to seasonal influences. Historically,
the Company has realized more of its net sales and operating income in the
second quarter ending in December.
Gross profit decreased by $942,000 or 7.7% in the quarter ended
September 30, 1997 compared to the corresponding quarter in fiscal 1997. The
reduction in gross profit is primarily related to the reduction in net sales,
net of the increase in gross profit percentage. The gross profit percentage was
31.1% in the quarter ended September 30, 1997 as compared to 30.5% in the
quarter ended September 30, 1996. The increase in gross profit percentage is
directly related to the Company's renewed focus on value added selling in the
core categories of high end audio, video and mobile electronics.
Selling, general and administrative expenses ("SG&A") decreased by
$339,000 or 2.8% in the quarter ended September 30, 1997 over the same quarter
in the prior year. The overall decrease is primarily attributable to reduced
sales commissions on lower gross margin dollars and, to a lesser extent, cost
reduction programs initiated by the Company. The Company continues to monitor
and attempt to control expenses in its effort to reduce the overall level of
SG&A expense. SG&A as a percentage of net sales increased to 31.9% from 29.6% in
the same three months of the prior fiscal year. The percentage increase is
directly attributable to the reduction in net sales from the previous comparable
period.
Interest expense increased by $31,000 for the quarter ended September
30, 1997 over the same quarter in the prior year. The increase was primarily
reflective of a slightly higher effective interest rate based on the prime rate
under the Company's revolving credit facility during the first quarter of fiscal
1998 on a decreased level of average outstanding borrowings as compared to the
first quarter of fiscal year 1997.
In the quarter ended September 30, 1997, the Company recorded an
income tax provision of $160,000 primarily related to proposed adjustments from
the current Internal Revenue Service examination. The Company did not record a
tax provision for the quarter ended September 30, 1996 due to an offsetting net
operating loss carryforward.
Page 9
<PAGE>
Net loss for the quarter ended September 30, 1997 was $774,000 or
$.21 per share compared to net income of $4,000 or $.00 per share for the same
quarter in the previous fiscal year. The net loss in the first quarter of the
fiscal 1998 fiscal year was primarily attributable to the decrease in net sales.
FINANCIAL CONDITION
Net cash provided by operating activities was approximately
$2,020,000 for the three months ended September 30, 1997 primarily due to the
decrease in the Company's inventory since June 30, 1997 and increase in the
Company's accrued liabilities. The Company had working capital of approximately
$6,853,000 at September 30, 1997, as compared to the $7,791,000 in working
capital at June 30, 1997 for an overall decrease of $938,000. The decrease in
current assets of $1,037,000 during the three month period was primarily related
to the $1,831,000 decrease in inventory, which was partially offset by an
increase in accounts receivable of $1,004,000. The net decrease in current
assets was offset by an overall decrease of $98,000 in current liabilities. The
net decrease in current liabilities resulted primarily from a decrease in
borrowings under the revolving credit facility of $3,343,000, which was
substantially offset by the increase of $1,607,000 in cash overdraft and the
increase of $1,535,000 in accrued liabilities. The increase in accrued
liabilities was primarily related to customer payments on orders for goods
delivered in October.
The Company currently believes that funds from the Company's
operations combined with borrowings available under its revolving credit
facility and vendor credit programs will be sufficient to satisfy its currently
projected operating cash requirements for fiscal 1998, including capital
expenditures required in connection with the opening of a new store which is
scheduled to open in the second fiscal quarter and the relocation of a store in
the fourth quarter. The Company may need to seek additional sources of financing
(debt and/or equity or a combination thereof) in order to proceed with any
expansion program beyond fiscal 1998.
The Company's revolving credit facility matures in July 1998 together
with the principal balance in the approximate amount of $428,300 of the mortgage
loan encumbering the Company's former Fort Lauderdale store. The Company has
held preliminary discussions with its current senior lender in connection with
the extension of its facility and has received interest from other lenders to
refinance such facility. Management believes, although there is no assurance
they will be successful in doing so, that the extension or refinancing of its
revolving credit facility will be accomplished prior to July 1998, as well as
the refinancing or other repayment of the above-described mortgage loan.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements (within the
meaning of Section 21E. of the Securities Exchange Act of 1934, as amended)
representing the Company's current expectations, beliefs, estimates or
intentions concerning the Company's future performance and operating results,
its products, services, markets and industry, and/or future events relating to
or effecting the Company and its business and operations. When used in this Form
10-Q, the words "believes," "estimates,"
Page 10
<PAGE>
"plans," "expects," "intends," "anticipates," and similar expressions as they
relate to the Company or its management are intended to identify forward-looking
statements. The actual results or achievements of the Company could differ
materially from those indicated by the forward-looking statements because of
various risks and uncertainties related to and including, without limitation,
the effectiveness of the Company's business and marketing strategies, the
product mix sold by the Company, customer demand, availability of existing and
new merchandise from and the establishment and maintenance of relationships with
suppliers, price competition for products and services sold by the Company,
management of expenses, gross profit margins, the opening of additional stores,
availability and terms of financing to refinance or repay existing financings or
to fund capital and expansion needs, the continued and anticipated growth of the
retail home entertainment and consumer electronics industry, a change in
interest rates, exchange rate fluctuations, the seasonality of the Company's
business and the other risks and factors detailed in this Form 10-Q and in the
Company's other filings with the Securities and Exchange Commission. These risks
and uncertainties are beyond the ability of the Company to control. In many
cases, the Company cannot predict the risks and uncertainties that could cause
actual results to differ materially from those indicated by the forward-looking
statements.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report:
EXHIBIT NO. DESCRIPTION
----------- -----------
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the quarter ended September 30, 1997.
Page 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUND ADVICE, INC.
-------------------------------
(Registrant)
Date NOVEMBER 13, 1997 /s/ PETER BESHOURI
------------------- -------------------------------
Peter Beshouri, Chairman of the
Board, President and Chief
Executive Officer
Date NOVEMBER 13, 1997 /s/ KENNETH L. DANIELSON
----------------- -------------------------------
Kenneth L. Danielson, Chief
Financial and Accounting Officer
Page 13
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED
SEPTEMBER 30, 1997
COMMISSION FILE NUMBER
0-15194
-----------------------------------------------------
SOUND ADVICE, INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27. Financial Data Schedule (filed herewith).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 50,576
<SECURITIES> 0
<RECEIVABLES> 4,967,457
<ALLOWANCES> 410,000
<INVENTORY> 25,958,642
<CURRENT-ASSETS> 31,478,655
<PP&E> 31,776,105
<DEPRECIATION> 18,593,726
<TOTAL-ASSETS> 45,016,333
<CURRENT-LIABILITIES> 24,625,926
<BONDS> 914,672
0
0
<COMMON> 37,289
<OTHER-SE> 15,486,723
<TOTAL-LIABILITY-AND-EQUITY> 45,016,333
<SALES> 36,471,487
<TOTAL-REVENUES> 36,471,487
<CGS> 25,114,454
<TOTAL-COSTS> 25,114,454
<OTHER-EXPENSES> 11,623,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 366,591
<INCOME-PRETAX> (613,829)
<INCOME-TAX> 160,000
<INCOME-CONTINUING> (773,829)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (773,829)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
