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 OCTOBER 31, 1999, 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 BEACH, FLORIDA 33004
----------------------------------------------------
(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 - 3,761,394 SHARES OUTSTANDING AS OF
DECEMBER 10, 1999.
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
October 31, 1999 and January 31, 1999 3
Condensed Consolidated Statements of Income (Unaudited)
for the Three and Nine Months Ended October 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended October 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security - Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
October 31, 1999 and January 31, 1999
<TABLE>
<CAPTION>
October 31, 1999 January 31, 1999
---------------- ----------------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,242,794 $ 1,384,051
Receivables:
Vendors 4,502,997 5,376,641
Trade 859,300 868,378
Employees 444,887 339,451
------------ ------------
5,807,184 6,584,470
Less allowance for doubtful accounts (357,900) (440,900)
------------ ------------
5,449,284 6,143,570
Inventories 33,281,266 30,987,826
Prepaid and other current assets 467,206 472,122
------------ ------------
Total current assets 40,440,550 38,987,569
Property and equipment, net 15,293,069 16,006,704
Deferred tax assets, net 960,000 --
Other assets 114,054 115,040
Goodwill, net 180,352 107,729
------------ ------------
$ 56,988,025 $ 55,217,042
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under revolving credit facility $ 12,548,323 $ 13,775,936
Accounts payable 9,160,375 12,310,092
Cash overdraft 3,317,580 --
Accrued liabilities 8,671,825 7,671,639
Current maturities of long-term debt -- 467,483
------------ ------------
Total current liabilities 33,698,103 34,225,150
Capital lease obligation 790,795 797,180
Other liabilities and deferred credits 3,928,911 4,136,776
------------ ------------
38,417,809 39,159,106
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 10,000,000 shares; issued and
outstanding 3,761,394 shares at October 31, 1999
and 3,733,894 at January 31, 1999 37,614 37,339
Additional paid-in capital 11,118,555 11,067,455
Retained earnings 7,414,047 4,953,142
------------ ------------
Total shareholders' equity 18,570,216 16,057,936
Commitments and contingencies ------------ ------------
$ 56,988,025 $ 55,217,042
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 39,880,119 $ 34,422,617 $ 120,247,805 $ 101,589,223
Cost of goods sold 25,805,525 22,571,981 78,620,675 66,496,756
------------- ------------- ------------- -------------
Gross profit 14,074,594 11,850,636 41,627,130 35,092,467
Selling, general and administrative
expenses 12,808,285 11,319,388 38,172,856 33,799,777
------------- ------------- ------------- -------------
Income from operations 1,266,309 531,248 3,454,274 1,292,690
Other income (expense):
Interest expense (317,589) (309,271) (1,024,017) (1,066,097)
Other, net 10,299 29,506 30,648 65,421
------------- ------------- ------------- -------------
Income before income taxes 959,019 251,483 2,460,905 292,014
Income taxes -- 135,000 -- 290,000
------------- ------------- ------------- -------------
Net income $ 959,019 $ 116,483 $ 2,460,905 $ 2,014
============= ============= ============= =============
Common and common equivalent per share amounts:
Basic net income per share $ 0.26 $ 0.03 $ 0.66 $ 0.00
============= ============= ============= =============
Diluted net income per share $ 0.23 $ 0.03 $ 0.59 $ 0.00
============= ============= ============= =============
Weighted average number of shares
outstanding - basic 3,752,672 3,728,894 3,740,542 3,728,894
============= ============= ============= =============
Weighted average number of shares
outstanding - diluted 4,257,745 3,931,020 4,184,755 3,948,666
============= ============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
<PAGE>
<TABLE>
<CAPTION>
SOUND ADVICE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended October 31, 1999 and 1998
1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,460,905 $ 2,014
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,605,538 2,497,828
Gain on disposition of assets (22,876) (11,568)
Deferred income taxes (960,000) --
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables 694,286 (543,192)
Inventories (2,221,921) (1,530,090)
Prepaid and other current assets 4,916 9,420
Income taxes receivable -- 55,000
Other assets (12,514) (38,973)
Increase (decrease) in:
Accounts payable (3,149,717) (1,067,334)
Accrued liabilities 1,000,186 (1,469,748)
Other liabilities & deferred credits (207,865) (376,840)
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 190,938 (2,473,483)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,530,868) (2,752,653)
Proceeds from disposition of assets 833,137 33,264
Acquisition of store facility (301,938) --
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (1,999,669) (2,719,389)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility 134,186,859 117,598,403
Repayments on revolving credit facility (135,414,472) (112,416,003)
Net repayments of long-term debt (467,483) (128,058)
Increase in cash overdraft 3,317,580 --
Reductions in capital lease obligation (6,385) (5,999)
Proceeds from exercise of stock options 51,375 --
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,667,474 5,048,343
------------- -------------
Decrease in cash (141,257) (144,529)
Cash, beginning of period 1,384,051 1,421,392
------------- -------------
CASH, END OF PERIOD $ 1,242,794 $ 1,276,863
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 913,482 $ 925,001
============= =============
Income taxes paid, net of refunds $ 1,580,000 $ 735,801
============= =============
SUPPLEMENTAL DISCLOSURE OF STORE ACQUISITION:
Total purchase price $ 301,938
Less:
Fixed asset valuation (148,640)
Inventory valuation (71,519)
-------------
Amount included in goodwill $ 81,779
=============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
<PAGE>
SOUND ADVICE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) BASIS OF PRESENTATION
The accompanying unaudited condensed 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 October 31, 1999 and January 31, 1999 and
the statements of income for the three and nine month periods ended October 31,
1999 and 1998 and statements of cash flows for the nine month periods ended
October 31, 1999 and 1998. The results of operations for the three and nine
months ended October 31, 1999 are not necessarily indicative of the operating
results expected for the fiscal year ending January 31, 2000. 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 period ended January 31, 1999.
2.) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available
to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the diluted
potential common shares had been issued. The diluted effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic: Weighted average common shares
outstanding 3,752,672 3,728,894 3,740,542 3,728,894
========= ========= ========= =========
Diluted: Weighted average common shares
outstanding 3,752,672 3,728,894 3,740,542 3,728,894
Dilutive effect of
options and warrants 505,073 202,126 444,213 219,772
--------- --------- --------- ---------
Total 4,257,745 3,931,020 4,184,755 3,948,666
========= ========= ========= =========
</TABLE>
3.) STORE ACQUISITION
In June, the Company acquired a Bang & Olufsen concept store located in
Naples, Florida for an aggregate purchase price of approximately $302,000.
Included in the purchase price were inventory of approximately $71,500 and fixed
assets of approximately $149,000.
Page 6
<PAGE>
4.) SALE OF PROPERTY
In July, the Company sold its former Fort Lauderdale store location for
a gross selling price of approximately $850,000. The property was encumbered by
a mortgage and upon payment of the outstanding mortgage balance and transaction
costs, the Company received net proceeds of approximately $380,500.
5.) 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 October 31, 1999
and 1998 are as follows:
TRAILING FOUR QUARTERS ENDED OCTOBER 31,
(Dollars in Thousands)
QUARTERLY SALES
1999 1998
---- ----
AMOUNT % AMOUNT %
-------- ----- -------- -----
Third Quarter $ 39,880 23.0% $ 34,423 22.9%
(August - October)
Second Quarter 41,340 23.9 33,518 22.3
(May - July)
First Quarter 39,027 22.5 33,648 22.4
(February - April)
Fourth Quarter 53,002 30.6 48,808 32.4
(November - January)
SALES FOR TRAILING TWELVE -------- ----- -------- -----
MONTHS ENDED OCTOBER 31,
1999 AND 1998, RESPECTIVELY $173,249 100% $150,397 100%
======== ===== ======== =====
6.) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
OCTOBER 31, 1999 JANUARY 31, 1999
---------------- ----------------
Land $ - 0 - $ 521,465
Building 685,000 1,119,605
Furniture and equipment 11,267,833 9,664,424
Leasehold improvements 19,372,186 19,100,481
Display fixtures 7,948,608 7,183,697
Vehicles 936,475 1,097,490
------------ ------------
Total 40,210,102 38,687,162
Less accumulated depreciation (24,917,033) (22,680,458)
------------ ------------
Property and equipment, net $ 15,293,069 $ 16,006,704
============ ============
Page 7
<PAGE>
7.) STOCK OPTIONS
During the quarter ended October 31, 1999, incentive stock options for
2,500 shares of common stock were exercised at $1.77 per share and non-qualified
stock options for 10,000 shares were exercised at $1.89 per share. Stock
warrants for 10,000 shares were exercised at $1.89 per share.
8.) PROVISION FOR INCOME TAXES
During the nine months ended October 31, 1999, the Company recorded a
deferred tax asset of approximately $960,000 as a result of a change in the
valuation reserve for deferred taxes. The income tax provision for the nine
months ended October 31, 1998, includes an amount for taxes payable on pretax
operating income and an increase in the valuation reserve for deferred tax
assets.
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 October 31, 1999
increased $5,457,000 or 15.9% to $39,880,000 compared to $34,423,000 in the
corresponding period in the prior fiscal year. The increase in sales resulted
from an increase in same store sales along with the addition of two stores and
two Bang & Olufsen concept stores in the 1999 quarter as compared to the 1998
quarter. Sales increased in each of the core categories of audio, video, and
mobile products. The largest sales increases were in receivers, speakers and
music systems in the audio category and in direct view television, DVD players
and HDTV ready projection television in the video category. Increases in these
categories were partially offset by reduced sales of cellular phones which are
being de-emphasized in the Company's product mix. Comparable store net sales
increased 9.5% in the quarter ended October 31, 1999 over the corresponding
quarter in the prior year. The comparable store sales were adjusted to exclude
new stores opened in November 1998, December 1998, and June 1999. The Company's
operations, in common with other retailers in general, are subject to seasonal
influences. Historically, the Company has realized greater sales and profits
during the holiday selling season.
Net sales for the nine months ended October 31, 1999 increased by
$18,659,000 or 18.4% to $120,248,000 over the corresponding period in the prior
fiscal year. As stated above, the increase in net sales for the nine month
period results from growth in same store sales and the addition of two stores
and two concept stores compared to the prior year. Overall sales increased in
the core categories of audio, video, and mobile products. For the nine months
the largest percentage sales increases were in audio speakers, audio/video
receivers and audio acessories in the audio category and direct view
televisions, DVD players and projection televisions in the video category.
Increases in these categories were partially offset by reduced sales of cellular
phones as discussed above. Comparable store net sales as adjusted to exclude new
stores increased 12.1% in the nine months ended October 31, 1999 compared to the
corresponding nine month period in the prior fiscal year.
Gross profit increased by $2,224,000 or 18.8% to $14,075,000 in the
quarter ended October 31, 1999 compared to the corresponding quarter in the
prior fiscal year. The gross profit percentage was 35.3% in the quarter ended
October 31, 1999 as compared to 34.4% in the quarter ended October 31, 1998. The
increase in gross profit is directly related to the increase in overall sales
and increase in gross profit percentage of the Company's current sales mix as
compared to the sales mix in the prior year.
Gross profit increased by $6,535,000 or 18.6% to $41,627,000 in the
nine months ended October 31, 1999 compared to the corresponding period in the
prior year. The gross profit percentage was 34.6% in the nine months ended
October 31, 1999 as compared to 34.5% in the nine months ended October 31, 1998.
As stated above, the increase in gross profit is directly related to the
Company's increase in overall sales as compared to the same period in the prior
year.
Page 9
<PAGE>
Selling, general and administrative expenses ("SG&A") increased by
$1,489,000 or 13.2% to $12,808,000 in the quarter ended October 31, 1999 over
the corresponding period in the prior year. SG&A increased by $4,373,000 or
12.9% to $38,173,000 in the nine months ended October 31, 1999 over the
corresponding period in the prior year. The increase in both periods is
primarily a result of increased sales commissions based on gross profit and,
secondarily, to expenses associated with the new stores. SG&A as a percentage of
net sales decreased slightly to 32.1% in the quarter ended October 31, 1999 and
31.7% in the nine months ended October 31, 1999 as compared to 32.9% in the
quarter and 33.3% in the nine months in the corresponding periods of the prior
year. The percentage decrease is directly related to the increase in overall
sales.
Interest expense increased by $8,000 for the quarter ended October 31,
1999 and decreased by $42,000 for the nine months ended October 31, 1999 from
the corresponding periods in the prior fiscal year. The overall decrease is the
result of a reduced level of borrowing as compared to the comparable periods in
the prior fiscal year.
The Company recorded a deferred tax asset of $374,500 for the quarter
and $960,000 for the nine months ended October 31, 1999 as a result of a change
in the valuation reserve for deferred taxes. The income tax provision in the
quarter and nine month period ended October 31, 1998 includes an amount for
taxes payable on pretax operating income and an increase in the valuation
reserve for deferred tax assets.
Net income for the quarter ended October 31, 1999 was $959,000 or $.26
per share basic and $.23 per share diluted compared to net income of $116,000 or
$.03 per share basic and $.03 per share diluted for the corresponding period in
the previous fiscal year. Net income for the nine months ended October 31, 1999
was $2,461,000 or $.66 per share basic and $.59 per share diluted compared to
net income of $2,000 or $.00 per share basic and $.00 per share diluted in the
corresponding period of the prior fiscal year. The improvement in the quarter
and nine months ended October 31, 1999 over the comparable periods in the prior
fiscal year is primarily a result of increased gross profit resulting from
increased same store sales and the addition of new stores. The increase in gross
profit was partially offset by increased sales commissions and expenses
associated with new stores.
FINANCIAL CONDITION
Net cash provided by operating activities was approximately $191,000
for the nine months ended October 31, 1999 primarily due to cash flow from net
income, depreciation and an increase in accrued liabilities which were offset by
the increase in the Company's inventory and decreases in the Company's accounts
payable since January 31, 1999. The Company had working capital of approximately
$6,743,000 at October 31, 1999, as compared to $4,762,000 in working capital at
January 31, 1999 for an overall increase of $1,981,000. The increase in current
assets of $1,453,000 during the nine month period was primarily related to the
$2,293,000 increase in inventory. The net decrease in current liabilities
resulted primarily from an decrease of $1,228,000 in borrowings under the
Company's revolving credit facility and accounts payable of $3,150,000 which was
offset by an increase in the Company's cash overdraft of $3,318,000 and accrued
liabilities of $1,000,000.
Page 10
<PAGE>
In June 1999, the Company acquired its third Bang & Olufsen concept
store located in Naples, Florida for an aggregate purchase price of
approximately $302,000. Included in the purchase price was inventory and fixed
assets valued at approximately $71,500 and approximately $149,000, respectively.
In July, the Company sold its Fort Lauderdale store location for a
gross selling price of approximately $850,000. The property was encumbered by a
mortgage and upon payment of the outstanding mortgage balance and transaction
costs, the Company received net proceeds of approximately $380,500.
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 during fiscal 2000 and the first two quarters of
fiscal 2001. However, in order to fully complete the store expansion program
planned in fiscal 2001, the Company may need to seek additional financing
sources. In that regard, the Company is exploring additional financing sources
in connection with the expansion program. The Company relocated one of its
stores in Tampa, Florida in November 1999 and has signed a lease for its fourth
Bang & Olufsen concept store located in South Miami, Florida and which is
expected to open in February 2000.
YEAR 2000 ISSUE
The year 2000 issue is primarily the result of computer programs being
written using two digits rather than four to define the applicable year. Such
programs may be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, including possible
miscalculations, and a disruption in the operation of such systems. This is
commonly referred to as the year 2000 issue.
The Company has been executing a plan to identify and address any
possible business issues related to the impact of the year 2000 problem on both
its information technology ("IT") and non-IT systems (e.g., embedded
technology). This plan addresses the year 2000 issue in multiple phases,
including (i) determining an initial inventory of the Company's systems,
equipment, vendors, customers and third party administrators that may be
vulnerable to system failures or processing errors as a result of year 2000
issues, (ii) assessment and prioritization of inventoried items to determine
risks associated with their failure to be year 2000 compliant, (iii) testing of
systems and equipment to determine year 2000 compliance, (iv) remediation and
implementation of systems and equipment, and (v) contingency planning to assess
reasonably likely worst case scenarios. The initial inventory and assessment of
the Company's systems was completed earlier this year. Subsequent to completing
the assessment, all material operating systems have been upgraded to be year
2000 compliant and are in the process of being tested.
Incremental costs, which include costs associated with internal
resources to modify existing systems in order to achieve year 2000 compliance
are charged to expense as incurred. The Company does not expect the cost of
making the required system changes to exceed $150,000. The anticipated cost of
the project and the dates on which the Company believes it will complete the
year 2000 modifications and assessments are based on
Page 11
<PAGE>
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources.
There can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area and the ability to
locate and correct all relevant systems.
With respect to the Company's suppliers and vendors, the Company is in
the process of contacting suppliers and vendors to assess the potential impact
on operations if such third parties are not successful in ensuring that their
systems and operations are year 2000 complaint in a timely manner. The Company's
year 2000 issues and any potential business interruptions, costs, damages or
loses related thereto, are also dependent upon the year 2000 compliance of other
third parties. To date, the Company is unable to determine whether it will be
materially affected by the failure of any of its suppliers, vendors, or other
third parties to be year 2000 compliant. The Company believes that its
compliance efforts have and will continue to reduce the impact on the Company of
such failures. Failures of any third parties with which the Company interacts to
achieve year 2000 compliance could have a material adverse effect on the
Company's business, financial condition and results of operations.
There can be no assurance, however, that the Company's systems are
"Year 2000" compliant or that the systems of other companies on which the
Company's systems and operations rely, or companies with whom the Company
conducts business, will be timely converted to address the "Year 2000 Issue," or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company's business, operations, results and financial position.
For this reason, the Company continues to work towards ensuring that all systems
associated with the processes of the Company are Year 2000 compliant by the end
of 1999.
Page 12
<PAGE>
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," "plans," "expects," "intends," "anticipates," "Year
2000" 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.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders
(a) The Company held its 1999 annual meeting of shareholders on
Wednesday, October 27, 1999 (the "Annual Meeting").
(b) The election of five directors which comprised the Company's
entire Board of Directors. The five nominees, who were the
nominees of the Company's Board of Directors were serving as
directors of the Company as of the date of the Annual Meeting.
All nominees were elected at the Annual Meeting as directors
of the Company receiving the number of votes for and against
election and abstention as set forth to their respective names
below:
AGAINST
NOMINEE FOR DIRECTOR FOR THE ELECTION THE ELECTION ABSTAIN
-------------------- ---------------- ------------ -------
Peter Beshouri 1,473,735 0 404,147
Michael Blumberg 1,473,735 0 404,147
G. Kay Griffith 1,473,735 0 404,147
William F. Hagerty, IV 1,473,735 0 404,147
Herbert A. Leeds 1,473,735 0 404,147
(c) Other matters voted upon at the annual meeting are as follows:
Amendment to the Company's Articles of Incorporation to
provide for the classification of the Board of Directors into
three classes of directors with staggered terms of office.
Class I directors will hold office until the 2000 Annual
Meeting, Class II directors will hold office until the 2001
Annual Meeting and Class III directors will hold office until
the 2002 Annual Meeting. The number of votes for and against
the Amendment and abstentions are set forth below:
For the Amendment: 1,085,952
Against the Amendment: 791,330
Abstain: 600
Approval of the adoption of the Company's 1999 Stock Option
Plan for a total of 500,000 shares of common stock for the
purpose of providing competitive compensation levels without
increasing cash requirements and for attracting and retaining
competent personnel. The number of votes for and against
adoption of the stock option plan and abstention are set forth
below:
For Adoption of the Stock Option Plan : 1,375,132
Against Adoption of the Stock Option Plan : 500,700
Abstain : 2,050
(d) (Not applicable)
Page 14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report:
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------
3.3 Amended and Restated Articles of Incorporation of
Sound Advice, Inc.
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company.
Page 15
<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 DECEMBER 10, 1999 /s/ PETER BESHOURI
------------------ ---------------------------------------------
Peter Beshouri, Chairman of the
Board, President and Chief
Executive Officer
Date DECEMBER 10, 1999 /s/ KENNETH L. DANIELSON
------------------ ---------------------------------------------
Kenneth L. Danielson, Chief
Financial and Accounting Officer
Page 16
<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
OCTOBER 31, 1999
COMMISSION FILE NUMBER
0-15194
-----------------------------------------------------
SOUND ADVICE, INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- --- -----------
3.3 Amended and Restated Articles of Incorporation of Sound Advice, Inc.
27. Financial Data Schedule (filed herewith).
EXHIBIT 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SOUND ADVICE, INC.
ARTICLE I
The name of the corporation is SOUND ADVICE, INC. (hereinafter called
the "Corporation").
ARTICLE II
The general nature of the business or businesses to be transacted is:
(a) To carry on the business of purchasing and selling at
wholesale and retail electronic equipment and component parts and all businesses
necessarily or impliedly incidental thereto.
(b) To buy, sell, exchange, lease, lend, import, export,
manufacture, repair, service, improve, manage, deal and trade in any and all
kinds of property, real, personal or mixed, of whatsoever nature and wheresoever
situated, as principal, agent, factor, correspondent, or broker, for the
corporation account or for the account of others.
(c) To negotiate, invest in, acquire, buy, sell, transfer,
convey, encumber, hypothecate, exchange, trade, service, deal in any and all
types of investments and securities, as principal, agent, factor, correspondent,
representative or broker.
(d) To engage in any and all lawful businesses, trades,
occupations and professions.
(e) To generally engage in, do and perform any enterprise, act
or vocation that a natural person might or could do or perform.
(f) To engage in any commercial, industrial and agricultural
enterprises calculated or designed to be profitable to this corporation and in
conformity with the laws of the State of Florida.
ARTICLE III
The aggregate number of shares which the corporation shall have the
authority to issue is ten million (10,000,000) shares of common stock, all of
which are to have a par value of one cent ($0.01).
ARTICLE IV
<PAGE>
The amount of capital with which the corporation shall begin business
shall be Five Hundred ($500.00) Dollars.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
The post office address of the principal office of the corporation is
1901 Tigertail Boulevard, Dania Beach, Florida 33004.
ARTICLE VII
DIRECTORS
(a) NUMBER. The number of directors of the corporation may be
either increased or decreased from time to time as provided for in the By-laws
of the corporation, but shall never be less than one.
(b) STAGGERED TERMS. The Board of Directors shall be divided
into three classes, as nearly equal in number as possible. The first director in
excess of the number divisible by three shall be assigned to Class I, and any
additional director shall be assigned to Class II, as the case may be. At the
first election of directors to such classified Board of Directors, each Class I
Director shall be elected to serve until the next ensuing annual meeting of
shareholders, each Class II Director shall be elected to serve until the second
annual meeting of shareholders and each Class III Director shall be elected to
serve until the third annual meeting of shareholders. At each annual meeting of
shareholders following the meeting at which the Board of Directors is initially
classified, the number of directors equal to the number of directors of a class
whose term expires at the time of such meeting shall be elected to serve until
the third ensuing annual meeting of shareholders. Notwithstanding any of the
foregoing provisions of this Article 7, directors shall serve until their
successors are elected and qualified or until their earlier death, resignation
or removal from office, or until there is a decrease in the number of directors;
provided, however, that no decrease in the number of directors shall have the
effect of shortening the term of any incumbent director.
ARTICLE VIII
The names and post office address of the President and
Secretary-Treasurer are:
President PETER BESHOURI 1901 Tigertail Boulevard
Dania Beach, Florida 33004
Secretary MICHAEL BLUMBERG 1901 Tigertail Boulevard
Dania Beach, Florida 33004
<PAGE>
ARTICLE IX
The Board of Directors is authorized to adopt By-laws,
including provisions, governing the issuance of stock certificates to replace
lost or destroyed stock certificates and provisions prohibiting the transfer of
the stock of the corporation and of the preemptive rights to such stock,
provided such By-laws are not contrary to the laws of the State of Florida.
ARTICLE X
The corporation shall indemnify any officer or director, or any former
officer or director, of the corporation to the fullest extent permitted by law.
ARTICLE XI
Any shareholder of record of the corporation holding 15% or more of the
outstanding shares of common stock of the corporation shall be entitled to
require cumulative voting for the election of the directors of the corporation
at the next shareholders' meeting to be held by he corporation for the purpose
of the election of directors provided such shareholder, at the time such
shareholder holds 15% or more of the outstanding common stock of the
corporation, shall elect to require cumulative voting by giving written notice
to the President or Vice President of the corporation no later than six months
after the holding of the previous shareholders' meeting at which directors of
the corporation were elected. In such event, each shareholder of the corporation
at the next shareholders' meeting for the election of directors shall be allowed
to cumulatively vote his shares and give one candidate as many votes as the
number of directors to be elected multiplied by the number of said shareholders'
shares or to distribute such votes on the same principle among as many
candidates as such shareholder may wish. The right to vote cumulatively as
herein provided shall not be further restricted or qualified by any provision in
the By-laws of the company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED OCTOBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 1,242,794
<SECURITIES> 0
<RECEIVABLES> 5,807,184
<ALLOWANCES> 357,900
<INVENTORY> 33,281,266
<CURRENT-ASSETS> 40,440,550
<PP&E> 40,210,102
<DEPRECIATION> 24,917,033
<TOTAL-ASSETS> 56,988,025
<CURRENT-LIABILITIES> 33,698,103
<BONDS> 790,795
0
0
<COMMON> 37,614
<OTHER-SE> 18,532,602
<TOTAL-LIABILITY-AND-EQUITY> 56,988,025
<SALES> 120,247,805
<TOTAL-REVENUES> 120,247,805
<CGS> 78,620,675
<TOTAL-COSTS> 78,620,675
<OTHER-EXPENSES> 38,172,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,024,017
<INCOME-PRETAX> 2,460,905
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,460,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,460,905
<EPS-BASIC> .66
<EPS-DILUTED> .59
</TABLE>
