SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 COMMISSION FILE NUMBER 0-21114
DCC COMPACT CLASSICS, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
COLORADO 84-1046186
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation of organization) Number)
9301 Jordan Avenue, Suite 105, Chatsworth, California 91311
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(Address or principal executive offices)
(818) 993-8822
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of business of
Common Stock - $.05 par value 6,696,725
- ----------------------------- --------------------------------
CLASS Outstanding at August 31, 1996
1
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
DCC COMPACT CLASSICS, INC.
CONSOLIDATED BALANCE SHEETJune 30, 1996 and December 31, 1995
June 30, Dec. 31,
1996 1995
(unaudited) (audited)
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 908,534 $ 531,826
Accounts receivable - net 1,183,714 1,424,481
Receivable from affiliate 66,317 -
Notes receivable 125,000 140,975
Inventories 1,191,090 952,801
Advanced royalties 595,469 426,973
---------- ----------
Total current assets 4,070,124 3,477,056
---------- ----------
FIXED ASSETS, Net 754,535 36,782
---------- ----------
OTHER ASSETS
Deferred taxes 33,100 33,100
Mastering costs, net 602,423 569,566
Receivables from affiliate - 31,577
Other 13,521 51,521
---------- ----------
Total assets $5,473,703 $4,199,602
========== ==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
DCC COMPACT CLASSICS, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1996 and December 31, 1995
June 30, Dec. 31,
1996 1995
(unaudited) (audited)
---------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit $ 267,791 $ 318,174
Accounts payable 557,090 430,914
Royalties payable 1,804,547 2,220,627
Other accrued expenses 103,711 35,359
Deferred revenue 750,000 -
Accrued income tax payable 141,965 96,001
Current portion of long-term debt 100,000 -
---------- -----------
Total current liabilities 3,725,104 3,101,075
---------- -----------
LONG-TERM DEBT 125,000 -
STOCKHOLDERS' EQUITY
Common stock, par value $.05 per
share; authorized 10,000,000
shares, issued and outstanding
6,696,725 shares and 4,960,596,
respectively 33,484 24,803
Additional paid-in capital 1,033,229 623,397
Retained earnings 579,436 472,877
Less treasury stock, at cost (22,550) (22,550)
----------- -----------
Total stockholders' equity 1,623,599 1,098,527
----------- -----------
Total liabilities and
stockholders' equity $ 5,473,703 $ 4,199,602
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
DCC COMPACT CLASSICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------------------- ----------------------
Sales $1,222,367 $1,083,051 $2,397,868 $2,600,533
Cost of sales 681,837 322,014 1,113,056 1,014,593
---------- ---------- ---------- ----------
Gross profit 540,530 761,037 1,284,812 1,585,940
Selling, adminis-
trative and other
operating expenses 550,104 651,478 1,103,920 1,175,594
---------- --------- ---------- ----------
Operating
income (loss) (9,574) 109,559 180,892 410,346
Other:
Interest expense,
net 3,625 312 6,829 12,277
---------- --------- ---------- ----------
Income (loss)
before
income taxes (13,199) 109,247 174,063 398,069
Provision for
income taxes (5,163) 40,909 70,000 159,715
---------- --------- ---------- ----------
Net income
(loss) $ (8,036) $ 68,338 $ 104,063 $ 238,364
========== ========= ========== ==========
Earnings (loss)
per share $ (.00) $ .01 $ .02 $ .05
========== ========= ========== ==========
Average weighted
number of shares
outstanding 5,343,801 4,960,506 5,334,059 4,960,506
========== ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
DCC COMPACT CLASSICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 104,063 $ 238,354
--------- ---------
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Non-cash items included
in net loss:
Depreciation and
amortization 15,263 711
Changes in:
Receivables 222,002 (705,069)
Inventories (238,289) 71,533
Mastering costs (32,857) (78,222)
Royalty advances (168,496) 34,375
Other 38,000 7,284
Accounts payable and
accrued expenses 194,528 34,595
Royalties payable (416,080) 230,580
Deferred revenue 750,000 --
Income taxes 45,964 111,155
--------- ---------
Total adjustments 410,035 (293,058)
Net cash used in
operating activities 514,098 (54,704)
--------- ---------
Cash flows from investing activities:
Capital expenditures (312,007) (17,166)
--------- ---------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DCC COMPACT CLASSICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1996 1995
--------- ---------
Cash flows from financing activities:
Additional borrowing 225,000 --
Payments on note payable (50,383) (30,738)
--------- ---------
Net cash provided by (used in)
financing activities 174,617 (30,738)
--------- ---------
Net increase (decrease) in
cash and cash equivalents 376,708 (102,608)
Cash and cash equivalents
at beginning of period 531,826 800,952
--------- ---------
Cash and cash equivalents
at end of period $ 908,534 $ 698,344
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid (refunded) $ -- $ --
========= =========
Interest paid $ 13,954 $ 12,277
========= =========
Non-Cash Transactions
Issuance of stock for fixed assets $ 408,861 $ --
========= =========
Stock issued in exchange for services $ 50,000 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
DCC COMPACT CLASSICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
1. In the opinion of the Company's management, the accompanying unaudited
financial statements contain all adjustments necessary to present fairly
its financial position and the results of its operations and cash flows
of the Company for the periods shown.
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
The results of operations for the six month period are not necessarily
indicative of the results to be expected for a full year of operations.
Use of estimates - The Company's management uses estimates and
assumptions in preparing the financial statements. Actual results could
vary from these estimates. Key estimates include the collectibility of
the accounts receivable, the returns of merchandise shipped, inventory
valuations and marketability. In addition, the Company records its
liability for license and royalty fees based upon contractual
obligations. These calculations are subject to review by independent
agencies. Should the results of a review produce amounts greater than
those recorded by the Company, there may be a negative impact on the
Company's financial statements.
2. INVENTORY
---------
Inventory consists of the following:
June 30, Dec. 31,
1996 1995
(unaudited) (audited)
---------- ----------
Raw materials $ 200,884 $ 235,642
Finished goods and components 990,206 717,159
--------- ----------
Total $1,191,090 $ 952,801
========== ==========
7
<PAGE>
DCC COMPACT CLASSICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
3. CAPITAL STOCK
-------------
In June 1996, the Company issued 300,000 shares of common stock in
exchange for the equipment used to produce captioned photographs. The
shares were valued at $1.36, the estimated market price at the time of
the transaction.
Also during the Quarter ended June 30, 1996, $50,000 in stock options
were granted to certain individuals who had performed services for the
Company in the past three years.
4. MAJOR CUSTOMER
--------------
During the quarter ended June 30, 1996, the Company changed its main
distributor from Navarre to Passport Music. Navarre had previously
represented approximately 60% of sales. Passport Music paid an advance
fee of $750,000 to serve as the new distributor for the Company. That
fee will be earned as goods are sold.
5. LONG-TERM DEBT
--------------
The Company issued notes for $225,000 in exchange for certain assets.
The notes bear interest at 8%. $75,000 is due in the third quarter and
$25,000 in principal plus the accrued interest is due semi annually.
The maturity of the debt is as follows:
Due in year ended:
December 31, 1996 $100,000
December 31, 1997 50,000
December 31, 1998 50,000
December 31, 1999 25,000
-------
$225,000
=======
8
<PAGE>
DCC COMPACT CLASSICS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
Six Months Ended June 30, 1996 as Compared to
- ---------------------------------------------
Six Months Ended June 30, 1995
- ------------------------------
Sales for the six months ended June 30, 1996 were down approximately 8% from the
same period of the prior year mainly from the reduction of new releases in the
first quarter of the year. The Company also changed its primary distributor
during the second quarter without a significant adverse effect in revenue.
The Company's overall gross profit margins decreased from 61% to 54% for the six
month period ended June 30, 1996 compared to the same period in the prior year.
Management attributes the slight decline to a change in the product mix and some
increase in direct costs related to the returns from the former distributor.
General, administrative and selling expenses decreased by 6% (approximately
$70,000) compared to the six month period ended June 30, 1995. The decline was
due primarily to a managements renewed focus on cost reductions.
Three Months Ended June 30, 1995 as Compared to
- -----------------------------------------------
Three Months Ended June 30, 1994
- --------------------------------
The Company enjoyed a significant sales rebound during the quarter ended June
30, 1996 of 13% over the same quarter in the prior year and up 4% from the first
quarter of 1996. This is largely due to small price increases and a change in
product mix.
During the quarter ended June 30, 1995, gross margins declined to approximately
44%, due to the additional work related to the product returns caused by
changing distributors and the change in product mix.
For the quarter ended June 30, 1995, general, administrative and selling
expenses decreased by 16% (approximately $100,000) from the prior year. This was
caused by a reduction in royalties due based on the returns from the distributor
and cost reduction efforts.
9
<PAGE>
DCC COMPACT CLASSICS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Liquidity
- ---------
While cash and cash equivalents have increased almost $380,000, the Company had
working capital of approximately $345,000 at June 30, 1996, as compared to
$370,000 at December 31, 1995. The small decline of $25,000 was due primarily to
the $750,000 of advance payments from the new distributor being classified as
unearned until merchandise is shipped.
Management believes it has sufficient liquidity to meet the short-term goals of
the Company. Management is seeking expanded capital sources to develop strategic
long-term opportunities in the captioned photo business.
Management expects no significant revenue from its captioned photo efforts until
the fourth quarter of the fiscal year.
10
<PAGE>
DCC COMPACT CLASSICS INC.
PART II
OTHER INFORMATION
Item 2. Shareholders Stock Information
- ---------------------------------------
Through July 31, 1996, DCC Compact Classics, Inc.'s stock is traded on NASDAQ
bulletin board or "Pink Sheets".
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Reports on Form 8-K: There were no reports on Form 8-K filed for the three
months ended June 30, 1996.
11
<PAGE>
DCC COMPACT CLASSICS. INC.
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.
DCC COMPACT CLASSICS, INC.
(Registrant)
BY:/s/Marshall Blonstein
------------------------------
Marshall Blonstein
Chairman of the Board,
Chief Executive Officer,
President
Date: 9/16/96
---------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DDC COMPACT CLASSICS, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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0
<COMMON> 33
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