SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report under section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1995
[ ] 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 0-16154
AUDIO KING CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1565405
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3501 South Highway 100
Minneapolis, Minnesota 55416
(Address of principal executive office)
(612) 920-0505
(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 last practicable date.
Class Outstanding at November 6, 1995
Common Stock, $.001 par value 2,721,729
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AUDIO KING CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 39,414 $ 28,629
Vendor and other accounts receivable,
net of allowance of $184,546 and $105,472 3,552,086 2,953,338
Inventories 8,790,037 8,398,227
Prepaid income taxes and other 700,064 422,525
Total current assets 13,081,601 11,802,719
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures, and equipment 2,999,997 2,948,868
Leasehold improvements 3,628,148 3,515,677
Building and equipment under capital leases 1,267,413 1,195,486
Construction work in progress 491,720 --
Accumulated depreciation and amortization (2,621,681) (2,335,410)
Net property and equipment 5,765,597 5,324,621
OTHER ASSETS, principally goodwill 1,299,429 1,270,271
$ 20,146,627 $ 18,397,611
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' INVESTMENT
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
CURRENT LIABILITIES:
<S> <C> <C>
Vendor and other accounts payable $ 5,609,034 $ 3,999,408
Checks issued not yet presented for payment 950,456 172,338
Current portion of long-term obligations 78,661 102,223
Accrued liabilities 1,331,753 894,213
Income taxes payable 17,879 22,690
Deferred revenue related to extended service
program 24,804 24,804
Total current liabilities 8,012,587 5,215,676
LONG-TERM OBLIGATIONS, less current portions 5,123,712 6,201,105
LONG-TERM LIABILITIES,
primarily deferred lease incentives 285,292 270,111
SHAREHOLDERS' INVESTMENT:
Preferred stock, 6,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par, 20,000,000 shares authorized;
2,721,729 and 2,713,329 issued and outstanding 2,722 2,713
Additional paid-in capital 4,450,413 4,440,720
Retained earnings 2,271,901 2,267,286
Total shareholders' investment 6,725,036 6,710,719
$20,146,627 $18,397,611
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
NET SALES $15,335,691 $12,342,446
COST OF MERCHANDISE SOLD 9,646,684 7,698,185
Gross profit 5,689,007 4,644,261
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,578,769 4,405,149
Operating income 110,238 239,112
INTEREST EXPENSE, net 102,323 58,165
Income before income taxes 7,915 180,947
INCOME TAX PROVISION 3,300 76,000
NET INCOME $ 4,615 $ 104,947
NET INCOME PER SHARE $ .00 $ .04
Weighted average shares of common and
common stock equivalent shares
outstanding for the three months ended
September 30, 1995 and 1994 2,864,948 2,830,239
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES: 1995 1994
----------- -----------
<S> <C> <C>
Net income $ 4,615 $ 104,947
Adjustments required to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 219,956 170,655
Changes in other operating items:
Vendor and other accounts receivable (570,965) 142,798
Inventories (391,810) (517,146)
Prepaid income taxes and other (328,000) 14,990
Checks issued not yet presented for payment 778,118 666,611
Vendor and other accounts payable 1,609,624 764,634
Income taxes payable 11,423 76,006
Accrued liabilities 437,540 (112,473)
Deferred lease incentives 20,181 13,480
Other including deposits on construction (536,789) (11,528)
Net cash provided by operating activities 1,253,893 1,312,974
INVESTING ACTIVITIES:
Purchases of property and equipment (240,866) (83,559)
FINANCING ACTIVITIES:
Net repayments under line-of-credit agreement (1,175,000) (1,225,000)
Net borrowings (repayments)
under capital lease obligations 156,614 (14,750)
Sale of common stock and exercise of stock options 16,144 --
Net cash used for financing activities (1,002,242) (1,239,750)
NET INCREASE (DECREASE) IN CASH 10,785 (10,335)
CASH, beginning of period 28,629 17,224
CASH, end of period $ 39,414 $ 6,889
Additional supplementary cash flow information is as follows:
Interest paid $ 102,000 $ 58,000
Income taxes paid, net of refunds received 110,000 68,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
AUDIO KING CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Nature of Business
The condensed consolidated financial statements have been prepared by Aud io
King Corporation, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished in the condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments which are, in the opinion of management, necessary for
a fair presentation of such financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Although the Company believes
that the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements for
the year ended June 30, 1995 and the related notes thereto included in the
Company's latest Annual Report on Form 10-K.
Operating results for the interim periods may not be necessarily indicative of
the operating results to be expected for the full fiscal year, since the
Company's business is seasonal with higher net sales occurring in the fourth
calendar quarter.
(2) Earnings Per Share
Earnings per common and common stock equivalent share are calculated by dividing
net earnings applicable to common stock by the weighted average of common and
common stock equivalent shares outstanding, computed using the treasury stock
method.
(3) Accounting Pronouncement
Financial Accounting Standards Board Statement No. 123 "Accounting for
Stock-Based Compensation" ("Statement No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), but requires
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. The Company expects to adopt
Statement No. 123 in fiscal 1996. While the Company is still evaluating
Statement No. 123, it currently expects to elect to continue to measure
compensation cost under APB No. 25 and comply with the pro forma disclosure
requirements. If the Company make this election, this statement will have no
impact on the Company's results of operations or financial position because the
Company's plans are fixed stock option plans which have no intrinsic value at
the grant date under APB No. 25.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the three-month period ended September 30, 1995 were approximately
$15,336,000, an increase of 24.3% from net sales of approximately $12,342,000
for the same period in the prior year. Management believes the sales increase
was a result of the addition of the Cedar Rapids store which opened in May 1995
and its promoting specialist retail strategy, which utilizes increased
advertising, product assortment, larger stores to increase store traffic,
extended consumer credit offers, and trained salespeople to produce increased
sales.
Net sales for the three months ended September 30 historically have represented
the weakest sales quarter of the year. The second quarter which ends December 31
is the strongest quarter, due to the high demand associated with the holiday
season. Seasonality is a factor in the Company's results of operations.
Gross profit for the three-month period increased 22.5% to approximately
$5,689,000 from approximately $4,644,000 for the corresponding period of the
prior year. Gross profit, as a percent of net sales, was 37.1% for the
three-month period ended September 30, 1995 compared to 37.6% for the
corresponding period of the prior year. The decrease in gross margin percentage
was due to a growth as a percent of total sales in video products, which
typically carry a lower gross margin.
Selling, general, and administrative expenses increased as a percent of net
sales to 36.4% for the quarter ended September 30, 1995 from 35.7% for the
comparable three-month period of the preceding year. Selling, general, and
administrative expenses for the three-month period ended September 30, 1995
increased approximately $1,174,000 or 26.6%, over the comparable prior period.
The increases for the three-month period are due primarily to increased sales
commissions, benefits, and salaries of approximately $596,000, increased
consumer financing and promotional expense of approximately $254,000, increased
occupancy, insurance and depreciation costs of approximately $188,000, increased
various training and administrative expenses of $85,000 and increased freight
and delivery expense of $30,000.
Interest expense for the three-month period ended September 30, 1995 was
approximately $102,000 compared to approximately $58,000 for the corresponding
period in 1994. The higher interest expense was a result of higher borrowing
levels and higher interest rates.
The Company used an effective income tax rate of 42.0% for the purpose of
recording the income tax provision for the three months ended September 30, 1995
and for the three months ended September 30, 1994.
The Company earned net income per share of $.00 for the three-month period ended
September 30, 1995 as compared to a net income per share of $.04 for the
corresponding period in 1994.
Financial Condition
During the three-month period ended September 30, 1995, cash of approximately
$1,254,000 was provided by operations compared to approximately $1,313,000
provided by operations in the comparable period the prior year. Capital
expenditures for the three months totaled approximately $241,000, principally
for leasehold improvements and the purchase of furniture and fixtures and other
equipment. The Company has total expenditures of approximately $2,000,000
planned for fiscal 1996, primarily for the relocation of one store and expansion
of one other store.
<PAGE>
Working capital at September 30, 1995 was $5,069,000 as compared to $6,587,000
at June 30, 1995. The current ratio was 1.6 to 1 as of September 30, 1995 and
2.3 to 1 as of June 30, 1995. The decrease in working capital was attributable
primarily to an increase in vendor and other payables due to the expenses
related to the relocation of the Edina store and increased inventories needed
for the Edina store relocation.
Inventories increased to $8,790,000 at September 30, 1995 from $8,398,000 at
June 30, 1995 in order to support overall increased sales and the display
requirements and inventory necessary for the relocation of the Edina store.
Concurrently, vendor and other payables also increased as a result of the costs
of purchasing such inventory, as well as the increased advertising.
The Company expects that cash generated from operations and increased borrowings
under its bank line of credit will be sufficient to fund its anticipated working
capital requirements and expected capital expenditures. The Company also had
$950,000 of checks issued not yet presented for payment on September 30, 1995.
The Company maintains one credit facility that is a working capital line of
credit which provides for up to $11,000,000 from October 1 of any one year
through February 15 of the succeeding year at which time available borrowings
are reduced to $8,000,000. The credit facility bears interest at the bank's
reference rate or at the adjusted certificate of deposit rate plus 2%, at the
Company's option.
The borrowings under this agreement are collateralized by inventories, accounts
receivable, and fixed assets. The Company is in compliance with all of its line
of credit agreement covenants.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit No. Description
27 Financial Data Schedule
(filed with electronic version only)
(b) Reports on Form 8-K - The Company filed no reports on Form 8-K
during the quarter ended September 30, 1995.
SIGNATURES
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.
November 9, 1995 AUDIO KING CORPORATION
By: /s/ H.G. Thorne
H.G. Thorne
President, Chief Executive Officer,
and Chief Financial Officer (principal
executive officer and principal
financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 39,414
<SECURITIES> 0
<RECEIVABLES> 3,736,632
<ALLOWANCES> 184,546
<INVENTORY> 8,790,037
<CURRENT-ASSETS> 13,081,601
<PP&E> 7,895,558
<DEPRECIATION> 2,621,681
<TOTAL-ASSETS> 20,146,627
<CURRENT-LIABILITIES> 8,012,587
<BONDS> 0
<COMMON> 2,722
0
0
<OTHER-SE> 6,722,314
<TOTAL-LIABILITY-AND-EQUITY> 20,146,627
<SALES> 15,335,691
<TOTAL-REVENUES> 15,335,691
<CGS> 9,646,684
<TOTAL-COSTS> 5,578,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43,500
<INTEREST-EXPENSE> 102,323
<INCOME-PRETAX> 7,915
<INCOME-TAX> 3,300
<INCOME-CONTINUING> 4,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,615
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
