e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cjbw2ZdwsOMB4OSA2ebykI3krpolg7mqu1aZPRe1AXBngSt/QP+wnK18pSDsJ2/Y jOabHpFo5OTHpdRMdsbu6w== 0000950149-03-002280.txt : 20031008 0000950149-03-002280.hdr.sgml : 20031008 20031008172030 ACCESSION NUMBER: 0000950149-03-002280 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031008 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOOD GUYS INC CENTRAL INDEX KEY: 0000785931 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 942366177 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14134 FILM NUMBER: 03933823 BUSINESS ADDRESS: STREET 1: 1600 HARBOR BAY PARKWAY STREET 2: SUITE 200 CITY: ALAMEDA STATE: CA ZIP: 94502 BUSINESS PHONE: 5107476000 MAIL ADDRESS: STREET 1: 1600 HARBOR BAY PARKWAY STREET 2: SUITE 200 CITY: ALAMEDA STATE: CA ZIP: 94502 10-Q 1 f93514e10vq.htm FORM 10-Q e10vq

UNITED STATES
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 August 31, 2003


[ ]		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: 0-14134

GOOD GUYS, INC.

(exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of Incorporation or organization)		94-2366177 (I.R.S. Employer Identification No.)

1600 Harbor Bay Parkway
Alameda, CA 94502
(Address of principal executive offices)

(510) 747-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required 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. [X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b –2). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


CLASS		OUTSTANDING AS OF AUGUST 31, 2003

Common Stock		27,150,483

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II: OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
Exhibit Index
Exhibit 10.39
Exhibit 10.40
Exhibit 10.41
Exhibit 10.42
Exhibit 10.43
Exhibit 10.44
Exhibit 10.43
Exhibit 10.46
Exhibit 10.47
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

GOOD GUYS, INC.

INDEX


		PAGE

PART I:	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets — August 31, 2003, February 28, 2003 and August 31, 2002	3
	Condensed Consolidated Statements of Operations — Three and six month periods ended August 31, 2003 and 2002	4
	Condensed Consolidated Statement of Changes in Shareholders’ Equity — Six month period ended August 31, 2003	5
	Condensed Consolidated Statements of Cash Flows — Six month periods ended August 31, 2003 and 2002	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	11
Item 4.	Controls and Procedures	11
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
Item 5.	Other Information	12
Item 6.	Exhibits and Reports on Form 8-K	12
SIGNATURES		13
EXHIBITS		14

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

GOOD GUYS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)


				AUGUST 31,			FEBRUARY 28,			AUGUST 31,
				2003			2003			2002

ASSETS
CURRENT ASSETS:
	Cash and equivalents			$	4,422		$	733		$	3,890
	Accounts receivable (less allowance for doubtful accounts of $1,888, $1,463 and $2,465 respectively)				19,436			16,324			25,190
	Merchandise inventories				88,688			100,867			108,348
	Prepaid expenses				9,350			9,794			8,207

		Total current assets			121,896			127,718			145,635
PROPERTY AND EQUIPMENT:
	Leasehold improvements				66,551			66,179			66,198
	Furniture, fixtures and equipment				78,079			77,034			75,377
	Construction in progress				920			942			1,654

	Total property and equipment, at cost				145,550			144,155			143,229
	Less accumulated depreciation and amortization				(107,295	)		(102,154	)		(97,143	)

	Property and equipment, net				38,255			42,001			46,086
OTHER ASSETS					78			686			647

			TOTAL ASSETS	$	160,229		$	170,405		$	192,368

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	35,469		$	25,601		$	39,883
	Accrued expenses and other liabilities:
			Accrued payroll		6,973			7,418			10,159
			Sales taxes payable		3,534			3,401			4,323
			Store closure		5,408			6,297			9,037
			Extended service plan		2,299			288			5,727
			Other		20,263			16,230			18,495

	Total current liabilities				73,946			59,235			87,624
REVOLVING CREDIT DEBT					40,000			50,099			51,422
SHAREHOLDERS’ EQUITY:
	Preferred stock, $.001 par value:
			Authorized — 2,000,000 shares, Issued —none		—			—			—
	Common stock, $.001 par value
			Authorized —40,000,000 shares, Issued and outstanding—27,150,483, 26,833,452 and 26,549,893 shares, respectively		27			27			27
	Additional paid-in-capital				111,952			111,418			111,104
	Accumulated deficit				(65,696	)		(50,374	)		(57,809	)

			Total shareholders’ equity		46,283			61,071			53,322

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				$	160,229		$	170,405		$	192,368

The accompanying notes are an integral part of these financial statements.

GOOD GUYS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)


			Three Months Ended						Six Months Ended
			August 31,						August 31,

			2003			2002			2003			2002

Net sales			$	152,172		$	177,493		$	295,524		$	348,526
Cost of sales				(111,390	)		(126,788	)		(215,093	)		(248,575	)

		Gross profit		40,782			50,705			80,431			99,951
Selling, general and administrative				(44,235	)		(48,781	)		(89,148	)		(99,759	)
Depreciation and amortization				(2,446	)		(2,982	)		(4,970	)		(5,885	)
Store closure and (impairment) recovery of asset				(423	)		—			(423	)		700

Loss from operations				(6,322	)		(1,058	)		(14,110	)		(4,993	)
Interest expense, net				(588	)		(740	)		(1,212	)		(1,392	)

	Net loss		$	(6,910	)	$	(1,798	)	$	(15,322	)	$	(6,385	)

Net loss per share
		Basic	$	(0.25	)	$	(0.07	)	$	(0.57	)	$	(0.24	)

		Diluted	$	(0.25	)	$	(0.07	)	$	(0.57	)	$	(0.24	)

Weighted average shares
		Basic		27,109			26,550			27,041			26,299

		Diluted		27,109			26,550			27,041			26,299

The accompanying notes are an integral part of these financial statements.

GOOD GUYS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 2003
(In thousands, except share data)
(Unaudited)


		COMMON STOCK				ADDITIONAL		RETAINED
						PAID-IN		EARNINGS
		SHARES		AMOUNT		CAPITAL		(DEFICIT)			TOTAL

Balance at February 28, 2003			26,833,452	$	27	$	111,418	$	(50,374	)	$	61,071
Issuance of common stock: Employee stock purchase plan			253,310				364					364
	Directors' restricted stock		63,721				117					117
Issuance of warrants							53					53
Net loss for the six-month period ended August 31, 2003									(15,322	)		(15,322	)

Balance at August 31, 2003			27,150,483	$	27	$	111,952	$	(65,696	)	$	46,283

The accompanying notes are an integral part of these financial statements.

GOOD GUYS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


					SIX MONTHS ENDED
					AUGUST 31,

					2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss				$	(15,322	)	$	(6,385	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
			Depreciation and amortization			5,194			5,885
			Allowance for doubtful accounts			425			(3,338	)
			Provision for store closure			423			(700	)
			Restricted stock, warrants and amortization			170			60
			Changes in assets and liabilities:
				Accounts receivable		(3,537	)		2,293
				Merchandise inventories		12,179			(6,239	)
				Prepaid expenses and other assets		1,052			(1,559	)
				Accounts payable		9,868			(13,980	)
				Accrued expenses and other liabilities		4,420			(6,866	)

	Net cash provided by (used in) operating activities					14,872			(30,829	)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of fixed assets					(1,448	)		(3,212	)

				Net cash used in investing activities		(1,448	)		(3,212	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net proceeds from (repayment) borrowing of revolving credit					(10,099	)		28,191
	Issuance of common stock, net					364			5,632

		Net cash (used in) provided by financing activities				(9,735	)		33,823

		Net increase (decrease) in cash and equivalents				3,689			(218	)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD						733			4,108

CASH AND EQUIVALENTS AT END OF PERIOD					$	4,422		$	3,890

The accompanying notes are an integral part of these financial statements.

GOOD GUYS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The condensed consolidated balance sheets at August 31, 2003 and August 31, 2002, the consolidated statements of operations for the three-month and six-month periods then ended and the consolidated statements of cash flows for the six-month periods then ended have been prepared from the Company’s records without audit and in management’s opinion include all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at August 31, 2003 and August 31, 2002, the results of operations for the three-month and six-month periods then ended and cash flows for the six-month periods then ended. The balance sheet at February 28, 2002, presented herein, has been derived from the Company’s audited balance sheet. Certain information and disclosures normally included in the Company’s notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these interim financial statements. Accordingly, these interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2003. The results of operations for the three-month and six-month periods ended August 31, 2003 are not necessarily indicative of the operating results for the full fiscal year.

2. Basic earnings per share is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur from common shares to be issued through stock options and warrants.

The potential dilutive effects of stock options and warrants were excluded from diluted earnings per share for the three-month and six-month periods ended August 31, 2003 and 2002 because their inclusion in net loss periods would be anti-dilutive to the earnings per share calculation.

The Company accounts for its employee stock-based compensation using the intrinsic value method in accordance with Accounting Principle Board Opinion (“APB”) 25, “Accounting for Stock Issued to Employees” and its related interpretations and with the disclosure requirements of Statement of Financial Accounting Standard (“SFAS”) 148, “Accounting for Stock Based Compensation – Transition and Disclosure”.

Equity instruments granted to non-employees are accounted for in accordance with the provisions of SFAS 123, “Accounting for Stock-Based Compensation” and Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods and Services”, under the fair value based method using the Black-Scholes option pricing model.

Had compensation expense for the Company’s stock-based compensation plan been determined based upon fair values at the grant dates for awards under the plan in accordance with SFAS 123 calculated using the methods and assumptions described in Note 9 of the Annual 10-K, the Company’s net loss would have been as follows:


		Three months ended						Six months ended
		August 31,						August 31,

(Dollars in thousands)		2003			2002			2003			2002

Net loss, as reported		$	(6,910	)	$	(1,798	)	$	(15,322	)	$	(6,385	)
Add: Stock compensation determined using intrinsic value method			(18	)		35			37			60
Less: Stock compensation determined using fair value method			(249	)		(211	)		(316	)		(464	)

Pro forma net loss		$	(7,177	)	$	(1,974	)	$	(15,601	)	$	(6,789	)

Earnings per share:
	Basic – as reported	$	(0.25	)	$	(0.07	)	$	(0.57	)	$	(0.24	)
	Basic – pro forma	$	(0.26	)	$	(0.07	)	$	(0.58	)	$	(0.26	)
	Diluted – as reported	$	(0.25	)	$	(0.07	)	$	(0.57	)	$	(0.24	)
	Diluted – pro forma	$	(0.26	)	$	(0.07	)	$	(0.58	)	$	(0.26	)

3. Store closure accrual

As of June 2003, the Company had closed all eight stores scheduled for closure. Prior to December 31, 2002 and in accordance with EITF 94-3, the Company recorded the estimated costs associated with closing a store during the period in which the store was identified and approved by management under a plan of termination, which includes the method of disposition and the expected date of completion. These costs included direct costs to terminate a lease or future lease obligations, net of expected sub-lease income, and the difference between the carrying values and estimated recoverable values of long-lived and intangible assets. Severance and other employee-related costs were recorded in the period in which the closure and related severance packages are communicated to the affected employees. After December 31, 2002, the Company adopted SFAS 146, which requires costs associated with the termination of the lease to be recorded when the store is closed, and other liabilities for costs associated with an exit or disposal activity to be recognized when the liability is incurred. The decrease in the store closure accrual of $0.9 million during the six-month period ended August 31, 2003 represents cash payments of $1.3 million offset by a $0.4 million charge for the reassessment of sub-lease income at the Maryland Parkway location in Las Vegas. In the six-month period ended August 31, 2002, the Company had executed lease termination agreements for five stores resulting in a reversal of estimated termination costs of $0.7 million. The total accrual for store closure expenses at August 31, 2003 was $5.4 million, compared to $6.3 million at February 28, 2003 and $9.0 million at August 31, 2002.

4. Borrowings

Through May 31, 2006, the Company has a $100 million revolving credit facility from Bank of America and GE Capital. The Company is required to comply with a capital lease covenant and reporting requirements, as defined in the agreement. Available borrowings under the credit agreement are limited to certain levels of eligible accounts receivable and inventory balances, but may be increased from October 1 through December 20 of each year to meet seasonal needs, as defined within the agreement. At August 31, 2003, the Company had borrowings of $40.0 million outstanding under the revolving credit agreement, with $12.8 million available to borrow under the credit facility. At August 31, 2002, the Company had borrowings of $51.4 million outstanding under the revolving credit agreement, with $14.1 million available to borrow under the credit facility.

On September 29, 2003, subsequent to the period end, the Company announced a definitive merger agreement with CompUSA. Under the terms of the agreement, each outstanding share of Good Guys common stock will be converted into $2.05 in cash. In connection with the transaction, CompUSA also invested $5 million in Good Guys in the form of a two-year unsecured subordinated convertible promissory note, convertible into Good Guys common stock at a price of $2.05 per share.

5. In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS 148 were effective for the Company’s fiscal year ended February 28, 2003. The interim disclosure provisions are effective for the first quarter of the fiscal year ending May 31, 2004. The Company continues to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB 25, as allowed by SFAS 123. As a result, the adoption of SFAS 148 did not have any impact on the Company’s consolidated financial statements.

6. In November 2002, the Emerging Issues Task Force (“EITF’) reached a consensus regarding EITF 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor”. EITF 02-16 addresses the timing of recognition and classification of consideration received from vendors, including rebates and allowances. EITF 02-16 is effective for certain of the Company’s vendor rebates and allowances commencing in November 2002. The adoption of EITF 02-16 had no impact on the Company’s consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OUTLOOK AND RISK FACTORS

The trend analyses and other non-historical information contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as

amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those Sections. Such forward-looking statements include, without limitation, statements concerning the Company’s future sales, earnings and other operating results. The Company’s actual results could differ materially from those discussed in the forward looking statements due to a number of factors, including but not limited to, the successful implementation of internal initiatives to better align the sales, marketing and merchandising functions, increases in promotional activities of the Company’s competitors, changes in consumer buying attitudes, changes in vendor support, changes in the Company’s merchandise sales mix including discontinued product categories, general economic conditions and other factors referred to in the Company’s 2003 Annual Report on Form 10-K under “Information Regarding Forward Looking Statements” and “Risk Factors”.

RESULTS OF OPERATIONS

Net sales for the three months ended August 31, 2003 were $152.2 million, a decline of 14.3%, compared to $177.5 million of net sales for the same period last year. This decrease predominantly reflects a 12.6% decline in same store sales, primarily due to the challenging economic climate. Net sales for the six months ended August 31, 2003 were $295.5 million, a decline of 15.2%, compared to $348.5 million of net sales for the same period last year. Comparable store sales for the six-month period have declined 13.4%, due to the same factor mentioned above. The Company expects continued negative comparable store sales through the third quarter of the year. The Company continued to see increases in average transaction size and gross profit per transaction for both the quarter and the six months ended August 31, 2003, although these gains were minimized by the overall decline in store traffic.

Demand for the latest digital and high-tech electronics, including liquid crystal and plasma displays, HDTV set-top boxes and DVD recorders, continued to be strong – unit sales of plasma displays doubled, and liquid crystal display sales tripled in the quarter over the same period last year – but there were declines in total sales dollars of more mature categories such as DVD players, projection and glass TVs and home audio products. As consumer preferences shift away from these more traditional products, Good Guys is expanding its assortment of new, differentiated entertainment electronics at the front end of the adoption cycle and refocusing its sales and marketing efforts on solution selling, which presents customers with complete solutions that encompass audio and video products, accessories and value-added services, such as, custom installation and delivery. The sale of Extended Service Protection contracts for the three and six months ended August 31, 2003, decreased to 7.7% of product sales from 7.8% of product sales during the same periods last year.

Gross profit as a percentage of net sales decreased to 26.8% for the three months ended August 31, 2003 compared to 28.6% for the three months ended August 31, 2002. The decrease reflects the promotional environment, aggressive inventory management, including the focused sell-through of discontinued brands and models through warehouse sales and a 2% increase in sales of video products, which have lower margins than audio products, as a percentage of total product sales. For the quarter, sales of video products accounted for 60% of total product sales, audio products accounted for 13%, mobile products accounted for 11% and other accounted for 16%. For the same period last year, sales of video products accounted for 58% of total product sales, audio products accounted for 14%, mobile products accounted for 11% and other accounted for 17%. Gross profit as a percentage of net sales decreased to 27.2% for the six months ended August 31, 2003 compared to 28.7% for the same period last year due substantially to the same factors mentioned above.

Selling, general and administrative and store closure expenses of $47.1 million, including depreciation and amortization, decreased $4.7 million (9.1% decrease) for the three months ended August 31, 2003, compared to $51.8 million for the same period last year. These expenses represented 30.9% of net sales for the three months ended August 31, 2003 compared to 29.2% for the same period last year. The decrease in selling, general and administrative expenses, including depreciation and amortization, for the period is primarily due to the Company’s ongoing efforts to lower its cost structure; the increase in rate reflects the non-leverage of costs by the lower sales volume. The results for the three-month period ended August 31, 2003 include a $0.4 million charge for reassessment of the sub-lease income from the Maryland Parkway store location in Las Vegas, a store closed as part of the restructuring in January 2002. Selling, general and administrative and store closure expenses of $94.5 million, including depreciation and amortization, decreased $10.4 million (9.9% decrease) for the six months ended August 31, 2003, compared to $104.9 million for the same period last year. These expenses represented 32.0% of net sales compared to 30.1% for the prior year and the decrease year-to-date is due to the same factors listed above. In the six-month period last year, the Company had executed lease termination agreements for five stores, resulting in a reversal of estimated termination costs of $0.7 million.

Interest expense decreased to $0.6 million for the three months ended August 31, 2003 from $0.7 million for the same period last year. The decrease was primarily attributable to the increased focus by the Company on working capital management. Interest expense decreased to $1.2 million for the six months ended August 31, 2003, from $1.4 million for the same period last year.

As a result of the factors discussed above, the net loss for the three months ended August 31, 2003 was $6.9 million compared to a net loss of $1.8 million for the three months ended August 31, 2002. The net loss per share for the three months ended August 31, 2003 was $0.25 per share compared to a net loss of $0.07 per share for the three months ended August 31, 2002. The net loss for the six months ended August 31, 2003 was $15.3 million, or a net loss of $0.57 per share, compared to a net loss of $6.4 million, or a net loss of $0.24 per share, for the six months ended August 31, 2002.

Liquidity and Capital Resources

At August 31, 2003, the Company had cash and equivalents of $4.4 million, compared to $3.9 million at August 31, 2002. The Company’s working capital decreased to $48.0 million at August 31, 2003 from $58.1 million at August 31, 2002, primarily due to the aggressive focus on inventory management, which resulted in an inventory level of $88.7 million at August 31, 2003, compared to $108.3 million at August 31, 2002. Net cash provided by operating activities was $14.9 million for the six months ended August 31, 2003 compared to cash used by operating activities of $30.8 million for the same period last year. The increase in net cash provided primarily reflects the continued focus on inventory management and timing of payments for accounts payable to maximize cash discounts. The increase in net cash provided by operating activities is offset by $10.0 million of repayments on the revolving credit line within financing activities, compared to borrowings of $28.2 million for the same period last year.

Net cash used in investing activities, for the purchase of fixed assets, was $1.4 million for the six months ended August 31, 2003 compared to $3.2 million used in investing activities for the same period last year.

Through May 31, 2006, the Company has a $100 million revolving credit facility from Bank of America and GE Capital. The Company is required to comply with a capital lease covenant and reporting requirements, as defined in the agreement. Available borrowings under the credit agreement are limited to certain levels of eligible accounts receivable and inventory balances, but may be increased from October 1 through December 20 of each year to meet seasonal needs, as defined within the agreement. As well as the increased seasonal availability during the holiday season, the amended facility offers the ability to increase borrowings for incremental inventory purchases. At August 31, 2003, the Company had borrowings of $40.0 million outstanding under the revolving credit agreement, with $12.8 million available to borrow under the credit facility. At August 31, 2002, the Company had borrowings of $51.4 million outstanding under the revolving credit agreement, with $14.1 million available to borrow under the credit facility.

On September 29, 2003, subsequent to the period end, the Company announced a definitive merger agreement with CompUSA. Under the terms of the agreement, each outstanding share of Good Guys common stock will be converted into $2.05 in cash. In connection with the transaction, CompUSA also invested $5 million in Good Guys in the form of a two-year unsecured subordinated convertible promissory note, convertible into Good Guys common stock at a price of $2.05 per share.

The Company expects to fund its working capital requirements with a combination of cash flows from operations, the $5 million investment from CompUSA, normal trade credit, the revolving credit facility, and lease financing arrangements. If for any reason the proposed merger with CompUSA were not consummated and if the Company were to continue to incur negative same store sales beyond the end of the fiscal year, the ability of the Company to fund its working capital needs, absent an alternative transaction or other financing arrangements, would be adversely affected.

As of June 2003, the Company had closed all eight stores scheduled for closure. With respect to these stores, the Company has executed lease termination agreements for five stores and is currently negotiating either the termination of the lease or the sub-lease of two of the remaining stores. Execution of the five lease terminations resulted in a reversal of estimated termination costs of $0.7 million in the six months ended August 31, 2002. During the fiscal year ended February 28, 2003, the Company amended the lease for the Pinole, California store. The amendment to the lease allows the Company to re-open the store in a smaller format, which it expects to do in February 2004. During the fiscal year ended February 28, 2003, the amendment, after negotiation fees and certain expenses, resulted in a reversal of $1.0 million from the estimated store closure accrual established for that store in January 2002. The Company has reassessed its reserve for the Maryland Parkway location in Las Vegas and reduced the expected sub-lease income, resulting in an additional charge of $0.4 million. The Company believes that the reassessed reserves for the remaining stores are adequate. The total accrual for store closure expenses at August 31, 2003 was $5.4 million, compared to $6.3 million at February 28, 2003 and $9.0 million at August 31, 2002.

Based on the current economic and promotional environment, the Company has adjusted its internal plan to reflect a decline in comparable store sales in the third quarter of the year. Returning to profitability is contingent upon many factors, including, but not limited to, the successful implementation of internal initiatives to better align the sales, marketing and merchandising functions, the development of consumer acceptance of new technologies, consumer demand for existing technologies, the presence or absence of

new features on existing merchandise, continued vendor support and economic conditions in the regions in which the Company’s stores are located.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to market risks, which include changes in U.S. interest rates. The Company does not engage in financial transactions for trading or speculative purposes. The interest due on the Company’s line of credit is based on variable interest rates and therefore affected by changes in market interest rates. If interest rates on existing variable rate debt rose 98 basis points (a 10% change from the bank’s reference rate as of August 31, 2003), the Company’s results from operations and cash flows would not be materially affected.

The Company believes that there has been minimal inflation in the consumer electronics industry because of competition among manufacturers and technological changes. Therefore, inflation has not had a material effect on its net sales or cost of sales.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The Company’s principal executive officer and its principal financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) as of August 31, 2003, have concluded, based on this evaluation, that the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

(b) Changes in internal controls. The evaluation described above did not identify any changes in the Company’s internal control over financial reporting that occurred during the quarter ended August 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal proceedings arising during the normal course of business. The Company believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material impact on its financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of shareholders of the Company held on June 26, 2003, 22,182,952 shares were represented in person or by proxy. The matters voted upon and the results of the voting are as follows:

1. The election of directors


Nominee	In Favor		Withheld

Kenneth R. Weller		20,972,944		1,210,008
Thomas F. Herman		20,921,242		1,261,710
John E. Martin		20,921,760		1,261,192
Russell M. Solomon		20,922,327		1,260,625
Cathy A. Stauffer		20,956,226		1,226,726

2. The amendment to the Company’s 1994 Stock Incentive Plan to increase the number of shares of Common Stock reserved for issuance under the plan by 500,000: 21,037,092 voters in favor, 989,608 votes against and 156,252 abstentions.

3. The amendment to the Company’s Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance under the plan by 750,000: 21,127,614 voters in favor, 893,496 votes against and 161,842 abstentions.

4. The ratification of selection of Deloitte & Touche LLP as the independent auditors of the Company: 20,590,047 voters in favor, 1,571,451 votes against and 21,454 abstentions.

Item 5. Other Information

On October 1, 2003, plaintiff Connie Seers filed a complaint purportedly on behalf of a putative class of Good Guys shareholders in the Superior Court of the State of California for Alameda County against Good Guys and its directors. The complaint alleges, among other things, breach of fiduciary duty in connection with the proposed merger of Good Guys and CompUSA Inc., that the individual defendants engaged in self-dealing and that the individual defendants failed to take steps to maximize the value of Good Guys to its public stockholders. The complaint seeks preliminary and permanent injunctive relief, including, but not limited to, enjoining the consummation of the proposed merger, and plaintiff’s attorneys’ fees and costs in pursuing the action. Good Guys believes the claims to be without merit and intends to defend this lawsuit vigorously

Item 6. Exhibits and Reports on Form 8-K



			10.39			Amendment to Executive Employment Agreement with Kenneth R. Weller, dated as of August 5, 2003.

			10.40			Letter Agreement between Thomas F. Herman and the Company, dated August 6, 2003.

			10.41			Letter Agreement between Cathy A. Stauffer and the Company, dated August 6, 2003.

			10.42			Letter Agreement between John J. Deluca and the Company, dated August 6, 2003.

			10.43			Letter Agreement between Jason B. Dillon and the Company, dated August 6, 2003.

			10.44			Letter Agreement between Mary F. Doan and the Company, dated August 6, 2003.

			10.45			Letter Agreement between Jeff G. Linden and the Company, dated August 6, 2003.

			10.46			Letter Agreement between Rajendra M. Mohan and the Company, dated August 6, 2003.

			10.47			Letter Agreement between David A. Carter and the Company, dated August 6, 2003.

			31.1			Certification Pursuant to Rule 13a – 14(a)/15d – 14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

			31.2			Certification Pursuant to Rule 13a – 14(a)/15d – 14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

			32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

			32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.


		GOOD GUYS, INC.

Date: October 8, 2003	By:	/s/ KENNETH R. WELLER

		Kenneth R. Weller
		Chairman and Chief Executive Officer

Exhibit Index


(a)	Exhibits

		10.39	Amendment to Executive Employment Agreement with Kenneth R. Weller, dated as of August 5, 2003.

		10.40	Letter Agreement between Thomas F. Herman and the Company, dated August 6, 2003.

		10.41	Letter Agreement between Cathy A. Stauffer and the Company, dated August 6, 2003.

		10.42	Letter Agreement between John J. Deluca and the Company, dated August 6, 2003.

		10.43	Letter Agreement between Jason B. Dillon and the Company, dated August 6, 2003.

		10.44	Letter Agreement between Mary F. Doan and the Company, dated August 6, 2003.

		10.45	Letter Agreement between Jeff G. Linden and the Company, dated August 6, 2003.

		10.46	Letter Agreement between Rajendra M. Mohan and the Company, dated August 6, 2003.

		10.47	Letter Agreement between David A. Carter and the Company, dated August 6, 2003.

		31.1	Certification Pursuant to Rule 13a – 14(a)/15d – 14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		31.2	Certification Pursuant to Rule 13a – 14(a)/15d – 14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

14 EX-10.39 3 f93514exv10w39.htm EXHIBIT 10.39 exv10w39

Exhibit 10.39

AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT

This Amendment to Executive Employment Agreement is entered into as of this 5th day of August, 2003 by and between Good Guys, Inc., a Delaware corporation (“Company”) and Kenneth R. Weller (“Executive”).

RECITALS:

1. The Company and Executive entered into an Executive Employment Agreement effective as of the close of business on the 15th day of August, 2000 (the “Employment Agreement”).

2. The Compensation Committee of the Board of Directors of the Company and the Board of Directors have approved, and Executive has agreed to, certain amendments to the Employment Agreement.

NOW THEREFORE, in consideration of the mutual covenants and obligations contained herein the parties hereby agree that the Employment Agreement shall be amended in the following respects:

1. Section 1(a) of the Employment Agreement is amended and restated in its entirety to read as follows:

“Chief Executive Officer. Executive agrees that during the term of this Agreement he will devote his best efforts and all of his business time and attention to the business of the Company and will faithfully and diligently carry out the duties of Chief Executive Officer. In such capacity, Executive shall report directly to the Board of Directors.”

2. Section 7 of the Employment Agreement is amended to provide that the term of employment shall end on August 15, 2006 unless earlier terminated pursuant to the provisions of Section 7.

3. Section 2(c) of the Employment Agreement is amended to extend the expiration date of the non-qualified stock option provided for therein until August 15, 2006, subject to the following:

(a) The exercise price of the option shall remain $3.75 per share, and the option, subject to the provisions of subparagraph (b) below, shall be fully vested as of August 15, 2003.

(b) The extension of the option and exercise of the option are subject to obtaining the approval of the stockholders of the Company of the extension at the next annual meeting of stockholders, or if earlier, at a meeting of stockholders held for the purpose of considering a “change of control” of the Company as that term is defined in the Employment Agreement (a “change of control”), in which the consideration to be received by the stockholders of the Company in the change of control has a value in excess of $3.75 per share (as determined in good faith by the Board of Directors of the Company). If prior to the next annual meeting of stockholders a “change of control” in which the stockholders of the Company receive consideration having a value of $3.75 per share or less is approved by the stockholders, or a change of control occurs at any price without stockholder approval, there shall be no further obligation to seek stockholder approval of extension of the option and the option shall terminate. Approval of stockholders as used herein shall mean the affirmative vote of at least a majority of the shares of common stock represented in person or by proxy and entitled to vote at the meeting.

(c) To the extent not exercised, the option shall in any event automatically expire and be cancelled upon the earliest to occur of (i) a change of control, (ii) failure to obtain approval of the stockholders of the extension of the option at a meeting held for that purpose, (iii) 90 days following the termination of employment of Executive with the Company other than by reason of death or disability, or one year following the termination of employment of Executive with the Company by reason of death or disability, and (iv) August 15, 2006.

4. Except as otherwise provided above, the provisions of the Employment Agreement shall remain unchanged.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Employment Agreement as of the day and year first above written.


		GOOD GUYS, INC.

		/s/ THOMAS F. HERMAN

		Thomas F. Herman, President

		EXECUTIVE:

		/s/ KENNETH R. WELLER

		Kenneth R. Weller

EX-10.40 4 f93514exv10w40.htm EXHIBIT 10.40 exv10w40

Exhibit 10.40

August 6, 2003

Thomas F. Herman
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear Tom:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as President and Chief Officer, reporting to the Chairman and CEO.

2. Your base salary is $14,166.67 semi-monthly ($340,000 annually). In addition, you will be eligible for a targeted bonus up to 50 percent (50%) of your base salary, provided that Good Guys and you meet established objectives for the fiscal year. Any bonus is payable at the time of the Company’s normal bonus distributions and is not earned unless you are employed by the Company on the date that the bonus is paid.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

5. For purposes hereof “cause” means: (a) violation of any of the Company’s policies, practices and procedures; (b) any state, federal or other conviction, including, but not limited to, the entry of a pleas of nolo contendere upon a criminal charge, which would render you unable to perform your normal responsibilities; (c) neglect of, breach of, or failure or inability to perform your duties as an employee; or (d) an act of misconduct or dishonesty in connection with your employment.

6. In the event of a “change in control” of the Company within two years of the date of this letter and your termination without cause within 12 months of the change of control, then you will be entitled to severance payments equal in the aggregate to months salary (at your then rate of salary), payable on the same schedule such payments would have been made if you had remained employed. For purposes of this agreement, the term “change in control” is defined as any of the following transactions: (a) the sale of all or substantially all of the assets of the Company to any person or entity that, prior to such sale, did not control, was not under common control with, or was not controlled by, the Company, (b) a merger or consolidation or other reorganization in which the Company is not the successor entity or becomes owned entirely by another entity, unless at least fifty percent (50%) of the outstanding voting securities of the surviving or parent corporation, as the case may be, immediately following such transaction are beneficially held by such persons and entities in the same proportions as such persons and entities beneficially held the outstanding voting securities of the Company immediately prior to such transaction, or (c) the sale or other change of beneficial ownership of the outstanding voting securities of the Company such that any person or “group” as that term is defined under the Securities Exchange Act of 1934 becomes the beneficial owner of more than 50% of the outstanding voting securities of the Company.

7. If you are terminated by the Company without cause within two years from August 6, 2003, then you will be entitled to receive severance payments equal in the aggregate to months’ salary (at your then rate of salary) payable on the same schedule that such payments would have been made if you had remained employed.

8. In the event of your death following termination of your employment, then any payments owing under paragraphs 6 or 7 above will be made your estate. You shall not be entitled to payments under both paragraphs 6 and 7 above, but shall be entitled to the higher of the payments provided for in those paragraphs if the terms of such paragraphs would both be applicable.

9. For the purposes of paragraphs 6 and 7 above, a termination without cause shall include a termination by you for good reason, which is defined as follows: (a) a reduction in your salary below the amount specified in paragraph 2 above; (b) a relocation of your workplace by more than 50 miles; or (c) a material reduction in your responsibilities or duties, provided that a change in the person to whom you report shall not in and of itself constitute such a reduction.

10. Neither this agreement nor the compensation provided for herein shall affect your entitlement to any benefits that have accrued and are owing to you as of the time of termination of your employment under other benefit plans of the Company that are then in effect.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

12. This letter contains the complete terms of your employment and supercedes all prior agreements between you and the Company concerning the same. It may be modified only by an agreement in writing approved by the Board of Directors and signed by you and the Company’s Chief Executive Officer or President. These terms, if acceptable by you, will be binding on the Company, its successors and assigns, even in the event of a change in control or management of the Company.

13. This letter agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ THOMAS F. HERMAN

EX-10.41 5 f93514exv10w41.htm EXHIBIT 10.41 exv10w41

Exhibit 10.41

August 6, 2003

Cathy Stauffer
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear Cathy:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Executive Vice President, reporting to the President and Chief Operating Officer.

2. Your base salary is $12,500 semi-monthly ($300,000 annually). In addition, you will be eligible for a targeted bonus up to 50 percent (50%) of your base salary, provided that Good Guys and you meet established objectives for the fiscal year. Any bonus is payable at the time of the Company’s normal bonus distributions and is not earned unless you are employed by the Company on the date that the bonus is paid.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

6. In the event of a “change in control” of the Company within two years of the date of this letter and your termination without cause within 12 months of the change of control, then you will be entitled to severance payments equal in the aggregate to 18 months salary (at your then rate of salary), payable on the same schedule such payments would have been made if you had remained employed. For purposes of this agreement, the term “change in control” is defined as any of the following transactions: (a) the sale of all or substantially all of the assets of the Company to any person or entity that, prior to such sale, did not control, was not under common control with, or was not controlled by, the Company, (b) a merger or consolidation or other reorganization in which the Company is not the successor entity or becomes owned entirely by another entity, unless at least fifty percent (50%) of the outstanding voting securities of the surviving or parent corporation, as the case may be, immediately following such transaction are beneficially held by such persons and entities in the same proportions as such persons and entities beneficially held the outstanding voting securities of the Company immediately prior to such transaction, or (c) the sale or other change of beneficial ownership of the outstanding voting securities of the Company such that any person or “group” as that term is defined under the Securities Exchange Act of 1934 becomes the beneficial owner of more than 50% of the outstanding voting securities of the Company.

7. If you are terminated by the Company without cause within two years from August 6, 2003, then you will be entitled to receive severance payments equal in the aggregate to 12 months’ salary (at your then rate of salary) payable on the same schedule that such payments would have been made if you had remained employed.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER

		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ CATHY A. STAUFFER

EX-10.42 6 f93514exv10w42.htm EXHIBIT 10.42 exv10w42

Exhibit 10.42

August 6, 2003

John De Luca
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear John:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Chief Information Officer, reporting to the President and Chief Operating Officer.

2. Your base salary is $9,375 semi-monthly ($225,000 annually). In addition, you will be eligible for a targeted bonus up to 50 percent (50%) of your base salary, provided that Good Guys and you meet established objectives for the fiscal year. Any bonus is payable at the time of the Company’s normal bonus distributions and is not earned unless you are employed by the Company on the date that the bonus is paid.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ JOHN J. DELUCA

EX-10.43 7 f93514exv10w43.htm EXHIBIT 10.43 exv10w43

Exhibit 10.43

August 6, 2003

Jason Dillon
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear Jason:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Vice President of Stores, reporting to the Executive Vice President.

2. Your base salary is $ 9,375,00 semi-monthly ($225,000 annually). In addition, you will be eligible for a targeted bonus up to 50 percent (50%) of your base salary, provided that Good Guys and you meet established objectives for the fiscal year. Any bonus is payable at the time of the Company’s normal bonus distributions and is not earned unless you are employed by the Company on the date that the bonus is paid.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH. R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ JASON B. DILLON

EX-10.44 8 f93514exv10w44.htm EXHIBIT 10.44 exv10w44

Exhibit 10.44

August 6, 2003

Mary Doan
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear Mary:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Vice President of Advertising, reporting to the Executive Vice President.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ MARY F. DOAN

EX-10.45 9 f93514exv10w45.htm EXHIBIT 10.43 exv10w45

Exhibit 10.45

August 6, 2003

Jeff Linden
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear Jeff:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Vice President of Logistics, Service and Operations, reporting to the President and Chief Operating Officer.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ JEFF G. LINDEN

EX-10.46 10 f93514exv10w46.htm EXHIBIT 10.46 exv10w46

Exhibit 10.46

August 6, 2003

Mike Mohan
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear Mike:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Vice President, Merchandising, reporting to the Executive Vice President.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ RAJENDRA M. MOHAN

EX-10.47 11 f93514exv10w47.htm EXHIBIT 10.47 exv10w47

Exhibit 10.47

August 6, 2003

David Carter
Good Guys, Inc.
1600 Harbor Bay Parkway, Suite 200
Alameda, CA 94502

Re: Terms of Employment

Dear David:

On behalf of Good Guys, Inc. (“the Company”), I am pleased to confirm in writing the terms of your employment:

1. You are employed as Chief Financial Officer, reporting to the President and Chief Operating Officer.

3. During your employment, you will receive medical and other benefits of employment generally available to the Company’s officers when and as you become eligible for them.

4. You will be an at-will employee, which means that you can be terminated by the Company at any time, with or without cause.

11. Compensation payable to you under this agreement shall be reduced by all federal, state, local or other withholding or similar taxes as required by applicable law.

Please indicate your acceptance of these terms by affixing your signature below and returning this letter to me.


		Very truly yours,

		/s/ KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and CEO

Agreed and accepted:

/s/ DAVID A. CARTER

EX-31.1 12 f93514exv31w1.htm EXHIBIT 31.1 exv31w1

Exhibit 31.1

Certification Pursuant to
Rule 13a – 14(a)/15d- 14(a),
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Kenneth R. Weller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Good Guys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15 d – 15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: October 8, 2003	/s/	KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and Chief Executive Officer

EX-31.2 13 f93514exv31w2.htm EXHIBIT 31.2 exv31w2

Exhibit 31.2

Certification Pursuant to
Rule 13a – 14(a)/15d- 14(a),
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, David A. Carter, certify that:


Date: October 8, 2003	/s/	DAVID A. CARTER
		David A. Carter
		Chief Financial Officer

EX-32.1 14 f93514exv32w1.htm EXHIBIT 32.1 exv32w1

Exhibit 32.1

Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Good Guys, Inc. (the “Company”) on Form 10-Q for the quarterly period ended August 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kenneth R. Weller, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: October 8, 2003	/s/	KENNETH R. WELLER
		Kenneth R. Weller
		Chairman and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Good Guys, Inc. and will be retained by Good Guys, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 15 f93514exv32w2.htm EXHIBIT 32.2 exv32w2

Exhibit 32.2

Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Good Guys, Inc. (the “Company”) on Form 10-Q for the quarterly period ended August 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), David A. Carter, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:


Date: October 8, 2003	/s/	DAVID A. CARTER
		David A. Carter
		Chief Financial Officer

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1.		The condensed consolidated balance sheets at August 31, 2003 and August 31, 2002, the consolidated statements of operations for the three-month and six-month periods then ended and the consolidated statements of cash flows for the six-month periods then ended have been prepared from the Company’s records without audit and in management’s opinion include all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at August 31, 2003 and August 31, 2002, the results of operations for the three-month and six-month periods then ended and cash flows for the six-month periods then ended. The balance sheet at February 28, 2002, presented herein, has been derived from the Company’s audited balance sheet. Certain information and disclosures normally included in the Company’s notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these interim financial statements. Accordingly, these interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2003. The results of operations for the three-month and six-month periods ended August 31, 2003 are not necessarily indicative of the operating results for the full fiscal year.

2.		Basic earnings per share is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur from common shares to be issued through stock options and warrants.

		The potential dilutive effects of stock options and warrants were excluded from diluted earnings per share for the three-month and six-month periods ended August 31, 2003 and 2002 because their inclusion in net loss periods would be anti-dilutive to the earnings per share calculation.

		The Company accounts for its employee stock-based compensation using the intrinsic value method in accordance with Accounting Principle Board Opinion (“APB”) 25, “Accounting for Stock Issued to Employees” and its related interpretations and with the disclosure requirements of Statement of Financial Accounting Standard (“SFAS”) 148, “Accounting for Stock Based Compensation – Transition and Disclosure”.

		Equity instruments granted to non-employees are accounted for in accordance with the provisions of SFAS 123, “Accounting for Stock-Based Compensation” and Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods and Services”, under the fair value based method using the Black-Scholes option pricing model.

		Had compensation expense for the Company’s stock-based compensation plan been determined based upon fair values at the grant dates for awards under the plan in accordance with SFAS 123 calculated using the methods and assumptions described in Note 9 of the Annual 10-K, the Company’s net loss would have been as follows:

3.		Store closure accrual

		As of June 2003, the Company had closed all eight stores scheduled for closure. Prior to December 31, 2002 and in accordance with EITF 94-3, the Company recorded the estimated costs associated with closing a store during the period in which the store was identified and approved by management under a plan of termination, which includes the method of disposition and the expected date of completion. These costs included direct costs to terminate a lease or future lease obligations, net of expected sub-lease income, and the difference between the carrying values and estimated recoverable values of long-lived and intangible assets. Severance and other employee-related costs were recorded in the period in which the closure and related severance packages are communicated to the affected employees. After December 31, 2002, the Company adopted SFAS 146, which requires costs associated with the termination of the lease to be recorded when the store is closed, and other liabilities for costs associated with an exit or disposal activity to be recognized when the liability is incurred. The decrease in the store closure accrual of $0.9 million during the six-month period ended August 31, 2003 represents cash payments of $1.3 million offset by a $0.4 million charge for the reassessment of sub-lease income at the Maryland Parkway location in Las Vegas. In the six-month period ended August 31, 2002, the Company had executed lease termination agreements for five stores resulting in a reversal of estimated termination costs of $0.7 million. The total accrual for store closure expenses at August 31, 2003 was $5.4 million, compared to $6.3 million at February 28, 2003 and $9.0 million at August 31, 2002.

4.		Borrowings

		Through May 31, 2006, the Company has a $100 million revolving credit facility from Bank of America and GE Capital. The Company is required to comply with a capital lease covenant and reporting requirements, as defined in the agreement. Available borrowings under the credit agreement are limited to certain levels of eligible accounts receivable and inventory balances, but may be increased from October 1 through December 20 of each year to meet seasonal needs, as defined within the agreement. At August 31, 2003, the Company had borrowings of $40.0 million outstanding under the revolving credit agreement, with $12.8 million available to borrow under the credit facility. At August 31, 2002, the Company had borrowings of $51.4 million outstanding under the revolving credit agreement, with $14.1 million available to borrow under the credit facility.

		On September 29, 2003, subsequent to the period end, the Company announced a definitive merger agreement with CompUSA. Under the terms of the agreement, each outstanding share of Good Guys common stock will be converted into $2.05 in cash. In connection with the transaction, CompUSA also invested $5 million in Good Guys in the form of a two-year unsecured subordinated convertible promissory note, convertible into Good Guys common stock at a price of $2.05 per share.

5.		In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS 148 were effective for the Company’s fiscal year ended February 28, 2003. The interim disclosure provisions are effective for the first quarter of the fiscal year ending May 31, 2004. The Company continues to account for stock-based compensation using the intrinsic value method in accordance with the provisions of APB 25, as allowed by SFAS 123. As a result, the adoption of SFAS 148 did not have any impact on the Company’s consolidated financial statements.

6.		In November 2002, the Emerging Issues Task Force (“EITF’) reached a consensus regarding EITF 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor”. EITF 02-16 addresses the timing of recognition and classification of consideration received from vendors, including rebates and allowances. EITF 02-16 is effective for certain of the Company’s vendor rebates and allowances commencing in November 2002. The adoption of EITF 02-16 had no impact on the Company’s consolidated financial statements.

(a)		Evaluation of disclosure controls and procedures. The Company’s principal executive officer and its principal financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) as of August 31, 2003, have concluded, based on this evaluation, that the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

(b)		Changes in internal controls. The evaluation described above did not identify any changes in the Company’s internal control over financial reporting that occurred during the quarter ended August 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

2.		The amendment to the Company’s 1994 Stock Incentive Plan to increase the number of shares of Common Stock reserved for issuance under the plan by 500,000: 21,037,092 voters in favor, 989,608 votes against and 156,252 abstentions.

3.		The amendment to the Company’s Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance under the plan by 750,000: 21,127,614 voters in favor, 893,496 votes against and 161,842 abstentions.

	(a)		The exercise price of the option shall remain $3.75 per share, and the option, subject to the provisions of subparagraph (b) below, shall be fully vested as of August 15, 2003.

	(b)		The extension of the option and exercise of the option are subject to obtaining the approval of the stockholders of the Company of the extension at the next annual meeting of stockholders, or if earlier, at a meeting of stockholders held for the purpose of considering a “change of control” of the Company as that term is defined in the Employment Agreement (a “change of control”), in which the consideration to be received by the stockholders of the Company in the change of control has a value in excess of $3.75 per share (as determined in good faith by the Board of Directors of the Company). If prior to the next annual meeting of stockholders a “change of control” in which the stockholders of the Company receive consideration having a value of $3.75 per share or less is approved by the stockholders, or a change of control occurs at any price without stockholder approval, there shall be no further obligation to seek stockholder approval of extension of the option and the option shall terminate. Approval of stockholders as used herein shall mean the affirmative vote of at least a majority of the shares of common stock represented in person or by proxy and entitled to vote at the meeting.

	(c)		To the extent not exercised, the option shall in any event automatically expire and be cancelled upon the earliest to occur of (i) a change of control, (ii) failure to obtain approval of the stockholders of the extension of the option at a meeting held for that purpose, (iii) 90 days following the termination of employment of Executive with the Company other than by reason of death or disability, or one year following the termination of employment of Executive with the Company by reason of death or disability, and (iv) August 15, 2006.

1.		I have reviewed this quarterly report on Form 10-Q of Good Guys, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15 d – 15(e)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.