-----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, FkL2VivhHxM0+SHzf4+RipSeNbYaOKtKvmACj5eGT4qo2nq1qqYsVn5fMoLITu5I LEEYXG2i1fkgTR86YT5NYA== /in/edgar/work/0000912057-00-050027/0000912057-00-050027.txt : 20001115 0000912057-00-050027.hdr.sgml : 20001115 ACCESSION NUMBER: 0000912057-00-050027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATIONAL INSIGHTS INC CENTRAL INDEX KEY: 0000919570 STANDARD INDUSTRIAL CLASSIFICATION: [3944 ] IRS NUMBER: 952392545 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23606 FILM NUMBER: 767660 BUSINESS ADDRESS: STREET 1: 16941 KEEGAN AVENUE CITY: CARSON STATE: CA ZIP: 90746 BUSINESS PHONE: 3108842000 MAIL ADDRESS: STREET 1: 16941 KEEGAN AVENUE CITY: CARSON STATE: CA ZIP: 90746 10-Q 1 a2030769z10-q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____ to _____ Commission File Number: 0-23606 EDUCATIONAL INSIGHTS, INC. (Exact name of registrant as specified in its charter) California 95-2392545 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 16941 Keegan Avenue Carson, CA 90746 (Address of principal executive offices) Registrant's telephone number, including area code: (310) 884-2000 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 As of November 3, 2000 there were 7,040,000 shares of common stock outstanding. Total number of sequential pages: 13 Exhibit Index is on page 13. ================================================================================ PART I - ITEM 1. FINANCIAL STATEMENTS EDUCATIONAL INSIGHTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited, except for December 31, 1999 balance sheet information)
ASSETS SEPTEMBER 30, DECEMBER 31, 2000 1999 ---- ---- CURRENT ASSETS: Cash $ 480 $ 698 Accounts receivable, less allowance for doubtful accounts and sales returns of $558 in 2000 and $433 in 1999 9,260 8,880 Inventory 12,797 10,492 Income taxes receivable 311 Other receivables 32 30 Prepaid expenses and other current assets 850 663 Deferred income taxes, net 696 904 --------- --------- Total current assets 24,115 21,978 --------- --------- PROPERTY AND EQUIPMENT, NET 4,392 4,372 --------- --------- DEFERRED INCOME TAXES, NET 1,975 732 --------- --------- OPTION ON INTELLECTUAL PROPERTY 1,000 --------- OTHER ASSETS 647 732 --------- --------- TOTAL $32,129 $ 27,814 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (including $126 due to shareholder) $ 333 $ 149 Line of credit 8,077 2,761 Accounts payable 3,090 1,595 Accrued expenses 1,584 1,305 --------- --------- Total current liabilities 13,084 5,810 --------- --------- LONG TERM DEBT 860 781 --------- --------- SUBORDINATED NOTE PAYABLE DUE TO SHAREHOLDER 874 --------- SHAREHOLDERS' EQUITY Preferred stock, no par value; 10,000,000 shares authorized; no shares issued Common stock, no par value; 30,000,000 shares authorized; 7,040,000 shares issued in 2000 and 1999 18,644 18,644 Accumulated other comprehensive income - foreign currency translation adjustments 113 126 Accumulated deficit/Retained earnings (1,446) 2,453 --------- --------- Total shareholders' equity 17,311 21,223 --------- --------- TOTAL $32,129 $ 27,814 ========= =========
See accompanying notes to consolidated financial statements. Page 2 of 13 sequentially numbered pages. EDUCATIONAL INSIGHTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- SALES $ 9,898 $13,435 $21,933 $30,109 COST OF SALES 5,807 7,229 12,243 16,085 ------------- -------------- ------------- ------------- GROSS PROFIT 4,091 6,206 9,690 14,024 ------------- -------------- ------------- ------------- OPERATING EXPENSES: Sales and marketing 2,124 2,349 5,594 5,724 Warehousing and distribution 582 698 2,134 2,107 Research and development 894 808 3,061 2,632 General and administrative 894 1,061 3,086 2,970 ------------- -------------- ------------- ------------- Total operating expenses 4,494 4,916 13,875 13,433 ------------- -------------- ------------- ------------- OPERATING INCOME (LOSS) (403) 1,290 (4,185) 591 ------------- -------------- ------------- ------------- OTHER INCOME (EXPENSE): Interest expense (216) (174) (426) (363) Interest income 6 4 32 16 Other income (expense), net (169) 123 (354) (7) ------------- -------------- ------------- ------------- Total other income (expense) (379) (47) (748) (354) ------------- -------------- ------------- ------------- INCOME (LOSS) BEFORE INCOME TAXES (782) 1,243 (4,933) 237 PROVISION (BENEFIT) FOR INCOME TAXES 509 443 (1,034) 95 ------------- -------------- ------------- ------------- NET INCOME (LOSS) (1,291) 800 (3,899) 142 ------------- -------------- ------------- ------------- OTHER COMPREHENSIVE INCOME (LOSS) - Foreign currency translation adjustments (Net of tax of $(3) and $5, $(9) and $(3) for the three- and nine-month periods ended September 30, 2000 and 1999, respectively.) (4) 9 (13) (5) ------------- -------------- ------------- ------------- COMPREHENSIVE INCOME (LOSS) $(1,295) $ 809 $(3,912) $ 137 ============= ============== ============= ============= Net Income (Loss) Per Share - Basic and Diluted $ (0.18) $ 0.11 $ (0.56) $ 0.02 ============= ============== ============= ============= Weighted Average Number of Common Shares Outstanding - Basic 7,040 7,040 7,040 7,040 ============= ============== ============= ============= Weighted Average Number of Common Shares Outstanding - Diluted 7,040 7,137 7,040 7,141 ============= ============== ============= =============
See accompanying notes to consolidated financial statements. Page 3 of 13 sequentially numbered pages. EDUCATIONAL INSIGHTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
NINE-MONTHS ENDED SEPTEMBER 30, --------------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(3,899) $ 142 Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts and sales returns 431 272 Provision for inventory obsolescence 316 373 Depreciation 824 954 Deferred income taxes (1,027) (24) Changes in operating assets and liabilities: Accounts receivable (932) (1,767) Inventory (2,749) (1,028) Income taxes receivable 311 16 Other receivables (2) 28 Prepaid expenses and other current assets (201) (179) Other assets 54 (310) Accounts payable 1,788 948 Accrued expenses 281 434 ----------- ----------- Net cash used in operating activities (4,805) (141) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (576) (556) Purchase option on intellectual property (1,000) ----------- ----------- Net cash used in investing activities (1,576) (556) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in line of credit 5,315 563 Proceeds from issuance of note payable to shareholder 1,000 Repayments of long-term debt (128) (100) ----------- ----------- Net cash provided by financing activities 6,187 463 ----------- ----------- Effect of exchange rate changes on cash (24) ----------- ----------- NET INCREASE (DECREASE) IN CASH (218) (234) CASH, BEGINNING OF PERIOD 698 748 ----------- ----------- CASH, END OF PERIOD $ 480 $ 514 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 389 $ 373 Income taxes paid $ 111 Cash received from taxes $ (311)
Page 4 of 13 sequentially numbered pages. EDUCATIONAL INSIGHTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The consolidated financial statements of Educational Insights, Inc. (the "Company") include all of the accounts of the Company and its wholly owned subsidiary. All significant inter-company balances and transactions have been eliminated in consolidation. The interim consolidated financial statements are not audited, but include all adjustments (including normal recurring adjustments) which are, in the opinion of management, necessary for a fair representation of the financial position, results of operations and cash flows for the period. The consolidated financial statements as presented herein should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as filed with the Securities and Exchange Commission and included in the Company's Form 10-K for the year ended December 31, 1999. The Company's fiscal year ends December 31. The results of operations for the period ended September 30, 2000, are not indicative of the results that might be expected for the full fiscal year. Certain reclassifications have been made to the 1999 amounts to conform with the current year's presentation. 2. INVENTORY Inventory consists principally of finished goods held for sale and is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. 3. NEW ACCOUNTING STANDARD In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements", which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC. Subsequent amendments to SAB 101 deferred its implementation until the Company's fourth fiscal quarter of 2000. The Company will adopt SAB 101 and is currently in the process of evaluating the impact, if any, SAB 101 will have on its financial position or results of operations. Page 5 of 13 sequentially numbered pages. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I - Item 1 of this Quarterly Report, and the audited consolidated financial statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The Company's business is highly seasonal. Typically, sales and operating income are highest during the third and fourth quarters and lowest during the first and second quarters. This seasonal pattern is primarily due to the increased demand for the Company's products during the "back-to-school" and year-end holiday selling seasons. SALES Sales decreased $3,537,000 to $9,898,000 in the quarter ended September 30, 2000, from $13,435,000 in the quarter ended September 30, 1999. Sales decreases occurred in each of the Company's primary markets. The decrease in sales is principally due to delays in the introduction of most of its new product offerings. Sales decreased by 27.2% or $8,176,000 to $21,933,000 for the nine-month period ended September 30, 2000 from $30,109,000 for the nine-month period ended September 30, 1999. Sales decreases occurred in each of the Company's primary markets. The decrease in the Company's core school market was a reflection of the weakness of product reorders that the Company experienced in the fourth quarter of 1999 and the first half of 2000. Additionally, sales in all the Company's markets were adversely affected by delays in the introduction of the Company's new product offerings. Due to the lateness in the introduction of most of its new products, the Company expects sales volume in the year 2000 to be $11 to $12 million lower than the $41.1 million experienced in the prior year. GROSS PROFIT Gross profit margin as a percentage of sales decreased 4.9 percentage points to 41.3% for the quarter ended September 30, 2000 as compared to 46.2% for the quarter ended September 30, 1999. Gross profit margin as a percentage of sales decreased 2.4 percentage points to 44.2% for the nine-month period ended September 30, 2000, as compared to 46.6% for the nine-month period ended September 30, 1999. The decrease in the gross profit margin percentages on both a quarterly and year-to-date basis is principally due to lower gross profit in the specialty retail market. This resulted primarily from sales to certain customers at lower than standard margins as well as charges to rework certain inventory items to resolve certain technical and packaging problems. SALES AND MARKETING EXPENSE Sales and marketing expense decreased $225,000 to $2,124,000 for the quarter ended September 30, 2000 from $2,349,000 for the same period in 1999. However, when expressed as a percentage of sales, said expense increased to 21.5% for the quarter ended September 30, 2000, as compared to 17.5% for the same period in 1999. Sales and marketing expense decreased $130,000 to $5,594,000 for the nine-month period ended September 30, 2000 from $5,724,000 for the same period in 1999. When expressed as a percentage of sales, sales and marketing expense increased to 25.5% for the nine-month period ended September 30, 2000 from 19.0% for the same period in 1999. Page 6 of 13 sequentially numbered pages. The reason for the variances on both a quarterly and year-to-date basis is primarily as result of the lower sales volume experienced in the quarter. The lower volume sales decreased the absolute dollar amount of variable sales and marketing expense incurred, but the combination of variable and fixed marketing expenses was proportionally higher as a percentage of sales in 2000 than in 1999 due to the lower sales volume in 2000. WAREHOUSING AND DISTRIBUTION EXPENSE Warehousing and distribution expense decreased $116,000 to $582,000 for the quarter ended September 30, 2000 compared to $698,000 for the same period in 1999. However, when expressed as a percentage of sales, said expense increased to 5.9% for the quarter ended September 30, 2000 from 5.2% for the same period in 1999 due to the lower sales volume in 2000 as compared to 1999. The decrease in absolute dollars was primarily due to headcount reductions made in response to the lower sales volume. Warehousing and distribution expense increased $27,000 to $2,134,000 or 9.7% of sales for the nine-month period ended September 30, 2000 compared to $2,107,000 or 7.0% of sales for the same period in 1999. The increase in warehousing and distribution expense in absolute dollars on a year-to-date basis was primarily due higher compensation expense relating to personnel increases in the Company's purchasing and quality assurance functions in the year 2000 which was partially offset by headcount reductions made during the quarter in response to lower sales volume. RESEARCH AND DEVELOPMENT EXPENSE Research and development expense increased $86,000 to $894,000 or 9.0% of sales for the quarter ended September 30, 2000 compared to $808,000 or 6.0% of sales for the same quarter in 1999. Research and development expense increased $429,000 to $3,061,000 or 14.0% of sales for the nine-month period ended September 30, 2000 compared to $2,632,000 or 8.7% of sales for the same period in 1999. The increase in research and development expense on both a quarterly and year-to-date basis was due primarily to increased development activity for both new and repackaged products, as well as increased use of outside resources to attempt to reduce the design time of new products, thereby mitigating any further delays in the introduction of new products to market. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense decreased $167,000 to $894,000 for the quarter ended September 30, 2000 compared to $1,061,000 for the same quarter in 1999. However, when expressed as a percentage of sales, said expense increased to 9.0% for the quarter ended September 30, 2000 from 7.9% for the same period in 1999 due to the lower sales volume in 2000 as compared to 1999. General and administrative expense increased $116,000 to $3,086,000 or 14.1% of sales for the nine-month period ended September 30, 2000 compared to $2,970,000 or 9.9% of sales for the same period in 1999 despite the decrease in said expense for the quarter. This was primarily due to compensation expense relating to the separation agreement with the Company's ex-President and CEO. INTEREST EXPENSE Interest expense increased $42,000 to $216,000 for the quarter ended September 30, 2000 compared to $174,000 for the same quarter of 1999. For the nine-month period ended September 30, 2000, interest expense increased $63,000 to $426,000 compared to $363,000 for same period of 1999. The increase in interest expense on both a quarterly and year-to-date basis was a result of increased borrowings under the Company's line of credit and the higher prime rate (which is the reference rate on the Company's line of credit) in 2000 than in 1999. Page 7 of 13 sequentially numbered pages. OTHER INCOME AND EXPENSE Other expense, net of other income, increased $292,000 to $169,000 for the quarter ended September 30, 2000 compared to other income of $123,000 for the same quarter in 1999. For the nine-month period ended September 30, 2000, other expense increased $347,000 to $354,000 compared to $7,000 for the same period in 1999. The increase in other expense, net of other income, on both a quarterly and year-to-date basis resulted principally from foreign exchange losses recorded at the Company's UK subsidiary during the periods as compared to foreign exchange gains recorded in the same periods in 1999. In addition, foreign exchange losses were incurred on sales to Canada during 2000 due to the weakening Canadian dollar during the year as compared to foreign exchange gains recorded in 1999. PROVISION (BENEFIT) FOR INCOME TAXES As of September 30, 2000, the Company has current and non-current net deferred tax assets totaling $3,471,000, which primarily represent the tax benefit the Company expects to earn from the utilization of net operating loss carryforwards (NOLs) that were created from losses in 1998 and 2000. These NOLs expire in 2018 and 2020. However, due to the inherent uncertainty in forecasting future taxable income, management has recorded a valuation allowance of $800,000 to reduce said deferred tax assets to their estimated realizable value of $2,671,000. Realization of the net deferred tax asset (net of recorded valuation allowance) is dependent upon future profitable operations. Although realization is not assured, the management believes it is more likely than not that the net recorded benefits will be realized primarily through future profitable operations. In order to achieve this level of profitability, the Company will need to materially improve its performance when compared to the past five years. This improvement will be enabled as a result of the changes currently being implemented by the Company's new President and CEO. The primary change is to refocus the Company more on its sales to schools and other more educational products, which was its core business for the first twenty-five years of its existence. This change is expected to significantly improve the Company's future profitability primarily in two ways. First, the educational products have historically earned a higher profit margin than consumer products. Secondly, it will enable the Company to lower operating expenses as a percentage of sales as it will reduce the amount of money it has spent in recent years developing and marketing a myriad of consumer products, many of which were only marginally successful. In order to realize the recorded deferred tax asset of $2,671,000, the Company will need to generate future taxable income of approximately $7,000,000. If the Company is unable to generate sufficient taxable income prior to expiration of these NOLs, increases in the valuation allowance will be required through a charge to income. However, if the Company achieves sufficient profitability to utilize a greater portion of the deferred tax asset, the valuation allowance will be reduced through a credit to income. LIQUIDITY & CAPITAL RESOURCES In recent years, the Company's working capital needs have been met through funds generated from operations and from the Company's revolving line of credit. The Company's principal need for working capital has been to meet peak inventory and accounts receivable requirements associated with its seasonal sales patterns. The Company increases inventory levels during the spring and summer months in anticipation of increasing shipments in the summer and fall. Accounts receivable have historically increased during the summer and fall because of the Company's use of extended payment programs wherein sales are made to the Company's customers for which payment is deferred for one to three months based on the size of the sales orders. The number of days sales outstanding in accounts receivable increased to 119 days as compared to 84 days for the nine-month periods ended September 30, 2000 and 1999, respectively. This increase is primarily due to special dating programs that allowed for longer terms than the Company's typical extended payment program. These special dating programs were offered this year to incentivize customers to purchase additional products. The Company does not anticipate repeating said special dating programs in the future. Due to these sales Page 8 of 13 sequentially numbered pages. patterns, the largest customer orders are shipped during the summer and fall, hence increasing accounts receivable balances during the third and fourth quarters. During the period ended September 30, 2000, the Company's sources of funds were primarily the net increase in borrowings under the Company's line of credit of $5,315,000 and an increase in accounts payable of $1,788,000. In addition, $1,000,000 was obtained from a shareholder in the form of long-term debt (bearing interest at 9.5% with a maturity date of September 2005) specifically for the purpose of purchasing an option to purchase The Amazing Live Sea-Monkeys-Registered Trademark- intellectual property. Said option is reported as a non-current asset in the accompanying consolidated balance sheets in the amount of $1,000,000. The option agreement provides the Company with the right, but not the obligation, to purchase the Amazing Live Sea-Monkeys-Registered Trademark- intellectual property, product line and related patents. The option expires on October 31, 2006. The principal uses of cash during the period ended September 30, 2000 were to fund the year-to-date net loss of $3,899,000 and an increase in inventory of $2,749,000. Capital spending of $576,000 during the period was primarily for tooling relating to new products. The Company currently has a revolving line of credit with a bank, which is collateralized by substantially all of the Company's assets. Under the revolving line of credit agreement, which expires June 30, 2001, the Company may borrow up to $8 million from January through June and up to $10 million from July through December. Advances, which are formula driven based on eligible accounts receivable and inventory levels, bear interest at one half-percentage point above the bank's reference rate (9.5% at September 30, 2000). The agreement requires the maintenance of minimum net income amounts and net worth amounts, and provides for various restrictions including limitations on capital expenditures and additional indebtedness. Although the Company was in violation of the net income and net worth covenants at September 30, 2000, the Company has received an oral waiver. At September 30, 2000, the Company had $8,077,000 of outstanding borrowings against this line of credit. The Company's borrowings available under the revolving line of credit and anticipated funds from operations that are used to satisfy the Company's working capital and capital expenditure requirements may not be adequate if (as management currently estimates) the downtrend in sales continues at its current pace for the remainder of the year. As such, the Company is currently investigating other means of raising capital (e.g., refinancing the mortgage on its corporate headquarters facility and/or sale of the facility and/or amending the borrowing base formula of its revolving line of credit agreement) and has implemented expense reduction activities in order to mitigate the potential cash flow impact of further potential sales declines. In the event that the Company's sales do not improve and the Company is unable to raise additional capital and/or sufficiently reduce operating expenses, the Company's financial position could be materially adversely affected. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, this Report contains forward-looking statements which involve a number of risks and uncertainties, including but not limited to continued successful development and acceptance of new products, dependence on education funding by Federal, State and local governments, dependence on key development and marketing personnel, general economic conditions and the risk factors listed from time-to-time in the Company's filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks, which arise during the normal course of business from changes in foreign exchange rates and interest rates. A discussion of the Company's market risk associated with it's foreign currency transactions is presented below. The market risk associated with long-term debt is not material. Page 9 of 13 sequentially numbered pages. FOREIGN EXCHANGE RISK The Company sells its products in numerous countries around the world, however, except in Canada, such sales are denominated in U.S. Dollars. Additionally, the Company's UK subsidiary conducts its business in British pound sterling which is its functional currency, although its inter-company payable is denominated in U.S. dollars. These factors create an exposure to the future earnings of the Company when foreign exchange rates change and certain of its receivables as well as its foreign subsidiary's financial statements are denominated in foreign currencies. As such, the Company is primarily exposed to the following foreign currencies: the Canadian dollar and the British pound sterling. Based upon a hypothetical five-percent strengthening of the U.S. dollar across these currencies, the potential foreign exchange losses due to said foreign currency exposures would have been approximately $150,000 at September 30, 2000. The Company does not currently hedge this risk. Page 10 of 13 sequentially numbered pages. PART II - OTHER INFORMATION ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (1) Subordinated Secured Promissory Note by and between Educational Insights, Inc. and Burton Cutler and Diana P. Cutler, Co-Trustees, Cutler Family Trust UTD May 4, 1989, dated September 19, 2000. (2) Subordinated Security Agreement by and between Educational Insights, Inc. and Burton Cutler and Diana P. Cutler, Co-Trustees, Cutler Family Trust UTD May 4, 1989, dated September 19, 2000. (b) REPORTS ON FORM 8-K The following report on Form 8-K was filed during the period in question: (1) On September 19, 2000, a report was filed reporting a change in the registrant's certifying accountant. Page 11 of 13 sequentially numbered pages. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EDUCATIONAL INSIGHTS, INC. (Registrant) Date: November 10, 2000 By: /s/ G. REID CALCOTT ---------------------------------------- G. Reid Calcott President and Chief Executive Officer Date: November 10, 2000 By: /s/ STEPHEN E. BILLIS ---------------------------------------- Stephen E. Billis Vice President and Chief Financial Officer Page 12 of 13 sequentially numbered pages. INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------- ----------- -------------- 10.23 Subordinated Secured Promissory Note by and between Educational Insights, Inc. and Burton Cutler and Diana P. Cutler, Co-Trustees, Cutler Family Trust UTD May 4, 1989, dated September 19, 2000. 10.24 Subordinated Security Agreement by and between Educational Insights, Inc. and Burton Cutler and Diana P. Cutler, Co-Trustees, Cutler Family Trust UTD May 4, 1989, dated September 19, 2000.
Page 13 of 13 sequentially numbered pages. EX-10.23 2 a2030769zex-10_23.txt EXHIBIT 10.23 EXHIBIT 10.23 SUBORDINATED SECURED PROMISSORY NOTE $1,000,000.00 SEPTEMBER 19, 2000 FOR VALUE RECEIVED, receipt of which is hereby acknowledged, EDUCATIONAL INSIGHTS, INC., a California corporation ("EI"), promises to pay to the order of BURTON CUTLER and DIANA P. CUTLER, Co-Trustees, Cutler Family Trust UTD May 4, 1989 (the "Holder"), in installments as hereinafter set forth, at 10 South Middle Ridge Lane, Rolling Hills, California 90274, or such other place as the Holder shall designate, in lawful money of the United States of America, the principal sum of One Million Dollars ($1,000,000.00), together with interest from the date hereof at the rate of Nine and One-half percent (9.5%) per annum on the unpaid principal balance until paid in full. 1. PAYMENTS. Subject to the provisions of Section 4 of this Note, the principal balance plus accrued interest shall be payable in equal monthly payments of Eighteen Thousand Two Hundred Seventy-four and 70/100 Dollars ($18,274.70), each, until paid in full. Each payment shall be credited first to accrued but unpaid interest and the balance to principal, and interest shall cease to accrue on the amount of principal so paid. Interest shall be computed on the basis of a year of 365 days and the actual number of days elapsed. 2. PREPAYMENT. EI may prepay all or part of the outstanding principal balance of this Note, together with all accrued but unpaid interest thereon, at any time without premium or penalty. 3. SECURITY AGREEMENT. The obligations of EI under this Note are secured pursuant to, and this Note is entitled to the benefits and subject to the conditions of, that certain Subordinated Security Agreement of even date herewith, by and among EI and Holder, as the same may be amended from time to time (the "Security Agreement"), and Holder, and its successors and assigns, by its acceptance hereof, agrees to be bound by the provisions of the Security Agreement. 4. SUBORDINATION. (a) THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY BURTON CUTLER AND DIANA P. CURLER, CO-TRUSTEES OF THE CUTLER FAMILY TRUST, UTD MAY 4, 1989 , IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC., DATED AS OF AUGUST 4, 2000. (b) Notwithstanding anything else herein contained to the contrary, the payment and collection of principal and interest on this Note is subordinated in right of payment and collection to the prior payment in full of all Senior Indebtedness of EI, whether outstanding on this date or hereafter created or incurred, as hereinafter specified. For purposes of this Note, "Senior Indebtedness" is defined as the principal of and premium and interest on indebtedness of EI for money borrowed from, or the payment of which has been guaranteed to, persons, firms, or corporations which regularly engage in the business of lending money including, without limitation, banks, trust companies, insurance companies and other financing institutions and charitable trusts, pension trusts and other investing organizations, evidenced by notes or similar obligations. This subordination of this Note is on the following terms: (1) In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings pertaining to EI, or to its property, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of EI, then the holders of Senior Indebtedness shall be entitled to 1 receive payment in full of all principal and interest on all Senior Indebtedness before the Holder is entitled to receive any payment on account of principal or interest on this Note and, to that end, the holders of Senior Indebtedness shall be entitled to receive on application any payment or disbursement of any kind or character, whether in cash or in property or securities which may be payable or deliverable in any such proceedings in respect to the Note, except securities of EI as reorganized or readjusted or securities of EI, or any other company, provided for by a plan of reorganization or readjustment, the payment of which is subordinate to the payment of all Senior Indebtedness which may at the time be outstanding; (2) In the event that this Note is declared due and payable before its express maturity on the occurrence of an Event of Default as defined below (under such circumstances that the provisions of Section 4(a) are not applicable), the Holder will be entitled to payment only after there is first paid in full on the Senior Indebtedness outstanding at the time this Note becomes due and payable because of such Event of Default all principal and interest becoming due and payable under the Senior Indebtedness, whether according to its terms, by acceleration or otherwise, or payment has been provided therefor in a manner satisfactory to the holders of such Senior Indebtedness. (3) No present or future holder of Senior Indebtedness will be prejudiced in its right to enforce subordination of this Note by any act or failure to act on the part of EI. The provisions of this Section 4 are solely for the purpose of defining the relative rights of the holders of Senior Indebtedness, on the one hand, and the Holder, on the other hand, and nothing in this Note will, as between EI and the Holder, impair the obligation of EI to pay to the Holder the principal and interest under this Note in accordance with its terms, nor will anything in this Note prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default hereunder subject only to the rights, if any, under this Section 4 of holders of Senior Indebtedness to receive cash, property or securities otherwise payable or deliverable to the Holder. (4) The Holder shall, as required by the holders of Senior Indebtedness from time to time, execute and deliver to them all additional documents and instruments of subordination as are not inconsistent with the foregoing. 5. DEFAULT. The following events shall constitute a default hereunder ("Events of Default"): (a) If EI shall: (1) Admit in writing its inability to pay its debts generally as they become due; (2) File a voluntary petition in bankruptcy or to take advantage of any insolvency act; (3) Make an assignment for the benefit of its creditors; (4) Consent to the appointment of a receiver of the whole or any substantial part of its property; (5) Have an involuntary petition in bankruptcy filed against it which is not dismissed within sixty (60) day of the filing thereof; (6) Fail to perform any obligation imposed on it under that "Loan Commitment Agreement" among EI and Holder dated September 15, 2000 (the 2 Loan Commitment Agreement") and such non-performance is uncured and continuing at the expiration of ten (10) days following EI's receipt of written notice of such failure; or (7) Fail to perform any obligation imposed on it under the Security Agreement and such non-performance is uncured and continuing at the expiration of ten (10) days following EI's receipt of written notice of such failure; (b) If any installment shall not be paid within ten (10) days after EI's receipt of written notice of this Event of Default; and (c) If EI shall fail to acquire the HvB Option (as that term is defined in the Loan Commitment Agreement) within ninety (90) days following the date first above written. 6. ACCELERATION; PAYMENT ON ACCELERATION; REMEDIES. (a) If any one or more Events of Default occurs, the Holder, by notice in writing to EI, may declare the principal of and all accrued interest on all Notes then outstanding immediately due and payable without further notice or demand. (b) Upon any such acceleration of the maturity of this Note, subject to the provisions of Section 4 EI shall, within thirty (30) days pay to the Holder the entire unpaid principal balance and accrued interest to the date of such payment. (c) If EI fails to make payment to the Holder as provided in the preceding Subsection (c), the Holder shall, subject to the provisions of Section 4, be entitled and empowered to take such measures as may be appropriate to enforce the EI's obligations under this Note, by judicial proceedings or otherwise. In the event suit is brought to enforce payment of this Note, the EI shall pay a reasonable attorney's fee to be fixed by the court. 7. GENERAL PROVISIONS. (a) The Holder shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by the Holder and then only to the extent specifically set forth in writing. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. No delay or omission of the Holder to exercise any right, whether before or after a default hereunder, shall impair any such right or shall be construed to be a waiver of any right or default, and the acceptance at any time by the Holder of any past-due amounts shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable. All payments shall be made without set-off or counterclaim. (b) The remedies of the Holder as provided herein, or at law or in equity, shall be cumulative and concurrent, and may be pursued singly, successively or together at the sole discretion of the Holder, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. (c) This Note shall be governed and construed in accordance with and pursuant to the laws of the State of California. 3 (d) Upon payment in full of all principal and interest payable hereunder, this Note shall be surrendered to EI for cancellation. IN WITNESS WHEREOF, EI, by the undersigned thereunto duly authorized, and intending to be legally bound hereby, has duly executed and delivered this Note the day and year first above written. Educational Insights, Inc. [Corporate Seal] ("EI") By: /s/ G. REID CALCOTT ----------------------------------------- G. Reid Calcott, President 4 EX-10.24 3 a2030769zex-10_24.txt EXHIBIT 10.24 EXHIBIT 10.24 SUBORDINATED SECURITY AGREEMENT THIS SUBORDINATED SECURITY AGREEMENT (this "Agreement"), dated as of September 19, 2000, is made and entered into by and among EDUCATIONAL INSIGHTS, INC., a California corporation with its principal place of business at 16941 Keegan Avenue, Carson, California 90746-1307 (the "Debtor"), and BURTON and DIANA P. CUTLER, Co-trustees, Cutler Family Trust UTD May 4, 1989, residing at 10 South Middle Ridge Lane, Rolling Hills, California 90274 (the "Secured Party"), with reference to and incorporation of the following: RECITALS: A. Debtor is executing and delivering to Secured Party a Subordinated Secured Promissory Note of even date in the principal amount of One Million Dollars ($1,000,000.00) payable to the order of Secured Party (the "Note"); B. In order to secure the payment and performance of the obligations of Debtor to Secured Party under the Note, Secured Party requires that Debtor grant to Secured Party a security interest in the Collateral, subordinate in all to the rights of the holders of Senior Indebtedness (as defined in the Note), as provided herein: NOW, THEREFORE, in consideration of the foregoing Recitals, the following mutual agreements and promises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. SECURITY INTEREST. 1.1. CREATION. Subject to the provisions of Article 2, Debtor hereby grants to Secured Party a security interest in all of Debtor's right, title and interest in and to the Collateral (as defined in Section 1.2 below), in order to secure the payment and performance of the obligations of Debtor to Secured Party under the Note (the "Secured Obligation"). 1.2. COLLATERAL. As used herein, the term "Collateral" shall include the following, and any other property hereafter added thereto or substituted or replaced therefor, or other property to which Debtor is or may hereafter become entitled to receive on account of such Collateral: (a) All personal property, including, without limitation, all goods, supplies, work in process, signs, equipment, furniture, furnishings, fixtures, machinery, motor vehicles, inventory and construction materials which Debtor now or hereafter owns or in which Debtor now or hereafter acquires an interest or right, including, without limitation, those which are now or hereafter located on or affixed to the real property now or hereafter occupied by Debtor or any improvements situated thereon (the "Real Property") or used or useful in the operation, use or occupancy thereof or the construction of any improvements thereon, including, without limitation, any interest of Debtor in and to personal property which is leased or subject to any superior security interest, or which is being manufactured or assembled for later installation into the improvements to be located or constructed at the Real Property, wherever located, and all books, records, leases and other documents, of whatever kind or character, relating to the Real Property; 1 (b) All fees, income, rents, issues, profits, earnings, receipts, royalties and revenues which, after the date hereof and while any portion of the indebtedness secured hereby remains unpaid, may accrue from such goods, fixtures, furnishings, equipment and building materials or any part thereof or from the Real Property or any part thereof, or which may be received by Debtor from any hiring, using, letting, leasing, subhiring, subletting, or subleasing therefor; (c) All of Debtor's present and future rights to receive payments of money, services or property including, without limitation, accounts receivable, deposit accounts, chattel paper, documents, letters of credit, hedging or similar agreement, instruments, general intangibles and principal, interest and notes, drafts, contract rights (including, without limitation, all rights under any interest rate payments due on account of goods sold, services rendered, loans made or credit extended), together with title or interest in all documents evidencing or securing the same; (d) All proceeds from sale or disposition of the aforesaid Collateral; (e) Debtor's rights under all insurance policies covering any of the aforesaid Collateral (whether or not required by any loan documents executed by Debtor), and all proceeds, loss payments and premium refunds payable regarding the same; and (f) All causes of action, claims, compensation and recoveries for any damage to or taking any of the aforesaid Collateral, or for any conveyance in lieu thereof, whether direct or consequential, or for any damage or injury to the aforesaid Collateral, or for any loss or diminution in value of the aforesaid Collateral. 2. SUBORDINATION. The payment of principal and interest on this Note is subordinated in right of payment and collection according to the terms of the Note. The security interest in the Collateral granted to Secured Party hereunder is hereby subordinated to the security interests of the holders of any Senior Indebtedness (as defined in the Note) in the same Collateral, whether existing on this date or hereafter created, as hereinafter specified. This subordination is on the following terms: (a) In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings pertaining to Debtor, or to its property, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of Debtor, then the holders of Senior Indebtedness holding security interests in the Collateral shall be entitled to full enjoyment of their interests before the Secured Party is entitled to enforcement of its interests in or to the Collateral hereunder and, to that end, such holders of Senior Indebtedness shall be entitled to receive on application any payment or disbursement of any kind or character, whether in cash or in property or securities which may be payable or deliverable in any such proceedings in respect to the Collateral, except securities of Debtor as reorganized or readjusted or securities of Debtor, or any other company, provided for by a plan of reorganization or readjustment, the payment of which is subordinate to the payment of all Senior Indebtedness which may at the time be outstanding; (b) In the event that the Note is declared due and payable before its express maturity on the occurrence of an Event of Default as defined in the Note (under such circumstances that the provisions of Section 2(a) are not applicable), Secured Party will be entitled to pursue the Collateral only 2 after such holders of the Senior Indebtedness outstanding at the time the Note becomes due and payable because of such Event of Default are fully paid all principal and interest becoming due and payable under the Senior Indebtedness, whether according to its terms, by acceleration or otherwise, or payment has been provided therefor in a manner satisfactory to the holders of such Senior Indebtedness. (c) No present or future holder of Senior Indebtedness will be prejudiced in its right to enforce the subordination provisions of this Agreement Note by any act or failure to act on the part of Debtor. The provisions of this Section 2 are solely for the purpose of defining the relative rights in or to the Collateral of such holders of Senior Indebtedness, on the one hand, and the Secured Party, on the other hand, and nothing in this Agreement will, as between Debtor and Secured Party, impair the obligation of Debtor to otherwise perform its obligations hereunder, nor will anything in this Agreement otherwise prevent Secured Party from exercising all remedies otherwise permitted by applicable law upon default hereunder subject only to the rights, if any, under this Section 4 of holders of Senior Indebtedness to receive cash, property or securities otherwise payable or deliverable to Secured Party. (d) Secured Party shall, as required by the holders of Senior Indebtedness holding or desiring to hold security interests in the Collateral from time to time, execute and deliver to them all additional documents and instruments of subordination as are not inconsistent with the foregoing. 3. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor hereby represents and warrants to Secured Party that: (a) All corporate action on the part of Debtor necessary for the execution and delivery of this Agreement has been duly authorized by Debtor's Board of Directors. This Agreement constitutes a valid and legally binding obligation of Debtor and creates a security interest enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy laws, laws affecting creditors' rights and court decisions limiting the availability of specific performance and other equitable remedies. Debtor has full corporate power and corporate authority to execute and deliver this Agreement and to carry out the transactions contemplated hereby; and (b) The execution or delivery of this Agreement or the taking of any action in compliance with it, will not violate or breach any law, regulation, rule or judicial action binding on Debtor or agreement to which Debtor is a party. 4. COVENANTS OF DEBTOR. Until payment of all obligations due under the Note, Debtor agrees that, unless Secured Party shall have otherwise consented in writing: (a) Debtor shall execute and take such action as may reasonably be requested from time to time by Secured Party, including the execution and delivery of financing statements and certificates of title, and the filing of financing statements, as may be necessary to perfect and maintain the security interest granted to Secured Party hereby; (b) Debtor shall make timely payments to Secured Party of all amounts then due and payable under the Note according to its terms; 3 (c) Debtor shall maintain the Collateral in good repair in all material respects, ordinary wear, tear and obsolescence excepted; (d) To the extent and in amounts customary for entities engaged in business activities comparable to those of Debtor, Debtor shall at all times keep the Collateral insured against all insurable hazards in amounts equal to the full cash value of the Collateral; (e) Debtor shall keep appropriate records and, upon written request of Secured Party, will give Secured Party any information it may reasonably require with respect to the condition and status of the Collateral and will permit Secured Party to inspect the Collateral upon reasonable prior notice and during normal business hours; (f) Debtor shall not sell, lease, transfer or otherwise encumber or dispose of the Collateral, except for sales made in the ordinary course of business or to dispose of obsolete or replaced Collateral; (g) Debtor shall notify Secured Party within ten (10) days of any change in (1) Debtor's corporate name, (2) Debtor's business or legal structure, (3) Debtor's place of business or chief executive office if the Debtor has more than one place of business, or (4) location of Collateral. 5. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default": (a) If Debtor shall: (1) Admit in writing its inability to pay its debts generally as they become due; (2) File a voluntary petition in bankruptcy or to take advantage of any insolvency act; (3) Make an assignment for the benefit of its creditors; (4) Consent to the appointment of a receiver of the whole or any substantial part of its property; (5) Have an involuntary petition in bankruptcy filed against it which is not dismissed within sixty (60) day of the filing thereof; (6) Fail to perform any obligation imposed on it under that "Loan Commitment Agreement" among Debtor and Secured Party dated September 15, 2000 (the Loan Commitment Agreement") and such non-performance is uncured and continuing at the expiration of ten (10) days following Debtor's receipt of written notice of such failure; or (7) Fail to perform any obligation imposed on it under this Agreement and such non-performance is uncured and continuing at the expiration of ten (10) days following Debtor's receipt of written notice of such failure; (b) If any installment required to be paid under the Note shall not be paid within ten (10) days after Debtor's receipt of written notice of this Event of Default; (c) If Debtor shall fail to acquire the HvB Option (as that term is defined in the Loan Commitment Agreement) within ninety (90) days following the date first above written. 4 6. SECURED PARTY'S RIGHTS AND REMEDIES. Subject in all respects to the provisions of Article 2: (a) Upon the occurrence of an Event of Default, Secured Party may exercise all rights or remedies that Secured Party may have as a secured party under the Uniform Commercial Code as adopted in the State of California; (b) Upon the occurrence of any Event of Default, Secured Party may sell, lease or otherwise dispose of all or any part of the Collateral upon any terms which are commercially reasonable; Secured Party shall give ten (10) days' prior written notice to Debtor of the time and place of any public sale of the Collateral, or of the time after which a private sale or other disposition of the Collateral is to be made; and (c) All proceeds from the sale or other disposition of the Collateral, and all other amounts received by Secured Party pursuant to the terms of this Agreement, unless otherwise expressly required by law or regulation, shall be applied as follows: (1) First, to the payment of all expenses reasonably incurred by Secured Party in connection with any sale or disposition of the Collateral, including, but not limited to, the expenses of taking, delivering or preserving the Collateral to be sold, and all court costs and all reasonable legal fees of Secured Party in connection therewith; (2) Second, to the payment of all obligations of Debtor to Secured Party arising under the Note, including any interest thereon; and (3) Third, the balance, if any, to Debtor. (d) No delay or omission by Secured Party in exercising any right or remedy hereunder or with respect to any obligation of Debtor to Secured Party secured hereunder shall operate as a waiver thereof or of any other right or remedy available to Secured Party, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right or remedy. Secured Party, in its sole discretion, on at least three (3) days' prior written notice to Debtor, may (but shall have no obligation to) remedy any Event of Default by Debtor hereunder or with respect to any obligation of Debtor to Secured Party or any other person, firm, corporation or other entity in any reasonable manner without waiving the Event of Default remedied and without waiving any other prior or subsequent Event of Default by Debtor, and shall be reimbursed for its necessary and reasonable out-of-pocket expenses in so remedying any of such Event of Default. All rights and remedies of Secured Party hereunder are cumulative. 7. GENERAL PROVISIONS. 7.1. SUCCESSORS AND ASSIGNS. This Agreement is not assignable by either party. Subject to the foregoing, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors of the parties. Except as provided in Article 2, nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto or their respective successors any rights, remedies, obligations, or liabilities under or by reason of this Agreement. 7.2. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California. 5 7.3. NOTICES. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or mailed, certified, return-receipt requested, postage prepaid: If to Debtor: Educational Insights, Inc., at its address as first appearing above Attention: G. Reid Calcott, President and, if to Secured Party: Burton Cutler, at his address as first appearing above Any party hereto may from time to time, by ten (10) days' advance written notice to the other parties, designate a different address, which shall be substituted for the one specified above for such party. If any notice or other document is sent by certified or registered mail, return receipt requested, postage prepaid, properly addressed as aforementioned, the same shall be deemed served or delivered seventy-two (72) hours after mailing thereof. If any notice is sent by facsimile machine ("fax") to a party, it will be deemed to have been delivered on the date the fax thereof is actually received, provided the original thereof is sent by mail in the manner set forth above, within twenty-four (24) hours after the fax is sent. 7.4. AMENDMENTS, WAIVERS AND CONSENTS. Any term of this Agreement to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision or breach of any representation or warranty herein or therein set forth may be omitted or waived, if the Debtor shall obtain consent thereto in writing from Secured Party. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 7.5. WAIVER. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or be construed as a further or continuing waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement. 7.6. FURTHER ASSURANCES. Each party hereto agrees to execute and deliver such other documents and instruments as the other party may reasonably request to better evidence or effectuate the rights and obligations of the parties hereto and the transactions contemplated hereunder, provided that no party shall, as a result thereof, be required to assume any further obligation or relinquish any of its rights hereunder. 7.7. ATTORNEYS' FEES. In the event of any litigation of any nature between the parties hereto, regarding the rights and obligations of the parties under this Agreement or any obligations secured hereby, the prevailing party in such litigation shall be entitled to recover reasonable attorneys' fees as determined by the court. 7.8. ENTIRE AGREEMENT. This Agreement, the Note and the Loan Commitment Agreement constitute the entire understanding between the parties with respect to the subject matter hereof, superseding all negotiations, prior discussions and preliminary agreements with respect thereto. 6 IN WITNESS WHEREOF, the parties have, by the undersigned thereunto duly authorized, executed and delivered this Subordinated Security Agreement as of the date first above written. "Debtor" "Secured Party" Educational Insights, Inc. /s/ BURTON CUTLER -------------------------- Burton Cutler, Trustee, By: /s/ G. REID CALCOTT ---------------------------- G. Reid Calcott, President and /s/ DIANA P. CUTLER -------------------------- Diana P. Cutler, Trustee, Cutler Family Trust UTD May 4, 1989 7 EX-27.1 4 a2030769zex-27_1.txt EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 480 0 9,260 558 12,797 24,115 4,392 0 32,129 13,084 1,734 0 0 18,644 (1,333) 32,129 21,933 21,933 12,243 12,243 13,875 431 426 (4,933) (1,034) (3,899) 0 0 0 (3,899) (0.56) (0.56)
-----END PRIVACY-ENHANCED MESSAGE-----