-----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, CLqNVqCgmivdl4KyrBHDHXto9Pil2gSU1UY2Oj2u1RIDGOdi8pHAWjck0QN+8RPA anl4gTZm42c7BWNOTDFELw== 0000912057-96-016931.txt : 19960820 0000912057-96-016931.hdr.sgml : 19960820 ACCESSION NUMBER: 0000912057-96-016931 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-23606 FILM NUMBER: 96607539 BUSINESS ADDRESS: STREET 1: 19560 S RANCHO WAY CITY: DOMINGUEZ HILLS STATE: CA ZIP: 90220 BUSINESS PHONE: 3108841931 MAIL ADDRESS: STREET 1: 16941 KEEGAN AVENUE CITY: CARSON STATE: CA ZIP: 90746 10-Q 1 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 June 30, 1996 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 b 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 August 1, 1996 there were 7,040,000 shares of common stock outstanding. Total number of sequential pages: 10 There are no Exhibits in this ------ document; hence no Exhibit Index. - - -------------------------------------------------------------------------------- PART I. ITEM 1. FINANCIAL STATEMENTS EDUCATIONAL INSIGHTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited, except for December 31, 1995 balance sheet information)
ASSETS June 30, December 31, 1996 1995 ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 327 $ 378 Accounts receivable, less allowance for doubtful accounts of $450 in 1996 and $394 in 1995 9,578 9,459 Inventory 11,397 10,309 Income taxes receivable 1,236 749 Other receivables 101 16 Prepaid expenses and other current assets 939 439 Deferred income taxes 716 716 --------- --------- Total current assets 24,294 22,066 --------- --------- PROPERTY AND EQUIPMENT, Net 5,641 5,844 --------- --------- OTHER ASSETS 538 344 --------- --------- TOTAL $30,473 $28,254 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ 2,900 Accounts payable 2,638 $ 2,463 Accrued expenses 1,680 1,522 Current portion of long-term debt 99 99 --------- --------- Total current liabilities 7,317 4,084 --------- --------- LONG-TERM DEBT 1,238 1,295 --------- --------- DEFERRED INCOME TAXES 291 291 --------- --------- 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 1996 and 1995 18,644 18,644 Cumulative translation adjustment 88 89 Retained earnings 2,895 3,851 --------- --------- Total shareholders' equity 21,627 22,584 --------- --------- TOTAL $30,473 $28,254 --------- --------- --------- ---------
See accompanying notes to consolidated financial statements. Page 2 of 10 sequentially numbered pages EDUCATIONAL INSIGHTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- SALES $8,653 $8,278 $16,319 $16,625 COST OF SALES 4,178 3,513 7,546 7,402 ---------- ---------- ---------- ---------- GROSS PROFIT 4,475 4,765 8,773 9,223 ---------- ---------- ---------- ---------- OPERATING EXPENSES: Sales and marketing 1,745 1,799 3,767 3,370 Warehousing and distribution 929 903 1,811 1,948 Research and development 1,525 1,298 2,931 2,797 General and administrative 939 899 1,944 1,852 ---------- ---------- ---------- ---------- Total operating expenses 5,138 4,899 10,453 9,967 ---------- ---------- ---------- ---------- OPERATING LOSS ( 663) ( 134) ( 1,680) ( 744) ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense (70) ( 106) Interest income 6 73 17 134 Other income, net 105 105 198 179 ---------- ---------- ---------- ---------- Total other income (expense) 41 178 109 313 ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES ( 622) 44 (1,571) ( 431) PROVISON (BENEFIT) FOR INCOME TAXES ( 250) 16 ( 615) ( 173) ---------- ---------- ---------- ---------- NET INCOME (LOSS) $( 372) $ 28 $ ( 956) $ ( 258) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss) Per Share $(0.05) $ 0.00 $ (0.14) $ (0.04) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted Average Number of Common and Common Equivalent Shares Outstanding 7,040,000 7,041,000 7,040,000 7,040,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. Page 3 of 10 sequentially numbered pages. EDUCATIONAL INSIGHTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, ----------------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (956) $ (258) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts and sales returns 78 80 Provision for inventory obsolescence (100) Depreciation 491 341 Changes in operating assets and liabilities: Accounts receivable (202) 1,721 Inventory (1,091) (2,749) Income taxes receivable (487) Other receivables (85) (280) Prepaid expenses and other current assets (500) (966) Other assets (194) 445 Accounts payable 183 419 Accrued expenses 158 (455) Income taxes payable (696) ---------- ---------- Net cash used in operating activities (2,605) (2,498) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (288) (2,860) ---------- ---------- Net cash used in investing activities (288) (2,860) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase / decrease in line of credit 2,900 Proceeds from long-term debt 1,480 Repayments of long-term debt (57) (41) Distribution to S corporation shareholders (340) ---------- ---------- Net cash provided by financing activities 2,843 1,099 ---------- ---------- Effect of exchange rate changes on cash (1) 6 ---------- ---------- NET DECREASE IN CASH (51) (4,253) CASH, BEGINNING OF PERIOD 378 4,484 ---------- ---------- CASH, END OF PERIOD $ 327 $ 231 ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 89 $ 59 Income taxes paid (refunded) (127) 880 See accompanying notes to consolidated financial statements. Page 4 of 10 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, 1995. The Company's fiscal year ends December 31. The results of operations for the period ended March 31, 1996, are not indicative of the results that might be expected for the full fiscal year. 2. INVENTORY Inventory consists principally of finished goods held for sale and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. 3. NEW ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which was effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. Page 5 of 10 sequentially numbered pages PART I. 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 for the year ended December 31, 1995. 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 increased by 4.5% or $375,000 to $8,653,000 in the quarter ended June 30, 1996, from $8,278,000 in the quarter ended June 30, 1995. Sales decreased in the Company's school and direct sales markets, remained essentially unchanged in the mass market sector and increased in the independent toy, private label, software and international markets producing the net increase of 4.5%. Sales decreased 1.8% to $16,319,000 for the six months ended June 30, 1996 compared to $16,625,000 for the six months ended June 30, 1995. The Company expects a gradual continuing decline in the sales of certain of its older products which it plans to offset through the introduction of new products most of which are expected to begin shipping in the third quarter of 1996. GROSS PROFIT. Gross profit margin decreased to 51.7% for the quarter ended June 30, 1996 from 57.6% for the quarter ended June 30, 1995. This decrease was primarily due to a shift in product mix away from higher margin product and discounting associated with the sale of certain discontinued products. Gross profit margin decreased to 53.8% for the six month period ended June 30, 1996 from 55.5% for the six month period ended June 30, 1995. The reasons for this decrease are the same as the reasons for the decrease in the second quarter. The Company anticipates that the sales of lower margin products including private label and ExploraToy products will increase as a percentage of total sales during the last half of the year compared to 1995. It does not anticipate a further decrease in gross profit margins resulting from the sale of discontinued products. SALES AND MARKETING EXPENSE. Sales and marketing expense decreased by $54,000 to $1,745,000 or 20.2% of sales for the quarter ended June 30, 1996 from $1,799,000 or 21.7% of sales during the same quarter of 1995. Sales and marketing expense decreased marginally in the Company's traditional markets but increased in its software market where it is participating for the first full year after launching its first CD-ROM title late in 1995. Sales and marketing expense increased by $397,000 to $3,767,000 or 23.1% of sales during the first half of 1996 from $3,370,000 or 20.3% of sales during the corresponding period in 1995. The increase for the six month period was due primarily to increases in promotional and literature expense during the first quarter and the addition of marketing expense associated with the Company's software division. WAREHOUSING AND DISTRIBUTION EXPENSE. Warehousing and distribution expense for the quarter ended June 30, 1996 remained essentially the same at $929,000 compared to $903,000 for the same quarter of 1995 and remained essentially Page 6 of 10 sequentially numbered pages unchanged when expressed as a percentage of sales at 10.7% for the quarter ended June 30, 1996 compared to 10.9% of sales for the quarter ended June 30, 1995. Warehousing and distribution expense decreased $137,000 to $1,811,000 or 11.1% of sales for the six month period ended June 30, 1996 from $1,948,000 or 11.7% of sales for the corresponding period of 1995. The Company does not anticipate any material changes in its warehousing and distribution activities. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased by $227,000 to $1,525,000 or 17.6% of sales during the second quarter of 1996 from $1,298,000 or 15.7% of sales for the corresponding period in 1995. This increase was due to increases in the development of electronic learning aids and in continuing high levels of research and development expenditures in the Company's software/CD-ROM market where it expects to release its second title in late 1996. Research and development expense for the six month period ended June 30, 1996 increased by $134,000 to $2,931,000 or 17.8% of sales from $2,797,000 or 16.8% of sales for the same period in 1995. The Company anticipates continuing high levels of research and development expenditures but expects research and development costs for the remainder of the year, when expressed as a percentage of sales, to be lower than the 17.8% experienced during the first six months of the year. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased $40,000 to $939,000 during the second quarter from $899,000 during the corresponding quarter of 1995 but remained essentially unchanged as a percentage of sales at 10.9% of sales for the second quarter of both 1996 and 1995. General and administrative expense increased by $92,000 to $1,944,000 during the six month period ended June 30, 1996 from $1,852,000 for the corresponding period in 1995 but remained essentially unchanged as a percentage of sales. INTEREST EXPENSE Interest expense increased to $70,000 during the second quarter of 1996 compared to $0 during the second quarter of 1995 and increased to $106,000 for the six month period ended June 30,1996 compared to $0 for the same period of 1995. This increase was due primarily to interest paid on the Company's long-term loan associated with its purchase of a new office facility which it occupied in August 1995. Page 7 of 10 sequentially numbered pages 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 risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other risk factors discussed herein and in the Company's filings with Securities and Exchange Commission. 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 spring and summer because of the Company's use of "dating" programs wherein sales are made to the Company's customers in the spring and summer with payment due in the latter part of the year -- usually in September and December. For the six month period ended June 30, 1996, the Company's primary source of funds were increased borrowings under its revolving line of credit in the amount of $2,900,000. The principal uses of cash during the period ended June 30, 1996 were the funding of operating losses net of depreciation of $465,000, an increase in inventory of $1,091,000, an increase in prepaid expenses of $500,000 and an increase of taxes receivable of $487,000. For the period ended June 30, 1996 the Company spent $288,000 on the purchase of property and equipment compared to $2,860,000 for the same period of 1995. The unusually high level of capital spending in 1995 was associated with the Company's purchase of a new office building and its relocation to this site. The Company believes capital expenditures have returned to traditional levels and should approximate depreciation charges during 1996. 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 3, 1997, the Company may borrow up to $8 million. The agreement requires the maintenance of certain financial ratios, minimum annual net income amounts and tangible net worth amounts, and provides for various restrictions including limitations on advances to the Company's subsidiary, capital expenditures and additional indebtedness. At June 30, 1996, the Company had $2,900,000 outstanding against this line of credit. The Company believes that borrowings available under the revolving line of credit and anticipated funds from operations will satisfy the Company's projected working capital and capital expenditure requirements for at least the next 12 months. Page 8 of 10 sequentially numbered pages PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On June 21, 1996 the Company held its Annual Meeting of Shareholders. The selections of Deloitte & Touche LLP as the Company's independent auditors was ratified. 5,619,399 shares were voted in favor of ratification. 3,021 shares were voted against ratification and 2,500 shares abstained. Shareholders elected the incumbents as Directors with the nominees receiving the votes indicated below: VOTES FOR VOTES AGAINST --------- ------------- Burt Cutler 5,610,270 14,650 Jay Cutler 5,610,270 14,650 Courtney V. Moe 5,610,270 14,650 Gerald Bronstein 5,610,270 14,650 G. Reid Calcott 5,610,270 14,650 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. None (b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the period in question. Page 9 0f 10 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 By: ----------------------------------- Jay Cutler President and Chief Executive Officer Date By: ----------------------------------- G. Reid Calcott Vice Chairman and Chief Financial Officer (Principal Financial Officer) Page 10 of 10 sequentially numbered pages EX-27 2 EX-27
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 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 327 0 10,028 450 11,397 24,294 5,641 0 30,473 7,317 1,238 0 0 18,644 2,983 30,473 16,319 16,319 7,546 7,546 10,453 78 106 (1,571) (615) (956) 0 0 0 (956) (.14) (.14)
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