-----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, DGviIgIFoDm+rAuD3sYVhChoFArMuK9I9kwI79poe8OQHDWJvfJcEOwEt1fNoXx7 LDdG3TQGqnIEsb7I65J99A== 0000912057-97-016571.txt : 19970513 0000912057-97-016571.hdr.sgml : 19970513 ACCESSION NUMBER: 0000912057-97-016571 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATIONAL INSIGHTS INC CENTRAL INDEX KEY: 0000919570 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [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: 97600019 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 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 March 31, 1997 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 No / X / As of May 7, 1997 there were 7,040,000 shares of common stock outstanding. Total number of sequential pages: 9 There are no Exhibits in this document; hence no Exhibit Index. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Page 1 of 9 sequentially numbered pages PART I. ITEM 1. FINANCIAL STATEMENTS EDUCATIONAL INSIGHTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited, except for December 31, 1996 balance sheet information) ASSETS
March 31, December 31, 1997 1996 ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 1,404 $ 1,018 Accounts receivable, less allowance for doubtful accounts of $403 in 1997 and $373 in 1996 5,941 9,779 Inventory 12,690 12,139 Income taxes receivable 429 Other receivables 234 170 Prepaid expenses and other current assets 950 663 Deferred income taxes 808 808 ------- ------- Total current assets 22,456 24,577 ------- ------- PROPERTY AND EQUIPMENT, Net 5,523 5,446 ------- ------- OTHER ASSETS 894 881 ------- ------- TOTAL $28,873 $30,904 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 110 $ 110 Line of credit 1,000 Accounts payable 3,130 2,512 Accrued expenses 1,234 1,584 Income taxes payable 440 Deferred income 184 257 ------- ------- Total current liabilities 4,658 5,903 ------- ------- LONG-TERM DEBT 1,158 1,185 ------- ------- DEFERRED INCOME TAXES 352 352 ------- ------- 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 1997 and 1996 18,644 18,644 Cumulative translation adjustment 127 140 Retained earnings 3,934 4,680 ------- ------- Total shareholders' equity 22,705 23,464 ------- ------- TOTAL $28,873 $30,904 ------- ------- ------- -------
See accompanying notes to consolidated financial statements. Page 2 of 9 sequentially numbered pages EDUCATIONAL INSIGHTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, ------------------- 1997 1996 ---- ---- SALES $ 6,347 $ 7,666 COST OF SALES 3,056 3,368 ------- ------- GROSS PROFIT 3,291 4,298 ------- ------- OPERATING EXPENSES: Sales and marketing 1,523 2,022 Warehousing and distribution 908 882 Research and development 1,136 1,406 General and administrative 942 1,005 ------- ------- Total operating expenses 4,509 5,315 ------- ------- OPERATING LOSS (1,218) (1,017) ------- ------- OTHER INCOME (EXPENSE): Interest expense (36) (36) Interest income 16 11 Other income, net 32 93 ------- ------- Total other income (expense) 12 68 ------- ------- LOSS BEFORE BENEFIT FOR INCOME TAXES (1,206) (949) BENEFIT FOR INCOME TAXES (460) (365) ------- ------- NET LOSS $(746) $(584) ------- ------- ------- ------- Net Loss Per Share $(0.11) $(0.08) ------- ------- ------- ------- Weighted Average Number of Common and Common Equivalent Shares Outstanding 7,040 7,040 ------- ------- ------- -------
See accompanying notes to consolidated financial statements. Page 3 of 9 sequentially numbered pages EDUCATIONAL INSIGHTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Three Months Ended March 31, --------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (746) $ (584) Adjustments to reconcile net loss to net cash provided by operating activities: Provision for doubtful accounts and sales returns 30 36 Depreciation 255 244 Changes in operating assets and liabilities: Accounts receivable 3,743 1,341 Inventory (665) (782) Income taxes receivable (429) (248) Other receivables (71) (31) Prepaid expenses and other current assets (287) (646) Other assets (31) (20) Accounts payable 815 736 Accrued expenses (350) (2) Deferred income (73) Income taxes payable (437) ------- ------- Net cash provided by operating activities 1,754 44 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (332) (130) ------- ------- Net cash (used in) investing activities (332) (130) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in line of credit (1,000) Repayments of long-term debt (27) (24) ------- ------- Net cash (used in) financing activities (1,027) (24) ------- ------- Effect of exchange rate changes on cash (9) (4) ------- ------- NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 386 (114) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,018 378 ------- ------- CASH AND CASH EQUIVALETS, END OF PERIOD $ 1,404 $ (264) ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $54 $ 37 Income taxes paid (refunded) $409 $(117)
See accompanying notes to consolidated financial statements. Page 4 of 9 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, 1996. The Company's fiscal year ends December 31. The results of operations for the period ended March 31, 1997, 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. Page 5 of 9 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, 1996 included in the Company's Form 10-K dated March 26, 1997. Consolidated sales were $6,347,000 for the first quarter ended March 31, 1997, a decrease of 17.2% or $1,319,000 compared to the same period in 1996. Net loss was $746,000 or $0.11 per share compared with a net loss of $584,000 or $0.08 per share for the same period in 1996. 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. The Company typically experiences losses during the first quarter. The loss in the first quarter of 1997 was in line with the Company's internal projections. SALES. Sales decreased by 17.2% or $1,319,000 to $6,347,000 in the quarter ended March 31, 1997 from $7,666,000 in the quarter ended March 31, 1996. The decreases occurred in all of the Company's primary markets, except in the Company's mass market ExploraToy sector where sales increased approximately 10.6%, a portion of which increase resulted from the sale of certain excess product at reduced prices. Decreases in the Company's core, school and independent toy markets were due primarily to an increase in the rate of falloff of the Company's older product line and delays in purchases by certain of the Company's largest customers which may or may not be placed later in the year. Decreases in the software business were the result of the Company's strategic decision to reduce its marketing expenditures in the mass market, while decreases in the Company's international business are believed to be a matter of timing, with certain sales which occurred in the first quarter of 1996 not yet having occurred in the first quarter of 1997 but which are expected in the second quarter of 1997. The Company expects lower sales volume in the second quarter of 1997 than 1996 but believes that this trend will be reversed in the latter half of the year, when many of the new products scheduled for introduction in 1997 begin shipping to the Company's school supply and specialty retail markets. GROSS PROFIT. Gross profit margin as a percentage of sales decreased to 51.9% for the quarter ended March 31, 1997 from 56.1% for the same period of 1996. This decrease resulted primarily from a higher proportion of ExploraToy sales which are at margins lower than those experienced in the Company's core markets, the sale of certain excess ExploraToy product at significantly reduced margins, a write-off of certain inventory items considered obsolete, and a one-time expenditure for conversion of certain CD-ROM products for sale to the school market. SALES AND MARKETING EXPENSE. Sales and marketing expense decreased by $499,000 to $1,523,000 from $2,022,000 for the same period in 1996. This decrease was due primarily to decreases in the cost of literature and co-op advertising. The Company has reduced its expenditures in co-op advertising and literature in part to fund deployment of a field sales force to increase its school supply business. The Company expects sales and marketing expense expressed as a percentage of sales to decrease during the latter part of the year as a result of the increase in sales which typically occurs in the second half of the year. WAREHOUSING AND DISTRIBUTION EXPENSE. In absolute dollars, warehousing and distribution expense remained essentially unchanged at $908,000 or 14.3% of sales for the quarter ended March 31, 1997 compared to $882,000 or 11.5% of sales for the same period of 1996. The Company believes that warehousing and distribution expense expressed as a percentage of sales will decrease in conjunction with the Company's seasonal increase in sales during the last half of 1997, as was experienced in 1996. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 19.2% or $270,000 to $1,136,000 in the first quarter of 1997 compared to $1,406,000 for the same period in 1996. Expressed as a percentage of sales, research and development expense remained essentially unchanged between 1997 and 1996. During the first quarter of 1997, the Company's research and development efforts concentrated primarily on completing new products for introduction later in 1997 and early 1998. The Company has discontinued its internal research and development effort in the CD-ROM sector of its business which was the primary reason for the aforementioned expense decrease. It is now focusing on the development of products for its core business, particularly electronic learning aids. Page 6 of 9 sequentially numbered pages GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased by 6.3% or $63,000 to $942,000 or 14.8% of sales in the first quarter of 1997 compared to $1,005,000 or 13.1% of sales for the same period in 1996. This decrease was due primarily to a reduction in professional services expenses, as the first quarter of 1996 included costs for the general management consultants who were assisting the Company in developing its profit improvement program. The Company expects general and administrative expense, when expressed as a percentage of sales, to decrease during the remainder of the year and approximate last year's level by year end as a result of the increase in sales which typically occurs in the second half of the year. INTEREST EXPENSE Interest expense remained unchanged at $36,000 for the first quarter of 1997. 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 off-shore contract manufacturers, competitive factors, dependence on new distribution channels, 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. 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 "dating" 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. Due to said sales 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 quarter ended March 31, 1997, the Company's source of funds was net cash provided by operating activities, primarily from the collection of outstanding accounts receivable. The principal uses of cash during the quarter were the funding of operating losses of $746,000, an increase in inventory of $665,000 and repayment of outstanding borrowings under the Company's revolving line of credit of $1,000,000. During the quarter, capital spending was $332,000, 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 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. Although there can be no assurances as to the availability or terms of credit, the Company expects to renew this agreement at comparable terms prior to the above expiration date. The Company had no outstanding borrowings against its line of credit at March 31, 1997. The Company believes that borrowings available under the revolving line of credit, if and when renewed, 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 7 of 9 sequentially numbered pages PART II. OTHER INFORMATION 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 8 of 9 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: 5/2/97 By: /s/ JAY CUTLER ------------------------------------- Jay Cutler President and Chief Executive Officer Date: 5/2/97 By: /s/ G. REID CALCOTT ------------------------------------- G. Reid Calcott Vice Chairman and Chief Operating and Financial Officer (Principal Financial Officer) Page 9 of 9 sequentially numbered pages EX-27 2 FDS
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 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,404 0 6,344 403 12,690 22,456 5,523 0 28,873 4,658 1,158 0 0 18,644 4,061 28,873 6,347 6,347 3,056 3,056 4,509 30 36 (1,206) (460) (746) 0 0 0 (746) (0.11) 0
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