-----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, F5TM3d1ropsAQ7cN05QYTRpc3N+82qDE4bgdMu8qKD0F5j0RrBI+Qv+CzFUw5Xfo TYZyViRK8rljdwC+3ANV2g== 0001047469-98-030428.txt : 19980812 0001047469-98-030428.hdr.sgml : 19980812 ACCESSION NUMBER: 0001047469-98-030428 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 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: SEC FILE NUMBER: 000-23606 FILM NUMBER: 98682471 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, 1998 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 August 5, 1998 there were 7,040,000 shares of common stock outstanding. Total number of sequential pages: 10 ---- There are no Exhibits, hence no Index page. - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Page 1 of 10 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, 1997 balance sheet information) ASSETS
June 30, December 31, 1998 1997 -------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 24 $ 235 Accounts receivable, less allowance for doubtful accounts of $443 in 1997 and $375 in 1996 8,140 10,478 Inventory 15,968 12,086 Income taxes receivable 677 Other receivables 134 193 Prepaid expenses and other current assets 925 593 Deferred income taxes 750 750 ------- ------- Total current assets 26,618 24,335 ------- ------- PROPERTY AND EQUIPMENT, Net 5,212 5,218 ------- ------- OTHER ASSETS 1,167 577 ------- ------- TOTAL $32,997 $30,130 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 121 $ 121 Line of credit 3,500 500 Accounts payable 4,191 3,045 Accrued expenses 1,350 1,391 Income taxes payable 34 Deferred Income 20 101 ------- ------- Total current liabilities 9,182 5,192 ------- ------- LONG-TERM DEBT 1,004 1,064 ------- ------- DEFERRED INCOME TAXES 355 355 ------- ------- 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 1998 and 1997 18,644 18,644 Cumulative translation adjustment 134 130 Retained earnings 3,678 4,745 ------- ------- Total shareholders' equity 22,456 23,519 ------- ------- TOTAL $32,997 $30,130 ------- ------- ------- -------
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, ------------------- --------------------- 1998 1997 1998 1997 ------ ------ ------- ------- SALES $8,875 $8,473 $14,797 $14,820 COST OF SALES 4,557 4,130 7,499 7,186 ------ ------ ------- ------- GROSS PROFIT 4,318 4,343 7,298 7,634 ------ ------ ------- ------- OPERATING EXPENSES: Sales and marketing 1,819 1,668 3,257 3,191 Warehousing and distribution 798 928 1,649 1,836 Research and development 1,138 1,050 2,250 2,186 General and administrative 941 926 1,845 1,868 ------ ------ ------- ------- Total operating expenses 4,696 4,572 9,001 9,081 ------ ------ ------- ------- OPERATING LOSS (378) (229) (1,703) (1,447) ------ ------ ------- ------- OTHER INCOME (EXPENSE): Interest expense (73) (51) (109) (87) Interest income 7 21 13 37 Other income, net (19) 112 61 144 ------ ------ ------- ------- Total other income (expense) (85) 82 (35) 94 ------ ------ ------- ------- LOSS BEFORE BENEFIT FOR INCOME TAXES (463) (147) (1,738) (1,353) BENEFIT FOR INCOME TAXES (179) (64) (671) (524) ------ ------ ------- ------- NET LOSS (284) (83) (1,067) (829) ------ ------ ------- ------- OTHER COMPREHENSIVE INCOME - Foreign currency translation adjustments (Net of tax of $(1) and $0, $2 and $(6) for the three and six month periods ended June 30, 1998 and 1997, respectively.) (2) 1 4 (12) ------ ------ ------- ------- COMPREHENSIVE INCOME $ (286) $ (82) $(1,063) $ (841) ------ ------ ------- ------- ------ ------ ------- ------- Net Loss Per Share - Basic and Diluted $(0.04) $(0.01) $ (0.15) $ (0.12) ------ ------ ------- ------- ------ ------ ------- ------- Weighted Average Number of Common and Common Equivalent Shares Outstanding - Basic and Diluted 7,040 7,040 7,040 7,040 ------ ------ ------- ------- ------ ------ ------- -------
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, ------------------ 1998 1997 ------- ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,067) $ (829) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts and sales returns 112 59 Provision for inventory obsolescence (241) Depreciation 531 519 Changes in operating assets and liabilities: Accounts receivable 2,234 1,850 Inventory (3,628) (1,328) Income taxes receivable (690) (493) Other receivables 60 (99) Prepaid expenses and other current assets (331) (313) Other assets (587) 106 Accounts payable 1,125 623 Accrued expenses (41) (286) Income taxes payable (21) (437) Deferred Income (82) (82) ------- ------ Net cash used in operating activities (2,626) (710) ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (526) (505) ------- ------ Net cash used in investing activities (526) (505) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase / decrease in line of credit 3,000 700 Repayments of long-term debt (59) (54) ------- ------ Net cash provided by financing activities 2,941 646 ------- ------ Effect of exchange rate changes on cash (8) ------- ------ NET DECREASE IN CASH (211) (577) CASH, BEGINNING OF PERIOD 235 1,018 ------- ------ CASH, END OF PERIOD $ 24 $ 441 ------- ------ ------- ------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $98 $96 Income taxes paid $43 $409
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, 1997. The Company's fiscal year ends December 31. The results of operations for the period ended June 30, 1998, 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 June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, which is effective for periods beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and displaying comprehensive income by their nature in the financial statements. In addition, the accumulated balance of other comprehensive income must be displayed separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. 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, 1997. 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 4.7% or $402,000 to $8,875,000 in the quarter ended June 30, 1998, from $8,473,000 in the quarter ended June 30, 1997. Sales increased in the mass market and private label sectors of the Company's business. This increase was partially offset by sales decreases in the independent toy and school supply businesses. Sales remained essentially unchanged at $14,797,000 for the six month period ended June 30, 1998 compared to $14,820,000 for the six months ended June 30, 1997. GROSS PROFIT. Gross profit margin as a percentage of sales decreased 2.6% to 48.7% for the quarter ended June 30, 1998 compared to 51.3% for the same period in 1997. Gross profit margin decreased to 49.3% for the six month period ended June 30, 1998 from 51.5% for the six month period ended June 30, 1997. The decrease on both a quarterly and year-to-date basis resulted primarily from a continuing increase in the proportion of ExploraToy and private label sales which are at margins lower than those experienced in the Company's core markets and, for the six month period, the result of one-time adjustments reported at the end of the first quarter. SALES AND MARKETING EXPENSE. Sales and marketing expense increased 9.1% or $151,000 to $1,819,000 for the quarter ended June 30, 1998 from $1,668,000 for the same period in 1997. The increase was primarily due to increased sales commissions and advertising expense in the Company's mass market business. Sales commissions increased as sales volume increased while advertising expense increases were incurred both in support of the current quarter's sales and sales expected during the third and fourth quarters. Sales and marketing expense remained essentially unchanged at $3,257,000 or 22.0% of sales during the first half of 1998 from $3,191,000 or 21.5% of sales during the corresponding period in 1997. Because of the seasonal nature of its business, the Company expects sales and marketing costs expressed as a percentage of sales to decrease during the third and fourth quarters of 1998. WAREHOUSING AND DISTRIBUTION EXPENSE. Warehousing and distribution expense for the quarter ended June 30, 1998 decreased 14.0% or $130,000 to $798,000 compared to $928,000 for the same period of 1997. Warehousing and distribution expense decreased 10.2% or $187,000 to $1,649,000 for the six month period ended June 30, 1998 compared to $1,836,000 or 12.4% of sales for the corresponding period of 1997. The decreases in warehousing costs for both the quarterly and six month periods were due in part to increased efficiency resulting from the Company's implementation of more modern, automated warehousing management systems. Page 6 of 10 sequentially numbered pages GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense for both the quarter ended June 30, 1998 and the six month period ended June 30, 1998 remained essentially unchanged compared to the same periods in 1997. Quarterly general and administrative expense was $941,000 in 1998 compared to $926,000 in 1997 while general administrative expense for the six month period ended June 30, 1998 was $1,845,000 compared to $1,868,000 for the same period in 1997. INTEREST EXPENSE Interest expense increased 43.1% or $22,000 to $73,000 for the second quarter and increased 25.3% or $22,000 to $109,000 for the six month period ended June 30, 1998. The increase in interest expense is due primarily to an increase in borrowings under the Company's line of credit facility which was used to finance increases in inventory associated with the expected growth of the sales of products in the Company's mass market division. OTHER INCOME AND EXPENSE Net Other Income/(Expense) increased to an expense of $19,000 for quarter ended June 30, 1998 compared to income of $112,000 for the same period in 1997. The primary reason for the change was foreign exchange losses incurred in connection with the Company's business in the UK and Canada compared to foreign exchange gains in these areas during 1997. Other income decreased 57.6% or $83,000 to $61,000 for the six month period ended June 30, 1998 compared to $144,000 for the same period in 1997. The majority of the change occurred in the second quarter for the reason explained above. 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. Page 7 of 10 sequentially numbered pages 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 period ended June 30, 1998, the Company's sources of funds were primarily from the collection of outstanding accounts receivable and the net increase in borrowings under the Company's line of credit. The principal uses of cash during the period ended June 30, 1998 were the funding of operating losses net of depreciation of $531,000, an increase in inventory of $3,628,000, and an increase in taxes receivable of $690,000. The increase in other assets of $587,000 was not a use of cash as it was primarily the result of the Company bartering certain inventory (principally excess ExploraToy products) for credit towards the future purchase of various goods and services. The dollar value recorded in other assets relating to this transaction of approximately, $500,000 is the net realizable value of said inventory. This barter arrangement entitles the Company to acquire up to approximately $1,200,000 of goods and services, however, there can be no assurance that the Company will utilize all of said credits. 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 September 4, 1998, 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 capital expenditures and additional indebtedness. At June 30, 1998, the Company had $3,500,000 outstanding against this line of credit. 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 8 of 10 sequentially numbered pages PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On June 26, 1998 the Company held its Annual Meeting of Shareholders. The selection of Deloitte & Touche LLP as the Company's independent auditors was ratified. 6,326,485 shares were voted in favor of ratification. 5,575 shares were voted against ratification and 4,200 shares abstained. Shareholders elected the incumbents as Directors with the nominees receiving the votes indicated below:
Votes For Votes For ---------------- --------- Burt Cutler 6,274,580 Jay Cutler 6,279,580 Courtney V. Moe 6,274,580 Gerald Bronstein 6,279,580 G. Reid Calcott 6,279,580
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 9 of 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 8/4/98 By: /s/ Jay Cutler ------------------------------------- Jay Cutler President and Chief Executive Officer Date 8/4/98 By: /s/ G. Reid Calcott ------------------------------------- G. Reid Calcott Vice Chairman and Chief Financial Officer (Principal Financial Officer) Page 10 of 10 sequentially numbered pages EX-27 2 EXHIBIT 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-31-1998 JAN-01-1998 JUN-30-1998 24 0 8,140 443 15,968 26,618 5,212 0 32,997 9,182 1,125 0 0 18,644 3,812 32,997 14,797 14,797 7,499 7,499 9,001 112 109 (1,738) (671) (1,067) 0 0 0 (1,067) (0.15) (0.15)
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