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Table of Contents
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
¨
 
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 0-32613
 
EXCELLIGENCE LEARNING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
DELAWARE
    
77-0559897
(State or Other Jurisdiction of
    
(I.R.S. Employer
Incorporation or Organization)
     
Identification No.)
        
2 Lower Ragsdale Drive, Suite 200
Monterey, CA
    
93940
(Address of Principal Executive Offices)
     
(Zip Code)
 
Registrant’s telephone number, including area code: (831) 333-2000
 
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 report(s), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: Common Stock, $.01 par value, 8,364,260 shares outstanding as of August 9, 2002.
 

Table of Contents
EXCELLIGENCE LEARNING CORPORATION
 
TABLE OF CONTENTS
 
PART I:
      
3
ITEM 1.
      
3
ITEM 2.
      
12
ITEM 3.
      
18
PART II:
      
19
ITEM 1.
      
19
ITEM 2.
      
19
ITEM 3.
      
19
ITEM 4.
      
19
ITEM 5.
      
20
ITEM 6.
      
20
  
21
 

2

Table of Contents
PART I:    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS.
 
EXCELLIGENCE LEARNING CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for par value and share amounts)
(Unaudited)
 
    
June 30, 2002
     
December 31, 2001
  
ASSETS
              
Current assets:
                  
Cash and cash equivalents
   
$
1,567
 
   
$
1,623
 
Accounts receivable, net
   
 
9,436
 
   
 
5,284
 
Inventories
   
 
25,970
 
   
 
19,118
 
Prepaid expenses and other current assets
   
 
3,172
 
   
 
3,161
 
    
  
Total current assets
   
 
40,145
 
   
 
29,186
 
Receivable from related party
   
 
139
 
   
 
139
 
Property and equipment, net
   
 
4,190
 
   
 
4,368
 
Deferred income taxes
   
 
3,774
 
   
 
3,774
 
Other assets
   
 
1,084
 
   
 
1,112
 
Goodwill
   
 
4,701
 
   
 
4,701
 
Other intangible assets, net
   
 
1,228
 
   
 
1,372
 
    
  
Total assets
   
$
55,261
 
   
$
44,652
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Current liabilities:
                  
Short-term debt
   
$
11,147
 
   
$
5,589
 
Accounts payable
   
 
13,273
 
   
 
5,015
 
Accrued expenses
   
 
4,790
 
   
 
5,905
 
Other current liabilities
   
 
308
 
   
 
193
 
    
  
Total current liabilities
   
 
29,518
 
   
 
16,702
 
Deferred income taxes
   
 
362
 
   
 
362
 
Notes payable
   
 
—  
 
   
 
14
 
    
  
Total liabilities
   
 
29,880
 
   
 
17,078
 
    
  
Stockholders’ equity:
                  
Common stock, $0.01 par value; 11,250,000 shares authorized; 8,364,260 shares issued and outstanding at June 30, 2002 and December 31, 2002
   
 
84
 
   
 
84
 
Additional paid-in capital
   
 
62,194
 
   
 
62,194
 
Deferred stock compensation
   
 
(1,768
)
   
 
(2,054
)
Accumulated deficit
   
 
(35,129
)
   
 
(32,650
)
    
  
Total stockholders’ equity
   
 
25,381
 
   
 
27,574
 
    
  
Total liabilities and stockholders’ equity
   
$
55,261
 
   
$
44,652
 
    
  
 
See accompanying notes to condensed consolidated financial statements.
 

3

Table of Contents
EXCELLIGENCE LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share amounts)
(Unaudited)
 
    
Three Months Ended June 30,
     
Six Months Ended June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenues
   
$
22,091
 
   
$
19,244
 
   
$
37,665
 
   
$
33,173
 
Cost of goods sold
   
 
13,836
 
   
 
12,007
 
   
 
23,788
 
   
 
20,338
 
    
  
  
  
Gross profit
   
 
8,255
 
   
 
7,237
 
   
 
13,877
 
   
 
12,835
 
    
  
  
  
Operating expenses:
                                    
Selling, general and administrative
   
 
7,595
 
   
 
9,652
 
   
 
15,966
 
   
 
17,250
 
Impairment of website development costs
   
 
—
 
   
 
580
 
   
 
—
 
   
 
580
 
Amortization of goodwill and other intangible assets
   
 
72
 
   
 
1,376
 
   
 
144
 
   
 
1,693
 
    
  
  
  
Operating income (loss)
   
 
588
 
   
 
(4,371
)
   
 
(2,233
)
   
 
(6,688
)
    
  
  
  
Other (income) expense:
                                    
Interest expense
   
 
160
 
   
 
272
 
   
 
263
 
   
 
564
 
Interest income
   
 
(5
)
   
 
(10
)
   
 
(17
)
   
 
(12
)
    
  
  
  
Income (loss) before income taxes and early extinguishment of debt
   
 
433
 
   
 
(4,633
)
   
 
(2,479
)
   
 
(7,240
)
Income tax benefit
   
 
—
 
   
 
919
 
   
 
—
 
   
 
1,295
 
    
  
  
  
Income (loss) before early extinguishment of debt
   
 
433
 
   
 
(3,714
)
   
 
(2,479
)
   
 
(5,945
)
Loss on early extinguishment of debt (net of income tax benefit)
   
 
—
 
   
 
497
 
   
 
—
 
   
 
497
 
    
  
  
  
Net income (loss)
   
$
433
 
   
$
(4,211
)
   
$
(2,479
)
   
$
(6,442
)
    
  
  
  
Net Loss Per Share Calculation:
                                    
Net income (loss) per share – basic
   
$
0.05
 
   
$
—
 
   
$
(0.30
)
   
$
—
 
    
  
  
  
Net income (loss) per share – diluted
   
$
0.05
 
   
$
—
 
   
$
(0.30
)
   
$
—
 
    
  
  
  
Weighted average shares used in basic income (loss) per share calculation
   
 
8,364,260
 
   
 
—
 
   
 
8,364,260
 
   
 
—
 
Weighted average shares used in diluted income (loss) per share calculation
   
 
8,425,471
 
   
 
—
 
   
 
8,364,260
 
   
 
—
 
Pro forma C Corporation Disclosures (Note 3):
                                    
Pro forma income tax benefit
            
 
1,261
 
            
 
1,637
 
Pro forma net loss
            
 
(3,869
)
            
 
(6,100
)
Pro forma net loss per share – basic and diluted
            
$
(0.52
)
            
$
(0.94
)
Weighted average shares used in pro forma per share calculation – basic and diluted
            
 
7,422,722
 
            
 
6,513,996
 
 
See accompanying notes to condensed consolidated financial statements.

4

Table of Contents
 
EXCELLIGENCE LEARNING CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    
Six Months Ended
June 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net loss
   
$
(2,479
)
   
$
(6,442
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation and amortization
   
 
766
 
   
 
2,571
 
Provision for losses on accounts receivable
   
 
77
 
   
 
43
 
Equity-based compensation
   
 
286
 
   
 
279
 
Deferred income taxes
   
 
—  
 
   
 
(1,590
)
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in the SmarterKids.com acquisition:
                  
Accounts receivable
   
 
(4,229
)
   
 
(3,867
)
Inventories
   
 
(6,852
)
   
 
(13,550
)
Prepaid expenses and other current assets
   
 
(11
)
   
 
(1,153
)
Other assets
   
 
28
 
   
 
1,019
 
Accounts payable
   
 
8,258
 
   
 
8,602
 
Accrued expenses
   
 
(1,114
)
   
 
(835
)
Income tax related liabilities
   
 
— &n