UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2003
Commission file number: 000-49826
THANE INTERNATIONAL, INC.
| DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
52-2000275 (I.R.S. EMPLOYER IDENTIFICATION NO.) |
|
| 78-140 CALLE TAMPICO LA QUINTA, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |
92253 (ZIP CODE) |
Registrant’s telephone number, including area code:
(760) 777-0217
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 o
Indicate by check mark whether the
registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The number of shares outstanding of the registrant’s $.001 par value common
stock as of August 13, 2003 was 35,462,781
THANE INTERNATIONAL, INC.
INDEX
PART I — FINANCIAL INFORMATION |
||||
Item 1. Financial Statements (Unaudited) |
3 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
18 | |||
Item 4. Controls and Procedures |
18 | |||
PART II — OTHER INFORMATION |
||||
Item 1. Legal Proceedings |
18 | |||
Item 3. Defaults on Senior Securities |
18 | |||
Item 6. Exhibits and Reports on Form 8-K |
19 | |||
Signatures |
20 |
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THANE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| June 30, | March 31, | |||||||||
| 2003 | 2003 | |||||||||
ASSETS |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 2,918,000 | $ | 3,875,000 | ||||||
Accounts receivable, net of allowance for
doubtful accounts of $1,371,000 and
$6,358,000 on June 30, 2003 and March 31,
2003, respectively |
13,970,000 | 18,045,000 | ||||||||
Other receivables |
892,000 | 1,747,000 | ||||||||
Inventories, net of reserves of $2,279,000
and $4,678,000 on June 30, 2003 and March
31, 2003, respectively |
6,977,000 | 7,279,000 | ||||||||
Prepaid advertising |
1,169,000 | 1,575,000 | ||||||||
Prepaid expenses and other |
2,413,000 | 1,313,000 | ||||||||
Deferred income taxes |
3,534,000 | 5,984,000 | ||||||||
Income taxes receivable |
5,885,000 | 4,982,000 | ||||||||
Total Current Assets: |
37,758,000 | 44,800,000 | ||||||||
Property and Equipment |
||||||||||
Building |
3,260,000 | 3,260,000 | ||||||||
Furniture, fixtures and equipment |
2,300,000 | 2,957,000 | ||||||||
Less accumulated depreciation |
(1,525,000 | ) | (1,524,000 | ) | ||||||
| 4,035,000 | 4,693,000 | |||||||||
Non-current Assets: |
||||||||||
Production costs, net of accumulated
amortization of $648,000 and $1,781,000 on
June 30, 2003 and March 31, 2003,
respectively |
991,000 | 704,000 | ||||||||
Goodwill |
2,228,000 | 2,228,000 | ||||||||
Financing costs, net |
905,000 | 1,096,000 | ||||||||
Deferred income taxes |
73,000 | 66,000 | ||||||||
Other non-current assets |
308,000 | 382,000 | ||||||||
Total non-current assets: |
4,505,000 | 4,476,000 | ||||||||
Total assets |
$ | 46,298,000 | $ | 53,969,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current Liabilities |
||||||||||
Accounts payable |
$ | 5,227,000 | $ | 5,080,000 | ||||||
Allowance for product refunds and returns |
2,236,000 | 2,506,000 | ||||||||
Accrued expenses |
5,812,000 | 6,999,000 | ||||||||
Line of credit |
— | 1,872,000 | ||||||||
Current portion of long-term debt |
6,500,000 | 15,281,000 | ||||||||
Current portion of capital lease obligation |
— | 41,000 | ||||||||
Deferred consideration |
200,000 | 500,000 | ||||||||
Total current liabilities: |
19,975,000 | 32,279,000 | ||||||||
Long-term debt, less current portion |
8,167,000 | 8,667,000 | ||||||||
Capital lease obligation |
3,238,000 | 3,238,000 | ||||||||
Minority interest |
665,000 | 670,000 | ||||||||
Commitments and contingencies |
— | — | ||||||||
Stockholders’ equity: |
||||||||||
Preferred
Stock, par value $0.001 Authorized shares – 50,000,000 Issued and outstanding shares – 0 |
||||||||||
Class A common stock, par value $0.001: |
||||||||||
Authorized shares – 200,000,000 |
— | — | ||||||||
Issued and outstanding shares – 35,462,781 |
35,000 | 35,000 | ||||||||
Warrants |
5,130,000 | 5,130,000 | ||||||||
Notes receivable – stockholders |
(133,000 | ) | (225,000 | ) | ||||||
Additional paid-in capital |
32,453,000 | 32,453,000 | ||||||||
Retained deficit |
(23,232,000 | ) | (28,278,000 | ) | ||||||
Total stockholders’ equity |
14,253,000 | 9,115,000 | ||||||||
Total Liabilities & Stockholders’ equity |
$ | 46,298,000 | $ | 53,969,000 | ||||||
See accompanying notes
3
THANE INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Quarter ended June 30, | |||||||||
| 2003 | 2002 | ||||||||
Revenues: |
|||||||||
Net product sales |
$ | 30,617,000 | $ | 34,089,000 | |||||
Other |
2,330,000 | 3,278,000 | |||||||
Total revenues |
32,947,000 | 37,367,000 | |||||||
Costs and expenses: |
|||||||||
Costs of sales, including selling expenses |
26,532,000 | 28,515,000 | |||||||
General and administrative expenses |
5,678,000 | 5,142,000 | |||||||
Depreciation |
160,000 | 124,000 | |||||||
Total costs and expenses |
32,370,000 | 33,781,000 | |||||||
Income from operations |
577,000 | 3,586,000 | |||||||
Interest expense, net |
741,000 | 559,000 | |||||||
Minority interest and other |
25,000 | 110,000 | |||||||
Income (loss) before income taxes |
(189,000 | ) | 2,917,000 | ||||||
Provision for income taxes |
496,000 | 1,101,000 | |||||||
Income
(loss) from continuing operations |
(685,000 | ) | 1,816,000 | ||||||
Discontinued
operations, net of tax |
574,000 | 440,000 | |||||||
Extraordinary gain on extinguishment of debt |
5,157,000 | — | |||||||
Net Income |
$ | 5,046,000 | $ | 2,256,000 | |||||
Weighted average shares – basic |
33,248,506 | 32,385,293 | |||||||
Basic
earnings (loss) per share |
|||||||||
Income
(loss) from continuing operations |
$ | (0.02 | ) | $ | 0.06 | ||||
Net income |
$ | 0.15 | $ | 0.07 | |||||
Weighted average shares – diluted |
34,295,251 | 34,860,257 | |||||||
Diluted
earnings (loss) per share |
|||||||||
Income
(loss) from continuing operations |
$ | (0.02 | ) | $ | 0.05 | ||||
Net income |
$ | 0.15 | $ | 0.06 | |||||
See accompanying notes
4
THANE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Quarter Ended June 30, | |||||||||||
| 2003 | 2002 | ||||||||||
Operating activities |
|||||||||||
Net income |
$ | 5,046,000 | $ | 2,256,000 | |||||||
Adjustments to reconcile net income to net cash used
in operating activities: |
|||||||||||
Depreciation |
192,000 | 158,000 | |||||||||
Amortization of production costs |
60,000 | 129,000 | |||||||||
Amortization of financing costs |
191,000 | 182,000 | |||||||||
Amortization of discount on acquired debt |
— | 140,000 | |||||||||
Interest on stockholders’ notes receivable |
(38,000 | ) | (16,000 | ) | |||||||
Allowance on stockholders’ notes receivable |
130,000 | — | |||||||||
Gain on disposal of assets |
1,000 | — | |||||||||
Gain on extinguishment of debt |
(5,157,000 | ) | — | ||||||||
Provision for doubtful accounts |
193,000 | (777,000 | ) | ||||||||
Provision for inventory reserves |
(1,049,000 | ) | (457,000 | ) | |||||||
Deferred income taxes |
746,000 | — | |||||||||
Minority interest |
25,000 | 110,000 | |||||||||
Cash related to disposition of Krane Products, Inc. |
(1,149,000 | ) | — | ||||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable |
355,000 | 7,832,000 | |||||||||
Other receivables |
847,000 | (297,000 | ) | ||||||||
Inventories |
1,332,000 | 60,000 | |||||||||
Prepaid advertising |
406,000 | 35,000 | |||||||||
Prepaid expenses and other |
(1,170,000 | ) | (2,096,000 | ) | |||||||
Production costs |
(347,000 | ) | (271,000 | ) | |||||||
Due from affiliate |
— | 3,156,000 | |||||||||
Other assets |
(15,000 | ) | 366,000 | ||||||||
Accounts payable |
419,000 | (3,552,000 | ) | ||||||||
Allowance for product refunds and returns |
(270,000 | ) | (1,348,000 | ) | |||||||
Accrued expenses |
96,000 | (8,816,000 | ) | ||||||||
Income taxes, net |
(936,000 | ) | (1,637,000 | ) | |||||||
Net cash used in operating activities |
(92,000 | ) | (4,843,000 | ) | |||||||
Investing activities |
|||||||||||
Purchases of furniture, fixtures and equipment |
(28,000 | ) | (149,000 | ) | |||||||
Acquisition of companies, net of cash acquired |
— | 1,278,000 | |||||||||
Notes issued to stockholders |
— | (2,500,000 | ) | ||||||||
Net cash used in investing activities |
(28,000 | ) | (1,371,000 | ) | |||||||
Financing activities |
|||||||||||
Payments on long-term debt |
(500,000 | ) | (649,000 | ) | |||||||
Payment of deferred consideration |
(300,000 | ) | (190,000 | ) | |||||||
Payments on capital lease obligations |
(7,000 | ) | (4,000 | ) | |||||||
Net investments from (payments to) minority owners |
(30,000 | ) | 20,000 | ||||||||
Net cash used in financing activities |
(837,000 | ) | (823,000 | ) | |||||||
Net decrease in cash and cash equivalents |
(957,000 | ) | (7,037,000 | ) | |||||||
Cash and cash equivalents at beginning of period |
3,875,000 | 13,568,000 | |||||||||
Cash and cash equivalents at end of period |
$ | 2,918,000 | $ | 6,531,000 | |||||||
Supplemental disclosures of cash flow information |
|||||||||||
Cash paid during the period for: |
|||||||||||
Interest |
$ | 609,000 | $ | 741,000 | |||||||
Income taxes |
$ | — | $ | 3,484,000 | |||||||
Supplemental disclosures of non-cash items |
|||||||||||
Depreciation included in discontinued operations |
$ | 32,000 | $ | 34,000 | |||||||
Write-off of fully amortized production costs |
$ | 1,193,000 | $ | — | |||||||
Write-off
of fully reserved inventory |
$ | 1,350,000 | $ | — | |||||||
Asset acquired under capital lease |
$ | — | $ | 74,000 | |||||||
Forfeiture of minority owner investment |
$ | — | $ | 24,000 | |||||||
See accompanying notes
5
THANE INTERNATIONAL, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Thane International, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) and pursuant to Securities and Exchange Commission rules and regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2003.
The financial information included herein reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s results for the interim periods presented. The results of operations for the quarter ended June 30, 2003 and 2002 are not necessarily indicative of the results to be expected for the full fiscal year.
Certain amounts from 2002 have been reclassified to conform to the 2003 presentation.
Earnings (Loss) Per Share
The computation of basic and diluted income (loss) per share of common stock based on the weighted average number of shares outstanding during the period of the financial statements is as follows:
| For the Quarter Ended June 30, 2003 | |||||||||||||
| Income | Shares | Per-Share | |||||||||||
| (Numerator) | (Denominator) | Amount | |||||||||||
Basic
Income (Loss) Per Share |
|||||||||||||
Income
(loss) from continuing operations |
$ | (685,000 | ) | 33,248,506 | $ | (0.02 | ) | ||||||
Discontinued
operations, net of tax |
574,000 | 33,248,506 | 0.02 | ||||||||||
Extraordinary gain on extinguishment of debt |
5,157,000 | 33,248,506 | 0.15 | ||||||||||
Income available to common stockholders |
$ | 5,046,000 | 33,248,506 | $ | 0.15 | ||||||||
Diluted
Income (Loss) Per Share |
|||||||||||||
Income
(loss) from continuing operations |
$ | (685,000 | ) | 33,248,506 | $ | (0.02 | ) | ||||||
Effect of Dilutive Securities |
|||||||||||||
Common stock options |
— | 254,050 | |||||||||||
Common stock warrants |
— | 792,695 | |||||||||||
Discontinued
operations, net of tax |
574,000 | 34,295,251 | 0.02 | ||||||||||
Extraordinary gain on extinguishment of debt |
5,157,000 | 34,295,251 | 0.15 | ||||||||||
Income available to common stockholders
plus assumed conversions |
$ | 5,046,000 | 34,295,251 | $ | 0.15 | ||||||||
| For the Quarter Ended June 30, 2002 | |||||||||||||
| Income | Shares | Per-Share | |||||||||||
| (Numerator) | (Denominator) | Amount | |||||||||||
Basic Income Per Share |
|||||||||||||
Income from continuing operations |
$ | 1,816,000 | 32,385,293 | $ | 0.06 | ||||||||
Discontinued
operations, net of tax |
440,000 | 32,385,293 | $ | 0.01 | |||||||||
Income available to common stockholders |
$ | 2,256,000 | 32,385,293 | 0.07 | |||||||||
Effect of Dilutive Securities |
|||||||||||||
Common stock options |
— | 1,543,308 | |||||||||||
Common stock warrants |
— | 792,695 | |||||||||||
Deferred consideration |
— | 138,961 | |||||||||||
Diluted Income Per Share |
|||||||||||||
Income from continuing operations |
$ | 1,816,000 | 34,860,257 | $ | 0.05 | ||||||||
Discontinued
operations, net of tax |
440,000 | ||||||||||||