EXCELLIGENCE LEARNING CORP - 10-Q Quarterly Report

UNITED STATES

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, 2004

¨	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

Incorporation or Organization)

(I.R.S. Employer

Identification No.)


2 Lower Ragsdale Drive
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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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, 8,807,627 shares outstanding as of August 10, 2004.

EXCELLIGENCE LEARNING CORPORATION

TABLE OF CONTENTS


	Forward-Looking Statements	1

PART I:	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	16

PART II:	OTHER INFORMATION	16

Item 1.	Legal Proceedings	16

Item 2.	Changes in Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

Item 5.	Other Information	17

Item 6.	Exhibits and Reports on Form 8-K	17

SIGNATURE		18

Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q and other materials filed or to be filed by the Company with the Commission (as well as information in oral statements and other written statements made or to be made by the Company) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary language noting important factors that could cause actual results to differ materially from those projected in such statements. Such forward-looking statements involve risks and uncertainties that could significantly affect anticipated results in the future and include information relating to plans for future expansion and other business development activities as well as other capital spending, financing sources and the effects of regulation, competition, integration of acquired businesses, enhancement of the Company’s technology and protection of the Company’s intellectual property. As such, actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements.

When used in this Quarterly Report on Form 10-Q and in other statements made by or on behalf of the Company, the words “believes,” “anticipates,” “expects,” “plans,” “intends,” “expects,” “estimates,” “projects,” “could” and other similar words or expressions, which are predictions of or indicative of future events, conditions and trends, identify forward-looking statements. Such forward-looking statements are subject to a number of important risks, uncertainties and assumptions that could significantly affect anticipated results in the future. These risks, uncertainties and assumptions about the Company and its subsidiaries include, but are not limited to, the following:

•

the Company’s ability to diversify product offerings or expand in new and existing markets;

•

changes in general economic and business conditions and in the educational products or e-retailing industry in particular;

•

the impact of competition, specifically, if competitors were to either adopt a more aggressive pricing strategy than the Company or develop a competing line of proprietary products;

•

the level of demand for the Company’s products;

•

fluctuations in currency exchange rates, which could potentially result in a weaker U.S. dollar in overseas markets, increasing the Company’s cost of inventory purchased; and

•

other factors discussed in Item 1 under “Risk Factors” in the Company’s Annual Report on Form 10-K.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.

The Company has based its forward-looking statements on current expectations and projections about future events and assumes no obligation to update publicly any forward-looking information that may be made by or on behalf of the Company in this Quarterly Report on Form 10-Q or otherwise, whether as a result of new information, future events or otherwise, except to the extent the Company is required to do so under applicable law.

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, 2004			December 31, 2003*
ASSETS
Current assets:
Cash and cash equivalents	$	2,658		$	3,620
Accounts receivable, net		10,323			5,480
Inventories		31,730			15,133
Prepaid expenses and other current assets		2,908			2,937
Deferred income taxes		1,288			1,214

Total current assets		48,907			28,384
Property and equipment, net		5,037			4,070
Deferred income taxes		6,778			6,367
Other assets		297			307
Goodwill		5,878			5,878
Other intangible assets, net		831			918

Total assets	$	67,728		$	45,924

LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Revolving line of credit	$	9,250		$	—
Accounts payable		16,033			3,018
Accrued expenses		2,793			2,955
Income tax liabilities		—			234
Other current liabilities		376			186

Total current liabilities		28,452			6,393

Redeemable common shares, 100,000 shares authorized, issued and outstanding at December 31, 2003		—			400

Stockholders’ equity:
Common stock, $0.01 par value; 15,000,000 shares authorized; 8,801,374 and 8,549,423 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively		88			85
Additional paid-in capital		63,026			62,353
Deferred stock compensation		(644	)		(920	)
Accumulated deficit		(23,194	)		(22,387	)

Total stockholders’ equity		39,276			39,131

Total liabilities, redeemable securities and stockholders’ equity	$	67,728		$	45,924

*	Derived from audited consolidated financial statements filed in the Company’s 2003 Annual Report on Form 10-K.

See accompanying notes to condensed consolidated financial statements.

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,
	2004			2003			2004			2003
Revenues	$	26,549		$	23,645		$	46,385		$	41,063
Cost of goods sold		17,265			14,913			30,193			26,203

Gross profit		9,284			8,732			16,192			14,860

Operating expenses:
Selling, general and administrative		8,970			7,995			17,476			16,022
Amortization of other intangible assets		44			72			87			147

Operating income (loss)		270			665			(1,371	)		(1,309	)

Other (income) expense:
Gain on sale of assets		(5	)		—			(5	)		—
Interest expense		40			109			45			141
Interest income		—			(2	)		(2	)		(7	)

Income (loss) before income taxes (benefit)		235			558			(1,409	)		(1,443	)
Income tax (benefit)		99			238			(602	)		(615	)

Net income (loss)	$	136		$	320		$	(807	)	$	(828	)

Net income (loss) per share calculation:
Net income (loss) per share – basic	$	0.02		$	0.04		$	(0.09	)	$	(0.10	)

Net income (loss) per share – diluted	$	0.01		$	0.04		$	(0.09	)	$	(0.10	)

Weighted average shares used in basic net income (loss) per share calculation		8,767,111			8,524,664			8,729,665			8,489,149
Weighted average shares used in diluted net income (loss) per share calculation		9,363,325			9,123,198			8,729,665			8,489,149

See accompanying notes to condensed consolidated financial statements.

EXCELLIGENCE LEARNING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net loss	$	(807	)	$	(828	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		842			840
Gain on sale of assets		(5	)		—
Provision for losses on accounts receivable		(22	)		10
Equity-based compensation		276			285
Deferred income taxes		(485	)		(615	)
Changes in operating assets and liabilities, net of assets and liabilities assumed in acquisition:
Accounts receivable		(4,821	)		(4,237	)
Inventories		(16,597	)		(15,523	)
Prepaid expenses and other current assets		29			(219	)
Other assets		10			38
Accounts payable		13,015			12,465
Accrued expenses		(162	)		(635	)
Income tax related liabilities		(234	)		(17	)
Other current liabilities		190			206

Net cash used in operating activities		(8,771	)		(8,230	)

Cash flows from investing activities:
Purchase of property and equipment		(1,717	)		(795	)
Acquisition of Marketing Logistics, Inc.		—			(869	)

Net cash used in investing activities		(1,717	)		(1,664	)

Cash flows from financing activities:
Borrowings on line of credit		9,250			41,453
Principal payments on line of credit		—			(31,302	)
Issuance of equity, net of fees		276			16

Net cash provided by financing activities		9,526			10,167

Net increase (decrease) in cash and cash equivalents		(962	)		273
Cash and cash equivalents at beginning of period		3,620			2,713

Cash and cash equivalents at end of period	$	2,658		$	2,986

Supplemental disclosures of cash flow information:
Issuance of redeemable common shares in acquisition	$	—		$	400
Cash payments during the period:

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