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 September 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, 8,839,218 shares outstanding as of November 5, 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	17

Item 1.	Legal Proceedings	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

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	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 Securities and Exchange 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 par value and share amounts)

(Unaudited)


	September 30, 2004			December 31, 2003*
ASSETS

Current assets:
Cash and cash equivalents	$	3,775		$	3,620
Accounts receivable, net		17,940			5,480
Inventories		15,637			15,133
Prepaid expenses and other current assets		3,372			2,937
Deferred income taxes		1,558			1,214

Total current assets		42,282			28,384
Property and equipment, net		4,955			4,070
Deferred income taxes		4,681			6,367
Other assets		293			307
Goodwill		5,878			5,878
Other intangible assets, net		788			918

Total assets	$	58,877		$	45,924

LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	11,104		$	3,018
Accrued expenses		2,712			2,955
Income tax liabilities		1,272			234
Other current liabilities		314			186

Total current liabilities		15,402			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; 8,813,467 and 8,549,423 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively		88			85
Additional paid-in capital		63,033			62,353
Deferred stock compensation		(506	)		(920	)
Accumulated deficit		(19,140	)		(22,387	)

Total stockholders’ equity		43,475			39,131

Total liabilities, redeemable securities and stockholders’ equity	$	58,877		$	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 share and per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Revenues	$	53,404		$	50,951		$	99,789		$	92,014
Cost of goods sold		35,262			32,297			65,455			58,500

Gross profit		18,142			18,654			34,334			33,514

Operating expenses:
Selling, general and administrative		10,820			9,711			28,296			25,733
Amortization of other intangible assets		43			71			130			218

Operating income		7,279			8,872			5,908			7,563

Other (income) expense:
Gain on sale of assets		(1	)		—			(6	)		—
Interest expense		39			116			84			257
Interest income		(3	)		(2	)		(5	)		(9	)
Debt extinguishment		—			216			—			216

Income before income taxes		7,244			8,542			5,835			7,099
Income tax		3,190			694			2,588			79

Net income	$	4,054		$	7,848		$	3,247		$	7,020

Net income per share calculation:
Net income per share – basic	$	0.46		$	0.92		$	0.37		$	0.83

Net income per share – diluted	$	0.43		$	0.84		$	0.35		$	0.77

Weighted average shares used in basic net income per share calculation		8,805,414			8,545,683			8,756,446			8,508,321
Weighted average shares used in diluted net income per share calculation		9,328,035			9,300,615			9,319,246			9,119,281

See accompanying notes to condensed consolidated financial statements.

EXCELLIGENCE LEARNING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2004			2003
Cash flows from operating activities:
Net income	$	3,247		$	7,020
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,248			1,272
Gain on sale of assets		6			—
Provision for losses on accounts receivable		(40	)		197
Equity-based compensation		414			423
Deferred income taxes		1,342			(1,692	)

Changes in operating assets and liabilities, net of assets and liabilities assumed in acquisition:
Accounts receivable		(12,420	)		(11,091	)
Inventories		(504	)		(1,364	)
Prepaid expenses and other current assets		(435	)		(584	)
Other assets		14			200
Accounts payable		8,086			6,854
Accrued expenses		(243	)		(350	)
Income tax related liabilities		1,038			1,749
Other current liabilities		128			6

Net cash provided by operating activities		1,881			2,640

Cash flows from investing activities:
Purchase of property and equipment		(2,009	)		(1,038	)
Acquisition of Marketing Logistics, Inc.		—			(891	)

Net cash used in investing activities		(2,009	)		(1,929	)

Cash flows from financing activities:
Borrowings on line of credit		13,750			72,671
Principal payments on line of credit		(13,750	)		(72,671	)
Issuance of equity, net of fees		283			69

Net cash provided by financing activities		283			69

Net increase in cash and cash equivalents		155			780
Cash and cash equivalents at beginning of period		3,620			2,713

Cash and cash equivalents at end of period	$	3,775		$	3,493

Supplemental disclosures of cash flow information:
Issuance of redeemable common shares in acquisition	$	—		$	400
Conversion of redeemable common shares to common stock		400			—

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