MULTIMEDIA K I D INC
10QSB, 2000-11-14
COMPUTER PROGRAMMING SERVICES
Previous: UNIONBANCORP INC, 10-Q, EX-27, 2000-11-14
Next: MULTIMEDIA K I D INC, 10QSB, EX-27, 2000-11-14



<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB
(MARK ONE)

[x]    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended September 30, 2000


[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)  OF
       THE SECURITIES EXCHANGE ACT OF 1934

       For the transition period from _________to___________.

         Commission File No.  000-24637

                             MULTIMEDIA K.I.D., INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

         DELAWARE                                          91-1890338
(State of Other Jurisdiction of                         (I.R.S. Employer
  Incorporation or Organization)                     Identification Number)

23 HALUTZAT HAPARDESANUT STREET, PETACH TIKVAH, 49221  ISRAEL
(Address of Principal Executive Offices)           (Zip Code)


                               011-972-3-930-7302
              (Registrant's telephone number, including area code)

       Securities registered pursuant to Section 12 (b) of the Act: None

          Securities registered pursuant to Section 12 (g) of the Act:
                         COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

     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 of 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 November 10, 2000, the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was $6,128,504, based on
the closing sales price for such shares as quoted by the Nasdaq SmallCap
Market. The Registrant's revenues for the fiscal quarter ended September 30,
2000 were $691,991.

     The aggregate number of shares of the Registrant's Common Stock, $.001 par
value, outstanding on November 10, 2000, was 34,209,722.

Transitional Small Business Disclosure Format (check one) YES [ ] NO [ x]



-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 1

<PAGE>







                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:

     Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
       and June 30, 2000 (Audited)

     Unaudited Consolidated Statements of Operations for the three months
       ended September 30, 2000 and 1999

     Notes to Consolidated Financial Statements

Item 2.  Management's Discussion and Analysis or Plan of Operation

PART II - OTHER INFORMATION

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K















-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 2



<PAGE>


PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS



                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS




                                     September 30,              June 30,
                                         2000                     2000
-----------------------------------------------------------------------------

                                     (Unaudited)               (Audited)

ASSETS

CURRENT ASSETS
    Cash and cash equivalents        $    362,207             $    937,184
    Restricted cash                        80,249                   76,223
    Accounts receivable
      Trade receivables                 1,782,340                1,485,566
      Other receivables                   431,051                  312,678
    Notes receivable, net
      of allowance                        546,738                  621,738
    Inventory                             960,000                  803,000
-----------------------------------------------------------------------------

Total current assets                    4,162,585                4,236,389

FIXED ASSETS, net                         256,693                  229,945

CAPITALIZED SOFTWARE COSTS, net            70,000                        -

LONG-TERM INVESTMENTS                     230,222                  237,777

LONG-TERM RECEIVABLES, net                955,506                  925,459

-----------------------------------------------------------------------------

Total assets                         $  5,675,006             $  5,629,570
=============================================================================













-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 3


<PAGE>




                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS




                                          September 30,         June 30,
                                              2000                2000
----------------------------------------------------------------------------

                                           (Unaudited)         (Audited)

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Short-term bank credit and
      current maturities of
      long-term liability                 $  1,490,758         $ 1,091,361
    Accounts payable                           343,347             262,532
    Other accrued liabilities                  418,780             292,704
----------------------------------------------------------------------------

Total current liabilities                    2,252,885           1,646,597

LONG-TERM LIABILITIES
    Long-term liability, net
      of current portion                       888,320             965,651
    Accrued severance payment                  138,158             130,435
----------------------------------------------------------------------------

Total Liabilities                            3,279,363           2,742,683

COMMITMENTS AND CONTINGENCIES                        -                   -

STOCKHOLDERS' EQUITY
    Common stock, par value $.001;
     50,000,000 shares authorized;
     34,363,425 shares issued,
     34,206,971 shares outstanding              34,363              34,363
    Additional paid-in-capital              14,209,584          14,209,584
    Stock subscriptions receivable              (8,500)             (8,500)
    Rights in products acquired from
     a company under Common control         (1,750,000)         (1,750,000)
    Accumulated deficit                     (9,749,804)         (9,258,560)
    Treasury stock, at cost,
     156,454 shares                           (340,000)           (340,000)
----------------------------------------------------------------------------

Total stockholders' equity                   2,395,643           2,886,887
----------------------------------------------------------------------------

Total liabilities and stockholders'
     equity                              $   5,675,006       $   5,629,570
============================================================================


          See accompanying notes to consolidated financial statements.



-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 4


<PAGE>


                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS




Three months ended September 30,                     2000           1999
-------------------------------------------------------------------------------
                                                  (Unaudited)     (Unaudited)

NET REVENUES                                      $   691,991     $  388,784

COST OF REVENUES                                      234,287         93,003
-------------------------------------------------------------------------------

GROSS PROFIT                                          457,704        295,781

OPERATING EXPENSES
   Product research, development
     and enhancements                                 122,865         39,183
   Selling, general and administration                812,687        133,777
-------------------------------------------------------------------------------

Total operating expenses                              935,552        172,960
-------------------------------------------------------------------------------

INCOME (LOSS) FROM CONTINUING OPERATIONS             (477,848)       122,821

OTHER EXPENSE
   Interest expenses, net                             (13,711)       (62,554)
-------------------------------------------------------------------------------

INCOME (LOSS) BEFORE INCOME TAX                      (491,244)        60,267

PROVISION FOR INCOME TAX                                    -              -
-------------------------------------------------------------------------------

NET INCOME (LOSS)                                  $ (491,244)    $   60,267
===============================================================================

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE        $    (0.01)    $     0.10
-------------------------------------------------------------------------------

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
     OF SHARES OUTSTANDING                         34,206,971       625,116
===============================================================================


          See accompanying notes to consolidated financial statements.




-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 5


<PAGE>



                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS





INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Three months ended September 30,                      2000           1999
-------------------------------------------------------------------------------

                                                   (Unaudited)     (Unaudited)

CASH FLOWS USED IN OPERATING ACTIVITIES
   Net income (loss)                               $  (491,244)    $  60,267
   Adjustments to reconcile net loss
     to net cash used in operating activities:
     Depreciation and amortization                      25,360        18,139
     Other                                              10,624             3
     Increase (decrease) from changes
       in operating assets and liabilities:
       Receivables                                    (326,821)     (335,387)
       Other receivables and other assets             (118,373)     (312,068)
       Inventories                                    (157,000)      (40,000)
       Accounts payable                                 80,815        51,606
       Accrued severance                                 7,723             -
       Other accrued liabilities                       126,076        64,552
-------------------------------------------------------------------------------
Net cash used in operating activities                 (842,840)     (492,888)
-------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
   Purchase of fixed assets                            (52,108)      (38,366)
   Additions to capitalized software costs             (70,000)            -
-------------------------------------------------------------------------------
   Net cash used in investing activities              (122,108)      (38,366)
-------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Short-term credits received (paid), net             399,397       235,501
   Loans received                                            -       355,628
   Loan payments                                       (84,426)            -
   Note principal payments received                     75,000             -
-------------------------------------------------------------------------------
Net cash provided by financing activities              389,971       591,129
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                               (574,977)       59,875

CASH AND CASH EQUIVALENTS,
   beginning of period                                 937,184        20,478
-------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period          $    362,207     $  80,353
===============================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid during the period for interest       $    44,567      $  41,554
===============================================================================


          See accompanying notes to consolidated financial statements.


-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 6



<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

1.      Statement of          On December 16, 1999, Multimedia K.I.D., Inc.
        Information           ("MKID"), formerly known as Jenkon International,
        Furnished             Inc., acquired all the outstanding common stock
                              of Multimedia Kid - Intelligence in Education
                              Ltd. (an Israeli corporation)("MKID-Israel"). The
                              acquisition has been accounted for as a reverse
                              acquisition. Accordingly the historical financial
                              statements prior to December 16, 1999 are those
                              of MKID-Israel and MKID's operations are included
                              from December 16, 1999 through September 30,
                              2000.

                              In the opinion of management the accompanying
                              unaudited financial statements contain all
                              adjustments (including normal and recurring
                              accruals) necessary to present fairly the
                              financial position as of September 30, 2000 and
                              1999, and the results of operations and cash
                              flows for the three-month periods ended September
                              30, 2000 and 1999. These results have been
                              determined on the basis of generally accepted
                              accounting principles and practices.

                              The results of operations for the three-month
                              period ended September 30, 2000 are not
                              necessarily indicative of the results to be
                              expected for any other period or for the entire
                              year.

                              Certain information and footnote disclosures
                              normally included in financial statements
                              presented in accordance with generally accepted
                              accounting principles have been condensed or
                              omitted. The accompanying financial statements
                              should be read in conjunction with the Company's
                              audited financial statements and notes thereto
                              included in the Company's Annual Report on Form
                              10-KSB for the year ended June 30, 2000.


2.  Business And Revenue      The Company currently develops educational
    Recognition               systems for kindergartens, schools, special
                              education, and Enrichment centers. The Company's
                              systems combine interactive software, playful
                              instructive aides and electronic interfaces. The
                              Company's products have been marketed and
                              installed in many countries around the world. The
                              products provide educational, three-dimensional
                              computerized environments that combine physical
                              components such as wooden blocks, task cards,
                              worksheets and books with the latest computer
                              based technologies.

                              The Company recognizes revenue in accordance with
                              Statement of Position 97-2, "Software Revenue
                              Recognition", ("SOP 97-2"). Certain terms of SOP
                              97-2 have been subsequently amended by Statement
                              of Position 98-4 and 98-9. In accordance with SOP
                              97-2, the Company recognized revenue on sales of
                              internally developed software systems when the
                              following criteria are met: (i) persuasive
                              evidence of an arrangement exists, (ii) delivery
                              has occurred and the system is functionable,
                              (iii) the fee is fixed or determinable and (iv)
                              colletibility is probable. Also in accordance
                              with SOP 97-2, the Company defers all revenue
                              from an arrangement until such evidence does
                              exist or until all elements have been delivered.


-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 7
<PAGE>

                              Revenues related to installation of systems
                              requiring substantial future performance by the
                              Company are recognized using the percentage of
                              completion method based on meeting key milestone
                              events over the terms of the contract.

                              During the three months ended September 30, 2000,
                              two distributors accounted for 93.1% of net
                              revenues. The Company had one distributor that
                              accounted for 97.5% of net revenue for the three
                              months ended September 30, 1999.


3.      Earnings (Loss) Per   The Company computes loss per common share under
        Common Share          SFAS No. 128, "Earnings Per Share," which
                              requires presentation of basic and diluted
                              earnings (loss) per share. Basic earnings (loss)
                              per common share is computed by dividing income
                              or loss available to common shareholders by the
                              weighted average number of common shares
                              outstanding for the reporting period. Diluted
                              earnings (loss) per common share reflects the
                              potential dilution that could occur if securities
                              or other contracts, such as stock options, to
                              issue Common Stock were exercised or converted
                              into Common Stock. Common stock equivalents from
                              options and warrants of 3,169,728 as of September
                              30, 2000 have not been included in the
                              computation of diluted loss per common share as
                              the effect would be antidilutive.

                              As a result of the December 16, 1999 reverse
                              acquisition, MKID issued 840,000 shares of Common
                              Stock in exchange for 5,375 shares of MMKid
                              Common Stock. This has been treated as a stock
                              split of 156.28 for 1 and is retroactively
                              reflected for periods prior to December 16, 1999.

4.      Financial Viability   The Company's consolidated financial statements
                              have been prepared on a going concern basis,
                              which contemplates continuity of operations,
                              realization of assets and the liquidation of
                              liabilities in the normal course of business. The
                              appropriateness of using the going concern basis
                              is dependent upon, among other things, the
                              adequate resolution of the Company's near and
                              long term liquidity needs. The Company continues
                              to experience negative cash flow. The Company's
                              ability to continue as a going concern may be
                              dependent on its ability to raise future capital
                              and generate positive cash flow from operations.
                              The consolidated financial statements do not
                              include any adjustments relating to the Company's
                              ability to continue as a going concern.

5.     Income Taxes           Due to the significant operating losses incurred
                              by the Company for the three month period ended
                              September 30, 2000 and for the year ended June
                              30, 2000, the Company has recorded a 100%
                              valuation allowance on its net deferred tax
                              assets since management cannot determine whether
                              it is more likely than not that the deferred tax
                              assets may be realized.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with our
Consolidated Financial Statements and notes thereto included elsewhere in this
Form 10-QSB. Statements in this Quarterly Report on Form 10-QSB concerning our
business outlook or future economic performance; anticipated revenues, expenses
or other financial items; product introductions and plans and objectives related
thereto; and statements concerning assumptions made or expectations as to future
events, conditions, performance or other matters, are "forward-looking
statements" as that term is defined under the Federal securities laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause

-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 8


<PAGE>


actual results to differ materially from those stated in these statements.
These risks, uncertainties and factors include, but are not limited to, our
history of losses, our need for additional financing, our dependence on
distributors, suppliers and subcontractors, rapid technological change and the
location of our principal operations in Israel, as well as other risks detailed
in our Annual Report on Form 10-KSB and our other filings with the Securities
and Exchange Commission, including this Quarterly Report on Form 10-QSB.


COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO SEPTEMBER 30, 1999

Net Revenues. Net revenues increased 78.0% to $692,000 for the three months
ended September 30, 2000 from $389,000 for the same period in 1999. This
increase is primarily attributable to our penetration into new markets
including India. Two distributors accounted for approximately 93.1% of net
revenues during the three months ended September 30, 2000. One distributor
accounted for 97.5% of net revenues for the three months ended September 30,
1999.

Cost of Revenues. Cost of revenues increased to $234,000 for the three months
ended September 30, 2000 from $93,000 for the same period in 1999. This increase
is primarily attributable to higher costs directly associated with our increase
in net revenues. Gross profit as a percentage of net revenues decreased to 66.1%
for the three months ended September 30, 2000 from 76.1% for the same period in
1999 due primarily to the sales mix and terms of the individual sales. As part
of our marketing strategy, we provide extended payment terms to some of our
distributors. In accordance with applicable accounting standards, we recognize
as revenue the present value of future cash flows from these long-term
receivables. As a result, the gross margin on sales with extended payment terms
is generally lower than those with current terms.

Product Research, Development and Enhancement Expenses. Product research,
development and enhancement expenses increased to $123,000 for the three months
ended September 30, 2000 from $39,000 for the same period in 1999. This
increase is primarily attributable to additional employees hired and
professional services directed toward accelerating the development of our new
e-learning Website and enhancing our products.

Selling, General and Administrative. Selling, general and administrative
expenses increased to $813,000 for the three months ended September 30, 2000
from $134,000 for the same period in 1999. This increase is primarily due to
expanding our sales and marketing efforts in new geographical locations and a
significant increase in professional and other fees associated with being a
public company.

Interest Expense. Interest expense decreased to $14,000 during the three months
ended September 30, 2000 from $63,000 for the same period in 1999. This
decrease is primarily due to currency fluctuations during 1999 resulting in
significantly higher charges from one of our lines of credit which is linked to
Israeli currency.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended September 30, 2000, operating activities used net
cash of $843,000 primarily due to a net loss of $491,000, an increase in trade
and other receivables of $445,000 and an increase in inventory of $157,000
offset by an increase in accounts payable of $81,000 and increase in other
accrued liabilities of $126,000. Cash flows of $122,000 used in investing
activities during the three months ended September 30, 2000 were attributable
to the purchase of fixed assets of $52,000 and additions to capitalized
software costs of $70,000. Cash flows from financing activities provided
$390,000 for the three months ended September 30, 2000 due to the receipt of
short-term credit of $399,000 and principal payments received on notes of
$75,000 offset by loan principal payments of $84,000.

For the three months ended September 30, 1999, operating activities used net
cash of $493,000 primarily attributable to in increase in trade receivable of
$335,000 and other receivables of $312,000 offset by net income of $60,000 and
an increase in other accrued liabilities of $65,000. Cash flows of $38,000 used
in investing activities during the three months ended September 30, 1999 were
attributable to the purchase of fixed assets. Financing activities provided
$591,000 during the three months ended September 30, 1999 comprised of $235,000
in short-term credit and $356,000 in loans received.

At September 30, 2000 we had trade accounts receivable of $2,738,000, including
$1,782,000 of trade receivables in current assets and $956,000 of long-term
trade receivables. In an effort to expand our sales efforts we have provided
some of our distributors with extended payment terms, often exceeding one year.
The present values of the payments to be received under the terms of these sales
are recognized as revenue at the time all of our commitments under the contract
have been satisfied. Current trade receivables are comprised of sales with
payment terms within 90 days and the current portion of long-term trade
receivables. Trade accounts receivable have increased as a result of our
strategy to expand our sales efforts.

We have experienced a significant decrease in operating funds as a result of
increased expenses associated with our efforts to increase our international
market penetration, develop our new e-learning Website, enhance our current
products and comply with regulatory requirements, as well as providing extended
payment terms to some of our distributors. We expect to continue to suffer
negative cash flow and further losses as a result of our efforts to execute our
business plan. We cannot be sure that we will be able to raise sufficient
additional capital to fund operating losses and develop our

-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 9


<PAGE>

business. If we are unable to raise additional capital, we may be required to
consider alternatives including, but not limited to, decreasing our sales
efforts, laying off employees, and halting further product development.
Further, any failure to obtain additional capital could have a material adverse
affect on us and our ability to successfully operate.


PART II - OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

     On October 31, 2000, we received a letter from the Nasdaq Listing
Qualifications Division stating that we have failed to maintain a minimum bid
price of $1.00 over 30 consecutive trading days as required for continued
listing on The Nasdaq SmallCap Market. We are currently reviewing appropriate
responses to this letter. There can be no assurances that any actions will be
completed in time to avoid delisting.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits.




EXHIBIT
NUMBER           DESCRIPTION

27              Financial Data Schedule

-------------------

     (b) Reports on Form 8-K.

     On August 4, 2000, we filed a Report on Form 8-K reporting certain officer
and director changes under Item 5.





-------------------------------------------------------------------------------
(ver. 1.03)                                                             Page 10




<PAGE>



                                   SIGNATURES

     Pursuant to the requirements of section 13 of 15(d) 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, in the City of
Petach Tikvah, Israel, on November 14, 2000.

                            MULTIMEDIA K.I.D., INC.


                            By: /s/ Yeshayahu Orbach
                               ------------------------
                                    Yeshayahu Orbach
                                    President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
         SIGNATURE                       TITLE                                DATE
         ---------                       -----                                ----
<S>                               <C>                                   <C>
      /s/ Yeshayahu Orbach         President, Chief Executive Officer     November 14, 2000
-------------------------------    and Director (Principal Executive
      YESHAYAHU ORBACH             Officer)



      /s/ Cliff DeGroot            Chief Financial Officer and            November 14, 2000
-------------------------------    Secretary (Principal Financial
      CLIFF DEGROOT                Officer)


      /s/ David Rubner             Chairman of the Board                  November 14, 2000
-------------------------------
      DAVID RUBNER


      /s/ Pessie Goldenberg        Executive Vice Chairman of the         November 14, 2000
-------------------------------    Board
      PESSIE GOLDENBERG


      /s/ E. Bruce Fredrikson      Director                               November 14, 2000
-------------------------------
      E. BRUCE FREDRIKSON


      /s/ J.R. Kennedy             Director                               November 14, 2000
-------------------------------
      J.R. KENNEDY
</TABLE>


-------------------------------------------------------------------------------
(ver. 1.03)                                                            Page 11





© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission