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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]
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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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2000 2000
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(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
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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
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Total assets $ 5,675,006 $ 5,629,570
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MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2000 2000
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(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
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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
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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)
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Total stockholders' equity 2,395,643 2,886,887
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Total liabilities and stockholders'
equity $ 5,675,006 $ 5,629,570
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See accompanying notes to consolidated financial statements.
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MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 2000 1999
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(Unaudited) (Unaudited)
NET REVENUES $ 691,991 $ 388,784
COST OF REVENUES 234,287 93,003
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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
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Total operating expenses 935,552 172,960
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INCOME (LOSS) FROM CONTINUING OPERATIONS (477,848) 122,821
OTHER EXPENSE
Interest expenses, net (13,711) (62,554)
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INCOME (LOSS) BEFORE INCOME TAX (491,244) 60,267
PROVISION FOR INCOME TAX - -
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NET INCOME (LOSS) $ (491,244) $ 60,267
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BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.01) $ 0.10
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BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 34,206,971 625,116
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See accompanying notes to consolidated financial statements.
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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
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(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
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Net cash used in operating activities (842,840) (492,888)
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CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (52,108) (38,366)
Additions to capitalized software costs (70,000) -
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Net cash used in investing activities (122,108) (38,366)
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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 -
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Net cash provided by financing activities 389,971 591,129
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (574,977) 59,875
CASH AND CASH EQUIVALENTS,
beginning of period 937,184 20,478
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CASH AND CASH EQUIVALENTS, end of period $ 362,207 $ 80,353
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 44,567 $ 41,554
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See accompanying notes to consolidated financial statements.
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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.
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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
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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
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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
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(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.
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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
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