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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, 1996
/ / TRANSITION REPORT PURSUANT OR TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period __________ to ___________.
Commission File Number: 1-10916
INTERVISUAL BOOKS, INC.
(Exact name of registrant as specified in its charter)
California 95-2929217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2850 Ocean Park Boulevard, Suite 225
Santa Monica, California 90405
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (310) 396-8708
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practical date. As of June 30, 1996, there were 4,782,798 shares of common
stock outstanding.
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INTERVISUAL BOOKS, INC.
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements
Balance Sheets - June 30, 1996, and December 31, 1995 1
Statements of Operations - Three months ended June 30, 1996
and 1995; Six months ended June 30, 1996 and 1995 2
Statements of Cash Flows - Six months ended June 30,
1996 and 1995 3
Notes to Financial Statements - June 30, 1996 4
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 7
</TABLE>
i
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INTERVISUAL BOOKS, INC.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS 6/30/96 12/31/95
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(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,346 $ 915
Investment in marketable securities 1,425 1,928
Accounts receivable, less allowances
of $189 and $158 4,798 6,941
Inventories 387 357
Prepaid expenses 1,054 541
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Total Current Assets 9,010 10,682
Production costs, net of accumulated
amortization $12,126 and $11,647 3,217 3,139
Property and equipment, less accumulated
depreciation 235 231
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$12,462 $14,052
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------
Current Liabilities:
Accounts payable 3,618 5,030
Accrued royalties 748 709
Accrued expenses 140 198
Income taxes payable - 38
Customer deposits 335 53
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Total Current Liabilities 4,841 6,028
Deferred income taxes 466 466
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TOTAL LIABILITIES 5,307 6,494
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Stockholders' Equity:
Common stock, no par value; shares
authorized 10,000,000, shares issued
and outstanding 4,782,798 at June 30, 1996
and December 31, 1995 4,044 4,044
Additional paid in capital 209 209
Retained earnings 2,902 3,305
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TOTAL STOCKHOLDERS' EQUITY 7,155 7,558
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$12,462 $14,052
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</TABLE>
See accompanying notes to financial statements.
1
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INTERVISUAL BOOKS, INC.
STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months ended June 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net Sales $4,055 $5,041 $6,627 $8,169
Cost of Sales 3,143 3,999 5,104 6,403
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Gross Profit 912 1,042 1,523 1,766
Selling, General and Administrative Expenses 1,063 1,053 2,190 2,087
Interest Income, Net 31 22 57 54
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Income (Loss) Before Taxes (120) 11 (610) (267)
Income Tax (Benefit) (41) 4 (207) (65)
------ ------ ------ ------
Net Income (Loss) $ (79) $ 7 $ (403) $ (202)
====== ====== ====== ======
Loss Per Share $(0.01) $ 0.00 $(0.08) $(0.04)
====== ====== ====== ======
Weighted Average Number of Common
Shares and Equivalents Outstanding 4,783 5,008 4,783 4,783
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
2
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INTERVISUAL BOOKS, INC.
STATEMENTS OF CASH FLOWS
Increase(Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
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(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (403) $ (202)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 515 619
Provision for losses on accounts receivable 31 30
Provision for abandoned titles 21 21
Increase (decrease) from changes in:
Accounts receivable 2,112 1
Inventories (30) (47)
Prepaid expenses (513) (272)
Accounts payable (1,412) 693
Accrued royalties 39 40
Accrued expenses (58) (32)
Income taxes payable (38) (201)
Customer deposits 282 83
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Net cash provided by operating activities 546 733
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Cash flows from investing activities:
Purchase (sale) of marketable securities 503 (992)
Additions to property and equipment (40) (13)
Additions to leasehold improvements - (2)
Additions to production costs (578) (680)
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Net cash used in investing activities (115) (1,687)
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Net increase in cash and cash equivalents 431 (954)
Cash and cash equivalents, beginning of period 915 2,625
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Cash and cash equivalents, end of period $ 1,346 $ 1,671
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ 56 $ 227
</TABLE>
See accompanying notes to financial statements.
3
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INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
Note 1 - Statement of Information Furnished
- -------------------------------------------
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position as of June 30, 1996, and the
results of operations and cash flows for the three and six month periods ended
June 30, 1996 and 1995. These results have been determined on the basis of
generally accepted accounting principles and practices applied consistently
with those used in the preparation of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
The results of operations for the three and six month periods ended June 30,
1996 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-K for the year ended December 31, 1995.
Note 2 - Earnings Per Share
- ---------------------------
Earnings per common share amounts are computed based upon the weighted average
number of common shares actually outstanding during the period. Common stock
options and purchase warrants, which are considered common stock equivalents,
for the three and six month periods ended June 30, 1996, are not considered in
the average number of shares as their inclusion would be anti-dilutive.
Note 3 - Letter of Credit Facility
- ----------------------------------
In June 1996 the Company renewed its $2,000,000 letter of credit facility with
a bank which expires May 31, 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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RESULTS OF OPERATIONS
Net sales for the three and six month periods ended June 30, 1996, were
$4,055,000 and $6,627,000, respectively, as compared to $5,041,000 and
$8,169,000 for the corresponding periods of the preceding year. The sales
decrease for the three month period of $986,000 was comprised of a decrease of
$1,077,000 in the sales of backlist titles and an increase of $91,000 in the
sales of new titles. The sales decrease for the six month period of $1,542,000
included a decrease of $1,439,000 in the sales of backlist titles and a
decrease of $103,000 in the sales of new titles. Sales backlog at June 30,
1996, was $7,618,000 compared to $7,067,000 for the preceding year. Most of
the decrease in sales can be attributed to reduced backlist sales from foreign
customers. Publishers continue to be conservative worldwide and are either
declining new titles or ordering significantly smaller intial print runs.
Foreign sales accounted for 35% of the Company's net sales for the three and
six month periods ended June 30, 1996, as compared to 46% and 41% of sales for
the comparable periods of the preceding year.
Gross profit margin for the three and six month periods ended June 30, 1996,
was 22.5% and 23.0%, respectively, as compared to 20.7% and 21.6% for the
corresponding periods of 1995. Cost of sales consists primarily of
manufacturing costs, book development amortization and royalties.
Manufacturing costs for the three and six month periods were $2,663,000, or
65.7% of sales, and $4,311,000 or 65.1% of sales, respectively, as compared to
$3,407,000, or 67.6% of sales, and $5,480,000,or 67.1% of sales, in 1995, a
decrease of 1.9% of sales for the quarter and 2.0% for the six month period.
Amortization for the three and six months ended June 30, 1996, was $293,000 and
$479,000, respectively, compared to $376,000 and $574,000 in 1995, resulting in
an insignificant change as a percent of sales for either period. Royalties for
the three and six months ended June 30, 1996, were $162,000 and 265,000 or 4%
of sales for both periods, respectively, as compared to $192,000 and 310,000 or
3.8% of sales for the same periods of 1995. The improvement in gross profit
margin resulted from higher margins on mini-book sales in the first six months
plus an easing of paper prices partially offset by small increases in
amortization and royalties as a percent of sales.
Selling, general and administrative expenses for the three and six month
periods ended June 30, 1996, increased to $1,063,000 and $2,190,000,
respectively, as compared to $1,053,000 and $2,087,000 for the corresponding
periods of 1995. This represents increases of $10,000 and $103,000 for the
three and six month periods, respectively. These expenses comprised of
personnel, selling and administrative are generally fixed and do not fluctuate
with sales. Personnel expenses were $527,000 and $1,063,000, respectively, for
the three month and six month periods ended June 30, 1996, as compared to
$552,000 and $1,098,000 for the corresponding periods of 1995. Declines of
$25,000 and $35,000 for the three and six month periods were primarily
attributable to the Company's measures taken in 1995 to reduce employees and
related personnel expense partially offset by salary increases in the first
quarter of 1996. Selling expenses were $230,000 and $369,000, respectively,
for the three and six month periods ended June 30, 1996, compared to $238,000
and $432,000 for the same periods in 1995. Selling
5
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expenses were down $8,000 and $63,000 for the three and six month periods of
1996 which included decreases in delivery, sample expenses, and U.K. office
expense partially offset by increases in travel and show expenses.
Administrative expenses were $306,000 and $758,000, respectively, for the three
month and six month periods compared to $263,000 and $557,000 for the same
periods of 1995. Administrative expenses were up $43,000 and $201,000,
respectively, for the three and six month periods. The increase for the three
and six months is primarily related to increases in acquisition expenses,
office expenses, and directors' expenses. Included in the six month increase
is $128,000 for acquisition expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,346,000 at June 30, 1996, as compared to
$915,000 at December 31, 1995. Net cash provided by operating activities was
$546,000 as compared to $733,000 for the corresponding period of the previous
year. The $187,000 decrease was primarily attributable to a decrease of
$2,112,000 in accounts receivable partially offset by a decrease of $1,412,000
in accounts payable and a net loss of $403,000 resulting from decreased sales
for the six month period and improved collections of the outstanding
receivables. Net cash used in investing activities amounted to $115,000 as
compared to $1,687,000 during the same period in 1995. The decrease in sales
for the six months as compared to the prior year produced less excess cash for
investing. Additionally, in 1995, the Company invested in municipal bonds to
replace maturing treasury bills which were classified as cash. This change was
evidenced by the decrease in cash of $992,000 in 1995. Working capital at June
30, 1996 was $4,169,000 as compared to $4,654,000 at December 31, 1995.
Under a letter agreement, the Company has an obligation to fund the Hunt Group
$400,000 in 1996. This obligation is being paid at the rate of $33,333 per
month.
In June 1996 the Company renewed its $2,000,000 letter of credit line with City
National Bank which expires on May 31, 1997. The letter of credit facility is
available only for the issuance of letters of credit and as of June 30, 1996,
the Company had $1,942,000 available under this letter of credit facility.
As of August 1, 1996, the Company did not have any commitments for any material
capital expenditures for 1996 or beyond. Management believes that the existing
levels of funds, combined with the Company's ability to generate cash, are
adequate to finance current and expected levels of activity as well as
anticipated capital expenditures of the Company for at least the next twelve
months.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits required by Item 601 of Regulation S-K
10.1 Third Amendment to the Credit Agreement between Intervisual
Books, Inc. and City National Bank
27. Financial Data Schedule
(b) Reports on Form 8-K
None
Pursuant to the requirements 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.
INTERVISUAL BOOKS, INC.
BY: /s/ Charles E. Gates
----------------------------------
Charles E. Gates
President, Chief Executive Officer
and Chief Financial Officer
BY: /s/ Gail A. Thornhill
----------------------------------
Gail A. Thornhill
Controller and Chief Accounting
Officer
Date: August 12, 1996
7
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Exhibit 10.1
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THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement is entered into as June 5,
1996, by and between INTERVISUAL BOOKS, INC., a California corporation
("Borrower") and CITY NATIONAL BANK, a national banking association ("CNB").
RECITALS
A. Borrower and CNB are parties to that certain Credit
Agreement, dated May 31, 1994, as amended by that certain First Amendment to
Credit Agreement, dated June 19, 1995, as amended by that certain Second
Amendment to Credit Agreement, dated July 7, 1995, as herein amended,
hereinafter the "Credit Agreement".
B. Borrower and CNB desire to supplement and amend the Credit
Agreement as hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment without
definition shall have the meanings set forth in the Credit Agreement.
2. AMENDMENTS. The Credit Agreement is amended as follows:
2.1 The definition of "TERMINATION DATE" contained in Section
1 of the Credit Agreement is hereby deleted in its entirety, and there shall be
added and inserted a new definition of "TERMINATION DATE" as follows:
"TERMINATION DATE. shall mean May 31, 1997.
Notwithstanding the foregoing, CNB may, at its option,
terminate this Agreement pursuant to Section 7.3; the date
of any such termination will become the Termination Date
as that term is used in this Agreement."
2.2 Section 5.5.1 of the Credit Agreement is hereby deleted
in its entirety, and there shall be added and inserted a new Section 5.5.1 as
follows:
"5.5.1 Tangible Net Worth plus Subordinated Debt of
not less than $3,100,000.00 for fiscal quarters ending June
30, 1996 and March 31, 1997;"
2.3 Section 5.5.2 of the Credit Agreement is hereby deleted
in its entirety, and there shall be added and inserted a new Section 5.5.2 as
follows:
"5.5.2 Tangible Net Worth plus Subordinated Debt of
not less than $3,300,000.00 for fiscal quarters ending
September 30, 1996 and December 31, 1996;"
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3. EXISTING AGREEMENTS. Except as expressly amended herein, the Credit
Agreement shall remain in full force and effect, and in all other respects is
affirmed.
4. CONDITIONS PRECEDENT. This Amendment shall become effective upon
the fulfillment of all of the following conditions to CNB's satisfaction:
4.1 CNB shall have received this Amendment duly executed by
Borrower.
5. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
6. GOVERNING LAW. This Amendment and the rights and obligations
of the parties hereto shall be construed in accordance with, and governed by
the laws of the State of California.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
"Borrower" INTERVISUAL BOOKS, INC.,
a California corporation
By: /s/ Gail A. Thornhill
----------------------------
Gail A. Thornhill,
Corporate Secretary
"CNB" CITY NATIONAL BANK, a
national banking association
By: /s/ Brad Sims
----------------------------
Brad Sims,
Senior Vice President/Manager
By: /s/ John Curry
----------------------------
John Curry,
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,346
<SECURITIES> 1,425
<RECEIVABLES> 4,987
<ALLOWANCES> 189
<INVENTORY> 387
<CURRENT-ASSETS> 9,010
<PP&E> 1,044
<DEPRECIATION> 809
<TOTAL-ASSETS> 12,462
<CURRENT-LIABILITIES> 4,841
<BONDS> 0
0
0
<COMMON> 4,044
<OTHER-SE> 3,111
<TOTAL-LIABILITY-AND-EQUITY> 12,462
<SALES> 6,627
<TOTAL-REVENUES> 6,627
<CGS> 5,104
<TOTAL-COSTS> 5,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (610)
<INCOME-TAX> (207)
<INCOME-CONTINUING> (403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (403)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
