<PAGE> 1
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, 1999
[ ] 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.)
2716 Ocean Park Boulevard, Suite 2020
Santa Monica, California 90405
- -------------------------------------- -------------------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (310) 396-8708
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
--- ---
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
--- ---
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 September 30, 1999, there were 5,885,115 shares of common
stock outstanding.
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INTERVISUAL BOOKS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1999, and December 31, 1998 1
Statements of Operations - Three and Nine months ended
September 30, 1999 and 1998 2
Statements of Cash Flows - Nine months ended September 30,
1999 and 1998 3
Notes to Financial Statements - September 30, 1999 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
i
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INTERVISUAL BOOKS, INC.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
9/30/99 12/31/98
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 372 $ 1,561
Accounts receivable, less allowances
of $115 and $175 7,510 2,246
Inventories 2,129 1,634
Prepaid expenses 136 159
Commission and royalty advances 527 352
Income taxes receivable -- 117
Other current assets 196 206
-------- --------
Total current assets 10,870 6,275
Production costs, net of accumulated
amortization of $16,649 and $15,721 3,435 3,427
Goodwill 1,559 --
Acquisition costs 342 83
Other assets 13 --
Property and equipment, net of accumulated
depreciation of $1,634 and $952 308 187
Deferred income taxes 513 443
-------- --------
$ 17,040 $ 10,415
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 7,493 3,131
Line of credit 1,605 1,700
Accrued royalties 210 282
Accrued expenses 164 226
Customer deposits 440 68
-------- --------
Total current liabilities 9,912 5,407
Long term debt 2,200 --
Other liabilities-long term 197 85
-------- --------
TOTAL LIABILITIES 12,309 5,492
-------- --------
Stockholders' Equity:
Preferred stock, shares authorized
3,000,000, none issued -- --
Common stock, no par value; shares
authorized 12,000,000, shares issued and
outstanding 5,885,115 at September 30, 1999
and 5,164,531 at December 31, 1998 5,290 4,731
Additional paid in capital 367 330
Retained deficit (926) (138)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 4,731 4,923
-------- --------
$ 17,040 $ 10,415
======== ========
</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 Sept. 30, 9 Months Ended Sept. 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 6,598 $ 3,537 $ 11,875 $ 8,274
Rights income 28 53 221 256
-------- -------- -------- --------
Total revenues 6,626 3,590 12,096 8,530
Cost of sales 5,064 2,920 9,246 6,672
-------- -------- -------- --------
Gross profit 1,562 670 2,850 1,858
Selling, general and
administrative expenses 1,402 1,035 3,481 3,333
-------- -------- -------- --------
Income (loss) from operations 160 (365) (631) (1,475)
Interest expense (84) (23) (185) (26)
-------- -------- -------- --------
Income (loss) before income taxes 76 (388) (816) (1,501)
Income tax benefit -- (94) (70) (397)
-------- -------- -------- --------
Net income (loss) $ 76 $ (294) $ (746) $ (1,104)
======== ======== ======== ========
Loss per common share
Basic $ 0.01 $ (0.06) $ (0.13) $ (0.22)
======== ======== ======== ========
Diluted $ 0.01 $ (0.06) $ (0.13) $ (0.22)
======== ======== ======== ========
Weighted average number of common
shares and equivalents outstanding:
Basic 5,885 5,138 5,549 5,094
======== ======== ======== ========
Diluted 5,885 5,138 5,549 5,094
======== ======== ======== ========
</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>
Nine Months Ended
Sept. 30,
----------------------
1999 1998
-------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (746) $(1,103)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,038 858
Provision for losses on accounts receivable -- 39
Provision for abandoned titles 28 27
Excess fair market value over book value of assets acquired -- (3)
Deferred income taxes (70) --
Stock-based compensation expense 37 --
Increase (decrease) from changes in:
Accounts receivable (3,346) 762
Inventories (495) (1,179)
Prepaid expenses 62 (291)
Royalty advances 31 (63)
Other assets 127 --
Accounts payable 1,261 (1,107)
Accrued royalties (111) (136)
Accrued expenses (155) (99)
Income taxes payable -- (130)
Customer deposits 372 36
Other liabilities (38) --
------- -------
Net cash used in operating activities (2,005) (2,389)
------- -------
Cash flows from investing activities:
Additions to property and equipment (29) (30)
Additions to leasehold improvements -- (5)
Additions to production costs (897) (963)
Additions to acquisition costs (283) (47)
------- -------
Net cash used in investing activities (1,209) (1,045)
------- -------
Cash flows from financing activities:
Cash acquired in acquisition 305 --
Proceeds from exercise of options 70 69
Proceeds from subordinated line of credit 2,200 --
Proceeds from bank line of credit 950 1,700
Repayment on bank line of credit (1,500) --
------- -------
Net cash provided by financing activities 2,025 1,769
------- -------
Net decrease in cash and cash equivalents (1,189) (1,665)
Cash and cash equivalents, beginning of period 1,561 2,383
------- -------
Cash and cash equivalents, end of period $ 372 $ 718
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 1 $ 153
Interest expense 185 26
</TABLE>
See accompanying notes to financial statements.
3
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NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(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 September 30, 1999, and
the results of operations for the three and nine month periods ended September
30, 1999, and cash flows for the nine month period ended September 30, 1999 and
1998. 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, 1998.
The results of operations for the three and nine month periods ended September
30, 1999, 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, 1998.
Note 2 - Loss Per Common Share
The Company computes loss per common share under 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 options for the three and nine months
ended September 30, 1999 and 1998 were not included in the computation of
diluted loss per common share because the effect would be antidilutive.
4
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Note 3 - Fast Forward Marketing Acquisition
On May 14, 1999, the Company completed the acquisition of Fast Forward
Marketing, Inc., (Fast Forward). The transaction was completed under the terms
and conditions of a definitive agreement signed March 29, 1999. Under this
agreement, the Company acquired all the outstanding shares of Fast Forward for
670,000 shares of its common stock, a contingent cash payment of up to $200,000
due May 1, 2000, and a cash payment of $150,000 due May 1, 2001 subject to
reduction for the payment by the Company of certain tax withholdings. The
contingent cash payment of up to $200,000 or a lesser prorated amount is due if
Fast Forward achieves between 70% and 90% of its 1999 projected gross margin,
provided a minimum gross margin requirement is met. Of the 670,000 shares
issued, 594,940 are restricted for three years so that no more than 10% can be
sold in any one year. The remaining 75,060 shares were issued to certain
employees under a pre-existing Fast Forward Phantom Stock Plan. The
transferability of these shares is restricted for the period the employee
remains with the Company or three years whichever is less. In connection with
the acquisition of Fast Forward, The Hunt Family Trust agreed to vote its shares
in favor of the election to the Company's Board of Directors of Steven Ades and
a second nominee, mutually acceptable to the Company and Mr. Ades, for as long
as Mr. Ades is employed by the Company. This transaction has been accounted for
as a purchase. On May 14, 1999, the Company issued shares valued at $489,000 and
agreed to a contingent cash payment of up to $200,000 and an additional $150,000
payment both due at a later date in exchange for the net book value of Fast
Forward of ($957,000). This resulted in goodwill of $1,596,000 which is being
amortized over the estimated useful life of 20 years.
Note 4 - Lines of Credit
The Company signed an agreement with its bank on May 12, 1999 and later amended
effective September 30, 1999 that provides for borrowings up to a maximum of
$2,000,000 depending on availability. This agreement which expires on May 1,
2000 has an interest rate of 2.5% over prime. The Company also on May 12, 1999
signed a loan agreement with a private party that provides a revolving line of
credit of up to $2,300,000. This agreement is for one year and has an interest
rate of 5% above the 3-month LIBOR rate. At the Company's option, this agreement
can be extended for an additional year under the same terms and conditions. If
the Company decides to extend this line of credit, the agreement requires that
warrants for up to 150,000 shares of the Company's common stock to be issued.
These warrants are exercisable for up to two years after the issue date at a
price equal to the average trading price of the Company's stock for the 20 day
period prior to the Company's notice to extend the loan agreement. The Company
expects to extend this loan for an additional year and has reclassified the
related debt to long term debt. In both credit agreements, the Company makes
affirmative and negative covenants and the agreement with the Company's bank
contains certain financial covenants. As of September 30, 1999, the Company was
in compliance with all financial covenants as amended. In connection with both
agreements, the Company granted to the lenders a security interest in all of its
assets. As of September 30, 1999, the Company had borrowings of $1,605,000 under
its bank line of credit and $2,200,000 of borrowings under its revolving line of
credit.
Note 5 - Accounts Receivable and Payable
Fast Forward has an agreement with its customers and suppliers that allows for
returns of merchandise. Accordingly, a reserve for accounts receivable and
payable has been provided. The reserve accounts require the use of significant
estimates. Fast Forward believes the techniques and assumptions used in
establishing the reserve accounts are appropriate. At September 30, 1999, Fast
Forward recorded a reserve for returns against accounts receivable of $201,000
and a reserve for returns against accounts payable for $174,000.
5
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Intervisual Books, Inc. (the "Company") creates and produces interactive and
three-dimensional books designed for children and adults. These products include
picture books, playsets, board books and gift books. The Company's books
incorporate dimensional and moveable features which require hand-assembly in the
manufacturing process. Some titles require the incorporation of such materials
as plush, plastic novelty elements and electronic audio chips into the finished
books.
The majority of the Company's concepts and ideas for projects are generated
internally by the in house creative and editorial departments. Additional ideas
and concepts are conceived by the illustrators and designers with whom the
Company has been associated for many years. After the Company conceives an idea
and makes a dummy book, key US and foreign publishers are consulted to determine
if they are interested in publishing and marketing the book. If an agreement is
reached, the Company and the publisher sign a co-publishing contract which
stipulates that the publisher will purchase the title with exclusive rights to
sell books in the English language to the book trade for generally a two to four
year period.
The Company also self-publishes titles and offers the books directly to
retailers. The recent acquisition of Fast Forward Marketing, Inc. (see Note 3)
brings to the Company a trained sales force which will enhance the Company's
ability to sell and service retailers. As a result of the Fast Forward
acquisition, the Company also distributes video and audio products for major
motion picture studios, including Walt Disney, Warner Bros., Universal,
Paramount, 20th Century Fox, and many independent producers. Since its founding
in 1987, Fast Forward has built an account base of more than 4,000 retailers,
including national chains such as Toys R Us, Blockbuster, Target, Borders,
Musicland and Best Buy, as well as specialty retailers such as Zany Brainy,
Store of Knowledge, Noodle Kidoodle, Books A Million and other children's
bookstores, gift shops, museums, zoos and Internet retailers such as E-Toys.
Until the end of 1999, the Company will also market its products to retailers
using the services of Andrews McMeel, a leading US publisher/distributor located
in Kansas City. Andrews McMeel handles sales, collection, billing, warehousing
and order fulfillment functions. Effective January 1, 2000, all sales,
collections, and billing will be brought in house, while warehousing and order
fulfillment will be handled by Ware-Pak, an independent company located in
University Park, Illinois.
The market for packaged books has gone through recent changes which has made it
more difficult for the Company to generate co-editions. In the past five years,
there has been a consolidation trend in the US publishing industry that has
reduced the number of the Company's customers. Many of the surviving children's
imprints are still consolidating, which is continuing to have a negative impact
on the size and frequency of their orders. This trend has been a major factor in
the Company's decision to self-publish. The Company's self-publishing program is
gaining consumer acceptance, indicating its interactive books and playsets are
still in demand.
The Company does not engage in any of its own printing, binding, hand assembly,
or manufacturing. These services are contracted for with independent printers in
Colombia, Singapore, Hong Kong and Thailand. The Company supplies its printers
with artwork, color-separated materials and complete sample materials to serve
as guides for hand-assembly.
6
<PAGE> 9
On May 14, 1999, the Company completed the acquisition of Fast Forward
Marketing, Inc., (Fast Forward). The transaction was completed under the terms
and conditions of a definitive agreement signed March 29, 1999. Under this
agreement, the Company acquired all the outstanding shares of Fast Forward for
670,000 shares of its common stock, a contingent cash payment of up to $200,000
due May 1, 2000, and a cash payment of $150,000 due May 1, 2001 subject to
reduction for the payment by the Company of certain tax withholdings. The
contingent cash payment of up to $200,000 or a lesser prorated amount is due if
Fast Forward Marketing achieves between 70% and 90% of its 1999 projected gross
margin, provided a minimum gross margin requirement is met. Of the 670,000
shares issued, 594,940 are restricted for three years so that no more than 10%
can be sold in any one year. The remaining 75,060 shares were issued to certain
employees under a pre-existing Fast Forward Phantom Stock Plan. The
transferability of these shares is restricted for the period the employee
remains with the Company or three years, whichever is less. In connection with
the acquisition of Fast Forward, The Hunt Family Trust agreed to vote its shares
in favor of the election to the Company's Board of Directors of Steven Ades and
a second nominee, mutually acceptable to the Company and Mr. Ades, for as long
as Mr. Ades is employed by the Company. This transaction was accounted for as a
purchase. On May 14, 1999, the Company issued shares valued at $489,000 and
agreed to a contingent cash payment of up to $200,000 and an additional $150,000
payment both due at a later date in exchange for the net book value of Fast
Forward Marketing of ($957,000). This resulted in goodwill of $1,596,000 which
is being amortized over the estimated useful life of 20 years.
RESULTS OF OPERATIONS
Net sales for the three and nine month period ended September 30, 1999 were
$6,598,000 and $11,875,000, respectively, as compared to $3,537,000 and
$8,274,000 for the comparable periods of the preceding year. Sales were up
$3,061,000 and $3,601,000, respectively, for the three and nine month periods
ended September 30, 1999 as compared to the prior year. Domestic sales of book
products were up $250,000 and $268,000, respectively, for the quarter and nine
month periods, while foreign sales were up $196,000 for the quarter and down
$307,000 for the nine month period. Included in the three and nine month figures
were $2,614,000 and $3,639,000, respectively, of video sales from the newly
acquired Fast Forward Marketing.
Rights income for the three and nine month periods of 1999 were $28,000 and
$221,000, respectively, as compared to $53,000 and $256,000 for the same periods
of the prior year. This income is primarily derived from the Company's sale of
worldwide direct marketing rights on some of its products. These sales do not
require that the Company manufacture, and, therefore, have no related cost.
Gross profit margin for both the three and nine month periods ended September
30, 1999 was 23.6% as compared to 18.7% and 21.8% for the same periods of the
prior year. Cost of sales consists primarily of manufacturing, book development
amortization and royalties. Improved margins were a result of the Company's
ongoing efforts to get better prices from its customers and lower costs from its
printers.
Selling, general and administrative expenses for the three and nine month
periods ended September 30, 1999 were $1,402,000 and $3,481,000, respectively,
as compared to $1,035,000 and $3,333,000, respectively, for the comparable
periods of the prior year. Included in the three and nine month periods of 1999
were $541,000 and $837,000, respectively, of overhead expenses from Fast Forward
Marketing
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which were not in last year's figures. Personnel expenses, a major component of
S G & A, were $772,000 and $1,881,000 for the three and nine month periods ended
September 30, 1999, as compared to $484,000 and $1,663,000 for the same periods
of 1998, an increase of $218,000 for the nine month period. This increase can be
attributed primarily to salary and staff reductions and the expiration of a
consulting agreement totalling $431,000 offset by the inclusion of $649,000 in
salary related expenses from Fast Forward Marketing. Selling expenses were
$391,000 and $899,000 for the three and nine month periods ended September 30,
1999, as compared to $302,000 and $894,000 for the same periods of 1998, an
increase of $5,000 for the nine month period. This increase is primarily related
to lower distribution costs relating to the Company's self-publishing efforts
and lower travel and show expenses, partially offset by increased expenses
relating to the addition of a UK sales representative, as well as the addition
of selling related expenses from Fast Forward Marketing in the amount of
$95,000. The Company's administrative expenses were $239,000 and $701,000 for
the three and nine month periods ended September 30, 1999, as compared to
$249,000 and $776,000 for the same periods of 1998, a decrease of $75,000 for
the nine month period. This decrease for the nine months was primarily related
to a reduction in the allowance for uncollectible accounts offset by the
additional expenses from Fast Forward Marketing which were not included in last
year's figures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $1,189,000 to $372,000 at
September 30, 1999 from $1,561,000 at December 31, 1998. At September 30, 1999,
working capital was $958,000 compared to $868,000 at December 31, 1998. The
primary use of cash during the nine months ended September 30, 1999 was from
operations.
Net cash used in operations was $2,005,000 for the nine months ended September
30, 1999 as compared to $2,389,000 for the corresponding period of the previous
year. The $384,000 change in cash from operations for the first nine months of
1999 was primarily attributable to increases in net operating loss, accounts
receivable, inventories and accounts payable. Net cash used in investing
activities amounted to $1,209,000 as compared $1,045,000 during the same period
in 1998. This increase in cash used is primarily from costs incurred resulting
from the acquisition of Fast Forward Marketing in May of 1999. Net cash provided
by financing activities was $2,025,000 in 1999 as compared to $1,725,000 for the
same period in 1998. This increase in cash provided is primarily from borrowing
on the Company's line of credit from a private party and additional borrowing
from its bank.
The Company signed an agreement with its bank on May 12, 1999 and later amended
effective September 30, 1999 that provides for borrowings up to a maximum of
$2,000,000 depending on availability. This agreement which expires on May 1,
2000 has an interest rate of 2.5% over prime. The Company also on May 12, 1999
signed a loan agreement with a private party that provides a revolving line of
credit of up to $2,300,000. This agreement is for one year and has an interest
rate of 5% above the 3-month LIBOR rate. At the Company's option, this agreement
can be extended for an additional year under the same terms and conditions. If
the Company decides to extend this line of credit, the agreement requires that
warrants for up to 150,000 shares of the Company's common stock to be issued.
These warrants are exercisable for up to two years after the issue date at a
price equal to the average trading price of the Company's stock for the 20 day
period prior to the Company's notice to extend the loan agreement. The Company
expects to extend this loan for an additional year and has reclassified the
related debt to long term debt. In both credit agreements, the Company makes
affirmative and negative covenants and the
8
<PAGE> 11
agreement with the Company's bank contains certain financial covenants. As of
September 30, 1999, the Company was in compliance with all financial covenants
as amended. In connection with both agreements, the Company granted to the
lenders a security interest in all of its assets. As of September 30, 1999, the
Company had borrowings of $1,605,000 under its bank line of credit and
$2,200,000 of borrowings under its revolving line of credit.
As of November 1, 1999, the Company did not have any commitments for any
material capital expenditures for the remainder of 1999 or beyond. Management of
the Company believes that the existing levels of funds and its ability to borrow
on its lines of credit, 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.
YEAR 2000 MODIFICATIONS
The Company has reviewed its computer systems to evaluate the extent to which
modifications are necessary to insure year 2000 compliance. The Company has
upgraded its accounting software for year 2000 compliance, as well as other
software programs. All other computer upgrades and modifications needed for year
2000 compliance have been completed. The total expenditures to date have been
minimal and are not estimated to have exceeded $20,000. Given the nature of the
Company's products, the Company believes that its products do not pose year 2000
compliance issues. As with virtually all companies, the Company relies to some
degree, directly and indirectly, on external computer systems utilized by the
Company's suppliers, and the Company is reviewing the impact that any failure by
these third parties to resolve their year 2000 problems might have on the
business of the Company.
This Report on Form 10-Q contains forward-looking statements and includes
assumptions concerning the Company's operations, future results and prospects.
These forward-looking statements are based on current expectations and are
subject to a number of risks, uncertainties and other factors. In connection
with the Private Securities Litigation Reform Act of 1995, the Company provides
the following cautionary statements identifying important factors which, among
other things, could cause the actual results and events to differ materially
from those set forth in or implied by the forward-looking statements and related
assumptions contained in this Section and in this entire Report. Such factors
include, but are not limited to: product demand and market acceptance risks; the
effect of economic conditions; the impact of competitive products and pricing;
changes in foreign exchange rates; product development and commercialization
difficulties; capacity and supply constraints or difficulties; availability of
capital resources; general business and economic conditions; and changes in
government laws and regulations, including taxes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
All sales by the Company are denominated in US dollars and, accordingly, the
Company does not enter into hedging transactions with regard to any foreign
currencies. Currency fluctuations can, however, increase the price of the
Company's products to its foreign customers which can adversely impact the level
of the Company's export sales from time to time. The majority of the Company's
cash equivalents are bank accounts and money markets, and the Company does not
believe it has significant market risk exposure with regard to its investments.
9
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Shareholders of Intervisual Books, Inc. was held on August
4, 1999 and several matters were put to a vote. The issues and the results are
as follows:
Abstentions
Withhold
Votes Cast For Votes Cast Against Authority
-------------- ------------------ -----------
(1) To elect eight directors to serve until the next annual meeting of
shareholders and until their successors are chosen.
Waldo H. Hunt 5,472,923 0 14,250
Nathan N. Sheinman 5,475,973 0 11,200
Dan P. Reavis 5,477,723 0 9,450
Steven D. Ades 5,477,723 0 9,450
Dr. Neil Berkman 5,477,323 0 9,850
Gordon Hearne 5,474,173 0 13,000
Leonard W. Jaffe 5,474,173 0 13,000
John J. McNaughton 5,474,173 0 13,000
(2) Proposal to approve Amended and Restated Articles of Incorporation.
4,131,425 35,713 2,560
(3) Proposal to approve 1999 Stock Option Plan.
4,117,175 49,263 3,260
(3) To ratify the selection of BDO Seidman, LLP, as independent auditors of the
Company for 1999.
5,477,263 6,950 2,960
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
3.1 -- Amended and Restated Articles of Incorporation
10.1 -- Amendment Agreement Number One to Loan and Security Agreement
with Santa Monica Bank
27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
10
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SIGNATURES
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/ Nathan N. Sheinman
--------------------------------
Nathan N. Sheinman, President
Chief Operating Officer
By: /s/ Dan P. Reavis
--------------------------------
Dan P. Reavis
Executive Vice President
Chief Financial Officer
Date: November 15,1999
11
<PAGE> 14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Articles of Incorporation
10.1 Amendment Agreement Number One to Loan and Security
Agreement with Santa Monica Bank
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INTERVISUAL BOOKS, INC.
Nathan N. Sheinman and Gail A. Thornhill certify that:
1. They are the President and the Secretary, respectively, of
Intervisual Books, Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated in their entirety to read as follows:
I
The name of this corporation is Intervisual Books, Inc.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III
The total number of shares of all classes of stock which the
corporation shall have the authority to issue is Fifteen Million
(15,000,000), consisting of Twelve Million (12,000,000) shares of
common stock ("Common Stock") and Three Million (3,000,000) shares of
preferred stock ("Preferred Stock").
The Preferred Stock may be divided into such number of series
as the Board of Directors may determine. The Board of Directors is
authorized to determine and alter the rights, powers (including voting
powers), preferences, privileges and restrictions granted to and
imposed upon any wholly unissued series of Preferred Stock, and to fix
the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock and any other
relative, participating, optional or other special powers, preferences,
rights, and the qualifications, limitations or restrictions thereof,
all as shall be determined from time to time by the Board of Directors
and shall be stated in the resolution or resolutions providing for the
issuance of such Preferred Stock. The Board of Directors, within the
limits and restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares constituting
any series, may increase or decrease (but not below the number of any
series then outstanding) the number of shares of any series subsequent
to the issue of shares of that series.
<PAGE> 2
IV
The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible
under California law.
V
This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with the agents, vote of
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions
for breach of duty to this corporation and its shareholders.
3. The foregoing amendment and restatement of the Articles of
Incorporation have been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Articles of
Incorporation have been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of Common Stock of this corporation is 5,885,115. The number
of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50% of the outstanding
shares.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: August 5, 1999 /s/ Nathan N. Sheinman
------------------------------
Nathan N. Sheinman, President
/s/ Gail A. Thornhill
------------------------------
Gail A. Thornhill, Secretary
2
<PAGE> 1
EXHIBIT 10.1
AMENDMENT AGREEMENT NUMBER ONE
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT AGREEMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT
(this "Amendment"), dated as of September 30, 1999, is entered into between
SANTA MONICA BANK, a California banking corporation ("SMB"), on the one hand,
and INTERVISUAL BOOKS, INC., a California corporation ("IBI"), and FAST FORWARD
MARKETING, INC., a California corporation formerly known as FFM ACQUISITION
CORP. ("FFM"), on the other hand, and amends that certain Loan and Security
Agreement, dated as of May 12, 1999, between Bank and Borrower (the
"Agreement"). IBI and FFM are sometimes individually and collectively referred
to as "Borrower." All terms which are defined in the Agreement shall have the
same definition when used herein unless a different definition is ascribed to
such term under this Amendment, in which case, the definition contained herein
shall govern. This Amendment is entered into in light of the following facts:
RECITALS
WHEREAS, Borrower has requested that Bank amend certain of the
financial covenants contained in the Agreement;
WHEREAS, Bank has agreed to honor Borrower's request as set forth in
this Amendment, provided, however, that Borrower acknowledges that Bank's
agreement to amend certain of the financial covenants does not mean that Bank
will agree to any other future amendments to the financial covenants contained
in the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. The Agreement shall be amended by deleting Section 7.10B and
replacing it with a new Section 7.10B as follows:
B. Working Capital of not less than the following:
Time Period Minimum Amount
----------- --------------
As of June 30, 1999 $500,000
As of September 30, 1999 $900,000
As of December 31, 1999 $750,000
As of March 31, 2000 $500,000
2. The Agreement shall be amended by deleting Section 7.10C and
replacing it with a new Section 7.10C as follows:
<PAGE> 2
C. Tangible Net Worth of not less than the following:
Time Period Minimum Amount
----------- --------------
As of June 30, 1999 $4,400,000
As of September 30, 1999 $4,700,000
As of December 31, 1999 $4,800,000
As of March 31, 2000 $4,500,000
3. IBI and FFM each acknowledges and agrees that Bank shall have no
obligation to agree to any future amendments of the Agreement, including,
without limitation, any amendments of the financial covenants contained in
Section 7.10 of the Agreement.
4. This Amendment shall be deemed effective as of the date first
hereinabove written. Except as specifically amended herein, the Agreement shall
remain in full force and effect without any other changes, amendments or
modifications.
IN WITNESS WHEREOF, Bank and Borrower have executed this Amendment.
INTERVISUAL BOOKS, INC.,
a California corporation
By /s/ Waldo H. Hunt
-------------------------------------
Title: CEO
FAST FORWARD MARKETING, INC.,
a California corporation
By /s/ Dan Reavis
-------------------------------------
Title: President
SANTA MONICA BANK,
a California banking corporation
By /s/ Sam Kunianski
-------------------------------------
Title: EVP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF SEPTEMBER 30, 1999, AND STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 372
<SECURITIES> 0
<RECEIVABLES> 7,625
<ALLOWANCES> (115)
<INVENTORY> 2,129
<CURRENT-ASSETS> 10,870
<PP&E> 1,942
<DEPRECIATION> (1,634)
<TOTAL-ASSETS> 17,040
<CURRENT-LIABILITIES> 9,912
<BONDS> 0
0
0
<COMMON> 5,290
<OTHER-SE> (559)
<TOTAL-LIABILITY-AND-EQUITY> 17,040
<SALES> 11,874
<TOTAL-REVENUES> 12,096
<CGS> 9,246
<TOTAL-COSTS> 9,246
<OTHER-EXPENSES> 2,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> (710)
<INCOME-TAX> (70)
<INCOME-CONTINUING> (640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (640)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
