<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[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
[x] 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)
<TABLE>
<S> <C>
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
</TABLE>
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, 2000, there were 5,950,383 shares of common
stock outstanding.
<PAGE> 2
INTERVISUAL BOOKS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets - September 30, 2000, and December 31, 1999 1
Statements of Operations - Three and nine months ended
September 30, 2000 and 1999 2
Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements - September 30, 2000 4
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Events 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
</TABLE>
ii
<PAGE> 3
INTERVISUAL BOOKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
ASSETS 9/30/00 12/31/99
------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 314 $ 644
Accounts receivable, less allowances
of $124 and $174 6,554 6,094
Inventories 2,170 1,779
Prepaid expenses 125 354
Commission & royalty advances 381 447
Other current assets 241 209
------- -------
Total current assets 9,785 9,527
Production costs, net of accumulated
amortization of $17,911 and $17,153 4,072 3,417
Goodwill 1,481 1,541
Acquisition costs 252 312
Property and equipment, net of accumulated
depreciation of $1,767 and $1,668 228 265
Deferred income taxes 442 442
------- -------
$ 16,260 $ 15,504
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,202 $ 6,242
Line of credit with bank 2,475 1,475
Current portion of long term debt 2,300 --
Accrued royalties 239 581
Accrued expenses 416 208
Customer deposits 17 63
------- -------
Total current liabilities 12,649 8,569
Long term debt -- 2,200
Other liabilities-long term 86 114
------- -------
TOTAL LIABILITIES 12,735 10,883
------- -------
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 5,950,383 at Sept 30, 2000
and 5,915,617 at December 31, 1999 5,384 5,332
Additional paid in capital 440 373
Accumulated deficit (2,299) (1,084)
------- -------
TOTAL STOCKHOLDERS' EQUITY 3,525 4,621
------- -------
$ 16,260 $ 15,504
======= =======
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
INTERVISUAL BOOKS, INC.
STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Sept 30, Nine Months Ended Sept 30,
---------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 6,194 $ 6,598 $ 14,447 $ 11,875
Rights income 15 28 83 221
------- ------- ------- -------
Total revenues 6,209 6,626 14,530 12,096
Cost of sales 4,888 5,064 11,427 9,246
------- ------- ------- -------
Gross profit 1,321 1,562 3,103 2,850
Selling, general and
administrative expenses 1,341 1,402 3,905 3,481
------- ------- ------- -------
Income (loss) from operations (20) 160 (802) (631)
Interest expense (175) (84) (413) (185)
------- ------- ------- -------
Income (loss) before
income taxes (195) 76 (1,215) (816)
Income tax benefit -- -- -- (70)
------- ------- ------- -------
Net income (loss) $ (195) $ 76 $ (1,215) $ (746)
======= ======= ======= =======
Loss per common share
Basic $ (0.03) $ 0.01 $ (0.20) $ (0.13)
======= ======= ======= =======
Diluted $ (0.03) $ 0.01 $ (0.20) $ (0.13)
======= ======= ======= =======
Weighted average number
of common shares and
equivalents outstanding:
Basic 5,947 5,885 5,935 5,549
======= ======= ======= =======
Diluted 5,947 5,885 5,935 5,549
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
INTERVISUAL BOOKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands and Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Sept 30,
--------------------------
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,215) $ (746)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,026 1,038
Provision for losses on accounts receivable (20) --
Provision for abandoned titles 21 28
Deferred income taxes -- (70)
Stock-based compensation expense 18 37
Increase (decrease) from changes in:
Accounts receivable (440) (3,346)
Inventories (391) (495)
Prepaid expenses (128) 62
Royalty advances 66 31
Other current assets (32) 127
Accounts payable 960 1,261
Accrued royalties (342) (111)
Accrued expenses 208 (155)
Customer deposits (46) 372
Other liabilities (28) (38)
------- -------
Net cash used in operating activities (343) (2,005)
------- -------
Cash flows from investing activities:
Additions to property and equipment (62) (29)
Additions to production costs (1,077) (897)
Additions to acquisition costs -- (283)
------- -------
Net cash used in investing activities (1,139) (1,209)
------- -------
Cash flows from financing activities:
Cash acquired in acquisition -- 305
Proceeds from exercise of options 52 70
Proceeds from bank line of credit 1,000 950
Proceeds from subordinated line of credit 100 2,200
Repayment on bank line of credit -- (1,500)
------- -------
Net cash provided by financing activities 1,152 2,025
------- -------
Net decrease in cash and cash equivalents (330) (1,189)
Cash and cash equivalents, beginning of period 644 1,561
------- -------
Cash and cash equivalents, end of period $ 314 $ 372
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest expense $ 413 $ 185
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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, 2000, and
the results of operations for the three and nine month periods ended September
30, 2000, and cash flows for the nine month periods ended September 30, 2000 and
1999. 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, 1999.
The results of operations for the three and nine month periods 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-K for the year ended
December 31, 1999.
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 and warrants for the three and
nine months ended September 30, 2000 and 1999 were not included in the
computation of diluted loss per common share because the effect would be
antidilutive.
Note 3 - Lines of Credit
The Company has a revolving line of credit facility with a bank that provides an
asset based credit line of up to $2,500,000, subject to certain covenants. The
Company may borrow against this line, as well as issue letters of credit.
Advances under the facility bear interest at prime plus 2.5% and are secured by
the Company's assets. This facility expires May 1, 2001. At September 30, 2000,
the Company had an outstanding indebtedness of $2,475,000 and was out of
compliance with certain financial statement covenants contained in the credit
agreement. The Company was subsequently able to amend this agreement with the
bank and was in compliance with all financial statement covenants, as amended.
In May 1999, the Company entered into a subordinated revolving line of credit
agreement with a private party that provides for a line of credit of up to
$2,300,000, originally scheduled to expire May 13, 2000.
4
<PAGE> 7
This line is subordinated to the bank line of credit. Advances under this line
bear interest at 5% above LIBOR and are secured by the Company's assets. On
March 23, 2000, the Company exercised its option to extend the line of credit
for an additional 12 months to May 13, 2001, under the same terms and
conditions. To extend this line of credit, the agreement required that warrants
for 150,000 shares of the Company's common stock be issued. The Company valued
the warrants at $.84 per share and will recognize the expense over the remaining
term of the subordinated revolving line of credit. The warrants were issued on
May 13, 2000 and are exercisable for up to two years after the issue date at a
price of $1.7325. At September 30, 2000, the Company had an outstanding
indebtedness of $2,300,000 under this line of credit.
Note 4 - Liquidity
The Company has experienced net losses and negative cash flows for the first
nine months of the current fiscal year. Based on the Company's current
projections and sales to date, the Company expects to incur a loss for the
fourth quarter and fiscal year ending December 31, 2000. The Company has on its
balance sheet a deferred tax item in the amount of $442,000 which may have to be
expensed by year end 2000. In response to the losses and negative cash flow, the
Company has implemented additional executive salary cuts and eliminated certain
positions and is closely managing its cash and inventory levels. In addition,
the Company is considering other possible strategic alternatives, including
raising additional equity and/or debt financing. To assist in this process the
Company has combined its efforts with Gerard Klauer Mattison & Company (GKM), a
leading national investment banking firm. Under a signed agreement, GKM will
advise the Company and search for and explore strategic alternatives including
the possible sale of the Company.
As of the date of this filing, the Company has not raised additional funds and
no assurance can be given that any additional debt or equity financing will be
available. If the Company is not successful in raising additional financing, its
business and current operations will be materially adversely affected.
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, 2000, Fast
Forward recorded a reserve for returns against accounts receivable of $220,000
and a reserve for returns against accounts payable for $187,000.
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 1999 acquisition of Fast Forward Marketing, Inc. brought to the
Company a trained sales force which enhances 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. The Fast Forward Marketing sales force
started selling the Company's self-published titles effective June 1, 1999.
Prior to this, the Company marketed its products to retailers using the services
of Andrews McMeel, a leading US publisher/distributor located in Kansas City.
Andrews McMeel handled sales, collection, billing, warehousing and order
fulfillment functions. Effective January 1, 2000, this arrangement ended and all
sales, collections, and billing was brought in house, while warehousing and
order fulfillment is being handled by 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. The need to offset this decline is
the main reason behind the Company's decision to self-publish certain of its
titles. The Company's self-publishing program is in its third year and the
results continue to improve.
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
RESULTS OF OPERATIONS
Net sales for the three and nine month periods ended September 30, 2000 were
$6,194,000 and $14,447,000 as compared to $6,598,000 and $11,875,000 last year.
This was a decrease of $404,000 for the quarter and an increase of $2,572,000
for the nine months over the prior year. The decrease for the three months ended
September 30, 2000 was a result of higher self-publishing sales of approximately
$1,225,000 offset by lower packaging sales of approximately $1,570,000. Video
sales for the three months were about the same as the comparable prior year
period. The increase in self-publishing was due mainly to the Company's efforts
to expand this segment of its market and to the inclusion of certain accounts
this year that were sold last year as part of packaging. Packaging sales were
down for the three months mainly due to higher proprietary sales to major US
retailers offset by the unexpected lost of a major UK customer and the
reclassification of certain packaging customers to self-publishing as discussed
above. The Company was successful in replacing this UK customer with another UK
direct seller, but it will take additional time to build the amount of business
conducted with this new account. Also having a material effect in lowering
packaging sales was the continuing strength of the US dollar which reduced
foreign sales and the loss of business with a major US publisher because of the
timing effect of the release of certain key titles in a continuing series sold
in 1999 that were not duplicated in 2000. The increase for the first nine months
of this year resulted from $3,459,000 in video sales and higher self-publishing
sales of $1,951,000 offset by a $2,836,000 decrease in packaging sales. Higher
self-publishing sales and lower packaging sales for the nine months are due
mainly to the same factors as discussed above which effected the three month
period. The increase in video sales for the nine months ended September 30, 2000
compared to the prior period primarily relates to the acquisition of Fast
Forward completed in mid-May 1999.
Rights income for the three and nine month periods ended September 30, 2000 were
$15,000 and $83,000, respectively, as compared to $28,000 and $221,000 for the
prior year. This income is primarily derived from the Company's sale of
worldwide direct marketing rights on some of its products. These revenues are
derived from a limited number of accounts so the timing of the signing of future
projects is a material factor in the income received. Lower income for the three
and nine month periods ended September 30, 2000 was the result of fewer projects
being accepted by these customers. These sales do not require that the Company
manufacture, and therefore, have no related cost.
Gross profit margin for the three and nine month periods ended September 30,
2000 was 21.3% and 21.4%, respectively, as compared to 23.6% for both periods of
the prior year. The drop in margins for the three month period is due mainly to
lower gross margins on both self-publishing and packaging sales. Self-publishing
margins dropped mainly because of a change in the mix of customers sold.
Self-publishing sales for the three months ended September 30, 2000 included
more mass market and book club accounts than did last year. These accounts
traditionally require higher discounts. The gross margin on the Company's
packaged book products were lower in the three month period due mainly to a
change in the mix of products sold and to lower margins on foreign sales because
of the continued strength of the US dollar. The drop in margins for the nine
month period is due mainly to the same reasons affecting the three months. One
additional factor affecting the nine months was a change in the overall mix of
products sold. A larger portion of this year's sales were from the distribution
of video titles which have lower margins. Cost of sales for book product
consists primarily of manufacturing costs, book development amortization and
royalties.
7
<PAGE> 10
Selling, general and administrative expenses for the three and nine month
periods ended September 30, 2000 were $1,341,000 and $3,905,000 as compared to
$1,402,000 and $3,481,000 for the comparable periods of the prior year and
represented a decrease of $61,000 for the quarter and an increase of $424,000
for the nine months. The majority of the increase for the nine month period
comes from Fast Forward expenses in 2000 for the entire nine months, while in
1999 only 5-1/2 months were included as a result of the acquisition in mid-May.
Personnel expenses were $588,000 and $1,910,000 for the three month and nine
months ended September 30, 2000 as compared to $772,000 and $1,880,000 for the
comparable periods of 1999. This represents a decrease of $184,000 for the
quarter and an increase of $30,000 for the nine months. The decrease for the
quarter can be attributed primarily to salary and staff reductions. Selling
expenses were $361,000 and $981,000 for the three and nine month periods ended
September 30, 2000 versus $391,000 and $899,000 in 1999 resulting in a decrease
for the quarter of $30,000 and a $82,000 increase for the nine months. The
increase for the nine months is primarily a result of the Fast Forward
acquisition. Administrative expenses were $392,000 and $1,014,000 for the three
and nine months ended September 30, 2000 as compared to $239,000 and $702,000
for the same periods of 1999. This represented increases of $153,000 and
$312,000 for the quarter and nine months as compared to the prior year. The
increases for both periods can be primarily attributed to increases in rent,
amortization of acquisition costs and goodwill, accounting expenses, and
insurance.
Interest expense for the three and nine month periods ended September 30, 2000
was $175,000 and $413,000, respectively, as compared to $84,000 and $185,000 for
the comparable periods of 1999. The increases of $91,000 and $228,000 for the
quarter and nine months were a result of higher average borrowings. Also
attributing to the increases were $16,000 and $32,000 for the three and nine
months of 2000 in expense related to the amortization of the warrants.
The Company's net loss for the three and nine month periods ended September 30,
2000 was $195,000 and $1,215,000, respectively, as compared to net income of
$76,000 for the third quarter of 1999 and net loss of $746,000 for the nine
months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $330,000 to $314,000 at
September 30, 2000 from $644,000 at December 31, 1999. At September 30, 2000,
working capital was ($2,864,000) compared to $958,000 at December 31, 1999. The
primary use of cash during the nine months ended September 30, 2000 was from the
addition to production costs and decreases in acquisition costs.
Net cash used in operations was $343,000 for the nine months ended September 30,
2000 as compared to $2,005,000 for the corresponding period of the previous
year. The $1,662,000 change in cash from operations compared to the
corresponding period was primarily attributable to a decrease in additions to
accounts receivable offset by an increase in net losses. Net cash used in
investing activities amounted to $1,139,000 as compared to $1,209,000 during the
same period in 1999. This decrease in cash used is primarily from a decrease in
acquisition costs offset by an increase in production costs in the first nine
months of 2000 versus the same period of 1999. Net cash provided by financing
activities was $1,152,000 in 2000 as compared to $2,025,000 for the same period
in 1999. This decrease in cash provided is primarily from reduced borrowings on
the Company's lines of credit.
8
<PAGE> 11
The Company has a revolving line of credit facility with a bank that provides an
asset based credit line of up to $2,500,000, subject to certain covenants. The
Company may borrow against this line, as well as issue letters of credit.
Advances under the facility bear interest at prime plus 2.5% and are secured by
the Company's assets. This facility expires May 1, 2001. At September 30, 2000,
the Company had an outstanding indebtedness of $2,475,000 and was out of
compliance with certain financial statement covenants contained in the credit
agreement. The Company was subsequently able to amend this agreement with the
bank and was in compliance with all financial statement covenants, as amended.
In May 1999, the Company entered into a subordinated revolving line of credit
agreement with a private party that provides for a line of credit of up to
$2,300,000, originally scheduled to expire May 13, 2000. This line is
subordinated to the bank line of credit. Advances under this line bear interest
at 5% above LIBOR and are secured by the Company's assets. On March 23, 2000,
the Company exercised its option to extend the line of credit for an additional
12 months to May 13, 2001 under the same terms and conditions. To extend this
line of credit, the agreement required that warrants for 150,000 shares of the
Company's common stock be issued. The Company valued the warrants at $.84 per
share and will recognize the expense over the remaining term of the subordinated
revolving line of credit. The warrants were issued on May 13, 2000 and are
exercisable for up to two years after the issue date at a price of $1.7325. At
September 30, 2000, the Company had an outstanding indebtedness of $2,300,000
under this line of credit.
The Company has experienced net losses and negative cash flows for the first
nine months of the current fiscal year. Based on the Company's current
projections and sales to date, the Company expects to incur a loss for the
fourth quarter and fiscal year ending December 31, 2000. The Company has on its
balance sheet a deferred tax item in the amount of $442,000 which may have to be
expensed by year end 2000. In response to the losses and negative cash flow, the
Company has implemented additional executive salary cuts and eliminated certain
positions and is closely managing its cash and inventory levels. In addition,
the Company is considering other possible strategic alternatives, including
raising additional equity and/or debt financing. To assist in this process the
Company has combined its efforts with Gerard Klauer Mattison & Company ("GKM"),
a leading national investment banking firm. Under a signed agreement, GKM will
advise the Company and search for and explore strategic alternatives including
the possible sale of the Company.
As of the date of this filing, the Company has not raised additional funds and
no assurance can be given that any additional debt or equity financing will be
available. If the Company is not successful in raising additional financing, its
business and current operations will be materially adversely affected.
The Company is having ongoing talks with its bank and the holder of its
subordinated revolving line of credit about possibly extending the term of the
indebtedness beyond May 13, 2001. No assurance can be given that extensions will
be received. The Company is also considering other possible strategic
alternatives, raising additional equity and/or debt financing. As of the date of
this filing, the Company has not raised additional funds and no assurance can be
given that any additional debt or equity financing will be available to the
Company on acceptable terms, or at all. If the Company is not successful in
raising additional financing, its business and current operations will be
materially adversely affected.
9
<PAGE> 12
As of November 1, 2000, the Company did not have any commitments for any
material capital expenditures for the remainder of 2000 or beyond. The Company's
business tends to be seasonal, as is the publishing business as a whole, with
the major volume of sales occurring in the last six months of the year. As a
result, the Company's cash position is at its lowest during the months of May
through October. Management of the Company believes that the Company's ability
to generate cash and secure additional funding will be 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. No assurances
can be given that such additional financing will be obtained.
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.
10
<PAGE> 13
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
September 6, 2000 and several matters were put to a vote. The issues and the
results are as follows:
<TABLE>
<CAPTION>
Abstentions
Votes Cast For Votes Cast Against Withhold Authority
-------------- ------------------ ------------------
(1) To elect eight directors to serve until the next annual meeting of
shareholders and until their successors are chosen.
<S> <C> <C> <C>
Waldo H. Hunt 5,499,352 200 15,500
Nathan N. Sheinman 5,499,352 200 15,500
Dan P. Reavis 5,499,352 200 15,500
Steven D. Ades 5,499,352 200 15,500
Dr. Neil Berkman 5,499,352 200 15,500
Gordon Hearne 5,499,352 200 15,500
Leonard W. Jaffe 5,499,352 200 15,500
Wong Weng Foo 5,499,352 200 15,500
(3) To ratify the selection of BDO Seidman, LLP, as independent auditors of
the Company for 2000.
5,514,552 500 0
</TABLE>
Item 5. Other Events
In connection with the Company's efforts to explore strategic alternatives, the
Company has engaged Gerard Klauer Mattison & Company ("GKM") a national
investment banking firm. GKM will advise the Company and assist in searching for
and exploring strategic alternatives, including the possible sale of the
Company. Under this exclusive agreement, GKM will act as a financial advisor in
connection with any transaction. The initial term of this agreement is six
months and GKM was be paid a retainer and will be entitled to success fee upon
the closing of a transaction.
11
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10.1 Amendment Agreement Number Four to Loan and Security Agreement*
27. Financial Data Schedule*
----------
* Previously filed
(b) Reports on Form 8-K
None
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: December 21, 2000
12
