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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
Commission File Number 1-12722
GOOD IDEAS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2206675
(I.R.S. Employer Identification No.)
10410 Trademark Street
Rancho Cucamonga, California 91730
(909) 466-8378
(Address, including zip code, and telephone number, including
area code,of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.001 par value
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of June 13, 1996, there were 3,948,680 shares of Common
Stock outstanding.
The Registrant has only one class of voting stock
outstanding, the Common Stock. As of June 13, 1996, the
aggregate market value of the Common Stock held by non-affiliates
was $774,340 based on the closing sale price of such stock on
that date
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
USAT acquired an interest in Good Ideas in May 1992. For the
period from July 1992 through March 1993, USAT provided
management and administrative services to Good Ideas in exchange
for a fixed monthly fee of $25,000. In April 1993, Good Ideas
and USAT entered into a formal Management Agreement pursuant to
which the fee for such services from April through September 1993
was ten percent of annual net sales. Pursuant to the Management
Services Agreement effective as of October 1, 1993, such fees are
computed on the basis of a fixed monthly charge of $25,000, plus
five percent of annual gross sales in excess of $5,000,000. On
February 26, 1996, USAT suspended payment of management fees by
Good Ideas to USAT retroactive to January 1, 1996.
Because of the declining sales of Good Ideas and what
management believes to be the problems generally in the toy
industry (see the section "Results of Operations, Fiscal 1996 vs
Fiscal 1995" under this caption), the USAT Board of Directors
concluded on February 26, 1996 that Good Ideas was not likely to
reverse the trend of increasing losses during the next 12 months.
The Board believed that, whether or not the Merger (see the
section "Relationships with USAT" in Item 1 to this Report) was
consummated, the only way to improve operational results was to
secure new toy products, whether through licensing arrangements
or otherwise; however, this type of program, even if successful,
as to which there can be no assurance, would require substantial
cash investments, which is contrary to the Board's conclusion
that the best opportunity for USAT and its subsidiaries as
maximizing revenues and securing profitability was by
concentrating on its alcohol and drug testing and human resource
provider segments as its core businesses. Accordingly, on
February 26, 1996, the USAT Board authorized management to seek a
buyer for Good Ideas. The Good Ideas Board believes that,
pending receipt of an acceptable offer, as to which there can be
no assurance, Good ideas' cash resources and expected cash flow
from operations, coupled with its cost reduction actions (such as
not renewing the lease for office and warehouse facilities and
eliminating the management fee,) will be sufficient to meet Good
Ideas' cash requirements for the next 12 months if such time is
required to sell or liquidate. However, there can be no
assurance that additional funds may not be required. The USAT
Board and the Good Ideas Board each believes that liquidation of
Good Ideas by no later than December 31, 1996 would be preferable
than investing at that time substantial additional funds in Good
Ideas, other than repaying USAT's indebtedness to Good Ideas due
June 30, 1996. The Merger would terminate USAT's obligation to
make such repayment.
Liquidity and Capital Resources
Prior to July 1992, Good Ideas financed its operations
primarily through borrowings under a bank line of credit and cash
generated from operations. From July 1992 through Good Ideas' initial
public offering in February 1994, Good Ideas financed its operations
primarily through loans from USAT and cash generated from operations.
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As of March 31, 1996, Good Ideas' working capital was
$2,165,000 as compared to working capital of $3,572,000 as of
March 31, 1995. The outstanding loans to USAT of $2,052,000 were
made with funds in excess of amounts required for operating
capital and carry interest rates in excess of those available to
Good Ideas on short-term money market investments. The loans
bear interest at the rate of eight percent and are evidenced by
notes that become due on December 31, 1996. During fiscal 1996,
Good Ideas received net loan repayments of $171,000 from USAT.
Cash used by operations was $444,000 for fiscal 1996. The
net loss for the period was $1,566,000. Significant non-cash
operating charges of depreciation in the amount of $60,000,
writedown of assets to realizable value of $258,000 and projected
costs through sale or liquidation of $110,000 reduced the cash
loss. Cash was provided through payments received on accounts
receivable of $251,000, decreases in inventories of $370,000 and
prepaid expenses of $103,000, and cash was used to pay down
accounts payable and accrued expenses by $68,000.
Cash was provided by investing activities during fiscal 1996
through the net disposal of property and equipment in the amount
of $13,000.
Cash provided from financing activities was $162,000 for
fiscal 1996 related to net repayments by USAT with respect to its
loan from Good Ideas in the amount of $171,000, offset by $9,000
in payments made on capital leases.
Management believes that many retailers are minimizing the
number of vendors which they purchase from and are reducing the
number of items carried in inventory, which has the result of
squeezing out smaller companies with limited product lines.
Additionally, retailers increasingly require manufacturers to
store inventory until sale, which significantly increases
manufacturing costs. Because of the declining sales and the
problems generally in the toy industry, the USAT Board authorized
on February 26, 1996, management to seek a buyer for Good Ideas.
However, the Good Ideas Board believes that, pending receipt of
an acceptable offer, as to which there can be no assurance, Good
Ideas' cash resources and expected cash flows from operations,
coupled with its cost reduction actions (such as not renewing the
lease for office and warehouse facilities and eliminating the
management fee), will be sufficient to meet Good Ideas' cash
requirements for the next 12 months if such time was required to
sell or liquidate. However, there can be no assurance that
additional funds may not be required. In such event, assuming no
acceptable sale offer, the Good Ideas Board could reconsider if
liquidation of Good Ideas was preferable to seeking additional
funding after Good Ideas was repaid the indebtedness from USAT.
However, the USAT Board currently intends to liquidate Good Ideas
by December 31, 1996 if no acceptable sales offer is received.
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Results of Operations
Fiscal 1996 vs. Fiscal 1995
Net sales for fiscal 1996 were $1,508,000, a decrease of
$3,098,000 or 67.3% from the net sales in the prior year. Of
this decrease, $1,944,000 or 62.8% was attributable to Toys R Us,
the major customer of Good Ideas, not placing orders for Good
Ideas' toy products. The customer attributed its reduction in
orders to its large inventories and declining sales and customer
traffic. Management believes that other manufacturers in the toy
industry are currently facing these same problems - their
distributors or retailers to which they sell have large
inventories of products and declining sales and customer traffic.
In addition, management believes that many retailers are
minimizing their number of vendors and reducing the number of
items carried in inventory, which has the result of squeezing out
the smaller companies with their limited product lines. Net
sales from Good Ideas' wooden construction toy category for the
fiscal 1996 were $967,000, a decrease of $1,874,000 or 66.0% from
the net sales in the comparable period in fiscal 1995. Net sales
from Good Ideas' equestrian line of toys, consisting of horses,
saddles and accessories, for fiscal 1996 were $531,000,
representing a decrease of $682,000 or 56.2% from those in the
prior year. Net sales of Good Ideas' other product lines for
fiscal 1996 were $10,000, a decrease of $542,000 or 98.2% from
the prior year. The decrease was attributable to the
discontinuance of Good Ideas' line of corrugated cardboard
construction toys because of significant increases in the cost of
materials.
Gross profit for fiscal 1996 was $163,000, or 10.8% of net
sales, as compared to $1,324,000, or 28.7% of net sales, for the
prior year. The decrease in gross profit as a percentage of net
sales was primarily due to lower sales volumes in relation to
fixed costs and the write-off of obsolete inventory in the amount
of $192,000. Good Ideas had reviewed its inventory for
obsolescence annually and written off to cost of sales inventory
determined to be obsolete. The fiscal 1996 write-off is more
significant in relation to gross profit than past years due to
the lower sales level and the pending sale or liquidation of
assets. Prior year provisions for obsolescence were not
significant in relation to higher cost of sales and gross profit
levels.
Selling, general and administrative expenses for fiscal 1996
decreased to $1,279,000 from $1,924,000 in fiscal 1995, which
decrease was attributable to reductions in payroll and related
costs during fiscal 1996.
Good Ideas recognized interest income from its loans to its
major shareholder, SAT, and U.S. Rubber Recycling, Inc. ("USRR"),
a wholly owned subsidiary of SAT, of $158,000 during fiscal 1996
compared to $68,000 during fiscal 1995. Good Ideas also
recognized interest income from money market investments of
$3,500 and $42,000 in fiscal 1996 and 1995, respectively.
Management fees paid to SAT were $225,000 for fiscal 1996,
representing a decrease of $80,000 from the $305,000 of fees paid
for fiscal 1995. The decrease resulted from SAT's suspension of
the management fee retroactive to January 1, 1996.
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The net loss for the fiscal 1996 was $1,566,000,
representing an increase of $768,000 from the net loss of
$798,000 for fiscal 1995. The increase in the net loss was due
to the decreases in sales and gross profit offset by the
decreases in selling, general and administrative expenses and
management fees, all as described in the preceding paragraphs.
The net loss for the current year was also increased by writedown
of assets in the amount of $258,000 and projected costs through
sale or liquidation in the amount of $110,000.
As March 31, 1996, Good Ideas had net operating loss
carryforwards of approximately $3,085,000 for federal income tax
purposes. Good Ideas adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," effective
January 1, 1992. The adoption of this statement did not have a
material effect on Good Ideas' financial condition or results of
operations. Net operating loss carryforwards can be used to
offset federal taxable income during a 15-year period from the
date of the loss. Under the Tax Reform Act of 1986, the amounts
of, and the benefit from, net operating losses that can be
carried forward may be impaired or limited in certain
circumstances. Events which may offset these carryforwards
include, but are not limited to, a cumulative stock ownership
change of greater than 50%, as defined, over a three-year period.
Unless Good Ideas were to add new products to its lines, as
to which there can be no assurance or there were a stronger
demand for the toy products in the industry generally, management
does not believe that a turnaround in Good Ideas' operations
would occur during the next 12 months, if not at a later date.
Although management of Good Ideas' had considered plans to expand
the product line, it was reluctant to implement these plans
absent a change in the industry conditions described above. As
indicated in the section "General" under this caption "Good
Ideas' Management Discussion and Analysis of Financial Condition
and Results of Operations" and "The Merger and Related Matters-
Sale of Good Ideas," on February 26, 1996, management determined
to seek a buyer for Good Ideas.
Fiscal 1995 vs. Fiscal 1994
Net sales for fiscal 1995 were $4,606,000, a decrease of
$938,000 or 16.9% from the net sales in the prior year. Net
sales from Good Ideas' wooden construction toy category for
fiscal 1995 were $2,841,000, a decrease of $733,000 or 20.5% from
the net sales in fiscal 1994, which decrease was attributable to
a decline in this category sales by Toys R Us, Good Ideas' major
customer, resulting in a reduction of orders placed by such
customer. The customer attributed its reduction in orders to its
large inventories and declining sales and customer traffic.
Management believes that other manufacturers in the toy industry
are currently facing these same problems - their distributors or
retailers to which they sell have large inventories of products
and declining sales and customer traffic. In addition, net sales
from Good Ideas' equestrian line of toys for fiscal 1995 were
$1,123,000, representing an increase of $198,000, or 19.5%, over
the sales in fiscal 1994. This increase was attributable to the
sales of a new product introduced into the equestrian line at the
end of fiscal 1994. Net sales of Good Ideas' corrugated
cardboard construction toy category for fiscal 1995 were
$344,000, a decrease of $69,000 or 16.7% from
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the net sales for fiscal 1994. Price increases in the cost of
the corrugated cardboard resulted in price increases to Good Ideas'
customers, with a resulting decline in sales. This category was
ultimately removed from the product line at the beginning of fiscal 1996.
The remaining decrease in net sales for fiscal 1995 as compared
to the net sales in fiscal 1994 was the result of sales of other
products which had been introduced into the line on an
unsuccessful basis and sold at discounted prices in order to
avoid carryover of slow-moving inventory.
Gross profit for fiscal 1995 was $1,324,000 or 28.7% of net
sales as compared to $1,487,000 or 26.8% of net sales for fiscal
1994. The increase in gross profit as a percentage of net sales
was primarily due to Good Ideas' effort to increase its gross
margins on product sold by either raising selling prices or
adjusting the quantity of parts in its playsets.
Selling, general and administrative expenses for fiscal 1995
increased to $1,924,000 or 41.8% of net sales from $1,487,000 or
27.6% of net sales for fiscal 1994. This increase was the result
of two factors: First, the fixed overhead was spread over a
decreased sales volume. Second, Good Ideas experienced increased
legal and other public company expenses of approximately
$127,000, increased payroll costs of $86,000 resulting from
additional employees hired and increased travel and promotion
expenses in the amount of $97,000 resulting from Good Ideas'
efforts to expand its business base.
Pursuant to the Management Services Agreement, SAT's fees
for management and administrative services provided to Good Ideas
during fiscal 1995 were $305,000, representing a decrease of
$120,000 from the fees in fiscal 1994. This decrease was the
result of two factors: First, during fiscal 1994, SAT's fees
were computed at ten percent of net sales through September 30,
1993, while such fees were computed based on a flat monthly
charge of $25,000 on the first $5,000,000 of net sales during
fiscal 1995. Second, the decline in net sales volume for fiscal
1995 kept the management fee from becoming subject to a five
percent surcharge on all sales over $5,000,000.
During fiscal 1995, Good Ideas repaid its debt to SAT and
made loans to SAT in the amount of $1,196,000 and to USRR in the
amount of $1,027,000. Good Ideas recognized interest income of
$68,000 from these loans to related parties and also received
interest income of $42,000 from money market investments. Good
Ideas incurred minimal interest expense during fiscal 1995.
Good Ideas had a loss from operations of $905,000 in fiscal
1995 as compared with a loss from operations of $426,000 in
fiscal 1994, an increase of $479,000 or 112.4%. The increase in
operating loss was due to the decrease in sales and the increase
in selling, general and administrative expenses, offset by the
decrease in the management fee, as described in the preceding
paragraphs.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Company has duly caused his report to be signed on
its behalf by the undersigned, thereunto duly authorized on April
15, 1997.
GOOD IDEAS ENTERPRISES, INC.
(Registrant)
By: /s/ Robert Stutman
---------------------------
Robert Stutman
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Company and in the capacities indicated on April
15,1997.
Signature Title
- --------- -----
/s/ Robert Stutman
- ----------------------- Director
Robert Stutman
/s/ Robert Muccini
- ----------------------- Principle Financial and
Robert Muccini Accounting Officer
/s/ Michael S. McCord
- ----------------------- Director
Michael S. McCord
/s/ Linda H. Masterson
- ----------------------- Director
Linda H. Masterson
- ----------------------- Director
William D. Robbins
