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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ________________ TO _________________
COMMISSION FILE NUMBER - 0-28104
JAKKS PACIFIC, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4527222
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22761 PACIFIC COAST HWY., 226
MALIBU, CALIFORNIA 90265
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 456-7799
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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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The number of shares outstanding of the Issuer's common stock is 4,942,094 (as
of November 12, 1997).
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JAKKS PACIFIC, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED SEPTEMBER 30, 1997
ITEMS IN FORM 10-QSB
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Facing page
Part I FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet -
September 30, 1997 (Unaudited) 3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1997
and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997
and 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. 9
Part II OTHER INFORMATION 12
Item 1. Legal Proceedings and Claims. None
Item 2. Changes in Securities and Use of Proceeds. 12
Item 3. Default Upon Senior Securities. None
Item 4. Submission of Matters to
a Vote of Security Holders. 12
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K. 13
Signatures. 15
</TABLE>
2
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JAKKS PACIFIC, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
September 30, 1997 (Unaudited)
Assets
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash $ 6,639,102
Accounts receivable 8,383,082
Inventory 2,278,478
Prepaid expenses and other 2,422,413
-----------
Total current assets 19,723,075
-----------
Property and equipment, at cost 3,034,878
Less accumulated depreciation and amortization 903,769
-----------
Net property and equipment 2,131,109
-----------
Goodwill, net 10,844,401
Trademarks, net 941,779
Other 686,439
-----------
Total assets $34,326,803
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 5,194,498
Reserve for returns and allowances 1,891,391
Acquisition debt 2,092,752
Income taxes payable 793,054
-----------
Total current liabilities 9,971,695
-----------
Convertible Debentures 6,000,000
-----------
Total liabilities 15,971,695
-----------
Commitments
Stockholders' equity
Preferred stock, $.001 par value; 5,000 shares
authorized, no shares issued --
Common stock, $.001 par value; 25,000,000 shares authorized;
4,889,594 shares issued and outstanding 4,890
Additional paid-in capital 14,773,828
Retained earnings 3,731,634
-----------
18,510,352
Less unearned compensation from stock option grants 155,244
-----------
Net stockholders' equity 18,355,108
-----------
Total liabilities and stockholders' equity $34,326,803
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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JAKKS PACIFIC, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $15,919,154 $4,458,458 $29,212,906 $7,674,958
Cost of sales 9,299,135 2,997,169 17,479,001 5,015,057
---------- ---------- ----------- ----------
Gross profit 6,620,019 1,461,289 11,733,905 2,659,901
Selling, general and administrative expenses 4,599,163 801,689 8,819,249 1,840,258
---------- ---------- ----------- ----------
Income from operations 2,020,856 659,600 2,914,656 819,643
Other (income) and expense:
Interest expense 173,064 4,606 507,186 58,530
Interest income (60,116) (74,782) (228,409) (121,921)
---------- ---------- ----------- ----------
Income before income taxes 1,907,908 729,776 2,635,879 883,034
Provision for income taxes 452,449 101,333 520,385 33,243
---------- ---------- ----------- ----------
Net income $1,455,459 $ 628,443 $ 2,115,494 $ 849,791
========== ========== =========== ==========
Net income per share $ 0.29 $ 0.15 $ 0.45 $ 0.26
========== ========== =========== ==========
Weighted average number of common and common
equivalent shares outstanding 5,092,000 4,218,000 4,693,000 3,272,000
========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
JAKKS PACIFIC, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,115,494 $ 849,791
---------- ------------
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation and amortization 1,042,979 213,117
Change in accounts receivable (5,962,612) (1,636,559)
Change in inventory (2,138,373) 10,865
Net change in other operating assets and liabilities 4,562,389 (455,155)
---------- -----------
Total adjustments (2,495,617) (1,867,732)
---------- -----------
Net cash used by operating activities (380,123) (1,017,941)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,579,957) (680,030)
Purchase of trademark (1,000,000) --
Excess of cost over toy business assets acquired (goodwill) (7,063,704) --
Increase in other assets (39,687) (22,681)
---------- -----------
Net cash used by investing activities (9,683,348) (702,711)
---------- -----------
Cash flows from financing activities:
Payment of acquisition debt - Justin (191,555) (260,930)
Proceeds from issuance of convertible debentures 6,000,000 1,300,000
Offering costs - convertible debentures (528,532) (195,306)
Proceeds from sale of common stock 4,000,750 9,387,500
Offering costs - common stock (1,026,102) (1,718,237)
Payment of notes payable to officers -- (382,816)
Proceeds from acquisition debt - Road Champs 6,391,838 --
Payment of acquisition debt - Road Champs (4,299,086) --
---------- ----------
Net cash provided by financing activities 10,347,313 8,130,211
---------- ----------
Net increase in cash 283,842 6,409,559
Cash, beginning of period 6,355,260 81,752
---------- ----------
Cash, end of period $ 6,639,102 $ 6,491,311
========== ==========
Supplemental disclosure of cash flow information (Note 4):
Cash paid during the period for:
Income taxes $ -- $ 10,520
========== ==========
Interest $ 460,451 $ 49,638
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
JAKKS PACIFIC, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1997
Note 1 -- Basis of presentation
The accompanying 1997 and 1996 unaudited interim condensed consolidated
financial statements included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
prevent the information presented from being misleading. These financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Form SB-2, which contains financial
information for the year ended December 31, 1996 and the nine month period from
April 1, 1995 (inception) through December 31, 1995, as declared effective by
the SEC (file number 333-22583) on May 1, 1997.
The information provided in this report reflects all adjustments (consisting
solely of normal recurring accruals) that are, in the opinion of management,
necessary to present fairly the results of operations for this period. The
results for this period are not necessarily indicative of the results to be
expected for the full year.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, JAKKS Acquisition Corp., a Delaware
corporation, J-X Enterprises, Inc., a New York corporation, Road Champs, Inc. a
Pennsylvania corporation, and JP (HK) Limited, JAKKS PACIFIC (HK) Limited
(formerly JAXXS (HK) Limited), and Road Champs Limited, all of which are Hong
Kong corporations. In consolidation, all significant intercompany balances and
transactions are eliminated.
Earnings per share has been computed using the weighted average number of
common shares and common share equivalents (which consists of Warrants and
Options, to the extent they are dilutive). The difference between primary and
fully diluted earnings per share is immaterial.
6
<PAGE> 7
JAKKS PACIFIC, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1997
Note 2 -- Issuance of convertible debentures
On January 8, 1997, the Company issued two $3,000,000 convertible
debentures for a total of $6,000,000. Interest on the principal amounts
outstanding will accrue at 9.0% per annum with the first monthly installment
payable on February 1, 1997. If not sooner redeemed or converted into common
stock, the debentures shall mature on December 31, 2003. Commencing on December
31, 1999, and the first day of each successive month thereafter prior to
maturity, mandatory principal redemption installments must be made, each of such
installments to be in the amount of $10 per $1,000 of the then remaining
principal amount of the debenture. Such debentures are convertible at $5.75 per
share into 1,043,478 shares of the Company's common stock, subject to reset and
anti-dilution provisions. A stock pledge agreement has been entered into with
the Company pledging as security all outstanding shares of the Company's
wholly-owned subsidiaries. In addition, all marketing and manufacturing licenses
acquired or to be acquired, and all machinery and equipment to the extent
assignable by the Company have also been pledged as security. As compensation
paid to an investment banker, 6% of the gross proceeds was paid in cash and
warrants for the purchase of 150,000 shares of common stock, exercisable at
$8.00 per share, were sold for $0.001 per share.
Note 3 -- Acquisition
On February 6, 1997, the Company acquired all of the stock of Road Champs,
Inc. and all of the operating assets of an affiliated company for approximately
$12,496,000, as adjusted. Consideration paid at closing was approximately
$4,609,000 in cash plus the issuance of $1,500,000 (198,020 shares) of the
Company's common stock. The balance of the adjusted purchase price of
approximately $3,189,000 is to be paid in three equal installments, with the
third installment payable one year after the closing of the transactions all of
which will carry interest at a rate of 7.0% per annum. In addition, the payment
for inventory of approximately $2,189,000, without interest, is payable within
30 days of shipment to customers and the balance was paid on August 6, 1997,
and a payment of $1,009,000 which was made on May 8, 1997. Outstanding balances
are secured by all acquired shares and assets, however, they are subordinate
to the security interest for the convertible debentures noted above.
Note 4 -- Supplemental information to statements of cash flows
198,020 shares of common stock were issued as partial consideration for toy
business assets acquired totalling $1,500,000 in 1997. The excess of cost over
toy business assets acquired (goodwill) is reflected in the consolidated
statement of cash flows net of the stock issued.
7
<PAGE> 8
JAKKS PACIFIC, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
September 30, 1997
Note 5 -- Recent accounting pronouncements
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" which
is required to be implemented for fiscal years ending after December 15, 1997
and earlier application is not permitted. SFAS No. 128 replaces current
"primary earnings per share" ("primary EPS") and "fully diluted earnings per
share" ("fully diluted EPS") with "basic earnings per share" ("basic EPS") and
"diluted earnings per share" ("diluted EPS"). Unlike the calculation of primary
EPS which includes, in the denominator, the sum of (1) actual weighted shares
outstanding and (2) "common stock equivalents" as that term is defined in the
authoritative accounting literature, basic EPS is calculated using only the
actual weighted average shares outstanding during the relevant periods. Diluted
EPS is very similar to fully diluted EPS, differing only in technical ways which
do not currently affect the Company.
The FASB issued a new standard, SFAS No. 123 "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing stock-based
compensation that entities may use, which measures compensation cost at the
grant date based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period. Alternatively, the
standard permits entities to continue accounting for employee stock option and
similar equity instruments under APB Opinion No. 25, " Accounting for Stock
Issued to Employees." Entities that continue to account for stock options using
APB Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied. Management accounts for options under APB Opinion
No. 25. If the alternative accounting-related provisions of SFAS No. 123 had
been adopted as of the beginning of 1995, the effect on 1997 and 1996 net income
and earnings per share would have been immaterial.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". SFAS No. 121
addresses the accounting for the impairment of long-lived assets, certain
identifiable intangible assets and goodwill related to those assets to be held
and used. It also addresses the accounting for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 establishes guidance
for recognizing and measuring impairment losses and requires that the carrying
amount of impaired assets be reduced to fair value. SFAS No. 121 was effective
for fiscal years beginning after December 15, 1995. The impact of the adoption
of SFAS No. 121 did not have a material adverse effect on the Company's
financial condition or results of operations.
Note 6 -- Common stock
On May 6, 1997 and June 18, 1997, the Company issued 600,000 shares and
90,000 shares, respectively, of its Common Stock at a price of $5.75 per share
in connection with its public offering.
In September 1997, 16,625 shares of Common Stock were issued pursuant to
the exercise of options previously granted, providing gross proceeds of $33,250
to the Company.
Note 7 -- Subsequent events
On October 24, 1997, the Company acquired the Child Guidance, Remco and
related trademarks. Consideration paid was $10,600,000 in cash plus the
issuance of a note payable in the amount of $1,200,000 which bears interest at
10% per annum and is payable in five quarterly installments beginning
December 31, 1997. In addition, the Company entered into a Manufacturing and
Supply Agreement with the Sellers of the trademarks which provides the Company
with a source of manufacture and supply of products to be produced under the
trademarks. Consideration of $1,400,000 is payable in quarterly installments
over the agreement's thirty-month term, beginning December 31, 1997.
On October 27, 1997, the Company issued 3,525 shares of its 4% Redeemable
Convertible Preferred Stock, par value $.001 per share, at a price of $2,000
per share in a private placement. The proceeds were used to partially fund the
acquisition of the Child Guidance, Remco and related trademarks. These shares
are convertible into 940,000 shares of the Company's common stock on or after
January 1, 1998.
8
<PAGE> 9
JAKKS PACIFIC, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The following discussion and analysis should be read together with the Company's
Condensed Consolidated Financial Statements and Notes thereto which appear
elsewhere herein.
Overview
The Company commenced operations July 1, 1995 through the acquisition of
substantially all of the assets comprising the toy business of Justin Products
Limited ("Justin"), a Hong Kong Corporation, and the Company has included the
results of the operations acquired from Justin in its consolidated financial
statements from the effective date of the acquisition, July 1, 1995.
In 1996, the Company expanded its product lines to include products based on
licensed characters and properties such as World Wrestling Federation action
figures and Power Rangers ZEO and Turbo mini vehicles.
Effective February 1, 1997, the Company acquired Road Champs, Inc. ("Road
Champs"), a developer, manufacturer and marketer of die cast toy and
collectible vehicles.
Results of Operations
Three Months Ended September 30, 1997 and 1996
Net income for the three months ended September 30, 1997 totaled $1,455,459, or
$0.29 per share, compared to net income of $628,443, or $0.15 per share, for the
comparable period in 1996. This variance is attributable to the following:
Net Sales. Net sales were $15,919,154 in 1997 and $4,458,458 in 1996, an
increase of $11,460,696 or 257%. This increase in net sales was primarily the
result of continued sales of the World Wrestling Federation action figures and
the sales of the recently acquired Road Champs product line from February 1,
1997. Other products contributing to the results were the Company's holiday doll
line, Power Rangers Turbo vehicles and the Turbo Touch Racer line of radio
controlled vehicles which was launched this quarter.
Gross Profit. Gross profit increased as a percentage of net sales to 41.6% in
1997 from 32.8% in 1996. This increase as a percentage of net sales was due to
increasing sales of products featuring licensed characters and properties with
higher after-royalty margins, as well as the semi-fixed nature of
amortization of molds and tools which decrease as a percentage of net sales
as net sales increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $4,599,163 in 1997 and $801,689 in 1996,
constituting 28.9% and 18.0% of net sales, respectively. The overall dollar
increase of $3,797,474 and increase as a percentage of net sales were due to the
increase in variable selling
9
<PAGE> 10
expenses, including freight, sales commission and travel expenses, which is
attributable to the significant increase in net sales, as well as to staffing
and infrastructure additions for the Company and expenses related to the
acquired operations of Road Champs.
Interest, Net. The Company had various interest-bearing instruments outstanding
during 1997 and 1996. Such instruments included those issued pursuant to private
offerings and the Road Champs acquisition in 1997. In 1997, the total principal
and average outstanding balance of such instruments were significantly higher
than in 1996 resulting in an increase in interest expense of $168,458, or
3,657%, in addition to moderately decreased interest income of $14,666, or
19.6%, received on the Company's average cash balance. The average cash balance
in 1997 was moderately lower than in 1996.
Income Taxes. In 1997, the Company recorded a provision for taxes based on its
estimated effective tax rate which resulted in an increase in income taxes from
1996 in the amount of $351,116 due to the corresponding increase in operating
income.
Nine Months Ended September 30, 1997 and 1996
Net income for the nine months ended September 30, 1997 totaled $2,115,494 or
$0.45 per share compared to net income of $849,791 or $0.26 per share, for the
comparable period in 1996. This variance is attributable to the following:
Net Sales. Net sales were $29,212,906 in 1997 and $7,674,958 in 1996, an
increase of $21,537,948 or 281%. This increase in net sales was primarily the
result of continued sales of the World Wrestling Federation action figures,
fashion dolls, Power Rangers Turbo vehicles, the recently acquired Road Champs
product line of die cast toys and vehicles and the launch of the Reactor and
Turbo Touch Racer radio controlled vehicles.
Gross Profit. Gross profit increased as a percentage of net sales to 40.2% in
1997 from 34.7% in 1996. The increase as a percentage of net sales was due to
a change in the product mix which consisted more of higher margin lines such
as dolls, action figures and vehicles in 1997. Another contributing factor is
that amortization of molds and tools is semi-fixed and, accordingly, decreases
as a percentage of net sales as net sales increase.
Selling, General and Administrative Expense. Selling, general and administrative
expense were $8,819,249 in 1997 and $1,840,258 in 1996 constituting 30.2% and
24.0% of net sales, respectively. The increase as a percentage of net sales was
primarily due to the significant increase in overhead expenses. The overall
dollar increase of $6,978,991 was due to the increase in variable selling
expenses including freight, sales commissions and travel expenses, which is
attributable to the significant increase in net sales, as well as to staffing
and infrastructure additions for the Company and expenses related to the
acquired operations of Road Champs.
Interest, Net. The company had various interest-bearing instruments outstanding
during 1997 and 1996. Such instruments included those issued pursuant to private
offerings and the Road Champs acquisition in 1997. In 1997, the total principal
and average outstanding balance of such instruments were significantly higher
than in 1996 resulting in an increase in interest expense of $448,656, or 767%,
which was partially offset by increased interest income of $106,488, or 87%
received on the Company's average cash balances. The average cash balance in
1997 was significantly higher than in 1996 due in part to the receipt of net
proceeds from certain convertible debentures issued in January 1997 as well as
from the Company's public offering of its common stock in May and June 1997.
Income Taxes. In 1997, the Company recorded a provision for taxes based on its
estimated effective tax rate which resulted in an increase in income taxes from
1996 in the amount of $487,142 due to the corresponding increase in operating
income.
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<PAGE> 11
Liquidity and Capital Resources
As of September 30, 1997 the Company had working capital of $9,751,380 as
compared to $7,824,155 at December 31, 1996. The change was due to proceeds
received from the issuance of the convertible debentures pursuant to a private
offering and the secondary offering of the Company's common stock and offset by
the purchase of Road Champs, the consideration of which consisted of cash,
common stock and debt. During the nine months ended September 30, 1997,
operating activities of the Company used cash of $380,123, which resulted from
an increase of $5,962,612 in accounts receivable due to higher sales at the end
of the third quarter of 1997 as compared to the end of fourth quarter of 1996 as
well as from the increase in inventory of $2,138,373 acquired primarily in
connection with the Road Champs acquisition, offset by net income and non-cash
charges to income of $2,115,494 and $1,042,979, respectively.
Financing activities for the nine month period ended September 30, 1997 provided
cash of $10,347,313, due primarily to the issuance of convertible debentures in
the principal amount of $6,000,000, the issuance of debt in the amount of
$6,391,838 as part of the purchase price for the Company's acquisition of Road
Champs and net proceeds from the sale of common stock of $2,974,648. Offsetting
the proceeds of these issuances were offering costs related to the debentures as
well as a public offering of the Company's common stock and the payment of
acquisition debt related to the Justin and Road Champs acquisitions.
The Company's investing activities for the nine month period ended September 30,
1997 were primarily related to the purchase of molds and tooling ($1,579,957)
and goodwill ($7,063,704 net of $1,500,000 in common stock issued), and
trademarks ($1,000,000) in connection with the acquisition of Road Champs. The
Company, in keeping with its strategy to develop and market new products using
entertainment properties and characters, is continually pursuing licenses for
such usage and expects to continue to invest in this area.
Management believes that the existing cash resources and working capital and
cash expected to be provided from operations will be sufficient to meet the cash
needs of the Company for the foreseeable future. Although operating activities
are expected to provide cash, to the extent the Company grows significantly in
the future, its operating and investing activities may use cash and,
consequently, such growth may require the Company to obtain additional sources
of financing. The foregoing forward-looking statements and information relating
to the Company are based on the beliefs of Management, as well as assumptions
made by and information currently available to the Company. When used in this
paragraph, or elsewhere in this document, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
On July 30, 1997, the Board of Directors of the Company authorized the
retention of Silverman Heller & Associates ("Silverman") as the Company's
public relations firm. As partial consideration therefor, Silverman was granted
options to purchase 10,000 shares of the Company's Common Stock at an exercise
price of $6.875 per share.
On July 30, 1997, the Board of Directors of the Company authorized the
engagement of Joseph Charles & Associates, Inc. ("Joseph Charles") to serve as
a financial advisor to the Company for a term of three years to consult the
Company in connection with potential acquisitions, equity financing and other
business related activities, and in consideration therefor, received an option
to purchase 50,000 shares of the Company's Common Stock, at an exercise price
of $6.875 per share.
All of the foregoing options are immediately exercisable and expire
on July 30, 2002.
Exemption from registration under the Securities Act is claimed for the
sale of all of the securities set forth above in reliance upon the exemption
afforded by Section 4(2) of the Securities Act for transactions not involving a
public offering. Each certificate evidencing such shares of Common Stock,
warrants and convertible debentures originally bore, and some continue to bear,
an appropriate restrictive legend, and "stop transfer" orders were originally
maintained (or are still maintained) on the Company's stock transfer records
for such shares of Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
A Proxy Statement was mailed on or about June 23, 1997 to shareholders
of record of the Company as of June 13, 1997 in connection with the Company's
1997 Annual Meeting of Shareholders, which was held on July 30, 1997 at the
Company's New York Showroom, 200 Fifth Avenue, Suite 550, New York, New York.
At the Meeting, the shareholders voted on three matters and all of such matters
were approved.
The first matter was the election of the members of the Board of
Directors. The five directors elected and the tabulation of the votes (both in
person and by proxy) was as follows:
<TABLE>
<CAPTION>
Nominees for Directors For Withheld Against
- ---------------------- --- -------- -------
<S> <C> <C> <C>
Jack Friedman 4,001,326 16,200 0
Stephen Berman 4,002,826 14,700 0
Murray L. Skala 4,000,076 17,450 0
Michael Miller 4,000,626 16,900 0
Robert Glick 4,000,626 16,900 0
</TABLE>
There were 0 broker held non-voted shares represented at the Meeting
with respect to this matter.
The second matter upon which the shareholders voted was the proposal to
ratify the appointment by the Board of Directors of Pannell Kerr Forster as
independent certified public accountants for the Company for 1997. The
tabulation of the votes (both in person and by proxy) was as follows:
For Against Abstentions
--- ------- -----------
3,990,476 17,850 9,200
There were 0 broker held non-voted shares represented at the Meeting
with respect to this matter.
The third matter upon which the shareholders voted was the proposal to
adopt the Company's Amended and Restated 1996 Stock Option Plan. The
tabulation of the votes (both in person and by proxy) was as follows:
For Against Abstentions
--- ------- -----------
1,933,033 147,075 21,852
There were 1,915,566 broker held non-voted shares represented at the
Meeting with respect to this matter.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No.
3.1 Restated Certificate of Incorporation of the Company(1)
3.2.1 By-Laws of the Company(1)
3.2.2 Amendment to By-Laws of the Company(2)
*27 Financial Data Schedule
_________________________
* Filed herewith.
(1) Filed previously as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-2048-LA), dated May 1, 1996, and incorporated
herein by reference.
(2) Filed previously as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-22583) which became effective on April 24,
1997, and incorporated herein by reference.
13
<PAGE> 14
(b) Report on Form 8-K
No Current Reports on Form 8-K were filed during the third quarter
of 1997.
14
<PAGE> 15
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
Registrant:
JAKKS PACIFIC, INC.
Date: November 12, 1997 By: /s/ Jack Friedman
---------------------------------
President
(Principal Executive Officer)
Date: November 12, 1997 By: /s/ Joel M. Bennett
---------------------------------
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,639,102
<SECURITIES> 0
<RECEIVABLES> 8,383,082
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<CURRENT-ASSETS> 19,723,075
<PP&E> 3,034,878
<DEPRECIATION> 903,769
<TOTAL-ASSETS> 34,326,803
<CURRENT-LIABILITIES> 9,971,695
<BONDS> 6,000,000
0
0
<COMMON> 4,890
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<SALES> 29,212,906
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<INCOME-TAX> 520,385
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<NET-INCOME> 2,115,494
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