FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NO. 0-22545
DSI TOYS, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1673513
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1100 WEST SAM HOUSTON PARKWAY NORTH
HOUSTON, TEXAS 77043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (713) 365-9900
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 [ ]
As of December 11, 1997, 6,000,000 shares of common stock, par value $.01 per
share, of DSI Toys, Inc. were outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet as of October 31, 1997 and
January 31, 1997.................................................... 1
Consolidated Statement of Operations for the Three Months Ended
October 31, 1997 and 1996 and the Nine Months Ended October 31,
1997 and 1996....................................................... 2
Consolidated Statement of Cash Flows for the Nine Months Ended
October 31, 1997 and 1996........................................... 3
Notes to Consolidated Financial Statements........................... 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................ 6
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.................................................... 10
Item 6. EXHIBITS AND REPORTS ON FORM 8-K..................................... 10
Signatures................................................................... 11
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DSI TOYS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, January 31,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................ $ 988,879 $ 1,501,992
Restricted cash ............................................. 150,000 150,000
Accounts receivable, net of allowance for doubtful
accounts of $173,313 and $104,781 .................... 12,351,700 4,219,942
Due from shareholder ........................................ -- 151,667
Shareholder insurance proceeds receivable ................... -- 511,765
Inventories ................................................. 13,284,015 4,615,087
Prepaid expenses ............................................ 894,286 1,462,189
Deferred income taxes ....................................... 370,000 362,000
------------ ------------
Total current assets ................................. 28,038,880 12,974,642
Property and equipment, net ......................................... 1,267,453 1,190,498
Shareholder insurance proceeds receivable ........................... 1,212,048 920,987
Deferred income taxes ............................................... 404,027 --
Deferred debt issuance costs ........................................ -- 679,906
Other assets ........................................................ 169,655 537,868
------------ ------------
Total assets ......................................... $ 31,092,063 $ 16,303,901
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................... $ 18,541,753 $ 7,247,254
Current portion of long-term debt ........................... 2,893,230 2,755,789
Income taxes payable ........................................ -- 193,211
Deferred income taxes ....................................... 100,225 158,000
------------ ------------
Total current liabilities ............................ 21,535,208 10,354,254
Long-term debt ...................................................... 4,500,000 8,203,108
Notes payable -- shareholder ........................................ -- 6,000,000
Deferred income taxes ............................................... -- 1,169,000
------------ ------------
Total liabilities .................................... 26,035,208 25,726,362
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares
authorized,none issued or outstanding ................ -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
8,719,000 shares issued, 6,000,000 shares outstanding 87,190 62,190
Additional paid-in capital .................................. 21,171,277 3,443,093
Common stock warrants ....................................... 102,500 100,000
Retained earnings ........................................... 6,311,089 9,623,350
Cumulative translation adjustment ........................... 45,391 9,498
------------ ------------
27,717,447 13,238,131
Less: treasury stock, 2,719,000 shares, at cost ............ (22,660,592) (22,660,592)
------------ ------------
Total shareholders' equity (deficit) ................. 5,056,855 (9,422,461)
------------ ------------
Total liabilities and shareholders' equity ........... $ 31,092,063 $ 16,303,901
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
DSI TOYS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 30,018,242 $ 29,348,377 $ 61,828,627 $ 53,301,357
Costs of goods sold .................................... 22,643,185 18,369,112 44,531,494 35,420,059
------------ ------------ ------------ ------------
Gross profit ........................................... 7,375,057 10,979,265 17,297,133 17,881,298
Selling, general and administrative expenses ........... 13,434,338 7,252,080 20,779,001 12,512,459
------------ ------------ ------------ ------------
Operating income (loss) ................................ (6,059,281) 3,727,185 (3,481,868) 5,368,839
Interest expense ....................................... 286,124 802,565 1,158,138 1,990,172
Other income ........................................... (49,771) (311,742) (215,778) (347,127)
------------ ------------ ------------ ------------
Income (loss) before income taxes ...................... (6,295,634) 3,236,362 (4,424,228) 3,725,794
Provision for (benefit from) income taxes .............. (2,266,428) 1,174,674 (1,592,721) 1,341,081
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ................ (4,029,206) 2,061,688 (2,831,507) 2,384,713
Extraordinary item (net of tax) ........................ -- -- (480,754) --
------------ ------------ ------------ ------------
Net income (loss) ...................................... $ (4,029,206) $ 2,061,688 $ (3,312,261) $ 2,384,713
============ ============ ============ ============
Earnings (loss) per share before
extraordinary item ............................. $ (0.67) $ 0.55 $ (0.56) $ 0.65
============ ============ ============ ============
Earnings (loss) per share .............................. $ (0.67) $ 0.55 $ (0.66) $ 0.65
============ ============ ============ ============
Weighted average shares outstanding .................... 6,000,000 3,758,169 5,033,814 3,657,294
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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DSI TOYS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended October 31,
---------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................... $ (3,312,261) $ 2,384,713
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Extraordinary item ....................................................... 480,754 --
Depreciation ............................................................. 585,854 489,731
Amortization of debt discount and issuance costs ......................... 199,152 120,246
Provision for doubtful accounts .......................................... 74,487 402,788
Gain (loss) on sale of equipment ......................................... (3,355) 12,513
Deferred income taxes .................................................... (1,638,802) --
Changes in assets and liabilities:
Accounts receivable ............................................... (8,206,246) (9,667,124)
Due from shareholder .............................................. 151,667 669,649
Inventories ....................................................... (8,668,928) (4,499,339)
Prepaid expenses .................................................. 567,903 (275,485)
Accounts payable and accrued liabilities .......................... 11,294,499 7,129,906
Income taxes payable .............................................. (193,211) 1,333,435
------------ -----------
Net cash used in operating activities ...................... (8,668,487) (1,898,967)
Cash flows from investing activities:
Capital expenditures ............................................................ (665,595) (254,561)
Proceeds from sale of equipment ................................................. 6,140 --
Decrease (increase) in insurance receivable from shareholder .................... 220,704 (223,541)
Decrease (increase) in other assets ............................................. 368,213 (122,871)
------------ -----------
Net cash used in investing activities ...................... (70,538) (600,973)
Cash flows from financing activities:
Net borrowings under revolving lines of credit .................................. 3,861,560 1,768,412
Payments on long-term debt ...................................................... (13,427,225) (732,792)
Net proceeds from issuance of common stock ...................................... 17,753,184 --
Proceeds from sale of warrants to underwriters .................................. 2,500 --
------------ -----------
Net cash provided by financing activities .................. 8,190,019 1,035,620
Effect of exchange rate changes on cash ................................................. 35,893 23,285
------------ -----------
Net decrease in cash .................................................................... (513,113) (1,441,035)
Cash, beginning of period ............................................................... 1,501,992 2,660,456
------------ -----------
Cash, end of period ..................................................................... $ 988,879 $ 1,219,421
============ ===========
Supplemental disclosures of cash flow information:
Interest paid during the period ................................................. $ 1,085,097 $ 1,683,558
Income taxes paid during the period ............................................. $ 279,443 $ 872,708
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
DSI TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited consolidated
financial statements of DSI Toys, Inc., together with its wholly owned
subsidiary, ("the Company") as of October 31, 1997 and for the three months and
nine months ended October 31, 1997 and 1996 include all adjustments, consisting
only of normal recurring adjustments, which are necessary to present fairly the
financial position, results of operations and cash flows of the Company for the
periods indicated. These interim results are not necessarily indicative of
results for a full year. The balance sheet at January 31, 1997 has been derived
from the audited consolidated financial statements at that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
the financial information included herein should be read in conjunction with the
Company's consolidated financial statements and related notes included in
Amendment No. 2 to the Company's Registration Statement on Form S-1 (No. 333-
23961) filed with the Securities and Exchange Commission on May 28, 1997.
The terms "fiscal year" and "fiscal" refer to the Company's fiscal year
which is the year ending January 31 of the following calendar year mentioned
(e.g., a reference to fiscal 1996 is a reference to the fiscal year ended
January 31, 1997).
2. NOTES PAYABLE
Indebtedness consists of the following:
October 31, January 31,
1997 1997
----------- -----------
Bank revolver .................................. $ 4,500,000 $ 3,055,000
Subordinated bank note ......................... -- 1,418,918
Bank note ...................................... -- 5,000,000
Subordinated note payable to shareholder ....... -- 6,000,000
Subordinated note payable to shareholder ....... -- 1,000,000
Hong Kong credit facility ...................... 2,893,230 484,979
----------- -----------
7,393,230 16,958,897
Less - current portion ......................... 2,893,230 2,755,789
----------- -----------
$ 4,500,000 $14,203,108
=========== ===========
In June 1997, the Company renegotiated the Hong Kong credit facility,
which is available primarily for negotiating and collecting export sales,
opening back-to-back letters of credit secured by letters of credit from its
customers and purchasing component parts inventory. The credit limit was
increased to $8 million, and the facility is secured by a cash deposit of
$150,000 and the accounts receivable and inventory of DSI (HK) Ltd., the wholly
owned subsidiary of DSI Toys, Inc. Outstanding borrowings under the loan bear
interest at the banks prime rate of interest.
In October 1997, the Company amended the bank revolver. The credit limit
was increased to $10 million, and the maturity date was extended to October 22,
2000. Interest on borrowings outstanding under this revolver is payable monthly
at an annual rate equal to, at the Company's option, (a) the LIBOR rate plus 2%
for minimum $1 million and 30 day commitment or (b) banks prime rate of
interest.
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3. INITIAL PUBLIC OFFERING
On June 3, 1997, the Company completed its initial public offering of
2,500,000 shares of Common Stock, which provided the Company net proceeds of
$17.7 million. All of the net proceeds were used to repay debt of the Company.
In connection with the offering, the Company issued warrants to purchase 250,000
shares of common stock to the lead underwriters. Such warrants are exercisable
at $10.80 per share and expire May 28, 2002.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") which establishes standards for computing and presenting earnings per
share. This statement simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings per Share". The new
standard, which is effective for periods ending after December 15, 1997,
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
company. For the three month and nine month periods ended October 31, 1997 and
1996, SFAS 128 would have had no material impact on the reported EPS.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company designs, develops, markets and distributes a variety of toys
and children's consumer electronics. The Company's core product categories are
(i) juvenile audio products, including walkie-talkies, pre- school audio
products, pre-teen audio products and musical toys; (ii) girl's toys, including
dolls, play sets and accessories; and (iii) boy's toys, including radio control
vehicles, action figures and western and military action toys. Historically, the
majority of the Company's sales have been made to customers based in the United
States. All of the Company's international sales are denominated in United
States dollars. Therefore, the Company is not subject to exchange rate risk with
respect to international sales.
In December 1995, a series of transactions (the "Recapitalization") was
consummated whereby the Company repurchased 77.7% of the then outstanding Common
Stock from the then sole shareholder of the Company for $22.2 million and issued
2,719,000 shares of Common Stock to a group of new investors. The
Recapitalization resulted in the incurrence of an aggregate of $17.9 million of
additional indebtedness. The stock purchased by the Company from its former sole
shareholder is held as treasury stock. On June 3, 1997, the Company completed
its initial public offering of 2,500,000 shares of its Common Stock, which
resulted in net proceeds to the Company of $17.7 million. All of the net
proceeds were used to repay debt of the Company.
A portion of the annual advertising expenses will be accrued during each
fiscal quarter based on the amount of net sales of the related product for such
fiscal quarter compared to the projected annual net sales for such product. To
the extent actual net sales vary from estimates, adjustments in the quarterly
accruals of advertising expenses will be made.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain income
and expense items expressed as a percentage of net sales:
Percent of Net Sales
---------------------------------------
Three Months Ended Nine Months Ended
----------------- -----------------
October 31, October 31,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
Net sales .......................... 100.0% 100.0% 100.0% 100.0%
Costs of goods sold ................ 75.4 62.6 72.0 66.5
------ ------ ------ ------
Gross profit ....................... 24.6 37.4 28.0 33.5
Selling, general and
administrative expenses .......... 44.8 24.7 33.6 23.5
------ ------ ------ ------
Operating income (loss) ............ (20.2) 12.7 (5.6) 10.0
Interest expense ................... 1.0 2.7 1.9 3.7
Other income ....................... (0.2) (1.1) (0.3) (0.7)
------ ------ ------ ------
Income (loss) before income taxes .. (21.0) 11.1 (7.2) 7.0
Provision for (benefit from)
income taxes ..................... (7.6) 4.0 (2.6) 2.5
------ ------ ------ ------
Income (loss) before extraordinary
item ............................. (13.4) 7.1 (4.6) 4.5
Extraordinary item (net of tax) .... 0.0 0.0 (0.8) 0.0
------ ------ ------ ------
Net income (loss) .................. (13.4)% 7.1% (5.4)% 4.5%
====== ====== ====== ======
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THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED OCTOBER
31, 1996
NET SALES. Net sales for the three months ended October 31, 1997 increased
$670,000, or 2.3%, to $30.0 million, from $29.3 million in the comparable period
in 1996.
Net sales of juvenile audio products increased $3.8 million, or 29.0%, to
$16.7 million during the third quarter ended October 31, 1997, from $12.9
million in the comparable period in 1996. This increase was due primarily to
increased sales of walkie-talkies. Net sales of girls' toys decreased $6.3
million, or 43.4%, to $8.2 million during the third quarter ended October 31,
1997, from $14.4 million in the comparable period in 1996. The decrease was due
primarily to decreased sales of dolls related to the softness of large doll
sales industry-wide. Net sales of boys' toys increased $1.0 million, or 89.2%,
to $2.2 million in the third quarter ended October 31, 1997, from $1.2 million
in the comparable period in 1996. The growth in net sales of boys' toys was
primarily attributable to the newly introduced Kawasaki(R) Ninja(R)
Supergyro(TM) Motorcycle. Net sales of products in other categories increased
$2.1 million, or 251.4%, to $3.0 million, during the third quarter ended October
31, 1997, from $852,000 in the comparable period in 1996. This increase was due
primarily to the introduction of the Hoppin' Poppin' Spaceballs(TM) game.
International net sales for the three months ended October 31, 1997
increased $2.1 million, or 44.4%, to $6.8 million, from $4.7 million in the
comparable period in 1996. The growth was due primarily to the increase in net
sales to Canada, the United Kingdom, Spain, Greece and Australia.
GROSS PROFIT. Gross profit decreased 32.8% to $7.4 million for the third
quarter ended October 31, 1997, from $11.0 million in the comparable period in
1996. Gross profit as a percentage of net sales decreased to 24.6% in the third
quarter ended October 31, 1997 from 37.4% in the third quarter of fiscal 1996.
Such decrease was related primarily to the decrease in sales of TV-promoted
dolls, which generally have higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 85.3% to $13.4 million in the third quarter
ended October 31, 1997 from $7.3 million in the third quarter of fiscal 1996.
The increase resulted primarily from television advertising related to the
introduction of several new products. The Company has produced commercials and
purchased significant airtime for four products for fiscal 1997 as compared to
two products for the prior year. In addition, in the third quarter, the Company
accelerated the recognition of advertising costs related to large doll products
for which the projected contribution from future sales will not cover the
remaining committed advertising costs.
INTEREST EXPENSE. As a result of debt repayment using the proceeds of the
Company's initial public offering, interest expense decreased $516,000 to
$286,000 in the third quarter ended October 31, 1997 from $803,000 in the
comparable period in 1996.
OTHER INCOME. Other income decreased $262,000, to $50,000 in the third
quarter ended October 31, 1997 from $312,000 in the comparable period in 1996.
This decrease was due primarily to decreased interest income on certain
insurance proceeds in the third quarter of 1997.
NINE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THE NINE MONTHS ENDED OCTOBER 31,
1996
NET SALES. Net sales in the nine months ended October 31, 1997 increased
$8.5 million, or 16.0%, to $61.8 million, from $53.3 million in the comparable
period in fiscal 1996.
Net sales of juvenile audio products increased $6.6 million, or 25.2%, to
$32.8 million during the nine months ended October 31, 1997, from $26.2 million
in the comparable period in 1996. This increase was due primarily to increased
sales of walkie-talkies. Net sales of girls' toys decreased by $4.0 million, or
18.4%, to $17.8 million during the nine months ended October 31, 1997, from
$21.8 million in the comparable period in 1996. The decrease was due primarily
to decreased sales of dolls related to the softness of large doll sales
industry-wide. Net sales of boys' toys increased $3.3 million, or 98.9%, to $6.6
million in the nine months ended October 31, 1997 from $3.3 million in the
comparable period in 1996. The growth in net sales of boys' toys was primarily
attributable to the newly introduced Kawasaki(R) Ninja(R) Supergyro(TM)
Motorcycle. Net sales of products in other categories
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<PAGE>
increased $2.7 million, or 133.5%, to $4.7 million during the nine months ended
October 31, 1997, from $2.0 million in the comparable period in 1996. This
increase was due primarily to the introduction of the Hoppin' Poppin'
Spaceballs(TM) game.
International net sales for the nine months ended October 31, 1997
increased $2.4 million, or 21.9%, to $13.2 million, from $10.8 million in the
comparable period in fiscal 1996. The growth was due primarily to increased net
sales to the United Kingdom, Canada, Spain, France and Australia and partially
offset by decreased net sales to Germany and Japan.
GROSS PROFIT. Gross profit decreased approximately 3.3% to $17.3 million
during the nine months ended October 31, 1997, from $17.9 million in the
comparable period in 1996. Gross profit as a percentage of net sales decreased
to 28.0% during the nine months ended October 31, 1997 from 33.5% in the
comparable period in 1996. Such decrease was related primarily to the decrease
in sales of TV-promoted dolls, which generally have higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 66.1% to $20.8 million during the nine months
ended October 31, 1997 from $12.5 million in the comparable period in 1996. The
increase resulted primarily from television advertising expenses related to the
introduction of several new products. The Company has produced commercials and
purchased significant airtime for four products for fiscal 1997 as compared to
two products for the prior year. In addition, in the third quarter, the Company
accelerated the recognition of advertising costs related to large doll products
for which the projected contribution from future sales will not cover the
remaining committed advertising costs.
INTEREST EXPENSE. As a result of debt repayment using the proceeds of the
Company's initial public offering, interest expense decreased $832,000 to $1.2
million during the nine months ended October 31, 1997 from $2.0 million in the
comparable period of the prior year.
OTHER INCOME. Other income decreased $131,000, to $216,000 during the nine
months ended October 31, 1997 from $347,000 in the comparable period in 1996.
This decrease was due primarily to decreased interest income on certain
insurance proceeds.
EXTRAORDINARY ITEM. As a result of debt repayment using proceeds of the
Company's initial public offering, $481,000 of debt issuance cost (net of tax)
was written off.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operations and capital
requirements by cash generated from operations and borrowings. The Company's
primary capital needs have consisted of acquisitions of inventory, financing
accounts receivable and capital expenditures for product development. The
Company's working capital at October 31, 1997 was $6.5 million and unrestricted
cash was $1.0 million.
The Company's operating activities used net cash of $8.7 million during
the nine months ended October 31, 1997, consisting primarily of the net loss and
a net increase in inventories, accounts receivable and prepaid income taxes,
partially offset by increases in accounts payable and accrued liabilities. Net
cash used in investing activities during the nine months ended October 31, 1997
was $71,000, and was the net result of the repayment of an insurance receivable
from a shareholder offset by capital expenditures. Net cash provided by
financing activities was $8.2 million during the nine months ended October 31,
1997 and represented net borrowings under revolving lines of credit, payments on
long-term debt, and net proceeds from a public offering.
The seasonal nature of the toy business results in complex working capital
needs. The Company's working capital needs, which the Company generally
satisfies through short-term borrowings, are greatest in the first two fiscal
quarters. To manage these working capital requirements, the Company maintains a
line of credit facility (the "Hong Kong Credit Facility") with State Street Bank
and Trust Company, Hong Kong Branch, and a revolving credit facility with Bank
One, Texas, N.A. (the "Revolver").
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<PAGE>
The Company believes that available borrowings under the Revolver and the
Hong Kong Credit Facility and cash from operations will be sufficient to meet
the Company's operating cash requirements, fund the Company's anticipated
capital expenditures and fund scheduled debt service for the foreseeable future.
At October 31, 1997 the Company was not in compliance with certain of the
covenants contained in the Revolver; however, the Company has obtained a waiver
of these covenants for the quarter ended October 31, 1997 from Bank One. It is
anticipated that the Company will not come into compliance with these covenants
prior to January 31, 1998. Based on discussions with Bank One, the Company
believes that it will be successful in either obtaining additional waivers or in
amending the Revolver. In the alternative, the Company believes that it could
obtain a suitable replacement credit facility.
The Company has budgeted approximately $850,000 for capital expenditures,
consisting of purchases of tools, molds, office equipment and furnishings, for
fiscal 1997. At December 5, 1997, the Company had an additional borrowing
capacity of an aggregate of $3.2 million under the Revolver and the Hong Kong
Credit Facility.
The Company is obligated to make future minimum royalty payments under
certain of its license agreements. As of October 31, 1997, the Company was
required to pay $15,000 of guaranteed royalties under these licenses in fiscal
1997 and $315,000 thereafter.
As a part of the Company's strategy, the Company will evaluate potential
acquisitions of other toy businesses or product lines which the Company believes
would complement its existing business. The Company has no present understanding
or agreement with respect to any acquisition.
In connection with any future cash needs or acquisition opportunities, the
Company may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors.
SEASONALITY
The toy industry is very seasonal with the Christmas holiday season
representing over two-thirds of total annual retail toy sales. The Company has
experienced this seasonal pattern in its net sales. To accommodate this peak
selling season, holiday toy lines are introduced early in the first calendar
quarter. Retailers generally commit to their holiday season purchases during the
first two calendar quarters and those orders are generally shipped from Asia to
the retailers' distribution centers on a scheduled basis from May through
September. As a result of the seasonality of the Company's business, the Company
expects to incur a loss in the first quarter of each fiscal year for the
foreseeable future and may incur a loss in the fourth quarter of such fiscal
year depending upon the timing of product shipments.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-Q, including
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the Company's financial position, business
strategy, plans and objectives of management of the Company for future
operations, liquidity and capital resources, and debt service requirements, are
forward-looking statements. The words "anticipate," "believe," "expect," "plan,"
"intend," "estimate," "project," "will," "could," "may" and similar expressions
are intended to identify forward-looking statements. Although the Company
believes that the expectations reflected in these forward-looking statements are
reasonable, there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected effects on its business or operations. Among
the factors that could cause actual results to differ materially from the
Company's expectations are general economic conditions, changing consumer
preferences, lack of success of new products, loss of one of the Company's
largest customers, dependence on independent designers, licenses and other
proprietary rights, reliance on manufacturers based in Hong Kong and China,
reliance on key personnel, competition and government regulation. All subsequent
oral and written forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by these
factors. The Company assumes no obligation to update any of these statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings and claims incident
to the normal conduct of its business. The Company believes that such legal
proceedings and claims, individually and in the aggregate, are not likely to
have a material adverse effect on its financial position or results of
operations. The Company maintains product liability and general liability
insurance in amounts it believes to be reasonable. There have been no material
developments in the legal proceedings noted in Amendment No. 2 to the Company's
Registration Statement on Form S-1 (No. 333-23961) filed with the Securities and
Exchange Commission on May 28, 1997 and in the Quarterly Reports on Form 10-Q
for the periods ended April 30, 1997 and July 31, 1997 filed with the Securities
and Exchange Commission on June 23 and September 12, 1997, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The information required by this Item 6(a) is set forth in the Index to
Exhibits accompanying this quarterly report and is incorporated herein by
reference.
(b) Reports Submitted on Form 8-K: None.
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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.
DSI Toys, Inc.
Dated: December 11, 1997 /s/ M. D. DAVIS
M. D. Davis
Chairman and Chief Executive Officer
Dated: December 11, 1997 By:/s/ J. RUSSELL DENSON
J. Russell Denson
Executive Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
10.1 Amended and Restated Bank One Letter Loan Agreement dated October 22,
1997.
11 Computation of Earnings Per Share.
27 Financial Data Schedule.
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EXHIBIT 10.1
AMENDED AND RESTATED
LETTER LOAN AGREEMENT
October 22, 1997
Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attention - Corporate Banking Group
Gentlemen:
The undersigned, DSI TOYS, INC., a Texas corporation, formerly known as
DIVERSIFIED SPECIALISTS, INC., a Texas corporation ("BORROWER"), duly organized
and existing under the laws of the State of Texas, has requested that BANK ONE,
TEXAS, N.A. ("LENDER") lend to Borrower the sum of $10,000,000.00. Borrower and
Lender previously entered into a Letter Loan Agreement (the "PRIOR LOAN
AGREEMENT") dated April 26, 1995, which was subsequently amended. Borrower and
Lender have agreed to further amend and modify certain terms and provisions of
the Loan Agreement. for the convenience and mutual benefit of all parties,
Lender and Borrower have agreed to fully restate their mutual rights and
obligations, and have entered into this Amended and Restated Letter Loan
Agreement (the "AGREEMENT").
1. LOAN AND LETTERS OF CREDIT.
(a) On the terms and subject to the conditions set forth in this
letter loan agreement (the "AGREEMENT"), Lender agrees to lend to Borrower up to
$10,000,000.00 (the "LOAN"). The Loan shall be evidenced by a Modification
Revolving Promissory Note (the "NOTE") in a form satisfactory to Lender, duly
executed by Borrower in the principal amount of $10,000,000.00 and made payable
to the order of Lender. Principal and interest on the Note shall be due and
payable in the manner and at the times set forth in the Note with final maturity
on October 22, 2000 (the "MATURITY DATE"). The total outstanding advances by
Lender under this Loan and on the Note will not exceed at any one time the
lesser of (i) $10,000,000.00, or (ii) Borrower's Loan Limit as defined on
SCHEDULE "A" annexed hereto.
(b) On the terms and subject to the conditions hereinafter set
forth, Lender agrees to make advances on the Note to Borrower for the issuance
of one or more letters of credit the total aggregate face amount of which shall
not exceed at any one time the lesser of (i) $500,000.00, or (ii) the Borrower's
Loan Limit. Each of the letters of credit shall be evidenced by an Application
and Agreement for Letter of Credit (the "APPLICATION") in a form satisfactory to
Lender. Each of these letters of credit and any renewals, extensions and
modifications thereof are collectively referred to herein as the "LETTER OF
CREDIT." Repayment of drafts against the Letter of Credit shall be governed by
this Agreement and the Application, and shall be and is secured by the
collateral provided herein. The final maturity of the Letter of Credit shall not
exceed three (3) months from the Maturity Date.
2. REVOLVING CREDIT ADVANCES. Subject to the terms hereof, Borrower may
borrow,
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pay, reborrow and repay under the Note, provided, however, the maximum principal
outstanding under the Note shall not exceed at any one time the lesser of (i)
$10,000,000.00, or (ii) the Borrower's Loan Limit. Borrower's requests for
advances (whether for cash or Letter of Credit) under the Loan shall specify the
aggregate amount of the advance and the date of such advance. Borrower shall
furnish to Lender a request for borrowing in a form satisfactory to Lender.
Lender shall make the requested funds or Letter of Credit available to Borrower
at Lender's principal banking office in Houston, Texas. If at any time prior to
the Maturity Date, the outstanding advances under the Note exceed Borrower's
Loan Limit as shown on any reports delivered to Lender under Paragraph 5(c) or
as indicated by Lender's own records, Borrower shall, on the date of the
delivery of such report to Lender or on the date of notice from Lender as to
Lender's records, prepay on the Note such amount as may be necessary to
eliminate such excess.
3. CONDITIONS PRECEDENT.
(a) The obligation of Lender to make the initial advance under the
Note is subject to the conditions precedent that, as of the date of such
advance, Lender shall have received (i) duly executed copies of each document
listed on the last page hereof relating to the Loan, in form and substance
acceptable to Lender and its legal counsel (all the documents listed on the last
page hereof, together with this Agreement and any other security documents
relating to the Loan, and any modifications thereof, are hereinafter
collectively referred to as the "LOAN DOCUMENTS"), and (ii) an origination fee
of $15,000.00, as consideration for Lender's commitment to make advances under
the Note.
(b) Lender's obligation to make any advances under the Loan shall be
subject to the additional conditions precedent that, as of the date of such
advance and after giving effect thereto: (i) all representations and warranties
made by Borrower to Lender in the Loan Documents are true and correct, as if
made on such date, (ii) all documents and proceedings shall be reasonably
satisfactory to legal counsel for Lender, (iii) no condition or event exists
which constitutes an Event of Default (as hereinafter defined) or which, with
the lapse of time and/or giving of notice, would constitute an Event of Default,
and (iv) all conditions precedent set forth in subparagraph (a) above shall have
been satisfied.
4. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to make the
Loan, Borrower represents and warrants to Lender that:
(a) The Loan Documents are the legal and binding obligations of
Borrower, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to the enforcement of creditors' rights;
(b) All financial statements delivered by Borrower to Lender prior
to the date hereof are true and correct in all material respects, fairly present
the financial condition of Borrower and have been prepared in accordance with
generally accepted accounting principles, consistently applied; as of the date
hereof, there are no obligations, liabilities or indebtedness (including
contingent and indirect liabilities) which are material to Borrower and not
reflected in such financial statements; and no material adverse changes have
occurred in the financial condition or business of Borrower since the date of
the most recent financial statements which Borrower has delivered to Lender;
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(c) Neither the execution and delivery of this Agreement and the
other Loan Documents, nor consummation of any of the transactions herein or
therein contemplated, nor compliance with the terms and provisions hereof or
thereof, will contravene or conflict with any provision of law, statute or
regulation to which Borrower is subject or any judgment, license, order or
permit applicable to Borrower or any indenture, mortgage, deed of trust or other
instrument to which Borrower may be subject; no consent, approval, authorization
or order of any court, governmental authority or third party is required in
connection with the execution and delivery by Borrower of this Agreement or
transactions contemplated herein or therein;
(d) No litigation (except as previously disclosed in writing to
Lender), investigation, or governmental proceeding is pending, or, to the
knowledge of any of Borrower's officers, threatened against or affecting
Borrower, which may result in any material adverse change in Borrower's
business, properties or operations;
(e) There is no specific fact known to Borrower that Borrower has
not disclosed to Lender in writing which is likely to result in any material
adverse change in Borrower's business, properties or operations;
(f) Borrower owns all of the assets reflected on its balance sheet
(most recently submitted to Lender), free and clear of all liens, security
interests or other encumbrances, except as previously disclosed in writing to
Lender;
(g) The principal office, chief executive office and principal place
of business of Borrower is in Houston, Texas;
(h) All taxes required to be paid by Borrower have in fact been
paid, except for taxes being contested in good faith by appropriate proceedings
for which adequate reserves have been established;
(i) No written certificate or written statement herewith or
heretofore delivered by Borrower to Lender in connection herewith, or in
connection with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material fact necessary to
keep the statements contained therein from being misleading;
(j) Borrower is not in violation of any law, ordinance, governmental
rule or regulation to which it is subject, or in default under any material
agreement, contract or understanding to which it is a party, which violation or
default would result in any material adverse change in Borrower's business,
properties or operations;
(k) Borrower's design, manufacture or distribution of any of the
Collateral (hereinafter defined) is not in violation of any law, ordinance,
governmental rule or regulation to which it is subject;
(l) Borrower has taken all steps necessary to determine and has
determined that no hazardous substances, or other substances known or suspected
to pose a threat to health or the environment which are in violation of
Applicable Environmental Laws ("HAZARD[S]") exist with respect to the Collateral
(hereinafter defined). No prior use, either by Borrower or, to Borrower's
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knowledge, the prior owners of the Collateral, has occurred, which violates any
laws pertaining to health or the environment ("APPLICABLE ENVIRONMENTAL LAWS"),
including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the Texas Water Code
and the Texas Solid Waste Disposal Act. Borrower's handling and maintenance of
the Collateral does not and will not result in the disposal or release of any
hazardous substance or Hazard on, in or to the Collateral. The terms "hazardous
substance" and "release" shall each have the meanings specified in CERCLA, and
the terms "solid waste" and "disposal" (or "disposed") shall each have the
meanings specified in RCRA; provided, however, that in the event either CERCLA
or RCRA is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment; and provided further that, to the extent that the laws of the State
of Texas establish a meaning for "hazardous substance", "release", "solid
waste", or "disposal" which is broader than that specified in either CERCLA or
RCRA, such broader definition shall apply;
(m) Borrower is not a party to any inventory repurchase agreements
with respect to a material amount of inventory (which for purposes hereof is
$500,000.00 or more) with any of Borrower's customers;
(n) Borrower will receive a reasonably equivalent value in exchange
for the obligations of Borrower under this Agreement, the Note and the Loan
Documents. The execution and performance of this Agreement, the Note and the
Loan Documents by the Company (i) are not being made with any intent to hinder,
delay or defraud any entity to which Borrower is indebted; (ii) will not result
in Borrower having an unreasonably small capital for the business in which it is
engaged; and (iii) will not cause Borrower to incur debts that would be beyond
the ability of Borrower to pay as such debts mature. Any property transferred,
concealed or removed with intent to hinder, delay or defraud Borrower's
creditors and property which may be exempted from the debtor's estate under the
Federal Bankruptcy Code shall be excluded from the assets of Borrower for
purposes of determining insolvency. Borrower has never been adjudicated a
bankrupt or filed a case under the Federal Bankruptcy Code or had an order for
relief entered against it under the Federal Bankruptcy Code; and
(o) No proceeds of the Loan will be used to acquire any security in
any transaction which is subject to Sections 13 or 14 of the Securities Exchange
Act of 1934, including particularly (but without limitation) Sections 13(d) and
14(d) thereof.
5. AFFIRMATIVE COVENANTS. Until payment in full of the Note and all other
obligations and liabilities of Borrower hereunder, Borrower agrees and covenants
that (unless Lender shall otherwise consent in writing):
(a) As soon as available, and in any event within forty-five (45)
days after the end of each fiscal quarter, Borrower shall deliver to Lender
unaudited financial statements showing the consolidating financial condition of
Borrower at the close of each such quarter and the results of operations during
such fiscal quarter, which financial statements shall include, but shall not be
limited to, a profit and loss statement, balance sheet, Borrower's computations
showing compliance with the covenants in subparagraphs 6(a), (b) and (c)
hereinbelow, and such other matters as Lender may reasonably request; such
statements shall be prepared in accordance with generally accepted
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accounting principles and certified on the face thereof by the chief financial
officer of Borrower, or any person acceptable to Lender, and shall be forwarded
to Lender with a letter of transmittal from such officer in which such officer
shall certify that Borrower is in compliance with all of the affirmative
covenants contained in this Paragraph and further stating that no Event of
Default exists in the performance by Borrower of any of the other terms,
conditions and covenants required under this Agreement to be performed by
Borrower; in addition, as soon as available, and in any event within event
within forty-five (45) days after the end of each fiscal quarter, Borrower shall
deliver to Lender a Compliance Certificate in the form of SCHEDULE "B" attached
hereto together, confirming Borrower's compliance with the financial covenants
set forth herein, along with such other information as may be deemed necessary
or appropriate by Lender,
(b) As soon as available, and in any event within one hundred twenty
(120) days after the end of each fiscal year of Borrower, Borrower shall deliver
to Lender a copy of the annual audited consolidated financial statement of
Borrower prepared in conformity with generally accepted accounting principles,
certified (with no material qualifications or exceptions) by independent public
accountants selected by Borrower and acceptable to Lender, which show the
financial condition of Borrower at the close of such fiscal year and the results
of operations during such fiscal year, and shall include, but not be limited to,
a profit and loss statement, balance sheet, cash flow statement, and such other
matters as Lender may reasonably request;
(c) As soon as available, and in any event within thirty (30) days
after the end of each month, and upon each request for an advance Borrower shall
deliver to Lender (i) a Borrowing Base Report in the form of SCHEDULE "B"
attached hereto together with such other information as may be deemed necessary
or appropriate by Lender, and (ii) an aging and listing of all accounts
receivable and inventory of Borrower in a form acceptable to Lender;
(d) As soon as available, Borrower shall deliver to Lender copies of
all Securities and Exchange Commission filings and reports;
(e) Borrower shall conduct its business in an orderly and efficient
manner consistent with good business practices and in accordance with all valid
regulations, laws and orders of any governmental authority and will act in
accordance with customary industry standards in maintaining and operating its
assets, properties and investments, and shall not change the nature or type of
its basic business;
(f) Borrower shall maintain complete and accurate books and records
of its transactions in accordance with generally accepted accounting principles,
and will give Lender access during reasonable business hours to all books,
records and documents of Borrower and permit Lender to make and take away copies
thereof;
(g) Borrower shall furnish to Lender, immediately upon becoming
aware of the existence of any condition or event constituting an Event of
Default or event which, with the lapse of time and/or giving of notice, would
constitute an Event of Default, written notice specifying the nature and period
of existence thereof and any action which Borrower is taking or proposes to take
with respect thereto;
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(h) Borrower shall maintain or cause to be maintained insurance from
responsible and reputable companies in such amounts and covering such risks as
is acceptable to Lender, is prudent and is usually carried by companies engaged
in businesses similar to that of Borrower including, without limitation,
casualty insurance coverage; Borrower shall furnish Lender, on request, with
certified copies of insurance policies or other appropriate evidence of
compliance with the foregoing covenant;
(i) Borrower shall promptly notify Lender of (i) any material
adverse change in its financial condition or business or a change in any of its
officers or directors; (ii) any default under any material agreement, contract
or other instrument to which Borrower is a party or by which any of its
properties are bound, or any acceleration of any maturity of any indebtedness
owing by Borrower, (iii) any material adverse claim against or affecting
Borrower or any of its properties; and (iv) any litigation, or any claim or
controversy which might become the subject of litigation, against Borrower or
affecting any of Borrower's property, if the outcome of such litigation or
potential litigation is likely (in the reasonable opinion of Borrower), to have
a material (which for purposes hereof shall mean $500,000 or more) adverse
effect on Borrower's financial condition or business or is likely, in the
opinion of Borrower, to cause an Event of Default;
(j) Borrower shall preserve and maintain all licenses, privileges,
franchises, certificates and the like necessary for the operation of its
business;
(k) Borrower shall promptly furnish to Lender, at Lender's request,
such additional financial or other information concerning assets, liabilities,
operations and transactions of Borrower and each of Borrower's subsidiaries as
Lender may from time to time reasonably request;
(l) Borrower shall give notice to Lender immediately upon acquiring
knowledge of the presence of any Hazards relating to the Collateral, which is in
a condition that is resulting or could reasonably be expected to result in any
adverse environmental impact, with a full description thereof; promptly comply
with all Applicable Environmental Laws requiring the notice, removal, treatment,
or disposal of such hazardous substances; and provide Lender, within thirty (30)
days after demand by Lender, with financial assurance evidencing to Lender's
satisfaction that sufficient funds are available to pay the cost of removing,
treating and disposing of any such known Hazards and discharging any liens or
assessments that may be established relating to the Collateral;
(m) Borrower will cause the landlord of the 1100 Sam Houston
Parkway, Houston, Texas, premises leased by Borrower to execute and deliver to
Lender instruments, in form and substance satisfactory to Lender, by which such
landlord waives its rights, if any, to all personal property and fixtures in
which Lender has a security interest; and
(n) Borrower shall indemnify, defend, and hold harmless Lender and
its directors, officers, agents, attorneys and employees (collectively, the
"INDEMNITEE") from and against: (i) any and all claims, demands, actions, or
causes of action that are asserted against any Indemnitee by any person if the
claim, demand, action or cause of action directly or indirectly relates to a
claim, demand, action, or cause of action that the person asserts or may assert
against Borrower, or any officer, director or shareholder of Borrower, (ii) any
and all claims, demands, actions or
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causes of action that are asserted against any Indemnitee if the claim, demand,
action or cause of action directly or indirectly relates to this Agreement, the
use of proceeds of the Note, or the relationship of Borrower and Lender under
this Agreement or any transaction contemplated pursuant to this Agreement, (iii)
any administrative or investigative proceeding by any governmental authority
directly or indirectly related to a claim, demand, action or cause of action
described in clauses (i) or (ii) above, and (iv) any and all liabilities,
losses, costs, or expenses (including attorneys' fees and disbursements) that
any Indemnitee suffers or incurs as a result of any of the foregoing; PROVIDED,
HOWEVER, THAT ALTHOUGH THE FOREGOING INDEMNITY SHALL INCLUDE CLAIMS, DEMANDS,
ACTIONS OR CAUSES OF ACTION BASED UPON LENDER'S NEGLIGENCE, BORROWER SHALL HAVE
NO OBLIGATION UNDER THIS SECTION TO LENDER WITH RESPECT TO ANY OF THE FOREGOING
ARISING OUT OF THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF LENDER OR THE BREACH
BY LENDER OF THIS AGREEMENT.
6. NEGATIVE COVENANTS. Until payment in full of the Note and all other
obligations and liabilities of Borrower hereunder, Borrower covenants that it
shall not (unless Lender shall otherwise consent in writing):
(a) Permit its Tangible Net Worth to be less than $7,000,000 from
the date hereof through the end of Borrower's 1998 fiscal year, and for each
fiscal year of Borrower thereafter, the sum of the immediately preceding fiscal
year's Net Worth plus 50% of Borrower's Net Income for the immediately preceding
fiscal year; as used herein, the term "TANGIBLE NET WORTH" shall mean the total
consolidated assets of Borrower, plus all subordinated debt, less all intangible
assets and less total consolidated liabilities; as used herein, the term "NET
INCOME" shall mean, with respect to any period, net earnings (after income taxes
and not taking into account losses) of Borrower for such period, determined in
accordance with generally accepted accounting principles;
(b) Permit its ratio of Funded Debt to EBITDA to be more than (i)
2.50 to 1.00; as used herein, the term "FUNDED DEBT" shall mean as of any date,
all interest-bearing indebtedness of Borrower and its consolidated subsidiaries,
including subordinated debt less non-operating cash;; as used herein "EBITDA"
shall mean, with respect to any period, consolidated earnings before interest
expense, income taxes, depreciation and amortization of Borrower and its
consolidated subsidiaries for such period, but excluding (i) any extraordinary
gains or losses, and (ii) any non-recurring items, determined in accordance with
generally accepted accounting principles, calculated for the preceding four
fiscal quarters;
(c) Permit its Debt Service Coverage ratio for the twelve (12) month
period ending on the last day of each fiscal quarter to be less than 1.25 to
1.00; as used herein, the term "DEBT SERVICE COVERAGE" shall mean the ratio of
Borrower's EBITDA to the sum of all interest expense, plus cash taxes;
(d) Incur or assume (or permit its subsidiaries to incur or assume)
any indebtedness or borrow any money, except for (i) the Loan, (ii) debt
(including accounts payable) incurred in the ordinary course of business, and
(iii) Borrower's consolidated indebtedness to State Street Bank which shall not
exceed an aggregate amount of $10,000,000;
(e) Endorse, guarantee, or otherwise become liable for the
obligations of any
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person, firm or corporation, except for (i) endorsements of negotiable
instruments by Borrower in the ordinary course of business, and (ii) the
existing guaranty in favor of State Street Bank on behalf of DSI (HK), Ltd.;
(f) Mortgage, assign, encumber, incur, assume or grant a security
interest in or lien upon any of Borrower's assets, except (i) to Lender
(provided, however, that the foregoing shall not apply to an inchoate lien for
taxes which are not delinquent or which are being contested in good faith, and
(ii) on newly acquired assets financed by nonaffiliated third party lenders that
provide purchase money financing for such assets;
(g) Liquidate, dissolve or reorganize; or merge or consolidate with,
or acquire all or substantially all of the assets of, any other company, firm or
association; or make or permit any other substantial change in Borrower's
capitalization, Borrower's shareholders or their ownership of Borrower; or make
any substantial change in its capitalization or its business;
(h) Declare or pay any dividends on any of Borrower's
outstanding stock;
(i) Sell any of its tangible assets, except in the ordinary course
of business; or sell any of its assets to any other person, firm or corporation
with the agreement that such assets shall be leased back to Borrower, unless
replaced with assets of equal value;
(j) Own, purchase or acquire, directly or indirectly, any promissory
notes, stock or securities of any other person, firm or corporation, other than
securities guaranteed as to the principal and interest by the United States
government; or make any loans or advances, except advances to employees in an
aggregate amount exceeding $100,000;
(k) Expend or enter into any commitment to expend any amount for the
acquisition or lease of tangible, fixed or capital assets, including repairs,
replacements and improvements, which are capitalized under proper accounting
practice, and which exceeds, in the aggregate, $2,000,000 during any twelve (12)
month period;
(l) Directly or indirectly, engage in any business other than those
in which Borrower is presently engaged, or discontinue any of its existing lines
of business or substantially alter its method of doing business;
(m) Pay any installments of principal of or interest on any
subordinated indebtedness, (i) directly or indirectly make any payments upon the
subordinated indebtedness other than regular installments of principal and
interest, or (ii) alter, amend, modify or otherwise change the terms, conditions
and provisions of the subordinated indebtedness, except that Borrower may enter
into any amendment or modification of the subordinated indebtedness which only
(x) decreases the interest rate due and payable on such debt or (y) extends any
maturity date of any installment of principal of or interest on such debt, and
may obtain any consent pursuant to or waivers of any representations, warranties
or covenants contained in any documents relating to the subordinated
indebtedness;
(n) Enter into or be a party to any transaction or arrangement,
including, without limitation, the purchase, sale, exchange or use of any
property or asset, or any interest therein,
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whether real, personal or mixed, or tangible or intangible, or the rendering of
any service, with any "Affiliate" (as hereafter defined), except transactions in
the ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in an arm's length transaction with a non-Affiliate. For
purposes of this subsection the term "AFFILIATE" means any person, firm,
corporation or other entity which directly or indirectly controls, is controlled
by or is under common control with Borrower. A person, firm, corporation or
other entity shall be deemed to control another if it owns ten percent (10%) or
more of the equity interest of such other person, firm, corporation or other
entity or if it possesses, directly or indirectly, the power to direct or cause
the direction of the management or policies of such other person, firm,
corporation or other entity, whether through ownership or stock, by contract or
otherwise.
7. DEFAULT. An "Event of Default" shall exist if any one or more of the
following events (herein collectively called "EVENTS OF DEFAULT") shall occur:
(a) Borrower shall fail to pay when due any principal of, or
interest on, the Note or any other fee or payment due hereunder or under any of
the Loan Documents;
(b) Any representation or warranty made in any of the Loan Documents
shall prove to be untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
(c) Default shall occur in the performance of any of the covenants
or agreements of Borrower contained herein or in any of the other Loan Documents
and such default (other than a monetary default) shall continue for a period of
fifteen (15) days after Lender sends notice thereof;
(d) Borrower shall (i) apply for or consent to the appointment of a
receiver, custodian, trustee, intervenor or liquidator of it or of all or a
substantial part of its assets, (ii) voluntarily become the subject of a
bankruptcy, reorganization or insolvency proceeding or be insolvent or admit in
writing that it is unable to pay debts as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) file a petition or answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (v) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding, (vi) become the
subject of an order for relief under any bankruptcy, reorganization or
insolvency proceeding, (vii) fail to pay any money judgment against it before
the expiration of thirty (30) days after such judgment becomes final and no
longer subject to appeal, or (viii) settle or compromise any claim or
controversy or suffer a final non-appealable judgment which has a material
(which, for purposes hereof, shall mean $1,000,000 or more) adverse effect on
Borrower's financial condition or business or might cause an Event of Default;
(e) An order, judgment or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a petition
appointing a receiver, custodian, trustee, intervenor or liquidator of Borrower
or of all or substantially all of its assets, and such order, judgment or decree
shall continue unstayed and in effect for a period of sixty (60) days; or a
complaint or petition shall be filed against Borrower seeking or instituting a
bankruptcy, insolvency, reorganization, rehabilitation or receivership
proceeding of Borrower, and such petition
-9-
<PAGE>
or complaint shall not have been dismissed within sixty (60) days; or
(f) Borrower shall default in the payment of any indebtedness or in
the performance of any of their obligations and such default shall continue for
more than any applicable period of grace.
8. REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have
occurred and be continuing, then Lender, at its option, may (i) declare the
principal of, and all interest then accrued on, the Note and any other
liabilities of Borrower to Lender to be forthwith due and payable, whereupon the
same shall forthwith become due and payable without notice, presentment, demand,
protest, notice of intention to accelerate, or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the Note
to the contrary notwithstanding, (ii) reduce any claim to judgment, and/or (iii)
without notice of default or demand, pursue and enforce any of Lender's rights
and remedies under the Loan Documents or otherwise provided under or pursuant to
any applicable law or agreement.
9. COLLATERAL. Repayment of the Note, drafts against the Letters of Credit
and performance of the obligations described herein shall be secured, directly
or indirectly, by (i) a first priority perfected security interest in all of
Borrower's accounts, general intangibles, equipment, fixtures and inventory, and
(ii) a first priority perfected security interest in sixty-five percent (65%) of
the issued and outstanding shares of stock of DSI (HK), Ltd. (collectively, the
"COLLATERAL").
10. LETTER OF CREDIT FEES. For each Letter of Credit, Borrower shall pay
to Lender a fee equal to the greater of (i) $300 or (ii) one percent (1%)
(determined on a per annum basis) of the dollar amount of the Letter of Credit;
such fee shall be payable at the time a Letter of Credit is issued and upon any
renewal or extension thereof. Additionally, Borrower agrees to reimburse Lender
for all actual out-of-pocket expenses incurred by Lender, such as advising or
confirming bank fees, telex charges and the like, and to pay those fees
customarily charged by Lender for any amendments to such Letter of Credit.
11. MISCELLANEOUS.
(a) WAIVER. No failure to exercise, and no delay in exercising, on
the part of Lender, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of Lender
hereunder and under the other Loan Documents shall be in addition to all other
rights provided by law. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances
without such notice or demand.
(b) NOTICES. Any notices or other communications required or
permitted to be given by any of the Loan Documents must be given in writing and
must be personally delivered, sent by facsimile transmission or mailed by
prepaid certified or registered mail to the party to whom such notice or
communication is directed at the address of such party as follows:
-10-
<PAGE>
(i) Borrower: DSI Toys, Inc.
1100 West Sam Houston Parkway, Suite A
Post Office Box 430848
Houston, Texas 77043
Attention: Mr. M. D. Davis
Telecopy No.: (713) 365-9911
(ii) Lender: Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attn: Corporate Banking Group
Telecopy No.: (713) 751-6199
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered or
telecopied as aforesaid, or, if mailed, on the third day after it is mailed as
aforesaid. Any party may change its address for purposes of this Agreement by
giving notice of such change to all other parties pursuant to this Paragraph.
(c) GOVERNING LAW. This Agreement and the other Loan Documents are
being executed and delivered, and are intended to be performed, in the State of
Texas, and the substantive laws of Texas shall govern the validity,
construction, enforcement and interpretation of this Agreement and all other
Loan Documents, except to the extent: (i) otherwise specified therein; (ii) the
federal or state laws governing national banking associations expressly
supersede and have contrary application; or (iii) federal laws governing maximum
interest rates shall provide for rates of interest higher than those permitted
under the laws of the State of Texas.
(d) INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
(e) ENTIRETY AND AMENDMENTS. The Loan Documents embody the entire
agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof, and
this Agreement and the other Loan Documents may be amended only by an instrument
in writing executed by the party, or an authorized officer of the party, against
whom such amendment is sought to be enforced.
(f) HEADINGS. Paragraph and section headings are for convenience of
reference only and shall in no way affect the interpretation of this Agreement.
(g) CONSTRUCTION AND CONFLICTS. The provisions of this Agreement
shall be in addition to those of the Note, the Loan Documents and any guaranty,
pledge or security agreement, note or other evidence of liability held by
Lender, all of which shall be construed as complementary to each other. Nothing
herein contained shall prevent Lender from enforcing the Note, the Loan
Documents and any and all other notes, guaranty, pledge or security agreements
in accordance with
-11-
<PAGE>
their respective terms. To the extent of any conflict or contradiction between
the terms hereof and the terms of the Note, the Loan Documents or any other
document executed in connection herewith, the terms hereof shall control.
(h) HAZARDOUS SUBSTANCES; INDEMNIFICATION. Borrower shall protect,
indemnify and hold Lender, its directors, officers, employees and agents, and
any immediate successors to Lender's interest in the Collateral and any other
person who acquires any portion of the Collateral at a foreclosure sale or
otherwise through the exercise of Lender's rights and remedies under the Loan
Documents, and all directors, officers, employees and agents of all of the
aforementioned indemnified parties, harmless from and against any and all actual
or potential claims, proceedings, lawsuits, liabilities, damages, losses, fines,
penalties, judgments, awards, costs and expenses (including, without limitation,
attorneys' fees and costs and expenses of investigation) which arise out of or
relate in any way to any use, handling, production, transportation, disposal or
storage of any hazardous substance or solid waste whether by Borrower or any
tenant or any other person during the ownership of the Collateral by Borrower,
including, without limitation, (i) all foreseeable and all unforeseeable
consequential damages directly or indirectly arising out of (A) the use,
generation, storage, discharge or disposal of the Collateral by Borrower or (B)
any residual contamination affecting any natural resource or the environment,
and (ii) the cost of any required or necessary repair, cleanup, or
detoxification of the Collateral and the preparation of any closure or other
required remedial plans. In addition, Borrower agrees that in the event the
Collateral is assigned an identification number by the Environmental Protection
Agency, the Collateral shall be solely in the name of Borrower or other
responsible person and, as between Borrower and Lender, Borrower shall assume
any and all liability for such removed Collateral. All such costs, damages, and
expenses referred to herein shall hereinafter be referred to as "EXPENSES".
Borrower understands and agrees that its liability to the aforementioned
indemnified parties shall arise upon the earlier to occur of (a) discovery of
any violation of the Applicable Environmental Laws or (b) the institution of any
Hazardous Materials Claim, and not upon the realization of loss or damage, and
Borrower agrees to pay to Lender from time to time, immediately upon Lender's
request, an amount equal to such Expenses, as reasonably determined by Lender.
In addition, Borrower agrees that any Expenses incurred by Lender and not paid
by Borrower shall be additional indebtedness of Borrower and shall be secured by
the Loan Documents and shall accrue interest at the Maximum Rate. The agreements
contained herein shall survive the repayment of the Note and the termination of
the Loan Documents. As used herein, "HAZARDOUS MATERIALS CLAIMS" shall mean any
and all enforcement, clean-up, removal or other governmental or regulatory
actions or orders threatened, instituted or completed pursuant to any Applicable
Environmental Laws, together with all claims made or threatened by any third
party against Borrower or the Collateral relating to damage, contribution, cost
recovery compensation, loss or injury resulting from any hazardous substance or
solid waste. Notwithstanding anything to the contrary contained in this
subparagraph or in the Loan Documents, it is hereby expressly agreed and
understood that Borrower's obligation to protect, indemnify and hold Lender and
the other aforementioned indemnified parties harmless from and against any and
all Hazardous Materials Claims and Expenses pursuant to this subparagraph shall
not apply to Hazardous Materials Claims or Expenses arising out of or relating
in any way to any use, handling, production, transportation, disposal or storage
of the Collateral directly caused by Lender or any such other indemnified party
during the management, operation, possession or ownership of the Collateral by
Lender or any such other indemnified party, and not resulting from a condition
existing prior to the commencement of such management, operation, possession or
ownership of the Collateral by Lender or any such other indemnified party.
-12-
<PAGE>
(i) FINANCIAL TERMS. As used in this Agreement, all financial and
accounting terms not otherwise defined herein shall be defined and calculated in
accordance with generally accepted accounting principles consistently applied.
(j) EXPENSES OF LENDER. Borrower will, on demand, reimburse Lender
for all expenses except as otherwise provided herein, including the reasonable
fees and expenses of legal counsel for Lender, incurred by Lender in connection
with the preparation, administration, amendment, modification or enforcement of
this Agreement, the Note and the Loan Documents and the collection or the
attempted collection of the Note.
(k) MAXIMUM INTEREST RATE. It is the intention of the parties hereto
to comply with the usury laws of the State of Texas and the United States;
accordingly, it is agreed that notwithstanding any provision to the contrary in
the Note, or in any of the documents securing payment hereof or otherwise
relating hereto, no such provision shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable state or
Federal law. If any excess of interest in such respect is provided for, or shall
be adjudicated to be so provided for, in the Note or in any of the documents
securing payment hereof or otherwise relating hereto, or in the event the
maturity of the indebtedness evidenced by the Note is accelerated in whole or in
part, or in the event that all or part of the principal or interest of the Note
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received under the Note or under any of the
instruments securing payment hereof or otherwise relating hereto, on the amount
of principal actually outstanding from time to time under the Note shall exceed
the maximum amount of interest permitted by the usury laws of the State of Texas
and the United States, then, in any such event, (i) the provisions of this
paragraph shall govern and control, (ii) neither Borrower nor its heirs, legal
representatives or assigns or any other party liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount permitted by applicable state or Federal law,
(iii) any such excess which may have been collected shall be, at the holder's
option (at maturity or in the Event of Default hereunder), either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
and (iv) the effective rate of interest shall be automatically subject to
reduction to the maximum lawful contract rate allowed under the usury laws of
the State of Texas or the United States as now or hereafter construed by the
courts having jurisdiction. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under the Note or under such other documents which are made for the
purpose of determining whether such rate exceeds the maximum lawful rate of
interest, shall be made, to the extent permitted by the laws of the State of
Texas and the United States, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the Loans, all
interest at any time contracted for, charged or received from Borrower or
otherwise by the holder of the Note in connection with such Loans.
(l) PRIOR LOAN AGREEMENT. Lender and Borrower hereby agree that this
Agreement amends, restates and supersedes all prior agreements, including
without limitation, the Prior Loan Agreement, but in no way acts as a release or
relinquishment of the liens and/or security interests securing payment of the
indebtedness advanced pursuant to the Prior Loan Agreement and such liens and/or
security interests are hereby renewed, extended, ratified, confirmed and carried
forward by Borrower in all respects to secure the Loan.
-13-
<PAGE>
12. NO ORAL AGREEMENTS. THE WRITTEN AMENDED AND RESTATED LETTER LOAN
AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
If Lender agrees to the foregoing, Lender should execute this Agreement in
the space indicated below.
"BORROWER"
DSI TOYS, INC.
By /s/ M. D. DAVIS
Name M. D. DAVIS
Title C.E.O.
By /s/ THOMAS V. YARNELL
Name THOMAS V. YARNELL
Title ADMINISTRATIVE VICE PRESIDENT
ACCEPTED:
"LENDER"
BANK ONE, TEXAS, N.A.
By: /s/ JOHN E. ELAM, JR.
John E. Elam, Jr., Vice President
<PAGE>
SCHEDULE "A"
DEFINITIONS
"BORROWER'S LOAN LIMIT", as used herein, shall mean the Borrowing Base (as
defined below) less the face amount of all outstanding Letters of Credit,
determined at the time of calculation.
"BORROWING BASE", as used herein, shall mean the sum of: (i) eighty
percent (80%) of Borrower's Eligible Accounts (as defined below) outstanding on
the date of a request for a Loan advance; PLUS (ii) fifty percent (50%) of
Borrower's Net Security Value of Domestic Inventory (as defined below);
provided, however, during the period from February 1st through September 30th of
each year, advances exceeding the Borrowing Base (the "OVER-ADVANCE") will be
allowed provided that the aggregate amount of the Over-Advance does not exceed
the lesser of (i) the sum of eighty percent (80%) of Eligible Accounts PLUS one
hundred percent (100%) of Domestic Eligible Inventory, or (ii) $2,000,000.
An "ELIGIBLE ACCOUNT" shall mean an account which is and shall at all
times continue to be acceptable to Lender in all reasonable respects. In
general, an account which continuously meets each of the following requirements
is an Eligible Account: (i) it is lawfully owned by Borrower, and Borrower has
the right to transfer any interest therein; (ii) it arises from the sale or
lease of goods, the goods have been shipped or delivered to the person who is
obligated on the account (the "account debtor"); (iii) it arises from the
performance of services, such services have been fully rendered, to the extent
of the billing; (iv) it is a valid obligation of the account debtor, enforceable
in accordance with its terms and free and clear of all liens, security
interests, restrictions, retainages, buy-back or repurchase agreements, setoffs,
adverse claims, assessments, defaults, prepayments, defenses and conditions
precedent other than the security interest created by this Agreement; (v) it is
rendered to the account debtor and is not evidenced by any instrument or chattel
paper; (vi) it is not aged more than sixty (60) days from the original due date
determined at the time of sale; (vii) the aggregate amount of all accounts owing
by an account debtor if more than twenty-five percent (25%) of the balance owing
by such account debtor is ineligible; (viii) it is not owed by any account
debtor closely affiliated with, related to or employed by Borrower or domiciled
outside of the United States (unless, in the case of an account debtor domiciled
outside of the United States, such account is secured by a sight domestic
irrevocable letter of credit in form acceptable to Lender issued by a federally
insured bank acceptable to Lender); (ix) it is discounted by the amount of all
discounts, allowances, rebates, credits and adjustments to such accounts; (x) it
is discounted by the amount billed by the account debtor or representing
retainage or a "hold back" of such account debtor; and (xi) problem accounts.
"NET SECURITY VALUE OF DOMESTIC INVENTORY" shall mean the net value of all
Borrower's finished goods inventory (excluding raw materials) physically located
in the United States and all such inventory in transit to the United States
which is fully insured and for which adequate proof of shipment has been
provided to Lender, LESS liens and security interests of all kinds against
inventory (other than those held by Lender and without implying the consent of
Lender thereto), the value of work in process, and all processing and other
handling charges affecting the value thereof, all as determined by Lender in its
sole discretion.
EXHIBIT 11
DSI TOYS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Income (loss) before extraordinary item .. $(4,029,206) $2,061,688 $(2,831,507) $2,384,713
=========== ========== =========== ==========
Net income (loss) ........................ $(4,029,206) $2,061,688 $(3,312,261) $2,384,713
=========== ========== =========== ==========
Weighted average common shares
outstanding during the period .......... 6,000,000 3,500,000 5,033,814 3,500,000
Common equivalent shares ................. -- 258,169 -- 157,294
----------- ---------- ----------- ----------
Weighted average shares outstanding ...... 6,000,000 3,758,169 5,033,814 3,657,294
=========== ========== =========== ==========
Earnings (loss) per common share before
extraordinary item ..................... $ (0.67) $ 0.55 $ (0.56) $ 0.65
=========== ========== =========== ==========
Earnings (loss) per common share ......... $ (0.67) $ 0.55 $ (0.66) $ 0.65
=========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DSI TOYS,
INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED OCTOBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 1,138,879
<SECURITIES> 0
<RECEIVABLES> 12,525,013
<ALLOWANCES> (173,313)
<INVENTORY> 13,284,015
<CURRENT-ASSETS> 28,038,880
<PP&E> 4,693,145
<DEPRECIATION> (3,425,692)
<TOTAL-ASSETS> 31,092,063
<CURRENT-LIABILITIES> 21,535,208
<BONDS> 4,500,000
0
0
<COMMON> 87,190
<OTHER-SE> 4,969,665
<TOTAL-LIABILITY-AND-EQUITY> 31,092,063
<SALES> 61,828,627
<TOTAL-REVENUES> 61,828,627
<CGS> 44,531,494
<TOTAL-COSTS> 20,779,001
<OTHER-EXPENSES> 215,778
<LOSS-PROVISION> 74,487
<INTEREST-EXPENSE> 1,158,138
<INCOME-PRETAX> (4,424,228)
<INCOME-TAX> (1,592,721)
<INCOME-CONTINUING> (2,831,507)
<DISCONTINUED> 0
<EXTRAORDINARY> (480,754)
<CHANGES> 0
<NET-INCOME> (3,312,261)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
