<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO ____________
COMMISSION FILE NUMBER: 0-23215
TOYMAX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3391335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 EAST BETHPAGE ROAD
PLAINVIEW, NY 11803
(Address, including zip code, of principal executive offices)
(516) 391-9898
(Registrant's telephone number, including area code)
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.
(1)Yes X No
- -
(2)Yes X No
- -
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, par value $.01, 10,605,000 as of August 13, 1998.
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended June 30, 1998 and 1997 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $26,623,012 $21,500,588
Due from Factor 5,217,247 19,251,619
Accounts receivable, net 2,799,260 523,340
Due from affiliates 41,233 -
Due from officers 17,537 -
Inventories 5,316,792 5,474,301
Prepaid expenses and other current assets 1,826,931 1,620,124
Income tax refunds receivable 1,489,677 226,389
Deferred income taxes 2,240,099 2,240,098
----------- -----------
TOTAL CURRENT ASSETS 45,571,788 50,836,459
PROPERTY AND EQUIPMENT, NET 1,887,006 1,811,731
DEFERRED INCOME TAXES 886,461 886,461
OTHER ASSETS 1,342,920 296,940
----------- -----------
$49,688,175 $53,831,591
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,924,367 $ 2,016,548
Accrued expenses 5,272,523 6,223,513
Accrued rebates and allowances 5,216,131 5,792,085
Due to affiliates 2,566,137 3,781,974
Current portion of long-term obligations 30,686 30,084
Income taxes payable 1,199,935 1,237,332
----------- -----------
TOTAL CURRENT LIABILITIES 16,209,779 19,081,536
LONG-TERM OBLIGATIONS 44,207 47,162
----------- -----------
TOTAL LIABILITIES 16,253,986 19,128,698
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
5,000,000 shares authorized; none outstanding - -
Common stock, par value $.01 per share;
50,000,000 shares authorized; 10,605,000 shares issued
and outstanding 106,050 106,050
Additional paid-in capital 23,059,355 23,059,355
Retained earnings 10,283,936 11,552,640
Accumulated other comprehensive income (15,152) (15,152)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 33,434,189 34,702,893
----------- -----------
$49,688,175 $53,831,591
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
3
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES $ 8,271,092 $ 7,090,862
----------- -----------
COST AND EXPENSES:
Cost of goods sold 6,125,887 3,783,717
Selling and administrative 4,850,238 3,664,051
----------- -----------
10,976,125 7,447,768
----------- -----------
Operating loss (2,705,033) (356,906)
----------- -----------
OTHER INCOME (EXPENSES):
Other income, net (52,769) 49,842
Interest income 288,078 17,587
Interest expense (1,367) (148,810)
Finance charges (28,703) (83,168)
----------- -----------
205,239 (164,549)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT (2,499,794) (521,455)
INCOME TAX BENEFIT (1,231,090) (152,187)
----------- -----------
NET LOSS $(1,268,704) $ (369,268)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.12) $ (0.05)
=========== ===========
SHARES USED IN COMPUTING BASIC AND DILUTED LOSS PER
SHARE 10,605,000 7,500,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
4
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,268,704) $ (369,268)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 193,258 277,888
Bad debts (1,453) -
Non-cash compensation - 187,000
Changes in operating assets and liabilities:
Due from Factor and accounts receivable 11,759,905 9,464,124
Due from affiliates (41,233) (47,426)
Inventories 157,509 (3,239,566)
Prepaid expenses and other assets (1,252,787) (1,151,212)
Income tax refunds receivable (1,263,288) (215,484)
Accounts payable and accruals (1,619,125) 519,662
Due to affiliates (1,215,837) (655,209)
Income taxes payable (37,397) (25,417)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,410,848 4,745,092
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (268,534) (268,838)
Advances to officers (17,537) (28,921)
Repayment from officers - 230
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (286,071) (297,529)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank credit facility - (3,343,379)
Repayment of long-term obligations (2,353) (11,449)
Repayment of loan from officers - (157,096)
Loans from officers - 50,484
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,353) (3,461,440)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,122,424 986,123
CASH AND CASH EQUIVALENTS, beginning of year 21,500,588 564,659
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $26,623,012 $ 1,550,782
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,165 $ 118,412
=========== ===========
Income taxes paid $ - $ 1,200
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Capital lease obligations incurred $ 4,932 $ 65,434
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
5
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
- ----------------------------------------------------
The accompanying unaudited condensed consolidated financial statements of Toymax
International, Inc. ("Toymax" or the "Company") include the accounts of the
Company and its subsidiaries after elimination of all material intercompany
accounts and transactions, and have been prepared in accordance with the
instructions to Form 10-Q. Accordingly, the unaudited consolidated financial
statements do not include all of the financial information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The balance sheet at March 31, 1998 has been derived from the
audited balance sheet at that date. It is suggested that these condensed
consolidated financial statements, which are presented in U.S. Dollars, be read
in conjunction with the consolidated financial statements and related notes
included in the Company's Form 10-K for the fiscal year ended March 31, 1998.
The Company follows the same accounting policies in preparation of interim
reports. The results of operations and financial position for interim periods
are not necessarily indicative of those to be expected for a full year, due, in
part, to seasonal fluctuations which are normal for the Company's business.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 EARNINGS PER SHARE. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to the Statement 128 requirements.
For the calculation of earnings per share for the three months ended June 30,
1998 and 1997, all of the Company's options and warrants are excluded from basic
and diluted earnings per share because they are anti-dilutive.
NOTE 3 - COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Standards (SFAS) No. 130,
REPORTING COMPREHENSIVE INCOME, which establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial staement that is displayed with the same
prominence as other financial
6
<PAGE>
statements. For interim reporting purposes, SFAS No. 130 requires disclosure
of total comprehensive income.
Total comprehensive income for the three months ended June 30, 1998 and June 30,
1997 is the same as the reported net loss.
NOTE 4 - INCOME TAXES
The Company provides for income taxes during interim periods based upon an
estimate of the effective annual tax rate.
NOTE 5 - RECLASSIFICATIONS
Certain June 30, 1997 amounts were reclassified to conform to the June 30, 1998
presentation.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS QUARTERLY REPORT PURSUANT
TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995:
From time to time, information provided by the Company or statements made by its
employees may contain "forward-looking" statements, as that term is defined in
the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "may," "estimate," "continue,"
"intends," "expects," and similar expressions are intended to identify
forward-looking statements.
This Form 10-Q may contain forward-looking statements, which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors that could cause such a
difference include, without limitation, the risks specifically described in the
Company's Registration Statement on Form S-1. Registration No. 333-33409, filed
with the Securities and Exchange Commission in connection with its recent
initial public offering, which factors are incorporated herein by reference, and
other factors including, without limitation, the demand for Laser Challenge and
other products of the Company; the Company's dependence on timely development,
introduction and customer acceptance of new products; possible weakness of the
Company's markets; dependence on a limited number of major customers; the impact
of competition on revenues, margins and pricing; the effect of currency
fluctuations; other risks and uncertainties as may be disclosed from time to
time in the Company's public announcements; the general state of the economy in
the United States and other major markets; customer inventory levels; the cost
and availability of raw materials; and changes in trade relations regarding
China.
RESULTS OF OPERATIONS
FOR PURPOSES OF THE THREE MONTH COMPARISONS BELOW, FIGURES REFERRING TO THE
FINANCIAL PERFORMANCE OF TOYMAX INC. (WHICH HAS CONDUCTED THE COMPANY'S U.S.
DOMESTIC SALES) ARE REFERRED TO AS THE "U.S. DOMESTIC OPERATION" AND THOSE
REFERRING TO THE PERFORMANCE OF TOYMAX (H.K.) LIMITED (WHICH HAS CONDUCTED THE
TOYMAX HK SALES) ARE REFERRED TO AS THE "FOB HONG KONG OPERATION."
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1997
NET SALES. Net sales for the quarter ended June 30, 1998 increased to $8.3
million from $7.1 million for the quarter ended June 30, 1997, an increase of
$1.2 million, or 16.6%.
Net sales of the FOB Hong Kong Operation increased 112.5% to $5.6 million,
or 67.6% of total net sales, in the quarter ended June 30, 1998 from $2.6
million, or 37.1% of total net sales, in the quarter ending June 30, 1997. The
increase in net sales was primarily due to increases in the sales of the Laser
Challenge and Precious Metals product lines and the introduction of the Mighty
Mo's vehicle line and Nintendo(R) Mini Classics hand held games. Net sales of
the U.S.
8
<PAGE>
Domestic Operation decreased 39.9% to $2.7 million, or 32.4% of total net sales,
in the quarter ended June 30, 1998, from $4.5 million, or 62.9% of total net
sales, for the quarter ended June 30, 1997. The decrease in net sales was mainly
attributable to the decreased sales of the Laser Challenge(TM) product line
partially offset by sales of the recently launched Mighty Mo's(TM) vehicle
line.
GROSS PROFIT. Gross Profit for the quarter ended June 30, 1998, decreased
by $1.2 million, or 35.1%, to $2.1 million, or 25.9% of net sales, from $3.3
million, or 46.6% of net sales, for the quarter ended June 30, 1997.
The decrease in gross profit as a percentage of net sales was mainly
attributable to higher sales promotion costs stemming from lower than expected
retail demand for the Company's CyberSplash(TM) product, introduced in the U.S.
during this calendar year. Increased sales of products by the FOB Hong Kong
Operation, which historically carry a lower gross profit margin also contributed
to the decline.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the quarter ended June 30, 1998 increased by $1.2 million, or 32.4%, to $4.9
million, or 58.6% of net sales, from $3.7 million, or 51.7% of net sales, for
the quarter ended June 30, 1997. The increase in selling and administrative
expenses was mainly attributable to an increase in advertising expenses of $0.9
million primarily to support the sales of Laser Challenge as the Company makes
the transition to the ELS V2 version. Spending for research and development
increased by $0.2 million as the Company increased its commitment to new product
development.
OPERATING LOSS . As a result of the foregoing, the operating loss for the
quarter ended June 30, 1998 increased by $2.3 million, or 657.9%, to a loss of
$2.7 million from a loss of $0.4 million for the quarter ended June 30, 1997.
INTEREST INCOME (EXPENSE),NET. Net interest income for the quarter ended
June 30, 1998 was $0.3 million, compared to a net interest expense of $0.1
million for the quarter ended June 30, 1997, an increase of $0.4 million, or
318.5%. The increase in net interest income was primarily due to the
investment of cash generated from operations and from the Company's initial
public offering in October 1997.
LOSS BEFORE TAXES. The loss before taxes for the quarter ending June 30,
1998 increased by $2.0 million to $2.5 million, compared to a loss before taxes
of $0.5 million for the quarter ended June 30, 1997.
INCOME TAX BENEFIT. The income tax benefit for the quarter ending June 30,
1998 increased by approximately $1.1 million to a benefit of approximately $1.2
million from a benefit of approximately $0.1 for the quarter ended June 30, 1997
primarily due to increased losses in the quarter ended June 30, 1998.
NET LOSS. As a result of the foregoing, the net loss for the quarter ended
June 30, 1998 increased to $1.3 million ($0.12 per share) from $0.4 million
($0.05 per share) for the quarter ended June 30, 1997, an increase of $0.9
million or 243.6 % from the quarter ended June 30, 1997.
9
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LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company historically has funded its operations and capital requirements from
cash generated from operations and from financing activities. During the three
months ended June 30, 1998 cash and cash equivalents increased $5.1 million to
$26.6 million.
The Company's operating activities provided net cash of approximately $5.4
million, which was primarily due to a net loss of $1.3 million offset by a net
increase in operating assets and liabilities of $6.5 million. This net increase
included an $11.8 million decrease in accounts receivable and amounts due from
factor partially offset by increases in income tax refunds receivable and
prepaid expenses and other assets and decreases in accounts payable, accruals,
and due to affiliates which totaled $5.4 million
The Company expects to fund its near-term cash requirements from a combination
of existing cash balances, cash flow from operations and borrowings under its
credit facility with State Street Bank and Trust Company. The Company expects to
finance its longer-term growth primarily from cash flow from operations and with
externally generated funds that will likely include borrowings under its
existing or future credit facilities. There can be no assurance that sufficient
cash flows from operations will materialize or that financing under a credit
facility will be available in amounts, or at rates, or on terms and conditions
acceptable to the Company. In such event, additional funding would be required.
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.
10
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary course of
its business activities. The Company believes that the resolution of such legal
proceedings and claims, individually and in aggregate, are not likely to have a
material adverse effect on its financial position or results of operations.
Reference is made to Part I, Item 3, Legal Proceedings, in the Registrant's
Annual Report on Form 10-K for the year ended March 31, 1998 for descriptions of
[Link Group International v. Toymax Inc., U.S. District Court for the District
of Connecticut].
In April 1998, the Company entered into a Settlement Agreement with Saban
Entertainment, Inc. and Saban International resolving all disputes between the
Companies. While the terms of the agreement are confidential, in management's
opinion, the terms of the agreement will not have a material effect on the
financial condition of the Company or the Company's results of operations.
The Company has been notified by the Internal Revenue Service concerning a
pending examination covering tax years 1993, 1994 and 1995. As of the date of
this Form 10-Q, no issues have been raised by the Internal Revenue Service. The
Company cannot predict at this time what the outcome of the examination will be
or the impact on the Company's results of operations, if any.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Reference is made to Part II, Item 5, Market for the Registrant's Common Equity
and Related Stockholder Matters, in the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOYMAX INTERNATIONAL, INC.
--------------------------
(Registrant)
By /s/ Steven A. Lebensfeld
--------------------------------
Steven A. Lebensfeld
President and Director
By /s/ William A. Johnson, JR.
--------------------------------
William A. Johnson, Jr.
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
Date: August 13, 1998
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYMAX
INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 26,623
<SECURITIES> 0
<RECEIVABLES> 2,904
<ALLOWANCES> 105
<INVENTORY> 5,317
<CURRENT-ASSETS> 45,572
<PP&E> 7,874
<DEPRECIATION> 5,987
<TOTAL-ASSETS> 49,688
<CURRENT-LIABILITIES> 16,210
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 33,328
<TOTAL-LIABILITY-AND-EQUITY> 49,688
<SALES> 8,271
<TOTAL-REVENUES> 8,271
<CGS> 6,126
<TOTAL-COSTS> 6,126
<OTHER-EXPENSES> 81
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (2,500)
<INCOME-TAX> (1,231)
<INCOME-CONTINUING> (1,269)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,269)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
