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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 SEPTEMBER 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 shares as of November 13, 1998.
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended September 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 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPT. 30, MARCH 31,
1998 1998
------------ ------------
(UNAUDITED)
ASSETS
CURRENT:
Cash and cash equivalents $ 23,361,631 $ 21,500,588
Due from Factor 23,917,371 19,251,619
Accounts receivable, net 9,553,381 523,340
Due from affiliates and officers 806,572 -
Inventories 9,480,015 5,474,301
Prepaid expenses and other current assets 2,289,072 1,846,513
Deferred income taxes 2,240,098 2,240,098
------------ ------------
TOTAL CURRENT ASSETS 71,648,140 50,836,459
PROPERTY AND EQUIPMENT, NET 2,456,607 1,811,731
DEFERRED INCOME TAXES 886,461 886,461
OTHER ASSETS 1,633,738 296,940
------------ ------------
$ 76,624,946 $ 53,831,591
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 3,085,692 $ 2,016,548
Accrued expenses 6,463,320 6,223,513
Accrued rebates and allowances 8,498,716 5,792,085
Due to affiliates 15,495,033 3,781,974
Current portion of long-term obligations 31,643 30,084
Income taxes payable 2,914,438 1,237,332
------------ ------------
TOTAL CURRENT LIABILITIES 36,488,842 19,081,536
LONG-TERM OBLIGATIONS 36,830 47,162
------------ ------------
TOTAL LIABILITIES 36,525,672 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 16,949,021 11,552,640
Accumulated other comprehensive income (15,152) (15,152)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 40,099,274 34,702,893
------------ ------------
$ 76,624,946 $ 53,831,591
============ ============
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 41,128,002 $ 37,176,046 $ 49,399,094 $ 44,266,908
------------ ------------ ------------ ------------
COST AND EXPENSES:
Cost of goods sold 24,644,843 20,287,058 30,770,730 24,070,775
Selling and administrative 7,136,390 7,810,544 11,986,628 11,474,595
------------ ------------ ------------ ------------
31,781,233 28,097,602 42,757,358 35,545,370
------------ ------------ ------------ ------------
OPERATING INCOME 9,346,769 9,078,444 6,641,736 8,721,538
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Other income, net 251,988 (106,949) 199,219 (57,107)
Interest income 290,847 12,942 578,925 30,529
Interest expense (3,167) (235,319) (4,534) (384,129)
Finance charges (198,263) (303,012) (226,966) (386,180)
------------ ------------ ------------ ------------
341,405 (632,338) 546,644 (796,887)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 9,688,174 8,446,106 7,188,380 7,924,651
PROVISION FOR INCOME TAXES 3,023,090 2,374,800 1,792,000 2,222,613
------------ ------------ ------------ ------------
NET INCOME $ 6,665,084 $ 6,071,306 $ 5,396,380 $ 5,702,038
============ ============ ============ ============
BASIC AND DILUTED INCOME PER SHARE $ 0.63 $ 0.81 $ 0.51 $ 0.76
============ ============ ============ ============
SHARES USED IN COMPUTING BASIC AND DILUTED
INCOME PER SHARE 10,605,000 7,500,000 10,605,000 7,500,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,396,380 $ 5,702,038
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 443,030 571,636
Bad debts 11,545 121,777
Non-cash compensation - 187,000
Loss on disposal of property and equipment - 7,620
Changes in operating assets and liabilities:
Due from Factor and accounts receivable (13,707,336) (14,674,116)
Due from affiliates (775,116) -
Inventories (4,005,714) (1,087,193)
Prepaid expenses and other assets (1,826,563) (863,581)
Income tax refunds receivable 47,207 -
Accounts payable and accruals 4,015,582 5,817,753
Due to affiliates 11,713,059 3,619,379
Income taxes payable 1,677,106 2,140,070
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,989,180 1,542,383
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,087,908) (678,975)
Repayments from (advances to) officers (31,456) 169,389
Proceeds from disposals of property and equipment - 35,609
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,119,364) (473,977)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank credit facility - 4,817,184
(Decrease) increase in long-term obligations (8,773) 52,184
Capital contributions - 2,588
Loans from officers - (504,032)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,773) 4,367,924
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,861,043 5,436,330
CASH AND CASH EQUIVALENTS, beginning of year 21,500,588 564,659
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 23,361,631 $ 6,000,989
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,631 $ 307,354
============ ============
Income taxes paid $ - $ 2,393
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Capital lease obligations incurred $ 4,932 $ 95,240
============ ============
</TABLE>
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED SEPTEMBER 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 condensed 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 and six months ended
September 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 Accounting 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
6
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income be reported in a financial statement that is displayed with the same
prominence as other financial statements. For interim reporting purposes, SFAS
No. 130 requires disclosure of total comprehensive income.
Total comprehensive income for the three and six months ended September 30,
1998 and September 30, 1997 is the same as the reported net income.
NOTE 4 - NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued a new disclosure
standard. Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, establishes a standard for
the way that companies record derivatives. Effective for fiscal years beginning
after June 15, 1999, derivatives must be reported on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the value of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. Due to the recent
issuance of this standard, management has been unable to fully evaluate the
impact, if any, it may have on future financial statement disclosures.
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Inventories consist principally of purchased finished goods.
NOTE 6 - INCOME TAXES
The Company provides for income taxes during interim periods based upon an
estimate of the effective annual tax rate.
NOTE 7 - RECLASSIFICATIONS
Certain September 30, 1997 amounts were reclassified to conform to the September
30, 1998 presentation.
7
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ITEM 2.
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, subsequent changes in retail
sell-through of the Company's products; differences between bookings received
from customers and actual orders received; changing consumer preferences; 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 the People's Republic of China. The risks
highlighted herein should not be assumed to be the only things that could affect
the future performance of the Company. Readers are referred to the documents
filed by the Company with the Securities and Exchange Commission, specifically,
the most recent reports filed under the Securities Exchange Act of 1934 and the
registration statement filed pursuant to the Securities Act of 1933 in
connection with its October 1997 initial public offering (Registration No.
333-33409), which identify important risk factors.
RESULTS OF OPERATIONS
FOR PURPOSES OF THE THREE AND SIX 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."
8
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THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
NET SALES. Net sales for the quarter ended September 30, 1998
increased to $41.1 million from $37.2 million for the quarter ended
September 30, 1997, an increase of $3.9 million, or 10.6%.
Net sales of the FOB Hong Kong Operation increased 60.6% to $20.3
million, or 49.4% of total net sales, in the quarter ended September 30, 1998
from $12.7 million, or 34.1% of total net sales, in the quarter ending
September 30, 1997. The increase in net sales was primarily due to a
combination of the successful introduction of a line of Spice Girls(TM)
products and the continued strong performance of the Mighty Mo's(TM) vehicle
line and Nintendo(R) Mini Classics hand held games, both of which were
launched in the prior quarter. Net sales of the U.S. Domestic Operation
decreased 15.2% to $20.8 million, or 50.6% of total net sales, in the quarter
ended September 30, 1998, from $24.5 million, or 65.9% of total net sales,
for the quarter ended September 30, 1997. The decrease in net sales was
mainly attributable to the decreased sales of the Laser Challenge(TM) product
line, partially offset by the sales of new products, including Spice Girls'
toys and the recently launched Arcadia(TM) Electronic Skeet Shoot game system
and the R.A.D.(TM) Robot.
GROSS PROFIT. Gross Profit for the quarter ended September 30,
1998, decreased by $0.4 million, or 2.4%, to $16.5 million, or 40.1% of
net sales, from $16.9 million, or 45.4% of net sales, for the quarter ended
September 30, 1997.
The most significant reason for the decrease in gross profit as a
percentage of net sales was the increased sales of products by the FOB Hong
Kong Operation, which historically carry a lower gross profit margin than the
U.S. Domestic Operation. The change in product mix also contributed to the
lower margin in the period.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the quarter ended September 30, 1998 decreased by $0.7 million,
or 8.6%, to $7.1 million, or 17.4% of net sales, from $7.8 million, or 21.0%
of net sales, for the quarter ended September 30, 1997. The decrease in
selling and administrative expenses was mainly attributable to a decrease in
advertising expenses of $1.0 million primarily due to the higher sales levels
in the FOB Hong Kong Operation, which operates on a lower cost structure and
does significantly less advertising.
OPERATING INCOME. As a result of the foregoing, the operating income
for the quarter ended September 30, 1998 increased by $0.3 million, or 3.0%,
to $9.4 million from $9.1 million for the quarter ended September 30, 1997.
9
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INTEREST INCOME (EXPENSE), NET. Net interest income for the quarter
ended September 30, 1998 was $0.3 million, compared to a net interest expense
of $0.2 million for the quarter ended September 30, 1997, an increase of $0.5
million, or 229.4%. 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, which eliminated the need for credit
facility borrowing.
OTHER INCOME (EXPENSE), NET. Net other income for the quarter ended
September 30, 1998 was $0.05 million, compared to a net other expense of $0.4
million for the quarter ended September 30, 1997, an increase of $0.5 million,
or 113.1%. The increase was primarily due to a vendor settlement as well as a
decrease in finance charges mainly due to a reduction in the rate charged on
factored sales together with a decrease in net sales in the U.S. Domestic
Operation.
INCOME BEFORE TAXES. Income before taxes for the quarter ending
September 30, 1998 increased by $1.2 million, or 14.7%, to $9.7 million, from
$8.5 million for the quarter ended September 30, 1997.
PROVISION FOR INCOME TAXES. The increase in the effective tax rate
from 28% for the quarter ended September 30, 1997 to 31% for the quarter
ended September 30, 1998 was primarily due to higher effective tax rate for
the U.S. Domestic Operation.
NET INCOME. As a result of the foregoing, net income for the quarter
ended September 30, 1998 increased to $6.7 million, or $0.63 per share,
from $6.1 million, or $0.81 per share, for the quarter ended September 30,
1997, an increase of $0.6 million or 9.8% from the quarter ended September
30, 1997.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE SIX MONTHS ENDED
SEPTEMBER 30, 1997
NET SALES. Net sales in the six months ended September 30, 1998
increased to $49.4 million from $44.3 million in the six months ended
September 30, 1997, an increase of $5.1 million, or 11.6%.
Net sales of the FOB Hong Kong Operation increased 69.5% to $25.9
million, or 52.5% of total net sales, in the six months ended September 30,
1998 from $15.3 million, or 34.5% of total net sales, in the six months ended
September 30, 1997. The increase in net sales was primarily due to a
combination of the successful launch of a line of Spice Girls products,
increases in the sales of the Precious Metals(TM) and Creepy
Crawler(R) product lines and the continued strong performance of the Mighty
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Mo's vehicle line and Nintendo Mini Classics hand held games.
Net Sales of the U.S. Domestic Operation decreased 19.0% to $23.5
million, or 47.5% of total net sales, in the six months ended September 30,
1998, from $29.0 million, or 65.5% of total net sales, in the six months
ended September 30, 1997. The decrease in net sales was mainly attributable
to the decreased sales of the Laser Challenge product line, partially offset
by the sales of new products, including the recently launched line of Spice
Girls toys, the Arcadia Skeet Shoot game system and the R.A.D. Robot as well
as sales of the Mighty Mo's vehicle line and Nintendo Mini Classics.
GROSS PROFIT. Gross Profit for the six months ended September 30,
1998, decreased by $1.6 million, or 7.8%, to $18.6 million, or 37.7% of
net sales, from $20.2 million, or 45.6% of net sales, for the six months
ended September 30, 1997.
The most significant reason for the decrease in gross profit as a
percentage of net sales was the increased sales of products by the FOB Hong
Kong Operation, which historically carry a lower gross profit. Additionally,
changes in the Company's product mix and higher sales promotion costs in the
first quarter stemming from lower than expected retail demand for the
Company's CyberSplash(TM) product, introduced in the U.S. during this
calendar year, also contributed to the decline.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses in the six months ended September 30, 1998 increased by $0.5
million, or 4.5%, to $12.0 million, or 24.3% of net sales, from $11.5
million, or 25.9% of net sales, in the six months ended September 30, 1997.
OPERATING INCOME. As a result of the foregoing, the operating
income for the six months ended September 30, 1998 decreased by $2.1 million,
or 23.8%, to $6.6 million from $8.7 million for the six months ended
September 30, 1997.
INTEREST INCOME (EXPENSE), NET. Net interest income in the six months
ended September 30, 1998 was $0.6 million, compared to a net interest expense
of $0.3 million in the six months ended September 30, 1997, an increase of
$0.9 million, or 262.4%. 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, which eliminated the need
for credit facility borrowing.
OTHER EXPENSE, NET. Net other expense for the quarter ended September
30, 1998 was $0.03 million, compared to a net other expense of $0.4 million
for the quarter ended September 30, 1997, a decrease of $0.4 million, or
93.7%. The decrease was primarily due to a settlement with a vendor as well
as a decrease in finance charges due to a reduction in the rate charged on
factored sales together with a decrease in net sales in the U.S. Domestic
Operation.
INCOME BEFORE TAXES. Income before taxes for the six months ending
September 30, 1998 decreased by $0.7 million to $7.2 million, compared to
income before taxes of $7.9 million for the six months ended September 30, 1997.
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PROVISION FOR INCOME TAXES. The effective tax rate for the six months
ending September 30, 1998 decreased to 25% from 28% for the six months ended
September 30, 1997. The decrease was primarily due to the higher income
contribution by the Company's FOB Hong Kong Operation, which is subject to a
lower effective tax rate than the U.S. Domestic Operation.
NET INCOME. As a result of the foregoing, the net income in the six
months ended September 30, 1998 decreased to $5.4 million, or $0.51 per
share, from $5.7 million, or $0.76 per share, in the six months ended
September 30, 1997, a decrease of $0.3 million or 5.4% from the six months
ended September 30, 1997.
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 six
months ended September 30, 1998 cash and cash equivalents increased $1.9 million
to $23.4 million.
The Company's operating activities provided net cash of approximately $3.0
million, which was primarily due to net income of $5.4 million offset by a net
increase in operating assets and liabilities of $2.9 million. This net increase
includes a $20.3 million increase in accounts receivable and amounts due from
factor, inventories and prepaids and other assets partially offset by increases
in accounts payable, accruals, income taxes payable, and due to affiliates which
totaled $17.4 million.
Capital expenditures, principally for the purchase of tooling for new
products and equipment, were $1.1 million for the six months ended September
30, 1998 compared to $0.7 million for the six months ended September 30, 1997.
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.
YEAR 2000 COMPLIANCE
The Company has evaluated and is in the process of updating its internal
Management Information Systems to ensure that it will have the capability
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to manage and manipulate data in the year 2000 and beyond. As the Company takes
measures to be in compliance, new programs are currently being tested. It is
anticipated that the Company's information technology ("IT") systems will be
substantially compliant by the end of the third quarter of the fiscal year
ending March 31, 1999. Costs incurred by the Company to date to implement its
plan have not been material and are not expected to have a material effect on
the Company's financial condition or results of operations.
The Company has begun to assess the compliance of its non-IT systems. It is
anticipated that these systems will be compliant by December 31, 1999.
The Company has addressed year 2000 compliance with its major customers and
vendors and anticipates that those key business partners who are not as yet
compliant will be prior to the year 2000. However, any significant disruption of
the Company's ability to communicate electronically with its customers and
suppliers could negatively impact the Company's business, financial condition
and results of operations. To that end, the Company is attempting to discuss and
develop contingency plans with other participants in the Company's industry,
including suppliers, financial institutions and trading partners, which would be
implemented, if in fact they do experience functional or data abnormalities as
the result of non-compliance.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required
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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 a description
of Link Group International v. Toymax Inc., U.S. District Court for the District
of Connecticut.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 17, 1998, the Company held its Annual Meeting of Stockholders. The
number of shares of Common Stock represented at the Meeting either in person or
by proxy, was 7,650,181 shares (72.1% of the outstanding shares of Common
Stock). Two proposals were voted upon at the Meeting. The proposals and voting
results were as follows:
1. Proposal 1 - Election of Directors
The following persons were elected as directors as follows:
NAME CLASS FOR AGAINST WITHHELD
Harvey Goldberg 1 7,644,281 - 5,900
Steven Lebensfeld 2 7,644,281 - 5,900
Oren Asher 2 7,644,281 - 5,900
David Ki Kwan Chu 3 7,644,281 - 5,900
Joel Handel 3 7,644,281 - 5,900
14
<PAGE>
2. Proposal 2 - Ratification of selection by the Company's Board of
Directors of BDO Seidman, LLP as independent auditors of the Company for the
year ended March 31, 1999.
FOR AGAINST WITHHELD
--- ------- --------
7,645,981 1,000 3,200
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
15
<PAGE>
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.
Senior Vice President - Finance,
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
Date: November 13, 1998
16
<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 FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,362
<SECURITIES> 0
<RECEIVABLES> 9,671
<ALLOWANCES> 118
<INVENTORY> 9,480
<CURRENT-ASSETS> 71,648
<PP&E> 8,622
<DEPRECIATION> 6,165
<TOTAL-ASSETS> 76,625
<CURRENT-LIABILITIES> 36,489
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 39,993
<TOTAL-LIABILITY-AND-EQUITY> 76,625
<SALES> 49,399
<TOTAL-REVENUES> 49,399
<CGS> 30,771
<TOTAL-COSTS> 30,771
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 7,188
<INCOME-TAX> 1,792
<INCOME-CONTINUING> 5,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,396
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
