<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-23215
------------------------
TOYMAX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 11-3391313
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>
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, 10,598,108 shares as of November 9, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1999
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30,
1999 and March 31, 1999..................................... 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended September 30, 1999 and 1998...... 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 1999 and 1998.................... 5
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities and Use of Proceeds................... 16
Item 3. Defaults by the Company upon Its Senior Securities.......... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures.................................................. 18
</TABLE>
2
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, MARCH 31,
1999 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents................................. $ 15,712,561 $18,469,027
Due from Factor........................................... 30,364,302 11,899,865
Accounts receivable, net.................................. 10,729,623 3,826,421
Due from related parties.................................. 111,116 3,702
Inventories............................................... 15,552,059 7,520,655
Prepaid expenses and other current assets................. 4,293,310 4,866,452
Income tax refunds receivable............................. 598,556 1,034,357
Deferred income taxes..................................... 2,029,432 2,029,432
------------ -----------
TOTAL CURRENT ASSETS.................................... 79,390,959 49,649,911
PROPERTY AND EQUIPMENT, NET................................. 5,414,594 3,376,797
DEFERRED INCOME TAXES....................................... 852,885 852,885
GOODWILL AND INTANGIBLES, NET OF AMORTIZATION............... 12,295,475 4,269,212
OTHER ASSETS, PRIMARILY PREPAID ADVERTISING................. 7,403,175 4,434,970
------------ -----------
$105,357,088 $62,583,775
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Bank credit facility...................................... $ 19,498,425 --
Accounts payable.......................................... 6,761,237 $ 3,369,127
Accrued expenses.......................................... 8,000,347 5,258,036
Accrued rebates and allowances............................ 6,723,749 6,641,677
Due to related parties.................................... 14,268,746 2,553,827
Current portion of long-term obligations.................. 24,611 37,199
Income taxes payable...................................... 2,328,423 1,373,024
------------ -----------
TOTAL CURRENT LIABILITIES............................... 57,605,538 19,232,890
LONG-TERM OBLIGATIONS....................................... 750,518 31,577
------------ -----------
TOTAL LIABILITIES....................................... 58,356,056 19,264,467
============ ===========
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; 10,633,108 and 10,605,000 issued............ 106,331 106,050
Additional paid-in capital................................ 23,120,275 23,059,355
Retained earnings......................................... 23,967,467 20,169,055
Treasury stock at cost; 35,000 shares..................... (177,889) --
Accumulated other comprehensive income.................... (15,152) (15,152)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY.............................. 47,001,032 43,319,308
------------ -----------
$105,357,088 $62,583,775
============ ===========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................. $47,428,789 $41,128,002 $62,908,409 $49,399,094
----------- ----------- ----------- -----------
COST AND EXPENSES:
Cost of goods sold...................... 28,941,872 24,644,843 38,770,190 30,770,730
Selling and administrative.............. 12,492,900 7,136,390 18,845,026 11,986,628
----------- ----------- ----------- -----------
41,434,772 31,781,233 57,615,216 42,757,358
----------- ----------- ----------- -----------
OPERATING INCOME.......................... 5,994,017 9,346,769 5,293,193 6,641,736
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Other income, net....................... 73,485 251,988 98,973 199,219
Interest income......................... 106,720 290,847 257,713 578,925
Interest expense........................ (118,897) (3,167) (170,349) (4,534)
Finance charges......................... (263,717) (198,263) (381,559) (226,966)
----------- ----------- ----------- -----------
(202,409) 341,405 (195,222) 546,644
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES................ 5,791,608 9,688,174 5,097,971 7,188,380
PROVISION FOR INCOME TAXES................ 1,633,952 3,023,090 1,299,559 1,792,000
----------- ----------- ----------- -----------
NET INCOME................................ $ 4,157,656 $ 6,665,084 $ 3,798,412 $ 5,396,380
=========== =========== =========== ===========
BASIC INCOME PER SHARE.................... $ 0.39 $ 0.63 $ 0.36 $ 0.51
=========== =========== =========== ===========
DILUTED INCOME PER SHARE.................. $ 0.38 $ 0.63 $ 0.36 $ 0.51
=========== =========== =========== ===========
SHARES USED IN COMPUTING BASIC INCOME PER
SHARE................................... 10,585,854 10,605,000 10,595,246 10,605,000
=========== =========== =========== ===========
SHARES USED IN COMPUTING DILUTED INCOME
PER SHARE............................... 10,802,260 10,605,000 10,693,730 10,605,000
=========== =========== =========== ===========
</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>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,798,412 $ 5,396,380
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 1,690,141 443,030
Bad debts............................................... 113,585 11,545
Non-cash compensation--issuance of warrants............. 61,201 --
Non-cash revenue--barter credit......................... (377,433) --
Changes in operating assets and liabilities:
Due from Factor and accounts receivable............... (23,304,365) (13,707,336)
Due from related parties.............................. (107,414) (806,572)
Inventories........................................... (6,029,435) (4,005,714)
Prepaid expenses and other assets..................... (3,219,265) (1,826,563)
Income tax refunds receivable......................... 435,801 47,207
Accounts payable and accruals......................... 4,578,467 4,015,582
Due to related parties................................ 11,714,919 11,713,059
Income taxes payable.................................. 914,083 1,677,106
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES........................................ (9,731,303) 2,957,724
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (1,920,670) (1,087,908)
Proceeds from disposals of property and equipment......... 9,793 --
Acquisition of business................................... (6,907,661) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES............... (8,818,538) (1,087,908)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank credit facility.......................... 16,090,042 --
Decrease in long-term obligations......................... (118,778) (8,773)
Purchase of treasury stock................................ (177,889) --
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES........................................ 15,793,375 (8,773)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (2,756,466) 1,861,043
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 18,469,027 21,500,588
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 15,712,561 $ 23,361,631
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 115,044 $ 4,631
============ ============
Income taxes paid......................................... $ 634,973 $ --
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Capital lease obligations incurred........................ $ -- $ 4,932
============ ============
Accrual of additional acquisition costs................... $ 1,450,000 $ --
============ ============
</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 AND SIX MONTHS ENDED SEPTEMBER 30, 1999
(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, 1999 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/A for the fiscal year ended March 31, 1999.
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
Basic earnings per share has been computed using the weighted average number
of common shares. Diluted earnings per share has been computed using the
weighted average number of common shares and common share equivalents (which
consist of options and warrants, to the extent they are dilutive). The
calculation of basic and diluted income per share for the three and six months
ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
COMMON PER COMMON PER
INCOME SHARES SHARE INCOME SHARES SHARE
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
As reported............................ $4,157,656 10,585,854 $ 0.39 $6,665,084 10,605,000 $0.63
EFFECT OF DILUTIVE SECURITIES:
Options and warrants................... -- 216,406 $(0.01) -- -- --
---------- ---------- ------ ---------- ---------- -----
DILUTED EPS:........................... $4,157,656 10,802,260 $ 0.38 $6,665,084 10,605,000 $0.63
========== ========== ====== ========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
COMMON PER COMMON PER
INCOME SHARES SHARE INCOME SHARES SHARE
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
As reported............................ $3,798,412 10,595,246 $ 0.36 $5,396,380 10,605,000 $0.51
EFFECT OF DILUTIVE SECURITIES:
Options and warrants................... -- 98,484 -- -- -- --
---------- ---------- ------ ---------- ---------- -----
DILUTED EPS:........................... $3,798,412 10,693,730 $ 0.36 $5,396,380 10,605,000 $0.51
========== ========== ====== ========== ========== =====
</TABLE>
6
<PAGE>
NOTE 3--COMPREHENSIVE INCOME
Total comprehensive income for the three and six months ended September 30,
1999 and September 30, 1998 is the same as the reported net income.
NOTE 4--NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued a new
disclosure standard. Statement of Financial Accounting Standards No. 133 ("SFAS
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. Historically, the Company has made no attempt to minimize, by means
of hedging or derivatives, the risk of potential currency fluctuations, since
the currency risk has not been significant on a consolidated basis. As a result,
management does not believe adoption of SFAS 133 will have a material impact on
either the Company's financial condition or its results of operations.
NOTE 5--SEGMENT REPORTING
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. SFAS 131 supersedes SFAS 14, FINANCIAL REPORTING FOR
SEGMENT OF A BUSINESS ENTERPRISE, replacing the "industry segment" approach with
the "management" approach. The management approach designated the internal
reporting that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
Company operates two reportable segments: Toymax Brands (primarily consists of
Toymax NY and Toymax HK) and Toymax Enterprises (which consists of Go Fly A
Kite, Candy Planet and Monogram International).
7
<PAGE>
The following tables present summarized information about the Company's
operations by different reportable segments (net of consolidating eliminations)
as of and for the three and six months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------
TOYMAX
TOYMAX BRANDS ENTERPRISES CONSOLIDATED
------------- ----------- ------------
<S> <C> <C> <C>
Revenues-Net sales................................... $37,361,542 $10,067,247 $ 47,428,789
Income (loss) before income tax benefit.............. 6,073,717 (282,109) 5,791,608
Identifiable assets.................................. 82,118,415 23,238,673 105,357,088
Interest income...................................... 105,616 1,104 106,720
Interest expense..................................... (40,781) (78,116) (118,897)
Depreciation and amortization........................ 437,465 656,711 1,094,176
Capital expenditures................................. 1,379,475 235,749 1,615,224
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------
TOYMAX
TOYMAX BRANDS ENTERPRISES CONSOLIDATED
------------- ----------- ------------
<S> <C> <C> <C>
Revenues-Net sales................................... $41,128,002 $ -- $ 41,128,002
Income before income tax benefit..................... 9,688,174 -- 9,688,174
Identifiable assets.................................. 76,624,946 -- 76,624,946
Interest income...................................... 290,847 -- 290,847
Interest expense..................................... (3,167) -- (3,167)
Depreciation and amortization........................ 249,772 -- 249,772
Capital expenditures................................. 819,374 -- 819,374
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------
TOYMAX
TOYMAX BRANDS ENTERPRISES CONSOLIDATED
------------- ----------- ------------
<S> <C> <C> <C>
Revenues-Net sales................................... $46,754,208 $16,154,201 $ 62,908,409
Income before income tax benefit..................... 4,762,406 335,565 5,097,971
Identifiable assets.................................. 82,118,415 23,238,673 105,357,088
Interest income...................................... 255,755 1,958 257,713
Interest expense..................................... (63,788) (106,561) (170,349)
Depreciation and amortization........................ 786,008 904,133 1,690,141
Capital expenditures................................. 1,639,256 281,414 1,920,670
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------
TOYMAX
TOYMAX BRANDS ENTERPRISES CONSOLIDATED
------------- ----------- ------------
<S> <C> <C> <C>
Revenues-Net sales................................... $49,399,094 $ -- $ 49,399,094
Income before income tax benefit..................... 7,188,380 -- 7,188,380
Identifiable assets.................................. 76,624,946 -- 76,624,946
Interest income...................................... 578,925 -- 578,925
Interest expense..................................... (4,534) -- (4,534)
Depreciation and amortization........................ 443,030 -- 443,030
Capital expenditures................................. 1,087,908 -- 1,087,908
</TABLE>
NOTE 6--INVENTORIES
Inventories are stated at the lower of cost (first-in, first--out) or
market. Inventories consist principally of purchased finished goods.
8
<PAGE>
NOTE 7--INCOME TAXES
The Company provides for income taxes during interim periods based upon an
estimate of the effective annual tax rate.
NOTE 8--RECLASSIFICATIONS
Certain September 30, 1998 amounts were reclassified to conform to the
September 30, 1999 presentation.
NOTE 9--ACQUISITION OF ASSETS
On May 27, 1999, newly formed subsidiaries of Toymax International, Inc.
acquired substantially all of the assets and certain liabilities of Burkett
Enterprises, Inc. f/k/a Monogram International, Inc. ("Monogram") and Monogram
Products, (H.K.) Limited, a wholly-owned subsidiary of Monogram, pursuant to an
asset purchase agreement dated April 19, 1999. Monogram is a leading designer,
manufacturer and marketer of gift, novelty and souvenir products sold globally.
The consideration for the acquisition was $6.0 million (the "Initial Payment")
paid in cash and plus up to $9.0 million payable after the closing if certain
contingencies occur. In addition, Monogram's short-term indebtedness consisting
of two promissory notes, totaling $3.8 million as of the date of acquisition,
was assumed. The funds required at closing came out of the working capital of
the Company.
On a pro forma basis, reflecting the acquisition of Go Fly A Kite, Inc., in
December 1998, and Monogram International, Inc. and Subsidiary as if they had
taken place at the beginning of the period and after giving effect to
adjustments recording the acquisitions, unaudited pro-forma results for the six
months ended September 30, 1999 and 1998 are presented as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales................................................... $65,380,705 $65,458,584
Net income.................................................. $ 3,404,460 $ 4,876,788
Basic earnings per share.................................... $ 0.32 $ 0.46
Diluted earnings per share.................................. $ 0.32 $ 0.46
</TABLE>
9
<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:
Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or the industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, without limitation, changing
customer demand for the Company's products; the Company's dependence on the
introduction of new products and the consumer acceptance of such new products;
the loss of existing licenses or the inability to obtain new licenses; the
failure to complete the pending acquisition; significant changes in buying
patterns of major customers; other risks and uncertainties as may be disclosed
from time to time in the Company's public announcements. The risks highlighted
herein should not be assumed to be the only things that could affect the future
performance of the Company. Additional explanation of these factors and other
factors affecting the Company's performance are set forth from time to time in
the Company's filings with the U.S. Securities and Exchange Commission.
RESULTS OF OPERATIONS
FOR PURPOSES OF THE FISCAL YEAR COMPARISONS WHICH FOLLOW, FIGURES REFERRING
TO THE FINANCIAL PERFORMANCE OF TOYMAX NY AND TOYMAX HK ARE REFERRED TO AS
TOYMAX BRANDS AND THOSE REFERRING TO THE PERFORMANCE OF GO FLY A KITE, CANDY
PLANET AND MONOGRAM INTERNATIONAL ARE REFERRED TO AS TOYMAX ENTERPRISES.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales for the quarter ended September 30, 1999 increased to
$47.4 million from $41.1 million for the quarter ended September 30, 1998, an
increase of $6.3 million, or 15.3%.
Net sales of Toymax Brands for the quarter ended September 30, 1999
decreased 9.2% to $37.3 million, or 78.8% of total net sales from
$41.1 million, or 100% of total net sales for the quarter ended September 30,
1998. The decrease in net sales was primarily due to a combination of the
successful introduction of new product lines, including the Arcadia-TM-
Electronic Skeet Shoot gaming system, launched in the latter part of the of the
second quarter in fiscal 1999, the WWF Slam Cam-TM- digital camera and a line of
electronic learning aids, which launched in the second quarter of this year, and
the continued strong performance of the Mighty Mo's-TM- vehicle line offset by a
decrease in sales of the Company's Laser Challenge gaming system and in the line
of Spice Girls-TM- products.
Net sales of Toymax Enterprises were $10.1 million in the quarter ended
September 30, 1999 and accounted for 21.2% of total net sales as the result of
the formation of Candy Planet and the acquisition of Go Fly A Kite during the
latter part of fiscal 1999 and the acquisition of Monogram International in the
first quarter of fiscal 2000.
GROSS PROFIT. Gross Profit for the quarter ended September 30, 1999,
increased by $2.0 million, or 12.2%, to $18.5 million, or 39.0% of net sales,
from $16.5 million, or 40.1% of net sales, for the quarter ended September 30,
1998.
The gross profit of Toymax Brands decreased by $1.9 million, or 11.7%, to
$14.6 million, or 39.0% of net sales, from $16.5 million, or 40.1% of net sales
for the quarter ended September 30, 1998. The decrease in gross profit as a
percentage of net sales was primarily attributable to lower sales promotion
costs more
10
<PAGE>
than offset by the change in product mix, particularly the reduction in sales of
Spice Girls' merchandise, which carried higher gross margins, as well as
increased freight charges. The gross profit of Toymax Enterprises was
$3.9 million, or 39.1% of net sales in the quarter ended September 30, 1999.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the quarter ended September 30, 1999 increased by $5.4 million, or 75.1%, to
$12.5 million, or 26.3% of net sales, from $7.1 million, or 17.4% of net sales,
for the quarter ended September 30, 1998.
Selling and administrative expenses of Toymax Brands for the quarter ended
September 30, 1999 increased by $1.2 million, or 16.8%, to $8.3 million, or
22.3% of net sales, from $7.1 million, or 17.4% of net sales for the quarter
ended September 30, 1998. The increase in dollars and as a percentage of net
sales was primarily due to higher advertising costs and increased royalties due
to increases in the sales of licensed products. Selling and administrative
expenses of Toymax Enterprises was $4.2 million or 41.3% of net sales reflecting
the higher expense levels relating to the group and sales and product
development costs in the Candy Planet division relating to product to be sold
beginning in the next quarter.
OPERATING INCOME. As a result of the foregoing, the operating income for
the quarter ended September 30, 1999 decreased by $3.3 million, or 35.9%, to
$6.0 million from $9.3 million for the quarter ended September 30, 1998.
Operating income for Toymax Brands decreased by $3.1 million, or 33.5%, to
$6.2 million from $9.3 million for the quarter ended September 30, 1998. The
operating loss for Toymax Enterprises was $0.2 million for the quarter ended
September 30, 1999.
INTEREST INCOME (EXPENSE), NET. Net interest expense for the quarter ended
September 30, 1999 was $0.01 million, compared to net interest income of
$0.3 million for the quarter ended September 30, 1998, a decrease of
$0.3 million, or 104.2%. The increase in net interest expense was primarily due
to the Company's acquisitions being paid out of working capital as well as
through funds available under the Company's credit facility. In addition, the
Company assumed some short-term indebtedness in conjunction with the acquisition
of Monogram International.
OTHER INCOME (EXPENSE), NET. Net other expense for the quarter ended
September 30, 1999 was $0.2 million, compared to net other income of
$0.05 million for the quarter ended September 30, 1998, an increase in expense
of $0.2 million, or 454.1%. The increase was primarily due to a vendor
settlement in the second quarter of the last fiscal year.
INCOME (LOSS) BEFORE TAXES. Income before taxes for the quarter ending
September 30, 1999 decreased by $3.9 million, or 40.2%, to $5.8 million,
compared to $9.7 million for the quarter ended September 30, 1998. Income before
taxes for Toymax Brands decreased by $3.6 million, or 37.3%, to $6.1 million,
compared to $9.7 million for the quarter ended September 30, 1998. Toymax
Enterprises posted a loss before taxes of $0.3 million for the quarter ended
September 30, 1999.
PROVISION FOR INCOME TAXES. The effective tax rate for the quarter ending
September 30, 1999 decreased to 28.2% from 31.2% for the quarter ended
September 30, 1998.
NET INCOME. As a result of the foregoing, net income for the quarter ended
September 30, 1999 decreased to $4.2 million ($0.38 per diluted share) from
$6.7 million ($0.63 per diluted share) for the quarter ended September 30, 1998,
a decrease of $2.5 million or 37.6%.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE SIX MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales in the six months ended September 30, 1999 increased
to $62.9 million from $49.4 million in the six months ended September 30, 1998,
an increase of $13.5 million, or 27.3%.
11
<PAGE>
Net sales of Toymax Brands for the six months ended September 30, 1999
decreased 5.4% to $46.8 million, or 74.3% of total net sales from
$49.4 million, or 100% of total net sales for the six months ended
September 30, 1998. The decrease in net sales was primarily due to a combination
of the successful introduction of new product lines, including the Arcadia-TM-
Electronic Skeet Shoot gaming system, launched in the latter part of the of the
second quarter in fiscal 1999, the WWF Slam Cam-TM- digital camera and a line of
electronic learning aids, which launched in the second quarter of this year, and
the continued strong performance of the Mighty Mo's-TM- vehicle line offset by a
decrease in sales of the Company's Laser Challenge-TM- gaming system and in the
line of Spice Girls-TM- products.
Net sales of Toymax Enterprises were $16.1 million for the six months ended
September 30, 1999 and accounted for 25.7% of total net sales as the result of
the formation of Candy Planet and the acquisition of Go Fly A Kite during the
latter part of fiscal 1999 and the acquisition of Monogram International in the
first quarter of fiscal 2000.
GROSS PROFIT. Gross Profit for the six months ended September 30, 1999,
increased by $5.5 million, or 29.6%, to $24.1 million, or 38.4% of net sales,
from $18.6 million, or 37.7% of net sales, for the six months ended
September 30, 1998.
The gross profit of Toymax Brands decreased by $0.8 million, or 4.1%, to
$17.8 million, or 38.2% of net sales, from $18.6 million, or 37.7% of net sales
for the six months ended September 30, 1998. The increase in gross profit as a
percentage of net sales was primarily attributable to lower sales promotion
costs partially offset by the change in product mix, particularly the reduction
in sales of the Company's Laser Challenge-TM- gaming system and Spice Girls'
merchandise, which carried higher gross margins as well as higher freight costs.
The gross profit of Toymax Enterprises was $6.3 million, or 38.9% of net sales
in the six months ended September 30, 1999.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the six months ended September 30, 1999 increased by $6.9 million, or 57.2%,
to $18.8 million, or 30.0% of net sales, from $12.0 million, or 24.3% of net
sales, for the six months ended September 30, 1998.
Selling and administrative expenses of Toymax Brands for the six months
ended September 30, 1999 increased by $1.1 million, or 8.7%, to $13.0 million,
or 27.9% of net sales, from $12.0 million, or 24.3% of net sales for the six
months ended September 30, 1998. The increase in dollars and as a percentage of
net sales was primarily due to increased royalties resulting from an increase in
the sales of licensed products. Selling and administrative expenses of Toymax
Enterprises was $5.8 million or 36.0% of net sales reflecting the higher expense
levels relating to the group and sales and product development costs in the
Candy Planet division relating to product to be sold beginning in the next
quarter.
OPERATING INCOME. As a result of the foregoing, the operating income for
the six months ended September 30, 1999 decreased by $1.3 million, or 20.3%, to
$5.3 million from $6.6 million for the six months ended September 30, 1998.
Operating income for Toymax Brands decreased by $1.8 million, or 27.3%, to
$4.8 million from $6.6 million for the six months ended September 30, 1998.
Operating income for Toymax Enterprises was $0.5 million for the six months
ended September 30, 1999.
INTEREST INCOME, NET. Net interest income for the six months ended
September 30, 1999 was $0.09 million, compared to $0.6 million for the six
months ended September 30, 1998, a decrease of $0.5 million, or 84.8%. The
decrease in net interest income was primarily due to the Company's acquisitions
being paid out of working capital as well as through funds available under the
Company's credit facility. In addition, the Company assumed some short-term
indebtedness in conjunction with the acquisition of Monogram International.
OTHER INCOME (EXPENSE), NET. Net other expense for the six months ended
September 30, 1999 was $0.3 million, compared to $0.03 for the six months ended
September 30, 1998, an increase of $0.3 million,
12
<PAGE>
or 918.4%. The increase was primarily due to a vendor settlement in the second
quarter of the last fiscal year.
INCOME BEFORE TAXES. Income before taxes for the six months ending
September 30, 1999 decreased by $2.1 million, or 29.1%, to $5.1 million,
compared to $7.2 million for the six months ended September 30, 1998. Income
before taxes for Toymax Brands decreased by $2.4 million, or 33.7%, to
$4.8 million, compared to $7.2 million for the six months ended September 30,
1998. Toymax Enterprises posted income before taxes of $0.3 million for the six
months ended September 30, 1998.
PROVISION FOR INCOME TAXES. The effective tax rate for the six months
ending September 30, 1999 increased to 25.5% from 24.9% for the six months ended
September 30, 1998.
NET INCOME. As a result of the foregoing, net income for the six months
ended September 30, 1999 decreased to $3.8 million ($0.36 per diluted share)
from $5.4 million ($0.51 per diluted share) for the six months ended
September 30, 1998, a decrease of $1.6 million or 29.6%.
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, 1999 cash and cash equivalents decreased
$2.8 million to $15.7 million.
The Company's operating activities used net cash of approximately
$9.7 million, which was primarily due to net income of $3.8 million and
depreciation and amortization of $1.7 million offset by a net increase in
operating assets and liabilities of $15.0 million. This net increase in
operating assets and liabilities includes a $23.3 million increase in Due from
Factor and accounts receivable, a $6.0 million increase in inventories and a
$3.2 million increase in prepaid and other assets partially offset by an
$11.7 million increase in due to related parties and a $4.6 million increase in
accounts payable and accruals.
Investing activities used $8.8 million in net cash including $6.9 million
related to the acquisition of Monogram International, Inc. Capital expenditures,
principally for the purchase of tooling for new products and equipment, totaled
$1.9 million for the six months ended September 30, 1999. Financing activities
provided $15.8 million in net cash primarily due to an increase in the Company's
bank credit facility to fund operations.
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 banking arrangements. The Company expects to finance its longer-term
growth primarily with cash flow from operations and with externally generated
funds which 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.
ACQUISITIONS, SUBSEQUENT EVENTS AND NONRECURRING ITEMS
On May 27, 1999, newly formed subsidiaries of Toymax International, Inc.
acquired substantially all of the assets and certain liabilities of Burkett
Enterprises, Inc. f/k/a Monogram International, Inc. ("Monogram") and Monogram
Products, (H.K.) Limited, a wholly-owned subsidiary of Monogram, pursuant to an
asset purchase agreement dated April 19, 1999. Monogram is a leading designer,
manufacturer and marketer of gift, novelty and souvenir products sold globally.
The consideration for the acquisition was $6.0 million paid in cash and plus up
to $9.0 million payable after the closing if certain contingencies occur.
13
<PAGE>
In addition, Monogram's short term indebtedness consisting of two promissory
notes, totaling $3.8 million as of the date of acquisition, was assumed. The
funds required at closing came out of the working capital of the Company.
In October 1999, the Company agreed to form Yaboom Ltd., a joint venture
with Street Life Ltd., a privately held entertainment and leisure products
company. Yaboom will develop, manufacture and market innovative high-tech
consumer products, which will incorporate music and other intellectual property
rights from popular recording artists. Under the terms of the joint venture, the
Company, through a wholly-owned Hong Kong subsidiary, and Street Life will each
own fifty percent of the newly formed company. The Company will account for the
joint venture using the equity method.
On November 9, 1999, the Company announced that it had signed a definitive
agreement to acquire the Funnoodle product line from KidPower, Inc. Funnoodle is
a leader in the pool and backyard water recreational products categories. The
terms of the agreement have not been disclosed and the acquisition is subject to
certain conditions of closing including the Hart-Scott-Rodino clearance.
YEAR 2000 COMPLIANCE
The Company has established a task force, which has evaluated and is in the
process of updating its internal Management Information Systems to ensure that
it will have the capability to manage and manipulate data in the year 2000 and
beyond. The Company's information technology ("IT") systems have been
substantially updated to be year 2000 compliant and a final Y2K compliance test
of all significant IT systems is expected to be completed by November 30, 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 completed its assessment of the compliance of its non-IT
systems, which include telephone and alarm systems, fax machines and other
miscellaneous systems. It is believed that the majority of the significant
systems are compliant and will not be affected by the year 2000 issue. The
Company anticipates that all other non-IT systems not as yet compliant will be
by December 31, 1999.
The Company has addressed year 2000 compliance with its major customers and
vendors and nothing has come to its attention that would lead the Company to
believe that those key business partners who are not as yet compliant will not
be prior to the year 2000. However, any significant disruption in the flow of
new products or 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 has
discussed and developed contingency plans with these and 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. The Company believes that
its reasonably likely worst case scenario would be to revert to manual order
processing for orders currently processed through EDI systems and the Company's
internal order processing systems.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks, which arise from
transactions entered into in the normal course of business. The Company's
primary exposures are changes in interest rates with respect to its debt and
foreign currency exchange fluctuations.
14
<PAGE>
INTEREST RATE RISK
The interest payable on the Company's revolving lines-of-credit are variable
based on LIBOR and/or the prime rate, and therefore, affected by changes in
market interest rates. The Company does not use derivative financial
instruments.
FOREIGN CURRENCY RISK
While the Company's product purchases are transacted in United States
dollars, most transactions among the suppliers and subcontractors of Jauntiway
Investments Limited, an OEM toy manufacturer that has been the Company's most
important manufacturer since inception, are effected in Hong Kong dollars.
Accordingly, fluctuations in Hong Kong monetary rates may have an impact on the
Company's cost of goods. However, since 1983, the value of the Hong Kong dollar
has been tied to the value of the United States dollar, eliminating fluctuations
between the two currencies. Despite the announcements by the Hong Kong
Government that it is determined to maintain such a fixed exchange rate, there
can be no assurance that the Hong Kong dollar will continue to be tied to the
United States dollar in the near future or longer term. Furthermore,
appreciation of Chinese currency values relative to the Hong Kong dollar could
increase the cost to the Company of the products manufactured in the People's
Republic of China, and thereby have a negative impact on the Company.
15
<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/A for the year ended March 31, 1999 for descriptions
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/A for the year ended March 31, 1999.
Under the Company's stock repurchase program approved by the Board of
Directors in May 1999, as of November 9, 1999, a total of 35,000 shares of
Toymax common stock have been repurchased for a total purchase price of
$177,889.
As of August 25, 1999, the underwriters provided notice of the exercise of
106,105 warrants, issued in conjunction with the Company's initial public
offering, on a cash-less basis. The exercise price was $10.20 per share and
resulted in the issuance of an additional 28,108 shares of the Company's common
stock.
On August 30, 1999, the Company issued 10,000 warrants at an exercise price
of $5.50 per warrant in conjunction with the execution of a license agreement.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 5, 1999, the Company held its Annual Meeting of Stockholders at
which Harvey Goldberg was re-elected to the Board of Directors as a Class 1
Director. In addition, the Company's shareholders ratified an amendment to the
Company's stock option plan and BDO Seidman, LLP was re-appointed as the
Company's auditors. The number of shares of Common Stock represented at the
Meeting either in person or by proxy, was 7,609,112 shares (71.8% of the
outstanding shares of Common Stock). The following sets forth the votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes, as to each of the matters presented at the meeting:
1. Proposal 1--Election of Director
The following person(s) were elected as directors as follows:
<TABLE>
<CAPTION>
NAME CLASS FOR WITHHELD
- ---- -------- --------- --------
<S> <C> <C> <C>
Harvey Goldberg................................... 1 7,548,572 60,540
</TABLE>
16
<PAGE>
2. Proposal 2--Ratification of the Amendment to the Company's Stock Option Plan
to increase the number of shares of Common Stock of the Company, which may
be issued under the 1997 Stock Option Plan.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
- --------------------- -------- --------
<S> <C> <C>
7,434,028...... 171,234 3,800
</TABLE>
3. Proposal 3--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, 2000.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
- --------------------- -------- --------
<S> <C> <C>
7,583,797...... 21,400 3,915
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
A Current Report on Form 8-K/A dated August 10, 1999 was filed by the
Company announcing the acquisition of substantially all the assets and
certain liabilities of Burkett Enterprises, Inc. f/k/ a Monogram
International, Inc. and Monogram Products, (H.K.) Limited and includes
financial statements, pro forma disclosures and exhibits.
17
<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.
<TABLE>
<S> <C> <C>
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)
</TABLE>
Date: November 12, 1999
18
<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-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,713
<SECURITIES> 0
<RECEIVABLES> 11,045
<ALLOWANCES> 315
<INVENTORY> 15,552
<CURRENT-ASSETS> 79,391
<PP&E> 13,659
<DEPRECIATION> 8,244
<TOTAL-ASSETS> 105,357
<CURRENT-LIABILITIES> 57,606
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 46,895
<TOTAL-LIABILITY-AND-EQUITY> 105,357
<SALES> 62,908
<TOTAL-REVENUES> 62,908
<CGS> 38,770
<TOTAL-COSTS> 38,770
<OTHER-EXPENSES> 283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 5,098
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 3,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,798
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
