<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 27, 1999
TOYMAX INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE
----------------------------------------------
(State or other jurisdiction of incorporation)
0-23215 11-3391335
(Commission File Number) (I.R.S. Employer Identification No.)
125 E. BETHPAGE ROAD, PLAINVIEW, NEW YORK 11803
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 391-9898
NOT APPLICABLE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 27, 1999, Monogram International, Inc. f/k/a Monogram
Acquisition, Inc. ("Monogram") a wholly-owned subsidiary of Toymax
International, Inc. ("Toymax"), and other subsidiaries of Toymax (Monogram
Products (H.K.) Limited f/k/a Gallion Development Limited ("Monogram HK"), a
wholly-owned subsidiary of Toymax, and Monogram Acquisition I, LLC ("LLC,"
together with Monogram and Monogram HK, the "Buyers"), a wholly-owned subsidiary
of Monogram HK) acquired substantially all of the assets and certain liabilities
of Burkett Enterprises, Inc. f/k/a Monogram International, Inc. ("Monogram
Enterprises") and Monogram Products, (H.K.) Limited ("Products," together with
Monogram Enterprises, the "Sellers"), a wholly-owned subsidiary of Monogram
Enterprises, pursuant to an asset purchase agreement (the "Purchase Agreement"),
dated April 19, 1999.
The Sellers are leading designers, manufacturers and marketers of gift,
novelty and souvenir products sold globally. The consideration for the
acquisition was $6,000,000 paid in cash to the Sellers (the "Initial Payment")
plus up to $9,000,000 payable to the Sellers after the closing if certain
contingencies occur.
Pursuant to the terms and provisions of the Purchase Agreement, among
other things, the Buyers agreed to assume certain liabilities of Monogram
Enterprises. In furtherance thereof, Monogram and LLC agreed to jointly and
severally assume Monogram Enterprises' short term indebtedness to SunTrust Bank
Tampa Bay ("SunTrust") consisting of two (2) promissory notes aggregating
$3,839,122.32 as of the date of acquisition. The obligations of Monogram and LLC
with respect to the debts are secured by a guaranty executed and delivered by
Toymax.
A portion of the Initial Payment was an advance of funds from a
subsidiary of Toymax and the remainder of the funds required came out of the
working capital of another subsidiary of Toymax.
In connection with the acquisition, Monogram entered into employment
agreements with Charles Burkett, former President of Monogram Enterprises, and
several other key executives of Monogram Enterprises. In addition, substantially
all of the former employees of Monogram Enterprises were hired by Monogram.
Toymax incorporates by reference herein the matters announced in
Toymax's press release dated May 27, 1999 (such press release is filed as
Exhibit 99.1).
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Unaudited Pro-forma Condensed Combined Financial Information.
(b) Financial Statements of Business Acquired.
(c) Exhibits.
2.1 Asset Purchase Agreement, dated April 19, 1999, among
Toymax International, Inc., Monogram International, Inc. f/k/a Monogram
Acquisition, Inc., Monogram Products (H.K.) Limited f/k/a Gallion Development
Limited, Monogram Acquisition I, LLC, Burkett Enterprises, Inc. f/k/a Monogram
International, Inc., Monogram Products (H.K.) Limited, and Roberta M. Burkett,
Charles D. Burkett, Jr., Stephen R. Burkett, and Bonnie L. Beetar.*
10.1 Employment Agreement, made as of May 27, 1999, between
Monogram Acquisition, Inc. and Charles Burkett.*
23.1 Consent of Independent Accountants.
99.1 Press release of the Company dated May 27, 1999.*
- --------------
* Incorporated by reference to exhibits filed with the
Registrant's Form 8-K dated June 11, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Toymax International, Inc.
--------------------------
(Registrant)
Date: August 10, 1999
By: /s/
----------------------------
William A. Johnson, Jr.
Chief Financial Officer and
Treasurer
<PAGE>
UNAUDITED PRO-FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro-forma condensed combined financial
information is based on the historical consolidated financial statements of
Toymax International, Inc. and Subsidiaries ("Toymax" or the "Company") and
Monogram International, Inc. and Subsidiary ("Monogram") and has been prepared
to illustrate the effects of the acquisition as though it had occurred as of the
beginning of the period (April 1, 1998) presented for the pro-forma condensed
combined statement of operations and as if it had occurred on March 31, 1999 for
the pro-forma condensed combined balance sheet. The unaudited pro-forma
condensed combined statement includes Monogram's Balance Sheet as of December
31, 1998 and results of operations, for the year ended December 31, 1998.
The pro-forma adjustments include, in the opinion of management, all
adjustments necessary to give pro-forma effect to the acquisition as though such
transactions had occurred as of the beginning of the period (April 1, 1998)
presented for the pro-forma condensed combined statement of operations and as if
they had occurred on March 31, 1999 for the pro-forma condensed combined balance
sheet.
The unaudited pro-forma condensed combined financial information is
not necessarily indicative of how Toymax's balance sheet and results of
operations would have been presented had this acquisition actually been
consummated at the assumed dates, nor is the presentation necessarily
indicative of Toymax's balance sheet and results of operations for any future
period. The unaudited pro-forma condensed combined financial information
should be read in conjunction with the historical consolidated financial
statements and related notes thereto included elsewhere herein.
The pro-forma adjustments are based upon available information. These
adjustments are directly attributable to the acquisition and are expected to
have a continuing impact on Toymax's business, results of operations and
financial position. The acquisition will be accounted for using the purchase
method of accounting, pursuant to which the estimated purchase cost of the
acquisition is allocated to the tangible and intangible assets and liabilities
acquired based upon their estimated fair values. The final allocation of the
purchase price will be based upon the fair values of the acquired assets and the
assumed liabilities on the date the transaction closed, May 27, 1999.
<PAGE>
Unaudited Pro-Forma Condensed Combined Balance Sheet
as of March 31, 1999
<TABLE>
<CAPTION>
MARCH 31, DECEMBER
1999 31, 1998
------------ ------------
PRO FORMA
PRO FORMA TOYMAX AND
TOYMAX MONOGRAM ADJUSTMENTS MONOGRAM
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets
CURRENT:
Cash $ 18,469,027 $ 14,181 $ (6,365,351) A $ 12,117,857
Due from Factor 11,899,865 -- -- 11,899,865
Accounts receivable, net 3,826,421 2,249,826 (75,000) A 6,001,247
Due from officers 3,702 42,832 -- 46,534
Inventories 7,520,655 2,411,231 (125,000) A 9,806,886
Prepaid expenses and other current assets 4,866,452 341,741 -- 5,208,193
Income tax refunds receivable 1,034,357 -- -- 1,034,357
Deferred income taxes 2,029,432 -- -- 2,029,432
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 49,649,911 5,059,811 (6,565,351) 48,144,371
PROPERTY AND EQUIPMENT, NET 3,376,797 2,303,760 (900,000) A 4,780,557
INVESTMENTS IN SUBSIDIARY -- -- -- --
DEFERRED INCOME TAXES 852,885 -- -- 852,885
GOODWILL 4,269,212 -- 3,128,777 A,B 7,397,989
INTANGIBLE ASSETS -- -- 2,370,000 A 2,370,000
OTHER ASSETS 4,434,970 623,677 (416,964) A 4,641,683
------------ ------------ ------------ ------------
$ 62,583,775 $ 7,987,248 $ (2,383,538) $ 68,187,485
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Bank credit facility $ -- $ 2,636,186 $ -- $ 2,636,186
Accounts payable 3,369,127 1,013,122 -- 4,382,249
Accrued expenses 5,258,036 225,864 560,000 A 6,043,900
Accrued rebates and allowances 6,641,677 -- -- 6,641,677
Due to affiliates 2,553,827 -- -- 2,553,827
Current portion of long-term obligations 37,199 341,100 -- 378,299
Income taxes payable 1,373,024 -- -- 1,373,024
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 19,232,890 4,216,272 560,000 24,009,162
------------ ------------ ------------ ------------
LONG-TERM OBLIGATIONS 31,577 1,128,938 (577,500) A 583,015
DEFERRED INCOME TAXES -0- -0- 276,000 B 276,000
------------ ------------ ------------ ------------
TOTAL LIABILITIES 19,264,467 5,345,210 258,500 24,868,177
------------ ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 - authorized, 5,000,000 shares;
none outstanding -- -- -- --
Common stock, par value $0.01 - authorized, 50,000,000 shares;
issued and outstanding, 10,605,000 shares 106,050 2,000 (2,000) A 106,050
Additional paid-in capital 23,059,355 383,000 (383,000) A 23,059,355
Retained earnings 20,169,055 2,257,038 (2,257,038) A 20,169,055
Accumulated other comprehensive income (15,152) -- -- (15,152)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 43,319,308 2,642,038 (2,642,038) 43,319,308
------------ ------------ ------------ ------------
$ 62,583,775 $ 7,987,248 $ (2,383,538) $ 68,187,485
============ ============ ============ ============
</TABLE>
See Accompanying note to Unaudited Pro-Forma
Condensed Combined Financial Information
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Years ended March 31, 1999
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------
MARCH 31, DECEMBER
1999 31, 1998
------------ ------------
TOYMAX AND
TOYMAX MONOGRAM ADJUSTMENTS MONOGRAM
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 107,178,304 $ 22,209,416 $ -- $ 129,387,720
COSTS AND EXPENSES:
Cost of goods sold 64,797,543 13,286,162 275,000 D 78,358,705
Selling and administrative 31,329,216 7,783,516 1,563,000 C 40,675,732
------------- ------------- ------------- -------------
Operating income 11,051,545 1,139,738 (1,838,000) 10,353,283
OTHER INCOME (EXPENSES):
Other income, net 409,135 12,205 -0- 421,340
Interest income 1,102,492 -- (318,000) E 784,492
Interest expense (116,526) (489,822) 57,000 F (549,348)
Finance charges (610,366) -- -0- (610,366)
------------- ------------- ------------- -------------
784,735 (477,617) (261,000) 46,118
Income before income tax expense 11,836,280 662,121 (2,099,000) 10,399,401
Provision for income taxes 3,219,865 -- (219,000) G 3,000,865
------------- ------------- ------------- -------------
Net income $ 8,616,415 $ 662,121 $ (1,880,000) $ 7,398,536
============= ============= ============= =============
Basic and diluted income per share $ 0.81 $ 0.70
============= =============
Shares used in computing basic and diluted
income per share 10,605,000 10,605,000
============= =============
</TABLE>
See Accompanying note to Unaudited Pro Forma
Condensed Combined Financial Information
<PAGE>
PRO-FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(A) Toymax acquired certain assets and liabilities of Monogram for a total
purchase price of $15 million of which $6 million was paid at closing and $9
million is contingent based upon the attainment of certain milestones.
Transaction costs of $925,351 have been incurred of which $365,351 was paid in
cash and $560,000 have been accrued. This transaction is to be accounted for
under the purchase method of accounting and has been allocated as of March 31,
1999, as follows:
<TABLE>
<S> <C>
Net book value of assets acquired................... $2,642,038
Net liabilities not acquired........................ 160,536
----------
Net .............................................. 2,802,574
----------
Fair value of adjustments:
Inventory..................................... ( 125,000)
Accounts receivable........................... ( 75,000)
Fixed assets.................................. ( 900,000)
Licenses...................................... 2,370,000
----------
Net fair value of assets acquired................... 4,072,574
Purchase price paid................................. 6,925,351
----------
Excess purchase price paid.......................... $2,852,777
----------
----------
</TABLE>
(B) Adjustments to record additional goodwill and a deferred tax liability of
$276,000 for the non taxable portion of the transaction combined with note (A),
goodwill totals $3,128,777.
(C) Adjustments to amortize the licenses over the life of the licenses, 21
months as of March 31, 1999, of $1,354,000 and goodwill amortization, over 15
years of $209,000.
(D) Adjustments to cost of goods sold represents the expensing of $275,000
relating to an inventory write-up at January 1, 1998.
(E) To eliminate interest income earned on funds used in the acquisition.
(F) To eliminate interest expenses on debt, which was not assumed.
(G) To record the tax effect of the above transactions as well as the tax effect
of the earnings at 37% of Monogram, as if Monogram was taxed as a "C"
Corporation instead of an "S" Corporation.
<PAGE>
MONOGRAM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998,
TOGETHER WITH REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
MONOGRAM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,181
Accounts receivable, less allowance for
doubtful accounts of $73,037 2,249,826
Inventories 2,411,231
Prepaid royalties 32,647
Prepaid expenses and other assets 309,094
Receivables from related parties 42,832
----------
Total current assets 5,059,811
PLANT AND EQUIPMENT, net 2,303,760
----------
OTHER ASSETS:
Cash surrender value of officers' life insurance,
net of related debt of $380,148
416,964
Other assets 206,713
----------
Total other assets 623,677
----------
$7,987,248
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,013,122
Accrued expenses 225,864
Line of credit borrowings 2,636,186
Current portion of long-term debt 341,100
----------
Total current liabilities 4,216,272
LONG-TERM DEBT, less current portion 1,128,938
----------
Total liabilities 5,345,210
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; 100,000 shares authorized,
20,000 shares issued and outstanding
2,000
Additional paid-in capital 383,000
Retained earnings 2,257,038
----------
Total stockholders' equity 2,642,038
----------
$7,987,248
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
<PAGE>
MONOGRAM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET SALES $ 22,209,416
COST OF SALES 13,286,162
------------
Gross profit 8,923,254
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,783,516
------------
1,139,738
OTHER (EXPENSE) INCOME:
Interest expense, net (489,822)
Royalty income 6,194
Other 6,011
------------
Total other expense (477,617)
------------
NET INCOME $ 662,121
============
EARNINGS PER COMMON SHARE - BASIC AND DILUTED:
Net income per share $ 33.11
============
Weighted average number of common and common
equivalent shares outstanding
$ 20,000
============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
<PAGE>
MONOGRAM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 20,000 $2,000 $383,000 $2,079,050 $2,464,050
Net income - - - 662,121 662,121
Dividends declared - - - (484,133) (484,133)
------ ------ -------- ---------- ----------
BALANCE, December 31, 1998 20,000 $2,000 $383,000 $2,257,038 $2,642,038
====== ====== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
<PAGE>
MONOGRAM INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 662,121
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 759,305
Decrease of minority interest (21,364)
Changes in assets and liabilities-
Decrease in accounts receivable and receivables
from related parties 1,804,029
Decrease in inventories 46,878
Decrease in prepaid royalties 185,692
Decrease in prepaid expenses and other assets 515,435
Increase in cash surrender value of officers' life insurance,
net of related debt (15,510)
Increase in other assets (1,607)
Decrease in accounts payable and accrued expenses (1,871,552)
-----------
Net cash provided by operating activities 2,063,427
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (367,106)
-----------
Net cash used in investing activities (367,106)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (1,033,366)
Proceeds from issuance of long-term debt 869,048
Principal payments on long-term debt (1,116,371)
Dividends paid (546,103)
-----------
Net cash used in financing activities (1,826,792)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (130,471)
CASH AND CASH EQUIVALENTS, beginning of year 144,652
-----------
CASH AND CASH EQUIVALENTS, end of year $ 14,181
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 511,233
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
<PAGE>
MONOGRAM INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Monogram International, Inc. (the Company) is a Largo, Florida, based business
organized to design, manufacture and market a variety of impulse gifts, toys and
souvenir products to independent gift shops and mass market retailers, as well
as the jobbers and wholesalers who service these markets. In addition, the
Company develops and manufactures custom promotional products for theme parks
and private label premium products for specialty advertisements and promotions
for corporate clients.
The major portion of the Company's operations is the design, development,
marketing and sale of licensed products under various licenses with the Walt
Disney Company, Warner Brothers and others.
PRINCIPLES OF CONSOLIDATION
On January 1, 1998, the Company paid approximately $21,000 to obtain a 100
percent ownership in Monogram Products (HK) Limited (Monogram Hong Kong), a
company incorporated in Hong Kong and subject to the laws and taxes of that
jurisdiction. Accordingly, the 1998 consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
START-UP COSTS
One-time, nonrecurring and incremental out-of-pocket expenditures, directly
related to and incurred during the start-up phase of entering the duty-free
market, were deferred and amortized over future periods. Upon conclusion of the
start-up period, which occurred in December 1996, these costs are being
amortized on a straight-line basis over three years. Recoverability of these
costs is assessed on an ongoing basis and write-downs to net realizable values
are recorded as necessary. At December 31, 1998, approximately $69,000 of
start-up costs, consisting primarily of amounts paid
<PAGE>
to consultants in connection with the acquisition of new license agreements,
were reported as other assets.
BUSINESS SEGMENTS
The Company is engaged in two primary business segments, novelty toy
distribution to independent retailers and theme parks from domestic operations
(Domestic) and direct shipment of impulse items from Hong Kong to mass market
retailers (Orient).
SIGNIFICANT CUSTOMERS
Sales to one customer accounted for approximately 18 percent of revenues for the
year ended December 31, 1998.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash
investments with original maturities of three months or less to be cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable consists of receivables from distributors, retailers and
mass merchandisers, primarily located in the United States.
INVENTORIES
Inventories are stated at the lower of cost or market with cost being determined
using the first-in, first-out method. If the cost of the inventories exceeds
their market value, provisions are made currently for the difference between the
cost and the market value.
PLANT AND EQUIPMENT
Plant and equipment are recorded at cost and depreciated over the estimated
useful lives of the respective assets, principally using the straight-line
method. Depreciation expense of approximately $550,000 and $210,000 is included
in cost of sales and selling, general and administrative expenses, respectively.
INCOME TAXES
The Company is organized as a small business corporation under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, the accompanying
consolidated statements of income and retained earnings do not include a
provision for income taxes. All income or loss is reported through the
stockholders' personal
<PAGE>
tax returns. The tax returns and the amount of taxable income are subject to
examination by federal and state taxing authorities. If such examinations result
in changes to taxable income, the tax liabilities of the stockholders could be
changed accordingly.
Monogram Hong Kong was incorporated in Hong Kong and is subject to the statutory
tax laws of that jurisdiction. As such, operations of Monogram Hong Kong are not
reported on the individual tax returns of the Company's stockholders. At
December 31, 1998, Monogram Hong Kong had net operating loss (NOL) carryforwards
of approximately $7,100. These NOL carryforwards expire through December 31,
1999. For financial reporting purposes, a valuation allowance for the full
amount of the Hong Kong carryforwards has been established due to the
uncertainty of their ultimate realization.
EARNINGS PER COMMON SHARE
For the year ended December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." Basic earnings per
common share is based on the weighted average number of common shares and the
diluted earnings per common share is based on the weighted average number of
common shares, plus the dilutive common equivalent shares outstanding during the
period. The Company did not have any dilutive securities outstanding during
1998. Therefore, there is no difference between the basic and dilutive weighted
average number of common shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions from
time to time that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
2. INVENTORIES:
Inventories were as follows as of December 31, 1998:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Raw materials $ 446,846
Work-in-process 89,034
Finished goods 1,875,351
----------
$2,411,231
==========
</TABLE>
<PAGE>
3. PLANT AND EQUIPMENT:
Plant and equipment consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
Estimated
Useful Lives Amount
---------------- ----------
(years)
<S> <C> <C>
Tools and dies 3 - 11 $2,908,982
Leasehold improvements 4 - 31 1/2 629,770
Machinery and equipment 5 - 7 662,113
Office furniture and equipment 5 - 7 622,777
Automobiles 5 12,794
Tools and dies in process 100,563
----------
4,936,999
Less- Accumulated depreciation (2,633,239)
----------
$2,303,760
==========
</TABLE>
At December 31, 1998, tools and dies, including tools and dies in process, of
approximately $2,591,000 are located in Hong Kong.
4. LONG-TERM DEBT:
Long-term debt at December 31, 1998, consisted of the following:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Note payable to a bank, bearing interest at prime plus 1%
(8.75% at December 31, 1998), principal payments of
$15,589 plus interest due monthly until July 7, 2003,
secured by the Company's accounts receivable and
finished goods inventory $ 841,800
Subordinated note payable to a related party,
bearing interest at prime plus 1.25% (9% at December 31,
1998), principal and interest due after 1999 577,500
Other long-term obligations, variable rates of interest ranging
from 9.5% to 10.5% at December 31, 1998, payments ranging
up to $1,146 with varying maturity dates through August 2000,
secured by various company fixed assets 50,738
----------
1,470,038
Less- Current portion (341,100)
$1,128,938
==========
</TABLE>
<PAGE>
Maturities of long-term debt are summarized as follows as of December 31, 1998:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------------
<S> <C>
1999 $ 341,100
2000 336,620
2001 319,216
2002 315,399
2003 157,703
----------
$1,470,038
==========
</TABLE>
5. LINE OF CREDIT BORROWINGS:
On June 6, 1998, the Company executed a revolving line of credit agreement (the
Line) with a bank, providing for total available borrowings of $4,000,000. The
Line is secured by and limits the availability of borrowings to a percentage of
eligible accounts receivable and finished goods inventory and is guaranteed by
the stockholders. As of December 31, 1998, the Company had approximately
$1,364,000 of additional borrowing capacity available on the Line. The Line is
due June 7, 1999, with interest accruing monthly at prime plus .50 percent (8.25
percent at December 31, 1998). Management intends to renew the Line on or before
its scheduled maturity date.
Pursuant to the terms of the Line and the mortgage note payable, the Company is
required to maintain compliance with certain financial and other covenants,
including minimum working capital, tangible net worth and current ratio. As of
December 31, 1998, the Company was in compliance with these covenants.
6. COMMON STOCK
During 1998, the Company declared and paid a dividend of $484,133 to its
stockholders of approximately $24.21 per share.
7. OPERATING LEASES:
The Company leases various office, warehouse, and manufacturing facilities,
equipment and vehicles from a related party and others under non-cancelable
operating leases that expire over the next eight years.
<PAGE>
Future minimum lease payments under non-cancelable operating leases with initial
or remaining lease terms in excess of one year as of December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ----------
<S> <C>
1999 $ 252,527
2000 248,483
2001 259,128
2002 264,738
2003 195,302
Thereafter 118,440
----------
$1,338,618
==========
</TABLE>
Rental expense related to these leases was approximately $366,000 for 1998.
8. RELATED-PARTY TRANSACTIONS:
The Company leased a portion of its office, manufacturing and warehouse
facilities under an agreement with a partnership in which the Company's
stockholders had a 50 percent interest. The agreement required the Company to
pay all costs related to the buildings, including real estate taxes, insurance,
utilities and repairs. In 1998, the Company's stockholders sold their interest
in the facilities to an unrelated party. Total rent expense to related parties
under this agreement before the sale was approximately $86,000 in 1998.
The Company leased the remaining office, manufacturing and warehouse facilities
under an agreement with a corporation, in which the Company's stockholders and
their family had 100 percent ownership interest. The lease required the Company
to pay all costs related to the building, exclusive of real estate taxes. In
1998, the Company's stockholders sold their interest in the facilities to an
unrelated party. Rent expense to related parties under this agreement before the
sale totaled approximately $40,000 in 1998.
A stockholder of the Company is also a stockholder in Point East Ltd. (Point
East), a Hong Kong company. During 1998, the Company purchased inventories and
tools and dies from Point East totaling approximately $2.5 million. In 1998,
Point East also received management fees from Monogram Hong Kong in the amount
of approximately $27,000.
The stockholders have loaned the Company $577,500 under the subordinated note
payable agreement, and have personally guaranteed borrowings totaling
approximately $4,106,000 as of December 31, 1998.
<PAGE>
9. DEFINED CONTRIBUTION PLAN:
The Company maintains a 401(k) retirement plan for its employees. The plan
allows qualified employees to defer a portion of their salary into the plan in
accordance with current Internal Revenue Service guidelines. The plan allows for
discretionary contribution to be made by the Company to the plan. In 1998, the
Company elected not to match the employee contributions to the 401(k) retirement
plan.
10. SIGNIFICANT LICENSE AGREEMENTS:
The Company has entered into various licensing agreements, with expiration dates
ranging from March 31, 1999, to December 31, 2000, requiring royalty payments
ranging from 3 percent to 18 percent of specified product sales. Royalty expense
under those licensing agreements totaled approximately $1,724,000 in 1998.
Approximately 58 percent of sales were pursuant to the various license
agreements in 1998.
Future minimum guaranteed royalty payments under these agreements are
approximately $851,000 as of December 31, 1998.
11. SEGMENT REPORTING:
For the year ended December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 superseded Financial Accounting Standards Board Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that business enterprises report information
about operating segments in annual financial statements. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position, but did affect the disclosure of
segment information.
The Company is organized into two primary business segments: (a) Domestic and
(b) Orient. Performance is evaluated and resources allocated based on specific
segment requirements and measurable factors. Segment assets are those assets
that are specifically identified with the operations in each segment.
<PAGE>
Operational results and other financial data for the two segments for the year
ended December 31, 1998, are presented below:
<TABLE>
<CAPTION>
Total
Year Ending December 31, Domestic Orient Segments
------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
Revenue from external customers $20,675,237 $1,534,179 $22,209,416
Depreciation and
amortization expense 758,910 395 759,305
Segment profit 662,121 12,345 674,466
Segment assets 7,874,742 174,320 8,049,062
Additions to long-lived assets 367,106 - 367,106
Interest expense 508,453 - 508,453
</TABLE>
Reconciliation of reportable segments to consolidated total:
<TABLE>
<S> <C>
Profit
- -------------------------------------
Total segment profit $ 674,466
Elimination of intersegment profits (12,345)
-----------
Consolidated profit $ 662,121
===========
Assets
- -------------------------------------
Total segment assets $ 8,049,062
Elimination of intersegment assets (61,814)
-----------
Consolidated assets $ 7,987,248
===========
</TABLE>
12. SUBSEQUENT EVENTS:
On May 27, 1999, the Company entered into an asset sale agreement with Toymax
International, Inc. to sell certain assets of the Company. The sales price was
approximately $15,000,000 and was paid with approximately $6,000,000 in cash and
approximately $9,000,000 in notes.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Monogram International, Inc.:
We have audited the accompanying consolidated balance sheet of Monogram
International, Inc. (a Florida corporation) and subsidiary as of December 31,
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company and its subsidiary
as of December 31, 1998, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Tampa, Florida,
February 12, 1999 (except with
respect to the matters discussed
in Note 12, as to which the date is
May 27, 1999)
<PAGE>
Exhibit 23.1
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the inclusion
of our report dated February 12, 1999, except with respect to the matters
discussed in Note 12, as to which the date is May 27, 1999, in this Form 8-K/A.
/s/ Arthur Anderson LLP
Tampa, Florida,
August 9, 1999
