<PAGE>
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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) November 30, 1999
------------------------
TOYMAX INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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
(Address of principal 11803
executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code
(516) 391-9898
------------------------
NOT APPLICABLE
(Former name or former address, if changed since last report.)
- --------------------------------------------------------------------------------
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 30, 1999, Sun Master Investment Limited (the "Company"), a
company incorporated under the laws of the Hong Kong Special Administrative
Region of the People's Republic of China and a wholly-owned subsidiary of Toymax
International, Inc. ("Toymax"), acquired certain assets, consisting of the
Funnoodle product line of Kidpower, Inc. (the "Seller"), pursuant to an asset
purchase agreement (the "Purchase Agreement"), dated October 25, 1999, by and
among Toymax, Seller, James O'Rourke ("O'Rourke"), the majority shareholder of
Seller, and Funnoodle, Inc. ("Funnoodle"), a Delaware corporation and a
wholly-owned subsidiary of Toymax, which was assigned to the Company pursuant to
an assignment and assumption of contract (the "Assignment"), dated November 30,
1999, by and among the Company, Toymax, Funnoodle, Seller and O' Rourke.
The Funnoodle product line is a highly recognized consumer brand of pool and
backyard water recreational products and a leader in those categories. The full
product line includes the original Funnoodle-Registered Trademark- water toys,
floating pool mats, lawn sprinkler toys and exercise mats. The consideration for
the acquisition was $8,700,000 paid in cash to the Seller (the "Initial
Payment") not including the assumption of certain commitments of the Seller in
an amount of $500,000 plus up to $7,000,000 payable to the Seller after the
closing if certain contingencies occur. The funding for the acquisition was out
of the working capital of Toymax.
In connection with the acquisition, the Company entered into a management
services agreement (the "Management Agreement"), dated November 30, 1999, with
Seller. Pursuant to the Management Agreement, Seller will manage the day-to-day
operations with respect to the Funnoodle product line. The term of the
Management Services Agreement is through November 15, 2002 and the management
fee payable to Seller is seven percent (7%) of the cost of all finished goods
with respect to the Funnoodle product line.
The Company hereby incorporates by reference herein the matters announced in
the Company's press release dated December 3, 1999 (such press release is filed
as Exhibit 99.1 hereto).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
(b) Pro-forma financial information.
(c) Exhibits.
2.1 Asset Purchase Agreement dated October 25, 1999, among Toymax
International, Inc., Funnoodle, Inc., Kidpower, Inc., and James
O'Rourke.*
2.2 Assignment and Assumption of Contract dated November 30, 1999 among
Toymax International, Inc., Sun Master Investment Limited,
Funnoodle, Inc., Kidpower, Inc., and James O'Rourke.*
10.1 Management Agreement, made as of November 30, 1999, between Sun
Master Investment Limited and Kidpower, Inc.*
99.1 Press release of the Company dated December 3, 1999.*
- ------------------------
* Incorporated by reference to exhibits filed with the Registrant's Form 8-K
dated December 15, 1999.
2
<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 Funnoodle
Water Toys (a product line of Kidpower, Inc.), ("Funnoodle") and has been
prepared to illustrate the effects of the acquisition as though it had occurred
as of the beginning of the periods (April 1, 1998 for the year ended March 31,
1999 and April 1, 1999 for the six months ended September 30, 1999) presented
for the pro-forma condensed combined statement of operations and as if it had
occurred on September 30, 1999 for the pro-forma condensed combined balance
sheet. The unaudited pro-forma condensed combined statement includes Funnoodle's
Balance Sheet as of June 30, 1999 and results of operations, for the year ended
December 31, 1998, and for the six months ended June 30, 1999.
The unaudited pro-forma condensed combined statements of operations also
include the historical and pro-forma adjustments relating to the Company's
acquisition of Monogram International, Inc. and Subsidiary, ("Monogram") for the
year ended December 31, 1998 and for the two months ended May 27, 1999. This
acquisition closed on May 27, 1999.
The pro-forma adjustments include, in the opinion of management, all
adjustments necessary to give pro-forma effect to the acquisitions as though
such transactions had occurred as of the beginning of the period (April 1, 1998
for the year ended March 31, 1999 and April 1, 1999 for the six months ended
September 30, 1999) presented for the pro-forma condensed combined statement of
operations and as if the Funnoodle acquisition had occurred on September 30,
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 these acquisitions 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
of Toymax, previously filed on Form 10-K, of Monogram, previously filed on
Form 8-K, and Funnoodle included elsewhere herein.
The pro-forma adjustments are based upon available information. These
adjustments are directly attributable to the acquisitions and are expected to
have a continuing impact on Toymax's business, results of operations and
financial position. The acquisitions 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 of
Funnoodle on the date the transaction closed, November 30, 1999.
3
<PAGE>
UNAUDITED PRO-FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
TOYMAX FUNNOODLE
------------- ---------------------------
SEPTEMBER 30, PRO-FORMA
1999 JUNE 30, 1999 ADJUSTMENTS PRO-FORMA TOTAL
------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT:
Cash.................................... $ 15,712,561 $ -- $(8,806,312) A $ 6,906,249
Due from Factor......................... 30,364,302 -- -- 30,364,302
Accounts receivable, net................ 10,729,623 -- -- 10,729,623
Due from officers....................... 111,116 -- -- 111,116
Inventories............................. 15,552,059 215,380 -- 15,767,439
Prepaid expenses and other current
assets................................ 4,293,310 -- 150,000 A 4,443,310
Income tax refunds receivable........... 598,556 -- -- 598,556
Deferred income taxes................... 2,029,432 -- -- 2,029,432
------------ -------- ----------- ------------
Total current assets.................. 79,390,959 215,380 (8,656,312) 70,950,027
PROPERTY AND EQUIPMENT, NET............... 5,414,594 70,650 -- 5,485,244
DEFERRED INCOME TAXES..................... 852,885 -- -- 852,885
GOODWILL.................................. 12,295,475 -- 4,020,651 A 16,316,126
INTANGIBLE ASSETS......................... -- -- 4,587,500 A 4,587,500
OTHER ASSETS.............................. 7,403,175 -- -- 7,403,175
------------ -------- ----------- ------------
$105,357,088 $286,030 $ (48,161) $105,594,957
============ ======== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Bank credit facility.................... $ 19,498,425 $ -- $ -- $ 19,498,425
Accounts payable........................ 6,761,237 -- -- 6,761,237
Accrued expenses........................ 8,000,347 -- 237,869 A 8,238,216
Accrued rebates and allowances.......... 6,723,749 -- -- 6,723,749
Due to affiliates....................... 14,268,746 -- -- 14,268,746
Current portion of long-term
obligations........................... 24,611 -- -- 24,611
Income taxes payable.................... 2,328,423 -- -- 2,328,423
------------ -------- ----------- ------------
Total current liabilities............. 57,605,538 -- 237,869 57,843,407
------------ -------- ----------- ------------
LONG-TERM OBLIGATIONS..................... 750,518 -- -- 750,518
DEFERRED INCOME TAXES..................... -- -- -- --
------------ -------- ----------- ------------
Total liabilities..................... 58,356,056 -- 237,869 58,593,925
------------ -------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per
share, 5,000,000 shares authorized; none
outstanding............................. -- -- -- --
Common stock, par value $0.01 per share,
50,000,000 shares authorized;
10,633,108.............................. 106,331 -- -- 106,331
Additional paid-in capital................ 23,120,275 -- -- 23,120,275
Retained earnings......................... 23,967,467 -- -- 23,967,467
Treasury stock at cost; 35,000 shares..... (177,889) -- -- (177,889)
Accumulated other comprehensive income.... (15,152) -- -- (15,152)
------------ -------- ----------- ------------
TOTAL STOCKHOLDERS' EQUITY............ 47,001,032 -- -- 47,001,032
------------ -------- ----------- ------------
$105,357,088 $ -- $ 237,869 $105,594,957
============ ======== =========== ============
</TABLE>
See Accompanying notes to Unaudited Pro-Forma Condensed Combined Financial
Information.
4
<PAGE>
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
TOYMAX MONOGRAM FUNNOODLE
------------ ----------------------------------------------- --------------------------------
MARCH 31, DECEMBER 31, PROFORMA DECEMBER 31, PROFORMA
1999 1998 ADJUSTMENTS SUB-TOTAL 1998 ADJUSTMENTS
------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES...................... $107,178,304 $22,209,416 $ -- $129,387,720 $13,540,761 $ --
COSTS AND EXPENSES:
Cost of goods sold........... 64,797,543 13,286,162 275,000 H 78,358,705 9,236,834 --
Selling and administrative... 31,329,216 7,783,516 1,563,000 G 40,675,732 2,840,591 (305,875) B,C
------------ ----------- ----------- ------------ ----------- ---------
Operating income........... 11,051,545 1,139,738 (1,838,000) 10,353,283 1,463,336 305,875
OTHER INCOME (EXPENSES):
Other income, net............ 409,135 12,205 -- 421,340 -- --
Interest income.............. 1,102,492 -- (318,000) D 784,492 -- (440,000) D
Interest expense............. (116,526) (489,822) 57,000 E (549,348) (56,629) 56,629 E
Finance charges.............. (610,366) -- -- (610,366) -- --
------------ ----------- ----------- ------------ ----------- ---------
784,735 (477,617) (261,000) 46,118 (56,629) (383,371)
INCOME BEFORE INCOME TAX
EXPENSE...................... 11,836,280 662,121 (2,099,000) 10,399,401 1,406,707 (77,496)
PROVISION FOR INCOME TAXES..... 3,219,865 -- (219,000) I 3,000,865 589,000 F
------------ ----------- ----------- ------------ ----------- ---------
NET INCOME..................... $ 8,616,415 $ 662,121 $(1,880,000) $ 7,398,536 $ 1,406,707 $(666,496)
============ =========== =========== ============ =========== =========
BASIC AND DILUTED INCOME PER
SHARE........................ $ 0.81
============
SHARES USED IN COMPUTING BASIC
AND DILUTED INCOME PER
SHARE........................ 10,605,000
============
<CAPTION>
PROFORMA
TOTAL
------------
<S> <C>
NET SALES...................... $142,928,481
COSTS AND EXPENSES:
Cost of goods sold........... 87,595,539
Selling and administrative... 43,210,448
------------
Operating income........... 12,122,494
OTHER INCOME (EXPENSES):
Other income, net............ 421,340
Interest income.............. 344,492
Interest expense............. (549,348)
Finance charges.............. (610,366)
------------
(393,882)
INCOME BEFORE INCOME TAX
EXPENSE...................... 11,728,612
PROVISION FOR INCOME TAXES..... 3,589,865
------------
NET INCOME..................... $ 8,138,747
============
BASIC AND DILUTED INCOME PER
SHARE........................ $ 0.77
============
SHARES USED IN COMPUTING BASIC
AND DILUTED INCOME PER
SHARE........................ 10,605,000
============
</TABLE>
See Accompanying notes to Unaudited Pro-Forma Condensed Combined Financial
Information.
5
<PAGE>
UNAUDITED PRO-FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
MONOGRAM FUNNOODLE
TOYMAX --------------------------------------------- -------------
------------- TWO MONTHS SIX MONTHS
SEPTEMBER 30, ENDED PRO-FORMA ENDED
1999 MAY 27,1999 ADJUSTMENTS SUB-TOTAL JUNE 30, 1999
------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES.......................... $62,908,409 $2,472,296 $ -- $65,380,705 $15,037,050
COSTS AND EXPENSES:
Cost of goods sold............... 38,770,190 1,556,575 -- 40,326,765 9,384,334
Selling and administrative....... 18,845,026 1,095,513 260,500 G 20,201,039 1,730,668
----------- ---------- --------- ----------- -----------
Operating income............... 5,293,193 (179,792) (260,500) 4,852,901 3,922,048
OTHER INCOME (EXPENSES):
Other income, net................ 98,973 (2,258) -- 96,715 --
Interest income.................. 257,713 (3,065) (53,000) D 201,648 --
Interest expense................. (170,349) (53,260) 9,500 E (214,109) (11,957)
Finance charges.................. (381,559) (577) -- (382,136) --
----------- ---------- --------- ----------- -----------
(195,222) (59,160) (43,500) (297,882) (11,957)
INCOME BEFORE INCOME TAX EXPENSE... 5,097,971 (238,952) (304,000) 4,555,019 3,910,091
PROVISION FOR INCOME TAXES......... 1,299,559 -- (149,000) I 1,150,559 --
----------- ---------- --------- ----------- -----------
NET INCOME......................... $ 3,798,412 $ (238,952) $(155,000) $ 3,404,460 $ 3,910,091
=========== ========== ========= =========== ===========
BASIC INCOME PER SHARE............. $ 0.36
===========
Diluted income per share........... $ 0.36
===========
SHARES USED IN COMPUTING BASIC
INCOME PER SHARE................. 10,595,246
===========
SHARES USED IN COMPUTING DILUTED
INCOME PER SHARE................. 10,693,730
===========
<CAPTION>
FUNNOODLE
-----------------
PRO-FORMA PRO-FORMA
ADJUSTMENTS TOTAL
----------- -----------
<S> <C> <C> <C>
NET SALES.......................... $ -- $80,417,755
COSTS AND EXPENSES:
Cost of goods sold............... -- 49,711,099
Selling and administrative....... 284,138 B,C 22,215,845
----------- -----------
Operating income............... (284,138) 8,490,811
OTHER INCOME (EXPENSES):
Other income, net................ -- 96,715
Interest income.................. (220,000) D (18,352)
Interest expense................. 11,957 E (214,109)
Finance charges.................. -- (382,136)
----------- -----------
(208,043) (517,882)
INCOME BEFORE INCOME TAX EXPENSE... (492,181) 7,972,929
PROVISION FOR INCOME TAXES......... 1,313,000 F 2,463,559
----------- -----------
NET INCOME......................... $(1,805,181) $ 5,509,370
=========== ===========
BASIC INCOME PER SHARE............. $ 0.52
===========
Diluted income per share........... $ 0.52
===========
SHARES USED IN COMPUTING BASIC
INCOME PER SHARE................. 10,595,246
===========
SHARES USED IN COMPUTING DILUTED
INCOME PER SHARE................. 10,693,730
===========
</TABLE>
See Accompanying notes to Unaudited Pro-Forma Condensed Combined Financial
Information.
6
<PAGE>
NOTES TO UNAUDITED PRO-FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(A) Toymax acquired the product line of Funnoodle for a total purchase price
of $15.8 million of which approximately $8.8 million was paid at the closing and
$7 million is contingent, based upon the achievement of certain milestones.
Transaction costs of $237,869 have been accrued. This transaction is to be
accounted for under the purchase method of accounting and has been allocated as
of September 30, 1999 as follows:
<TABLE>
<S> <C>
Net book value of assets acquired........................... $ 286,030
----------
Fair value of adjustments:
Prepaid assets.......................................... 150,000
Intangibles............................................. 4,587,500
----------
Net fair value of assets acquired........................... 5,023,530
Purchase price paid......................................... 9,044,181
----------
Excess purchase price paid.................................. $4,020,651
==========
</TABLE>
(B) Adjustments to eliminate historical selling and administrative expenses
and to record estimated expenses based on a management fee of 7% of cost of
goods sold, an advertising costs of 2.5% of net sales, commissions of 2.5% of
net sales and compensation and other administrative expenses for a total of
$1,653,716 for the year ended December 31, 1998 and $1,573,806 for the six
months ended June 30, 1999.
(C) Adjustments to amortize intangibles over 3 and 10 years and goodwill
over 10 years of $881,000 for the year ended December 31, 1998 and $587,000 for
the six months ended June 30, 1999.
(D) To eliminate interest income earned on funds used in the acquisition.
(E) To eliminate interest expenses on debt, which was not assumed.
(F) To record the tax effect of the Funnoodle transactions as well as the
tax effect of the earnings at 37% of Funnoodle.
(G) 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, for the year ended December 31, 1998 and total
amortization of $260,500 for the two months ended May 27, 1999.
(H) Adjustment to cost of goods sold represents the expensing of $275,000
relating to an inventory write-up at January 1, 1998.
(I) To record the tax effect of the Monogram transactions as well as the tax
of earnings at 37% of Monogram, as if Monogram was taxed as a "C" Corporation,
instead of an "S" Corporation.
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Funnoodle Water Toys (A Product Line of Kidpower, Inc.)
Brentwood, Tennessee
We have audited the accompanying statement of net assets purchased of
Funnoodle Water Toys (A Product Line of Kidpower, Inc.) as of December 31, 1998,
and the related statement of operations for the year then ended. The statement
of net assets purchased and related statement of operations are the
responsibility of Kidpower, Inc.'s management. Our responsibility is to express
an opinion on the statement of net assets purchased and related statement of
operations 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 statement of net assets purchased and the
related statement of operations are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in these statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement of net assets purchased and
the related statement of operations. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying statements were prepared to present the net assets and
related operations of Funnoodle Water Toys (A Product Line of Kidpower, Inc.)
sold to Toymax International, Inc. pursuant to the Asset Purchase Agreement
described in Note 1, and is not intended to be a complete presentation of
Kidpower, Inc.'s assets and liabilities or results of operations.
In our opinion, such statement of net assets purchased and related statement
of operations present fairly, in all material respects, the net assets of
Funnoodle Water Toys (A Product Line of Kidpower, Inc.) as of December 31, 1998
and the results of operations for the period then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
December 17, 1999
8
<PAGE>
FUNNOODLE WATER TOYS (A PRODUCT LINE OF KIDPOWER, INC.)
STATEMENT OF NET ASSETS PURCHASED
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Inventories................................................. $342,740 $215,371
Machinery and equipment..................................... 61,732 153,925
-------- --------
Net assets purchased...................................... $404,472 $369,296
======== ========
</TABLE>
See notes to financial statements.
9
<PAGE>
FUNNOODLE WATER TOYS (A PRODUCT LINE OF KIDPOWER, INC.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales............................................. $13,540,761 $12,811,275 $15,205,399
Costs and expenses:
Costs of goods sold................................. 9,236,834 8,752,342 9,643,200
Selling, general and administrative expenses........ 2,840,591 2,520,258 2,702,888
Interest expense.................................... 56,629 51,743 19,482
----------- ----------- -----------
12,134,054 11,324,343 12,365,570
Excess of net sales over costs and expenses before
income taxes........................................ 1,406,707 1,486,932 2,839,829
Income taxes.......................................... -- -- 49,723
----------- ----------- -----------
Excess of net sales over costs and expenses........... $ 1,406,707 $ 1,486,932 $ 2,790,106
=========== =========== ===========
</TABLE>
See notes to financial statements.
10
<PAGE>
FUNNOODLE WATER TOYS (A PRODUCT LINE OF KIDPOWER, INC.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
1. BASIS OF PRESENTATION
On October 25, 1999 Kidpower, Inc. (the "Company") entered into an Asset
Purchase Agreement with Toymax International, Inc. ("Toymax") for the sale of
certain assets owned by the Company and used in connection with the Company's
Funnoodle product line (the "Business"). The Business includes the development,
manufacture and sale of Funnoodle Water Toys. Revenues of the Business are
derived from the sale of Funnoodle Water Toys to retailers in the United States.
On November 30, 1999, the Company sold to Toymax a significant portion of
the assets currently comprising the Company's operation of the Business. These
assets consist of inventories (including materials and finished products) and
machinery and equipment relating to the Business.
Throughout 1998, the Business' operations were conducted and accounted for
as a business line of the Company. Historically, financial statements were not
prepared for the Business. The financial statements presented herein have been
derived from the Company's historical accounting records.
The accompanying statements of operations include all revenues and costs
attributable to the Business, including: 1) Direct costs and expenses of the
Business, 2) costs for facilities, functions and services used by the Business
at sites shared with other Company operations, 3) allocations of costs for
certain centralized functions and services, and 4) allocations of interest
expense.
All of the allocations and estimates in these financial statements are based
on assumptions that the Company's management believes are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs that would have resulted if the Business had been
operated as a separate entity. Allocated costs include employee related
expenses, rent, supplies, utilities, telephone and other miscellaneous expenses.
These costs are allocated to the Business based on net sales of the Business
compared to the Company's total sales.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the accompanying financial statements.
These policies are in conformity with generally accepted accounting principles
and have been applied consistently.
MANAGEMENT ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures. Actual results could
differ from those estimates.
INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
MACHINERY AND EQUIPMENT. Machinery and equipment are stated at cost and are
depreciated using the straight-line method. Depreciation is provided for over
seven years. Whenever events or changes in circumstances indicate that the
carrying values of machinery and equipment may be impaired, the Company projects
the undiscounted cash flows expected to be generated by these assets. If the
projections indicate that the reported amounts are not expected to be recovered,
such amounts are reduced to their estimated fair value.
REVENUE RECOGNITION. Revenues are recognized upon shipments of product.
11
<PAGE>
FUNNOODLE WATER TOYS (A PRODUCT LINE OF KIDPOWER, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998 AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST EXPENSE. Interest expense was not historically directly charged by
the Company to its business units. Interest expense has been allocated to the
Business based on the amount actually incurred on inventory purchases. The
Company's management believes this allocation is reasonable, but is not
necessarily indicative of the interest cost that would have been incurred if the
Business had been operated as a separate entity.
INCOME TAXES. The taxable income of the Business was included in the
consolidated tax returns of the Company. Accordingly, separate income tax
returns were not prepared or filed for the Business. Federal income taxes are
the responsibility of the stockholders of the Company due to the fact that the
Company has elected S Corporation status for federal income tax purposes.
Therefore, only state income taxes are applicable to the Company.
3. INVENTORIES
Inventories as of December 31, 1998 and September 30, 1999 (unaudited)
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Finished goods...................................... $233,732 $212,935
Raw materials....................................... 133,034 2,436
-------- --------
Total inventories at cost....................... 366,766 215,371
Less valuation allowance............................ (24,026) --
-------- --------
$342,740 $215,371
======== ========
</TABLE>
4. TAXES ON INCOME
State net operating loss carryforwards were available at December 31, 1997
for which the Company provided a 100% valuation allowance against its deferred
tax asset. For 1998 all of the Company's state income taxes were offset by the
carryforwards. Therefore, there are no income taxes to allocate to the Business
for 1998.
For the nine months ended September 30, 1999, state income taxes applicable
to the Business are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Current..................................................... $ 63,723
Deferred benefit............................................ (14,000)
--------
$ 49,723
========
</TABLE>
The deferred benefit is the result of realization of net operating loss
carryforwards.
5. COMMITMENTS AND CONTINGENCIES
The Business is subject to various lawsuits and claims with respect to
product liabilities arising out of the normal course of business. While the
effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists, in the opinion of Company management
and legal counsel, there are currently no known lawsuits or claims which would
materially affect the financial position or results of operations of the
Business.
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<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.
<TABLE>
<S> <C> <C>
TOYMAX INTERNATIONAL, INC.
(Registrant)
Date: February 14, 2000 By: /s/ WILLIAM A. JOHNSON, JR.
------------------------------------------
William A. Johnson, Jr.
CHIEF FINANCIAL OFFICER AND TREASURER
</TABLE>
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