<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 DECEMBER 31, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
</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 February 9, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 1999
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of December 31,
1999 and March 31, 1999................................... 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended December 31, 1999 and 1998.... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 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................................. 11
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 2. Changes in Securities and Use of Proceeds................... 17
Item 3. Defaults by the Company upon Its Senior Securities.......... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures.................................................. 19
</TABLE>
2
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1999 1999
---------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents................................. $ 8,714,329 $18,469,027
Due from Factor........................................... 46,107,312 11,899,865
Accounts receivable, net.................................. 7,100,699 3,826,421
Due from related parties.................................. 62,068 3,702
Inventories............................................... 15,582,358 7,520,655
Prepaid expenses and other current assets................. 3,553,596 4,866,452
Income tax refunds receivable............................. 1,541,305 1,034,357
Deferred income taxes..................................... 2,029,432 2,029,432
---------------- -----------
TOTAL CURRENT ASSETS.................................. 84,691,099 49,649,911
PROPERTY AND EQUIPMENT, NET................................. 5,673,541 3,376,797
INVESTMENTS AND ADVANCES IN UNCONSOLIDATED JOINT VENTURE.... 2,463,896 --
DEFERRED INCOME TAXES....................................... 852,885 852,885
GOODWILL AND INTANGIBLES, NET OF AMORTIZATION............... 19,808,225 4,269,212
OTHER ASSETS, PRIMARILY PREPAID ADVERTISING................. 8,074,324 4,434,970
---------------- -----------
$ 121,563,970 $62,583,775
---------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Bank credit facilities.................................... $ 30,859,418 $ --
Accounts payable.......................................... 9,394,891 3,369,127
Accrued expenses.......................................... 17,944,188 5,258,036
Accrued rebates and allowances............................ 8,540,859 6,641,677
Due to related parties.................................... 7,942,688 2,553,827
Current portion of long-term obligations.................. 24,438 37,199
Income taxes payable...................................... 1,854,962 1,373,024
---------------- -----------
TOTAL CURRENT LIABILITIES............................. 76,561,444 19,232,890
LONG-TERM OBLIGATIONS..................................... 174,048 31,577
---------------- -----------
TOTAL LIABILITIES..................................... 76,735,492 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................................ 23,120,274 23,059,355
Retained earnings......................................... 21,794,914 20,169,055
Treasury stock at cost; 35,000 shares..................... (177,889) --
Accumulated other comprehensive income.................... (15,152) (15,152)
---------------- -----------
TOTAL STOCKHOLDERS' EQUITY............................ 44,828,478 43,319,308
---------------- -----------
$ 121,563,970 $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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................ $50,086,501 $46,269,930 $112,994,910 $95,669,024
----------- ----------- ------------ -----------
COST AND EXPENSES:
Cost of goods sold..................... 31,483,099 24,827,668 70,253,289 55,598,398
Selling and administrative............. 22,114,481 14,366,117 40,959,507 26,352,745
----------- ----------- ------------ -----------
53,597,580 39,193,785 111,212,796 81,951,143
----------- ----------- ------------ -----------
OPERATING INCOME (LOSS).................. (3,511,079) 7,076,145 1,782,114 13,717,881
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSES):
Other income, net...................... 712,006 262,058 810,979 461,277
Interest income........................ 151,125 247,166 408,838 826,091
Interest expense....................... (656,155) (39,422) (826,504) (43,956)
Equity in income of unconsolidated
joint venture........................ 401,396 -- 401,396 --
Finance charges........................ (273,430) (251,499) (654,989) (478,465)
----------- ----------- ------------ -----------
334,942 218,303 139,720 764,947
----------- ----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES........ (3,176,137) 7,294,448 1,921,834 14,482,828
PROVISION (BENEFIT) FOR INCOME TAXES..... (1,003,585) 2,224,141 295,974 4,016,141
----------- ----------- ------------ -----------
NET INCOME (LOSS)........................ $(2,172,552) $ 5,070,307 $ 1,625,860 $10,466,687
=========== =========== ============ ===========
BASIC INCOME PER SHARE................... $ (0.20) $ 0.48 $ 0.15 $ 0.99
=========== =========== ============ ===========
DILUTED INCOME PER SHARE................. $ (0.20) $ 0.48 $ 0.15 $ 0.99
=========== =========== ============ ===========
SHARES USED IN COMPUTING BASIC INCOME PER
SHARE.................................. 10,598,108 10,605,000 10,596,203 10,605,000
=========== =========== ============ ===========
SHARES USED IN COMPUTING DILUTED INCOME
PER SHARE.............................. 10,598,108 10,605,000 10,716,670 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>
NINE MONTHS ENDED
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,625,860 $ 10,466,687
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 2,976,879 824,789
Bad debts................................................. 167,420 20,470
Equity in unconsolidated joint venture.................... (401,395) --
Non-cash compensation--issuance of warrants............... 61,201 --
Non-cash revenue--barter credit........................... (377,521) (6,560,022)
Changes in operating assets and liabilities:
Due from Factor and accounts receivable................. (35,472,286) (17,215,151)
Due from related parties................................ (58,366) (42,456)
Inventories............................................. (5,483,859) (2,568,053)
Prepaid expenses and other assets....................... (1,465,160) (1,419,429)
Income tax refunds receivable........................... (506,948) 47,207
Accounts payable and accruals........................... 18,838,072 10,065,072
Due to related parties.................................. 5,388,861 4,683,822
Income taxes payable.................................... 389,833 3,633,944
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES... (14,317,409) 1,936,880
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (2,759,063) (2,471,251)
Proceeds from disposals of property and equipment......... 10,103 --
Investments and advances in unconsolidated joint
venture................................................. (2,100,000) --
Acquisition of businesses................................. (17,216,842) (4,786,852)
------------ ------------
Net cash used in investing activities................. (22,065,802) (7,258,103)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank loan.................................... -- (599,973)
Increase in bank credit facility.......................... 27,451,035 3,494,147
Decrease in long-term obligations......................... (644,633) (1,570)
Purchase of treasury stock................................ (177,889) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 26,628,513 2,892,604
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (9,754,698) (2,428,619)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 18,469,027 21,500,588
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 8,714,329 $ 19,071,969
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 632,265 $ 12,593
============ ============
Income taxes paid......................................... $ 230,335 $ 375,341
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Capital lease obligations incurred........................ $ -- $ 22,391
============ ============
</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 NINE MONTHS ENDED DECEMBER 31, 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 condensed consolidated
financial statements do not include all of the financial information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The balance sheet at March 31, 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 nine months
ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998
----------------------------------- ----------------------------------
COMMON PER COMMON PER
(LOSS) SHARES SHARE INCOME SHARES SHARE
----------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
As reported.................... $(2,172,552) 10,598,108 $(0.20) $5,070,307 10,605,000 $0.48
EFFECT OF DILUTIVE SECURITIES:
Options and warrants........... -- -- -- -- -- --
----------- ---------- ------ ---------- ---------- -----
DILUTED EPS:................... $(2,172,552) 10,598,108 $(0.20) $5,070,307 10,605,000 $0.48
=========== ========== ====== ========== ========== =====
</TABLE>
Options and warrants which have exercise prices in excess of the average
stock price for the quarter are considered anti-dilutive and have been excluded
from the above calculations. For the three months ended December 31, 1999 and
1998, 495,239 and 662,009 shares have been excluded respectively.
6
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
NOTE 2--EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998
---------------------------------- -----------------------------------
COMMON PER COMMON PER
INCOME SHARES SHARE INCOME SHARES SHARE
---------- ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
As reported.................... $1,625,860 10,596,203 $0.15 $10,466,687 10,605,000 $0.99
EFFECT OF DILUTIVE SECURITIES:
Options and warrants........... -- 120,467 -- -- -- --
---------- ---------- ----- ----------- ---------- -----
DILUTED EPS:................... $1,625,860 10,716,670 $0.15 $10,466,687 10,605,000 $0.99
========== ========== ===== =========== ========== =====
</TABLE>
Options and warrants which have exercise prices in excess of the average
stock price for the nine month period are considered anti-dilutive and have been
excluded from the above calculations. For the nine months ended December 31,
1999 and 1998, 705,558 and 662,009 shares have been excluded respectively.
NOTE 3--COMPREHENSIVE INCOME
Total comprehensive income for the three and nine months ended December 31,
1999 and December 31, 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, 2000, 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, Inc. ("Toymax NY"), Toymax (H.K.) Limited ("Toymax HK") and the
Company's equity investment in Yaboom Limited) and Toymax Enterprises (which
consists of Go Fly A Kite, Inc. ("Go Fly A Kite"), Candy Planet,
7
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
NOTE 5--SEGMENT REPORTING (CONTINUED)
a division of Toymax NY, Monogram International, Inc. ("Monogram"), and the
Funnoodle product line ("Funnoodle").
The following tables present summarized information about the Company's
operations by reportable segments (net of consolidating eliminations) as of and
for the three and nine months ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
----------------------------------------
TOYMAX TOYMAX
BRANDS ENTERPRISES CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Net sales............................. $35,429,069 $14,657,432 $50,086,501
Income (loss) before income tax
provision........................... (5,249,957) 2,073,820 (3,176,137)
Identifiable assets................... 83,955,255 37,608,715 121,563,970
Interest income....................... 153,862 (2,737) 151,125
Interest expense...................... (579,281) (76,874) (656,155)
Depreciation and amortization......... 471,743 814,995 1,286,738
Capital expenditures.................. 356,983 481,410 838,393
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998
----------------------------------------
TOYMAX TOYMAX
BRANDS ENTERPRISES CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Net sales.............................. $45,949,984 $ 319,946 $46,269,930
Income before income tax provision..... 7,258,885 35,563 7,294,448
Identifiable assets.................... 80,653,694 7,049,932 87,703,626
Interest income........................ 247,166 -- 247,166
Interest expense....................... (39,422) -- (39,422)
Depreciation and amortization.......... 381,150 609 381,759
Capital expenditures................... 1,375,062 8,281 1,383,343
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1999
----------------------------------------
TOYMAX TOYMAX
BRANDS ENTERPRISES CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Net sales............................ $82,183,277 $30,811,633 $112,994,910
Income (loss) before income tax
provision.......................... (490,009) 2,411,843 1,921,834
Identifiable assets.................. 83,955,255 37,608,715 121,563,970
Interest income...................... 409,617 (779) 408,838
Interest expense..................... (643,069) (183,435) (826,504)
Depreciation and amortization........ 1,257,751 1,719,128 2,976,879
Capital expenditures................. 1,996,239 762,824 2,759,063
</TABLE>
8
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
NOTE 5--SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1998
----------------------------------------
TOYMAX TOYMAX
BRANDS ENTERPRISES CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
Net sales.............................. $95,349,078 $ 319,946 $95,669,024
Income (loss) before income tax
provision............................ 14,564,241 (81,413) 14,482,828
Identifiable assets.................... 80,653,694 7,049,932 87,703,626
Interest income........................ 826,091 -- 826,091
Interest expense....................... (43,956) -- (43,956)
Depreciation and amortization.......... 824,180 609 824,789
Capital expenditures................... 2,462,970 8,281 2,471,251
</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.
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 December 31, 1998 amounts were reclassified to conform to the
December 31, 1999 presentation.
NOTE 9--ACQUISITION OF ASSETS
On May 27, 1999, newly formed subsidiaries of the Company 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 November 30, 1999, a wholly-owned subsidiary of the Company acquired
certain assets, consisting of the Funnoodle product line of Kidpower, Inc. (the
"Seller"), pursuant to an asset purchase agreement dated October 25, 1999. The
Funnoodle product line is a leader in the pool and backyard water recreational
products categories. The consideration for the acquisition was approximately
$8.8 million paid in cash to the Seller (the "Initial Payment") not including
the assumption of certain commitments of the Seller in an amount of
approximately $0.5 million plus up to $7.0 million payable after the closing if
certain contingencies occur. The funds required at closing came out of the
working capital of the Company.
9
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
NOTE 9--ACQUISITION OF ASSETS (CONTINUED)
On a pro forma basis, reflecting the acquisition of Go Fly A Kite, Inc., in
December 1998, Monogram, and Funnoodle 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 nine months ended
December 31, 1999 and 1998 are presented as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net sales........................................ $130,672,605 $130,798,541
Net income....................................... $ 2,980,532 $ 10,417,828
Basic earnings per share......................... $ 0.28 $ 0.98
Diluted earnings per share....................... $ 0.28 $ 0.98
</TABLE>
NOTE 10--INVESTMENT AND ADVANCES IN YABOOM LIMITED
In October 1999, the Company invested $1.0 million in Yaboom Limited, a
joint venture, of which approximately $1.0 million is goodwill and is being
amortized over 10 years. The Company also advanced the joint venture
$1.1 million. The Company accounts for its 50% ownership interest in Yaboom
Limited using the equity method of accounting.
The unaudited summary financial information of Yaboom Limited for the period
ended December 31, 1999 are presented as follows:
<TABLE>
<CAPTION>
DEC. 31,
1999
-----------
(UNAUDITED)
<S> <C>
Current assets.............................................. $5,079,725
Non-current assets.......................................... 596,796
Current liabilities......................................... 4,872,436
</TABLE>
<TABLE>
<CAPTION>
THREE AND
NINE MONTHS
ENDED
DECEMBER 31,
1999
------------
(UNAUDITED)
<S> <C>
Net sales................................................... $7,414,330
Gross profit................................................ 5,020,450
Operating income............................................ 993,025
Income before income taxes.................................. 956,736
Net income.................................................. 802,790
</TABLE>
10
<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 expectations and projections regarding the future performance of
Toymax International, Inc. and its subsidiaries ("Toymax") discussed in this
quarterly report are forward-looking and are made under the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These
expectations and projections are based on currently available competitive,
financial, and economic data along with Toymax's operating plans and are subject
to certain future events and uncertainties. Forward-looking statements can be
identified by the use of forward-looking terminology, such as "may", "will",
"should", "expect", "anticipate", "estimate", "project", "continue", "plans",
"intends" or other similar terminology. Management cautions you that the
following factors, among others, could cause Toymax's actual consolidated
results of operations and financial position in 2000 and thereafter to differ
significantly from those expressed in forward-looking statements:
MARKETPLACE RISKS
- Dependence on the timely development, introduction and customer acceptance
of new products, which may affect Toymax's ability to successfully
redesign, restyle and extend existing core products and product lines and
successfully bring new products to market
- Increased competitive pressure, both domestically and internationally,
which may negatively affect the sales of Toymax's products
- Possible weaknesses in economic conditions, both domestically and
internationally, which may negatively affect the sales of Toymax's
products and the costs associated with manufacturing and distributing
these products
- Failure to successfully integrate recent acquisitions
FINANCIAL CONSIDERATIONS
- Significant changes in interest rates, both domestically and
internationally, which may negatively affect Toymax's cost of financing
its operations
- Currency fluctuations, which may affect Toymax's reportable income
OTHER RISKS
- Development of new technologies, including the Internet, which may create
new risks to Toymax's ability to protect its intellectual property rights
- Changes in laws or regulations, both domestically and internationally,
including those affecting consumer products, environmental activities or
trade restrictions, which may lead to increased costs or interruption in
normal business operations of Toymax
- Other factors and risks that may be described from time to time in
Toymax's public announcements and filings with the 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, TOYMAX HK AND THE COMPANY'S EQUITY
INVESTMENT IN YABOOM ARE REFERRED TO AS TOYMAX BRANDS
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<PAGE>
AND THOSE REFERRING TO THE PERFORMANCE OF GO FLY A KITE, CANDY PLANET, MONOGRAM
AND FUNNOODLE ARE REFERRED TO AS TOYMAX ENTERPRISES.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH THE THREE MONTHS ENDED
DECEMBER 31, 1998
NET SALES. Net sales for the quarter ended December 31, 1999 increased to
$50.1 million from $46.3 million for the quarter ended December 31, 1998, an
increase of $3.8 million, or 8.2%.
Net sales of Toymax Brands for the quarter ended December 31, 1999 decreased
22.9% to $35.4 million, or 70.7% of total net sales from $45.9 million, or 99.3%
of total net sales for the quarter ended December 31, 1998. The decrease in net
sales was primarily due to the expected decrease in sales of the line of Spice
Girls-TM- products, a decrease in sales of the Company's Laser Challenge-TM-
gaming system and the discontinuance of the Precious Metals-TM- and Metal
Molder-TM- product lines. These decreases were partially offset by the
introduction of new product lines and the continued strong performance of the
Mighty Mo's-TM- vehicle line.
Net sales of Toymax Enterprises were $14.7 million in the quarter ended
December 31, 1999 and accounted for 29.3% 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, the acquisition of Monogram in the first quarter of
fiscal 2000 and the Funnoodle product line in the current quarter.
GROSS PROFIT. Gross Profit for the quarter ended December 31, 1999,
decreased by $2.8 million, or 13.2%, to $18.6 million, or 37.1% of net sales,
from $21.4 million, or 46.3% of net sales, for the quarter ended December 31,
1998.
The gross profit of Toymax Brands decreased by $10.1 million, or 47.6%, to
$11.1 million, or 31.5% of net sales, from $21.3 million, or 46.3% of net sales
for the quarter ended December 31, 1998. The decrease in gross profit as a
percentage of net sales was primarily attributable to higher sales promotion and
freight and warehousing costs as well as inventory adjustments. The gross profit
of Toymax Enterprises was $7.5 million, or 50.9% of net sales in the quarter
ended December 31, 1999.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the quarter ended December 31, 1999 increased by $7.7 million, or 53.9%, to
$22.1 million, or 44.2% of net sales, from $14.4 million, or 31.0% of net sales,
for the quarter ended December 31, 1998.
Selling and administrative expenses of Toymax Brands for the quarter ended
December 31, 1999 increased by $2.5 million, or 17.8%, to $16.8 million, or
47.4% of net sales, from $14.2 million, or 31.0% of net sales for the quarter
ended December 31, 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 $5.3 million or 36.4% of net sales.
OPERATING INCOME (LOSS). As a result of the foregoing, the operating income
for the quarter ended December 31, 1999 decreased by $10.6 million, or 149.6%,
to an operating loss of $3.5 million from operating income of $7.1 million for
the quarter ended December 31, 1998.
Operating income for Toymax Brands decreased by $12.6 million, or 180.0%, to
an operating loss of $5.6 million from operating income of $7.0 million for the
quarter ended December 31, 1998. The operating income for Toymax Enterprises was
$2.1 million for the quarter ended December 31, 1999.
INTEREST INCOME (EXPENSE), NET. Net interest expense for the quarter ended
December 31, 1999 was $0.5 million, compared to net interest income of
$0.2 million for the quarter ended December 31, 1998, a decrease of
$0.7 million. 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
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credit facility. In addition, the Company assumed some short-term indebtedness
in conjunction with the acquisition of Monogram.
OTHER INCOME (EXPENSE), NET. Net other income for the quarter ended
December 31, 1999 was $0.8 million, compared to net other income of
$0.01 million for the quarter ended December 31, 1998, an increase in income of
$0.8 million. The increase was primarily due to the inclusion of equity income
received from the Yaboom joint venture as well as the settlement of an insurance
claim in the current quarter.
INCOME (LOSS) BEFORE TAXES. Income before taxes for the quarter ending
December 31, 1999 decreased by $10.5 million, or 143.5%, to a loss before taxes
of $3.2 million, compared to income before taxes of $7.3 million for the quarter
ended December 31, 1998. Income before taxes for Toymax Brands decreased by
$12.5 million, or 172.3%, to a pretax loss of $5.3 million, compared to pretax
income of $7.3 million for the quarter ended December 31, 1998. Toymax
Enterprises posted income before taxes of $2.1 million for the quarter ended
December 31, 1999.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective tax rate for the
quarter ending December 31, 1999 decreased to a benefit of 31.6% from a
provision of 30.5% for the quarter ended December 31, 1998. This was primarily
the result of the pretax loss incurred by Toymax Brands.
NET INCOME (LOSS). As a result of the foregoing, net income for the quarter
ended December 31, 1999 decreased to a $2.2 million net loss ($0.20 per diluted
share) from net income of $5.1 million ($0.48 per diluted share) for the quarter
ended December 31, 1998, a decrease of $7.2 million or 142.8%.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH THE NINE MONTHS ENDED
DECEMBER 31, 1998
NET SALES. Net sales in the nine months ended December 31, 1999 increased
to $113.0 million from $95.7 million in the nine months ended December 31, 1998,
an increase of $17.3 million, or 18.1%.
Net sales of Toymax Brands for the nine months ended December 31, 1999
decreased 13.8% to $82.2 million, or 72.7% of total net sales from
$95.3 million, or 99.7% of total net sales for the nine months ended
December 31, 1998. The decrease in net sales was primarily due to the expected
decrease in sales of the line of Spice Girls-TM- products, a decrease in sales
of the Company's Laser Challenge-TM- gaming system and the discontinuance of the
Precious Metals-TM- and Metal Molder-TM- product lines. These decreases were
partially offset by the introduction of new product lines and the continued
strong performance of the Mighty Mo's-TM- vehicle line.
Net sales of Toymax Enterprises were $30.8 million for the nine months ended
December 31, 1999 and accounted for 27.3% 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, the acquisition of Monogram in the first quarter of
fiscal 2000 and the acquisition of the Funnoodle product line in the current
quarter.
GROSS PROFIT. Gross Profit for the nine months ended December 31, 1999,
increased by $2.7 million, or 6.7%, to $42.7 million, or 37.8% of net sales,
from $40.1 million, or 41.9% of net sales, for the nine months ended
December 31, 1998.
The gross profit of Toymax Brands decreased by $10.9 million, or 27.3%, to
$29.0 million, or 35.3% of net sales, from $39.9 million, or 41.9% of net sales
for the nine months ended December 31, 1998. The decrease in gross profit as a
percentage of net sales was primarily attributable to 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. The
gross profit of Toymax Enterprises was $13.7 million, or 44.6% of net sales in
the nine months ended December 31, 1999.
13
<PAGE>
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the nine months ended December 31, 1999 increased by $14.6 million, or
55.4%, to $41.0 million, or 36.2% of net sales, from $26.4 million, or 27.5% of
net sales, for the nine months ended December 31, 1998.
Selling and administrative expenses of Toymax Brands for the nine months
ended December 31, 1999 increased by $3.7 million, or 14.2%, to $29.8 million,
or 36.3% of net sales, from $26.1 million, or 27.4% of net sales for the nine
months ended December 31, 1998. The increase in dollars and as a percentage of
net sales was primarily due to higher advertising costs to promote Toymax
Brand's products and to increased royalties resulting from an increase in the
sales of licensed products. Selling and administrative expenses of Toymax
Enterprises was $11.2 million or 36.2% of net sales reflecting the higher
expense levels relating to the group and sales and product development costs in
the Candy Planet division.
OPERATING INCOME. As a result of the foregoing, the operating income for
the nine months ended December 31, 1999 decreased by $11.9 million, or 87.0%, to
$1.8 million from $13.7 million for the nine months ended December 31, 1998.
Operating income for Toymax Brands decreased by $14.6 million, or 105.9%, to
a loss of $0.8 million from operating income of $13.8 million for the nine
months ended December 31, 1998. Operating income for Toymax Enterprises was
$2.6 million for the nine months ended December 31, 1999.
INTEREST INCOME (EXPENSE), NET. Net interest expense for the nine months
ended December 31, 1999 was $0.4 million, compared to net interest income of
$0.8 million for the nine months ended December 31, 1998, a decrease of
$1.2 million. 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.
OTHER INCOME (EXPENSE), NET. Net other income for the nine months ended
December 31, 1999 was $0.6 million, compared to net other expense of
$0.02 million for the nine months ended December 31, 1998, an increase in income
of $0.6 million. The increase in other income was primarily due to the inclusion
of equity income received from the Yaboom joint venture as well as the
settlement of an insurance claim in the current quarter.
INCOME (LOSS) BEFORE TAXES. Income before taxes for the nine months ended
December 31, 1999 decreased by $12.6 million, or 86.7%, to $1.9 million,
compared to $14.5 million for the nine months ended December 31, 1998. Income
before taxes for Toymax Brands decreased by $15.0 million, or 103.4%, to a loss
before taxes of $0.5 million, compared to income before taxes of $14.6 million
for the nine months ended December 31, 1998. Toymax Enterprises posted income
before taxes of $2.4 million for the nine months ended December 31, 1999.
PROVISION FOR INCOME TAXES. The effective tax rate for the nine months
ending December 31, 1999 decreased to 15.4% from 27.7% for the nine months ended
December 31, 1998, primarily due to the loss before taxes of Toymax Brands.
NET INCOME. As a result of the foregoing, net income for the nine months
ended December 31, 1999 decreased to $1.6 million ($0.15 per diluted share) from
$10.5 million ($0.99 per diluted share) for the nine months ended December 31,
1998, a decrease of $8.8 million or 84.5%.
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
nine months ended December 31, 1999 cash and cash equivalents decreased
$9.8 million to $8.7 million.
14
<PAGE>
The Company's operating activities used net cash of approximately
$14.3 million, which was primarily due to net income of $1.6 million and
depreciation and amortization of $3.0 million offset by a net increase in
operating assets and liabilities of $18.4 million. This net increase in
operating assets and liabilities includes a $35.5 million increase in Due from
Factor and accounts receivable, a $5.5 million increase in inventories and a
$1.5 million increase in prepaid and other assets partially offset by an
$18.8 million increase in accounts payable and accruals a $5.4 million increase
in due to related parties.
Investing activities used $22.1 million in net cash including $17.2 million
related to the acquisition of Monogram, an additional contingent payment for the
acquisition of Go Fly A Kite, and the acquisition of the Funnoodle product line.
Capital expenditures, principally for the purchase of tooling for new products
and equipment, totaled $2.8 million for the nine months ended December 31, 1999.
The Company made investments in and advances to Yaboom Limited in the amount of
$2.1 million. Financing activities provided $26.6 million in net cash primarily
due to an increase in the use of the Company's bank credit facilities to fund
operations.
The Company expects to fund its near-term cash requirements from a
combination of existing cash balances, cash flows from operations and borrowings
under its banking arrangements. The Company is in the process of negotiating a
renewal of the loan agreement between Sun Trust and Monogram which expires on
April 2, 2000. This is expected to be completed by March 31, 2000.
The transactions and results of operations for the past nine months have
utilized a substantial part of the Company's working capital and borrowing
capacity under its revolving credit agreement with State Street Bank and Trust
Company and Congress Talcott Corporation. The Company is taking several steps to
improve its flexibility including negotiating an update to its current facility
or securing a new facility to include the Funnoodle business. This is expected
to be completed by March 31, 2000. In addition, the Company is considering
raising capital by issuing equity or debt securities depending on market
conditions.
The Company expects to finance its longer-term growth primarily with cash
flows 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 the Company 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. 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. ("Yaboom"), a joint
venture with a private investor. The current investment includes $1.0 million
for the equity ownership and $1.1 million in non-interest bearing advances.
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
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<PAGE>
subsidiary, and the private investor will each own fifty percent of Yaboom. The
Company will account for the joint venture using the equity method.
On November 30, 1999, a wholly-owned subsidiary of the Company acquired
certain assets, consisting of the Funnoodle product line of Kidpower, Inc. (the
"Seller"), pursuant to an asset purchase agreement dated October 25, 1999. The
Funnoodle product line is a leader in the pool and backyard water recreational
products categories. The consideration for the acquisition was approximately
$8.8 million paid in cash to the Seller (the "Initial Payment") not including
the assumption of certain commitments of the Seller in an amount of
approximately $0.5 million plus up to $7.0 million payable after the closing if
certain contingencies occur. The funds required at closing came out of the
working capital of the Company.
YEAR 2000 COMPLIANCE
The Company has updated 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. 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. To-date, the Company's non-IT systems, which include
telephone and alarm systems, fax machines and other miscellaneous systems, have
shown to be compliant and have not been affected by the year 2000 issue.
As of February 2000, the Company has not experienced any material disruption
in the transference of data with its major customers and vendors and nothing has
come to its attention that would lead the Company to believe that this will not
continue into the future. 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.
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
16
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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.
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 February 11, 2000, a total of 35,000 shares of
Toymax common stock have been repurchased for a total purchase price of
$177,889.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third
quarter ended December 31, 1999.
ITEM 5. OTHER INFORMATION
None.
17
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<C> <S>
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.
1.5 Tenancy Agreement between Petergrand Limited and Toymax
(H.K.) Limited for the Company's showroom at Concordia
Plaza, No. 1 Science Museum Road, Tsimshatsui, Kowloon, Hong
Kong.
99.1 Press release of the Company dated December 3, 1999.
</TABLE>
b) Reports on Form 8-K
A Current Report on Form 8-K dated December 15, 1999 was filed by the
Company announcing the acquisition of certain assets, consisting of the
Funnoodle product line of Kidpower, Inc.
18
<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: February 11, 2000
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EXHIBIT 10.5
AN AGREEMENT made this 1st day of November One Thousand Nine Hundred and
Ninety-nine.
BETWEEN the parties more particularly described and set out in the First
Schedule hereto.
WHEREBY IT IS AGREED as follows:
1. The Landlord shall let and the Tenant shall take ALL THOSE the
premises more particularly described and set out in the Second
Schedule hereto (hereinafter referred to as "the Premises")
AND together with all appurtenant rights for the term and at
the rent more particularly described and set out in the Third
Schedule hereto.
2. The Tenant to the intent that the obligations hereunder shall
continue throughout the said term of the tenancy hereby agrees
with the Landlord as follows:
(a) To pay the said rent on the days and in manner
hereinbefore provided for payment thereof.
(b) To pay and discharge all rates and outgoing of a
non-capital or recurring nature now or hereafter to be
assessed, imposed or charged by the Government of Hong Kong or
other lawful authority upon the Premises (Government Rent and
Property Tax and expenses of capital nature only excepted).
(c) To pay and discharge all service or maintenance charges,
payable by the owner or occupier of the Premises pursuant to
or by virtue of the Deed of Mutual Covenant and Management
Agreement (if any) relating to the Building of which the
Premises form part more particularly described in the Schedule
hereto (hereinafter referred to as "the Building") (save and
except contributions towards capital expenditure) and all
charges for gas, water and electricity consumed on or in the
Premises.
(d) To keep all the non-structural interior parts of the
Premises in good clean tenantable repair and condition (fair
wear and tear inherent and subsisting defects excepted) and so
to maintain the same at the expense of the Tenant and to
deliver up the same to the Landlord at the expiration or
sooner determination of the term in like condition (fair wear
and tear inherent and subsisting defects excepted).
(e) To be wholly responsible for any loss, damage or injury
caused to any person whomsoever directly or indirectly through
the defective or damaged condition of any part of the interior
of the Premises the repair of which is the Tenant's
responsibility hereunder and to make good the same by payment
or otherwise and to indemnify the Landlord against all
actions, proceedings, claims and demands made upon the
Landlord in respect of any such loss, damage or injury and all
reasonable costs and expense incidental thereto.
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<PAGE>
(f) To permit the Landlord and all persons authorized bt them
at all reasonable times to enter upon prior appointment and
view the state of the Premises, to carry out any work or
repair which requires to be done and, during the last three
months of the said term, to show the Premises to prospective
tenants or purchasers subject to prior appointment.
(g) On receipt of any notice from the Landlord or his
authorized representative specifying any works or repairs
which require to be done and which are the responsibility of
the Tenant hereunder to put in hand and execute the same with
reasonable dispatch and if the Tenant shall fail to execute
such works or repairs within reasonable time, the Tenant shall
permit the Landlord together with workman and all necessary
equipment to enter upon the Premises for the purpose of
carrying out or properly completing such works or repairs, the
reasonable costs thereon to be repaid by the Tenant to the
Landlord promptly on demand and recoverable by the Landlord
from the Tenant as a debt.
(h) Not without the previous written consent of the Landlord
which consent shall not be unreasonably withheld or delayed to
erect, install or alter any fixtures, partitioning or other
erection or installation in the Premises or any part thereof.
(i) Not without the prior written consent of the Landlord (not
to be unreasonably withheld or delayed) to affix exhibit put
up or display or to permit to suffer to be affixed, exhibited,
put up or displayed any signboard, sign, decorations,
illuminated sign, placard, poster or other advertisement
whatsoever inside or outside the Premises or on any door,
wall, pier or window thereof or on or in any part of the
Building. In the absence of such consent the Landlord shall
have the right to remove at the reasonable cost and expense of
the Tenant, such costs and expenses to be paid on demand, any
signboard, sign, decoration, illuminated sign, poster, placard
or other advertisement which shall be so affixed, exhibited,
put up or displayed. Notwithstanding the aforesaid, the Tenant
shall have the right to put up and affix signboard of its name
at the entrance of the Premises in accordance with the
instructions of the Manager of the said Building.
(j) To observe and to comply with the reasonable regulations
or requirements stated in notices or announcements from time
to time made or issued by the Manager of the Building for the
maintenance (save and except maintenance of the structural
part of the Premises) and management of the Building including
the times and arrangements for operation of any equipment,
lifts, lighting and the use of entrances and passage ways.
(k) Not to cut maim or injure or permit or suffer to be cut
maimed or injured any doors, windows, walls, beams, structural
members or any part of the fabric of the Premises nor any of
the plumbing or sanitary apparatus or installations included
therein.
(l) Not without the prior written consent of the Landlord to
assign underlet or otherwise part with the possession of the
Premises or any part thereof in any way whether by way of
sub-letting lending sharing or other means whereby any person
or persons not a party to this Agreement obtains the use or
27
<PAGE>
possession of the Premises or any part thereof irrespective of
whether any rental or other consideration is given for such
use or possession and in the event of any such transfer
sub-letting sharing assignment or parting with the possession
of the Premises (whether for monetary consideration or not)
this Agreement shall absolutely determine and the Tenant shall
forthwith vacate the Premises on notice to that effect from
the Landlord.
(m) Not to produce or permit or suffer to be produced any
excessive music and noise so as to be a nuisance to or gives
reasonable cause for complaint from occupiers of other
premises in the Building or in the neighborhood.
(n) Not to do or permit or suffer to be done any act or thing
which is a nuisance to or gives reasonable cause for complaint
from the Landlord or to the tenants or occupiers of other
premises in the Building or in any adjoining or neighboring
building.
(o) Not to do or permit or suffer to be done any act, deed,
matter or thing whatsoever which amounts to a breach of any of
the negative or restrictive covenants terms and conditions
under which the said land and the Building is held from the
Government or whereby any insurance of the Building against
loss or damage by fire and/or claim by third parties for the
time being in force may be rendered void or voidable or
whereby the premium thereon may be increased Provided That if
as the result of any act, deed, matter or thing done permitted
or suffered by the Tenant, the premium on any such insurance
shall be increased, the Landlord shall be entitled to request
the Tenant to pay the increased premium.
(p) Not to keep or store or permit to suffer to be kept or
stored on or in the Premises any arms ammunition gunpowder
saltpeter kerosene or other explosive or combustible or
hazardous goods.
(q) Not to use or permit or suffer the Premises to be used for
any illegal or immoral purpose.
(r) To obey and comply with and to indemnify the Landlord
against any breach of ordinance, regulations, bye-laws, rule
or requirement of any Governmental or other competent
authority relating to the use and occupation of the Premises
or any other act, deed, matter or thing done, permitted,
suffered or omitted therein or thereon by the Tenant or any
employee, agent or licensee of the Tenant.
(s) To obey observe and comply with and perform all the
negative or restrictive covenants terms and provisions in the
said Deed of Mutual Covenant and Management Agreement (if any)
relating to the Building so far as they relate to the Premises
and to indemnify the Landlord against the breach
non-observance or non-performance thereof.
(t) To pay to the Landlord on demand all reasonable costs
incurred by the Landlord in cleansing or clearing any of the
drain, pipes or sanitary or plumbing apparatus choked or
stopped up owing to the careless or improper use or neglect by
the Tenant or any employee, agent or licensee of the Tenant.
28
<PAGE>
(u) To be responsible for the removal of all trade and other
refuse from the Premises to the reasonable satisfaction of the
Landlord or their agents.
(v) To use the Premises only for commercial purposes.
(w) To yield up the Premises with the fixtures and additions
thereto at the expiration or sooner determination of this
Agreement in good clean and tenantable repair and condition
(fair wear and tear inherent and subsisting defects excepted).
It is agreed that the Tenant shall not be required to
reinstate any works (including any fitting-out works) to the
Premises provided that the Tenant shall have the right to
remove the Tenant's trade fixtures subject to making good all
damage to the Premises by reason of such removal.
3. The Landlord hereby agrees with the Tenant as follows:
(a) To pay the Government Rent and Property Tax and expenses
of capital or non-recurring nature attributable to or payable
in respect of the Premises.
(b) That the Tenant paying the rent hereby agreed to be paid
on the days and in manner herein provided for payment of the
same and observing and performing the agreements stipulations
terms and conditions herein contained and on the Tenant's part
to the observed and performed shall peaceably hold and enjoy
the Premises during the said term without any interruption by
the Landlord or any person lawfully claiming under or in trust
for the Landlord.
(c) Subject to Clause 6 hereof, to contribute his share of the
cost when called upon to do so by management of the Building
towards the maintenance and repair of the main structure, main
electricity supply cables, main drains waterpipes and main
walls of the Building.
(d) At the request of the Tenant to use reasonable endeavors
to enforce the terms of the Deed of Mutual Covenant and/or the
Management Agreement against owners and occupiers of the other
premises in the Building and the Manager thereof.
(e) To keep those parts of the Premises which are not the
Tenant's responsibility hereunder in good repair and
condition.
4. IT IS HEREBY FURTHER EXPRESSLY AGREED AND DECLARED as follows:
(a) The rent hereby agreed to be paid represents the best
rent, which can reasonably be obtained without a premium;
(b) If the rent hereby agreed to be paid or on any part
thereof shall be unpaid for fifteen days after the same shall
become payable (whether legally or formally demanded or not)
or if the Tenant shall fail or neglect to observe or perform
any of the agreements stipulations terms and conditions herein
contained and on the Tenant's part to be observed and
performed which failure or neglect has not been rectified
within reasonable time or if the Tenant shall become bankrupt
or being a corporation shall go into liquidation
29
<PAGE>
or if the Tenant shall otherwise become insolvent or make any
composition or arrangement with creditors or shall suffer any
execution to be levied on the Premises or otherwise on the
Tenant's goods such execution not to be suspended within 14
days, then and in any such case it shall be lawful for the
Landlord at any time thereafter to re-enter on the Premises or
any part thereof in the name of the whole whereupon this
Agreement shall absolutely cease and determine but without
prejudice to any right of action of the Landlord in respect of
any outstanding breach or non-observance or non-performance of
any of the said agreements, stipulations terms and conditions
herein contained and on the Tenant's part to be observed and
performed and to the Landlord's right to deduct all loss
damage and expense thereby incurred from the deposit paid by
the Tenant in accordance with Clause 8 hereof.
(c) A written notice served by the Landlord on the Tenant in
manner hereinafter mentioned to the effect that the Landlord
thereby exercise the power of re-entry herein contained shall
be a full and sufficient exercise of such power without actual
physical entry on the part of the Landlord.
(d) Acceptance of rent by the Landlord shall not be deemed to
operate as a waiver by the Landlord of any right to proceed
against the Tenant in respect to any breach non-observance or
non-performance of the said agreements stipulations terms and
conditions herein contained and on the Tenant's part to the
observed and performed.
(e) Save and except the same is caused by the default neglect
or omission of the Landlord, the Landlord's employees, agents
or contractors, the Landlord shall not be under any liability
to the Tenant or to any other person whomsoever in respect of
any loss or damage to person or property sustained by the
Tenant or any such other person caused by or through or in any
way owing to the overflow of water or the escape of fumes
smoke fire or any other substance or thing from anywhere
within the Building and the Tenant shall fully and effectually
indemnify the Landlord from and against all claims and demands
made against the Landlord by any person in respect of any
loss, damage or injury caused by or through or in any way
owing to the overflow of water or the escape of fumes, smoke,
fire or any other substance or thing originating from the
Premises caused by the default, neglect or omission of the
Tenant and against all reasonable costs and expenses incurred
by the Landlord in respect of any such claim or demand.
(f) For the purpose of these presents any act, default neglect
or omission of any guest, visitor, servant, agent licensee or
invitee of the Tenant shall be deemed to be the act, default,
neglect or omission of the Tenant.
(g) For the purpose of Part III of the Landlord and Tenant
(Consolidation) Ordinance (Cap. 7) and these presents, the
rent payable in respect of the Premises shall be and be deemed
to be in arrears if not paid in full and in advance at the
times and in manner herein provided for payment thereof.
(h) Any notice required to be served hereunder shall, if to be
served on the Tenant, be sufficiently served if addressed to
the Tenant and sent by prepaid post to or delivered at the
Premises or the Tenant's registered office and, if to be
served on the Landlord shall be sufficiently served if
addressed to the
30
<PAGE>
Landlord and sent by prepaid post to or delivered at the
Landlord's registered office.
(i) If for any reason whatsoever the ratable value as at the
date hereof or the rates payable shall be increased then and
in any such case the Tenant shall during the continuance of
the term of this Agreement bear such increase in rates.
Conversely, should there be any refund of rates made by the
Government or the relevant authorities, the Landlord shall
repay the same to the Tenant. If at any time hereafter during
the continuance of this tenancy the Government shall abolish
the levy of property tax in the owner in respect of any land
and/or building and introduce a new tax levy in substitution
for or replacement of property tax, any reference herein to
property tax shall be deemed reference to such new tax as may
hereafter be introduced by Government. For the avoidance of
doubt, save and except those stipulated herein, any other
taxes levied or to be levied on the Premises or the owner
thereof should be borne by the Landlord.
(j) Each party shall bear their own costs and expenses in
relation to the preparation and completion of this Agreement.
The stamp duty payable on this Agreement and its counterpart
shall be borne by the parties hereto in equal shares.
(k) Unless the contents otherwise require, words herein
importing the masculine feminine or neuter gender shall
include the other or others of them and words herein in the
singular shall include the plural and vice versa and the terms
"Landlord" and "Tenant" shall include their successors in
title.
5. The Tenant hereby expressly declares that for the grant of the
said term no key money, construction moneys or other
consideration has been paid to the Landlord or to any person.
6. If the Premises or the Building or any part thereof shall at
any time during the tenancy be destroyed or damaged or become
inaccessible or become subject to a Closure Order or
Demolition Order due or owing to fire, water, storm, wind,
typhoon, defective construction, white ants, earthquake,
subsidence of the ground or any calamity beyond the control of
the Landlord and not attributable to any failure of the Tenant
to observe and carry out the terms of this Agreement so as to
render the Premises unfit for habitation and use or
inaccessible or so that the Premises or Building shall be
condemned as a dangerous structure or a demolition order or
closing order shall become operative in respect of the
Premises or the Building then the rent hereby reserved or a
fair proportion thereof according to the nature and extent of
the damage sustained or order made shall henceforth be
suspended until the Premises or Building shall again be
rendered accessible and fit for habitation and use and that
the Closure Order or Demolition Order be removed Provided
always that the Landlord shall not be under any obligation to
reinstate the Premises or any part thereof so affected as
aforesaid and Provided further that should the Premises or
Building not have been reinstated in the meantime either the
Landlord or the Tenant may at any time after two months from
the occurrence of such damage destruction or order give to the
other of them notice in writing to determine this present
tenancy
31
<PAGE>
and thereupon the same and everything herein contained shall
ceased and be void as from the date of the occurrence of such
destruction or damage or order or of the Premises becoming
inaccessible but without prejudice to the rights and remedies
of either party against the other in respect of any antecedent
claim or breach of the agreement stipulations terms and
conditions herein contained or of the Landlord in respect of
the rent payable hereunder prior to the coming into effect of
the suspension PROVIDED FURTHER that the Landlord shall not in
any event be liable to pay compensation or damages to the
Tenant in respect of any period during which the occupation or
use of the Premises shall be interrupted or unavailable as
aforesaid or in respect of the determination of the tenancy as
aforesaid and that the Tenant shall not in any event have any
claim, interest, right or property, all of which are hereby
expressly waived and forfeited, of and in any compensation or
award payable by any relevant authority in respect of the
interruption or cessation of use or occupation of the Premises
or the determination of the tenancy in respect thereof.
7. In the event of fire, typhoon or other contingencies which in
the reasonable opinion of the Landlord may cause or threaten
to cause damage or injury to the Premises, the Landlord shall
after seeking to notify the Tenant, have power in the absence
of the Tenant from the Premises to break open any outer door
or windows of the Premises and to do such other things as may
be necessary to prevent the Premises from being damaged or
injured or further damaged or injured and in such event the
Landlord shall not be answerable to the Tenant for any loss or
damage which the Tenant may sustain thereby.
8. The Tenant shall on the signing hereof deposit and maintain
with the Landlord the sum of HK$156,882.00 being the total sum
of two (2) months rental, air-conditioning charges, management
fee and government rate to secure the due observance and
performance by the Tenant of agreements, stipulations, terms
and conditions herein contained and on the Tenant's part to be
observed and performed. The said deposit shall be retained by
the Landlord throughout the said term free of any interest to
the Tenant. Subject as aforesaid, the said deposit shall be
refunded to the Tenant by the Landlord within seven (7) days
after the expiration or sooner determination of this Agreement
and the delivery of vacant possession to the Landlord
whichever is the later.
9. Subject to Clause 8 hereinabove, in the event of the Sale of
the Premises to a Purchaser or to the entering into possession
of the Premises by a mortgagee the Landlord shall refund the
deposit to the Tenant within seven (7) days without interest
unless the Landlord is able to procure that the Purchaser or
mortgagee, as the case may be, gives an undertaking to the
Tenant for the refund of the deposit as provided herein.
10.01 At the expiration of the term hereby created and upon the
Tenant's giving notice not later than three (3) months before
the expiration of the original term and subject to the consent
of the Landlord's Mortgagee at the date hereof, the Tenant
shall have the option to renew the tenancy for a further term
of One Year on the same terms and conditions as are herein
contained (save for this provision for renewal) and save as to
the rental payable during the renewal term which shall be the
prevailing market rent (also exclusive of
32
<PAGE>
rates, air-conditioning charges and management fee).
10.02 The prevailing market rent payable from 1st November 2001
until 31st October 2002 (the "further term") shall be agreed
at any time between the Landlord and the Tenant or (in the
absence of agreement) determined by an independent surveyor
and valuer (acting as an expert and not as an arbitrator) that
valuer to be nominated in the absence of agreement by or on
behalf of the President for the time being of the Hong Kong
Institute of Surveyors on the application of the Landlord or
the Tenant made not earlier than two months before the
commencement of the further term. The revised rent to be
determined by the valuer shall be that which he shall decide
should be the open market monthly rent at the commencement of
the further term for the Premises:
(a) on the following assumption at that date:
(i) that the Premises are fit for immediate
occupation and use and that no work has been
carried out to the Premises during the term
which has diminished the rental value of the
Premises and that in case the Premises have
been destroyed or damaged they have been
fully reinstated and restored;
(ii) that the Premises are available to let by a
willing landlord to a willing tenant as a
whole without a premium but with vacant
possession and subject to the provisions of
this Agreement (other than the amount of the
rent reserved and this option to renew) for
the further term; and
(iii) that all the covenants on the part of the
Tenant in this Agreement have been fully
performed and observed.
AND having regard to open market rental values
current at the Commencement of the further term for
similar office accommodation elsewhere in the
Building and/or in similar office buildings in Hong
Kong with attributes comparable to those of the
Building;
(b) but disregarding;
(i) any effect of the fact that the Tenant has
been in occupation of the Premises;
(ii) any goodwill attached to the Premises by
reason of the Tenant carrying on its
business at the Premises; and
(iii) any increase in rental value of the Premises
attributable to the existence at the
commencement of the further term of any
improvement to the Premises or any part
thereof by the Tenant.
10.03 (a) The fees and expenses of the valuer appointed under
clause 10.02 including the cost of his appointment
shall be borne by the Tenant
33
<PAGE>
and the Landlord in equal shares;
(b) The valuer shall afford to each of the parties an
opportunity to make representations to him and shall
give a written decision with reasons. Such decision
shall be conclusive and binding on the parties
hereto; and
(c) If the valuer shall die, delay, or become unwilling
or incapable of acting or if for any other reason the
President for the time being of the Hong Kong
Institute of Surveyors or the person acting on his
behalf shall in his absolute discretion think fit he
may in writing discharge the valuer and appoint
another in his place.
10.04 (a) If the revised rent payable on and from the
commencement of the further term has not been agreed
by that date rent shall continue to be payable at the
rate previously payable and within 15 days of the
revised rent being ascertained the Tenant shall pay
to the Landlord any shortfall between the rent paid
and the revised rent payable up to and on the
preceding day for payment of rent or the Landlord
shall refund to the Tenant any overpayment made for
such period.
(b) For the purposes of this proviso the revised rent
shall have been ascertained on the date when the same
has been agreed between the parties or the date of
the determination by the valuer.
34
<PAGE>
THE FIRST SCHEDULE ABOVE REFERRED TO
NAMES ADDRESSES AND DESCRIPTIONS OF PARTIES HERETO
LANDLORD : Petergrand Limited whose registered office is situate at
Room 713, Tung Ying Building, 100 Nathan Road, Kowloon,
Hong Kong.
TENANT :
Toymax (H.K.) Limited whose registered office is situate at
Units A and B, 3rd Floor, CDW Building, 388 Castle Peak Road,
Tsuen Wan, New Territories, Hong Kong.
THE SECOND SCHEDULE ABOVE REFERRED TO
ALL THOSE Units 4 and 5 on 9th Floor of Greenfield Tower Concordia Plaza,
No. 1 Science Museum Road, Tsimshatsui, Kowloon, Hong Kong with approximate
area of 4,754 sq. ft. gross.
THE THIRD SCHEDULE ABOVE REFERRED TO
Term :2 Years
Commencing: 1st November 1999
Expiring : 31st October 2001
Rent : Dollars Seventy-eight Thousand Four Hundred and Forty-one Only
(HK$78,441.00) Hong Kong Currency (exclusive of Rates, air-
conditioning charges and Management Fee) and payable in advance
clear of all deductions on the 1st day of each and every month
the first of such payments has been paid by the Tenant on the
signing of the Confirmation Letter signed by the Landlord and
Tenant on 27th September 1999 as the Landlord hereby admits and
acknowledges PROVIDED THAT the rent shall not be payable by the
Tenant for the period from 1st November 1999 to 31st December
1999 (both dates inclusive) being the rent free period on the
condition that the Tenant shall still be responsible for the
payment of rates, air-conditioning charges, management fees
and all other utility charges during the said rent free period.
35
<PAGE>
IN WITNESS whereof the hands of the parties hereto the day and
year first above written.
SIGNED by ) For and on behalf of
for and on behalf of the ) PETERGRAND LIMITED.
Landlord whose signature )
is verified by- - --------------------------
Authorized Signature
Solicitor, Hong Kong SAR
the Director For and on behalf of
SIGNED by CHU KI KWAN, ) TOYMAX (H.K.) LIMITED
for and on behalf of the )
Tenant whose signature is )
verified by- - --------------------------
Authorized Signature
NG KIN YUEN
Solicitor, Hong Kong SAR
LIU, CHAN AND LAM
RECEIVED the day and year first above written HK$156,882.00
)
of and from the Tenant the sum of Dollars ONE )
HUNDRED FIFTY-SIX THOUSAND EIGHT )
HUNDRED AND EIGHTY-TWO Hong Kong )
Currency being the deposit money above )
expressed to be paid by the Tenant to the )
Landlord )
W I T N E S S to the signature by :-
Solicitor, Hong Kong SAR
36
<PAGE>
DATED THE 1ST DAY OF NOVEMBER 1999.
TENANCY AGREEMENT
Term: 2 years
Commencing: 1st November 1999
Expiring: 31st October 2001
Rent: HK$78,441.00 (exclusive of Rates,
air-conditioning charges and
management fee)
Deposit: HK$156,882.00
Peter K.S. Chan & Co.
1. the undersigned, do hereby certify that Solicitors
I have examined/the foregoing document Rooms 1203-1205,
with its original and that the same is a Wing On Centre,
true and complete copy thereof. 111 Connaught Road Central,
Hong Kong.
PETER CHAN KIN SANG
Solicitor, Hong Kong SAR. Tel: 2868 0260 Fax: 2523 2632
Dated . 9 NOV 1999 Ref: PC99/P1/0934/ccc
Code - c:/cccJO934ta.doc
37
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,714
<SECURITIES> 0
<RECEIVABLES> 16,521
<ALLOWANCES> 9,420
<INVENTORY> 15,582
<CURRENT-ASSETS> 84,691
<PP&E> 14,572
<DEPRECIATION> 8,898
<TOTAL-ASSETS> 121,564
<CURRENT-LIABILITIES> 76,561
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 44,722
<TOTAL-LIABILITY-AND-EQUITY> 121,564
<SALES> 112,995
<TOTAL-REVENUES> 112,995
<CGS> 70,253
<TOTAL-COSTS> 70,253
<OTHER-EXPENSES> (156)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 827
<INCOME-PRETAX> 1,922
<INCOME-TAX> 296
<INCOME-CONTINUING> 1,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,626
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
