<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1996
--------------
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _________ to _________
Commission file number: 0-17927
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JANEX INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1034251
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
21700 Oxnard Street, Suite 1610, Woodland Hills, California 91367
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (818) 593-6777
--------------
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes X No
----- -----
As of April 30, 1996, the issuer had 5,046,721 shares of its common stock
outstanding.
Transitional Small Business Disclosure Format:
Yes No X
----- -----
Total sequentially numbered pages in this document: 16.
1
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Sequential
Page
Numbers
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited) - December 31, 1995 and
March 31, 1996 3 - 4
Condensed Consolidated Statements of
Operations (Unaudited) - Three Months
Ended March 31, 1995 and 1996 5
Condensed Consolidated Statements of
Cash Flows (Unaudited) - Three Months
Ended March 31, 1995 and 1996 6 - 7
Notes to Condensed Consolidated
Financial Statements (Unaudited) -
Three Months Ended March 31, 1995
and 1996 8 - 11
Item 2. Management's Discussion and
Analysis or Plan of Operation 12 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - ASSETS
DECEMBER 31, 1995 AND MARCH 31, 1996
<TABLE>
<CAPTION>
March 31, December
1996 31, 1995
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 162,051 $ 783,564
Certificate of deposit (Note 5) 500,000 500,000
Accounts receivable, net 463,553 494,987
Inventories - principally
finished goods 509,226 605,623
Prepaid royalties 143,495 119,995
Other current assets 136,811 143,761
---------- ----------
Total current assets 1,915,136 2,647,930
Property and equipment, net 539,894 359,674
Intangible assets, net 2,190,322 2,245,352
Product development costs, net 197,277 184,026
Other assets 11,985
---------- ----------
$4,842,629 $5,448,967
========== ==========
</TABLE>
(continued)
3
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) -
LIABILITIES AND STOCKHOLDERS' EQUITY (CONTINUED)
DECEMBER 31, 1995 AND MARCH 31, 1996
<TABLE>
<CAPTION>
March 31, December
1996 31, 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable - bank (Note 5) $ 400,000 $ 751,425
Notes payable - stockholders 458,760 458,760
Loan payable - agent (Note 6) 85,000
Note payable 500,000 500,000
Accounts payable 473,895 355,834
Accrued expenses 523,387 503,715
Income taxes payable 7,815 6,586
----------- -----------
Total current liabilities 2,448,857 2,576,320
----------- -----------
Commitments and contingencies
(Notes 2 and 3)
Stockholders' equity (Note 4):
Class A convertible preferred
stock, no par value;
authorized - 5,000,000 shares;
issued and outstanding - none
Common stock, no par value;
authorized - 20,000,000 shares;
issued and outstanding -
5,046,721 shares 11,138,941 11,054,816
Accumulated deficit (8,745,169) (8,182,169)
----------- -----------
Total stockholders' equity 2,393,772 2,872,647
----------- -----------
$ 4,842,629 $ 5,448,967
=========== ===========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
4
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales $ 894,306 $ 782,754
---------- ----------
Costs and expenses:
Cost of sales 531,695 411,509
Selling, general and
administrative expenses 798,872 678,151
Royalty expense 33,192 85,049
---------- ----------
Total costs and expenses 1,363,759 1,174,709
---------- ----------
Operating loss (469,453) (391,955)
Other income (expense):
Interest income 11,663 14,529
Interest expense (14,795) (13,807)
Foreign exchange loss (1,194)
Loss from settlement
with warrant holder (Note 4) (84,125)
---------- ----------
Total other income (expense) (88,451) 722
---------- ----------
Loss before income taxes (557,904) (391,233)
Income tax provision 5,096 1,600
---------- ----------
Net loss $ (563,000) $ (392,833)
========== ==========
Net loss per common share $ (.11) $ (.08)
========== ==========
Weighted average number of
common shares outstanding 5,046,721 4,711,721
========== ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
5
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
Increase (decrease) in cash
and cash equivalents 1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (563,000) $ (392,833)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Provision for losses on
accounts receivable, net 45,247 14,996
Amortization 105,430 90,198
Depreciation 31,356 40,536
Foreign exchange loss 1,194
Loss from settlement with warrant
holder 84,125
Changes in operating assets
and liabilities:
(Increase) decrease in -
Accounts receivable (24,115) 576,698
Inventories 96,397 44,768
Prepaid royalties (23,500) (27,962)
Other current assets 6,950 (27,787)
Other assets 11,985 (306)
Increase (decrease) in -
Accounts payable 118,061 (271,293)
Accrued expenses 19,672 (256,173)
Income taxes payable 1,229 522
---------- ----------
Net cash used in operating activities (88,969) (208,636)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (205,467) (38,722)
Additions to product development costs (60,652) (98,572)
---------- ----------
Net cash used in investing activities (266,119) (137,294)
---------- ----------
</TABLE>
(continued)
6
<PAGE>
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
Increase (decrease) in cash
and cash equivalents 1996 1995
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from exercise of common
stock purchase warrants $ $ 64,000
Repayment of loan payable - bank (351,425)
Proceeds from loan payable - agent 85,000
Net cash provided by (used in) --------- ----------
financing activities (266,425) 64,000
--------- ----------
Cash and cash equivalents:
Net decrease (621,513) (281,930)
At beginning of period 783,564 1,072,021
---------- ----------
At end of period $ 162,051 $ 790,091
========= ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
7
<PAGE>
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization - Janex International, Inc. was incorporated in Colorado on July
- ------------
28, 1986, and is the parent corporation of With Design in Mind, a California
corporation, Janex Corporation ("Janex"), a New Jersey corporation, and Malibu
Fun Stuffed ("Malibu"), a California corporation, all of which are wholly-owned
subsidiaries. Janex International, Inc. is also the parent corporation of Pro
Gains Company Limited ("Pro Gains"), a Hong Kong corporation, owned 50% by Janex
International, Inc. and 50% by Janex. Malibu Fun Stuffed International Limited
("MFSI"), a Hong Kong corporation, is owned 99% by Malibu and 1% by Janex
International, Inc. As used in this report, the "Company" refers to Janex
International, Inc. and its subsidiaries, unless the context indicates
otherwise.
Business - The Company's business is conducted primarily through its
- --------
subsidiaries, Janex, Pro Gains, Malibu and MFSI, and consists mainly of
developing, manufacturing (through subcontractors), marketing and selling toys
and functional children's products ("Children's Products"). These products
include (1) coin and gumball banks, flashlights, battery-operated toothbrushes
and clocks marketed under the brand name "Janex" and (2) plush, pool toys, video
sets and children's watches marketed under the brand name "Malibu Fun Stuffed!",
all of which retail for prices between $3 and $40. The Children's Products are
manufactured to the Company's specifications by manufacturers based in Macau,
China and the United States, and are sold nationwide to mass merchant retailers,
toy specialty stores, department stores and gift shops through a network of
independent sales representative firms.
Basis of Presentation - The accompanying consolidated financial statements are
- ---------------------
unaudited but, in the opinion of management of the Company, contain all
adjustments necessary to present fairly the financial position at March 31,
1996, the results of operations for the three months ended March 31, 1995 and
1996, and the changes in cash flows for the three months ended March 31, 1995
and 1996. These adjustments are of a normal recurring nature. The consolidated
balance sheet as of December 31, 1995 is derived from the Company's audited
financial statements. The accompanying consolidated financial statements include
the operations of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in financial
statements that have been prepared in accordance with generally accepted
accounting principles have been condensed or
8
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JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although management of the Company believes that the disclosures
contained in these financial statements are adequate to make the information
presented therein not misleading. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995, as
filed with the Securities and Exchange Commission.
Seasonality - Because of the seasonality of the Company's business, the results
- -----------
of operations for the three months ended March 31, 1996 are not necessarily
indicative of the results of operations to be expected for the full fiscal year
ending December 31, 1996.
Net Loss Per Share - Net loss per share is based on the weighted average number
- ------------------
of shares of common stock outstanding during the respective periods presented.
Common stock equivalents are not included in the calculation of loss per share
as their effect would be anti-dilutive.
Pro Forma Information - Malibu and its affiliate, MFSI, were acquired in August
- ---------------------
1995 in a transaction accounted for under the purchase method of accounting. As
the combined results of operations of Malibu and MFSI during 1995 were not
material in relation to the Company's consolidated results of operations, 1995
pro forma financial information is not presented.
2. GOING CONCERN
The Company has suffered losses from operations in two out of the last three
fiscal years, and had a net loss of $563,000 and a negative cash flow of
$621,513 for three months ended March 31, 1996. In addition, the Company's net
working capital decreased by $605,331, from working capital of $71,610 at
December 31, 1995 to a working capital deficit of $533,721 at March 31, 1996.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company has been able to continue in operation through the financial support
provided by a combination of debt and equity financing. Continued operations
depend upon the Company continuing to obtain financing for its activities.
Management's plan for the Company includes raising additional working capital
through debt and/or equity financing until profitable operations and positive
cash flow are achieved and maintained, which management believes are in the near
future. However, no assurances can be given that the Company will be successful
in
9
<PAGE>
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
2. GOING CONCERN (continued)
raising additional capital. Further, should the Company be successful in
raising additional capital, there is no assurance that the Company will achieve
profitability or positive cash flow. If the Company is unable to obtain
adequate additional financing, management will be required to curtail the
operations of the Company.
3. LEGAL PROCEEDINGS
On May 27, 1993, a class action lawsuit (the "Lawsuit") was filed by Kevin J.
O'Rourke and Patricia Ann O'Rourke (the "Plaintiffs") against the Company and
other parties in the United States District Court for the Central District of
California (the "Court"). On May 24, 1994, on Motion by the Company, the Lawsuit
was dismissed, but the Plaintiffs were given 45 days to amend their complaint.
On July 8, 1994, the plaintiffs filed their Second Amended Complaint.
Thereafter, settlement negotiations ensued without success. On May 6, 1996, the
Plaintiffs filed a voluntary Request for Dismissal of the Lawsuit, which the
Court entered without prejudice on May 7, 1996.
4. WARRANT AGREEMENT AND SETTLEMENT
Under the terms of the warrant agreement granting Deco Disc warrants to purchase
500,000 shares of the Company's common stock (the "Warrant Agreement"), the
Company was obligated to register the stock underlying the warrants, and to use
its best efforts to maintain the registration statement effective during the
period
10
<PAGE>
JANEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
4. WARRANT AGREEMENT AND SETTLEMENT (continued)
the warrants are exercisable. Deco Disc threatened to sue the Company, claiming
that the Company did not file the registration statement on a timely basis, and
that the registration statement was not kept effective by the Company, resulting
in Deco Disc being damaged. In order to avoid any potential litigation, on March
26, 1996, the Company and Deco Disc entered into a Settlement Agreement and
Specific Release under which the Company issued to Deco Disc additional warrants
to purchase 100,000 shares of the Company's common stock (restricted), with
certain "piggy-back" registration rights, at a price of $.64 per share, in
exchange for Deco Disc releasing the Company from any and all prior claims
relating to violations of the Warrant Agreement, and failure to update the
registration statement. As a result of the foregoing transaction, during the
three months ended March 31, 1996, the Company recorded a charge to operations
of $84,125 as management's estimate of the fair value of the 100,000 common
stock purchase warrants.
5. LOAN PAYABLE - BANK
The Company had a $1,000,000 line of credit with a bank with interest at 9.5%,
pursuant to a loan agreement which expired on May 3, 1996. The line of credit is
secured by a $500,000 certificate of deposit purchased from the bank and a first
priority secured interest in all of the assets of the Company. The outstanding
balance on the line of credit was $751,425 at December 31, 1995. On March 20,
1996, the Company and the bank agreed to reduce the amount available under the
line of credit to $500,000 (including the ability of the Company to utilize the
line of credit to issue up to $100,000 of stand-by letters of credit), and the
bank waived certain covenant violations under the original loan agreement.
Accordingly, at March 31, 1996, the outstanding balance under the line of credit
had been reduced by $351,425 to $400,000. The Company is currently in
negotiations with the bank to restructure and extend the loan agreement, and
expects to conclude the negotiations during June 1996. There can be no
assurances as to the ultimate resolution of these negotiations.
6. LOAN PAYABLE - AGENT
Pursuant to an Agency Agreement dated October 23, 1995, the Company, through its
Hong Kong subsidiaries, Pro Gains and MFSI, may borrow up to $300,000 from its
Hong Kong agent for the payment of product development and tooling costs,
provided that the Company issues to the agent an irrevocable stand-by letter of
credit for $100,000. The loan is to be repaid from collections of certain
customer invoices at the rate of 5% of the invoice amount, with interest at 2%
above the Hong Kong prime rate, and any balance remaining unpaid at December 31,
1996 will be due and payable on January 15, 1997. The agent will retain
ownership of all tooling paid for with the credit facility until the credit
facility is repaid. The credit facility is available in each year that the
Agency Agreement is in effect, which was for an initial term of two years. On
March 22, 1996, the Company opened the stand-by letter of credit to the agent.
As of March 31, 1996, the Company had borrowed $85,000 under this credit
facility.
7. SUBSEQUENT EVENTS
(a) The Board of Directors extended the expiration date of the Company's
Class A Warrants from May 9, 1996 to May 9, 1999.
(b) Effective as of April 19, 1996, pursuant to a Revolving Credit Agreement
with an individual lender (who is also a significant shareholder of the
Company)(the "Lender") that expires on October 19, 1999 (the "Agreement"), Janex
Corporation arranged to borrow up to $900,000, with interest at 9.5% payable
quarterly. The Agreement is secured by all of the assets of Janex Corporation,
and the guaranty of Janex International, Inc. As additional consideration, the
Company granted the Lender warrants to purchase up to 900,000 shares of the
Company's common stock (restricted), with certain "piggy-back" registration
rights, exercisable at a price of $1.45 per share through April 19, 2000. The
warrants vest in equal increments of 180,000 on the first day of consecutive
six-month periods commencing April 19, 1996. However, to the extent that amounts
borrowed under the Agreement are paid off and the Agreement is canceled during
its term, any unvested warrants shall be void. As of May 17, 1996, the Company
had borrowed $100,000 pursuant to the Agreement.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Consolidated Results of Operations - Three Months Ended March 31, 1995 and 1996:
Net Sales
- ---------
For the three months ended March 31, 1996, net sales increased by $111,552
or 14.3%, to $894,306, as compared to net sales of $782,754 for the three months
ended March 31, 1995. The increase in net sales is a result of increased sales
to Europe and Canada, as well as sales generated by Malibu Fun Stuffed and its
affiliate, Malibu Fun Stuffed International, which the Company acquired in
August 1995. A substantial portion of 1996 net sales consisted of products
incorporating characters licensed from The Walt Disney Company (42%) and the
"Looney Tunes" characters licensed from Warner Bros. Corporation (39%), whereas
a substantial portion of 1995 net sales consisted of products incorporating
characters licensed from The Walt Disney Company (44%) and characters featured
on the television show Mighty Morphin Power Rangers (34%).
At March 31, 1996, the Company had a backlog of unfilled orders of
approximately $4,000,000, comparable with its order backlog of approximately
the same amount at March 31, 1995. Although orders are booked throughout the
fiscal year, historically as much as 50% of the Company's business is booked
during the second fiscal quarter. Although the Company has noted a general
slowdown in order flow in 1996 as compared to prior years, the present backlog
is not necessarily indicative of net sales to be expected for the full fiscal
year ending December 31, 1996.
Gross Profit
- ------------
For the three months ended March 31, 1996, gross profit was $362,611 or
40.5% of net sales, as compared to $371,245 or 47.4% of net sales for the three
months ended March 31, 1995. The Company typically establishes prices to obtain
a target gross margin ranging from 45% to 50%, but overall gross margin can vary
depending on the sales mix in each quarter. The decrease in gross margin in 1996
as compared to 1995 was primarily the result of the Company taking markdowns in
1996 to closeout certain slow-moving inventory.
Selling, General and Administrative Expenses
- --------------------------------------------
For the three months ended March 31, 1996, selling, general and
administrative expenses increased by $120,721, or 17.8%, to $798,872 or 89.3% of
net sales, as compared to $678,151 or 86.6% of net sales for the three months
ended March 31, 1995. Selling, general and administrative expenses are comprised
of fixed overhead costs and variable selling expenses. The increase in selling,
general and administrative expenses is consistent with the increase in net
sales and included additional costs relating to Malibu Fun Stuffed and Malibu
Fun Stuffed International.
12
<PAGE>
Royalty Expense
- ---------------
For the three months ended March 31, 1996, royalty expense was $33,192 or
3.7% of net sales, as compared to $85,049 or 10.9% of net sales for the three
months ended March 31, 1995. Typical royalty contracts include royalty rates
ranging from 8% to 16%. The decrease in royalty expense in 1996 as compared to
1995 was primarily the result of a shift in the sales mix in 1996 to a higher
proportion of non-royalty sales, which included sales to Europe and sales by
Malibu Fun Stuffed and Malibu Fun stuffed International Limited.
Loss from Settlement with Warrant Holder
- ----------------------------------------
Under the terms of the warrant agreement granting Deco Disc warrants to
purchase 500,000 shares of the Company's common stock (the "Warrant Agreement"),
the Company was obligated to register the stock underlying the warrants, and to
use its best efforts to maintain the registration statement effective during the
period the warrants are exercisable. Deco Disc threatened to sue the Company,
claiming that the Company did not file the registration statement on a timely
basis, and that the registration statement was not kept effective by the
Company, resulting in Deco Disc being damaged. In order to avoid any potential
litigation, on March 26, 1996, the Company and Deco Disc entered into a
Settlement Agreement and Specific Release under which the Company issued to Deco
Disc additional warrants to purchase 100,000 shares of the Company's common
stock (restricted), with certain "piggy-back" registration rights, at a price of
$.64 per share, in exchange for Deco Disc releasing the Company from any and all
prior claims relating to violations of the Warrant Agreement, and failure to
update the registration statement. As a result of the foregoing transaction,
during the three months ended March 31, 1996, the Company recorded a charge to
operations of $84,125 as mangement's estimate of the fair value of the 100,000
common stock purchase warrants.
Net Loss
- --------
The reasons for the increase in net loss in 1996 as compared to 1995 are
summarized above. For the three months ended March 31, 1996, the net loss was
$563,000, or $.11 per share, as compared to a net loss of $392,833, or $.08 per
share, for the three months ended March 31, 1995 .
13
<PAGE>
Consolidated Financial Condition - March 31, 1996:
Liquidity and Capital Resources
- -------------------------------
The Company's cash balance decreased by $621,513 to $162,051 at March 31,
1996, as compared to $783,564 at December 31, 1995. The Company's net working
capital decreased by $605,331, from working capital of $71,610 at December 31,
1995 to a working capital deficit of $533,721 at March 31, 1996, and the
Company's current ratio declined to 78:1 at March 31, 1996 as compared to 1.03:1
at December 31, 1995. For the three months ended March 31, 1996, the Company's
operations utilized cash resources of $88,969, as compared to utilizing cash
resources of $208,636 for the three months ended March 31, 1995, primarily as a
result of a decrease in inventories and an increase in accounts payable during
the three months ended March 31, 1996.
During the three months ended March 31, 1996, as part of the Company's
continuing program of capital investment in new products and licenses, the
Company incurred additions to property and equipment, reflecting tooling and
molds related to new licenses, of $205,467, and additions to product
development costs of $60,652.
Under the terms of the stock purchase agreement for the acquisition of
Janex Corporation, the Company was obligated to pay a $1,000,000 note in
semi-annual installments over a three-year period. The first three payments of
$166,667 each were made on June 30, 1994, December 31, 1994 and June 30, 1995.
At December 31, 1995, the present value of the remaining balance due was
$458,760. On December 29, 1995, the note holders agreed to a deferral of the
payment due on December 31, 1995 to June 30, 1996. As a condition of the
deferral, the Company is obligated to pay the note holders interest on the
deferred payments at 9% from December 31, 1995 through the date of payment. The
Company has commenced negotiations with the note holders to extend the repayment
dates, however, there can be no assurances that the Company will be successful
in this regard.
The Company had a $1,000,000 line of credit with a bank with interest at
9.5%, pursuant to a loan agreement which expired on May 3, 1996. The line of
credit is secured by a $500,000 certificate of deposit purchased from the bank
and a first priority security interest in all of the assets of the Company. The
outstanding balance on the line of credit was $751,425 at December 31, 1995. On
March 20, 1996, the Company and the bank agreed to reduce the amount available
under the line of credit to $500,000 (including the ability of the Company to
utilize the line of credit to issue up to $100,000 of stand-by letters of
credit), and the bank waived certain covenant violations under the original loan
agreement. Accordingly, at March 31, 1996, the outstanding balance under the
line of credit had been reduced by $351,425 to $400,000. The Company is
currently in negotiations with the bank to restructure and extend the loan
agreement, and expects to conclude the negotiations during June 1996. There can
be no assurances as to the ultimate resolution of these negotiations.
On December 22, 1995, the Company borrowed $500,000 in a private unsecured
loan transaction, with interest at prime plus 2%. Under the terms of the loan
agreement, payments are to be made on a periodic basis based upon the level of
certain sales. If the loan is not fully repaid by October 1, 1996, the remaining
balance becomes immediately due and payable. At March 31, 1996, the outstanding
balance on this loan was $500,000.
Pursuant to an Agency Agreement dated October 23, 1995, the Company,
through its Hong Kong subsidiaries, Pro Gains and MFSI, may borrow up to
$300,000 from its Hong Kong agent for the payment of product development and
tooling costs, provided that the Company issues to the agent an irrevocable
stand-by letter of credit for $100,000. The loan is to be repaid from
collections of certain customer invoices at the rate of 5% of the invoice
amount, with interest at 2% above the Hong Kong prime rate, and any balance
remaining unpaid at December 31, 1996 will be due and payable on January 15,
1997. The agent will retain ownership of all tooling paid for with the credit
facility until the credit facility is repaid. The credit facility is available
in each year that the Agency Agreement is in effect, which was for an initial
term of two years. On March 22, 1996, the Company opened the stand-by letter of
credit to the agent. As of March 31, 1996, the Company had borrowed $85,000
under this credit facility.
Effective as of April 19, 1996, pursuant to a Revolving Credit Agreement
with an individual lender (who is also a significant shareholder of the Company)
(the "Lender") that expires on October 19, 1999 (the "Agreement"), Janex
Corporation arranged to borrow up to $900,000, with interest at 9.5% payable
quarterly. The Agreement is secured by all of the assets of Janex Corporation,
and the guaranty of Janex International, Inc. As additional consideration, the
Company granted the Lender warrants to purchase up to 900,000 shares of the
Company's common stock (restricted), with certain "piggy-back" registration
rights, exercisable at a price of $1.45 per share through April 19, 2000. The
warrants vest in equal increments of 180,000 on the first day of consecutive
six-month periods commencing April 19, 1996. However, to the extent that amounts
borrowed under the Agreement are paid off and the Agreement is canceled during
its term, any unvested warrants shall be void. As of May 17, 1996, the Company
had borrowed $100,000 pursuant to this Agreement.
The Company believes that its existing cash balance, together with its
lines of credit and cash flow from operations, will be sufficient to fund order
flow and overhead for the remainder of the fiscal year ending December 31, 1996.
However, depending on the availability of financing and the results of its
operations, the ability of the Company to fund new licenses and develop new
products may be constrained. In order to fund any potential working capital
deficiency that may develop in 1996 as a result of the debt repayment
obligations referred to above, the Company continues to engage in discussions
with various financing sources. There can be no assurances that any additional
financing necessary to fund the debt service obligations and/or the operations
of the Company will be available on a timely basis and/or under acceptable terms
and conditions. To the extent that the Company's sales are limited by the
availability of working capital, the Company would be required to reduce
operations to a level consistent with its available working capital.
14
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
On May 27, 1993, a class action lawsuit (the "Lawsuit") was filed by Kevin
J. O'Rourke and Patricia Ann O'Rourke (the "Plaintiffs") against the Company and
other parties in the United States District Court for the Central District of
California (the "Court"). On May 24, 1994, on Motion by the Company, the
Lawsuit was dismissed, but the Plaintiffs were given 45 days to amend their
complaint. On July 8, 1994, the Plaintiffs filed their Second Amended
Complaint. Thereafter, settlement negotiations ensued without success. On May
6, 1996, the Plaintiffs filed a voluntary Request for Dismissal of the Lawsuit,
which the Court entered without prejudice on May 7, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27 Financial Data Schedule (electronic filing only)
(b) Current Reports on Form 8-K -
Three Months Ended March 31, 1996: None.
15
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
JANEX INTERNATIONAL, INC.
-------------------------
(Registrant)
Date: May 20, 1996 By: /s/ SHELDON F. MORICK
-------------------------
Sheldon F. Morick
President and Director
(Duly authorized officer
and acting principal
financial officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1996 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 162,051
<SECURITIES> 0
<RECEIVABLES> 463,553
<ALLOWANCES> 0
<INVENTORY> 509,226
<CURRENT-ASSETS> 1,915,136
<PP&E> 539,894
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,842,629
<CURRENT-LIABILITIES> 2,448,857
<BONDS> 0
0
0
<COMMON> 11,138,941
<OTHER-SE> (8,745,169)
<TOTAL-LIABILITY-AND-EQUITY> 4,842,629
<SALES> 894,306
<TOTAL-REVENUES> 894,306
<CGS> 531,695
<TOTAL-COSTS> 531,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,795
<INCOME-PRETAX> (557,904)
<INCOME-TAX> 5,096
<INCOME-CONTINUING> (563,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (563,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
