<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K/A
(MARK ONE) AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NO: 0-20612
______________________
JUST TOYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3677074
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
50 WEST 23RD STREET, NEW YORK, NEW YORK 10010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 645-6335
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.01 PAR VALUE
(TITLE OF CLASS)
________________________________________________________________________________
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. Yes X No
--- ===
<PAGE>
JUST TOYS, INC.
INDEX TO FORM 10-K/A
Item Number Page
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ITEM 2 - PROPERTIES Page -1-
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page -2-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page -11-
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Page -12-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K Page -14-
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value at March 25, 1996 of shares of the Registrant's
Common Stock, $.01 par value (based upon the closing price per share of such
stock on NASDAQ) held by non-affiliates of the Registrant was approximately
$4,751,000. Solely for the purposes of this calculation, shares held by
directors and officers of the Registrant have been excluded. Such exclusion
should not be deemed a determination or an admission by the Registrant that such
individuals are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At March 25, 1996, there were
outstanding 4,150,000 shares of the Registrant's Common Stock, $.01 par value.
<PAGE>
ITEM 2 - PROPERTIES
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The Company's principal executive offices and showroom are located in New
York City. The Company leases approximately 10,588 square feet of office space
under a lease expiring in December 1997. Under certain circumstances, the
Company has the right to renew its lease for an additional 2- 1/2 years. The
space is adequate for the Company's current needs and has room for modest
expansion.
The Company had previously subleased a portion of a showroom in the Toy
Center Building at 200 Fifth Avenue, New York, New York. The sublease expired
at the end of 1995. In November, 1995, the Company entered into a new lease for
a showroom in the Toy Center Building consisting of approximately 3,200 square
feet and expiring in April 2008. The new showroom is adequate for the Company's
needs and has sufficient capacity to accommodate growth in the Company's product
line as well as the large size of some of the Company's new products.
The Company owned and occupied approximately 5,899 square feet of office
space in Hong Kong. On March 22, 1996, the Company signed an Agreement for Sale
and Purchase which provided for the sale of the Hong Kong property for
approximately $3,166,000. On April 15, 1996, the Company leased approximately
3,400 square feet of office space for a term expiring in April 1999. The leased
space replaces the Company's owned space which has been sold and is adequate for
the Company's needs.
The Company's Celt subsidiary owns an approximately 31,000 square foot
manufacturing facility in Brockport, New York. The facility is made of metal
panel and brick and is unencumbered. The Company manufactures its foam balls
and related products in that facility. The Company has increased the production
capacity of the Celt facility through increases in manufacturing efficiencies.
The Company believes that the facility is suitable for the Company's current
manufacturing activities. The Company leases warehouse space in upstate New
York and also utilizes public warehouse facilities in New Jersey, California and
Washington.
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RECENT DEVELOPMENTS
The Company reported a loss of approximately $8,787,000 for the year ended
December 31, 1995, compared to a loss of approximately $15,721,000 in the prior
year. The loss in 1995 was largely attributable to factors relating to the
efforts of the Company's new management team to reposition the Company. For
example, the following write offs and items of expense occurred in 1995:
1. The carrying value of the Company's Hong Kong facility was written
down by an aggregate of $1,578,000 following the decision to effect
its sale. A portion of the write down was reflected in the first
quarter based upon information received by the Company at that time
from several real estate brokers in Hong Kong as to the value of the
property. The balance was taken in the fourth quarter to reflect
anticipated net proceeds of the actual sale, the terms of which were
agreed to in early 1996.
2. Approximately $909,000 was attributable to the cost of the settlement
and related legal expense of an arbitration proceeding and a related
lawsuit by the former senior executives of the Company which was
settled in the last quarter.
3. The Company wrote off $976,000 of barter credits. The credits
continue to be available to the Company but management does not
reasonably expect to realize the value of these credits.
4. Tooling of $223,000 associated with discontinued products was written
off.
5. Royalties of $375,000 which were pre-paid or accrued for discontinued
items were written off.
6. $539,000 in write downs of obsolete and slow moving inventory were
made.
7. $315,000 constitutes expenses that have been paid or accrued for
claims relating to the Company's discontinued Micro-Bake product.
Following the installation of the Company's new management team in March of
1995, steps to return the Company to profitability were taken. The Company
implemented a significant work force reduction and a restructuring of the
Company's operations. The Company's product line and sourcing and manufacturing
methods were re-examined and appropriate changes made including the sale of the
Company's Hong Kong facility and reduction in the size of the Company's Hong
Kong operations. The Company acquired the remaining 50% joint venture interest
in Celt which is anticipated will permit the Company to better control its
manufacturing operations. Non-profitable items were discontinued and the
Company ceased to seek new character licenses which carry substantial minimum
royalty guarantees. The Company has undertaken to selectively acquire new
product lines believed to have long term strength and continuity and which do
not rely on the intellectual property rights of others. This resulted in the
Company's acquisition of the line of play tables and toy construction blocks
formerly sold by Table Toys, Inc. and the toy line and rights to use the "Welsh"
name for toys from Welsh. The results of operations for fiscal 1995 represent a
year of transition. The Company expects that the changes implemented in 1995
will be reflected in the results for 1996 although the effects of the Company's
introduction of its newly acquired products is not expected to be reflected
fully until fiscal 1997. The toy industry generally
Page -2-
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has remained difficult and this has also impacted the Company's performance.
Although it is difficult for the Company to predict accurately its sales for
1996, the Company believes that as a result of the actions implemented by the
new management team, the Company expects to return its operations to
profitability in 1996. There can be no assurance that revenues or results of
operations will meet the Company's expectations.
The Company does not regularly engage in barter transactions in the
ordinary course of its business. In late 1993 and the first half of 1994, the
Company engaged in two barter transactions pursuant to which the Company
received barter credits for use in connection with the purchase of media and
other services. At the time of those transactions, management intended and
reasonably expected to use those credits over their life. Since that time and
primarily during the 1995 fiscal year, the Company's product mix changed as well
as management's plans for promotion of the Company's products. By the end of
1995, after exploring various alternatives for the use or sale of those credits,
management determined that the Company was not likely to utilize the credits in
the normal course and wrote off those credits. This write off is not likely to
recur since the Company has no other barter credits on its balance sheet and
does not presently intend to engage in future barter transactions.
The Company generally reflects writedowns of tooling and royalties for
discontinued items as well as for obsolete and slow moving inventory in the
ordinary course. The determination to discontinue products is usually made at
the end of the year while the Company is planning its next year's product line.
Prior to making product line decisions, the Company's new management team
observed the Company's operating performance and the performance of new
products initially introduced in 1995. The magnitude of the products
discontinued and therefore of the associated tooling and inventory writedowns at
the end of 1995 was unusually high due to the new management's substantial
change in the Company's product mix and the discontinuance of unprofitable
products. Certain products initially introduced in 1995 were among the products
discontinued at the end of the year based upon their performance during the
year. The discontinuance of various products resulted in writeoffs of
royalties, tooling and inventory associated with such discontinued products. In
view of the Company's plan to focus its product line on products based on owned
intellectual property and inventor licenses carrying low minimums, the Company's
royalty commitments on its current product mix are substantially less than the
minimum royalty commitments on its prior product mix. Therefore write offs of
royalties in the future associated with the discontinuance of a product are not
expected to be of this magnitude.
On April 23, 1995, the Company purchased the remaining 50% joint venture
interest in Celt. The accounts of the joint venture are consolidated with the
Company from January 1, 1995 because of the Company's direct and indirect degree
of control.
Net sales reflect reductions to gross sales due to returns, discounts and
allowances. Cost of goods sold includes amortization of the cost of molds and
tools used in the manufacture of the Company's products. Such costs are
amortized using the straight-line method over the life of the related license
agreement or three years, whichever is less. Obsolete molds and tools are
written off when no longer being used or earlier if sales of the related product
are not in accordance with estimates utilized in establishing the original
amortization schedule. Merchandising expense includes a portion of the
compensation paid to some of the Company's senior management who devote
substantial time to such endeavors. General and administrative expense includes
amounts paid to RGA Accessories, Inc. ("RGA") for administrative services, which
prior to October 1, 1992 were computed based on the relative gross sales of the
Company and others utilizing such services. Under the arrangements with RGA
between October 1, 1992 and December 31, 1995, such fees were computed based on
a percentage of the gross sales of the Company. For 1996 RGA will receive
$300,000 for its services less certain credits.
Page -3-
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The following table sets forth the percentage of net sales for the periods
indicated and percentage changes from period to period of certain income and
expense items included in "Selected Financial Data".
<TABLE>
<CAPTION>
Percentage of Net Period to Period
Sales Percentage Changes
Year Ended December
31,
------------------------ --------------------
1995 1994 1993 1995 1994
vs vs
1994 1993
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales................................ 100.0% 100.0% 100.0% (18.0)% (43.9)
Cost of Goods Sold....................... 68.1 96.3 67.4 (42.0) (19.8)
Gross profit............................. 31.9 3.7 32.6 610.9 (93.7)
Merchandising, selling, warehousing and 34.2 39.8 16.9 (29.5) 31.9
distribution expenses...................
Royalties................................ 9.5 12.9 11.1 (39.3) (34.6)
General and administrative expenses...... 19.1 15.8 7.7 (03.3) 15.6
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND 1994
Net Sales
Net sales in 1995 decreased 18.0% to $19,588,000 from $23,875,000 in 1994
primarily as a result of reduced sales of certain of the Company's products.
The decline in net sales was partially offset by a reduction in sales credits in
1995 (in the form of returns, advertising and other allowances and concessions
to retailers). Sales credits in 1995 were 4% of net sales compared to 20.7% in
1994. The significant reduction in sales credits in 1995 from 1994 was a result
of the voluntary recall of the Micro-Bake Cake Set in 1994 which resulted in
unusually large sales credits in 1994.
Net sales of the Company's Sports products increased 51.5% to $8,066,000 in
1995 compared to $5,324,000 in 1994 due primarily to the introduction of new
products.
Net sales of the Company's Toys products decreased 37.9% to $11,522,000 from
$18,551,000 in 1994 due primarily to reduced sales of licensed items and the
discontinuance of unprofitable and slow moving products. The decrease in sales
for the year was attributable primarily to a decline in sales of the Company's
bendable figures, a decline in sales or discontinuance of certain products
without the introduction of a replacement product and a generally depressed
Christmas season for the toy industry as a whole.
Gross Profit
Gross profit increased to $6,249,000 in 1995 compared to $879,000 in 1994.
Gross profit as a percentage of net sales was 31.9% in 1995 compared to 3.7% in
1994. The 1995 gross profit as a percentage of sales is more in line with the
Company's historical results than reflected
Page -4-
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in fiscal 1994. Gross profit in 1995 was negatively impacted by the write-down
of unamortized tooling of $223,000 and slow moving or obsolete inventory of
$539,000 as well as inefficiencies at the Company's manufacturing facility. The
increase from 1994 was due primarily to the adverse affect in 1994 of the recall
of the Micro-Bake which resulted in large sales credits and substantial
inventory writedowns. Additionally, during 1994, certain products did not meet
sales expectations resulting in cancellation of orders, product returns and
sales at reduced markups, all of which negatively affected the Company's gross
profit margin.
Selling and Distribution Expenses
Merchandising, selling, warehousing and distribution expenses decreased 29.5%
to $6,700,000 from $9,508,000 in 1994 due to significant reductions in
advertising, sales commissions and consulting expenses.
Royalties
Royalties decreased 39.3% to $1,869,000 from $3,081,000 in 1994 due primarily
to the reduction in net sales and relative reduction in sales of licensed
products in 1995. As a percentage of net sales, royalties decreased to 9.5% in
1995 compared to 12.9% in 1994 primarily as a result of reduced sales of
licensed products. Additionally, in 1994 the Company expensed prepaid and
accrued royalties with respect to products that were discontinued or where sales
were below expectations. The expense for such future royalties was $375,000 in
1995 and $882,000 in 1994.
General and Administrative Expenses
General and administrative expenses decreased 0.9% to $3,747,000 in 1995 from
$3,780,000 in 1994 due primarily to decreases in bad debt, depreciation and
amortization expenses and fees for RGA's services, partially offset by increases
in consulting, legal and insurance expense. As a percentage of net sales,
general and administrative expenses increased to 19.1% in 1995 compared to 15.8%
in 1994 as a result of the decline in sales from 1994 to 1995.
Operating Profit (Loss)
The Company had an operating loss of $6,066,000 in 1995 compared to an
operating loss of $15,489,000 in 1994.
Settlement of Arbitration
During the fourth quarter of 1995 the Company settled an arbitration
proceeding and related lawsuit brought by the former Chairman and Chief
Executive Officer and the former President and Chief Operating Officer of the
Company seeking damages for lost compensation in excess of $1,900,000 and
reimbursement of their legal fees. The Company settled the proceedings by
paying a total of $594,000 to the plaintiffs and issued them 120,000 shares of
Series A Preferred Stock, $1.00 par value per share. The Series A Preferred
Stock provides for 6% cumulative dividends payable in cash or additional shares
of Series A Preferred Stock and is convertible to
Page -5-
<PAGE>
shares of Common Stock at $2.00 per share based upon the par value of such
Series A Preferred Stock. In addition, the Company incurred legal expenses of
approximately $195,000.
Net Income (Loss)
The Company incurred a net loss of $8,787,000 in 1995 compared to a net loss
of $15,721,000 in 1994. The net loss per common share was $2.12 in 1995 based
upon 4,150,000 weighted average shares outstanding compared to a loss of $3.79
per common share based upon weighted average shares outstanding of 4,150,000 in
1994. The significant improvement in the Company's operations was a result of
the cost cutting measures which the new management team implemented in 1995 and
the impact of the Micro-Bake recall on the 1994 results.
YEAR ENDED DECEMBER 31, 1994 AND 1993
Net Sales
Net sales for 1994 decreased 43.9% to $23,875,000 from $42,568,000 in 1993.
Sales for fiscal 1994 were not at the level planned for by the Company. This
resulted in higher than usual sales credits to retailers and writedowns of the
Company's inventory and certain other assets, as described below. Sales credits
in 1994 (in the form of returns, advertising and other allowances and
concessions to retailers) were 20.6% of net sales, as compared to 8.3% of net
sales in 1993.
Net sales of the Company's Toys category decreased 50.6% to $18,551,000 as
compared to $37,524,000 in 1993 due primarily to weaker sales in licensed items.
Net sales of the Company's Sports products increased 5.6% to $5,324,000 from
$5,044,000 in 1993.
Gross Profit
Gross profit decreased to $879,000 as compared to $13,890,000 in 1993. Gross
profit as a percentage of net sales was 3.7% compared to 32.6% in 1993. This
decrease was the result of several factors. Certain new products did not meet
sales expectations, which also resulted in cancellation of orders, product
returns and sales at reduced markups, all of which affected the Company's gross
profit margin. In addition, in the fourth quarter of 1994, in cooperation with
the United States Consumer Product Safety Commission, the Company made a
voluntary recall of its Micro-Bake. This resulted in large sales credits and
substantial inventory write downs. As a result of these factors, the Company
wrote down the carrying value of certain inventory by $2,306,000 and component
inventory by $668,000, as well as furnished goods and related components of
Micro-Bake by $427,000. The gross profit margin was also affected by a write-
down of the value of certain unamortized tooling costs of $827,000.
Selling and Distribution Expense
Merchandising, selling, warehousing and distribution expenses increased 31.9%
to $9,508,000 from $7,210,000 in 1993 due to increases in advertising expenses
associated with the introduction of the Company's Micro-Bake, increases in
consulting fees and the start-up and
Page -6-
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related overhead associated with the Company's new Hong Kong operations. These
increases were offset in part by a decrease in sales commissions resulting from
the decline in net sales in 1994. As a percentage of net sales, merchandising,
selling, warehousing and distribution expenses increased to 39.8% from 16.9% in
1993 as a result of the lower volume of sales.
Royalties
Royalties decreased 34.6% to $3,081,000 from $4,713,000 in 1993 due to the
decrease in net sales of products based on licensed characters and inventor
products. As a percentage of net sales, royalties increased to 12.9% in 1994
from 11.1% in 1993 largely as a result of current expensing by the Company of
prepaid or accrued royalties payable by the Company with respect to products
that have been discontinued or whose sales were below expectations.
General and Administrative Expense
General and administrative expenses increased 15.6% to $3,780,000 from
$3,268,000 in 1993 due to an increase in the number of administrative personnel,
increased legal fees and an increase in depreciation and amortization of fixed
assets (excluding unamortized tooling costs). These increases were offset, in
part, by a decrease in fees for RGA's services for such period. As a percentage
of net sales, general and administrative expenses increased to 15.8% from 7.7%
due in part to increased corporate overhead.
Operating Profit (Loss)
The Company experienced an operating loss of $15,489,000 in 1994 as compared
to an operating loss of $1,301,000 in 1993.
Interest and Dividend Income
The Company earned interest income and dividends (net of interest expense) of
$183,000 in 1994 as compared to $329,000 of interest income in 1993 due to
investment of excess cash from the net proceeds of the Company's initial public
offering of Common Stock in October 1992 and a second public offering of Common
Stock in June 1993 and to the repayment of debt. The Company experienced a loss
in the redemption of marketable securities of $214,000 in 1994.
Net Income (Loss)
The Company experienced a net loss (after the cumulative effect of a change in
accounting principle) of $15,721,000 in 1994 as compared to net loss of $518,000
in 1993. The Company experienced a net loss per common share (after the
cumulative effect of a change in accounting principle) of $3.79 in 1994 on
4,150,000 weighted average shares outstanding as compared to net loss per common
share of $0.14 on 3,626,027 weighted average shares outstanding in 1993.
OTHER INFORMATION
Page -7-
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The business of the Company is characterized by customer order patterns which
vary from one year to the next largely because of the different levels of
consumer acceptance of a product line, product availability, marketing
strategies and inventory levels of retailers. The increased use of just-in-
time/quick response inventory techniques and replenishment programs in use by
larger retailers have been producing a change in their ordering methods with
fewer orders being placed in advance of shipment. This distorts the comparisons
of unshipped orders at any given date. The Company expects both of these trends
to continue. Additionally, it is a general industry practice that orders are
subject to amendment or cancellation by customers prior to shipment. Therefore,
comparisons of unshipped orders in any specific period in any given year with
those same periods in preceding years are not necessarily indicative of sales
for an entire year. The Company's unshipped orders were approximately
$1,576,000 at December 31, 1995 compared to $1,355,000 at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources in 1995 were
the Company's existing cash and marketable securities. In 1996, the Company's
primary sources of liquidity and capital resources are expected to be funds
provided from operations, proceeds from the sale of the Company's Hong Kong
facility as well as available credit facilities. The Company does not have
significant indebtedness other than the mortgage on the Company's Hong Kong
facility which is expected to be paid from the proceeds of the sale of that
facility. The loss of $8,787,000 for 1995 and $15,721,000 for 1994
significantly reduced the Company's working capital and liquidity. All of the
Company's marketable securities and a substantial portion of its cash at the end
of 1994 were used to fund the losses sustained in 1995. At December 31, 1995
working capital was $2,273,000 compared to approximately $8,948,000 at December
31, 1994.
On July 26, 1995, the Company entered into a Factoring Agreement with Milberg
Factors, Inc. ("Milberg") pursuant to which Milberg agreed to purchase the
Company's domestic accounts receivable and to advance to the Company, at the
Company's request, the lesser of 85% of the total accounts receivable or
$1,750,000. Effective February 1, 1996, the agreement was amended to increase
the amount of the advance to the lesser of 85% or total accounts receivable or
$5,000,000. Advances bear interest at the rate of prime plus one percent.
Milberg has also agreed to advance to the Company, at the Company's request, the
lesser of $2,000,000 or 50% of the book value of the Company's eligible
inventory located in the United States. Such advances will also bear interest
at the rate of prime plus one percent.
On March 22, 1996, the Company entered into an Agreement for Sale and Purchase
of the Hong Kong Facility. The sale is scheduled to close at the end of April.
The Company has written down the carrying value of the facility by $1,578,000 to
reflect the net proceeds of the sale. The sale will result in additional
liquidity and reduced costs for the Company by permitting the Company to lease
space at a cost below the current carrying costs of the existing facility. The
sale will yield net proceeds to the Company of approximately $850,000 after
payment of the mortgage and the costs associated with the sale.
Page -8-
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The Company's acquisition of the Welsh product line required a modest
downpayment. The balance of the purchase price is based upon a percentage of
sales of Welsh products over the next five years. Accordingly, that acquisition
should not adversely affect the Company's cash requirements.
The purchase price for the Table Toys and Brik product lines is payable in
shares of Preferred Stock and, in the case of Table Toys, partly in cash
(approximately $400,000). The Company intends to finance the cash portion of
the Table Toys Acquisition through borrowings under its credit lines with
Milberg. The preferred stock which the Company anticipates using in such
transactions will carry a 7% dividend payable in cash or preferred stock based
upon a liquidation value of $3.625 per share and will be redeemable at the
expiration of ten years and pursuant to certain sinking fund obligations during
the last five years. Accordingly, the Company does not believe that these
transactions will have a material adverse affect on the Company's liquidity
during the next five years.
The Company is currently a defendant in a patent infringement action. The
Company does not believe that the outcome of such litigation will have a
material adverse impact on the Company. The Company is negotiating with its
insurance carrier whether the costs of such litigation should be borne by the
carrier. If the Company is required to bear the costs, they could be
substantial over the life of the litigation.
To the extent the Company may be required to pay any claims relating to its
discontinued Micro-Bake product, the Company believes that its current reserves
will be sufficient to cover such payments.
In February 1996 the Company established a bonus pool to enable employees to
participate in the Company's profits. The pool for fiscal 1996 will consist of
20% of the first $1,000,000 of pre-tax earnings, 15% of the next $1,000,000 of
pre-tax earnings and 10% of pre-tax earnings over $2,000,000. The bonus pool is
intended to provide performance based compensation and to reward those who
contribute to the Company's success. The bonus arrangements should not
adversely affect the Company's liquidity since it is only payable if earned.
The Company believes that its cash flow from operations, available borrowings
and proceeds from the sale of its Hong Kong facility will be adequate to meet
its obligations for the ensuing year.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
in recent years have had a significant effect on its net sales or profitability.
The Company has generally been able to pass along to its customers price
increases resulting from inflation.
Page -9-
<PAGE>
SEASONALITY
The toy industry is typically seasonal in nature due to the heavy demand for
toy products during the Christmas season, with the majority of orders being
placed during the first two-thirds of the year for shipment during the third and
fourth quarters, and with the majority of collections from such sales being
received in the fourth quarter.
Page -10-
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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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See page F-1.
Page -11-
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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ARRANGEMENTS WITH RGA
U.S. Services Arrangements: Effective October 1, 1992, the Company and RGA
entered into an agreement pursuant to which RGA would provide certain
administrative services to the Company including maintenance of financial books
and records and preparation of financial statements, budgets, forecasts and cash
flow projections; services relating to the Company's banking relationships;
payment from the Company's accounts of accounts payable and payroll; collection
of accounts receivable and credit analysis; order processing and resolution of
routine claims, deductions and allowances with customers; import processing;
cash management; and other miscellaneous services and advice. The agreement is
automatically renewed from year to year unless terminated by the Company upon at
least six months notice prior to the commencement of any renewal term or by RGA
at least 12 months prior to the commencement of any renewal term. The agreement
provides that the Company will pay RGA, as a fee for the services described
above, an amount equal to the sum of (i) 4.0% of the first $30,000,000 of the
Company's domestic non-letter of credit gross sales, 3.75% of such gross sales
in excess of $30,000,000 but less than $40,000,001, 3.5% of such gross sales in
excess of $40,000,000 but less than $50,000,001, 3.25% of such gross sales in
excess of $50,000,000 but less than $60,000,001 and 3.0% of such gross sales in
excess of $60,000,000, (ii) 1.5% of the Company's domestic letter of credit
gross sales, and (iii) 1.0% of the Company's foreign gross sales. The Company
incurred expenses of $668,000 and $877,000 for the foregoing services in 1995
and 1994, respectively. RGA also provided the Company with certain warehouse
services for which it incurred expenses of $107,000 in 1995 and $320,000 in
1994. Under the agreement with RGA, the Company has the right to purchase, at
cost, from RGA any computer software used by RGA in the performance of its
services for the Company, to the extent RGA owns or has the right to transfer
such software. The agreement also provides that during its term and for a period
of one year thereafter, RGA will not provide similar services to any of the
Company's competitors in the toy business.
Hong Kong Services Arrangements: Services similar to that provided by RGA in
the United States are provided to the Company's Hong Kong subsidiaries by a
company in Hong Kong of which Roger Gimbel, the Vice Chairman of the Board of
Directors of the Company, is a shareholder. The Company incurred expenses of
$293,000 in 1995 and $217,000 in 1994 for such services.
Public Warehouse Facility: The Company utilizes, among other facilities, a
public warehouse in New Jersey which stores the Company's inventory and packages
and ships such inventory in accordance with the Company's instructions for a fee
based upon a percentage of the dollar value of orders shipped from such
facility. The operator of such warehouse facility leases the premises from
Jersey Warehouse Partners, a general partnership of which Roger Gimbel is a
General Partner and in which Mr. Gimbel holds a 42.45% interest. Rental expense
for such warehouse facility was approximately $5,300 in 1995.
The Company first entered into arrangements with RGA for the foregoing
services at the commencement of its operations in March 1989. The initial
arrangements were changed as described above in connection with the Company's
initial public offering in 1992. During 1995, the Company reexamined its
arrangements and began assuming internally certain functions and services
previously provided by RGA. Accordingly, the services being performed by RGA
have been reduced and the Company has negotiated a fixed fee of $300,000 (less
certain credits) for the U.S. services and $116,000 for the Hong Kong services
for 1996. At the time that the arrangements with RGA were entered into,
management believed that the arrangements were on
Page -12-
<PAGE>
terms no less favorable to the Company than could have been obtained from an
unaffiliated third party.
Page -13-
<PAGE>
PART IV
-------
<TABLE>
<CAPTION>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- ------- --------------------------------------------
REPORTS ON FORM 8-K
-------------------
<S> <C> <C>
(a)(1) Financial Statements: Page
----
Index to Financial Statements F-1
Report of Independent Auditors F-2
Consolidated Balance Sheets --
December 31, 1994 and 1995 F-6
Consolidated Statements of Operations --
For each of the years ended
December 31, 1993, 1994 and 1995 F-7
Consolidated Statements of Changes in
Stockholders' Equity -- For each of the
years ended December 31, 1993, 1994 and 1995 F-8
Consolidated Statements of Cash Flows --
For each of the years ended
December 31, 1993, 1994 and 1995 F-9
Notes to Consolidated Financial Statements F-10
(2) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts F-32
</TABLE>
(3) Exhibits:
3.1 Certificate of Incorporation, incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 33-
50878) (the "Form S-1").
3.2 Certificate of Designations, Preferences and Rights of the
Series A Preferred Stock (included in Exhibit 4 hereof).
3.3 By-laws incorporated by reference to Exhibit 3.3 to the Form S-1.
4 Certificate of Designations, Preferences and Rights of the Series A
Preferred Stock, incorporated by reference to Exhibit 4 of the
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on November 7, 1995 (the "1995 3rd Quarter 10-Q").
Page -14-
<PAGE>
10.1 Form of Indemnification Agreement between the Company and each of
its Directors, incorporated by reference to Exhibit 10.12 to the
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on August 14, 1995 (the "1995 2nd Quarter 10-Q").
10.2 1992 Incentive and Non-Qualified Stock Option Plan, incorporated
by reference to Exhibit 10.4 to the Form S-1.
10.3 Amendment to the 1992 Incentive and Non-Qualified Stock Option
Plan, incorporated by reference to Exhibit 10.16 to the Registration
Statement on Form S-1 (File No. 33-62616) of the Company (the "1993
Form S-1").
10.4 Services Agreement dated August 10, 1992 with RGA Accessories,
Inc., incorporated by reference to Exhibit 10.5 to the Form S-1.
10.5 Services Agreement Amendment dated as of May 10, 1993 between the
Company and RGA Accessories, Inc., incorporated by reference to
Exhibit 10.8 to the 1993 Form S-1.
10.6 Services Agreement Amendment dated as of June 21, 1995 between the
Company and RGA Accessories, Inc., incorporated by reference to
Exhibit 10.13 to the 1995 2nd Quarter 10-Q,
10.7 Form of Underwriters Warrant Agreement between the Company and
Gruntal & Co., Incorporated and Gerard Klauer Mattison & Co., Inc.,
incorporated by reference to Exhibit 10.12 to the Form S-1.
10.8 Factoring Agreement dated as of July 26, 1995 with Milberg
Factors, Inc., incorporated by reference to Exhibit 10.17 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 4, 1995 (the "Form 8-K").
10.9 Letter dated July 20, 1995 from Milberg Factors, Inc. to the
Company, incorporated by reference to Exhibit 10.18 to the Form 8-K.
10.10 Settlement Agreement dated October 30, 1995 between the Company,
Allan Rigberg, Rose Evangelista and JTI Toys, Inc. incorporated by
reference to Exhibit 10.10 to the 1995 3rd Quarter 10-Q.
*10.11 Warrant Agreement dated as of January 1, 1996 between Just Toys,
Inc. and Patricof & Co. Capital Corp.
*10.12 Agreement for Sale and Purchase dated March 22, 1996 between
Just Toys Products Limited and Advanced Chemicals Limited.
*10.13 Amendment dated March 21, 1996 between Milberg Factors,
Inc. and the Company.
*21 Subsidiaries of the Company
Page -15-
<PAGE>
**23.1 Consent of Richard A. Eisner & Company, LLP
**23.2 Consent of Ernst & Young, LLP
__________________________
* Previously Filed
** Filed herewith
Schedules
Schedule II -- Valuation and Qualifying Accounts
(b) Reports on Form 8-K:
During the fourth quarter of 1995, the Company filed one report on Form 8-
K with respect to Item 5--Other Events with the Securities and Exchange
Commission on November 2, 1995, and one report on Form 8-K with respect to Item
4--Changes in Registrant's Certifying Accountant with the Securities and
Exchange Commission on November 15, 1995, as amended on December 1, 1995.
Page -16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 9th day of August, 1996.
JUST TOYS, INC.
By: /s/ Michael Vastola
________________________________________
Michael Vastola,
Vice President Finance,
Chief Financial and Accounting
Officer
<PAGE>
FORM 10-K
ITEM 14(A)(1) AND (2)
JUST TOYS, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
--------------------------------------------------------------
THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS OF JUST TOYS, INC. AND
SUBSIDIARIES ARE INCLUDED IN ITEM 8:
PAGE
NUMBER
------
REPORTS OF INDEPENDENT AUDITORS F-2-5
BALANCE SHEETS AS AT DECEMBER 31, 1995 AND 1994 F-6
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 F-7
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 F-8
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993 F-9
NOTES TO FINANCIAL STATEMENTS F-10
THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENT SCHEDULE OF JUST TOYS, INC. AND
SUBSIDIARIES ARE INCLUDED IN ITEM 14(A)(2):
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-32
ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE REGULATION
OF THE SECURITIES AND EXCHANGE COMMISSION ARE NOT REQUIRED UNDER THE RELATED
INSTRUCTIONS OR ARE INAPPLICABLE AND, THEREFORE, HAVE BEEN OMITTED.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheet of Just Toys, Inc.
and subsidiaries (the "Company") as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. Our audit also included the financial statement schedule
for the year ended December 31, 1995 listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Just Toys, Inc.
and subsidiaries at December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 17, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Just Toys, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Just Toys,
Inc. and subsidiaries as at December 31, 1994, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the 1994 financial statements of Just Toys
Products, Limited and Joyful World Enterprises, Limited, wholly owned
subsidiaries, which statements reflect total assets constituting 27 percent as
at December 31, 1994 and total revenues of 39 percent for the year then ended,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amount included for Just Toys Products, Limited and
Joyful World Enterprises, Limited, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audit and, in 1994, the reports of other
auditors, the consolidated financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Just Toys, Inc.
and subsidiaries as at December 31, 1994 and the consolidated results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As described in Note K, the Company is involved in several matters of
litigation, the outcome of which is uncertain.
As discussed in Note B[1], the Company adopted in 1994 the method of
accounting for certain investments and debt and equity securities prescribed by
Statement of Financial Accounting Standards No. 115.
The audits above include Schedule II for the year ended December 31, 1994
and December 31, 1993. In our opinion, the schedule referred to above presents
fairly the information set forth therein, in conformity with the applicable
accounting regulation of the Securities and Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
March 27, 1995
With respect to Note K[4][a] and K[4][c]
April 10, 1995
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors
Just Toys Products Limited
(Incorporated in Hong Kong with limited liability)
We have audited the accompanying balance sheets of Just Toys Products Limited as
at 31 December 1994 and 31 December 1993 and the related statements of
operations, changes in stockholders' equity and cash flows for the year ended 31
December 1994 and for the period from 22 September 1992 (date of incorporation)
to 31 December 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Just Toys Products Limited as at 31
December 1994 and 31 December 1993 and the results of its operations and its
cash flows for the year ended 31 December 1994 and for the period from 22
September 1992 to 31 December 1993, in conformity with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming Just Toys
Products Limited will continue as a going concern. As more fully described in
Note 1, the Company is a wholly-owned subsidiary of Just Toys, Inc. Just Toys,
Inc. has suffered recurring losses and has sustained negative cash flows from
operations. These conditions raise substantial doubt about Just Toys, Inc.'s
ability to continue as a going concern. Because of the aforementioned
conditions relating to Just Toys, Inc., and the uncertainties surrounding its
plans to address its liquidity problems, the parent company's actions could have
a substantial effect on the Company's assets, therefore there is also
substantial doubt about whether the Company will continue as a going concern.
The financial statements of Just Toys Products Limited do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amount and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG
Kowloon, Hong Kong
20 February 1995
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors
Joyful World Enterprises Limited
(Incorporated in Hong Kong with limited liability)
We have audited the accompanying balance sheets of Joyful World Enterprises
Limited as at 31 December 1994 and the related statements of operations, changes
in stockholders' deficiency and cash flows for the period from 19 October 1993
(date of incorporation) to 31 December 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Joyful World Enterprises Limited as
at 31 December 1994 and the results of its operations and its cash flows for the
period from 19 October 1993 to 31 December 1994, in conformity with generally
accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming Joyful World
Enterprises Limited will continue as a going concern. As more fully described
in Note 1, the Company is a wholly-owned subsidiary of Just Toys, Inc. Just
Toys, Inc. has suffered recurring losses and has sustained negative cash flows
from operations. These conditions raise substantial doubt about Just Toys,
Inc.'s ability to continue as a going concern. Because of the aforementioned
conditions relating to Just Toys, Inc., and the uncertainties surrounding its
plans to address its liquidity problems, the parent company's actions could have
a substantial effect on the Company's assets, therefore there is also
substantial doubt about whether the Company will continue as a going concern.
The financial statements of Joyful World Enterprises Limited do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amount and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG
Kowloon, Hong Kong
20 February 1995
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S December 31,
----------- ---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash................................................ $ 241,443 $ 2,168,306
Marketable securities - available for sale
securities (Note D)............................... 4,515,452
Accounts receivable, net of allowances of
$1,017,000 and $1,207,000 (Note C)................ 1,779,598 2,294,353
Inventories (Note E)................................ 3,270,206 4,292,032
Refundable income taxes............................. 248,459 65,799
Prepaid expenses and other current assets........... 646,422 1,795,885
------------ ------------
Total current assets......................... 6,186,128 15,131,827
Property and equipment, at cost, net of accumulated
depreciation and amortization (Note F).............. 2,653,702 6,138,952
Property held for sale (Note H)........................ 2,907,340
Investment and advances - Celt Specialty Partners,
Inc. (Note G)....................................... 1,701,630
Other assets........................................... 76,188 67,371
------------ ------------
T O T A L.................................... $ 11,823,358 $ 23,039,780
============ ============
L I A B I L I T I E S
---------------------
Current liabilities:
Current portion of long-term debt (Note H).......... $ 360,000 $ 316,000
Accounts payable.................................... 1,925,467 2,288,834
Due RGA Accessories, Inc. (Note I).................. 45,242 114,933
Accrued liabilities (Note J)........................ 1,582,761 2,990,990
Income taxes payable................................ 473,422
------------ ------------
Total current liabilities.................... 3,913,470 6,184,179
Long-term debt, less current portion (Note H).......... 1,886,000 2,246,000
Deferred income taxes (Note M)......................... 15,971 15,971
------------ ------------
Total liabilities............................ 5,815,441 8,446,150
------------ ------------
Commitments and contingencies (Note K)
STOCKHOLDERS' EQUITY
--------------------
Stockholders' equity (Note A):
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, 120,000 issued and outstanding........ 120,000
Common stock, $.01 par value, 15,000,000 shares.....
authorized, 4,150,000 issued and outstanding...... 41,500 41,500
Additional paid-in capital.......................... 29,795,768 29,795,768
Unrealized loss on marketable securities............ (81,211)
(Accumulated deficit)................................ (23,949,351) (15,162,427)
------------ ------------
Total stockholders' equity................... 6,007,917 14,593,630
------------ ------------
T O T A L.................................... $ 11,823,358 $ 23,039,780
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-5
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Net sales (Note L)..................... $19,588,348 $ 23,875,036 $42,568,329
Cost of goods sold..................... 13,338,943 22,995,704 28,678,219
----------- ------------ -----------
Gross profit........................... 6,249,405 879,332 13,890,110
----------- ------------ -----------
Expenses:
Merchandising, selling,
warehousing and distribution...... 6,699,951 9,508,008 7,210,059
Royalties........................... 1,868,838 3,081,057 4,712,946
General and administrative.......... 3,746,812 3,779,616 3,268,180
----------- ------------ -----------
T o t a l.................... 12,315,601 16,368,681 15,191,185
----------- ------------ -----------
Operating (loss)....................... (6,066,196) (15,489,349) (1,301,075)
Other income (expenses):
Interest expense.................... (357,562) (284,652) (33,998)
Interest and dividend income........ 141,440 467,379 362,677
Write down of investment in
Hong Kong property................ (1,578,000)
Settlement of arbitration &
related legal expenses............ (909,594)
Other expense....................... (17,012) (213,698) (7,902)
----------- ------------ -----------
(Loss) before income taxes (benefit)
and change in accounting principle (8,786,924) (15,520,320) (980,298)
Provision for income taxes (benefit)
(Note M)............................ 275,212 (461,987)
----------- ------------ -----------
(Loss) before change in accounting
principle........................... (8,786,924) (15,795,532) (518,311)
Cumulative effect of change in
accounting principle (Note B[1]). 74,790
----------- ------------ -----------
NET (LOSS)............................. $(8,786,924) $(15,720,742) $ (518,311)
=========== ============ ===========
Weighted average common shares
outstanding......................... 4,150,000 4,150,000 3,626,027
=========== ============ ===========
Per share data:
(Loss) before change in accounting
principle per common share.......... $(2.12) $(3.81) $(.14)
Cumulative effect of change in
accounting principle per share...... .02
----------- ------------ -----------
NET (LOSS) PER COMMON SHARE............ $(2.12) $(3.79) $(.14)
=========== ============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-6
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Unrealized Retained
------------------ --------------------- Additional Gain(Loss)on Earnings
Number Number Paid-in Marketable (Accumulated
of Shares Amount of Shares Amount Capital Securities Deficit) Total
--------- -------- --------- ------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 1, 1993......... 3,000,000 $30,000 $10,359,427 $ 1,076,626 $ 11,466,053
Net loss................... (518,311) (518,311)
Shares issued through
public offering......... 1,150,000 11,500 19,436,341 19,447,841
--------- ------- ----------- -------- ------------ ------------
Balance -
December 31, 1993....... 4,150,000 41,500 29,795,768 558,315 30,395,583
Adjustment of
beginning balance
for change in
accounting method
(Note B[1])............. $(74,790) (74,790)
Change in unrealized
loss on marketable
securities.............. (6,421) (6,421)
Net loss................... (15,720,742) (15,720,742)
--------- ------- ----------- -------- ------------ ------------
Balance -
December 31, 1994....... 4,150,000 41,500 29,795,768 (81,211) (15,162,427) 14,593,630
Shares issued
through arbitration
settlement.............. 120,000 $120,000 120,000
Change in unrealized
loss on marketable
securities.............. 81,211 81,211
Net loss................... (8,786,924) (8,786,924)
------- -------- --------- ------- ----------- -------- ------------ ------------
BALANCE -
DECEMBER 31, 1995....... 120,000 $120,000 4,150,000 $41,500 $29,795,768 $ - 0 - $(23,949,351) $ 6,007,917
======= ======== ========= ======= =========== ======== ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-7
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss).............................................................. $(8,786,924) $(15,720,742) $ (518,311)
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation and amortization....................................... 1,774,611 2,838,326 1,412,872
Write off of barter credits......................................... 976,000
Write down of investment in Hong Kong property...................... 1,578,000
Issuance of preferred stock in arbitration settlement............... 120,000
Deferred income taxes............................................... 273,200 (136,829)
Realized and unrealized (gain) loss on marketable
securities....................................................... (46,069) 6,421 74,790
Cumulative effect of change in accounting principle................. (74,790)
Loss from Celt Specialty Partners, Inc.............................. 248,020
Changes in operating assets and liabilities (net of the
effects of the acquisition of Celt Specialty Partners,
Inc. in 1995):
(Increase) decrease in:
Accounts receivable.......................................... 592,770 4,467,730 2,869,310
Inventories.................................................. 1,241,092 1,220,926 (2,059,700)
Prepaid and refundable income taxes.......................... (182,660) 2,738,136 (2,703,189)
Prepaid expenses and other current assets.................... 253,987 (449,509) (494,621)
Other assets................................................. 54,004 (30,574) (29,297)
Increase (decrease) in:
Accounts payable............................................. (802,993) 1,089,311 (415,871)
Due RGA Accessories, Inc..................................... (69,691) 3,318 (74,828)
Accrued liabilities.......................................... (1,408,229) 1,046,297 279,609
Income taxes payable......................................... (473,422) 2,012 471,410
------------ ------------- ------------
Net cash (used in) operating activities.................... (5,179,524) (2,341,918) (1,324,655)
------------ ------------- ------------
Cash flows from investing activities:
Acquisition of property and equipment................................... (1,073,071) (1,956,463) (6,976,693)
Purchase of marketable securities....................................... (2,908,731) (24,089,091) (33,511,220)
Redemption of marketable securities..................................... 7,551,463 29,712,702 23,284,524
Investment in Celt Specialty Partners, Inc.............................. (1,000) (1,949,650)
------------ -------------
Net cash provided by (used in) investing
activities............................................... 3,568,661 1,717,498 (17,203,389)
------------ ------------- ------------
Cash flows from financing activities:
Decrease in notes payable - banks....................................... (750,000)
Proceeds from public offering of common stock........................... 19,447,841
Proceeds from long-term debt............................................ 2,900,000
Payment of long-term debt............................................... (316,000) (312,000) (26,000)
------------ ------------- ------------
Net cash provided by (used in) financing (316,000) (312,000) 21,571,841
activities. ------------ ------------- ------------
NET INCREASE (DECREASE) IN CASH........................................... (1,926,863) (936,420) 3,043,797
Cash - beginning of year.................................................. 2,168,306 3,104,726 60,929
------------ ------------- ------------
CASH - END OF YEAR........................................................ $ 241,443 $ 2,168,306 $ 3,104,726
============ ============= ============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-8
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Description of Business and Basis of Presentation:
- ------------------------------------------------------------
Just Toys, Inc. (the "Company") was incorporated in August 1992 and was inactive
until October 1, 1992 when it acquired the net assets and business of Just Toys,
a joint venture partnership ("Predecessor Joint Venture") in exchange for
2,000,000 shares of the Company's common stock pursuant to a contribution
agreement dated August 10, 1992 (the "Contribution Agreement"). The joint
venture partnership commenced operations in March 1989 and was 50% owned by each
of RGA Accessories, Inc. ("RGA") and JTI Toys, Inc. ("JTI"), two unaffiliated
companies. The acquisition by the Company of the joint venture partnership has
been accounted for as a combination of companies under common control in a
manner similar to a pooling of interests and, accordingly, the historical basis
of the assets and liabilities have been recorded by the Company and retroactive
effect has been given to the contribution in the accompanying financial
statements. Under the terms of the Contribution Agreement, all equity in excess
of $1,350,000 at the time immediately prior to the contribution was distributed
to the joint venture partners. On October 1, 1992, the Company sold 1,000,000 of
its $.01 common shares in a public offering at a price of $10.50 per share. The
proceeds after deducting commissions and offering expenses were $9,039,427. In
June 1993, the Company sold an additional 1,150,000 of its common stock at a
price of $18.50 per share. The proceeds after deducting underwriting
commissions and offering expenses were $19,447,841.
In September 1992, the Company organized a wholly owned foreign subsidiary, Just
Toys Products, Limited ("JTP"), which was incorporated in Hong Kong. In October
1993, the Company organized a wholly owned foreign subsidiary Joyful World
Enterprises, Limited ("JWE"), which was inactive during 1993. The consolidated
financial statements include the accounts of the Company, JTP and JWE.
Significant intercompany balances and transactions have been eliminated in
consolidation.
The financial statements as at and for the year ended December 31, 1995 and
1994, respectively, include the following applicable to the foreign
subsidiaries:.
December 31,
------------------------
1995 1994
---------- ----------
Assets. . . . . . . . . . . . $4,167,473 $6,205,145
Liabilities . . . . . . . . . 4,255,930 4,002,308
Stockholder's equity (deficit) (88,457) 2,202,837
Revenues. . . . . . . . . . . 4,772,364 9,254,786
Net (loss). . . . . . . . . . (2,291,294) (90,030)
(continued)
F-9
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Description of Business and Basis of Presentation:
- ------------------------------------------------------------
(continued)
In May 1994, a wholly-owned subsidiary of the Company, Just Manufacturing, Inc.
("Manufacturing") entered into a 50% joint venture with Celt Specialty Products,
Inc. ("Products") by jointly forming a corporation called Celt Specialty
Partners, Inc. ("Celt"). Celt is a manufacturer of plastic toys, sporting goods
and other specialty toy products; Just Toys, Inc. is the principal customer of
Celt. Operations of Manufacturing and Celt are included from May 10, 1994, the
date of inception to December 31, 1994. The Company's investment and advances
to Celt are accounted for under the equity method. The Company recognized the
loss in excess of the other partners' investment.
On April 23, 1995, the Company purchased the remaining 50% joint interest in
Celt. The accounts of Celt are consolidated with the Company from January 1,
1995 because of the Company's direct and indirect degree of control.
The Company designs, manufacturers, markets and distributes toys and related
items. The Company's principal customers are located in the United States and
consist primarily of toy stores and mass merchandisers, and to a lesser
extent, discount drug chains, supermarket chains, sporting goods stores,
catalogers, catalogue showrooms and gift stores.
During 1995, the Company continued to incur losses; however, many of the losses
were of a non-recurring nature and/or did not require the outlay of cash. In
addition, the Company has obtained new financing arrangements (see Note C) and
is selling its Hong Kong facility (see Note Q). In March 1995, the Company's
Board of Directors appointed a new management team and implemented a significant
work force reduction and a restructuring of the Company's operations as part of
a plan to reduce operating expenses. The Company has discontinued non-
profitable items and has undertaken to selectively acquire product lines which
the Company believes will have long-term strength and continuity. On January 22,
1996, the Company executed an agreement to purchase certain assets of Table
Toys, Inc. ("Table Toys" and the "Table Toys Acquisition"). Table Toys
manufactures, distributes and sells a line of play tables which are compatible
with most brands of toy construction blocks and a line of toy construction
blocks. Table Toys has filed a petition under Chapter 11 of the Federal
bankruptcy laws and has submitted the Table Toys Acquisition agreement as part
of its plan of reorganization. Accordingly, the acquisition is subject to the
approval of by the bankruptcy court. Concurrent with the Table Toys Acquisition
agreement, the Company and Table Toys executed a Marketing and Distribution
Agreement, which enable the Company, pending bankruptcy court approval of the
Table Toys Acquisition, to market and sell the Table Toys products. On February
1, 1996, the Company acquired the toy line and
(continued)
F-10
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Description of Business and Basis of Presentation:
- ------------------------------------------------------------
(continued)
the rights to use the "Welsh" name for toys from Welsh Company, Inc.("Welsh").
The Welsh toy line consists of doll furniture and doll carriages and strollers.
The Company is currently marketing the product line of Brik, Inc. ("Brik")
pursuant to a Marketing and Distribution Agreement dated February 7, 1996. The
Brik product line consists of play tables and toy construction blocks similar to
those of Table Toys but aimed at lower price points. The Marketing and
Distribution Agreement will remain in effect until such time as the Company has
completed the acquisition of the assets of Brik or the Company has determined
that the acquisition should not go forward. Management believes that the cash
outlays required for these acquisitions are minimal. With the introduction of
these new lines and other matters discussed above, the management of the Company
believes that its cash flow from operations, available borrowings and proceeds
from the sales of its Hong Kong facility are adequate to meet its obligations
for the ensuing year.
The purchase price for the Table Toys and Brik product lines is payable in
shares of Preferred Stock and, in the case of Table Toys, partly in cash
(approximately $400,000). The Company intends to finance the cash portion of
the Table Toys Acquisition through borrowings under its credit lines with
Milberg (see Note C).
(NOTE B) - Summary of Significant Accounting Policies:
[1] Marketable securities:
---------------------
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company adopted the provisions of the new
standard for investments held as of or acquired after January 1, 1994. In
accordance with the Statement prior period financial statements have not been
restated to reflect the change in accounting principle. The marketable
securities are classified as available-for-sale and consist substantially of
United States Treasury bills and notes. Unrealized losses at December 31, 1994
were $81,211. The Company had realized losses of $35,141 in 1995 and $213,698
in 1994. The cumulative effect as of January 1,1994 of adopting Statement 115
decreased the loss by $74,790 or $0.02 per share. There was no tax benefit
attributable to the unrealized loss. The opening balance of the stockholders'
equity was decreased by $74,790 to reflect the net unrealized holding losses on
securities classified as available-for-sale, with unrealized gain and losses,
reported in a separate component of stockholders' equity. Realized gains and
losses are based on the costs of securities sold using the specific
identification method. If a decline in value of available-for-sale securities is
judged to be other than temporary, the decline in value is included in income.
interest and dividend income on securities are included in income.
(continued)
F-11
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Summary of Significant Accounting Policies: (continued)
- -----------------------------------------------------
[2] Inventories:
-----------
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. The Company supplies certain purchased material components used in its
product lines to third-party manufacturers and Celt.
[3] Property and equipment:
----------------------
Assets are stated at cost. The Company owns the molds and tools used in
production of the Company's products by third-party manufacturers and Celt. The
molds and tools are depreciated using the straight-line method over the life of
the related product licensing agreement or three years, whichever is less.
Obsolete molds and tools are written-off when no longer being used.
Depreciation and amortization lives and methods used are as follows:
Method Life
------------- ----------
Leasehold land and buildings. . Straight-line 40 Years
Molds and tools . . . . . . . . Straight-line 3 Years
Manufacturing equipment . . . . Accelerated 7 Years
Furniture, fixtures and office
equipment . . . . . . . . . . Accelerated 5-7 Years
Leasehold improvements. . . . . Straight-line Shorter of
life of
lease or
useful
life
[4] Income taxes:
------------
The Company accounts for income taxes in accordance with
Statement of Accounting Standards No. 109 ("SFAS 109") "Accounting For Income
Taxes" which requires use of the liability method of accounting for income
taxes. The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The resulting asset or liability is adjusted to reflect
changes in the tax laws as they occur.
[5] Research and product development costs:
--------------------------------------
Expenditures for research and product development costs are charged to
operations as incurred. Amounts of research and product development cost were
approximately $324,300, $953,700 and $470,100 during 1995, 1994 and 1993,
respectively.
(continued)
F-12
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Summary of Significant Accounting Policies: (continued)
- -----------------------------------------------------
[6] Royalties:
---------
The Company enters into agreements to license trademarks, copyrights and
patents. The agreements may call for minimum amounts of royalties to be paid in
advance and throughout the term of the agreement which are nonrefundable in the
event that product sales fail to meet certain minimum levels. Advance royalties
resulting from such transactions are stated at amounts estimated to be
recoverable from future sales of the related products. The Company expenses
royalties at the time the liabilities under license agreements are incurred.
Prepaid and future guaranteed royalties applicable to discontinued products or
where sales were below expectations are also expensed.
[7] Income (loss) per share of common stock:
---------------------------------------
Income (loss) per share are based on the weighted average number of shares and
common stock equivalents, if dilutive, outstanding during each year.
[8] Foreign currency translation:
----------------------------
Assets and liabilities are translated at year-end rates of exchange. Income
and expense accounts are translated at the average of exchange rates in effect
during the period. Realized foreign exchange transaction gains and losses are
included in income and are not material.
[9] Use of estimates:
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
(continued)
F-13
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Summary of Significant Accounting Policies: (continued)
- -----------------------------------------------------
[10] Stock-based compensation:
-------------------------
In October 1995, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for transactions after
December 15, 1995 and prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees ("APB 25"), and
related interpretations with pro forma disclosure of what net income and
earnings would have been had the Company adopted the new fair value method. The
Company presently accounts for its stock based compensation plans in accordance
with the provisions of APB 25 and has not determined if it intends to change to
the fair value method prescribed in SFAS 123.
[11] Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of:
------------------------------------------------------------------------
The Company presently accounts for the impairment of long-lived assets at the
time management decides to dispose of such assets. In March 1995, the Financial
Accounting Standards Board issued Statement No. 121 ("SFAS 121"), Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
to be disposed of. The Company will adopt SFAS 121 in the first quarter of 1996
and, based on current circumstances, does not believe the effect of the adoption
will be material.
(NOTE C) - Accounts Receivable and Allowances:
- ---------------------------------------------
On July 26, 1995, the Company entered into a Factoring Agreement
with Milberg Factors, Inc. ("Milberg") pursuant to which Milberg agreed to
purchase the Company's domestic accounts receivable on a non-recourse basis, and
to advance to the Company, at the Company's request, the lesser of 85% of total
accounts receivable or $1,750,000. Effective February 1, 1996, the agreement
was amended to increase the amount of the advance to the lesser of 85% of total
accounts receivable or $5,000,000. The factoring charge is .65% of receivables.
Advances bear interest at the rate of prime (currently 8.75%) plus one percent.
Milberg has also agreed to advance to the Company, at the Company's request,
the lesser of $2,000,000 or 50% of the Company's inventory located in the United
States. Such advances will also bear interest at the rate of prime plus one
percent.
(continued)
F-14
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Accounts Receivable and Allowances: (continued)
- ---------------------------------------------
Accounts receivable and amounts due from factor at December 31, 1995 consist of
the following:
Accounts Receivable - factor . . . . . .$3,206,600
Borrowings from factor . . . . . . . . . (881,024)
----------
Net due from factor. . . . . . . . . . . 2,325,576
Accounts receivable - trade. . . . . . . 471,022
----------
Total accounts receivable . . . . . . 2,796,598
Less: Accounts receivable allowances . .(1,017,000)
----------
Total accounts receivable net
of allowances . . . . . . . . . . .$1,779,598
==========
The accounts receivable allowances consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Returns, allowances and discounts . . . . . . . . $ 911,000 $1,055,000
Doubtful accounts . . . . . . . . . . . . . . . . 106,000 152,000
---------- ----------
T o t a l . . . . . . . . . . . . . . . . . $1,017,000 $1,207,000
========== ==========
</TABLE>
(NOTE D) - Marketable Securities - Available For Sale Securities:
- ----------------------------------------------------------------
The following is a summary of available for sale securities at December 31,
1994:
<TABLE>
<CAPTION>
Available-For-Sale-Securities
--------------------------------------------------------
Estimated Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States Treasury
securities................ $4,260,589 $ 4,316 $ 79,495 $4,185,410
Mortgage-backed securities.. 153,572 1,830 151,742
Other debt securities....... 182,502 4,202 178,300
-------- -------- ----------
T o t a l........... $4,596,663 $ 4,316 $ 85,527 $4,515,452
========== ======== ======== ==========
</TABLE>
(continued)
F-15
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - Marketable Securities - Available For Sale Securities:
- ----------------------------------------------------------------
(continued)
The cost and fair market value of debt securities at December 31,
1994, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the maturities may have the
right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Cost Fair Market
---------- -----------
<S> <C> <C>
Due in one year or less..... $1,150,655 $1,154,971
Due after one year through
three years.............. 3,287,436 3,203,739
Due after three years....... 158,572 156,742
---------- ----------
T o t a l......... $4,596,663 $4,515,452
========== ==========
</TABLE>
The Company had no available for sale securities at December 31, 1995.
(NOTE E) - Inventories:
- ----------------------
The inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Finished goods..................... $2,178,278 $3,515,032
Material components and supplies... 1,091,928 777,000
---------- ----------
T o t a l................ $3,270,206 $4,292,032
========== ==========
</TABLE>
(continued)
F-16
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Property and Equipment:
- ---------------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Property and equipment at cost:
Land.......................... $ 325,000
Leasehold land and building... 725,000 $4,510,648
Molds and tools............... 3,817,878 3,201,294
Manufacturing equipment....... 797,401 328,045
Furniture, fixtures and
office equipment............ 896,361 836,643
Leasehold improvements........ 291,756 408,370
---------- ----------
</TABLE>
6,853,396 9,285,000
Less:
Accumulated depreciation
and amortization . . . . . 4,199,694 3,146,048
---------- ----------
T o t a l . . . . . . $2,653,702 $6,138,952
========== ===========
(NOTE G) - Investment and Advances - Celt Specialty Partners, Inc.:
- ------------------------------------------------------------------
On April 23, 1995, the Company purchased the remaining 50% joint
interest in Celt. The accounts of Celt are consolidated with the Company from
January 1, 1995 because of the Company's direct and indirect degree of control.
Investment and advances in joint venture consist of the following at
December 31, 1994:
Industrial Development Revenue Bond. . . . . . . . $1,500,000
Advances . . . . . . . . . . . . . . . . . . . . . 439,750
Loss of joint venture in excess of investment. . . (238,120)
-----------
T o t a l . . . . . . . . . . . . . . . . . . $1,701,630
===========
(continued)
F-17
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Investment and Advances - Celt Specialty Partners, Inc.:
- ------------------------------------------------------------------
Selected financial information of Celt as at December 31, 1994 and for
the period from May 10, 1994 (date of inception) to December 31, 1994 are as
follows:
Assets (including, $99,622 of accounts
receivable due from Just Toys, Inc.). . . . . $2,158,200
Liabilities (including $2,331,523 of advances
and debt and $74,597 of interest to
Just Toys, Inc.). . . . . . . . . . . . . . . 2,406,120
Deficiency. . . . . . . . . . . . . . . . . . . (247,920)
Revenue . . . . . . . . . . . . . . . . . . . . 1,231,229
Net loss. . . . . . . . . . . . . . . . . . . . (248,120)
(NOTE H) - Long-term Debt:
- -------------------------
In November 1993, JTP acquired approximately 5,899 square feet of office
space in Hong Kong. The Company financed $2,900,000 of the purchase price with a
mortgage loan payable over a period of eight years at a fluctuating interest
rate equal to the Hong Kong prime rate (currently 7.5%) plus 1-1/4% per annum.
The Company has guaranteed the obligation of JTP with respect to such mortgage
loan. The net book value of the property after the 1995 write down of $1,578,000
is $2,907,340 at December 31, 1995, and is reflected as property held for sale
(see
Note Q).
The future maturities as at December 31, 1995 are as follows:
1996. . . . . . . . . . . . . . $ 360,000
1997. . . . . . . . . . . . . . 360,000
1998. . . . . . . . . . . . . . 363,300
1999. . . . . . . . . . . . . . 399,600
2000. . . . . . . . . . . . . . 399,600
Thereafter. . . . . . . . . . . 363,500
-----------
T o t a l . . . . . . 2,246,000
Less current portion. . . . . . 360,000
-----------
Long-term debt, less current
portion . . . . . . . . . . . $1,886,000
===========
(continued)
F-18
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Related Party Transactions:
- -------------------------------------
[1] Administrative services:
-----------------------
RGA has previously performed certain administrative services for the
Company. Under an agreement dated in August 1992, RGA was compensated on a
formula based on the Company's sales. The Company paid approximately $668,000,
$877,000 and $1,392,000 for such services in 1995, 1994 and 1993,
respectively.
Commencing in 1996, the Company began assuming internally, the functions
and services previously provided by RGA to the Company. RGA will continue to
provide computer related services. For such services the Company will pay RGA
$30,000 per month for the first six months of the year and $20,000 per month for
the remainder of the year.
Yick Bo Trading Limited ("Yick Bo") performs certain administrative
services for JTP and JWE. The Company incurred approximately $293,000 and
$217,000 of expenses in 1995 and 1994, respectively. A principal and a
shareholder of Yick Bo is an officer of the Company. Commencing in 1996, the
Company will pay a fixed fee at an annual rate of $116,000. Upon closing of the
sale of the Hong Kong property, the Company will terminate such arrangements.
[2] Warehouse rent and services:
---------------------------
The Company leases space in a public warehouse from a partnership in
which a principal of a shareholder of the Company is a general partner. Rental
expense for such premises was approximately $5,300 in 1995 and $15,900 in 1994
and 1993. The Company incurred warehousing expenses of approximately $107,800,
$319,700 and $191,800 during 1995, 1994 and 1993, respectively, from RGA.
[3] Consulting fees:
---------------
During 1995 and 1994, the Company incurred expenses of $27,500 and
$80,000, respectively, to a director for consulting fees.
(continued)
F-19
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Accrued Liabilities:
- ------------------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Royalties............ $ 728,548 $ 880,296
Advertising.......... 1,089,713
Custom duties........ 298,146
Other................ 854,213 722,835
---------- ----------
T o t a l.. $1,582,761 $2,990,990
========== ==========
</TABLE>
(NOTE K) - Commitments, Contingencies and Other Matters:
- -------------------------------------------------------
[1] License agreements:
------------------
The Company develops and produces certain products under license
agreements with third parties. The amounts paid periodically under the terms of
these agreements range from 2.5% to 18% of the net sales of the licensed
products. The Company is obligated for guaranteed minimum royalty and other
license payments at December 31, 1995 as follows:
1996. . . . . . . . . . . . . . . $326,000
1997. . . . . . . . . . . . . . . 175,000
1998. . . . . . . . . . . . . . . -0-
1999. . . . . . . . . . . . . . . -0-
2000. . . . . . . . . . . . . . . -0-
2001. . . . . . . . . . . . . . . 175,000
--------
T o t a l . . . . . . . $676,000
========
(continued)
F-20
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Commitments, Contingencies and Other Matters: (continued)
- -------------------------------------------------------
[2] Leases:
------
Minimum annual rentals under leases expiring at various times through
the year 2008 for showroom, merchandising and warehouse facilities as at
December 31, 1995 are as follows:
1996. . . . . . . . . . . . . . .$ 333,000
1997. . . . . . . . . . . . . . . 332,000
1998. . . . . . . . . . . . . . . 308,000
1999. . . . . . . . . . . . . . . 100,000
2000. . . . . . . . . . . . . . . 86,000
Thereafter. . . . . . . . . . . . 734,000
----------
T o t a l . . . . . . .$1,893,000
==========
Rent expense approximated $259,000, $326,000 and $391,000 for 1995, 1994
and 1993, respectively.
[3] Letters of credit:
-----------------
As of December 31, 1995, the Company had outstanding letters of
credit approximating $304,000.
[4] Litigation:
----------
[a] In October 1995, the Company settled an arbitration proceeding and
an accompanying lawsuit brought against the Company by the former Chairman of
the Board and Chief Executive Officer of the Company, and the former President
and Chief Operating Officer of the Company seeking damages for lost compensation
in excess of $1,900,000 and reimbursement of their legal fees. The Company
paid the former officers a total of $593,746 and issued them a total of
120,000 shares of Preferred Stock, $1.00 par value convertible at $2.00 per
share.
(continued)
F-21
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Commitments, Contingencies and Other Matters: (continued)
- -------------------------------------------------------
[4] Litigation: (continued)
----------
[b] The Company received approximately 960 complaints concerning
its Micro-Bake for Kids/TM/ product, all of which have been accrued for as of
December 31, 1995. The Company has discontinued selling this product. None of
the complaints assert any serious personal injury. Three or four complaints
allege minor personal injuries. Virtually all of the complaints assert damage
to the Micro-Bake product and many complaints assert damage to the consumer's
microwave oven. The Company has product liability insurance with a $5,000 per
occurrence retention. The Company's insurance carrier initially asserted that
the complaints should be treated as separate individual occurrences rather
than as one continuing occurrence. The Company and the insurance carrier
have reached an agreement in principle to compromise payments, subject to
execution of final documentation. Under the compromise, the Company is expected
to be responsible for 50% of such claims and the insurance company would pay the
balance.
[c] A lawsuit was commenced against the Company and certain other
defendants in April 1995 by OddzOn Products, Inc. in the United States District
Court for the Northern District of California alleging that the Company's Micro
Ultra Pass and Ultra Pass infringed a design patent owned by the plaintiff and
constituted trade dress infringement and unfair competition. The action seeks
compensatory damages in excess of $2,800,000. The Company does not believe that
its products infringe any rights of the plaintiff, and intends to contest this
action vigorously and does not believe the action will have a material adverse
affect on the financial condition or operations of the Company.
[5] Deferred compensation plan:
--------------------------
Effective January 1, 1993, the Company became a participating employer
with RGA in a Deferred Compensation Plan (RGA Plan) which qualifies under
Section 401(a) of the Internal Revenue Code. Under the terms of the RGA Plan,
eligible employees can defer up to 20% of their gross compensation annually. The
Company may, but is not required to make additional contributions in amounts
authorized by the Company's Board of Directors subject to limitations. To date,
the Company has not elected to make additional contributions. Effective January
1, 1996, the Company established a defined contribution plan (Plan) under
Section 401(k) of the Internal Revenue Code. This new Plan replaces the RGA
Plan.
(continued)
F-22
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[6] Concentration of credit risk:
----------------------------
The Company places its cash at various banking institutions and Milberg
Factors, Inc. At times, such amounts might be in excess of the FDIC insurance
limit at the banking institutions. Amounts due from Milberg Factors, Inc. are
not covered by insurance.
(NOTE L) - Major Customers:
- --------------------------
The Company's net sales to major customers are as follows:
<TABLE>
<CAPTION>
Year Ending Number of Percentage of
December 31, Customers Net Sales
- ------------------- --------- ----------------
<S> <C> <C>
1995 Two 36% and 16%
1994 Two 31% and 13%
1993 Three 24%, 20% and 12%
</TABLE>
(NOTE M) - Income Taxes:
- -----------------------
The provision for income taxes (benefit) consists of the following:
Year Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Federal:
Current............................... $ - $(596,931)
Deferred.............................. $190,600 (108,200)
State and local:
Current............................... (197,847)
Deferred.............................. 82,600 (44,600)
Foreign:
Current...................... 2,012 469,620
Deferred..................... 15,971
--------- -------- ---------
T o t a l............. $ - $275,212 $(461,987)
========= ======== ==========
Deferred income tax expenses arose primarily from temporary
differences associated with the following:
Year Ended December 31,
-----------------------------
1995 1994 1993
------ ------ ------
Depreciation.................. $ - $142,800 $ (78,029)
Capitalization of
inventory costs............. 58,400 (22,000)
Estimated allowances.......... 72,000 (36,800)
------- -------- ----------
T o t a l............ $ - $273,200 $(136,829)
======= ======== ==========
(continued)
F-23
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Income Taxes: (continued)
- -----------------------
The tax effects of principal temporary differences and net operating loss are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------------------- ---------- ---------
Asset:
<S> <C> <C> <C>
Estimated allowances.. $ 430,000 $ 495,000 $244,000
Depreciation.......... 199,000 349,000 126,829
Write-down of property 260,000
Capitalization of
inventory........... 37,000 37,000 58,400
Net operating loss.... 3,400,000 6,475,000 426,000
---------- ---------- --------
4,326,000 7,356,000 855,229
Valuation allowance
for deferred taxes.. 4,326,000 7,356,000 598,000
---------- ---------- --------
T o t a l......... $ -0- $ -0- $257,229
========== ========== ========
Liability:
Depreciation.......... $ 15,971 $ 15,971
========== ========
</TABLE>
The valuation allowance at December 31, 1992 was approximately $114,000.
The differences between the statutory Federal income tax rate of
34% and the income taxes (benefit) reported in the statements of operations are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
--------------------- ------------- ------------
<S> <C> <C> <C>
Income (loss) before
income taxes (benefit):
United States................. $(6,495,630) $(15,430,290) $(3,747,947)
Foreign....................... (2,291,294) (90,030) 2,767,649
----------- ------------ -----------
$(8,786,924) $(15,520,320) $ (980,298)
=========== ============ ===========
Statutory rate (benefit)........ $(2,987,554) $ (5,276,909) $ (333,301)
Utilization of benefit of tax
loss carryback................. (371,830)
Loss from which no tax benefit
was provided................... 2,977,820 5,550,109
State and local taxes
(benefit), net of Federal
benefit........................ (188,865)
Difference between U.S.
Federal statutory rate and
foreign effective rate......... 2,012 459,212
Other........................... 9,734 (27,203)
----------- ------------ -----------
Total tax provision
(benefit)..................... $ -0- $ 275,212 $ (461,987)
=========== ============ ===========
</TABLE>
(continued)
F-24
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Income Taxes: (continued)
- -----------------------
Undistributed foreign income:
----------------------------
At December 31, 1995, JTP had approximately $400,000 of undistributed
accumulated earnings. If the amounts were paid in the form of dividends, the
Company would apply this income against the net operating loss carryforwards.
Net operating loss:
------------------
The Company has a net operating loss carryforward of approximately
$22,000,000 as at December 31, 1995. Approximately $900,000 expires by 2008,
$14,100,000 by 2009 and $7,000,000 by 2010. However, pursuant to Section 382 of
the Internal Revenue Code the future utilization of these net operating loss
carryforwards are significantly limited due to ownership changes. Based on
management's estimates, the annual limitation on such net operating loss
carryforwards is approximately $500,000.
(NOTE N) - Supplemental Cash Flow Information:
- ---------------------------------------------
Payments for interest expense were $234,901, $232,169 and $41,665 for
1995, 1994 and 1993, respectively. Payments for income taxes were $1,885,463 for
1993.
(continued)
F-25
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE O) - Stock Option Plan:
- ----------------------------
Effective August 10, 1992, the Company adopted the 1992 Incentive and
Non-Qualified Stock Option Plan (the "Plan"), which will terminate on August 9,
2002. Under the terms of the Plan, options to purchase shares of common stock of
the Company intended to qualify as "incentive stock options" and non-qualified
stock options may be granted to employees and directors of the Company and
independent contractors providing services to the Company. A total of 600,000
shares of common stock have been reserved for issuance under the Plan. Options
are exercisable within ten years of the date of grant. The Company has 148,753
available shares for future issuance as at December 31, 1995.
Detail of stock options are as follows:
<TABLE>
<CAPTION>
Option Number of
Number of Price Per Shares
Shares Share Exercisable
----------- -------------- -----------
<S> <C> <C> <C>
Balance - December 31, 1992.... 170,999 $10.50-$14.125
Granted - 1993................. 85,000 $ 12.50-$19.25
Cancelled - 1993............... (16,000) $ 10.50-$14.00
------
Balance - December 31, 1993.... 239,999 $ 10.50-$19.25 31,000
===========
Granted and repriced -
December 31, 1994............ 371,497 $ 3.625-$10.50
Cancelled - 1994............... (222,999) $ 3.625-$19.25
-------
Balance - December 31, 1994.... 388,497 $3.625-$14.125 39,000
===========
Granted - 1995................. 234,000 $ 1.50 -$3.625
Cancelled - 1995............... (171,250) $ 3.625-$10.50
-------
Balance - December 31, 1995.... 451,247 $1.50 -$14.125 140,033
======= ===========
</TABLE>
The Company has not recorded a charge for financial reporting purposes
for the issuance and repricing of the above stock options because the options
were issued or repriced at exercise prices equal to or greater than the fair
value of the Company's common stock or the difference between the exercise price
and the fair value was immaterial.
(NOTE P) - Warrants:
- -------------------
In connection with the public offering in October 1992 (Note A), the
Company sold warrants to the underwriter for $100 to purchase up to 100,000
shares of common stock, exercisable for a period of four years beginning October
1, 1993 at $12.60 per share. On January 1, 1996, the Company issued warrants to
its investment banker to purchase 100,000 shares of common stock at $3.625 per
share. The Company did not record a charge for financial reporting purposes
because the exercise price of the warrants were greater than the fair value of
the Company's common stock.
(continued)
F-26
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE Q) - Quarterly Financial Data (Unaudited):
- -----------------------------------------------
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
---------- --------- --------- --------
(In Thousands, Except Per Share Amount)
<S> <C> <C> <C> <C>
1995:
Net sales.......................... $ 4,414 $3,982 $6,181 $ 5,011
Gross profit....................... 1,402 1,778 2,638 431
Net income (loss).................. (3,312) 48 239 (5,762)
Net income (loss) per
share............................ $ (.80) $ .01 $ .06 $(1.39)
</TABLE>
The fourth quarter of 1995 included the following material adjustments:
[1] Because the Company decided to sell its property in Hong Kong,
the book value of the property was written down by approximately $577,000 in the
first quarter of 1995 to reflect management's estimate of the net proceeds from
the sale. In March 1996, the Company entered into a provisional sale agreement
for the sale of this property. In the fourth quarter, the Company wrote down
the value of the property by an additional $1,001,000 based on the selling price
per the sales agreement. This transaction is expected to close by April 30,
1996.
[2] The Company wrote off $976,000 of advertising credits received
for inventories bartered based on the Company's revised advertising plans for
the future.
[3] Adjustments were made to the Company's estimates of (i)
allowances required for returns, discounts and uncollectible accounts totaling
approximately $250,000 and losses from accounts receivable and inventories and
(ii) mark downs and adjustments for inventories totaling approximately $500,000.
(continued)
F-27
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Note Q) - Business Segments:
- ----------------------------
Foreign operations and sales for the year ended December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
United
States Hong Kong* Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales....... $ 14,815,984 $ 4,772,364 $ 19,588,348
============ ============ ============
Operating (loss) $ (5,608,218) $ (457,978) $ (6,066,196)
============ ============
Interest expense (357,562)
Interest income
and dividends. 141,440
Write-down of
investment in
Hong Kong
property...... (1,578,000)
Settlement of
arbitration &
related legal
expenses...... (909,594)
Other expense... (17,012)
------------
(Loss) before
income taxes . $ (8,786,924)
============
Identifiable
assets at
December 31,
1995.......... $8,822,249 $4,031,835 $(1,272,169) $ 11,581,915
========== ========== ===========
Corporate assets 241,443
------------
Total assets.... $ 11,823,358
============
</TABLE>
* Hong Kong includes approximately $4,000,000 of net sales F.O.B. Hong
Kong, which may have been shipped to customers in the United States
and other destinations.
(continued)
F-28
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE Q) - Business Segments: (continued)
- ----------------------------
Foreign operations and sales for the year ended December 31, 1994 are
as follows:
<TABLE>
<CAPTION>
United
States Hong Kong* Eliminations Consolidated
------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales. . . . $ 14,620,250 $ 9,254,786 $ 23,875,036
============ ============= ==================
Operating (loss)
income . . . . $(15,570,333) $ 80,984 $(15,489,349)
============ =============
Interest expense (284,652)
Interest income
and dividends. 467,379
Other expense. . (213,698)
------------------
(Loss) before
income taxes . $(15,520,320)
==================
Identifiable
assets at
December 31,
1994 . . . . . $ 10,808,173 $ 6,159,388 $(611,539) $ 16,356,022
============ ============= ============ ==================
Corporate assets 6,683,758
------------------
Total assets . . $ 23,039,780
==================
</TABLE>
* Hong Kong includes approximately $7,089,000 of net sales F.O.B. Hong
Kong, which may have been shipped to customers in the United States and
other destinations.
(continued)
F-29
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE Q) - Business Segments: (continued)
- ----------------------------
Foreign operations and sales for the year ended December 31, 1993 are
as follows:
<TABLE>
<CAPTION>
United
States Hong Kong* Eliminations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales...... $ 25,959,000 $16,609,000 $ 42,568,000
============ =========== ============
Operating (loss)
income....... $ (4,029,000) $ 2,728,000 $ (1,301,000)
============ ===========
Interest expense (34,000)
Interest income
and dividends. 363,000
Other expense... (8,000)
------------
(Loss) before
income tax
(benefit)..... $ (980,000)
============
Identifiable
assets at
December 31,
1993........... $ 19,826,000 $ 5,449,000 $(1,535,000) $ 23,740,000
============ =========== ===========
Corporate assets 13,257,000
------------
Total assets.... $ 36,997,000
============
</TABLE>
* Hong Kong includes approximately $13,082,000 of net sales F.O.B. Hong
Kong, which may have been shipped to customers in the United States and
other destinations.
(continued)
F-30
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
II SCHEDULE
JUST TOYS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
---------------
(1) (2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions- End of
of Period Expenses Describe Describe Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
Allowance for doubtful accounts................................. $ 152,000 $ 28,218 $ 74,218 $ 106,000
Allowance for sales returns, discounts and
allowances.................................................... 1,055,000 784,469 928,469 911,000
---------- ---------- ----------- ----------
T o t a l................................................ $1,207,000 $ 812,687 $1,002,687 $1,017,000
========== ========== =========== ==========
Year ended December 31, 1994:
Allowance for doubtful accounts................................. $ 112,000 $ 117,331 $ 77,331 $ 152,000
Allowance for sales returns, discounts and
allowances.................................................... 846,000 4,922,490 $286,023 4,999,513 1,055,000
---------- ---------- ---------- ----------- ----------
T o t a l...................................................... $ 958,000 $5,039,821 $286,023 $5,076,844 $1,207,000
========== ========== ========== =========== ==========
Year ended December 31, 1993:
Allowance for doubtful accounts................................. $ 67,000 $ 167,786 $ 122,786 $ 112,000
Allowance for sales returns, discounts and
allowances.................................................... 947,000 3,551,789 3,652,789 846,000
---------- ---------- ----------- ----------
T o t a l...................................................... $1,014,000 $3,719,575 $3,775,575 $ 958,000
========== ========== =========== ==========
</TABLE>
(1) Write off of uncollectibles and sales returns, discounts and allowances.
(2) Selling expense related to returned merchandise.
(continued)
F-31
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF RICHARD A. EISNER & COMPANY, LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference in Form S-8 Registration
Statement No. 33-69812 of Just Toys, Inc. and subsidiaries of our report dated
March 27, 1995 and April 10, 1995 with respect to Note K[4][a] and K[4][c] which
appears in this annual report on Form 10-K/A for the year ended December 31,
1994.
Richard A. Eisner & Company, LLP
New York, New York
August 8, 1996
<PAGE>
EXHIBIT 23.2
------------
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-69812) pertaining to the 1992 Incentive and Non-Qualified Stock
Option Plan of Just Toys, Inc. of our report dated February 17, 1996, with
respect to the consolidated financial statements and schedule of Just Toys, Inc.
included in Amendment No. 1 to the Annual Report (Form 10-K/A) for the year
ended December 31, 1995.
ERNST & YOUNG LLP
New York, New York
August 8, 1996
