<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS 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
--- ---
THE AGGREGATE NUMBER OF THE REGISTRANT'S SHARES OUTSTANDING ON MAY 13, 1996
WAS 4,150,000 SHARES OF COMMON STOCK, $.01 PAR VALUE
- --------------------------------------------------------------------------------
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
INDEX
-----
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. FINANCIAL STATEMENTS:
---------------------
Condensed Consolidated Balance Sheets - June 30, 1996
and 1995 (unaudited) and December 31, 1995........................ 1
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months and Six Months Ended June 30, 1996 and 1995.. 2
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended June 30, 1996 and 1995................... 3
Notes To Condensed Consolidated Financial
Statements (unaudited)............................................ 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 7
---------------------------------------------
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS................................................. 12
-----------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 12
--------------------------------
SIGNATURES ............................................................ 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
JUST TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995 1995
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 320,471 $ 1,904,860 $ 241,443
Accounts receivable, net of allowances
of $468,000, $796,000 and $1,017,000
(Note B).......................................... 203,287 1,918,076 1,779,598
Inventories (Note C)................................ 4,361,309 3,529,626 3,270,206
Prepaid and refundable income taxes................. 32,596 264,901 248,459
Prepaid expenses and other current assets........... 600,330 2,013,226 646,422
------------ ------------ ------------
Total current assets............................. 5,517,993 9,630,689 6,186,128
Property and equipment, at cost, net of accumulated
depreciation and amortization....................... 3,530,075 3,469,919 2,653,702
Property held for sale (Note F)....................... --- 3,908,840 2,907,340
Other assets.......................................... 118,555 236,719 76,188
------------ ------------ ------------
TOTAL............................................. $ 9,166,623 $ 17,246,167 $ 11,823,358
============ ============ ============
LIABILITIES
Current liabilities:
Current portion of long-term debt.................. $ --- $ 340,000 $ 360,000
Accounts payable.................................... 1,463,585 1,637,657 1,925,467
Due RGA Accessories, Inc............................ --- 42,089 45,242
Accrued liabilities................................. 1,083,444 1,733,228 1,582,761
------------ ------------ ------------
Total current liabilities......................... 2,547,029 3,752,974 3,913,470
------------ ------------ ------------
Long-term debt, less current portion.................. --- 2,066,000 1,886,000
Deferred income taxes................................. 15,971 15,971 15,971
Commitments and contingencies (Note E)................ --- --- ---
------------ ------------ ------------
TOTAL............................................. 2,563,000 5,834,945 5,815,441
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Stockholders' equity: (Note D)
Preferred stock, $1.00 par value, 1,000,000 shares
authorized:
Series A Convertible Preferred Stock 150,000
shares authorized, 120,000 shares issued and
outstanding (liquidation value $240,000).......... 120,000 -- 120,000
Series B Convertible Preferred Stock, 650,000
shares authorized, 538,243 shares issued and
outstanding (liquidation value $1,951,131)........ 538,243 -- --
Common stock, $.01 par value, authorized
15,000,000 shares; 4,150,000
issued and outstanding............................ 41,500 41,500 41,500
Additional paid-in capital.......................... 30,199,457 29,795,768 29,795,768
Accumulated deficit................................. (24,295,577) (18,426,046) (23,949,351)
------------ ------------ ------------
Total stockholders' equity........................ 6,603,623 11,411,222 6,007,917
------------ ------------ ------------
TOTAL............................................. $ 9,166,623 $ 17,246,167 $ 11,823,358
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these Condensed Financial Statements.
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ----------------------------
1996 1995 1996 1995
------------- -------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales....................................... 4,334,153 $3,981,865 $8,508,027 $ 8,396,018
Cost of goods sold.............................. 2,480,970 2,203,406 5,245,113 5,215,109
---------- ---------- ---------- ------------
Gross profit.................................... 1,853,183 1,778,459 3,262,914 3,180,909
---------- ---------- ---------- ------------
Expenses:
Merchandising, selling, warehousing
and distribution.......................... 510,957 241,866 952,470 1,883,369
Royalties................................... 120,041 34,202 276,038 633,391
General and administrative.................. 1,201,687 1,168,457 2,463,304 3,313,423
---------- ---------- ---------- ------------
Total........................................... 1,832,685 1,754,525 3,691,812 5,830,183
---------- ---------- ---------- ------------
Operating income (loss)......................... 20,498 23,934 ( 428,898) (2,649,274)
Interest and dividend income.................... --- 50,722 3,242 100,477
Interest expense................................ (50,981) (2,588) (172,433) (66,786)
Write down of investment in Hong Kong property.. --- --- --- (576,500)
Other income (loss)............................. 179,468 (23,634) 251,863 (71,536)
---------- ---------- ---------- ------
Net income (loss)............................... $ 148,985 $ 48,434 $ (346,226) $ (3,263,619)
========== ========== ========== ============
Per share data:
Net income (loss) per share .................... $0.04 $0.01 $(0.08) $(0.79)
===== ===== ======= =======
Weighted average common shares outstanding...... 4,150,000 4,150,000 4,150,000 4,150,000
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these Condensed Financial Statements.
Page-2-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
(UNAUDITED)
Cash flows from operating activities:
<S> <C> <C>
Net loss............................................................. $ (346,226) $(3,263,619)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization.................................... 171,672 672,219
Gain on sale of property......................................... (118,707) ---
Provision for resizing and restructuring......................... -- 303,160
Write down in investment in Hong Kong property................... -- 576,500
Realized and unrealized gain on marketable securities............ -- (81,211)
Changes in operating assets and liabilities (net of the effects
of the acquisition of Celt Specialty Partners, Inc. in 1995
and Table Toys, Inc. in 1996):
(Increase) decrease in:
Accounts receivable................................... 1,576,311 376,277
Inventories........................................... (291,103) 762,406
Prepaid and refundable taxes.......................... 215,863 (217,341)
Prepaid expenses and other current assets............. (123,124) (199,102)
Other assets.......................................... (42,367) (169,348)
Increase (decrease) in:
Accounts payable...................................... (461,882) (651,177)
Due RGA Accessories, Inc.............................. (45,242) (72,844)
Accrued liabilities................................... (674,317) (1,560,922)
Income taxes payable.................................. -- (473,422)
----------- -----------
Net cash (used in) operating activities............................. (139,122) (3,998,424)
----------- -----------
Cash flows from investing activities:
Cash received from sale of property (Note F)......................... 3,026,047 --
Purchase of assets of Table Toys (Note G)........................... (391,291) --
Acquisition of property and equipment................................ (170,606) (705,685)
Purchase of marketable securities.................................... -- (2,873,589)
Redemption of marketable securities.................................. -- 7,470,252
----------- -----------
Net cash provided by investing activities................. 2,464,150 3,890,978
----------- -----------
Cash flows from financing activities:
Payments of long-term debt........................................... (2,246,000) (156,000)
----------- -----------
Net cash (used in) financing activities................... (2,246,000) (156,000)
----------- -----------
Net increase (decrease) in cash......................................... 79,028 (263,446)
Cash-beginning of period................................................ 241,443 2,168,306
----------- -----------
Cash-end of period...................................................... $ 320,471 $ 1,904,860
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these Condensed Financial Statements.
Page-3-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A - Basis of Presentation and Summary of Significant Accounting Policies
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included. On
April 23, 1995, the Company purchased the remaining 50% joint interest in Celt
Specialty Partners, Inc. ("Partners") which was organized on June 7, 1994. The
accounts of Partners are consolidated with the Company from January 1, 1995
because of the Company's direct and indirect degree of control. The results of
operations for the interim periods are not necessarily indicative of the results
for a full year. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
(1) Loss per share of Common Stock
Loss per share is based on the weighted average number of shares outstanding
during each period, including Common Stock equivalents, when dilutive. Primary
and fully diluted loss per share are the same for each period.
(2) Reclassifications
Certain previously reported amounts have been reclassified to conform to the
1996 presentation and that of the Form 10K for the year ended December 31, 1995.
Note B - Accounts Receivable
Accounts receivable and amounts due from factor consist of the following:
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1996 1995 1995
------------ ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Accounts Receivable - factor.................... $ 2,803,682 $ 3,206,600
Borrowings from factor.......................... (3,009,567) (881,024)
----------- -----------
Net due to/from factor.......................... (205,885) 2,325,576
Accounts receivable - trade..................... 877,172 $2,714,076 471,022
----------- ---------- -----------
Total accounts receivable.................... 671,287 2,714,076 2,796,598
Less: Accounts receivable allowances............ (468,000) (796,000) (1,017,000)
----------- ---------- -----------
Total accounts receivable net of allowances.. $ 203,287 $1,918,076 $ 1,779,598
=========== ========== ===========
</TABLE>
Page-4-
<PAGE>
Note C - Inventories
The inventories consist of the following:
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1996 1995 1995
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Finished goods.......................... $3,013,189 $ 2,425,589 $2,178,278
Material components and supplies........ 1,348,120 1,104,037 1,091,928
---------- ------------ ----------
Total................................... $4,361,309 $ 3,529,626 $3,270,206
========== ============ ==========
</TABLE>
Note D - Stockholders' Equity
Stockholders' equity consists of the following:
<TABLE>
<CAPTION>
Additional Paid-in Accumulated
Preferred Stock Common Stock Capital Deficit Total
--------------- ------------ ------------------ --------------- -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 $120,000 $41,500 $29,795,768 $(23,949,351) $6,007,917
538,243 Shares of Convertible Preferred
Stock issued in connection with 538,243 403,689 941,932
acquisition (See Note G)
Net loss (unaudited) (346,226) (346,226)
-------- ------- ----------- ------------ -----------
Balance June 30, 1996
(unaudited) $658,243 $41,500 $30,199,457 $(24,295,572) $6,603,623
======== ======= =========== ============ ==========
</TABLE>
Note E - Commitments and Contingencies
Litigation
On July 31, 1996, the United States District Court for the Northern District
of California granted summary judgment in favor of the Company and the other
defendants in the lawsuit commenced in April 1995 by OddzOn Products, Inc. In
that lawsuit, OddzOn Products, Inc. alleged that the Company's Micro Ultra
Pass(R) and Ultra Pass(R) infringed a design patent allegedly owned by the
plaintiff and constituted trade dress infringement and unfair competition. The
Court's decision held that the Company's products do not infringe in any way on
the plaintiff's rights. The time for OddzOn Products, Inc. to file an appeal
from the decision has not yet expired.
On June 21, 1996, the Company commenced an action against CFB Venture Fund
II, L.P. ("CFB") and Stephen Broun which is currently pending in the United
States District Court for the Southern District of New York. This action arises
out of negotiations regarding the possible acquisition by the Company of certain
assets of BRIK, Inc. ("Brik") and seeks a declaratory judgment to the effect
that the Company did not breach any agreement with CFB. On July 19, 1996, the
defendants answered and interposed four counterclaims against the Company
seeking
Page-5-
<PAGE>
damages against the Company in an amount of at least $600,000 and punitive
damages in an amount three times thereof. The defendants claim that the Company
and CFB had reached an enforceable agreement pursuant to which the Company would
purchase certain assets of Brik from CFB, a secured creditor of Brik. The
Company does not believe that any such agreement ever existed and, if any such
contract is determined by a court to have existed, the Company believes that it
was fraudulently induced by the defendants to enter into such agreement. The
Company intends to pursue this action and to contest the counterclaims
vigorously. However, the outcome of this action cannot be predicted and an
adverse judgment could have an adverse effect on the Company.
Note F - Property Held for Sale
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 of 1995, the Company wrote down
the value of the property by an additional $1,001,000 based on the provisional
sales agreement. The transaction closed on April 30, 1996 and because the final
selling price was marginally higher than expected and selling expenses were less
than expected, a gain of $119,000 was recognized in the second quarter.
Note G - Acquisition
On January 22, 1996, the Company entered into an agreement to purchase
certain assets of Table Toys, Inc. ("Table Toys"). Because Table Toys had filed
a petition under Chapter 11 of the Federal Bankruptcy laws, the acquisition was
subject to approval by the Bankruptcy Court. The acquisition was approved on
May 9, 1996 and closed on June 27, 1996.
The Company accounted for this acquisition under the purchase method of
accounting and has preliminarily allocated the purchase price as follows:
Assets acquired:
Inventory $ 800,000
Property and equipment 877,439
----------
$1,677,439
==========
The acquisition of the above assets were financed as follows:
Cash Paid $ 391,291
Convertible preferred stock 941,932
Other liabilities incurred 344,216
----------
$1,677,439
==========
The consideration paid for the assets acquired included 538,243 shares of
Series B Convertible Preferred Stock with a liquidation value of $3.625 per
share. Such shares were valued at $1.75 per share. Other liabilities incurred
include $169,216 of expenses incurred in connection with the acquisition that
were included in prepaid expenses and other current assets as of December 31,
1995.
Page-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
----------------------------------------------
RECENT DEVELOPMENTS
On June 27, 1996, the Company acquired certain of the assets of Table Toys,
Inc. ("Table Toys"), including the inventory, trademarks and other intellectual
property and molds, tools and dies of Table Toys. The purchase price for the
assets acquired was a combination of $391,291 in cash, 538,243 shares of the
Company's Series B Convertible Redeemable Preferred Stock, $1.00 par value per
share, and warrants to purchase in the aggregate 60,000 shares of the Company's
common stock, par value $.01 per share.
Table Toys was engaged in the business of designing, manufacturing,
marketing and distributing play tables with interlocking surfaces compatible
with most brands of toy construction blocks and a line of toy construction
blocks. The asset purchase agreement (the "Asset Purchase Agreement") between
the Company and Table Toys was executed on January 22, 1996. The Asset Purchase
Agreement contemplated the filing by Table Toys of a petition under Chapter 11
of the Federal bankruptcy Code (the "Petition"). Table Toys filed the Petition
on January 26, 1996. The sale of the specified assets to the Company was
approved by the Bankruptcy Court on May 9, 1996.
Negotiations between the Company and BRIK, Inc. ("Brik") for the possible
acquisition by the Company of certain of the assets of Brik from CFB Venture
Fund II, L.P. as a secured creditor of Brik have terminated. See Part II, Item
1, Legal Proceedings.
On April 30, 1996, the Company completed the sale of its Hong Kong real
property. On April 15, 1996, the Company leased approximately 3,400 square feet
of office space for a term expiring in April 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales for the three months ended June 30, 1996 increased 8.8% to
$4,334,000 from $3,982,000 in the comparable period in 1995. Net sales of the
Company's Sports Toys increased 36.0% to $2,193,000 from $1,612,000 in the
comparable period in 1995. This increase was partially offset by a decrease in
the Toys Category of 19.2% from $2,518,000 in 1995 to $2,111,000 in the same
period of 1996. Sales credits in the three month period ended June 30, 1996 (in
the form of returns, advertising and other allowances and concessions to
retailers) were 3.9% of net sales as compared to 3.0% of net sales in the
comparable 1995 period. The higher rate used for the three months ended June 30,
1996 more accurately reflects anticipated annual results.
Gross profit increased 4.2% to $1,853,000 from $1,778,000 in the comparable
period in 1995. Gross profit as a percentage of net sales was 42.8% compared to
44.7% for the three months ended June 30, 1995. This decrease resulted primarily
from higher sales credits and a change in the sales mix in the 1996 period as
compared to the same period in 1995.
Merchandising, selling, warehousing and distribution expenses increased
111.2% to $511,000 as compared to $242,000 in the comparable 1995 period. The
sharp increase is a result of negotiated settlements of outstanding payables at
less than full invoice amount during the three months ended June 30, 1995. The
results for the three
Page-7-
<PAGE>
months ended June 30, 1996 are more representative of the Company's operating
costs. As a percentage of net sales, merchandising, selling, warehousing and
distribution expenses increased to 11.8% from 6.1% in the comparable period in
1995.
Royalties decreased 65.1% to $120,000 from $344,000 in the three months
ended June 30, 1995. The decrease reflects the change in the Company's product
mix away from character licensed products which carry higher royalty rates than
branded products and products obtained from third party inventors. Additionally
during the quarter ended June 30, 1996 a reduction to estimated expense was made
of approximately $87,000. This adjustment was made to more accurately reflect
current estimates of royalty expense. As a result, royalties, as a percentage of
net sales, decreased to 2.8% from 8.6% in the 1995 period.
General and administrative expenses increased 2.8% to $1,202,000 from
$1,168,000 in the comparable period in 1995. The quarter ended June 30, 1995
included credits to certain expenses due to the negotiated settlements of
outstanding payables at less than full invoice amount. The increase was
partially offset by a reduction in depreciation and amortization and fees for
RGA's services for the period. As a percentage of net sales, general and
administrative expenses decreased to 27.7% from 29.3% due to the increase in net
sales partially offset by increased general and administrative expenses.
Operating income decreased to $20,000 from $24,000 in the comparable period
in 1995.
Interest expense increased $48,000 for the quarter ended June 30, 1996
compared to the quarter ended June 30, 1995 due to the Company having drawn
advances under its factor arrangement.
Other income was $179,000 in the quarter ended June 30, 1996 compared to
other loss of $24,000 for the comparable period in 1995. The quarter ended June
30, 1996 included approximately $119,000 of income from the sale of the
Company's Hong Kong property. The transaction closed on April 30, 1996 and
because the final selling price was marginally higher than expected and selling
expenses were less than expected, income of $119,000 was recognized in the
second quarter.
Net income was $149,000 for the quarter ended June 30, 1996 compared to
$48,000 for the comparable period in 1995. Excluding the $119,000 of income
from the sale of the Hong Kong property, net income for the three months ended
June 30, 1996 would have been $30,000 or $18,000 below the comparable period in
1995. Net income per common share increased to $0.04 from $0.01 on 4,150,000
weighted average shares outstanding on the three months ended June 30, 1996 and
1995, respectively.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales for the six months ended June 30, 1996 increased 1.3% to
$8,508,000 from $8,396,000 in the comparable period in 1995. Net sales of the
Company's Sports Toys increased 20.3% to $5,160,000 from $4,289,000 in the
comparable period in 1995. This increase was partially offset by a decrease in
the Toys Category of 24.4% from $4,625,000 in the first six months of 1995 to
$3,498,000 in the same period of 1996. Sales credits in the six month period
ended June 30, 1996 (in the form of returns, advertising and other allowances
and concessions to retailers) were 4.2% of net sales as compared to 6.2% of net
sales in the comparable 1995 period.
Page-8-
<PAGE>
Gross profit increased 2.6% to $3,263,000 from $3,181,000 in the comparable
period in 1995. Gross profit as a percentage of net sales was 38.4% compared to
37.9% for the six months ended June 30, 1995. This increase resulted primarily
from lower sales credits in the 1996 period as compared to the same period in
1995.
Merchandising, selling, warehousing and distribution expenses decreased
49.4% to $952,000 as compared to $1,883,000 in the comparable 1995 period. The
sharp decrease is a result of the cost reduction program initiated in the second
quarter of 1995 as well as unusually high expenditures incurred in the first
quarter of 1995. The cost reduction measures reduced costs associated with
product development and design, samples, advertising, communication, costs
associated with the recall of one of the Company's products and warehousing and
distribution expenses. As a percentage of net sales, merchandising, selling,
warehousing and distribution expenses decreased to 11.2% from 22.4% in the
comparable period in 1995.
Royalties decreased 56.4% to $276,000 from $633,000 in the six months ended
June 30, 1995. The decrease reflects the change in the Company's product mix
away from character licensed products which carry higher royalty rates than
branded products and products obtained from third party inventors. As a result,
royalties, as a percentage of net sales, decreased to 3.2% from 7.5% in the 1995
period. Additionally during the six months ended June 30, 1996 a reduction to
estimated expense was made of approximately $87,000. This adjustment was made to
more accurately reflect current estimates of royalty expense.
General and administrative expenses decreased 25.7% to $2,463,000 from
$3,313,000 in the comparable period in 1995 due to the net effects of the
Company's cost reduction program which resulted in a decrease in the number of
personnel, decreased depreciation and amortization and a decrease in fees for
RGA's services for the period. As a percentage of net sales, general and
administrative expenses decreased to 28.9% from 39.5% due to the net decline in
general and administrative expenses.
Operating loss decreased to $429,000 from $2,649,000 in the comparable
period in 1995.
The Company earned interest and dividend income of $3,000 as compared to
$100,000 in the comparable period in 1995. The decrease in interest and dividend
income is a result of the Company having redeemed marketable securities during
1995 to fund its losses. Interest expense increased to $172,000 as compared to
$67,000 in the comparable period in 1995. This increase was due primarily to the
Company having drawn advances under its factoring arrangement.
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
half of 1995 to reflect management's estimate of the net proceeds from the sale.
Other income was $252,000 in the six months ended June 30, 1996 compared to
a loss of $72,000 in the comparable period in 1995. The six months ended June
30, 1996 included approximately $119,000 of income from the sale of the
Company's Hong Kong property, a result of the proceeds from the sale being
marginally higher than initially anticipated and previously estimated expenses
being lower.
Net loss was $346,000 as compared to a net loss of $3,264,000 in the
comparable period in 1995. The net loss for the six months ended June 30, 1995
included approximately $303,000
Page-9-
<PAGE>
of expenses associated with the resizing and restructuring of the Company that
took place during that period. Net loss per common share decreased to $0.08 from
$0.79 on 4,150,000 weighted average shares outstanding in the six months ended
June 30, 1996 and 1995, respectively.
OTHER INFORMATION
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 use of just-in-time/quick
response inventory techniques and replenishment programs by larger retailers has
resulted in fewer orders being placed in advance of shipment. This distorts the
comparisons of unshipped orders at any given date. 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 $3,911,000 at June 30, 1996 compared to
approximately $2,862,000 at June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1996 was $2,971,000 as compared
to $5,878,000 at June 30, 1995.
Cash provided by investing activities was $2,464,000 in the period ended
June 30, 1996, which was attributable to the sale of the Company's Hong Kong
property, partially offset by an investment in equipment, molds and tooling for
new products. In the comparable period in 1995, cash provided by investing
activities was $3,891,000, consisting primarily of a net redemption of
marketable securities, partially offset by an investment in equipment, molds and
tooling for new products. Included in the net cash used in operating activities
for the 1996 period was $800,000 of inventory acquired as part of the assets of
Table Toys, Inc.
Cash used in financing activities was $2,246,000 in the first six months of
1996 and $156,000 in the comparable period in 1995. Cash from financing
activities was used to repay the principal portion of the mortgage on the
Company's facility in Hong Kong.
Effective February 1, 1996, the Company's factoring agreement with Milberg
Factors, Inc. 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 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.
The Company believes that its cash flow from operations, available
borrowings and the proceeds from the sale of its Hong Kong facility will be
adequate to meet its obligations for the year.
Page-10-
<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-11-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 31, 1996, the United States District Court for the Northern
District of California granted summary judgment in favor of the Company and the
other defendants in the lawsuit commenced in April 1995 by OddzOn Products, Inc.
In that lawsuit, OddzOn Products, Inc. alleged that the Company's Micro Ultra
Pass(R) and Ultra Pass(R) infringed a design patent allegedly owned by the
plaintiff and constituted trade dress infringement and unfair competition. The
Court's decision held that the Company's products do not infringe in any way on
the plaintiff's rights. The time for OddzOn Products, Inc. to file an appeal
from the decision has not yet expired.
On June 21, 1996, the Company commenced an action against CFB Venture Fund
II, L.P. ("CFB") and Stephen Broun which is currently pending in the United
States District Court for the Southern District of New York. This action arises
out of negotiations regarding the possible acquisition by the Company of certain
assets of BRIK, Inc. ("Brik") and seeks a declaratory judgment to the effect
that the Company did not breach any agreement with CFB. On July 19, 1996, the
defendants answered and interposed four counterclaims against the Company
seeking damages against the Company in an amount of at least $600,000 and
punitive damages in an amount three times thereof. The defendants claim that
the Company and CFB had reached an enforceable agreement pursuant to which the
Company would purchase certain assets of Brik from CFB, a secured creditor of
Brik. The Company does not believe that any such agreement ever existed and, if
any such contract is determined by a court to have existed, the Company believes
that it was fraudulently induced by the defendants to enter into such agreement.
The Company intends to pursue this action and to contest the counterclaims
vigorously. However, the outcome of this action cannot be predicted and an
adverse judgment could have an adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
2.1 Asset Purchase Agreement dated January 22, 1996 between the Company
and Table Toys, Inc. (the "Asset Purchase Agreement"), incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed on
July 10, 1996 (the "July 1996 Form 8-K").
2.2 Amendment dated April 12, 1996 to the Asset Purchase Agreement,
incorporated by reference to Exhibit 2.2 to the July 1996 Form 8-K.
2.3 Second Amendment dated April 15, 1996 to the Asset Purchase Agreement,
incorporated by reference to Exhibit 2.3 to the July 1996 Form 8-K.
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
Page-12-
<PAGE>
Stock incorporated by reference to Exhibit 4 to the Quarterly Report
on Form 10Q filed on November 7, 1995.
3.3 Certificate of Designation, Preferences and Rights of the Series B
Convertible Redeemable Preferred Stock, incorporated by reference to
Exhibit 3.2 to the July 1996 Form 8-K.
3.4 By-laws, incorporated by reference to Exhibit 3.3 to the Form S-1.
4.1 Certificate of Designations, Preferences and Rights of the Series A
Preferred Stock (included in Exhibit 3.2 hereof).
4.2 Certificate of Designation, Preferences and Rights of the Series B
Preferred Stock (included in Exhibit 3.3 hereof).
4.3 Form of Warrant, dated June 26, 1995, issued to various parties in
respect of the aggregate of 60,000 shares of the Company's common
stock, incorporated by reference to Exhibit 4.2 to the July 1995 Form
8-k.
*27 Financial Data Schedule
________________________________________
* Filed herewith
(b) Reports on Form 8-K:
During the second quarter ended June 30, 1996, the Company filed one
report on Form 8-K with respect to Item 2--Acquisition or Disposition
of Assets with the Securities and Exchange Commission on July 10,
1996.
Page-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1996
JUST TOYS, INC.
a Delaware Corporation
By: /s/ Morton J. Levy
------------------------------------------
Morton J. Levy
Chief Executive Officer
By: /s/ Michael J. Vastola
-------------------------------------------
Michael J. Vastola
Chief Financial Officer
Page-14-
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMAY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF THE
FORM 10-Q TO WHICH IT IS ATTACHED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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