<PAGE>
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 NUMBER 0-20612
JUST TOYS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3677074
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
50 WEST 23RD STREET, NEW YORK, NEW YORK 10010
(Address of principal executives office) (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
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None NOT APPLICABLE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(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
--- ---
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. [X]
The aggregate market value at March 13, 1997 of shares of the Registrant's
Common Stock, par value $.01 per share (based upon the closing price per share
of such stock on the Nasdaq Stock Market) held by non-affiliates of the
Registrant was approximately $4,542,000. 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 13, 1997, there were
outstanding 4,150,000 shares of the Registrant's Common Stock, par value $.01
per share.
================================================================================
<PAGE>
<PAGE>
JUST TOYS, INC.
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
ITEM NUMBER PAGE
- ----------- ----
<S> <C> <C>
PART I........................................................................................................................ 1
ITEM 1 - BUSINESS..................................................................................................... 1
ITEM 2 - PROPERTIES................................................................................................... 8
ITEM 3 - LEGAL PROCEEDINGS............................................................................................ 9
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................... 10
PART II....................................................................................................................... 11
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................................................... 11
ITEM 6 - SELECTED FINANCIAL DATA...................................................................................... 12
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................. 14
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................. 21
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................ 22
PART III...................................................................................................................... 23
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................................... 23
ITEM 11 - EXECUTIVE COMPENSATION....................................................................................... 26
ITEM 12 - SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................................. 29
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................... 32
PART IV....................................................................................................................... 33
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K....................................................................................... 33
</TABLE>
<PAGE>
<PAGE>
PART I
ITEM 1 - BUSINESS
Just Toys, Inc. (the "Company") designs, develops, manufactures,
markets and distributes a variety of toy and sport products for children of
various ages. The Company is a Delaware corporation formed in August 1992. Its
business was begun in 1989 and was conducted as a joint venture (the "Joint
Venture") until September 1992 when the Company succeeded to the business of the
Joint Venture.
In order to enhance the Company's business, the Company has undertaken
to selectively acquire new product lines believed to have long term strength and
continuity. On June 28, 1996, the Company purchased certain assets of Table
Toys, Inc. ("Table Toys"). The Table Toys products include a line of play tables
which are compatible with most brands of toy construction blocks and a line of
toy construction blocks.
On February 1, 1996, the Company acquired the toy line and the rights
to use the "Welsh" name for toys from Welsh Company, Inc. ("Welsh"). The Welsh
toy line consists of doll carriages and strollers.
The Company presented its entire product line to retailers at the Hong
Kong, Dallas and New York Toy Fairs in January and February 1997.
As part of the Company's cost reduction program, on March 22, 1996 the
Company executed an agreement to sell its Hong Kong property, which closed on
April 30, 1996. The Company presently leases smaller premises.
The Company has two wholly owned foreign subsidiaries, Just Toys
Products, Limited and Joyful World Enterprises Limited, both of which are
incorporated in Hong Kong.
PRODUCTS
The Company has categorized its products into two categories: "Toys"
and "Sport." The following chart shows the breakdown of the Company's net sales
by product category for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------ ------------------------------
PRODUCT AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- --------- ------------------ ---------- ----------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sport $ 10,577,000 48.0% $ 8,066,000 41.2% $ 5,324,000 22.3%
Toys $ 11,479,000 52.0% $ 11,522,000 58.8% $ 18,551,000 77.7%
---------- ----- ---------- ----- ---------- -----
$ 22,056,000 100.0% $ 19,588,000 100.0% $ 23,875,000 100.0%
</TABLE>
SPORT
The Company's line of Sport toys include spiral footballs manufactured
under a non-exclusive patent license, foam and plastic baseballs, baseball bats,
soccer balls and basketballs, mini basketball hoop sets, youth-size hockey
sticks, pucks and goals and batting tee sets. The products are sold under the
1
<PAGE>
<PAGE>
Company's names as well as licensed names such as Spalding'r', National Hockey
League'r' and Louisville Slugger'r'. The Company's products in its Sport line
generally sell at retail for between $2.00 and $50.00.
TOYS
The Company's Toys line consists of many different items including
bendable figures and miniature figures, some of which are based on licensed
characters, play tables, strollers, its Laser Light'r' toys, hand-held toys that
project laser-like images, and a line of foam shooting toys. The Company's
products in its Toys line generally sell at retail for between $2.00 and
$100.00.
LICENSING
Some of the Company's products are manufactured under license
agreements. The successful marketing of products based on character licenses
generally requires the Company to anticipate and evaluate the popularity of
properties, many of which are media-related, and to capitalize on the success of
such properties in a timely manner. A determination to acquire a license must
frequently be made before the commercial introduction of the product in which a
licensed property appears and license arrangements often require the payment of
non-refundable advances or guaranteed minimum royalties. Substantially all of
the Company's licenses extend for one to three years. Some licenses are
renewable at the option of the Company upon payment of certain minimum
guaranteed payments or the attainment of certain sales levels during the initial
term of the license. Royalties to licensors typically range from 8% to 16% of
sales of the related product. Licenses for some foreign territories require
royalties that exceed such range. As of December 31, 1996, minimum future
guaranteed payments through 2001 under license agreements aggregated
approximately $618,000.
The Company's spiral footballs are manufactured under a non-exclusive
patent license that extends for the life of the patent.
DESIGN AND DEVELOPMENT
The Company relies on its ability to purchase selective product lines
and on its management personnel and independent inventors, designers, sculptors,
model-makers and engineers for new products. The Company pays royalties to
independent inventors and designers based on sales of products developed by them
generally ranging from 2% to 7%.
MANUFACTURING
The Company relies on contract manufacturers in the United States and
the Far East and on its wholly owned subsidiary, Celt Specialty Partners, Inc.
("Celt"), to manufacture its products. Celt manufactures certain of the
Company's foam sport balls as well as other products. Approximately 30.7%, 29.2%
and 12.4% of net sales in 1996, 1995 and 1994, respectively, were derived from
the sale of products manufactured at this facility.
Decisions related to the choice of third party manufacturers are based
on price, quality of merchandise, reliability and the ability of a manufacturer
to meet the Company's timing requirements for delivery. The Company is not a
party to long-term contractual or other arrangements with any manufacturer. The
Company often uses more than one manufacturer to produce a single product. The
2
<PAGE>
<PAGE>
Company utilizes public warehouse facilities on both the east and west coasts
and in the mid-west, at which it regularly maintains an inventory of its
products, thus enabling the Company to respond quickly to customer orders. The
Company also utilizes warehouse facilities located near its manufacturing
facility in upstate New York. Tooling and injection molding are owned by the
Company and may be utilized by different manufacturers if the need arises for
alternate sources of production.
The principal raw materials used in the production and sale of the
Company's products are chemicals for foam, plastics and paper products. Raw
materials are generally purchased by the manufacturers who deliver completed
products to the Company. The Company believes that an adequate supply of raw
materials used in the manufacture of its products is readily available from
existing and alternative sources at competitive prices.
The Company's PVC products and some of the Company's extruded foam
products are manufactured by unaffiliated parties located in the People's
Republic of China and Taiwan. The Far East is the largest manufacturing center
of toys in the world and most toy companies utilize the services of
manufacturers located in the Far East. The majority of the Company's
manufacturing in the Far East is performed by five to seven manufacturers. In
any particular year, an individual manufacturer may account for more than 10% of
the Company's products, depending upon the popularity of the product made by it.
While the Company is not dependent on any single manufacturer in the Far East to
supply it with products, the Company could be affected by political or economic
disruptions affecting businesses in the Far East generally. The Company believes
that alternate sources of manufacturing are available outside of the Far East.
The Company has two wholly owned subsidiaries based in Hong Kong to maintain
contact with manufacturers and subcontractors in the Far East and supervise
manufacturing and quality control.
SALES AND MARKETING
The Company distributes its products in the United States primarily to
toy stores, mass merchandisers and, to a lesser extent, discount drug chains,
supermarket chains, sporting goods stores, catalogers and gift stores located in
the United States. The Company participates in the electronic data interchange
program maintained by many of its largest customers. This program allows the
Company to monitor store inventory and schedule production to meet anticipated
reorders.
The Company's net sales to foreign markets in 1996, 1995 and 1994 were
approximately 5.7%, 4.9% and 9.9%, respectively, of total net sales. Sales in
foreign countries are generally made directly to independent distributors, some
of which are licensees that have acquired foreign distribution rights in respect
of categories of products which the Company has the right to distribute
domestically. Foreign distributors ordinarily retain their own sales
representatives. Sales of products to distributors in foreign countries are in
United States dollars which reduces the Company's exposure to fluctuations in
monetary rates overseas.
The Company's net sales and gross margin, as a percentage of net sales,
is dependent on its mix of business during a given time period. Variables
include such issues as whether merchandise is shipped from a domestic warehouse
or directly from the Orient, whether the merchandise is purchased from overseas
sources or is produced domestically and the specific blend of products shipped
to the Company's customers.
3
<PAGE>
<PAGE>
The Company does not sell any of its products on consignment. The
Company generally accepts returns only for defective merchandise. A portion of
firm orders, by their terms, may be cancelled if shipment is not made by a
certain date.
In 1996, the Company maintained an internal sales and marketing staff
of 9 people, including its senior management. The Company retains approximately
sixteen sales representation firms in the United States who act as independent
contractors and who market the Company's products at the major toy trade shows
held in New York City and Hong Kong and at regional trade shows. In addition,
sales representatives make on-site visits to customers for the purpose of
soliciting orders for products.
CUSTOMERS
The five largest customers of the Company accounted for approximately
71.7%, 67.8% and 60.7% of net sales in 1996, 1995 and 1994, respectively. In
each of the past three years, the Company has had two customers, Target and
Wal-Mart, each representing more than 10% of net sales. Sales to these customers
totaled 57%, 53% and 44% of net sales in 1996, 1995 and 1994, respectively. The
termination by either of these customers of its relationship with the Company
would have a material adverse effect on the Company.
BACKLOG
Total order backlog at December 31, 1996 and 1995 was approximately
$1,780,000 and $1,576,000, respectively. The Company expects substantially all
of such orders to be filled during 1997. Cancellations may materially reduce the
amount of sales realized from the Company's backlog. The use of
just-in-time/quick response inventory techniques and replenishment programs
being used by larger retailers has caused a change in their ordering patterns
with fewer orders being placed significantly in advance of shipment. The Company
does not consider total order backlog to be a meaningful indicator of future
sales.
COMPETITION
The toy industry is highly competitive and the Company competes with
many larger, better capitalized companies which have significantly more
resources than the Company to devote to the design and development of new toys,
the procurement of licenses and the marketing and distribution of their
products. Due to the Company's relatively modest advertising budget, the Company
has greater difficulties in obtaining retailer product acceptance than do
companies with large advertising budgets.
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.
4
<PAGE>
<PAGE>
GOVERNMENT REGULATION
The Company is subject to the provisions of, among other laws, the
Federal Hazardous Substances Act and the Federal Consumer Product Safety Act.
These laws empower the Consumer Products Safety Commission (the "CPSC") to
protect children from hazardous toys and other articles. The CPSC has the
authority to exclude from the market articles which are found to be hazardous
and can require a manufacturer to repurchase such toys under certain
circumstances. Any such determination by the CPSC is subject to court review.
Similar laws exist in some states and cities in the United States and in many
jurisdictions throughout the world. The Company maintains a quality control
program (including the inspection of goods at factories and the retention of
independent testing laboratories in Hong Kong) to ensure compliance with
applicable laws. The Company maintains product liability insurance in the amount
of $11,000,000.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries employed 102
persons, 45 of which were engaged in manufacturing.
5
<PAGE>
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and principal
occupations of each of the Company's executive officers and the year in which
each was elected an officer.
<TABLE>
<CAPTION>
NAME AGE TITLE OFFICER SINCE
- ----------------------------- ----- ------------------------------------ -----------------------------
<S> <C> <C> <C>
Morton J. Levy 75 Chairman of the Board of 1995
Directors and Chief
Executive Officer
Barry Shapiro 54 President, Chief 1995
Operating Officer and
Director of the Company
David Schwartz 37 Chief Financial Officer 1996
and Treasurer
Seymour Rosenthal 66 Secretary 1996
Robert Pagano 42 Vice President-- 1996
Marketing and Product
Planning
Scott Buske 47 Vice President--Domestic 1996
Manufacturing
Operations
Larry Scott 47 Vice President of Sales 1997
</TABLE>
MORTON J. LEVY was appointed Chairman and Chief Executive Officer of
the Company in March 1995. Mr. Levy is a director and officer of each of the
Company's subsidiaries. He was appointed a director of the Company in October
1992 and became a consultant to the Company in 1994. Mr. Levy was engaged in the
toy business for approximately 37 years, having been a founder and principal
officer of Gabriel Industries, Inc., a diversified toy manufacturer. For more
than five years prior to his engagement as a consultant to the Company, Mr. Levy
was a private investor.
BARRY SHAPIRO was appointed President and Chief Operating Officer of
the Company in March 1995. Mr. Shapiro is Chairman of the Company's Hong Kong
subsidiaries and a director and officer of each of the Company's subsidiaries.
He was appointed a director of the Company in April 1995. Mr. Shapiro has been
engaged in the toy business for almost 30 years. In November 1994, Mr. Shapiro
was appointed Executive Vice President of the Company. From December 1993 until
November 1994, he served as Managing Director for the Company's Hong Kong
subsidiaries, Joyful World Enterprises, Ltd. and Just Toys Products, Ltd. From
October 1991 to November 1993, he was the President of Packaging Specialists, a
manufacturer and distributor of protective packaging. From
6
<PAGE>
<PAGE>
January 1984 to June 1991, Mr. Shapiro was Executive Vice President and General
Manager of Imagineering, Inc.
DAVID SCHWARTZ was appointed Chief Financial Officer and Treasurer of
the Company in November 1996. Mr. Schwartz is an officer of each of the
Company's United States subsidiaries. From January 1996 through November 1996,
Mr. Schwartz was self-employed as a consultant to a number of companies in the
consumer products business. From May 1994 through December 1995, he was the
Chief Financial Officer of Philips Industries, Inc., a distributor of women's
hair and cosmetic accessories. From December 1990 through May 1994, Mr. Schwartz
was the Controller of Ameriscribe Management Services, Inc., a provider of
facilities management services.
SEYMOUR ROSENTHAL was appointed Secretary of the Company in November
1996. Mr. Rosenthal has been the Director of Internal Operations for the Company
since September 1995. From 1993 through 1995, he was a consultant working with
various financial institutions in the workout of bankrupt organizations. During
1992, Mr. Rosenthal was the Manager of Operations of Sunweave Linens, a
manufacturer and distributor of linens.
ROBERT PAGANO returned to the Company in December 1995 and was
appointed Vice President--Marketing and Product Planning of the Company in
February 1996. From May 1994 through December 1995, Mr. Pagano was the Vice
President for Research and Development at Toy Biz, Inc. Prior to that time,
starting in November 1991 through May 1994, Mr. Pagano was Vice
President--Marketing of the Joint Venture and then of the Company.
SCOTT BUSKE was appointed Vice President of Domestic Manufacturing
Operations in February 1996. Mr. Buske, for more than the past five years, was
Chairman of the Board, President and Chief Executive Officer of Table Toys, Inc.
In February 1996, immediately following Mr. Buske's employment by the Company,
Table Toys, Inc. filed a petition under Chapter 11 of the federal bankruptcy
laws.
LARRY SCOTT was appointed Vice President of Sales of the Company in
February 1997. From 1994 through 1996, Mr. Scott was the Vice
President--Seasonal Product and Regional Sales Manager of Trendmasters, Inc., a
manufacturer and distributor of toys. Prior to that time, starting in 1990, he
was the Vice President of International Sales of Collegeville Imagineering, Inc.
7
<PAGE>
<PAGE>
ITEM 2 - PROPERTIES
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.
The Company leases a showroom in the Toy Center Building at 200 Fifth
Avenue, New York, New York, consisting of approximately 3,200 square feet under
a lease expiring in April 2008. The 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 $3,088,000, which closed on April 30, 1996. 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, which replaces the Company's owned
space, is adequate for the Company's needs.
The Company's Celt subsidiary owns an approximately 31,000 square foot
manufacturing facility on 8 acres of land 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.
The Company's operations relating to play tables is based in Arkansas
City, Kansas. The Company leases 24,500 square feet of office, warehouse and
assembly space relating to this operation under a lease expiring in July 1998.
Additionally, public warehouse facilities are utilized in Kansas and Iowa.
8
<PAGE>
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
In July 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 a lawsuit commenced in April 1995 by OddzOn Products, Inc.
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 the plaintiff's rights
in any way. OddzOn Products, Inc. has appealed that decision. The Company does
not believe that its products infringe any rights of the plaintiff, and the
Company is contesting the action.
The Company received approximately 1,000 complaints concerning its
Micro-Bake for Kids'tm' (the "Micro-Bake") product, all of which have been paid
or accrued for as of December 31, 1996 and December 31, 1995. The Company
discontinued selling this product in 1995. 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 related
to this matter. The Company is expected to be responsible for approximately 50%
of such claims and the insurance company is expected to pay the balance.
In June 1996, the Company commenced an action against CFB Venture Fund
II, L.P. ("CFB") and Stephen Broun in the United States District Court for the
Southern District of New York. The Company sought a declaratory judgment to the
effect that the Company did not breach any agreement with CFB to purchase
certain assets of BRIK, Inc., ("Brik"). In July 1996, the defendants answered
and interposed four counterclaims against the Company seeking damages against
the Company in an amount of at least $600,000 plus treble punitive damages
claiming 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. This action was settled with the exchange of mutual releases
and was dismissed with prejudice in January 1997.
9
<PAGE>
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
10
<PAGE>
<PAGE>
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $.01 per share ("Common Stock";
Symbol: JUST), has been traded on the Nasdaq Stock Market since the Company's
initial public offering on October 1, 1992. The high and low sale prices for the
Common Stock as reported by the Nasdaq Stock Market from January 1, 1995 through
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW
- ---------------- --------------- -----------------
<S> <C> <C> <C>
1995
First Quarter $2.969 $1.125
Second Quarter 2.438 1.000
Third Quarter 2.625 1.000
Fourth Quarter 2.625 1.125
1996
First Quarter $2.000 $1.125
Second Quarter 2.688 1.000
Third Quarter 2.000 1.063
Fourth Quarter 2.313 1.313
</TABLE>
DIVIDENDS AND DISTRIBUTIONS
Pursuant to the Company's Certificate of Incorporation, the Company's
Board of Directors has authorized 150,000 shares of non-voting Series A
Convertible Redeemable Preferred Stock, par value $1.00 per share ("Series A
Stock") of which 120,000 shares are issued and outstanding and 650,000 shares of
non-voting Series B Convertible Redeemable Preferred Stock, par value $1.00 per
share ("Series B Stock") of which 538,234 shares are issued and outstanding. The
Series A Stock and Series B Stock rank senior to the Common Stock with respect
to dividends. The Series A Stock and Series B stock have cumulative dividends of
$.06 per share and $.25375 per share, respectively, per annum, payable
quarterly. As long as any shares of either the Series A Stock or Series B
Stock remain outstanding, no cash dividends will be paid on the Common Stock
unless, at the time, all accrued and unpaid dividends and applicable sinking
fund obligations have been paid or provided for. The Company does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
NUMBER OF STOCKHOLDERS
As of March 13, 1997, there were 148 holders of record of the Common
Stock.
11
<PAGE>
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data at and
for the periods presented. This information should be read in conjunction with
the Company's Financial Statements and related Notes.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 22,056 $ 19,588 $ 23,875 $ 42,568 $ 32,468
Cost of goods sold 13,569 13,339 22,996 28,678 18,479
------- ------- ------- ------- -------
Gross profit 8,487 6,249 879 13,890 13,989
------- ------- ------- ------- -------
Expenses:
Merchandising, selling, warehousing and distribution 4,406 6,700 9,508 7,210 4,604
Royalties 710 1,868 3,081 4,713 2,832
General and administrative 2,931 3,747 3,779 3,268 1,945
------- ------- ------- ------- -------
Operating income (loss) 440 (6,066) (15,489) (1,301) 4,608
Interest expense (546) (357) (285) (34) (272)
Interest and dividend income 13 141 467 363 16
Writedown of investment in Hong Kong property -- (1,578) -- -- --
Settlement of arbitration and related legal expenses -- (910) -- -- --
Other income (expense) 248 (17) (214) (8) --
(Provision)/benefit for income taxes(1) -- -- (275) 462 821
------- ------- ------- ------- -------
Income (loss) before change in accounting principle
and preferred stock dividends and accretion 155 (8,787) (15,796) (518) 3,531
Cumulative effect of change in accounting principle -- -- 75 -- --
Preferred stock dividends and accretion (109) -- -- -- --
------- ------- ------- ------- -------
Net income (loss) attributable to common stockholders $ 46 $ (8,787) $ (15,721) $ (518) $ 3,531
======= ======= ======== ======= =======
PRO FORMA DATA:
Pro forma provision for income taxes -- -- -- -- 1,048
-------
Pro forma net income (2) -- -- -- -- $ 2,483
-------
Pro forma net income (loss) per common share:
Before cumulative effect of change in accounting
principle $ .01 $ (2.12) $ (3.81) $ (.14) $ 1.10
Cumulative effect of change in accounting principle -- -- .02 -- --
------- ------- -------- ------- -------
Net income (loss) attributable to common stockholders $ .01 $ (2.12) $ (3.79) $ (.14) $ 1.10
======= ======= ======== ======= =======
BALANCE SHEET DATA:
Working capital 2,758 2,273 8,948 25,773 9,953
Total assets 9,986 11,823 23,040 36,997 15,683
Short-term debt -- 360 316 312 750
Long-term debt -- 1,886 2,246 2,562 --
Stockholders' equity 6,054 6,008 14,594 30,396 11,466
</TABLE>
(1) Prior to October 1, 1992, the Company operated as a partnership and its
income for tax purposes was passed through to its partners. Accordingly,
the historical financial statements do not include a provision for income
taxes for periods prior to October 1, 1992.
12
<PAGE>
<PAGE>
(2) Pro forma net income for the period through September 30, 1992 gives effect
to the application of a provision for income taxes to historical net income
that would have been required had the Company been taxed as a corporation.
13
<PAGE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net income before preferred stock dividends and
accretion of approximately $155,000 for the year ended December 31, 1996,
compared to a loss of approximately $8,787,000 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, including a number of
write offs and expense items.
In order to enhance the Company's business, the Company has undertaken
to selectively acquire new product lines believed to have long term strength and
continuity. On June 28, 1996, the Company purchased certain assets of Table
Toys. The Table Toys products include a line of play tables which are compatible
with most brands of toy construction blocks and a line of toy construction
blocks. The acquisition costs totaled approximately $1,961,000 and were financed
through a combination of cash and the issuance of warrants and Series B Stock.
On February 1, 1996, the Company acquired the toy line and the rights
to use the "Welsh" name for toys from Welsh. The Welsh toy line consists of doll
carriages and strollers. The cost to acquire this product line required a modest
downpayment and the balance of the purchase price is based upon a percentage of
sales of these products over five years.
As part of the Company's cost reduction program, on March 22, 1996 the
Company executed an agreement to sell its Hong Kong property, which closed on
April 30, 1996. The Company presently leases smaller premises. Net proceeds from
the sale of the property were approximately $3,088,000, and a portion of those
proceeds were used to pay the long-term mortgage debt outstanding on the
property.
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 SALES PERIOD TO PERIOD
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGES
-------------------------- -----------------
1996 1995
VS VS
1996 1995 1994 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales............................................ 100.0% 100.0% 100.0% 12.6% (18.0)%
Cost of Goods Sold................................... 61.5 68.1 96.3 1.7 (42.0)
Gross profit......................................... 38.5 31.9 3.7 35.8 610.7
Merchandising, selling, warehousing and
distribution expenses............................ 20.0 34.2 39.8 (34.2) (29.5)
Royalties............................................ 3.2 9.5 12.9 (62.0) (39.3)
General and administrative expenses.................. 13.3 19.1 15.8 (21.8) (0.9)
</TABLE>
14
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND 1995
NET SALES
Net sales in 1996 increased 12.6% to $22,056,000 from $19,588,000 in
1995 primarily due to increased sales of the Company's Sport products.
Net sales of the Company's Sport products increased 31.1% to
$10,577,000 in 1996 compared to $8,066,000 in 1995 due primarily to the
introduction of new products.
Net sales of the Company's Toys products changed less than 1% due to
the sale of discontinued products in 1995, which was offset in 1996 by the
addition of the Table Toys and Welsh products.
GROSS PROFIT
Gross profit in 1996 increased 35.8% to $8,487,000 from $6,249,000 in
1995. Gross profit as a percentage of net sales was 38.5% in 1996 as compared to
31.9% in 1995. The increase in the gross profit, in dollars and as a percentage
of sales, is primarily due to the increase in sales in 1996 over 1995 and the
writedown in 1995 of unamortized tooling of $223,000 and of slow-moving or
obsolete inventory of $539,000.
SELLING AND DISTRIBUTION EXPENSES
Merchandising, selling, warehousing and distribution expenses decreased
34.2% to $4,406,000 from $6,700,000 in 1995 due to significant reductions in
expenses in this area. In addition, the Company wrote-down barter credits
totaling $976,000 in 1995.
ROYALTIES
Royalties decreased 62% to $710,000 from $1,869,000 in 1995. As a
percentage of net sales, royalties decreased to 3.2% from 9.5% in 1995. This is
primarily due to reduced sales of licensed products in 1996. In addition, the
Company expensed prepaid and accrued royalties with respect to products that
were discontinued or where sales were below expectations in 1995 totaling
$375,000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses decreased 21.8% to $2,931,000 in
1996 from $3,747,000 in 1995 due to continued decreases in expenses in this
area.
OPERATING PROFIT (LOSS)
The Company had operating income of $440,000 in 1996 compared with an
operating loss of $6,066,000 in 1995.
15
<PAGE>
<PAGE>
OTHER INCOME (EXPENSE)
Other income was $248,000 in 1996 compared to other expense of $17,000
in 1995. The 1996 other income includes approximately $119,000 of income from
the sale of the Company's Hong Kong property which was recognized because the
final selling price was marginally higher than expected and selling expenses
were less than expected.
NET INCOME (LOSS)
The Company had a net income of $155,000 in 1996 compared to a net loss
of $8,787,000 in 1995.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
In 1996, the Company recorded the dividends paid on its preferred stock
outstanding, and the accretion of the Series B Stock issued in 1996 to its
redemption value, as a change in stockholders' equity during the year and
deducted these expenses in computing net income attributable to common
stockholders. During 1995, no material amounts of dividends were earned.
Net income attributable to common stockholders for 1996 totaled $0.01
per share compared to a net loss attributable to common stockholders of $2.12
per share in 1995 based upon 4,150,000 weighted average shares outstanding in
each year.
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 Sport 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.
16
<PAGE>
<PAGE>
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 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 Accessories, Inc.'s
("RGA") 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 an accompanying lawsuit brought by the former Chairman and Chief
Executive Officer, and the former President and Chief Operating Officer of the
Company. The settlement provided for payment by the Company of $594,000 and the
issuance of 120,000 shares of Series A Stock. The Series A Stock provides for 6%
cumulative dividends payable in cash or additional shares of Series A Stock and
is
17
<PAGE>
<PAGE>
convertible on or prior to December 31, 1998 into shares of Common Stock at
$2.00 per share based upon the par value of such Series A 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.
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 increased use of
just-in-time/quick response inventory techniques and replenishment programs in
use by larger retailers have produced a change in their ordering methods with
fewer orders being placed significantly 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 $1,780,000 at December 31, 1996 compared to $1,576,000 at December
31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources in
1996 were funds provided from operations, proceeds from the sale of the
Company's Hong Kong facility as well as available credit facilities. The
Company's primary sources of liquidity and capital resources in 1995 were the
Company's existing cash and marketable securities and the factoring agreement
described below with Milberg Factors, Inc. ("Milberg"). The Company did not have
significant indebtedness other than the mortgage on the Company's Hong Kong
facility as of December 31, 1995, which was paid in April 1996 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,
1996 working capital was $2,758,000 compared to approximately $2,273,000 at
December 31, 1995.
On July 26, 1995, the Company entered into a Factoring Agreement with
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 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% of 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
18
<PAGE>
<PAGE>
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 also
will bear interest at the rate of prime plus one percent.
On March 22, 1996, the Company entered into an agreement for the sale
of the Hong Kong property. The sale closed on April 30, 1996. In 1995, the
Company wrote down the carrying value of the facility by $1,578,000 to reflect
the Company's estimate of the net proceeds of the sale. The sale resulted in
additional liquidity and reduced costs for the Company by permitting the Company
to lease space at a cost below the carrying costs of the former facility. The
sale yielded net proceeds to the Company of approximately $842,000 after payment
of the mortgage and the costs associated with the sale.
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 five years. Accordingly, that acquisition should
not adversely affect the Company's cash requirements.
The purchase price for the Table Toys product line was paid partly in
shares of Series B Stock and partly in cash (approximately $400,000). The
Company financed the cash portion of this acquisition through borrowings under
its credit lines with Milberg. The Series B Stock pays a 7% cumulative dividend
payable at the Company's election in cash or preferred stock based upon a
liquidation value of $3.625 per share and is subject to mandatory redemption on
December 31, 2005. The Company has certain sinking fund obligations with respect
to such Series B Stock during the last four years prior to redemption.
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 paid all dividends on its Series A Stock and Series B Stock
in cash during 1996.
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 and
1997 consists 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's net sales and gross margin, as a percentage of net sales,
is dependent on its mix of business during a given time period. Variables
include such issues as whether merchandise is shipped from a domestic warehouse
or directly from the Orient, whether the merchandise is purchased from overseas
sources or is produced domestically and the specific blend of products shipped
to the Company's customers.
The Company believes that its cash flow from operations and available
borrowings will be adequate to meet its obligations for the ensuing year.
19
<PAGE>
<PAGE>
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.
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.
20
<PAGE>
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1.
21
<PAGE>
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
22
<PAGE>
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
The following table sets forth the names, ages and principal
occupations of each of the Company's directors and the year in which each was
elected a director.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---- --- -------------------- --------------
<S> <C> <C> <C>
Roger Gimbel 66 Vice Chairman of the Board of Directors; 1992
Chief Executive Officer and President of
RGA
Charmaine Jefferson 43 Director of the Company; Vice President of 1995
Business Affairs of de Passe Entertainment;
President of Kelan Resources
Howard Kaufman 70 Director of the Company; private investor 1992
Morton J. Levy 75 Chairman of the Board of Directors and 1992
Chief Executive Officer of the Company
Irwin Naitove 79 Director of the Company; private investor 1995
Donald D. Shack 68 Director of the Company; member of the law 1992
firm Shack & Siegel, P.C.
Barry Shapiro 54 Director, President and Chief Operating 1995
Officer of the Company
</TABLE>
ROGER GIMBEL was appointed Vice Chairman of the Board of Directors,
Chief Financial Officer and Vice President of the Company in August 1992. Due to
health reasons, Mr. Gimbel resigned as Chief Financial Officer and Vice
President of the Company in April 1995. Mr. Gimbel was one of the founders of
the Company, and, since the commencement of operations, he and RGA, one of the
partners of the Joint Venture, have provided administrative services to the
Company. See "Certain Relationships and Related Transactions." Mr. Gimbel is the
Chief Executive Officer and President of RGA, which in addition to providing
services to the Company, is an importer and distributor of personal accessories,
small leather goods and related items.
CHARMAINE JEFFERSON was appointed a director of the Company in July
1995. Ms. Jefferson is currently employed as Vice President of Business Affairs
for de Passe Entertainment which is engaged in the development and production of
television programming and feature films and talent management and as President
of Kelan Resources, a non-profit arts management consulting firm. From June 1995
to April 1996, Ms. Jefferson was self-employed as a consultant providing
management advice to not-for-profit corporations. From August 1992 to June 1995,
Ms. Jefferson was employed as the executive
23
<PAGE>
<PAGE>
director of the Dance Theater of Harlem, Inc. From 1988 through August 1992, Ms.
Jefferson was Deputy and Acting Commissioner for the New York City Department of
Cultural Affairs.
HOWARD KAUFMAN was appointed a director of the Company in October 1992.
Mr. Kaufman has been engaged in the toy business for approximately 34 years,
having been a founder and principal officer of KayBee Stores, a division of the
Melville Corporation. For more than the past five years, Mr. Kaufman has been a
private investor. Mr. Kaufman is also a director of Berkshire Life Insurance
Company.
MORTON J. LEVY was appointed Chairman and Chief Executive Officer of
the Company on March 30, 1995. Effective July 1, 1997, Mr. Levy will remain as
Chairman of the Board and Mr. Shapiro will become the Chief Executive Officer.
Mr. Levy is a director and officer of each of the Company's subsidiaries. He was
appointed a director of the Company in October 1992 and became a consultant to
the Company in 1994 until being hired as Chief Executive Officer on March 30,
1995. Mr. Levy has been engaged in the toy business for over 35 years, having
been a founder and principal officer of Gabriel Industries, Inc., a diversified
toy manufacturer. For more than five years prior to his engagement as a
consultant to the Company, Mr. Levy was a private investor.
IRWIN NAITOVE was appointed a director of the Company in May 1995. Mr.
Naitove has been in corporate finance for the past 45 years. For more than the
past five years, Mr. Naitove has been a private investor.
DONALD D. SHACK was appointed a director of the Company in August 1992.
Mr. Shack is an attorney and, since April 1993, has been a member of the law
firm of Shack & Siegel, P.C., general counsel to the Company. From January 1990
through March 1993, Mr. Shack was a member of the law firm of Whitman & Ransom
which served as general counsel to the Company during that period. Mr. Shack is
also a director of the following publicly-held companies: Andover Togs, Inc.,
Ark Restaurants Corp. and International Citrus Corporation.
BARRY SHAPIRO was appointed President and Chief Operating Officer of
the Company on March 30, 1995. Effective July 1, 1997, Mr. Shapiro will become
the Chief Executive Officer of the Company. Mr. Shapiro is Chairman of the
Company's Hong Kong subsidiaries and a director and officer of each of the
Company's subsidiaries. He was appointed a director of the Company in April
1995. Mr. Shapiro has been engaged in the toy business for almost 30 years. In
November 1994, Mr. Shapiro was appointed Executive Vice President of the
Company. From December 1993 until November 1994, he served as Managing Director
for the Company's Hong Kong subsidiaries, Joyful World Enterprises, Ltd. and
Just Toys Products, Ltd. From October 1991 to November 1993, he was the
President of Packaging Specialists, a manufacturer and distributor of protective
packaging. From January 1984 to June 1991, Mr. Shapiro was Executive Vice
President and General Manager of Imagineering, Inc.
IDENTIFICATION OF EXECUTIVE OFFICERS
See Item 1. "Business -- Executive Officers of the Company."
24
<PAGE>
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership on Forms 3, 4 and 5 with the Commission
and the National Association of Securities Dealers, Inc. Officers, directors and
greater than ten percent stockholders are required by the Commission's
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations that no Form 5 is required to be filed, the
Company believes that all of its officers, directors and greater than ten
percent beneficial owners complied with all filing requirements applicable to
them with respect to transactions during fiscal 1996.
25
<PAGE>
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain information
concerning compensation paid or accrued in 1996 to the Chief Executive Officer
of the Company and the three executive officers whose total salary and bonus in
1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL COMPENSATION OPTIONS ALL OTHER
---------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) AWARDED (#) COMPENSATION ($)
- --------------------------------- -------- -------------- ---------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C>
Morton J. Levy(2) 1996 229,327 9,300 50,000 -
Chairman of the Board and 1995 166,833 - 85,000 -
Chief Executive Officer
Barry Shapiro(3) 1996 217,778 7,750 30,000 -
President and Chief 1995 185,000 - 39,000 45,801(4)
Operating Officer
Michael Vastola (5) 1996 143,238 - - 37,500(6)
Vice President - Finance and 1995 121,446 - 40,000 -
Chief Financial Officer
Robert Pagano(7) 1996 142,850 2,000 20,000 -
Vice President - Marketing
and Product Planning
- -------------------
(1) Represents bonuses to be paid in 1997 relating to the 1996 fiscal year.
(2) Mr. Levy was appointed as Chief Executive Officer of the Company in 1995.
(3) Mr. Shapiro was appointed as an executive officer of the Company at the end of 1994.
(4) Includes a $35,470 housing allowance paid to Mr. Shapiro while he
served as Managing Director of the Company's Hong Kong subsidiaries.
(5) Mr. Vastola was appointed as an executive officer of the Company in 1995. As of November 15, 1996,
he is no longer employed by the Company.
(6) Represents amounts paid to Mr. Vastola at the time he left the Company's employment.
(7) Mr. Pagano was appointed as an executive officer of the Company in 1996.
</TABLE>
The following table sets forth certain information with respect to
options to purchase Common Stock granted in fiscal year 1996 under the Company's
1992 Incentive and Non-Qualified Stock Option Plan for the executive officers
named in the Summary Compensation Table above.
26
<PAGE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
OPTION TERM
INDIVIDUAL GRANTS --------------------------
- -----------------------------------------------------------------------------------------------
PERCENT OF TOTAL
OPTIONS GRANTED EXERCISE
TO EMPLOYEES IN PRICE EXPIRATION
NAME OPTIONS GRANTED (#) 1996 ($/SHARE) DATE 5% ($) 10% ($)
------ ------------------- ----- --------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Morton J. Levy 50,000 22.6% 1.500 12/04/06 47,167 119,531
Barry Shapiro 30,000 13.6% 1.500 12/04/06 28,300 71,718
Robert Pagano 10,000 4.5% 3.625 02/21/06 -- 7,519
10,000 4.5% 1.500 12/04/06 9,433 23,906
</TABLE>
The following table details the value on December 31, 1996 of options
to purchase Common Stock held by the executive officers named in the Summary
Compensation Table above.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1996 OPTIONS AT DECEMBER 31, 1996 (1)
--------------------------------------------- -----------------------------------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
------ ----------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Morton J. Levy 120,000 40,000 -- --
Barry Shapiro 18,200 76,800 -- --
Robert Pagano -- 20,000 -- --
Michael Vastola 8,000 -- -- --
- ----------------
(1) Based on closing price of the Common Stock on the Nasdaq Stock Market on December 31, 1996
of $1.3125 per share.
</TABLE>
COMPENSATION ARRANGEMENTS
In February 1996, the Compensation Committee of the Board of Directors
(the "Compensation Committee") established a company wide bonus pool to enable
employees of the Company to participate in profits the Company earned in 1996.
The pool consists of 20% of the first $1,000,000 of pre-tax earnings, 15% of the
next $1,000,000 of pre-tax earning and 10% of all pre-tax earnings over
$2,000,000. In respect of 1996, Mr. Levy and Mr. Shapiro will receive 30% and
25% respectively, of the pool. The remaining 45% of the pool will be distributed
to the employees of the Company, subject to the discretion of Messrs. Levy and
Shapiro.
In December 1996, Mr. Levy entered into an agreement with the Company
which provides for Mr. Levy to (i) relinquish the post of Chief Executive
Officer of the Company on July 1, 1997, (ii) render consulting services to the
Company thereafter and (iii) remain as Chairman of the Board. Until June 30,
1997, Mr. Levy will receive a base salary at the rate of $225,000 per annum. Mr.
Levy will receive one-half of the amount he would have been entitled to under
any bonus pool established by the Compensation Committee for 1997 as if he were
employed by the Company for all of 1997. The Company will pay Mr. Levy at the
rate of $100,000 per annum during the period from July 1, 1997
27
<PAGE>
<PAGE>
through December 31, 1997; $75,000 per annum during the period from January 1,
1998 through December 31, 1998; and $50,000 per annum during the period from
January 1, 1999 through December 31, 1999. Such payments will be made to Mr.
Levy's beneficiary in the event of his death. Through December 31, 1999, the
Company will provide Mr. Levy with the use of an office, private telephone and
secretarial services. In addition on December 5, 1996 the Company granted Mr.
Levy a fully vested and exercisable ten year option to purchase up to 50,000
shares of Common Stock at an exercise price of $1.50 per share. The Company has
agreed to grant to Mr. Levy an additional fully vested and exercisable ten year
option to purchase up to 50,000 shares of the Common Stock on June 30, 1997 at
an exercise price equal to the closing price of the Common Stock on the Nasdaq
Stock Market on such date. Neither of such options is governed by the Company's
stock option plan and are subject to stockholder approval. Both of such options
will remain outstanding for their full term until exercised, whether or not Mr.
Levy is still a Director or consultant to the Company.
In February 1996, the Board approved an agreement with Mr. Shapiro
which provided that if the Company was acquired during 1996 and Mr. Shapiro was
terminated as a consequence thereof, Mr. Shapiro would be paid an amount equal
to his 1996 base salary.
All non-officer directors of the Company annually receive a fee of
$10,000 per year and options to purchase 5,000 shares at the market price of the
Common Stock on the anniversary of their election as a member of the Board of
Directors.
28
<PAGE>
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at March 13, 1997,
as to shares of Common Stock beneficially owned by (i) each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
Common Stock, (ii) the Company's directors, the Chief Executive Officer and the
other three executive officers identified in the Summary Compensation Table
above and (iii) the directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS
------------------- ------------------------ ----------
<S> <C> <C>
Roger Gimbel ....................................... 726,888(2) 17.5%
4 West 33rd Street
New York, New York 10001
RGA Accessories, Inc. .............................. 630,000 15.2%
4 West 33rd Street
New York, New York 10001
Morton J. Levy...................................... 268,395(3) 6.3%
50 West 23rd Street
New York, New York 10010
FMR Corp. .......................................... 253,900(4) 6.1%
82 Devonshire Street
Boston, Massachusetts 02109
Kennedy Capital Management, Inc..................... 219,680(5) 5.3%
10829 Olive Blvd.
St. Louis, Missouri 63141
Howard Kaufman...................................... 98,888(6) 2.4%
Bishops Estate
Lenox, Massachusetts 01290
Barry Shapiro ...................................... 49,866(7) 1.2%
50 West 23rd Street
New York, New York 10010
Donald D. Shack..................................... 34,000(8) Less than 1%
530 5th Avenue
New York, New York 10036
Robert Pagano....................................... 2,000(9) Less than 1%
50 West 23rd Street
New York, New York 10010
Charmaine Jefferson ................................ 1,000(10) Less than 1%
2003 Victoria Avenue
Los Angeles, California 90016
</TABLE>
29
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS
------------------- ------------------------ ----------
<S> <C> <C>
Irwin Naitove....................................... 1,000(10) Less than 1%
RR1
Box 630
Mount Holly, Vermont 05758
All directors and executive officers as
a group (twelve persons).......................... 1,207,563(11) 27.7%
</TABLE>
- ---------------
(1) Except as otherwise indicated in the following footnotes, the persons
listed in the table own of record the shares of Common Stock opposite
their name and have sole voting and investment power with respect to such
shares of Common Stock.
(2) Includes 630,000 shares of Common Stock owned by RGA of which Roger Gimbel
is the controlling stockholder, President and Chief Executive Officer, and
8,000 shares issuable upon exercise of currently exercisable stock options
granted under the Company's 1992 Incentive and Non-Qualified Stock Option
Plan (the"Plan").
(3) Includes 1,500 shares owned by Mr. Levy as custodian for his grandson
under the Uniform Gifts to Minors Act and 70,000 shares issuable upon
exercise of currently exercisable stock options granted under the Plan and
50,000 shares issuable upon exercise of a separate currently exercisable
stock option.
(4) Based upon information set forth in Schedule 13G filed by FMR Corp. with
the Securities and Exchange Commission on or about February 14, 1997,
Fidelity Management and Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 253,900 shares or 6.1%
of the Common Stock of the Company as a result of acting as investment
adviser to several investment companies. Mr. Edward C. Johnson 3d, FMR
Corp., through its control of Fidelity, and the aforementioned investment
companies each has sole power to dispose of these 253,900 shares. The
ownership of one investment company, Fidelity Advisor Strategic
Opportunities Fund, amounted to 253,900 shares or 6.1% of the Common Stock
outstanding at December 31, 1996.
(5) Based upon information set forth in Schedule 13G filed by Kennedy Capital
Management, Inc. ("Kennedy") with the Securities and Exchange Commission
on or about February 10, 1997, Kennedy is the beneficial owner of 219,680
shares or 5.3% of the Common Stock of the Company as a result of acting as
an investment advisor. Kennedy has sole power to dispose of these 219,680
shares.
(6) Includes 10,000 shares issuable upon exercise of currently exercisable
stock options granted under the Plan.
(7) Includes 23,200 shares issuable upon exercise of currently exercisable
stock options granted under the Plan.
(8) Includes 34,000 shares issuable upon exercise of currently exercisable
stock options granted under the Plan.
(9) Includes 2,000 shares issuable upon exercise of currently exercisable
stock options granted under the Plan.
(10) Includes 1,000 shares issuable upon exercise of currently exercisable
stock options granted under the Plan.
(11) Includes 202,400 shares issuable upon exercise of currently exercisable
stock options and 13,799 shares issuable upon exercise of a currently
exercisable warrant issued in connection with the acquisition by the
30
<PAGE>
<PAGE>
Company of Table Toys. Also includes 1,027 shares issuable upon conversion
of 1,027 shares of Series B Stock owned by Scott Buske, the Company's Vice
President of Domestic Manufacturing Operations and/or his spouse which
were issued in connection with the acquisition by the Company of Table
Toys.
31
<PAGE>
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. RGA was compensated through December 31,
1995 on a formula based on the Company's sales. Commencing in 1996, the Company
began assuming internally the functions and services previously provided by RGA
to the Company. RGA continued to provide computer-related services during 1996.
For such services, the Company paid RGA a fixed monthly retainer. The Company
incurred expenses of $260,000, $668,000 and $877,000 for the foregoing services
in 1996, 1995 and 1994, respectively. RGA also provided the Company with certain
warehouse services for which the Company incurred expenses of $17,800, $107,000
and $320,000 in 1996, 1995 and 1994, respectively.
HONG KONG SERVICES ARRANGEMENTS: Services similar to that provided by
RGA in the United States have been 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 $123,000, $293,000 and $217,000 in 1996, 1995 and 1994,
respectively, for such services.
PUBLIC WAREHOUSE FACILITY: The Company utilized, among other
facilities, public warehouses in New Jersey which stored the Company's inventory
and packages and shipped 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 facilities leased 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 $900 and $5,300 in
1996 and 1995, respectively.
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 were reduced and the Company
negotiated a fixed fee for the U.S. and Hong Kong services for 1996. At the time
that the arrangements with RGA were entered into, management believed that the
arrangements were on terms no less favorable to the Company than could have been
obtained from an unaffiliated third party.
During 1996, the Company decided to move to other warehouses and no
longer utilizes facilities affiliated with Roger Gimbel. As of December 31,
1996, the Company terminated its U.S. and Hong Kong services with RGA and Yick
Bo Trading Limited ("Yick Bo") and will perform all of these services
internally.
32
<PAGE>
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
(a)(1) Financial Statements:
<S> <C>
Index to Financial Statements F-1
Report of Independent Auditors F-2
Consolidated Balance Sheets --
December 31, 1996 and 1995 F-6
Consolidated Statements of Operations --
For each of the years ended
December 31, 1996, 1995 and 1994 F-7
Consolidated Statements of Changes in
Stockholders' Equity -- For each of the
years ended December 31, 1996, 1995 and 1994 F-8
Consolidated Statements of Cash Flows --
For each of the years ended
December 31, 1996, 1995 and 1994 F-9
Notes to Consolidated Financial Statements F-10
(2) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts F-34
</TABLE>
(3) Exhibits:
<TABLE>
<S> <C>
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 Amendment of Certificate of Incorporation
incorporated by reference to Exhibit 3.5 of the Quarterly
Report on Form 10-Q filed with the Securities and Exchange
Commission on November 8, 1996 (the "1996 3rd Quarter 10-Q").
</TABLE>
33
<PAGE>
<PAGE>
<TABLE>
<S> <C>
3.3 Certificate of Designations, Preferences and Rights of the
Series A Convertible Redeemable Preferred Stock (included in
Exhibit 4.1 hereof).
3.4 Certificate of Designations, Preferences and Rights of the
Series B Convertible Redeemable Preferred Stock (included in
Exhibit 4.2 hereof).
3.5 Amended and Restated By-laws incorporated by reference to
Exhibit 3.4 to the 1996 3rd Quarter 10-Q.
4.1 Certificate of Designations, Preferences and Rights of the
Series A Convertible Redeemable 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").
4.2 Certificate of Designations, Preferences and Rights of the
Series B Convertible Redeemable Preferred Stock, incorporated
by reference to Exhibit 3.2 of the Current Report on From 8-K
filed with the Securities and Exchange Commission on July 10,
1996 (the "July 1996 Form 8-K").
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 of the July 1996 Form 8-K.
10.1 Form of Indemnification Agreement between the Company and each
of its Directors, incorporated by reference to Exhibit 10.12
of 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 of the Form S-1.
10.3 Amended and Restated 1992 Incentive and Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit 10.3 of the
1996 3rd Quarter 10-Q.
10.4 Services Agreement Amendment dated as of June 21, 1995 between
the Company and RGA incorporated by reference to Exhibit 10.13
of the 1995 2nd Quarter 10-Q.
10.5 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 of the Form
S-1.
10.6 Factoring Agreement dated as of July 26, 1995 with Milberg
Factors, Inc., incorporated by reference to Exhibit 10.17 of
the Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 4, 1995 (the "August 1995 Form
8-K").
</TABLE>
34
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.7 Letter dated July 20, 1995 from Milberg Factors, Inc. to the
Company, incorporated by reference to Exhibit 10.18 of the
August 1995 Form 8-K.
10.8 Amendment dated March 21, 1996 between Milberg Factors, Inc.
and the Company, incorporated by reference to Exhibit 10.13 of
the 1995 10-K.
10.9 Settlement Agreement dated October 30, 1995 between the
Company, Allan Rigberg, Rose Evangelista and JTI Toys, Inc.
incorporated by reference to Exhibit 10.10 of the 1995 3rd
Quarter 10-Q.
10.10 Warrant Agreement dated as of January 1, 1996 between Just
Toys, Inc. and Patricof & Co. Capital Corp., incorporated by
reference to Exhibit 10.11 of the Annual Report on Form 10-K
with respect to the year ended December 31, 1996 (the "1995
10-K").
10.11 Agreement for Sale and Purchase of the Hong Kong property
dated March 22, 1996 between Just Toys Products Limited and
Advanced Chemicals Limited, incorporated by reference to
Exhibit 10.12 of the 1995 10-K.
10.14 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 of the July 1996 Form
8-K.
10.15 Amendment dated April 12, 1996 to the Asset Purchase
Agreement, incorporated by reference to Exhibit 2.2 of the
July 1996 Form 8-K.
10.16 Second Amendment dated April 15, 1996 to the Asset Purchase
Agreement, incorporated by reference to Exhibit 2.3 of the
July 1996 Form 8-K.
21 Subsidiaries of the Company incorporated by reference to
Exhibit 10.21 of the 1995 10-K.
*23.1 Consent of Ernst & Young, LLP
*23.2 Consent of Richard A. Eisner & Company, LLP
*27 Financial Data Schedule
</TABLE>
- --------------------------
* Filed herewith
35
<PAGE>
<PAGE>
(b) Reports on Form 8-K:
During the fourth quarter of 1996, the Company filed one report on Form
8-K with respect to Item 5--Other Events with the Securities and Exchange
Commission on December 23, 1996.
36
<PAGE>
<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 28th day of March, 1997.
JUST TOYS, INC.
By: /s/ Morton J. Levy
----------------------------
Morton J. Levy,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed below by the following persons on
behalf of the Company in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Morton J. Levy Chairman of the Board March 28, 1997
- ------------------------------------------ and Chief Executive Officer
(Morton J. Levy)
/s/ Barry Shapiro President and Chief March 28, 1997
- ------------------------------------------- Operating Officer,
(Barry Shapiro) Director
/s/ David Schwartz Chief Financial Officer, March 28, 1997
- ---------------------------------------- Treasurer and Principal
(David Schwartz) Accounting Officer
Director March __, 1997
- ----------------------------------------
(Howard Kaufman)
/s/ Roger Gimbel Director March 28, 1997
- ----------------------------------------
(Roger Gimbel)
/s/ Donald D. Shack Director March 28, 1997
- -----------------------------------------
(Donald D. Shack)
/s/ Irwin Naitove Director March 28, 1997
- ----------------------------------------
(Irwin Naitove)
/s/ Charmaine Jefferson Director March 28, 1997
- ----------------------------------------
(Charmaine Jefferson)
</TABLE>
<PAGE>
<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:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
REPORTS OF INDEPENDENT AUDITORS F-2-5
BALANCE SHEETS AS AT DECEMBER 31, 1996 AND 1995 F-6
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 F-7
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 F-8
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 F-9
NOTES TO FINANCIAL STATEMENTS F-10
THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENT SCHEDULE OF
JUST TOYS, INC. AND SUBSIDIARIES IS INCLUDED IN ITEM 14(A)(2):
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-34
</TABLE>
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>
<PAGE>
Report of Independent Auditors
We have audited the accompanying consolidated balance sheets of Just Toys,
Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. Our audits also included the financial statement
schedule for the years ended December 31, 1996 and 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 audits.
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 audits provide 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for the years 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.
/s/ ERNST & YOUNG LLP
New York, New York
February 28, 1997
F-2
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Just Toys, Inc.
New York, New York
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Just Toys, Inc. and
subsidiaries for the year 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 revenues constituting 39 percent of the consolidated total for 1994. 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 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 and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audit and the reports of other auditors, the
consolidated financial statements enumerated above present fairly, in all
material respects, the consolidated results of operations and cash flows of Just
Toys, Inc. and subsidiaries for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
As described in Note 13, the Company is involved in several matters of
litigation, the outcome of which is uncertain.
As discussed in Note 2, 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 audit above include Schedule II for the year ended December 31, 1994.
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.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 27, 1995
With respect to Note K[4][a] and K[4][c] in the 1994 Annual Report,
April 10, 1995
F-3
<PAGE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
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 statement of
operations, changes in stockholders' equity and cash flows for the year ended 31
December 1994 and 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 efforts on the recoverability and classification of
assets or the amount and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG
20 February 1995
F-4
<PAGE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
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 sheet of Joyful World Enterprises
Limited as at 31 December 1994 and the related statement 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 assurances 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 effect on the recoverability and classification of
assets or the amount and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ Ernst & Young
20 February 1995
F-5
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash .................................................................. $ 153,707 $ 241,443
Accounts receivable, net of allowances of
$603,000 and $1,017,000 (Note 5) .................................... 287,578 1,779,598
Inventories (Note 6) .................................................. 4,113,300 3,270,206
Prepaid and refundable income taxes ................................... 28,914 248,459
Prepaid expenses and other current assets (Note 7) .................... 1,118,128 646,422
------------ ------------
Total current assets ........................................... 5,701,627 6,186,128
Property and equipment, at cost, net of accumulated
depreciation and amortization (Note 8) ................................ 3,504,468 2,653,702
Goodwill, net of accumulated amortization (Note 3) ...................... 660,376
Property held for sale (Note 10) ........................................ 2,907,340
Other assets ............................................................. 119,650 76,188
------------ ------------
TOTAL .......................................................... $ 9,986,121 $ 11,823,358
============ ============
LIABILITIES
Current liabilities:
Current portion of long-term debt (Note 10) .......................... $ 360,000
Accounts payable ...................................................... $ 1,622,532 1,925,467
Due RGA Accessories, Inc. (Note 11) .................................. 15,417 45,242
Accrued liabilities (Note 12) ........................................ 1,305,604 1,582,761
------------ ------------
Total current liabilities ...................................... 2,943,553 3,913,470
Long-term debt, less current portion (Note 10) .......................... 1,886,000
Deferred income taxes (Note 15) .......................................... 15,971 15,971
Series B Convertible Redeemable Preferred Stock,
650,000 shares authorized, 538,243 shares issued and
outstanding (liquidation value $1,951,131)(Note 4) .................... 972,778
------------ ------------
Total liabilities .............................................. 3,932,302 5,815,441
------------ ------------
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY
Stockholders' equity (Note 1):
Preferred stock, $1.00 par value, 1,000,000 shares
authorized (Note 4):
Series A Convertible Redeemable Preferred
Stock, 150,000 shares authorized, 120,000
shares issued and outstanding
(liquidation value $120,000) .................................. 120,000 120,000
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
Accumulated deficit ................................................... (23,903,449) (23,949,351)
------------ ------------
Total stockholders' equity ..................................... 6,053,819 6,007,917
------------ ------------
TOTAL .......................................................... $ 9,986,121 $ 11,823,358
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales (Note 14) ......................... $ 22,055,784 $ 19,588,348 $ 23,875,036
Cost of goods sold .......................... 13,568,684 13,338,943 22,995,704
------------ ------------ ------------
Gross profit ................................ 8,487,100 6,249,405 879,332
------------ ------------ ------------
Expenses:
Merchandising, selling,
warehousing and distribution ........... 4,405,800 6,699,951 9,508,008
Royalties ................................ 709,656 1,868,838 3,081,057
General and administrative ............... 2,931,329 3,746,812 3,779,616
------------ ------------ ------------
Total ............................. 8,046,785 12,315,601 16,368,681
------------ ------------ ------------
Operating income (loss) ..................... 440,315 (6,066,196) (15,489,349)
Other income (expenses):
Interest expense ......................... (545,800) (357,562) (284,652)
Interest and dividend income ............. 12,927 141,440 467,379
Write down of investment in
Hong Kong property ..................... (1,578,000)
Settlement of arbitration &
related legal expenses ................. (909,594)
Other income (expense) ................... 247,972 (17,012) (213,698)
------------ ------------ ------------
Income (loss) before income taxes
and change in accounting principle ....... 155,414 (8,786,924) (15,520,320)
Provision for income taxes (Note 15) ........ 275,212
------------ ------------ ------------
Income (loss) before change in
accounting principle and preferred
stock dividends and accretion ............ 155,414 (8,786,924) (15,795,532)
Cumulative effect of change in
accounting principle (Note 2) ............ 74,790
------------ ------------ ------------
Net income (loss) ........................... 155,414 (8,786,924) (15,720,742)
Preferred stock dividends and
accretion (Note 4) ....................... 109,512
------------ ------------ ------------
Net income (loss) attributable to
common stockholders ...................... $ 45,902 $ (8,786,924) $(15,720,742)
============ ============ ============
Weighted average common shares
outstanding .............................. 4,150,000 4,150,000 4,150,000
============ ============ ============
Per share data:
Income (loss) attributable to common
stockholders before change in
accounting principle ..................... $ .01 $ (2.12) $ (3.81)
Cumulative effect of change in
accounting principle per share ........... .02
------------ ------------ ------------
Net income (loss) attributable to
common stockholders ...................... $ .01 $ (2.12) $ (3.79)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A UNREALIZED
PREFERRED STOCK COMMON STOCK GAIN RETAINED
----------------------- ----------------------- ADDITIONAL (LOSS) ON EARNINGS
NUMBER OF NUMBER OF PAID-IN MARKETABLE (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT) TOTAL
--------- -------- --------- ------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-January
1, 1994...... 4,150,000 $ 41,500 $29,795,768 $558,315 $30,395,583
Adjustment of
beginning
balance for
change in
accounting
method(Note
2)........... $(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
in
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
Preferred stock
dividends and
accretion
(Note 4)..... (109,512) (109,512)
Net income..... 155,414 155,414
--------- -------- --------- ------- ----------- ---------- ------------ ------------
Balance -
December 31,
1996......... 120,000 $120,000 4,150,000 $41,500 $29,795,768 $ -0- $(23,903,449) $ 6,053,819
--------- -------- --------- ------- ----------- ---------- ------------ ------------
--------- -------- --------- ------- ----------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................................ $ 155,414 $ (8,786,924) $(15,720,742)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization ......................................... 908,342 1,774,611 2,838,326
Gain on sale of Hong Kong property .................................... (119,000)
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
Realized and unrealized (gain) loss on marketable
securities ......................................................... (46,069) 6,421
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
acquisitions in 1996 and 1995):
(Increase) decrease in:
Accounts receivable ............................................ 1,492,020 592,770 4,467,730
Inventories .................................................... (443,094) 1,241,092 1,220,926
Prepaid and refundable income taxes ............................ 219,545 (182,660) 2,738,136
Prepaid expenses and other current assets ...................... (471,706) 253,987 (449,509)
Other assets ................................................... (43,462) 54,004 (30,574)
Increase (decrease) in:
Accounts payable ............................................... (302,935) (802,993) 1,089,311
Due RGA Accessories, Inc. ...................................... (29,825) (69,691) 3,318
Accrued liabilities ............................................ (277,157) (1,408,229) 1,046,297
Income taxes payable ........................................... (473,422) 2,012
------------ ------------ ------------
Net cash provided by (used in) operating
activities ................................................. 1,088,142 (5,179,524) (2,341,918)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment ..................................... (921,047) (1,073,071) (1,956,463)
Acquisition of certain assets of Table Toys, Inc. ......................... (1,018,654)
Net proceeds from the sale of the Hong Kong property ...................... 3,088,489
Purchase of marketable securities ......................................... (2,908,731) (24,089,091)
Redemption of marketable securities ....................................... 7,551,463 29,712,702
Investment in Celt Specialty Partners, Inc. ............................... (1,000) (1,949,650)
------------ ------------ ------------
Net cash provided by investing activities .................... 1,148,788 3,568,661 1,717,498
------------ ------------ ------------
Cash flows from financing activities:
Payment of long-term debt ................................................. (2,246,000) (316,000) (312,000)
Dividends paid ............................................................ (78,666)
------------ ------------ ------------
Net cash used in financing activities ......................... (2,324,666) (316,000) (312,000)
------------ ------------ ------------
Net decrease in cash ........................................................ (87,736) (1,926,863) (936,420)
Cash - beginning of year .................................................... 241,443 2,168,306 3,104,726
------------ ------------ ------------
Cash - end of year .......................................................... $ 153,707 $ 241,443 $ 2,168,306
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Description of Business and Basis of Presentation:
Just Toys, Inc. (the "Company") designs, develops, manufactures, markets and
distributes toys and sport products for children of various ages. 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 and gift stores. The
consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries described below. Significant intercompany
balances and transactions have been eliminated in consolidation.
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 incorporated in Hong Kong.
The consolidated financial statements include the following applicable to the
foreign subsidiaries:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Assets ............................. $1,125,694 $ 4,167,473 $6,205,145
Liabilities ........................ 894,679 4,255,930 4,002,308
Stockholder's equity (deficit) ..... 41,021 (88,457) 2,202,837
Revenues ........................... 5,431,127 4,772,364 9,254,786
Net income (loss) .................. 129,478 (2,291,294) (90,030)
</TABLE>
In May 1994, a newly formed wholly-owned subsidiary of the Company, Just
Manufacturing, Inc. ("JMI") 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 foam and plastic
toys, sporting goods and other specialty toy products; Just Toys, Inc. was the
principal customer of Celt in 1994. Operations of JMI and Celt are included from
May 10, 1994, the date of inception. The Company's investment and advances to
Celt were accounted for under the equity method in 1994. During 1994, 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.
F-10
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Description of Business and Basis of Presentation:
(continued)
On January 22, 1996, the Company executed an agreement to purchase certain
assets of Table Toys, Inc. ("Table Toys"). The Table Toys products include a
line of play tables which are compatible with most brands of toy construction
blocks and a line of toy construction blocks. The acquisition closed on June 28,
1996. On February 1, 1996, the Company acquired the toy line and the rights to
use the "Welsh" name for toys from Welsh Company, Inc. ("Welsh"). The Welsh toy
line consists of doll carriages and strollers.
NOTE 2 - Summary of Significant Accounting Policies:
Marketable securities:
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 ("SFAS 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 SFAS 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 as of
January 1, 1994 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.
F-11
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Summary of Significant Accounting Policies: (continued)
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.
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. The molds and
tools are depreciated using the straight-line method over the life of the
related product licensing agreement, if applicable, 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:
<TABLE>
<CAPTION>
Method Life
------------- ----------
<S> <C> <C>
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
</TABLE>
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.
Research and product development costs:
Expenditures for research and product development costs are charged to
operations as incurred. Amounts of research and product development costs were
approximately $62,800, $324,300 and $953,700 during 1996, 1995 and 1994,
respectively.
F-12
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Summary of Significant Accounting Policies: (continued)
Royalties:
The Company enters into agreements to license trademarks, copyrights, patents
and inventions. The Company expenses royalties at the time the related product
is sold. 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. Prepaid and future
guaranteed royalties applicable to discontinued products or where sales were
below expectations are also expensed.
Advertising costs:
The Company expenses advertising costs as incurred. Advertising costs for the
years ended December 31, 1996, 1995 and 1994 amounted to $225,000, $593,000 and
$2,332,000, respectively.
Income (loss) per share attributable to common stockholders:
Income (loss) per share attributable to common stockholders is based on the
weighted average number of shares and common share equivalents, if dilutive,
outstanding during each year. The preferred stock is not considered to be common
stock equivalents and assumed conversion would be anti-dilutive.
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. The cumulative foreign currency
adjustment was not material.
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.
F-13
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Summary of Significant Accounting Policies: (continued)
Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 is effective for transactions after December 15, 1994 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 has
elected to continue to account for its stock issued to employees in accordance
with APB 25.
Goodwill:
Goodwill represents the cost in excess of the fair market value of the net
assets acquired of Table Toys. Goodwill is being amortized on a straight-line
basis over 15 years. Amortization of goodwill for the year ended December 31,
1996 and accumulated amortization at December 31, 1996 approximated $22,800.
Accretion of Preferred Stock B:
The redemption value of the Series B Convertible Redeemable Preferred Stock is
being accreted using the interest method for redemption on December 31, 2005.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of:
The Company accounted for the impairment of long-lived assets at the time
management decided 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 adopted SFAS 121 in the first quarter of 1996 and
does not believe that any of its long-lived assets are impaired.
F-14
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - Acquisition:
On January 22, 1996, the Company entered into an agreement to purchase certain
assets of 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
28, 1996.
The Company accounted for the acquisition under the purchase method of
accounting and allocated the purchase price as follows:
Assets acquired:
<TABLE>
<S> <C>
Inventories. . . . . . . . $ 400,000
Property and Equipment . . 877,439
Goodwill . . . . . . . . . 683,147
----------
$1,960,586
==========
</TABLE>
The acquisition of the above assets was financed as follows:
<TABLE>
<S> <C>
Cash paid. . . . . . . . . $ 391,291
Series B Convertible
Redeemable Preferred Stock 941,932
Other expenses incurred. . 627,363
----------
$1,960,586
==========
</TABLE>
The consideration paid for the assets acquired included 538,243 shares of Series
B Convertible Redeemable Preferred Stock with a liquidation value of $3.625 per
share (See Note 4). Such shares were valued at approximately $1.75 per share at
the time of the acquisition. The Company also issued warrants to purchase an
aggregate of 60,000 shares of the Company's Common Stock at $3.625 per share.
The value of the warrants were considered not material. Other expenses incurred
include professional and related costs.
All of the sales, and related cost of sales, of Table Toys products for 1996 are
included in the results of operations of the Company for the year ended December
31, 1996. Prior to the Company's acquisition of Table Toys, Table Toys, Inc.
incurred an operating loss during the six months ended June 30, 1996 of
approximately $565,000 (unaudited), primarily related to the Bankruptcy
proceedings. Pro forma unaudited summary results of operations for the year
ended December 31, 1995, assuming the acquisition occurred at the beginning
of the year, is as follows:
<TABLE>
<S> <C>
Revenue. . . . . . . . . . $25,082,000
Net loss . . . . . . . . . (12,326,000)
Net loss applicable to
common stockholders. . . (12,584,000)
Net loss applicable to
common stockholders
per share. . . . . . . . $ (3.03)
</TABLE>
F-15
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Preferred Stock:
Series A Convertible Redeemable Preferred Stock
The Board of Directors of the Company has authorized 150,000 shares of
non-voting Series A Convertible Redeemable Preferred Stock ("Series A Stock")
with par value $1.00 per share of which 120,000 shares are issued and
outstanding. The Series A Stock ranks senior to the Company's common stock, par
value $0.01 per share ("Common Stock") with respect to dividend rights and
rights on liquidation, winding-up and dissolution. The Series A Stock has a
cumulative preferred quarterly dividend of 6% per annum of the Series A
Liquidation Value (as defined below) payable either in cash or additional shares
of Series A Stock, at the Company's option. As long as any shares of the Series
A Stock remain outstanding, no cash dividends may be paid on the Common Stock
nor can Common Stock be acquired by the Company unless all accrued and unpaid
dividends have been paid on the Series A Stock. The Series A Stock has a
liquidation preference over the Common Stock in an amount equal to $1.00 per
share (the "Series A Liquidation Value") plus dividends accrued and unpaid. At
the holder's option until December 31, 1998, the Series A Stock is convertible
into Common Stock at a conversion price of $2.00 per share (subject to certain
adjustments). The Series A Stock is redeemable at the Series A Liquidation Value
plus dividends accrued and unpaid at the Company's option at any time.
Series B Convertible Redeemable Preferred Stock
The Board of Directors of the Company has also authorized 650,000 shares of
non-voting Series B Convertible Redeemable Preferred Stock ("Series B Stock")
with par value $1.00 per share of which 538,243 are issued and outstanding. The
Series B Stock ranks senior to the Common Stock and junior to the Series A Stock
with respect to dividend rights and rights on liquidation, winding up and
dissolution. The Series B Stock has a cumulative preferred quarterly dividend of
7% per annum of the Series B Liquidation Value (as defined below) payable either
in cash or additional shares of Series B Stock, at the Company's option. As long
as any shares of the Series B Stock remain outstanding, no cash dividends can be
paid on the Common Stock nor can Common Stock be acquired by the Company unless
all accrued and unpaid dividends have been paid on the Series B Stock and any
required redemptions have been provided for. The Series B Stock has a
liquidation preference over the Common Stock in an amount equal to $3.625 per
share (the "Series B Liquidation Value") plus dividends accrued and unpaid. At
the holder's option, the shares of Series B Stock are convertible in Common
Stock at a rate of one share of Common Stock for each share of Series B Stock
(subject to certain adjustments). After December 30, 1996, the Series B Stock is
redeemable at the Company's option at the Series B Liquidation Value plus
dividends accrued and unpaid.
F-16
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Preferred Stock: (continued)
The Series B Stock is subject to mandatory redemption through the operation of a
sinking fund at the Series B Liquidation Value plus dividends accrued and
unpaid. The Company is required, at its option, to redeem or set apart for
payment, on each December 31 commencing 2001 and ending 2004, an amount
sufficient to redeem 10% of the Series B Stock issued and any additional shares
issued as dividends on such shares. The Company may apply as a credit against
its sinking fund obligations any shares which have been previously redeemed or
converted. All remaining and outstanding shares shall be redeemed on December
31, 2005 at the Series B Liquidation Value plus dividends accrued and unpaid.
NOTE 5 - 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 (at December 31, 1996 - 8.25%) 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 also will bear interest at the rate of prime
plus one percent.
Accounts receivable and amounts due from factor consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Accounts Receivable - factor ....................... $ 3,897,563 $ 3,206,600
Borrowings from factor ............................. (3,649,628) (881,024)
----------- -----------
Net due from factor ................................ 247,935 2,325,576
Accounts receivable - trade ........................ 642,643 471,022
----------- -----------
Total accounts receivable ....................... 890,578 2,796,598
Less: Accounts receivable allowances ............... (603,000) (1,017,000)
----------- -----------
Total accounts receivable, net
of allowances ............................. $ 287,578 $ 1,779,598
=========== ===========
</TABLE>
F-17
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - Accounts Receivable and Allowances: (continued)
The accounts receivable allowances consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Returns, allowances and discounts .... $ 553,000 $ 911,000
Doubtful accounts .................... 50,000 106,000
---------- ----------
T o t a l .................. $ 603,000 $1,017,000
========== ==========
</TABLE>
NOTE 6 - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Finished goods ....................... $2,758,085 $2,178,278
Material components and supplies ..... 1,355,215 1,091,928
---------- ----------
T o t a l ................... $4,113,300 $3,270,206
========== ==========
</TABLE>
NOTE 7 - Prepaid expenses and other current assets:
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Prepaid Royalties .................... $ 288,881 $ 85,837
Prepaid Insurance .................... 253,869 224,034
Other ................................ 575,378 336,551
---------- ----------
T o t a l ................... $1,118,128 $ 646,422
========== ==========
</TABLE>
F-18
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - Property and Equipment:
Property and equipment consists of the following:
December 31,
-----------------------
1996 1995
---------- ----------
Property and equipment at cost:
Land. . . . . . . . . . . . . . $ 325,000 $ 325,000
Building. . . . . . . . . . . . 725,000 725,000
Molds and tools . . . . . . . . 2,730,935 3,817,878
Manufacturing equipment . . . . 1,698,038 797,401
Furniture, fixtures and
office equipment. . . . . . . 1,106,402 896,361
Leasehold improvements. . . . . 373,654 291,756
---------- ----------
6,959,029 6,853,396
Less:
Accumulated depreciation
and amortization . . . . . 3,454,561 4,199,694
---------- ----------
T o t a l . . . . . . $3,504,468 $2,653,702
========== ==========
NOTE 9 - Investment in 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.
Selected financial information of Celt for the period from May 10, 1994 (date of
inception) to December 31, 1994 are as follows:
<TABLE>
<S> <C>
Revenue . . . . . . . . . . . . . . . . . . . . $1,231,229
Net loss. . . . . . . . . . . . . . . . . . . . (248,120)
</TABLE>
F-19
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - Long-term Debt:
In November 1993, JTP acquired approximately 5,899 square feet of office space
in Hong Kong. The Company financed approximately $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 (at December 31, 1995 - 7.5%)
plus 1-1/4% per annum. The Company guaranteed the obligation of JTP with
respect to such mortgage loan. The net book value of the property was written
down to $2,907,000 at December 31, 1995 to reflect the Company's estimate of the
carrying value of the property as of December 31, 1995, and is reflected as
property held for sale.
On March 22, 1996, the Company executed an agreement to sell its Hong Kong
property, which closed on April 30, 1996. Proceeds from the sale, net of
transaction costs, amounted to approximately $3,088,000, and a portion of those
proceeds were used to repay the long-term mortgage loan outstanding. The
Company presently leases smaller premises in Hong Kong.
F-20
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - Related Party Transactions:
Administrative services:
A principal in RGA Accessories, Inc. ("RGA") is also an officer, director and
shareholder of the Company. RGA has previously performed certain administrative
services for the Company. Under an agreement dated in August 1992, RGA was
compensated through December 31, 1995 on a formula based on the Company's sales.
Commencing in 1996, the Company began assuming internally the functions and
services previously provided by RGA to the Company. RGA continued to provide
computer-related services during 1996. For such services, the Company paid RGA a
fixed monthly retainer. The Company incurred approximately $260,000, $668,000
and $877,000 for such services in 1996, 1995 and 1994, respectively.
Yick Bo Trading Limited ("Yick Bo") performs certain administrative services for
JTP and JWE. The Company incurred approximately $123,000, $293,000 and $217,000
for such services in 1996, 1995 and 1994, respectively. A principal and a
shareholder of Yick Bo is an officer, director and shareholder of the Company.
As of December 31, 1996, the Company terminated its U.S. and Hong Kong services
with RGA and Yick Bo and will perform all of these services internally.
Warehouse rent and services:
The Company leased space in a public warehouse from a partnership in which a
shareholder, officer and director of the Company is a general partner. Rental
and warehouse expenses for such premises was approximately $18,700, $113,100 and
$335,600 in 1996, 1995 and 1994, respectively.
Consulting fees:
During 1995 and 1994, the Company incurred expenses of $27,500 and $80,000,
respectively, to a director for consulting fees.
F-21
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Royalties. . . . . . . . . . . . . $ 181,311 $ 728,548
Insurance. . . . . . . . . . . . . 160,654
Other. . . . . . . . . . . . . . . 963,639 854,213
---------- ----------
T o t a l. . . . . . . . $1,305,604 $1,582,761
========== ==========
</TABLE>
NOTE 13 - Commitments, Contingencies and Other Matters:
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% to 16% of the net sales of the licensed products. The Company is
obligated for guaranteed minimum royalty and other license payments at December
31, 1996 as follows:
<TABLE>
<S> <C>
1997. . . . . . . . . . . . . . . $348,000
1998. . . . . . . . . . . . . . . 95,000
1999. . . . . . . . . . . . . . . -0-
2000. . . . . . . . . . . . . . . -0-
2001. . . . . . . . . . . . . . . 175,000
--------
T o t a l . . . . . . . $618,000
========
</TABLE>
F-22
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Commitments, Contingencies and Other Matters: (continued)
Leases:
Minimum annual rentals under leases expiring at various times through the year
2008 for showroom, merchandising and warehouse facilities as at December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997. . . . . . . . . . . . . . .$ 464,000
1998. . . . . . . . . . . . . . . 234,000
1999. . . . . . . . . . . . . . . 141,000
2000. . . . . . . . . . . . . . . 86,000
2001. . . . . . . . . . . . . . . 101,000
Thereafter. . . . . . . . . . . . 617,000
---------
Total . . . . . . . . .$1,643,000
=========
</TABLE>
Rent expense approximated $332,000, $259,000 and $326,000 for 1996, 1995 and
1994, respectively.
Letters of credit:
As of December 31, 1996, the Company had an outstanding letter of credit of
$75,000.
Litigation:
In October 1995, the Company settled an arbitration proceeding and an
accompanying lawsuit brought 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 by payment of
$594,000 and the issuance of 120,000 shares of Series A Stock.
F-23
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Commitments, Contingencies and Other Matters: (continued)
Litigation: (continued)
The Company received approximately 1,000 complaints concerning its Micro-Bake
for Kids'tm' (the "Micro-Bake") product, all of which have been paid or accrued
for as of December 31, 1996 and 1995. The Company discontinued selling this
product in 1995. 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 related to this matter. The Company is
expected to be responsible for approximately 50% of such claims and the
insurance company is expected to pay the balance.
In July 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 a lawsuit commenced in April 1995 by OddzOn Products, Inc. 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 the plaintiff's rights in any way. Oddzon
Products, Inc. has appealed that decision. The Company does not believe that its
products infringe any rights of the plaintiff, and the Company is contesting the
action.
Deferred compensation plan:
Effective January 1, 1993, the Company became a participating employer with RGA
in a Deferred Compensation Plan (the "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). Effective January
1, 1996, the Company established a defined contribution plan (the "New Plan")
under Section 401(k) of the Internal Revenue Code. The New Plan replaces the RGA
Plan. All of the Company's employee accounts from the RGA Plan were transferred
to the New Plan during 1996. The Company has elected not to make contributions
to these plans for the years ended December 31, 1996, 1995 and 1994.
F-24
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Commitments, Contingencies and Other Matters: (continued)
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 14 - Major Customers:
In each of the past three years, the Company has had two customers which each
individually represented greater than 10% of net sales. Sales to these customers
totaled 57%, 53% and 44% of net sales in 1996, 1995 and 1994, respectively. The
termination by either of these customers of its relationship with the Company
would have a material adverse effect on the Company.
NOTE 15 - Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . $ - $ -
Deferred. . . . . . . . . $ 190,600
State and local:
Current . . . . . . . . .
Deferred. . . . . . . . . 82,600
Foreign:
Current . . . . . . . . . 2,012
Deferred. . . . . . . . .
---------- --------- --------
Total. . . . . . . $ - $ - $ 275,212
========== ========= ========
</TABLE>
Deferred income tax expenses arose primarily from temporary differences
associated with the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Depreciation. . . . . . . . $ - $ - $ 142,800
Capitalization of
inventory costs . . . . . 58,400
Estimated allowances. . . . 72,000
---------- --------- --------
Total . . . . $ - $ - $ 273,200
========== ========= ========
</TABLE>
F-25
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Income Taxes: (continued)
The tax effects of principal temporary differences and net operating losses are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Asset:
Estimated allowances. . . $ 254,000 $ 430,000
Capitalization of
inventory . . . . . . . 48,000 37,000
Net operating loss. . . . 3,300,000 3,400,000
---------- ----------
3,602,000 3,867,000
Liability:
Depreciation. . . . . . . (34,971) (74,971)
Valuation allowance
for deferred taxes. . . (3,583,000) (3,808,000)
---------- ----------
T o t a l. . . . . . $ (15,971) $ (15,971)
========== ==========
</TABLE>
The valuation allowance at December 31, 1994 was approximately $7,356,000.
The differences between the statutory Federal income tax rate of 34% and the
income taxes reported in the statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
-------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States. . . . . . . $ 25,936 $(6,495,630) $(15,430,290)
Foreign. . . . . . . . . . 129,478 (2,291,294) (90,030)
------- ---------- -----------
$155,414 $(8,786,924) $(15,520,320)
======= ========== ===========
Statutory rate . . . . . . . . $ 52,841 $(2,987,554) $ (5,276,909)
Utilization of benefit of tax
loss carryforward. . . . . . (12,381)
Loss from which no tax
benefit was provided . . . . 2,977,820 5,550,109
Difference between U.S.
Federal statutory rate and
foreign effective rate . . . 2,012
Foreign income not subject
to tax . . . . . . . . . . . (40,460)
Other. . . . . . . . . . . . . 9,734
------- ---------- -----------
Total tax provision
(benefit). . . . . . . . . $ -0- $ -0- $ 275,212
======== ========== ===========
</TABLE>
F-26
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Income Taxes: (continued)
Undistributed foreign income:
At December 31, 1996, JTP had approximately $600,000 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, 1996. Approximately $900,000 expires by 2008, $14,100,000 by
2009, $6,700,000 by 2010 and $300,000 by 2011. However, pursuant to Section 382
of the Internal Revenue Code the future utilization of approximately $21,000,000
of these 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 16 - Supplemental Cash Flow Information:
Payments for interest expense were $384,114, $234,901 and $232,169 for 1996,
1995 and 1994, respectively.
F-27
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - Stock Options:
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 1,000,000
shares of Common Stock are issuable under the Plan. Options are exercisable
within ten years of the date of grant.
Detail of stock options are as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Number of Price per
Number of Price per Shares Exercisable
Shares Share Exercisable Share
------ ----- ----------- -----
<S> <C> <C> <C> <C>
Balance - December 31, 1993. . . 239,999 $12.94
Granted and repriced - 1994. . . 371,497 5.69
Canceled - 1994. . . . . . . . . (222,999) (11.28)
-------
Balance - December 31, 1994. . . 388,497 $ 6.96 39,000 $10.90
=======
Granted - 1995 . . . . . . . . . 234,000 2.35
Canceled - 1995. . . . . . . . . (171,250) (6.40)
-------
Balance - December 31, 1995. . . 451,247 $ 4.78 140,033 $ 6.56
=======
Granted - 1996 . . . . . . . . . 171,000 1.89
Canceled - 1996. . . . . . . . . (59,900) (2.78)
-------
Balance - December 31, 1996. . . 562,347 $ 4.11 206,298 $ 5.92
======== =======
</TABLE>
The exercise price of options outstanding at December 31, 1996 ranged from $1.25
to $14.125.
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.
F-28
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - Stock Options: (continued)
Other
Pursuant to an agreement between an officer of the Company and the Company in
December 1996, the Company granted the officer a fully vested and exercisable
ten year option to purchase up to 50,000 shares of Common Stock at an exercise
price of $1.50 per share, the market price of the stock at the time of the
grant. The Company has agreed to grant to the officer an additional fully vested
and exercisable ten year option to purchase up to 50,000 shares of the Common
Stock on June 30, 1997 at an exercise price equal to the closing price of the
Common Stock on the Nasdaq Stock Market on such date. Neither of such options is
governed by the Company's Plan and are subject to stockholder approval. Both of
such options will remain outstanding for their full term until exercised,
whether or not the officer is still affiliated with the Company.
Pro forma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value of SFAS 123. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk free rate. . . . . . . . . . . . 6.58% 6.58%
Dividend yield. . . . . . . . . . . . 0% 0%
Volatility factor of the expected
price of the Company's Common Stock 1.051 1.051
Average life (years). . . . . . . . . 5 5
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-29
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - Stock Options: (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net loss
attributable to common
stockholders. . . . . . . . . . . . $(12,250) $(8,813,226)
Pro forma net loss
per share attributable to
common stockholders . . . . . . . . $ - $ (2.12)
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1996 and 1995 were $1.19 and $1.26, respectively. The
weighted-average remaining contractual life of those options is 9.2 years.
As of December 31, 1996, 1,908,243 shares of the Company's Common Stock were
reserved for issuance on the exercise of stock options and warrants and the
redemption of preferred stock.
NOTE 18 - Warrants:
In connection with a public offering of the Company's Common Stock in October
1992, the Company sold warrants to its underwriters for $100 to purchase up to
100,000 shares of common stock, exercisable for a period of four years from
October 1, 1993 through October 1, 1997 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, which expire on December 31, 2000. In
connection with the acquisition of the assets of Table Toys, warrants were
issued to various individuals to purchase 60,000 shares of common stock at
$3.625 per share, which expire on June 26, 2001.
F-30
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Business Segments:
Foreign operations and sales for the year ended December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
United
States Hong Kong* Eliminations Consolidated
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales. . . . $16,624,657 $5,431,127 $22,055,784
========== ========= ==========
Operating income $ 226,720 $ 213,595 $ 440,315
========== =========
Interest expense (545,800)
Interest and
dividend income 12,927
Other income . . 247,972
----------
Income before
income taxes . $ 155,414
==========
Identifiable
assets at
December 31,
1996 . . . . . $ 9,912,752 $1,012,088 $(1,092,456) $ 9,832,414
========== ========= ==========
Corporate assets 153,707
----------
Total assets . . $ 9,986,121
==========
</TABLE>
* Hong Kong includes approximately $4,336,000 of net sales F.O.B. Hong Kong,
which may have been shipped to customers in the United States and other
destinations.
F-31
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - Business Segments: (continued)
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 and
dividend income 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.
F-32
<PAGE>
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - 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 and
dividend income 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.
F-33
<PAGE>
<PAGE>
SCHEDULE II
JUST TOYS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts ................ $ 106,000 $ 4,875 $ 60,875 $ 50,000
Allowance for sales returns, discounts and
allowances ................................... 911,000 847,461 1,205,461 553,000
---------- ---------- ---------- ----------
T o t a l ............................... $1,017,000 $ 852,336 $1,266,336 $ 603,000
========== ========== ========== ==========
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
========== ========== ========== ========== ==========
</TABLE>
(1) Write off of uncollectibles and sales returns, discounts and allowances.
(2) Selling expense related to returned merchandise.
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as ................. 'r'
F-34
<PAGE>
<PAGE>
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 28, 1997, with
respect to the consolidated financial statements and schedule of Just Toys, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
New York, New York
March 27, 1997
<PAGE>
<PAGE>
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 which appears in this annual report on Form 10-K for the year
ended December 31, 1996.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 28, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 153,707
<SECURITIES> 0
<RECEIVABLES> 890,578
<ALLOWANCES> 603,000
<INVENTORY> 4,113,300
<CURRENT-ASSETS> 5,701,627
<PP&E> 6,959,029
<DEPRECIATION> 3,454,561
<TOTAL-ASSETS> 9,986,121
<CURRENT-LIABILITIES> 2,943,553
<BONDS> 0
<COMMON> 41,500
972,778
120,000
<OTHER-SE> 5,892,319
<TOTAL-LIABILITY-AND-EQUITY> 9,986,121
<SALES> 22,055,784
<TOTAL-REVENUES> 22,055,784
<CGS> 13,568,684
<TOTAL-COSTS> 8,046,785
<OTHER-EXPENSES> (247,972)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 545,800
<INCOME-PRETAX> 155,414
<INCOME-TAX> 0
<INCOME-CONTINUING> 155,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,414
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
