<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
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Commission File Number 0-20612
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JUST TOYS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 13-3677074
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Fifth Avenue Suite 1250, New York, New York 10010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 645-1515
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The aggregate number of the Registrant's shares outstanding on November 14, 2000
was 2,251,581 shares of Common Stock, par value $.01 per share.
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<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets--September 30, 2000
and 1999 (unaudited) and December 31, 1999............... 1
Consolidated Statements of Operations (unaudited)
for the Three Months and Nine Months Ended
September 30, 2000 and 1999............................. 2
Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 30,
2000 and 1999............................................ 3
Notes to Consolidated Financial Statements (unaudited)... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 8
Part II - OTHER INFORMATION
Item 5. Other Information........................................ 14
Item 6. Exhibits and Reports on Form 8-K ........................ 15
SIGNATURES................................................................ 16
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------------- ------------
2000 1999 1999
---- ---- ----
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash ................................................................... $ 232,196 $ 231,119 $ 234,509
Accounts receivable, net of allowances of $69,467,
$290,000 and $345,000 (Note 2) ...................................... 853,161 407,881 36,717
Inventories (Note 3) ................................................... 1,994,798 3,228,304 1,963,641
Prepaid expenses and other current assets .............................. 1,651,455 1,867,087 1,770,056
------------ ------------ ------------
Total current assets ................................................ 4,731,610 5,734,391 4,004,923
Property and equipment, at cost, net of accumulated
depreciation and amortization .......................................... 2,364,065 2,533,486 2,532,996
Goodwill, net of accumulated amortization. (Note 6) ....................... 234,043 511,635 500,748
Other assets .............................................................. 97,810 124,351 102,322
------------ ------------ ------------
TOTAL ................................................... $ 7,427,528 $ 8,903,863 $ 7,140,989
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to factor (Note 2) ................................................. $ 1,741,990 $ 1,404,688 $ 102,319
Accounts payable ....................................................... 2,409,131 2,315,002 2,087,767
Accrued liabilities .................................................... 1,259,728 856,698 1,092,900
------------ ------------ ------------
Total current liabilities .......................................... 5,410,849 4,576,388 3,282,986
Series B Convertible Redeemable Preferred Stock, 650,000 shares authorized,
129,261, 129,261 and 129,261 shares issued and outstanding
(liquidation value $468,571, $468,571 and $468,571) .................... 312,213 288,977 294,618
------------ ------------ ------------
Total liabilities and Series B Stock ............................... 5,723,062 4,865,365 3,577,604
------------ ------------ ------------
Commitments and contingencies. (Note 7)
Stockholders' equity (Note 4):
Preferred stock, $1.00 par value, 2,000,000 shares authorized:
Series A Convertible Redeemable Preferred
Stock, 150,000 shares authorized, no
shares issued and outstanding ........................ -- -- --
Common stock, par value $.01 per share, 15,000,000
shares authorized, 2,251,581, 2,242,581 and 2,242,581
issued and outstanding ............................................. 22,516 22,426 22,426
Additional paid-in capital ............................................. 30,229,616 30,226,187 30,226,187
Accumulated deficit ................................................... (28,547,666) (26,210,115) (26,685,228)
------------ ------------ ------------
Total stockholders' equity ......................................... 1,704,466 4,038,498 3,563,385
------------ ------------ ------------
TOTAL ..................................................... $ 7,427,528 $ 8,903,863 $ 7,140,989
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-1-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
----- ----- ----- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ................................. $ 3,714,289 $ 5,555,545 $ 9,958,190 $ 12,164,770
Cost of goods sold ........................ 2,419,598 3,468,055 6,177,889 7,399,511
------------ ------------ ------------ ------------
Gross profit .............................. 1,294,691 2,087,490 3,780,301 4,765,259
------------ ------------ ------------ ------------
Expenses:
Merchandising, selling, warehousing
and distribution .................. 736,856 996,161 2,259,030 2,775,563
Royalties .............................. 337,352 281,968 775,126 562,102
General and administrative ............. 720,438 822,622 1,949,373 2,269,963
------------ ------------ ------------ ------------
Total ....................... 1,794,646 2,100,751 4,983,529 5,607,628
------------ ------------ ------------ ------------
Operating loss, before Goodwill Impairment (499,955) (13,261) (1,203,228) (842,369)
------------ ------------ ------------ ------------
Goodwill Impairment (Note 6) (234,043) -- (234,043) --
------------ ------------ ------------ ------------
Operating loss ............................ (733,998) (13,261) (1,437,271) (842,369)
------------ ------------ ------------ ------------
Other income (expenses): ..................
Interest expense ....................... (137,612) (146,122) (382,975) (355,848)
------------ ------------ ------------ ------------
Net loss .................................. (871,610) (159,383) (1,820,246) (1,198,217)
Preferred stock dividends and
accretion (Note 4)................... (14,214) (13,839) (42,192) (42,562)
------------ ------------ ------------ ------------
Net loss attributable to
common stockholders ................. $ (885,824) $ (173,222) $ (1,862,438) $ (1,240,779)
============ ============ ============ ============
Weighted average common shares
outstanding ......................... 2,251,273 2,241,169 2,246,336 2,239,587
============ ============ ============ ============
Per share data:
Basic and dilutive loss per share
attributable to common stockholders.. $ (0.39) $ (0.08) $ (0.83) $ (0.55)
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $(1,820,246) $(1,198,217)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................. 551,540 569,044
Goodwill Impairment ........................................... 234,043 --
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable ...................................... (816,444) (43,090)
Inventories ............................................... (31,157) (516,619)
Prepaid expenses and other current assets ................. 118,601 4,671
Other assets .............................................. 4,512 6,669
Increase (decrease) in:
Accounts payable ......................................... 321,364 536,825
Accrued liabilities ....................................... 142,231 (108,266)
----------- -----------
Net cash used in operating activities ......................... (1,295,556) (748,983)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment ................................. (349,947) (357,500)
----------- -----------
Net cash used in investing activities ......................... (349,947) (357,500)
----------- -----------
Cash flows from financing activities:
Borrowings from factor ................................................ 1,639,671 1,095,852
Proceeds from exercise of common stock option ......................... 3,519 --
Dividends paid ........................................................ -- (25,542)
----------- -----------
Net cash provided by financing activities ...................... 1,643,190 1,070,310
----------- -----------
Net decrease in cash ........................................................ (2,313) (36,173)
Cash - beginning of period .................................................. 234,509 267,292
----------- -----------
Cash - end of period ........................................................ $ 232,196 $ 231,119
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
JUST TOYS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. The results of operations
for the interim periods are not necessarily indicative of the results for a full
year. As a result of operating losses and reduced sales anticipations for the
last quarter of 2000, the Company is taking additional steps to conserve
available cash including further expense and capital expenditure reductions.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in Just Toys,
Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December
31, 1999.
(1) Basic loss per share attributable to common stockholders:
Basic loss per share was calculated by dividing net loss attributable
to common stockholders by the weighted average number of shares of Common Stock
outstanding. All options, warrants and preferred stock issued by the Company
were antidilutive.
(2) Reclassifications:
Certain previously reported amounts have been reclassified to conform
to the 2000 presentation and that of the Form 10-K for the year ended December
31, 1999.
-4-
<PAGE>
Note 2 - Accounts Receivable and Due to Factor
Accounts receivable and amounts due to factor consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------- -----------
2000 1999 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Accounts receivable - factor ....... $ 1,959,255 $ 3,249,454 $ 3,443,934
Borrowings from factor ............... (3,701,245) (4,654,142) (3,546,253)
----------- ----------- -----------
Net due to factor .................... $ 1,741,990 $ 1,404,688 $ 102,319
=========== =========== ===========
Accounts receivable - trade ......... $ 922,628 $ 697,881 $ 381,717
Less: Accounts receivable allowances.. (69,467) (290,000) (345,000)
----------- ----------- -----------
Total accounts receivable, net of
allowances ................. $ 853,161 $ 407,881 $ 36,717
=========== =========== ===========
</TABLE>
Substantially all of the Company's US accounts receivables are sold to
a factor. Such sales are without recourse as to bad debts, but with recourse as
to customers' claims. Interest is charged at the rate of prime plus one percent,
which was 10.50% and 9.25% at September 30, 2000 and 1999, respectively, and
9.5% at December 31, 1999. The factoring arrangement is secured by a mortgage on
the real property owned by the Company's manufacturing subsidiary and a security
interest in the inventory and personal property located in the United States.
Note 3 - Inventories
The inventories consist of the following:
September 30, December 31,
---------------------- -----------
2000 1999 1999
---- ---- ----
(Unaudited)
Finished goods ................ $1,000,982 $2,115,833 $1,418,710
Material components and supplies 993,816 1,112,471 544,931
---------- ---------- ----------
Total ..................... $1,994,798 $3,228,304 $1,963,641
========== ========== ==========
-5-
<PAGE>
Note 4 - Stockholders' Equity
Stockholders' equity consists of the following:
<TABLE>
<CAPTION>
Common Additional Accumulated
Stock Paid-in Capital Deficit Total
----- --------------- ------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1999 ...... $22,426 $30,226,187 $(26,685,228) $3,563,385
Net loss (unaudited) ........... -- -- (1,820,246) (1,820,246)
Preferred stock dividends and
accretion .................. -- -- (42,192) (42,192)
Exercise of common stock options 90 3,429 -- 3,519
------------ ------------ ------------ ------------
Balance September 30, 2000
(unaudited) ................ $22,516 $30,229,616 $(28,547,666) $1,704,466
============ ============ ============ ============
</TABLE>
Note 5 - Segment Information
Information regarding the Company's business segments for the nine
month period ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
------------------ ------------------
United States Hong Kong United States Hong Kong
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Net Sales .......................... $ 6,880,975 $ 3,077,215 $ 8,231,909 $ 3,932,861
Operating income (loss)............. $(1,717,376) $ 280,105 $(1,006,360) $ 163,991
Identifiable assets (1)............. $ 4,657,732 $ 2,762,131 $ 6,439,866 $ 2,456,332
</TABLE>
(1) Excludes corporate assets of $7,665 at September 30, 2000 and 1999,
respectively. Hong Kong identifiable assets include intercompany
receivables from the parent company totaling $1,769,907 and $1,708,855
at September 30, 2000 and 1999, respectively.
Note 6 - Impairment of Goodwill
Goodwill represents the cost in excess of the fair market value of the
net assets of Table Toys acquired on June 28, 1996. The Company adopted
SFAS 121 " Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of" in the first quarter of 1996. The
Company believes that Goodwill has been impaired, and wrote off
$234,043 of Goodwill, to its net realizable value, for the nine months
ended September 30, 2000.
-6-
<PAGE>
Note 7 - Commitment and Contingencies
The Company has vacated the premises, which it occupied in Dobbs Ferry, New
York, and has consolidated its offices with its showroom in the Toy Fair
building at 200 Fifth Avenue in New York City. The Landlord of the Dobbs Ferry
space has rejected a subtenant to whom the Company had proposed to sublease
those premises. In addition, the Landlord has asserted that the Company is in
default under its lease for the Dobbs Ferry space by reason of its failure to
pay $96,042 in rent and to provide a replacement letter of credit in the amount
of $40,000. The Landlord has threatened the commencement of legal proceedings if
the asserted defaults are not cured by November 21, 2000. The Company has
advised the Landlord that its rejection of the proposed subtenant was
unreasonable and constitutes a default under the lease. The Company intends to
assert this position aggressively in its discussions with the Landlord and in
any litigation, which the Landlord may institute.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934. The statements appear in a number of places in this Quarterly Report and
include statements regarding the intent, belief or current expectations of Just
Toys, Inc. (the "Company") with respect to, among other things, future business
conditions and the outlook for the Company including trends affecting the
Company's business, financial condition and results of operations. Readers are
cautioned not to place undue reliance on these forward looking statements, which
speak only as of the date hereof. These forward looking statements are subject
to risks and uncertainties which could cause the Company's actual results or
performance to differ materially from those expressed in these statements. These
risks and uncertainties include the following: changes in consumer preferences,
dependence on a limited number of major customers, reliance on manufacturers
based in Asia, competition from major toy companies, seasonality and quarterly
fluctuations, government regulation, as well as the items set forth under
"Business--Certain Cautionary Factors" in the Company's December 31, 1999 Annual
Report on Form 10-K. Wherever possible, the Company has identified forward
looking statements by words such as "anticipates," "believes," "estimates,"
"expects" and similar expressions. The Company assumes no obligation to update
publicly any forward looking statements, whether as a result of new information,
future events or otherwise.
Results of Operations
In each of the three years ended December 31, 1999, the Company has had
increasing losses. Believing that the Company needed to increase its sales and
distribution in order to increase its profitability, during 1999 the Company
invested in a number of new licenses and product lines and expanded existing
product lines, thereby increasing the number of new products available for sale
in 2000 and in subsequent years.
These new licenses and products have not performed to expectations.
Sales in the nine months ended September 30, 2000 have been less than in the
comparable period in 1999, and losses in the three and nine month periods ended
September 30, 2000, have substantially exceeded the Company's losses in the
comparable periods in 1999.
The Company's decrease in sales is due primarily to a 40% reduction in sales for
the quarter and 58% reduction in sales year to date in one of the Company's most
important licensed product lines. The management of the Company anticipates full
year sales to be less than in 1999.
In response to these results the Company has reduced
expenditures and controlled inventory levels and intends to continue these
efforts. Notwithstanding these efforts, the Company anticipates that it will
incur a loss for the full fiscal year ended December 31, 2000.
Three Months Ended September 30, 2000 and 1999
Net sales for the three months ended September 30, 2000 decreased 33.2%
to $3,714,000 from $5,556,000 in the comparable period in 1999. The decrease in
sales was due primarily to aggressive competition from large toy companies for
several of the most popular items, a decline in popularity of some items which
have been offered for several years, decreased retail sales for certain licenses
and lower than anticipated third quarter orders. In addition, the company
believes that retailers, over-stocked with slow-moving licensed merchandise,
attempted to control inventories.
-8-
<PAGE>
Gross profit as a percentage of net sales decreased to 34.9%
for the three months ended September 30, 2000 compared to 37.6% for the three
months ended September 30, 1999. This decrease resulted primarily from changes
in the product mix purchased by retailers and the sale of certain discontinued
merchandise at lower profit margins in the three month period ended September
30,2000. Gross profit decreased 37.9% to $1,295,000 in the third quarter of 2000
from $2,087,000 in the comparable period in 1999 as a result of the decrease in
sales.
The Company's net sales and gross profit, as a percentage of net sales,
is to some extent dependent on its mix of business during a given time period.
Variables include such factors as whether merchandise is shipped from a domestic
warehouse or directly from Asia, whether the merchandise is purchased from
overseas sources or is produced domestically and the specific blend of products
shipped to the Company's customers.
Royalty expense as a percentage of net sales increased to 9.1% for the
three months ended September 30, 2000 compared to 5.1% for the three months
ended September 30, 1999, primarily due to the increase of licensed items in the
product mix. Royalty expenses increased 19.5% to $337,000 for the three months
ended September 30, 2000 from $282,000 in the comparable period in 1999,
primarily due to the increase in net sales of products subject to royalties.
Merchandising, selling, warehousing and distribution expenses decreased
26.0% to $737,000 for the third quarter of 2000 from $996,000 in the comparable
1999 period. This decrease resulted from continued cost control measures,
including a reduction in personnel costs, and from decreased expenses directly
related to decreased sales volume.
General and administrative expenses decreased 12.5% to $720,000 for the
third quarter of 2000 from $823,000 in the comparable 1999 period. This decrease
resulted from a reduction in personnel and other related costs.
The Company had an operating loss of $734,000 for the third quarter of
2000 compared with an operating loss of $13,000 for the third quarter of 1999.
Interest expense decreased to $138,000 for the third quarter of 2000 as
compared to $146,000 in the comparable period in 1999, due to decreased
borrowings.
The Company had a net loss of $872,000 for the third quarter of 2000 as
compared to $159,000 for the third quarter of 1999.
In 2000 and 1999, the Company deducted dividends paid on its preferred
stock outstanding, and the accretion of the Series B Stock to its redemption
value as expenses in computing net loss attributable to common stockholders.
Basic loss per share attributable to common stockholders for the three
months ended September 30, 2000 totaled $.39 per share compared to a basic loss
per share attributable to common stockholders of $.08 per share in the
comparable period in 1999 based upon 2,251,000 and 2,241,000 weighted average
shares outstanding in the three months ended September 30, 2000 and 1999,
respectively.
-9-
<PAGE>
Nine Months Ended September 30, 2000 and 1999
Net sales for the nine months ended September 30, 2000 decreased 18.1%
to $9,958,000 from $12,165,000 in the comparable period in 1999. The decrease in
sales was due primarily to aggressive competition from large toy companies for
several of the most popular items, a decline in popularity of some items which
have been offered for several years, decreased retail sales for certain licenses
and lower than anticipated third quarter orders. In addition, the company
believes that retailers, over-stocked with slow-moving licensed merchandise,
attempted to control inventories.
Gross profit as a percentage of net sales decreased to 38.0% for the
nine months ended September 30, 2000 compared to 39.2% for the nine months ended
September 30, 1999. This decrease resulted primarily from changes in the product
mix purchased by retailers and the sale of certain discontinued merchandise at
lower profit margins during the third quarter of 2000. Gross profit decreased
20.7% to $3,780,000 for the nine months ended September 30, 2000 from $4,765,000
in the comparable period in 1999 as a result of the decrease in sales.
The Company's net sales and gross profit, as a percentage of net sales, is to
some extent dependent on its mix of business during a given time period.
Variables include such factors as whether merchandise is shipped from a domestic
warehouse or directly from Asia, whether the merchandise is purchased from
overseas sources or is produced domestically and the specific blend of products
shipped to the Company's customers.
Royalty expense increased to $775,000, or 7.8% of net sales, for the
nine months ended September 30, 2000 from $562,000, or 4.6% of net sales, for
the nine months ended September 30, 1999, primarily due to the increase of
licensed items in the product mix.
Merchandising, selling, warehousing and distribution expenses decreased
18.6% to $2,259,000 for the nine months ended September 30, 2000 from $2,776,000
in the comparable 1999 period. This decrease resulted from continued cost
control measures, including a reduction in personnel costs, and from decreased
expenses directly related to decreased sales volume.
-10-
<PAGE>
General and administrative expenses decreased 14.1% to $1,949,000 for
the first nine months of 2000 from $2,270,000 in the comparable 1999 period.
This decrease resulted from a reduction in personnel and other related costs.
The Company had an operating loss of $1,437,000 in the nine months
ended September 30, 2000 compared with an operating loss of $842,000 in the nine
months ended September 30, 1999.
Interest expense increased to $383,000 in the first nine months of 2000
as compared to $356,000 in the comparable period in 1999,due to higher interest
rates and increased borrowings.
The Company had a net loss of $1,820,000 in the first nine months of
2000 as compared to $1,198,000 in the first nine months of 1999.
In 2000 and 1999, the Company deducted dividends paid on its preferred
stock outstanding, and the accretion of the Series B Stock to its redemption
value as expenses in computing net loss attributable to common stockholders.
Basic loss per share attributable to common stockholders for the nine
months ended September 30, 2000 totaled $.83 per share compared to a basic loss
per share attributable to common stockholders of $.55 per share in the
comparable period in 1999 based upon 2,246,000 and 2,240,000 weighted average
shares outstanding in the nine months ended September 30, 2000 and 1999,
respectively.
-11-
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources in
2000 and 1999 were funds provided from operations and its credit agreement with
Milberg Factors, Inc. ("Milberg"). At September 30, 2000, working capital
reflected a deficiency of $679,000 as compared to a working capital of
approximately $722,000 at December 31, 1999. The decrease in working capital for
the period primarily is a result of (a) the loss for the nine months ended
September 30, 2000, (b) the Company's investment in product development and (c)
capital expenditures for fixed assets consisting primarily of molds and tools
for new products.
As a result of operating losses and reduced sales anticipations for the
last quarter of 2000, the Company is taking additional steps to conserve
available cash including further expense and capital expenditure reductions.
Cash used in operating activities in the first nine months of 2000 was
$1,296,000 as compared with $749,000 in the comparable period in 1999. The
increase in cash used in operating activities was primarily due to investments
in new product lines during the nine months and the timing of certain allowances
taken by customers.
Cash used in investing activities was $350,000 and $358,000 for the
nine months ended September 30, 2000 and 1999, respectively, which was primarily
attributable to capital expenditures for fixed assets, including molds and
tooling for new products.
Cash provided by financing activities was $1,643,000 and $1,070,000 in
the first nine months of 2000 and 1999, respectively. Funds borrowed from
Milberg were used to finance the operations of the business.
The Company's factoring agreement with Milberg provides for advances
equal to the lesser of 85% of total accounts receivable or $5,000,000. The
factoring charge is 0.65% of receivables. Advances bear interest at the rate of
prime plus one percent. Milberg has also agreed to advance to the Company, at
the Company's request, the lesser of $2,000,000 or 50% of the Company's
inventory located in the United States. Such advances also bear interest at the
rate of prime plus one percent. Additionally, the factoring arrangement with
Milberg is secured by a mortgage on the real property owned by the Company's
manufacturing subsidiary and a security interest in the inventory and personal
property located in the United States. The Company will require Milberg's
continuing support in order to maintain its operations in the ordinary course.
Were this support to be withheld, the Company would have to seek an alternative
source of financing and there can be no assurance such an alternative source
would be available.
During the nine months ended September 30, 1999, 7,922 shares of Series
B Stock were converted into 3,962 shares of Common Stock. No shares of Series B
Stock were converted into Common Stock during the nine months period ended
September 30, 2000.
-12-
<PAGE>
Seasonality
The toy industry is typically seasonal in nature due to the heavy
demand for toy products during the Christmas season. During the past several
years, the Company has experienced a shift in its revenues to the second half of
the year with fourth quarter revenues becoming increasingly significant. The
Company expects that this trend will continue due to industry changes and due to
changes to its product mix. This concentration increases the risk of (a)
underproduction of popular items, (b) overproduction of less popular items and
(c) failure to achieve tight and compressed shipping schedules.
Backlog
Total order backlog at September 30, 2000 and 1999 was approximately
$615,000 and $1,263,000, respectively. The Company expects substantially all of
its current backlog to be filled during 2000. Cancellations may materially
reduce the amount of sales realized from the Company's backlog. 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, inventory levels of
retailers and differences in overall economic conditions. The use of
just-in-time/quick response inventory techniques and replenishment programs by
larger retailers has resulted in fewer orders being placed in advance of
shipment and more orders for immediate delivery. This distorts the comparisons
of unshipped orders at any given date. The Company expects 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. Order backlog is also impacted by a shift in the Company's
revenues to the second half of the year with fourth quarter revenues becoming
increasingly significant. The Company does not consider total order backlog to
be a meaningful indicator of future sales.
-13-
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
The Company has vacated the premises, which it occupied in Dobbs Ferry,
New York, and has consolidated its offices with its showroom in the Toy Fair
building at 200 Fifth Avenue in New York City. The Landlord of the Dobbs Ferry
space has rejected a subtenant to whom the Company had proposed to sublease
those premises. In addition, the Landlord has asserted that the Company is in
default under its lease for the Dobbs Ferry space by reason of its failure to
pay $96,042 in rent and to provide a replacement letter of credit in the amount
of $40,000. The Landlord has threatened the commencement of legal proceedings if
the asserted defaults are not cured by November 21, 2000. The Company has
advised the Landlord that its rejection of the proposed subtenant was
unreasonable and constitutes a default under the lease. The Company intends to
assert this position aggressively in its discussions with the Landlord and in
any litigation, which the Landlord may institute.
-14-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation, incorporated by reference to Exhibit
3.1 to the Registration Statement on Form S-1 (File No. 33-50878).
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").
3.3 Certificate of Designations, Preferences and Rights of the Series A
Stock (included in Exhibit 4.1 hereof).
3.4 Certificate of Designations, Preferences and Rights of the Series B
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 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.
4.2 Certificate of Designations, Preferences and Rights of the Series
B Stock, incorporated by reference to Exhibit 3.2 of the Current
Report on Form 8-K filed with the Securities and Exchange
Commission on July 10, 1996 (the "July 1996 Form 8-K").
*10.1 Guaranty dated July 31, 2000 by Just Toys Products Limited and
Joyful World Enterprises Limited to Milberg Factors, Inc.
+27 Financial Data Schedule
-------------------------
* Filed herewith
+ Filed with the Securities and Exchange Commission only pursuant to
Article 5 of Regulation S-X.
(b) Reports on Form 8-K -- None
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 2000
JUST TOYS, INC.,
a Delaware corporation
By: /s/ Jerry Carroll
------------------------------
Jerry Carroll
Chief Executive Officer
By: /s/ Mehmet G. Yalcin
------------------------------
Chief Financial Officer and
Principal Accounting Officer
-16-
