U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1998
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 0-21178
UNITED TEXTILES & TOYS CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 13-3626613
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>
1410 Broadway, Suite 1602, New York, New York 10018
(Address of Principal Executive Offices)
(212) 391-1111
(Issuer?s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer?s classes of common equity
outstanding as of the latest practicable date: Common Stock, par value $.001 per
share: 4,550,234 shares outstanding as of November 20, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONTENTS
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Page
Number
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and March 31, 1998 3
Consolidated statements of Operations (Unaudited) for the three months and six
months ended September 30, 1998 and Sept4mber 30, 1997
Consolidated statements of Cash Flows (Unaudited) for the six months ended September 30, 1998 and September 30, 1997 5
Notes to Financial Statements (Unaudited) 6
ITEM 2 - MANAGEMENT?S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II- OTHER INFORMATION 14
ITEM 1 - LEGAL PROCEEDINGS 14
ITEM 2 - CHANGES IN SECURITIES 14
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5 - OTHER INFORMATION 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
<PAGE>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and March 31, 1998
<TABLE>
<CAPTION>
Sept 30, March 31,
1998 1998
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ..................................... $ 427,925 $ 659,378
Accounts receivable-net ....................................... 77,759 136,413
Inventories ................................................... 12,185.130 7,872,804
Prepaid expenses and other current assets ..................... 939,759 189,516
Loans and advances-officer .................................... 27,939 138,856
------------ ------------
Total current assets .................................. 13,658,512 8,996,967
------------ ------------
PROPERTY AND EQUIPMENT-NET ..................................... 3,558,297 2,782,386
------------ ------------
OTHER ASSETS:
Deposits and other assets .................................... 2,497,257 2,580,409
------------ ------------
Total other assets .................................... 2,497,257 2,580,409
Total assets $ 19,714,066 $ 14,359,762
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 10,225,241 $ 6,882,665
Accrued expenses and other current liabilities ................ 295,614 817,788
Due to affiliates ............................................. 772,658 719,174
Current portion of notes payable .............................. 1,340,250 350,000
------------ ------------
Total current liabilities ............................. 12,633,763 8,769,627
------------ ------------
LONG-TERM LIABILITIES:
Borrowings under financing agreement .......................... 8,481,996 5,445,198
Note payable, net of current portion .......................... 157,200 1,500,000
Deferred rent liability ....................................... 119,453 110,351
Total long-term liabilities ........................... 8,758,649 7,055,549
------------ ------------
Total liabilities ..................................... 21,392,412 15,825,176
------------ ------------
MINORITY INTEREST IN SUBSIDIARY ................................ 1,358,144 1,158,514
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000
shares authorized, 4,550,234 shares issued
and outstanding ............................................ 4,550 4,550
Additional paid-in capital ................................... 8,142,281 8,142,281
Retained earnings (Deficit) ................................... (11,183,321) (10,770,759)
------------ ------------
Total stockholders' equity ............................ (3,036,490) (2,623,928)
Total liabilities and stockholders' equity $ 19,714,066 $ 14,359,762
------------ ------------
</TABLE>
<PAGE>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES, net sales .................... $ 6,098,315 $ 4,347,013 $ 12,460,021 $ 7,716,495
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales ......................... 3,414,054 2,665,830 7,120,385 4,826,424
Operating expenses .................... 2,620,444 1,967,776 5,219,903 4,274,946
Depreciation and amortization 193,794 139,344 382,211 278,690
Interest and other income .... -- -- -- --
Interest expense ............. 156,860 217,545 295,312 430,619
Amortization of debt issuance costs .... 27,202 -- 54,402 --
------------ ------------ ------------ ------------
6,412,354 4,990,495 13,072,213 9,810,679
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
MINORITY INTERESTS .................. (314,039) (643,482) (612,192) (2,094,184)
Minority interest in net income (loss)
of consolidated subsidiary (Note 2) 122,251 211,021 199,630 682,727
------------ ------------ ------------ ------------
NET (LOSS) ............................. $ (191,788) $ (432,461) $ (412,562) (1,411,457)
============ ============ ============ ============
Basic earnings and diluted(loss)
per common share before
minority interest .................... $ (.069) $ (.066) $ (.13) $ (.21)
Minority interest in net income (loss)
of consolidated subsidiary ........... .027 .022 .04 .07
------------ ------------ ------------ ------------
Basic and diluted earnings (loss)
per common share ..................... $ (.042) $ (.044) $ (.09) $ (.14)
============ ============ ============ ============
Weighted average number
of common shares outstanding ......... 4,550,234 9,788,050 ,550,234 9,788,050
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Six Months Ended
Sept 30, Sept 30,
1998 1997
----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ..................................................... $ (412,562) $(1,411,457)
----------- -----------
Adjustments to reconcile net loss to cash (used)
provided for operating activities:
Depreciation and amortization .............................. 382,211 278,690
Deferred rent .............................................. 9,102 8,747
Minority interest in net loss of subsidiary ................ (199,630) (682,727)
Compensatory options and stock issued by subsidiary ........ 21,876 --
Changes in assets and liabilities:
(Increase) decrease in Accounts receivable ................... 58,654 (306,708)
(Increase) in Merchandise inventories (4,312,326) (1,113,705)
(Increase) decrease in prepaid expenses and
other current assets .................................... (750,243) 13,418
Decrease in deposits and other assets ....................... 83,152 (106,677)
Increase (decrease) in accounts payable .................... 3,342,576 2,476,781
Increase (decrease) in accrued expenses and other liabilities (522,174) (283,003)
----------- -----------
Total adjustments ................................... (1,886,802) 284,816
----------- -----------
Net cash provided (used) by operating activities .... (2,299,364) (1,126,641)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ......................... (1,149,757) (366,259)
Advances from affiliates .................................... 53,484 472,235
----------- -----------
Net cash from (used for) investing activities ....... (1,096,273) 105,976
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit ......................... 3,036,798 1,195,359
Loans and advances -officer ................................. 110,917 (47,199)
Repayment of notes payable .................................. 16,469 (91,666)
----------- -----------
Net cash provided by (used for) investing activities 3,164,184 1,056,494
----------- -----------
NET INCREASE (DECREASE) IN CASH .............................. (231,453) 35,829
Cash, beginning of period .................................... 659,378 144,668
----------- -----------
Cash, end of period .......................................... $ 427,925 $ 180,497
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ................................................ $ 295,312 $ 430,619
Taxes paid ................................................... $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidates financial
statements.
4
<PAGE>
UNITED TEXTILE & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for more complete financial statements. In the opinion of
management, the interim financial statements include all adjustments considered
necessary for a fair presentation of the Company?s financial position and the
results of its operations for the six months ended September 30, 1998, and are
not necessarily indicative of the results to be expected for the full fiscal
year. For further information, refer to the Company?s Annual report on Form
10-KSB for the fiscal year ended March 31, 1998, as filed with the Securities
and Exchange Commission.
Note 2. DESCRIPTION OF COMPANY:
United Textiles & Toys Corp. is a Delaware corporation which was organized
in March 1991 and commenced operations in October 1991. The Company formerly
designed, manufactured, and marketed a variety of lower priced women?s dresses,
gowns, and separates (blouses, camisoles, jackets, skirts, and pants) for
special occasions and formal events. In April 1998, the Company ceased all
operating activities; it now operates solely as a holding company. The Company
owns 2,489,910 shares or 60.6% of the common stock of Play Co. Toys &
Entertainment Corp. ("Play Co.").
Note 3. MINORITY INTERESTS:
The minority interest in Play Co. Toys & Entertainment Corp. represents the
minority shareholders portion (39.4%) of Play Co.?s equity at September 30,
1998. The minority interest as reflected in the accompanying consolidated
balance sheet consists of Play Co.?s Series E Preferred Stock only. Due to
operating losses of Play Co., the minority interest in common stock has been
written down to zero.
<PAGE>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. INVESTMENT BY MULTIMEDIA CONCEPTS INTERNATIONAL, INC.:
In January 1998, the Company issued 3,571,429 shares of its common stock to
Multimedia Concepts International, Inc. ("Multimedia") a company of which the
Company?s President is also the President, Chief Executive Officer, and a
Director. The issuance of these common shares at a price of $.28 per share
($.01) above the closing price on December 31, 1997) represented a conversion of
a $1,000,000 loan into equity in the Company by Multimedia. As a result of this
transaction, Multimedia owns 78.5% of the outstanding shares of common stock of
the Company, effectively making the Company a subsidiary of Multimedia. As the
Company owns 60.6% of the outstanding shares of common stock of Play Co.
Multimedia and its management have obtained beneficial vesting control of Play
Co.
On January 20, 1998, U.S. Stores Corp. ("U.S. Stores") acquired 1,465,000
shares of Multimedia?s common stock. U.S. Stores was incorporated on November
10, 1997. The Company?s president is also President and Director of U.S. Stores.
After this transaction, U.S. Stores held an aggregate of 1,868,000 shares of
Multimedia?s common stock or 62.2% of the outstanding shares, effectively making
Multimedia a subsidiary of U.S. Stores.
Note 5. SUBSEQUENT EVENTS:
On November 9, 1998, Play Co. borrowed $250,000 from Amir Overseas Capital
Corp. ("Amir") under a Promissory Note. The note bears interest at 12% and calls
for repayment on January 29, 1998.
Play Co. had previously borrowed $1,000,000 from Amir under a Secured
Subordinated Promissory Note. The Note bears interest at 12% and calls for three
installment payments ending December 23, 1998.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
United Textiles & Toys Corp. (the "Company") is a Delaware corporation
which was organized in March 1991 and commenced operations in October 1991. In
April 1998, the Company ceased all operating activities. It now operates solely
as a holding company, holding 60.6% of the common stock of Play Co. Toys &
Entertainment Corp. Historically, the Company?s results of operations have
related primarily to the Company?s majority ownership of Play Co., as its
operations were substantially less than those of its subsidiary. Accordingly,
the results of the Company's operations for the three and six month periods
ending September 30, 1998 are primarily those of Play Co.
Statements contained in this report which are not historical facts may be
considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected.
Three months ended September 30, 1998 compared to the three months ended
September 30, 1997
Consolidated sales for the three months ended September 30, 1998 were
$6,098,315 as compared to $4,347,013 for the three months ended September 30,
1997. This increase of $1,751,302 (or 40.3%) is directly attributable to
increased sales contributions from Play Co.?s same store retail sales as well as
approximately $1.1 million coming from sales at Play Co.?s new retail stores.
Consolidated cost of sales for the three months ended September 30, 1998
were $3,414,054 or 56% of sales, as compared to the three month period ended
September 30, 1997 in which cost of sales were $2,665,830, or 61.3% of sales.
This increase of $748,224 (or 28%) is primarily due to costs associated with the
opening of new retail outlets.
Consolidated operating expenses were $2,620,444, or 43% of sales, as
compared to $1,967,776, or 45.3% of sales, in the three months ended September
30, 1997. This increase of $652,668, representing 15% of sales, was due to an
increase in payroll and related expenses as well as an increase in rent expense
associated with the opening of new retail stores.
During the three months ended September 30, 1998, non-cash depreciation and
amortization were $193,794 as compared to $139,344 in the three months ended
September 30, 1997. This increase of $54,450 is due primarily to depreciation on
assets and new assets acquired by Play Co. in this quarter.
Consolidated interest expense was $184,062 or 3.0% of sales in the three
months ended September 30, 1998 as compared to $217,545 or 5% of sales in the
three months ended September 30, 1997.
The primary reason for the decreased level of interest expense was a higher
level of amortization of debt issuance costs by Play Co. in the three month
period ended September 30, 1998.
For the three months ended September 30, 1998 the Company reported a
consolidated net loss of $191,788 (after reflecting the adjustment for the
minority interest in Play Co.) or basic loss per share of $.042 as compared to a
net loss of $432,461 or a basic loss per share of $.044 (after reflecting the
minority interest in Play Co.) for the three months ended September 30, 1997.
The weighted average number of common shares used in the computation of basic
earnings per share was 4,550,234 for the three months ended September 30, 1998
and 9,788,050 for the three months ended September 30, 1997.
<PAGE>
Six months ended September 30, 1998 compared to the six months ended
September 30, 1997
Consolidated sales were $12,460,021 for the six months ended September 30,
1998 as compared to $7,716,495 for the six months ended September 30, 1997. This
increase of $4,743,526 (or 61.5%) was primarily due to Play Co.'s increased same
store sales as well as approximately $2.4 million from Play Co.?s new retail
stores.
Consolidated cost of sales were $7,120,385, or 57.1% of sales, for the six
months ended September 30, 1998 as compared to $4,826,424, or 62.5% of sales,
for the six months ended September 30, 1997. This increase of $2,293,961, or
47.5%, was due to increased costs associated with new store openings.
Consolidated operating expenses were $5,219,903, or 41.9% of sales, for the
six months ended September 30, 1998 as compared to $4,272,946, or 55.4% of
sales, for the six months ended September 30, 1997. This increase of $944,957
(or 22.1%) was due primarily to increases in payroll and related expenses as
well as an increase in rent expense associated with new store openings.
For the six months ended September 30, 1998, non-cash depreciation and
amortization were $382,211 as compared to $278,690 for the six months ended
September 30, 1997. This increase of $103,521 was due to depreciation on new
assets acquired by Play Co. in the six months ended September 30, 1998.
Consolidated interest expense was $349,714, or 2.8% of sales, for the six
months ended September 30, 1998 as compared to $430,619, or 5.6% of sales, for
the six months ended September 30, 1997. This decrease of $80,905 (or 18.8%) was
due to a higher level of amortization of debt issuance costs by Play Co. in the
six month period ended September 30, 1998.
For the six months ended September 30, 1998, the Company reported a
consolidated net loss of $412,562 (after reflecting the adjustment for the
minority interest in Play Co.) or basic loss per share of $.09, as compared to a
net loss of $1,411,457 or basic loss per share of $.14 (after reflecting the
minority interest in Play Co.) for the six months ended September 30, 1997. The
weighted average number of common shares used in the computation of basic
earnings (loss) per share was 4,550,234 for the six months ended September 30,
1998 and 9,788,050 for the six months ended September 30, 1997.
Liquidity and Capital Resources
At September 30, 1998, the Company reported cash and cash equivalents of
$427,925, working capital of $1,024,749 and stockholders? equity of $(3,036,490)
reflecting a net loss of $412,562 for the six months ended September 30, 1998.
At March 31, 1998, the Company reported cash and cash equivalents of
$659,378 and working capital of $227,340, and stockholders? equity of
$(2,623,928) refecting a new loss of 1,411,457 for the six months ended March
31, 1998.
During the six month period ending September 30, 1998, the Company used
$2,299,364 in cash in its operating activities as compared to $1,126,641 used in
operating activities in the six month period ending September 30, 1997. The
Consolidated net loss was $412,562 and $1,411,457, respectively, in those
periods. The primary reason the cash used for operating activities was so much
larger than the net loss in the six month period ended September 30, 1998 was
net investment (increase in merchandise inventories less increase in accounts
payable) in inventories of $969,750.
The Company used $1,096,273 of cash in investing activities during the six
months ended September 30, 1998 compared to an inflow of cash of $105,976 in the
six months ended September 30, 1997. The primary investing activity was the
purchase of equipment and fixtures by Play Co. for its new stores.
<PAGE>
The Company generated $3,164,184 from its financing activities in the six
month period ended September 30, 1998 as compared to the generation of
$1,056,494 in the six months ended September 30, 1997. The primary contributors
to the Company?s financing activities were borrowings on Play Co.?s line of
credit and under notes payable. These proceeds were used to finance Play Co.?s
capital requirements, capital expenditures, and operating losses during the six
months ended September 30, 1998.
As a result of the above factors, the Company has a net decrease in cash of
$231,for the six months ended September 30, 1998 compared to a net increase in
cash of $35,829 for the six months ended September 30, 1997.
During the three month period ended September 30, 1998, Play Co. opened two
new stores. These stores, and all stores Play Co. intends to open in the future,
are considered by management to be high-end retail toy and educational,
electronic interactive stores, in presentation, which offer items comparable in
quality and choice to those offered by FAO Schwarz and Warner Brothers and
Disney Stores and which attract clientele similar to those attracted by such
stores. The first store opened in Primm, Nevada near Las Vegas in July 1998. The
second store opened in September in Grapevine, Texas near Dallas. Both stores
are located in high traffic shopping malls. The capital investment for building
each of those stores was approximately $300,000.
In early November 1998, Play Co. opened new stores in Thousand Oaks,
California near Los Angeles and in Auburn Hills, Michigan near Detroit. These
stores are also located in high traffic shopping malls. These two stores
represented an aggregate capital investment of approximately $613,000, net of
landlord tenant improvement ("Landlord TI") contributions.
On November 19 and 20, 1998, Play Co. opened two additional stores, one in
Orange County California and one in Gurnee, Illinois (near Chicago). These
stores represent the final two of the six stores Play Co. planned to open during
calendar year 1998. These two stores represented an aggregate capital investment
of approximately $500,000, net of Landlord TI contributions. Play Co. now has 25
stores located in six states.
Play Co. had planned to finance the costs, now estimated to be $1.7
million, net of Landlord TI contributions, of building the new stores described
above through a combination of capital lease financing, use of Play Co.?s
working capital, and the sale of additional equity. Play Co. has obtained
approximately $260,000 in lease financing on the equipment and fixtures of the
Nevada and Century City stores. Play Co. is also in the documentation phase of a
five year term loan in the principal amount of approximately $500,000 with a new
lender. That term loan will be secured by the equipment and fixed assets of the
new Texas store and three existing stores.
Play Co. continues to seek additional lease financing based on the
equipment and fixtures of its new stores in California (two), Michigan, and
Illinois. There can be no assurance that Play Co. will be able to obtain
sufficient financing to offset the new store opening costs that have been
incurred.
On September 18, 1998, Play Co. borrowed $1,000,000 from Amir Overseas
Capital Corp. ("Amir") under a Secured Subordinated Promissory Note. The Note
bears interest at 12% and calls for three installment payments ending December
23, 1998. On November 9, 1998, Play Co. borrowed an additional $250,000 from
Amir under a Promissory Note. The Note bears interest at 12% and calls for
repayment on January 29, 1998.
In September 1998, Play Co. and FINOVA Capital Corporation, Play Co.?s
working capital lender, amended Play Co.?s Loan and Security Agreement to
increase the maximum level of borrowings under same from $7.6 million to $8.6
million through December 31, 1998. Beginning on January 1, 1999, the maximum
level of borrowings will return to the $7.6 million level. Play Co. expects to
utilize this additional amount on its credit line to partially finance either
its working capital, particularly inventory purchases, or the capital
expenditures noted above.
<PAGE>
Year 2000
Earlier in 1998, Play Co. developed a plan to upgrade its existing
management information system ("MIS") and computer hardware and to become year
2000 compliant. Play Co. has now purchased the necessary hardware and software
and is in the process of installing the software. Play Co. has completed the MIS
hardware upgrade and plans to finish the year 2000 compliance work in early
1999.
To finance the cost of new hardware in the computer upgrade project, Play
Co. entered into a lease in the amount of $82,472 bearing interest at a rate of
10.8%. The total cost of the hardware and software purchased for the project was
approximately $100,000.
Beyond the above noted internal year 2000 system issue, Play Co. has no
current knowledge of any outside third party year 2000 issues that would result
in a material negative impact on its operations. Should Play Co. become aware of
any such situation, contingency plans will be developed.
Trends Affecting Liquidity, Capital Resources and Operations
As a result of its current merchandise mix, which emphasizes specialty and
educational toys, Play Co. enjoyed significant sales and gross profits in the
six months ended September 30, 1998. The mix of specialty and educational toys
includes collectible die cast cars, specialty yo-yo?s, Rokenbok and Learning
Curve toys, and Beanie Babies and other plush and many other educational toys.
While Play Co. believes that these particular toys will remain popular with its
customer base for the remainder of 1998, there can be no assurance that these
particular specialty toys will continue to contribute strongly to Play Co.?s
sales and gross profits. The history of the toy industry, however, indicates
that there is generally at least one highly popular toy every year.
Play Co.?s sales efforts are focused primarily on a defined geographic
consisting of the Southern California area and the Southwestern and Midwestern
United States. Play Co.?s future financial performance will depend upon (i)
continued demand for high-end specialty, educational, and traditional toys and
management?s ability to adapt to continuously changing consumer preferences and
the market for such items, (ii) general economic conditions within Play Co.?s
geographic market area, as same may be expanded, (iii) Play Co.?s ability to
choose locations for new stores, (iv) Play Co.?s ability to purchase products at
favorable prices and on favorable terms, and (v) the effects of increased
competition.
The toy and hobby retail industry faces a number of potentially adverse
business conditions including price and gross margin pressures and market
consolidation. Play Co. competes with a variety of mass merchandisers,
superstores, and other toy retailers, including Toys R Us, Kay Bee Toy Stores,
Walmart, and K Mart. Competitors that emphasize specialty and educational toys
include Disney Stores, Warner Brothers Stores, Learning Smith, Lake Shore, Zany
Brainy, and Noodle Kidoodle. There can be no assurance that Play Co.?s business
strategy will enable it to compete effectively in the retail toy industry or
that Play Co. will be able to generate sufficient revenues or have sufficient
control over expenses and other charges to increase profitability.
<PAGE>
Inflation and Seasonality
The impact of inflation on Play Co.?s results of operations has not been
significant. Play Co. attempts to pass on increased costs by increasing product
prices over time. Play Co.?s operations are highly seasonal with approximately
30-40% of its net sales historically falling within Play Co.?s third quarter,
which coincides with the Christmas selling season. Play Co. intends to open
stores throughout the year, but generally before the Christmas selling season,
which will make Play Co.?s third quarter sales an even greater percentage of the
total year?s sales.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders:
On November 10, 1998, the Company held an annual meeting of its
stockholders, at which the Company's stockholders voted to elect four Directors
to the Company's Board of Directors. The results of the proposal elect to four
Directors to hold office for a period of one year or until their successors are
duly elected and qualified were as follows:
<TABLE>
<CAPTION>
Votes Cast
For Abstentions
<S> <C> <C>
Ilan Arbel 3,725,562 8,481
Rivka Arbel 3,725,562 8,481
Allean Goode 3,725,562 8,481
Moses Mika 3,725,562 8,481
</TABLE>
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: The following are the exhibits filed with this
Form 10-QSB:
27 - Financial Data Schedule
(b) Reports on Form 8-K: None
9
<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, on this 20th day of November 1998.
UNITED TEXTILES & TOYS CORP.
By: /s/ Ilan Arbel
Ilan Arbel
President
By: /s/ Allean Goode
Allean Goode
Treasurer
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part 1, Item 1, of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> mar-31-1999
<PERIOD-END> sep-30-1998
<CASH> 427,925
<SECURITIES> 0
<RECEIVABLES> 77,759
<ALLOWANCES> 0
<INVENTORY> 12,185,130
<CURRENT-ASSETS> 13,185,130
<PP&E> 7,384,530
<DEPRECIATION> (3,826,233)
<TOTAL-ASSETS> 19,714,066
<CURRENT-LIABILITIES> 12,633,763
<BONDS> 0
0
0
<COMMON> 4,550
<OTHER-SE> (3,041,040)
<TOTAL-LIABILITY-AND-EQUITY> 19,714,066
<SALES> 12,460,021
<TOTAL-REVENUES> 12,460,021
<CGS> 7,120,385
<TOTAL-COSTS> 7,120,385
<OTHER-EXPENSES> 5,602,114
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,714
<INCOME-PRETAX> (412,562)
<INCOME-TAX> 0
<INCOME-CONTINUING> (412,562)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412,562)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
