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 June 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 registrant as specified in its charter)
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Delaware 13-3626613
(State or other jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization No.)
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1410 Broadway, Suite 1602, New York, New York 10018
(Address of Principal Executive Offices)
(212) 391-1111
(Registrant'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) has 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 [ ]
State the number of shares of each of the issuer=s classes of common equity
outstanding as of the latest practicable date: Common Stock, $.001 per share:
4,550,236 shares outstanding as of August 31, 1998.
<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
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Consolidated balance Sheets as of June 30, 1998 (Unaudited) 3
and March 31, 1998
Consolidated statements of Operations (Unaudited) for the three 4
months ended June 30, 1998 and June 30, 1997
Consolidated statements of Cash Flows ( Unaudited) for the three months ended 5
June 30, 1998 and June 30, 1997
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 12
Signatures 13
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2
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UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONSOLIDATED BALANCE SHEETS
As of June 30, 1998 and March 31, 1998
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .............................................. $ 488,130 $ 659,378
Restricted certificate of deposit ...................................... 250,000 250,000
Accounts receivable-net ................................................ 72,218 136,413
Inventories ............................................................ 9,376,037 7,872,804
Prepaid expenses and other current assets .............................. 166,744 189,516
Loans and advances-officer ............................................. (160,344) 138,856
------------ ------------
Total current assets ........................................... 10,192,785 9,246,967
------------ ------------
PROPERTY AND EQUIPMENT-NET .............................................. 3,042,109 2,782,386
------------ ------------
OTHER ASSETS:
Restricted certificate of deposit ...................................... 2,000,000 2,000,000
Deposits and other assets .............................................. 167,086 330,409
------------ ------------
Total other assets ............................................. 2,167,086 2,330,409
Total assets $ 15,401,980 $ 14,359,762
------------ ------------
LIABILITIES AND STOCKHOLDERS= EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 9,182,877 $ 6,882,665
Accrued expenses and other current liabilities ......................... 263,459 817,788
Due to affiliates ...................................................... 675,935 719,174
Current portion of notes payable ....................................... 262,293 350,000
------------ ------------
Total current liabilities ...................................... 10,384,564 8,769,627
------------ ------------
LONG-TERM LIABILITIES:
Borrowings under financing agreement ................................... 6,521,695 5,445,198
Note payable, net of current portion ................................... 71,541 1,500,000
Deferred rent liability ................................................ 114,903 110,351
------------ ------------
Total long-term liabilities .................................... 6,708,139 7,055,549
------------ ------------
Total liabilities .............................................. 17,092,703 15,825,176
------------ ------------
MINORITY INTEREST IN SUBSIDIARY ......................................... 1,234,905 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) ............................................ (11,072,459) (10,770,759)
------------ ------------
Total stockholders= equity ..................................... (2,925,628) (2,623,928)
Total liabilities and stockholders' equity $ 15,401,980 $ 14,359,762
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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<CAPTION>
For the Three Months Ended
June 30, June 30,
1998 1997
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REVENUES, net sales ....................... $ 6,358,709 $ 3,369,479
----------- -----------
COSTS AND EXPENSES:
Cost of sales ............................ 3,706,331 2,344,951
Operating expenses ....................... 2,596,461 2,147,488
Depreciation and amortization ... 188,417 139,345
Interest and other income ....... -- (3)
Interest expense 165,652 213,074
----------- -----------
6,656,861 4,844,855
----------- -----------
INCOME (LOSS) BEFORE
MINORITY INTERESTS ..................... (298,152) (1,475,376)
Minority interest in net income (loss)
of consolidated subsidiary (Note 2) ... 76,391 496,380
----------- -----------
NET (LOSS) ................................ (221,761) (978,996)
=========== ===========
Basic earnings and diluted(loss)
per common share before minority interest $ (.07) $ (1.51)
Minority interest in net income (loss)
of consolidated subsidiary .............. .02 .51
----------- -----------
Basic and diluted earnings (loss)
per common share ........................ $ (.05) $ (1.00)
=========== ===========
Weighted average number
of common shares outstanding ............ 4,550,234 978,805
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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UNITED TEXTILES & TOYS CORP. AND SUBSIDIARY
(A Subsidiary of Multimedia Concepts International, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
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<CAPTION>
Three Months Ended
June 30, June 30,
1998 1997
----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss ..................................................... $ (221,761) $ (978,996)
----------- -----------
Adjustments to reconcile net loss to cash (used)
provided for operating activities:
Depreciation and amortization .............................. 188,417 139,345
Deferred rent .............................................. 4,552 8,747
Minority interest in net loss of subsidiary ................ (76,391) 496,380
Compensatory options and stock issued by subsidiary ........ 10,938 --
Changes in assets and liabilities:
(Increase) in Accounts receivable ............................ 64,195 12,759
(Increase) in Merchandise Inventories (1,503,233) (273,498)
Decrease in prepaid expenses and other current assets ....... 22,772 73,850
Decrease in deposits and other assets ....................... 163,323 --
Increase (decrease) in accounts payable .................... 2,300,212 159,269
Increase (decrease) in accrued expenses and other liabilities (554,329) (148,331)
----------- -----------
Total adjustments ................................... 620,456 468,521
----------- -----------
Net cash provided (used) by operating activities ... 398,695 (510,475)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ......................... (461,745) ( 64,520)
Advances from affiliates .................................... ( 43,239) 162,000
----------- -----------
Net cash (used for) investing activities ............ (504,984) ( 97,480)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreement .................... 1,076,497 387,188
Loans and advances -officer ................................. 299,200 36,297
Decrease in deferred financing costs ........................ -- 162,000
Repayment of notes payable .................................. (1,516,166) (66,666)
----------- -----------
Net cash provided by( used for) investing activities (140,469) 518,819
----------- -----------
NET INCREASE (DECREASE) IN CASH .............................. (171,248) 8,057
Cash, beginning of period .................................... 659,378 144,668
----------- -----------
Cash, end of period .......................................... $ 488,130 $ 152,725
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ................................................ $ 165,652 $ 213,074
Taxes paid ................................................... $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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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 three months ended June 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. (formerly Mister Jay Fashions International,
Inc.) ("the Company") 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 2,419,581 shares
or 59.1% of the common stock of Play Co. Toys & Entertainment Corp. ("Play Co.")
Note 3- MINORITY INTERESTS:
The minority interest in Play Co. represents the minority shareholders
portion (40.9%) of Play Co.=s equity at December 31, 1997. 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.
3
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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 December 1997, the Company issued 3,571,429 shares of its Common Stock
to Multimedia Concepts International, Inc. (AMultimedia@) a company of which the
Company=s President is also 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
59.1% of the outstanding shares of common stock of Play Co., thus Multimedia and
its management have obtained beneficial vesting control of Play Co.
On January 20, 1998, U.S. Stores Corp. (AU.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 63% of the outstanding shares, effectively making
Multimedia a subsidiary of U.S. Stores.
Note 5- SUBSEQUENT EVENTS:
On July 15, 1998, Play Co. borrowed $300,000 from an affiliated company and
issued an unsecured 9% promissory notes which calls for five monthly
installments of principal and interest commencing in August 1998 and ending
December 30, 1998.
On July 27, 1998, Play Co. sold 100,000 shares of its Series E Preferred
Stock to the Company for $100,000.
Effective July 30, 1998, Play Co. and Finova Capital Corporation, its
principal capital lender, amended Play Co.=s credit agreement to increase the
maximum level of borrowings under the agreement from $7.1 million to $7.6
million.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Results of Operations
United Textiles & Toys Corp. (formerly Mister Jay Fashions International,
Inc.) ("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 and now operates solely as a holding company for its
ownership in Play Co. 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 then that of its subsidiary. Accordingly, the
results of operations for the three and six month periods ending June 30, 1998
are primarily that 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 June 30, 1998 compared to the three months ended June
30, 1997:
Consolidated sales for the three months ended June 30, 1998 were
$6,358,709, as compared to $3,369,479 for the three months ended June 30, 1997.
This increase of $2,989,230, or 88.7%, is directly attributable to increased
sales contributions from Play Co.=s retail stores.
Consolidated cost of sales for the three months ended June 30, 1998 was
$3,706,331, or 58.3%, of sales, as compared to the three month period ended June
30, 1997 during which cost of sales was $2,344,951, or 69.6%, of sales. This
increase of $1,361,380, or 58.1% is primarily due to increased levels of costs
related to new retail store openings and variable costs associated with
increased levels of sales.
Consolidated operating expenses were $2,956,461, or 40.8%, of sales as
compared to $2,147,488, or 63.7%, of sales in the three months ended June 30,
1997. This increase of $448,973 or 21% was due to payroll and payroll related
expenses related to new retail locations opened by Play Co.
During the three months ended June 30, 1998, non-cash depreciation and
amortization were $188,417, as compared to $139,345 in the three months ended
June 30, 1997. This increase of $49,072 is due primarily to depreciation on new
assets acquired by Play Co. in this quarter.
Consolidated interest expense was $165,652, or 3.0%, of sales in the three
months ended June 30, 1998 as compared to $213,074, or 6.0%, of sales in the
three months ended June 30, 1997.
For the three months ended June 30, 1998, the Company reported a
consolidated net loss of $221,761 (after reflecting the adjustment for the
minority interest in Play Co.), or basic loss per share of $.05, as compared to
a net loss of $978,996, or a basic loss per share of $1.00 (after reflecting the
minority interest in Play Co.), for the three months ended June 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 June 30, 1998 and
978,805 for the three months ended June 30, 1997.
Liquidity and Capital Resources
At June 30, 1998, the Company reported cash and cash equivalents of
$488,130, negative working capital of $(191,779) and stockholders= equity of
$(2,922,080) reflecting the net loss of $225,309 for the three months ended June
30, 1998.
At March 31, 1998, the Company reported cash and cash equivalents of
$659,378, working capital of $477,340, and stockholders= equity of $(2,623,928).
The Company has generated operating losses for the past several years and
has historically financed those losses and its working capital requirements
through loans. There can be no assurance that the Company or its subsidiary,
Play Co., will be able to generate sufficient revenues or have sufficient
controls over expenses and other charges to achieve profitability.
During the three month period ended June 30, 1998, operating activities
provided funds in the amount of $398,685, as compared to the Company using
$510,475 in the corresponding three month period ended June 30, 1997. The
Company=s consolidated net loss was approximately $225,309 and $978,996,
respectively in those quarters.
The Company used $504,984 of cash in investing activities in the three
months ended June 30, 1998, compared to $97,480 for the three months ended June
30, 1997. The primary usage of cash in investing activities was as a result of
the Company=s Play Co. subsidiary purchasing property and equipment in relation
to new store openings. The Company used $140,469 in financing activities as
compared to an inflow of funds of $518,819 in the three months ended June 30,
1997.
As a result of these factors, the Company reported a consolidated net
decrease in cash of $171,248, as a compared to a net increase in cash of $8,057
in the three months ended June 30, 1997.
In July 1998, Play Co. and Finova Capital Corporation, its working capital
lender, amended Play Co.=s credit agreement to increase the maximum level of
borrowings under the agreement from $7.1 million to $7.6 million. Play Co.
expects to utilize this amount on its credit line to partially finance either
its working capital, particularly inventory purchases, or for capital
expenditure purposes.
In July 1998, Play Co., borrowed $300,000 from an affiliated company under
an unsecured 9% promissory note which calls for monthly principle and interest
payments through December 30, 1998, when the note is scheduled for repayments in
full.
Year 2000:
An additional area that represents a near term commitment of capital
resources is the Company=s management information system. The Company has
investigated its existing management information system and has determined that
it does not provide sufficient scope to support the planned level of expanded
operations and furthermore, is not year 2000 compliant. The Company has explored
the costs of upgrading its current system or purchasing a new system to meet the
projected demands of the business and to become year 2000 compliant.
In order to minimize the disruption to its operations, the Company has
decided to upgrade its existing system to increase the scope of the system and
to become year 2000 compliant. The Company estimates that the cost of upgrading
its current system will be approximately $100,000.
Beyond the above referenced year 2000 issue, the Company has no current
knowledge of any outside third party year 2000 issues that would result in a
material negative impact on its operations. Should the Company become aware of
any such situations or issues, contingency plans will be developed.
<PAGE>
Trends affecting liquidity, capital resources and operations
As a result of its planned merchandise mix change to emphasize specialty
and educational toys, Play Co. enjoyed significant sales and gross profits in
the three months ended June 30, 1998.
Play Co.=s current sales efforts focus primarily on a defined geographic
segment consisting of the southern California area and the southwestern United
States. Its future financial performance will depend upon (i) continued demand
for toys and hobby items and management=s ability to adapt to continuously
changing consumer preferences and the market for such items, (ii) on general
economic conditions within Play Co.=s geographic 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
(iv) 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 Bros. Stores, Learning Smith, Lake Shore, Zainy
Brainy, and Noodle Kidoodle. There can be no assurance that Play Co.=s business
strategy will enable it to compete effectively in the 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.
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.
6
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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: None
ITEM 5 - Other Information: None
ITEM 6 - Exhibits and Reports on Form 8-K:
Exhibits: None
Reports on Form 8-K: None
7
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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: September 4, 1998
United Textiles & Toys Corp.
(Registrant)
By: \s\ Ilan Arbel
Ilan Arbel
President
By: \s\ Allean Goode
Allean Goode
Treasurer
8
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<ARTICLE> 5
<LEGEND>
UNITED TEXTILES & TOYS CORP. AND SUBSIDIARIES
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
The schedule contains summary financial information extracted from the
financial statements for the three months ended June 30, 1998 and is qualified
in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> mar-31-1999
<PERIOD-END> jun-30-1998
<CASH> 488,130
<SECURITIES> 0
<RECEIVABLES> 72,218
<ALLOWANCES> 0
<INVENTORY> 9,376,037
<CURRENT-ASSETS> 10,192,785
<PP&E> 6,676,518
<DEPRECIATION> (3,634,409)
<TOTAL-ASSETS> 15,401,980
<CURRENT-LIABILITIES> 10,192,785
<BONDS> 0
0
0
<COMMON> 4,550
<OTHER-SE> (2,926,630)
<TOTAL-LIABILITY-AND-EQUITY> 15,401,980
<SALES> 6,358,709
<TOTAL-REVENUES> 6,358,709
<CGS> 3,706,331
<TOTAL-COSTS> 3,706,331
<OTHER-EXPENSES> 2,784,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,652
<INCOME-PRETAX> (221,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> (221,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221,761)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
