UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-24742
American Toys, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3704059
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2694 Bishop Drive, San Ramon, California 94583
(Address of principal executive offices) (Zip Code)
(510) 830-8801
(Registrant's telephone number, including area code)
(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 Exchange Act during the past 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 [xx] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common stock, par value $.01 per share: 5,000,000 shares outstanding
as of July 31, 1996.<PAGE>
AMERICAN TOYS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PAGE
NUMBER
PART 1 - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Consolidated balance sheets (unaudited) at June 30, 1996 and
March 31, 1996 F - 1
Consolidated statements of operations (unaudited) for the
three months ended June 30, 1996 and 1995 F - 2
Consolidated statement of stockholders' equity (unaudited)
for the three months ended June 30, 1996 F - 3
Consolidated statements of cash flows (unaudited) for the
three months ended June 30, 1996 and 1995 F-4
Notes to consolidated financial
statements (unaudited) F-5 - F-15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS F-16 - F-17
PART II - OTHER INFORMATION F - 18
<PAGE>
AMERICAN TOYS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Restated)
(Unaudited) (See Note 5)
June 30, March 31,
ASSETS 1996 1996
Current assets:
Cash $232,638 $75,181
Accounts receivable 107,403 121,586
Merchandise inventories 7,518,770 6,259,084
Due from stockholders 211,473 217,723
Other current assets 251,969 331,111
Total current assets 8,322,253 7,004,685
Equipment, improvements and
fixtures, net 1,849,864 1,858,538
Deferred financing
costs, net 340,013 393,699
Deposits 59,285 57,285
Investment in common
stock 1,800,000 -
Excess of cost over net assets
acquired assigned to covenants
not to compete, net - 6,542
Total assets $12,371,415 $9,320,749
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $4,256,794 $3,403,025
Accounts payable 4,198,289 2,878,183
Accrued expenses 136,096 313,512
Due to affiliates 51,500 567,070
Total current liabilities 8,642,679 7,161,790
Deferred rent liability 177,112 197,935
Total liabilities 8,819,791 7,359,725
Minority interest 603,660 -
Commitments and
contingencies (Note 7) - -
Redeemable preferred stock of the subsidiary:
Series B redeemable, cumulative preferred stock,
244,736 shares authorized, 81,579 issued and
outstanding, full liquidation
value of $81,579 - 87,680
Total redeemable
preferred stock - 87,680
Stockholders' equity:
Common stock, $.01 par value,
authorized 20,000,000, issued and
outstanding 4,000,000 66,820 35,760
Additional paid-in capital 11,366,818 9,597,878
Accumulated deficit (7,935,674) (7,210,294)
Sub-total stockholders'
equity 3,497,964 2,423,344
Less: stock subscription
receivable (550,000) (550,000)
Total stockholders'
equity 2,947,964 1,873,344
Total liabilities and
stockholders' equity $12,371,415 $9,320,749
See accompanying notes to consolidated financial statements (unaudited)<PAGE>
AMERICAN TOYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
1996 1995
Net sales $3,184,903 $4,138,397
Costs and expenses:
Cost of sales 2,151,718 2,795,232
Operating expenses 1,853,800 2,304,259
Interest expense and
financing costs 179,174 85,509
Total costs and expenses 4,184,692 5,185,000
Loss before minority interest (999,789) (1,046,603)
Minority interest in net loss 274,409 304,860
Net loss $(725,380) $(741,743)
Loss per common equivalent share:
Loss before minority interest $(.52) $(1.35)
Minority interest in net loss .14 .39
Net loss $(38) $(.96)
Weighted average number of common
shares outstanding 1,929,330 772,745
See accompanying notes to consolidated financial statements (unaudited)<PAGE>
AMERICAN TOYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
Common Stock
Shares Amount
Balances at March 31, 1996,
as previously reported 893,995 $35,760
Adjustment for minority
interest (Note 5) - -
Balances at March 31, 1996,
as restated 893,995 35,760
Issuance of common stock 3,106,005 31,060
Net loss for the three
months ended June 30, 1996 - -
Balances at June 30, 1996 4,000,000 $66,820
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
Balances at March 31, 1996,
as previously reported $6,724,470 $(6,750,859) $9.371
Adjustment for minority
interest (Note 5) 2,873,408 (459,435) 2,413,973
Balances at March 31, 1996,
as restated 9,597,878 (7,210,294) 2,423,344
Issuance of common stock 1,768,940 - 1,800,000
Net loss for the three
months ended June 30, 1996 - (725,380) (725,380)
Balances as of June 20,1996 $11,366,818 $(7,935,674) $3,497,964
See accompanying notes to consolidated financial statements (unaudited)<PAGE>
AMERICAN TOYS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
1996 1995
Operating activities:
Net loss $(725,380) $(741,743)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Depreciation and amortization 149,265 89,159
Amortization of excess of cost
over net assets acquired 6,542 19,627
Minority interest in net loss (274,409) (304,860)
Issuance of stock as
compensation for
services and financing costs 16,000 49,500
Change in operating assets
and liabilities:
Accounts receivable 14,183 216,283
Merchandise inventories (1,259,686) (770,821)
Other current assets 79,142 110,440
Deposits (2,000) -
Accounts payable 1,320,106 1,210,394
Accrued expenses (177,415) (146,707)
Deferred rent liability (20,823) (6,522)
Net cash used for operating
activities (874,475) (275,250)
Investing activities:
Equipment, improvements and
fixtures acquired (86,907) (30,623)
Net cash used for investing
activities (86,905) (30,623)
Financing activities:
Proceeds from issuance of
common stock - 675,000
Proceeds, repayments to
stockholder's 6,250 (173,182)
Net (repayments) proceeds
from note payable - 61,490
Payments on capital lease
obligations - (982)
Borrowings on bank line
of credit 853,769 -
Proceeds from issuance of
preferred stock 334,000 -
Redemption of preferred stock (87,680) -
Proceeds from affiliates 12,500 -
Payments of Series B redeemable
preferred stock net of
interim accretion - (138,298)
Net cash provided by financing
activities 1,118,839 424,028
Net increase in cash 157,459 118,155
Cash at beginning of period 75,181 401,010
Cash at end of period $232,640 $519,165
Supplemental disclosure of cash flow information:
Interest paid $91,858 $93,612
Taxes paid $800 $780
Schedule of non-cash operating and financing activities:
In connection with the issuance
of common stock, 225,000 of
common stock were issued
as compensation for services $ - $49,500
In connection with the issuance
of preferred stock in lieu
of finance charges $16,000 $ -
In connection with the conversion
of debt into preferred stock $528,070 $ -
See accompanying notes to consolidated financial statements (unaudited)<PAGE>
NOTE 1 - GENERAL
American Toys, Inc. "the Company" was incorporated in the State of
Delaware on February 12, 1993 for the purpose of acquiring 90% of the
issued and outstanding common stock of Play Co. Toys & Entertainment Corp.
("Play Co."), a California based retailer of children's toys. As of
June 30, 1996, the Company's ownership in Play Co. had been reduced to 67% as
a result of Play Co.'s initial public offering and other stock transactions
as further discussed in Note 4.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB.
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 the interim financial statements
include all adjustments necessary in order to make the financial statements
not misleading. The results of operations for the three months ended is
not necessarily indicative of the results to be expected for the full year.
For further information, refer to the Company's audited financial
statements and footnotes thereto at March 31, 1996, included in the
Company's Annual Report Form 10K-SB, filed with the Securities and
Exchange Commission.
The consolidated financial statements give retroactive effect for a one for
four reverse stock split effected April 17, 1996.
During June 1996, European Venture Corp. ("EVC"), an affiliate of the
Company's President, exercised its option and acquired 3,106,005 shares
of common stock in exchange for 400,000 shares of common stock of
Multimedia Concept International, Inc. ("Multimedia"). Accordingly, as
of June 30, 1996, EVC became a 78% majority stockholder of the
Company.
NOTE 2 - STOCK SUBSCRIPTION RECEIVABLE
On October 27, 1995, the Company's then majority stockholder Mister Jay
Fashions International, Inc. ("Mister Jay") exercised its right pursuant to
the terms of a special warrant and purchased 68,750 common shares at
$2.00 per share and issued a twelve month promissory note for $550,000
bearing interest at 8% per annum, which note together with such shares has
been canceled as of July 15, 1996. (See Note 9d for additional
information).
NOTE 3 - NOTES PAYABLE
i) Imperial Bank ("Imperial")
Until February 7, 1996, Play Co. had a borrowing agreement
with Imperial which provided for a $5,500,000 line of credit
secured by substantially all assets of the Play Co. The agreement,
as amended, advanced funds with interest at 1.5% above the
bank's prime lending rate and was guaranteed by the Company
and Mister Jay. Under the agreement, Imperial also provided
overseas lines of credit to secure inventory purchases from foreign
suppliers which effectively reduced the available borrowings on
the line of credit.
NOTE 3 - NOTES PAYABLE (Cont'd)
i) Imperial Bank ("Imperial") (Cont'd)
In March 1994, Imperial was granted warrants to purchase 50,000
shares of common stock of Play Co. at an exercise price of $5 per
share. The Company has not placed a value on the warrants
which expire March 30, 1997. As of June 30, 1996, no warrants
had been exercised by the bank.
In November 1995, Europe American Capital Corp. ("EACC"),
an affiliate, provided a $2,000,000 letter of credit which increased
available borrowings under the line of credit agreement from
$3,500,000 to $5,500,000. In connection therewith, Play Co.
granted an option to EACC to purchase 350,000 shares of Play
Co.'s common stock at a price of 25 percent of the closing bid
price for the common stock on the last business day prior to
exercise. Such options expired during April 1996. Play Co.
estimated the value of the option to be $224,000 and recorded
such amount as additional paid-in capital. For the three months
ended June 30, 1996, amortization of the value of the option
aggregating to $28,000 is included in interest expense and
financing costs. The unamortized value of the option, aggregating
$151,200 at June 30, 1996, has been included in deferred
financing costs. The exercise period expired on April 16, 1996
and no options have been exercised.
The line of credit agreement required compliance with certain loan
covenants and included a requirement that the balance be paid in
full as of December 31, 1995 and for a period of 30 days.
Interest was payable monthly on the line of credit which had an
original maturity date of April 1, 1996.
As discussed below, on February 7, 1996, Play Co. obtained
alternative financing and the entire balance due under the bank line
of credit was repaid and the agreement was terminated.
ii) Congress Financial Corporation ("Congress")
On February 7, 1996, Play Co. borrowed, under an agreement
with Congress, approximately $2,243,000, which proceeds were
used to repay the then outstanding borrowings under the bank line
of credit with Imperial. The financing agreement provides for
maximum borrowings up to $7,000,000 based upon 60% of
eligible inventory. Outstanding borrowings bear interest at 1.5%
above the prime rate, as defined. The agreement matures
February 1, 1998 and can be renewed for one additional year at
the lender's option.
The agreement requires compliance with certain loan covenants,
including maintaining, at all times, adjusted net worth, as defined,
of $500,000. At June 30, 1996, Play Co. was in compliance with
all such covenants.
The financing agreement is secured by substantially all assets of
Play Co., is guaranteed by the Company and collateralized by a
$2,000,000 letter of credit provided by EACC. As consideration
for the letter of credit provided by EACC, Play Co. granted to
EACC (i) an option to purchase up to an aggregate of 1,250,000
shares of Play Co.'s common stock at a purchase price of 25
percent of the closing bid price for Play Co.'s common stock on
the last business day prior to exercise, for a period of six months
commencing February 7, 1996, and (ii) an option to purchase up
to an aggregate of 20,000,000 shares of Play Co's Series E
preferred stock at a purchase price of $1.00 per share during the
period from May 9, 1996 through May 8, 2001.
Play Co. estimated value of the option described in (i) above is
insignificant to the accompanying financial statements. Play Co.
estimated the value of the option described in (ii) above to be
$234,000 and recorded such amount as additional paid-in capital.
For the three months ended June 30, 1996, amortization of the
value of the option aggregated $29,250 and is included in interest
expense and financing costs. The unamortized value of the option,
aggregating $188,813 at June 30, 1996, is classified as deferred
financing costs.
On January 30, 1996, pursuant to the requirements of the
financing agreement, the Company and Play Co. approved the
exchange of the subsidiary note receivable from Play Co. for one
share of Play Co.'s Series D preferred stock. Accordingly, all
principal and accrued interest then owed under the above notes
receivable, aggregating $1,399,044, was extinguished. In August
1996, this share was exchanged for 1,157,028 shares of Play Co.'s
common stock (see Note 6d).
NOTE 4 - MINORITY INTERESTS
In connection with the 90% acquisition of Play Co.'s common stock on
May 7, 1993, the prior shareholders of Play Co. retained a (10%)
ownership interest in Play Co. During June 1994, Play Co. issued a total
of 150,000 shares of its common stock to two Directors and legal counsel.
Such issuance of shares by Play Co. reduced the Company's interest in
Play Co. to 84.6%. In addition, on November 9, 1994, Play Co.
successfully completed its public offering and issued 784,950 shares of its
$.01 par value common stock. The Company's ownership percentage in
Play Co. was therefore reduced to approximately 65%. Lastly, between
November 1994 and January 1995 the minority stockholders of Play Co.
converted their Series A preferred stock for Play Co.'s common stock, and
in January 1995 the Company converted its Series C preferred stock to
428,580 shares of Play Co.'s common stock thereby increasing its
percentage ownership in Play Co. to 67%. As of June 30, 1996, the
minority interest balance on the Company's books is $603,660 as a result
of all of the above transactions and the proportionate share of PlayCo.'s
losses. (See Note 5 below for additional information.)
NOTE 5 - RESTATEMENT OF MINORITY INTEREST
The consolidated financial statements as of March 31, 1996 have been
restated to change the method by which the Company was recording the
minority shareholders interest in Play Co. The Company has elected to
change from one method of accounting which records the total amount of
the net proceeds received from Play Co.'s initial public offering as well
as all other equity transactions subsequent thereto as the minority interest
liability as opposed to a more generally accepted accounting principle.
Accordingly, the Company is now reflecting the minority interest in Play
Co. as a percentage of the net assets of Play Co. The cumulative net
effect of this change in accounting method was a reduction of the minority
interest liability and a net increase in stockholders' equity in the amount
of $2,413,973.
NOTE 6 - STOCKHOLDERS' EQUITY
a) Acquisition of Play Co.
On May 7, 1993, the Company purchased 90% of the issued and
outstanding common stock from the sole stockholders of Play Co. for
$900,000 and 100% or 900,000 shares of the Series C redeemable
preferred stock for $900,000.
b) Initial public offering
On April 7, 1994 the Company successfully completed its public offering.
As a result, the Company sold 193,988 units which yielded net proceeds
of $3,144,083 after deducting underwriter selling expenses and expense
allowance, repayment of bridge loan and related accrued interest to the
selling stockholder, and the pre-payment of the first year's financial
consulting agreement with the underwriter. Simultaneously with the
offering, the Company has charged all deferred offering costs incurred to
additional paid-in capital which totalled $1,051,430.
c) Equity transaction of Play Co.
Effective May 9, 1996, Play Co.'s certificate of incorporation was
amended, as follows:
(i) Play Co.'s name was changed to Play Co. Toys & Entertainment
Corp.
(ii) The number of shares of Play Co. common stock $.001 par value
per share authorized to be issued is 30,000,000 as of July 31,
1996.
NOTE 6 - STOCKHOLDERS' EQUITY (Cont'd)
c) Equity transaction of Play Co. (Cont'd)
(iii) The number of shares of $.001 par value preferred stock Play Co. is
authorized to issue is 2,469,445 of which 469,444 shares were
designated, Series B preferred stock, 1 share was designated Series D
preferred stock and 2,000,000 shares were designated Series E
preferred stock. The Series B preferred stock has been redeemed.
The newly authorized common stock have identical rights to the
previously authorized common stock.
The holder of the Series D preferred stock is entitled to cumulative
annual dividends at the annual rate of 7% and the right to vote at all
meetings of the stockholders of Play Co., or consent in writing in lieu
of voting, solely for the election of Play Co.'s board of directors.
The holder of the Series D preferred stock is entitled to a preference
on liquidation, dissolution or winding up of Play Co., subordinate to
the preference granted to the holders of the Series B preferred stock.
The Series E preferred stock is non-voting is not redeemable by Play
Co. or the holders, and holders are entitled to cumulative dividends at
$1.00 per share. The Series E preferred stock is convertible into 20
fully paid and nonassessable shares of Play Co.'s common stock at the
holders' option and at any time during the three year period
commencing two years after the issuance of the Series E preferred
stock.
(iv)
On June 30, 1996, in return for the issuance of 334,000 shares of
Series E Preferred Stock, EACC provided PlayCo. with $334,000.
These shares of Series E Preferred Stock will be designated Class I
Series E Preferred Stock.
(v) In April 1996, PlayCo. converted $528,070 of debt consisting of a
$500,000 note payable and accrued expenses to EACC in exchange for
528,070 shares of Series E Preferred Stock. The Series E Preferred
Stock is separated into two classes. The Class I Series E Preferred
Stock is convertible into 20 shares of Common Stock for
each share of Series E Preferred Stock, at the holder's option at any
time after the issuance of Series E Preferred Stock.
The Class I Series E Preferred Stock is convertible into 20 shares of
Common Stock for each share of Series E Preferred Stock, at the holder's
option at any time commencing two years from the date of issuance of
the Series E Preferred Stock.
NOTE 6 - STOCKHOLDERS' EQUITY (Cont'd)
d) Spin off of Play Co.'s common stock
On June 1, 1996 the then majority stockholder of the Company, Mister Jay,
authorized and consented to the spinoff of the shares of common stock of Play
Co owned by the Company to the stockholders of the Company there being certain
stockholders not eligible for the spin-off as of record
date of August 15, 1996. Presently, the Company owns 2,548,930 or
approximately 67% of the outstanding shares of common stock of Play Co.
Additionally, the Company, as majority stockholder of Play Co. authorized
the conversion of its 1 share of Series D Preferred Stock owned into
1,157,028 shares of Play Co.'s common stock, based on the average closing
bid price ($1.21) of Play Co.'s shares for the period from March 1, 1996 to
May 31, 1996.
e) Issuance of shares
On June 28, 1996, EVC entered into an option to acquire 3,106,005 shares
of the Company's common stock for $1,800,000 or for an exchange for
400,000 shares of common stock of Multimedia Concepts International, Inc.,
("Multimedia") which shares shall not be subject to the distribution.
Multimedia is a Delaware Corporation which shares are quoted on the
NASDAQ SmallCap Stock Market. Accordingly, during June 1996 EVC
exercised its option and acquired 3,106,005 shares in exchange for 400,000
shares of common stock of Multimedia.
f) Reverse stock split
Pursuant to a special meeting of the shareholders on May 31, 1996, the
Company effected as of April 17, 1996, a 1 for 4 reverse stock split. The
consolidated financial statements give retroactive effect for a one for four
reverse stock split.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a) Operating leases
Retail Stores and Warehouse (Play Co.)
Play Co. leases its retail store properties and various equipment under
noncancelable operating lease agreements which expire through September
2005 and require various minimum annual rentals. Several of the leases
provide for renewal options to extend the leases for additional five or ten-
year periods. Certain store leases also require the payment of property taxes,
normal maintenance and insurance on the properties and additional rents based
on percentages of sales in excess of various specified retail sales levels.
During the three months ended June 30, 1996 and 1995, Play Co. incurred
rental expense under all operating leases of approximately $612,644 and
$664,989, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Cont'd)
During the three months ended June 30, 1996 and 1995, Play Co. sub-leased
portions of its warehouse building under noncancelable operating leases. Sub-
lease income during the three months ended June 30, 1996 and 1995 was
approximately $32,297 and $21,074, respectively.
At March 31, 1996, the aggregate future minimum lease payments (receipts)
due under these noncancelable leases are as follows:
Year ending Operating Operating
March 31, leases sub-leases
1997 $2,147,688 $(65,920)
1998 2,040,028 (67,066)
1999 1,859,454 (65,937)
2000 1,714,907 (67,153)
2001 819,617 -
Thereafter 1,595,198 -
Total minimum lease
payments (receipts) $10,176,892 $(266,076)
b) Dependence on suppliers
Approximately thirty (30%) percent of Play Co.'s inventory is purchased
directly from five (5) manufacturers. Play Co. typically purchases products
from its suppliers on credit arrangements provided by the manufacturers. The
termination of a credit line or the loss of a major supplier or the
deterioration of Play Co.'s relationship with a major supplier would have a
material adverse effect on the Company's business.
c) Seasonality
Play Co.'s business is highly seasonal with a large portion of its revenues and
profits being derived during the months of November and December.
Accordingly, in order for Play Co. to operate it must obtain substantial short-
term borrowings from a bank during the first three quarters of each fiscal year
to purchase inventory and for capital and operating expenditures.
Historically, Play Co. has been able to obtain such financing and these
borrowings have been repaid after the fourth quarter of its fiscal year.
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Cont'd)
d) 401(k) employee stock ownership plan
During August 1994, Play Co. adopted a 401(k) Employee Stock Ownership
Plan ("the Plan") which covers substantially all employees of Play Co. The
Plan includes provisions for both an Employee Stock Ownership Plan
("ESOP") and a 401(k) Plan.
The ESOP allows only contributions by Play Co. which can be made annually
at the discretion of Play Co.'s Board of Directors. The ESOP is designed to
invest primarily in Play Co.'s stock.
The 401(k) portion of the Plan is contributed to by the employees of Play Co.
through payroll deductions. Play Co. makes no matching contributions to the
401(k).
e) 1994 Stock Option Plan
In June 1994, Play Co. adopted the 1994 Stock Option Plan ("the Plan")
which provides options to purchase an aggregate of not more than 150,000
share of common stock as may be granted from time to time by Play Co.'s
Board of Directors. Concurrent with the adoption of the Plan, an option to
purchase 10,000 shares of common stock at $2.10 per share was granted to
Play Co.'s Secretary/Treasurer. As of June 30, 1996, no options to purchase
common stock had been granted.
f) Employment agreement
On June 1, 1996, the Company's prior President and current vice-president
entered into a 5 year employment
agreement. Pursuant to the employment agreement, the President shall not
receive any monetary compensation during the term. As consideration, the
Company's President was granted options pursuant to the five year
employment agreement to purchase 1,000,000 shares at $1.00 for five years
and 2,250,000 shares at $1.33 exercisable until December 31, 1996. During
July 1996, the Company's President exercised his options to purchase
1,000,000 shares at $1.00 in full.
NOTE 8 - RELATED PARTY TRANSACTIONS
a) Office and warehouse lease of Play Co.
Play Co. leases its main office and warehouse from a partnership, one partner
of which is the President of Playco and the other the former president of
Playco. The total rent
expense under this lease for the three months ended June 30, 1996 and 1995
amounted to $56,979. The lease expires in April 2000.
b) Sub-lease (Play Co.)
During the three months ended June 30, 1996 and 1995 sub-lease rental
income included $26,367 and $21,074, respectively from a sub-lease with an
entity in which the minority stockholders and employees of Play Co. have an
ownership interest.
c) Due from stockholders
The Company advanced funds to Mister Jay, the Company's majority
stockholder and Transatlantic, a stockholder and entity under the common
control of the Company's former President. These advances are unsecured
and non-interest bearing. At June 30, 1996 such amounts due from Mister
Jay, and Transatlantic amounted to $211,473.
d) Due to affiliate
During March 1996, EACC loaned $500,000 to Play Co. and incurred costs
related to the Congress financing agreement as discussed in Note 3(ii) totalling
$28,070. In addition, an affiliate of the Company's former President advanced
the Company $51,500 as of June 30, 1996.
During April 1996, EACC exercised its options and acquired 528,070 shares
of Play Co.'s Series E preferred stock by converting advances amounting to
$528,070.
f) Employment agreement
On July 31, 1996, the Company entered into an employment agreement with Dr.
Oliver Hilsenrath whereby Dr. Hilsenrath became the Company's President and
Chief Executive Officer. As consideration, the President will receive a salary
of $160,000 per annum and was granted options pursuant to the five year
employment agreement to purchase 1,500,000 shares at $2.00 per share.
On June 1, 1996, the Company's former President and current vice-president
entered into a 5 year employment agreement. Pursuant to the employment
agreement, the Vice-President shall not receive any monetary compensation
during the term. As consideration, the Company's Vice-President was granted
options pursuant to the five year employment agreement to purchase 1,000,000
shares at $1.00 for five years
and 2,250,000 shares at $1.33 exercisable until December 31, 1996. During
July 1996, the Company's Vice-President exercised his options to purchase
1,000,000 shares at $1.00 in full.
NOTE 9 - SUBSEQUENT EVENTS
a) Acquisitions
i) On July 10, 1996 the Company entered into a stock purchase agreement
which agreement consummated on July 31, 1996, to acquire 51% of the
outstanding shares of common stock of Labyrinth Communication Technology
Group, Inc. ("Labyrinth"), whereby it purchased 20% of the shares for
$2,000,000 from Labyrinth and exchanged 2,250,000 of its common shares
for 310,000 shares of Labyrinth held by one of its stockholders.
Upon consummation of this acquisition
the founding shareholder of Labyrinth became the President and Chief
Executive Officer of the Company. Labyrinth is a development stage
company which is engaging in the research and development of wireless
communications technology. Accordingly, on July 31, 1996 the Company
paid Labyrinth $2,000,000 for 20% of Labyrinth's shares and issued
2,250,000 of its common shares for 310,000 shares or 31% of Labyrinth
outstanding shares, aggregating 51%.
ii) On July 10, 1996 the Company entered into an agreement to acquire 51%
of the outstanding common shares of Mantra Technologies, Inc.
("Mantra") and an option to purchase the remaining 49% of the
outstanding common shares for $500,000. Pursuant to the terms of the
agreement, the Company has the right to acquire the remaining 49% of
the outstanding shares of Common Stock in exchange for an aggregate of
1,000,000 shares of its Common Stock. In order for the Company to
exercise its options, the closing bid price of its Common Stock must have
been $5.00 for the previous 30 trading days prior to the date of
exercise.
Mantra is a development stage company which is developing an advanced
user interface for the Internet and other data bases. Accordingly, on
July 31, 1996 the Company paid $500,000 for 51% of the outstanding shares
of Mantra.
b) Private placement offering
On July 10, 1996 the Company commenced an offering of its shares of
Common Stock in a private placement offering consisting of 600,000 shares
of Common Stock for gross proceeds of $1,500,000. On July 31, 1996 the
private placement was completed whereby 600,000 shares were sold for
$1,500,000.
c) Form S-8 registration statement
On July 23, 1996, pursuant to Form S-8 Registration Statement filed with
Securities and Exchange Commission, the Company registered 3,250,000
common shares underlying options to issue common stock of the Company to
the Company's former President and current vice-president. Of the 3,250,000
options, 1,000,000 options are
exercisable at $1 each for a period of five (5) years. The remaining
2,250,000 options are exercisable at $1.33 each until December 31, 1996.
On July 31, 1996, the Company's President exercised his option to purchase
1,000,000 shares at $1.00 in full.
NOTE 9 - SUBSEQUENT EVENTS (Cont'd)
d) Cancellation of stock subscription receivable
On July 15, 1996, the Company and it's previous majority stockholder,
Mister Jay, mutually agreed to cancel the stock subscription receivable note
along with the related and accrued interest totalling $582,083. Such note was
issued on October 27, 1995 for the exercise of a special warrant issued to
Mister Jay.
e) Promissory note
On July 1, 1996, the Company received a five (5) year promissory note
amounting to $110,606 representing advances made by the Company to its
previous majority stockholder, Mister Jay. Such note bears interest at 8% per
annum. Interest is payable semi-annually with principal due at the end of
note.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was organized in February, 1993. The results of operations
for the three months ended June 30, 1996 and 1995 relate mainly to the
Company's subsidiary, PlayCo Toys ("PlayCo") since the Company itself
does not generate any operating revenue or had any material operations
independent of those of PlayCo.
RESULTS OF OPERATIONS
American Toys, Inc. ("American Toys or the Company")
Three months ended June 30, 1996 compared to three months ended June 30,
1995.
For the three months ended June 30, 1996 and 1995, American Toys incurred
total expenses amounting to $23,636 and $103,242 respectively. For the
three months ended June 30, 1996, the total expenses amounting to $23,636
was related to professional fees, filing fees and general corporate expenses.
For the three months ended June 30, 1995, of the total expenses amounting
to $103,242, $49,500 incurred as a result of the issuance of common stock
to the Company's Chief Executive Officer and a Director as consideration for
services provided in connection with the Company's operations. The
remaining costs for such period related to professional, filing fees, and other
general corporate expenses.
PlayCo
Three months ended June 30, 1996 compared to three months ended June 30,
1995
For the three months ended June 30, 1996 compared to the three months
ended June 30, 1995.
Sales for the three months ended June 30, 1996 decreased to $3,184,903 from
$4,138,313. This represents a decrease of $953,410 or approximately 23%.
Approximately $442,000 of the decrease in sales is directly attributable to the
decreased sales of Milk Cap game products and the reduction of one retail
store location. Additionally, retail store sales for the three months ended
June 30, 1996 decreased by approximately 14.5% from the sales level achieved for
the three months ended June 30, 1995. The Company operated 17 and 18
retail locations during the three month period ended June 30, 1996 and 1995,
respectively. Wholesale sales of non-milk cap game products decreased
slightly to $152,853 for the three month period ended June 30, 1996 from
$153,622 for the three month period ended June 30, 1995.
Gross profit decreased slightly to 32.44% for the three months ended June 30,
1996 from 32.46% for the three months ended June 30, 1995.
Operating expenses decreased to $1,837,372 (or 57.69% of net sales) from
$2,400,866 (or 58.02% of net sales). Such decrease of approximately
$563,494 or 23.47%, is primarily attributable to decreased payroll expense
due to the re-organizing of personnel and decreased supplies and expenses
required for the milk-cap game program.
Interest and financing expense for the three month period ended June 30,
1996 increased to $179,174 from $85,509 for the three month period ended
March 31, 1996. The $179,174 of interest for the three month period ending
June 30, 1996 includes $91,858 incurred on borrowings on the Company's
line of credit and $53,686 of amortization of financing costs incurred to
obtain the line of credit arrangement.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
Liquidity and CapItal Resources
At June 30, 1996 the Company had a working capital deficit of $320,425.
On February 1, 1996, the Company entered into a "Loan and Security
Agreement" (the "Loan Agreement") with Congress Financial Corporation
("Congress"). Funds drawn on February 7, on the loan agreement of
$2,000,000 were used to repay the amounts due under a previous line of
credit arrangement with Imperial Bank, effectively terminating that borrowing
arrangement. The Loan Agreement provides for maximum borrowings of
$7,000,000 based on the "Cost Value of Eligible Inventory" as defined in the
Loan Agreement. The only material financial covenant in the Loan
Agreement is the requirement that the Company maintain at all times an
adjusted net worth of not less than $500,000. The Loan Agreement requires
the payment of a quarterly service fee of $8,750, is secured by substantially
all assets of the Company and is further collateralized by the $2,000,000 letter
of credit originally provided for the benefit of Imperial Bank. Interest on
outstanding balances is charged at prime plus 1.5%. The Loan Agreement
matures February 1, 1998. Congress can extend the Loan Agreement for an
additional year at its option. The balance outstanding under the Loan
Agreement totalled $4,256,793 as of June 30, 1996.
Sources of funds to repay obligations as described above, are typically
generated from sales during the peak selling season from October to
December of each year.
Approximately 45 to 49% of the Company's annual sales are generated during
the months of October through December due to the significant seasonality of
the toy industry. Vendors generally extend terms during the balance of the
year. Vendors are generally repaid in December and January of each year,
at a time when inventory levels are significantly reduced.
The Company believes that its cash on hand, together with its new credit
facility, will be sufficient to meet its working capital needs during fiscal
year ending March 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
Pursuant to a special meeting of the shareholders on May 31, 1996, the
Company effected as of April 17, 1996, a 1 for 4 reverse stock split.
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:
The Company filed a Report on Form 8-K on July 24, 1996 which is
attached hereto as an exhibit.
<PAGE>
FORM 10-QSB
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.
American Toys, Inc.
(Registrant)
August 16, 1996 /s/ Dr. Oliver Hilsenrath
Date Dr. Oliver Hilsenrath
Chief Executive Officer, President and Director
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Date of Report (Date of Earliest event reported):
July 11, 1996
AMERICAN TOYS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-24742 13-3704059
State of Commission File IRS Employer
Incorporation Number. Identification No.
448 West 16th Street
New York, New York 10011
Address of principal executive offices
Registrant's telephone number, including area code (212) 391-2272
None
(Former name or former address, if changed since last report)
<PAGE>
Item 1. Changes in Control of Registrant.
American Toys, Inc. ("the Company"), has entered into a stock
purchase agreement with Labyrinth Communication Technology Group, Inc.
("Labyrinth"), whereby the Company will acquire 51% of the outstanding
shares of common stock of Labyrinth. Specifically, the Company will
purchase 20% of Labyrinth's shares for $2,000,000 and exchange
2,250,000 of the Company's shares for 310,000 shares of Labyrinth, which
shares are held by one of Labyrinth's stockholders. Upon consummation
of this agreement Dr. Oliver Hilsenrath, the founder of both Labyrinth and
Mantra, will become the president and chief executive officer of the
Company.
Labyrinth is a development stage company which is engaging in the
research and development of wireless communications technology.
Presently, Labyrinth is in the process of developing a series of products
geared to improving the efficiency of resource utilization in wireless base
stations by a mix of radio and software technologies. The technology
through computerized programming, if developed, will provide for the
flexibility of allocating channels geographically by consumer demand.
Presently, Labyrinth is in the process of raising $948,000 through a private
placement offering.
The Company has commenced a private placement offering of its
Common Stock consisting of the sale of 600,000 shares of Common Stock
for gross proceeds of $1,500,000. Simultaneously with the closing of said
offering, Ilan Arbel, the former president of the Company has agreed to
exercise an option granted to Mr. Arbel to purchase 1,000,000 shares of the
Company's Common Stock at $1.00 per share, and Mr. Arbel has further
agreed to exercise an additional option to invest another $1,000,000 on or
before August 30, 1996. Investment's with respect to the private offering
of 600,000 shares and the proceeds of the exercise of options by Mr. Arbel
will be used to invest in Labyrinth and Mantra Technologies, Inc. as
hereinafter described. Mr. Arbel has been granted options under an
employment agreement to purchase 1,000,000 shares at $1.00 for five years
and an additional 2,250,000 shares at $1.33 until December 31, 1996.
The Company has commenced negotiations to acquire 51% of the
outstanding shares of Mantra Technologies, Inc. ("Mantra") and an option
to purchase the remaining 49% of the outstanding shares for $500,000.
Pursuant to the terms of the purchase, the Company would have the right
to acquire the remaining 49% of the outstanding shares of Common Stock
in exchange for an aggregate of 1,000,000 shares of the Company's
Common Stock. In order for the Company to exercise its option the closing
bid price of the Common Stock must have been $5.00 for the previous 30
trading days prior to the date of exercise. Mantra is a development stage
company which is developing an advanced user interface for the Internet
and other data bases. The software acquaints itself with the user and probes
the data basis gathering items which correlate to the users.
Pursuant to the consent of the majority stockholder of the Company,
Mister Jay Fashions International, Inc., the Company has been authorized
to change its name to U.S. Wireless Corp., and will file an amendment to
its certificate of incorporation to effect same.
Item 2. Acquisition or Disposition of Assets.
The Company's Board of Directors, pursuant to the consent of the
majority stockholder of the Company, Mister Jay, has authorized the
spinoff of the shares of common stock of Play Co. Toys & Entertainment
Corp. ("Playco") owned by the Company. The record date for stockholders
of the Company to receive the distribution of the shares of Playco is August
15, 1996. Presently, the Company owns 2,548,930 or approximately 66%
of the outstanding shares of common stock of Playco. In addition, the
Company, as majority stockholder of Playco has authorized the conversion
of its Series D Preferred Stock owned by the Company to be converted into
1,157,028 shares of Playco's common stock, based on the average closing
bid price ($1.21) of Playco's shares for the period from March 1, 1996 to
May 31, 1996. Initially, Playco was indebted to the Company for
$1,400,000, which was converted into a voting preferred stock. Playco is
in the process of preparing an information statement to be mailed to its
shareholders describing the spinoff and the amendments to its certificate of
incorporation. In June 1996, EVC, an affiliate of Ilan Arbel acquired
3,106,005 shares of the Company's Common Stock for 400,000 shares of
common stock of Multimedia Concepts International, Inc., which shares
shall not be subject to the distribution.
At the time of the distribution of the Playco shares, there will be
5,600,000 shares outstanding, of which 2,493,000 shares will be eligible for
the distribution. In the event that the Series D Preferred Stock is converted
the Company will own 3,705,959 shares of Playco's common stock, which
shall be distributed at the rate of approximately 1.49 shares for each share
owned of the Company.
<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 hereunto duly authorized.
AMERICAN TOYS, INC.
By:
Dr. Oliver Hilsenrath
President and Chief Executive
Officer
