SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PLAY CO. TOYS & ENTERTAINMENT CORP.
(Exact Name of Registrant as Specified in Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
95-3024222
(I.R.S. Employer Identification Number)
550 Rancheros Drive, San Marcos, California 92069, (760) 471-4505
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
550 Rancheros Drive, San Marcos, California 92069, (760) 471-4505
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box: [
]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
<PAGE>
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed
Title Of Each Class Aggregate Price Per Maximum Aggregate
Of Securities Amount To Unit(1) Offering Price(1)
To Be Registered Be Registered Amount Of Registration Fee
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Common Stock,
par value $0.01 per
share (2)
<S> <C> <C> <C> <C>
450,000 $.78125(3) $ 351,562.50 $ 121.22
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Series E Preferred
Stock, par value
$0.01 per share
$ 19,000 $ 6.55
50,000 $0.38(4)
- --------------------------------------------------------------------------------------------------------------------------------
Series E Preferred
Stock, par value
$.01 per share (5)
700,000 $2.25(3) $1,575,000 $543.06
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Totals $1,945,562.50 $670.83
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</TABLE>
(1) Total estimated solely for the purpose of determining the registration
fee.
(2) Shares of Common Stock issuable upon the exercise of options (the
"Options") issued in accordance with a consulting agreement (the "CRG Consulting
Agreement") by and between the Company and the Selling Securityholders, together
with such indeterminate number of securities as may be issuable by reason of
anti-dilution provisions contained therein.
(3) Represents the exercise price of the Options.
(4) Represents the closing price for the Series E Preferred Stock as
reported by a market maker on the OTC Bulletin Board on September 22, 1998.
(5) Shares of Series E Preferred Stock issuable upon the exercise of
options issued in accordance with the CRG Consulting Agreement, together with
such indeterminate number of securities as may be issuable by reason of
anti-dilution provisions contained therein.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
-ii-
<PAGE>
CROSS REFERENCE SHEET
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Item In Form S-3 Prospectus
<S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Cover Page of Registration Statement
2 Inside Front and Outside Back Cover Pages of
Prospectus Continued Cover Page
3 Summary Information, Risk Factors, and Ratio of Earnings to FixProspectus Summary, Risk Factors
4 Use of Proceeds Prospectus Summary
5 Determination of Offering Price Plan of Distribution, Cover Page, Risk Factors
6 Dilution Risk Factors
7 Selling Securityholders Selling Securityholders
8 Plan of Distribution Cover Page, Plan of Distribution
9 Description of Securities to be Registered Incorporation of Certain Documents by Reference
10 Interest of Named Experts and Counsel Legal Opinions, Experts
11 Material Changes Prospectus Summary
12 Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference
13 Disclosure of Commission Position on Securities Act Liabilities Risk Factors and Item 15.
Indemnification of Directors and Officers
</TABLE>
-iii-
<PAGE>
Subject to Completion Dated September 25, 1998
PROSPECTUS
750,000 SHARES OF SERIES E PREFERRED STOCK AND
450,000 SHARES OF COMMON STOCK
PLAY CO. TOYS & ENTERTAINMENT CORP.
This Prospectus covers the resale of up to an aggregate of (i) 750,000
shares of Play Co. Toys & Entertainment Corp. (the "Company") Series E Preferred
Stock, par value $0.01 per share (the "Series E Stock"), 700,000 of which shares
are issuable upon the exercise of options; and (ii) 450,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), issuable
upon the exercise of options. Collectively, the options, shares underlying the
options, and the 50,000 shares of Series E Stock referenced above are referred
to as the "Securities." The Securities offered above are subject to the terms
and conditions of a consulting agreement entered into by and between the Company
and Corporate Relations Group, Inc. ("CRG"). CRG and certain affiliates thereof
are collectively referred to herein as the "Selling Securityholders." The
Securities are being offered by the Selling Securityholders and may be sold from
time to time in negotiated transactions, at fixed prices, which may be changed,
and at market prices prevailing at the time of sale, or a combination thereof.
The Company will not receive any of the proceeds from the sale of any Securities
sold by the Selling Securityholders, but shall receive the proceeds from the
exercise of any options. See "Plan of Distribution" and "Summary - CRG
Consulting Agreement."
The Company's Common Stock, Series E Stock, and Series E Stock redeemable
purchase warrants ("Series E Warrants") are quoted on the over-the-counter
market on the OTC Bulletin Board under the symbols "PLCO," "PLCOP," and PLCOW,"
respectively. Quotation on the OTC Bulletin Board does not imply that there is a
meaningful sustained market for the Company's Securities or that if one
develops, it will be sustained for any period of time.
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION; NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September__, 1998.
<PAGE>
The Selling Securityholders will be required to represent that they have
knowledge of Regulation M promulgated under the Securities Act of 1933, as
amended (the "Act") and Rule 10b-5 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act"), which proscribe certain manipulative and deceptive
practices in connection with the distribution of securities.
AVAILABLE INFORMATION
For further information with respect to the Company and the Securities
offered hereby, reference is made to the Public Reference Section of the
Securities and Exchange Commission (the "Commission") at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549, at which all reports and other
information filed by the Company are available for inspection and copying at
rates prescribed by the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements, and other information which
is filed electronically through the Commission's Edgar system, all of which may
be viewed and copied through accessing the Commission's Web site located at
http://www.sec.gov.
The Company's fiscal year end is March 31. The Company is subject to the
informational reporting requirements of the Exchange Act and in accordance
therewith files periodic reports, proxy statements, and other information with
the Commission. In the event the Company's obligation to file such periodic
reports, proxy statements, and other information is suspended, the Company will
voluntarily continue to file such information with the Commission. The Company
will distribute to its stockholders annual reports containing audited financial
statements, together with an opinion by its independent auditors. In addition,
the Company may, in its discretion, furnish quarterly reports to stockholders
containing unaudited financial information for the first three quarters of each
year.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1998, as filed on June 29, 1998, and the amendment to Form 10-KSB for
the fiscal year ended March 31, 1998, as filed on July 1, 1998; and
2. The Company's Quarterly Report on Form 10-QSB for the quarter ended June
30, 1998, as filed on August 14, 1998; and
3. A description of the Company's securities is contained in the Company's
Registration Statement on Form 8-A filed on October 27, 1994.
4. All other reports filed by the Registrant pursuant to Section 13(a) or
15(d) of the Exchange Act, since the end of the fiscal year covered by the
Annual Report referred to in (1) above, are incorporated herein by reference.
2
<PAGE>
Each document filed subsequent to the date of this Prospectus pursuant to
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act prior to the termination
of the offering shall be deemed to be incorporated by reference in this
Prospectus and shall be a part hereof from the date of filing of such document.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of any such person, a
copy of any document described above (other than exhibits). Requests for such
copies should be directed to Play Co. Toys & Entertainment Corp., 550 Rancheros
Drive, San Marcos, California 92069; telephone: (760) 471-4505.
3
<PAGE>
SUMMARY
The following summary is intended to set forth certain pertinent facts
and highlights from material contained in the body of this Prospectus. The
summary is qualified in its entirety by the detailed information and financial
statements appearing elsewhere in this Prospectus. Statements contained in this
Registration Statement 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.
History
Play Co. Toys & Entertainment Corp. (the "Company") was founded in
1974, at which time it operated one store under the name Play Co. Toys in
Escondido, California. The Company currently operates 21 stores: 18 are located
throughout Southern California in the Los Angeles, Orange, San Diego, Riverside,
and San Bernardino Counties, one is located in Tempe, Arizona, one is located in
the Las Vegas, Nevada area, and one is located in the Dallas, Texas area. From
January to September 1998, the Company opened 2 new stores (it also closed a
store in January 1998) and executed four additional leases, the stores for which
the Company expects to open by calendar year end. The Company therefore expects
to operate 25 stores by calendar year end. In calendar 1999, the Company expects
to continue its expansion and open eight additional stores (it has executed
leases for four of such stores and is negotiating the remaining four leases).
The Company operates its stores under the following names: Play Co. Toys, Toys
International, Toy Co., and Tutti Animali. It shall continue to open stores
under such names contingent upon the product mix and location of the store. The
Company periodically reviews each individual store's merchandising and sales
history on an individual basis to decide on the appropriate product mix. General
Traditionally, the Company's merchandising strategy was to offer an
alternative, less intimidating environment than that provided by the larger toy
retailers who are in competition with the Company. In 1996, management of the
Company realized the inherent value in, and thus the demand for, a retail outlet
which provides a combination of (i) educational, new electronic interactive, and
specialty and collectible toys and items; and (ii) traditional toys. In
addition, the Company determined that it should place such stores in high
traffic malls, rather than in strip shopping centers where most of its original
stores were located, and so began to do so. To achieve its goals, the Company
developed a new store design and marketing format which provides an interactive
setting together with a retail operation. This format and design has formed the
foundation for the Company's future direction and growth plans, thereby allowing
the Company to meet what it believes are the industry's current and future
demands. The Company has, thus far, remodeled four of its original stores (the
"Original Stores") to fit its new store design (the "New Stores"), opened six
New Stores, and acquired three stores in an acquisition.
The Company shall continue to operate its Original Stores until their
leases expire, except with respect to certain stores for which it is negotiating
lease extensions, which stores it may redesign to fit the New Store concept. The
Original Stores sell children's and adult toys, games, bicycles, and other wheel
goods, sporting goods, puzzles, Nintendo and Sony electronic game systems and
cartridges for such game systems, cassettes, and books. They offer over 15,000
items for sale, most of which are major brand name toys and hobby products.
The New Stores also carry some of the items found in the Original
Stores; however, they focus on selling educational toys, Steiff and North
America Bears, Small World toys, LBG trains, CD-ROMs, electronic software games,
Learning Curve, and Ty products. The Company's Tutti Animali store, located in
the Crystal Court Mall in Costa Mesa, California, is a unique store which sells
only stuffed animals.
<PAGE>
Financing
On January 21, 1998, the Company entered into a $7.1 million secured,
revolving Loan and Security Agreement (the "FINOVA Agreement") with FINOVA
Capital Corporation ("FINOVA"), which line was increased to $7.6 million in July
1998. The Company recently received from FINOVA verbal approval to increase the
aforesaid line by $1 million (to $8.6 million) for a period through and until
December 31, 1998, at which time the line shall revert to $7.6 million. The
Company is in the execution process with respect to the documents pertinent to
this increase. The FINOVA credit line is secured by substantially all the
Company's assets and expires on August 3, 2000. The credit line bears interest
at a rate of floating prime plus one and one-half percent.
On September 18, 1998, the Company and Amir Overseas Capital Corp.
("Amir"), a British Virgin Islands corporation, executed a subordinated security
agreement for a $1 million loan (the "Amir Loan") made by Amir to the Company.
The Amir Loan shall be repaid by the Company at a 12% annual interest rate
pursuant to a schedule which requires full repayment on or before December 23,
1998.
Recent Developments
On July 27, 1998, the Company sold 100,000 shares of Series E Stock to
United Toys & Textiles Corp. ("UTTC"), the Company's principal stockholder, for
$100,000. These shares are restricted, and UTTC has received no registration
rights with respect to same.
In June 1998, the Company and ABC Fund, Inc. ("ABC"), a Belize corporation
holding a 5% Convertible Secured Subordinated Debenture Due August 15, 2000 (the
"Debenture"), dated January 21, 1998, agreed to amend the terms of the Debenture
to enable the conversion of the principal amount and accrued interest thereon,
into shares of Series E Stock, at a conversion price of $1.00 per share.
Simultaneously, ABC elected to convert the Debenture as of June 30, 1998,
whereby, $1.5 million in principal amount and $33,333 in accrued interest were
converted into 1,533,333 shares of Series E Stock. ABC did not receive any
demand or piggyback registration rights regarding the shares. Simultaneous with
the conversion of the Debenture, ABC terminated the subordinated security
agreement between the parties and the intercreditor and subordination agreement
by and between ABC and FINOVA dated January 21, 1998.
Pursuant to the amended Debenture, ABC retained its right to purchase up to
an aggregate of 25% of the outstanding shares of common stock of a subsidiary of
the Company at a purchase price per share equal to the net book value per share
of the subsidiary's common stock as of the date of exercise. The calculation of
the number of shares subject to this right and the purchase price per share
shall be as of the date that the Company receives notification that the right is
being exercised. This right shall extend until August 15, 2003 unless earlier
terminated by ABC or its assignee.
CRG Consulting Agreement
On July 22, 1998, the Company entered into a Lead Generation/Corporate
Relations Agreement (the "CRG Consulting Agreement") with CRG pursuant to which
CRG provides public and investor relations services to the Company. During the
sixty month term of the CRG Consulting Agreement, CRG shall publish in its
MoneyWorld Magazine advertorials which shall be disseminated to approximately
300,000 individuals/entities and shall publish advertorials on the MoneyWorld
web site. CRG shall also publish in its Financial Sentinel advertorials which
shall be disseminated to approximately 100,000 individuals/entities. CRG shall
also provide public relations exposure to newsletter writers and trade and
financial publications and include the Company as a featured "Lead Generator of
the Month" in Confidential Fax Alert, a newsletter transmitted by fax to over
8,000 Brokers. A CRG affiliate shall produce due diligence packages for the
Company which CRG shall distribute to inquiring brokers.
<PAGE>
CRG's consideration for its services as set forth above, encompasses the
following: (i) $100,000; (ii) 50,000 shares of Series E Stock to cover expenses
incurred; (iii) an option to purchase 350,000 shares of Common Stock at $0.78125
per share; and (iv) an option to purchase 400,000 shares of Series E Stock at
$2.25 per share. Additionally, the Company granted options to each of four CRG
principals to purchase 25,000 shares of Common Stock and 75,000 shares of Series
E Stock, these options exercisable at their respective prices as indicated
above. All options are subject to a vesting schedule: 1/3 of the shares
underlying same shall vest on the date this Registration Statement shall be
declared effective by the Commission (the "Effective Date") and shall be
exercisable for a period of 60 days thereafter, expiring at 5:30 p.m., New York
time, on the 60th day after said Effective Date; 1/3 of the shares underlying
same shall vest on the 60th day after the Effective Date and shall be
exercisable for a period of 60 days thereafter, expiring at 5:30 p.m., New York
time, on the 120th day after the Effective Date; and 1/3 of the shares
underlying same shall vest on the 120th day after the Effective Date and shall
be exercisable for a period of 240 days thereafter, expiring at 5:30 p.m., New
York time, on the 360th day after the Effective Date. The Company's executive
offices are located at 550 Rancheros Drive, San Marcos, California 92069. The
Company's telephone number at its principal office is (760) 471-4505.
4
<PAGE>
The Offering
<TABLE>
<CAPTION>
Securities Outstanding:
Prior to the Offering (1):
<S> <C>
Common Stock 4,103,525
Series E Stock 5,883,903
Series E Warrants(2) 2,000,000
After the Offering:
Common Stock(3) 4,553,525
Series E Stock(4) 6,633,903
Series E Warrants(2) 2,000,000
Risk Factors This offering involves a high degree of risk.
See "Risk Factors" on page 7.
Use of Proceeds All proceeds generated by this Offering will be paid
to the respective Selling Securityholders; none of the
proceeds will be paid to the Company. All expenses of
this Offering will be paid by the Company.
</TABLE>
(1) Does not include (i) 35,303,418 shares of Common Stock issuable upon
the conversion of the 5,883,903 shares of Series E Stock outstanding; (ii)
50,000 shares of Series E Stock issuable to CRG for expenses in accordance with
the CRG Consulting Agreement or the 300,000 shares of Common Stock into which
same are convertible; (ii) 700,000 shares of Series E Stock and 450,000 shares
of Common Stock issuable upon the exercise of options granted in accordance with
the CRG Consulting Agreement; or (iii) the shares of Series E Stock (or Common
Stock issuable upon conversion of same) issuable upon exercise of the Series E
Warrants. Includes (i) an aggregate of 50,000 shares of Series E Stock issued to
Richard Brady and Harold Rashbaum in March 1998 subject to a vesting schedule;
(ii) 1,533,333 shares of Series E Stock issued to ABC Fund, Inc. in June 1998 in
connection with the Company's conversion of $1,533,333 debt into equity; and
(iii) 100,000 shares of Series E Stock issued to UTTC in July 1998.
(2) Each warrant grants the warrantholder the right to purchase one share
of Series E Stock at an exercise price of $5.00 per share until December 29,
2001.
(3) Includes 450,000 shares of Common Stock issuable upon the exercise of
options granted to CRG and affiliates pursuant to the CRG Consulting Agreement.
(4) Includes (i) 50,000 shares issuable under the CRG Consulting Agreement
for expenses; and (ii) 700,000 shares issuable upon the exercise of options
granted to CRG and affiliates pursuant to the CRG Consulting Agreement.
(5) Quotation on the OTC Bulletin Board does not imply that there is a
meaningful market for the Company's securities; nor does it imply that if a
market does develop, it will be sustained for any period of time.
5
<PAGE>
RISK FACTORS
The Securities offered hereby are speculative and involve a high degree of
risk. In addition to the other information contained in this Prospectus, the
following factors regarding risks associated with the Company's business and
risks related to the Offering should be carefully considered before purchasing
the Securities offered by this Prospectus. The purchase of Securities should not
be considered by anyone who cannot afford the risk of loss of his entire
investment. The statements contained in this Prospectus which are not historical
facts contain forward looking information with respect to plans, projections, or
future performances of the Company, the occurrences of which involve certain
risks and uncertainties as detailed herein. No assurance can be made that these
plans or projections will be realized or that if realized, such plans or
projections will produce the results anticipated by the Company.
1. Decline in Revenues; Continued Operating Losses; Working Capital
Deficit; and Retained Earnings Deficit. While the Company's revenues for the
year ended March 31, 1998 increased by $2,944,251 to $22,568,527, its revenues
for the years ended March 31, 1995, 1996, and 1997 steadily declined from
$25,374,722 to $21,230,853 to $19,624,276, respectively. The decrease in
revenues during 1995, 1996, and 1997 was primarily the result of a general
economic downturn in the southern California economy, increased competition, and
the closing by the Company of non-profitable stores. While the Company's net
loss for the year ended March 31, 1998 decreased by $1,530,411 to $2,054,470,
for the years ended March 31, 1996 and 1997, the Company's net losses increased
from $3,542,715 to $3,584,881, respectively. For the three months ended June 30,
1998 and 1997, the Company recorded net losses of $186,776 and $1,209,504,
respectively. While the implementation of the Company's business plan is showing
positive results in terms of an increase in revenues and a decrease in net loss,
there can be no assurance that the Company's revenues or results of operations
will not decline in the future, that the Company will not continue to sustain
losses, or that the Company will be able to continue funding such losses if they
continue.
At June 30, 1998 and 1997, the Company had (i) working capital of
$5,096,166 and a working capital deficiency of $1,407,003, respectively; (ii) an
accumulated deficit of $10,291,722 and $9,259,980, respectively; and (iii)
stockholders' equity of $3,860,002 and $1,044,032, respectively. The accumulated
deficit could adversely affect the Company's ability to conduct its operations.
2. Change in Business Focus. In the beginning of 1996, management realized
it needed to change its corporate focus. It found there was a large demand for
educational and promotional toys and collectibles and thus decided to change its
business plan to focus on these markets. To this end, the Company developed a
new store design, marketing format, and product mix and decided to redesign some
of its existing stores and open new stores under this format. This new format
includes the opening of new stores in malls rather than in strip centers where
most of the Company's Original Stores are located. There can be no assurance
that this new direction and marketing focus will be successful in the short or
long run or that the Company will have the funding to continue to implement its
business plan.
3. Dependence on Specialty Toys; Changes in Consumer Preferences. The
Company's increase in same store sales and gross margins is largely due to the
Company's commencement of the sale of specialty toys, including educational,
electronic interactive, and collectible toys. As a result of the continual
changing nature of children's consumer preferences and tastes, the success of
the Company is dependent on its ability to change and adapt to such changing
tastes and preferences. Children's entertainment products are often
characterized by fads of limited life cycles. There can be no assurance that the
Company accurately will be able to forecast consumer preferences or that
specialty toys will continue to have higher profit margins. In addition, there
can be no assurance that its competitors will not also embrace the Company's
business concept and vary their product mix so as to compete directly with the
Company's New Stores. See "Risk Factor No. 5 - Competition."
<PAGE>
4. Dependence on FINOVA Credit Line, Supplier Credit, and Loans. The
Company purchases all of its products from manufacturers and wholesalers and
ships them to its stores from its distribution center. There are no written
contracts and/or agreements with any individual manufacturer or supplier;
rather, all orders are on a purchase order basis only. The Company requires
certain lines of credit and banking relations to conduct its business.
On September 18, 1998, the Company and Amir entered into the Amir Loan for
$1 million loan by Amir to the Company. The Amir Loan shall be repaid by the
Company at a 12% annual interest rate pursuant to a schedule which requires full
repayment on or before December 23, 1998. On January 21, 1998, the Company
entered into the FINOVA Agreement (for $7.1 million), which line was increased
to $7.6 million in July 1998. The Company recently received from FINOVA verbal
approval to increase the aforesaid line by $1 million (to $8.6 million) for a
period through and until December 31, 1998, at which time the line shall revert
to $7.6 million. The FINOVA Agreement expires on August 3, 2000, subject to
yearly extensions. The line of credit is secured by all of the Company's assets
and by letters of credit in the sum of $3,000,000. The credit line requires the
Company to continue to meet certain financial covenants, among other
requirements, which if not met could cause the line of credit to terminate. The
Company's inability to pay or refinance such line of credit or to repay the Amir
Loan when due would have a material adverse affect on the business operations.
See "Summary - Financing" and "Risk Factor No. 7 - Need for Additional
Financing."
In addition, the Company relies on credit terms from its suppliers and
manufacturers to purchase nearly all of its inventory. Credit terms vary from
company to company and are based upon many factors, including the ordering
company's financial condition, account history, type of product, and the time of
year the order is placed. Such credit arrangements vary for reasons both within
and outside the control of the Company. In past years, prior to fiscal 1998, the
Company's credit lines decreased due to the Company's then poor financial
condition. Recently, the Company has seen a significant increase in its credit
lines based on its improved financial condition and its ability generally to
remain current with its accounts payable. There can be no assurance that the
Company's credit lines or the terms thereof will not once again be reduced or
terminated altogether in the future. The reduction or termination of existing
credit lines or the loss of major suppliers would have a material adverse effect
on the Company's business.
5. Competition. The toy and hobby products market is highly competitive.
Though the Company's New Stores offer a combination of traditional, educational,
new electronic interactive, specialty, and collectible toys and items, the
Company remains in direct competition with local, regional, and national toy
retailers and department stores, including Toys R Us (considered to be the
dominant toy retailer in the United States), Kay Bee Toy Stores, K-Mart, Wal
Mart, and various other discount and retail chain stores, which carry various
mixes of toys such as those carried by the Company's New Stores. The Company
competes for the educational toy customer with other specialty stores such as
Disney Stores, Warner Bros. Stores, Learning Smith, Lake Shore, Zainy Brainy,
and Noodle Kidoodle. Most of the Company's larger competitors are located in
free-standing stores, not malls. Kay Bee stores however, are located in malls,
though their product line is different than the Company's. In addition, the toy
and hobby products market is particularly characterized by large retailers and
discount stores with intensive advertising and marketing campaigns and with
deeply discounted pricing of such products. The Company competes as to price,
personnel, service, speed of delivery, and breadth of product line. Many of the
Company's competitors have more extensive research and development, marketing
and customer support capabilities, and greater financial, technological, and
other resources than those of the Company. Accordingly, there can be no
assurance that the Company will be successful in its competition against same or
that it will be able to distinguish itself from such competitors. Combining the
traditional and educational toy segments of the market into one retail location
is believed to be a unique concept that should prove to differentiate the
Company's New Stores from the stores of its larger or similar size competitors.
However, there can be no assurance that such competitors will not also embrace
this concept and vary their product mix so as to compete directly with the
Company's New Stores.
<PAGE>
6. Narrow Profit Margins and Need to Control Expenses and Other Charges.
The Company's operating history has been characterized by narrow profit margins,
though recently its margins have increased through the refocus of its product
mix. Nonetheless the Company's earnings will continue to depend significantly on
its ability to (i) purchase its products on favorable terms; (ii) obtain store
locations on favorable price and credit terms; (iii) retail a large volume and
variety of products efficiently; and (iv) provide quality support services.
Moreover, small increases in expenses or other charges to income could have a
material adverse effect on the Company's results of operations. There can be no
assurance that the Company will be able to generate sufficient revenues or
maintain sufficient control over expenses and other charges to increase
profitability. Though the Company has within the past fiscal year increased
gross profit margins, it has not to date posted a net profit in any quarter.
7. Need for Additional Financing. In order to continue implementing its new
business plan, the Company shall require additional funds to (i) open New
Stores; (ii) redesign its Original Stores; and (iii) finance its losses, if any.
If, for any reason, such estimates prove inaccurate, the Company's only
recourse, outside its existing $8.6 million line of credit with FINOVA (which
shall revert to $7.6 million after December 31, 1998) and its $1 million Amir
Loan (which the Company must repay by December 23, 1998), will be to seek
additional financing via the sale of additional equity or debt securities in a
future public or private transaction. There can be no assurance, however, that
such financing indeed will be available or that it will be available at prices
and/or terms acceptable to the Company. See "Summary - Financing" and Risk
Factor No. 4 - Dependence on FINOVA Credit Line, Supplier Credit, and Loans ."
8. Seasonality. The Company's business is highly seasonal with a large
portion of its revenues (approximately 30% to 40% of the Company's annual net
sales) and profits being derived during the months of October through December.
Accordingly, the Company must obtain substantial short-term borrowings during
the first three quarters of the calendar year to purchase inventory and finance
capital and operating expenditures. Historically, these borrowings have been
repaid after the fourth quarter
9. Reliance Upon Management. The Company is dependent upon the personal
efforts and abilities of its management, none of whom has an employment
agreement with the Company. The loss of services of Richard Brady (Chief
Executive Officer), James Frakes (Chief Financial Officer and Secretary), or
Harold Rashbaum (the Company's Chairman of the Board) would adversely affect the
business of the Company. The Company recently obtained a "key-man" life
insurance policy, in the amount of $5,000,000, on Richard Brady and has applied
for such a policy on Ilan Arbel, president of UTTC, the Company's parent.
10. Limited Utility of Tax Loss Carryforwards. At March 31, 1998, the
Company had net operating loss carryforwards of approximately $9,800,000 for
federal purposes and approximately $5,300,000 for state purposes. Such
carryforwards are utilized to offset future taxable income. Under Section 382 of
the Internal Revenue Code of 1986, as amended, utilization of prior net
operating loss carryforwards is limited after an ownership change, as defined in
Section 382, to an annual amount equal to the value of a company's outstanding
stock immediately before the date of the ownership change multiplied by the
federal long-term tax-exempt rate. Due to the change in ownership in connection
with the spin-off of the Company's shares by American Toys, Inc. ("Atoys"), its
former parent company, to Atoys' stockholders, including UTTC, the Company is
subject to limitations on the use of its net operating loss carryforwards
available as of March 31, 1998. In the event a net operating loss is incurred in
the year ending March 31, 1999, use of such net operating loss carryforwards
could also be limited as a result of this Offering, grants of options under the
1994 Stock Option Plan, grants of options under the Employee Stock Ownership
Plan, and other events. In the event the Company achieves profitable operations,
any significant limitation on the utilization of the net operating loss
carryforward will have the effect of increasing the Company's tax liability and
reducing income and available cash resources.
<PAGE>
11. Possible Future Dilution. The Company has authorized capital stock of
66,500,000 shares comprised of 51,000,000 shares of Common Stock, par value
$0.01 per share, 10,000,000 shares of Series E Stock, par value $0.01 per share,
and 5,500,000 shares of Series F Preferred Stock, par value $0.01 per share.
Inasmuch as the Company may use authorized but unissued shares of Common Stock
and/or Series E Stock without shareholder approval, there may be further
dilution of the shareholders' interests. The Company may additionally sell
equity and/or debt securities in a future public offering or private transaction
to raise additional capital which may dilute the interests of potential
investors in this Offering. In addition, the Company may, in the future, donate
shares of its Common Stock to its ESOP plan, which donation may dilute the
interests of potential investors in this Offering.
There are 5,883,903 shares of Series E Stock currently outstanding, all of
which are restricted and none of which is convertible into shares of Common
Stock until two years from issuance. Of the 5,883,903 shares of Series E Stock,
3,450,570 shares are subject to a two-year lock-up from the date of issuance.
Notwithstanding the foregoing, conversion of the Series E Stock (or exercise of
the Company's 2,000,000 outstanding Series E Warrants) will have the effect of
decreasing the net tangible book value per share of Common Stock.
12. Dilutive Effect of Employee Stock Ownership Plan. In May 1994, the
Company adopted resolutions approving a 401(k) Employee Stock Ownership Plan
(the "Plan" or "ESOP") which will cover substantially all employees of the
Company. The Plan includes provisions for both an ESOP and a 401(k) Plan. The
ESOP allows only contributions by the Company, which contributions can be made
annually at the discretion of the Company's Board of Directors. The ESOP has
been designed to invest primarily in the Company's stock. The 401(k) portion of
the Plan is contributed to by the employees of the Company through payroll
deductions. The Company does not match contributions to the 401(k).
Contributions to the ESOP may result in an expense resulting in a reduction in
earnings and may dilute the ownership interests of persons who acquire
Securities in this Offering.
13. Limited Market for Securities. At present, there is a limited market
for the Company's Common Stock, Series E Stock, and Series E Warrants. There is
no assurance that a regular trading market will develop for such Securities or
that if one does develop, it will be sustained; therefore, purchasers may be
unable to resell the Securities offered herein at or near their original
Offering price or at any price. Furthermore, it is unlikely that a lending
institution will accept the Company's Securities as pledged collateral for loans
even if a regular trading market therefor does develop.
14. No Dividends and None Anticipated. The Company has not paid any
dividends; nor, because of its present financial status, does it have any
intention to issue any dividends in the future. The Company expects that it will
reinvest any profits in its business.
15. Significant Ownership by Principal Stockholder. UTTC owns approximately
59.3% of the Company's Common Stock. As a result, UTTC and its management,
through their Common Stock holdings, are able to exercise control over the
policies and direction of the Company.
16. Future Sales of Stock by Stockholders. The Company's outstanding
capital stock consists of 4,103,525 shares of Common Stock, 5,883,903 shares of
Series E Stock, and 2,000,000 Series E Warrants. In accordance with the
Company's Series E Offering in December 1997, all Securities held by the
Company's Officers, Directors and principal stockholders are subject to a two
year lock-up agreement with the underwriter of the Company's offering: the
lock-up expires in December 1999. All " restricted securities" as that term is
defined under the Securities Act, in the future, may be sold only if the holder
is in compliance with Rule 144 promulgated under the Securities Act or pursuant
to an effective registration statement. Except for the Securities subject to the
lock-up referenced above, most Securities issued were issued in excess of one
year ago and may be sold in accordance with Rule 144. The sale of Securities by
current stockholders, whether pursuant to Rule 144 or otherwise, may have a
depressing effect upon the market price of the Company's Securities.
<PAGE>
17. Penny Stock Regulation. The Commission has adopted regulations that
generally define a "penny stock" to be any equity security that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include the following: (i)
an equity security listed on Nasdaq or a stock exchange; or (ii) an equity
security whose issuer has (a) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for three years; (b) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years; or (c) average revenues of at least $6,000,000 for
the preceding three years. Since the Company has had more than $6,000,000 in
revenues for the preceding three years, it is not a designated penny stock.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated therewith. If the
Company's securities were to become subject to the regulations applicable to
penny stocks, the market liquidity for the securities would be severely
affected, limiting the ability of broker-dealers to sell the securities and the
ability of purchasers in this Offering to sell their securities in the secondary
market. There is no assurance that trading in the Company's Securities will not
be subject to these or other regulations that would adversely affect the market
for such securities.
18. Indemnification of Officers and Directors. As permitted under the
Delaware General Corporation Law, the Company's Certificate of Incorporation
provides for the indemnification and elimination of the personal liability of
the Directors to the Company or any of its shareholders for damages related to
breaches of their fiduciary duties as Directors. As a result of the inclusion of
such provision, shareholders may be unable to recover damages against Directors
for actions taken by them which constitute negligence or gross negligence or
that are in violation of their fiduciary duties. The inclusion of this provision
in the Company's Certificate of Incorporation may reduce the likelihood of
derivative litigation against Directors and other types of shareholder
litigation.
19. Litigation. The Company is currently in litigation in connection with
the closing last year of its Rialto store. If the court finds in favor of
plaintiff, the outcome could have an adverse effect on the Company and its
operations. Such outcome could affect the Company's implementation of its
business plan. If the Company's funds are insufficient to meet an adjudicated
financial obligation, the Company may be forced to seek additional financing to
implement its business plan.
20. Year 2000. 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 cost 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.
The Company does not have any guaranteed estimates as to the cost of replacing
its current system, however, and thus there can be no assurance that the cost
will not be significantly greater.
Beyond the above noted internal year 2000 system 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. There can be no assurance,
however, that such issues will not arise or that if they do arise they will not
have an adverse effect on the Company.
<PAGE>
21. Forward Looking Statements. The statements contained herein that are
not historical facts are "forward-looking statements" which can be identified by
the use of forward looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates," the negatives or other variations thereof or
comparable terminology, and include statements as to the intent, belief, or
current expectations of the Company and its Directors, Officers, and management
with respect to the future operations, performance, or position of the Company.
These forward looking statements are predictions. No assurances can be given
that the future results indicated, whether expressed or implied, will be
achieved. While sometimes presented with numerical specificity, these forward
looking statements are based upon a variety of assumptions relating to the
business of the Company, which, although considered reasonable by the Company,
may not be realized. Because of the number and range of the assumptions
underlying the Company's forward looking statements, many of which are subject
to significant uncertainties and contingencies beyond the reasonable control of
the Company, some of the assumptions inevitably will not materialize, and
unanticipated events and circumstances may occur subsequent to the date herein.
These forward looking statements are based on current information and
expectations, and the Company assumes no obligation to update. Therefore, the
actual experience of the Company and results achieved during the period covered
by any particular forward looking statement may differ materially from those
anticipated. Consequently, the inclusion of forward looking statements should
not be regarded as a representation by the Company or any other person that
these estimates will be realized, and actual results may vary substantially.
There can be no assurance that any of these expectations will be realized or
that any of the forward looking statements contained herein will prove accurate.
6
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information at September 25, 1998
and as adjusted to reflect the sale of the shares of Common Stock by the Selling
Securityholders.
<TABLE>
<CAPTION>
Shares of Shares of
Common Shares Series E Shares of Shares of Shares of
Stock Stock Common Common Series E Percentage
Name & Address of Securityholder Owned Owned Stock/ Stock Stock of Shares
Prior to Prior to Series E Owned Owned Owned
the the Stock After the After the After the
Offering Offering Offered Offering Offering Offering
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate Relations Group, Inc.
1947 Lee Road 350,000/
Winter Park, FL 32789 350,000(1) 450,000(2) 450,000 0 0 0
Roger Tichenor
Corporate Relations Group, Inc.
1947 Lee Road 25,000/
Winter Park, FL 32789 25,000(1) 75,000(3) 75,000 0 0 0
Roberto E. Vietia
Corporate Relations Group, Inc.
1947 Lee Road 25,000/
Winter Park, FL 32789 25,000(1) 75,000(3) 75,000 0 0 0
Joseph H. Landis
Corporate Relations Group, Inc.
1947 Lee Road 25,000/
Winter Park, FL 32789 25,000(1) 75,000(3) 75,000 0 0 0
James Skalko
Corporate Relations Group, Inc.
1947 Lee Road 25,000/
Winter Park, FL 32789 25,000(1) 75,000(3) 75,000 0 0 0
- ----------------------
</TABLE>
(1) Includes shares issuable upon the exercise of options at an exercise
price of $0.78125 per share, in accordance with the CRG Consulting Agreement.
1/3 of the shares underlying same shall vest on the Effective Date of this
Prospectus and shall be exercisable for a period of 60 days thereafter; 1/3 of
the shares underlying same shall vest on the 60th day after the Effective Date
and shall be exercisable for a period of 60 days thereafter; and 1/3 of the
shares underlying same shall vest on the 12 th day after the Effective Date and
shall be exercisable for a period of 240 days thereafter.
(2) Includes 400,000 shares issuable upon the exercise of options at an
exercise price of $2.25 per share, in accordance with the CRG Consulting
Agreement, and 50,000 shares issuable under the terms of the CRG Consulting
Agreement for expenses. The shares underlying the options are subject to the
same vesting schedule as described in footnote (1) above.
(3) Includes shares issuable upon the exercise of options at an exercise
price of $2.25 per share, in accordance with the CRG Consulting Agreement. The
shares underlying the options are subject to the same vesting schedule as
described in footnote (1) above.
7
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus covers the resale of up to an aggregate of (i) 750,000
shares of Play Co. Toys & Entertainment Corp. (the "Company") Series E Preferred
Stock, par value $0.01 per share (the "Series E Stock"), 700,000 of which shares
are issuable upon the exercise of options; and (ii) 450,000 shares of the
Company's Common Stock, issuable upon the exercise of options offered hereby by
the Selling Securityholders. This Prospectus shall be delivered by said Selling
Securityholders upon the sale of any securities by said holders. The shares of
Common Stock and Series E Stock issuable upon the exercise of the Options and
the shares of Common Stock into which the Series E Stock are convertible may be
sold from time to time by the Selling Securityholders. Sales of such Securities
or even the potential of such sales at any time may have an adverse effect on
the market prices of the Securities offered hereby. See "Risk Factors" and
"Selling Securityholders."
The sale of the Securities by the Selling Securityholders may be effected
from time to time in negotiated transactions, at fixed prices which may be
changed, and at market prices prevailing at the time of sale, or a combination
thereof. The Selling Securityholders may effect such transactions by selling
directly to purchasers or to or through broker-dealers which may act as agents
or principals, including in a block trade transaction in which the broker or
dealer will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transactions or purchases
by a broker or dealer as principal and resale by such broker or dealer for its
own account pursuant to this Prospectus, or in ordinary brokerage transactions
and transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers engaged by the Selling Securityholders may arrange for other
brokers or dealers to participate. Such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the Selling
Securityholders and/or the purchasers of the securities, as applicable, for
which such broker-dealers may act as agents or to whom they sell as principal,
or both (which compensation as to a particular broker-dealer might be in excess
of customary commissions). The Selling Securityholders and any broker-dealers
that act in connection with the sale of the shares of Common Stock and/or by the
Selling Securityholders might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Act. In that connection, the Company has agreed to
indemnify the Selling Securityholders and the Selling Securityholders have
agreed to indemnify the Company against certain civil liabilities including
liabilities under the Act.
At the time a particular offer of its securities is made by or on behalf of
the Selling Securityholders, to the extent required, a prospectus supplement
will be distributed which will set forth the number of shares of Common Stock
being offered and the terms of the offering, including the name(s) of any
underwriters, dealers, or agents, the purchase price paid by any underwriter for
shares purchased from the Selling Securityholders and any discounts, commission,
or concessions allowed or re-allowed or paid to dealers, and the proposed
selling price to the public.
Under the Exchange Act and the rules and regulations thereunder, any person
engaged in a distribution of the Company's Securities offered by this Prospectus
may not simultaneously engage in market-making activities with respect to such
securities during the applicable "cooling off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and rules and regulations thereunder, including without
limitation, Regulation M, in connection with transactions in such securities,
which provisions may limit the timing of purchases and sales of the securities
by the Selling Securityholders.
Reports to Shareholders
The Company has adopted March 31 as its fiscal year end. The Company will
furnish annual reports to its shareholders containing audited financial
statements, together with an opinion by independent certified public
accountants. In addition, the Company may, in its discretion, furnish to
shareholders interim quarterly reports containing unaudited financial
information.
LEGAL OPINIONS
Legal matters relating to the Securities offered hereby will be passed on
for the Company by its counsel, Klarman & Associates, David S. Klarman, Esq.,
2303 Camino Ramon, Suite 200, San Ramon, California 94583.
EXPERTS
The audited financial statements of the Company for the years ended March
31, 1998 and 1997 included in Form 10-KSB for the Company's fiscal year ended
March 31, 1998, incorporated by reference in this Prospectus, have been audited
by Haskell & White LLP, Certified Public Accountants, to the extent and for the
periods set forth in their report incorporated herein by reference, and are
incorporated herein in reliance upon such report given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-3 under the Securities Act with respect to the
shares of Common Stock and Series E Stock to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement, some
of which is incorporated by reference from prior filings of the Company. For
further information with respect to the Company and the shares offered hereby,
reference is made to the Registration Statement and all reports incorporated
herein by reference, including the exhibits thereto, which may be copied and
inspected at the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549.
8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee $670.83
Accounting Fees (1)2,500.00
Legal Fees (1)15,000.00
Printing Fees (1) 2,500.00
Miscellaneous (1)2,500.00
Total (1)23,170.83
</TABLE>
(1) Estimated.
Item 15. Indemnification of Directors and Officers.
As permitted under the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides for the indemnification and elimination of
the personal liability of the Directors to the Company or any of its
shareholders for damages related to breaches of their fiduciary duties as
Directors. As a result of the inclusion of such provision, shareholders may be
unable to recover damages against Directors for actions taken by them which
constitute negligence or gross negligence or that are in violation of their
fiduciary duties. The inclusion of this provision in the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
Directors and other types of shareholder litigation.
As permitted under the Delaware Corporation Law, the Company's Certificate
of Incorporation and By-laws provide for indemnification of a Director or
Officer under certain circumstances against reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of an action brought against him by reason of his being a Director or
Officer. In addition, the Company's charter documents provide for the
elimination of Directors' liability to the Company or its shareholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law, or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, Officers and controlling persons of the
Company pursuant to any charter, provision, by-law, contract, arrangement,
statute, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a Director, Officer, or controlling person of the Company in the successful
defense of any such action, suit, or proceeding) is asserted by such Director,
Officer or controlling person of the Company in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. Exhibits.
All exhibits - except those designated with an asterisk (*), which are
filed herewith, and those designated with double asterisks (**) which shall be
filed as an amendment to this registration statement on Form S-3 - have been
previously filed with the Commission, either within the Form SB-2/A filed
September 30, 1997 file No. 333-32051 (SB-2.97), or in connection with the
Company's Registration Statement on Form SB-2, dated November 2, 1994, under
file No. 33-81940-NY ("SB-2.94"), or pursuant to the referenced Exchange Act
report and pursuant to 17 C.F.R. ss.230.411 and are incorporated by reference
herein.
<TABLE>
<CAPTION>
<S> <C>
1.1 - Form of Underwriting Agreement. (Incorporated by reference into
herein from SB-2.94).
3.1 - Certificate of Incorporation of the Company dated June 15, 1995
(Incorporated by reference into herein from SB-2.94).
3.2 - Amendment to Certificate of Incorporation of the Company, filed July 2, 1997.
(Incorporated by reference into herein from SB-2.97).
3.2(a) - Amendment to Certificate of Incorporation of the Company, filed August 11, 1997.
(Incorporated by reference into herein from SB-2.97).
3.3 - By-Laws of the Company (Incorporated by reference into herein from SB-2.94).
4.1 - Specimen Common Stock Certificate (Incorporated reference herein
from the SB-2.94).
4.2 - Specimen Warrant Certificate. (Incorporated by reference into herein from SB-2.97).
4.3 - Specimen Series E Preferred Stock Certificate. (Incorporated by reference
into herein from SB-2.97).
4.4 - ESOP Plan (incorporated by reference herein from the SB-2.94).
4.5 - Form of Warrant Agreement between the Company, the Underwriter and
Continental Stock Transfer & Trust Company.
5.0* - Opinion of Klarman & Associates
10.102* - Amendment No. 2 to FINOVA Loan Agreement
10.103** - Loan Agreement with Amir Overseas Capital Corp.
23(a)* - Consent of Haskell & White LLP.
23(b)* - Consent of Klarman & Associates is included in the opinion filed as Exhibit 5.0
</TABLE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
Post-Effective Amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent Post-Effective
Amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement, including but
not limited to any addition or deletion of a managing Underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such Post-Effective Amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of Post-Effective Amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the Act, each
Post-Effective Amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) For purposes of determining any liability under the Securities Act of
1933, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, Officers and controlling persons of the Company,
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a Director, Officer or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by such
Director, Officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, on the 22nd day of
September 1998.
Play Co. Toys & Entertainment Corp.
By: /s/ Richard Brady
Richard Brady
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Richard Brady Chief Executive Officer 09/22/98
Richard Brady President and Director Date
/s/ James B. Frakes Chief Financial Officer, Secretary 09/22/98
James B. Frakes and Director Date
/s/ Harold Rashbaum Chairman of the Board 09/22/98
Harold Rashbaum Date
/s/ Moses Mika Director 09/22/98
Moses Mika Date
</TABLE>
Exhibit 5.0
Opinion of Klarman & Associates
Klarman & Associates
Attorneys at Law
2303 Camino Ramon, Suite 200
San Ramon, California 94583
(925) 327-6200
--------
Facsimile
(925) 830-8821
<TABLE>
<CAPTION>
<S> <C> <C> <C>
David S. Klarman* 14 East 60th Street, Suite 402
------- New York, New York 10022
Marie Elena Cocchiaro** (212) 750-7500 (phone)
F. Jay Faustini, admission pending (212) 688-1797 (fax)
*Licensed also in NY
**Licensed in NY, NJ, PA, and MD only
</TABLE>
September 25, 1998
Securities and Exchange Commission
Washington DC 20549
Re: Play Co. Toys & Entertainment Corp.
Registration Statement on Form S-3
File No. 333-
Ladies and Gentlemen:
As counsel to Play Co. Toys & Entertainment Corp. (the "Registrant"),
with respect to the above Registration Statement on Form S-3 relating to the
registration of up to an aggregate 450,000 shares of Common Stock (all of which
are issuable upon the exercise of options) and 750,000 shares of Series E
Preferred Stock (700,000 of which are issuable upon the exercise of options) to
be sold by certain Selling Securityholders, I have examined the Certificate of
Incorporation and By-Laws of the Registrant, as amended through the date hereof,
and such other materials as I have deemed pertinent, and it is my opinion (i)
that the 50,000 shares of Series E Preferred stock, when issued against payment
therefor, will be legally issued, fully paid, and non-assessable; and (ii) that
the 450,000 shares of Common Stock and the 700,000 shares of Series E Preferred
Stock, when issued and paid for in accordance with the terms of the option
agreements respective thereto, will be legally issued, fully paid, and
non-assessable.
I consent to the use of this opinion as an exhibit to said Registration
Statement on Form S-3 and further consent to the use of our name wherever
appearing in said Registration Statement, including the Prospectus constituting
a part thereof, and in any amendment thereto.
Very truly yours,
/s/ David S. Klarman
David S. Klarman
Exhibit 23(a)
Consent of Haskell & White LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of Play Co. Toys & Entertainment Corp. on Form S-3 of our report dated May 15,
1998, appearing in the Annual Report on Form 10-KSB and 10-KSB/A-1 of Play Co.
Toys & Entertainment Corp. for the year ended March 31, 1998.
HASKELL & WHITE LLP
Newport Beach, California
September 22, 1998
Exhibit 10.102
AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
This Amendment No. 2 to Loan and Security Agreement (this "Amendment")
is entered into as of this ____ day of ___________, 1998, by and between FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), and PLAY CO. TOYS &
ENTERTAINMENT CORP., a Delaware corporation ("Borrower").
W I T N E S S E T H :
WHEREAS, Borrower and Lender entered into a Loan and Security Agreement
dated as of January 21, 1998 which was amended pursuant to that certain
Amendment No. 1 to Loan and Security Agreement dated as of July 24, 1998 (the
aforementioned Loan and Security Agreement as amended by the aforementioned
Amendment No. 1, collectively the "Loan Agreement"), that evidences a loan from
Lender to Borrower; and
WHEREAS, Borrower has asked Lender to modify the Loan Agreement in
accordance with the terms of, and subject to the conditions contained in, this
Amendment and Lender is willing so to amend the Loan Agreement, upon the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of these recitals, the covenants
contained in this Amendment, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender and Borrower
agree as follows:
1. Definitions. Unless otherwise defined in this Amendment, all capitalized
terms used herein which are defined in the Loan Agreement have the same meaning
as set forth in the Loan Agreement.
2. Loan Agreement. The Loan Agreement is amended as follows:
2.1 Definitions. Section 1 is hereby amended by adding the following
definitions:
"'Amir' means Amir Overseas Capital Corp., a _____________ corporation and
its successors and assigns."
"'Second Amendment' means that certain Amendment No. 2 to Loan and Security
Agreement between Lender and Borrower dated as of _________________, 1998."
"'Second Amendment Effective Date' means ____________, 1998, the date upon
which the Second Amendment became effective pursuant to the terms and upon the
conditions thereof."
2.2 Subordinating Creditor. The definition of Subordinating Creditor
appearing in Section 1 shall be amended and restated in its entirety to read as
follows:
"'Subordinating Creditor' means each of (i) Multimedia, (ii) Hoepner, (iii)
Guarantor and (iv) Amir."
2.3 Permitted Encumbrances. The definition of Permitted Encumbrances
appearing in the Borrower Information section of the Schedule shall be amended
by deleting subparagraph (d) thereof and substituting the following:
"(d) Subordinate lien in all of the Collateral in favor of Amir, securing
Borrower's obligations to Amir with respect to a One Million Dollar ($1,000,000)
Promissory Note dated September ___, 1998 executed by Borrower in favor of
Amir."
2.4 Total Facility. The Total Facility section of the Schedule shall be
amended to read as follows:
"The 'Total Facility' is: Beginning on the Second Amendment Effective Date
and ending on December 31, 1998, Eight Million Six Hundred Thousand Dollars
($8,600,000) and at all times thereafter Seven Million Six Hundred Thousand
Dollars ($7,600,000)."
2.5 Revolving Credit Loans. Section 2.2(a)(i) of the Schedule is hereby
amended to read as follows:
"(i) Commencing on the Second Amendment Effective Date and ending on
December 31, 1998, Six Million One Hundred Thousand Dollars ($6,100,000) and at
all times thereafter Five Million One Hundred Thousand Dollars ($5,100,000),
less, in each case, the amount of the Loan Reserves; or . . ."
3. Matters Concerning ABC. Borrower represents and warrants to Lender that
the entire amount of Borrower's previous indebtedness owed to ABC has been
converted to equity.
4. Effect as an Amendment. Other than as specifically set forth in this
Amendment, the remaining terms of the Loan Agreement and the other Loan
Documents shall remain in full force and effect and shall remain unaffected and
unchanged except as specifically amended hereby. In the event of any conflict
between the terms and conditions of this Amendment and any of the other Loan
Documents, the provisions of this Amendment shall control. Each reference to in
the Loan Agreement to "this Agreement" shall be deemed to refer to the Loan
Agreement as amended through and including the Second Amendment, and each
reference in any other Loan Document to the Loan Agreement as amended through
and including the Second Amendment.
5. No Waiver. This Amendment in no way acts as a waiver by Lender of any
breach, default, Event of Default or condition which, with the giving of notice
or passing of time or both, would constitute an Event of Default, of Borrower
(whether known or unknown to Lender) or as a release or relinquishment of any of
the liens, security interests, rights or remedies securing payment and
performance of the Obligations or the enforcement thereof. Nothing contained in
this Amendment is intended to or shall be construed as relieving any person or
entity, whether a party to this Amendment or not, of any of such person's or
entity's obligations to Lender.
6. Amendment Fee. In consideration of Lender's agreement to enter into this
Amendment and to the modification to the Loan Documents described herein,
Borrower agrees to pay on or before the Second Amendment Effective Date the
amount of TEN THOUSAND DOLLARS ($10,000) (the "Amendment Fee"). Borrower and
Lender acknowledge that Lender may withhold the Amendment Fee from the proceeds
of the Total Facility, to the extent the Amendment Fee is not paid prior to
disbursement thereof.
7. Conditions Precedent. This Amendment will not be effective unless and
until each of the following conditions precedent have been satisfied, in form,
manner and substance satisfactory to Lender prior to the Second Amendment
Effective Date:
(a) Borrower shall have delivered or caused to be delivered to Lender the
following documents, all of which shall be properly completed, executed and
otherwise satisfactory to Lender:
(i) This Amendment;
(ii) Consent of Guarantor in the form attached hereto and incorporated
herein by this reference;
(iii) A corporate resolution of each of Borrower and Guarantor, approving
the transactions contemplated hereby to which it is a party;
(iv) A Subordination Agreement between Lender and Amir in a form
satisfactory to Lender;
(v) Evidence satisfactory to Lender that the financing statements against
Borrower in favor of ABC have been terminated;
(vi) Evidence satisfactory to Lender that Amir and Hoepner have executed a
Subordination Agreement with respect to Borrower's indebtedness owed to Amir;
(vii) Such other items as Lender may reasonably require or reasonably deem
necessary.
(b) There shall not then exist an Event of Default or any act or event
which with notice, passage of time, or both would constitute an Event of
Default.
(c) All the representations and warranties of the Loan Parties in the Loan
Documents shall be true and correct, in all material respects, before and after
giving effect to the making of this Amendment.
(d) Borrower shall have paid all closing costs, recording fees and taxes,
appraisal fees and expenses, travel expenses, fees and expenses of Lender's
counsel, and all other costs and expenses incurred by Lender in connection with
the preparation of, closing of and disbursement of the advances pursuant to this
Amendment, which costs, fees and expenses may be payable from the first advance
made pursuant to this Amendment.
(e) Borrower shall have paid the Amendment Fee.
8. Indebtedness Acknowledged. Borrower acknowledges that the indebtedness
evidenced by the Loan Documents is just and owing and agrees to pay such
indebtedness in accordance with the terms of the Loan Documents. Borrower
further acknowledges and represents that no event has occurred and no condition
presently exists that would constitute a default or event of default by Lender
under the Loan Agreement or any of the other Loan Documents, with or without
notice or lapse of time.
9. Validity of Documents. Borrower hereby ratifies, reaffirms, acknowledges
and agrees that the Loan Agreement and the other Loan Documents represent valid,
enforceable and collectable obligations of Borrower, and that Borrower presently
has no existing claims, defenses (personal or otherwise) or rights of setoff
whatsoever with respect to the Obligations of Borrower under the Loan Agreement
or any of the other Loan Documents. Borrower furthermore agrees that it has no
defense, counterclaim, offset, cross-complaint, claim or demand of any nature
whatsoever which can be asserted as a basis to seek affirmative relief or
damages from Lender.
10. Reaffirmation of Warranties. Borrower hereby reaffirms to Lender each
of the representations, warranties, covenants and agreements of Borrower as set
forth in each of the Loan Documents with the same force and effect as if each
were separately stated herein and made as of the date hereof. Borrower
represents and warrants to Lender that with respect to the financing transaction
herein contemplated, no Person is entitled to any brokerage fee or other
commission and Borrower agrees to indemnify and hold Lender harmless against any
and all such claims.
11. Other Writings. Lender and Borrower will execute such other writings as
may be necessary to confirm or carry out the intentions of Lender and Borrower
evidenced by this Amendment.
12. Entire Agreement. The Loan Documents as modified by this Amendment
embody the entire agreement and understanding between Borrower and Lender, and
supersede all prior agreements and understandings between said parties relating
to the subject matter thereof.
13. Counterparts; Telefacsimile Execution. This Amendment (including the
consents attached hereto) may be executed in any number of separate
counterparts, all of which when taken together shall constitute one and the same
instrument, admissible into evidence, notwithstanding the fact that all parties
have not signed the same counterpart. Delivery of an executed counterpart of
this Amendment by telefacsimile shall be equally as effective as delivery of a
manually executed counterpart of this Amendment. Any party delivering an
executed counterpart of this Amendment by telefacsimile shall also deliver a
manually executed counterpart of this Amendment, but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability, and
binding effect of this Amendment.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first written above.
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
Name:
Title:
PLAY CO. TOYS & ENTERTAINMENT CORP., a Delaware corporation
By:
Name:
Title:
<PAGE>
CONSENT OF GUARANTOR
The undersigned ("Guarantor") hereby executes this Consent for
the purpose of (i) evidencing Guarantor's consent to the execution and
performance of the foregoing Amendment No. 2 to Loan and Security Agreement (the
"Second Amendment") by Lender and Borrower, (ii) reaffirming the terms of the
Continuing Guaranty Agreement executed by Guarantor in favor of Lender, (iii)
evidencing Guarantor's agreement that the Liabilities as set forth and defined
in the Continuing Guaranty Agreement shall, for all purposes, include the Loan
Documents, as amended by the Second Amendment, and shall further include all
additional amounts which may be funded or advanced to Borrower pursuant to the
Loan Agreement described above as amended by the Second Amendment, and (iv)
ratifying and affirming all terms and provisions of the Continuing Guaranty
Agreement. Except to the extent otherwise indicated, terms used herein with
initial capital letters shall have the meanings set forth in the Loan Agreement,
as amended by the Second Amendment.
Guarantor agrees that it has no defense, counterclaim, offset,
cross-complaint, claim or demand of any nature whatsoever which can be asserted
as a basis to seek affirmative relief or damages from Lender.
IN WITNESS WHEREOF, the undersigned has hereunto executed this
Consent as of this ____ day of _____________, 1998.
UNITED TEXTILES & TOYS CORPORATION,
a Delaware corporation
By:
Name:
Title:
