U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 O-25030
PLAY CO. TOYS & ENTERTAINMENT CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
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<CAPTION>
<S> <C>
Delaware 95-3024222
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
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550 Rancheros Drive, San Marcos, California 92069
(Address of Principal Executive Offices)
(760) 471-4505
(Issuer's Telephone Number, Including Area Code)
N/A (Former Name, Former Address, and Former Fiscal Year, if Changed Since
Last Report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest practicable date: Common Stock, $0.01 par value:
5,548,857 shares outstanding as of August 12, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Page Number
Item 1. FINANCIAL STATEMENTS
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Condensed Balance Sheets as of June 30, 1999 (unaudited) 3
and March 31, 1999.
Condensed Statements of Operations and Comprehensive Net Loss for the
Three Months Ended June 30, 1999 and 1998 (unaudited). 4
Condensed Statements of Cash Flows for the Three Months Ended
June 30, 1999 and 1998 (unaudited). 5
Notes to Condensed Financial Statements 6-7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
8-15
PART II. OTHER INFORMATION
16
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
Item 3. DEFAULTS UPON SENIOR SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16
Signatures 17
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<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
(A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
CONDENSED BALANCE SHEETS
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<CAPTION>
ASSETS June 30,1999 March 31, 1999
(unaudited) (audited)
--------------- -------------
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Current ........................................................................................ $ 392,745 $ 125,967
Accounts receivable ............................................................................ 131,836 98,276
Merchandise inventories ........................................................................ 12,247,019 11,506,284
Other current assets ........................................................................... 1,387,622 1,660,263
------------ ------------
Total current assets ........................................................................... 14,159,222 13,390,790
Property and Equipment,
net of accumulated
depreciation and
amortization of $4,283,071
and $4,058,603, respectively .................................................................. 5,583,035 5,348,175
Deposits and other assets ...................................................................... 2,922,838 2,411,427
------------ ------------
$ 22,665,095 $ 21,150,392
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1999 March 31, 1999
Current
Accounts payable ............................................................................... $ 7,931,269 $ 5,611,442
Accrued expenses and other liabilities ......................................................... 327,025 595,008
Current portion of notes payable and capital leases ............................................ 1,212,088 1,352,197
------------ ------------
Total current liabilities ...................................................................... 9,470,382 7,558,647
Borrowings under financing agreement ........................................................... 8,263,713 7,814,666
Notes payable, and capital leases, net of current portion ...................................... 572,838 585,681
Deferred rent liability ........................................................................ 129,533 126,769
Total liabilities .............................................................................. 18,436,466 16,085,763
Stockholders' equity
Series E convertible preferred stock, $1 par value
10,000,000 shares authorized;
5,883,903 shares outstanding .................................................................. 6,160,074 5,682,101
Series F convertible preferred stock, $.01 par
value, 5,500,000 shares authorized; 750,000
and 0 shares outstanding, respectively (Note 3) ............................................... 62,500
Common stock, $.01 par value, 40,000,000 shares
authorized; 5,548,857 and 5,503,519 shares
Outstanding, respectively ..................................................................... 55,488 55,035
Additional paid-in-capital ..................................................................... 16,048,319 15,335,172
Accumulated deficit ............................................................................ (18,097,752) (16,007,679)
------------ ------------
Total stockholders' equity ..................................................................... 4,228,629 5,064,629
------------ ------------
$ 22,665,095 $ 21,150,392
============ ============
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
(A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE NET LOSS
(Unaudited)
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Three Months Ended June 31,
1999 1998
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Net sales ........................................................................... $ 6,508,565 $ 6,357,395
Cost of sales ........................................................... 3,763,214 3,706,331
Gross profit ............................................................ 2,745,351 2,651,064
Operating expenses:
Operating expenses 3,755,090 2,483,771
Depreciation and amortization 224,468 188,417
Total operating expenses ................................................ 3,979,558 2,672,188
Operating loss ................................................. (1,234,207) (21,124)
Interest expense:
Interest and finance charges 284,664 138,452
Amortization of debt issuance costs 30,730 27,200
Total interest expense .................................................. 315,394 165,652
Net loss ................................................. (1,549,601) (186,776)
Other comprehensive loss ....................................................... -- --
Comprehensive net loss .............................................................. $(1,549,601) $ (186,776)
Calculation of Basic and Diluted Loss Per Share:
Net loss ................................................... $(1,549,601) $ (186,776)
Effect of non-cash dividends on preferred stock (540,473) (273,806)
Net loss applicable to common shares ............................... $(2,090,074) $ (460,582)
Basic and diluted loss per common
Share and share equivalents ...................................................... $ (0.38) $ (0.11)
Weighted average number of common
Shares and share equivalents
outstanding ...................................................................... 5,525,936 4,103,525
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
(A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended June 30,
------------------------------------------
1999 1998
-------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss $ (1,549,601) $ (186,776)
Adjustments used to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization 224,468 188,417
Deferred rent 2,764 4,552
Stock compensation 56,100 10,938
Increase (decrease) from changes in:
Accounts receivable (33,560) 26,618
Merchandise inventories (740,735) (1,503,233)
Other current assets 272,641 (127,228)
Deposits and other assets (511,410) (93,072)
Accounts payable 2,319,827 1,249,369
Accrued expenses and other liabilities (267,983) (527,702)
------------------------- ----------------
Net cash used for operating activities (227,489) (958,117)
----------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (196,653) (377,028)
----------------------- ----------------
Net cash used for investing activities (196,653) (377,028)
----------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 657,500 --
Borrowings under financing agreements 8,561,047 8,099,497
Repayments under financing agreements (8,112,000) (7,023,000)
Borrowings under notes payable 200,000 --
Repayments of notes payable and capital leases (615,627) (100,883)
----------------------- ----------------
Net cash provided by financing activities 690,920 975,614
---------------------- ---------------
Net increase (decrease) in cash 266,778 (359,531)
Cash at beginning of period 125,967 648,986
---------------------- ---------------
Cash at end of period $ 392,745 $ 289,455
====================== ===============
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
Note 1. General
The interim accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. For further information, management
suggests that the reader refer to the audited financial statements for the year
ended March 31, 1999 included in its Annual Report on Form 10-KSB. Operating
results for the three-month period ended June 30, 1999 are not necessarily
indicative of the results of operations that may be expected for the year ending
March 31, 2000.
Note 2. Capital Leases
During the three-month period ended June 30, 1999, the Company entered into
several capital leases and loans to help finance the cost of opening its new
stores. The leases are for an aggregate principal amount of $262,675. They
generally carry terms of five years and bear interest at rates between 13.3% and
18.0%.
Note 3. Series F Private Placement
On May 27, 1999, pursuant to a Securities Purchase Agreement entered into
by and between the Company and several unaffiliated investors, the Company sold
750,000 unregistered shares of Series F Preferred Stock ("Series F Stock") in a
private transaction. As part of the Securities Purchase Agreement, the Company
undertook to register the Common Stock underlying the Series F Stock through the
filing of a registration statement with the Securities and Exchange Commission.
Each share of Series F Stock is convertible into two shares of Common Stock, at
the option of the holder, at any time following the effective date of the
registration statement. Each share of Series F Stock shall convert automatically
on the occurrence of the earlier of either of the following events, without
action on the part of the holder thereof: (i) two years from issuance or (ii) in
the event the closing price per share of Common Stock has been at least $5.00
for a consecutive 30 day period. The Company received net proceeds of $657,500
after deduction of all investment banking and legal and administrative fees.
Due to the beneficial conversion feature of the Series F Stock, the
proceeds have been recorded initially as additional paid in capital, which will
amortize over a 12-month period in the form of a non-cash dividend.
<PAGE>
Note 4. Subsequent Events
On July 15, 1999, Tudor Technologies, Inc. ("Tudor") - an entity of which
Mr. Moses Mika (a director of the Company) is a shareholder - as the assignee of
an option to acquire 25% of the outstanding shares of the common stock of the
Company's subsidiary, Toys International.COM, Inc. ("Toys"), which shares were
then owned by the Company and which option price was set at Toys' book value on
the date of election to exercise the option, elected to exercise its right to
purchase the stock and requested that the exercise price be amended to reflect
the book value of Toys at the most recent fiscal quarter, June 30, 1999. The
Company agreed to Tudor's request. As the book value of Toys as of June 30, 1999
is not yet determined, the Company has not yet provided Tudor with the basis for
the option exercise and, as a result, Tudor has not yet provided the Company
with the appropriate consideration. The Company anticipates that it will provide
Tudor the June 30, 1999 book value determination by the end of August 1999.
This option arose out of the June 30, 1998 conversion, by ABC Fund, Inc.
("ABC," an affiliate of the Company), of a $1.5 million debenture into Series E
Preferred Stock ("Series E Stock") as of June 30, 1998. Pursuant to the terms of
the debenture, in September 1998, ABC assigned its right to purchase the Toys
common stock to Tudor.
On July 20, 1999, the Company sold a 6.6% interest in its Toys subsidiary
to two investors for $2.8 million in gross proceeds in a private transaction.
The investors were an unaffiliated investment banking firm and CDMI Capital
Corporation ("CDMI"), a British Virgin Islands corporation. Mr. Mika is a
shareholder of CDMI. Each party invested $1.4 million in the transaction.
On August 4, 1999, the Company entered into a sixth amendment to its Loan
and Security Agreement with FINOVA Capital Corporation ("FINOVA"). As a result
of this amendment, the Company's aggregate credit facility with FINOVA increased
from $8.3 million to $11.3 million.
The amendment also (1) increased the minimum net worth financial covenant
from $750,000 to $2.9 million as of June 30, 1999 with the $2.9 million
threshold increasing by 60% of any equity raised by the Company and by 60% of
any annual profits generated by the Company; (2) allows the Company to sell a
minority equity interest (up to 49%) in its Toys subsidiary; and (3) increased
the maximum levels of capital expenditures, capital leases and unsecured debt
allowed under the Financing Agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Statements contained in this report which are not historical facts may be
considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected.
The Company's operations are substantially controlled by United Textiles &
Toys Corp. ("UTTC"), the Company's parent. UTTC currently owns approximately
44.9% of the issued and outstanding shares of the Company's common stock. UTTC
is a Delaware corporation and public company which was organized in March 1991
and commenced operations in October 1991. It formerly designed, manufactured,
and marketed a variety of lower priced women's dresses, gowns, and separates
(blouses, camisoles, jackets, skirts, and pants) for special occasions and
formal events. In April 1998, UTTC ceased all operating activities; it now
operates solely as a holding company.
For the three months ended June 30, 1999 compared to the three months ended
June 30, 1998
The Company generated net sales of $6,508,565 in the three months ended
June 30, 1999. This represented an increase of $151,170, or 2.4%, from net sales
of $6,357,395 in the three months ended June 30, 1998. All of this sales growth
came from the Company's new stores as same store sales declined by 27% for the
period.
The Company believes that its same store sales showed a decline after a
period of two years of continuous increases because in the three months ended
June 30, 1999, the flow of allocated or "hot" selling merchandise is being
spread over 25% more stores. This shortfall in allocated or "hot" selling
inventory is a result of the current credit lines that the Company has with some
of its vendors. The Company is working to increase its lines of credit with its
vendors to more adequately address not only the past growth but its expected
future growth as well.
In addition, the Company held back a substantial amount of critical
inventory from its existing stores for the openings of its Toys International
stores located in the Venetian Resort and Casino (the "Venetian") in Las Vegas
and in Pier 39 in San Francisco. The Venetian store opened in mid-June, a full
two months late, and due to major site construction delays, the Company
currently expects to open Pier 39 in early September, four months late.
The Company posted a gross profit of $2,745,351 in the three months ended
June 30, 1999, reflecting an increase of $94,287, or 3.6%, from the gross profit
of $2,651,064 in the three months ended June 30, 1998. This increase was due to
the above noted growth in sales and to an increase in the Company's gross
margin. The gross margin of 42.2% in the June 1999 period was 0.5% higher than
the Company's gross margin of 41.7% in the June 1998 period. This gross margin
improvement was the result of the continuing change in the company's
merchandising mix to augment its historical product base of lower margin
traditional toys with educational and specialty toys which generally produce
better margins than traditional toys. This change in merchandising mix has been
the centerpiece of the Company's business plan for approximately the past three
business years.
<PAGE>
Operating expenses (excluding depreciation and amortization expenses) for
the three months ended June 30, 1999 were $3,755,090. This represented a
$1,271,319, or 51.2%, increase over the Company's operating expenses of
$2,483,771 in the three months ended June 30, 1998. The primary reasons for the
operating expense increase were an increase in payroll and related expenses of
$436,000 and an increase in rent expense of $548,000. The payroll expense
increase was due to the addition of several middle managers and employees at the
Company's new stores. The growth of rent expense was the result of adding
additional stores.
During the three months ended June 30, 1999, the Company recorded non-cash
depreciation and amortization expense of $224,468, a $36,051, or 19.1%, increase
from $188,417 in the period ended June 30, 1998. Total operating expenses
(operating expenses combined with depreciation and amortization) in the June
1999 period were $3,979,558, representing a $1,307,370, or 48.9%, increase from
total operating expenses of $2,672,188 in the June 1998 period.
As a result of the $94,287 increase in gross profit less the $1,307,370
increase in total operating expenses, the Company's operating loss increased by
$1,213,083 from $(21,124) during the three months ended June 30, 1998 to
$(1,234,207) during the three months ended June 30, 1999.
Interest expense totaled $315,394 for the three months ended June 30, 1999.
This represented a $149,742, or 90.4%, increase from interest expense of
$165,652 for the three months ended June 30, 1999. The primary reason for the
increased level of interest expense was a higher level of borrowings in the
three months ended June 30, 1999 than in the June 1998 period.
As a result of the above-mentioned factors, the Company recorded a net loss
of $(1,549,601) for the three months ended June 30, 1999. This represented a
$1,362,825 increase over the net loss of $(186,776) recorded in the three months
ended June 30, 1998.
For the three months ended June 30, 1999, the net loss of $(1,549,601) was
reduced by non-cash dividends of $540,473 in order to determine the net loss
applicable to common shares. This compares with $273,806 of non-cash dividends
recorded in the three month period ended June 30, 1998. The non-cash dividends
represent amortization of the discount recorded upon issuance of the Series E
Preferred Stock ("Series E Stock") and Series F Preferred Stock ("Series F
Stock") with a beneficial conversion feature.
The basic and diluted loss per share for the three months ended June 30,
1999 was $(0.38) compared to basic and diluted loss per share of $(0.11) for the
three months ended June 30, 1998. The weighted average number of common shares
outstanding increased from 4,103,519 in the June 1998 period to 5,525,936 in the
June 1998 period.
<PAGE>
Liquidity and Capital Resources
At June 30, 1999, the Company had a working capital position of $4,688,840
compared to a working capital position of $5,832,143 at March 31, 1999. The
primary factors in the $1,143,303 decrease in working capital were a $1,579,092
reduction in the Company's net investment in inventories (increase in
inventories less increase in accounts payable).
The Company believes that its same store sales showed a decline after a
period of two years of continuous increases because in the three months ended
June 30, 1999, the flow of allocated or "hot" selling merchandise is being
spread over 25% more stores. This shortfall in allocated or "hot" selling
inventory is a result of the current credit lines that the Company has with some
of its vendors. The Company is working to increase its lines of credit with its
vendors to more adequately address not only the past growth but its expected
future growth as well.
The Company has generated operating losses for the past several years and
has historically financed those losses and its working capital requirements
through loans and sales of the Company's equity securities, primarily through
the sale of the Company's Series E Stock. There can be no assurance, however,
that the Company will be able to generate sufficient revenues or have sufficient
control over expenses and other charges to achieve profitability.
During the three-month period ended June 30, 1999, the Company used
$227,489 of cash in its operations compared to $958,117 used in operations in
the three-month period ended June 30, 1998. The Company's net loss was
$1,549,601 and $186,776, respectively, in those periods. The primary reason the
Company used a far lower level of cash in its operating activities than its loss
was due to a decrease in its net investment (increase in inventories less
increase in accounts payable) in inventories of $1,579,092.
The Company used $196,653 of cash in its investing activities during the
three-month period ended June 30, 1999 compared to $377,028 in the three-month
period ended June 30, 1998. Investing activity consisted of the purchase of
equipment and fixtures for new stores.
The Company generated $690,920 of cash from its financing activities in the
three-month period ended June 30, 1999 compared to the generation of $975,614
from financing activities in the three-month period ended June 30, 1998. The
primary contributors to the Company's financing activities in the 1999 period
were $657,500 in proceeds from the sale of Series F Stock and net borrowings on
the Company's line of credit. Those proceeds were used to finance the Company's
working capital requirements and capital expenditures during the three-month
period ended June 30, 1999. The primary factor in the prior period was
$1,076,497 in net borrowings on the Company's line of credit.
As a result of the above factors, the Company had a net increase in cash of
$266,778 in the three-month period ended June 30, 1999 compared to a net
decrease in cash of $359,531 in the three-month period ended June 30, 1998.
<PAGE>
In November 1998, the Company entered into an agreement with ZD Group,
L.L.C. ("ZD"), a related party, to secure additional financing. ZD is a New York
trust, the beneficiary of which is a member of the family of the Company's
chairman. Pursuant to the ZD agreement, ZD issued a $700,000 irrevocable standby
letter of credit ("L/C") in favor of FINOVA. FINOVA then loaned a matching
$700,000 to the Company in the form of a term loan. The term loan expires on
August 3, 2000 and bears interest at prime plus one percent. As consideration
for its issuance of the L/C, ZD will receive a one-third profit percentage after
application of corporate overhead beginning April 1, 1999 from three of the
Company's stores (Woodfield Mall in Schaumburg, Illinois now scheduled to open
in the late fall of 1999; Auburn Hills, Michigan; and Gurnee, Illinois). As
those stores did not generate a profit after application of corporate overhead
in the three-month period ended June 30, 1999, no payments were accrued or made
to ZD during the June period.
Planned new store openings remain a significant capital commitment of the
Company. The Company entered into leases to open eight new stores by the end of
calendar year 1999. The Company expects that the costs of building those new
stores, net of landlord tenant improvement contributions and of inventory
requirements, will be approximately $2.8 million. The Company plans to finance
the costs of opening those new stores through a combination of capital lease
financing, use of the Company's working capital, and the sale of additional
equity.
The first of those stores opened in June in the Venetian in Las Vegas,
Nevada. The costs of opening that store (excluding inventory) were approximately
$825,000. This store was projected to be the most capital intensive of all the
stores scheduled to be opened this fiscal year.
The following transactions entered into after April 1, 1999 were equity and
debt transactions structured to help the Company with the cost of the capital
expenditures associated with opening the total of eight new stores in 1999.
The Company received approximately $240,000 in lease financing in the three
month period ended June 30,1999 period. The Company continues to seek additional
capital lease financing.
In May 1999, pursuant to ss.506 of Regulation D, the Company sold 750,000
shares of Series F Stock, at a purchase price of $1.00 per share, through Robb
Peck McCooey Clearing Corporation as placement agent. The Company received
$657,500 in net proceeds from the sale. Each share of Series F Stock is
convertible, at the holder's option, into two fully paid and non-assessable
shares of Common Stock, at any time commencing on the date the registration
statement registering the Common Stock underlying same is declared effective by
the Securities and Exchange Commission. Each share of Series F Stock shall
convert automatically on the occurrence of the earlier of either of the
following events, without action on the part of the holder thereof: (i) two
years from issuance or (ii) in the event the closing price per share of Common
Stock has been at least $5.00 for a consecutive 30 day period. The Company
received net proceeds of $657,500 after deduction of all investment banking and
legal and administrative fees.
<PAGE>
Due to the beneficial conversion feature of the Series F Stock, the
proceeds have initially been recorded as additional paid in capital which will
amortize over a 12-month period in the form of a non-cash dividend.
On July 15, 1999, Tudor Technologies, Inc. ("Tudor") - an entity of which
Mr. Moses Mika (a director of the Company) is a shareholder - as the assignee of
an option to acquire 25% of the outstanding shares of the common stock of the
Company's subsidiary, Toys International.COM, Inc. ("Toys"), which shares were
then owned by the Company and which option price was set at Toys' book value on
the date of election to exercise the option, elected to exercise its right to
purchase the stock and requested that the exercise price be amended to reflect
the book value of Toys at the most recent fiscal quarter, June 30, 1999. The
Company agreed to Tudor's request. As the book value of Toys as of June 30, 1999
is not yet determined, the Company has not yet provided Tudor with the basis for
the option exercise and, as a result, Tudor has not yet provided the Company
with the appropriate consideration. The Company anticipates that it will provide
Tudor the June 30, 1999 book value determination by the end of August 1999.
This option arose out of the June 30, 1998 conversion, by ABC Fund, Inc.
("ABC," an affiliate of the Company), of a $1.5 million debenture into Series E
Preferred Stock ("Series E Stock") as of June 30, 1998. Pursuant to the terms of
the debenture, in September 1998, ABC assigned its right to purchase the Toys
common stock to Tudor.
On July 20, 1999, the Company sold a 6.6% interest in its Toys subsidiary
to two investors for $2.8 million in gross proceeds in a private transaction.
The investors were an unaffiliated investment banking firm and CDMI Capital
Corporation ("CDMI"), a British Virgin Islands corporation. Mr. Mika is a
shareholder of CDMI. Each party invested $1.4 million in the transaction.
On August 4, 1999, the Company entered into a sixth amendment to its Loan
and Security Agreement with FINOVA Capital Corporation ("FINOVA"). As a result
of this amendment, the Company's aggregate credit facility with FINOVA increased
from $8.3 million to $11.3 million.
The amendment also (1) increased the minimum net worth financial covenant
from $750,000 to $2.9 million as of June 30, 1999 with the $2.9 million
threshold increasing by 60% of any equity raised by the Company and by 60% of
any annual profits generated by the Company; (2) allows the Company to sell a
minority equity interest (up to 49%) in its Toys subsidiary; and (3) increased
the maximum levels of capital expenditures, capital leases and unsecured debt
allowed under the Financing Agreement.
Electronic commerce represents another area that may result in significant
capital expenditures for the Company in fiscal 2000. It is also a major focus
for management. In April 1999, The Company debuted the first of three dedicated
electronic commerce websites. This site, www.ToysWhyPayRetail.com, represents a
new trade name for the Company and allows consumers to purchase, at near
wholesale prices, overstocks, special buys, and overruns on mostly name-brand
toys purchased by the Company out of season. The Company plans to offer
approximately 1000 items for sale on the website.
<PAGE>
The second and third electronic commerce websites are currently being
developed to a state-of-the-art standard in conjunction with two Internet
consulting firms. These sites will offer collectible and imported specialty
merchandise such as die-cast cars, dolls, plush toys, trains, and collectible
action figures and are expected to open in the late fall of 1999. In conjunction
with the website launch, the Company plans to place computer kiosks in several
of its retail locations in order to permit customers to place orders on the
website for goods otherwise not sold in such store.
The Company has entered into a letter of intent with an investment banking
firm to raise additional equity in the approximate amount of $20-25 million
through the public sale of a minority interest in the Company's Toys subsidiary.
This public offering currently is expected to close in 1999. This investment
banking firm also participated in the $2.8 million private placement in July
1999.
The Company is pursuing this opportunity and is continuing to seek
additional lease financing. There can be no assurance that the Company will be
able to obtain sufficient financing to successfully open the planned new stores.
Additionally, the Company has incurred significant capital expenditures over the
past twelve months. To date, the Company has deployed its working capital to
cover a significant portion of these capital expenditures. As a result, the
Company is also seeking additional working capital from the above-mentioned
equity offerings. Should the Company be unable to raise sufficient working
capital, it may be unable to purchase product directly from factories at
advantageous pricing, thereby resulting in a negative impact on gross margins
and results of operations.
Year 2000
In 1998, the Company developed a plan to upgrade its existing management
information system and computer hardware and to become year 2000 compliant. The
Company has completed the hardware upgrade and has installed a year 2000
compliant upgrade to its accounting software. The Company expects to finish the
year 2000 compliance work in the September quarter of 1999. To finance the cost
of the new hardware in the computer upgrade project, the Company entered into a
lease in the amount of $82,472 bearing an interest rate of 10.8%. The total cost
of the hardware and software purchased for the project was approximately
$100,000.
Beyond the above noted internal year 2000 system issue, 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. Management has reviewed its
significant vendors' (i.e., Mattel, Inc. and Hasbro, Inc.) and financing arm's
(FINOVA) recent SEC filings vis-a-vis year 2000 risks and uncertainties and, on
the basis thereof, is confident that the steps the Company has taken to become
year 2000 compliant are sufficient. In continuation of this review, the Company
shall continue to monitor or otherwise obtain confirmation from the aforesaid
entities - and such other entities as management deems appropriate - as to their
respective degrees of preparedness. To date, nothing has come to the attention
of the Company that would lead it to believe that its significant vendors and/or
service providers will not be year 2000 ready.
<PAGE>
Year 2000 readiness is a priority of the Company, and the Company believes
that it is taking such reasonable and prudent steps as are necessary to mitigate
the risks associated with potential year 2000 difficulties. The effect, if any,
of year 2000 problems on the Company's results of operations if the Company's or
its customers, vendors, or service providers are not fully compliant cannot be
estimated with any degree of certainty. It is nonetheless possible that year
2000 problems could have a material adverse effect in that holiday 1999
purchases may be stunted due to consumer uncertainty and that the overall
business environment may be disrupted in the Company's fourth fiscal quarter.
Trends Affecting Liquidity, Capital Resources and Operations
The Company believes that its same store sales showed a decline after a
period of two years of continuous increases because the flow of allocated or
"hot" selling merchandise is being spread over 25% more stores. This shortfall
in allocated or "hot" selling inventory is a result of the current credit lines
that the Company has with some of its vendors. The Company is working to
increase its lines of credit with its vendors to more adequately address not
only the past growth but its expected future growth as well. As noted above, the
Company has significantly strengthened its balance sheet by raising
approximately $3.5 million in additional equity over the past three months,
which should result in expanded lines of credit with its trade vendors.
The Company believes that its growth and the availability of "hot" or
allocated merchandise within certain sectors of its core business - such as
action figures, video games, and collector plush - could have an impact on
continuing store sales in the future. The Company is working diligently to
address this issue.
The Company's future financial performance will depend upon continued
demand for toys and the Company's ability to choose locations for new stores,
the Company's ability to purchase product at favorable prices and on favorable
terms, and the effects of increased competition and changes in consumer
preferences.
The toy and hobby retail industry faces a number of potentially adverse
business conditions including price and gross margin pressures and market
consolidation. The Company competes with a variety of mass merchandisers,
superstores, and other toy retailers, including Toys R Us and Kay Bee Toy
Stores. Competitors that emphasize specialty and educational toys include Disney
Stores, Warner Bros. Stores, Learning Smith, Lake Shore, Zainy Brainy, and
Noodle Kidoodle. The Company also competes both through its electronic commerce
operations and through its stores against Internet oriented toy retailers such
as eToys, Inc. There can be no assurance that the Company's business strategy
will enable it to compete effectively in the toy industry.
<PAGE>
Seasonality
The Company's operations are highly seasonal with approximately 30-40% of
its net sales falling within the Company's third quarter, which coincides with
the Christmas selling season. The Company intends to open new stores throughout
the year, but generally before the Christmas selling season, which will make the
Company's third quarter sales an even greater percentage of the total year's
sales.
Impact of Inflation
The impact of inflation on the Company's results of operations has not been
significant. The Company attempts to pass on increased costs by increasing
product prices over time.
<PAGE>
PART II
Item 1. Legal Proceedings
In October 1997, in the Superior Court of the State of California, County
of San Bernardino, Foothill Marketplace commenced suit against the Company and
its former guarantor for breach of contract pertaining to premises leased by the
Company in Rialto, California. The lease for the premises has a term from
February 1987 through November 2003. The Company vacated the premises in August
1997. Under California State law and the provisions of the lease, plaintiff has
a duty to mitigate its damages. Plaintiff seeks damages, of a continuing nature,
for unpaid rent, proximate damages, costs, and attorneys' fees, in the
approximate amount of $300,000. The Company is engaged in settlement
negotiations with plaintiff with respect to this action; in the event no
settlement is reached, however, trial has been scheduled by the court for
September 1999.
Neither the Company's officers, directors, affiliates, nor owners of record
or beneficially of more than five percent of any class of the Company's Common
Stock is a party to any material proceeding adverse to the Company or has a
material interest in any such proceeding adverse to the Company.
Item 2. Changes in Securities and Use of Proceeds: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
(b) During the quarter ended June 30, 1999, no reports on Form 8-K were
filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
<S> <C>
10.131 ABC Fund, Inc. Assignment of Debenture to Tudor Technologies, Inc. dated September 15, 1998
10.132 Tudor Technologies, Inc. Election to Exercise dated July 15, 1999
10.133 Sixth Amendment to Loan and Security Agreement by and between the Company and FINOVA Capital Corporation,
dated August 1999
10.134 Fixture Financing Agreement with Longwater Capital Corporation
27.1 Financial Data Schedule
</TABLE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 16th day of August 1999.
PLAY CO. TOYS & ENTERTAINMENT CORP.
By: /s/ Richard L. Brady
Richard L. Brady
President and Chief Executive Officer
By: /s/ James B. Frakes
James B. Frakes
Chief Financial Officer
<PAGE>
EXHIBIT 10.131
ABC FUND, INC. ASSIGNMENT OF DEBENTURE
ASSIGNMENT OF CONVERSION RIGHTS
The undersigned ABC FUND, INC. ("Assignor"), in consideration of the sum of
Ten and 00/100 ($10.00) Dollars (the "Purchase Price"), does hereby assign unto
TUDOR TECHNOLOGIES, INC., a British Virgin Islands corporation ("Assignee") all
of the Assignor's right, title and interest in and to its right to purchase up
to an aggregate of twenty-five (25%) percent of the outstanding shares of the
common stock of Toys International, Inc. ("Toys"), a wholly-owned subsidiary of
Play Co. Toys & Entertainment Corp. ("Play Co.") all as more fully set forth in
a certain Letter Agreement dated June 30, 1998 between Assignor and Play Co.
(the "Right").
Assignor represents and warrants that:
Assignor further represents and warrants that it is duly authorized and
empowered to execute and perform this Agreement. Assignor represents and
warrants that Assignor has not previously assigned, sold or pledged the Right to
any third party, in whole or in part, that Assignor owns and has title to the
Right free of any and all liens, security interests or encumbrances of any kind
or nature whatsoever.
Assignor hereby irrevocably appoints Assignee as its true and lawful
attorney and authorizes Assignee to act in Assignor's stead, to demand, sue for,
compromise and recover, with respect to the Right, all sums due or certificates
to be issued. Assignor grants unto Assignee full authority to do all things
necessary to enforce the Right and its rights thereunder pursuant to this
Assignment. Assignor agrees that the powers granted by this paragraph are
discretionary in nature and the Assignee may exercise or decline to exercise
such powers at Assignee's sole option. Assignor agrees to take such further
action, at its own expense, as may be necessary or desirable to effect this
Assignment to Assignee including, without limitation, the execution of
appropriate transfer powers, corporate resolutions and consents. Assignor
further grants to Assignee the right as its attorney-in-fact to do, sign or
perform all of the foregoing.
This Assignment by Assignor to Assignee is without recourse. Assignee
acknowledges that except as set forth neither the Assignor nor any agent or
representative of Assignor has made any representation whatsoever to Assignee
regarding the condition of Play Co. or any other matter. Assignee acknowledges
that it has made its own analysis and decision to enter into this Assignment.
The terms of this Assignment shall be binding upon, and shall inure to the
benefit of Assignor, Assignee and their respective successors and assigns.
Assignor hereby acknowledges that Assignee may at any time re-assign the Right,
together with all right, title and interest of Assignee in and to this
Assignment, without further consent of Assignor. All representations and
warranties made herein shall survive the execution and delivery of this
Assignment and any such re-assignment.
This Assignment shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the undersigned have duly executed this Assignment by
their duly authorized representatives on the 15th day of September, 1998.
<TABLE>
<CAPTION>
<S> <C>
ASSIGNOR: ASSIGNEE:
ABC FUND, INC. TUDOR TECHNOLOGIES, INC.
By: By:
Title: Title:
Address: Address:
</TABLE>
EXHIBIT 10.132
TUDOR TECHNOLOGIES, INC. ELECTION TO EXERCISE
TUDOR TECHNOLOGIES, INC.
a British Virgin Islands Corporation
Tortola, British Virgin Islands
c/o Bart Nachamie, Esq.
425 Park Avenue
New York, New York 10022
July 15, 1999
Play Co. Toys & Entertainment Corp.
Richard Brady, President
550 Rancheros Drive
San Marcos, California 92069
Re: Election of Option to Exercise
Dear Mr. Brady:
Pursuant to an Assignment of Conversion Rights Agreement (the "Assignment")
duly executed on September 15, 1998 by and between Tudor Technologies, Inc.
("Tudor") and ABC Fund, Inc., the holder of a debenture (the "Debenture") issued
by Play Co. Toys & Entertainment Corp. ("Play Co.") in January 1998, ABC
assigned all of its right, title, and interest in and to its right to purchase
up to an aggregate of twenty-five (25%) percent of the outstanding shares of the
common stock of a wholly-owned Play Co. subsidiary, Toys International, Inc.
("Toys"), all as more fully set forth in a certain Letter Agreement dated June
30, 1998 by and between ABC and Play Co. (the "Letter Agreement").
In accordance with the aforesaid documents (the Debenture, the Assignment,
and the Letter Agreement), please be advised that Tudor hereby elects to
exercise its option to purchase from Play Co. 25% of the issued and outstanding
shares of Toys at an exercise price equivalent to the net book value per share
of Toys' common stock as of the most recent ended quarter, to wit, June 30,
1999.
Please acknowledge receipt of the foregoing by executing below. Thank you
for your attention to this matter.
Very truly yours,
Receipt of the foregoing is hereby acknowledged by Play Co. Toys &
Entertainment Corp.
James B. Frakes, Secretary
EXHIBIT 10.133
AMENDMENT NUMBER SIX TO FINOVA LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 6 TO LOAN AND SECURITY AGREEMENT
This Amendment No. 6 to Loan and Security Agreement (this "Amendment")
is entered into as of this ___ day of August, 1999, by and among FINOVA CAPITAL
CORPORATION, a Delaware corporation ("Lender"), and PLAY CO. TOYS &
ENTERTAINMENT CORP., a Delaware corporation ("Play Co.") and TOYS
INTERNATIONAL.COM, INC., a Delaware corporation ("TIC").
W I T N E S S E T H :
WHEREAS, Play Co. 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, that
certain Amendment No. 2 to Loan and Security Agreement dated as of September 24,
1998, that certain Amendment No. 3 to Loan and Security Agreement dated as of
December 8, 1998 that certain Amendment No. 4 to Loan and Security Agreement
dated as of February, 11, 1999 and as further amended by an Amendment No. 5 to
Loan and Security Agreement dated March __, 1999 (the aforementioned Loan and
Security Agreement as amended by the aforementioned amendments, collectively the
"Loan Agreement"), that evidences a loan from Lender to Play Co.; and
WHEREAS, Play Co. and TIC have 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, Play Co. and
TIC 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:
"Additional Equity" means additional equity investments or contributions in
or to the Borrower, which are made after June 30, 1999 and prior to March 31,
2000.
"Adjusted Net Worth" means (i) for the Borrower's 2000 Fiscal Year the sum
of the following (1) the Base Net Worth and (2) an amount equal to Sixty Percent
(60%) of the cumulative amount of profits (without adjustment for losses)
incurred during such Fiscal Year, and (ii) for the Borrower's 2001 Fiscal Year
(and all subsequent Fiscal Years which occur during the Term) the sum of (1) the
greater of (a) the Adjusted Net Worth for the previous Fiscal Year, or (b) the
Base Net Worth, and (2) an amount equal to Sixty Percent (60%) of the cumulative
amount of profits (without adjustment for losses) incurred during such Fiscal
Year, provided, however, that, regardless of the Fiscal Year, the Adjusted Net
Worth will be increased each calendar month by an amount equal to sixty percent
(60%) of any Future Additional Equity during the preceding calendar month.
"Borrower" means collectively Play Co. and TIC.
"Base Net Worth" means the sum of (i) Two Million Nine Hundred Thousand
Dollars ($2,900,000) and (ii) sixty percent (60%) of the Additional Equity.
"Future Additional Equity" refers to additional equity investments or
contributions in or to the Borrower, which are made after April 1, 2000.
"Sixth Amendment" means that certain Amendment No. 6 to Loan and Security
Agreement between Lender and Borrower dated as of August ____, 1999.
"Sixth Amendment Effective Date" means the date upon which the Sixth
Amendment became effective pursuant to the terms and upon the conditions
thereof.
<PAGE>
"New Equity" refers collectively to the Additional Equity and Future
Additional Equity.
3. Schedule. The Schedule to the Loan Agreement is amended as follows:
3.1 The Section entitled "Total Facility is amended and restated in its
entirety as follows:
The "Total Facility" is Eleven Million Three Hundred Thousand and No/100
Dollars ($11,300,000.00).
3.2 Subsection (a)(i) found in the Subsection entitled "Revolving Loans"
under the Section entitled "Loans" is amended and restated in its entirety as
follows:
(i) Eight Million One Hundred Thousand Dollars ($8,100,000), less the
amount of the Loan Reserves; or
3.3 The Subsection entitled "Net Worth" which is found in the Section
entitled Financial Covenants is amended and restated in its entirety as follows:
Borrower shall maintain a Net Worth of not less than (i) for the Borrower's
Fiscal Year ending March 31, 2000, the Base Net Worth; and (ii) for every Fiscal
Year occurring after April 1, 2000, the greater of (1) the Base Net Worth or (2)
the Adjusted Net Worth for such Fiscal Year. Testing will occur on a monthly
basis.
3.4 The Subsection entitled "Financial Covenants" is amended in the
following respects:
3.4.1 The subsection entitled "Capital Expenditures" is amended by adding
the following at the end of the Subsection:
Notwithstanding the foregoing, effective April 1, 1999 the foregoing
limitation on the maximum amount of Capital Expenditures shall be increased to
Two Million Five Hundred Thousand Dollars ($2,500,000).
3.4.2 The Subsection entitled "Indebtedness" is amended and restated in its
entirety as follows:
Borrower shall not create, incur, assume or permit to exist any
Indebtedness (excluding any Indebtedness which are (i) in connection with
Capital Leases, or (ii) purchase money financings associated with Capital
Expenditures) in excess of Three Million Dollars ($3,000,000) (the "Debt Cap"),
other than (i) the Obligations, (ii) trade payables and other contractual
obligations to suppliers and customers incurred in the ordinary course of
business and (iii) other Indebtedness existing on the Sixth Amendment Effective
Date and constituting a Permitted Encumbrance. Notwithstanding the foregoing,
the Debt Cap shall be increased as of the Sixth Amendment Effective Date to Four
Million Five Hundred Thousand Dollars ($4,500,000).
4. TIC.
4.1 Play Co. has notified the Lender that the Play Co. has created TIC. As
of the date that this Amendment was executed, the Play Co. owns approximately
94% of the issued and outstanding shares of stock in TIC. After the Sixth
Amendment Effective Date, TIC intends to have an initial public offering (the
"IPO") of its shares which will result in the Play Co.'s ownership interest in
TIC being diluted to approximately 51% of the issued and outstanding shares in
TIC. Play Co. agrees that after the IPO it will continue to own not less than
51% of the issued and outstanding shares in TIC. In connection with the TIC IPO,
Play Co. intends to assign to TIC, subject to the rights and lien of Lender
under the Loan Documents, the proceeds from six of Play Co.'s stores (the "TIC
Stores") selected by Play Co. The Lender consents to the foregoing transaction
and agrees that the foregoing transaction shall not constitute an Event of
Default or Incipient Default under the Loan Agreement (including but not
limiting the generality of the foregoing, the provisions of Section 3.8(a) of
the Loan Agreement), provided the net proceeds of TIC IPO are used solely for
New Equity. The Borrower acknowledges and agrees that the waiver of the Lender
contained in the Section is limited solely to the matters and circumstances
contained herein.
<PAGE>
4.2 By its execution of this Amendment, TIC acknowledges that all Inventory
and Receivables associated with the TIC Stores are (i) subject to the lien
granted to Lender under the Documents, and (ii) the provisions of the Loan
Agreement (including, but not limiting the generality of the foregoing, that
such inventory may be used in the determination of Eligible Inventory). TIC
further assumes all of the Obligations of Borrower under the Loan Documents.
5. Effect as an Amendment. Other than as specifically set forth in this
Sixth 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 Sixth Amendment, and each
reference in any other Loan Document to the Loan Agreement as amended through
and including the Sixth Amendment.
6. No Waiver. Except as may be specifically set forth in this Sixth
Amendment and that certain July 13, 1999 letter from the Lender to Play Co. (the
"July Letter"), 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 Sixth Amendment is intended to or shall be construed as relieving any
person or entity, whether a party to this Sixth Amendment or not, of any of such
person's or entity's obligations to Lender.
7. Conditions Precedent. This Sixth 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:
(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) An opinion of the legal counsel of the Borrower and the Guarantor
addressed to the Lender covering such matters as the Lender may request; and
(v) Such other items as Lender may reasonably require or reasonably deem
necessary, after giving affect to the proposed provisions of the Amendment.
(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 Sixth Amendment.
(d) Borrower has paid to Lender a fee (the "Amendment
Fee") of Fifty-Five Thousand Dollars ($55,000).
(e) 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
Sixth Amendment, which costs, fees and expenses and the Amendment Fee may be
payable from the first advance made pursuant to this Amendment.
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.
<PAGE>
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 Sixth Amendment. --------------
12. Entire Agreement. The Loan Documents as modified by this Sixth
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 Sixth 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 Sixth Amendment by telefacsimile shall be equally as effective as delivery
of a manually executed counterpart of this Sixth Amendment. Any party delivering
an executed counterpart of this Sixth Amendment by telefacsimile shall also
deliver a manually executed counterpart of this Sixth Amendment, but the failure
to deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Sixth Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to
be duly executed as of the day and year first written above.
<TABLE>
<CAPTION>
<S> <C>
FINOVA CAPITAL CORPORATION, a Delaware corporation
By:
Name:
Title:
PLAY CO. TOYS & ENTERTAINMENT CORP., a Delaware corporation
By:
Name:
Title:
TOYS INTERNATIONAL.COM, INC., a Delaware corporation
By:
Name:
Title:
</TABLE>
<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. 6 to Loan and Security Agreement (the "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 Amendment, and shall further include (1) all additional amounts
which may be funded or advanced to Borrower pursuant to the Loan Agreement
described above as amended by the Amendment and (2) the obligations of TIC under
the Loan Agreement, 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 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 _____________, 1999.
UNITED TEXTILES & TOYS CORPORATION,
a Delaware corporation
By:
Name:
Title:
EXHIBIT 10.134
FIXTURE FINANCING AGREEMENT WITH LONGWATER CAPITAL CORPORATION
LESSOR: LONGWATER CAPITAL CORPORATION
-------------------------------------------------------------------
LEASE NUMBER
BUSINESS LEASE AGREEMENT
LESSEE NAME
PLAY CO. TOYS & ENTERTAINMENT CORP.
LESSEE ADDRESS CITY COUNTY STATE ZIP
550 Rancheros Drive San Marcos CA 92069
VENDOR NAME ADDRESS CITY STATE ZIP
QUANTITY DESCRIPTION MODEL No, Serial No., or other identification COST
SEE EQUIPMENT SCHEDULE "A" $70,699.75
EQUIPMENT LOCATION: STREET CITY COUNTY STATE ZIP
If Other Than TOYS INTERNATIONAL
Billing Address 20 CITY BLVD. WEST #203 ORANGE CA 92868
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PAYMENT DUE RENT PAYMENTS SALES/USE TAX TOTAL PAYMENT LEASE TERM
DATE
X Monthly Quarterly
Of Each
Month $ 2,485.10 Semi-Annually Annually $ 142.88 $ 2,627.98 36 Month
Advance Payment of $ 5,355.96 which equals the first and la5,255.96 payment(s) and a $ 100.00
documentation fee MUST ACCOMPANY LEASE.
</TABLE>
1. LEASE. Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor the personal property described above (herein called the "Equipment").
Upon Lessor signing below, this Lease shall become NONCANCELLABLE DURING THE
TERM STATED ABOVE by Lessee for any reason whatsoever, and Lessee shall be
obligated to pay Lessor all sums called for in this Business Lease Agreement
(Herein call the "Lease").
2. COMMENCEMENT AND TERMINATION. This Lease shall commence on the "Lease
Start Date" appearing below and, provided Lessee has successfully performed all
its duties and obligations under the Lease, shall terminate upon expiration of
the number of months (following the Lease Start Date) stated as the Lease Term.
3. RENT AND OTHER PAYMENTS. Lessee shall pay the advance rentals due under
the Lease, as stated above, upon signing the Lease. All such amounts shall be
non-refundable. Monthly rent payments due after the first month's rent shall be
payable on the "Payment Due Date" indicated above or on the first business day
thereafter if a Payment Due Date falls on a non-business day. Lessee agrees to
pay to Lessor a service charge of 5% per month, but not to exceed the maximum
amount permitted by law, on any payment due under the Lease which is not paid
within five days of the Payment Due Date. Lessee shall pay all sales, use,
excise, personal property, stamp, documentary, and ad valorem taxes, licenses
and registration fees, assessments, fines, penalties, and other charges imposed
on the ownership, possession, or use of the Equipment during the term of this
Lease, and Lessee shall pay all taxes (except income taxes imposed on Lessor)
with respect to the rental payments hereunder, and shall, with the next
scheduled payment reimburse Lessor for any taxes paid by or advanced by Lessor.
Lessee's obligations to pay such taxes, fees, assessments, fines, penalties and
other charges shall survive termination of the Lease. Lessee agrees that Lessor
may adjust the rent payment proportionally up or down if the actual cost of the
Equipment exceeds or is less than the amount stated in the Lease. All payments
under the Lease shall be made to Lessor at the address set forth above or at any
other address Lessor subsequently gives to Lessee for purposes of making
payment. In the event of default, payments made under the Lease may be applied
to Lessee's obligation to Lessor in any order Lessor chooses. Time is of the
essence with respect to all payments due and all other obligations of Lessee
under the Lease. All payments shall be made to Lessor via automatic draft
pursuant to Lessee's Pre-Authorized Draft Request or as Lessor may otherwise
designate in writing. In the event Lessee does not authorize the Draft Request,
a monthly billing charge of $5 per month shall be added to the Monthly Rental
Payment.
<PAGE>
4. SELECTION OF EQUIPMENT. Lessee acknowledges that Lessor did not
participate in the selection, manufacture or supply of the Equipment and that
Lessee has made the selection of the Equipment and the supplier of such
Equipment based upon its own judgment. Lessee agrees to inspect the Equipment
and to execute the "Certificate of Acceptance," which is attached hereto, only
after the Lessee is satisfied that the Equipment is satisfactory in every
respect. Lessee hereby authorizes Lessor to insert in the Lease any equipment
serial numbers and other identification data relating to the Equipment as
needed.
5. DISCLAIMER OF WARRANTIES. BY SIGNING BELOW, LESSEE ACKNOWLEDGES THAT
LESSOR IS LEASING THE EQUIPMENT TO LESSEE "AS IS" AND WITH ALL FAULTS. LESSOR
MAKES NO REPRESENTATIONS AND DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
CONCERNING THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION ANY WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY. LESSEE HEREBY WAIVES ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT) IT MIGHT
HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR CONSEQUENTIAL
DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT. Provided Lessee is not in default of
this Lease, Lessor hereby assigns to Lessee and Lessee shall have the benefit
of, any and all manufacturer's warranties, service agreement and patent
indemnities, if any, with respect to the Equipment provided, however, that
Lessee's sole remedy for breach of any such warranty, indemnification or service
agreement shall be against the manufacturer of such Equipment and not against
the Lessor, nor shall such breach have any effect whatsoever on the rights and
obligations of Lessor or Lessee hereunder, LESSEE ACKNOWLEDGES THAT NETHER THE
SUPPLIER, BROKER NOR THEIR AGENTS OR EMPLOYEES ARE AGENTS OF LESSOR NOR ARE THEY
AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE WITHOUT THE
WRITTEN CONSENT OF LESSOR. NO AGREEMENT, EITHER WRITTEN OR VERBAL, BETWEEN
SUPPLIER AND LESSEE OR BROKER AND LESSEE SHALL BIND LESSOR UNLESS LESSOR
SPECIFICALLY CONSENTS TO SUCH AGREEMENT IN WRITING.
6. AMENDMENTS. No term or provision of this lease may be amended, altered,
waived, discharge or terminated except by written instrument signed by the
parties hereto, and, in compliance with UCC S2A-208(2) requiring a separate
signature of this provision. SEE REVERSE SIDE FOR ADDITIONAL TERMS AND
CONDITIONS WHICH ARE A PART OF THIS LEASE
<TABLE>
<CAPTION>
<S> <C>
ACCEPTED BY LESSOR: This agreement shall not be effective until executed by the
Lessee and accepted by an authorized representative of Lessor
at its principal place of business.
LONGWATER CAPITAL CORPORATION LESSEE PLAY CO. TOYS & ENTERTAINMENT CORP.
BY BY
TITLE
DATE (LEASE START DATE) WITNESS DATE
</TABLE>
PERSONAL GUARANTY
In consideration Lessor entering into the above Business Lease Agreement
(the "Lease"), the undersigned (the "Undersigned'), jointly and severally,
personally and unconditionally guarantee to Lessor the prompt payment in full,
when due, of all of Lessee's obligations under the Lease including, without
limitation, every rental payable and the accelerated balance of rentals if
demanded by Lessor. Lessor shall not be required to proceed against Lessee or
Equipment or to enforce any other remedy before proceeding against the
Undersigned. The Undersigned agree to pay all attorneys' fees and other expenses
incurred by Lessor by reason of any default of Lessee or in enforcing the Lease
or this Guaranty. The undersigned waive notice of acceptance hereof and all
other notices or demands of any kind to which the Undersigned may be entitled
and consent to the granting of extensions of time for payment to Lessee and
other obligors and guarantors and to any other amendments or adjustments in the
terms of the Lease. This Guaranty shall bind the heirs, administrators,
representatives, successors and assigns of each of the Undersigned and may be
enforced by or for the benefit of any assignee or successor of Lessor. This
Guaranty shall be governed by the laws of the State of Missouri. The Undersigned
acknowledge that for purposes of enforcement of this Guaranty, each of the
Undersigned is conducting business n the State of Missouri and each agrees that
in the event of any litigation related to the Lease or this Guaranty, venue and
jurisdiction shall be proper in the Circuit Court for the City or County of St.
Louis, State of Missouri
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE SIGNATURE
(INDIVIDUAL CAPACITY) (INDIVIDUAL CAPACITY)
(PRINT NAME) (PRINT NAME)
HOME ADDRESS AND PHONE NUMBER HOME ADDRESS AND PHONE NUMBER
DATE DATE
</TABLE>
<PAGE>
EQUIPMENT SCHEDULE "A"
DATE
This schedule is made a part of lease number between: PLAY CO. TOYS &
ENTERTAINMENT CORP. and LONGWATER CAPITAL CORP.
EQUIPMENT LOCATED AT: TOYS INTERNATIONAL
20 CITY BLVD. WEST #203
ORANGE, CA 92868
QUANTITY EQUIPMENT SERIAL #
1 1 THEMED TREE HOUSE
1 24' LETTERSET (TOYS INTERNATIONAL)
1 14' BEAR LOGO
1 CUSTOM AWNING
EQUIPMENT LOCATED AT: TOYCO
6170 WEST GRAND AVENUE
GURNEE, IL 60031
3 READING CORNER INTERIOR WALL SIGNS
Lessor: Longwater Capital Corporation Lessee: PLAY CO. TOYS & ENTERTAINMENT
CORP.
By: By:
<PAGE>
LCC
LONGWATER CAPITAL CORPORATION
PURCHASE OPTION
Provided Lessee is not in default under the terms of a certain Equipment
Lease dated between Longwater Capital Corp. as lessor and PLAY CO. TOYS &
ENTERTAINMENT CORP. as Lessee and upon 60 days prior written notice, Lessee
shall have the right to purchase the equipment leased thereunder at the end of
the original or any renewal term of said Lease in whole and not in part, and on
an as-is where-is basis, for the sum of $1.00.
<TABLE>
<CAPTION>
<S> <C>
By: _________________________ Date: _________________________
Lessee:
By: _________________________ Date: _________________________
</TABLE>
Barry Longwater
President
3251 Poplar Ave., Suite 130 Memphis, TN 38111
tel (901) 323-7009 toll-free (800) 246-7122 fax (901) 323-4030
Assignment of Lease and Equipment
For value received, the undersigned as lessor (the "Lessor") hereby sells,
assigns, transfers and sets over unto TRUSTCORP CAPITAL LEASING (the
"Assignee"), its successors and assigns, without recourse, except for a breach
of any representation of warranty contained herein, all its right, title and
interest in and to, but none of the obligation, duties, or liabilities of Lessor
contained in that certain lease dated 5/7/99 (the "Contract"), the original of
which is annexed hereto, between the undersigned as Lessor and PLAY CO. TOYS &
ENTERTAINMENT CORP. as Lessee (the "Lessee"), together with all other rights,
powers, and remedies of the Lessor under said Contract and the monies due
thereunder, including all guarantees or collateral of any kind pertaining
thereto, and Lessor shall transfer to Assignee all of Lessor's rights, title,
and interest in the personal property described therein (the "Equipment").
Assignee shall have the right, either in it's own name or in the name of the
Lessor, to take all legal, collection, billing, and other proceedings which
Lessor could have taken but for this Assignment, plus the right to endorse
Lessor's name upon any and all negotiable instruments for the payment of money.
Lessor warrants that said Contract and all related instruments of
guaranties are genuine and enforceable in accordance with their respective
terms; represent valid obligations; are not subject to defense, set off or
counterclaim; and are the only ones executed with respect to the Equipment.
Lessor further warrants all statements, including but not limited to amounts
due, contained in the Contract, related instruments and guaranties are true; the
Equipment described in said Contract has been delivered to, and accepted by
Lessee in condition satisfactory to Lessee; there are no maintenance or service
payments included in the rental payments due under the Contract; Lessor has the
power and authority to convey the Contract to Assignee, and to transfer title to
the Equipment to Assignee; at the time of this Assignment, title to the Contract
and to the Equipment was vested in the Lessor free and clear of all liens,
claims, and encumbrances; and Lessor will comply with all its warranties and
other obligations to Lessee.
In the event of the breach of any warranty or representation herein, Lessor
shall, upon demand, repurchase the Contract from Assignee for the unpaid balance
due thereon, and Assignee shall have the same rights and remedies against Lessor
the Lessor would have had against Lessee if there had been a breach of the
Contract by Lessee.
This Assignment and the rights and obligations of the parties hereunder
shall in all respects be governed by, and construed in accordance with the laws
of the State of MO including all matters of construction, validity and
performance.
Lessor: Longwater Capital Corp.
Barry Longwater, President
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part 1, Item 1, of this Form 10-QSB is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> mar-31-1999
<PERIOD-END> jun-30-1999
<CASH> 392,734
<SECURITIES> 0
<RECEIVABLES> 131,836
<ALLOWANCES> 0
<INVENTORY> 12,247,019
<CURRENT-ASSETS> 14,159,222
<PP&E> 9,866,106
<DEPRECIATION> (4,283,071)
<TOTAL-ASSETS> 22,665,095
<CURRENT-LIABILITIES> 9,470,382
<BONDS> 0
0
6,222,574
<COMMON> 0
<OTHER-SE> (1,993,945)
<TOTAL-LIABILITY-AND-EQUITY> 22,665,095
<SALES> 6,508,565
<TOTAL-REVENUES> 6,508,565
<CGS> 3,763,214
<TOTAL-COSTS> 3,763,214
<OTHER-EXPENSES> 3,979,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,394
<INCOME-PRETAX> (1,549,601)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,549,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,549,601)
<EPS-BASIC> (.38)
<EPS-DILUTED> (.38)
</TABLE>
