U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 95-3024222
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>
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, $.01 par value:
5,548,857 shares outstanding as of November 19, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
TABLE OF CONTENTS
<TABLE>
PART I. FINANCIAL INFORMATION Page Number
Item 1. FINANCIAL STATEMENTS
<S> <C> <C> <C> <C> <C>
Condensed consolidated balance sheets as of September 30, 1999 and March 31, 1999 3
Condensed consolidated statements of operations and comprehensive net loss
for three months and six months ended September 30, 1999 and 1998 4
Condensed consolidated statements of cash flows for the six months ended
September 30, 1999 and 1998. 5
Notes to condensed consolidated financial statements 6-13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 24
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24
Item 3. DEFAULTS UPON SENIOR SECURITIES 24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
Item 5. OTHER INFORMATION 24
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 24
Signatures 25
</TABLE>
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
(A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, 1999 March 31, 1999
Restated (Note 5) Restated (Note 5)
(unaudited)
------------------- ------------------
Current
<S> <C> <C>
Cash $ 377,178 $ 125,967
Accounts receivable 172,442 98,276
Merchandise inventories 15,127,625 11,506,284
Stock subscription receivable 723,678 -
Other current assets 2,360,091 1,591,629
--------- ---------
Total current assets 18,761,014 13,322,156
Property and Equipment, Net of accumulated
depreciation and amortization of $4,511,565
and $4,058,603, respectively 7,245,790 5,348,175
Deposits and other assets 3,412,965 2,411,427
--------- ---------
$ 29,419,769 $ 21,081,758
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
September 30, 1999 March 31, 1999
Restated (Note 5) Restated (Note 5)
(unaudited)
------------------ -----------------
Current
Accounts payable $ 9,705,643 $ 5,611,442
Accrued expenses and other liabilities 260,709 595,008
Current portion of notes payable and capital leases 864,429 1,352,197
Borrowings under financing agreement 10,725,774 -
--------- ---------
Total current liabilities 21,556,555 7,558,647
Borrowings under financing agreement - 7,814,666
Notes payable and capital leases, net of current portion 1,000,637 585,681
Deferred rent liability 130,881 126,769
--------- ---------
Total liabilities 22,688,073 16,085,763
--------- ---------
Minority interest in subsidiary 1,612,976 -
--------- ---------
Stockholders' equity:
Convertible series E preferred stock, $1 par, 25,000,000 shares
authorized: 5,908,903 shares outstanding 6,717,047 5,761,101
Convertible series F preferred stock, $0.01 par,
5,500,000 shares authorized; 750,000 and 0
shares outstanding, respectively 428,571 -
Common stock, $.01 par value, 160,000,000 shares authorized;
5,548,852 and 5,503,519 shares outstanding, respectively 55,488 55,035
Additional paid-in-capital 18,531,428 15,906,172
Accumulated deficit (20,613,814) (16,726,313)
--------- ---------
)
Total stockholders' equity 4,995,995
--------- ---------
5,118,720
$ 29,419,769 $21,081,758
============ ===========
</TABLE>
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
(A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE NET LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
Restated (Note 5) Restated (Note 5)
1999 1998 1999 1998
-- ----- ------ -- ----- -- ----
<S> <C> <C> <C> <C>
Net sales $6,867,119 $6,098,315 $13,375,684 $12,455,710
Cost of Sales 3,600,901 3,414,054 7,364,115 7,120,385
--------- --------- --------- ---------
Gross profit 3,266,218 2,684,261 6,011,569 5,335,325
--------- --------- --------- ---------
Operating expenses:
Operating expenses 3,788,706 2,610,120 7,542,234 5,093,891
Depreciation and amortization 228,514 193,794 452,982 382,211
--------- --------- --------- ---------
Total operating expenses 4,017,220 2,803,914 7,995,216 5,476,102
--------- --------- --------- ---------
Operating loss (751,002) (119,653) (1,983,647) (140,777)
--------- --------- --------- ---------
Interest expense:
Interest and finance charges 300,016 156,860 584,680 295,312
Amortization of debt issuance costs 47,424 27,202 78,154 54,402
Effective non-cash interest expense
from beneficial conversion feature - - 650,000 -
--------- --------- --------- ---------
Total interest expense 347,440 184,062 1,312,834 349,714
--------- --------- --------- ---------
Minority interest in loss of consolidated subsidiary 143,497 - 143,497 -
--------- --------- --------- ---------
Net loss before extraordinary gain (954,945) (303,715) (3,152,984) (490,491)
Extraordinary gain on modification of debt terms 650,000
--------- --------- --------- ---------
Net loss (954,945) (303,715) (2,502,984) (490,491)
Other comprehensive income (loss) - - - -
Comprehensive net loss $ (954,945) $ (303,715) $ (2,502,984) $(490,491)
=========== =========== ============= ==========
Calculation of basic and diluted loss per share:
Net loss $ (954,945) $ (303,715) $ (2,502,984) $(490,491)
Effects of non-cash dividends on convertible
Net loss applicable to common shares $ (1,754,347) $ (1,503,715) $ (3,887,501) $(1,690,491)
============= ============= ============= ==========
Basic and diluted loss per common share
and share equivalents $ (0.32) $ (0.37) $ (0.70) $ (0.41)
========== ========== ============= ==========
Weighted average number of common shares
and share equivalents outstanding 5,548,852 4,103,525 5,537,457 4,103,525
========= ========= ========= =========
</TABLE>
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
(A SUBSIDIARY OF UNITED TEXTILES & TOYS CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six-months Ended September 30,
Restated (Note 5)
1999 1998
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,502,984) $ (490,491)
Adjustments used to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 452,962 382,211
Minority interest in net loss of subsidiary (143,497) -
Deferred rent 4,112 9,102
Stock compensation - 21,876
Extraordinary gain (650,000) -
Effective interest for beneficial conversion 650,000 -
feature
Increase (decrease) from changes in:
Accounts receivable (74,166) 21,077
Merchandise inventories (3,621,341) (4,312,326)
Other current assets (650,462) (500,243)
Deposits and other assets (1,001,538) (163,756)
Accounts payable 4,094,201 2,144,710
Accrued expenses and other liabilities (334,299) (528,880)
----------- ----------
Net cash used in operating activities (3,777,012) (3,416,720)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,919,427) (1,149,757)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred and common stock 3,540,504 156,877
Borrowings under financing agreement 21,157,590 17,967,798
Repayments under financing agreement (18,246,482) (14,931,000)
Borrowings under notes payable - 1,147,450
Repayments under notes payable and capital leases (503,962) -
----------- ----------
Net cash provided by financing activities 5,947,650 4,341,125
----------- ----------
Net increase (decrease) in cash 251,211 (225,352)
Cash at beginning of period 125,967 648,986
----------- ----------
Cash at end of period $ 377,178 $ 423,634
========= =========
</TABLE>
<PAGE>
PLAY CO. TOYS & ENTERTAINMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
Note 1. General
The interim accompanying unaudited condensed consolidated 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,
as restated (Note 5), for the year ended March 31, 1999 included in its Annual
Report on Form 10-KSB as amended. Operating results for the six-month period
ended September 30, 1999 are not necessarily indicative of the results of
operations that may be expected for the year ending March 31, 2000.
Note 2. Leases
During the three-month period ended September 30, 1999, the Company entered into
several capital leases to help finance its new computer system and several new
stores. The leases are for an aggregate principal amount of $336,109 and bear
interest at rates varying between 9.2% and 17.5%.
Note 3. Sale of Shares in Subsidiary
On July 15, 1999, Tudor Technologies, Inc. ("Tudor"), a British Virgin Islands
corporation, an entity of which Mr. Moses Mika (a director of the Company) is a
shareholder - as an assignee of an option to acquire 25% of the outstanding
shares of the common stock of the Company's then wholly-owned subsidiary, Toys
International.COM ("Toys"), elected to exercise the option to purchase the stock
in the subsidiary. As of this date, Tudor was to receive 2,335,000 or 25% of the
outstanding shares of the subsidiary, for $723,678. The option called for the
purchase price to be 25% of the subsidiary's book value at June 30, 1999. The
Company has recorded a stock subscription receivable as a current asset to
reflect this transaction as the funds were received in October 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, Toys entered into an agreement to sell 660,000 shares of Toys
common stock to CDMI Capital Corporation ("CDMI") and Concord Effekten
("Concord") of Frankfurt, Germany. Mr. Mika is a shareholder of CDMI. This
investment represented a 6.6% ownership for these shareholders. The Company
received gross proceeds of $2,800,000 and recorded this as an equity
transaction.
<PAGE>
Note 3. Sale of Shares in Subsidiary (continued)
No gain or loss was recorded on the sales of Toys shares to Tudor, CDMI, or
Concord per Staff Accounting Bulletin Topic 5 - Miscellaneous Accounting,
"Accounting for Sales of Stock in a Subsidiary", as such sales of shares were
issued as part of a broader corporate reorganization contemplated by Toys in the
form of a public offering of Toys shares as discussed below.
Toys has granted an aggregate 250,000 options to purchase common stock of Toys
to certain directors, officers, and advisors with an exercise price of $4.24 per
share. These options are for a period of three years and may not be exercised
until twelve months after the public offering on the Toys shares (see below). As
the Company and Toys utilize the provisions of APB 25 for stock options granted
to employees, no compensation expense was recorded for 224,000 of these options
as the exercise price was estimated by management to be approximately equal to
the fair value given the sales of Toys shares which immediately preceded these
grants. However, 26,000 of the options were granted to a legal advisor for
services related to the proposed public offering. These shares were valued by
management at the estimated fair value of approximately $118,000 and were
recorded as deferred offering costs which is included in other current assets at
September 30, 1999, with an offsetting effect to additional paid-in capital.
Upon recording the effects of the completed offering, this amount will be netted
against the proceeds of the offering credited to additional paid-in capital. As
such, the compensation recorded for these shares will have no net effect on the
Company's consolidated equity or results of operations.
Concurrently, the Company granted an additional 450,000 incentive options to
acquire shares of Toys common stock which have an exercise period over nine
years at an exercise price of 3 Euro per share. The exercise price in US dollars
will depend on the conversion rate at the time in the future when the options
are exercised. As of September 22, 1999, the date of the option grant, the
exercise price was $3.06. As these options were granted subject to Toys meeting
future performance criteria, no compensation expense has been recorded currently
as the compensation has not yet been earned.
The performance parameters of these options are based on Toys' annual audited
retail after tax profit. Retail after tax is defined as Toys' overall operations
excluding its Internet operations. The retail profit criteria are for any fiscal
year after the grant date. Once the first threshold of greater than $5 million
is achieved, a retail profit of greater than $6.5 million will need to be earned
in any subsequent year in order for the next options to become exercisable. The
same circumstance is applicable to the next threshold level. These options
expire nine years after the grant date. The actual performance criteria and the
parties to whom the incentive options were issued are shown in the following
table:
<PAGE>
Note 3. Sale of Shares in Subsidiary (continued)
<TABLE>
<CAPTION>
Shares Exercisable
Retail Profit Retail Profit Retail Profit Total
Name >$5 million >$6.5 million >$9 million Options Achievable
- ---------------------- ----------------- ------------------ ------------------ ----------------------
<S> <C> <C> <C> <C>
Richard Brady 75,000 75,000 75,000 225,000
Harold Rashbaum 45,000 45,000 45,000 135,000
James Frakes 30,000 30,000 30,000 90,000
----------------- ------------------ ------------------ --------------------
150,000 150,000 150,000 450,000
================= ================== ================== ====================
</TABLE>
As a result of the transactions involving Toys stock, the Company has recorded a
minority interest in its consolidated financial statements to reflect the
ownership of the minority owners. This represents the minority shareholders'
basis in Toys, along with their respective portion of the net losses recorded
for Toys from the transaction date through September 30, 1999.
Note 4. Basic and Diluted Loss per Share
The basic and diluted loss per common share for the three and six month periods
ending September 30, 1999 and 1998, are the same as the effects of common stock
equivalents are anti-dilutive given the net loss per common share in each
period. Potentially dilutive common shares aggregate 68,709,418, which could
result from the exercise of options, warrants, and the conversion of debentures
and/or the Series E and Series F Preferred Stock. Exercise or conversion of
certain of these instruments is restricted based on defined holding periods or
vesting schedules.
<PAGE>
Note 5. Restatement of Amounts Previously Reported
The March 31, 1999 and September 30, 1999 financial statements contain certain
restatements of amounts previously reported. The restatements were the result of
comments made by the Corporate Finance Division of the Securities and Exchange
Commission (SEC) regarding the accounting treatment for transactions revolving
around the Company's debt and equity securities including grants of
options/stock, and the beneficial conversion feature of certain convertible
debentures and convertible preferred stock.
The following is a summary of the impact of the restatements on the March 31,
1999 consolidated balance sheet.
<TABLE>
<CAPTION>
<S> <C>
1. Reduction of other current assets for options not ultimately issued $ 68,634
2. Increase in Series E Preferred Stock for issuance of shares 79,000
3. Increase in additional paid-in capital for beneficial conversion
feature of convertible debentures 650,000
4. Reduction in additional paid-in capital for cancellation of options 79,000
5. Additional net loss in accumulated deficit (from above items) 718,634
6. Net reduction in stockholders' equity 68,634
</TABLE>
The following is a summary of the impact of the restatements on the March 31,
1999 consolidated statement of operations and comprehensive net income (loss).
<TABLE>
<CAPTION>
<S> <C>
1. Increase in operating expenses from recognition of compensation expense $ 79,000
2. Reduction in operating expenses from reversing amortization for options
not ultimately issued (10,366)
3. Additional effective non-cash interest expense attributable to the beneficial
conversion feature of convertible debentures 650,000
Decrease in 1999 net income $ 718,634
===============
</TABLE>
<PAGE>
Note 5. Restatement of Amounts Previously Reported (continued)
The effects on the Company's previously issued March 31, 1999 financial
statements are summarized as follows.
<TABLE>
<CAPTION>
Previously Increase
Reported (Decrease) Restated
Consolidated balance sheet:
<S> <C> <C> <C>
Total current assets $ 1,660,263 $ (68,634) $ 1,591,624
Total assets $ 21,150,392 $ (68,634) $ 21,081,758
=============== ================ ===============
Series E convertible preferred stock $ 5,682,101 $ 79,000 $ 5,761,101
Additional paid-in capital 15,335,172 571,000 15,906,172
Total liabilities and stockholders' equity $ 21,150,392 $ (68,634) $ 21,081,758
=============== ================ ===============
Consolidated statement of operations and comprehensive loss:
Operating expenses $ 12,658,376 $ 68,634 $ 12,727,010
Effective non-cash interest for beneficial
conversion feature - 650,000 650,000
Net income (loss) $ 140,868 $ (718,634) $ (577,766)
=============== ================ ===============
Net income (loss) applicable to
common shares $ (1,566,857) $ (718,634) $ (2,285,491)
=============== ================ ===============
Basic and diluted income(loss) per
common share and share equivalents $ (.34) $ (.16) $ (.50)
============== ============== ==============
</TABLE>
<PAGE>
Note 5. Restatement of Amounts Previously Reported (continued)
The following is a summary of the impact of the restatements on the September
30, 1999 consolidated financial statements which include the cumulative effects
of the restatements made to the March 31, 1999 financial statements as detailed
above.
<TABLE>
<CAPTION>
Balance Sheet
<S> <C>
1. Reduction of other current assets for options not ultimately issued,
net of previously recorded amortization $ 65,510
2. Increase in Series E Preferred Stock for issuance of shares 79,000
3. Increase in additional paid-in capital for beneficial conversion
feature of convertible debentures 650,000
4. Reduction in additional paid-in capital for extraordinary gain
from modification of debt terms (650,000)
5. Increase in additional paid-in capital for beneficial conversion
feature of convertible debentures 650,000
6. Reduction in additional paid-in capital for cancellation of options 79,000
7. Additional net loss in accumulated deficit (from above items) 715,520
8. Net reduction in stockholders' equity 65,510
</TABLE>
Statement of Operations and Comprehensive Net Income (Loss)
For the three months ended September 30, 1999:
<TABLE>
<CAPTION>
1. Decrease in operating expenses from reversal of amortization of
<S> <C>
stock options not issued $ 1,562
For the six months ended September 30, 1999:
1. Decrease in operating expenses from reversal of amortization of
stock options not issued $ (3,124)
2. Additional effective non-cash interest expense attributable to
the beneficial conversion feature 650,000
3. Extraordinary gain from modification of debt terms $ (650,000)
-------------------
Decrease in net loss for the six-months ended September 30, 1999 $ 3,124
===================
</TABLE>
<PAGE>
Note 5. Restatement of Amounts Previously Reported (continued)
The effects on the Company's previously submitted September 30, 1999 financial
statements are summarized as follows.
<TABLE>
<CAPTION>
Previously Increase
Reported (Decrease) Restated
Consolidated balance sheet:
<S> <C> <C> <C>
Other current assets $ 2,425,601 $ (65,510) $ 2,360,091
Total assets $ 29,485,279 $ (65,510) $ 29,419,769
=============== ================ ===============
Series E convertible preferred stock $ 6,638,047 $ 79,000 $ 6,717,047
Additional paid-in capital 17,960,428 571,000 18,531,428
Total liabilities and stockholders' equity $ 29,485,279 $ (65,510) $ 29,419,769
=============== ================ ===============
Consolidated statement of operations and comprehensive loss:
For the six months ended September 30,1999:
Operating expenses $ 7,545,358 $ (3,124) $ 7,542,234
Effective interest for beneficial
conversion feature - 650,000 650,000
Extraordinary gain on extinguishment
of debt - 650,000 650,000
Comprehensive net income (loss) $ (2,506,108) $ 3,124 $ (2,502,984)
=============== ================ ===============
Net income (loss) applicable to
common shares $ (3,890,625) $ 3,124 $ (3,887,501)
=============== ================ ===============
Basic and diluted income (loss) per
common share and share equivalents $ (.70) $ - $ (.70)
============== ================ ==============
For the three months ended September 30,1999:
Operating expenses $ 3,790,268 $ (1,562) $ 3,788,706
Comprehensive net income (loss) $ (956,507) $ 1,562 $ (954,945)
=============== ================ ===============
Net income (loss) applicable to
common shares $ (1,755,909) $ 1,562 $ (1,754,347)
=============== ================ ===============
</TABLE>
<PAGE>
Note 6. Subsequent Events
In early October 1999, the Company loaned $200,000 to Shopnet.com, Inc.
and $50,000 to Breaking Waves, Inc., both of which entities are affiliated
with the Company. The loans carry interest at 9% and are due in March 2000.
On October 25, 1999, Tudor lent the Company $127,922 under a Demand Promissory
Note ("Demand Note"). The Demand Note carries an interest rate of eight percent
per annum. The Demand Note was a bridge loan designed to be paid off after the
completion of the then contemplated initial public offering of Toys.
On November 19, 1999, Toys completed an initial public offering (the "Offering")
on the SMAX segment of the Frankfurt Stock Exchange in Germany. The Offering was
underwritten by Concord. Toys sold 2 million shares, or a 16.7% interest, in the
Offering for gross proceeds of approximately $27 million. The offering was
priced at 13 Euro per share, which was approximately equal to $13.52 per share.
The Company retained majority ownership of Toys with a 58.4% equity interest in
the subsidiary and, as a result, will continue to consolidate Toys' operations
in its financial statements.
In addition to the 2 million shares sold by Toys in the offering, Concord and
CDMI each sold 200,000 shares in the offering in the form of a greenshoe
allotment. Both Concord and CDMI invested in Toys in a private placement in July
1999. The total offering size, including the greenshoe allotment, was 2.4
million shares.
The Company expects to complete the accounting for the net proceeds of the
Offering during the quarterly period ended December 31, 1999.
<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 that could cause actual results to differ materially
from those projected.
At September 30, 1999, the Company's operations were substantially controlled by
United Textiles & Toys Corp. ("UTTC") and Breaking Waves, Inc. ("Breaking
Waves") which owned 43.9% and 22.9%, respectively, of the then issued and
outstanding shares of the Company's Common Stock (then totaling 5,548,857). By
virtue of Breaking Wave's status as a wholly-owned subsidiary of Shopnet.com,
Inc. ("Shopnet"), a Delaware public company, Shopnet may be deemed the
beneficial owner of the shares of Common Stock owned by Breaking Waves.
UTTC is a Delaware corporation and public company which was organized in March
1991 and operates solely as a holding company. Breaking Waves is a New York
corporation and private company which manufactures swimwear.
For the three months ended September 30, 1999 compared to the three months ended
September 30, 1998
The Company generated net sales of $6,867,119 in the three months ended
September 30, 1999. This represented an increase of $768,804, or 12.6%, from net
sales of $6,098,315 in the three months ended September 30, 1998. All of this
sales growth came from the Company's new stores as same store sales declined by
24.8% for the period.
The Company believes that its same store sales showed a decline after a period
of two years of continuous increases (in the fiscal years ended March 31, 1998
and March 31, 1999) because in the three months ended September 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 six new stores it opened in the
September through late October timeframe.
The Company posted a gross profit of $3,266,218 in the three months ended
September 30, 1999, an increase of $581,957, or 21.7%, from the gross profit of
$2,684,261 in the three months ended September 30, 1998. This gross profit
increase was due to the increase in sales noted above and an increase in the
Company's gross margin. The gross margin of 47.6% in the September 1999 period
was an increase of 3.6% over the Company's gross margin of 44.0% in the
September 1998 period.
<PAGE>
Operating expenses (excluding depreciation and amortization expenses) in the
three months ended September 30, 1999 were $3,788,706. This represented a
$1,178,586, or 45.2%, increase over the Company's operating expenses of
$2,610,120 in the three months ended September 30, 1998. The primary reasons for
the operating expense increase were an increase in payroll and related expenses
of $525,871 and an increase in rent expense of $519,877. The payroll expense
increase was due to the addition of several middle managers and of employees at
new stores. The growth of rent expense was the result of adding additional
stores. Also included in operating expenses for the 1999 period was a $63,000
accrual related to the on-going litigation with a former landlord. This accrual
was made based on the advice of the Company's counsel and on the status of
settlement negotiations. The accrual in the September 1999 period increased the
aggregate accrual to $104,000 for this matter as of September 30, 1999.
During the three months ended September 30, 1999, the Company recorded non-cash
depreciation and amortization expenses of $228,514, a $34,720, or 17.9%,
increase from $193,794 in the period ended September 30, 1998. Total operating
expenses (operating expenses combined with depreciation and amortization) in the
September 1999 period were $4,017,220, a $1,213,306, or 43.3%, increase from
total operating expenses of $2,803,914 in the September 1998 period.
Since the $581,957 increase in gross profit was less than the $1,213,306
increase in total operating expenses, the Company's operating loss increased by
$631,349 from $119,653 during the three months ended September 30, 1998 to
$751,002 during the three months ended September 30, 1999.
Interest expense totaled $347,440 for the three months ended September 30, 1999.
This represented a $163,378 increase from interest expense of $184,062 in the
three months ended September 30, 1998. The primary reason for the increased
level of interest expense was a higher level of borrowings in the three months
ended September 30, 1999 than in the September 1998 period.
During the three months ended September 30, 1999, the Company recorded a
minority interest in the loss of consolidated subsidiary of $143,497. This
minority interest arose out of the sale of stock of the Company's Toys
International.COM, Inc. ("Toys") subsidiary in July 1999 to Tudor Technologies,
Inc. ("Tudor"), CDMI Capital Corporation ("CDMI"), and Concord Effekten
("Concord"), as described in Note 3 to the condensed consolidated financial
statements and below. Since Toys incurred a loss during the three months ended
September 30, 1999, this minority interest represented a reduction in the
Company's net loss.
<PAGE>
As a result of the above-mentioned factors, the Company recorded a net loss of
$954,945 for the three months ended September 30, 1999. This represented a
$651,230 increase over the net loss of $303,715 recorded in the three months
ended September 30, 1998. For the three-month periods ended September 30, 1999
and 1998, the net losses of $954,945 and $303,715, respectively, were increased
by non-cash dividends of $799,402 and $1,200,000, respectively, in order to
determine the net loss applicable to common shares. The non-cash dividends
represent amortization of the discount recorded upon the issuance of Series E
Preferred Stock ("Series E Stock") and the Series F Preferred Stock ("Series F
Stock") with a beneficial conversion feature. No dividends in the form of
securities or other assets were actually paid out.
The basic and diluted net loss per common share for the September 1999 period
was $0.32 compared to a basic and diluted net loss per common share in the
September 1998 period of $0.37.
For the six months ended September 30, 1999 compared to six months ended
September 30, 1998
The Company generated net sales of $13,375,684 in the six-month period ended
September 30, 1999. This represented an increase of $919,974, or 7.4%, from net
sales of $12,455,710 in the six-month period ended September 30, 1998. All of
this sales growth came from the Company's new stores as same store sales
declined by 26% for the period.
The Company believes that its same store sales showed a decline after a period
of two years of continuous increases (in the fiscal years ended March 31, 1998
and March 31, 1999) because in the six-month period ended September 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 six new stores it opened in the
September through late October timeframe.
The Company posted a gross profit of $6,011,569 in the six-month period ended
September 30, 1999, an increase of $676,244, or 12.7%, from the gross profit of
$5,335,325 in the six-month period ended September 30, 1998. This gross profit
increase was due to the increase in sales noted above and in the Company's gross
margin. The gross margin of 44.9% for the six-month period ended September 30,
1999 was an increase of 2.1% over the Company's gross margin of 42.8% in the
six-month period ended September 30, 1998.
<PAGE>
Operating expenses (excluding depreciation and amortization expenses) in the
six-month period ended September 30, 1999 were $7,542,234. This represented a
$2,448,343, or 48.1%, increase over the Company's operating expenses of
$5,093,891 in the six-month period ended September 30, 1998. The primary reasons
for the operating expense increase were an increase in payroll and related
expenses of $962,066 and an increase in rent expense of $1,067,934. The
increased expenses were due to the lease payments on the new stores opened and
the addition of several middle managers and of employees at the new stores.
During the six-month period ended September 30, 1999, the Company recorded
non-cash depreciation and amortization expenses of $452,982, a $70,771, or
18.5%, increase from $382,211 in the period ended September 30, 1998. This
increase was largely due to depreciation on the fixed assets purchased for the
newly opened stores. Total operating expenses (operating expenses combined with
depreciation and amortization) in the September 1999 period were $7,995,216, a
$2,519,114, or 46%, increase from total operating expenses of $5,476,102 in the
September 1998 period.
Since the $676,244 increase in gross profit was less than the $2,519,114
increase in total operating expenses, the Company's operating loss increased by
$1,842,870 from $140,777 during the six-month period ended September 30, 1998 to
$1,983,647 during the six-month period ended September 30, 1999.
Interest expense totaled $1,312,834 for the six-month period ended September 30,
1999. This represented a $963,120, or 275.4%, increase over the interest expense
of $349,714 in the six-month period ended September 30, 1998. The primary reason
for the increased level of interest expense was the recognition of $650,000 in
non-cash effective interest expense, which was allocable to the proceeds of the
beneficial conversion feature of the amended Frampton and EACF convertible
debentures in the six-month period ended September 30, 1999. The effective
interest expense represents a non-cash item that is effectively offset dollar
for dollar in stockholders' equity by an increase in additional paid-in capital.
The Company also recorded an extraordinary gain of $650,000 as a result of the
modification of terms for the Frampton and EACF convertible debentures.
During the six months ended September 30, 1999, the Company recorded a minority
interest in the loss of consolidated subsidiary of $87,150. This minority
interest arose out of the sale of stock of the Company's Toys subsidiary in July
1999 to Tudor, CDMI, and Concord, as described in Note 3 to the condensed
consolidated financial statements and above. Since Toys incurred a loss during
the three months ended September 30, 1999, this minority interest represented a
reduction in the Company's net loss.
<PAGE>
As a result of the above-mentioned factors, the Company recorded a net loss of
$2,502,984 for the six-month period ended September 30, 1999. This represented a
$2,012,493 increase over the net loss of $490,491 recorded in the six-month
period ended September 30, 1998. For the six-month periods ended September 30,
1999 and 1998, the net losses of $2,502,984 and $490,491, respectively, were
increased by non-cash dividends of $1,384,517 and $1,200,000, respectively, in
order to determine the net loss applicable to common shares. The non-cash
dividends represent amortization of the discount recorded upon the issuance of
Series E Stock with a beneficial conversion feature. No dividends in the form of
securities or other assets were actually paid out.
The basic and diluted net loss per common share for the September 1999 period
was $0.70 compared to a basic and diluted net loss per common share in the
September 1998 period of $0.41.
Liquidity and Capital Resources
At September 30, 1999, the Company had a working capital deficit of $2,795,541
compared to a working capital position of $5,763,509 at March 31, 1999. The
primary factors in the $8.56 million decrease in working capital was a
reclassification of the Company's credit line with FINOVA Capital Corporation
("FINOVA") from a long term liability to a short term liability. This
reclassification was due to the expiration date of the credit facility of August
3, 2000 falling within one year of the September 30, 1999 balance sheet date.
Prior to its most recent fiscal year ended March 31, 1999, the Company generated
operating losses in the past several years as well as in the six-month period
ended September 30, 1999. The Company 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 that the Company will be able to generate sufficient
revenues or have sufficient controls over expenses and other charges to achieve
profitability.
During the six-month period ended September 30, 1999, the Company used
$3,777,012 of cash in its operations compared to $3,416,720 used in operations
in the six-month period ended September 30, 1998. The Company's net loss was
approximately $2,500,000 and $490,000, respectively, in those periods. The
primary reason the cash used for operating activities was larger than the net
loss in the six-month period ended September 30, 1999 was due to increases in
deposits and other current assets related to the opening and planned openings of
additional stores and deferred expenses related to the public offering of Toys'
common stock.
The Company used $1,919,427 of cash in its investing activities during the
six-month period ended September 30, 1999 compared to $1,149,757 in the
six-month period ended September 30, 1998. The primary investing activity was
the purchase of equipment and fixtures for new stores.
<PAGE>
The Company generated $5,947,650 from its financing activities in the six-month
period ended September 30, 1999 compared to the generation of $4,341,125 from
financing activities in the six-month period ended September 30, 1998. The
primary contributors to the Company's financing activities were borrowings on
the Company's line of credit and proceeds from the sale of the Company's Series
F Preferred Stock and the sale of common stock of the Toys subsidiary, as
discussed below. Those proceeds were used to finance the Company's working
capital requirements, capital expenditures and operating losses during the
six-month period ended September 30, 1999.
As a result of the above factors, the Company had a net increase in cash of
$251,211 in the six-month period ended September 30, 1999 compared to a net
decrease in cash of $225,352 in the six-month period ended September 30, 1998.
During the three-month period ended September 30, 1999, the Company opened one
new store. This store was located in Pier 39 in San Francisco, California. Pier
39 is a tourist-oriented destination that has a history of heavy foot traffic.
The capital investment for building this store was approximately $425,000, net
of landlord contributions.
In October 1999, the Company opened five new stores located in Concord, North
Carolina (two stores), near Houston, Texas (two stores) and in Mission Viejo,
California. These stores are located in high traffic shopping malls. These five
stores represented an aggregate capital investment of approximately $1.3
million, net of landlord contributions. The Company postponed the construction
of its planned new store in Schaumburg, Illinois until the spring of 2000. The
Company now has 32 stores located in seven states.
As of September 30, 1999, the Company is a defendant in a lawsuit with a former
landlord of a retail site the Company vacated in August 1997. A trial in this
matter was originally scheduled for September 1999, but was postponed pending
the outcome of preliminary settlement negotiations, which commenced in September
1999. For the period ended September 30, 1999, the Company increased its accrual
in this matter $63,000 to an aggregate $104,000 based on the advice of the
Company's counsel and on the status of settlement negotiations.
The Company had planned to finance the above store opening costs through a
combination of capital lease financing, use of the Company's working capital,
and the sale of additional equity. The Company has obtained approximately
$431,500 in capital lease financing this fiscal year.
In May 1999, pursuant to ss.506 of Regulation D, the Company sold 750,000 shares
of Series F Preferred Stock ("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 full 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 lease $5.00 for a consecutive 30-day period.
<PAGE>
Due to the beneficial conversion feature of the Series F Stock, the proceeds
have initially been recorded as additional paid-in capital, which is being
amortized over an 7-month period in the form of a non-cash dividend. Management
has used an 8-month period to correspond to the estimated time necessary to have
a registration statement declared effective by the Securities and Exchange
Commission.
In connection with the private placement of the Series F Stock, the Company
granted options to the placement agent to purchase 350,000 shares of Common
Stock at an exercise price of $3.00 per share for a period of four years from
the date of closing of the private placement. The Company has valued these
options at approximately $507,000 using the Black-Scholes option valuation
model. As the options were granted in connection with the private placement, the
compensation effect of these was effectively offset against the proceeds into
additional paid-in capital with no net effect on the Company's stockholders'
equity or result of operations. The placement agent also received a 10%
commission, or $75,000, and a 1% allowance, or $7,500, to cover administrative
expenses. The private placement closed on May 27, 1999.
On July 15, 1999, Tudor - an entity of which Mr. Moses Mika (a director of the
Company) is a shareholder - elected to exercise its right to purchase a 25%
ownership interest in the Company's Toys subsidiary. Tudor was the assignee of
an option to acquire 25% of the outstanding shares of the common stock of Toys
at book value. The book value of Toys as of June 30, 1999 was determined to be
$2,894,711. In October, Tudor paid the Company $723,678 (25% of the book value
as of June 30, 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 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, Toys sold a 6.6% interest to two investors for $2.8 million in
gross proceeds in a private transaction. The investors were an unaffiliated
investment-banking firm, Concord of Frankfurt, Germany and CDMI, a British
Virgin Islands corporation. Mr. Mika is a shareholder of CDMI. Each party
invested $1.4 million in the transaction.
The Company accounted for this as a capital transaction, and therefore did not
recognize any gain or loss on the transaction. The Company followed the
guidelines established by the SEC under Staff Accounting Bulletin Topic 5 -
Miscellaneous Accounting, "Accounting for Sales of Stock in a Subsidiary", since
Toys sold shares of its own stock. Management does not believe recognizing a
gain or loss would be appropriate due to the fact that the sale was "part of a
broader corporate reorganization contemplated or planned by the registrant".
Toys is in the process of completing a foreign public offering of the
subsidiary's stock, which is deemed to be "a broader corporate reorganization".
In these instances, the Staff Accounting Bulletin indicates that recognition of
a gain is not appropriate.
<PAGE>
In early October 1999, the Company loaned $200,000 to Shopnet.com, Inc. and
$50,000 to Breaking Waves, Inc., both of which entities are affiliated with the
Company. The loans carry interest at 9% and are due in March 2000.
On October 25, 1999, Tudor lent the Company $127,922 under a Demand Promissory
Note ("Demand Note"). The Demand Note carries an interest rate of eight percent
per annum. The Demand Note was a bridge loan designed to be paid off after the
completion of the then contemplated initial public offering of Toys.
On November 19, 1999, the Company's Toys subsidiary completed an initial public
offering (the "Offering") on the SMAX segment of the Frankfurt Stock Exchange in
Germany. The Offering was underwritten by Concord.
Toys sold 2 million shares, or a 16.7% interest, in the Offering for gross
proceeds of approximately $27 million. The offering was priced at 13 Euro per
share, which was approximately equal to $13.52 per share. The Company retained
majority ownership of Toys with a 58.4% equity interest in the subsidiary and,
as a result, will continue to consolidate Toys' operations in its financial
statements.
In addition to the 2 million shares sold by Toys in the offering, Concord and
CDMI each sold 200,000 shares in the offering in the form of a greenshoe
allotment. Both Concord and CDMI invested in Toys in a private placement in July
1999. The total offering size, including the greenshoe allotment, was 2.4
million shares.
The Company expects to complete the accounting for the net proceeds of the
Offering during the quarterly period ending December 31, 1999.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of the Offering will be sufficient
to satisfy its contemplated cash requirements for at least 12 months.
Year 2000
Many installed computer systems and software products are currently programmed
to accept two-digit entries in the date field. Beginning in the year 2000
("Y2K"), however, the programmed fields will have to accept four-digit entries,
so as to be able to distinguish dates from the 21st century from those of the
20th century. However, even four-digit date entries do not necessarily guarantee
a smooth transition to the year 2000. Data lost during the archiving process or
the overwriting of old information with new information may initially remain
undiscovered and cause problems. As a result, computer systems and/or software
utilized by many companies must still be upgraded before the end of this year to
become year 2000 compatible.
<PAGE>
The Company believes that all of its systems are year 2000 compatible and that
the Company does not face any Y2K problems in the U.S. The services offered by
the Company are not affected by the year 2000 compatibility of its systems.
According to the wholesalers, their systems will be year 2000 compatible as
well.
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.
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.
The budget for the Company's Y2K issue was approximately $100,000 to $120,000
(including upgraded hardware), and the Company spent all of it. The Company used
an external consultant, Data Pro Consulting, which has done the vast majority of
the Company's Y2K compliance work.
Despite the measures that have been taken by the Company, there is no guarantee
that the transition to the year 2000 will be without problems. Correction of
these problems may be associated with additional financial burdens. Moreover, it
cannot be ruled out that wholesalers will encounter problems beyond the control
of the Company. The complexity of today's networked systems, internally as well
as externally, poses a general risk. The Company strives to keep this risk to a
minimum.
<PAGE>
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 (in the fiscal years ended March 31, 1998
and March 31, 1999) because in the six-month period ended September 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. As noted above, the Company has recently significantly strengthened its
balance sheet by raising approximately $30 million in additional equity, 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.
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. Also, the Company opened five new stores in October,
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 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. This
action has been taken off the trial calendar with a settlement review hearing
scheduled to occur in late December 1999 or early January 2000. Management
believes that this case will reach a settlement by that date.
No Director, Officer, or affiliate of the Company, nor any associate of same, is
a party to, or has a material interest in, any 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:
10.137 Amendment to Lease Agreement - Concord Mills (Toy Co.)
27.1 Financial Data Schedule
(b) During the quarter ended September 30, 1999, no reports on Form 8-K
were filed with the Securities and Exchange Commission.
<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 1st day of May 2000.
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
EXHIBIT 10.137
FIRST MODIFICATION OF LEASE AGREEMENT
LANDLORD NAME
AND ADDRESS: CONCORD MILLS LIMITED PARTNERSHIP,
A Delaware Limited Partnership
1300 Wilson Boulevard, Suite 400
Arlington, Virginia 22209
TENANT NAME
AND ADDRESS: TOYS INTERNATIONAL, INC.,
A California Corporation
550 Rancheros Drive
San Marcos, California 92069
DATE OF LEASE: August 10, 1998
LEASED PREMISES: Store #522 (approximately 8,135 sf)
SHOPPING CENTER: Concord Mills,
Concord, North Carolina
R E C I T A L
WHEREAS, Landlord and Tenant have entered into a Lease dated August 10,
1998 ("Lease"), whereby Landlord has leased to Tenant the Leased Premises for a
term of approximately ten (10) years.
WHEREAS, Landlord and Tenant have agreed to modify the Lease to
increase Tenant's square footage of the Leased Premises and adjust the Minimum
Rent and Percentage Rent accordingly, all as provided for herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is hereby agreed as follows:
1. DESCRIPTION OF LEASED PREMISES:
Store Number: 518, consisting of approximately 10,402 square feet of floor
area as shown on Exhibit "A".
<PAGE>
2. MINIMUM RENT:
Original Term:
From the Commencement Date and continuing through the fifth (5th) year of
the Original Term, the sum of $228,844.00 ($22.00 psf) annually, payable in
equal consecutive monthly installments of $19,070.33 each;
Beginning with the sixth (6th) year and continuing through the expiration
of the Original Term, the sum of $249,648.00 ($24.00 psf) annually, payable in
equal consecutive monthly installments of $20,804.00 each.
3. PERCENTAGE RENT:
Percentage Factor: 6%
Sales Break Point for the Original Term:
From the Commencement Date through the fifth (5th) year of the Original
Term: $3,269,200.00;
Beginning with the sixth (6th) year and continuing through the expiration
of the Original Term: $3,566,400.00.
4. Exhibit "A" is replaced with the attached Exhibit "A" dated August 5,
1998.
5. Exhibit "D", page 14, line 41 is replaced with 10,402 square feet.
6. Except as expressly modified in this First Modification of Lease
Agreement, all the terms, covenants and conditions of said Lease shall
remain the same and in full force and effect, shall be binding on the
parties hereto, and are hereby ratified and affirmed. Unless
specifically defined herein, the capitalized terms used in this First
Modification of Lease Agreement shall have the meanings defined in the
Lease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hand and seal as of the
___ day of __________, 19__ and declare this First Modification of Lease
Agreement to be binding on them, their respective successors and permitted
assigns.
WITNESS: LANDLORD:
CONCORD MILLS LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Concord Mills, L.L.C., a Delaware limited
liability company
Its: General Partner
By: The Mills Limited Partnership, a Delaware
limited partnership
Its: Manager
By: The Mills Corporation, a Delaware
corporation
Its: General Partner
By: ________________________
Judith Berson
Executive Vice President
WITNESS/ATTEST: TENANT:
TOYS INTERNATIONAL, INC.,
a California corporation
__________________________ By: ___________________________
__________________________ Its: ___________________________
__________________________ By: ___________________________
__________________________ Its: ___________________________
Corporate Seal:
<PAGE>
ACKNOWLEDGEMENT OF LANDLORD
COMMONWEALTH OF VIRGINIA )
)ss.
COUNTY OF ARLINGTON )
On this ______ day of ________________, 19___, before me personally
appeared Judith Berson to me known to be the person who executed the foregoing
First Modification of Lease Agreement and acknowledged before me that she was
duly authorized and did execute same on behalf of CONCORD MILLS LIMITED
PARTNERSHIP, a Delaware limited partnership.
---------------------------------------
Notary Public, Commonwealth of Virginia
My Commission expires:_________________
ACKNOWLEDGMENT OF CORPORATE TENANT
STATE OF )
)ss.
COUNTY OF )
On this ______ day of ________________, 19___, before me personally
appeared ____________________________ and __________________, to me personally
known, who, being by me duly sworn, did for themselves say that they are the
___________________ and ______________________ of TOYS INTERNATIONAL, INC., a
California corporation, the corporation named in and which executed the within
instrument, and that the seal affixed to said instrument is the corporate seal
of said corporation, and that said instrument was signed and sealed in behalf of
said corporation by authority of its board of directors and acknowledged before
me said instrument to be the free act and deed of said corporation.
-----------------------------------
Notary Public
My Commission expires:_____________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
PLAY CO. TOYS & ENTERTAINMENT CORP.
FINANCIAL DATA SCHEDULE
This schedule contains summary information extracted from the condensed
consolidated balance sheet, statements of operations and cash flows and notes
thereto incorporated in Part 1, Item 1, of this Form 10-QSB and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-END> Sep-30-1999
<CASH> 377,178
<SECURITIES> 0
<RECEIVABLES> 172,442
<ALLOWANCES> 0
<INVENTORY> 15,127,625
<CURRENT-ASSETS> 18,761,014
<PP&E> 11,757,355
<DEPRECIATION> (4,511,565)
<TOTAL-ASSETS> 29,419,769
<CURRENT-LIABILITIES> 21,556,556
<BONDS> 0
0
7,145,618
<COMMON> 0
<OTHER-SE> (2,026,898)
<TOTAL-LIABILITY-AND-EQUITY> 29,419,769
<SALES> 13,375,684
<TOTAL-REVENUES> 13,375,684
<CGS> 7,364,115
<TOTAL-COSTS> 7,995,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,312,834
<INCOME-PRETAX> (2,502,984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,502,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,502,984)
<EPS-BASIC> (.70)
<EPS-DILUTED> (.70)
</TABLE>
