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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission file number 0-26374
PLAY BY PLAY TOYS & NOVELTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 74-2623760
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4400 Tejasco
San Antonio, Texas 78218-0267
(Address of principal executive offices and zip code)
(210) 829-4666
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
The aggregate number of the Registrant's shares outstanding on March 13, 2000
was 7,395,000 shares of Common Stock, no par value.
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<PAGE>
PLAY BY PLAY TOYS & NOVELTIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of January 31, 2000 (unaudited)
and July 31, 1999 3
Consolidated Statements of Operations (unaudited) for the
Three Months and Six Months Ended January 31, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended January 31, 2000 and 1999 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 3. Default Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and reports on Form 8-K 19
SIGNATURES 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLAY BY PLAY TOYS & NOVELTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JANUARY 31, JULY 31,
------------- -------------
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 2,562,260 $ 2,345,634
Accounts and notes receivable, less allowance for
doubtful accounts of $6,218,748 and $7,976,984 ................... 24,101,448 36,243,047
Inventories ........................................................... 60,326,570 69,116,899
Prepaid expenses ...................................................... 2,721,802 2,811,776
Other current assets .................................................. -- 468,710
------------- -------------
Total current assets ............................................. 89,712,080 110,986,066
Property and equipment, net ................................................ 26,098,671 25,859,145
Goodwill, less accumulated amortization
of $1,442,568 and $1,187,890 ......................................... 16,188,098 16,442,777
Other assets ............................................................... 3,886,640 2,030,273
------------- -------------
Total assets ..................................................... $ 135,885,489 $ 155,318,261
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdraft ........................................................ $ 1,626,645 $ 2,281,447
Notes payable to banks ................................................ 24,810,636 29,982,533
Long-term debt subject to acceleration ................................ 1,964,551 --
Current maturities of convertible subordinated debentures ............. 15,000,000 298,500
Current maturities of long-term debt .................................. 1,042,412 1,654,987
Current obligations under capital leases .............................. 1,465,307 1,701,911
Accounts payable, trade ............................................... 26,631,243 32,081,780
Accrued royalties payable ............................................. 3,991,655 7,706,423
Other accrued liabilities ............................................. 1,970,800 3,172,479
Income taxes payable .................................................. 1,018,129 --
------------- -------------
Total current liabilities ........................................ 79,521,378 78,880,060
------------- -------------
Long-term liabilities:
Long-term debt, net of current maturities ............................. -- 2,140,418
Convertible subordinated debentures, net of current maturities ........ -- 14,701,500
Obligations under capital leases ...................................... 1,419,904 1,655,826
------------- -------------
Total liabilities ................................................ 80,941,282 97,377,804
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; 10,000,000 shares
authorized; no shares issued ..................................... -- --
Common stock - no par value; 20,000,000 shares
authorized; 7,395,000 shares issued .............................. 1,000 1,000
Additional paid-in capital ............................................ 71,486,820 71,486,820
Deferred compensation ................................................. (268,333) (338,333)
Accumulated other comprehensive losses ................................ (4,135,338) (3,006,208)
Accumulated deficit ................................................... (12,139,942) (10,202,822)
------------- -------------
Total shareholders' equity ....................................... 54,944,207 57,940,457
------------- -------------
Total liabilities and shareholders' equity ....................... $ 135,885,489 $ 155,318,261
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
PLAY BY PLAY TOYS & NOVELTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ..................................... $ 27,501,228 $ 28,431,797 $ 75,536,060 $ 84,158,783
Cost of sales ................................. 17,924,787 19,412,876 51,507,986 58,366,174
------------ ------------ ------------ ------------
GROSS PROFIT ............................. 9,576,441 9,018,921 24,028,074 25,792,609
Selling, general and administrative
expenses .................................... 11,680,999 11,382,133 23,313,053 24,745,660
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) .................. (2,104,558) (2,363,212) 715,021 1,046,949
Interest expense .............................. (1,532,437) (866,929) (3,097,092) (2,221,709)
Interest income ............................... 12,276 239,303 38,463 296,711
Other income .................................. 317,222 49,429 406,488 130,726
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX .................. (3,307,497) (2,941,409) (1,937,120) (747,323)
Income tax benefit ............................ 216,372 1,029,422 -- 261,563
------------ ------------ ------------ ------------
NET LOSS ................................. $ (3,091,125) $ (1,911,987) $ (1,937,120) $ (485,760)
============ ============ ============ ============
LOSS PER SHARE:
Basic ....................................... $ (0.42) $ (0.26) $ (0.26) $ (0.07)
------------ ------------ ------------ ------------
Diluted ..................................... $ (0.42) $ (0.26) $ (0.26) $ (0.07)
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ....................................... 7,395,000 7,315,000 7,395,000 7,315,000
------------ ------------ ------------ ------------
Diluted ..................................... 7,395,000 7,315,650 7,395,000 7,336,512
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
PLAY BY PLAY TOYS & NOVELTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................. $ (1,937,120) $ (485,760)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ......................................... 1,531,741 1,357,201
Provision for doubtful accounts receivable ............................ 697,323 752,833
Deferred income tax provision (benefit) ............................... -- 33,071
Amortization of deferred compensation ................................. 70,000 70,000
Loss on sale of property and equipment ................................ 2,874 50,859
Change in operating assets and liabilities:
Accounts and notes receivable ....................................... 11,444,276 7,501,989
Inventories ......................................................... 8,790,329 1,393,359
Prepaids and other assets ........................................... (1,324,254) (1,656,891)
Accounts payable and accrued liabilities ............................ (10,377,308) (7,994,948)
Income taxes payable ................................................ 1,018,129 (1,086,759)
------------ ------------
Net cash provided by (used in) operating activities .............. 9,915,990 (65,046)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................................... (1,253,322) (4,657,174)
Proceeds from the sale of property and equipment ......................... 106,201 52,898
------------ ------------
Net cash used in investing activities ............................ (1,147,121) (4,604,276)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under Revolving Credit Agreements ............ (5,171,897) 4,487,225
Repayment of long-term debt .............................................. (788,442) (1,185,362)
Repayment of capital lease obligations ................................... (807,972) (504,977)
Decrease in book overdraft ............................................... (654,802) --
------------ ------------
Net cash provided by (used in) financing activities .............. (7,423,113) 2,796,886
------------ ------------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATES .................................. (1,129,130) 638,784
------------ ------------
Increase (decrease) in cash and cash equivalents ......................... 216,626 (1,233,652)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................... 2,345,634 3,024,028
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................. $ 2,562,260 $ 1,790,376
============ ============
Non-cash financing and investing-activity: capital leases incurred ......... $ 335,446 $ 295,134
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
PLAY BY PLAY TOYS & NOVELTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements and related
disclosures have been prepared in accordance with generally accepted accounting
principles applicable to interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. The year-end balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation of
the financial position and interim results of Play-By-Play Toys & Novelties,
Inc. and Subsidiaries (the "Company") as of and for the periods presented have
been included. Certain amounts in the financial statements for the prior period
have been reclassified to conform to the current year presentation. Because the
Company's business is seasonal, results for interim periods are not necessarily
indicative of those that may be expected for a full year.
The financial information included herein should be read in conjunction
with the Company's consolidated financial statements and related notes in its
Annual Report on Form 10-K for the fiscal year ended July 31, 1999, which is on
file with the United States Securities and Exchange Commission.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000 (August 1, 2000, for the
Company). SFAS No. 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in the current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is the type of hedge transaction. The Company believes that the
impact of the pronouncement will be minimal, as historically, the Company has
not entered into any derivative or hedging transactions.
3. INVENTORIES
Inventories are comprised of the following:
JANUARY 31, 2000 JULY 31, 1999
------------------ ---------------
Purchased for resale ............. $59,857,033 $68,592,189
Operating supplies ............... 469,537 524,710
----------- -----------
Total ......................... $60,326,570 $69,116,899
=========== ===========
6
<PAGE>
4. SUBSEQUENT EVENT
The Company is negotiating with its Chairman, regarding obtaining a loan
from him in the principal amount of $2.5 million. If consummated on the current
proposed terms, the loan would provide for interest at 8% and would be secured
by a first lien on the Company's 1999 federal income tax refund and matures on
or before October 25, 2002. The loan plus accrued interest would be payable upon
receipt by the Company of the tax refund proceeds.
The lender under the Company's $60 million Credit Facility has verbally
agreed, conditioned upon the Company receiving the $2.5 million loan from the
Chairman on the terms described above, to amend the Credit Facility to reduce
the maximum credit commitment to $35 million and the revolving loan limit to
$32.6 million and to provide for a supplemental loan under the revolving loan in
the principal amount of $500,000. The supplemental loan would require repayment
in weekly installments of $100,000, with the final maturity date being seven
weeks from the date of the loan from the Chairman. Conditioned upon the Company
receiving the $2.5 million loan from the Chairman on the terms described above,
the Company's senior lender and subordinated debenture holders are in
negotiations relative to a subordination agreement in which they would
subordinate their interests in the Company's tax refund to the Chairman's
security interest therein.
5. LICENSES
Two of the Company's significant entertainment character licenses expire
on March 31, 2000. The Company is in discussions with the licensor for the
renewal and extension of these two agreements. A significant portion of the
Company's revenues has historically been derived from sales of merchandise based
on characters licensed under these agreements. As a percentage of total net
sales, the combined sales under these two agreements were 17.7%, 26.4% and 30.9%
for the first six months of fiscal year 2000 and fiscal years 1999 and 1998,
respectively. In addition, a significant portion of the Company's inventory is
comprised of merchandise based on characters licensed under these agreements.
Currently, the Company has failed to make payment of certain royalties required
to be paid to the Licensor under these two (as well as other) license
agreements. Negotiations on these licenses have been substantially completed,
however, there can be no assurance that the Company will be able to renew these
license agreements or, if renewals are obtained that the terms will be as
favorable to the Company as those contained in the expiring license agreements.
6. LONG-TERM DEBT
The Company is in default in the payment of over $398,000 of interest due
under its Convertible Debentures (the "Debentures"). The Company has an
aggregate of $15.0 million of the Debentures outstanding. As a result of the
default in the payment of interest on the Debentures, the Company is also in
default of certain cross-default covenants of its Credit Facility. If the
Company obtains a $2.5 million loan from its Chairman (see note 4 above), then
the Company will utilize a portion of the proceeds of the loan from the Chairman
to satisfy the past due interest payments. Currently, the Company does not have
available sufficient funds to make such interest payments, and there can be no
assurance that the Company will obtain financing sufficient to cure its payment
defaults under the Debentures. If such payment defaults continue, then the
Debenture holders, subject to certain limited stand-still provisions, will have
the right to accelerate the entire amount of $15.0 million principal, plus
accrued and unpaid interest, under the Debentures. Because of cross-default
violations under the Credit Facility (resulting from payment defaults under the
Debentures), the senior lender thereunder currently has the right to accelerate
the entire amount of principal, plus accrued and unpaid interest, under the
Credit Facility. In the event of the acceleration of the Debentures and/or
Credit Facility, the Company has insufficient funds to pay amounts
7
<PAGE>
that would then be due and payable. As of January 31, 2000, the revolving line
of credit balance under the Credit Facility was $23.1 million, the balance of
the term loans was $2.3 million, and the amount of convertible debentures
outstanding was $15.0 million
7. COMPREHENSIVE INCOME
The Company's comprehensive income (loss) is comprised of net loss and
foreign currency translation adjustments.
The components of comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JANUARY 31,
------------------------------ -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss .......................... $(3,091,125) $(1,911,987) $(1,937,120) $ (485,760)
Foreign currency
translation adjustment .......... (478,891) (929,853) (1,129,130) 638,784
----------- ----------- ----------- -----------
Comprehensive income (loss) ....... $(3,570,016) $(2,841,840) $(3,066,250) $ 153,024
=========== =========== =========== ===========
</TABLE>
8. LOSS PER SHARE
Basic earnings (loss) per common share were computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. Diluted earnings per share differs from basic earnings per share due
to the assumed exercises and conversions of dilutive options, warrants and
convertible debt that were outstanding during the period.
8
<PAGE>
The calculations of basic and diluted earnings (loss) per share for the
three and six month periods ended January 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
--------------------------------------------------------------------------------------
2000 1999
------------------------------------- ---------------------------------------------
Common Per Common Per
Income (Loss) Shares Share Income (Loss) Shares Share
------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
As reported ............................ $(3,091,125) 7,395,000 $ (0.42) $(1,911,987) 7,315,000 $ (0.26)
EFFECT OF DILUTIVE SECURITIES:
Options ................................ -- -- -- 650
Warrants ............................... -- -- -- --
Convertible Subordinated Debentures .... -- -- -- --
------------------------------------- ---------------------------------------------
DILUTED EPS: ........................... $(3,091,125) 7,395,000 $ (0.42) $(1,911,987) 7,315,650 $ (0.26)
===================================== =============================================
SIX MONTHS ENDED JANUARY 31,
--------------------------------------------------------------------------------------
2000 1999
------------------------------------- ---------------------------------------------
Common Per Common Per
Income (Loss) Shares Share Income Shares Share
------------------------------------- ---------------------------------------------
BASIC EPS:
As reported ............................ $(1,937,120) 7,395,000 $ (0.26) $ (485,760) 7,315,000 $ (0.07)
EFFECT OF DILUTIVE SECURITIES:
Options ................................ -- -- -- 21,512
Warrants ............................... -- -- -- --
Convertible Subordinated Debentures .... -- -- -- --
------------------------------------- ---------------------------------------------
DILUTED EPS: ........................... $(1,937,120) 7,395,000 $ (0.26) $ (485,760) 7,336,512 $ (0.07)
===================================== =============================================
</TABLE>
During the three months ended January 31, 2000 and 1999 and six months
ended January 31, 2000 and 1999, the Company had various amounts of common stock
options and warrants outstanding which were not included in the diluted earnings
per share calculation because the options and warrants would have been
anti-dilutive.
9. DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information", which establishes reporting
standards for the way public companies report information about operating
business segments in annual and interim reports. While the Company is organized
and managed internally by sales and operating divisions, revenues are segmented
between retail and amusement customers.
9
<PAGE>
Information about revenue segments is presented below.
<TABLE>
<CAPTION>
SALES REVENUE SEGMENTS
AMUSEMENT RETAIL OTHER TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
JANUARY 31, 2000
- -----------------------
Net operating revenue ............ $18,794,020 $ 8,011,432 $ 695,776 $27,501,228
Cost of sales .................... 12,137,185 5,525,995 261,607 17,924,787
----------- ----------- ----------- -----------
Gross profit ..................... 6,656,835 2,485,437 434,169 9,576,441
THREE MONTHS ENDED
JANUARY 31, 1999
- -----------------------
Net operating revenue ............ $20,861,249 $ 6,880,934 $ 689,614 $28,431,797
Cost of sales .................... 13,913,901 5,145,016 353,959 19,412,876
----------- ----------- ----------- -----------
Gross profit ..................... 6,947,348 1,735,918 335,655 9,018,921
SIX MONTHS ENDED
JANUARY 31, 2000
- ------------------------
Net operating revenue ............ $49,979,555 $24,198,963 $ 1,357,542 $75,536,060
Cost of sales .................... 33,436,893 17,431,314 639,779 51,507,986
----------- ----------- ----------- -----------
Gross profit ..................... 16,542,662 6,767,649 717,763 24,028,074
SIX MONTHS ENDED
JANUARY 31, 1999
- ------------------------
Net operating revenue ............ $57,968,873 $24,839,027 $ 1,350,883 $84,158,783
Cost of sales .................... 38,959,403 18,739,819 666,952 58,366,174
----------- ----------- ----------- -----------
Gross profit ..................... 19,009,470 6,099,208 683,931 25,792,609
The following are sales by geographic areas for the three and six months ended January 31:
THREE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JANUARY 31,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Domestic ......................... $16,852,697 $18,661,789 $48,703,639 $58,415,583
Europe ........................... 7,574,960 8,974,724 17,567,411 18,304,354
Latin America .................... 3,073,571 795,284 9,265,010 7,438,846
----------- ----------- ----------- -----------
$27,501,228 $28,431,797 $75,536,060 $84,158,783
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING,
WITHOUT LIMITATION, LIQUIDITY AND CAPITAL RESOURCES, RELATIONSHIPS WITH
LICENSORS AND CUSTOMERS, REALIZATION OF ROYALTY ADVANCES, NEW PRODUCT
INTRODUCTION, CAPABILITY OF MANAGING GROWTH, ABILITY TO SOURCE PRODUCTS,
CONCENTRATION OF CREDIT RISK, INTERNATIONAL TRADE RELATIONS AND MANAGEMENT OF
QUARTER TO QUARTER RESULTS, AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE
COMPANY'S SEC REPORTS, INCLUDING THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED JULY 31, 1999 (SEE "RISK FACTORS" IN SUCH FORM 10-K).
UPDATED INFORMATION WILL BE PERIODICALLY PROVIDED BY THE COMPANY AS REQUIRED BY
THE SECURITIES EXCHANGE ACT OF 1934.
RESULTS OF OPERATIONS
The following unaudited table sets forth the Company's results of
operations as a percentage of net sales for the periods indicated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JANUARY 31, JANUARY 31,
-------------------------- --------------------------
2000 1999 2000 1999
------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ....................................... 65.2 68.3 68.2 69.4
----- ----- ----- -----
Gross profit ........................................ 34.8 31.7 31.8 30.6
Selling, general and administrative expenses ........ 42.5 40.0 30.9 29.4
----- ----- ----- -----
Operating income (loss) ............................. (7.7) (8.3) 0.9 1.2
Interest expense .................................... (5.6) (3.0) (4.1) (2.6)
Interest income ..................................... -- 0.8 0.1 0.4
Other income ........................................ 1.2 0.2 0.5 0.2
Income tax provision ................................ 0.8 3.6 0.0 0.3
----- ----- ----- -----
Net income (loss) ................................... (11.3)% (6.7)% (2.6)% (0.5)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
NET SALES. Net sales for the three months ended January 31, 2000 were
$27.5 million, a decrease of 3.3%, or $931,000, from $28.4 million in the
comparable period in fiscal 1999. The decrease in net sales was primarily
attributable to a decrease in amusement net sales of 9.7%, or $2.0 million, to
$18.9 million offset by an increase in retail net sales of 15.8%, or $1.1
million to $7.9 million over the comparable period in fiscal 1999. Domestic net
toy sales for the second quarter of fiscal 2000 compared to the comparable
period of fiscal 1999 decreased 10.1%, or $1.8 million, to $16.2 million.
International net toy sales decreased 15.6%, or $1.4 million, to $7.6 million,
offset by an increase in Latin America net toy sales of 286.5%, or $2.3 million,
to $3.1 million.
Net toy sales to retail customers for the second quarter of fiscal 2000
and fiscal 1999 were $7.9 million and $6.8 million, respectively, which
accounted for 28.8% and 24.1%, respectively, of the Company's net sales. The
15.8%, or $1.1 million increase in net sales to retail customers from the second
quarter of fiscal 1999 to the second quarter of fiscal 2000 is attributable to
an increase in sales of licensed plush of 47.3%, or $1.7 million, to $5.4
million and an increase in sales of non-licensed electronic toys of 628.0%, or
$704,000, to $816,000, from $112,000. This increase was offset by a decrease in
sales of PLAY-FACES(R) of 51.0%, or $269,000, to $259,000, from $528,000, and a
decrease in licensed electronic toys of 42.9%, or $1.1 million, to $1.4 million,
from $2.5 million in the comparable period in fiscal 1999.
11
<PAGE>
Net toy sales to amusement customers for the second quarter of fiscal 2000
and fiscal 1999 were $18.9 million and $20.9 million, respectively, which
accounted for 68.6% and 73.5%, respectively, of the Company's net sales. The
decrease of 9.7%, or $2.0 million, is primarily attributable to decreased sales
of licensed plush of 36.5%, or $4.6 million, to $8.1 million, from $12.7
million, and decreased sales of novelty items of 25.9%, or $560,000. This
decrease was offset by an increase in sales of non-licensed plush toys of 52.6%,
or $3.2 million, to $9.2 million over the comparable period in fiscal 1999.
Net sales of licensed products for the second quarter of fiscal 2000 were
$15.2 million, a decrease of 21.9%, or $4.2 million, from $19.4 million in the
comparable period of fiscal 1999. The decrease in licensed product sales was
primarily attributable to a decrease of net sales of the Company's licensed
plush toys of 17.7%, or $2.9 million, to $13.5 million, from $16.4 million in
the comparable period of fiscal 1999. Net sales of the licensed electronic toys
accounted for $1.4 million, or 5.4% of the Company's net toy sales for the
second quarter of fiscal 2000 compared to $2.5 million in the comparable period
of fiscal 1999. Within licensed products, sales of Looney Tunes' characters
accounted for $8.4 million, or 31.5% of the Company's net toy sales for the
second quarter of fiscal 2000 compared to $15.8 million in the comparable period
of fiscal 1999.
GROSS PROFIT. Gross profit increased 6.2%, or $558,000, to $9.6 million
for the second quarter of fiscal 2000 from $9.0 million, in the comparable
period of fiscal 1999. This increase was principally a result of improved
margins on sales made within the Company's amusement division. As a result,
gross profit as a percentage of net sales increased to 34.8% for the second
quarter of fiscal 2000 from 31.7% in the comparable period in fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately 2.6%, or $299,000, to $11.7
million for the second quarter of fiscal 2000 from $11.4 million in the
comparable period in fiscal 1999. This increase is primarily attributable to
increased advertising and catalog preparation and distribution expenses of $1.3
million, related principally to the Company's direct marketing catalog division,
and increased expenses of $570,000, related to the acquisition of Caribe
Marketing in Puerto Rico, offset by reduced payroll costs of $1.0 million. As a
percentage of net sales, selling, general and administrative expenses increased
to 42.5% for the second quarter of fiscal 2000 from 40.0% in the comparable
period in fiscal 1999.
INTEREST EXPENSE. Interest expense increased $666,000, to $1.5 million,
for the second quarter of fiscal 2000 from $867,000, in the comparable period of
fiscal 1999. The increase is attributable to increased borrowings outstanding
under the Company's revolving lines of credit, increases in the interest rates
on the Company's Credit Facility and Convertible Debentures and the amortization
of costs incurred and capitalized in October 1999 in connection with obtaining
the Credit Facility.
INCOME TAX EXPENSE. Income tax expense for the second quarter of fiscal
2000 reflects the utilization of domestic and international net operating loss
carryforwards incurred in the previous fiscal year as well as the net loss for
the period.
SIX MONTHS ENDED JANUARY 31, 2000 AND 1999
NET SALES. Net sales for the six months ended January 31, 2000 were $75.5
million, a decrease of 10.2%, or $8.6 million, from $84.1 million in the
comparable period of fiscal 1999. The decrease in net sales was primarily
attributable to a decrease in amusement net sales of 13.8%, or $8.0 million, to
$50.0 million and a decrease in retail net sales of 2.4%, or $604,000, to $24.2
million. Domestic net toy sales for the first half of fiscal 2000 compared to
the first half of fiscal 1999 decreased 17.0%, or $9.7 million, to $47.3 million
from $57.1 million. International net toy sales decreased 4.0%, or $737,000, to
$17.6 million, from $18.3 million offset by an increase in Latin American net
toy sales of 24.6%, or $1.8 million, to $9.3 million, from $7.4 million.
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Net toy sales to retail customers for the first half of fiscal 2000 and
fiscal 1999 were $24.2 million, or 32.0%, and $24.8 million, or 29.5%,
respectively, of the Company's net sales. The 2.4%, or $604,000 decrease in
sales to retail customers from the first half of fiscal 1999 to the first half
of fiscal 2000 reflects an increase in sales of licensed plush toys of 99.3%, or
$7.6 million, to $15.2 million offset by decreases in sales of licensed
electronic toys of 38.5%, or $3.7 million, PLAY-FACES(R) of 79.4%, or $3.5
million and non-licensed electronic toys of 31.0%, or $1.0 million.
Net toy sales to amusement customers for the first half of fiscal 2000 and
fiscal 1999 were $50.0 million, or 66.2%, and $58.0 million, or 68.9%,
respectively, of the Company's net sales. The 13.8%, or $8.0 million, decrease
from the comparable period in fiscal 1999 is primarily attributable to an
increase in sales of non-licensed plush toys of $4.1 million, or 25.3%, offset
by a decrease of $10.6 million, or 30.3%, in sales of licensed plush toys to
amusement customers from the comparable period in fiscal 1999.
Net sales of licensed products for the first half of fiscal 2000 were
$46.2 million, a decrease of 18.0%, or $10.1 million, from $56.3 million in the
comparable period of fiscal 1999. The decrease in licensed product sales was
attributable to a decrease in domestic net sales of licensed products of 19.6%,
or $7.1 million, to $29.1 million, a decrease in Latin American net sales of
licensed products of 26.3%, or $1.2 million, to $3.5 million and a decrease in
international net sales of licensed products of 11.6%, or $1.8 million, to $13.6
million. Within licensed products, sales of Looney Tunes' characters accounted
for $25.9 million, or 34.9% of the Company's net toys sales for the first half
of fiscal 2000. Net sales of licensed electronic toys accounted for $5.8
million, or 7.7%, of the Company's net toy sales for the first half of fiscal
2000. Net sales of PLAY-FACES(R) accounted for $899,000, or 1.2% of the Company
net toy sales for the first half of fiscal 2000. Net sales of non-licensed
products for the first half of fiscal 2000 increased 5.7%, or $1.5 million, to
$28.0 million from $26.4 million in the comparable period of fiscal 1999. This
increase is primarily attributable to an increase in sales of non-licensed
stuffed toys of $4.1 million offset by a decrease in sales of non-licensed
electronic toys of $1.0 million and a decrease in sales of novelty items of $1.5
million.
GROSS PROFIT. Gross profit decreased 6.8% to $24.0 million for the first
half of fiscal 2000 from $25.8 million in the comparable period in fiscal 1999,
due to lower sales for the first half of fiscal 2000 offset by improved margins
on sales within the Company's domestic amusement and Latin American divisions.
Gross profit as a percentage of net sales increased to 31.8% for the first half
of fiscal 2000 from 30.6% in the comparable period in fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately 5.8%, or $1.4 million, to $23.3
million for the first half of fiscal 2000 from $24.7 million in the comparable
period in fiscal 1999. This decrease is primarily attributable to decreased
payroll and related costs of $1.9 million and a $1.5 million decrease in
domestic media advertising costs, offset by a $1.8 million increase in
advertising and catalog preparation and distribution costs related principally
to the Company's direct marketing division. As a percentage of net sales,
selling, general and administrative expenses increased to 30.9% for the first
half of fiscal 2000 from 29.4% in the comparable period of fiscal 1999.
INTEREST EXPENSE. Interest expense increased $875,000 to $3.1 million, for
the first half of fiscal 2000 from $2.2 million, in the comparable period of
fiscal 1999. The increase is attributable to increased borrowings outstanding
under the Company's revolving lines of credit, increases in the interest rates
on the Company's Credit Facility and Convertible Debentures and the amortization
of costs incurred and capitalized in October 1999 in connection with obtaining
the Company's new credit facility.
INCOME TAX EXPENSE. Income tax expense for the first half of fiscal 2000
reflects the utilization of domestic and international net operating loss
carryforwards incurred in the previous fiscal year as well as the net loss for
the period.
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LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, the Company's working capital was $10.2 million
compared to $32.1 million at July 31, 1999. This decrease is attributable to the
reclassification of the Convertible Debentures from long term debt to current
term debt at January 31, 2000, the reclassification of long term debt
obligations to current term debt obligations as a result of not being in
compliance with certain cross-default covenants (see "Default Upon Senior
Securities"), and the operating loss incurred during the first half of fiscal
2000.
Generally, the Company satisfies its capital requirements and seasonal
working capital needs with cash flow primarily from borrowings and operations.
The Company's primary capital needs have consisted of repayment of indebtedness,
funding for business acquisitions, inventory, property, plant and equipment,
customer receivables, letters of credit, licensing agreements and international
expansion.
The Company's operating activities provided net cash of $9.9 million in
the first six months of fiscal 2000 and used net cash of $65,000 in the
comparable period of fiscal 1999. The cash flow from operations in the first six
months of fiscal 2000 was primarily affected by the decreases in inventory and
accounts receivable, and increases in prepaids, accounts payable and accrued
liabilities.
Net cash used in investing activities during the first six months of
fiscal 2000 and 1999 was $1.1 million and $4.6 million, respectively. For the
first six months of fiscal 2000, net cash used in investing activities of $1.3
million consisted of expenditures for property and equipment. In the first six
months of fiscal 1999, net cash used in investing activities consisted
principally of the purchase of property and equipment including $2.2 million for
computer equipment, $2.1 million for costs incurred related to implementation of
the Company's enterprise resource planning system, and $284,300 for leasehold
improvements.
Financing activities used net cash of $7.4 million during the first six
months of fiscal 2000 and provided net cash of $2.8 million during the first six
months of fiscal 1999. During the first six months of fiscal 2000, the Company
received aggregate advances of $59.0 million under, and made repayments of $64.1
million on, its credit facility, and reduced the principal on the term loans by
$2.5 million which included reductions of principal on the current term loan of
$70,000 and $2.4 million on the Company's term loan with its former lender which
was satisfied in connection with the refinancing of its senior credit facility
in October 1999. During the first six months of fiscal 1999, the Company
received aggregate advances of $77.2 million under, and made repayments of $72.7
million on, its credit facility, and reduced the principal on the term loan by
$1.2 million.
The Company has borrowed substantially all of its available capacity under
its Credit Facility. Thus, any future losses or other capital needs (including
payment of approximately $398,000 in past due interest under the Debentures)
could require the Company to seek additional financing from public or private
issuance of debt and/or equity or from asset sales. The Company may not be able
to complete any such financing or asset sale at all or, if so, on terms
favorable to the Company. Any equity financing could result in dilution to
existing shareholders.
The Company is negotiating with its Chairman, regarding obtaining a loan
from him in the principal amount of $2.5 million. If consummated on the current
proposed terms, the loan would provide for interest at 8% and would be secured
by a first lien on the Company's 1999 federal income tax refund and matures on
or before October 25, 2002. The loan plus accrued interest would be payable upon
receipt by the Company of the tax refund proceeds.
The lender under the Company's $60 million Credit Facility has verbally
agreed, conditioned upon the Company receiving the $2.5 million loan from the
Chairman on the terms described above, to amend the Credit
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Facility to reduce the maximum credit commitment to $35 million and the
revolving loan limit to $32.6 million and to provide for a supplemental loan
under the revolving loan in the principal amount of $500,000. The supplemental
loan would require repayment in weekly installments of $100,000, with the final
maturity date being seven weeks from the date of the loan from the Chairman.
Conditioned upon the Company receiving the $2.5 million loan from the Chairman
on the terms described above, the Company's senior lender and subordinated
debenture holders are in negotiations relative to a subordination agreement in
which they would subordinate their interests in the Company's tax refund to the
Chairman 's security interest therein.
The Company is in default in the payment of over $398,000 of interest due
under its Convertible Debentures (the "Debentures"). The Company has an
aggregate of $15.0 million of the Debentures outstanding. As a result of the
default in the payment of interest on the Debentures, the Company is also in
default of certain cross-default covenants of its Credit Facility. If the
Company obtains a $2.5 million loan from its Chairman (discussed above), then
the Company will utilize a portion of the proceeds of the loan from the Chairman
to satisfy the past due interest payments. Currently, the Company does not have
available sufficient funds to make such interest payments, and there can be no
assurance that the Company will obtain financing sufficient to cure its payment
defaults under the Debentures. If such payment defaults continue, then the
Debenture holders, subject to certain limited stand-still provisions, will have
the right to accelerate the entire amount of $15.0 million principal, plus
accrued and unpaid interest, under the Debentures. Because of cross-default
violations under the Credit Facility (resulting from payment defaults under the
Debentures), the senior lender thereunder currently has the right to accelerate
the entire amount of principal, plus accrued and unpaid interest, under the
Credit Facility. In the event of the acceleration of the Debentures and/or
Credit Facility, the Company has insufficient funds to pay amounts that would
then be due and payable. As of January 31, 2000, the revolving line of credit
balance under the Credit Facility was $23.1 million, the balance of the term
loans was $2.3 million, and the amount of convertible debentures outstanding was
$15.0 million
Principal payments on the Company's outstanding $15 million of Convertible
Debentures commence in June 2000, and the Convertible Debentures mature on
December 31, 2000. The Company currently expects that, by itself, cash flow from
operations will be insufficient to meet these debt service obligations under the
Convertible Debentures. Accordingly, unless the debentures are converted into
the Company's common stock before scheduled principal payments commence, the
Company will need to refinance in order to satisfy its repayment obligations
thereunder. There can be no assurance that the company will be able to refinance
the convertible debentures or, if such refinancing is obtained that the terms
will be as favorable to the Company as those contained in the convertible
debentures.
Two of the Company's significant entertainment character licenses expire
on March 31, 2000. The Company is in discussions with the licensor for the
renewal and extension of these two agreements. A significant portion of the
Company's revenues has historically been derived from sales of merchandise based
on characters licensed under these agreements. As a percentage of total net
sales, the combined sales under these two agreements were17.7%, 26.4% and 30.9%
for the first six months of fiscal year 2000 and fiscal years 1999 and 1998,
respectively. In addition, 19.8%, or $11.9 million, of the Company's inventory
is comprised of merchandise based on characters licensed under these agreements.
Currently, the Company has failed to make payment of certain royalties required
to be paid to the Licensor under these two (as well as other) license
agreements. Negotiations on these licenses have been substantially completed,
however, there can be no assurance that the Company will be able to renew these
license agreements or, if renewals are obtained that the terms will be as
favorable to the Company as those contained in the expiring license agreements.
EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Union introduced the euro, which has become the common currency among the
participating member countries by converting to the euro at the exchange rates
in effect on the introduction date. One of the participating members is Spain,
which is the country in which Play-By-Play Toys & Novelties, Europa, S.A.
("Play-By-Play Europe") is located. Play-By-Play
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Europe intends to keep its books in Spain's sovereign currency, the peseta,
through the substantial portion of the three-year introductory period, at the
end of which all companies in participating member countries must adopt the
euro. Play-By-Play Europe's accounting system is currently capable of performing
the euro conversion, and the Company does not anticipate that the costs related
to the conversion will be significant. In addition, because Play-By-Play Europe
operates primarily in Spain and in non-European Union countries, currently
management does not anticipate that the introduction of the euro will have a
material adverse effect on Play-By-Play Europe's results of operations,
financial position, or cash flows for the forseeable future.
YEAR 2000 COMPLIANCE
Similar to many business entities, the Company may be impacted by the
inability of computer application software programs to distinguish between the
year 1900 and 2000 due to a commonly used programming convention. Until such
programs are modified or replaced prior to 2000, calculations and
interpretations based on date-based arithmetic or logical operations performed
by such programs may be incorrect.
Management's plan addressing the impact on the Company of the Year 2000
issue focuses on application systems, process control systems (embedded chips),
technology infrastructure, and third party business partners and suppliers with
which the Company has significant relationships. The Company's plan is comprised
of five phases, all of which are complete: (1) developing an inventory of
hardware, software and embedded chips, (2) assessing the degree to which each
area is currently in compliance with Year 2000 requirements, (3) performing
renovations and repairs as needed to attain compliance, (4) testing to ensure
compliance, and (5) developing a contingency plan if repair and renovation
efforts are either unsuccessful or untimely.
To date, the Company has experienced no material adverse effects from Year
2000 issues. In its domestic operations, the Company's accounts receivable,
inventory and warehouse management legacy systems have been successfully
modified to achieve Year 2000 compliance, and the Company successfully
implemented the accounts payable, general ledger and purchasing modules from its
Oracle enterprise resource planning system (ERP), which system is Year 2000
compliant, prior to end of calendar 1999. The Company plans to implement the
remaining Oracle ERP modules, including accounts receivable, inventory and
warehouse management prior to the end of calendar year 2000, in order to replace
the existing legacy systems. Year 2000 compliance costs incurred to date have
primarily consisted of labor from the redeployment of existing information
technology, legal and operational resources as well as computer hardware and
software costs.
In the Company's international operations, existing information systems
were substantially Year 2000 compliant, and no material modifications were
necessary. In addition, the Company has experienced no material adverse effects
from Year 2000 issues in its international operations.
Currently, the Company does not anticipate any material adverse effects
related to Year 2000 issues. However, due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Year 2000 failures ultimately
will have a material impact on the Company's results of operations, liquidity or
financial condition.
SEASONALITY
Both the retail and amusement toy industries are inherently seasonal.
Generally, in the past, the Company's sales to the amusement industry have been
highest during the third and fourth fiscal quarters, and collections for those
sales have been highest during the succeeding fiscal quarters. The Company's
sales to the retail toy industry have been highest during its first and fourth
fiscal quarters, and collections from those sales have been highest during the
succeeding fiscal quarters. The Company's working capital needs and borrowings
to fund those needs have been highest during the third and fourth fiscal
quarters. As a result of the Company's increased sales to the amusement industry
and increased penetration of the retail market, the Company anticipates
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that its sales, collections and borrowings to fund working capital needs may
become more significant in the third and fourth fiscal quarters.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to the consolidated financial statements included elsewhere
herein for a discussion of new pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial and commodity market prices and rates. The Company is
exposed to market risk in the areas of changes in United States and
international borrowing rates (i.e. prime rate, LIBOR or other Eurodollar
rates), and changes in foreign currency exchange rates as measured against the
United States ("U.S.") dollar and functional currencies of its subsidiaries
(i.e. British pound, Spanish peseta, Hong Kong dollar, Canadian dollar). In
addition, the Company is exposed to market risk in certain geographic areas that
have experienced or are likely to experience an economic downturn, such as China
or Latin America. The Company purchases substantially all of its inventory from
suppliers in China; therefore, the Company is subject to the risk that such
suppliers will be unable to provide inventory at competitive prices. The Company
believes that if such an event were to occur, it would be able to find alternate
sources of inventory at competitive prices, however, there can be no assurance
that the Company would be successful. Historically, and as of January 31, 2000,
the Company has not used derivative instruments or engaged in hedging activities
to minimize its market risk.
INTEREST RATE RISK
The interest payable on the Company's revolving line-of-credit and term
loans under the Credit Facility is variable based on its Lender's prime rate or
adjusted Euro dollar rate, and therefore, affected by changes in market interest
rates. At January 31, 2000, approximately $23.1 million was outstanding under
the Credit Facility with a weighted average interest rate of 8.5%.
FOREIGN CURRENCY RISK
The Company has wholly-owned subsidiaries in Valencia, Spain and
Doncaster, England. Sales from these operations are typically denominated in
Spanish Pesetas or British Pounds, respectively, thereby creating exposures to
changes in exchange rates. Changes in the Spanish Peseta/U.S. Dollars exchange
rate and British Pounds/U.S. Dollars exchange rate may positively or negatively
affect the Company's sales, gross margins, net income and retained earnings. The
Company does not believe that reasonably possible near-term changes in exchange
rates will result in a material effect on future earnings, fair values or cash
flows of the Company, and therefore, has chosen not to enter into foreign
currency hedging transactions. There can be no assurance that such an approach
will be successful, especially in the event of a significant and sudden decline
in the value of the Spanish Peseta or the British Pound. Purchases of inventory
by the Company's European subsidiaries from its suppliers in the Far East are
subject to currency risk to the extent that there are fluctuations in the
exchange rate between the United States dollar and the Spanish peseta or the
British pound. Certain of the European subsidiaries' license agreements call for
payment of royalties in a currency different from their functional currency, and
these arrangements subject the Company to currency risk to the extent that
exchange rates fluctuate from the date that royalty liabilities are incurred
until the date royalties are actually paid to the licensor.
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PART II. OTHER INFORMATION
ITEM 3. DEFAULT UPON SENIOR SECURITIES
The Company is in default in the payment of over $398,000 of interest due
under its Convertible Debentures. The Company has an aggregate of $15.0 million
of the Debentures outstanding. As a result of the default in the payment of
interest on the Debentures, the Company is also in default of certain
cross-default covenants of its Credit Facility. If the Company obtains a $2.5
million loan from its Chairman (discussed herein in Liquidity and Capital
Resources under Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part I), then the Company will utilize a portion of the
proceeds of the loan from the Chairman to satisfy the past due interest
payments. Currently, the Company does not have available sufficient funds to
make such interest payments, and there can be no assurance that the Company will
obtain financing sufficient to cure its payment defaults under the Debentures.
If such payment defaults continue, then the Debenture holders, subject to
certain limited stand-still provisions, will have the right to accelerate the
entire amount of $15.0 million principal, plus accrued and unpaid interest,
under the Debentures. Because of cross-default violations under the Credit
Facility (resulting from payment defaults under the Debentures), the senior
lender thereunder currently has the right to accelerate the entire amount of
principal, plus accrued and unpaid interest, under the Credit Facility. In the
event of the acceleration of the Debentures and/or Credit Facility, the Company
has insufficient funds to pay amounts that would then be due and payable. As of
January 31, 2000, the revolving line of credit balance under the Credit Facility
was $23.1 million, the balance of the term loans was $2.3 million, and the
amount of convertible debentures outstanding was $15.0 million
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Play By Play Toys & Novelties, Inc.
was held on January 25, 2000, for the purpose of electing directors, and
approving the appointment of independent auditors. Proxies for the meeting were
solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934 and
there was no solicitation in opposition to those nominees of the Board of
Directors.
All of the Board of Director's nominees for directors, as listed in the proxy
statement, were elected with the number of votes cast for each nominee as
follows:
FOR WITHHELD
--------- ---------
Raymond G. Braun 7,152,195 153,302
Manuel Fernandez Barroso 7,151,845 153,652
Tomas Duran 7,151,845 153,652
The proposal to appoint PricewaterhouseCoopers LLP as independent auditors for
the Company for the fiscal year ending July 31, 2000, was approved by the
following vote:
FOR AGAINST ABSTAINED
--------- --------- -----------
7,118,755 145,717 41,085
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ---------------------------
2.1 Asset Purchase Agreement dated May 1, 1996, by and among Ace Novelty
Acquisition Co., Inc. a Texas corporation ("Buyer"), Play By Play Toys
& Novelties, Inc., a Texas corporation and the parent corporation of
Buyer ("PBYP"), Ace Novelty Co., Inc., a Washington corporation
("ACE"), Specialty Manufacturing Ltd., a British Columbia, Canada
corporation ("Specialty"), ACME Acquisition Corp., a Washington
corporation ("ACME"), and Benjamin H. Mayers and Lois E. Mayers,
husband and wife, Ronald S. Mayers, a married individual, Karen
Gamoran, a married individual, and Beth Weisfield, a married individual
(collectively, "Stockholders") (filed as Exhibit 2.1 to Form 8-K, Date
of Event: May 1, 1996), incorporated herein by reference.
2.2 Amendment No. 1 to Asset Purchase Agreement dated June 20, 1996 by, and
among Buyer, PBYP, ACE, Specialty, ACME and Stockholders. (filed as
Exhibit 2.2 to Form 8-K, Date of Event: May 1, 1996), incorporated
herein by reference.
3.1 Amended Articles of Incorporation of the Company (filed as Exhibit 3.1
to the Registration Statement on Form S-1, File No. 33-92204),
incorporated herein by reference.
3.2 Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the
Registration Statement on Form S-1, File No. 33-92204), incorporated
herein by reference.
4.1 Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the
Registration Statement on Form S-1, File No. 33-92204), incorporated
herein by reference.
4.2 Form of Warrant Agreement and Form of Warrant (filed as Exhibit 4.2 to
the Registration Statement on Form S-1, File No. 33-92204),
incorporated herein by reference.
4.3 Form of Play By Play Toys & Novelties, Inc. Grant of Incentive Stock
Option (filed as Exhibit 4.3 to the Registration Statement on Form S-1,
File No. 33-92204), incorporated herein by reference.
4.4 Form of Play By Play Toys & Novelties, Inc. Non-qualified Stock Option
Agreement (filed as Exhibit 4.4 to the Registration Statement on Form
S-1, File No. 33-92204), incorporated herein by reference.
4.5 Play By Play Toys & Novelties, Inc. Warrant to Purchase Common Stock
(filed as Exhibit 4 to Form 8-K, Date of Event: May 1, 1996),
incorporated herein by reference.
10.1 Play By Play Toys & Novelties, Inc. 1994 Incentive Plan (filed as
Exhibit 10.1 to the Registration Statement on Form S-1, File No.
33-92204), incorporated herein by reference.
10.2 Credit Agreement dated June 20, 1996, by and among Play By Play Toys &
Novelties, Inc., Ace Novelty Acquisition Co., Inc., Newco Novelty, Inc.
and Chemical Bank, a New York banking corporation as agent for the
lenders (filed as Exhibit 10.1 to Form 8-K, Date of Event: May 1,
1996), incorporated herein by reference.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------------
10.3 Promissory Note dated June 20, 1996, of Ace Novelty Acquisition Co.,
Inc. payable to the order of Ace Novelty Co., Inc. in the principal sum
of $2,900,000 (filed as Exhibit 10.5 to Form 8-K, Date of Event: May 1,
1996), incorporated herein by reference.
10.4 Employment agreement dated November 4, 1996, between the Company and
Raymond G. Braun, as amended by Amendment No.1 to Employment agreement
dated August 29, 1997 (filed as Exhibit 10.4 to Form 10-K for the
fiscal year ended July 31, 1997), incorporated herein by reference.
10.5 Non-Qualified Stock Option agreement dated November 4, 1996, between
the Company and Raymond G. Braun, as amended by Amendment No. 1 to
Non-Qualified Stock Option agreement dated August 29, 1997 (filed as
Exhibit 10.5 to Form 10-K for the fiscal year ended July 31, 1997),
incorporated herein by reference.
10.6 Employment agreement dated May 2, 1996, between the Company and Saul
Gamoran, as amended by Amendment No. 1 dated May 16, 1996 (filed as
Exhibit 10.6 to Form 10-K for the fiscal year ended July 31, 1997),
incorporated herein by reference.
10.7 Employment agreement dated June 20, 1997, between the Company and James
A. Weisfield (filed as Exhibit 10.7 to Form 10-K for the fiscal year
ended July 31, 1997), incorporated herein by reference.
10.8 Subordinated Convertible Debenture Agreements dated July 3, 1997,
between the Company and each of Renaissance Capital Growth and Income
Fund III, Inc., Renaissance U.S. Growth and Income Trust PLC and Banc
One Capital Partners II, Ltd. (the "Convertible Lenders") (filed as
Exhibit 10.8 to Form 10-K for the fiscal year ended July 31, 1997),
incorporated herein by reference.
10.9 Convertible Loan Agreement dated July 3, 1997, among the Company, the
Convertible Lenders and Renaissance Capital Group, Inc. (filed as
Exhibit 10.9 to Form 10-K for the fiscal year ended July 31, 1997),
incorporated herein by reference
10.10 License Agreement dated March 22, 1994 by and between Warner Bros., a
division of Time Warner Entertainment, L.P., and the Company (as
successor by assignment to Ace Novelty, Inc.) (filed as Exhibit 10.10
to Form 10-K for the fiscal year ended July 31, 1997), incorporated
herein by reference.
10.11 License Agreement dated March 22, 1996 by and between Warner Bros., a
division of Time Warner Entertainment, L.P., and the Company (as
successor by assignment to Ace Novelty, Inc.) (filed as Exhibit 10.11
to Form 10-K for the fiscal year ended July 31, 1997), incorporated
herein by reference.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- ---------------------------
10.12 License Agreement dated September 10, 1997 by and between Warner Bros.,
a division of Time Warner Entertainment, L.P., and the Company (as
successor by assignment to Ace Novelty, Inc.) (filed as Exhibit 10.12
to Form 10-K for the fiscal year ended July 31, 1997), incorporated
herein by reference.
10.13 License Agreement dated January 1, 1998 by and between Warner Bros., a
division of Time Warner Entertainment, L.P. and the Registrant (filed
as Exhibit 10.13 to Form 10-Q for the quarter ended January 31, 1998,
and incorporated herein by reference).
10.14 License Agreement dated January 1, 1998 by and between Warner Bros., a
division of Time Warner Entertainment, L.P. and the Registrant (filed
as Exhibit 10.14 to Form 10-Q for the quarter ended January 31, 1998,
and incorporated herein by reference).
10.15 Amendment dated January 14, 1998 to License Agreement dated September
10, 1997 by and between Warner Bros., a division of Time Warner
Entertainment, L.P. and the Registrant (filed as Exhibit 10.15 to Form
10-Q for the quarter ended January 31, 1998, and incorporated herein by
reference).
10.16 First Amendment to Convertible Loan Agreement made as of October 22,
1999, by and among the Company, Renaissance Capital Group, Inc., and
the Convertible Lenders party to the original Convertible Loan
Agreement (filed as Exhibit 10.16 to Form 10-Q for the quarter ended
October 31, 1999, and incorporated herein by reference).
10.17 Loan and Security Agreement dated October 25, 1999 by and among
Congress Financial Corporation (Southwest), the Company, Ace Novelty
Co., Inc., Newco Novelty, Inc., and Friends, Food & Games, Inc. (filed
as Exhibit 10.17 to Form 10-Q for the quarter ended October 31, 1999,
and incorporated herein by reference).
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K, date of event August 26, 1999,
regarding the resignation of Francisco Saez Moya, President of Play By Play Toys
& Novelties Europa, S.A. and Vice-Chairman of the Board of Directors. The
Company also filed a report on Form 8-K, date of event October 26, 1999,
regarding the resignation of Saul Gamoran, Executive Vice-President, General
Counsel, Secretary and member of the Board of Directors.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 16th day of March 1999.
PLAY BY PLAY TOYS & NOVELTIES, INC.
By: /s/ JOE M. GUERRA
Joe M. Guerra
CHIEF FINANCIAL OFFICER,
SECRETARY AND TREASURER
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED STATEMENTS OF
OPERATIONS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S FORM 10-Q FOR THE SIX
MONTHS ENDED JANUARY 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 2,562,260
<SECURITIES> 0
<RECEIVABLES> 30,320,196
<ALLOWANCES> (6,218,748)
<INVENTORY> 60,326,570
<CURRENT-ASSETS> 89,712,080
<PP&E> 34,869,794
<DEPRECIATION> 8,771,123
<TOTAL-ASSETS> 135,885,489
<CURRENT-LIABILITIES> 79,521,378
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 135,885,489
<SALES> 75,536,060
<TOTAL-REVENUES> 75,536,060
<CGS> 51,507,986
<TOTAL-COSTS> 51,507,986
<OTHER-EXPENSES> 23,313,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,097,092
<INCOME-PRETAX> (1,937,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,937,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,937,120)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
