<PAGE>
COMPANY, WORLD OF SCIENCE, INC.
TICKER: WOSI
EXCHANGE: NMS
FORM-TYPE: 10-Q
DOCUMENT DATE: July 31, 1999
FILING DATE: September 14, 1999
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No:000-22679
WORLD OF SCIENCE, INC.
(Exact name of Registrant as specified in this charter)
NEW YORK 16-0963838
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
900 Jefferson Road, Building 4, Rochester, New York 14623
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (716)475-0100
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
Common stock outstanding as of August 31, 1999: 4,736,105 shares of common
stock.
1
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WORLD OF SCIENCE, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations............ 3
Condensed Consolidated Balance Sheets...................... 4
Condensed Consolidated Statements of Cash Flows............ 5
Notes to Condensed Consolidated Financial Statements....... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 7-12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
- None
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - None
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........ 13
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K........................... 13
SIGNATURE.................................................. 14
</TABLE>
2
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WORLD OF SCIENCE, INC.,
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -------------------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1999 1998 1999 1998
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 9,074 $ 8,594 $ 17,913 $ 16,457
COST OF SALES AND OCCUPANCY EXPENSES 8,004 7,080 15,479 13,417
-------- -------- -------- --------
GROSS PROFIT 1,070 1,514 2,434 3,040
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 4,226 3,447 8,206 6,820
-------- -------- -------- --------
OPERATING LOSS (3,156) (1,933) (5,772) (3,780)
INTEREST INCOME (EXPENSE), NET (118) (37) (124) 12
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (3,274) (1,970) (5,896) (3,768)
INCOME TAX BENEFIT (1,309) (793) (2,358) (1,512)
-------- -------- -------- --------
NET LOSS $ (1,965) $ (1,177) $ (3,538) $ (2,256)
======== ======== ======== ========
NET LOSS PER SHARE (BASIC) $ (0.41) $ (0.23) $ (0.74) $ (0.44)
======== ======== ======== ========
NET LOSS PER SHARE (DILUTED) $ (0.41) $ (0.23) $ (0.74) $ (0.44)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES (BASIC) 4,760 5,080 4,761 5,080
WEIGHTED AVERAGE SHARES (DILUTED) 4,760 5,080 4,761 5,080
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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WORLD OF SCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, JANUARY 30, AUGUST 1,
1999 1999 1998
---------- ------------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 309 $ 3,543 $ 73
ACCOUNTS RECEIVABLE 330 443 547
INVENTORIES 16,563 10,225 14,469
PREPAID EXPENSES AND OTHER CURRENT ASSETS 960 739 1,062
TAXES RECEIVABLE 2,422 1,515
DEFERRED INCOME TAXES 664 664 551
---------- ------------- -----------
TOTAL CURRENT ASSETS 21,248 15,614 18,217
PROPERTY, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, NET 10,766 9,678 8,246
DEFERRED INCOME TAXES 872 872 658
---------- ------------- -----------
TOTAL ASSETS $ 32,886 $ 26,164 $ 27,121
========== ============= ===========
CURRENT LIABILITIES:
LINE OF CREDIT $ 9,340 $ $ 3,825
CURRENT INSTALLMENTS OF LONG TERM DEBT 32
CURRENT INSTALLMENTS OF OBLIGATIONS
UNDER CAPITAL LEASES 120 94 148
ACCOUNTS PAYABLE 3,430 1,362 2,917
ACCRUED EXPENSES 619 647 537
ACCRUED INCOME TAXES 1,245
---------- ------------- -----------
TOTAL CURRENT LIABILITIES 13,509 3,348 7,459
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUDING
CURRENT INSTALLMENTS 136 82 116
ACCRUED OCCUPANCY EXPENSE 967 911 850
---------- ------------- -----------
TOTAL LIABILITIES 14,612 4,341 8,425
---------- ------------- -----------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE
AUTHORIZED 5,000,000 SHARES;
NO SHARES ISSUED AND OUTSTANDING
COMMON STOCK, $.01 PAR VALUE
AUTHORIZED 10,000,000 SHARES;
ISSUED 5,079,955 SHARES AT 7/31/99,
1/30/99, AND 8/1/98 51 51 51
ADDITIONAL PAID-IN CAPITAL 11,398 11,398 11,398
RETAINED EARNINGS 7,486 11,023 7,247
---------- ------------- -----------
TOTAL CAPITAL AND RETAINED EARNINGS 18,935 22,472 18,696
LESS: TREASURY STOCK, 323,900 SHARES, AT COST 661 649
---------- ------------- -----------
TOTAL STOCKHOLDERS' EQUITY 18,274 21,823 18,696
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,886 $ 26,164 $ 27,121
========== ============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
WORLD OF SCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
JULY 31, AUGUST 1, JULY 31, AUGUST 1,
1999 1998 1999 1998
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
NET LOSS $ (1,965) $ (1,177) $ (3,538) $ (2,256)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 462 387 900 712
CHANGE IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE (90) (335) 113 (434)
INVENTORIES (3,728) (2,805) (6,338) (4,065)
PREPAID EXPENSES AND OTHER
CURRENTS ASSETS 79 (363) (308) (529)
TAXES RECEIVABLE (1,374) (796) (2,423) (1,515)
(DECREASE) INCREASE IN:
ACCOUNTS PAYABLE 1,188 1,049 2,155 1,597
ACCRUED EXPENSES (195) (103) (28) (33)
INCOME TAXES PAYABLE (15) (88) (1,245) (1,400)
ACCRUED OCCUPANCY EXPENSE 29 37 56 71
--------- --------- -------- ---------
NET CASH USED IN OPERATING ACTIVITIES: (5,609) (4,194) (10,656) (7,852)
CASH FLOWS FROM INVESTING ACTIVITIES--
CAPITAL EXPENDITURES, NET (784) (1,381) (1,831) (2,527)
--------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM ISSUANCE OF COMMON STOCK
PURCHASE OF TREASURY STOCK (11) (11)
PROCEEDS FROM ADVANCES ON LINE OF CREDIT 6,655 3,825 9,340 3,825
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (13) (37)
PRINCIPAL PAYMENTS ON CAPITAL LEASES (29) (44) (76) (78)
--------- --------- -------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,615 3,768 9,253 3,710
--------- --------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 222 (1,807) (3,234) (6,669)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 87 1,880 3,543 6,742
--------- --------- --------- ---------
END OF PERIOD $ 309 $ 73 $ 309 $ 73
========= ========= ========= =========
CASH PAID DURING PERIOD FOR:
INTEREST $ 55 $ 42 $ 76 $ 55
INCOME TAXES $ 15 $ 91 $ 1,245 $ 1,403
--------- --------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITY:
ACQUISITION OF EQUIPMENT UNDER A CAPITAL LEASE $ - $ - $ 157 $ -
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
WORLD OF SCIENCE, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements and are subject to year-end
adjustments. However, in the opinion of management, all known adjustments (which
consist primarily of normal recurring accruals) have been made to present fairly
the financial position and operating results for the unaudited periods. This
financial information should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Form 10-K as most
recently filed with the Securities and Exchange Commission.
Due to the seasonal nature of the Company's business, results for the first six
months of fiscal 1999 are not necessarily indicative of the results to be
expected for the full fiscal year ending January 29, 2000.
6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Company operated 81 permanent stores and 64 seasonal stores as of July 31,
1999 as compared to 67 permanent stores and 56 seasonal stores as of August 1,
1998. Three new permanent stores were opened in the second quarter of fiscal
1999 as compared to eight new permanent stores opened and one permanent store
closed in the second quarter of fiscal 1998. The Company had no changes in the
number of seasonal stores in operation in the second quarter of fiscal 1999 as
compared to a net decrease of one seasonal store in the second quarter of fiscal
1998.
The Company's sales trends have been substantially impacted over the past
eighteen months by the popularity and availability of plush products. For the
second quarter of fiscal 1999, plush sales accounted for 8.3% of total sales as
compared to 14.0% in the second quarter of fiscal 1998. For the first six months
of fiscal 1999, plush sales accounted for 12.9% of total sales as compared to
16.8% in the first six months of fiscal 1998. The impact on the third quarter of
fiscal 1999 will be significantly greater due to a special one-time purchase of
fast selling plush items in the third quarter of fiscal 1998 which had a
positive effect on both sales and operating results.
Comparison of Three Months Ended July 31, 1999 to Three Months Ended August 1,
1998.
Sales. Sales increased to $9.1 million from $8.6 million, or 5.6%. Of the
$500,000 increase in sales: $1.0 million was attributable to sales of three new
permanent stores opened during the second quarter of fiscal 1998 and the net
increase in sales of twenty-four new permanent stores not in operation as of the
beginning of the prior year, and $197,000 was attributable to increased seasonal
store sales. Increases associated with additional stores were partially offset
by a comparable store sales decline of $742,000. Comparable permanent store
sales declined 13.8% for the thirteen-week period ended July 31, 1999.
Cost of Sales and Occupancy Expenses. Cost of sales and occupancy expenses,
which include distribution center costs and other expenses associated with
acquiring inventory, increased to $8.0 million from $7.1 million, an increase of
13.1%. As a percentage of sales, it increased to 88.2% from 82.4%. The dollar
increase was due to increased store occupancy expenses from more stores in
operation in the second quarter of fiscal 1999 and increased cost of sales due
to higher sales. The increase as a percentage of sales of 5.8%, resulted from a
7.3% increase in occupancy expenses caused by a decrease in average per store
sales. This was offset by a 1.0% decline in product costs and a 0.5% decline in
distribution center and shipping costs.
Selling, General and Administrative Expense. Selling, general, and
administrative expenses increased to $4.2 million from $3.4 million, an increase
of 22.6%. Selling, general and administrative expense increased to support
higher sales levels and an increased number of both permanent and seasonal
stores. As a percentage of sales, it increased to 46.6% from 40.1%, primarily as
a result of a decrease in average per store sales.
7
<PAGE>
Interest Expense, Net. Net interest expense increased to $118,000 in the second
quarter of fiscal 1999 from $37,000 in the second quarter of fiscal 1998. This
fluctuation is primarily a result of earlier borrowings this year required due
to increased inventory purchases and lower cash balances at the beginning of the
quarter.
Net Loss. Net loss increased to $2.0 million, or 21.7% of sales, in the second
quarter of fiscal 1999 from $1.2 million, or 13.7% of sales, in the second
quarter of fiscal 1998.
Comparison of Six Months Ended July 31, 1999 to Six Months Ended August 1, 1998.
Sales. Sales increased to $17.9 million from $16.5 million, or 8.8%. Of the $1.4
million increase in sales: $2.1 million was attributable to sales of seven new
permanent stores opened during the first six months of fiscal 1999 and the net
increase in sales of twenty new permanent stores not in operation as of the
beginning of the prior year, and $88,000 was attributable to increased seasonal
store sales. These factors were partially offset by comparable store sales
declining $763,000. Comparable permanent store sales declined 7.3% for the six
month period ended July 31, 1999.
Cost of Sales and Occupancy Expenses. Cost of sales and occupancy expenses,
which include distribution center costs and other expenses associated with
acquiring inventory, increased to $15.5 million from $13.4 million, an increase
of 15.4%. As a percentage of sales, it increased to 86.4% from 81.5%. The dollar
increase was due to increased store occupancy expenses from more stores in
operation in the first six months of fiscal 1999 and increased cost of sales due
to higher sales. The increase as a percentage of sales of 4.9%, resulted from a
6.3% increase in occupancy expenses caused by a decrease in average stores
sales. This was offset in part by a 1.1% decline in product costs and a 0.3%
decline in distribution center and shipping costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $8.2 million from $6.8 million, an increase
of 20.3%. Selling, general and administrative expenses increased to support
higher sales levels and an increased number of both permanent and seasonal
stores. As a percentage of sales, it increased to 45.8% from 41.4%, primarily as
a result of a decrease in average per store sales.
Interest Income (Expense), Net. Net interest income (expense) amounted to net
interest expense of $124,000 in the first six months of fiscal 1999, as compared
to net interest income of $12,000 in the first six months of fiscal 1998. This
fluctuation is primarily a result of earlier borrowings required due to
increased inventory purchases and lower cash balances at the beginning of the
quarter.
Net Loss. Net loss increased to $3.5 million, or 19.8% of sales, in the first
six months of fiscal 1999 from $2.3 million or 13.7% of sales, in the first six
months of fiscal 1998.
Inflation and Seasonality
The Company does not believe that inflation has had a material impact on
its operations during any of the periods presented above. There can be no
assurance; however, that its business will not be affected by inflation in the
future.
8
<PAGE>
The Company's business is subject to substantial seasonal variations in
demand. Historically, a significant portion of the Company's sales and all of
its net income have been realized during the months of November and December,
and levels of sales and net income have generally been substantially lower from
January through October, resulting in losses in the first three fiscal quarters.
In preparation for its holiday selling season, the Company significantly
increases inventories and related indebtedness, hires an increased number of
temporary employees in its stores and distribution center, and incurs costs in
setting up seasonal store locations. If, for any reason, the Company's sales
were to be substantially below seasonal norms during the months of November and
December, or if the Company could not hire a sufficient number of qualified
employees during the peak periods, the Company's business, financial condition
and results of operations would be adversely affected. Quarterly results are
also affected by the timing of new store openings and the amount of revenue
contributed by permanent and seasonal stores.
Liquidity and Capital Resources
The primary sources of the Company's cash for working capital and capital
expenditures have been net cash flows from operating activities, capital lease
financings and bank borrowings. Seasonal working capital needs have been met
through short-term borrowings under a revolving line of credit.
The Company's primary capital requirements and working capital needs are
related to capital expenditures for new stores, purchase and upgrade of
management information systems and the purchase of inventory to meet seasonal
needs, particularly inventory for the holiday selling season. Cash flow used in
operations amounted to $5.6 million in the second quarter of fiscal 1999 as
compared to $4.2 million in the second quarter of fiscal 1999 due to a greater
second quarter net loss, increased levels of inventories and other working
capital items. Cash flow utilized by operations increased to $10.7 million in
the first six months of fiscal 1999 from $7.9 million in the first six months of
1998 due to a greater net loss, increased levels of inventories and other
working capital items in the first six months of fiscal 1999.
The Company has a revolving line of credit for inventory financing, secured
by the Company's inventory. Under this line, the Company may borrow up to the
lesser of $24.0 million, or 40% to 75% of the Company's inventory book value
depending on the time of year. The line expires on February 28, 2002 and bears
interest at the bank's prime rate or LIBOR plus 150 basis points. The credit
agreement for this line of credit prohibits the payment of cash dividends or
purchase or redemption of the Company's capital stock in excess of $650,000 in
the aggregate in any fiscal year. As of July 31, 1999, there was $9.3 million
outstanding under this line of credit, against total borrowing capacity of $11.6
million as of that date based on 70% of the Company's inventory book value.
Primarily as a result of the holiday selling season, the Company experiences
significant seasonal fluctuations in its financing needs.
The Company also has a sub limit for up to $4.0 million for multiple term
loans to be used for new store construction, leasehold improvements and
equipment. Under this sub limit no amounts were outstanding as of July 31, 1999.
As of July 31, 1999, outstanding capital lease obligations and total term debt
amounted to $256,000 all of which represented capital lease obligations. The
capital lease obligations have terms expiring in fiscal 2002.
9
<PAGE>
In April 1998, the Company's Board of Directors authorized a stock
repurchase program of up to $650,000 of the Company's common stock. The shares
may be repurchased, from time to time for a period of up to 24 months, through
open market purchases and privately negotiated transactions, subject to the
availability of shares and other market and financial conditions. In conjunction
with the stock repurchase program, the Company received approval under its
credit agreement to acquire up to $650,000 of the Company's common stock. The
Company repurchased 318,800 shares in the third quarter of fiscal 1998 for
$649,000. In December 1998, the Company's Board of Directors authorized and
received bank approval for a second repurchase program of up to $650,000 of the
Company's common stock under terms similar to the previous stock repurchase
program. The Company repurchased 25,050 shares under the second repurchase
program during the second and third quarter of fiscal 1999 for $11,000 as of
September 10, 1999.
Based upon the continuing softness in sales in our product segment, we
anticipate that we may have a need for additional working capital later in the
fiscal year in conjunction with ongoing operations beyond that currently
available with existing sources. Management is actively exploring additional
sources of financing for the purpose of meeting our requirements for the balance
of the fiscal year. There can be no assurance, however, that such financing
will be available. We are also planning sales events, implementing cost cutting
measures and seeking deferral of payments from vendors.
Year 2000 Matters
The Year 2000 Issue
Many existing computer programs utilized globally use only two digits to
identify a year in the date field. These programs, if not corrected, could fail
or create erroneous results after the century date changes on January 1, 2000 or
when otherwise dealing with dates later than December 31, 1999. This "Year 2000"
issue is believed to affect virtually all companies and organizations, including
the Company.
The Company relies on computer-based technology and utilizes a variety of
third-party hardware and software. The Company's retail functions, such as
merchandise procurement and distribution, inventory management, point of sale
systems and credit card account servicing exclusively use third-party software.
The Company's administrative functions, such as accounting, payroll and human
resource management also exclusively use third-party software. Third parties
with whom the Company has commercial relationships, including merchandise
vendors, banks, telecommunications services, and utilities are also highly
reliant on computer-based technology.
The Company has been in the process of resolving all significant Year 2000
issues since 1996. Since almost all the Company's information systems software
is licensed software from established software vendors, resolution is being
accomplished by means of upgrading existing software to versions which are Year
2000 compliant. At present, the Company expects to be fully Year 2000 compliant
with its own internal systems by the summer of 1999. All of the Company's
computer hardware is already Year 2000 compliant.
10
<PAGE>
The Company's Compliance Program
Third-Party Information Technology Systems
The Company has instituted a strategy of identifying and addressing Year
2000 issues affecting third-party information technology systems used by the
Company which includes contacting all third-party providers of computer hardware
and software to secure appropriate representations to the effect that such
hardware or software is or will timely be Year 2000 compliant. The Company has
received Year 2000 compliant versions of almost all third-party software and is
currently engaged in developing contingency plans as to third-party software
used by the Company in respect of which the Company has not received adequate
assurance of compliance to date.
Non-Information Technology (IT) Systems
The Company has undertaken a review of its non-IT Systems and is in the
process of implementing a remediation program in respect of such systems that
are within the control of the Company. The Company expects to complete this
remediation effort by October 31, 1999. In addition, the Company's centralized
real estate department will be communicating to the developers, landlords and
property managers of substantially all of the Company's properties. The
Company's expectation that the systems utilized in the management and operation
of such properties which are not within the Company's control are or will timely
be Year 2000 compliant.
Non-Information Technology (IT) Vendors and Suppliers
The Company procures its merchandise for resale and supplies for
operational purposes from a vast network of vendors located both within and
outside the United States. As a part of its contingency planning effort, the
Company has commenced making inquiries as to the Year 2000 readiness of selected
vendors in order to identify any significant exposures that may exist and
establish alternate sources or strategies where necessary.
Costs
Since the cost of resolving the Year 2000 issue is included in most cases,
through existing software maintenance contracts, the incremental cost to the
Company is minimal and not material.
Risks Associated with Year 2000 Issues
The Company's Year 2000 compliance program is directed primarily towards
ensuring that the Company will be able to continue to perform three critical
functions: (i) effect sales, (ii) order, receive and distribute merchandise, and
(iii) pay its employees and vendors. It is difficult, if not impossible, to
assess with any degree of accuracy the impact on any of these three areas of the
failure of one or more aspects of the Company's compliance program.
The novelty and complexity of the issues presented and the proposed
solutions thereof and the Company's dependence on the technical skills of
employees and independent contractors and on the representations and
preparedness of third parties are among the factors that could cause the
Company's efforts to be less than fully effective.
11
<PAGE>
Moreover, Year 2000 issues present a number of risks that are beyond the
Company's reasonable control, such as the failure of utility companies to
deliver electricity, the failure of telecommunications companies to provide
voice and data services, the failure of financial institutions to process
transactions and transfer funds, the failure of vendors to deliver merchandise
or perform services required by the Company and the collateral effects on the
Company of the effects of Year 2000 issues on the economy in general or on the
Company's business partners and customers in particular. Although the Company
believes that its Year 2000 compliance program is designed to appropriately
identify and address those Year 2000 issues that are subject to the Company's
reasonable control, there can be no assurance that the Company's efforts in this
regard will be fully effective or that Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition or results of
operations. While the Company expects to be fully compliant with the Year 2000
with its own systems well in advance of the Year 2000, a material financial risk
could result if the Company's vendors are unable to resolve such processing
issues in timely manner.
Contingency Plans
The Company is in the process of accessing the readiness of all relevant
parties associated with its Year 2000 compliance program, and determining the
risks associated with Year 2000 non-compliance upon its operations. As the
Company gathers and analyzes the necessary information to make the proper
assessment, a contingency plan will be formulated to handle any foreseen
potential problems which may result. The Company will also formulate a back-up
emergency plan of action in case of any unforeseen problems which may occur on
January 1, 2000. These plans are expected to be in place by November 30, 1999.
Forward-Looking Information
This report contains forward-looking statements regarding, among other
matters, the Company's future strategy, store opening plans, merchandising
strategy and growth. The forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Act of 1995.
Forward-looking statements address matters which are subject to a number of
risks and uncertainties. In addition to the general risks associated with the
operation of specialty retail stores in a highly competitive environment, the
success of the Company will depend on a variety of factors, such as consumer
spending which is dependent on economic conditions affecting disposable consumer
income such as employment, business conditions, interest rates and taxation. The
Company's continued growth also depends upon the demand for its products, which
in turn is dependent upon various factors, such as the introduction and
acceptance of new products and the continued popularity of existing products, as
well as the timely supply of all merchandise. Reference is made to the Company's
filings with the Securities and Exchange Commission for further discussion of
risks and uncertainties regarding the Company's business.
12
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 10, 1999. Of the
total of 4,761,155 shares of common stock outstanding and eligible to vote at
the meeting, the holders of 4,637,170 shares executed and delivered valid
proxies or ballots to the meeting which were duly voted thereat.
The 4,637,170 shares of common stock represented by proxies or ballots at the
meeting were voted as follows in accordance with instructions contained therein:
(A) Election of Directors:
---------------------
Nominee For Against Withheld Authority
------- --- ------- ------------------
Patrick J. Fulford 4,200,573 436,597 -- 0 --
Richard B. Callen 4,200,573 436,597 -- 0 --
Thomas A. James 4,200,573 436,597 -- 0 --
(B) Proposal to Elect KPMG LLP as Auditors:
--------------------------------------
For Against Abstain
--- ------- -------
4,627,945 3,575 5,650
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 11 Computation of Per Share Net Loss
Exhibit 27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange Commission
during the second quarter of fiscal 1999.
13
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SIGNATURE
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.
Dated: September 10, 1999
WORLD OF SCIENCE, INC.
(Registrant)
/s/Charles A. Callahan
Charles A. Callahan
Vice President of Finance
Chief Financial Officer and Assistant Secretary
(Signed on behalf of the registrant and as Principal
Accounting and Financial Officer)
14
<PAGE>
COMPANY: WORLD OF SCIENCE, INC.
TICKER: WOSI
EXCHANGE: NMS
FORM-TYPE: 10-Q
Exhibit 11. Statement re Computation of Per Share Earnings
FILING-DATE: September 14, 1999
Exhibit 11
WORLD OF SCIENCE, INC.
COMPUTATION OF PER SHARE NET LOSS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
-------------
Basic Loss Per Share: July 31, 1999 August 1, 1998
------------- --------------
<S> <C> <C>
Net loss $ (1,965) $(1,177)
Weighted average common shares outstanding 4,760 5,080
Basic loss per share $ (0.41) $ (0.23)
======== =======
Diluted Loss Per Share:
Net loss $ (1,965) $(1,177)
Weighted average common shares outstanding 4,760 5,080
Diluted loss per share $ (0.41) $ (0.23)
======== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 330
<ALLOWANCES> 0
<INVENTORY> 16,553
<CURRENT-ASSETS> 21,248
<PP&E> 17,949
<DEPRECIATION> 7,183
<TOTAL-ASSETS> 32,588
<CURRENT-LIABILITIES> 13,609
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 18,223
<TOTAL-LIABILITY-AND-EQUITY> 32,886
<SALES> 17,913
<TOTAL-REVENUES> 17,913
<CGS> 15,479
<TOTAL-COSTS> 15,479
<OTHER-EXPENSES> 6,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (5,896)
<INCOME-TAX> (2,358)
<INCOME-CONTINUING> (3,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,538)
<EPS-BASIC> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
