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SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d) of the Securities
and Exchange Act of 1934.
For Period ended April 29, 2000 Commission File Number
-------------- 0-26185
-------
Zany Brainy, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2663337
------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
2520 Renaissance Boulevard, King of Prussia, PA 19406
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 278-7800
--------------
Indicate by check whether the registrant (1) has filed all reports 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
------ -----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at April 29, 2000
--------------------------- -----------------------------
Common Stock, par value $.01 21,683,181
================================================================================
<PAGE>
ZANY BRAINY, INC.
FORM 10-Q
QUARTER ENDED April 29, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the thirteen weeks ended
April 29, 2000 and May 1, 1999 ................................................ Page 1
Consolidated Balance Sheets as of April 29, 2000 and January 29, 2000 ........... Page 2
Consolidated Statements of Cash Flows for the thirteen weeks ended April 29, 2000
and May 1, 1999 ............................................................... Page 3
Notes to Consolidated Financial Statements ...................................... Page 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................. Page 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .......................................................... Page 9
PART II - OTHER INFORMATION ........................................................... Page 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ZANY BRAINY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
NET SALES $ 39,363 $ 40,577
COST OF GOODS SOLD, including
occupancy costs 31,395 29,387
-------- --------
Gross profit 7,968 11,190
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 16,097 12,986
-------- --------
Operating loss (8,129) (1,796)
INTEREST EXPENSE (82) (427)
-------- --------
Loss before income tax benefit (8,211) (2,223)
INCOME TAX BENEFIT 3,161 845
-------- --------
NET (LOSS) $ (5,050) $ (1,378)
======== ========
NET (LOSS) PER COMMON
SHARE:
Basic and Diluted $ (0.23) $ (0.26)
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and Diluted 21,679 5,384
</TABLE>
The accompanying notes are an integral part of these statements
1
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ZANY BRAINY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
<TABLE>
<CAPTION>
April 29, January 29,
2000 2000
--------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 177 $ 24,550
Receivables, net 1,799 4,118
Inventories, net 71,870 71,020
Deferred tax asset 5,097 1,496
Prepaid expenses 1,493 1,458
--------- ---------
Total current assets 80,436 102,642
PROPERTY AND EQUIPMENT, net 34,246 34,602
DEFERRED TAX ASSET 1,259 1,259
OTHER ASSETS, net 210 223
INVESTMENT IN JOINT VENTURE 11,529 5,000
--------- ---------
$ 127,680 $ 143,726
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ 7,184 $ --
Accounts payable 8,088 19,898
Accrued liabilities 7,967 13,696
Current portion of capitalized lease obligations 2,437 2,578
--------- ---------
Total current liabilities 25,676 36,172
--------- ---------
DEFERRED RENT 5,028 5,002
--------- ---------
CAPITALIZED LEASE OBLIGATIONS, net of current portion 3,296 3,855
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
Convertible Preferred stock, $.01 par value, 5,000,000
shares authorized at April 29, 2000; 0 shares issued
and outstanding at April 29, 2000 and
January 29, 2000 respectively -- --
Common stock, $.01 par value, 100,000,000
shares authorized at April 29, 2000; 21,683,181
and 21,674,362 shares issued and outstanding at
April 29, 2000 and January 29, 2000 respectively 217 216
Additional paid-in capital 104,222 104,190
Accumulated deficit (10,759) (5,709)
--------- ---------
Total shareholders' equity 93,680 98,697
--------- ---------
$ 127,680 $ 143,726
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
2
<PAGE>
ZANY BRAINY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------
April 29, 2000 May 1, 1999
-------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (5,050) $ (1,378)
Adjustments to reconcile net (loss) to net cash
used in operating activities
Depreciation and amortization 2,553 1,888
Provision for deferred rent 26 475
Amortization of deferred compensation 3 --
Deferred income tax (benefit) (3,601) (845)
Noncash compensation expense 333 --
Changes in assets and liabilities
(Increase) decrease in
Receivables 2,319 351
Inventories (850) (9,123)
Prepaid expenses (35) (1,788)
Other assets 13 (669)
Increase (decrease) in
Accounts payable (11,810) 1,180
Accrued liabilities (5,729) (1,496)
Income tax payable -- (150)
-------- --------
Net cash used in operating activities (21,828) (11,555)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,197) (2,497)
Investment in joint venture (6,862) --
-------- --------
Net cash used in investing activities (9,059) (2,497)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit, net 7,184 12,402
Increase in bank overdrafts -- 1,367
Payments on capitalized lease obligations (700) (495)
Proceeds from exercise of stock options 30 6
-------- --------
Net cash provided by financing activities 6,514 13,280
-------- --------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (24,373) (772)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,550 1,695
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 177 $ 923
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and should be read in conjunction with the audited financial
statements as of January 29, 2000 included in our annual report on Form 10-K/A
for the fiscal year January 29, 2000 as filed with the Securities and Exchange
Commission. Certain information and footnote disclosures required by generally
accepted accounting principles for complete financial statements have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying unaudited
financial statements contain all material adjustments, consisting of normal
recurring accruals, necessary to present fairly our financial position, results
of operations and cash flow for the periods indicated, and have been prepared in
a manner consistent with the January 29, 2000 financial statements. In light of
the seasonal nature of our business, the results of operations for the thirteen
weeks ended April 29, 2000 are not necessarily indicative of operating results
for a full fiscal year.
2. INITIAL PUBLIC OFFERING
In June 1999, we sold 4,722,669 shares of Common stock at $10.00 per share
($9.30 after an underwriting discount of $.70 per share) in an initial public
offering (the "Offering"). All shares of Preferred stock outstanding prior to
the Offering were converted into 11,250,273 shares of Common stock. The Offering
generated proceeds of $43.9 million ($42.3 million after deducting transaction
expenses of $1.6 million). We used $18.4 million to pay down our line of credit
balance plus accrued interest and $22.2 million for 18 new store openings, the
relocation of the distribution center, new enterprise software and the internet
investment. The remainder of the net proceeds was used for general corporate
purposes.
3. SUPPLEMENTAL CASH FLOWS INFORMATION
For the thirteen weeks ended May 1, 1999 and April 29, 2000, we made
payments of $303,000 and $191,000, respectively, in interest. For the thirteen
weeks ended May 1, 1999 and April 29, 2000, we made payments of $193,000 and
$690,650, respectively, for income taxes.
4. MERCHANDISE INVENTORIES
Merchandise inventories are valued at the lower of cost (first-in,
first-out) or market. Costs associated with certain buying and distribution
activities are included in inventories.
5. NET LOSS PER SHARE
Net loss per share is calculated utilizing the principles of Statement of
Financial Accounting Standards No. 128, "Earnings per Share". The weighted
average impact of stock options, warrants and Preferred stock was excluded from
the calculation of diluted loss per share for all periods presented as they were
anti-dilutive due to our net loss.
6. LINE OF CREDIT
In June 1999, we entered into a three-year credit facility covering a
maximum principal amount of $30,000,000, subject to a borrowing base. The
borrowing base is defined as 50% of all eligible inventory. This unsecured line
of credit bears interest at the prime rate, the annual Federal funds rate plus
.5%, or, if we elect, at an annual rate of LIBOR plus 1.75%. As of April 29,
2000, we had $7.2 million outstanding on the line of credit and an additional
$2.0 million in outstanding letters of credit. The credit facility requires us
to comply with various quarterly and annual covenants. We are in compliance with
all debt covenants as of April 29, 2000. In addition, we have signed two term
sheets with a bank that will initially provide us with a secured line of credit
up to $65.0 million and up to $115.0 million if our proposed merger with Noodle
Kidoodle is completed. Completion of these credit facilities is subject to
certain conditions, including, among others, completion of due diligence and
approval of the bank's credit committee. We expect to close on these facilities
by the end of the second quarter of 2000.
7. COMMON STOCK OPTIONS AND WARRANTS
As of April 29, 2000, we had options to purchase 3,096,929 shares of Common
stock outstanding of which options to purchase 1,937,984 shares are currently
exercisable at a weighted average price of $5.27. In addition,
4
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warrants to purchase 15,000 shares of Common stock are outstanding. These
warrants have an exercise price of $4.00 per share and expire in January 2003.
Information with respect to all options outstanding is as follows:
<TABLE>
<CAPTION>
Weighted
Option Price Average Price
Shares Per Share Per Share
--------- ------------ -------------
<S> <C> <C> <C> <C>
Options Outstanding, January 29, 2000 3,198,791 $2.67 - $11.75 $ 5.70
Granted 39,900 $5.375 5.38
Exercised (8,819) $3.33 - $5.25 3.37
Canceled (132,943) $3.33 - $11.75 8.97
--------- -------------- --------
Options Outstanding, April 29, 2000 3,096,929 $2.67 - $11.75 $ 5.56
========= ============== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
From time to time, we are named as a defendant in legal actions arising
from our normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be estimated, in
our opinion, any such liability will not have a material adverse effect on our
financial position, operating results or liquidity.
9. RELATED PARTY TRANSACTIONS
In October 1999, the Company formed ZB Holdings LLC, a joint venture with
Online Retail Partners, LLC. ZB Holdings LLC was formed for the purpose of
developing and operating www.zanybrainy.com , an Internet shopping website,
offering its customers comprehensive content, extensive product assortment and
related value-added online services. ZB Holdings LLC formed ZanyBrainy.com LLC
("ZanyBrainy.com"), a wholly owned subsidiary, for the purpose of developing and
operating such a site. The Company contributed $5.0 million for the purchase of
100% of the outstanding Preferred interests of ZB Holdings LLC and Online Retail
Partners LLC contributed a total of $15.0 million for the purchase of 100% of
the Common interests of ZB Holdings LLC. In March 2000, the Company and Online
Retail Partners, LLC agreed to contribute another $12.0 million to the joint
venture. Contributions made to the joint venture during the 13 weeks ended April
29, 2000 by the Company and Online Retail Partners, LLC were $6.9 million and
$5.1 million respectively. Both partners hold 50% of the voting stock of the
joint venture and the Company had an ownership interest in the joint venture of
approximately 51%. We expect that Zany Brainy.com will continue to require cash
investment or financing prior to its profitability. We also expect that
ZanyBrainy.com will continue to incur losses for the foreseeable future. It is
likely that we will incur losses attributable to our investment in
ZanyBrainy.com during the second quarter of 2000. There could be future dilution
of the Company's interests if further investments, or stock grants, in the joint
venture are made.
The investment is accounted for under the equity method of accounting with
profits and losses allocated in accordance with the joint venture agreement. As
of April 29, 2000, no losses were allocated to the Company's preferred interests
in ZB Holdings LLC under the terms of the joint venture agreement. The Company
has entered into certain agreements with ZanyBrainy.com pursuant to which it
will provide services to, and act as an agent for, ZanyBrainy.com. Under the
terms of the agreements, these services are to be provided at cost to
ZanyBrainy.com. During the 13 weeks ended April 29, 2000, the Company procured
and transferred, at cost, $811,000 of merchandise, including freight and other
procurement costs, to ZanyBrainy.com. In addition, the Company transferred costs
of $229,000 for the cost of other services rendered. During the 13 weeks ended
April 29, 2000, the Company purchased $750,000 of merchandise from
ZanyBrainy.com and at April 29, 2000 had a payable of $610,000 to
ZanyBrainy.com.
10. RECENT DEVELOPMENTS
On April 21, 2000, we entered into an Agreement and Plan of Merger ("Merger
Agreement") pursuant to which Noodle Kidoodle, Inc., another retailer of
children's specialty toys, will become our wholly-owned subsidiary.
Pursuant to the Merger Agreement, each outstanding share of the Noodle
Kidoodle common stock, par value
5
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$.001 per share, will be converted into the right to receive 1.233 shares of our
common stock, par value $.01 per share. The consummation of the merger is
subject to a number of conditions, including, among other things, the approval
of the Merger Agreement and merger by our shareholders and Noodle Kidoodle's
shareholders. It is currently anticipated that the merger will be treated as a
pooling-of-interests for accounting purposes under Opinion No. 16 of the
Accounting Principles Board and that the merger will close by the end of the
second quarter of 2000.
All expenses attributable to the merger will be deferred and expensed in
the quarter that the merger is consummated and thereafter. We anticipate these
costs to be between $13.0 and $16.0 million, after tax.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Zany Brainy is a rapidly growing specialty retailer of high quality toys,
games, books and multimedia products for children, with 106 stores operating in
26 states as of April 29, 2000.
Recent Developments
On April 21, 2000, we entered into an Agreement and Plan of Merger ("Merger
Agreement") pursuant to which Noodle Kidoodle, Inc., another retailer of
children's specialty toys, will become our wholly-owned subsidiary.
Pursuant to the Merger Agreement, each outstanding share of the Noodle
Kidoodle common stock, par value $.001 per share, will be converted into the
right to receive 1.233 shares of our common stock, par value $.01 per share. The
consummation of the merger is subject to a number of conditions, including,
among other things, the approval of the Merger Agreement by our shareholders and
Noodle Kidoodle's shareholders. It is currently anticipated that the merger will
be treated as a pooling-of-interests for accounting purposes under Opinion No.
16 of the Accounting Principles Board and that the merger will close by the end
of the second quarter of 2000.
Results of Operations
The following table sets forth our financial data expressed as a percentage
of net sales, and operating data for the periods indicated.
Thirteen Weeks Ended
---------------------------
April 29, 2000 May 1, 1999
-------------- -----------
Net sales 100.0% 100.0%
Cost of goods sold(1) 79.8 72.4
-------------- -----------
Gross profit 20.2 27.6
Selling, general and
administrative expenses 40.8 32.0
-------------- -----------
Operating loss (20.6) (4.4)
Interest expense, net 0.2 1.1
-------------- -----------
Loss before income tax benefit (20.8) (5.5)
Income tax benefit 8.0 2.1
-------------- -----------
Net loss (12.8%) (3.4%)
============== ===========
Comparable store net sales(2) (23%) 9%
============== ===========
Total number of stores at
end of period 106 82
============== ===========
Stores opened during period 3 7
============== ===========
(1)Cost of sales includes buying, distribution, and occupancy costs
(2)A store becomes comparable in the 14(th) full month of store operations
Thirteen Weeks Ended April 29, 2000 Compared to Thirteen Weeks Ended May 1, 1999
NET SALES. Net sales decreased $1.2 million, or 3.0%, to $39.4 million in
the thirteen weeks ended April 29, 2000 from $40.6 million in the comparable
1999 period. This decrease resulted primarily from a comparable store net sales
decrease of 23%, partially offset by sales from 24 additional stores opened
since the first quarter of last year. We expect these difficult sales
comparisons to continue into the second quarter of 2000. We believe the decrease
in comparable store net sales for the first quarter is attributable to, among
other things, a 33% decrease in customer
7
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transactions partially offset by an increase in the average dollar amount of
each customer transaction. Sales of Beanie Babies declined from approximately
10% of sales in the first quarter of 1999, to 1% of sales for the comparable
2000 period. We expect Beanie Babies' sales to remain significantly below last
year's levels for the remainder of the fiscal year. Sales of Pokemon products,
which are represented in several different departments including games, books,
stationery, and plush, represented approximately 7% of sales for the quarter
ended April 29, 2000.
GROSS PROFIT. Gross profit decreased $3.2 million, or 28.8%, to $8.0
million during the first quarter, from $11.2 million in the same period last
year. The decrease was primarily attributable to lower sales and increased
occupancy and distribution expenses from 24 additional stores since the first
quarter of last year. The gross profit decreased to 20.2% of net sales for the
period, from 27.6% in the comparable 1999 period. The decrease of 7.4% was due
to our inability to effectively leverage occupancy, distribution and buying
costs as a result of lower sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include all direct store level expenses, and all
corporate level costs not directly associated with or allocable to cost of
sales. Selling, general and administrative expenses increased $3.1 million, or
24.0%, to $16.1 million during the first quarter, from $13.0 million in the same
period last year. The dollar increase in selling, general and administrative
expenses was primarily attributable to $1.9 million in incremental store payroll
and other selling expenses incurred in the first quarter associated with the
opening and operation of 24 additional stores following the first quarter of
1999. Corporate expenses increased approximately $1.2 million during this period
to support this additional store growth. Selling, general and administrative
expenses increased to 40.9% of net sales from 32.0% of net sales due to our
inability to leverage corporate, store, and other expenses.
INTEREST EXPENSE, NET. Net interest expense was approximately $82,000 for
the period, a decrease of $345,000 from the comparable period in 1999. This
decrease was due to less borrowings under our line of credit, and an increase in
investment income.
INCOME TAX BENEFIT. For the thirteen weeks ended April 29, 2000, we
recorded an income tax benefit of $3.2 million primarily related to the Federal
tax benefit of the net loss, compared to an income tax benefit of approximately
$845,000 for the comparable period in 1999. The effective tax rate for the first
quarter of fiscal 2000 was 38.5%.
LIQUIDITY AND CAPITAL RESOURCES
We require cash principally to finance capital investment in new stores,
new store inventories, and seasonal working capital. We opened three stores
through the thirteen weeks ended April 29, 2000.
Cash flows used in operating activities were $21.8 million for the thirteen
weeks ended April 29, 2000, an increase of $10.3 million over the same period
for the previous year. The increase was primarily a result of a decrease in
accounts payable, accrued liabilities and an increase in the net loss.
Cash flows used in investing activities were $9.1 million for the
thirteen-week period ending April 29, 2000, an increase of approximately $6.6
million over the same period for the previous year. The increase was primarily
due to our investment of $6.9 million in the Internet joint venture.
Cash flows provided by financing activities during the thirteen-week period
ending April 29, 2000 reflect $7.2 million provided through borrowings on our
credit facility. For the comparable period last year, cash was provided through
borrowings of $12.4 million on our credit facility.
On June 14, 1999, we entered into a three-year credit facility with a bank
in the amount of $30,000,000, subject to a borrowing base, with an interest rate
of the Base Rate or LIBOR plus 1.75%. The Base Rate is defined as the higher of
(1) the Federal funds rate plus .5% per annum or (2) the prime rate. As of April
29, 2000, we had $7.2 million of outstanding borrowings under the credit
facility at the prime rate. Additionally, on August 25, 1999, we entered into an
agreement with another bank to provide a $5.0 million lease line of credit at a
average rate of 10.3%. As of April 29, 2000, $1.2 million under this lease line
was remaining.
8
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We believe that our operating cash flow together with the unused portion of
our credit facility and other financing arrangements will be sufficient to
finance current operating requirements including capital expenditures and new
store openings for at least the next twelve months. However, if we choose to
invest additional funds in the Internet joint venture, we may seek additional
sources of financing to support that initiative.
In addition, we have signed two term sheets with a bank that will initially
provide a secured line of credit up to $65.0 million and up to $115.0 million if
the merger with Noodle Kidoodle is completed. Completion of these credit
facilities is subject to certain conditions, including, among others, completion
of due diligence and approval of the bank's credit committee. We expect to close
on these facilities by the end of the second quarter of 2000.
Seasonality of Business
Seasonal shopping patterns affect our business. A significant portion of
our sales occur in the fourth quarter, coinciding with the Christmas holiday
shopping season. Therefore, results of operations for the entire year depend
heavily on fourth quarter results and the success of the Christmas selling
season. Based upon previous experience, we do not expect to earn a profit in the
first three quarters of a fiscal year in the foreseeable future.
Internet Sales Channel
During the third quarter of 1999 we implemented an Internet shopping site
(www.zanybrainy.com) through a joint venture with Online Retail Partners, LLC.
We each initially contributed $5.0 million to this joint venture. Online Retail
Partners contributed an additional $10.0 million to the joint venture in
November 1999. In March 2000, the Company and Online Retail Partners agreed to
contribute another $12.0 million to the joint venture. Contributions made to the
joint venture during the 13 weeks ended April 29, 2000 by the Company and Online
Retail Partners were $6.9 million and $5.1 million respectively. As of April 29,
2000 we owned approximately 51% of the joint venture.
We expect that ZanyBrainy.com will continue to require cash investment or
financing prior to its profitability. We also expect that ZanyBrainy.com will
continue to incur losses for the foreseeable future.
As of April 29, 2000, our total investment in ZanyBrainy.com was $11.9
million. While Online Retail Partners has agreed to take all losses of
ZanyBrainy.com up to the extent of their capital account, any losses beyond that
point will require us to recognize losses up to the amount of our investment. We
would also have to recognize losses if our investment were to become materially
impaired, up to the amount of our investment. It is likely that we will incur
losses attributable to our investment in ZanyBrainy.com during the second
quarter of 2000.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
9
<PAGE>
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION ACT OF 1995
This report and the documents incorporated by reference herein contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. When used in this report and the documents incorporated herein by
reference, the words "anticipate," "believe," "estimate," and similar
expressions are generally intended to identify forward-looking statements.
Forward-looking statements include, among others, the statements about the
following: our ability to consummate the merger and the timing of the merger;
the sufficiency of our operating cash flow over the next 12 months; our ability
to finalize our new line of credit; our expectations with respect to our
inability to earn a profit in the first three quarters of a fiscal year; the
impact that future investments in the Internet joint venture would have on our
equity ownership of the Internet business and our financial statements; our
expectations with respect to sales of popular products and negative comparable
store sales for the second quarter of this year; the potential negative effects
selling our products on the Internet could have on our existing store sales and
our customer base; our expectations with respect to the ability to raise capital
for the Internet shopping site; and the timing and impact of any losses
associated with the Internet business.
There are important factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
including, but not limited to, the following: a decline in the level of demand
for our products, including popular products; actions by our competitors; a
decline in general economic and business conditions and in the specialty retail
or toy industry in particular; our inability to manage our growth, open new
stores on a timely basis and expand in new and existing markets; our ability to
successfully market and expand the Internet shopping site and successfully work
with Online Retail Partners; the availability of product and our ability to
replenish product on a timely basis; our ability to successfully manage our
inventory; unanticipated cash requirements to support current operations or
expansion of our business; the availability and cost of additional capital to
fund our operations or that of ZanyBrainy.com; and our ability to attract, train
and retain highly qualified associates. These and other risks and uncertainties
affecting Zany Brainy are discussed in greater detail in this report and in
other filings by Zany Brainy with the Securities and Exchange Commission.
10
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PART II - OTHER INFORMATION
ITEM 2: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Employment Agreement dated as of June 6, 2000 between
Zany Brainy, Inc. and Keith C. Spurgeon (1)
10.2 Employment Agreement dated as of June 6, 2000 between
Zany Brainy, Inc. and Thomas G. Vellios (1)
10.3 Employment Agreement dated as of June 6, 2000 between
Zany Brainy, Inc. and Robert A. Helpert (1)
27.1 Financial Data Schedule
----------
(1) Management contract and compensatory plan or arrangement
required to be filed or incorporated as an exhibit.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company during
the quarter ended April 29, 2000.
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Zany Brainy, Inc.
Date: June 13, 2000 By: /s/ Keith C. Spurgeon
------------- ----------------------
Keith C. Spurgeon
Chairman and Chief
Executive Officer
Date: June 13, 2000 By: /s/ Robert A. Helpert
------------- ----------------------
Robert A. Helpert
Chief Financial Officer,
Secretary and Treasurer
12
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EXHIBIT INDEX
Exhibit Description
Number -----------
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10.1 Employment Agreement dated as of June 6, 2000 between Zany Brainy,
Inc. and Keith C. Spurgeon (1)
10.2 Employment Agreement dated as of June 6, 2000 between Zany Brainy,
Inc. and Thomas G. Vellios (1)
10.3 Employment Agreement dated as of June 6, 2000 between Zany Brainy,
Inc. and Robert A. Helpert (1)
27.1 Financial Data Schedule
-----------
(1) Management contract and compensatory plan or arrangement required to be
filed or incorporated as an exhibit.
13
