SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED].
For the fiscal year ended February 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED].
Commission file number 1-6083
NOODLE KIDOODLE, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-1771705
(state or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
105 Price Parkway, Farmingdale, NY 11735
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 293-5300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.001 par value NASDAQ National Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 __
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 29, 1996 was $58,509,844 based on the closing price of
same stock on that date.
The number of shares of common stock outstanding as of March 29, 1996 was
7,556,140.
Documents Incorporated by reference: Certain portions of Registrant's
definitive proxy statement with respect to its 1996 Annual Meeting of
Stockholders to be filed, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, with the Commission within 120 days of the close of
Registrant's fiscal year ended February 3, 1996 are incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS
PART I
Page
Item 1. Business 4
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholders' Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K 18
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PART I
ITEM 1. BUSINESS.
(a) General
Noodle Kidoodle, Inc., a Delaware corporation (the "Company" or
"Registrant") is a specialty retailer of a broad assortment of educationally
oriented, creative and non-violent children's products, including toys, books,
games, video and audio tapes, computer software, crafts and other learning
products.
The Company was founded in 1946 and, doing business under its former
name Greenman Bros. Inc., engaged in the retail toy business as well as the
wholesale distribution of general merchandise, with an emphasis on toys,
stationery and housewares. During the 1980s, the Company operated a
number of retail toy stores, including a chain of 330 stores under the Circus
World name located principally in shopping malls in approximately 30 states.
The Company sold the Circus World stores in fiscal 1991 but continued to
operate a number of retail toy stores under the Playworld name. The
Company opened its first Noodle Kidoodle store in November 1993, and
opened three additional Noodle Kidoodle stores in fiscal 1995. During fiscal
1996, management determined that the Company should focus exclusively on
its retail business by expanding and developing the Noodle Kidoodle retail
concept. Accordingly, in August 1995, the Company adopted a new business
plan and ceased operating its wholesale division, which generated net sales of
$51.9 million in fiscal 1996 and $113.2 million in fiscal 1995. The Company,
in December 1995, changed its name from Greenman Bros. Inc. to Noodle
Kidoodle, Inc. and, in January 1996, changed its jurisdiction of incorporation
to Delaware.
The Company operated 18 Noodle Kidoodle stores at the close of the fiscal
year ended February 3, 1996 ("fiscal 1996") located in New York, New Jersey,
Connecticut and the Chicago metropolitan area. The Company also operated
four other retail toy stores, two each under the Playworld and Toy Park
names. The Company has announced that it will close at least two of the
remaining stores early in fiscal 1997 and may close the remaining other
retail stores as certain lease issues are resolved.
(b) Financial Information About Industry Segments
Registrant currently operates in an industry segment which involves the
retail sales of children's toys and other products. In prior years it also
operated in a second segment which was the wholesale distribution of general
merchandise. This segment was discontinued in August 1995 and the results
are disclosed in discontinued operations. See Note 2 (Discontinued
Operations) of the Notes to Consolidated Financial Statements.
(c) Narrative Description of Business
Noodle Kidoodle, Inc. is a specialty retailer of a broad assortment of
educationally oriented, creative and non-violent children's products. The
Noodle Kidoodle concept offers something new to parents and children by
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combining the attractive pricing and larger size of traditional toy stores with
the more creative product selection and superior customer service of small
boutiques, while providing an entertaining shopping environment through
interactive play areas and daily in-store events.
The Company's prototype store is approximately 10,000 to 12,000 square feet
and offers customers a warm and inviting shopping environment with
brightly lit spaces, colorful walls, ceilings and carpets, wide aisles for
strollers and kid-level seating and product shelving. Each store typically
carries approximately 25,000 stock-keeping units ("SKU's"), conveniently
displayed in separate merchandise departments, such as "Science & Nature"
and "Arts & Crafts," which are identified by eye-catching signs that are
visual as well as verbal so that children can understand them. All of the
products carried in Noodle Kidoodle stores conform to the Company's
creative, non-violent and educational merchandising strategy. The Company
generally does not carry mass market television advertised toys. However, in
certain product categories, the Company does carry brand name products
which fit the Noodle Kidoodle philosophy, such as Crayola, Lego, Playmobil,
the full line of Walt Disney video titles and the Goosebumps line of books.
The Company purchases merchandise from over 500 suppliers. There are
currently two suppliers, ABCO Distributors and Star Video Entertainment
LP, who each represent slightly more than 5% of total purchases.
The Company operated 18 Noodle Kidoodle stores at the end of the 1996
fiscal year located in New York, New Jersey, Connecticut and the Chicago
metropolitan area. It has opened two stores in fiscal 1997 in New York and
expects to open additional stores throughout the year. The Company believes
that there are opportunities for nationwide expansion over the longer term.
The Company believes that the following elements are important to the
concept:
- Interactive Shopping Environment - Each Noodle Kidoodle store is
designed with children in mind. Each store has designated play areas
where children and their parents are encouraged to explore toys and
games in keeping with the Company's "try before you buy" philosophy.
Among the key interactive features of each store are the Computer
Center, "Kidoodle Theater" and Electronic Learning Center.
- Broad Assortment of Imaginative Products - Noodle Kidoodle stores offer
a broad assortment of products designed to stimulate a child's imagination
and contribute to his or her growth and development consistent with the
Company's slogan that "Kids learn best when they're having fun." To
keep its merchandise mix fresh and exciting, the Company continually
seeks innovative new products.
- Daily In-Store Events - The Company provides without charge daily in-
store events such as personal appearances by authors and children's
television personalities, arts and crafts workshops and readings from
selected books to provide entertainment to its customers, increase store
traffic and position Noodle Kidoodle as a destination store.
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- Superior Customer Service - By providing knowledgeable and friendly
customer service and selecting enthusiastic employees who enjoy working
with children, the Company believes that it has a competitive advantage
over lower-service superstores and mass merchandisers.
- Targeted Marketing - The Company has created the Noodle Kidoodle Club
in order to establish customer loyalty and track repeat customers. The
club provides its members advance notice of sales events and special
promotions, a bi-monthly newsletter and events calendar, birthday cards
sent to children and similar special privileges. The Company is also
establishing a targeted direct mail marketing program and is in the
process of expanding its customer database for this purpose.
- Competitive Pricing - Noodle Kidoodle offers everyday competitive pricing.
Many products are regularly discounted and prices in general are believed
to be competitive with those featured by superstores carrying similar lines
of merchandise.
Backlog is not considered relevant to an understanding of Registrant's
business. Registrant is required to carry substantial amounts of inventory in
the months of September through November of each year in order to meet
holiday delivery requirements.
Registrant does not have any customers that represent more than 10% of
consolidated revenues for the year ended February 3, 1996.
Registrant's business is highly seasonal with a typical store doing 42% of its
revenues in the fourth quarter.
The retail toy business is highly competitive. The Company competes on the
basis of its stores' interactive environment, broad merchandise selection,
superior customer service and competitive pricing. The Company competes
with a variety of mass merchandisers, superstores and other toy retailers,
including Toys R Us and Kay Bee Toy Stores and other store formats selling
children's products, such as discount stores and smaller specialty toy stores.
Retailing of children's educational products is a relatively new concept.
Included among the Company's direct competitors are Zany Brainy,
Learningsmith and Imaginarium.
Some of the Company's competitors are much larger in terms of sales volume
and have more capital and greater management resources than the
Company. If any of the Company's larger competitors were to increase their
focus on the educational market or if any regional competitors were to
expand their activities in the markets primarily served by the Company, it
could be adversely affected. If any of the Company's major competitors seek
to gain or retain market share by reducing prices, it may be required to
reduce its prices on key items in order to remain competitive, which would
have the effect of reducing its profitability.
As of February 3, 1996, the Company employed approximately 661 people,
approximately 361 of whom were employed full-time. The Company also
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employs additional part-time personnel during the pre-Christmas season.
Approximately 22 of the Company's employees in the Playworld and Toy
Park stores are covered by contracts with a union. The Company believes
that its relations with its employees are generally good.
The Company has registered several service marks and trademarks with
Federal and State authorities, including Noodle Kidoodle, Oodles & Oodles
of Fun Things to Learn and Kidoodle Animation, and has applied for a
service mark for the Company's slogan "Kids learn best when they're having
fun." The Company believes it has all licenses necessary to conduct its
business.
ITEM 2. PROPERTIES.
The Company leases all of its Noodle Kidoodle stores. Original lease terms
generally are for ten years, and many leases contain renewal options. The
Company's stores are generally located in either strip centers or mall
locations. The 18 stores operating at the end of fiscal 1996 ranged in size
from 8,000 - 12,850 square feet and averaged approximately 10,600 square
feet.
The Company currently supports its retail operations with an owned 269,000
square foot distribution center in Phillipsburg, New Jersey. The Company
had previously supported its total retail and wholesale operations with three
other distribution centers located in Farmingdale, New York, West Haven,
Connecticut and Birmingham, Alabama. In conjunction with discontinuing
its wholesale operations the Company has ceased operating the Farmingdale
and West Haven distribution centers. The Company discontinued the use of
the Birmingham center in 1989 and has been sub-leasing the space to third
parties since such discontinuance. The Company has contracted to sell the
Farmingdale facility, which sale is expected to close in June 1996. The
Birmingham facility is expected to be sold in fiscal 1998. The lease for the
West Haven center expired in March 1996. The Company does not believe
that disposing of or discontinuing operations in any of these facilities will
have a material adverse effect on its operations or financial condition.
At the end of fiscal 1996, the Company also operated four other retail toy
stores, two each under the Playworld and Toy Park names which were
located in Long Island and Manhattan, New York. These stores are all
leased and range in size from 4,000 to 10,000 square feet. The Company has
announced that it will close two of these stores early in fiscal 1997 and may
close the remaining stores as certain lease issues are resolved.
The Company's executive offices are located at its Farmingdale, New York
facility. This building, which has historically been used as a distribution
center for the Company's wholesale operations, is expected to be sold in fiscal
1997, at which time the Company may move to new headquarters. The
Company anticipates that it will be able to lease these offices from the
purchaser of the building for at least a year from the date of sale. If the
Company finds it necessary to change the location of its headquarters, it does
not expect to experience any difficulty in finding a suitable new location.
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Registrant believes that the foregoing facilities are adequate for its present
operations and such facilities are maintained in a good state of repair.
See Note 6 (Commitments and Contingencies) of the Notes to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a purported class action filed in August 1995,
in the United States District Court for the Eastern District of New York
against Playmobil USA, Inc., a toy manufacturer ("Playmobil"), and against
the Company and another retailer, as defendant class representatives of a
purported class of those toy retailers nationwide selling products
manufactured by Playmobil. The complaint alleges that Playmobil, through
its suggested retail pricing policy, conspired with its retailers unlawfully to
restrict competition in the sales of Playmobil products. Plaintiff seeks
unspecified damages. In addition, the Attorney General of the State of New
York has opened a parallel investigation of Playmobil, in which the Company
has been asked to provide documents and testimony. The Company believes,
based on discussions with counsel, that it has valid defenses to plaintiffs'
claims and intends to vigorously defend the action. In any event, the
Company does not believe that the resolution of the class action suit will
have a material adverse effect on the Company's financial condition or results
of operations.
Except as set forth above, the Company is not a party to any legal
proceedings other than claims and lawsuits arising in the normal course of its
business which, in the opinion of the Company's management, are not
individually or in the aggregate material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-
HOLDERS.
At a special meeting held on December 11, 1995 and continuation of that
meeting held on January 4, 1996, the Company's stockholders approved the
following:
a) The name of the Company was changed to Noodle Kidoodle, Inc.,
from Greenman Bros. Inc. The results of the vote were 4,957,743
shares for the proposal, 18,863 shares against and 10,585 shares
abstaining.
b) The number of authorized shares of common stock was increased
to 15 million from 10 million and the par value was changed to
$.001 per share from $.10 per share. The results of the vote were
4,600,943 shares for the proposal, 133,373 shares against and
25,314 shares abstaining.
c) The number of authorized shares of preferred stock was
increased to 1 million from .5 million and the par value was
changed to $.001 per share from $1.00 per share. The results
of the vote were 2,882,922 shares for the proposal, 1,026,209
shares against and 37,884 shares abstaining.
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d) The number of stock options automatically awarded annually to
outside directors of the Company was increased to 4,000 shares
from 1,000 shares and the number of shares authorized for
issuance, under the Company's Outside Directors 1994 Stock
Option Plan was increased to 125,000 shares from 75,000 shares.
The results of the vote were 4,707,410 shares for the proposal,
388,675 shares against and 38,903 shares abstaining.
e) The Company's state of incorporation was changed to Delaware
from New York. The results of the vote were 3,741,187 shares for
the proposal, 424,664 shares against and 21,505 shares abstaining.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDERS' MATTERS.
The Common Stock is quoted on the NASDAQ National Market under the
symbol "NKID". Until December 13, 1995, the Common Stock was traded on
the American Stock Exchange under the symbol "GMN". The following table
sets forth, for the periods indicated, the high and low sales prices per share
for the Common Stock for each of the fiscal quarters indicated as reported on
the American Stock Exchange through December 13, 1995 and as reported on
the NASDAQ National Market from December 14, 1995 through February 3,
1996:
<TABLE>
High Low
<CAPTION>
<S> <C> <C>
Fiscal 1996
First Quarter $ 5.44 $ 4.00
Second Quarter 11.63 5.06
Third Quarter 14.63 9.25
Fourth Quarter 15.00 8.25
Fiscal 1995
First Quarter 7.38 5.88
Second Quarter 7.25 5.63
Third Quarter 7.13 6.38
Fourth Quarter 6.38 4.38
</TABLE>
On February 3, 1996 the last reported sale price of the Common Stock on the
NASDAQ National Market was $9.00 per share. As of March 29, 1996 there
were approximately 600 holders of record of Common Stock.
The Company has not paid cash dividends on its Common Stock since 1969
and currently anticipates that it will retain all available funds generated by
its operations for the development and growth of its business. Any future
determination as to dividend policy will be made at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
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business prospects of the Company and such other factors as the Board of
Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below reflects the consolidated results
of operations, financial condition and operating data of the Company for the
periods indicated, after giving retroactive effect to the Company's
discontinued wholesale business segment. This data should be read in
conjunction with the Consolidated Financial Statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this report. The consolidated
financial data for the fifty-three weeks ended February 3, 1996, and the fifty-
two weeks ended January 28, 1995, January 29, 1994, January 30, 1993 and
February 1, 1992 are derived from the consolidated financial statements of
the Company which have been audited by Janover Rubinroit, LLC,
independent certified public accountants.
<TABLE>
Fiscal Years Ended
February 3, January 28, January 29, January 30, February 1,
1996 1995 1994 1993 1992
(53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
(In thousands except for per share data)
<CAPTION>
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $32,143 $23,308 $20,712 $18,250 $12,850
Net income (loss) from:
Continuing operations (5,272) (4,490) (1,180) (425) (1,141)
Discontinued operations (9,059) 1,096 1,889 2,226 5,069
Extraordinary item
(bond repurchase) - - - - (263)
Net income (loss) $(14,331) $ (3,394) $ 709 $ 1,801 $ 3,665
Net income (loss per share from:
Continuing operations $ (.99) $ (.86) $ (.22) $ (.08) $ (.21)
Discontinued operations (1.70) .21 .35 .40 .92
Extraordinary item
(bond purchase) - - - - (.05)
Net income (loss) per share $ (2.69) $ (.65) $ .13 $ .32 $ .66
Weighted average shares
outstanding 5,320 5,220 5,338 5,575 5,540
BALANCE SHEET DATA:
Working capital $14,031 $35,667 $39,810 $40,212 $40,490
Total assets 37,276 48,042 49,629 50,296 47,559
Stockholders' equity 27,080 40,870 44,064 45,212 43,091
Long term debt obligations - - - - -
Dividends per common share - - - - -
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
Fiscal Year Ended February 3, 1996 Compared to
Fiscal Year Ended January 28, 1995
Continuing Operations
Net sales increased a total of 37.9% to $32.1 million in the fiscal year ended
February 3, 1996 from $23.3 million in the fiscal year ended January 28,
1995 ("fiscal 1995"). Noodle Kidoodle sales increased $21.3 million to $27.7
million in fiscal 1996 from $6.4 million in the prior year,primarily due to the
addition of fourteen Noodle Kidoodle stores during fiscal 1996. Other retail
sales decreased 73.9% to $4.4 million in fiscal 1996 from $16.9 million in the
prior year, primarily as a result of the closing of six Playworld stores during
January 1995. The Company operated 18 Noodle Kidoodle stores, two
Playworld stores and two Toy Park stores at February 3, 1996 compared to
four Noodle Kidoodle stores, two Playworld stores and two Toy Park stores,
at January 28, 1995. The fiscal 1996 year contained 53 weeks compared to
52 weeks in the prior year. Sales for the extra week represented 1.7% of
annual sales.
Gross profit (derived from net sales less the cost of products sold, which
includes buying and warehousing costs) increased 73.1% to $12.3 million for
fiscal 1996 from $7.1 million in fiscal 1995. Overall gross profit as a
percentage of net sales("gross profit percentage") increased to 38.3% in fiscal
1996 from 30.5% in fiscal 1995. The increase in gross profit percentage was
primarily attributable to increased sales volume at Noodle Kidoodle stores,
which generated higher margins than the Playworld stores and an increase
in gross profit percentage in the remaining other retail stores. Gross profit
percentage at Noodle Kidoodle increased to 37.9% in fiscal 1996 from 37.2%
in the prior year,primarily as a result of the fact that buying costs(including
the salaries and related expenses of the Company's buyers) and certain
warehousing costs contain some fixed elements and therefore did not rise
commensurately with increased sales levels. The improvement in buying and
warehousing costs was partially offset by an increase in the cost of
merchandise. Gross profit percentage in the other retail stores increased to
40.7% in fiscal 1996 from 28.0% in the prior year primarily due to a greater
sales contribution by higher margin Toy Park stores and a higher mix of
lower margin merchandise in fiscal 1995.
Selling and administrative expenses excluding the provision for
restructuring, increased 63.9% to $17.7 million in fiscal 1996 from $10.8
million in the prior year, primarily as a result of changes in the store base.
Selling and administrative expenses at Noodle Kidoodle increased to $13.7
million in fiscal 1996 from$3.2 million in the prior year,primarily as a result
of higher direct store expenses, which increased by $6.8 million, higher
advertising expenses, which increased by $2.2 million, and higher home office
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expenses. This increase was offset by a decrease in selling and
administrative expenses at the other retail stores to $1.7 million in fiscal
1996 from $5.3 million in the prior year, principally attributable to a
decrease in direct store expenses as a result of the closing of six Playworld
stores. Selling and administrative expenses as a percentage of net sales
increased to 55.0% in fiscal 1996 from 46.3% in the prior year. The primary
factors in the increase were the higher operating costs of the Noodle Kidoodle
stores and increased home office expenses resulting from the Company's
rapid expansion program. As more stores open and sales increase these
expenses are expected to decrease significantly as a percentage of net sales.
Provision for restructured operations related to the closing of certain other
retail stores was $0.5 million in fiscal 1996, compared to $3.9 million in the
prior year. This included losses from store operations from the date of
announcement until closing, employee severance costs, estimated lease
liabilities, losses on liquidation of inventories and disposition of assets and
other related restructuring costs.
Operating loss decreased 22.6% to $5.9 million in fiscal 1996 from $7.6
million in the prior year. Excluding restructuring charges, the loss from
operations would have been $5.4 million for the period ended February 3,
1996 compared to $3.7 million in the prior year.
Net loss from continuing operations increased 17.4% to $5.3 million ($.99 per
share) in fiscal 1996 from $4.5 million ($.86 per share) in the prior year.
Excluding restructuring charges, the net loss would have been $4.8 million
($.90 per share)in fiscal 1996 compared to $2.2 million ($.41 per share) in the
prior year. The net loss in fiscal 1996 included no tax benefit while the prior
fiscal year included a tax benefit of $2.8 million. At February 3, 1996, the
Company had approximately $15.0 million of net operating loss
carryforwards. The additional week in the fiscal 1996 year had no material
impact on the net loss from continuing operations.
Discontinued Operations
Net sales decreased 54.1% to $51.9 million in fiscal 1996 from $113.2 million
in the prior year. This decrease resulted primarily from discontinuance of
the wholesale business, effective August 30, 1995.
Operating loss before provision for discontinued operations was $1.9 million
in fiscal 1996 compared to operating income of $1.8 million for the
comparable period in the prior year.
Provision for discontinued operations represents a loss of $7.1 million related
to the disposal of the wholesale business, including the estimated losses
through the disposal period and the anticipated sale of two of the Company's
distribution centers, net of income tax expense of $1.6 million.
Net loss from discontinued operations was $9.1 million ($1.70 per share) in
fiscal 1996 including the $7.1 million ($1.34 per share) provision for
discontinued operations, as compared to net income of $1.1 million ($.21 per
share) for the prior year.
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Fiscal Year Ended January 28, 1995
Compared to Fiscal Year Ended January 29, 1994
Continuing Operations
Net sales increased 12.5% to $23.3 million in fiscal 1995 from $20.7 million
for the fiscal year ended January 29, 1994 ("fiscal 1994"). Noodle Kidoodle
sales increased $5.2 million to$6.4 million in fiscal 1995 from $1.2 million in
fiscal 1994,while other retail sales decreased 13.6% to $16.9 million in fiscal
1995 from $19.5 million in fiscal 1994. The increase in Noodle Kidoodle sales
resulted primarily from the addition of three new stores during fiscal 1995,
while the decrease in other retail sales resulted from the closing of six
Playworld stores including the remaining leased department operation. At
the end of fiscal 1995, the Company operated four Noodle Kidoodle stores,
two Playworld stores and two Toy Park stores, compared to one Noodle
Kidoodle store, eight Playworld stores and two Toy Park stores at the end of
fiscal 1994.
Gross profit increased 15.8% to $7.1 million in fiscal 1995 from $6.1 million
in fiscal 1994. Overall gross profit percentage increased to 30.5% in fiscal
1995 from 29.7% in fiscal 1994. The increase in gross profit percentage was
primarily attributable to increased sales volume at Noodle Kidoodle stores,
which generated higher margins than the Playworld stores. Gross profit
percentage at Noodle Kidoodle decreased to 37.2% in fiscal 1995 from 40.1%
in fiscal 1994 primarily attributable to a new store which opened during the
high volume holiday season of fiscal 1994 as well as the corresponding
absence of shrinkage and markdowns in such period relative to fiscal 1995.
Gross profit percentage in the other retail stores decreased to 28.0% in fiscal
1995 from 29.0% in fiscal 1994 principally due to a higher mix of lower
margin merchandise.
Selling and administrative expenses, excluding the provision for
restructuring, increased 28.4% to $10.8 million in fiscal 1995 from $8.4
million in fiscal 1994. Selling and administrative expenses at Noodle
Kidoodle increased to $3.2 million in fiscal 1995 from $0.7 million in fiscal
1994 as a result of higher store payroll, occupancy and advertising costs for
the new stores as well as higher home office payroll costs as a result of the
increased number of stores. Selling and administrative expenses at the other
retail stores decreased to$5.3 million in fiscal1995 from$5.9 million in fiscal
1994, primarily as a result of decreased payroll costs associated with the
reduced level of operations. Corporate selling and administrative expenses
increased to$2.3 million in fiscal 1995 from $1.8 million in fiscal 1994 due to
one-time insurance and property tax settlements which resulted in gains of
$0.4 million during fiscal 1994. As a percentage of net sales, selling and
administrative expenses increased to 46.3% in fiscal 1995 from 40.6% in
fiscal 1994. The increase was primarily attributable to the increase in
Noodle Kidoodle expenses in relation to total expenses, since Noodle Kidoodle
operates with a higher cost structure as compared to Playworld and Toy Park
stores. Noodle Kidoodle selling and administrative expenses as a percentage
of net sales decreased to 50.5% in fiscal 1995 from 58.6% in fiscal 1994, as a
result of the leveraging of advertising expenses over a larger store base as
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well as certain non-recurring pre-opening expenses incurred in fiscal 1994
relating to the first Noodle Kidoodle store. This decrease was partially offset
by higher home office expenses relating to new stores opened in fiscal 1995.
Provision for restructured operations was$3.9 million in fiscal 1995 related to
closings of six Playworld stores. This included losses from store operations
from the date of announcement until closing, employee severance costs,
estimated lease liabilities,losses on liquidation ofinventories and disposition
of assets and other related restructuring costs.
Operating loss increased $5.3 million to $7.6 million in fiscal 1995 from $2.3
million in fiscal 1994. Excluding restructuring charges, the operating loss
would have been $3.7 million in fiscal 1995.
Net loss from continuing operations increased $3.3 million to $4.5 million
($.86 per share) in fiscal 1995 from $1.2 million ($.22 per share) in fiscal
1994. The increase includes a pre-tax provision for restructured operations of
$3.9 million ($.45 per share). Excluding this provision, net loss would have
been $2.2 million ($.41 per share).
Discontinued Operations
Net sales decreased 7.3% to $113.2 million in fiscal 1995 from $122.1 million
in fiscal 1994. The decrease resulted primarily from decreased revenues in
all merchandise categories associated with more direct buying from
manufacturers by the Company's existing customer base.
Operating income decreased 43.8% to $1.8 million in fiscal 1995 compared to
$3.2 million in fiscal 1994 primarily resulting from the decrease in net sales
which was not offset by a corresponding decrease in selling and
administrative expenses.
Net income from discontinued operations decreased 42.0% to $1.1 million
($.21 per share) in fiscal 1995 compared to $1.9 million ($.35 per share) in
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years the Company satisfied the cash
requirements for its continuing retail operations principally through cash
flows from discontinued wholesale operations and internal cash balances.
These cash requirements principally include operating losses, working capital
requirements and expenditures for new store openings.
The table below summarizes the Company's cash flow from operating,
investing and financing activities derived from the Consolidated Statements
of Cash Flows of the Company.
-14-
<PAGE>
<TABLE>
Fiscal Years Ended
February 3. January 28, January 29
1996 1995 1994
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Net cash provided by (used in)
Operating activities:
Continuing operations $ (7,281) $ (1,466) $ 8
Discontinued operations 12,128 9,066 (3,048)
Investing activities (8,960) (2,472) 187
Financing activities 477 16 (1,918)
Net increase (decrease) in cash
and cash equivalents (3,636) 5,144 (4,771)
Cash and cash equivalents -
beginning of period 10,908 5,764 10,535
Cash and cash equivalents -
end of period $ 7,272 $10,908 $ 5,764
</TABLE>
During fiscal 1996, the Company generated $12.1 million of cash from
discontinued operations, primarily attributable to reductions in inventory
and other working capital of $20.4 million offset by a net loss of $9.1 million
which included a $7.1 million provision for the discontinuation of the
wholesale operations. This cash was used primarily to fund $7.3 million of
cash requirements for continuing retail operations, attributable to increases
in working capital needs of $3.5 million due to new store openings and
increased inventory levels as well as a net loss of $5.3 million. Inventory
increased from $4.3 million at January 28, 1995 to $10.3 million at February
3, 1996 primarily as a result of new store openings. The Company also used
cash to fund investing activities of $9.0 million,primarily for the purchase of
fixed assets for new stores. As a result of the foregoing, cash and cash
equivalents decreased during the period by $3.6 million.
During fiscal 1995, the Company received $9.1 million of cash from
discontinued operations, primarily attributable to reductions in working
capital of $7.2 million and net income of $1.1 million. This cash was used
primarily to fund $1.5 million of cash requirements for continuing retail
operations, attributable to a net loss of $4.5 million offset by decreased
working capital needs of $1.7 million. Inventory decreased from $6.3 million
at January 29, 1994 to $4.3 million at January 28, 1995 as a result of the
closing of six Playworld stores. The Company also used cash and $1.0 million
of proceeds received from the sale of marketable securities to fund $4.0
million of property additions, primarily for the purchase of fixed assets for
new stores. As a result of the foregoing, cash and cash equivalents increased
during the year by $5.1 million.
During fiscal 1994, the Company did not generate or use any cash from
continuing operations since a net loss of $1.2 million was offset by decreased
working capital needs of $0.9 million and depreciation. The Company used
$3.0 million of cash from discontinued operations primarily attributable to
increases in working capital of $5.8 million, offset by net income of $1.9
million. The Company applied net proceeds of $2.0 million from the sale of
-15-
<PAGE>
marketable securities to fund property additions of $2.0 million, primarily for
the purchase of fixed assets for new stores. The Company also repurchased
outstanding shares of Common Stock for $1.9 million. As a result of the
foregoing, cash and cash equivalents decreased during the fiscal year by $4.8
million.
During the past several fiscal years, the Company did not require any cash
borrowings under its $10.0 million revolving credit line, which expired in
June 1995. In February 1996 the Company obtained a line of credit from a
bank which is unsecured, provides for maximum borrowings of $10.0 million
in short-term loans and letters of credit, and expires on April 30, 1997. In
February 1996, the Company completed a secondary stock offering of 2.2
million shares of common stock which resulted in net proceeds to the
Company of approximately $16.0 million.
As the Company expands its Noodle Kidoodle retail operations, it will
continue to require cash. The Company expects to fund its near-term cash
requirements principally from the net proceeds from the offering, as well as
from the further sale of discontinued wholesale assets. The Company expects
to finance its long-term expansion plan principally with externally generated
funds, which may include borrowings under future bank facilities, and
through the sale of equity, equity-related or debt securities. There can be no
assurance that financing will be available in amounts, or at rates or on terms
and conditions acceptable to the Company.
The Company anticipates that capital expenditures in fiscal 1997 will be
approximately $9.0 million, primarily to finance new stores as well as to
improve its MIS software capabilities.
The Company has available net operating loss carryforwards of
approximately $15.0 million for income tax purposes.
Seasonality
The Company's operations are highly seasonal with approximately 42% of a
typical store's revenue falling within the Company's fourth quarter which
coincides with the Christmas selling season. Because of the aggressive store
opening schedule, new stores are expected to be opening throughout the year
which will make the Company's fourth quarter revenues an even greater
percentage of the total year's revenues. Operations during the first three
quarters are not expected to be profitable for the foreseeable future.
Impact of Inflation
The impact of inflation on the Company's results of operations has not been
significant. The Company attempts to pass on increased costs by increasing
product prices over time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Reference is made to Item 14.
-16-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
Information with respect to directors and executive officers of the Company is
incorporated herein by reference to the information set forth under the
captions "Election of Directors", "Executive Officers", and "Compliance with
Section 16(a) of the Exchange Act" in the Company's Proxy Statement for its
1996 Annual Meeting of Stockholders (the "1996 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is incorporated herein by
reference to the information set forth under the captions, "Committees,
Meetings, and Director Compensation" and "Executive Compensation",
excluding the information under the captions "Executive Compensation -
Compensation and Stock Option Committee Report on Executive
Compensation" and "Executive Compensation - Performance Graph", in the
Company's 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
Information with respect to security ownership is incorporated herein by
reference to the information set forth under the caption "Security Ownership"
in the Company's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
Information with respect to certain relationships and related transactions is
incorporated herein by reference to the information, if any, set forth under
the caption "Certain Relationships and Related Transactions" in the
Company's 1996 Proxy Statement.
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
Page
Independent auditors' report 23
Consolidated balance sheets at February 3, 1996 and
January 28, 1995 24
Consolidated statements of operations for the years
ended February 3, 1996, January 28, 1995 and
January 29, 1994 25
Consolidated statements of stockholders' equity for
the years ended February 3, 1996, January 28, 1995
and January 29, 1994 26
Consolidated statements of cash flows for the years
ended February 3, 1996, January 28, 1995 and
January 29, 1994 27
Notes to consolidated financial statements 29
2. Schedules
VIII. Valuation and qualifying accounts 39
All other schedules have been omitted because they are not applicable or the
required information is shown in the financial statements or the notes
thereto.
The individual financial statements and schedules of Registrant have been
omitted since consolidated financial statements have been filed and
Registrant is primarily an operating company and all subsidiaries included
in the consolidated financial statements filed are wholly-owned subsidiaries.
Shareholders may obtain a copy of any exhibit not contained herein by
writing to William A. Johnson, Jr., Vice President, Chief Financial Officer
and Secretary, Noodle Kidoodle, Inc. , 105 Price Parkway, Farmingdale, New
York 11735.
-18-
<PAGE>
3. Index to Exhibits
(a) The following documents are filed as Exhibits to this
document:
Exhibit
Number Description of Document
3.1 Certificate of Incorporation of the Registrant
currently in effect, with all amendments thereto
(Incorporated by reference to Registrant's Form
S-1 Registration Statement (Commission File
No. 33-65029), effective February 13, 1996 and
the exhibits filed therewith)
3.2 (New York) Certificate of Merger of Noodle
Kidoodle, Inc., a New York corporation,
into Noodle Kidoodle, Inc., a Delaware
corporation (Incorporated by reference to
Registrant's Form S-1 Registration Statement
(Commission File No. 33-65029), effective
February 13, 1996 and the exhibits filed
therewith)
3.3 Agreement and Plan of Merger of Noodle
Kidoodle, Inc., a New York corporation, and
Noodle Kidoodle, Inc., a Delaware corporation
(Incorporated by reference to Registrant's Form
S-1 Registration Statement (Commission File
No. 33-65029), effective February 13, 1996 and
the exhibits filed therewith)
3.4 By-laws of Registrant (Incorporated by
reference to Registrant's Form S-1 Registration
Statement (Commission File No. 33-65029),
effective February 13, 1996 and the exhibits
filed therewith)
3.5 (Delaware) Certificate of Ownership and
Merger of Noodle Kidoodle, Inc. a New York
corporation and Noodle Kidoodle, Inc.
a Delaware corporation (Incorporated by
reference to Registrant's Form S-1 Registration
Statement (Commission File No. 33-65029),
effective February 13, 1996 and the exhibits
filed therewith)
4.1 Rights Agreement, dated as of May 6, 1988,
between Registrant and Manufacturers
Hanover Trust Company, as Rights Agent
(Incorporated by reference to Registrant's
Report on Form 8-K dated May 6, 1988
-19-
<PAGE>
and the exhibits filed therewith)
4.2 First Amendment to Rights Agreement dated
as of November 22, 1991 (Incorporated by
reference to Registrant's Report on Form 8-K,
dated November 22, 1991, and the exhibits filed
therewith)
10.1 Stock Incentive Plan and Outside Directors
Stock Option Plan, dated April 26, 1994
(Incorporated by reference to Registrant's
Form S-8 Registration Statement (Commission
File No. 33-82104), effective July 26, 1994 and
the exhibits filed therewith)
10.2 Employment Agreement by and between
Registrant and Stanley Greenman dated
as of February 1, 1995 (Incorporated by
reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended
January 28, 1995)
10.3 Employment Agreement by and between
Registrant and Stewart Katz dated as of
February 1, 1995 (Incorporated by reference
to Registrant's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995)
10.4 Non-Contributory Insured Medical
Reimbursement Plan (Incorporated by
reference to Exhibit 10.05 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended January 28, 1993)
10.5 Agreement and Plan of Merger dated
February 1, 1994 by and between Registrant
and certain wholly-owned subsidiaries of the
Registrant (Incorporated by reference to
Exhibit 10.08 to Registrant's Annual Report on
Form 10-K for fiscal year ended
January 29, 1994)
10.6 Amendment to Outside Directors Stock Option
Plan, dated December 13, 1995 (Incorporated
by reference to Registrant's Form S-1
Registration Statement (Commission File
No. 33-65029), effective February 13, 1996
and the exhibits filed therewith)
11.1 Computation of Earnings Per Share
(filed herewith, page 40)
-20-
<PAGE>
21.1 Subsidiaries of Registrant (filed herewith, page 41)
(b) The following documents are filed as Schedules to this Registration
Statement:
Schedule
Number Description of Document
VIII Valuation and Qualifying Accounts For the Fiscal Years
Ended February 3, 1996, January 28, 1995 and January
29, 1994
(b) Reports on Form 8-K
On January 22, 1996, a Current Report on Form 8-K was filed by the
Registrant reporting, under "Item 5 Other Events", the reincorporation
of the Registrant in Delaware.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934,the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NOODLE KIDOODLE, INC.
(Registrant)
April 24, 1996 BY: Stanley Greenman
Stanley Greenman,
Chairman of the Board,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Stanley Greenman Robin Farkas
Stanley Greenman, Robin Farkas, Director
Chairman of the Board,
Chief Executive Officer,
and Treasurer
(Principal Executive Officer)
Stewart Katz Lester Greenman
Stewart Katz, President, Lester Greenman, Director
Chief Operating Officer,
Assistant Secretary and Director
William A. Johnson, Jr. Joseph Madenberg
William A. Johnson, Jr., Joseph Madenberg, Director
Vice President,
Chief Financial Officer and Secretary
(Principal Financial and
Accounting Officer) Barry W. Ridings
Barry W. Ridings, Director
Robert Stokvis
Robert Stokvis, Director
Irwin Tantleff
Irwin Tantleff, Director
-22-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Noodle Kidoodle, Inc.:
We have audited the accompanying consolidated balance sheets of Noodle
Kidoodle, Inc. and Subsidiaries as of February 3, 1996 and January 28, 1995
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended February 3,
1996. Our audits also include the financial statement schedule listed in the
index at Item 14 (a) 2. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Noodle Kidoodle,
Inc. and Subsidiaries as of February 3, 1996 and January 28, 1995 and the
results of their operations and cash flows for each of the years in the three
year period ended February 3, 1996 in conformity with generally accepted
accounting principles. Further, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
New York, New York Janover Rubinroit, LLC
March 25, 1996
-23-
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 3, 1996 and January 28, 1995
1996 1995
(In thousands except share data)
<CAPTION>
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,272 $ 10,908
Merchandise inventories 10,328 4,330
Prepaid expenses and other current assets 3,043 1,551
Recoverable income taxes - 1,429
Net assets of discontinued operations 3,584 24,621
Total current assets 24,227 42,839
Property, plant and equipment at cost 16,535 7,752
Less accumulated depreciation 3,541 2,589
12,994 5,163
Other Assets 55 40
Total Assets $ 37,276 $ 48,042
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 5,283 $ 2,262
Accrued expenses and taxes 4,913 4,777
Income taxes - 133
Total current liabilities 10,196 7,172
Commitments and contingencies - -
Stockholders' equity:
Preferred stock-authorized 1,000,000 and 500,000 shares,
par value $.001 and $1.00, respectively (none issued) - -
Common stock-authorized 15,000,000 and 10,000,000 shares
par value $.001 and $.10; issued 6,300,401 shares and
6,185,301 shares, respectively 6 619
Capital in excess of par value 26,955 25,801
Retained earnings 3,911 18,242
30,872 44,662
Less treasury stock, at cost, 924,261 shares 3,792 3,792
Total stockholders' equity 27,080 40,870
Total Liabilities and Stockholders' Equity $ 37,276 $ 48,042
The accompanying notes are an integral part of the financial statements.
</TABLE>
-24-
<PAGE>
<TABLE>
NOODLE KIDOOLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended
February 3, 1996, January 28, 1995 and January 29, 1994
February 3, January 28, January 29,
1996 1995 1994
(In thousands except per share data)
<CAPTION>
<S> <C> <C> <C>
Net sales $ 32,143 $ 23,308 $ 20,712
Costs and expenses:
Cost of products sold including
buying and warehousing costs 19,825 16,192 14,569
Selling and administrative expenses 17,680 10,790 8,401
Provision for restructured operations 500 3,900 -
38,005 30,882 22,970
Operating loss (5,862) (7,574) (2,258)
Interest income 633 372 392
Interest expense (43) (75) (115)
Loss from continuing operations
before income taxes (5,272) (7,277) (1,981)
Income taxes (benefit) - (2,787) (801)
Net loss from continuing operations (5,272) (4,490) (1,180)
Discontinued operations:
Income (loss) net of income tax
expense of $0, $685, and $1,282, respectively (1,914) 1,096 1,889
Operating loss of $7,305 including gain from
disposal of assets and income taxes
of $1,602 (7,145) - -
Net income (loss) from discontinued operations (9,059) 1,096 1,889
Net income (loss) $(14,331) $ (3,394) $ 709
Net income (loss) per share:
Continuing operations $ (.99) $ (.86) $ (.22)
Discontinued operations (1.70) .21 .35
Net income (loss) per share $ (2.69) $ (.65) $ .13
Weighted average shares outstanding 5,320,137 5,220,222 5,338,012
The accompanying notes are an integral part of the financial statements.
</TABLE>
-25-
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended
February 3, 1996, January 28, 1995 and January 29, 1994
(In thousands)
Capital in Treasury Stock
Common Stock Excess of Retained (at cost)
Shares Amount Par Value Earnings Shares Amount
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balance - January 30, 1993 6,117 $ 612 $25,594 $20,927 511 $ 1,920
Exercise of stock options
including related tax benefits 2 - 14 - - -
Purchase of treasury stock - - - - 413 1,872
Net income for the year - - - 709 - -
Balance - January 29, 1994 6,119 612 25,608 21,636 924 3,792
Exercise of stock options
including related tax benefits 169 17 193 - - -
Tender of shares as payment
for options exercised (103) (10) - - - -
Net loss for the year - - - (3,394) - -
Balance - January 28, 1995 6,185 619 25,801 18,242 924 3,792
Exercise of stock options 115 12 529 - - -
Change in par value of
common stock - (625) 625 - - -
Net loss for the year - - - (14,331) - -
Balance - February 3, 1996 6,300 $ 6 $26,955 $ 3,911 924 $ 3,792
The accompanying notes are an integral part of the financial statements.
</TABLE>
-26-
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended
February 3, 1996, January 28, 1995 and January 29, 1994
(In thousands)
February 3, January 28, January 29,
1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ (5,272) $ (4,490) $ (1,180)
Adjustments to reconcile to net cash
provided (used):
Depreciation 1,028 499 297
Restructuring charges - non-cash portion 500 834 -
Decrease (increase) in non-cash
working capital accounts:
Merchandise inventories (5,998) 1,989 (226)
Prepaid expenses and other current assets (63) (1,905) 636
Trade accounts payable 3,021 (125) (196)
Accrued expenses and taxes (497) 1,732 677
Net cash provided by (used in)
continuing operations (7,281) (1,466) 8
Net income (loss) from discontinued operation (9,059) 1,096 1,889
Adjustments to reconcile to net cash
provided (used):
Depreciation and other non-cash changes 760 775 899
Decrease (increase) in non-cash
working capital accounts and other 20,427 7,195 (5,836)
Net cash provided by (used in)
discontinued operations 12,128 9,066 (3,048)
Net cash provided by (used in)
operating activities 4,847 7,600 (3,040)
Cash flows from investing activities:
Proceeds from sale of securities - 1,000 2,987
Purchase of securities - - (1,000)
Property additions:
Continuing operations (8,877) (2,751) (935)
Discontinued operations (86) (1,213) (1,071)
Other 3 492 206
Net cash provided by (used in)
investing activities (8,960) (2,472) 187
The accompanying notes are an integral part of the financial statements.
</TABLE>
-27-
<PAGE>
<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
February 3, January 28, January 29,
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Cash flows from financing activities:
Payment of obligations under capital leases (64) (64) (60)
Purchase of treasury stock - - (1,872)
Exercise of employee options 541 80 14
Net cash provided by (used in)
financing activities 477 16 (1,918)
Net increase (decrease) in cash and
cash equivalents (3,636) 5,144 (4,771)
Cash and cash equivalents - beginning of period 10,908 5,764 10,535
Cash and cash equivalents - end of period $ 7,272 $10,908 $ 5,764
Supplemental cash flow information:
Net cash paid (received) during the year for:
Interest expense $ 43 $ 75 $ 115
Income taxes, net (1,512) 328 1,068
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The following summary of the Company's major accounting policies is
presented to assist in the interpretation of the financial statements.
Principles of consolidation
The consolidated financial statements include the accounts of the parent
company and all subsidiary companies. All significant intercompany
balances and transactions are eliminated in consolidation. The Company and
its subsidiaries are on a 52-53 week accounting period ending on the
Saturday closest to January 31. Fiscal 1994 and 1995 each contained 52
weeks and fiscal 1996 contained 53 weeks.
Cash equivalents and short-term investments
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. The Company places its
temporary cash investments in high grade instruments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution.
Inventories
Inventories of continuing operations are stated at the lower of cost (first-in,
first-out) or market.
Earnings per share
The computation of earnings per share is based on the weighted average
number of outstanding common shares. The inclusion of common stock
equivalents had no significant dilutive effect or were antidilutive and
therefore, were not utilized in the computations of net income (loss) per
share.
Property, plant and equipment
Plant and equipment is stated at cost and is depreciated on a straight-line
basis over estimated useful lives. Repairs and maintenance are charged to
expense as incurred; renewals and betterments, which significantly extend
the useful lives of existing plant and equipment, are capitalized.
Leasehold improvements are amortized over the terms of the respective
leases or over their useful lives, whichever is shorter. Useful lives of other
plant and equipment varies among the classifications, but range for buildings
and improvements from 10-40 years and for fixtures and equipment from 4-
10 years.
Pre-opening expenses
Costs incurred in the opening of new stores are amortized over the first
twelve months of operations.
-29-
<PAGE>
Income taxes
In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109. Deferred taxes provided under SFAS No. 109
result principally from temporary differences in depreciation, capitalized
inventory costs, restructuring charges, and allowance for doubtful accounts.
Upon implementation of SFAS No. 109, there was no material impact on the
Company's results of operations or financial position. The Company
previously accounted for income taxes based upon SFAS No. 96.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those
estimates.
New accounting standard
SFAS No. 123, "Accounting for Stock Based Compensation" must be adopted
in fiscal 1997. This standard encourages, but does not require, recognition of
compensation expense for all stock-based awards granted to employees. The
Company does not plan to record compensation, but expects to implement the
disclosure only provisions, as permitted by SFAS No. 123.
Reclassifications
Certain reclassifications of prior periods' data have been made to conform to
current period classifications.
NOTE 2 - DISCONTINUED OPERATIONS:
On August 30, 1995, the Company adopted a formal plan to discontinue its
wholesale business segment. The plan provides for the sale of two of the
Company's distribution centers and the disposition through sale or
liquidation of substantially all of the operating assets of such segment.
The operations and net assets of the wholesale business segment are being
accounted for as a discontinued operation, and accordingly, its operating
results and net assets are reported in this manner in all periods presented in
the accompanying consolidated financial statements.
In connection with discontinuing its wholesale operations, the Company
recorded a provision of $7.1 million in the fiscal quarter ended July 29, 1995
for (i)estimated gains or losses on the sale or liquidation of wholesale assets
and (ii) estimated operating losses until such disposal or liquidation is
completed.
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<PAGE>
Summary operating results from discontinued operations are as follows:
<TABLE>
Fiscal Years Ended
February 3, January 28, January 29,
1996 1995 1994
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Net sales $ 51,931 $113,194 $122,138
Gross profit 9,726 24,604 26,711
Operating income (loss) (1,914) 1,781 3,171
Provision for discontinued operations 7,145 - -
Net income (loss) (9,059) 1,096 1,889
</TABLE>
Net assets of discontinued operations represent total assets less liabilities
of the Company's wholesale business segment. Net assets of this segment at
February 3, 1996 consisted principally of accounts receivable and properties
of $5,131,000 less accounts payable, accrued expenses and capitalized lease
obligations of $1,547,000.
NOTE 3 - PROPERTY PLANT AND EQUIPMENT:
<TABLE>
Fiscal Years Ended
February 3, January 28,
1996 1995
(In thousands)
<CAPTION>
<S> <C> <C>
Land $ 272 $ 272
Buildings and improvements 1,658 1,506
Fixtures and equipment 6,931 2,797
Leasehold improvements 7,674 3,177
16,535 7,752
Less accumulated depreciation (3,541) (2,589)
$ 12,994 $ 5,163
</TABLE>
NOTE 4 - ACCRUED EXPENSES AND TAXES:
<TABLE>
Fiscal Years Ended
February 3, January 28,
1996 1995
(In thousands)
<CAPTION>
<S> <C> <C>
Payroll and related benefits $ 468 $ 406
Rent and occupancy 512 324
Insurance 276 289
Restructuring charges 1,929 2,476
Fixtures and equipment 297 144
Other 1,431 1,138
$ 4,913 $ 4,777
</TABLE>
-31-
<PAGE>
NOTE 5 - CREDIT FACILITY:
On February 13, 1996, the date of the Common Stock offering (see Note 14
Subsequent Events), a bank approved a $10 million unsecured line of credit,
which expires on April 30, 1997, to be used to meet the Company's normal
short term working capital needs. Interest on borrowings will be at either the
bank's prime rate or at a Eurodollar rate.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Minimum annual commitments under non-cancelable leases in effect at
February 3, 1996 are as follows:
<TABLE>
Sublease
Operating Rental
Leases Income
(In thousands)
<CAPTION>
<S> <C> <C>
1997 $ 6,538 $ 413
1998 6,285 -
1999 6,268 -
2000 6,244 -
2001 6,313 -
Thereafter 30,871 -
Total minimum obligations $ 62,519 $ 413
</TABLE>
At February 3, 1996, the Company and its subsidiaries were lessees of stores,
vehicles and warehouse equipment under various leases. In addition to fixed
rents and rentals based on sales, certain of the leases require the payment of
taxes and other costs. Some leases include renewal options.
Rental expense (income) for operating leases was as follows:
<TABLE>
Fiscal Years Ended
February 3, January 28, January 29,
1996 1995 1994
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Minimum rentals $ 3,089 $ 1,850 $ 1,647
Taxes and other costs 1,335 1,027 635
Sublease rentals (916) (953) (837)
$ 3,508 $ 1,924 $ 1,445
</TABLE>
Litigation
Several lawsuits are pending against the Company. In the opinion of
management, the Company has meritorious defenses or is covered by
-32-
<PAGE>
insurance and the Company's liability, if any, when ultimately determined
will not be significant.
Employment and consulting agreements
The Company has employment and consulting agreements with certain
directors, officers, and employees. Certain agreements provide for minimum
salary levels as well as for incentive bonuses which are payable if specified
management goals are attained.
NOTE 7 - CAPITAL STOCK:
Capital stock
At special meetings held in December 1995 and in January 1996, the
Company's stockholders voted to change the name of the Company from
Greenman Bros. Inc. to Noodle Kidoodle, Inc. The stockholders also voted to
increase the number of authorized shares of common stock to 15,000,000
shares from 10,000,000 shares and the number of authorized shares of
preferred stock from 500,000 to 1,000,000 and to decrease the par value of
both classes of capital stock to $0.001.In addition, the stockholders voted to
increase the number of stock options automatically awarded annually to
outside directors to 4,000 from 1,000 and the number of shares authorized for
issuance under the Company's 1994 Stock Option Plan for outside directors
to a total of 125,000 shares from 75,000 shares. Stockholders also approved
the reincorporation of the Company in Delaware.
Preferred stock
The Company has 1,000,000 authorized (non-issued) shares of preferred
stock, par value $0.001, consisting of 440,000 shares of Series A Junior
Participating Preferred reserved for use under the Stockholders' Rights Plan
and the remainder for other unspecified purposes.
Stockholders' rights plan
Each outstanding share of the Company's common stock carries a stock
purchase right. Under certain circumstances, as defined in a rights
agreement, each right may be exercised to purchase 1/100 of a share of Series
A Junior Participating Preferred Stock for $25.00, subject to certain anti-
dilution adjustments. The rights are redeemable by the Company or, under
certain circumstances, by a third party to whom the Company assigns its
rights at $.01 each until a person or group acquires fifteen percent of the
Company's common stock or until they expire on May 15, 1998.
Treasury stock
On February 4, 1993, the Company's Board of Directors authorized the
repurchase from time to time of up to 500,000 shares of its common stock.
The Company purchased 413,600 shares of common stock (which the
Company plans to retire in the near future) at an average price of $4.52 per
share under this authorization. In April 1995, the Board terminated its stock
repurchase program.
-33-
<PAGE>
NOTE 8 - STOCK OPTIONS:
Stock incentive plan
In 1994, the Company's stockholders adopted a Stock Incentive Plan (the
"Plan") for key employees and consultants. The Plan reserves 500,000 shares
of common stock for the issuance of stock options, stock appreciation rights
(SAR's), dividend equivalent rights, restricted stock, unrestricted stock and
performance shares and is administered by the Compensation and Stock
Option Committee (the "Committee") of the Board of Directors of the
Company.
Under the terms of the Plan, options granted may be either non-qualified or
incentive stock options and the exercise price, determined by the Committee,
shall be at least 75%(100% in the case of an incentive stock option)of the fair
market value of a share on the date of grant. SAR's may be granted (subject
to specified restrictions) in connection with all or any part of, or
independently of, any option granted under the Plan. No SAR's, dividend
equivalent rights, restricted stock, unrestricted stock or performance shares
have been granted to date under the Plan. Options granted under the Plan
are exercisable in installments; however, no options are exercisable within
one year or later than ten years from the date of grant.
Since the exercise price of all stock options awarded has been equal to the
quoted market price at date of grant, no compensation expense has been
recorded for these awards.
Stock option plan for outside directors
The Company's Outside Directors Stock Option Plan reserves 125,000 shares
of common stock for the issuance of stock options related to this plan. The
Stock Option Plan for Outside Directors provides that upon the initial
election to the Board, each eligible director is granted an option to purchase
5,000 shares of common stock and 4,000 shares each year thereafter at the
fair market value on the date of grant. The options have a term of five years
and become exercisable 50% on the first anniversary of the date of grant and
50% on the second anniversary of the date of grant.
1984 stock option plan
The Company's 1984 Stock Option Plan expired in April 1994, and the
remaining options available, but not granted, under the plan were canceled.
-34-
<PAGE>
The following summary sets forth the activity under the Company's stock
incentive plans:
<TABLE>
Fiscal Years Ended
February 3, 1996 January 28, 1995
Shares Price Range Shares Price Range
<CAPTION>
<S> <C> <C> <C> <C>
Outstanding at beginning of period 501,459 $3.50-$ 6.50 582,878 $3.50-$6.25
Granted 213,500 $4.56-$ 13.13 96,750 $5.50-$6.50
Exercised (115,100) $4.00-$ 6.50 (168,544) $4.00-$4.50
Terminated (19,500) $4.13-$ 6.50 (9,625) $4.00-$6.25
Outstanding at end of period 580,359 $3.50-$ 13.13 501,459 $3.50-$6.50
Exercisable at end of period 298,078 $3.50-$ 6.50 384,209 $3.50-$6.50
Available for grant at end of period 279,250 484,250
</TABLE>
-35-
<PAGE>
NOTE 9 - TAXES ON INCOME:
Income taxes (benefit) consist of the following:
<TABLE>
Fiscal Years Ended
February 3, January 28, January 29,
1996 1995 1994
(In thousands)
<CAPTION>
<S> <C> <C> <C>
Current:
Federal $ - $ (1,429) $ 180
State and local - - 184
- (1,429) 364
Deferred 1,602 (673) 117
1,602 (2,102) 481
Discontinued operations 1,602 685 1,282
Continuing operations $ - $ (2,787) $ (801)
</TABLE>
A reconciliation of the statutory federal income tax rate attributable to
income (loss) from continuing operations to the effective income tax rate is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Federal at statutory rates (34)% (34)% 34%
State and local taxes
net of federal tax benefits (4) (4) 6
Losses with no current tax benefit 38 - -
- % (38)% 40%
</TABLE>
The components of deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Net operating loss carryforwards
(expire 2011) $ 5,742 $ -
Capitalizable inventory costs 160 411
Allowance for doubtful accounts 485 393
Restructured operations and other 459 1,011
Gross deferred tax assets 6,846 1,815
Depreciation (126) (213)
Gross deferred tax liabilities (126) (213)
Net deferred tax assets 6,720 1,602
Valuation allowance 6,720 -
Net tax assets included in
net assets from discontinued
operations $ - $ 1,602
</TABLE>
-36-
<PAGE>
Deferred income taxes result from temporary differences in the recognition of
revenue and expense for tax and financial statement purposes. Principal
items resulting in deferred income tax liabilities or assets are differences in
depreciation, inventory valuations, restructuring charges and allowance for
doubtful accounts.
As a result of the Company's decision to discontinue the wholesale business
segment, the Company has incurred losses for which no current tax benefits
are available. Management's decision resulted in a reevaluation of its ability
to fully recognize its 1995 deferred tax assets. The provision for income taxes
for the year ended February 3, 1996 results primarily from a reduction in net
deferred tax assets. For financial reporting purposes, the effective tax rate
represents an increase in the valuation allowance of net deferred tax assets
to an amount realizable based upon taxes paid for prior years without relying
on future income.
NOTE 10 - EMPLOYEE RETIREMENT PLANS:
The Company has a 401-k savings plan designed to provide additional
financial security during retirement by providing eligible employees with an
incentive to make regular savings. The Company matches 10% of the first
4% of compensation contributed by the employee. Certain former employees
were covered by union sponsored, multi-employer pension plans.
Contributions and costs were determined in accordance with the provisions of
negotiated labor contracts or terms of the plans. The Company does not
administer or control the plans. One of the plans, to which the Company and
many other employers made contributions, has had financial difficulties and
has informed the Company that it has initiated a mass termination of the
Plan. The Employee Retirement Income Security Act ("ERISA") imposes
certain liabilities upon employers who are contributors to multi-employer
pension plans in the event of withdrawal or termination of such a plan. The
Company has provided for an estimated settlement cost based on the
estimates provided by the Plan administrators.
NOTE 11 - INDUSTRY SEGMENTS:
The Company operates substantially in one industry segment which includes
the retail sales of children's toys and other products.
NOTE 12 - PROVISION FOR RESTRUCTURED OPERATIONS:
On August 10, 1994, the Company announced the closing of stores operating
under the name Playworld Toy Stores and one leased department operation.
Provision of $3,900,000 was recorded for restructuring costs representing
employee severance costs ($550,000), estimated lease liabilities ($1,050,000),
losses on liquidation of inventories ($1,250,000), disposition of fixed assets
($1,000,000) and other related restructuring costs ($50,000). This charge
increased the net loss for fiscal 1995 by $2,340,000, ($.45 per share). The
Company provided an additional $500,000 ($.09 per share) in fiscal 1996
primarily to reflect the additional closing of one store that was not
anticipated previously.
-37-
<PAGE>
NOTE 13 - INTERIM FINANCIAL DATA (UNAUDITED):
<TABLE>
First Quarter Second Quarter Third Quarter Fourth Quarter
(In thousands except per-share data)
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year Ended February 3, 1996:
Sales $ 3,281 $ 3,939 $ 6,288 $18,635
Gross profit 1,162 1,396 2,166 7,594
Net income (loss):
Continuing operations (1,226) (1,674) (2,970) 598
Discontinued operations (840) (8,219) - -
Net income (loss) $ (2,066) $ (9,893) $(2,970) $ 598
Net income (loss) per share:
Continuing operations $ (.23) $ (.32) $ (.55) $ .11
Discontinued operations (.16) (1.55) - -
Net income (loss) per share $ (.39) $ (1.87) $ (.55) $ .11
Weighted average shares
outstanding 5,263 5,287 5,356 5,615
Fiscal Year Ended January 28, 1995:
Sales $ 4,008 $ 3,835 $ 4,199 $11,266
Gross profit 1,201 1,260 1,367 3,288
Net income (loss):
Continuing operations (566) (2,679) (574) (671)
Discontinued operations (320) (8) 350 1,074
Net income (loss) $ (886) $ (2,687) $ (224) $ 403
Net income (loss) per share:
Continuing operations $ (.11) $ (.51) $ (.11) $ (.13)
Discontinued operations (.06) (.01) .07 .21
Net income (loss) per share $ (.17) $ (.52) $ (.04) $ .08
Weighted average shares
outstanding 5,200 5,202 5,218 5,261
</TABLE>
The Company's sales are highly seasonal. Income (loss) per share
calculations for each of the quarters are based on the weighted average
number of shares outstanding for each period and the sum of the quarters
may not necessarily be equal to the full year income (loss) per share amount.
NOTE 14 - SUBSEQUENT EVENTS:
Public offering
On February 13, 1996, the Company completed a public offering of 2.18
million shares (including the over allotment option) of common stock at $8.00
per share. Proceeds from the offering, net of commissions and expenses, were
approximately $16.0 million. The net proceeds from the offering are being
used primarily to finance the Company's store expansion plans as well as for
general corporate purposes, including approximately $1.0 million to improve
its MIS systems capabilities.
-38-
<PAGE>
<TABLE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended
FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions period
<CAPTION>
For estimated losses in collection:
<S> <C> <C> <C> <C> <C>
Year ended February 3, 1996 $ 983 $ 581 $ - $ 287 (a) $1,277
Year ended January 28, 1995 $ 874 $ 250 $ - $ 141 (a) $ 983
Year ended January 29, 1994 $ 1,229 $ 275 $ - $ 630 (a) $ 874
____________________________
(a) Write-offs net of recoveries
All amounts are included in discontinued operations.
</TABLE>
- 39 -
<PAGE>
<TABLE>
EXHIBIT 11.1
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Fiscal Years Ended
February 3, 1996 January 28, 1995 January 29, 1994 January 30, 1993 February 1, 1992
(53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks)
<CAPTION>
<S> <C> <C> <C> <C> <C>
a) Net income (loss) $(14,330,657) $(3,394,364) $ 709,487 $ 1,801,120 $ 3,665,196
b) Weighted average number of shares of
common stock outstanding during period 5,320,137 5,220,222 5,338,012 5,574,547 5,540,212
Income (loss) per share (a/b) $ (2.69) $ ( .65) $ .13 $ .32 $ .66
c) Incremental shares based on the treasury
stock method for stock options, using the
average market price 178,110 141,219 59,673 94,082 1,427
d) Incremental shares based on the treasury
stock method for stock options, using the
ending market price 205,168 153,036 82,310 94,082 28,047
Income (loss) per common and common
equivalent shares (primary) (a/(b+c)) $ (2.61) $ ( .63) $ .13 $ .32 $ .66
Income (loss) per common and common
equivalent shares assuming full dilution
(a/(b+d)) $ (2.59) $ ( .63) $ .13 $ .32 $ .66
NOTE:The inclusion of common stock equivalents were antidilutive in fiscal 1995 and 1996 and had no significant
dilutive effect on all other years presented and therefore were not utilized in the above computation of income
(loss) per share.
</TABLE>
<PAGE>
- 40 -
<TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<CAPTION>
Name(s) Under Which
Name of Subsidiary Jurisdiction of Incorporation Subsidiary Does Business
<S> <C> <C>
C.W.P.W., Inc. Michigan C.W.P.W., Inc.
M.Z. Catalog Services, Inc. New Jersey M.Z. Catalog Services, Inc.
</TABLE>
- 41 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 7,272
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,328
<CURRENT-ASSETS> 24,227
<PP&E> 16,535
<DEPRECIATION> 3,541
<TOTAL-ASSETS> 37,276
<CURRENT-LIABILITIES> 10,196
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 27,074
<TOTAL-LIABILITY-AND-EQUITY> 37,276
<SALES> 32,143
<TOTAL-REVENUES> 32,143
<CGS> 19,825
<TOTAL-COSTS> 19,825
<OTHER-EXPENSES> 18,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> (5,272)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,272)
<DISCONTINUED> (9,059)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,331)
<EPS-PRIMARY> (2.69)
<EPS-DILUTED> (2.69)
</TABLE>
