AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1996
REGISTRATION NO. 33-65029
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
NOODLE KIDOODLE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5945 11-1771705
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
-------------------
105 PRICE PARKWAY
FARMINGDALE, NEW YORK 11735
(516) 293-5300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------
STANLEY GREENMAN,
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
NOODLE KIDOODLE, INC.
105 PRICE PARKWAY
FARMINGDALE, NEW YORK 11735
(516) 293-5300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES TO:
RICHARD MARLIN, ESQ. MARK S. BERGMAN, ESQ.
KRAMER, LEVIN, NAFTALIS, NESSEN, PAUL, WEISS, RIFKIND, WHARTON
KAMIN & FRANKEL & GARRISON
919 THIRD AVENUE 1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10019
(212) 715-9100 (212) 373-3000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
NOODLE KIDOODLE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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<CAPTION>
ITEMS OF FORM S-1 HEADING IN PROSPECTUS
- -------------------------------------------------- ----------------------------------------
<S> <C> <C>
Item 1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
Item 2 Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page; Outside Back
Cover Page; Available Information
Item 3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
Item 4 Use of Proceeds......................... Use of Proceeds
Item 5 Determination of Offering Price......... Outside Front Cover Page; Underwriting
Item 6 Dilution................................ Not Applicable
Item 7 Selling Security Holders................ Not Applicable
Item 8 Plan of Distribution.................... Outside Front Cover Page; Underwriting
Item 9 Description of Securities to Be
Registered.............................. Description of Capital Stock
Item 10 Interests of Named Experts and
Counsel................................. Legal Matters; Experts
Item 11 Information With Respect to
Registrant.............................. Prospectus Summary; Risk Factors; Price
Range of Common Stock; Dividend
Policy; Capitalization; Selected
Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Principal Stockholders; Financial
Statements
Item 12 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 9, 1996
2,000,000 SHARES
["Noodle Kidoodle" Logo]
COMMON STOCK
-------------------
All of the shares of Common Stock offered hereby are being sold by Noodle
Kidoodle, Inc., formerly known as Greenman Bros. Inc. (the "Company"). See
"Underwriting."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"NKID." On February 8, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $7.75 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total........................................ $ $ $
Total Assuming Full Exercise of Over-
Allotment Option(3)........................ $ $ $
</TABLE>
(1) See "Underwriting."
(2) Before deducting estimated expenses of $450,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 300,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about February
, 1996.
-------------------
PAINEWEBBER INCORPORATED RODMAN & RENSHAW, INC.
-------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[3 pages of Pictures]
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
-------------------
Noodle Kidoodle(R), Oodles and Oodles of Fun Things to Learn(R) and Kidoodle
Animation(R) are registered trademarks and service marks of the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere and incorporated by reference in this Prospectus. Unless the context
otherwise requires, all references herein to the "Company" include Noodle
Kidoodle, Inc. and its subsidiaries. The Company's fiscal year ends on the
Saturday closest to January 31 of that year. For example, references to fiscal
1995 refer to the fiscal year ended January 28, 1995. Unless otherwise
indicated, the information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Noodle Kidoodle, Inc. 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 Noodle Kidoodle concept offers something new to parents
and children by combining the attractive pricing and larger size of traditional
toy stores with the more creative product selection and superior customer
service of smaller boutiques, while providing an entertaining shopping
environment through interactive play areas and daily in-store events.
The Company's prototype store is approximately 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 ("SKUs"), 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 currently operates 18 Noodle Kidoodle stores in New York, New
Jersey, Connecticut and the Chicago metropolitan area, and plans to open
approximately 15 more stores in fiscal 1997 in new and existing markets. The
Company's near-term plan is to cluster its stores in the Northeastern United
States and several Midwestern markets, in order to leverage the Company's
advertising programs as well as optimize the capabilities of its strategically
located distribution center. The Company believes that there are opportunities
for nationwide expansion over the longer term beyond fiscal 1997.
The Company's strategy is to become the leading national retailer of
educationally oriented children's products. Key components of the Company's
business strategy are:
. 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." The
Company believes that within its targeted age group of infant to twelve
years, it offers
3
<PAGE>
in a single location one of the broadest available assortments of
educationally oriented, creative and non-violent children's products. 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.
. 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 sale 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 the same
lines of merchandise.
The Company was founded in 1946 and, doing business under its former name
Greenman Bros. Inc., historically was 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, based in large
part on the success of its early Noodle Kidoodle stores, 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 $113.2 million in fiscal 1995.
The Company recently changed its name from Greenman Bros. Inc. to Noodle
Kidoodle, Inc. and its jurisdiction of incorporation to Delaware. The Company's
executive offices are located at 105 Price Parkway, Farmingdale, New York 11735.
Its telephone number is (516) 293-5300.
RECENT DEVELOPMENT
For the nine-week period ended December 30, 1995, during which the Company
added three additional Noodle Kidoodle stores, the Company recorded net sales of
$15.9 million and gross profit of $6.3 million. The Company was satisfied with
its holiday season especially in light of the generally weak retail environment
and the severe weather conditions in its major markets, particularly during the
week prior to Christmas.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....................... 2,000,000 shares
Common Stock to be Outstanding after the Offering......... 7,369,890 shares (1)
Use of Proceeds........................................... Primarily to finance new store openings,
as well as for general corporate
purposes. See "Use of Proceeds" and
"Business--Expansion Strategy."
Nasdaq National Market Symbol............................. NKID
</TABLE>
- ------------
(1) Excludes as of February 8, 1996 (i) 587,984 shares of Common Stock issuable
upon exercise of outstanding options at exercise prices ranging from $3.50
to $13.13 per share and (ii) 279,250 shares of Common Stock reserved for
issuance pursuant to options issuable under the Company's stock option
plans.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION AND STORE DATA(A)
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEARS ENDED ENDED
---------------------------------------------------- -----------------------
FEB. 2, FEB. 1, JAN. 30, JAN. 29, JAN. 28, OCT. 29, OCT. 28,
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 11,022 $ 12,850 $ 18,250 $ 20,712 $ 23,308 $12,042 $ 13,508
Gross profit...................... 3,885 4,794 5,471 6,143 7,116 3,828 4,724
Selling and administrative
expenses........................ 5,078 5,813 6,645 8,401 10,790 6,937 10,563
Provision for restructured
operations(b)................... -- -- -- -- 3,900 3,500 500
Operating loss.................... (1,193) (1,019) (1,174) (2,258) (7,574) (6,609) (6,339)
Net income (loss):
Continuing operations........... (2,622) (1,141) (425) (1,180) (4,490) (3,819) (5,870)
Discontinued operations(c)...... (12,305) 5,069 2,226 1,889 1,096 22 (9,059)
Extraordinary item(d)........... 325 (263) -- -- -- -- --
-------- -------- -------- -------- -------- ----------- --------
Net income (loss)............. $(14,602) $ 3,665 $ 1,801 $ 709 $ (3,394) $(3,797) $(14,929)
-------- -------- -------- -------- -------- ----------- --------
-------- -------- -------- -------- -------- ----------- --------
Net income (loss) per share:
Continuing operations........... $ (.44) $ (.21) $ (.08) $ (.22) $ (.86) $ (.73) $ (1.11)
Discontinued operations(c)...... (2.07) .92 .40 .35 .21 -- (1.71)
Extraordinary item(d)........... .06 (.05) -- -- -- -- --
-------- -------- -------- -------- -------- ----------- --------
Net income (loss) per share... $ (2.45) $ .66 $ .32 $ .13 $ (.65) $ (.73) $ (2.82)
-------- -------- -------- -------- -------- ----------- --------
-------- -------- -------- -------- -------- ----------- --------
Weighted average shares
outstanding....................... 5,949 5,540 5,575 5,338 5,220 5,207 5,302
OTHER FINANCIAL DATA:
Net sales:
Noodle Kidoodle................. $ -- $ -- $ -- $ 1,168 $ 6,414 $ 2,544 $ 11,042
Other Retail(e)................. 11,022 12,850 18,250 19,544 16,894 9,498 2,466
-------- -------- -------- -------- -------- ----------- --------
Total net sales............... 11,022 12,850 18,250 20,712 23,308 12,042 13,508
Discontinued operations:(c)
Net sales....................... $198,890 $151,718 $136,488 $122,138 $113,194 $80,729 $ 50,635
Gross profit.................... 52,753 33,475 31,035 26,711 24,604 17,069 9,164
Operating income (loss)......... (8,666) 5,576 3,633 3,171 1,781 37 (1,914)
Provision for discontinued
operations.................... 5,712 -- -- -- -- -- 7,145
-------- -------- -------- -------- -------- ----------- --------
Net income (loss)............... (12,305) 5,069 2,226 1,889 1,096 22 (9,059)
STORE DATA (AT END OF PERIOD):
Number of stores:
Noodle Kidoodle................. -- -- -- 1 4 3 15
Other Retail(e)................. 6 8 10 10 4 10 4
-------- -------- -------- -------- -------- ----------- --------
Total......................... 6 8 10 11 8 13 19
Gross square footage:
Noodle Kidoodle................. -- -- -- 10,450 39,700 29,700 160,130
Other Retail(e)................. 56,570 68,870 86,400 86,400 31,500 86,400 31,500
-------- -------- -------- -------- -------- ----------- --------
Total......................... 56,570 68,870 86,400 96,850 71,200 116,100 191,630
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 28, 1995
-------------------------
ACTUAL AS ADJUSTED(F)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................... $14,772 $ 28,911
Net assets of discontinued operations(c)...................................... 6,327 6,327
Total assets.................................................................. 38,872 53,011
Total debt.................................................................... -- --
Total liabilities............................................................. 12,428 12,428
Stockholders' equity.......................................................... 26,444 40,583
</TABLE>
- ------------
(a) As a result of recent strategic changes, period-to-period comparisons of
financial results are not meaningful. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(b) Represents provisions primarily related to the closing of certain Playworld
and other retail stores.
(c) On August 30, 1995, the Company adopted a formal plan to discontinue its
wholesale business. The operations and net assets of the Company's wholesale
business are being accounted for as a discontinued operation. The
thirty-nine week period ended October 28, 1995 includes a $7.1 million
provision 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. Fiscal 1991 results from discontinued operations
include results from the Company's Circus World retail stores which were
sold in fiscal 1991.
(d) Represents the gain (loss) on early extinguishment of debt, net of income
taxes (benefit).
(e) Represents primarily the results of the Company's Playworld and Toy Park
retail toy stores. The Company may close the remaining four Playworld and
Toy Park stores, as certain lease issues are resolved.
(f) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
hereby and the receipt of the estimated net proceeds therefrom.
7
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully before making an investment in
the Common Stock offered hereby.
NEW BUSINESS; LIMITED OPERATING HISTORY
Noodle Kidoodle, Inc., doing business under its former name Greenman Bros.
Inc., historically was engaged in the retail toy business as well as the
wholesale distribution of general merchandise with an emphasis on toys,
stationery and housewares. The Company opened its first Noodle Kidoodle store in
November 1993. The Company operated four Noodle Kidoodle stores at the end of
fiscal 1995 and currently operates 18 Noodle Kidoodle stores. Based on the
success of the early stores, management determined in August 1995 that the
Company should focus exclusively on its Noodle Kidoodle retail business and
become a leading national retailer of educationally oriented children's
products. In connection with that decision, the Company ceased operating its
wholesale business, sold certain of its wholesale inventory and commenced
liquidating the balance. Investors, therefore, have only a limited operating
history to review in evaluating the Company's performance and the viability of
the Noodle Kidoodle concept. For example, the Company currently has only three
stores in operation for a sufficient period of time to provide meaningful
year-to-year comparative data. There can be no assurance that the Company's more
recently opened Noodle Kidoodle stores will be as successful as the earlier
stores or that the Noodle Kidoodle concept will be successful. See
"Business--Overview" and "--Expansion Strategy."
HISTORICAL AND PROJECTED LOSSES
The Company has reported operating losses in each of its last five fiscal
years as a result of the discontinuation of its wholesale business and
subsequent restatement of its historical financial statements. In addition, the
Company's results of operations for the thirty-nine week period ended October
28, 1995 are not profitable. Based on the Company's limited experience with its
Noodle Kidoodle stores, management believes that its new stores should generate
store level operating profits before pre-opening expenses in their first full
year of operation. After pre-opening expenses, the losses generated over the
first twelve months of operations by new stores have not been, and are not
expected to be, material. In addition, the Company's aggressive expansion plans
require it to carry significant central overhead. As a result of these two
factors, the Company expects to continue to report losses at least through the
end of fiscal 1996 and in fiscal 1997. There can be no assurance that the
Company will be able to achieve or sustain profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ABILITY TO REALIZE EXPANSION PLANS
The Company's growth over the next several years depends principally on its
ability to open new stores in its existing and new markets and to operate those
stores profitably. The Company currently operates 18 Noodle Kidoodle stores in
New York, New Jersey, Connecticut and the Chicago metropolitan market. The
Company plans to use a substantial portion of the net proceeds of this offering
to open approximately 15 more Noodle Kidoodle stores in its existing and new
markets during fiscal 1997. The Company's ability to open stores on a timely
basis will depend upon a number of factors, including its ability to identify
suitable store sites and obtain leases for those sites on acceptable terms. In
order to achieve its long-term expansion plan, it is likely that the Company
will be required to obtain additional financing in order to open planned new
stores after fiscal 1997. There can be no assurance that the Company will be
able to complete its expansion plans successfully or that opening new stores in
markets already served by the Company will not adversely affect existing store
profitability or reduce comparable store sales. In addition, there can be no
assurance that additional financing for new stores will be available to the
Company in amounts, at rates or upon terms and conditions acceptable to the
Company. If such additional financing is unavailable, the Company would have to
delay opening certain of the
8
<PAGE>
planned stores until additional financing or sufficient internally generated
funds are available. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Expansion Strategy."
DISCONTINUED OPERATIONS; RESTRUCTURING CHARGES
In August 1995, the Company adopted a new business plan to focus on its
Noodle Kidoodle retail concept and ceased operating its wholesale business. In
fiscal 1995, the discontinued wholesale operations generated net sales and net
income of $113.2 million and $1.1 million, respectively, compared to the
Company's continuing retail operations' net sales and net loss of $23.3 million
and $4.5 million, respectively. 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. In addition, as of October 28, 1995, the
Company had net assets of discontinued operations of $6.3 million, consisting
primarily of accounts receivable, inventories, and properties of $10.5 million,
less accounts payable, accrued expenses and capital lease obligations of $4.2
million. The Company expects to receive net proceeds of approximately $6.3
million on the sale or liquidation of its wholesale assets, and anticipates
receiving such amount by August 1996. There can be no assurance that the charge
recorded in the fiscal quarter ended July 29, 1995 will be sufficient. In
addition, there can be no assurance that the Company will receive proceeds on
the sale or liquidation of net assets of discontinued operations in the amounts
anticipated, or by the anticipated dates. The receipt of significantly lower
amounts than expected or an extended delay in receipt could have a material
adverse effect on the Company's results of operations and financial condition.
In addition, the Company's decision to focus on its Noodle Kidoodle retail
concept has resulted in the closure of most of its Playworld and Toy Park
stores. The Company closed several Playworld stores in fiscal 1995 and may close
the remaining four Playworld and Toy Park stores, as certain lease issues are
resolved. The Company recorded provisions for store closings of $3.9 million and
$0.5 million, respectively, in fiscal 1995 and the thirty-nine week period ended
October 28, 1995. While management believes such provisions to be sufficient,
there can be no assurance that the Company will not record additional provisions
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
MANAGEMENT OF GROWTH
The Company's ability to manage growth will depend on its ability to improve
operational, financial and management information systems on a timely basis and
to recruit, hire and train additional management and store-level employees, as
well as manage an increasing number of employees. The Company expects to apply
up to $1.0 million of net proceeds from this offering to improve its MIS
software capabilities in fiscal 1997. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's operations in the future. Any failure to improve the
Company's operational, financial and management systems or to recruit, train and
manage an increased number of employees could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business--Expansion Strategy" and "--Management Information Systems."
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company's business will continue to be dependent upon
Stanley Greenman, Chairman of the Board and Chief Executive Officer of the
Company, Stewart Katz, President and Chief Operating Officer of the Company, and
other members of senior management. The loss of the services of one or more of
these individuals could have a material adverse effect upon the Company's
business. Both Messrs. Greenman and Katz are parties to employment agreements
with the Company. Both agreements restrict the ability of the executive to
compete with the Company for a period of one year
9
<PAGE>
following termination of employment for any reason other than termination by the
Company without cause or in the event of a change of control. The Company has
not obtained, and does not intend to obtain, key man insurance policies on the
lives of either Mr. Greenman or Mr. Katz. See "Management."
COMPETITION
The retail toy business is highly competitive. 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, the Company could be adversely affected. If any of the
Company's major competitors seek to gain or retain market share by reducing
prices, the Company may be required to reduce its prices on key items in order
to remain competitive, which would have the effect of reducing its
profitability. There can be no assurance that in the future the Company will not
face greater competition from other national, regional and local retailers. See
"Business--Competition."
QUARTERLY AND SEASONAL FLUCTUATIONS
The timing of new store openings, related pre-opening expenses and the
amount of revenue contributed by new and existing stores may cause the Company's
quarterly results of operations to fluctuate. In addition, the Company's
business is affected by the pattern of seasonality common to most toy retailers.
Historically, the Company's stores generate a significant portion of their net
sales and the majority of their store level operating profits during the
Company's fourth fiscal quarter, which includes the Christmas selling season,
and have experienced operating losses or nominal profits in the Company's first,
second and third fiscal quarters.
VOLATILITY OF STOCK PRICE
On December 14, 1995, the Common Stock became quoted on the Nasdaq National
Market. Prior thereto, the Common Stock was traded on the American Stock
Exchange. The market price of the Common Stock has been, and could in the future
be, subject to significant fluctuations. Future announcements concerning the
Company or its competitors, including operating results and earnings estimates,
new store openings and other developments, as well as general economic and
market conditions, could cause the market price of the Common Stock to fluctuate
substantially. See "Price Range of Common Stock."
GENERAL ECONOMIC CONDITIONS
The Company's operating results may be adversely affected by unfavorable
local, regional or national economic conditions. The Company's stores currently
are located in the Northeastern United States and a major Midwestern sub-region
of the United States. Accordingly, the Company is susceptible to fluctuations in
its business caused by adverse economic conditions in these regions. In
addition, the Company's future expansion strategy is to cluster its stores in
relatively close geographic proximity to achieve operating and advertising
efficiency. There can be no assurance that regional economic conditions will not
adversely affect stores clustered in such relatively close geographic proximity.
The success of the Company's operations also depends upon a number of
factors relating to consumer spending, including future economic conditions
affecting disposable consumer income such as employment, business conditions,
interest rates and taxation. If existing economic conditions deteriorate,
consumer spending on discretionary items such as children's toys and educational
products may decline, with a negative impact on the Company's business and
results of operations.
10
<PAGE>
POTENTIAL ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), the Company's Bylaws, as amended (the
"Bylaws"), and Delaware law could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market value of the
Common Stock. Such provisions may also inhibit increases in the market price of
the Common Stock that could result from takeover attempts. In addition, the
Company's Board of Directors has the authority to issue Preferred Stock without
any further vote or action by the stockholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders and could adversely
affect the rights and powers, including voting rights, of the holders of Common
Stock. Such effects could result in a decrease in the market price of the Common
Stock. See "Description of Capital Stock--Anti-Takeover Provisions."
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
approximately $14.1 million after deducting estimated offering expenses and
underwriting discounts and commissions (approximately $16.3 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds from this offering, together with available cash,
primarily to finance the Company's store expansion plans as well as for general
corporate purposes, including up to $1.0 million to improve its MIS software
capabilities in fiscal 1997. The Company anticipates that it will open
approximately 15 additional Noodle Kidoodle stores in fiscal 1997. Total
expenditures for a new store, including capital expenditures, pre-opening
expenses and net working capital, are expected to range from $800,000 to
$950,000 per store. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Expansion Strategy."
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this offering based upon the current state of its business
operations, its current plans, and current economic and industry conditions.
Until used, the Company intends to invest the net proceeds from the offering in
short-term investment-grade securities.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
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
as reported on the American Stock Exchange for each of the fiscal quarters
indicated, through December 13, 1995 and as reported on the Nasdaq National
Market from December 14, 1995 through February 8, 1996:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
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
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 1997
First Quarter (through February 8, 1996).......................... 9.50 7.00
</TABLE>
On February 8, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $7.75 per share. As of December 6, 1995, there were
approximately 600 holders of record of Common Stock.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since 1969. The
Company currently anticipates that it will retain all available funds generated
by its operations for the development and growth of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. 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 business prospects of the Company and such other factors as the
Board of Directors may deem relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth the cash balance and capitalization of the
Company as of October 28, 1995 and as adjusted to reflect (i) the sale of
2,000,000 shares offered hereby and the receipt of the estimated net proceeds
therefrom and (ii) the increase in authorized capital and change in par values
approved by stockholders in December 1995 and January 1996.
<TABLE>
<CAPTION>
OCTOBER 28, 1995
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 6,548 $ 20,687
------- -----------
------- -----------
Commitments and contingencies.......................................... $ -- $ --
Stockholders' equity:
Preferred Stock--$1.00 par value, 500,000 shares authorized, none
issued and outstanding; $0.001 par value, 1,000,000 shares
authorized, none issued and outstanding, as adjusted............... -- --
Common Stock--$0.10 par value, 10,000,000 shares authorized,
6,292,701 shares issued and outstanding; $0.001 par value,
15,000,000 shares authorized, 8,292,701 shares issued and
outstanding, as adjusted (1)....................................... 629 8
Capital in excess of par value....................................... 26,294 41,054
Retained earnings.................................................... 3,313 3,313
Less treasury stock, at cost--924,261 shares......................... (3,792) (3,792)
------- -----------
Total stockholders' equity....................................... 26,444 40,583
------- -----------
Total capitalization............................................. $26,444 $ 40,583
------- -----------
------- -----------
</TABLE>
- ------------
(1) Excludes as of October 28, 1995 (i) 589,559 shares of Common Stock issuable
upon exercise of outstanding options at exercise prices ranging from $3.50 to
$13.13 per share and (ii) 279,250 shares of Common Stock reserved for issuance
pursuant to options issuable under the Company's stock option plans.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below reflects selected
financial and operating data of the Company as of and for the periods indicated,
after giving retroactive effect to the Company's discontinued wholesale
business. 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
Prospectus. The consolidated financial data as of and for each of the five
fiscal years ended January 28, 1995 and as of and for the thirty-nine week
period ended October 28, 1995 are derived from the Consolidated Financial
Statements of the Company which have been audited by Janover Rubinroit, LLC,
independent certified public accountants. The consolidated financial data for
the thirty-nine week period ended October 29, 1994 are derived from unaudited
Consolidated Financial Statements of the Company and reflect all adjustments,
consisting only of normal recurring accruals, that the Company considers
necessary for a fair presentation of the consolidated financial position and
consolidated results of operations for this period. As a result of recent
strategic changes, period-to-period comparisons of financial results are not
meaningful. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEARS ENDED ENDED
--------------------------------------------------- ----------------------
FEB. 2, FEB. 1, JAN. 30, JAN. 29, JAN. 28, OCT. 29, OCT. 28,
1991 1992 1993 1994 1995 1994 1995
-------- ------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 11,022 $12,850 $ 18,250 $ 20,712 $ 23,308 $12,042 $ 13,508
Costs and expenses:
Cost of products sold including buying
and warehousing costs................. 7,137 8,056 12,779 14,569 16,192 8,214 8,784
Selling and administrative.............. 5,078 5,813 6,645 8,401 10,790 6,937 10,563
Provision for restructured
operations(a)......................... -- -- -- -- 3,900 3,500 500
-------- ------- -------- -------- -------- ----------- --------
12,215 13,869 19,424 22,970 30,882 18,651 19,847
-------- ------- -------- -------- -------- ----------- --------
Operating loss.......................... (1,193) (1,019) (1,174) (2,258) (7,574) (6,609) (6,339)
Interest expense (income), net............ 2,699 236 (481) (277) (297) (243) (469)
-------- ------- -------- -------- -------- ----------- --------
Loss from continuing operations before
income taxes (benefit)................ (3,892) (1,255) (693) (1,981) (7,277) (6,366) (5,870)
Income taxes (benefit).................... (1,270) (114) (268) (801) (2,787) (2,547) --
-------- ------- -------- -------- -------- ----------- --------
Net income (loss):
Continuing operations................... (2,622) (1,141) (425) (1,180) (4,490) (3,819) (5,870)
Discontinued operations(b).............. (12,305) 5,069 2,226 1,889 1,096 22 (9,059)
Extraordinary item(c)................... 325 (263) -- -- -- -- --
-------- ------- -------- -------- -------- ----------- --------
Net income (loss)..................... $(14,602) $ 3,665 $ 1,801 $ 709 $ (3,394) $(3,797) $(14,929)
-------- ------- -------- -------- -------- ----------- --------
-------- ------- -------- -------- -------- ----------- --------
Net income (loss) per share:
Continuing operations................... $ (.44) $ (.21) $ (.08) $ (.22) $ (.86) $ (.73) $ (1.11)
Discontinued operations(b).............. (2.07) .92 .40 .35 .21 -- (1.71)
Extraordinary item(c)................... .06 (.05) -- -- -- -- --
-------- ------- -------- -------- -------- ----------- --------
Net income (loss) per share........... $ (2.45) $ .66 $ .32 $ .13 $ (.65) $ (.73) $ (2.82)
-------- ------- -------- -------- -------- ----------- --------
-------- ------- -------- -------- -------- ----------- --------
Weighted average shares................... 5,949 5,540 5,575 5,338 5,220 5,207 5,302
BALANCE SHEET DATA:
Working capital........................... $ 52,000 $40,490 $ 40,212 $ 39,810 $ 35,667 $35,099 $ 14,772
Net assets of discontinued
operations(b)........................... 26,640 28,214 25,968 31,217 24,621 26,298 6,327
Total assets.............................. 56,474 47,559 50,296 49,629 48,042 49,906 38,872
Total debt................................ 14,877 -- -- -- -- -- --
Total liabilities......................... 2,171 4,468 5,084 5,565 7,172 9,560 12,428
Stockholders' equity...................... 39,426 43,091 45,212 44,064 40,870 40,346 26,444
</TABLE>
- ------------
(a) Represents provisions primarily related to the closing of certain Playworld
and other retail stores.
(b) On August 30, 1995, the Company adopted a formal plan to discontinue its
wholesale business. The operations and net assets of the Company's wholesale
business are being accounted for as a discontinued operation. The
thirty-nine week period ended October 28, 1995 includes a $7.1 million
provision 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. Fiscal 1991 results from discontinued operations
include results from the Company's Circus World retail stores which were
sold in fiscal 1991.
(c) Represents the gain (loss) on early extinguishment of debt, net of income
taxes (benefit).
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis set forth certain information for the
periods presented and should be read in conjunction with the Consolidated
Financial Statements of the Company, and the notes thereto, appearing elsewhere
in this Prospectus.
GENERAL
The Company was founded in 1946 and, doing business under its former name
Greenman Bros. Inc., historically was 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,
which were located principally in shopping malls in approximately 30 states. In
fiscal 1991, the Company sold its Circus World stores and shifted its focus to
its wholesale business, while retaining a number of Playworld retail stores.
Based on results of operations and trends in the industry during fiscal 1991
through 1994, management gradually concluded that the wholesale component of the
Company's business could not grow. In particular, during fiscal 1992 and 1993,
the Company attempted to improve the operation and profitability of its
wholesale business, including through the incurrence of a charge of
approximately $1.1 million for severance costs, relocation costs and costs of
realigning merchandise in fiscal 1993. While operating costs were reduced as a
result of this effort, revenues and profits nonetheless continued to decrease.
Accordingly, the Company began investigating various possibilities outside the
wholesale business for expansion opportunities which could best utilize
remaining excess cash generated from the sale of the Circus World stores.
The Company opened its first Noodle Kidoodle store in November 1993 and
operated four Noodle Kidoodle stores at the end of fiscal 1995. Based in large
part on the success of its early Noodle Kidoodle stores, management determined
that the Company should focus exclusively on its retail business by further
developing and expanding its Noodle Kidoodle retail concept. In August 1995, the
Company adopted a new business plan and ceased operating its wholesale business.
In fiscal 1995, the discontinued wholesale operations generated net sales and
net income of $113.2 million and $1.1 million, respectively, compared to the
Company's continuing retail operations' net sales and net loss of $23.3 million
and $4.5 million, respectively. In addition, the Company's decision to focus on
its Noodle Kidoodle retail concept has resulted in the closure of most of its
Playworld and Toy Park stores. The Company closed several Playworld stores in
fiscal 1995 and may close the remaining four Playworld and Toy Park stores, as
certain lease issues are resolved. The Playworld stores are discount stores that
generally sell a greater percentage of low margin products. Noodle Kidoodle and
Toy Park stores generally have higher gross margins, but also have higher
operating costs due to their more upscale formats.
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. In addition, as of October 28, 1995, the Company had net assets of
discontinued operations of $6.3 million, consisting primarily of accounts
receivable, inventories, and properties of $10.5 million, less accounts payable,
accrued expenses and capitalized lease obligations of $4.2 million.
The Company has reported operating losses in each of its last five fiscal
years as a result of the discontinuation of its wholesale business and
subsequent restatement of its historical financial statements. In addition, the
Company's results of operations for the thirty-nine week period ended October
28, 1995 are not profitable. Based on the Company's limited experience with its
Noodle Kidoodle stores, management believes that its new stores should generate
store level operating profits before pre-opening expenses in their first full
year of operation. After pre-opening expenses, the losses generated over the
first twelve months of operations by new stores have not been, and are not
expected to be,
15
<PAGE>
material. In addition, the Company's aggressive expansion plans require it to
carry significant central overhead. As a result of these two factors, the
Company expects to continue to report losses at least through the end of fiscal
1996 and in fiscal 1997.
The Company's growth over the next several years depends principally on its
ability to open new stores in its existing and new markets and to operate those
stores profitably. The Company currently operates 18 Noodle Kidoodle stores in
New York, New Jersey, Connecticut and the Chicago metropolitan market. The
Company plans to use a substantial portion of the net proceeds of this offering
to open approximately 15 more Noodle Kidoodle stores in its existing and new
markets during fiscal 1997. The Company's ability to open stores on a timely
basis will depend upon a number of factors, including its ability to identify
suitable store sites and obtain leases for those sites on acceptable terms. In
order to achieve its long-term expansion plan, it is likely that the Company
will be required to obtain additional financing in order to open planned new
stores after fiscal 1997.
RECENT DEVELOPMENT
For the nine-week period ended December 30, 1995, during which the Company
added three additional Noodle Kidoodle stores, the Company recorded net sales of
$15.9 million and gross profit of $6.3 million. The Company was satisfied with
its holiday season especially in light of the generally weak retail environment
and the severe weather conditions in its major markets, particularly during the
week prior to Christmas.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales for certain items
in the Company's statement of operations for the periods indicated. "Noodle
Kidoodle" reflects results for this retail concept only, while "Other Retail"
reflects results for the Playworld and Toy Park Stores and certain leased toy
departments. Corporate expenses in "Selling and administrative expenses" include
management salaries, professional fees and other costs capable of supporting a
much larger organization. As a result of recent strategic changes,
period-to-period comparisons of financial results are not meaningful and results
of operations for historical periods are not necessarily indicative of future
results.
SUMMARY RESULTS OF CONTINUING OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------------------------- ---------------------------------
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28,
1993 1994 1995 1994 1995
--------------- --------------- --------------- --------------- ---------------
% OF % OF % OF % OF % OF
$ SALES $ SALES $ SALES $ SALES $ SALES
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Noodle Kidoodle....... -- -- 1,168 5.6 6,414 27.5 2,544 21.1 11,042 81.7
Other Retail.......... 18,250 100.0 19,544 94.4 16,894 72.5 9,498 78.9 2,466 18.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. 18,250 100.0 20,712 100.0 23,308 100.0 12,042 100.0 13,508 100.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit:
Noodle Kidoodle....... -- -- 468 40.1 2,385 37.2 854 33.6 3,758 34.0
Other Retail.......... 5,471 30.0 5,675 29.0 4,731 28.0 2,974 31.3 966 39.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. 5,471 30.0 6,143 29.7 7,116 30.5 3,828 31.8 4,724 35.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Selling and
administrative
expenses:
Noodle Kidoodle....... -- -- 684 58.6 3,240 50.5 1,699 66.8 7,632 69.1
Other Retail.......... 5,104 28.0 5,896 30.2 5,269 31.2 3,526 37.1 1,181 47.9
Corporate............. 1,541 8.4 1,821 8.8 2,281 9.8 1,712 14.2 1,750 13.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. 6,645 36.4 8,401 40.6 10,790 46.3 6,937 57.6 10,563 78.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Provision for
restructuring.......... -- -- -- -- 3,900 16.7 3,500 29.1 500 3.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income
(loss):
Noodle Kidoodle....... -- -- (216) (18.5) (855) (13.3) (845) (33.2) (3,874) (35.1)
Other Retail.......... 367 2.0 (221) (1.1) (538) (3.2) (552) (5.8) (215) (8.7)
Corporate............. (1,541) (8.4) (1,821) (8.8) (2,281) (9.8) (1,712) (14.2) (1,750) (13.0)
Provision for
restructuring.......... -- -- -- -- (3,900) (16.7) (3,500) (29.1) (500) (3.7)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total................. (1,174) (6.4) (2,258) (10.9) (7,574) (32.5) (6,609) (54.9) (6,339) (46.9)
Net loss............... (425) (2.3) (1,180) (5.7) (4,490) (19.3) (3,819) (31.7) (5,870) (43.5)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
SUMMARY RESULTS OF DISCONTINUED OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------- THIRTY-NINE WEEKS ENDED
JANUARY 30, JANUARY 29, JANUARY 28, ----------------------------------------
1993 1994 1995 OCTOBER 29, 1994 OCTOBER 28, 1995
--------------- --------------- --------------- --------------------- ----------------
% OF % OF % OF % OF % OF
$ SALES $ SALES $ SALES $ SALES $ SALES
------- ----- ------- ----- ------- ----- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... 136,488 100.0 122,138 100.0 113,194 100.0 80,729 100.0 50,635 100.0
Gross profit...... 31,035 22.7 26,711 21.9 24,604 21.7 17,069 21.1 9,164 18.1
Operating income
(loss)........... 3,633 2.7 3,171 2.6 1,781 1.6 37 0.0 (1,914) (3.8)
Provision for
discontinued
operations....... -- -- -- -- -- -- -- -- 7,145 14.1
Net income
(loss)........... 2,226 1.6 1,889 1.5 1,096 1.0 22 0.0 (9,059) (17.9)
------- ----- ------- ----- ------- ----- ---------- -------- ------- ------
------- ----- ------- ----- ------- ----- ---------- -------- ------- ------
</TABLE>
17
<PAGE>
THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 COMPARED WITH THIRTY-NINE WEEKS ENDED
OCTOBER 29, 1994
CONTINUING OPERATIONS
Net sales increased 12.2% to $13.5 million for the thirty-nine week period
ended October 28, 1995 from $12.0 million in the comparable period in the prior
year. Noodle Kidoodle sales increased $8.5
million to $11.0 million for the thirty-nine week period ended October 28, 1995
from $2.5 million in the comparable period in the prior year, primarily due to
the addition of new Noodle Kidoodle stores during the period ended October 28,
1995. Other Retail sales decreased 74.0% to $2.5 million for the thirty-nine
week period ended October 28, 1995 from $9.5 million in the comparable period in
the prior year, primarily as a result of the closing of six Playworld stores
during January 1995. The Company operated 15 Noodle Kidoodle stores, two
Playworld stores and two Toy Park stores at October 28, 1995, compared to three
Noodle Kidoodle stores, eight Playworld stores and two Toy Park stores, at
October 29, 1994.
Gross profit (derived from net sales less the cost of products sold, which
includes buying and warehousing costs) increased 23.4% to $4.7 million for the
thirty-nine week period ended October 28, 1995 from $3.8 million in the
comparable period in the prior year. Overall gross margin increased to 35.0% in
the period ended October 28, 1995 from 31.8% in the comparable period in the
prior year. The increase results from an increase in sales at Noodle Kidoodle
stores (primarily the result of increases in volume), which generated higher
margins than the Playworld stores. Gross margin at Noodle Kidoodle increased to
34.0% in the current period from 33.6% in the comparable period 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 decrease was partially offset by increased cost of
merchandise (representing amounts paid to vendors). Gross margin at Other Retail
increased to 39.2% in the current period from 31.3% in the comparable period in
the prior year primarily due to a greater sales contribution by higher margin
Toy Park stores.
Selling and administrative expenses, excluding the provision for
restructuring, increased 52.3% to $10.6 million in the thirty-nine week period
ended October 28, 1995 from $6.9 million in the comparable period in the prior
year, primarily as a result of changes in the store base. Selling and
administrative expenses at Noodle Kidoodle increased to $7.6 million in the
current period from $1.7 million in the comparable period in the prior year
primarily as a result of higher direct store expenses, which increased by $3.7
million, higher advertising expenses, which increased by $1.1 million, and
higher home office expenses. This increase was offset by a decrease in selling
and administrative expenses at Other Retail to $1.2 million in the current
period from $3.5 million in the comparable period 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 78.2% in the period ended October 28, 1995 from 57.6% in
the comparable period in the prior year, primarily attributable to the fact that
Noodle Kidoodle stores have higher operating costs.
Provision for restructuring related to the closing of Other Retail stores
was $0.5 million in the thirty-nine week period ended October 28, 1995, compared
to $3.5 million in the comparable period 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 4.1% to $6.3 million for the thirty-nine week
period ended October 28, 1995 from $6.6 million in the comparable period in the
prior year. Excluding restructuring charges, the operating loss would have been
$5.8 million for the period ended October 28, 1995 compared to $3.1 million in
the comparable period in the prior year.
18
<PAGE>
Net loss from continuing operations increased 53.7% to $5.9 million ($1.11
per share) in the thirty-nine week period ended October 28, 1995 from $3.8
million ($.73 per share) in the comparable period in the prior year. Excluding
restructuring charges, the net loss would have been $5.4 million ($1.01 per
share) for the period ended October 28, 1995 compared to $1.7 million ($.33 per
share) in the comparable period in the prior year. The net loss for the period
ended October 28, 1995 included no tax benefit while the comparable period of
the prior year included a tax benefit of $2.5 million. At October 28, 1995, the
Company had approximately $13.5 million of net operating loss carryforwards.
DISCONTINUED OPERATIONS
Net sales decreased 37.3% to $50.6 million in the thirty-nine week period
ended October 28, 1995 from $80.7 million in the comparable period in the prior
year. This decrease resulted primarily from discontinuance of the wholesale
business, effective August 30, 1995.
Gross profit decreased 46.3% to $9.2 million in the thirty-nine week period
ended October 28, 1995 from $17.1 million in the comparable period in the prior
year. Gross margins decreased to 18.1% for the thirty-nine week period ended
October 28, 1995 from 21.1% for the comparable period in the prior year,
principally due to a higher mix of lower margin merchandise.
Operating loss before provision for discontinued operations was $1.9 million
in the thirty-nine week period ended October 28, 1995 compared to operating
income of $37,000 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 ($1.71 per share) in
the thirty-nine week period ended October 28, 1995, including the $7.1 million
($1.35 per share) provision for discontinued operations, as compared to net
income of $22,000 for the comparable period in the prior year.
FISCAL 1995 COMPARED TO FISCAL 1994
CONTINUING OPERATIONS
Net sales increased 12.5% to $23.3 million in fiscal 1995 from $20.7 million
in 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 margin increased to 30.5% in fiscal 1995
from 29.7% in fiscal 1994. The increase in gross margin was primarily
attributable to increased sales volume at Noodle Kidoodle stores, which
generated higher margins than the Playworld stores. Gross margin 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 margin at Other Retail decreased
to 28.0% in fiscal 1995 from 29.0% in fiscal 1994 principally due to a higher
mix of lower margin merchandise.
19
<PAGE>
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 Other Retail decreased to $5.3
million in fiscal 1995 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 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 restructuring was $3.9 million in fiscal 1995 related to the
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 of inventories 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.
Gross profit decreased 7.9% to $24.6 million in fiscal 1995 from $26.7
million in fiscal 1994. Gross margin decreased to 21.7% in fiscal 1995 from
21.9% in fiscal 1994 resulting primarily from a lower sales mix of higher margin
merchandise sold.
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.
20
<PAGE>
FISCAL 1994 COMPARED TO FISCAL 1993
CONTINUING OPERATIONS
Net sales increased 13.5% to $20.7 million in fiscal 1994 from $18.3 million
in fiscal 1993. Noodle Kidoodle sales were $1.2 million in fiscal 1994,
reflecting sales at the first Noodle Kidoodle store which opened in the fourth
quarter of fiscal 1994. Other Retail sales increased 7.1% to $19.5 million in
fiscal 1994 from $18.3 in fiscal 1993, primarily as a result of the opening of
one new Playworld and one new Toy Park store that opened during fiscal 1993
partially offset by a decrease of 2.8% in comparable store sales. At the end of
fiscal 1994, the Company operated one Noodle Kidoodle store, eight Playworld
stores and two Toy Park stores, compared to no Noodle Kidoodle stores, eight
Playworld stores and two Toy Park stores at the end of fiscal 1993.
Gross profit increased 12.3% to $6.1 million in fiscal 1994 from $5.5
million in fiscal 1993. Overall gross margin decreased to 29.7% in fiscal 1994
from 30.0% in fiscal 1993 due to lower margins in the Playworld stores partially
offset by increased sales volume at Noodle Kidoodle which generated higher
margins than the Playworld stores. Gross margin at Other Retail decreased to
29.0% in fiscal 1994 from 30.0% in fiscal 1993, primarily due to a higher mix of
lower margin merchandise.
Selling and administrative expenses increased 26.4% to $8.4 million in
fiscal 1994 from $6.6 million in fiscal 1993. Selling and administrative
expenses at Other Retail increased to $5.9 million in fiscal 1994 from $5.1
million in fiscal 1993, principally as a result of new store openings. Corporate
selling and administrative expenses increased to $1.8 million in fiscal 1994
from $1.5 million in fiscal 1993 principally as a result of higher professional
and consulting costs offset by one-time insurance and property tax settlements
in fiscal 1994. As a percentage of net sales, selling and administrative
expenses were 40.6% in fiscal 1994 and 36.4% in fiscal 1993. The increase
resulted primarily from expenses associated with the first Noodle Kidoodle store
which had higher operating costs as compared to Playworld and Toy Park stores as
well as the opening of a new Playworld and a Toy Park store, which had higher
operating costs as compared to older stores.
Operating loss increased 92.3% to $2.3 million in fiscal 1994 from $1.2 in
fiscal 1993.
Net loss from continuing operations increased $0.8 million to $1.2 million
($.22 per share) in fiscal 1994 from $0.4 million ($.08 per share) in fiscal
1993.
DISCONTINUED OPERATIONS
Net sales decreased 10.5% to $122.1 million in fiscal 1994 from $136.5
million in fiscal 1993. The decrease was attributable to weak retail sales,
bankruptcies of several major customers and more direct purchases from
manufacturers by customers.
Gross profit decreased 13.9% to $26.7 million in fiscal 1994 from $31.0
million in fiscal 1993. Gross margins decreased to 21.9% in fiscal 1994 from
22.7% in fiscal 1993, primarily reflecting a lower mix of higher margin
merchandise.
Operating income decreased 12.7% to $3.2 million in fiscal 1994 from $3.6
million in fiscal 1993.
Net income decreased 15.1% to $1.9 million ($.35 per share) in fiscal 1994
from $2.2 million ($.40 per share) in fiscal 1993.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years and the thirty-nine week period ended
October 28, 1995, 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.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------------- --------------------------
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28,
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
Operating activities:
Continuing operations............ $(2,611) $ 8 $(1,466) $(4,734) $(6,981)
Discontinued operations.......... 5,859 (3,048) 9,066 5,800 9,370
Investing activities............... (3,919) 187 (2,472) (1,244) (7,204)
Financing activities............... 234 (1,918) 16 34 455
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... (437) (4,771) 5,144 (144) (4,360)
Cash and cash equivalents--beginning
of period............................ 10,972 10,535 5,764 5,764 10,908
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents--end of
period............................... $10,535 $ 5,764 $10,908 $ 5,620 $ 6,548
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
During the thirty-nine weeks ended October 28, 1995, the Company generated
$9.4 million of cash flow from discontinued operations, primarily attributable
to reductions in inventory, and other working capital of $17.6 million offset by
a net loss of $9.1 million, which included a $7.1 million provision for the
discontinuation of wholesale operations. This cash was used primarily to fund
$7.0 million of cash requirements for continuing retail operations, attributable
to increases in working capital needs of $2.3 million due to new store openings
and seasonal inventory build-up as well as a net loss of $5.9 million. Inventory
increased from $4.3 million at January 28, 1995 to $12.4 million at October 28,
1995 as a result of new store openings and seasonal inventory build-up. The
Company also used this cash to fund investing activities of $7.2 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 $4.4
million.
During fiscal 1995, the Company received $9.1 million of cash flow 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 fiscal 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.
22
<PAGE>
The Company used $3.0 million of cash flow 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 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 (which the
Company intends to retire in the near future). As a result of the foregoing,
cash and cash equivalents decreased during the fiscal year by $4.8 million.
During fiscal 1993, the Company received $5.8 million of cash flow from
discontinued operations attributable to net income of $2.2 million, depreciation
and other non-cash charges of $1.9 million and reductions in working capital of
$1.7 million. The Company used cash primarily to fund $2.6 million of cash
requirements for continuing retail operations, principally working capital needs
of $2.4 million. The Company also used this cash to fund investing activities of
$3.9 million, primarily for the purchase of securities totaling $3.0 million. As
a result of the foregoing, cash and cash equivalents during the period decreased
by $0.4 million.
During the past three fiscal years, the Company did not require any cash
borrowings under its $10.0 million revolving credit line, which expired in June
1995. The Company currently has in place a bank line of credit. Borrowings under
the facility, secured by certain assets of its discontinued wholesale business,
provide for maximum borrowings of $12.5 million in short-term loans and
commercial letters of credit and expires on June 30, 1996. Interest is at the
bank's prime rate plus .5%, or at a Eurodollar rate. Based on an asset-based
formula set by the bank, availability at October 28, 1995 was $5.0 million. As a
result of the discontinuation of the wholesale business, this future
availability is expected to decrease. The Company has received a second line of
credit, which is unsecured, provides for maximum borrowings of $10.0 million in
short-term loans and letters of credit, expires April 30, 1997 and is
conditioned on consummation of the offering made hereby. Interest is at the
bank's prime rate, or at a Eurodollar rate.
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 this 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. See "Risk Factors--Ability to Realize
Expansion Plans" and -- Discontinued Operations; Restructuring Charges."
The Company estimates that capital expenditures during fiscal 1996 will be
approximately $8.5 million, of which $7.1 million already has been expended
during the thirty-nine week period ended October 28, 1995, and will be used
primarily to open new stores. The Company anticipates that capital expenditures
in fiscal 1997 will be approximately $9.0 million, primarily to finance
approximately 15 new store openings, at an average cost of approximately $0.5
million per store. In addition to capital expenditure requirements, new stores
require a working capital investment of approximately $0.4 million per store,
primarily for inventory, a large portion of which is financed by vendor trade
credit. Typically, pre-opening expenses are amortized over the first twelve
months of operations. The Company also expects to spend up to $1.0 million to
improve its MIS software capabilities in fiscal 1997.
The Company has available net operating loss carryforwards of approximately
$13.5 million for income tax purposes.
23
<PAGE>
QUARTERLY FLUCTUATIONS IN RESULTS AND SEASONALITY
The timing of new store openings and related pre-opening expenses and the
amount of revenue contributed by new and existing stores have caused, and are
expected to cause in the future, the Company's quarterly results of operations
to fluctuate. In addition, the Company's business is affected by the pattern of
seasonality common to most toy retailers. Historically, the Company's stores
generate a significant portion of their net sales and the majority of their
store level operating profits during the Company's fourth fiscal quarter, which
includes the Christmas selling season, and have experienced operating losses or
nominal profits in the Company's first, second and third fiscal quarters.
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.
24
<PAGE>
BUSINESS
OVERVIEW
The Company 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 Noodle Kidoodle concept offers something new to parents and
children by combining the attractive pricing and larger size of traditional toy
stores with the more creative product selection and superior customer service of
smaller boutiques, while providing an entertaining shopping environment through
interactive play areas and daily in-store events.
The Company was founded in 1946 and, doing business under its former name
Greenman Bros. Inc., historically was 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. In November 1993, the Company
opened its first Noodle Kidoodle store, which emphasized educationally oriented
children's products, and opened three additional Noodle Kidoodle stores in
fiscal 1995. During fiscal 1996, management determined, based in large part on
the success of its early Noodle Kidoodle stores, 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 $113.2 million in fiscal 1995.
The Company currently operates 18 Noodle Kidoodle stores in New York, New
Jersey, Connecticut and the Chicago metropolitan area. The Company opened 14 of
these stores in fiscal 1996, and plans to open approximately 15 more stores in
fiscal 1997 in new and existing markets. The Company continues to operate four
other retail toy stores, two each under the Playworld and Toy Park names. The
Company closed several Playworld stores in fiscal 1995 and may close the
remaining Playworld and Toy Park stores, as certain lease issues are resolved.
BUSINESS STRATEGY
The Company's strategy is to become the leading national retailer of
educationally oriented children's products by offering a broad assortment of
creative and non-violent products at competitive prices in an interactive and
entertaining shopping environment with superior levels of customer service. The
key components of the Company's business strategy are:
Interactive Shopping Environment. Each Noodle Kidoodle store is designed
with children in mind. The stores' award-winning design uses colorful walls,
ceilings and carpets to create a playful and exciting atmosphere, where adults
and children are likely to spend more time than in other retail environments.
Seating and product shelves are at kid-level, and there are designated play
areas at each store where children and their parents are encouraged to explore
toys and games in keeping with the Company's "try before you buy" philosophy. A
Computer Center containing six computer stations enables children and adults to
test an assortment of approximately 60 different software programs from the
store's vast selection. An Electronic Learning Center enables children to sample
the store's considerable selection of electronic learning toys. A sampling of
the musical selections available in the store is continually broadcast over the
store's sound system, and a selection from the store's video offerings is
regularly displayed on a large screen television in the store's "Kidoodle
Theater." The Company believes that its customer friendly and interactive
environment differentiates it from large and impersonal superstore competitors.
25
<PAGE>
Broad Assortment of Imaginative Products. The Company's Noodle Kidoodle
stores offer a broad assortment of educationally oriented, creative and
non-violent products. These products are 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." Each store
typically carries approximately 25,000 SKUs, which are conveniently displayed in
separate merchandise departments. These departments are identified by colorful
and eye-catching signs which are visual as well as verbal so that children can
understand them. The Company believes that within its targeted age group of
infant to twelve years, its Noodle Kidoodle stores offer in a single location
one of the broadest available assortments of educationally oriented, creative
and non-violent children's products. The Company continually seeks innovative
new products consistent with its merchandising philosophy.
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. The Company provides advance notice of
in-store events through its monthly calendar distributed at the stores and in
the Company's newsletter. These events also frequently demonstrate the value of
the products and encourage customers to make purchases.
Superior Customer Service. Providing knowledgeable and friendly customer
service is a key aspect of the Company's business strategy and, the Company
believes, a competitive advantage over lower-service superstores and mass
merchandisers. The Company seeks to select enthusiastic employees who enjoy
working with children. As a result of the Company's training and development of
its personnel, the Company's sales associates are able to highlight the benefits
of the products being offered to customers. The Company believes that this
approach enables it to attract and retain highly motivated, well qualified store
managers and associates who are committed to providing the customer with
superior service. The Company also offers its customers such services as free
gift wrapping, shipping and special orders.
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 sale 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. Offering everyday competitive pricing is a key element
in the Company's merchandising strategy. Many products are regularly discounted
and prices in general are believed to be competitive with those featured by
superstores carrying the same lines of merchandise. "Noodle Knockouts," special
value items which are often used as end-of-aisle displays, offer the customer
quality products at substantially reduced prices. The Company believes that its
long involvement in the retail and wholesale toy business affords it a
competitive advantage in selecting and purchasing special value merchandise and
implementing its pricing strategy.
EXPANSION STRATEGY
The Company believes that the Noodle Kidoodle concept has nationwide appeal.
The demographic and location requirements of Noodle Kidoodle stores exist at
some level in virtually every metropolitan area in the country. The Company
currently operates 18 Noodle Kidoodle stores in New York, New Jersey,
Connecticut and the Chicago metropolitan area, and plans to open approximately
15 more stores in fiscal 1997 in new and existing markets. The Company's
near-term plan is to cluster its stores in the Northeastern United States and
several Midwestern markets, in order to leverage the Company's advertising
programs as well as optimize the capabilities of its strategically located
distribution center.
26
<PAGE>
The Company believes that there are opportunities for nationwide expansion over
the longer term beyond fiscal 1997, but has not conducted any formal studies in
respect thereof.
The Company has identified a number of large metropolitan markets which it
believes will support multiple Noodle Kidoodle stores. In fiscal 1996, the
Company entered two new markets, opening five stores in the Chicago metropolitan
area and two in Connecticut. In fiscal 1997, the Company plans to enter two
additional new markets, opening stores in the Detroit and Boston metropolitan
areas. The Company's site selection process involves conducting market research
and demographic analysis which consider population density, location relative to
major traffic arteries and such factors as age, household income and education.
The Company seeks locations in high traffic urban and suburban areas with a
demographic profile of above average income and education levels. The Company
employs a dual real estate strategy, situating stores in both strip center and
mall locations.
The Company currently leases all of its stores and expects to continue to
lease its stores in the future. Typically it takes three to four months from the
time that a lease is signed until a store is operational. The cost of leasehold
improvements and furniture and fixtures for a typical Noodle Kidoodle store has
ranged from $400,000 to $600,000 per store, depending on the location and size
of the store. Pre-opening expenses are amortized over the first twelve months of
operations. A typical store requires a working capital investment of
approximately $400,000, primarily for inventory, a large portion of which is
financed through vendor trade credit. Based on the Company's limited experience
with Noodle Kidoodle stores, management believes that its new stores should
generate store level operating profits before pre-opening expenses in their
first full year of operation.
MERCHANDISING
The Company's merchandising strategy is to provide the broadest possible
assortment of products which 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." Each store typically carries
approximately 25,000 SKUs conveniently displayed in separate merchandise
departments. These departments are identified by colorful and eye-catching signs
which are visual as well as verbal so that children can understand them. All of
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 stores also feature a
designated "Teacher's Center" where teaching aids can be purchased. To keep its
merchandising mix fresh and exciting, the Company continually seeks innovative
new products.
The Company's products generally fall into two main categories:
Creative and Educational Toys Multi-Media Products
- ------------------------------------------------ ------------------------
Arts & Crafts Audio
Construction Books
Electronic Learning Software
Games & Puzzles Video
Impulse
Infants & Pre-School
Let's Pretend
Music
Science & Nature
Seasonal
Stationery
Stickers & Stamps
27
<PAGE>
Creative and Educational Toys accounted for approximately 75% of Noodle
Kidoodle's retail sales in fiscal 1995 compared to Multi-Media Products which
accounted for 25%. Creative and Educational Toys in the aggregate generate
higher margins than Multi-Media Products.
Offering everyday competitive pricing is a key element in the Company's
merchandising strategy. Many products are regularly discounted. The Company's
prices, in general, on merchandise carried by the Company and by superstores,
are believed to be competitive with superstore prices on such items. The price
range of products carried by the Company vary from a low of substantially less
than $1 in Arts & Crafts to a high of $100 in the Electronic Learning and
Software departments.
The Company has a liberal return policy consistent with its focus on
customer service. The Company's policy is to refund the purchase price of
returns in original packaging within 90 days of the purchase date where
accompanied by a store receipt. Where return packages are opened or such
packages are not accompanied by store receipt, the Company will either exchange
such return for the same product or issue store credit. Customer returns have
not been material to date.
STORE OPERATIONS
The Company's prototype store has increased in size from approximately
10,000 to approximately 12,000 square feet to accommodate additional selections
of merchandise. All of the Noodle Kidoodle stores are based on the Company's
award-winning design and offer 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. Products are conveniently
displayed in separate merchandise departments, such as "Science & Nature" and
"Arts & Crafts," which are identified by colorful eye-catching signs that are
visual as well as verbal so that children can understand them. Noodle Kidoodle
stores contain 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 at each store are the
Computer Center, Kidoodle Theater and the Electronic Learning Center. Noodle
Kidoodle stores generally are open seven days a week and the typical hours of
operation are from 10:00 a.m. to 9:00 p.m.
28
<PAGE>
The following is a typical floor plan of a prototype Noodle Kidoodle store:
[Floor Plan]
The Company emphasizes customer convenience and satisfaction. The Company's
sales associates develop product knowledge in order to assist customers with
purchasing decisions. For example, the Company believes that adults who are not
computer literate are less likely to feel intimidated seeking software products
in Noodle Kidoodle stores than at computer retailers. The Company is initiating
a program to train sales associates with respect to product knowledge, customer
service and store security measures. In addition, certain vendors provide
training for their products, to enable sales associates to highlight the
benefits and value of these products to customers.
A Noodle Kidoodle store is generally staffed with one manager, two assistant
managers and a varying number of full-time and part-time sales associates,
depending on store volume. Store managers are responsible for virtually all
aspects of store operations, including store staffing and shrinkage control.
However, merchandise replenishment is controlled centrally to ensure adequate
inventory levels consistent with the rate of sale at each store. Store managers
are eligible to receive incentive bonuses based on sales and shrinkage targets
set by management. In addition, store management participates in the Company's
stock option plan.
ADVERTISING AND MARKETING
The Company utilizes newspaper and radio advertising throughout its target
markets to promote the Noodle Kidoodle name and increase awareness of the Noodle
Kidoodle concept and philosophy. Such advertising is also used to attract
customers to grand openings, selected celebrity appearances and special sale
events. During peak holiday seasons, Noodle Kidoodle runs glossy, full-color
newspaper
29
<PAGE>
inserts to convey the quality and value of its merchandise and to highlight
specific promotional items. The Company spent approximately $0.6 million and
$1.3 million on advertising expenses in fiscal 1995 and the thirty-nine week
period ended October 28, 1995, respectively, substantially all of which were
spent on the Noodle Kidoodle retail business.
In order to build customer loyalty and track repeat customers, the Company
has established the Noodle Kidoodle Club. Sales associates promote free club
membership by encouraging customers to complete a short application form. The
club provides its members advance notice of sale events and special promotions,
a bi-monthly newsletter and events calendar, birthday cards sent to children and
similar special privileges. The Noodle Kidoodle Club currently has approximately
18,000 members and the Company believes that it is a very effective marketing
tool for maintaining long-term customer relationships.
To ensure that frequent customers receive special incentives to shop at
Noodle Kidoodle, the Company is developing a targeted direct mail marketing
program. The Company is in the process of expanding its customer database, which
consists of names acquired from a variety of sources, including the Noodle
Kidoodle Club and at the point of sale. Currently, the customer database
contains approximately 82,000 names. The Company also targets teachers by
offering them a 10% discount on all products and holding semi-annual "teachers'
nights" during which teachers can receive additional discounts.
In addition, the Company has devoted a major effort to develop relationships
with civic and charitable organizations that promote the education, development
and welfare of children. The Company contacts schools, museums and ecological
societies in connection with store openings, and attempts are made to work
jointly with these groups. To date, the Company has worked with, among others,
the Save the Children Foundation, the Liberty Science Center in New Jersey and
the Chicago Children's Museum.
PURCHASING AND DISTRIBUTION
The Company has implemented a centralized purchasing and distribution system
designed to minimize the delivery cost of merchandise and to maximize the
in-stock position of its stores. As the number of stores increases, the Company
anticipates that it will be able to take greater advantage of volume discounts.
In the future, the Company expects to pursue other measures designed to reduce
or control the cost of goods sold, such as direct importing and private label
products.
Noodle Kidoodle 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. Most of the Company's
products come from manufacturers oriented to supplying specialty stores. The
Company employs five buyers, each of whom is responsible for purchasing selected
categories of the Company's merchandise. These buyers generally have extensive
purchasing experience with major toy and other specialty retailers.
The Company currently owns and operates one central distribution center,
located in Phillipsburg, New Jersey. This warehouse contains approximately
269,000 square feet, and is equipped with a conveyor and racking system that
allows for an efficient "pick and ticket" operation capable of supporting at
least 100 stores. Approximately two thirds of the Company's products are
distributed through this warehouse and the balance is shipped to the stores
directly by the manufacturers or distributors. Direct shipments include books,
computer software, audio, stickers and stamps, and certain other merchandise.
The Company's management has been in the distribution business for many years
and believes that such experience represents a significant competitive
advantage.
30
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
The Company utilizes an IBM RS 6000 system which handles all major
informational requirements of the Company's business, including sales,
warehousing and distribution, purchasing, inventory control, merchandise
planning and replenishment as well as various financial systems. At the store
level, the Company uses a point-of-sale ("POS") computer system with the
capability to provide sales data and perpetual inventory data on an SKU basis to
the home office and store locations. Information obtained from daily polling of
this system results in merchandise replenishment in response to specific SKU
requirements of each store. Additional capabilities include scanning and price
look-up.
The Company plans to make improvements in this system during fiscal 1997
with up to $1.0 million of the net proceeds from this offering. These
improvements will primarily consist of new software and should enhance
merchandise planning, analysis and replenishment capabilities. In addition, the
improved system is expected to provide customer profiling capabilities to assist
in the Company's targeted marketing efforts and contribute to more efficient
store operations.
COMPETITION
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 specialty retailers selling
portions of its product lines, including books, software, video and audio
products, and arts and crafts. It also competes with toy 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, the Company could be
adversely affected. If any of the Company's major competitors seek to gain or
retain market share by reducing prices, the Company may be required to reduce
its prices on key items in order to remain competitive, which would have the
effect of reducing its profitability.
EMPLOYEES
As of October 28, 1995, the Company employed approximately 680 people,
approximately 350 of whom were employed full-time. The Company also employs
additional part-time personnel during the pre-Christmas season. Approximately 15
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.
TRADEMARKS
The Company has registered several service marks and trademarks with Federal
and state authorities, including Noodle Kidoodle,(R) Oodles & Oodles of Fun
Things to Learn(R) and Kidoodle Animation,(R) 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.
PROPERTIES
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
31
<PAGE>
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 distribution center. 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 intends to dispose of its owned
Farmingdale and Birmingham properties in fiscal 1997. The Company ceased
operating its West Haven center in October 1995 and the lease expires 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.
The Company continues to operate four other retail toy stores, two each
under the Playworld and Toy Park names. The Playworld stores are both located in
Nassau County, New York, and the Toy Park stores are located in Huntington, New
York and in Manhattan, New York. The Playworld stores are each approximately
10,000 square feet and the Toy Park stores are 7,000 and 4,000 square feet for
the Huntington and Manhattan stores, respectively. The Company has closed
several Playworld stores in fiscal 1995 and may close the remaining Playworld
and the Toy Park stores, as certain lease issues are resolved.
The Company's executive offices are located at its Farmingdale, New York
owned facility. This building, which has historically been used as a
distribution center for the Company's wholesale operations, is expected to be
sold or leased during fiscal 1997, at which time the Company may move to new
headquarters. If the Company chooses to change the location of its headquarters,
it does not expect to experience any difficulty in finding a suitable new
location.
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.
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<PAGE>
The following chart sets forth the location, size and grand opening date of
each of the 18 Noodle Kidoodle stores:
<TABLE>
<CAPTION>
MARKET AREA AND APPROXIMATE
STORE LOCATION GROSS SQUARE FOOTAGE DATE OF GRAND OPENING
- ------------------------------------------------------ -------------------- ---------------------
<S> <C> <C>
NEW YORK
Greenvale............................................. 10,450 11/13/93
Oceanside............................................. 8,000 7/16/94
East Northport........................................ 10,800 6/24/95
Massapequa............................................ 11,250 6/24/95
Plainview............................................. 9,050 6/24/95
Albany................................................ 10,000 10/14/95
Staten Island......................................... 10,550 11/13/95
NEW JERSEY
Wayne................................................. 11,250 8/27/94
Paramus............................................... 10,000 11/19/94
Livingston............................................ 11,300 2/25/95
Freehold.............................................. 9,400 11/04/95
CONNECTICUT
Manchester............................................ 12,000 9/30/95
Norwalk............................................... 11,500 11/18/95
CHICAGO METROPOLITAN
Clybourne............................................. 9,500 8/26/95
Wilmette.............................................. 10,000 8/26/95
Woodridge............................................. 12,500 8/26/95
Arlington Heights..................................... 12,850 10/07/95
Vernon Hills.......................................... 11,250 10/07/95
--------
Total Gross Square Footage........................ 191,650
--------
--------
</TABLE>
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 those toy retailers
nationwide selling products manufactured by Playmobil. The Complaint followed a
Department of Justice investigation into Playmobil's pricing practices, which
culminated in a consent agreement between the Department of Justice and
Playmobil, alleging that Playmobil, through its suggested retail pricing policy,
conspired with its retailers unlawfully to restrict competition in the sales of
Playmobil products. 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 various 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. The Company maintains
general liability insurance coverage in amounts deemed adequate by management.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers, directors and other key employees of the Company are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Stanley Greenman(3)....................... 46 Chairman of the Board, Chief Executive
Officer and Treasurer
Stewart Katz(2)........................... 54 President, Chief Operating Officer,
Assistant Secretary and Director
William A. Johnson, Jr.................... 42 Corporate Vice President, Chief Financial
Officer and Secretary
Robin L. Farkas(2)........................ 62 Director
Lester Greenman(1)........................ 40 Director
Joseph A. Madenberg(3).................... 58 Director
Barry W. Ridings(1)....................... 43 Director
Robert Stokvis(3)......................... 48 Director
Irwin Tantleff(1)......................... 60 Director
Jerry I. Cohen............................ 47 Vice President--Merchandise Planning
Henry S.Y. Lee............................ 46 Vice President--Marketing
Matthew J. Peoples........................ 37 Vice President--Information Systems
Pauline Pettit............................ 43 Vice President--Store Development and
Design
Joel M. Seibert........................... 47 Vice President--Real Estate
Dennis J. Syracuse........................ 47 Vice President--Stores
</TABLE>
- ------------
(1) Class 1 director; term expires in 1998.
(2) Class 2 director; term expires in 1996.
(3) Class 3 director; term expires in 1997.
Stanley Greenman has been the Chairman of the Board, Chief Executive Officer
and Treasurer of the Company since 1990 and has served as a director of the
Company since 1976. Mr. Greenman has been an employee of the Company since 1969.
Mr. Greenman is a brother of Lester Greenman and a brother-in-law of Stewart
Katz.
Stewart Katz has been the President, Chief Operating Officer and Assistant
Secretary of the Company since 1977 and has served as a director of the Company
since 1973. Mr. Katz has been an employee of the Company since 1970. Mr. Katz is
a brother-in-law of both Lester Greenman and Stanley Greenman.
William A. Johnson, Jr. has served as Corporate Vice President and Chief
Financial Officer since May 1989. Mr. Johnson worked for the Company as Vice
President/Corporate Controller from May 1988 to May 1989 and as Director of
Internal Audit from July 1987 to May 1988. Mr. Johnson worked as an Audit
Manager for Touche Ross & Co. prior to joining the Company in July 1987.
Robin L. Farkas has served as a director of the Company since 1993. He is
currently a private investor. From 1984 to 1992, Mr. Farkas was Chairman of the
Board and Chief Executive Officer of Alexanders, Inc. (mass merchandise retail
chain). Alexanders, Inc. filed for bankruptcy under Chapter 11 of the United
States Bankruptcy Code on May 15, 1992 and emerged from bankruptcy and
34
<PAGE>
reorganized on October 4, 1993. Mr. Farkas is also a member of the boards of
directors of Insignia Financial Group, Inc. and Refac Technology Corp.
Lester Greenman has served as a director of the Company since 1994. Mr.
Greenman has been a Vice President of Legal and Business Affairs for Sony
Electronic Publishing Company ("SEPC") since 1994. From 1991 to 1994, he was
Director of Legal and Business Affairs for SEPC. He was an Assistant United
States Attorney in the Southern District of New York from 1990 to 1991, and an
associate at the law firm of Gibson, Dunn & Crutcher from 1987 to 1990. Mr.
Greenman is a brother of Stanley Greenman and a brother-in-law of Stewart Katz.
Joseph A. Madenberg has served as a director of the Company since 1993. He
has been the President of Joseph A. Madenberg, Inc. (retail management
consulting firm) since 1968 and prior thereto, he was a Professor of Business
Administration at Suffolk County Community College until his retirement in
December 1992.
Barry W. Ridings has served as a director of the Company since 1994. He has
been a Managing Director of Alex. Brown & Sons Incorporated (an investment
banking and securities brokerage firm) since 1990 and he was a Managing Director
at Drexel Burnham Lambert from 1986 to 1990. Mr. Ridings is also a member of the
boards of directors of New Valley Corporation, Norex America, Inc., SubMicron
Systems Corporation, Telemundo Group, Inc., Transcor Waste Services, Inc. and
Trinity Six Inc.
Robert Stokvis has served as a director of the Company since 1991. He has
been the President of Stokvis Enterprises, Inc., (distributor of materials
handling equipment) for more than the past five years.
Irwin Tantleff has served as a director of the Company since July 1995. He
has been a Managing Partner of Four T Associates (real estate and financial
management) since 1986 and has been adjunct Professor of Management at New York
University, Stern School of Business, since 1992. From 1986 to 1989 he was
Corporate Senior Vice President and director of First National Supermarkets,
Inc., d/b/a Finast/Edwards. From 1965 to 1986, he was the founder and Chief
Executive Officer of IJT Limited, d/b/a Foodtown Supermarkets.
Jerry I. Cohen has been the Vice President--Merchandise Planning of the
Company since November 1995. He joined the Company in 1978 and in 1980 was
promoted to the position of Controller. In 1988 he was appointed Vice President
of Finance--Wholesale. Prior to joining the Company, he served as Assistant
Controller for Wallach's, Inc., Accounting Manager for Robert Hall Clothes and
Accounting Supervisor of Interstate Department Stores.
Henry S.Y. Lee has been the Vice President--Marketing of the Company since
November 1995. He joined the Company in 1994, after having provided consulting
services to the Company relating to the implementation of the Noodle Kidoodle
concept through a private company, Corporate Marketing Network. Prior to
entering the consulting field, Mr. Lee was employed by the Children's Place
Retail Stores, Inc. from May 1991 to December 1991 and Brookstone, Inc. from
January 1988 to May 1991, and Laura Ashley from 1985 to 1987, holding the Vice
President of Marketing position at each company.
Matthew J. Peoples has been the Vice President--Information Systems of the
Company since 1990. Mr. Peoples joined the Company as Manager of Systems
Development in 1985, and held the position of Director of MIS from 1988 to 1990.
Prior to joining the Company, he held the position of Software Manager for The
Ultimate Corp. and was a Technical Specialist for ADP, Inc.
Pauline Pettit has been the Vice President--Store Development and Design of
the Company since November 1995. Ms. Pettit joined the Company in May 1993 as
Director of Retail Operations. For 17
35
<PAGE>
years prior to joining the Company in May 1993, Ms. Pettit was employed by
Record World, Inc. where she held the position of Director of Retail Operations
and Loss Prevention.
Joel M. Seibert has been Vice President--Real Estate of the Company since
November 1995. He joined the Company in July 1994. From 1990 to 1994, Mr.
Seibert was Senior Vice President and General Counsel for Job Lot Incorporated,
and its affiliated companies. From 1987 to 1990, Mr. Seibert was Director of
Real Estate for Dress Barn, Inc. and, from 1985 to 1987, served as Associate
General Counsel and Director of Real Estate for Caldor, Inc.
Dennis J. Syracuse joined the Company as Vice President--Stores in December
1995. From June to December 1995 he was Vice President--Stores for Overland
Trading Company, and prior to that he was Vice President/Director of Stores for
Audrey Jones, Inc. from 1994 to 1995. Mr. Syracuse was Director of Stores for
the Ormond Shops for 19 years prior thereto.
BOARD OF DIRECTORS COMMITTEES
Executive Committee. The Executive Committee is currently comprised of
Stanley Greenman, Stewart Katz and Joseph Madenberg. The Executive Committee is
authorized to meet between Board meetings when necessary and has the authority
to act, within limits set by the Board of Directors, on behalf of the entire
Board of Directors in connection with substantially all operating matters.
Audit Committee. The Audit Committee is currently comprised of Barry
Ridings, Stewart Katz and Irwin Tantleff. The primary function of the Audit
Committee is to recommend independent accountants, review the overall scope of
any audits made by the independent accountants and communicate to the Board the
Committee's findings as to the adequacy of the Company's internal or external
financial controls.
Compensation and Stock Option Committee. The Compensation and Stock Option
Committee is currently comprised of Robin Farkas, Joseph Madenberg and Robert
Stokvis. The primary function of the Compensation and Stock Option Committee is
to review and approve the compensation of certain officers of the Company, to
review and approve the granting of stock options to officers and other key
members of management, and to administer the Company's stock option plans.
Strategic Planning Committee. The Strategic Planning Committee is currently
comprised of Robin Farkas, Joseph Madenberg, Robert Stokvis, Irwin Tantleff,
Stanley Greenman and Stewart Katz. This Committee has the responsibility for
developing short- and long-term strategies for the Company's business and
reviewing, from time to time, the Company's progress in implementing such
strategies.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a fee of $2,000 for
each Board meeting they attend. Additionally, directors who are not employees of
the Company receive a fee of $1,000 for attendance at committee meetings held on
a date other than the date of a scheduled Board of Directors meeting.
Under the Company's Outside Directors' 1994 Stock Option Plan, directors who
are not employees of the Company are issued options to purchase 5,000 shares of
Common Stock upon initial election to the Board of Directors. On April 26, 1995,
non-employee directors were automatically issued an option to purchase an
additional 1,000 shares of Common Stock, and pursuant to a plan amendment
approved by stockholders in December 1995, on April 26 of each year thereafter,
such directors will automatically be issued an option to purchase an additional
4,000 shares of Common Stock. The options granted under such plan have a term of
five years and become exercisable as to 50% of the shares on the first
36
<PAGE>
anniversary of the date of the grant and as to the remaining 50% of the shares
on the second anniversary of the date of grant.
Bernard Greenman, a founder and former Chairman of the Board, passed away in
April 1994. Pursuant to a consulting agreement, dated January 31, 1990, by and
between the Company and Mr. Greenman, the Company is obligated to pay Mr.
Greenman's estate the $75,000 annual consulting fee payable under the agreement,
through January 31, 1996. In addition, pursuant to the agreement, the Company is
required to provide coverage or reimbursement for all medical and dental
expenses incurred by Phyllis Greenman, Mr. Greenman's widow, during her
lifetime.
Mr. Joseph Madenberg, a director of the Company since 1993, provides
consulting services to the Company under a consulting agreement with the Company
dated January 18, 1994. Pursuant to the agreement, the Company is required to
pay Mr. Madenberg annual consulting fees totalling $7,300.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
services, in all capacities for fiscal 1995, fiscal 1994 and fiscal 1993, of
those persons who were, at the end of fiscal 1995, the Chief Executive Officer
and the most highly compensated executive officers of the Company (collectively,
the "Three Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL NUMBER OF
COMPENSATION SECURITIES
NAME AND FISCAL ------------------ UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- -------------------------------------------- ------ -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Stanley Greenman............................ 1995 $263,500 None 30,000 $552
Chairman of the Board, 1994 $275,000 None None $613
Chief Executive Officer 1993 $275,000 None 56,250 $360
and Treasurer
Stewart Katz................................ 1995 $241,000 None 30,000 $738
President, Chief Operating 1994 $250,000 None None $996
Officer and Assistant 1993 $250,000 None 56,250 $736
Secretary
William A. Johnson, Jr. .................... 1995 $160,000(2) None None $639
Corporate Vice President, Chief Financial 1994 $157,000 None 7,500 $685
Officer and Secretary 1993 $157,000 None 500 $643
</TABLE>
- ------------
(1) Represents for each of the Three Named Officers the amount contributed as
matching contributions by the Company under the Company's 401(k) Plan.
(2) Includes a retroactive annual increase of $5,000 from fiscal 1994 paid to
Mr. Johnson in fiscal 1995.
The following table sets forth information concerning stock option grants
made during fiscal 1995 to the Three Named Officers. These grants are also
reflected in the Summary Compensation Table. In accordance with Commission
rules, a repricing of outstanding options is treated as a new grant. Also in
accordance with the Commission rules, the hypothetical gains or "option spreads"
for each option grant are shown based on compound annual rates of stock price
appreciation of 5% and 10% from the grant date to the expiration date. The
assumed rates of growth are prescribed by the Securities and Exchange Commission
(the "Commission") and are for illustrative purposes only; they are not intended
to predict
37
<PAGE>
future stock prices, which will depend upon market conditions and the Company's
future performance. The Company has not granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------------- REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM
OPTIONS FISCAL YEAR PRICE EXPIRATION ------------------
NAME GRANTED(#) 1995(1) ($/SHARE)(2) DATE(3) 5% 10%
- ----------------------------------- ---------- ------------ ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Stanley Greenman................... 30,000 31.8% $ 5.50 12/20/99 $45,600 $100,800
Stewart Katz....................... 30,000 31.8% $ 5.50 12/20/99 $45,600 $100,800
William A. Johnson, Jr. ........... None -- -- -- -- --
</TABLE>
- ------------
(1) During fiscal 1995, (a) the expiration date of options to purchase a total
of 12,500 shares held by 2 employees was extended, (b) the exercise price of
such options was increased and (c) options to purchase 81,750 shares were
granted to 17 employees.
(2) The exercise price of the options granted was equal to the fair market value
of the underlying stock on the date of grant.
(3) Options become exercisable in equal installments on the first four
anniversaries of the date of grant. Vesting may be accelerated upon the
occurrence of certain events. See "Management -- Employment Agreements."
The following table sets forth information concerning the number of
unexercised options and the fiscal 1995 year-end value of unexercised options on
an aggregated basis held by each of the Three Named Officers. The Company has
not granted any stock appreciation rights and no options were exercised in
fiscal 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stanley Greenman............................. 112,500 30,000 $14,062 $ 0
Stewart Katz................................. 112,500 30,000 $14,062 $ 0
William A. Johnson, Jr. ..................... 21,250 3,750 $ 8,781 $ 0
</TABLE>
- ------------
(1) Options are "in-the-money" if, on January 28, 1995, the market price of the
Common Stock ($4.5625) exceeded the exercise price of such options. The
value of such options is calculated by determining the difference between
the aggregate market price of the Common Stock underlying the options on
January 28, 1995 as reported on the American Stock Exchange and the
aggregate exercise price of such options.
EMPLOYMENT AGREEMENTS
As of February 1, 1995, the Company entered into employment agreements with
Stanley Greenman and Stewart Katz (collectively, the "Employment Agreements") to
replace the employment agreements with each of them, which expired on January
31, 1995 (the "Old Employment Agreements"). During fiscal years 1993, 1994 and
1995, the employment of Mr. Greenman and Mr. Katz was governed by their Old
Employment Agreements, which provided for base salaries for Mr. Greenman
38
<PAGE>
and Mr. Katz of $250,000 and $225,000, respectively, in each case subject to
increases determined by the Compensation and Stock Option Committee and approved
by the Board of Directors. For fiscal 1995, Mr. Greenman and Mr. Katz requested
that their base salaries, as adjusted in prior years, be reduced by 5% in view
of the transition to the new business plan.
Each of the Employment Agreements provides for employment until January 31,
1998, at annual base salaries of $275,000 (in the case of Mr. Greenman) and
$250,000 (in the case of Mr. Katz), in each case subject to increases determined
by the Compensation and Stock Option Committee and approved by the Board of
Directors. In addition, each of the Employment Agreements, and a separate
agreement for the benefit of William A. Johnson, Jr., provides that in the event
of a Change in Control of the Company (as defined in such agreements) which
results in an actual or constructive termination of employment (as defined in
such agreements), each of the Three Named Officers is entitled to receive
severance pay equal to the difference between 299% of his average annual
compensation for the prior five calendar years and the present value of all
other payments received by him which would be considered as contingent on a
change in control. Exercisability of certain stock options held by the Three
Named Officers would also be accelerated by actual or constructive termination
or hostile takeover events and the value of such accelerated options would be
included in the aforementioned calculation.
In addition, the Employment Agreements provide for the payment of a
performance bonus to each of Mr. Greenman and Mr. Katz (each an "Executive"),
for each of the three fiscal years ended February 3, 1996 ("Year 1"), February
1, 1997 ("Year 2"), and January 31, 1998 ("Year 3"), based upon the net pre-tax
profits or losses of the Company during each such year. The level of the
performance bonus for each year can range from zero to 30% of such Executive's
base salary for the applicable year. If the maximum performance bonus is not
payable for all of Years 1, 2 and 3, each Executive will be paid an additional
bonus if a certain aggregate profit level is reached during Years 1, 2 and 3;
provided, however, that the aggregate performance bonus paid to each Executive
cannot exceed 30% of the total of such Executive's salary during Years 1, 2 and
3. In addition, the maximum amount of the aggregate performance bonus paid to
the Executives shall not exceed 10% of the Company's pre-tax profits (as defined
in the Employment Agreements) for Year 3.
The Employment Agreements also provide that each Executive will be granted
stock options pursuant to the Company's 1994 Stock Incentive Plan based upon the
level of pre-tax profits, net of losses achieved by the Company in Year 1 and
Year 2. The option grant for each year can range from no options to a maximum of
30,000 options. In addition, if the maximum option grant is not awarded for both
Year 1 and Year 2, each Executive will be awarded additional options if a
certain aggregate profit level is reached during Year 1 and Year 2; provided,
however, that in no event will any Executive be granted more than an aggregate
of 60,000 options for Year 1 and Year 2.
The Employment Agreements provide that during the term of employment and, in
the event of the expiration or termination of the Executive's employment, for
one year following such expiration or termination (unless terminated by the
Company without cause, or in the event of a Change in Control) the Executive
shall not, without the Company's written consent, enter into the employ of,
engage in, or become interested in any business competitive with the Company. A
competing business is defined as the operation of stores in specified areas for
the retail sale of educationally oriented products for children.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert Stokvis, Robin Farkas and Joseph Madenberg currently serve as members
of the Compensation and Stock Option Committee of the Board of Directors. Mr.
Madenberg replaced Benjamin Zdatny as a member of the Committee during fiscal
1995. None of Messrs. Stokvis, Farkas or Madenberg is or was formerly an officer
or employee of the Company.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of shares of Common Stock as of December 6, 1995 for (i) each person
or group that is known by the Company to be a beneficial owner of more than 5%
of the outstanding shares Common Stock, (ii) each of the Three Named Officers
and directors, and (iii) the Company's executive officers and directors as a
group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF OWNERSHIP
NAME AND ADDRESS OF SHARES -----------------------------------
BENEFICIAL OWNER** BENEFICIALLY OWNED PRIOR TO OFFERING AFTER OFFERING
- ---------------------------------------------------- ------------------ ----------------- --------------
<S> <C> <C> <C>
Ryback Management Corporation....................... 426,900(1) 8.0% 5.8%
and/or Lindner Fund, Inc.
7711 Carondelet Avenue
Box 16900
St. Louis, MO 63105
Dimensional Fund Advisors Inc....................... 387,000(2) 7.2% 5.3%
1299 Ocean Avenue
Suite 650
Santa Monica, California 90401
Phyllis Greenman,................................... 276,034 5.1% 3.7%
Successor Trustee of the Bernard Greenman
Marital Deduction Trust Under
Agreement Dated March 22, 1991
16915 River Birch Circle
Delray Beach, Florida 33445
Stanley Greenman.................................... 360,022(3) 6.6% 4.8%
105 Price Parkway
Farmingdale, New York 11735
Stewart Katz........................................ 351,607(4) 6.4% 4.7%
105 Price Parkway
Farmingdale, New York 11735
Lester Greenman(5).................................. 182,500 3.4% 2.5%
William A. Johnson, Jr.(5).......................... 9,500 * *
Robert Stokvis(5)................................... 21,750 * *
Barry W. Ridings(5)................................. 3,500 * *
Joseph A. Madenberg(5).............................. 3,000 * *
Robin L. Farkas(5).................................. 3,000 * *
Irwin Tantleff...................................... 1,500 * *
All executive officers and directors as a group (9
persons)........................................... 936,379 16.6% 12.3%
<FN>
- ------------
* Less than 1% of the outstanding Common Stock.
** Address provided for beneficial owners of more than 5% of the Common Stock.
(1) Based upon information contained in a Schedule 13G filed with the Securities and
Exchange Commission on January 25, 1995. Such Schedule states that as of December 31,
1994, Ryback Management Corporation ("Ryback"), a registered investment advisor, had
sole voting and investment power as to 426,900 shares of the Company's Common Stock,
325,300 shares (6.2%) of which are held by Lindner Fund, Inc., a registered investment
company, for which Ryback serves as investment advisor.
(2) Based upon information contained in a Schedule 13G filed with the Securities and
Exchange Commission on January 30, 1995. Such Schedule states that the beneficial owner
has sole voting power as to 245,300 shares and sole investment power as to 387,000
shares. Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 387,000 shares of the Company's
Common Stock, all of which shares are held in portfolios of DFA Investment Dimensions
Group Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust and the DFA
Participating Group Trust, investment vehicles for qualified employee benefit plans,
all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(3) Includes 18,750 shares owned of record by Stanley Greenman as custodian for a child,
with respect to which shares Mr. Greenman disclaims beneficial ownership, and 120,000
shares issuable upon the exercise of options exercisable within 60 days.
(4) Includes 181,200 shares owned of record and beneficially by Stewart Katz's wife, 37,907
shares owned of record by Mr. Katz's children, with respect to which shares Mr. Katz
disclaims beneficial ownership, and 120,000 shares issuable upon the exercise of
options exercisable within 60 days.
(5) Includes shares issuable upon exercise of options exercisable within 60 days as
follows: Lester Greenman (2,500), William A. Johnson, Jr. (8,500), Robert Stokvis
(4,250), Barry W. Ridings (2,500), Joseph A. Madenberg (3,000) and Robin L. Farkas
(3,000).
</TABLE>
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue an aggregate of 15,000,000 shares of
Common Stock, par value $0.001 per share, 5,369,890 of which are issued and
outstanding, net of 924,261 shares of treasury stock (which the Company intends
to retire in the near future), and held by approximately 600 stockholders of
record.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. The holders of Common Stock are
entitled, among other things, (i) to share ratably in dividends if, when and as
declared by the Board of Directors out of funds legally available therefor and
(ii) in the event of liquidation, dissolution or winding-up of the Company, to
share ratably in the distribution of assets legally available therefor, after
payment of debts and expenses. The holders of Common Stock do not have
cumulative voting rights in the election of directors and have no preemptive
rights to subscribe for additional shares of the Company. All currently
outstanding shares of the Common Stock are, and the shares offered hereby, when
sold in the manner contemplated by this Prospectus, will be, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue an aggregate of 1,000,000 shares of
Preferred Stock, par value $0.001 per share, 440,000 shares of which are
designated Series A Junior Participating Preferred and reserved for issuance in
connection with the Company's stockholders' rights agreement (the "Rights
Agreement"). No shares of Preferred Stock are issued and outstanding.
The Board of Directors is authorized to determine, among other things, with
respect to each series that may be issued, (i) the dividend rate and conditions
and the dividend preferences, if any; (ii) whether dividends would be cumulative
and, if so, the date from which dividends on such series would accumulate; (iii)
whether, and to what extent, the holders of such series would enjoy voting
rights, if any, in addition to those prescribed by law; (iv) whether, and upon
what terms, such series would be convertible into or exchangeable for shares of
any other class of capital stock or other series of Preferred Stock; (v)
whether, and upon what terms, such series would be redeemable; (vi) whether or
not a sinking fund would be provided for the redemption of such series and, if
so, the terms and conditions thereof; and (vii) the preference, if any, to which
such series would be entitled in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company. With regard to dividends,
redemption and liquidation preference, any particular series of Preferred Stock
may rank junior to, on a parity with or senior to any other series of Preferred
Stock and the Common Stock.
It is not possible to state the actual effect of the authorization of the
Preferred Stock upon the rights of holders of the Common Stock until the Board
of Directors determines the specific rights of the holders of a series of the
Preferred Stock. However, such effects might include: (i) restriction on
dividends on the Common Stock if dividends on Preferred Stock have not been
paid; (ii) dilution of the voting power of the Common Stock to the extent that
the Preferred Stock has voting rights; (iii) dilution of the equity interest of
the Common Stock to the extent that the Preferred Stock is converted into Common
Stock; or (iv) the Common Stock not being entitled to share in the Company's
assets upon liquidation until satisfaction of any liquidation preference granted
the holders of the Preferred Stock. Issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of the outstanding voting stock. Accordingly, the issuance of Preferred
Stock may be used as an "anti-takeover" device without further action on the
part of the shareholders of the Company. The Company has no present plans to
issue any shares of Preferred Stock.
41
<PAGE>
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain several
provisions intended to limit the possibility of a takeover of the Company. In
addition to providing for a classified Board of Directors and the issuance of
Preferred Stock having terms established by the Board of Directors without
shareholder approval, the Certificate of Incorporation requires that, unless the
actions set forth below are approved by the Board of Directors and a majority of
such approving directors were members of the Board prior to the time the Major
Stockholder (as defined below) involved in such action became a Major
Stockholder, the affirmative vote of not less than 80% of the shares of stock
entitled to vote thereon is required to authorize (i) any merger, reorganization
or consolidation of the Company or of any subsidiary with or into any other
corporation, person or other entity (collectively, "person"), (ii) any sale,
lease, hypothecation, exchange or other disposition (in one transaction or in a
series of related transactions) of all or any substantial part of the assets of
the Company or of any subsidiary to or with any other person, or (iii) any
issuance or transfer by the Company or by any subsidiary of any of its
securities to any other person in exchange for assets or securities (or a
combination thereof) having an aggregate fair market value of 15% or more of the
consolidated assets of the Company immediately preceding the record date for
determination of stockholders entitled to notice thereof and to vote thereon, if
in any such case the person which is a party to such action beneficially owns
(as defined therein) 15% or more of the outstanding capital stock of the Company
(a "Major Stockholder").
Pursuant to the Rights Agreement maintained by the Company, each outstanding
share of the Company's Common Stock carries a stock purchase right. Under
certain circumstances, as defined in the 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 $0.01 each until such a person
or group acquires 15% of the Company's Common Stock or until the rights expire
on May 15, 1998. The exercise of any rights under the Rights Agreement may
discourage unsolicited takeover bids by third parties.
Section 203 of the Delaware General Corporation Law ("Delaware GCL")
prohibits certain "business combination" transactions between a publicly held
Delaware corporation, such as the Company after this offering, and any
"interested stockholder" for a period of three years after the date on which
such stockholder became an interested stockholder, unless (i) the board of
directors approves, prior to such date, either the proposed business combination
or the proposed acquisition of stock which resulted in the stockholder becoming
an interested stockholder, (ii) upon consummation of the transaction in which
the stockholder becoming an interested stockholder, the interested stockholder
acquires at least 85% of those shares of the voting stock of the corporation
which are not held by the directors, officers or certain employee stock plans or
(iii) on or subsequent to the consummation date, the business combination with
the interested stockholder is approved by the board of directors and also
approved at a stockholders' meeting by the affirmative vote of the holders of at
least two-thirds of the outstanding shares of the corporation's voting stock
other than shares held by the interested stockholder. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The applicability of this provision to the Company
may discourage unsolicited takeover bids by third parties. A corporation may, at
its option, exclude itself from the coverage of Section 203 by amending its
charter or by-laws by action of its stockholders to exempt itself from coverage,
provided that such by-law or charter amendment shall not become effective until
twelve months after the date it is adopted. To date, the Company has not elected
to opt out of Section 203 of the Delaware GCL pursuant to its terms.
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services, Washington Bridge Station, P.O. Box
469, New York, New York 10033, is the transfer agent and registrar for the
securities of the Company.
42
<PAGE>
UNDERWRITING
The Underwriters named below, for whom PaineWebber Incorporated and Rodman &
Renshaw, Inc. are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the "Underwriting Agreement"), to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the number of shares of Common
Stock set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------- -----------
<S> <C>
PaineWebber Incorporated.......................................................
Rodman & Renshaw, Inc..........................................................
-----------
Total.................................................................. 2,000,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock offered hereby are subject to certain
conditions. The Underwriters are committed to purchase, and the Company is
obligated to sell, all of the shares of Common Stock offered by this Prospectus
(other than those covered by the over-allotment option described below), if any
are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain securities dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
concessions of not more than $ per share on sales to certain other dealers.
After the public offering, the offering price and concessions may be changed by
the Representatives.
The Company has granted to the Underwriters an option, exercisable within
the 30-day period after the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriters may exercise such option only to cover
over-allotments, if any, in the sale of the shares of Common Stock offered
hereby. To the extent that such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each
Underwriter bears to the 2,000,000 shares of Common Stock offered hereby.
The Company, its executive officers and directors and a principal
stockholder have agreed not to (a) sell, offer to sell or otherwise dispose of
shares of Common Stock or securities convertible into
43
<PAGE>
Common Stock or (b) sell, offer to sell, contract to sell, or grant rights,
options, warrants or other rights to shares with respect to Common Stock or
securities convertible into Common Stock, prior to the expiration of 150 days
from the date of this Prospectus, without the prior written consent of
PaineWebber Incorporated, other than pursuant to existing employee stock option
plans or in connection with other employee incentive compensation arrangements
of the Company and issuances of Common Stock upon exercise of options
outstanding as of the date of this Prospectus.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates may engage in passive market
making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") during the two business day period before
commencement of offers or sales of the Common Stock. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for such security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
EXPERTS
The financial statements and schedule included or incorporated by reference
in this prospectus and elsewhere in the registration statement have been audited
by Janover Rubinroit, LLC, independent certified public accountants, as set
forth in their report thereon and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919
Third Avenue, New York, New York 10022. Certain legal matters in connection with
the Common Stock offered hereby will be passed upon for the Underwriters by
Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York,
New York 10019.
44
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C., a Registration Statement on Form S-1 (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act of 1933, with respect to the shares of Common Stock offered
hereby. This prospectus constitutes a part of the Registration Statement and
does not contain all the information set forth therein. Any statements contained
herein concerning the provisions of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. For further information regarding
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits thereto.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024 of the Commission's office at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company distributes to its stockholders, annual reports containing
audited financial statements and an opinion thereon by the Company's independent
public accountants, and quarterly reports containing unaudited summary financial
information for each of the first three fiscal quarters of each fiscal year.
45
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of January 29, 1994, January 28, 1995 and
October 28, 1995.................................................................... F-3
Consolidated Statements of Operations for each of the three fiscal years ended January
28, 1995 and for each of the thirty-nine week periods ended October 29, 1994
(unaudited) and October 28, 1995.................................................... F-4
Consolidated Statements of Stockholders' Equity for each of the three fiscal years
ended January 28, 1995 and for the thirty-nine week period ended October 28, 1995... F-5
Consolidated Statements of Cash Flows for each of the three fiscal years ended January
28, 1995 and for each of the thirty-nine week periods ended October 29, 1994
(unaudited) and October 28, 1995.................................................... F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Noodle Kidoodle, Inc. (formerly Greenman Bros. Inc.):
We have audited the accompanying consolidated balance sheets of Noodle
Kidoodle, Inc. (formerly Greenman Bros. Inc.) and Subsidiaries as of January 29,
1994, January 28, 1995, and October 28, 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three fiscal years ended January 28, 1995 and for the thirty-nine week period
ended October 28, 1995. Our audits also include the financial statement schedule
listed in the index at Item 16(b) of the Registration Statement. 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 January 29, 1994, January 28, 1995, and
October 28, 1995, and the results of their operations and cash flows for each of
the three fiscal years ended January 28, 1995 and for the thirty-nine week
period ended October 28, 1995 in conformity with generally accepted accounting
principles. Further, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Janover Rubinroit, LLC
New York, New York
December 13, 1995,
except as to Note 14
which is as of
January 19, 1996
F-2
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, OCTOBER 28,
1994 1995 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 5,764 $10,908 $ 6,548
Short-term investments................................... 1,000 -- --
Merchandise inventories.................................. 6,319 4,330 12,437
Prepaid expenses and other current assets................ 1,075 1,551 1,888
Recoverable income taxes................................. -- 1,429 --
Net assets of discontinued operations.................... 31,217 24,621 6,327
----------- ----------- -----------
Total current assets................................. 45,375 42,839 27,200
Property, plant and equipment at cost...................... 6,476 7,752 14,843
Less accumulated depreciation............................ (2,726) (2,589) (3,221)
----------- ----------- -----------
3,750 5,163 11,622
Other assets............................................... 504 40 50
----------- ----------- -----------
Total Assets............................................. $49,629 $48,042 $38,872
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................... $ 2,387 $ 2,262 $ 7,191
Accrued expenses and taxes............................... 3,041 4,777 5,237
Income taxes............................................. 137 133 --
----------- ----------- -----------
Total current liabilities............................ 5,565 7,172 12,428
Commitments and contingencies.............................. -- -- --
Stockholders' equity:
Preferred Stock-authorized 500,000 shares, par value
$1.00 (none issued).................................... -- -- --
Common Stock-authorized 10,000,000 shares, par value
$0.10; issued 6,119,348, 6,185,301 and 6,292,701
shares, respectively................................... 612 619 629
Capital in excess of par value........................... 25,608 25,801 26,294
Retained earnings........................................ 21,636 18,242 3,313
Less treasury stock, at cost-924,261 shares.............. (3,792) (3,792) (3,792)
----------- ----------- -----------
Total stockholders' equity........................... 44,064 40,870 26,444
----------- ----------- -----------
Total Liabilities and Stockholders' Equity............... $49,629 $48,042 $38,872
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEARS ENDED ENDED
----------------------------------------- ----------------------
OCTOBER OCTOBER
JANUARY 30, JANUARY 29, JANUARY 28, 29, 28,
1993 1994 1995 1994 1995
----------- ----------- ----------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales........................... $18,250 $20,712 $23,308 $12,042 $ 13,508
Costs and expenses:
Cost of products sold including
buying and warehousing costs.... 12,779 14,569 16,192 8,214 8,784
Selling and administrative
expenses........................ 6,645 8,401 10,790 6,937 10,563
Provision for restructured
operations...................... -- -- 3,900 3,500 500
----------- ----------- ----------- --------- ---------
19,424 22,970 30,882 18,651 19,847
----------- ----------- ----------- --------- ---------
Operating loss.................... (1,174) (2,258) (7,574) (6,609) (6,339 )
Interest income..................... 624 392 372 299 501
Interest expense.................... (143) (115) (75) (56) (32 )
----------- ----------- ----------- --------- ---------
Loss from continuing operations
before income taxes............. (693) (1,981) (7,277) (6,366) (5,870 )
Income taxes (benefit).............. (268) (801) (2,787) (2,547) --
----------- ----------- ----------- --------- ---------
Net loss from continuing
operations.......................... (425) (1,180) (4,490) (3,819) (5,870 )
----------- ----------- ----------- --------- ---------
Discontinued operations:
Income (loss) net of income tax
expense of $1,407, $1,282, $685,
$15 and $0, respectively........ 2,226 1,889 1,096 22 (1,914 )
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......... 2,226 1,889 1,096 22 (9,059 )
----------- ----------- ----------- --------- ---------
Net income (loss)................. $ 1,801 $ 709 $(3,394) $(3,797) $(14,929 )
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Net income (loss) per share:
Continuing operations............. $ (.08) $ (.22) $ (.86) $ (.73) $ (1.11 )
Discontinued operations........... .40 .35 .21 -- (1.71 )
----------- ----------- ----------- --------- ---------
Net income (loss)................. $ .32 $ .13 $ (.65) $ (.73) $ (2.82 )
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Weighted average shares
outstanding....................... 5,574,547 5,338,012 5,220,222 5,206,615 5,301,702
<CAPTION>
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL TREASURY STOCK
COMMON STOCK IN EXCESS (AT COST)
---------------- OF PAR RETAINED ----------------
SHARES AMOUNT VALUE EARNINGS SHARES AMOUNT
------ ------ --------- -------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance--February 1, 1992.................. 6,051 $605 $ 25,281 $ 19,126 511 $1,920
Exercise of stock options
including related tax benefits......... 66 7 313 -- -- --
Net income for the year.................. -- -- -- 1,801 -- --
------ ------ --------- -------- ------ ------
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................ 107 10 493 -- -- --
Net loss for the period.................. -- -- -- (14,929) -- --
------ ------ --------- -------- ------ ------
Balance--October 28, 1995.................. 6,292 $629 $ 26,294 $ 3,313 924 $3,792
------ ------ --------- -------- ------ ------
------ ------ --------- -------- ------ ------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------------- -------------------------------
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28,
1993 1994 1995 1994 1995
----------- ----------- ----------- -------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss from continuing
operations................... $ (425) $(1,180) $(4,490) $ (3,819) $(5,870)
Adjustments to reconcile to net
cash provided (used):
Depreciation................. 219 297 499 437 648
Restructuring charges--non-
cash portion............... -- -- 834 3,500 500
Decrease (increase) in non-
cash working capital
accounts:
Merchandise inventories.... (1,503) (226) 1,989 (3,317) (8,107)
Prepaid expenses and other
current assets........... (1,518) 636 (1,905) (2,030) 1,092
Trade accounts payable..... 1,225 (196) (125) 1,626 4,929
Accrued expenses and
taxes.................... (609) 677 1,732 (1,131) (173)
----------- ----------- ----------- -------------- -----------
Net cash provided by (used in)
continuing operations........ (2,611) 8 (1,466) (4,734) (6,981)
----------- ----------- ----------- -------------- -----------
Net income (loss) from
discontinued operations...... 2,226 1,889 1,096 22 (9,059)
Adjustments to reconcile to net
cash provided (used):
Depreciation and other non-
cash changes............... 1,933 899 775 655 867
Decrease (increase) in non-
cash working capital
accounts and other......... 1,700 (5,836) 7,195 5,123 17,562
----------- ----------- ----------- -------------- -----------
Net cash provided by (used in)
discontinued operations...... 5,859 (3,048) 9,066 5,800 9,370
----------- ----------- ----------- -------------- -----------
Net cash provided by (used in)
operating activities......... 3,248 (3,040) 7,600 1,066 2,389
----------- ----------- ----------- -------------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
securities................... -- 2,987 1,000 1,000 --
Purchase of securities......... (2,987) (1,000) -- -- --
Property additions:
Continuing operations........ (646) (935) (2,751) (1,893) (7,118)
Discontinued operations...... (520) (1,071) (1,213) (934) (86)
Other........................ 234 206 492 583 --
----------- ----------- ----------- -------------- -----------
Net cash provided by (used in)
investing activities........... (3,919) 187 (2,472) (1,244) (7,204)
----------- ----------- ----------- -------------- -----------
</TABLE>
F-6
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------------- -------------------------------
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28,
1993 1994 1995 1994 1995
----------- ----------- ----------- -------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of obligations under
capital leases............... (56) (60) (64) (45) (48)
Purchase of treasury stock..... -- (1,872) -- -- --
Exercise of employee options... 290 14 80 79 503
----------- ----------- ----------- -------------- -----------
Net cash provided by (used in)
financing activities........... 234 (1,918) 16 34 455
----------- ----------- ----------- -------------- -----------
Net increase (decrease) in cash
and cash equivalents......... (437) (4,771) 5,144 (144) (4,360)
Cash and cash equivalents--
beginning of period.......... 10,972 10,535 5,764 5,764 10,908
----------- ----------- ----------- -------------- -----------
Cash and cash equivalents--end
of period.................... $10,535 $ 5,764 $10,908 $ 5,620 $ 6,548
----------- ----------- ----------- -------------- -----------
----------- ----------- ----------- -------------- -----------
SUPPLEMENTAL CASH FLOW
INFORMATION:
Net cash paid (received) during
the period for:
Interest expense............. $ 143 $ 115 $ 75 $ 56 $ 32
Income taxes, net............ 1,633 1,068 328 308 (1,522)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<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. Intercompany balances and material
transactions are eliminated in consolidation. The Company and its subsidiaries
are and will continue to be on a 52-53 week accounting period ending on the
Saturday closest to January 31. Fiscal 1993, 1994 and 1995 each contained 52
weeks.
INTERIM FINANCIAL INFORMATION
The information provided in the consolidated financial statements for the
thirty-nine weeks ended October 29, 1994 is unaudited but includes all
adjustments which, in the opinion of management, are necessary for a fair
presentation of results for the interim period reported. All adjustments were of
a normal and recurring nature.
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; investments with maturities between
three and twelve months are considered to be short-term investments. These
investments are stated at cost which approximates market value. 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.
F-8
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
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.
Summary operating results from discontinued operations are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------------- --------------------------
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28,
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 136,488 $ 122,138 $ 113,194 $80,729 $50,635
Gross profit......................... 31,035 26,711 24,604 17,069 9,164
Operating income (loss).............. 3,633 3,171 1,781 37 (1,914)
Provision for discontinued
operations......................... -- -- -- -- 7,145
Net income (loss).................... 2,226 1,889 1,096 22 (9,059)
</TABLE>
Net assets of discontinued operations represent total assets less
liabilities of the Company's wholesale business segment. Net assets of this
segment at October 28, 1995 consist principally of accounts receivable,
inventories and properties of $10,487,000 less accounts payable, accrued
expenses, and capitalized lease obligations of $4,160,000.
F-9
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, OCTOBER 28,
1994 1995 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land....................................................... $ 272 $ 272 $ 272
Buildings and improvements................................. 1,356 1,506 1,657
Fixtures and equipment..................................... 2,713 2,797 5,618
Leasehold improvements..................................... 2,135 3,177 7,296
----------- ----------- -----------
6,476 7,752 14,843
Less accumulated depreciation.............................. (2,726) (2,589) (3,221)
----------- ----------- -----------
$ 3,750 $ 5,163 $ 11,622
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 4--ACCRUED EXPENSES AND TAXES:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, OCTOBER 28,
1994 1995 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Payroll and related benefits............................... $ 336 $ 406 $ 755
Insurance.................................................. 357 289 706
Restructuring charges...................................... 579 2,476 1,573
Fixtures and equipment..................................... 66 144 615
Other...................................................... 1,703 1,462 1,588
----------- ----------- -----------
$ 3,041 $ 4,777 $ 5,237
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 5--CREDIT FACILITY:
The Company has a secured line of credit with a bank which provides maximum
borrowings of $12.5 million in short-term loans and commercial letters of credit
that expires on June 30, 1996. Credit availability under the line is subject to,
among other things, a borrowing base formula of 75% of eligible accounts
receivable and 50% of eligible inventory (maximum inventory of $6.25 million) of
the wholesale segment. Eligible assets at October 28, 1995 would result in
availability of $5.0 million under the provisions of the line of credit.
Interest on borrowings is at the bank's prime rate plus 0.5% or at a Eurodollar
rate. The Company had no borrowings under this facility during the thirty-nine
week period ended October 28, 1995. Management intends to replace this credit
facility upon expiration.
F-10
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES:
Minimum annual commitments under non-cancelable leases in effect at October
28, 1995 are as follows:
<TABLE>
<CAPTION>
SUBLEASE
OPERATING RENTAL
LEASES INCOME
--------- --------
(IN THOUSANDS)
<S> <C> <C>
1996 (three months)....................................................... $ 1,409 $ 164
1997...................................................................... 6,383 517
1998...................................................................... 6,078 152
1999...................................................................... 6,061 157
2000...................................................................... 6,037 161
2001...................................................................... 6,106 166
Thereafter................................................................ 29,631 525
--------- --------
Total minimum obligations........................................... $61,705 $1,842
--------- --------
--------- --------
</TABLE>
At October 28, 1995, 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>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------------- --------------------------
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 29, OCTOBER 28,
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Minimum rentals...................... $ 1,320 $ 1,647 $ 1,850 $ 1,304 $ 1,940
Taxes and other costs................ 655 635 1,027 712 855
Sublease rentals..................... (851) (837) (953) (777) (813)
----------- ----------- ----------- ----------- -----------
$ 1,124 $ 1,445 $ 1,924 $ 1,239 $ 1,982
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
LITIGATION
Several lawsuits are pending against the Company. In the opinion of
management, the Company has meritorious defenses or is covered by 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.
F-11
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--CAPITAL STOCK:
PREFERRED STOCK
The Company has 500,000 authorized (non-issued) shares of preferred stock,
par value $1.00, consisting of 440,000 shares of Series A Junior Participating
Preferred reserved for use under the Company's Rights Agreement and the
remainder for other unspecified purposes. See Note 14-- Subsequent Events.
STOCKHOLDERS' RIGHTS AGREEMENT
Each outstanding share of the Company's common stock carries a stock
purchase right. Under certain circumstances, as defined in the Company's 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 intends 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.
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
(SARs), 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. SARs 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 SARs, 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
In 1994, the Company adopted the 1994 Outside Directors' Stock Option Plan
(the "Stock Option Plan") and reserved 75,000 shares of common stock for the
issuance of stock options related to this plan.
F-12
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--STOCK OPTIONS:--(CONTINUED)
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 1,000 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. See Note 14--Subsequent Events.
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.
The following summary sets forth the activity under the Company's stock
incentive plans:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
THIRTY-NINE WEEKS ENDED
JANUARY 29, 1994 JANUARY 28, 1995 OCTOBER 28, 1995
--------------------- ---------------------- -----------------------
SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE
------- ----------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period......................... 576,503 $3.50-$6.25 582,878 $3.50-$6.25 501,459 $3.50-$ 6.50
Granted........................ 22,000 $4.13-$5.00 96,750 $5.50-$6.50 213,500 $4.56-$13.13
Exercised...................... (2,100) $4.00-$4.50 (168,544) $4.00-$4.50 (107,400) $4.00-$ 6.50
Terminated..................... (13,525) $3.75-$4.81 (9,625) $4.00-$6.25 (18,000) $4.50-$ 6.50
------- -------- --------
Outstanding at end of period... 582,878 $3.50-$6.25 501,459 $3.50-$6.50 589,559 $3.50-$13.13
------- ----------- -------- ----------- -------- ------------
------- ----------- -------- ----------- -------- ------------
Exercisable at end of period... 540,228 $3.50-$6.25 384,209 $3.50-$6.50 290,341 $3.50-$ 6.50
------- ----------- -------- ----------- -------- ------------
------- ----------- -------- ----------- -------- ------------
Available for grant at end of
period......................... 115,886 -- 484,250 -- 279,250 --
------- -------- --------
------- -------- --------
</TABLE>
NOTE 9--TAXES ON INCOME:
Income taxes consist of the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTY-NINE
----------------------------------------- WEEKS ENDED
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 28,
1993 1994 1995 1995
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal............................... $951 $180 $(1,429) $ --
State and local....................... 361 184 -- --
----------- ----------- ----------- -----------
1,312 364 (1,429) --
Deferred................................ (173) 117 (673) 1,602
----------- ----------- ----------- -----------
1,139 481 (2,102) 1,602
Discontinued operations................. 1,407 1,282 685 1,602
----------- ----------- ----------- -----------
Continuing operations................... $(268) $(801) $(2,787) $ --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-13
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--TAXES ON INCOME:--(CONTINUED)
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>
FISCAL YEARS ENDED THIRTY-NINE
----------------------------------------- WEEKS ENDED
JANUARY 30, JANUARY 29, JANUARY 28, OCTOBER 28,
1993 1994 1995 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federal at statutory rates..................... 34% 34% (34)% (34)%
State and local taxes, net of federal tax
benefits....................................... 6 6 (4) (4)
Losses with no current tax benefit............. -- -- -- 38
Other.......................................... (1) -- -- --
-- --
--- ---
39% 40% (38)% --%
-- --
-- --
--- ---
--- ---
</TABLE>
The components of deferred tax assets (liabilities) consist of the
following:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, OCTOBER 28,
1994 1995 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforwards (expires 2011)............ $ -- $ -- $ 5,545
Capitalizable inventory costs.............................. 529 411 160
Allowance for doubtful accounts............................ 297 393 542
Restructured operations and other.......................... 393 1,011 864
----------- ----------- -----------
Gross deferred tax assets.................................. 1,219 1,815 7,111
----------- ----------- -----------
Depreciation............................................... (290) (213) (131)
----------- ----------- -----------
Gross deferred tax liabilities........................... (290) (213) (131)
----------- ----------- -----------
Net deferred tax assets.................................. 929 1,602 6,980
----------- ----------- -----------
Valuation allowance........................................ -- -- 6,980
----------- ----------- -----------
Net tax assets included in net assets from discontinued
operations................................................. $ 929 $ 1,602 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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. At January 28, 1995, management had determined, based on the
Company's history of prior operating earnings and its expectations for the
future, that operating income of the Company would, more likely than not, be
sufficient to recognize fully these net deferred tax assets.
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. The provision for income taxes included in discontinued operation for
the thirty-nine weeks ended October 28, 1995 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.
The tax provision for the thirty-nine weeks ended October 29, 1994 was based
upon management's estimate of its annualized effective tax rate.
F-14
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 nor 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.
"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 the current period
primarily to reflect the closing of one store that was not anticipated
previously.
NOTE 13--INTERIM FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Fiscal year ending February 3, 1996:
Sales................................................ $ 3,281 $ 3,939 $ 6,288
Gross profit......................................... 1,162 1,396 2,166
Net loss:
Continuing operations.............................. (1,226) (1,674) (2,970)
Discontinued operations............................ (840) (8,219) --
------- ------- -------
Net loss......................................... $(2,066) $(9,893) $(2,970)
------- ------- -------
------- ------- -------
Net loss per share:
Continuing operations.............................. $ (.23) $ (.32) $ (.55)
Discontinued operations............................ (.16) (1.55) --
------- ------- -------
Net loss per share............................... $ (.39) $ (1.87) $ (.55)
------- ------- -------
------- ------- -------
Weighted average shares................................ 5,263 5,287 5,356
------- ------- -------
------- ------- -------
</TABLE>
F-15
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--INTERIM FINANCIAL DATA (UNAUDITED):--(CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
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................................ 5,200 5,202 5,218 5,261
------- ------- ------- -------
------- ------- ------- -------
Fiscal year ended January 29, 1994:
Sales................................................ $ 3,410 $ 3,144 $ 3,242 $10,916
Gross profit......................................... 1,004 986 924 3,229
Net income (loss):
Continuing operations.............................. (359) (404) (505) 88
Discontinued operations............................ 170 62 829 828
------- ------- ------- -------
Net income (loss)................................ $ (189) $ (342) $ 324 $ 916
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per share:
Continuing operations.............................. $ (.06) $ (.07) $ (.09) $ .01
Discontinued operations............................ .03 .01 .15 .16
------- ------- ------- -------
Net income (loss) per share...................... $ (.03) $ (.06) $ .06 $ .17
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares................................ 5,562 5,353 5,193 5,194
------- ------- ------- -------
------- ------- ------- -------
</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 December 12, 1995, the Company's Board of Directors approved a public
offering of Common Stock (the "Offering"). These financial statements are
intended to be part of the Prospectus for the Offering, in which the Company is
offering 2,000,000 shares of its Common Stock. The net proceeds from the
Offering will be used primarily to finance the Company's store expansion plans
as well as for general corporate purposes, including up to $1.0 million to
improve its MIS software capabilities in fiscal 1997.
F-16
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--SUBSEQUENT EVENTS:--(CONTINUED)
SPECIAL MEETING OF STOCKHOLDERS
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.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 11
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Capitalization........................ 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 25
Management............................ 34
Principal Stockholders................ 40
Description of Capital Stock.......... 41
Underwriting.......................... 43
Experts............................... 44
Legal Matters......................... 44
Available Information................. 45
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
["Noodle Kidoodle" Logo]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
PAINEWEBBER INCORPORATED
RODMAN & RENSHAW, INC.
-------------------
FEBRUARY , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than the underwriting
discounts and commissions) are estimated to be as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................ $ 10,202
NASD Filing Fee................................................. 3,459
Legal Fees and Expenses......................................... 200,000
Accounting Fees and Expenses.................................... 100,000
Printing and Engraving Expenses................................. 100,000
Transfer Agent and Registrar Fees and Expenses.................. 10,000
Miscellaneous Expenses.......................................... 26,339
--------
Total Expenses............................................ $450,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
To the fullest extent that limitations on the liability of directors and
officers are permitted by the Delaware GCL, no director or officer of the
Registrant shall have any liability to the Registrant or its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Registrant whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted.
The Registrant shall indemnify and advance expenses to its currently acting
and its former directors to the fullest extent that indemnification of directors
is permitted by the Delaware GCL. The Registrant shall indemnify and advance
expenses to its officers to the same extent as its directors and to such further
extent as is consistent with law. The Board of Directors may, through a by-law,
resolution or agreement, make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Delaware GCL.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
There have been no sales of unregistered securities by the Registrant during
the past three years.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as Exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant currently in effect, with all
amendments thereto
3.2 (New York) Certificate of Merger of Noodle Kidoodle, Inc., a New York corporation,
into Noodle Kidoodle, Inc., a Delaware corporation*
3.3 Agreement and Plan of Merger of Noodle Kidoodle, Inc., a New York corporation, and
Noodle Kidoodle, Inc., a Delaware corporation*
3.4 By-Laws of Registrant
3.5 (Delaware) Certificate of Merger of Noodle Kidoodle, Inc. (a New York corporation)
into Noodle Kidoodle, Inc. (a Delaware corporation)*
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 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)
5.1 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as to the legality of
the Common Stock*
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 30, 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
11.1 Computation of Earnings Per Share
21.1 Subsidiaries of Registrant*
23.1 Consent of Janover Rubinroit, LLC*
23.2 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (contained in the
opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (set forth on the signature page of this Registration
Statement)
</TABLE>
II-2
<PAGE>
(b) The following documents are filed as Schedules to this Registration
Statement:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------------------------------------------------------------------
<C> <S>
VIII Valuation and Qualifying Accounts For the Fiscal Years Ended January 30, 1993,
January 29, 1994 and January 28, 1995 and the Thirty-Nine Weeks Ended October 29,
1994 and October 28, 1995
</TABLE>
- ------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registration in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Farmingdale,
County of Suffolk, State of New York, on February 9, 1996.
NOODLE KIDOODLE, INC.
By: /s/ STANLEY GREENMAN
..................................
Name: Stanley Greenman
Title: Chairman of the Board,
Chief Executive Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- ----------------------------- -----------------
<S> <C> <C>
/s/ STANLEY GREENMAN Chairman of the Board, Chief February 9, 1996
...................................... Executive Officer and
Stanley Greenman Treasurer
(Principal Executive
Officer)
* President, Chief Operating February 9, 1996
...................................... Officer and
Stewart Katz Assistant Secretary
/s/ WILLIAM A. JOHNSON, JR. Vice President, Chief February 9, 1996
...................................... Financial
William A. Johnson, Jr. Officer and Secretary
(Principal Financial and
Accounting Officer)
* Director February 9, 1996
......................................
Lester Greenman
* Director February 9, 1996
......................................
Barry W. Ridings
* Director February 9, 1996
......................................
Irwin Tantleff
* Director February 9, 1996
......................................
Joseph Madenberg
* Director February 9, 1996
......................................
Robert Stokvis
* Director February 9, 1996
......................................
Robin Farkas
*By: /s/ STANLEY GREENMAN
..................................
Stanley Greenman
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED JANUARY 30, 1993, JANUARY 29, 1994 AND JANUARY 28,
1995 AND THE THIRTY-NINE WEEKS ENDED OCTOBER 29, 1994 AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
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
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For estimated losses in collection:
Year ended January 30, 1993........ $2,000 $ 42 $ -- $813(a) $1,229
Year ended January 29, 1994........ $1,229 $275 $ -- $630(a) $ 874
Year ended January 28, 1995........ $ 874 $250 $ -- $141(a) $ 983
Thirty-nine weeks ended October 29,
1994................................. $ 874 $296 $ -- $ -- $1,170
Thirty-nine weeks ended October 28,
1995................................. $ 983 $581 $ -- $138(a) $1,426
</TABLE>
- ------------
(a) Write-offs net of recoveries
All amounts are included in discontinued operations.
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------ ------------------------------------------------------------------------ ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Registrant currently in effect, with all
amendments thereto
3.2 (New York) Certificate of Merger of Noodle Kidoodle, Inc., a New York
corporation, into Noodle Kidoodle, Inc., a Delaware corporation*
3.3 Agreement and Plan of Merger of Noodle Kidoodle, Inc., a New York
corporation, into Noodle Kidoodle, Inc., a Delaware corporation*
3.4 By-Laws of Registrant
3.5 (Delaware) Certificate of Merger of Noodle Kidoodle, Inc. (a New York
corporation) into Noodle Kidoodle, Inc. (a Delaware corporation)*
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 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)
5.1 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as to the
legality of the Common Stock*
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 30, 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
11.1 Computation of Earnings Per Share
21.1 Subsidiaries of Registrant*
23.1 Consent of Janover Rubinroit, LLC*
23.2 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (contained
in the opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (set forth on the signature page of this Registration
Statement)
</TABLE>
- ------------
* Filed herewith.
CERTIFICATE OF MERGER
of
NOODLE KIDOODLE, INC.
(a New York corporation)
into
NOODLE KIDOODLE, INC.
(a Delaware corporation)
(Under Section 907 of the Business Corporation Law)
It is hereby certified, upon behalf of each of the constituent
corporations herein named, as follows:
FIRST: The Board of Directors of each of the constituent corporations
has duly adopted an agreement and plan of merger ("Plan of Merger") setting
forth the terms and conditions of the merger of said corporations.
SECOND: The name of the foreign constituent corporation, which is to
be the surviving corporation, and which is hereinafter sometimes referred to as
the "surviving constituent corporation", is Noodle Kidoodle, Inc., a Delaware
corporation. The date of its incorporation in Delaware is January 18, 1996.
No Application for Authority in the State of New York of the surviving
constituent corporation to transact business as a foreign corporation therein
was filed by the Department of State of the State of New York; and it shall not
do business in the State of New York until an Application for Authority shall
have been filed by the Department of State of the State of New York.
THIRD: The name of the domestic constituent corporation, which is
being merged into the surviving constituent corporation, and which is
hereinafter sometimes referred to as the "merged constituent corporation", is
Noodle Kidoodle, Inc. ("Noodle Kidoodle-NY"), a New York corporation. The date
upon which its certificate of incorporation was filed by the Department of State
is October 1, 1946.
FOURTH: As to each constituent corporation, the Plan of Merger sets
forth the designation and number of outstanding shares of each class and series,
the specification of the classes and series entitled to vote on the Plan of
Merger, and the specification of each class and series entitled to vote as a
class on the Plan of Merger, as follows:
(a) Noodle Kidoodle-NY, a New York corporation: as of the date
hereof there are 5,369,690 shares of its common stock, $.10 par value per share,
and no shares of preferred
<PAGE>
stock, $.10 per value par share, outstanding, all of which shares of common
stock are of one class and each of which is entitled to vote. The number of the
aforesaid outstanding shares is subject to change prior to the effective date of
the merger by reason of the issuance of additional shares.
(b) Noodle Kidoodle, Inc., a Delaware corporation: as of the date
hereof there are no outstanding shares of its capital stock. The number of
aforesaid outstanding shares is not subject to change prior to the effective
date of the merger.
FIFTH: The merger herein certified was authorized in respect of the
merged constituent corporation by the vote of the holders of at least two-thirds
of all outstanding shares of the corporation entitled to vote on the Plan of
Merger under the certificate of incorporation and by the class vote of the
holders of at least a majority of all outstanding shares of each class which
are denied voting power under the certificate of incorporation, but which are
entitled to vote by class under paragraph (a)(2) of section 903 of the Business
Corporation Law.
SIXTH: The merger herein certified is permitted by the laws of the
State of Delaware and is in compliance with said laws.
SEVENTH: The surviving constituent corporation agrees that it may be
served with process in the State of New York in any action or special proceeding
for the enforcement of any liability of or obligation of the merged constituent
corporation, for the enforcement of any liability of or obligation of the
surviving constituent corporation for which the surviving constituent
corporation is previously amenable to suit in the State of New York, and for the
enforcement, as provided in the Business Corporation Law of the State of New
York, of the right of shareholders of the merged constituent corporation to
receive payment for their shares against the surviving constituent corporation.
EIGHTH: The surviving constituent corporation agrees that, subject to
the provisions of section 623 of the Business Corporation Law of the State of
New York, it shall promptly pay to the shareholders of the merged constituent
corporation the amount, if any, to which they shall be entitled under the
provisions of the Business Corporation Law of the State of New York relating to
the rights of shareholders to receive payment for their shares.
NINTH: The surviving constituent corporation hereby designates the
Secretary of State of the State of New York as its agent upon whom process
against it may be served in the manner set forth in paragraph (b) of section 306
of the Business Corporation Law of the State of New York in any action or
special proceeding. The post office address within the State of New York to
which the said Secretary of State shall mail a copy of any process against the
surviving constituent corporation served upon him is:
Noodle Kidoodle, Inc.
105 Price Parkway
Farmingdale, New York 11735
Attn: Stanley Greenman
- 2 -
<PAGE>
IN WITNESS WHEREOF, I have subscribed this document on the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by me and are true and correct.
Date: January 19, 1996
NOODLE KIDOODLE, INC.
(a New York corporation)
By: /s/ Stewart Katz
Stewart Katz
President
and
By: /s/ William A. Johnson, Jr.
William A. Johnson, Jr.
Secretary
NOODLE KIDOODLE, INC.
(a Delaware corporation)
By: /s/ Stewart Katz
Stewart Katz
President
and
By: /s/ William A. Johnson, Jr.
William A. Johnson, Jr.
Secretary
- 3 -
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
Stewart Katz, being duly sworn, deposes and says that he is one of the
persons who signed the foregoing certificate of merger on behalf of Noodle
Kidoodle, Inc., a New York corporation; that he signed said certificate in the
capacity set opposite or beneath his signature thereon; that he has read the
foregoing certificate and knows the contents thereof; and that the statements
contained therein are true to his own knowledge.
/ s/ Stewart Katz
Stewart Katz, President
Subscribed and sworn to
before me on January 19, 1996.
/s/ Joan Pearce
Notary Public
[STAMP]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
William A. Johnson, Jr., being duly sworn, deposes and says that he is
one of the persons who signed the foregoing certificate of merger on behalf of
Noodle Kidoodle, Inc., a New York corporation; that he signed said certificate
in the capacity set opposite or beneath his signature thereon; that he has read
the foregoing certificate and knows the contents thereof; and that the
statements contained therein are true to his own knowledge.
/s/ William A. Johnson, Jr.
William A. Johnson, Jr., Secretary
Subscribed and sworn to
before me on January 19, 1996.
/s/ Denise M. Hinzpeter
Notary Public
[STAMP]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
Stewart Katz, being duly sworn, deposes and says that he is one of the
persons who signed the foregoing certificate of merger on behalf of Noodle
Kidoodle, Inc., a Delaware corporation; that he signed said certificate in the
capacity set opposite or beneath his signature thereon; that he has read the
foregoing certificate and knows the contents thereof; and that the statements
contained therein are true to his own knowledge.
/s/ Stewart Katz
Stewart Katz, President
Subscribed and sworn to
before me on January 19, 1996.
/s/ Joan Pearce
Notary Public
[STAMP]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
William A. Johnson, Jr., being duly sworn, deposes and says that he is
one of the persons who signed the foregoing certificate of merger on behalf of
Noodle Kidoodle, Inc., a Delaware corporation; that he signed said certificate
in the capacity set opposite or beneath his signature thereon; that he has read
the foregoing certificate and knows the contents thereof; and that the
statements contained therein are true to his own knowledge.
/s/ William A. Johnson, Jr.
William A. Johnson, Jr., Secretary
Subscribed and sworn to
before me on January 19, 1996.
/s/ Denise M. Hinzpeter
Notary Public
[STAMP]
AGREEMENT AND PLAN OF MERGER
OF
NOODLE KIDOODLE, INC.
(A New York Corporation)
and
NOODLE KIDOODLE, INC.,
(A Delaware Corporation)
AGREEMENT AND PLAN OF MERGER, dated as of January 19, 1996, by and
between NOODLE KIDOODLE, INC. a New York corporation ("Noodle Kidoodle-NY"), and
NOODLE KIDOODLE, INC., a Delaware corporation ("Surviving Corporation").
W I T N E S S E T H:
Noodle Kidoodle-NY is a corporation duly organized and existing under
the laws of the State of New York, with its principal office therein located at
105 Price Parkway, City of Farmingdale, County of Nassau.
Surviving Corporation is a corporation duly organized and existing
under the laws of the State of Delaware, with its principal office therein
located at 1013 Centre Road, City of Wilmington, County of New Castle. The name
of its registered agent at such address is Corporation Service Company.
The authorized number of shares of Noodle Kidoodle-NY is 15,500,000
shares of which (i) 500,000 shares are preferred stock, $1.00 par value per
share, of which no shares are currently outstanding, and (ii) 15,000,000 shares
are common stock, par value $.10 per share, of which 5,369,690 shares are
outstanding and entitled to vote.
The authorized number of shares of Surviving Corporation is 16,000,000
shares of which (i) 1,000,000 shares are preferred stock, $.001 par value per
share, of which no shares are currently outstanding, and (ii) 15,000,000 shares
are common stock, $.001 par value, of which 100 shares are currently outstanding
and entitled to vote.
The Business Corporation Law of the State of New York permits the
merger of a business corporation of the State of New York with and into a
business corporation of another jurisdiction.
The General Corporation Law of the State of Delaware permits the
merger of a business corporation of another jurisdiction with and into a
business corporation of the State of Delaware .
The Boards of Directors of Noodle Kidoodle-NY and Surviving
Corporation deem it advisable for the mutual benefit of Noodle Kidoodle-NY and
Surviving Corporation, and their respective shareholders, that Noodle Kidoodle-
NY be merged with and into Surviving Corporation and have approved this
Agreement and Plan of Merger (the "Agreement").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and provisions hereinafter contained, the parties hereto
agree that, in accordance with the applicable laws of the States of New York and
Delaware, Noodle Kidoodle-NY shall be, at the Effective Date of the Merger (as
hereinafter defined), merged with and into Surviving Corporation, which shall be
the surviving corporation, and that the terms and conditions of such merger and
the mode of carrying it into effect shall be as follows:
1
<PAGE>
ARTICLE I
Merger
1.1 On the Effective Date of the Merger, Noodle Kidoodle-NY shall be
merged with and into Surviving Corporation. The separate existence of Noodle
Kidoodle-NY shall cease and Surviving Corporation shall continue in existence
and, without other transfer, succeed to and possess all the properties, rights,
privileges, immunities, powers, purposes and franchises, of a public, as well as
of a private nature, and shall be subject to all of the obligations,
liabilities, restrictions, disabilities and duties of Noodle Kidoodle-NY and
Surviving Corporation, all without further act or deed, as provided in Section
259 of the General Corporation Law of the State of Delaware.
1.2 All rights of creditors and all liens upon the property of either
Noodle Kidoodle-NY or Surviving Corporation shall be preserved unimpaired by the
merger, and all debts, liabilities, obligations and duties, including, but not
limited to, the obligations of Noodle Kidoodle-NY pursuant to any existing
guarantees, leases, stock options or other contracts or agreements, of either
Noodle Kidoodle-NY or Surviving Corporation shall, on the Effective Date of the
Merger, become the responsibility and liability of Surviving Corporation, and
may be enforced against it to the same extent as if said debts, liabilities,
obligations and duties had been incurred or contracted by it. All corporate
acts, plans (including but not limited to stock option plans), policies,
arrangements, approvals and authorizations of Noodle Kidoodle-NY, its
shareholders, board of directors, officers and agents, which were valid and
effective immediately prior to the Effective Date of the merger, shall be taken
for all purposes as the acts, plans, policies, arrangements, approvals and
authorizations of Surviving Corporation and shall be as effective and binding
thereon as the same were with respect to Noodle Kidoodle-NY.
1.3 Prior to the Effective Date of theM merger, Noodle Kidoodle-NY and
Surviving Corporation shall take all such action as shall be necessary or
appropriate in order to effectuate the merger. In case at any time after the
Effective Date of the Merger Surviving Corporation shall determine that any
further conveyance, assignment or other documents or any further actions
necessary or desirable to vest in or confirm to Surviving Corporation full title
to all the properties, assets, rights, privileges and franchises of Noodle
Kidoodle-NY, the officers and directors of Noodle Kidoodle-NY, at the expense of
Surviving Corporation, shall execute and deliver all such instruments and take
all such action as Surviving Corporation may determine to be necessary or
desirable in order to vest in and confirm to Surviving Corporation title to and
possession of all such properties, assets, rights, privileges and franchises,
and otherwise to carry out the purposes of this Agreement.
ARTICLE II
Terms and Conditions of the Merger
The terms and conditions of the merger, including the manner and basis of
converting the shares of capital stock of Noodle Kidoodle-NY into shares of
capital stock of Surviving Corporation shall be as follows:
2.1 Certificate of Incorporation. From and after the Effective Date of
the Merger and until thereafter amended as provided by law, the Certificate of
Incorporation of Surviving Corporation in effect on the date hereof, as set
forth in Exhibit A shall be the Certificate of Incorporation of Surviving
Corporation.
2.2 By-laws. The By-laws of Surviving Corporation in effect on the
Effective Date of the Merger shall continue in force and be the By-laws of
Surviving Corporation until altered, amended or repealed.
2.3 Directors and Officers. The directors and officers of Noodle
Kidoodle-NY in office on the Effective Date of the Merger shall continue in
office as, and be and constitute, the directors and officers of Surviving
Corporation, each to hold office as provided by the By-laws until his successor
shall have been elected and shall have qualified or until his earlier death,
resignation or removal.
2
<PAGE>
2.4 Conversion of Outstanding Shares, Rights and Options. The manner and
basis of converting the shares, rights and options to purchase shares of Noodle
Kidoodle-NY into shares, rights and options to purchase shares of Surviving
Corporation, and the cancellation and retirement of shares of Surviving
Corporation, shall be as follows:
2.4.1 The 100 shares of common stock, par value $.001 per share,
of Surviving Corporation (all of which are owned beneficially by Noodle
Kidoodle-NY) shall be canceled and retired, all rights in respect thereof
shall cease, no shares of stock or other securities of Surviving
Corporation shall be issued in respect thereof, and the $100 of capital
applicable to such shares shall be eliminated.
2.4.2 Each share of common stock, par value $.10 per share,
of Noodle Kidoodle-NY issued and outstanding, or held in the treasury of
Noodle Kidoodle-NY, on the Effective Date of the Merger shall forthwith and
without the surrender of stock certificates or any other action, be
converted into one fully-paid and non-assessable share of common stock, par
value $.001 per share, of Surviving Corporation, issued and outstanding or
held in the treasury of Surviving Corporation, as the case may be. All
rights attached to shares of common stock of Noodle Kidoodle-NY, pursuant
to the Rights Agreement between Manufacturers Hanover Trust Company and
Greenman Bros. Inc. dated as of May 6, 1988, as amended in 1991, shall
forthwith, without any other action, be converted into an identical
right attached to the shares of common stock, par value $.001 per share, of
the Surviving Corporation.
2.4.3 Each option to purchase shares of common stock, par value
$.10 per share, of Noodle Kidoodle-NY which has been granted pursuant to
any stock option plan of Noodle Kidoodle-NY or otherwise, on the Effective
Date of the Merger shall forthwith and without any action by the holder of
such option, be converted into an option to purchase the same number of
shares of common stock, par value $.001 per share, of Surviving Corporation
on the same terms and with the same exercise price as such options
contained immediately prior to the Effective Date of the Merger.
2.5 Dividends. The holders of shares of common stock of Noodle Kidoodle-
NY shall be entitled to receive from Surviving Corporation (i) those dividends,
if any, which were declared by the Board of Directors of Noodle Kidoodle-NY
prior to, but not yet paid, as of the Effective Date of the Merger and (ii)
those dividends which may be declared by the Board of Directors of Surviving
Corporation subsequent to the Effective Date of the Merger pursuant to the
Certificate of Incorporation of Surviving Corporation, and no holder of shares
of common stock of Noodle Kidoodle-NY shall be entitled to any other dividends
which might otherwise accrue on or prior to the Effective Date of the Merger.
ARTICLE III
Procedures Regarding Stock Certificates
From and after the Effective Date of the Merger, each outstanding stock
certificate theretofore representing shares of common stock of Noodle Kidoodle-
NY shall represent the same number of shares of common stock of Surviving
Corporation. Each holder of a certificate or certificates theretofore
representing shares of common stock of Noodle Kidoodle-NY may, but shall not be
required to, surrender the same to Surviving Corporation for cancellation and
exchange or transfer, and each such holder or his transferee shall be entitled
to receive certificates representing one share of the common stock of Surviving
Corporation for each share of common stock of Noodle Kidoodle-NY represented by
the certificates surrendered. Until so surrendered for cancellation and
exchange or transfer each outstanding certificate which, prior to the Effective
Date of the Merger, represented shares of common stock of Noodle Kidoodle-NY,
shall be deemed and treated for all purposes to represent the ownership of the
same number of shares of the common stock of Surviving Corporation as though
such surrender had taken place.
3
<PAGE>
ARTICLE IV
Effective Date
This Agreement has been submitted to the stockholder of Surviving
Corporation and the shareholders of Noodle Kidoodle-NY at meetings held on
January 4, 1996 and January 19, 1996, as provided by the applicable laws of the
States of New York and Delaware. This Agreement has been duly authorized and
adopted by the requisite votes of the holder of common stock of Surviving
Corporation and holders of common stock of Noodle Kidoodle-NY. If this
Agreement is not terminated pursuant to the provisions of Article V hereof, then
a certificate of ownership and merger shall be filed in accordance with the laws
of the State of Delaware and a certificate of merger shall be filed in
accordance with the laws of the State of New York. The merger shall become
effective upon the filing of the certificate of ownership and merger with the
Secretary of State of the State of Delaware and the filing of a certificate of
merger with the Secretary of State of the State of New York (the "Effective Date
of the Merger").
ARTICLE V
Approval of Shareholders ---- Termination
5.1 This Agreement has been submitted to, and approved and adopted by, the
shareholders of Noodle Kidoodle-NY and the stockholder of Surviving Corporation,
as provided by law, and it shall take effect and be deemed and be taken to be
the Agreement and Plan of Merger of Noodle Kidoodle-NY and Surviving Corporation
upon the execution, filing and recording of such documents and the doing of such
other acts and things as shall be required for accomplishing the merger under
the provisions of the applicable statutes of the State of New York and of the
State of Delaware.
5.2 At any time prior to the filing of the certificate of merger with the
Secretary of State of the State of New York and the filing of the certificate of
ownership and merger with the Secretary of State of the State of Delaware, this
Agreement may be terminated by the board of directors of either Noodle Kidoodle-
NY or Surviving Corporation, notwithstanding the approval of this Agreement by
either or both of the shareholders of Noodle Kidoodle-NY and the stockholder of
Surviving Corporation, if for any reason the board of directors of Noodle
Kidoodle-NY or Surviving Corporation determines that it is inadvisable to
proceed with the merger, including, without limitation, giving consideration to
the number of shares for which appraisal rights have been exercised and the cost
to Noodle Kidoodle-NY thereof.
5.3 In the event of the termination and abandonment of this Agreement
pursuant to the provisions of Section 5.2, this Agreement shall become null and
void and have no effect, without any liability on the part of either Noodle
Kidoodle-NY or Surviving Corporation or any of their respective shareholders,
stockholders, directors or officers.
ARTICLE VI
Certain Agreements of Surviving Corporation
6.1 Surviving Corporation, as the surviving corporation, hereby agrees
that it may be served with process in the State of New York in any proceeding
for the enforcement of any liability or obligation of Noodle Kidoodle-NY or of
the rights of a dissenting shareholder of Noodle Kidoodle-NY.
6.2 Surviving Corporation, as the surviving corporation, hereby
irrevocably appoints the Secretary of State of the State of New York as its
agent to accept service of process in any action or proceeding described in
Section 6.1.
6.3 Surviving Corporation, as the surviving corporation, hereby agrees
that it will promptly pay to dissenting shareholders, if any, of Noodle
Kidoodle-NY the amount, if any, to which such dissenting shareholders shall be
entitled pursuant to the laws of the State of New York.
4
<PAGE>
ARTICLE VII
Miscellaneous
7.1 This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
7.2 The headings of the several articles herein have been inserted for
convenience of reference only and are not intended to be a part or to affect the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, each of Noodle Kidoodle-NY and Surviving
Corporation, pursuant to authority duly given by resolutions adopted by its
Board of Directors has caused these presents to be executed in its name by its
President or a Vice-President and its corporate seal to be affixed and attested
by its Secretary or an Assistant Secretary.
(Corporate Seal) NOODLE KIDOODLE, INC.
(New York)
Attest: By: /s/ Stewart Katz
President
/s/ William A. Johnson, Jr.
Secretary
(Corporate Seal) NOODLE KIDOODLE, INC.
(Delaware)
Attest: By: /s/ Stewart Katz
President
/s/ William A. Johnson, Jr.
Secretary
CERTIFICATE OF MERGER
OF
NOODLE KIDOODLE, INC.
(a New York corporation)
INTO
NOODLE KIDOODLE, INC.
(a Delaware corporation)
The undersigned corporation DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each
of the constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
Noodle Kidoodle, Inc. Delaware
Noodle Kidoodle, Inc. New York
SECOND: That an agreement of merger between the parties
to the merger has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance
with the requirements of subsection (c) of Section 252 of the
General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation of the
merger is Noodle Kidoodle, Inc., a Delaware corporation.
FOURTH: That the Certificate of Incorporation of Noodle
Kidoodle, Inc., a Delaware corporation, shall be the certificate of
incorporation of the surviving corporation.
FIFTH: That the executed agreement of merger is on file
at the principal place of business of the surviving corporation.
<PAGE>
The address of said principal place of business is Noodle Kidoodle,
Inc., 105 Price Parkway, Farmingdale, New York 11735, Attn:
Stanley Greenman.
SIXTH: That a copy of the agreement of merger will be
furnished by the surviving corporation on request and without cost
to any stockholder of any constituent corporation.
SEVENTH: The authorized capital stock of each foreign
corporation which is a party to the merger is as follows:
Par
Corporation Class Number of Shares Value
- ----------- ----- ---------------- -----
Noodle Kidoodle, Inc. Common 15,000,000 $.10
Noodle Kidoodle, Inc. Preferred 500,000 $1.00
EIGHTH: The surviving corporation may be served with
process in the State of Delaware in any proceeding for enforcement
of any obligation of Delaware, as well as for enforcement of any
obligation of the surviving corporation arising from the merger,
including any suit or other proceeding to enforce the right of any
stockholder as determined in appraisal proceedings pursuant to the
provisions of Section 262 of the General Corporation Law of the
State of Delaware, and it does hereby irrevocably appoint the
Secretary of State of the State of Delaware as its agent to accept
service of process in any suit or other proceeding. The address to
which a copy of such process shall be mailed by the Secretary of
State of Delaware is c/o Noodle Kidoodle, Inc., 105 Price Parkway,
Farmingdale, New York 11735, Attn: Stanley Greenman, until the
surviving corporation shall have hereafter designated in writing to
- 2 -
<PAGE>
said Secretary of State a different address for such purpose.
By: /s/ Stewart Katz
Stewart Katz, President
ATTEST:
By: /s/ William A. Johnson, Jr.
William A. Johnson, Jr.,
Secretary
- 3 -
KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
FAX
(212) 715-8000
WRITER'S DIRECT NUMBER
(212) 715-9204
February 8, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Noodle Kidoodle, Inc.
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Noodle Kidoodle, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the above-captioned Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
covering 2,000,000 shares of common stock, par value $.001 per share of the
Company to be sold by the Company (the "Firm Shares") and up to 315,000 shares
of common stock (the "Additional Shares") to be sold upon exercise of an option
granted by the Company to Paine Webber Incorporated and Rodman & Renshaw, Inc.
as representatives of the several underwriters (the "Representatives"), to cover
over allotments pursuant to an underwriting agreement to be entered into by and
among the Company, the Representatives and the selling stockholders. The Firm
Shares and the Additional Shares are collectively referred to herein as the
"Shares".
As such counsel, we have examined such corporate records, certificates
and other documents and such questions of law as we have considered necessary or
<PAGE>
KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL
Securities and Exchange Commission
February 8, 1996
Page 2
appropriate for the purposes of this opinion. In rendering this opinion, we
have (a) assumed (i) the genuineness of all signatures on all documents examined
by us, (ii) the authenticity of all documents submitted to us as originals, and
(iii) the conformity to original documents of all documents submitted to us as
photostatic or conformed copies and the authenticity of the originals of such
copies; and (b) relied on (i) certificates of public officials and (ii) as to
matters of fact, statements and certificates of officers of the Company.
We are attorneys admitted to the Bar of the State of New York, and we
express no opinion as to the laws of any other jurisdiction other than the laws
of the United States of America and the General Corporation Law of the State of
Delaware.
Based upon the foregoing, we are of the opinion that the Shares have
been validly authorized and, when issued and sold in accordance with the terms
described in the prospectus forming a part of the Registration Statement (the
"Prospectus"), will be validly issued, fully-paid and non-assessable shares of
common stock of the Company.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving such consent we do not thereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations promulgated
thereunder.
Very truly yours,
/s/ Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel
EXHIBIT 11.1
NOODLE KIDOODLE INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------------
FEB. 2, 1991 FEB. 1, 1992 JAN. 30, 1993 JAN. 29, 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
a) Net income (loss)................................ $ (14,601,598) $ 3,665,196 $ 1,801,120 $ 709,487
b) Weighted average number of shares of common stock
outstanding during period........................ 5,948,975 5,540,212 5,574,547 5,338,012
Income (loss) per share (a/b).................... $ (2.45) $ .66 $ .32 $ .13
c) Incremental shares based on the treasury stock
method for stock options, using the average
market price..................................... 59,585 1,427 94,082 59,673
d) Incremental shares based on the treasury stock
method for stock options, using the ending
market price..................................... 71,088 28,047 94,082 82,310
Income (loss) per common and common equivalent
shares (primary) (a/(b+c))...................... $ (2.43) $ .66 $ .32 $ .13
Income (loss) per common and common equivalent
shares assuming full dilution (a/(b+d))......... $ (2.43) $ .66 $ .32 $ .13
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------
JAN. 28, 1995 OCTOBER 29, OCTOBER 28,
(52 WEEKS) 1994 1995
------------- ----------- ------------
<S> <C> <C> <C>
a) $ (3,394,364) $(3,797,000) $(14,927,731)
b)
5,220,222 5,206,615 5,301,702
$ (.65) $ (.73) $ (2.82)
c)
141,219 175,308 156,355
d)
153,036 177,153 192,133
$ (.63) $ (.71) $ (2.73)
$ (.63) $ (.71) $ (2.72)
</TABLE>
NOTE: The inclusion of common stock equivalents were antidilutive in fiscal 1995
and 1991 and for the thirty-nine week periods ended October 1995 and
October 1994 and had no significant dilutive effect in all other years
presented and therefore were not utilized in the above computation of
income (loss) per share.
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<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>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Noodle Kidoodle, Inc. (formerly Greenman Bros. Inc.)
We consent to the use of our report included herein, to the
reference to our firm under the heading "Selected Financial Data"
and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ Janover Rubinroit LLC
- -------------------------
JANOVER RUBINROIT, LLC
New York, New York
February 9, 1996
